Damn It, Janet!
Yellen’s testimony Wed. “was not dovish relative to market expectations,” and didn’t take March off table, Morgan Stanley strategists Matthew Hornbach, Chirag Mirani, Guneet Dhingra write in note.
She “qualified most of the downside risks to the economic outlook with a positive spin,” while implying that tighter financial conditions need to persist in order for Fed’s economic outlook to change
Risk mkts will struggle in absence of “positive catalysts” until Fed makes clear that “gradual” could mean only 1-2 hikes in 2016
In summary, as Rick Santelli exclaimed, Janet Yellen admitted (by her comments on NIRP legality) that there is no Plan B.. and if there was we don't even know if it possible...
An undovish and NIRP-confused Yellen sparked the risk-off pain...
Futures show the early exuberance ran stops to Monday's ledge (Friday's close)...
On the day, Nasdaq outperformed as The Dow underperformed...Note the sell-off stopped right as Europe closed once again and then accelerated into the US close...
FANG stocks managed a small bounce but TSLA tumbled - now down over 40% YTD...
Much of the early exuberance in stocks was based on rumors in Europe of ECB monetizing DB equity and its emergency bond buyback plan... but as is all too clear, even the sheep in stock-land were not really buying that... all technical - algos ran stops to fill the gap then yumbled (from +15% to +6%)...
US financial stocks managed some early gains (up 2%) on the heels of European gains BUT US financial credit risk pushed another 3bps wider to 166bps - highest sicne 2012...
And by the close US Financials were back in the red...
One more thing while we are on banks and systemic risk - The Libor-OIS spread has surged in recent weeks suggesting significant funding stress in European and US money markets... probably transitory, right?
Credit markets kept selling from the open...
Treasury yields ended the day marginally lower (led by the long-end) but roundtripped from notable early selling.... 30Y Yield hits 2.51% - lowest close sicne April 1st 2015
With the yield curve collapsing to lows from 2007...
FX markets were very volatile with Yellen's comments sparking a surge and purge in the USD - ending the day unch but down 1% on the week...
But USDJPY was the biggest loser as carry traders flushed it back to a 113 handle, erasing all of the "devaluation" gains since QQE2 was unleashed...
And for those hoping for intervention - here's what happened after last night's "intervention"...
Finally with a flat USD, gold and silver flatlined today as crude and copper presed lower...
Which pushed WTI to new multi-year cycle lows...
And at the same time, energy credit risk is spiking higher...
Charts: Bloomberg
Bonus Chart: A silver lining for the bulls? No bulls left...
Bull Exodus pic.twitter.com/guhe2cjlR5
— Not Jim Cramer (@Not_Jim_Cramer) February 10, 2016