14Apr2016 Market Close: SP500 Fails At 2088 And Slides Below 2085, Low Volatility Indicating Little Support From Investors

Tame U.S. inflation supports Fed’s cautious rate policy

WASHINGTON (Reuters) – U.S. consumer prices barely rose in March and underlying inflation slowed, suggesting little urgency for a cautious Federal Reserve to raise interest rates in the near term.

Financial shares on pace for fifth day of gains; indexes flat

(Reuters) – Wall Street was little changed on Thursday after two days of solid gains as investors digested the latest round of big bank earnings.

Fed to raise rates twice this year but conviction fading: Reuters poll

(Reuters) – The U.S. Federal Reserve will raise interest rates twice this year, most likely in June, but the probability has faded on signs of a weak start to the year, inflation that is still tame and a brittle global backdrop, a Reuters poll showed.

No end in sight for energy pain at Wells Fargo, Bank of America

(Reuters) – Troubles in the U.S. oil industry amplified profit pressures on Wells Fargo & Co and Bank of America Corp on Thursday as rising bad loans added to a tough climate for trading bonds and currencies, along with persistently low interest rates.

BlackRock to restructure after ‘tough’ first quarter

(Reuters) – BlackRock Inc said on Thursday it will cut 400 jobs and take a $76 million restructuring charge after posting a 20 percent drop in first-quarter profit amid a dramatic reversal in financial markets.

BMW recalls 7 Series models due to air bag issue

(Reuters) – BMW AG is recalling its new flagship 7-series luxury limousine due to a potential air bag deployment issue, the company said on Thursday.

‘Let them sell their summer homes’: NYC pension dumps hedge funds

NEW YORK (Reuters) – New York City’s largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.

Wells Fargo profit falls 7 percent as bad loan provisions surge

(Reuters) – Wells Fargo & Co’s quarterly profit fell 7 percent as the No. 3 U.S. bank by assets set aside more than $1 billion to cover bad loans, saying its energy portfolio remained under “significant stress.”

United Launch Alliance to lay off up to 875 by end of 2017: CEO

COLORADO SPRINGS, Colo. (Reuters) – United Launch Alliance plans to cut up to 875 jobs, or about one-quarter of its workforce, before the end of 2017 to better compete against rivals bankrolled by billionaire entrepreneurs including Elon Musk and Jeff Bezos, ULA’s chief executive said on Thursday.

Guess Which Major Bank Loses The Most From Brexit?

Banks have been lobbying intensively against Brexit. Among those leading the charge is Goldman Sachs. For three years, the bank’s executives have publicly warned about the downsides of leaving the EU… and now we know why (hint – it’s not concern for the common man).

As The Wall Street Journal reports, about a decade ago, Goldman launched project “Armada,” a plan for a hulking European headquarters on the site of an old telephone exchange in London.

Unbundling this kind of structure will be expensive and time-consuming, lawyers and bankers say. Goldman is mapping out which jobs might be hit by a loss of this passport, or the right to sell services across the EU, while scoping out European countries where it has existing banking licenses and infrastructure that could quickly be scaled up, according to a person familiar with the matter. Goldman also has a banking license in Germany, for instance.

In the event that this passport was lost, derivative and currency trading with EU counterparts would likely be hit hard. A large portion of euro currency and securities trading takes place through London, outside the eurozone. In the event of Brexit, EU authorities may well press for the trading of euro securities to be cleared within the trading bloc, bankers say.

Today, Goldman services Middle Eastern and African customers in London too. Some 90% of its 6,000 staff based in Europe are in London. Europe, the Middle East and Africa accounted for 27% of Goldman’s $33.8 billion of net revenue in 2015.

“The Volatility Regime May Be About To Shift” – JPM’s Quant Guru Is Out With A New Warning

It has been a while since we had an update from JPM’s “quant guru” Marko Kolanovic on key market support and resistance levels from the perspective of option gamma and key systematic strategies including CTAs, risk parity and volatility targeting, so we were looking forward to reading his latest report which came out earlier today. In it he reviews the latest flows and concludes that the suppressed realized vol regime we have enjoyed for the past two months may be about to shift, perhaps as soon as the coming Friday’s option expiration.

From JPM’s Marko Kolanovic

S&P 500 Cycles of Systematic Leverage

S&P 500 index options hedging usually adds to market volatility given the convexity of put options held long by clients. However, due to the market rally and clients’ option activity, these dynamics changed in March. The imbalance of options (gamma) turned significantly towards calls (over the past month, the average gamma imbalance was ~$12bn towards calls), causing hedging flows to suppress S&P 500 realized volatility. The collapse in realized volatility invited inflows from Vol Targeting and Risk Parity funds. Hedging of call options (usually sold by clients) and rolling of put options higher (usually held long by clients) also caused equity outflows of ~$50-$100bn. These outflows to some extent countered the inflows from other systematic strategies such as CTAs and Risk Parity. This was a likely reason why the market could not break out despite price momentum briefly turning positive last week.

As options are rolled this week, and following option expiry on Friday, most of the call gamma imbalance will roll off (~$10bn). This could add to market realized volatility (the market will be able to move ˜more freely’). The gamma imbalance tilts towards put options significantly around ~2000 level and could result in market acceleration on the down …

Bernanke’s New Helicopter Money Plan – Sheer Destructive Lunacy

Submitted by David Stockman via Contra Corner blog,

If you don’t think the current central bank driven economic and financial bubble is going to end badly, recall a crucial historical fact. To wit, the worldwide race of central banks to the zero bound and NIRP and their $10 trillion bond-buying spree during the last seven years was the brain child of Ben S Bernanke.

He’s the one who falsely insisted that Great Depression 2.0 was just around the corner in September 2008. Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson, it was Bernanke who stampeded the entirety of Washington into tossing out the window the whole rule book of sound money, fiscal rectitude and free market discipline.

In fact, there was no extraordinary crisis. The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street, and it would have burned out there had the Fed allowed money market interest rates to do their work. That is, to rise sufficiently to force into liquidation the gambling houses like Lehman, Goldman and Morgan Stanley that had loaded their balance sheets with trillions of illiquid or long-duration assets and funded them with cheap overnight money.

There would have been no significant spillover effect. The notions that the financial system was imploding into a black hole and that ATMs would have gone dark and money market funds failed are complete urban legends. They were concocted by Wall Street to panic Washington into massive intervention to save their stocks and partnership shares.

The same is true of the claim that …

Crude Craters Through NYMEX Close As Stock Short-Squeeze Ends

Party’s over?

Crude clubbed into and through the NYMEX close…ahead of tonight’s China GDP

And as JPMorgan’s trading desk notes, March brought the heaviest net covering seen by the Prime Brokerage in several years. Activity was skewed towards single names but ETF activity also was strong. All sectors experienced net covering, with Energy and Consumer, Cyclicals in the lead.

And the huge squeeze of the last 2 days has ended today…

With VIX and USDJPY used to desperately keep S&P green

Still plenty of time left in the day yet for a late-day buying panic.

Bank of America vs. Wells Fargo: Will the Last Be First?

Earnings from BofA and Wells Fargo continued to reassure investors that things aren’t so bad for banks. They still aren’t great, either.

Fannie and Freddie Rally on Wishful Thinking

Shareholders won a court decision unsealing documents. Recent investor euphoria goes too far.

Homing In on Inflation at the Fed

Cooler housing costs could take some heat out of inflation in the months ahead.

Currencies: Dollar bulls take a breather after 2-day run

The dollar halted a multisession advance against the euro on Thursday as markets took a breather after the buck and U.S. stocks rallied sharply earlier in the week.