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Post April NFP...No More Rate Hikes?

http://www.businessoffinance.com/sni...-open-for-hike

Here are some bulletin headlines from the April FOMC event immediately after the statement's release:

1. FED REMOVES REFERENCE TO GLOBAL EVENTS POSING RISKS TO OUTLOOK
2. FED SAYS LABOR MARKET IMPROVED EVEN AMID SIGNS OF SLOWER GROWTH
3. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES
4. FED SAYS HOUSING SECTOR IMPROVED FURTHER SINCE START OF YEAR
5. FED TO WATCH INFLATION, GLOBAL, FINANCIAL DEVELOPMENTS CLOSELY
6. FED: INFLATION BELOW TARGET DUE TO CHEAPER NON-ENERGY IMPORTS
7. FED SEES MODERATE GROWTH, STRENGTHENING LABOR MARKET AHEAD
8. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES

This is precisely what we talked about in out last snippet, that the Fed will rather err on the side of caution than to tighten prematurely and risk having to reverse its path of policy actions — which would not only deal great harm to both the actual economy and global financial markets, but also eviscerate the last remaining bits of credibility the Washington-based entity has left.

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"The reaction across stocks, USD, gold, and U.S. treasuries post a quasi-dovish FOMC, or what we call a "hawkishly-dovish" statement.

Equities are higher post event as risk flows turn positive after the initial knee jerk lower. SPX is attacking the week's highs as we go to print.

The U.S. dollar is weaker post event after initially ramping, again on a knee jerk. It seems market participants view the April statement as more bearish the dollar than bullish, despite FOMC having removed the emphasis on negative global risks, and reasserting that the labor market is on track to reaching full employment.
Bonds are higher (yields lower) post event, and are perhaps the single most dire
ctional asset class here other than equities. Markets clearly view the statement as dovish — Bullish for equites and bonds, bearish for dollar.
And lastly, Gold remains confused after dumping on a knee jerk, then rallying to unchanged, then dumping again before somewhat stabilizing slightly lower pre-FOMC. We note that silver is trading much stronger than gold is."

Business Of Finance on Facebook, 28 April 2016

As we've explained for countless times in the past, the rally in global equities from their respective February lows was mainly technically driven by a massive short squeeze of epic proportions.
Since late April, this short squeeze lost its levitating magic as the most shorted stocks of the SPX converged with the index itself.

So what now?

Tesla Enters Bear Market

#‎Tesla‬ enters a bear market having declined 23% from its April highs. Selling accelerated after the loss making company posted disappoint 1Q16 results despite guiding future deliveries higher.

Seems like the market is tired of Elon's bullcrap and unicorn extrapolations when the company has failed to get it right year after year. The shorts were right after all. Going to be interesting to see where ‪#‎TSLA‬ trades following this.

What's Next For The Fed - Hike Rates Or Not?

Following our pre-FOMC primer on what to expect during today's April Fed event, the Fed has once again left the Federal Funds target rate unchanged at 0.25% - 0.50%. We managed to cover the entire event live on our Facebook page, and will therefore be posting content from that venue along with some supplementary comments.


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"The aftermath of April's FOMC snoozer. Interestingly, despite all the intraday volatility, crude oil is outperforming every asset class by leaps and bounds, soaring right out of the hole after an initial dip.
Fed funds futures are now pricing in a 23.5% chance (up from 21.6% pre-FOMC) of a June rate hike. Rate hike odds rise rather steeply thereafter for the months of July, September, November, and December, respectively."
Business Of Finance on Facebook, 28 April 2016
Here are some bulletin headlines from the April FOMC event immediately after the statement's release:

1. FED REMOVES REFERENCE TO GLOBAL EVENTS POSING RISKS TO OUTLOOK
2. FED SAYS LABOR MARKET IMPROVED EVEN AMID SIGNS OF SLOWER GROWTH
3. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES
4. FED SAYS HOUSING SECTOR IMPROVED FURTHER SINCE START OF YEAR
5. FED TO WATCH INFLATION, GLOBAL, FINANCIAL DEVELOPMENTS CLOSELY
6. FED: INFLATION BELOW TARGET DUE TO CHEAPER NON-ENERGY IMPORTS
7. FED SEES MODERATE GROWTH, STRENGTHENING LABOR MARKET AHEAD
8. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES

This is precisely what we talked about in out last snippet, that the Fed will rather err on the side of caution than to tighten prematurely and risk having to reverse its path of policy actions — which would not only deal great harm to both the actual economy and global financial markets, but also eviscerate the last remaining bits of credibility the Washington-based entity has left.

"The reaction across stocks, USD, gold, and U.S. treasuries post a quasi-dovish FOMC, or what we call a "hawkishly-dovish" statement.

Equities are higher post event as risk flows turn positive after the initial knee jerk lower. SPX is attacking the week's highs as we go to print.

The U.S. dollar is weaker post event after initially ramping, again on a knee jerk. It seems market participants view the April statement as more bearish the dollar than bullish, despite FOMC having removed the emphasis on negative global risks, and reasserting that the labor market is on track to reaching full employment.

Bonds are higher (yields lower) post event, and are perhaps the single most directional asset class here other than equities. Markets clearly view the statement as dovish — Bullish for equites and bonds, bearish for dollar.

And lastly, Gold remains confused after dumping on a knee jerk, then rallying to unchanged, then dumping again before somewhat stabilizing slightly lower pre-FOMC. We note that silver is trading much stronger than gold is."
Business Of Finance on Facebook, 28 April 2016

NFP Misses, Yellen We Have A Problem

Yellen, we have a problem. April's jobs data was a disaster (as we had forewarned) and markets are starting to get properly concerned this time, judging by the way in which they reacted. A June rate hike by the Fed now seems less likely than ever before, with the Fed Funds futures market implying a mere 4% chance of a hike next month when the FOMC reconvenes to decide on the future of the U.S. economy.

The start of May is really turning out to be a summer of shocks, which is why even Bill Gross could possibility foresee the advent of QE being launched by the Fed — Helicopter money. Should things not improve quickly, the Fed might be at risk of loosing what's little left of its credibility and be busted by the markets as we have had a glimpse of this week.


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"The much awaited April U.S. NFP report disappointed big time. The headline jobs added figure fell from March to 160,000 against expectations of 200,000. This is the biggest miss in at least 4 months, and is the lowest print since September 2015 when only 145,000 jobs were added.

The U3 unemployment rate was unchanged from March at 5%, inline with expectations. Average hourly earnings (wage inflation) creeped up from March's +0.2% to +0.3%, matching expectations.

So besides the headline print, all other aspects of April's report were generally on point. However, what surprised us most was the reaction by the markets.

Completely bonkers it seems as the U.S. dollar first dumped on the release and then rallied even harder a few minutes later to carve in fresh weekly highs. It doesn't make sense because stocks are falling pretty hard, gold jumped more than $15 on the news (implying USD selling), and bonds yields are lower. So what exactly is the USD doing rallying on what is undeniably a terrible jobs report?"

Business Of Finance on Facebook, 6 May 2016"

Billionaire and legendary investor Carl Icahn has never been more bearish the stock market on the last 5 years, at least that's according to what he has said and what his investment vehicle (in which he has a 90% stake in) is doing.

Latest reported data from Icahn Enterprises Limited shows -150% net exposure in equities, and a -298% gross exposure. When a big investor says he's bearish on media, take it with a grain of salt. But when the same investor has big positions to back his views on, you'd better sit straight up.

Is Icahn betting on a large bearish move in stock prices? Only time will tell. From what Icahn has disclosed, he remains bearish risk assets in general and very bearish high yield and momentum. Recall that he recently announced that he sold his entire stake in #Apple.

#Forex #Stocks #Trading #Investing #Tech #News #Business #Capital #Money

Banks are getting sued left right and center and so their litigation (legal) charges have surged since Lehman. Whether it is for a libor or interest rate rigging allegation, or FX fixing manipulation, or having a part in money laundering, these giant banking institutions have gotten into as much trouble with private investors and government authorities as you could possibly imagine. Safe to say that society stands with the highest level of hate for these "too big to fail" institutions.

#Forex #Stocks #Banks #Finance #Investing #Trading

With equites basing around below some key technical levels, SPX realized volatility has fallen to the lowest since June 2015. However, SPX implied volatility on options has not trend lover in the last 5 weeks or so, diverging notably from realized vol. his has pushed the realized:implied ratio to 1.5x or the highest in almost 1 year.

Option traders are bidding up premiums while realized vol has been falling. One can interpret his in 2 ways. Traders feel that vol is cheap so hedges become appealing again; or traders are betting on a bearish move.

While we are no experts at this, experience tells us that the market will likely shrug this off. We don't feel vol is cheap at these levels.

#Forex #Stocks #Finance #Trading #Investing

Smart Money Being Stupid

It keeps getting more stupendous. The so called "smart money" has been selling stocks for a record uninterrupted streak of 15 weeks, according to the latest BofAML Client Flow Report for the week ending Friday.

Last week when we reported in this, we noted that there wasn't anything to indicate a stoppage in this trend. We were right and it was an easy thing to guess. In fact, the 4-week client total net buys hit a record negative last week, meaning that for be last month or so, the 3 major BofAML client groups were selling stocks at a record pace, all when the S&P 500 went no where.

Since the start of this year, hedge funds, institutional and private clients have been heavy sellers of U.S. stocks, week after week with no respite. Corporate buybacks, the single largest source of equity demand (this is a fact) in the U.S. is now starting to slow but was higher last week.

Whatever this so called "smart money" plans to achieve with their unprecedented equity sales all when stocks aren't falling through the floor is beyond us. What we can say is that if the market breakouts higher in the coming weeks and months, this so called group of "smart money" will promptly be dubbed as "stupid money" or "dumb money". Only time will tell...
More details from BofAML:
"Last week, during which the S&P 500 fell 0.4%, BofAML clients were net sellers of US stocks for the 15th week, in the amount of $1.3bn. This has been the longest uninterrupted selling streak in our data history (since ’08)—previously the longest streak (in late ’10) was 12 weeks.

Clients sold stocks in seven sectors plus ETFs last week. The biggest sales were of Industrials and Materials (third-largest and second-largest in our data history, respectively), after Industrials had seen positive flows and solid earnings results the week prior. Only Tech, Discretionary and Telecom stocks saw net buying, with flows into

Discretionary the largest in eight months and Tech inflows their largest since Sept. Health Care continues to have the longest selling streak (ten weeks); this sector has been hurt by a positioning unwind and political uncertainty in an election year. No sector has seen more than two weeks of buying.

Year-to-date, only Telecom stocks have seen cumulative inflows, and Utilities have seen the smallest net sales—with both of these sectors helped by the fall in interest rates and a push-out in the expected timing of the first Fed rate hike.

• Hedge funds have been net sellers on a 4-week average basis since early Feb.
• Institutional clients have been net sellers on a 4-week average basis since early Feb.
• Private clients have been net sellers of US stocks on a 4-week average basis since early January.
• The four-week average trend for buybacks by corporate clients suggests a seasonal slow-down in S&P 500 buybacks in 1Q.
• Net selling: Tech since late Jan.; Staples since early Feb.; Industrials since mid-Feb.; Energy and Financials since late Feb; Materials and Health Care since mid-March; Consumer Discretionary since late March, Utilities since early April.
• Notable changes in trends: ETFs saw a reversal to net selling after net buying since early April; Telecom saw a reversal to net buying after net sales since mid- March."

Yellen's favorite labor market indicator is "Job openings", she said it herself in past FOMC pressers. Total job openings (hires - quits) has risen to near all time highs, implying that it has hardly been easier to find a job if you wanted one. While we aren't Americans leaving in America, we doubt that this is really the case.

More importantly, will more positivity in job openings compel the Fed to hike rates sooner rather than later? Opinions are closely divided amongst both camps. June's FOMC should reveal more, especially after April's terrible NFP print.

GDP Growth With Excess Inventories - What Happens?

When a lot of GDP growth is contributed by rapid increase in excess inventories, what happens? History says that recessions tend to occur when inventory-to-sale ratio reaches higher than average levels. A high inventory-to-sales ratio means that an economy has been producing more than it can consume, implying excess production and therefore excess capacity which might lead to slack in other areas.

This has happened in the U.S. with the ratio reaching levels of historical significance. The last 2 times this ratio crossed above 1.3x, the economy fell into a recession. We are now at 1.36x but aren't yet in a recession. So what makes this time different?

#Forex #Stocks #Economy #Trading #Investing

Negative Interest Rates Don't Work!

Some "in your face" proof that NIRP absolutely doesn't work on the economy. After implementing NIRP in mid-2012 (for 4 years now!), Denmark has only seen its CPI inflation collapse to near all time lows, currently at 0%.

Central bankers can devalue a currency, take interest rates way below zero and penalize savers for having cash in bank deposits, but they cannot alter the fact that if an economy is weak due to a problem with demand, no amount of supply shock will change that!

Flipping From Short To Long On USDNOK Profits

The ability to turn on a dime is a trait that every trader should embrace. We all know the story: the markets are a volatile bunch - Currencies moving hundreds to thousands of pips in a day, stocks tanking on nasty corporate news, so on and so forth. Hence, to succeed in the long-run game that is trading, one must have the ability to NOT be married to a particular bias and/or sentiment.

Regular readers would recall that we were biased short the USD and profited heavily off a few USD-based short trades, notably against the Norwegian Krone (USDNOK) and the South African Rand (USDNOK). One of these trades was the main subject of this thread even!

Here today, we present to you how we flipped on a dime, from short to long, and profited from this turn in strategy.

READ BELOW:
http://www.businessoffinance.com/tra...usdnok-profits

Quote from the article:

"Less than 2 weeks ago, we closed out our 2 USDNOK short trades for a good profit after being bullish the Norwegian krone against the dollar for an extended period of time. In the following week, we initiated a long position on the same pair, expecting a bounce from our entry price.

You may be wondering why we did not immediately publicize this on our trading journal. That's because we were incredibly busy and had little or no time to put out another piece on such short notice."

ENJOY!

Great week in the markets for us this week!

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Even more proof that China's commodity trading bubble has popped and come to an end. We've said it countless time and we'll say it again. The surge in Chinese commodity prices such as iron ore and steel rebar was nothing more than the result of excessive speculation driven by hype and greed, founded on absolutely zero fundamentals. This bubble lasted less than 3 months, but we suspect more than a handful of Chinese "traders and investors" have lost their life savings gambling in this pit.

Here you can see the "churn" which we talked about many times. Volumes surging but open interest remaining flat. It indicates that contracts are held in positions for less than a day, contra-ed before the market closes each day. Huge turnovers and activity but no substance.

And courtesy of Bloomberg's investigations, we now know that the most actively traded contracts during this mania (iron ore and steel rebar) were held open for an average of just 3 hours before being squared. Yes, 3 hours. Juxtapose that to WTI futures which had an average holding length north of 30 hours... And you wonder why it all came to tatters.

Presented without comment, other than... We told ya!

#Apple's best days are likely over. Judging by the way #AAPL has traded since topping in mid-2015, The Fruit has been unable to convince investors and the market that it still has the mojo when it comes to the smartphone industry, which itself is growing at the slowest rate on record. Matters only got uglier after Apple reported its first ever drop in iPhone sales since the iPhone revolution started in 2007, further rubbing salt into its wound.

And we come till today, where #Google is inches away ($2bn shy) from becoming the world's most valuable company (on a market capitalization basis) — Wait for the green line to cross over the red line on the top pane.

More interestingly, when we go back in time and plotted Apple's stock price performance against that of #Microsoft, the similarities in their price and time constructs will amaze many. History does time doesn't it? Should this highly accurate extrapolation (based on #MFST's historical price data) continue to hold true, Apple may well suffer the curse of what was once the world's most revolutionary tech company. A curse which was partially due to an inevitable maturity of its main line of sales (product lifecycle), and mostly because it failed to innovate and invent.

It's sad.

Following up on the last post, #Apple remains just 3% from officially entering into a bear market (#AAPL is down -17% from its last post-earnings cycle highs). The stock is down -30% from its all time high seen in mid-2015, and shows little aight of halting its fall.

Technically speaking, once the market clears current levels, there is little technical support they can cushion its fall until much lower down.

And in other news, a report leaked earlier on Thursday was alleged to show a 70-80% cut in iPhone shipments from China/Taiwan, sending AAPL sharply lower intraday. This is not surprising news because Apple has itself admitted that sales of its latest iPhone SE have been lackluster at best, while insiders have even worse stories to share.

If you're an Apple bull, or are checked in to the world's second most popular hedge fund hotel (AAPL is second most owned U.S. stock by hedge funds), you might want to look away!

The curse of negative interest rates or NIRP: Capital outflows, and lots of it. Japan has been a prominent example of how NIRP destroys not only the economy but also damages the financial system. Money is always finding a right balance between return on capital and the return of that capital. Japanese yields are perhaps the lowest in the entire world, with the 30-year JGB yielding less than 0.30%. Factoring in inflation, and currency depreciation, investors are guaranteed to lose money over 30 years, assuming they hold to maturity (but no one does, which is exactly the point).

In March, Japanese investors purchased a record amount of foreign government bonds, closing in on ¥5.8trn (that's trillion). A majority of that outflow (87%) was directed towards the U.S. treasury market where they bought ¥4.8trn of treasury paper! That's a record for the Japanese.

Of course the data only reflects activity through March. We suspect that the data for April will be just as mega if not bigger. We are however not sure if this was one of the intended consequences the BoJ had in mind when it decided to go subzero wth rates in January. All we know is NIRP has been backfiring on the Japanese via a much stronger yen!

Are American stocks expensive of cheap relative to 144 years of history? This chart holds the simple answer. The longest term average P/E for the S&P 500 is 15.6x. The current trailing P/E is 23.7x. This puts the current standing in the 95th percent tile of all record months over 144 years. P/E ratios have only been higher than today's level 6.1% of the time since 1871.

So you decide if stocks are cheap or expensive...