In what was shaping up to be a low-volume snoozer of a day, things changed dramatically at 10:30am when the DOE confirmed last night’s API data according to which US crude inventories had their biggest weekly decline since January even as distillates and gasoline stocks rose. That headline sent WTI soaring by 5.4%, the most since March 16.
The crude spike was all the “momentum ignition” that futures needed to stage a dramatic surge, soaring from 2035, jumping as much as 20 points higher to 2055 before the slightly more hawkish than expected FOMC Minutes reported pushed ES lower by 10 point. And then, out of nowhere, a massive buying program emerged out of nowhere, and sent the E-mini tofresh highs.
It wasn’t just oil: an even more notable notable move took place in the biotech sector, which surged by over 5%, its biggest intraday gain since November 2011, and accounted for nearly half of the S&P500’s gain. The reason was the collapse of the Valeant-Allergan deal. No really: while talking on CNBC, Brent Saunders said that now that the deal has been pulled, Allergan could weigh deals. That is all the slgos needed to hear and unleashed a massive frontrunning spree, buying up every N/M PE company they could find.
To be sure, as equity algos were scrambling into risk, the VIX was getting crushed, and while it was a last second VIX slam that prevented the S&P from closing red for the year yesterday, today’s the selling started early, and from 16 the VIX was back at just around 14 at last check.
Not everyone was rushing into a Risk On mode, however: while the 10Y sold off modestly, it was at 1.75%, back to Monday’s levels.
But that didn’t stop the S&P500 from closing at the day highs, some 1.1% higher, while the Nasdaq raked in 1.6%, just 80 points away from the “psychological 5000 level” and the highest of 2016, on hope the biotech bubble may be rekindled.
All this took place as the dollar tumbled from overnight highs, sending the JPY and the EUR surging, and resulting in even more headaches for Kuroda and Draghi, with the latter now once again forced to think how to create another Bund “hit” like last May as the yield on the 10Y Bund is almost at all time lows.
The USDJPY plunged below the critical support of 110, sliding as low as 119.30, and at last check was trading around 109.70, virtually assuring that the BOJ will have to do something in the coming weeks to push the Japense currency weaker once again.
The bulk of the sector moves were summarized by Credit Suisse as follows:
- Biotech outperforms as investors try and find what companies PFE targets next…and what AGN does next with the $30bn they get from TEVA –likely keeps M&A interest in biotechs, especially smid caps alive
- Asset Managers outperform – DOL Fiduciary Standards less burdensome (Longer phase in time through April 2018…Grandfathering for existing plans …Disclosure requirements were relaxed) – WETF, LPLA, RFJ, SF etc
- Ferts holding in despite weak MON #s; some debate about whether they would have to update guidance again today (on FX and/or glyphosate) so maybe relief no further guide down but I don’t think many expected a change
- Energy ripping — Crude at day’s high and Oil E&P, Oil Servs and most subgroups all rallying. We highlighted Dislocation between HY cash and energy prices this morning – most thought it read bearish for HY (as opposed to bullish for energy) but maybe not
- Lighting plays hit on CREE (-19% on warning) …ETN read thru
- Paper names down on BAML call –initiates KS at UP and downgrades UFS to UP
- Banks underperform; Several street downgrades (brokers #s continue to get cut)
- German bunds near record lows on a flight to safety
- Industrial short cycle names hit on MSM read thru; March Sales being worse than February is driving conversations with clients about “short cycle trends weakening sequentially” as a potential sign that the rally we have seen in short cycle stocks can’t be sustained
- Casinos weak on WYNN #s – Macau just below expectation
Finally, some observations from CS on what to look forward to as we are about to enter the prime of earnings season: here’s what stands out
One of our favorite ways to gauge sentiment around earnings at the sector and industry group level is by tracking the pace of upward EPS estimate revisions. At the sector level, revisions weakness has been broad based, with no sectors seeing more than 50% of revisions to the upside in the past 13 weeks. However, two of the weakest sectors – Materials and Industrials – have started to rebound off of post financial crisis lows. Consumer Discretionary revisions trends have also seen an uptick in recent weeks. Revisions in many defensive oriented sectors – Staples, Telecom and Utilities – had been in decline but have recently begun to show signs of improvement. Banks, Diversified Financials and Real Estate have seen revisions trends fall to levels near or below past lows (post ’09), but the latest data shows signs of an uptick so we are watching for a bottom. Banks in particular recently saw revisions hit extreme lows. Pharma/Biotech revisions have fallen to post ’09 lows, with no signs of a bottom emerging as of yet.
So it’s all really bad news (but thankfully there are buybacks, and non-GAAP adjustments, and multiple expansion, and of course, the Fed) but because the terrible is becoming a little less terrible for a few companies, just BTFD.
And now we sit back and watch what crazy things Peter Panic may do tonight to offset the collapse in the USDJPY to levels not seen in one and a half years, which have made a total mockery out of Japan’s QQE and NIRP.
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