Bear Market Rally Fizzles: Global Stocks Down On BOJ Disappointment; Oil Slides For 2nd Day


Was that it for the great February/March bear market rally?

After soaring by 200 S&P point from the February 11 lows, the S&P 500 appears to have finally hit a resistance at a point where GAAP P/E is now a frothy 23x, and where even Goldman says the S&P500 is overvalued based on conventional market valuation metrics. Perhaps it was the fundamentals finally catching up, or perhaps it was disappointment that the BOJ added nothing new to the stimulus menu, after last week’s Draghi’s bazooka, and coupled with the stunning announcement by China it was willing to launch a Tobin Tax, a move that confirms that under the surface China’s capital flight is accelerating, overnight global markets and US equity futures have dropped while the yen jumped the most in a week.

What is surprising, is that not even a week after Draghi’s bazooka, some are already concerned it won’t be enough: “Monetary policy does not work without fiscal reform,” Brett McGonegal, chief executive officer of Capital Link International, told Bloomberg TV. “You can keep the monetary stimulus going, but if you’re not changing anything and there’s no reform going on, you’re at this point where it’s not going to work.”

Also notable is that oil has continued its decline for the second day, and at last check WTI was down $1, or over 2% – the lowest price in a week – as focus returns to the market oversupply, Russia signalling Iran won’t join a production freeze (which means neither will Kuwait, and likely most other OPEC members) and today’s API inventory data today which will forecasts another big inventory build at Cushing. As a result, there has been notable weakness among commodities, with currencies of resource-exporting nations sliding as copper and gold prices fell, while iron ore, last week’s record highlight short squeeze, plunged the most in eight months.

“Market participants now appear to be paying greater attention to the current oversupply again,” Commerzbank analyst Eugen Weinberg says in a note. “The primary focus is on Iran, which for understandable reasons is refusing at the current time to sign up to any agreement to cap production.”

Adding more pressure on the rally, Bloomberg explains that while world equities have staged a comeback since reaching a two and a half-year low in mid-February, “so far there are few signs that monetary easing in China, Europe and Japan is pulling the global economy out of a slump. The BOJ’s decision to maintain policy was forecast by most economists and the authority said it’s prepared to ease further if needed to revive inflation expectations. The European Central Bank announced unprecedented stimulus last week, while the Federal Reserve will conclude a review on Wednesday and the Bank of England a day later.”

“Monetary policy does not work without fiscal reform,” Brett McGonegal, chief executive officer of Capital Link International, told Bloomberg TV. “You can keep the monetary stimulus going, but if you’re not changing anything and there’s no reform going on, you’re at this point where it’s not going to work.”

But as we wrote yesterday, the one event that will truly make or break the market is tomorrow’s FOMC announcement: if Yellen turns overly hawkish and there is no major revision to the dots, or – don’t even think it – the Fed shocks the market and hikes another 25 bps, then we go right back to square one, where the market was in December of 2015, terrified every time China sneezes.

Market snapshot:

  • S&P 500 futures down 0.6% to 1998
  • Stoxx 600 down 0.9% to 342
  • FTSE 100 down 0.6% to 6137
  • DAX down 0.3% to 9956
  • German 10Yr yield up 1bp to 0.29%
  • Italian 10Yr yield up 2bps to 1.32%
  • Spanish 10Yr yield up 3bps to 1.49%
  • S&P GSCI Index down 1.3% to 322.9
  • MSCI Asia Pacific down 0.9% to 127
  • Nikkei 225 down 0.7% to 17117
  • Hang Seng down 0.7% to 20289
  • Shanghai Composite up 0.2% to 2864
  • S&P/ASX 200 down 1.4% to 5111
  • US 10-yr yield down 2bps to 1.93%
  • Dollar Index up 0.1% to 96.72
  • WTI Crude futures down 2.7% to $36.18
  • Brent Futures down 2.9% to $38.38
  • Gold spot down 0.1% to $1,234
  • Silver spot up less than 0.1% to $15.35
  • Global Top News

  • Avon Plans to Move Headquarters to U.K. and Cut 2,500 Jobs: Will generate one-time expenses of ~$60m in 1Q, expects to generate savings of as much as $70m from the cuts by 2017
  • Kuroda Holds Fire on Stimulus as Japan Digests Negative Rate: BOJ kept the target for increasing the monetary base unchanged, and left benchmark rate at minus 0.1%
  • Apollo Said to Seek $700 Million for CLO Firm as New Rules Loom: New firm will issue collateralized loan obligations, as part of its effort to comply with rules designed to curb excessive risk-taking by managers of the vehicles, according to 2 people with knowledge
  • Sony Buys Jackson Stake in Music Venture for $750 Million: Co. exercised right to acquire partner’s stake
  • Brookfield, Qube Join Forces in A$9.1 Billion Asciano Bid: Former rival groups led by Brookfield Asset and Qube joined forces to buy Asciano in a A$9.05b ($6.8b) bid
  • U.S. Steel Vows to Escalate War on Imports If Duties Fall Short: CEO Longhi vows to file 201 case if final penalties fall short
  • Cliffs Natural Investors Sue for Being Shut Out of Debt Swap: Investors say Cliffs Natural has two classes of bondholders
  • U.S. Ethanol Glut Begins to Test Limits of Storage Capacity: Kinder Morgan rerouted deliveries away from Illinois terminal
  • Herbalife Spent $700,000 Protecting Its CEO From Threats in 2015: CEO faced threats to his well-being after Bill Ackman began accusing the company of being an illegal pyramid scheme
  • Outerwall Rises 9% Post-Mkt on Strategic Alternatives, Div Boost: Hires Morgan Stanley for strategic and financial alternatives
  • Question Looming Over Aubrey McClendon Crash May Go Unanswered
  • GM Offers Rentals to Lyft Drivers Accelerating Challenge to Uber
  • Trump Victories in Key Races Could Vanquish Kasich, Rubio
  • JPMorgan Said to Prepare to Sell $1.9b RMBS: WSJ: Expected to price residential mortgage-backed deal over next 2 weeks; would hold 90% of the deal, WSJ reports
  • Amazon Set to Launch Cloud Migration Service: WSJ: Thomas Publishing to transport data from own servers to Amazon’s data centers, WSJ reports
  • U.S Govt May Withdraw Plan for SE Atlantic Coast Drilling: NYT
  • Reviews

    • Total Score 0%
    User rating: 0.00% ( 0
    votes )



    Leave a Reply

    Your email address will not be published. Required fields are marked *