Wednesday, March 23, 2016

Topped Out? Stocks, Oil Fall On Stronger Dollar

Concerned over fears that the Fed might actually raise rates at the April FOMC meeting, investors took some long-overdue profits after five straight weeks of gains on the S&P and Dow Jones Industrials.

Nearly everything else was in the red on the day as the dollar strengthened against major currencies, most notably the British Pound, sent reeling over fears that UK residents might vote - in an upcoming June referendum - for Britain to leave the EU, a new poll showed.

Such cracks in the facade of the status quo are troubling for elite investors clinging to their one and two-percent dividends in stocks and bonds while the rest of the world crumbles under the weight of central bank intransigence.

Adding to the worries are the recent attacks by ISIS in the heart of the EU, Brussels, where Tuesday's terrorist bombings occurred at the airport and in a subway station just blocks from the EU parliament building.

Gold, silver, bond yields and oil also fell sharply on the day as a reassessment of priorities seems to be underway. The rout of Hillary Clinton by Idaho and Utah by insurgent candidate, Bernie Sanders, also weighed. Ted Cruz and Donald Trump split the vote on Tuesday, as Cruz captured all delegates in Utah and Trump took home the prize in Arizona's winner-take-all primary.

Oil stockpiles expanded for a fifth straight week, as the US glut expanded by 9.4 million barrels last week to 532.5 million barrels, an amount triple what analysts had expected.

While one day's slipshod results may not be nearly enough data to imply anything other than market noise, the alternative argument figures that, having made back all the losses for the year, it's time to book early profits and head for safer havens. Bonds, where yields fall as their price improves, seems to be wagging the tail of the stock market at present. The benchmark 10-year note has rallied for the better part of a month, though it still remains below two percent since dipping under that line on February 1st.

With the rest of the developed world embracing negative interest rates at the short end of the curve (though Japan's now-inverted curve has the ten-year JGB lower than the overnight rate), the Us continues to try to buck the trend by implying rate hikes ahead.

Nothing could be further from the truth. The Fed has already seen what a mere 25 basis point hike in the federal funds rate produced - a sharp decline in stock prices - and they're not about to embark upon that trip now that those losses have been retaken.

As many analysts have pointed out, the Fed is trapped, with an economy not strong enough to warrant rate increases and a base rate too low to offer any resistance to recessionary or deflationary forces. Their only resource available in the case that the economy creaks and cracks is negative rates, a subject they have already publicly broached.

Today's Setback:
S&P 500: 2,036.71, -13.09 (0.64%)
Dow: 17,502.59, -79.98 (0.45%)
NASDAQ: 4,768.86, -52.80 (1.10%)

Crude Oil 39.80 -3.98% Gold 1,220.80 -2.23% EUR/USD 1.1182 -0.32% 10-Yr Bond 1.88 -3.10% Corn 367.25 -0.74% Copper 2.24 -2.23% Silver 15.27 -3.90% Natural Gas 1.78 -4.29% Russell 2000 1,075.70 -1.97% VIX 14.94 +5.43% BATS 1000 20,682.61 0.00% GBP/USD 1.4116 -0.71% USD/JPY 112.4155 +0.07%

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