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Market Commentary


Ahead of FOMC

Financial markets are being swayed by divergent monetary policies in the world’s leading economies. Fed funds futures show the odds of a U.S. rate increase by the end of June have shot up to 54 percent from about 6 percent in the past month as data has indicated growth recent has strengthened modestly and taken off the immediate risk of a recession off the table.

Just like in December the Fed will be forced to telegraph that it is hiking rates as a signal of a strengthening US, and global, economy where “risks are balanced” and hope that the subsequent global reaction will not be a rerun of what happened in January and February when confusion about the Fed’s intentions led to a global market rout.

The U.S. currency will probably respond favorably to signals from the Fed, which will look to keep its options open, Alan Ruskin, Deutsche Bank AG’s global co-head of foreign-exchange research in New York, wrote in a research report. “This also means leaving the door wide open to a June hike, and even ajar to an April hike,” he wrote, saying the March payrolls report and global risk sentiment will be important deciding factors.

Meanwhile, WTI has halted its 2-day slide after API data overnight showed U.S. crude stockpiles climbed last week around half expectations for today’s more definitive EIA data. The price extended gains gains after Qatar said it would host an April producers meeting where the topic would be what else, a production freeze, one which however would not include Iran; Brent recovers above $39, moving in parallel w/ WTI market.

In Europe, equities initially kicked off the session in the green today, benefitting from upside in the energy and materials sector (Euro Stoxx: 0.0%). However, stocks were then dragged lower by the SMI (-0.2%) amid softness in UBS (-3.0%) and Credit Suisse (-4.6%) following downbeat comments from the UBS CEO detailing that 2016 has remained a challenging year for the Co. while markets also speculate about the Credit Suisse CFO dropping out of a Morgan Stanley conference, although the Co. have denied to comment on such speculation. Nevertheless, the sentiment has now breached into the broader European sphere with the likes of Deutsche Bank lower by 2.2% and European stocks in the red.

Deutsche Bank Tumbles After CEO Says Bank Won’t Be Profitable This Year

“We think that the bank-Deutsche Bank –is in for another difficult year in that guidance is that ‘2016 peak restructuring year’,” BofA said, adding that “it looks like revenues are under a lot of pressure, yet adjusted costs are guided to be flat with another €1bn of restructuring costs.”

Citi sees an additional €3.6 billion in litigation for 2016.

Underscoring that assessment are comments out today from Cryan who spoke at a conference in London.

We’ve said this year is not going to be a profitable year, we may make a small profit, we may make a small loss, we don’t know,” he stammered.

But then again, maybe he does know, because moments later he said this: “There’s a lot of stuff we have to get done this year, so this year we’re not going to be profitable.”

Peabody ,largest U.S. Coal Producer Skips Interest Payment, Warns Of Bankruptcy; Stock Crashes

Peabody, which flagged bankruptcy risk under the “risk factors” section of a regulatory filing on Wednesday, said it skipped a $71.1 million interest payment on its senior notes, kicking off a 30-day grace period. The company also raised “substantial doubt” about its ability to remain a going concern.

Peabody’s lenders are pushing the company to restructure its debt through bankruptcy but the company has also been pursuing bond exchanges. As Reuters calculates, as of Dec. 31, the company had a total debt of $6.3 billion and cash and cash equivalents of $261.3 million.

The 100+ bonds trading at 30 cents or less with interst payments due in the next 6 months, the eye of the hurricane is about to shift away and the dire situation facing U.S. energy companies.

European Top News

  • Volkswagen Europe Market Share Continues Drop Amid Recalls: Volkswagen’s brands accounted for 24% of new auto registrations in Feb. vs. 25.4% y/y; industrywide European car sales jumped 14% in February to 1.09m vehicles
  • Munich Re Continues Share Buybacks Amid Lower Profit Outlook: Plans to repurchase EU1b of its stock before 2017 shareholder meeting; targets EU2.3b-EU2.8b FY profit after EU3.1b in 2015
  • BMW CEO’s Strategy Puts Focus on Electric, Luxury Vehicles: Plans to roll out more electric cars and add self-driving features faster than rivals, also roll out more sport- utility vehicles; targets “slight’’ rise in 2016 pretax profit, revenue
  • Bilfinger Scraps Payout as Widening Losses Pile on Pressure: Won’t pay a div. for 2015; net losses widened almost 7-fold
  • Zodiac Shares Tumble After Profit Forecast Cut an Eighth Time: Current operating income in the year ending Aug. 31 will “come in close to” the amount reported last year
  • Osborne Seeks Low-Cost Vote Winners as Budget Tightens Austerity: Schools in England to be freed from local- authority control, school days will lengthen under GBP1.5b package of measures designed to improve education standards

In commodities, oil prices were boosted today as producers agreed to meet in April, WTI rose USD 0.50/bbl and a smaller than expected build in the APIs.

U.S. crude inventories increased by 3.2 million barrels last week, according to a Bloomberg survey ahead of government data Wednesday

Copper was little changed in London, while nickel added 0.2 percent. Gold for immediate delivery fell 0.1 percent to $1,231 an ounce, set for the lowest close in two weeks. It’s still up 16 percent for the year.

Market at a glance:

  • S&P 500 futures up 0.1% at 2008
  • Stoxx 600 down 0.1% to 340
  • FTSE 100 up 0.2% to 6154
  • DAX up 0.6% to 9997
  • German 10Yr yield down less than 1bp to 0.31%
  • Italian 10Yr yield down 2bps to 1.35%
  • Spanish 10Yr yield down 2bps to 1.5%
  • MSCI Asia Pacific down 0.6% to 126
  • Nikkei 225 down 0.8% to 16974
  • Hang Seng down 0.2% to 20258
  • Shanghai Composite up 0.2% to 2870
  • US 10-yr yield down 1bp to 1.96%
  • Dollar Index up 0.19% to 96.81
  • WTI Crude futures up 1.6% to $36.92
  • Brent Futures up 1.2% to $39.19
  • Gold spot up less than 0.1% to $1,233
  • Silver spot up less than 0.1% to $15.29

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