Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

News & Views: Tuesday, December 9

By

What you need to know for today's trading day.

PrintPRINT
This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

OPEC Early Meeting Seen More Likely by Analysts on Prices (Bloomberg)

Russia admits action to buoy ruble (BBC)

Iron Ore Outlook Cut by JPMorgan as BHP, Rio Shares Extend Slump (Bloomberg)

BP Weighs Future of Aging Norwegian Fields Amid Oil Crash (Bloomberg)

Greek Government Bonds Drop as Presidency Vote Brought Forward (Bloomberg)

Views
Chinese equities are having the largest negative risk-adjusted return across all assets overnight. When the Shanghai Composite (SHCOMP) is six standard deviations away from its 20 and 30-day averages, violent pullbacks - or reversions to the mean - are to be expected. Additionally, it has been well telegraphed that margin trading has exploded from local accounts. New Chinese A-share accounts have risen by 364,000 over the past two weeks, to almost 600,000 in total. Ultimately though, while this pullback has been extremely violent and warranted, the trend is still up for Chinese equities.

Note that the Chinese Yuan has weakened by 0.6% against the US dollar in the past two days, which is an enormous move for this pair. The weakening is due to two reasons - the PBoC is no longer draining liquidity from the system through repos, and a RRR cut is negative for the currency. Lastly, China's clearing agency said yesterday that it won't allow bonds rated below AA to be used as collateral for short-term repo loans, which is almost certainly a precursor to higher money market rates. This may be why the country's central bank has chosen to halt draining liquidity from the system via reverse repos.

On an absolute basis, Greek equities are the worst performing asset this morning. The Athens Stock Exchange General Index (ASE) is down 10% or worse. Current Greek Prime Minister Samaras called for presidential elections to be pulled forward to next week. If his pick, former EU commissioner Stavros Dimas, is not successfully elected, then Greece's Parliament would be dissolved with the opposition Syriza likely gaining a majority in new elections. That would be highly negative for Greece and the Eurozone because Syriza has pushed for the country to leave the currency bloc.
 
In currencies, the South Korean Won (KRW) and Japanese Yen (JPY), which have been paired at the hip these days, are the best performers overnight on a risk-adjusted basis as the dollar has fallen substantially over the past two days. The Won move comes as more than one forecaster in the past week has pulled forward their first rate cut by the Bank of Korea (BoK) into early 2015.

Similarly, crude oil and gold are higher in sympathy to the weaker dollar. Last night, PDC Energy (PDCE) announced that they were cutting their capex budget by 14% (hat tip Branden Rife). Their areas of production are 55% natural gas (Utica) and 45% oil (Wassanger) where $70 oil becomes a problem for future rates of return.
 
Last night for the first time since the program began four years ago, the Bank of Japan (BoJ) purchased stock-backed ETF's while prices were rising. So not only are various funds - pension, insurance, hedge - forced buyers in rising markets, but now central banks are as well. Separately, the 10yr Japanese bond future rose to a new record high last night to an average yield of 0.41%.

To wrap things up, in conjuction with the noticeably weak UK manufacturing production, UK Gilts are the best performing fixed income asset this morning. Although the short Sterling curve is still priced for a likely hike by the Bank of England (BoE) at the end of next year, it continues to reduce the trajectory of those hikes to only 50bps over a one year period. I think this will happen in the US in due time.

Data:
- UK manufacturing production MoM (Oct) down -0.7% vs 0.2% expected, prior 0.6%
- UK industrial production MoM down -0.1% vs 0.2% exp, prior 0.6%
- German trade balance (Oct) little changed at 21.9B EUR vs 18.9B exp, prior 22.1B
-- Imports MoM down -3.1% vs -1.7% exp, prior 5.2%
-- Exports MoM down -0.5% vs -1.7% exp, prior 5.5%

Twitter: @MichaelSedacca

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE