U.S. Stocks Drop as Dollar Plunge Boosts Commodities to Bonds


U.S. Stocks Drop as Dollar Plunge Boosts Commodities to Bonds
Here is the opening of this after hours market report from Bloomberg:

Stocks fell from Tokyo to New York as central banks showed little will to step up support for flagging economies amid disappointing corporate results. The dollar tumbled the most in six weeks.
While U.S. equities briefly overcame early losses sparked by the Bank of Japan’s surprise decision to refrain from adding to stimulus, the Dow Jones Industrial Average ended Thursday down the most since Feb. 23 as investor Carl Icahn said he sold his stake in Apple Inc. The greenback’s decline sparked gains in commodities, while haven assets jumped, driven by the yen’s steepest advance since 2010. Treasuries extended gains.
“I’ve certainly been surprised by the ability of the market to hang in there with as many mediocre earnings as we’ve seen so far and I think it was too many,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “As a bull, you don’t want to see a late-day selloff after some good morning action. It’s a market that’s just a little worn out.”

David Fuller's view
Wall Street’s influential stock market indices have been losing upside momentum in regions of previous resistance, as this service has been pointing out over the last two weeks.  We saw a good rally from the mid-February lows, helped by some favourable developments.  These included the weaker Dollar Index, now somewhat oversold, and sufficient recoveries in most commodities to suggest their bear markets are over.
What happens next?

The Biggest Windmills Now Make Jumbo Jets Look Tiny
Here is the opening of this informative article from Bloomberg:

Often derided as a blot on rural landscapes, wind turbines got bigger and stronger than ever anyway. The next generation are even larger and designed to withstand an Arctic battering.
The granddaddy of them all is a machine with rotors that cut a 164 meter (538 foot) swath made by a Vestas Wind Systems venture with Mitsubishi Heavy Industries. A single blade is 80 meters, about the entire wingspan of an Airbus A380 jumbo jet. In the intensely competitive wind turbine business, it’s rare for executives to allow a close-up look of what they’re developing, lest they tip off rivals. Vestas allowed Bloomberg News to visit and photograph the prototype units this month.
As they got bigger, the units became more efficient, boosting global installations 23 percent last year to a record 63.5 gigawatts, which at full tilt would be about as much as what flows from 63 nuclear reactors. Wind is now the most installed form of low-carbon energy. While few people outside the industry noticed, the trend lifted shares and profit of manufacturers from their crash during the financial crisis. Vestas is due to report its fifth consecutive increase in quarterly profit on Friday, overcoming a slump that forced it to cut 3,000 jobs since 2011.
Even the plunge in crude prices since  2014 has failed to derail industry growth.
“The doubling of turbine size this decade will allow wind farms in 2020 to use half the number of turbines compared to 2010,” said Tom Harries, an industry analyst at Bloomberg New Energy Finance. “This means fewer foundations, less cabling and simpler installation -- all key in slashing costs for the industry.”
The average turbine installed in Europe was 4.1 megawatts last year, 28 percent larger than in 2010, according to the London-based researcher, which expects 6.8 megawatts to be the norm by 2020. Harries said Siemens has hinted it’s working on a 10 megawatt turbine.
Standing in northern Denmark, where fjords cut through flat farmland, MHI Vestas Offshore Wind has erected the world's most powerful turbine. The turbine produces 8 megawatts of power, enough for about 4,000 homes. It could challenge the lead in offshore wind accrued by Siemens, which has almost two-thirds of installed capacity, according to BNEF. MHI Vestas is in second place, with 19 percent.
A Siemens spokesman said a 7-megawatt turbine the company is working on has a “track record of reliability” that will reduce costs for customers. It won its biggest contract for the machine on Wednesday from the Spanish utility Iberdrola, which will buy 102 turbines valued at as much as 825 million pounds ($1.2 billion).
The 80-meter blades of the MHI Vestas V164 make the machine almost as high as the Times Square Tower in New York, and are so large that they were “a nightmare” to transport on narrow country roads, Jens Tommerup, chief executive officer of the venture, said in an interview. This prototype is built for use offshore and has been tested on land since January 2014 at the wind turbine field in Osterlid, managed by the Technical University of Denmark. The goal is to spot faults before they enter service.

David Fuller's view
As with all technologies, windmills are becoming more efficient, which is obviously very good in terms of the energy produced.  Aesthetically, I do not like them.  They remind me of the invasion machines from H.G. Wells memorable science fiction novel: The War of The Worlds, first serialised in 1897.  If you live within earshot of a windmill the effects can be very disturbing.  Nevertheless, we will see more of them around the globe because their technology is improving and they are helping us to inch closer to a world in which our energy is mainly of the renewable variety.  

The Markets Now Presentations
Here is Iain Little’s excellent presentation: Trusts In Focus Up Date – Gold: In The Foothills of Recovery – What I’m Buying Today.

David Fuller's view
How about if we have the next Markets Now Seminar in early July, following the Brexit decision?

Ambrose Evans-Pritchard: The European Union Always Was a CIA Project, as Brexiteers Discover
Here is the conclusion of this historically interesting column for The Telegraph:

The awful truth for the Leave campaign is that the governing establishment of the entire Western world views Brexit as strategic vandalism. Whether fair or not, Brexiteers must answer this reproach. A few such as Lord Owen grasp the scale of the problem. Most seemed blithely unaware until Mr Obama blew into town last week.
In my view, the Brexit camp should be laying out plans to increase UK defence spending by half to 3pc of GDP, pledging to propel Britain into the lead as the undisputed military power of Europe. They should aim to bind this country closer to France in an even more intimate security alliance. These sorts of moves would at least spike one of Project Fear's biggest guns.
The Brexiteers should squelch any suggestion that EU withdrawal means resiling from global responsibility, or tearing up the European Convention (that British-drafted, non-EU, Magna Carta of freedom), or turning our backs on the COP21 climate accords, or any other of the febrile flirtations of the movement.
It is perhaps too much to expect a coherent plan from a disparate group, thrown together artificially by events. Yet many of us who are sympathetic to the Brexit camp, who also want to take back our sovereign self-government and escape the bogus and usurped supremacy of the European Court of Justice, have yet to hear how Brexiteers think this extraction can occur without colossal collateral damage and in a manner consistent with the honour of this country.
You can quarrel with Europe, or you can quarrel with the US, but it is courting fate to quarrel with the whole democratic world at the same time. 

David Fuller's view
This is an important point, although it will feel like emotional blackmail to many Brexiteers.
A PDF of this Telegraph article is posted in the Subscriber's Area. 

Please note: I will be attending a meeting tomorrow.

Japan Stocks Tumble After BOJ Holds Off on Adding to Stimulus
This article by Yuko Takeo, Toshiro Hasegawa and Yuji Nakamura for Bloomberg may be of interest to subscribers. Here is a section:
“We’ve had the knee-jerk reaction to no change as the majority expected some form of action,” said Cameron Duncan, Sydney-based co-head of income strategies at Shaw and Partners, which manages the equivalent of $7.6 billion. “In, hindsight, it’s probably consistent that they haven’t done anything because they eased three months ago.

There’s typically a lag in terms of response to that sort of easing. It’s the Bank of Japan and they’re pretty conservative and they are still waiting to see what the impact of that is.”

Goldman Sachs Group Inc. and HSBC Holdings Plc were among those expecting the central bank to add to ETF buying. Goldman Sachs estimated the BOJ would expand annual purchases to 7 trillion yen, while HSBC predicted an increase to 13 billion yen.

The central bank’s decision to forgo additional easing this time hasn’t deterred some from expecting more stimulus in the future. It’s inevitable that economic growth and inflation will take a downturn and given the outlook for a stronger yen, the BOJ will likely boost stimulus eventually, SMBC Nikko Securities Inc.’s chief market economist Yoshimasa Maruyama said.

Driven to Ease
“The situation the BOJ is in won’t change for the better because of its decision today,” Maruyama wrote in a note to clients. “It’ll be driven into easing further sooner or later.”

The Topix is down 13 percent this year, making it the worst performing developed market in 2016, after starting 2016 tumbling into a bear market on worries over oil prices and slowing global economic growth. The measure has climbed back 12 percent from a Feb. 12 low, bolstered by a recovery in oil prices and signs of stabilization in China’s economy.

Eoin Treacy's view
“If you’re going to go, go big” was something the BoJ appeared to have understood when it adopted the QE program that sent the Yen down more than 50% and ignited a major run in Japanese stocks between late 2012 and early 2015. Since the middle of last year the commitment to doing everything necessary to ignite inflation has waned. The wait and see attitude adopted of late suggests a lukewarm commitment to reform and expansion.

Monetary Policy in Wonderland
Thanks to a subscriber for this note from Doug Kass at Seabreeze Partners which may be of interest.
I continue to be struck these days by investors' deranged acceptance of current monetary policy as the norm. Few are fearful of zero or negative interest rates' adverse ramifications and disruptive impacts.

As I put it yesterday: "Two decades from now, we'll likely look back at 2000-2016 monetary policy with disbelief that investors swallowed and accepted it.

As my friend Mark J. Grant wrote on Monday, it's almost as if we all now reside in Alice In Wonderland: '"The White Knight's walking backwards and the Red Queen's off her head." We ignore it mostly. What can we do about it anyway? We have absolutely no control over the antics of the central banks.

In fact, a lot of investments are made just by trying to outthink what these people might do next.

Move your rooks first.

"Take some more tea," the March Hare said to Alice, very earnestly. "I've had nothing yet," Alice replied in an offended tone, "so I can't take more."'"

-- Doug's Daily Diary, Apple in Wonderland: What's Up with AAPL (and the Fed)? (April 27, 2016)

The aberrant and unsound have become justified and excused, while malinvestment has become a mainstay as markets reach for yield.-

Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.

There is no doubt we live in interesting times. Headlines this week that floating rate mortgage holders in Denmark, Belgium and Netherlands are receiving cheques from the bank because the interest rates on the loans they took out are now negative is another reason to believe we live in very strange times indeed.

Bond Traders Focus on Uptick in Inflation as Treasuries Decline
This article by Eliza Ronalds-Hannon for Bloomberg may be of interest to subscribers. Here is a section:
Treasuries declined, reversing earlier gains, after data showed a measure of inflation climbed in the first quarter by the most since 2012 even as the U.S. economy expanded at the slowest pace in two years.

Benchmark 10-year note yields rose as a bond-market gauge of consumer-price gains, known as the break-even rate, climbed to the highest on a closing basis since July. A Commerce Department measure of inflation tied to personal spending and excluding volatile food and fuel costs advanced 2.1 percent, the most in four years and in line with the Federal Reserve’s 2 percent target.

Fed officials have been looking for signs of accelerating price growth as they seek to tighten monetary policy as peers including the Bank of Japan and the European Central
Bank maintain or increase stimulus. Policy makers on Wednesday kept interest rates unchanged and signaled they were in no rush to act. The Fed removed a reference to global risks from its policy statement and emphasized concerns about U.S. economic progress, saying growth in household spending “has moderated” since its previous meeting even as labor-market conditions have improved.

“The various inflation and price trend data are all hovering at or above the 2 percent ‘price stability’ mandate,” said Russ Certo, a managing director at Brean Capital in New York. “You saw a marginally steeper curve,” he said, as “the market is choosing to first shorten duration based on the perception of this data print on overall interest-rate outlook.”

Eoin Treacy's view
The US 5-year yield is perhaps the best measure of where the most risk lies in the debt markets, since so much of the Fed’s holdings of Treasuries mature within that timeframe. The yield has been rangebound for most of the last three years but has held a progression of lower rally highs since early January. It is now trading in the region of the trend mean once more and a sustained move above 1.4% will be required to confirm more than temporary supply dominance.

Email of the day on using options in lieu of stops
Thank you for replying to my enquiry yesterday about the use of stop losses. Given your hesitations about them what do you think of the use of a put and call option in a Telsa -like situation?

Eoin Treacy's view
Thank you for this suggestion. I don’t pretend to have any specialist knowledge of options trading. I am however actively researching strategies because it is a tax efficient way of participating in the market from the perspective of a US based investor but I have not yet taken the plunge. I agree option strategies are a potentially useful way of mitigating drawdown risk.

Eoin Treacy's view
Thank you to everyone who has expressed interest in The Chart Seminar this year. Our plans are to hold a webinar sometime in June and I will share details of this as we firm up how best to conduct it. The timing of the seminar will be catered to where the majority of delegates sign up from but we’ll try to pick a time when the most possible people can tune in live.

We also plan to hold two seminars in physical locations this year. From some subscriber feedback I was thinking of holding one in Los Angeles during the summer and another in London during the fourth quarter. If you would like to express interest in any of our events please message Sarah Barnes at [email protected]

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