Overnight the effects of China's PBoC rate cut, which was a after market cut on Friday for China, was felt today as fixed income products were repriced sending the Shanghai Composite higher along with most of Asia, except Japan which is closed today. In other words, by the time the PBoC rate cut from last Friday came out, Asian markets were closed, thus European and US markets benefitted from it, but today was the first day for Asian markets to react.
The Shanghai Composite closed up +1.85% with the Hang Seng at +1.75%.
Saturday the ECB's Constancio blasted out a bunch of headlines, again much like Draghi or rather exactly like Draghi, all related to low inflation trouble in the Euro-area, again calls to do something immediately, but again no specifics, no mention of sovereign bond buying QE, however that's the way the market wishes to take the news and that's the way it takes it as the ECB and/or the BOJ have been expected for a year to pick up the F_E_D's baton once they dropped it, a quite large baton indeed. This essential repeat of what Draghi said last week, which interestingly had no effect on the market other than to slam the EUR/USD, is said to be behind risk on sentiment this morning in Europe as well as US futures.
I think the main focal point of any market strength for the week is quite obvious and political, Black Friday (this Friday after Thanksgiving marking the start of the US holiday shopping season) as it serves as a benchmark for the rest of the Holiday shopping season and as of now, it looks like a particularly nasty Nor'easter winter storm is likely to hit the east cost of the US on Thanksgiving, potentially having a "weather" related disappointment in Black Friday sales.
Also on Thanksgiving, OPEC is to meet to discuss output quotas which have become increasingly meaningless as Saudi Arabia breaks with OPEC and more and more often changes its output on a whim, often seemingly at the US's behest for political/strategic reasons (Putin), however many see lower oil prices as very dangerous for the economy and if OPEC fails to cut reduction and lift oil prices in a meaningful way, that a default cycle and junk bond cycle of failures will follow, leading to losses in profits...How often have you heard low oil prices are actually bad for the economy? This is clearly what we are seeing in USO/3C which I wrote about last week, if USO continues on the course it has started (and Brent obviously), there may just be a leak already out as to what OPEC is going to do and that would suggest a strong cut.
This morning with US futures higher, I don't see anything that looks particularly interesting, except a divergence in ES, which as you know, we typically see some change in course and volatility on the cash open.
I was looking at VXX/UVXY/XIV over the weekend for a member and was quite surprised how strong they all look except for a 1 min chart that looked like it was purposefully moved lower last Friday and planned Thursday, now in line. With VIX buy signals and Bollinger Band pinches as well as VIX futures strong divergences and SKEW rising in leaps, perhaps it shouldn't be surprising.
More just after the open.
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