U.S. Futures Slide, Crude Under $39 As Dollar Rallies For Fifth Day -

U.S. Futures Slide, Crude Under $39 As Dollar Rallies For Fifth Day

Mar 24, 2016Jeremy ParkinsonFinance0

Following yesterday’s dollar spike which topped the longest rally in the greenback in one month, the prevailing trade overnight has been more of the same, and in the last session of this holiday shortened week we have seen the USD rise for the fifth consecutive day on concerns the suddenly hawkish Fed (at least as long as the S&P is above 2000) may hike sooner than expected, which in turn has pressured WTI below $39 earlier in the session, and leading to weakness across virtually all global risk assets.

And since a stronger dollar means a weaker Yuan, more potential devaluation, greater capital outflows but most importantly lower commodity prices and key among them cheaper oil, now flirting with sliding below $39 to the downside, which would lead to its first weekly decline, as lower oil means lower risk prices in general as per the very well-known correlation shown below…

… traders walking in today are greeted by something they have barely seen in the past month’s bear market rally: a sea of red: not only are S&P500 futures down nearly 0.5% in today’s illiquid session, but European shares have retreated for a fourth day, while raw-materials producers led declines among Asian equities as the Bloomberg Commodity Index slumped for a second day. Industrial commodities like iron ore fell for a third day, while gold has continued to drift lower. Government bonds advanced in Australia and the euro area.

The reason for this resurgent dollar strength is none other than the very confused Fed: after last week halving its projection for interest-rate rises this year to two – a shift that spurred global stock gains and depressed the dollar – various Fed officials have in the past few days talked up the possibility of an increase something that CNBC’s Steve Liesman classified as a potential mutiny against a very confused Janet Yellen. As Bloomberg writes, Fed Bank of St. Louis President James Bullard on Wednesday joined a chorus of policy makers floating the possibility of a rate hike as soon as April, helping fuel a rebound in the greenback that’s unsettling the mostly dollar-denominated commodity market.

“Fed officials this week reminded the market that they still want to move forward with the rate hikes,” Mark Lister, head of private wealth research at Craigs Investment Partners told Bloomberg.

“Investors have been looking for a reason to pull back and this is one” he added and sure enough, the MSCI All Country World Index fell 0.5% in early trading after sliding 0.8 percent on Wednesday. The Stoxx Europe 600 Index slid 0.8%, the MSCI Asia Pacific Index lost 1.1% and futures on the Standard & Poor’s 500 Index declined 0.5%.

Additionally, now that the broader market levitation appears to be over, we have seen numerous single-name slams overnight, such as the following:

China Life Insurance Co., the nation’s largest insurer, dropped 3.9% in Hong Kong after reporting earnings that fell short of analyst estimates. PetroChina Co., the country’s biggest oil and gas producer, slumped 4.3% after reporting its lowest annual profit since 1999.

Mitsui & Co. dropped 7.5 percent in Tokyo after the trading company forecast its first loss since it was founded in its modern form in 1947.

Next -8.4%; cuts FY17 full price Next brand sales outlook

Mitie -7.6%; says it sees FY profit in line, revenue below expectations

Vallourec -5.4%; extends drop this week to ~15%

Anglo American -5.1%; miners underperform today: ArcelorMittal -4.4%, Antofagasta (ANTO LN) -4%, Fresnillo (FRES LN) -3.9%, Rio Tinto (RIO LN) -3.7%;
Standard Chartered -4.3%; on track for worst weekly performance since early Jan.

Sacyr -3.6%; 4th straight decline, longest losing streak in >1 month

Credit Suisse CS -3%; falls for a 2nd day after CEO said on conf call yesterday that bank will probably post 1Q loss

Drillish -2.3%; CEO sudden departure is “not a welcome event”: Jefferies

HSBC -1.5%; downgraded at BofAML on dividend risks

Absent a dramatic turnaround in the USD momentum we expect this negtive list to extend once the US market is open for trading for its last weekly session.

Top news stories include Starboard’s possible attempt to shake up board at Yahoo; Konecranes, Zoomlion bids for Terex, Nomura’s possible NorthAm job cuts.

Markets Snapshot

S&P 500 futures down 0.4% to 2019

Stoxx 600 down 1.1% to 336

FTSE 100 down 1.1% to 6134

DAX down 1.1% to 9916

German 10Yr yield down 2bps to 0.17%

Italian 10Yr yield down less than 1bp to 1.29%

Spanish 10Yr yield up less than 1bp to 1.54%

S&P GSCI Index down 0.8% to 326.7

MSCI Asia Pacific down 1.1% to 127

Nikkei 225 down 0.6% to 16892

Hang Seng down 1.3% to 20346

Shanghai Composite down 1.6% to 2961

S&P/ASX 200 down 1.1% to 5084

US 10-yr yield down 2bps to 1.86%

Dollar Index up 0.24% to 96.28

WTI Crude futures down 1.9% to $39.03

Brent Futures down 1.4% to $39.89

Gold spot down 0.3% to $1,217

Silver spot down less than 0.1% to $15.25

Top Global News

Starboard Will Seek to Replace Yahoo’s Entire Board: WSJ: Fund to announce it will seek replacement of entire Yahoo board with its own slate of directors, WSJ says, citing letter prepared by activist fund.

Affymetrix to Enter Talks With Origin After Takeover Bid Boosted: Co. said it will enter talks with Origin Technologies after suitor boosted its offer to $17/share.

Konecranes to Pursue Terex Merger Even as Zoomlion Raises Bid: Zoomlion raised its cash offer to $31/share, a dollar higher than an unsolicited bid it made in Jan., Terex said.

Cabela’s Said to Open Books to Bass Pro Shops, Others: NYP: Co. opened its finances over past 2 weeks: NYP

Nomura Said to Prepare North America Job Cuts Amid Trading Slump: Co. has been expanding in U.S. to boost fee business.

Republicans in Bloomberg Poll Not Sold on Plan to Stop Trump: 63% of those who have voted in this year’s Republican primaries & caucuses, or plan to do so, back Trump’s view of nominating process.

Debris Found in Mozambique Likely From MH370, Australia Says: Two pieces of aircraft debris washed up on coast of Mozambique “almost certainly” from missing MH370: Australia’s Transport Minister.