Written Commentary
Global equity markets were down moderately overnight with some declines reaching 2.3% (FTSE). Apparently, the trade has had second thoughts regarding bank stocks as positive earnings early in the week have now been discounted with growing concerns of credit issues. Anxiety was clearly stoked by a pair of bankruptcies in the auto parts sector which in turn sparked fears that credit risks are not being monitored adequately. Overnight economic news presented significant foreign bond investment by Japanese accounts, a slight reduction in foreign equity market participation by Japanese accounts, and a +0.2% core harmonized Index of consumer prices from the euro zone.
STOCK INDEX FUTURES
As indicated in the treasury comment the equity markets reversed course aggressively yesterday following news of bankruptcies in the auto sector which in turn sparked concerns that regional banks credit monitoring is not up to standards. In fact, a US bankruptcy watchdog is calling for an independent probe of First Brands bankruptcy as if there were some form of malfeasance. However, the markets were warned about this credit monitoring gap earlier in the week and initially discounted the threat! In other words, the bullish bias in the market tried to extend but the tide has turned with a five day low overnight, a trade below the 50 day moving average (in the December S&P) and a shift in short-term technical systems into sell modes. Furthermore, with a 6540 trade in the S&P today a weekly reversal would be registered on the charts.
CURRENCY FUTURES
The bias in the dollar is down with another lower low for the move overnight and global uncertainty focused on credit concerns in the US from a pair of suspect bankruptcies. While concerns of a lack of transparency with respect to risks facing regional US banks is fostering some movement out of the dollar> However, the largest impact on the dollar today is likely to flow from the Oval Office. Recently the president threatened to slash favorite Democrat programs and fire a massive amount of US government workers (to force a reopening or he could just be taking the opportunity to deflate a runaway bureaucracy) and that could be a major catalyst for movement in the dollar. Even though the dollar is clearly settling into a downtrend and could be poised to return to the October low down at 97.13, it is not out of the question that a significant trimming of decades of expensive government programs could stoke renewed confidence in the dollar.
INTEREST RATE MARKET FUTURES
While treasury bonds have spiked to the highest levels since April 4th, the bond market has recoiled from that spike as if the move was overdone or temporarily exhausted. However, after a period of stubborn upside action in the face of clear evidence of slowing, treasuries appear to have come alive! Apparently, Jamie Dimon warnings of “if you see one cockroach there are probably more” has been given credence by bankruptcies in the auto sector. In fact, regional banking stocks are being punished aggressively because of the uptick in credit concerns which in turn has provided treasuries with fresh flight to quality buying. On the other hand, with the president promising to axe favored Democrat programs today and announce massive government firings today, the treasury market will be presented with a key decision.
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