04Jan2016 Pre-Market Commentary: Futures Down Sharply, Crude Creeping Upwards Along With The US Dollar

Here is the current market situation from CNN Money

European markets are sharply lower today with shares in Germany off the most. The DAX is down 3.95% while France’s CAC 40 is off 2.47% and London’s FTSE 100 is lower by 2.32%.

China, euro zone factories suggest global economy still fragile

BENGALURU/SYDNEY (Reuters) – The global economy finished last year on a fragile footing, with factory activity in China shrinking for the 10th month running in December while a pick-up in the euro zone was tepid, suggesting more policy stimulus may be in the pipeline.

China stocks tank, triggers circuit breaker

SHANGHAI (Reuters) – China’s major stock exchanges tanked on the first trading day of the year, triggering a “circuit-breaker” that suspended equities trade nation-wide for the first time and put months of regulatory work to restore market stability at risk.

Stock futures sharply lower after selloff in Chinese stocks

(Reuters) – U.S. stock index futures were sharply lower after weak Chinese economic data reignited fears of a global slowdown, sparking a selloff in stock markets on the first trading day of 2016.

China sell-off leads to a poor start for world stocks in 2016

LONDON (Reuters) – A 7 percent drop in Chinese shares on Monday halted trading in Shanghai and dragged down stock markets around the world, as investors began 2016 with fresh worries over global growth and sought the safety of bonds and gold.

Oil rises as market ponders scale of future Iran exports

LONDON (Reuters) – Oil prices edged up on Monday after a breakdown in diplomatic ties between Saudi Arabia and Iran that some speculated could result in supply restrictions, although gains were tempered by data showing some of Asia’s largest economies are struggling.

Iran says boosting oil exports depends on future demand

DUBAI (Reuters) – A rise in Iran’s crude oil exports once sanctions against it are lifted depends on future global oil demand and should not further weaken oil prices, senior officials were quoted as saying.

U.S. oil ‘strippers’ maneuver to keep pumping amid crude slump

HOUSTON (Reuters) – U.S. “stripper well” operators, the nation’s smallest oil producers seen as most likely to succumb to the crude price slump, are hanging in tough, reducing the chances of near-term production cuts needed to rebalance the domestic oil market.

Fidelity drops credit card partners American Express, Bank of America

BOSTON (Reuters) – Fidelity Investments said on Monday it is dropping long-time credit card partners American Express Co and Bank of America Corp , ending a 12-year partnership that has generated billions of dollars in fees.

Mid-East Melee: Sectarian Showdown Looms As Bahrain Cuts Ties With Iran, UAE Recalls Ambassador

Over the weekend, a geopolitical black swan landed in the Mid-East where Saudi Arabia’s execution of a prominent Shiite cleric set in motion a series of events that led Riyadh to sever diplomatic ties with Tehran.

Protests broke out almost immediately after news of Sheikh Nimr al-Nimr’s death hit the wires. Tensions reached a boiling point on Saturday evening in Tehran where demonstrators torched the Saudi embassy. In Bahrain, angry Shiites burned tires and confronted riot police who used tear gas to disperse the crowds.

As BBC notes, Bahrain œhas frequently accused Iran of supporting a low-level Shia insurgency that flared following the regional Arab Spring uprisings in 2011.

“Bahrain’s Saudi-backed Sunni authorities crushed protests led by its majority Shia shortly after they erupted on February 14, 2011, taking their cue from Arab Spring uprisings in the Middle East and North Africa,” al-Jazeera wrote back in February when hundreds took to the streets of Manama to commemorate the anniversary of the Arab Spring uprising. “Tensions are running high in the kingdom where a sectarian divide is deepening and there is a growing gap between the Sunni minority government and the Island’s Shia majority.”

On Monday, the island followed in the footsteps of the Saudis and cut diplomatic ties wit …

JPMorgan Crushes The BTFDers: “Sell Any Rallies”

It didn’t take long for the momentum-chasing fundamental strategists to readjust their immediate stock price targets on the heels of the i) failure of the Santa Rally and ii) the worst start to the year in Chinese stock market history. Case in point, moments ago JPM’s equity strategy team released its first note for the year in which it says that “we take the view that equities are unlikely to perform well on a 12-24 month horizon” adding that “the regime of buying the dips might be over and selling any rallies might be the new one.”

According to JPM, the following are the headwinds faced by stocks:

1) Equities are not attractively priced any more. On most metrics, P/S, P/E and P/B, they are trading at a premium to their historical averages. Sales per share are at highs, as well. True, relative to fixed income, stocks still look interesting, but credit spreads are widening, and the key central bank has started to hike. Asset reflation regime might start to reverse.

2) Balance sheets are deteriorating, with increased debt issuance used to finance record levels of buybacks. US corporate financing gap has turned negative. This is typically not a good starting point.

3) US profit margins are showing increasing evidence of peaking. Profitability improvement was one of the key drivers of the 7-year long equity rally. This might be finished, as the profit margin proxy ” the difference between corporate pricing and the wage growth ” has turned outright negative for the first time since 2008. Buybacks have flattered earnings for a while now, but we would be surprised if these stay a potent support. Buybacks as a share of EBIT are already at …

Frontrunning: January 4

China stocks tank, triggers circuit breaker (Reuters)

Stocks Slump Across Europe and Asia Following Shanghai’s 7% Crash (BBG)

China Halts Stock Trading After 7% Rout Triggers Circuit Breaker (BBG)

Iran says Riyadh thrives on tension after relations cut (Reuters)

Saudis and Bahrain Face Off With Iran in Worst Clash Since 1980s (BBG)

Syrian rebel group backs Saudi move to cut ties with Iran (Reuters)

Iraqi Sunni mosques attacked in apparent retaliation for Saudi execution (Reuters)

Southern Illinois battles flooding as Mississippi River builds downstream (Reuters)

Biggest Economies Face $7 Trillion Debt Refinancing Tab in 2016 (BBG)

China’s Seven-Minute Selling Frenzy Shows Circuit-Breaker Risks (BBG)

Angola’s Kwanza Falls Most Since 2001 to Record in Devaluation (

Three Reasons Stocks Will Crater in 2016

Happy New Year!

Last year (2015) likely will represent the top for the bull market that began in 2009. Stocks finished the year down, representing the first down year since the March 2009 bottom.

Many analysts will point to the August sell-off as the reason stocks performed so badly, however, looking at the chart, stocks struggled throughout the year, long before the August sell-off. Indeed, at best the S&P 500 was up 3% for the year!

Things are only going to worsen from here.

Firstly, the US Federal Reserve is now tightening. From 2009-2015, the Fed was always implementing loose monetary policies whether it by through QE, Operation Twist, or simply juicing the markets during options expiration weeks.

No longer. The Fed is now raising rates. This will be a major issue for stocks going forward.

Secondly, the US economy is back in recession.

I don’t care what the Mainstream media says, based on the cold hard data points stripped of accounting gimmicks, the US entered a recession last year. This is backed up by:

1) The High Yield Bond market is pricing in a recession.

2) The Credit Markets are pricing in a recession.

3) US inventories hit levels associated with recessions.

4) The ISM manufacturing index is at recession levels.

With the Fed tightening, the recessionary drop is only going to accelerate.

Finally, corporate profits relative to GDP are at their record high and rolling over.

Global Stocks Slide Following Rout in Chinese Market

Global stocks started 2016 with a sharp selloff after fresh signs of economic slowdown in China and a falling yuan triggered a 7% fall in mainland Chinese stocks that led authorities to halt trading there before the end of the session.

Oil Prices Torn Between Mideast Tensions, China Data

Growing tension between Saudi Arabia and Iran caused oil prices to jump, but the rally fizzled when weaker-than-expected Chinese manufacturing data renewed worries about demand.

Oil-Rich but Cash-Dry? This Banker Gets the Call

Credit Suisse’s Rob Santangelo has developed a reputation as the one to call when your oil company needs cash.

Characterizing The Rising Settlement Fails In Seasoned Treasury Securities

from Liberty Street Economics

— this post authored by Michael Fleming and Frank Keane

In a 2014 post, we described what settlement fails are, why they arise and matter, and how they can be measured. A subsequent post explored the determinants of the increased volume of U.S. Treasury security settlement fails in June 2014. Part of that episode reflected a steady increase in settlement fails of seasoned securities. In this post, we explore the characteristics of seasoned fails in recent years, in order to better understand the risks associated with such fails.

Metals Stocks: Gold draws haven bids amid, China, Middle East worries

Gold futures climbed to kick off 2016 as tensions in the Middle East and a plunge in China’s stock market unsettled global equities, fueling haven demand for the precious metal.

Economic Preview: December jobs report could cap best 2 years since 1998-1999

Job gains in December are expected to push up calendar year job growth in 2015 to 2.5 million, second-best in this millennium.