Risk Off Friday Seems Intently Focused On Oil And Talks In Doha

We closed the week with a decidedly risk-off day. Worldwide, equities reflect this sentiment best.

The posture began in Asia where China’s economy met GDP expectations. However, neither Hong Kong, nor Shanghai, nor Tokyo was much impressed.

All three major indexes were off from a tenth to a third of one percent. The problem is that China has turned into the economic data version of “the boy who cried wolf,” solidly misrepresenting its conditions so often that no one believes official numbers any more.

In Europe, declining oil prices weighed on stocks on all three major indexes there, although the losses were moderate.

Unless there's a total surprise, the chance is that the Doha (crude-oil strategy) meeting on Sunday between OPEC and non-OPEC producers will only produce clanging bells and sound and fury signifying nothing. It seemed like a smart move to sell today.

Nevertheless, crude was up about 3.00% on the week. Could it be that Doha will produce some sort of floor price? Outside odds, at best. More like they will try to talk the price up.

In New York, oil’s downturn pushed equities lower. Other less volatile factors also helped stocks close lower. Apple fell about 1.5% on news that they were keeping iPhone production at current (low) levels. And financial institutions – namely Goldman Sachs and Citi – reported poor performances. (Citi said its dividend was going to be falling by 27%.

Losses were held to roughly one-third of a point, though, largely on a small bit of optimism generated by a positive Empire region report on manufacturing growth.

Gold was the chief beneficiary of the risk-off day, rising about %5.00. Most of that was due to dollar weakness.

Speaking of dollar weakness, the yen gained around 0.60% on the greenback (another cause of Asia’s equities dip). As the afternoon wore on, however, the euro gave back some its gains on the session.

It must be confounding to Japanese economists that the dollar remains so weak. The Bank of Japan thinks it has done everything possible to weaken the yen – although its governors hint at having an ace up their collective sleeve.

The BoJ might have to resort to throwing trillions of yen out of helicopter windows. We think that there is one thing missing in their thinking, although it’s as plain as a nose on a face.

The U.S. system is still digesting years and years of bad or weak debt buybacks (Asset Purchase Program). It was a six-year program. To explain how it relates to the Fed’s own interest rate levels requires a long and complicated conversation.

Suffice it to say that the roughly $4.8 trillion has served the same purpose as negative rates for the U.S., even if it was not an intended consequence.

It’s not in evidence in the spreads between BoJ’s rates and the Fed’s rate. But it will be a weight on the dollar’s value for some time to come.

Wishing you as always, good trading,