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Another sharp day down in the major US indices

  
Analysis, PODCAST, US Market
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Yields fall to new lows

The risk off flows continued in the US stock market and debt market.
The Dow industrial average was down over 1000 points at 1 point during the day. The S&P index fell below the 3000 level briefly before rebounding in the last hour of trading.
In the US debt market yields resumed their downward bias after yesterdays modest rebound.
The final numbers for the major indices are showing:
  • S&P index -106.18 points or -3.39% at 3023.94. The low price extended to 2999.83. The high was up at 3083.04
  • NASDAQ index fell -279.49 points or -3.10% at 8738.59. The low price reached 8677.387. The high price extended to 8921.078
  • Dow industrial average fell minus this 969.58 points or -3.58% at 26121.28. The low price extended to 25943.33. The high price reached 26671.92
In the US debt market the 10 year yield fell to a new record low level of 0.898%. It is currently trading at 0.91%. That is still down -14.2 basis points on the day. The yield curve flattening a bit to 32.49 basis points from close to 36 basis points the close yesterday, but all maturity levels fell by over -10 basis points.

US yields tumbled lower

The good news is that the European stock markets are closed

  
Analysis, Global Indices
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German DAX, -3.1%. France’s CAC down -3.8%

The good news for the European stock markets is that they are close for the day.  Each of the major indices had sharp declines. Sometimes closing feels good. The provisional closes are showing:
  • German DAX, -3.1%
  • France’s CAC, -3.2%
  • UK’s FTSE 100, -3.5%
  • Spain’s Ibex, -3.8%
  • Italy’s FTSE MIB, -2.6%
To give an idea of the year to date performance of the major indices :
  • Germany, -6.65%
  • France, -7.6%
  • UK FTSE 100, -9.7%
  • Spain’s Ibex, -5.6%
  • Italy’s FTSE MIB, -2.8%
Comparing to the US market year-to-date:
  • Dow industrial average, -7.6%
  • S&P index, -5.63%
  • NASDAQ index -2.42%
In Asia the year-to-date’s are showing:
  • Japan’s Nikkei, -7.22%
  • Hong Kong’s Hang Seng index, -5.01%
  • Australia S&P/ASX 200 -0.39%
  • China’s Shanghai index -1.93%

In other markets as London/European traders look to exit:

  • gold is trading up $12.80 or 0.78% at $1653.72
  • WTI crude oil futures are trading down $-2.08 or -4.25% of $46.66
In the US stock market the snapshot of the major indices currently shows:
  • S&P index -69.3 points or -2.22% of 3047.44
  • NASDAQ index -221.2 points or -2.46% at 8759.96
  • Dow -578 points or at -2.17% at 26371
In the US debt market yields are sharply lower with the 2 year down -8.9 basis points. The 10 year is down -5.8 basis points.. The 2 – 10 yield spread has widened to 20.42 basis points from 17.24 basis points yesterday on increasing expectations that the FOMC will be forced to lower rates
US yields are lower across the board with a letter yield curve
In the European debt market, yields are mixed with German, France, and UK yields lower while Spain, Italy, Portugal yields are higher (flight to safety and out of the riskier countries):
European yields are mixed
In the forex market, the EUR is the strongest (and got stronger in the session).  Germany did say earlier today that they would contemplate more fiscal stimulus and technicals improved. The EURUSD did run into resistance against the 1.100 level however.
The weakest currency is the CAD as oil continues to get hammered. The GBP and USD are also weaker on the day:

30 year yield falls to a new all time low

  
  Analysis
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The headline of the day is that the 30 year yield traded to a new all time low of 1.8843%. That took out the August 2019 low yield of 1.9039% and although the yield is closing above that old low, the closing level will be the lowest on record.

Forex news for NY trading on February 21, 2020

Helping the yields move lower is the:

  • Expectation of a cut in US rates by July and potential for another cut later in the year
  • Flight to safety flows
  • Lower global growth from the coronavirus
  • Dollar buying as the US remains a safe haven
  • The Markit Service and Composite PMI data was below the 50.0 level while the manufacturing index was lower than expectations as well.
The 10 year yield also moved lower and approached the swing low from 2019 at 1.4272%. The low yield today reached 1.4359% before rebounding into the close to 1.4700%.  The all time low yield was in 2016 at 1.3180% (see chart below).
The 10 year yield fell below support at 1.50% and looks toward the 2019 low yield at 1.4272%
Below is a table of the current, high and low yields for the US debt along the yield curve.   The 2-10 year spread also flattened to 12.14 basis points from 12.60 basis points yesterday.
The US yields are moving lower. US stocks today fell with the Nasdaq leading the way down. For the day, the Nasdaq fell -1.79% after being down as much as 2.14% at the low. The S&P index closed down a more modest -1.05% after falling as much as -1.33%.   For the week, the major indices fell with the Dow down -1.46%, the S&P down -1.07% and the Nasdaq index down -1.39%.
Gold was another big mover today and this week. The price of gold is trading up $24.00 or 1.48% at $1643.43. The high for the day reached $1649.26. That was the highest level since February 2013. For the week, the price of gold settled last Friday at $1584. The current price at $1643.43 is a $59.43 gain for the week or 3.75% gain.   Big breakout move for gold this week.
Gold moved up nearly $60 this week
The fall in stocks, rise in gold, fall in yields led to a fall in the USD today. The USD was the weakest of the major currencies today. The strongest currency was the GBP (but it came off the highs in the NY session).   The dollar fell by 0.61% vs the GBP. It also fell versus the EUR by -.59% vs the EUR and -0.58% vs the CHF.

Italian bonds surge higher on Salvini defeat

  
  Analysis
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Italy 10-year bond yields down by over 15 bps to start the day

Italy 10-year yields

  • Italy’s Democrats defeat Salvini’s league in key regional vote
Chances of a snap election is less likely now and that is giving more confidence to Italian assets to kick start the week. Just be reminded that Salvini is the number euroskeptic figure in the country and the result above will bolster Conte’s government a bit more.
The more positive take on the move in Italian bonds today is better reflected in the BTP/Bund spread, where we’re see a significant narrowing in the spread today (141 bps now):
Italy Germany spread

European shares close lower on China virus concerns

  
Analysis, Global Indices
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German DAX unchanged

The coronavirus concerns have sapped upside momentum from European shares. The falls come despite economic data out of Europe that was not bad.   UK employment data was strong and German/EU ZEW sentiment data was also better-than-expected.

The provisional closes are showing:
  • German DAX, unchanged
  • France’s CAC, -0.54%
  • UK’s FTSE 100, -0.57%
  • Spain’s Ibex, -0.57%
  • Italy’s FTSE MIB, -0.6%
In the European debt market, the benchmark 10 year yields are ending mostly lower with Italian yields up marginally.  France’s 10 year yield move back toward the 0.0% level. The low reached 0.001%.
German DAX unchanged_
In other markets,
  • gold slid earlier to a low price of $1546.41, but has rebounded and currently trades at $1557.19. That’s down about $3.50 or -0.23%
  • WTI crude oil futures are down $0.25 or 0.43% of $58.29
In the US stock market the NASDAQ index turned positive after opening lower and traded to it a new all-time high.
The current prices are showing:
  • S&P index -3.04 points or -0.09% 3326.60
  • NASDAQ index +5.068 points or 0.06% at 9394.20
  • Dow industrial average -41.7 points or -0.14% at 29306.64
In the US debt market yields are lower led by declines in the 10 year yield up -4.6 basis points. The yield curve is also flattened with the 2 – 10 spread falling to 23.74 basis points from 26.23 basis points on Friday..

US stocks mixed as attention turns to Fed

  
  Analysis
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US stocks were mixed as Federal Reserve officials cast doubts on further rate cuts and a reading on domestic manufacturing stoked concerns over the health of the economy. The S&P 500 ticked 0.1 per cent lower after drifting between gains and losses, with investors turning their attention to the central bank’s annual summit where chairman Jay Powell will speak on Friday. The Nasdaq Composite was down 0.4 per cent, while the Dow Jones Industrial Average rose 0.2 per cent on a rally in shares of Boeing. Central bankers from around the world have descended on Jackson Hole, Wyoming, for a policy symposium that is closely watched by investors seeking clues on monetary policy.

Market participants are looking for the Fed to follow its July rate cut with another one in September, but at the start of the Jackson Hole gathering on Thursday, Philadelphia Fed president Patrick Harker and Kansas City Fed president Esther George indicated in television interviews that they would not back further cuts. “My sense was we’ve added accommodation, and it wasn’t required in my view,” Ms George, one of two dissenters in the July decision, told CNBC. Mr Harker, who is not a voting member of the Fed’s policy setting committee, said he believes the federal funds rate is around its neutral level, adding: “I think we should stay here for a while and see how things play out.” The US 10- and two-year yield curve inverted for the second time this week following the remarks. The yield on the benchmark 10-year Treasury rose 3.3 basis points to 1.6097 per cent, while the policy-sensitive two-year yield was up 4.5bp at 1.6141 per cent. An inverted yield curve is considered a sign that investors expect a recession.

The Powell prepared text headlines sent:

  
  Analysis
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  • The dollar lower.
  • It reversed pre-market stocks from being down (S&P was down about 8-9 points) to up.
  • It sent yields on US treasuries lower with the short end leading the way (yield curve steepening). The 2 year was at 1.919% at the start of the NY session. It is down at 1.82% now.
  • Gold moved from negative to positive (gold is up over $20 near the end of the trading day)

‘If you really want a fiscal problem, look at the UK’

  
Analysis, Economy, Education
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uk crisisInvestors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.…

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

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the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

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As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

David Rosenberg of Gluskin Sheff also referred to the piece in his morning missive, noting:

Britain is probably one of the few countries in the world where political uncertainty, a renewed round of house price deflation and a sinking currency can manage to elicit a bounce in consumer sentiment (the country has a Greek-like 12.5% deficit-to-GDP ratio, which is double the European average and a household debt-to-GDP ratio that, at 170%, makes the U.S. household sector downright frugal at 130%

Sir John Templeton 16 Rules For Investment Success

  
  Education
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Interesting set of rules from legendary investor John Templeton:

1. Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often

 Complete explanation after the jump (more…)

Freudian Trading Techniques

  
  Education
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Attachment

When I was in college, I had a class in investment analysis. On one particular occasion, we had a group project which consisted of selecting a stock and then giving a recommendation on it. We chose a technology company whose earnings were shot and whose outlook was dismal. As we were deciding on what recommendation to offer, I suggested that  the stock was headed down and that we should recommend a sell. One of the gentlemen in the group immediately replied that he thought we might sound stupid for picking a stock and then recommending to sell it.

That’s when it dawned on me that the ego affects stock selection, evaluation, and recommendation significantly. I told this fellow that the data suggested that the stock was a sell. I also reminded him that the OBJECTIVE of the project was to a evaluate a stock, not to pick a winner. After some thought, I recalled that many analysts viewed the industries which they evaluated as THEIR industry. In doing so, those same analysts were often bullish much too often, including times when it was totally unprofitable to be bullish.

Mine is Better Than Yours

Another example is when I went for an educational seminar. There was no selling whatsoever and it was strictly educational. There were teachers from fixed income, equities, and real estate. Each speaker spoke about how the investment they were discussing was the best performing asset class in history. It was ridiculous but very illuminating. Individuals become emotionally attached when they use the word “my”. “My shoes, my car, my profession, and even my stocks are superior!” Then, I began wandering how detrimental this sort of thinking was. It eats away at profits and increases losses! (more…)

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