Does Deutsche Bank deepening woes start to impact equity markets ?

Deutsche Bank stock closed 6% lower on Thursday.

Dax futures trading at 10250 pre session below key levels (See post dated September 16th here below) :

 

Technical Comment : DAX 10300 -10350 = Key level = Warning if crossed down

Financial Times  : Some of DB’s hedge funds clients have started to limit their risks with the German Bank

https://www.ft.com/content/42ec5f88-8620-11e6-a29c-6e7d9515ad15

Reuters : “European equity futures drop, Deutsche Bank set for fresh falls”

http://www.reuters.com/article/europe-stocks-factors-idUSL8N1C60PF

Barron’s : “Spooked: Dow Drops 200 Points as Deutsche Bank Woes Wreck Risk Appetite”

http://blogs.barrons.com/stockstowatchtoday/2016/09/29/spooked-dow-drops-200-points-as-deutsche-bank-woes-wreck-risk-appetite/?mod=BOL_hp_highlight_1

Technical Comment : WTi Oil // Virt. Portfolio Update

Oil price got a big boost from yesterday OPEC “agreement” – See previous post -. Technically oil prices show a more bullish picture and further upside MIGHT occur should the USD 47,75 level – september high and falling trendline coming from June tops – be surpassed . Daily RSI is giving a positive signal  and the supports on the downside are at around USD 44-45. Above USD 47,75 oil prices should target once more the 2 years key resistance zone of USD 51-52 which if crossed on the upside would open much more potential.

wti-290916

Action : USO – United States Oil – Isin US91232N1081 – Tracker on WTI Oil Futures.

I do not buy at current price (USD 10,75 – 4:30 PM ) and WILL NOT as long as the price does not cross the USD 10,90 on a closing basis (Equivalent of a USD 47,75 crossing on the underlying) . Max price USD 11,10 . Stop at USD 9,70 ie below recent lows/supports. 1 unit .

uso290916

Click on charts to enlarge

OPEC Agrees to First Oil Output Cut in Eight Years – Bloomberg

OPEC  reached an “agreement” to limit oil production … and Oil prices rallied 3 USD yesterday. There were many such announcements in the last 2 years even tough this one seems a bit more convincing. Problem is that details of agreement have NOT been announced. The most obvious reasons are that OPEC usual game is to gain time and push oil prices via verbal interventions and more importantly that they have not arranged yet how the limitations will be splitted amongst members. The big unknown is Russia’s (which is out of OPEC)  reaction : will they also also agree to curb production or go on with their current increase ? YES  there is an agreement but lots of skepticism amongst analysts and traders about its implementation and feasability.

More to come with charts and key levels.

http://www.bloomberg.com/news/articles/2016-09-28/opec-said-to-agree-on-first-oil-output-cut-in-eight-years

 

Analysts Stocks Recommendations (1)

  • Amazon (AMZN) : JPM raised price target to USD 1000.
  • Facebook (FB) : JPM raised price target to USD 175.
  • Netflix (NFLX) : JPM raised price target from USD 116 to USD 125.
  • Pfizer (PFE) : Barron’s remains positive after decision not to split.
  • Autozone (AZO) : Morgan Stanley upgrades from Market weight to Overweight.
  • Ely Lilly (LLY) : Goldman Sachs upgrades from Neutral to Buy.
  • Société Générale (SOGN – EUR 30,97) : ” Le Revenu” has a Buy rating with target @ 36 // PE 6,5 – Div Yield 6,50%.
  • Crédit Agricole (CAGR – EUR 8,70) : ” Le Revenu” has a Buy rating with target @ EUR 11 // PE 10 – Div Yield 7%.
  • Vinci (SGEF – EUR 67,87 ) : ” Le Revenu” has a Buy rating with target @ EUR 78 // PE 17 – Div Yield 2,80%.
  • Eiffage (FOUG – EUR 69,46 ) : ” Le Revenu” has a Buy rating with target @ EUR 80 // PE 18 – Div Yield 2,20%.
  • US Infrastructure Stocks : Credit Suisse FB -J.Cook- in this week’s Barron’s :

http://www.barrons.com/articles/todays-top-5-stock-picks-pfizer-apple-ge-more-1475063469?mod=BOL_hp_highlight_1

Her Top 5 Stocks are :

  1. Cummins (CMI) – USD 121,92
  2. Deere (DE) – USD 84,16
  3. Caterpillar (CAT) – USD 83,50
  4. Parker-Hannifin (PH) – USD 123,96
  5. Aecom (ACM) – USD 28,76
  • 2 to 4 % US yielding stocks with earnings stability in today’s Barron’s by Dreyfus Equity Income Fund manager :

http://www.barrons.com/articles/todays-top-5-stock-picks-pfizer-apple-ge-more-1475063469?mod=BOL_hp_highlight_1

His Top 5 stocks are :

  1. Pfizer (PFE)
  2. General Electric (GE)
  3. Apple (AAPL)
  4. Philipp Morris International (PM)
  5. Darden Restaurants (DRI)

 

FED : NO change in interest rates

  • No surprise hike by Fed.
  • Three dissenters calling for a hike and arguing for a need to cooldown financial markets ( .. really?).
  • 1% rally in principal Us indices and Gold . Nasdaq 100 and Composite at new all time highs.
  • USD slightly weaker and bonds rallying as well at long end of curve.

Next focus for Us stocks is Q3 earnings season starting on October 10th. SP500 in 2120-2195 range are levels to watch for more down/upside. Nasdaq 100 crossing above previous highs (At the moment only a one day move ) and daily MACD crossing higher based on yesterday’s closing is giving a bullish technical signal … that is hard to justify on a fundamental basis at these levels/valuations. I would respect the bullish signal as long as 4790-4800 and more importantly 4650 are not recrossed on the downside.

http://www.bloomberg.com/news/articles/2016-09-21/yellen-rebuffs-pressure-to-hike-as-fed-gives-economy-room-to-run

http://www.bloomberg.com/news/articles/2016-09-22/fed-standing-pat-leaves-u-s-stocks-facing-familiar-enemies-list

BOJ Unveils New Framework for Policy: Statement Highlights / BLOOMBERG

  1. The short-term policy rate will be kept at minus 0,1%.
  2. BOJ will direct its government bonds purchase so that the 10 year yields will remain around current level of 0%. Average maturity rule is cancelled so they can buy along the curve . Pace of buying remains the same i.e. 80 trillion yen per year.
  3. BOJ goes on with their equity market support : they will buy ETF’s at a pace of around 6 trillion yen per year

Virt Pf : In order to broaden our diversification and given the continuation of Equity markets by BOJ we add a Japan ETF quoted in NY . We will use one which includes a JPY currency hedge which is the iShares Currency Hedge Japan ETF (Ticker : HEWJ)- chart below – . Buy at ny open today Max 24,75 USD.

http://www.bloomberg.com/news/articles/2016-09-21/boj-unveils-new-framework-for-policy-highlights-from-statement

hewj210916

FED Meeting : BNP & Barclays see surprise hike tomorrow …

… while only 22% chance are currently priced in and most principal US indices at or a few % from their all time highs .                                       Back in june 60% likelihood was priced with US indices 3 to 6% cheaper …

Conclusion : Expect Volatility (the nice word for decline) IF Fed hikes rates tomorrow OR if they make a significant change on the hawkish side in their policy statement.

http://www.bloomberg.com/news/articles/2016-09-19/two-of-fed-s-own-primary-dealers-warn-shock-hike-awaits-markets

 

SP500 :  http://schrts.co/s1tXG6

Dow Jones : http://schrts.co/rN17w8

Nasdaq 100 : http://schrts.co/cL1qXR

European shares continue to underperform US markets.

The performance spread between SP500 and Eurostoxx50 is around 15% year to date in favour SP500. The main culprits for poor returns in europe are poor performances of Italy (FTSE MIB down 25%/ big impact of financial sector ) and Portugal down 16%. On the sector side, Stoxx 600 Insurance is down nearly 20%, Stoxx 600 Automobile and Stoxx 600 Telecoms are both down more than 16% .

With higher rates in US and weakening EUR around the corner we should attend a catch up of European markets vs US in the next months . The abovementionned underperformers will have a good chance to perform well on a relative basis. We will keep you informed.

indices-160916

http://www.bloomberg.com/news/articles/2016-09-16/europe-stocks-little-changed-as-deutsche-bank-drags-down-lenders

Technical Comment : DAX 10300 -10350 = Key level = Warning if crossed down

Dax currently (17:00 CEST) trades at 10285, down 1,50% from previous closing.

Daily Dax chart here below (Yesterday closing) shows 3 support levels around/higher than  current price :

  1. The 10300-10400 range that acted as resistance/support many times in last 2 years and 2 times in last 2 months .
  2. The down trendline originated from march 2015 top and currently passing around 10340.
  3. The 50 days moving average at 10395.

The german Index trades BELOW ALL 3 LEVELS at the moment and if no change occurs between now and end of NY session (Dax Futures) this would send a warning signal for more downside action .

One can also note the down direction of the 200 days MA which is not typical of bullish action.

dax-2015_2016-150916

– Click to enlarge the chart –

The One Question That Clients Aren’t Asking Reveals Complacency in the Bond Market : What interest rate risk? / Bloomberg

No, interest rates will not stay that low for ever : the dream bond investors have lived for years will turn into a nightmare if they are not prepared.

“Year-to-date, total returns in every area of the fixed income market are strong, really positive, whether it’s Treasuries, whether it’s high yield, whether it’s preferreds, emerging markets, everything’s done great,” … “That doesn’t normally happen. You don’t normally have long Treasuries producing double digit returns and high yield at the same time.”

http://www.bloomberg.com/news/articles/2016-09-13/the-one-question-that-clients-aren-t-asking-reveals-complacency-in-the-bond-market

Technical Comment SP500 // Update of September 11th post

Stop buy order at 2140 has been executed yesterday . A profit of 2% has been booked on this Short initiated on August 24th at 2185.

US equities initiated a big bounce caused by Fed Governor Lael Brainard in which she said that “it would be wise for the Fed to keep monetary policy loose” … just the contrary of what one of his Fed colleague stated last friday . These recent permanent contradictory statements by Fed members has caused volatility to increase in the last days . The Vix index oscillated between 12 and 21 in the last 3 sessions versus a 12-14 range for july and august . When VIX goes UP equities markets go DOWN …

Despite yesterday gains there are little reason for bullishness and i remain at best neutral at this point (SP500 at 2159).

Action :  Given several factors that were already discussed (Risk on rates , relative high valuations, politics ,.. ) to which recent increased volatility and negative seasonality effect can be added, i am more confortable with equities portfolio being hedged at 50% minimum.   

Should SP500 cross the 2100 level ( blue uptrend line) down i would advise to initiate new shorts / increase hedges with initial targets in the 2000 area. Levels : <2080 in session & <2100 closing basis .

sp500-ytd-120916

 

 

 

Yield Hunters Become the Hunted as Japan Long Debt Loses 9% / Bloomberg

  • 20 Years JGBs have lost around 9% this quarter ; Yield is at 0,45% up from minus 0,005 % record low in July. (10Y JGBs shown on chart below)
  • “The intensity of Japan’s bond selloff has sparked concern the market will become the epicenter for a global rout, just as it led a record rally in the first half of 2016.”

http://www.bloomberg.com/news/articles/2016-09-12/yield-hunters-become-the-hunted-as-japan-s-longest-debt-loses-9

10y-jgbs-130916

Pimco Bond Fund Cuts Bet as Dimon to Gundlach Warn on Rates Path – Bloomberg

  • Pimco reduces portfolio duration and has cut Government bonds holdings.
  • J. Dimon , JPM CEO : “Lets s just raise rates, …. the Fed has to maintain credibility “.
  • Gundlach said in last week fixed-income investors should reduce the duration of their positions and move money into cash. “This is a big, big moment,” Gundlach said. “Interest rates have bottomed… I think it’s the beginning of something and you’re supposed to be defensive.”

http://www.bloomberg.com/news/articles/2016-09-13/pimco-bond-fund-cuts-bet-as-dimon-to-gundlach-warn-on-rates-path

Technical & Market Comment : SP500 crosses down key supports

The markets have disregarded for weeks multiple bad news : a sequence of 5 consecutive quarters of negative earnings, weak Q2 GDP and economic data in general especially in the manufacturing, risk a Fed move on the rates, risks linked to the election, … Intervention by Mr Rosengren, a Fed member, coming out on the need to hike rates seems to have been the trigger for a ugly friday on US markets.

sp500-110916

SP500 closed at 2127,8 on friday down 2,45% on the day and 3% from its 2193 all time high. Two months of a mix of slight gains and range trading  have been wiped out in a few hours . Last 2 months action took place with low volumes and declining momentum which i already mentionned a-was negative .Friday’s kind of move conforts me in my inclination of being always partially hedged after the markets had a substantial move on the upside (SP500 was up 20% since February and 10% since end of june) that looks overextended .

On July 29th i referred to 2135 key level as former resistance and new support. This support has been broken down (see purple ellipse). The move is bearish and barring a recrossing of 2135-2140 on the upside SP500 should be (much) weaker in the next days . Risk on the downside for the short term is at 2080-2100, an heavy activity zone (see parallel green lines) . The blue up trendline originated from February bottom is also a support level at around 2100. The 2080-2100 zone is of big importance and should these levels fail to hold,the immediate target would be the 2000 level.

 

ACTION :  I place a STOP buy order at 2140 to book profit on the Short SP500 initiated on August 24th at 2185. So should the market recross the 2140 level on a closing basis the stance would be more NEUTRAL . If not i would stay short/hedge US markets.