Daily Close (A Fizzling Rally)
US stocks closed largely unchanged after a daylong fizzling out of the opening gap higher and the s&p closed below its 50dma despite a 3bps decline in US 10 year yields. After a period of high activity two weeks ago, we have stopped trading equity markets alltogether for now for exactly that reason; the opening may have nothing to do with the close and from what we saw, the market can now gap up or down 1% or 2% with very little chance to get out ... or back in. In a candid declaration of its CIO, Japan’s biggest life insurer said it would start selling rallies, arguing that expectations of a “Goldilocks” scenario is now fading. European shares closed literally unchanged as well and the dollar decline resumed. EURUSD gained +0.5% (to 1.2333) despite Germany reporting, on the heels of softer PMIs, a softer ZEW and IFO survey. The German IFO expectations component fell the most in two years (to 105.4 from 108.3), the weakest in five months. France also reported weakening business confidence readings for February. As the dollar declined and with the stock rally fizzling out, gold managed to eke out some gains (+0.5%). Russia reported it increased its gold holdings in January by about 20 tons to 1,857 tons (similarly to what it has been doing since March 2015), topping China’s official reserves (most likely not the non-official ones as China, unlike Russia, does not report its monthly purchases to the IMF) of 1,843 tons. Oil rallied 2.4% and bitcoins sank 4%. Similarly to yesterday, safe haven currencies (CHF and JPY) continued to signal a return to risk aversion despite sputtering equity markets that are sending mixed and more confusing signals. We stick to our defensive posture with an equity book mostly hedged (except for a small exposure to bombed out diversified gold shares). We also believe that rising inflation is more dangerous than rising rates (even for stocks) and if the latter is interrupted by fear of fueling a correction which we think is likely (both the rate hike interruption and the correction), then inflation hedges might very well be the place to be for a while.
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