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ZeroHedge: Groundhog Day Trading: Stocks Slide As Oil Plunge Returns; BP Suffers Biggest Loss On Record

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

It certainly does feel like groundhog day today because while last week’s near record oil surge is long forgotten, and one can debate the impact the result of last night’s Iowa primary which saw Trump disappoint to an ascendant Ted Cruz while Hillary and Bernie were practically tied, one thing is certain: today’s continued decline in crude, which has seen Brent and WTI both tumble by over 3% has once again pushed global stocks and US equity futures lower, offsetting the euphoria from last night’s earnings beat by Google which made Alphabet the largest company in the world by market cap.

Among the drivers for today’s oil weakness was news that Russia pushed their oil output to fresh post-soviet highs amid the recent price slump, as crude output reaches 10.9mln bpd in Jan’16. At the same time JBC said that far from dropping, OPEC output actually rose to 32.42m b/d in Jan vs 32.38m in December.

The oil story was so dominant overnight that not even the surge in Chinese equities did anything to boost sentiment, with the Composite higher by 2.3%. Perhaps a reason for this was that China’s animal spirits are clearing fading, and as reported overnight, margin debt in China’s stock market shrank to the lowest level since December 2014, a sign that the stock market bubble has not only burst but is not coming back: the outstanding balance of margin debt on the Shanghai and Shenzhen stock exchanges dropped for 22 straight days to 897.6 billion yuan ($136.4 billion) on Monday. According to Bloomberg, it fell below the lows reached during a summer rout when the Shanghai gauge tumbled more than 40 percent from mid-June through its August low.

Compounding the bad commodity news was BP’s results, which posted a loss of $6.5 billion: the biggest in its history: 2015 was even worse for the London-based company than its 2010 Deepwater Horizon catastrophe which resulted in a $3.72 billion loss, as the company took charges of more than $40 billion to cover the legal, operational and environmental costs of the Gulf of Mexico oil spill.

Also not helping sentiment was a drop by UBS Group which slid after pretax profit at its investment bank trailed predictions.

“People are very spooked about what they can’t see, and at the moment they can’t see where global growth will come from,” Justin Urquhart Stewart, co-founder of Seven Investment Management in London, told Bloomberg. “In a market like this, less certainty around the U.S. election cycle will add further nerves. The last thing investors need is more background noise.”

A quick summary of where risk stands now:

  • S&P 500 futures down 0.7% to 1918
  • Stoxx 600 down 1.4% to 336.7
  • FTSE 100 down 1.8% to 5953
  • DAX down 1% to 9664
  • German 10Yr yield down 4bps to 0.32%
  • Italian 10Yr yield down 1bp to 1.46%
  • MSCI Asia Pacific down 0.9% to 122
  • Nikkei 225 down 0.6% to 17751
  • Hang Seng down 0.8% to 19447
  • Shanghai Composite up 2.3% to 2750
  • US 10-yr yield down 2bps to 1.92%
  • Dollar Index down 0.04% to 98.97
  • WTI Crude futures down 3.4% to $30.54
  • Brent Futures down 3.4% to $33.09
  • Gold spot down 0.3% to $1,125
  • Silver spot down 0.6% to $14.27

Looking at regional markets, we start in Asia where equities traded in mostly in negative territory with yet again oil prices the familiar culprit as hopes over cooperation between OPEC and Non OPEC members in regards to a production cut fades , alongside the tepid lead from Wall Street. As such, the ASX 200 (-1.00%) and Nikkei 225 (-0.6%) were dragged lower by energy names, with the latter also pressured by a stronger JPY. However, the Shanghai Comp (+2.2%) outperformed as the PBoC injected more liquidity into the market via open-market-operations, subsequently providing ample liquidity ahead of the Lunar New Year, while the central bank continued to set a firmer CNY fix. JGBs fell albeit marginally so following a lacklustre auction which drew a lower than prior b/c as well as the widest tail in 10-months.

“It’s still a volatile market,” said Rafael Palma Gil, a Manila-based trader at Rizal Commercial Banking Corp., which oversees about $1.8 billion in assets. “While central banks have become relatively more accommodating, this stance doesn’t remove the concern of a global economic slowdown, with the weakness in China.”

Asian Top News

  • Nintendo Profit Falls 36% on Lack of Hit Games, Currency: Wii U, 3DS hardware sales languish despite Splatoon, Mario; 3Q oper. profit +5% to 33.5b yen vs est. 33.2b yen
  • Nomura Profit Falls as Firm Postpones Overseas Earnings Goal: 3Q net income 35.4b yen; est. 38.7b yen; bank is on track for sixth straight annual pretax loss abroad
  • China Eases Mortgage Down Payment to 20% for First Time Buyers: Will allow banks to cut the minimum required mortgage down payment to 20% from 25% for first home purchases
  • PBOC Said to Ask Lenders to Control Wealth Management Funds: China’s central bank has told lenders it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage
  • Singapore Seizes ‘Large Number’ of Accounts Amid 1MDB Probe: Officials investigate possible money laundering since mid-2015
  • Japan Trading Houses Facing $13 Billion Hit on Commodity Misfire: As raw-material prices fall, focus shifts to other businesses
  • China’s Top Macro Fund Wagers Against Consumption-Driven Growth: Congrong sees wage growth slowing abruptly in second quarter
  • China Hands Investors Risk-Free Returns as IPOs Lure $1 Trillion: Benchmark’s top performers in 2016 are all newly issued stocks
  • India Said to Ask Banks at Least $295 Million in Back Taxes: Notices may be issued by April

In Europe, oil once again dictates price action as this week’s continued softness in WTI and Brent translates into weakness in the major indices , led lower by the energy sector. BP is a notable laggard and despite the market being prepared for bad numbers, trades in negative territory by 8.1% after posting Q4 earnings, consequently the FTSE 100 (-1.7%) is a marked underperformer. UBS (-7.9%) also reported earnings today, missing on expectations and warning of further FX headwinds.

European Top News

  • Euro-Area Unemployment Falls as ECB Weighs Stimulus Measures: Region’s jobless rate decreased to 10.4% from 10.5% in Nov., est. unchanged at 10.5%; rate at lowest since Sept. 2011
  • German Unemployment Rate Falls to Record Low as Job Market Booms: Jobless rate fell to 6.2%, the lowest level since German reunification, from 6.3%; joblessness slid to seasonally-adjusted 2.73m
  • Sainsbury Agrees to Buy Home Retail for About $1.9b: Sainsbury will pay about 161.3p in cash and stock per Home Retail share, a 63% premium above the closing price prior to the emergence of discussions, to lead to profit synergies of GBP120m or more
  • Danske Bank Unveils $1.3b Share Buyback Program: Said will buy back another DKK9b ($1.3b) in shares; forecast 2016 net profit in line with 2015’s results, before goodwill impairments, 4Q adj. net DKK4.64b vs est. DKK3.74b
  • Sanofi, Merck Said to Consider Exiting Vaccine Joint Venture: Sanofi CEO Brandicourt is reviewing the alliance because of a lack of promising assets in the business’s pipeline; venture had sales of about $330m in first half of 2015
  • Kuoni Agrees to $1.4 Billion Takeover Bid From EQT Partners: EQT offering CHF370 per B share, 32% above Dec. 30 closing price
  • Raiffeisen Shares Jump After Lower Provisions Lift 2015 Profit: Full yr Net income was EU383m compared with loss of EU617m yr ago; profit was better than anticipated because of lower provisions for impairments
  • EU Nears Agreement on U.K. Demands After Talks Make Progress: Still ‘outstanding issues’ to resolve, EU President Tusk says
  • Fiat Offers New Settings for Diesel Motors to Make Them Cleaner: Carmaker says vehicles have no defeat device to cheat tests, says all its cars comply with emission regulations

In FX, it has been another range bound morning early London, though Asia saw some volatility with AUD/USD swinging up and down in the aftermath of the RBA — which offered little fresh insight overall. However, London markets are testing support levels at .7040, with .7005 seen lower down. USD/JPY lows were extended to 120.33 on Oil losses prompting a knock on effect on stocks, but since consolidating above 120.50.

The euro advanced against all major peers, posting the biggest gains versus the currencies of raw-material producing nations including South Africa’s rand and the New Zealand and Austrian dollars. It climbed 0.2 percent to $1.0913, while the yen appreciated 0.2 percent to 120.79 per dollar.

Malaysia’s ringgit dropped 1.3 percent against the U.S. dollar. Bank accounts related to possible money laundering associated with state-investment company 1Malaysia Development Bhd. were seized by authorities in Singapore and the Swiss Attorney General announced it’s pursuing an investigation into alleged diversion of funds

CAD and other Oil related FX losses contained. USD/CNH pushing through 6.6200.

The Bloomberg Commodity Index, which measures returns from 22 raw materials, fell 0.7 percent, dragged down by falling oil prices. Gold retreated from a three-month high.

WTI and Brent continue to edge lower as North American participants come to their desks, with market expectations of an OPEC- Non-OPEC agreement to cut production waning . Brent is above the USD 33.00 handle, but only just and WTI trades below USD 31.00. Price action in today’s session will likely be dictated too by any further comments from OPEC or energy ministers, if not, then participants will await the release of API Crude Oil inventors to guide price action.

Gold was marginally softer overnight with the precious metal remaining near 3-month highs having touched USD 1,130.11/oz yesterday , near its 200 DMA of USD 1,131.25, while growing confidence in the yellow metal was reflected by holdings of SPDR Gold Trust rising 1.82%. Analysts have noted that this 200 DMA offers an important level of resistance with traders keeping one eye on the jobs report on Friday. Sport gold has retraced some of its gains in recent trade, and has just broken below the 1125.00 level.

Base metals rallied, with zinc climbing to the highest in almost three months, as news of further stimulus in China increased expectations of greater demand from the world’s top commodity consumer.

The move higher, which saw zinc lift 1.3 percent to $1,669 a metric ton and copper push to a three-week high, was amplified by short-covering, according to Citigroup Inc. analyst David Wilson.

In terms of the day ahead, this morning in Europe the focus looks set to be on the labour market reports where we’ll see the latest unemployment rate print for Germany and the Euro area in particular. Euro area PPI is also due out this morning. It’s a much quieter afternoon for data in the US with just the February IBD/TIPP economic optimism reading, along with January vehicles sales data due up. Away from the data we’ll hear from the ECB’s Coeure this morning while later this evening the Kansas City Fed’s George is due to speak on the US economic outlook and monetary policy at 6.00pm GMT. Earnings season continues with 31 S&P 500 companies set to report including Pfizer, Yahoo and Exxon Mobil.

Global Top News:

  • Clinton Narrowly Edges Sanders in Iowa; Cruz Upsets Trump: Rubio comes in third in GOP contest marked by high turnout, Clinton’s victory is razor-thin in Iowa Democratic caucus; Iowa Results Slow Clinton’s March Toward the Nomination; Rubio May Consolidate Support as Alternative to Cruz, Trump
  • Google Parent To Overtake Apple as World’s Most Valuable Company: Alphabet 4Q adj. EPS $8.67 vs est. $8.09; 4Q rev. ex-TAC $17.3b vs est. $16.9b
  • BP Profit Falls 91%, Missing Estimates, as Oil Slump Deepens: 4Q adj. net $196m vs Est. $815m; net loss for the year was $6.5b, the most in at least 30 yrs; adj. profit drops y/y for 6 straight quarters
  • Anadarko Cuts Spending as It Seeks to Rebound From Record Loss: Capital budget reduced by almost half to about $2.8b
  • UBS Drops as Quarterly Profit Slumps at Wealth, Securities Unit: At the wealth-management unit 4Q pretax profit fell 47% to CHF344m, investment bank had drop of 63% to CHF80m, below estimates of analysts in a Bloomberg survey; raises div. to 85 centimes for 2015 from 75 centimes
  • Pentagon Said to Seek 35% Fund Boost for Islamic State Fight: Will seek a 35% increase in funding for the fight against Islamic State in its next budget, bringing the request for U.S. military efforts against the terrorist group to $7.5b
  • Goldman Censured by Hong Kong Regulator Over Wing Hang Deal: Goldman Sachs was censured by Hong Kong’s securities regulator for breaching the city’s takeovers code while advising Wing Hang Bank Ltd. on its acquisition by a Singaporean lender
  • Google Search Probe by U.S. Should Get New Look, Utah Says: Utah, D.C. urge FTC to revisit case in light of EU complaint
  • Fidelity Writes Down Snapchat Holding by 2 Percent: Snapchat had raised funds at $16b valuation last year
  • Yahoo’s Employee Ranking Targeted in Mass Termination Lawsuit: Accused in a lawsuit of manipulating employee performance evaluations to justify firing hundreds of workers in order to meet its financial targets
  • Monsanto-Created Weedkiller Is Most Used in History, Study Says: About 18.9b pounds of glyphosate have been used globally since sales began in 1974
  • Texas Shale Drillers Lure $2b in New Equity to Permian: Drillers in the Permian Basin, the biggest U.S. shale field, have raised at least $2b from share sales over past 8 weeks


Bulletin Headline Summary from RanSquawk and Bloomberg

  • WTI and Brent continue to edge lower as North American participants come to their desks, with market expectations of an OPEC/ non-OPEC agreement to cut production waning
  • Continued softness in WTI and Brent translates into weakness in the major indices, with BP underperforming following poor Q4 earnings
  • Highlights include, API crude oil inventories, dairy whole milk powder auction, comments from ECB’s Coeure and Fed’s George
  • Treasuries rise overnight as world equity markets resume slide amid declining oil prices ahead of today’s vehicle sales and ISM reports.
  • Australia’s central bank will weigh a strengthening jobs market against the impact of recent global financial turbulence in deciding whether to ease policy further, as bank Governor Stevens and his board kept the cash rate at a record-low 2%
  • India’s central bank kept the benchmark repurchase rate at 6.75% for a second straight meeting as it awaits details of the government’s budget later this month, providing support for a currency battered by China-led market turmoil
  • China’s central bank said it will allow banks to cut the minimum required mortgage down payment to 20% from 25% for first-home purchases to the lowest level ever as it steps up support for the property market
  • China Banking Regulatory Commission Chairman Shang Fulin said at a meeting with lenders last month that banks need to avoid risks that could cause systemic problems for the banking sector
  • U.S. Treasury Department will issue an estimated $250 billion in net marketable debt in the January-March quarter, compared with $165 billion estimated three months ago, according to a statement released Monday in Washington
  • After seeing their borrowing costs rise to their highest level since 2012, U.S. companies may have at least one ray of hope: yield-starved foreign money managers are now holding a record percentage of U.S. corporate bonds outstanding, according to Federal Reserve data
  • Nomura, dragged down by its money-losing business outside Japan, posted a 49% drop in third-quarter profit and said an earnings goal for overseas operations will be reached later than initially targeted
  • BP Plc reported a 91% decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade; the company’s shares fell the most since August
  • Hillary Clinton’s campaign declared victory in the closest- ever Iowa Democratic caucus while Senator Ted Cruz of Texas won the state’s Republican caucuses in an upset over billionaire Donald Trump
  • Sovereign 10Y bond yields little changed. Asian, European stocks lower; U.S. equity-index futures drop. Crude oil and gold fall, copper rallies

US Event Calendar

  • 9:45am: ISM New York, Jan. (prior 62)
  • 10:00am: IBD/TIPP Economic Optimism, Feb., est. 47.6 (prior 47.3)
    • Wards Domestic Vehicle Sales, Jan., est. 13.70m (prior 13.46m)
    • Wards Total Vehicle Sales, Jan., est. 17.30m (prior 17.22m)

Central Banks

  • 1:00pm: Fed’s George speaks in Kansas City
  • 7:00pm: Reserve Bank of New Zealand’s Wheeler speaks in Christchurch
  • 9:30pm: Bank of Japan’s Kuroda speaks in Tokyo

DB’s Jim Reid concludes the overnight wrap

The relentless rally that we had seen across rates market so far this year finally paused for breath yesterday. European sovereign bond yields edged anywhere from 3 to 6bps higher (10y Bunds were up 3bps to 0.349%) while 10y Treasury yields finished the session up 2.8bps at 1.949% and off the recent cycle lows. In fact bond yields edged higher despite Oil prices trending steadily lower over the past 24 hours. The soft China manufacturing data as well as some chatter of pushback on an OPEC meeting to discuss potential production cuts combined to send WTI down $2 (-5.95%) and back below $32/bbl.

European equity markets closed with losses yesterday although the Stoxx 600 (-0.19%) did manage to stage a bit of a rebound into the close. In fact sentiment improved from the afternoon session in the US as the S&P 500, after being down as much as 1% managed to recoup all of the day’s losses to at one stage trade with a modest gain, before finishing near unchanged (-0.04%) by the closing bell. Dovish comments from Fed Vice-Chair Fischer helped the positive momentum. Fischer warned as to risks of a slowdown in US growth and inflation given recent global developments with risks of a persistent tightening of financial conditions. The Fed official also acknowledged the possibility of the unemployment rate overshooting the longer-run normal level based on FOMC projections.

Looking at markets this morning, aside from China it’s been a broadly weaker start across the region with no sign of that momentum carrying over from the US session last night. The BoJ-inspired rally in Japan has stuttered with the Nikkei currently down -0.64%, while  the Hang Seng (-0.74%), Kospi (-0.75%) and ASX (-1.00%) are also lower. The moves aren’t being helped by another 2% drop for Oil, while US equity futures are also down around half a percent despite a bumper set of results from Alphabet which saw shares up over 9% in extended trading last night, leaving the company in pole position to overtake Apple as the world’s most valuable company today. The outlier in markets this morning is in China where the Shanghai Comp is up a sharp +2.33% despite no obvious newsflow. Meanwhile the RBA has left its cash rate unchanged at 2% as expected.

The other main overnight development has come in the US Presidential race, with the Iowa caucus in full swing. In what appears to be a surprising swing (given recent momentum) and with 85% of the votes accounted for in the Republican vote, Texas Senator Cruz looks set to beat Donald Trump after accumulating 28% of votes to Trump’s 24%. Significant also is the performance of third placed Senator Rubio, who has won 23% of votes which appears to be more than expected. Meanwhile it’s a closely thought contest for the Democrats with Clinton leading Sanders by less than 1%. The third Democratic who had been in the race, O’Malley, has dropped out. Expect confirmation of the final votes soon.

Back to markets. Yesterday’s economic data was centered on another disappointing ISM manufacturing print out of the US (48.2 vs. 48.4 expected and the fourth consecutive sub-50 reading). The print was 0.2pts higher than the downwardly revised December data but much was made of the drop in the employment component to 45.9 (-2.1pts) and the lowest since June 2009. This of course comes before Friday’s employment report. Meanwhile the December core PCE print was slightly below expectations at 0.0% mom (vs. +0.1% expected) while the same can be said for the deflator (-0.1% mom vs. 0.0% expected). Personal income was up a slightly better than expected +0.3% mom in December (vs. +0.2% expected) while personal spending missed (0.0% mom vs. +0.1% expected). Meanwhile construction spending notably undershot relative to consensus estimates at +0.1% mom (vs. +0.6% expected).

Moving on. Yesterday we also got some comments from ECB President Draghi who made reference to the effectiveness of recent QE measures, specifically that ‘second-round effects’ were occurring while reiterating that the ‘weaker than anticipated growth in wages together with declining inflation expectations call for careful analysis ahead of the upcoming meeting next month. Draghi also made some comments on the UK and specifically that ‘a solution that would anchor the UK firmly within the EU while allowing the euro area to integrate further would boost confidence’. As far as Brexit negotiations, EU President Tusk is set to send a draft proposal at some point this morning which is set to be the used to form the basis of discussion for EU heads of state at the February 18th/19thsummit around the UK’s future relationship with the EU. Tusk highlighted that good progress has been made with the hope that both sides can come to agreement ahead of a possible UK referendum as early as June.

Before we take a look at today’s calendar, the other notable takeaway from yesterday’s newsflow was the Fed’s latest survey of senior loan officers. The survey, covering Q4, showed that lenders were said to have tightened lending standards on commercial and industrial loans, and expect to tighten further in 2016. The survey did however suggest that banks had moderately eased standards for mortgages and auto loans for households.

In terms of the day ahead, this morning in Europe the focus looks set to be on the labour market reports where we’ll see the latest unemployment rate print for Germany and the Euro area in particular. Euro area PPI is also due out this morning. It’s a much quieter afternoon for data in the US with just the February IBD/TIPP economic optimism reading, along with January vehicles sales data due up. Away from the data we’ll hear from the ECB’s Coeure this morning while later this evening the Kansas City Fed’s George is due to speak on the US economic outlook and monetary policy at 6.00pm GMT. Earnings season continues with 31 S&P 500 companies set to report including Pfizer, Yahoo and Exxon Mobil.

via zerohedge