below is the Merrill Lynch Skew indicator which is a measure of relative Demand for protection against large swings in major Global equities and currencies.levels greater then Zero indicate more stress then normal(Bloomberg)
Below is the credit Suisse fear barometer,it measures investor sentiment horizon by pricing a zero-cost collar.Collar implemented by selling 10% OTM SPX call and using proceeds to buy OTM PUT. The higher the level the greater the Fear(Bloomberg)
So, little fear in the markets and no big swings expected not good for Volatility.But on flip side Complacent market can over react on a surprise shock
NKY printed at highest level since 1991,that one slipped by me.As the clock ticks closer towards European and London Close,US stock markets starting to forget what happened in Italy.SPX and Dow unchanged on Session highs,Russell up a few handles,Nasdaq still in the red as FANNG little changed and tesla still down 12.5%. Silver +2.8% as breakout to upside of sideways range finds some buyers.JP Morgans index of emerging market currencies rallying towards unchanged and Oil +1.3% ,Lean hogs +4% and italian BTPs 130 ticks off lows all paints a picture of risk on!
Aussie dollar,Canadian Dollar higher, mexican peso touching new daily highs as positive NAFTA comment provide a bid.A day that started with Negative Sentiment appears to be turning it around
China on Holiday all next week.
Story driving flows overnight is the Announcement of Italy’s budget of 2.4% of GDP. This did not go over well with EU and certainly not well with Italian Assets. Italy is the EU most indebted country and the last thing markets and EU leaders wanted to see is more spending.10 year BTPs sees yield +35Bps; Futures trading lower by 350 ticks. The three, five, and 7-year maturities all showing yields higher by 40+ bps! Italian Banks taking it on the chin as bank Index trading lower by 7.5%,The Mib -4%.Obviously drops of this magnitude are impacting all of Europe Spanish Stocks -1.6%,Portugal -1.4% Dax -1.25% and Euro -.5%.Bunds +100 ticks in the futures cash yield -7bps,5 year bobl show yield – 6 bps. Treasuries higher across the curve with yields down between 2 and 2.5 bps ,Dollar higher by .4% .Jpy trading sideways vs dollar but higher vs Euro by .5%.Also weighing on Sentiment Tesla -13% as the SEC is suing Elon Musk, stock already downgraded by citi I would expect more to follow.
Risk Off sentiment prevailing in stocks this morning, But Copper little changed both palladium and Silver + .5% and Gold unchanged. WTI and Brent little changed as well. Natural gas up to her old tricks after rallying yesterday by 2.55% on a min short squeeze prices lower today by 1.44%
Quarter end today, last day to trade November Brent, October RBOB and heating oil
• 7:30 PCE core
• 8:42 Chicago PMI
• 9:00 U of Michigan Sentiment
- 11:00 USDA quarterly Crop report
Left for Dead many times, Nat gas showed signs of Life today after the Bullish Storage report,which showed a build of 46 bcf compared to F/C of 61..Weekly storage numbers skewed as nat gas Demand increased as Nuclear reactors went down due to hurricane Florence.The price run up post number put gas Convincingly above $3 handle and then a push above prior 2 day Pit highs caused a nice round of Short covering ,as a result prices at 8 month highs. Take a look at the 3 minute chart below,big volume bar happened on 9:30 storage release and shows markets were caught off guard.natural gas above $3 is a much better trade then gas below $3
Breakdown OF Stock Sectors driving the Push higher in Spoos. Disregard telecommunication group because it is only 3 stocks.Notice that real estate and utilities having a nice day and remember that lower not higher rates drive these sectors higher. Look at financials as this is exact opposite , Lower rates drive prices lower.Yesterdays mysterious?? drop in Spoos may well have been order/Quarter End driven and thus providing a buying opportunity.Stronger dollar providing a bit of confusion as it normally associates with weaker spoos.JPM upgrade of Apple helping FANNG rally today,Both MS and Merril’s FANNG Index +1.2%%
Stoxx 50,Dax trading higher as well.Take a look at the Stoxx 600 Sectors pushing prices higher in Europe :
less inflation worries theme might hold if it wasn’t for Dollar rallying and Bonds a bit heavy today. US yield Curve unchanged to a bit steeper this morning so thus not providing signals to other major assets. Simple Risk on Theme for the trade today
Nat Gas +2.5% today as a big miss in storage numbers due to Hurricane Florence push prices above $3
Strip’s away Exports and Focus rests squarely on Domestic demand.
From yesterday’s Powell Press Conference:
“The main thing where we may need to move along a little bit quicker (in rates) is if inflation surprises to the upside. We don’t see that, we really don’t see that.”
Commentary from Morgan Stanley
“Powell’s view suggests that, for Treasuries to break to new yield highs, US CPI inflation needs to surprise to the upside – and not just based on factors related to tariffs .As a result, we continue to suggest investors maintain duration longs, and consider adding to them if weakness takes hold after euro area inflation data later this week…”
Yesterday’s release of Summary Of Economic projections(SEP) left Core PCE forecast Unchanged for 2018,-19,and -20.To paraphrase from the chairman’s testimony ,Worries about tariff Induced inflation are still a concern but little evidence of price pressures showing up now. To piggy back on what Morgan said above I will add that If Inflation metrics remain tame no need to accelerate pace of rate hikes and thus less chance that Treasury yields,10s and 30s breakout to new 2018 highs. It is and always has been that inflation dictates the pace of rate adjustments.
Yesterday afternoon President Trump held an 80-minute press conference touching on all Subjects, the highlights that matter to Traders:
• Not happy with rate increase
• China’s president Xi may not be his friend anymore due to suspected meddling in our elections
• Refuse to meet Canadian PM Trudeau for one on one NAFTA talks and threatened to slap tariffs on Autos
Overnight Shanghai closed lower as the Friendly relationship between Trump and Xi maybe on the Rocks, and increase worries about trade tensions. Shanghai stocks sold off into the close dragging copper down in the process,-1% on day. Dollar trading on the strong side this morning +.4% and this at the margin weighing a bit on base metals as well. Worries again about the Italian budget announcement, five star league wants 2.4% of GDP budget whereas the 2% limit is where the other parties rest is causing concern for BTPs yields +5 bps and Euro-.3% and MIB -1.1% leading decliner in Europe. Dax and Stoxx 50 little changed this morning but stocks in Turkey and Russia both up greater than 1%.Spoos little changed and NASDAQ +23 handles, also little changed.
US yield Curve flatter today for third consecutive day as No inflation worries =Buy the long end. Energy Secretary Perry said No discussion on releasing oil from SPR prior to election
• 7:30 durable goods and Final look at Q2 GDP
• 9:00 Pending home sales
• 9:30 Nat Gas Storage
• 1:00 Kaplan non voter
• 3:30 Powell