U.S. Equity Futures Fail To Sustain Bounce; Resume Slide On Oil Fears

Things are looking increasingly shaky for central planners around the globe.

After yesterday’s dramatic rout in US equities, which was saved toward the end of trading by a “dash for trash” short squeeze in which several repo desks unleashed forced buy-ins on some of the most shorted companies pushing the Dow Jones 450 points off its lows, China followed up with its own latest intervention spin when it injected a whopping CNY400 billion or $60 billion in liquidity into the financial system, the most in 3 years. This helped push stocks well into three green in early trading, however once the realization spread that this may be taking place in lieu of the much anticipated RRR or rate cut, the Shanghai Composite which first rose just shy of 3,000, subsequently tumbled closing at the lows, down -3.2% at 2,880.

A comparable revulsion in sentiment emerged in Japan where the Nikkei likewise roared higher in early trading, only to plunge at the close, down nearly 400 points, or 2.4%, ending just above 16,000 a new 15 month low. The Nikkei surged more than 300 points in early afternoon trading as investors took heart from a rise in U.S. stock index futures, brokers said. But the rally rapidly lost steam and slipped into negative territory later, with large-cap issues encountering selling from investors in oil-producing countries amid tumbling crude oil prices, they said. The market was also dragged down by a flurry of index futures-led selling, they added.

But once again, the key driver of risk around the globe was oil, which after initially staging a modest rebound after yesterday’s NYMEX close after having been down as much as 7%, has since drifted lower once again not helped by the latest far greater than expected API inventory build and certainly not by comments such as this one by BP CEO Bob Dudley who said markets are facing a “flood of oil.” So important is every up and (mostly) downtick in oil, that even the ECB’s statement due out shortly and Draghi’s press conference to follow, both so important in early December when a Draghi’s build up to a massive bazooka unveiled a tiny water pistol, have taken on a secondary importance today with most expecting nothing of substance from the former Goldman employee.

So where are we now: the Stoxx Europe 600 Index is up 0.4% while S&P futures, which first soared in early trading, subsequently tumbled as much as 1% to trade about 0.4% lower as of last check. To be sure, as Bloomberg comments, “volatility has coursed through financial markets in 2016 and at least 40 equity markets around the world with a total value of $27 trillion are now in bear territory as turmoil in China shows no signs of abating and the selloff in crude oil deepens.”

Investors seeking reassurance will look to President Mario Draghi’s briefing after the ECB’s interest rate announcement for indications of how the central bank will react to the equity slump and oil’s damping effect on inflation.

“There’s no reason to be overweight equities, but the ECB could have a reassuring impact today,” said Francois Savary, the chief investment officer of Prime Partners SA, a Geneva-based investment manager. “Markets need to hear that the bias of monetary policy remains accommodative. We’ll get no lasting rebound without some fundamental news that really shifts sentiment.”

They will likely not get it today from Draghi, who after last month’s debacle, will likely be far more muted in what he promises, says or does.

More details on where we stand now:

Looking at regional markets in more detail, we start in Asia, where equity markets saw choppy trade, with an initial recovery in the commodities complex providing support before most of the major indices fell back into the red ahead of the close, while the PBoC also injected the largest amount of liquidity into the inter-bank market in 3 years and PBoC’s chief economist states that cash injections could be used as a substitute for a RRR cut. However, sentiment then reversed in late trade as crude failed to sustain a rebound.

Nikkei 225 (+2.4%) initially gained as Japanese exporters were underpinned by a weaker JPY but then shrugged off gains in late trade, while the ASX 200 (+0.5%) was led by gains in basic materials after several large mining names reported firm quarterly results. Elsewhere, Chinese markets also fluctuated between gains and losses, with the Shanghai Comp (-3.2%) initially recovering after the PBoC conducted a CNY 400bIn open market operation injection, before paring as sentiment soured in late trade.

The MSCI Emerging Markets Index slid 0.7 percent, poised for the lowest close since May 2009. The gauge is down 13 percent this year and trades at 10.1 times its 12-month projected earnings, the least since March 2014. Hong Kong’s Hang Seng China Enterprises Index sank 1.8. The Shanghai Composite lost 3.2 percent to the lowest since Dec. 2014. The gauges have both fallen more than 18 percent this year.