Domestic stocks were mixed as global investors expect further accomodative monetary policy. The S&P500 fell 0.4% to 1,979 and the Dow Jones rose 0.1% to 16,790. The VIX continues to slide down towards levels more in line with recent norms below 20. Foreign stocks rise on further monetary easing hopes. Brent oil rebounded above $50 on a weakening dollar and slowing US output. Global markets are pricing in the expectation that the Fed may wait until 2016 to raise interest rates, and that this may force the ECB and the BoJ to act with further easing programs in the interim. Hopes for the ECB to ease further were bolstered by German factory orders which fell 1.8% in August compared to a small gain which was expected. Nevertheless in spite of these expectations the euro rose to $1.1271 and the Yen to Y120.20 as investors expect that the Fed won’t tighten in 2015. More clues are expected at the BoJ meeting tomorrow. The Australian dollar rose 1.3% to $0.7170 (USD per AUD) as the central bank holds interest rates with a more bullish tone than expected. Emerging market currencies were supported by the rally in oil prices. The US ten year yield fell 2 basis points to 2.04%.
The trend of banks struggling to sell debt given the current market climate continues. Goldman Sachs and JP Morgan are struggling to find demand for $1.2bn of loans from a LBO of FullBeauty Brands. In recent weeks many issuances were not able to sell as much debt as they had hopes or the yields priced at higher than expected. Investors had previously showed no signs of falling demand however recent global turmoil had forced some to reconsider their investments. With some bonds selling off in recent weeks investors may be shifting their preferences and finding places that did not previously exist before, leaving loans such as these with lower demand than in the past. Goldman Sachs and JP Morgan agreed to this deal before market turmoil began in September. Trying to sell the loans at 98 to 99 cents on the dollar but found no demand. Now “second lien” loans are being sold at 80 to 93 cents on the dollar with a yield around 12.5 to 13%. Hedge fund managers and distressed debt specialists are hoping to push prices even lower around a 15% yield. This is not the first sign of distress in these markets as many other deals led by prominent banks have had to either forego issuance altogether or sell at less favorable terms than initially expected.
In spite of monetary easing expectations abroad the US dollar fell today as hopes that the Fed will not raise rates in 2015 took precedence. Recent data such as this past Friday’s payrolls report and the ISM nonmanufacturing PMI have led investors to believe that the Fed won’t raise rates this calendar year. The dollar fell to $1.1275 against the euro and Y120.21 against the yen and the dollar index fell to a two week low to 87.96. Analysts seem to be at a consensus that a December hike is still a possibility if data between now and then shows signs of improvement.
Oil prices rise 5% rising above $50 as oil executives assert that US production is slowing. Mark Papa former CEO of EOG Resources said that output is finally due for a slowdown after production was initially resilient to low prices. Similarly the CEO of Shell Ben van Beurden expresses that Opec is succeeding pushing expensive products out of the market. Brent rose 5.6% to $51.99 and WTI rose 5.1% to $48.63. These moves were also supported by recent dollar weakness. Commodities are priced in US dollars and as a result US dollar weakness makes it more attractive to buy.