No bounce after Powell crushed the Fed Put dream and then Fed’s Dudley chimed in today adding that “The Fed is not there to take away the market’s pain,” adding that The Fed “doesn’t care about market prices for themselves.”
In other words – to all the whiners who are seeing their ‘no brainer’ stocks sinking…
However, Dudley’s internal ‘bad cop’ quickly disappeared and out came the ‘good cop’ to rescue things: “if the economy starts to weaken, The Fed should definitely pause” and that sent stocks rocketing back higher… but then he spoiled it again “We need to slow the economy down, and so somewhat tighter financial conditions aren’t really a bad thing.”
So hike until you really break something…
* * *
China was relatively well behaved last night, but did extend the losses from Wednesday (SHCOMP -30% from highs)…
Japan was ugly with TOPIX dropping into a bear market…
European stocks plunged… (the Bloomberg Europe 500 index is down 17% from highs)
And while overnight US futures failed to catch a bid, they trod water until around 7amET, then accelerated lower at the US open, rescued only by Dudley talking about easing…
The Dudley bounce saved stocks from what could have been a lot worse.., but it was still ugly…
And volume was huge (double recent average volume)…
For the month, Dow, S&P, and Nasdaq are down 10% with Trannies and Small Caps even worse…
On the year, Nasdaq is now down almost 6%…
Since The Fed statement, The Dow is down 5%, Gold and Bonds higher and the Dollar slightly lower…
How much further can it go? 300 more S&P points to just catch down to the tightening of financial conditions…
Biotechs were battered (XBI down 33%)
Banks continue to slide (11th day of the last 12)…
with Citi down a record 11 days in a row…
Credit markets carnage continued…
And stocks are catching down…
Bonds and stocks decoupled this afternoon…
Treasuries were also dumped along with stocks (Risk Parity deleveraging) with the long-end underperforming (+2-4bps)…
Breakevens continue to crash along with crude…
10Y Yield remains below the 2.80 level though…
The Dollar Index dumped overnight, giving up all its post-Powell gains and accelerating lower again on shutdown concerns…Today is the biggest drop in the dollar since March
Safe haven buying in Swissy sent the currency to its strongest in 3 months and back above its 200DMA…
Cryptos caught a bid again – Bitcoin up 25% this week, back above $4000…
Briefly..
Crude and gold continue to diverge dramatically…
Gold was also well bid (safe-haven buying) which sent it above $1265 and above its 200DMA to the highest since June…
Silver broke above its 50- and 100-DMA…
WTI crashed again – dumping 4.5% back to a $45 handle…the lowest since Aug 2017
Is the ‘value’ of oil nearing a ‘low’…
Finally, we note that hedge funds have slumped so far that all the post-Trump-election gains have been eviscerated…
And the market remains dramatically divergent from The Fed on where rates are going from here..
The world’s most systemically important banks have crashed to the lowest since Nov 2016…
There has only been one December (1931) in the history of the stock market that was worse than this…
As Rosie concluded: “All markets are flashing a yellow flag on the economy.”
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