OVERNIGHT

Here's the latest overnight from China as the PBOC dumped a brunch of money into the market, the largest amount in almost three years, the WSJ is reporting.

SHANGHAI—China’s central bank is putting the largest amount of cash into the financial system in nearly three years, using a weekly market operation to pre-empt a holiday-induced funding squeeze and offset rapid capital outflows.

The People’s Bank of China offered 340 billion yuan ($51.89 billion) of short-term loans, known as reverse repurchase agreements, to commercial banks in a routine money market operation Thursday.

The central bank provided 440 billion yuan via similar tools Tuesday, the first leg of its twice-a-week liquidity-management exercises.

Given the maturity of 190 billion yuan of previously issued loans, the PBOC’s net cash injection this week totals 590 billion yuan, the biggest of its kind since early February 2013, when it reached 662 billion yuan.

The move follows an aggressive pump-priming exercise by the PBOC last week, when the central bank offered more than 1.5 trillion yuan in gross short- and medium-term lending to banks.

Capital flight has been on the rise as the negative news put investor confidence on the wane. Some of this huge injection no doubt is aimed at slowing down that capital flight. The DJIA ended Wednesday down 1.38%, the Nasdaq fell nearly 2.2% and the S&P 500 dropped 1.09% in what many said was a negative reaction to the Fed action to take no action.

Asian shares for the most rallied Thursday as oil became less of a concern for the moment following  Russia's mention of a possible deal with OPEC that might rectify the over supply situation. The dollar closed slightly higher against a basket of currencies, the Nikkei eked out a small gain of 0.3%, U.S. Crude oil fell 21 cents.

MADE UP YOUR MIND YET?

For those who love economic indicators, here's another one--informal or no--you need to pay attention to--bond rating firms. Are they lagging or leading indicators. You decide.

These are the boys and girls now warning (reminding is the kinder, more gentle term) us that there are "some troubling trends in the bond market."  Note: most of these warnings are coming out after the recent junk bond crisis hit the news.

Moody's tracks something they call "probability-of-default" for lower-rated debt. Though as you would surmise, oil and gas are the first two words out of the computers of these firms these days. And as you might guess, there's an average number seen in usual times--9%--for energy and gas. The current one: 25%. The total number on the list for all sectors is 248 firms, the highest in six years.

As you might also guess a lot of this paper is buried smewhere on the balance sheets of banks.

Over at Standard & Poor they use a ratio of junk debt trading at much higher yields relative to other higher rated bonds, a distress ratio. The last time it's been as high as it's now, 29.6%, according to the WSJ, was 2009 when it hit nearly 36%. That's to remind you unlike that old Frank Sinatra standard, 2009 wasn't a very good year.

At Fitch it's more of the same, where they expect 2016 to end with a higher rate of defaults, 4.5%, than 2015's 3.4%. But here's the good news. Like those fund managers in down years who love to  point out their funds against their chosen benchmark lost only 10% after dividends while comparable competitors did much worse:"Last years rate and this year's forecast are well below the 13.7% rate in the financial crisis.," notes the WSJ.

There's the good-news-bad-news tale about a guy who visits his doctor and the doctor informs him  he's got some good news and bad news and ask which he would prefer first to which the patient replies,  "Give me the good news."

"You have cancer and you only have one week to live," the doctor says.

"Jeez! What's the bad news?"

"I've been trying to get a hold of you to tell you for six days."

Have you decided yet about whether these firms are leading or lagging indicators?

OVERNIGHT

Except for Chinese shares most of the Asian markets overnight were up.

In Hong Kong the Hang Send rallied 0.6%, the Nikkei 1.2%. The Nikkei rebound apporached a near two-week high.

 Some concern among investors about Beijing possibly withdrawing support for its markets didn't help things as The Shanghai Index dropped for the second day in a row, down 2.8% on Wednesday following a 6.4% fall on Tuesday.

MarketWatch reports oil prices overnight backed off as signs of any cutbacks from producers apparently dissipated.

Crude oil prices pared earlier gains in Asia trade Wednesday as anxiety over an expanding global glut outweighed market speculation that large producers might be more willing to trim output to support prices. 

Prices rose overnight by around 4% after Iraq’s oil minister said at an energy conference that he sees signs that Saudi Arabia and Russia are more “flexible” on supply cuts. But doubts over the likelihood of a collective cut happening anytime soon.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in March CLH6, -1.43%   traded at $30.85 a barrel, down $0.38, or 1.2%, in the Globex electronic session. March Brent crude LCOH6, -0.69%  on London’s ICE Futures exchange fell $0.19, or 0.6%, to $31.61 a barrel. 

For almost two years, oil prices have been depressed as large oil producers, both in and outside of the Organization of the Petroleum Exporting Countries, have refused to cut output to maintain market share. OPEC officials have said they are unwilling to curb production unless their non-OPEC rivals, such as Russia, Mexico, and U.S were also on board. 

“We consider the likelihood of any agreement between these parties as extremely low,” ANZ Research said in a note.

 
 

THE POST SAYS

Well, now it's really official. We philistines have received the vaunted imprimiture of that noted MSM scribe, the Washington Post, the media outlet that nailed the Watergate scandal all those murky years ago.

Slow down your heart rate and heave a couple of heavy sighs of relief. We can all relax now, the news is out and the truth all over town: "The Federal Reserve may have made a huge mistake."

In traditional journalistic style the Post sort of, kind of hedges a bit. But no matter. This is the Washington Post, the property of the Omaha Scold and the once snooty enclave of those journalistic giants, the Bradley's. Genuflecting is gauche. But we understand. Control yourself. It's not the lottery, but it ranks right up there. From this moment forth we will all surely know what to do: Cancel your subscription. The Fed got it wrong.

Markets sure seem to think that the Federal Reserve has made a big mistake.

It hasn't just been stocks selling off 10 percent to start the year. It has also been bonds saying that they don't think the Fed will come close to hitting its target of 2 percent annual inflation anytime in the next 10 years. Markets, in other words, have done everything short of holding a boom box outside of Fed Chair Janet Yellen's window to beg her not to raise interest rates any more after the Fed hiked them in December for the first time in nearly a decade. And it just might work. After all, there's no such thing as an atheist in a foxhole or an inflation hawk in a stock market crash, especially when prices were barely rising to begin with.

Why is that? Well, the stock market might be the worst way to tell the future, except for all the others. So even if, as the old joke goes, it's predicted nine out of the last five recessions, that's a still better than predicting zero out of the last 220. That, as Larry Summers points out, is how many the International Monetary Fund has seen coming at least a year in advance. The fact, then, that the S&P 500 seems to be saying that the recovery is falling apart should make even the most committed inflation-fighter wonder whether there is actually anything to fight.

It's generally not a good thing when the stock market says you might have to start cutting rates right after you started raising them.More:

washingtonpost.com/news/wonk/wp/2016/01/26/the-federal-reserve-may-have-made-a-huge-mistake.

This is a akin to turning on one of your own kind, not an unheard of event in the daffy world of MSM. Surely, there's at least a trace of anti-feminism here, one that another staunch feminist will most likely pick up on the campaign trail, pointing the finger of blame at one of her boisterous opponents.

Meanwhile, back in the real world many of Wall Street's high and mighty along with MSM are scratching their graying pates trying to figure out why there's so much anger afloat today around the globe.

Huh!

SPOOKY IS AS SPOOKY DOES

You should expect it to happen. Of late much of the focus has been on the relationship between oil and equities. In the jargon, it's called correlation. Lately, it's been a fairly tight one with both going the same direction--down.

Things like this bring out the pundits. Here are some examples if you want to know more you might want to check out notwithstanding what economist Alan Blinder, former Vice Chairman of the Fed under Greenspan, in his recent don't worry melody about China and low oil prices in the WSJ.

According to Blinder, China is no big deal and neither is low energy prices. It's just those silly, spooky markets frightening themselves. In short, China will glide to a soft landing. Sometimes it's difficult to figure out which is more dangerous--spooky markets or spookier opinions. But that's your job if you chose to accept it.

1. marketwatch.com/story/what-oil-prices-really-say-about-the-stock-markets-future-2016-01-26?

2. marctomarket.com/2016/01/great-graphic-world-equities-and-oil.

3. dailyspeculations.com/wordpress/?p=10860

OVERNIGHT

Well, that didn't last too long, the rally in oil prices. And by proxy stocks prices.

Energy in Asia was down overnight and it spilled over into Hong Kong where the sector dropped almost 5%, pushing the Hang Seng down almost 2%. The Nikki also fell nearly 2% and the yen rose against the dollar to 118.09.

Oil prices and equities have been tightly correlated for a while now as investors fret about the condition of the global economy and the ending of monetary stimuli notwithstanding the recent statements at Davos to calm and reassure the markets.

On Monday crude in the U.S. fell to $30.34. Prices are down nearly 7% so far this week as investors see no sign of producers cutting output any time soon. Oil declined in Asia 2% to close at $29.90 a barrel. On top of that Iranian oil coming online adding to a market already flooded doesn't soothe the situation.

Other markets down were the Korean KOSPI, off 1.2% and thr Shanghi Composite down 2%. Markets in India and Australia were closed for a holiday. Gold continued to benefit from all the weakness and concern, trading at $1112.80 in early trading, up 0.7%.

Since both the Bank of Japan and thr Fed have policy meetings on the docket this week investors are seeming hoping for a glimmer positive news that the Fed will roll back its planned four rate hikes tentatively set for this year and the BOJ will continue or even increase it monetary stimulus packages.

Probably good advice for investors to follow here is: Don't hold your breath.

PASS THE MAYONNAISE PLEASE

We like to publish silly quotes from high-flying folks whenever we see them. Here's one related to U.S. banks cutting their relationships with Mexican banks owing to increased regulatory rules.

In 2014 Mexico received nearly $25 billion in U.S. dollars from people living in the U.S. At risk here, according to reports, is cross-border transactions that give Mexican banks access to the U.S. financial systems. More and more banks it seems are leaving emerging markets because of this increased scrutiny coupled with possible regulatory imposed fines.

The major concern given: a usual suspect regulators and bankers love to roll out--money laundering. For those with a long memory, U.S. regulators in the 1970s imposed reporting standards on banks for any transaction of $10,000 or more. Though 10 grand today is hardly the big wallop 10Gs was then, the restriction remains, playing much havoc with small business owners and just ordinary citizens in America.

Has it stopped the laundering? How many actual launderers has it caught? Anyone laundering only $10, 000 today, he or she is small peanuts with a capital S and a capital P. How much suspicion and inconvenience has it aroused? Money laundering has become the surrogate for apple pie, motherhood and the American staff.

Back to the quote. It's pretty difficult to find a bigger hitter in the financial industry than Jamie Dimon, CEO at J.P. Morgan.  Dimon in his time has been around many banking rodeos going all the way the back to his days with Sandy Weill at American Express and after that at Citigroup.

"We do move $6 trillion a day and I am terrified if $100 goes to the wrong place."

Not so long ago it was all about the North American Free Trade Agreement and those wonderful opportunities free trade offered. That included the banking world. With all due respect we think Mr. Dimon gets terrified pretty easily.

Either that or Mr. Dimon likes his mayonnaise spread pretty thick.

NATURAL LAWS

 
 We like to write about oil, not because we think we know everything because we don't. What we're interested in is, among many other things, human behavior. Now don't laugh. We know it's an endless, knotty chore.

Our interest doesn't include the kind ladled out in academe. They're probably the last ones with a clue. The recent controversy over the Harvard psych professor's claim about poses is a case in point. Most of the stuff these academic shut-ins produce is for each other not general consumption. If it were for general consumption, there'd be no need for these academics to exist because the masses, despite the popular MSM propagated view, are generally adept at smelling bullcrap on their first whiff.

There's much market hand-wringing these days about excess oil supplies. Given the obvious global slowdown (Please don't share that piece of info with the Fed.), where's the demand going to come from? It's the big question of the hour. Well, if one's looks careful it might come from the nation with the globe's third largest oil reserves, America's northern neighbor, Canada, and their newly elected left-wing government in the Alberta province.

After 44 years of conservative rule, the new administration is threatening to "cap carbon emissions from its oil-sands industry, a move that threatens to strand billions of barrels of crude from supplies so vast that only Saudi Arabia and Venezuela control more," according to today's WSJ.

Now nobody knows if this is a done deal or its full ramifications if it is. You might not agree, but to us this is more about human behavior than macro economics. Human behavior always precedes not follows macro economics. Politicians who claim to be human do stupid stuff and the macro effects wend their way into the social and economic fabric.

Now if you're long energy at these cheap prices, this is a move you devoutly welcome, however stupid it might or might not be depending if you're  a card-carrying fanatic of the climate change society. Forget the trend or the Fed. Follow the actions of politicians. Recall also Keystone here. Notwithstanding all their efforts, bureaucrats, regulators and politicians have tried to proscribe regression to the mean, a natural law of its own sorts.

The safe bet here is against politicians and their behavior not natural laws.

EARNINGS SEASON

A couple of weeks ago earnings season began. About the same time worries over China and the falling price of oil hit the market and for the most part it's been anything but what many expected.

Most by now know the China and low oil prices story. But earning might turnout to be a disappointment for markets that rivals those two. A blurb in the the WSJ notes:

Since companies began announcing results two weeks ago, corporate earnings have moved in the wrong direction.

With 15% of the companies in the S&P 500 having reported results, earnings for the index is expected to contract 6% for the fourth quarter, according to FactSet’s blended earnings forecast. That’s down from the 5% decline analysts anticipated for the S&P 500 on Dec. 31.

If that rate holds through the end of quarter, it would mark the steepest slide in earnings from the year prior quarter since the first quarter of 2009. It would also be the third straight quarter earnings have declined. The last time that happened was during the first three quarters of 2009.
A stronger dollar and tumbling oil prices have weighed heavily on the overall earnings picture of the S&P 500. This latest disappointing earnings season comes as stocks around the world have tumbled on concerns about global economic growth.

Now there's a lot of quarters in there, but don't get confused. It's the trend. Adding to the earnings picture woes, the article continues, are recent results from Goldman Sachs and Legg Mason, both asset managers, as firms in this sector are being hard-hit by withdrawals and low interest rates not to mention the general mood of investors and the global outlook. Though as pointed out the energy sector accounts for much of the decline, providing a convenient scapegoat, there are other problems like fiercest competition and price cutting afoot among these big boys.

In the meantime, forget pulling out your crying towel for these big asset boys and girls with their huge bonuses, they don't mind taking your hard earned money with fees and the like in the good times. We refer you to, once again, the comment the billionaire CEO of BlackRock made in our piece, An Interesting Specimen, financialspuds.blogspot.com.

Keep your eye on earnings as the pallor spreads and hopes of them providing support for the market fade.

OVERNIGHT

Shares in Asia rose Monday, as a rebound in the price of oil boosted energy shares.

Storms are supposed to have silver linings and it appears that the blizzard that hit the eastern part of the U.S. over the weekend and a European cold front helped push oil prices higher overnight in Asia. Couple that with the ECB's statement at Davos last week about possible further monetary stimulus and investors apparently viewed both as a glimmer of hope.

Monetary stimulus is still the market drug of choice as both the Fed and the Bank of Japan hold policy meetings this week. No specific actions are expected, but after the rocky past couple weeks, excluding last Friday, a little of the correct jawboning could provide even more temporary relief. Here's a brief report from Reuters.

The Shanghai Composite Index SHCOMP, +1.03%   gained 0.5%, while the Hang Seng Index HSI, +1.83%   rose 1.4%. Japan’s Nikkei Stock Average NIK, +0.84%   rose 0.4%, Australia’s S&P ASX 200 XJO, +1.65%   gained 1.2% and South Korea’s Kospi SEU, +0.86%   was up 1%.

Investors were buying again after weeks of steep losses — a monthslong slump in oil, uncertainty about the magnitude of an economic slowdown in China and concerns about whether that spills over and restrains U.S. growth have plagued stocks since the start of the year.

But expectations for central banks to possibly introduce fresh monetary stimulus are gaining steam, helping a recovery from last Friday firm up. In particular investors are speculating that the Bank of Japan will announce measures at its meeting later this week, on Jan 28-29.

Meanwhile, energy stocks in Australia and Hong Kong were up more than 2%, after oil prices climbed back above $32 a barrel.

In the U.S. on Friday, the S&P 500 rose 2%, helped by a rebound in oil prices that boosted energy stocks, and a lift in iron ore prices. The Nasdaq Composite closed up 2.7%.

Still, some analysts were wary.

“It should be noted that the Bank of Japan has consistently disappointed the market expectations for further easing over the past couple of months, and they are more likely than not to leave their policies unchanged,” Angus Nicholson, market analyst at brokerage IG said.