JAPAN: Bend Or Break?

Nearly three weeks ago, the Bank of Japan announced it would be injecting $1.4 trillion into the economy as a stimulus measure. Stocks rallied on the news while the Japanese Yen sold off hard. Since the beginning of 2013, we've recommended shorting the Yen. Central bank intervention is commonplace these days and the effect it has on the currency and stock markets is quite powerful. The Nikkei 225, Japan's version of the S&P 500, made new year-to-date highs today, touching 13,568, up +1.9%. That puts the index at a whopping +31.5% year-to-date, making it the second best performing stock market in the world (Venezuela is #1, up +37% year-to-date). 


The chart below shows the performance of the USD/JPY (US Dollar relative to the Japanese Yen) currency cross and as you can see, the dollar has gained significantly against the Yen over the last year.


JAPAN: Bend Or Break? - USDJPY cross

Bearish TRADE: SP500 Levels, Refreshed

Takeaway: On the way down to 1515-11529 support, I can then cover shorts and start to take up my gross long position again.



On our immediate-term TRADE duration, the SP500 just failed at TRADE resistance (1557) again. On our intermediate-term TREND duration, the market still looks fine (1515 TREND support). A market that’s in this position has what we call Duration Mismatch.


What to do? For me the answer had to be learned over the years – but now the playbook is pretty simple: A) take down gross exposure and B) make sure my net is tight. On the way down to 1 support, I can then cover shorts and start to take up my gross long position again.


Across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1557
  2. Immediate-term TRADE support = 1529
  3. Intermediate-term TREND support = 1515


Being bullish at every minute of every day is no way to live. Neither is disrespecting my signal. So I’ll let that bearish immediate-term TRADE signal override what’s becoming an even more bullish intermediate-term TREND research view (Dollar Up, Down Oil).




Keith R. McCullough
Chief Executive Officer


Bearish TRADE: SP500 Levels, Refreshed - SPX

COPPER: Sliding Lower

While gold was at the epicenter of media attention during its multi-percentage point decline last week, copper is the metal everyone should really be paying attention to. After falling -6.1% last week, copper is down -1.2% this morning to $3.11/lb. That brings the damage on copper to -15% year-to-date, as you can see in the chart below that shows the de facto standard futures contract for copper: London Metals Exchange High Grade 3-Month Copper.


Copper and other commodities will continue to decline in price as the great commodity bubble created by Federal Reserve Chairman Ben Bernanke and his monetary policies deflates. We remain bearish on commodities and still like our Freeport-McMoRan Copper & Gold (FCX) short. The stock is already down -1.7% this morning and has declined -21.1% over the last three months.


COPPER: Sliding Lower - YTD copper

European Banking Monitor: Benign

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


European sovereign swaps were largely uneventful last week with the only notable move coming from Portugal, tightening by 17 bps, and the Euribor-OIS spread was essentially unchanged at 13 bps last week.




European Financial CDS - European bank swaps were modestly wider last week. Societe Generale widened by 14 bps to 202 bps, while Banco Popolare widened 38 bps to 592 bps.


European Banking Monitor: Benign - tt. banks


Sovereign CDS – European sovereign swaps were largely uneventful last week with the only notable move coming from Portugal, tightening by 17 bps. 


European Banking Monitor: Benign - tt. sov 1


European Banking Monitor: Benign - tt.  sov 2


Euribor-OIS Spread – The Euribor-OIS spread was essentially unchanged at 13 bps last week. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: Benign - tt. euribor


ECB Liquidity Recourse to the Deposit Facility – Deposits were lower by 4.8bn Euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.


European Banking Monitor: Benign - tt. facility



Matthew Hedrick

Senior Analyst


Energy Crisis In Russia

Russia, being a country rich in natural resources, is feeling the pain of the declining price of crude oil. A strong US dollar has driven the price of Brent crude oil below $100 a barrel with no support until $96.02 a barrel.


With oil in bearish formation, that spells trouble for Russian stocks, many of which are tied to the performance of the energy markets. The RTSI index, which is already down -12.8% year-to-date, is down -1.16% this morning. Comparatively, the Energy Select SPDR ETF (XLE) was down -4.4% last week and is down -5% over the last month.


Energy Crisis In Russia - RTSI index

Morning Reads From Our Sector Heads

Keith McCullough (CEO):


Tata Faces Crisis as $20 Billion Spent on Water: Corporate India (via Bloomberg)


PBOC’s Zhou Says Slower Growth Needed for Restructuring (via Bloomberg)


Josh Steiner (Financials):


Wall Street betting billions on single-family homes in distressed markets (via Washington Post)


Cleveland Fed stress test adds housing, securitization coverage (via Housing Wire)


Banks pull back from risky regions (via Financial Times)


Jay Van Sciver (Industrials):


Caterpillar Reports First-Quarter Results, Revises Outlook and Announces Resumption of Stock Repurchase (via Caterpillar)


Brian McGough (Retail):


Björn Gulden Taking Reins at Puma (via WWD)


Teens Get Less Parental Help as Fashion Spend Dials Back (via SGI News)


Kevin Kaiser (Energy):


Halliburton Announces First Quarter Income From Continuing Operations of $0.67 Per Diluted Share, Excluding a Charge Related to the Macondo Well Incident (via Halliburton)




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