NEW YORK / Bloomberg
U.S. stock-index futures fell, after the Standard & Poor’s 500 Index trimmed its second weekly rally, amid concern policy makers around the world aren’t doing enough to bolster the global economy.
Bank of America Corp. and Goldman Sachs Group Inc. fell at least 1.1 percent in premarket trading, signaling lenders will snap a two-day advance. Valeant Pharmaceuticals International Inc. lost 3.9 percent after withdrawing its financial forecast and delaying releasing quarterly results as its chief executive officer returns from leave.
S&P 500 contracts expiring in March fell 0.4 percent to 1,934.25 at 11:02 a.m. in London. They trimmed losses of as much as 0.8 percent after China stepped up efforts to cushion a slowdown by cutting the amount of cash the nation’s lenders must hold as reserve. Dow Jones Industrial Average futures dropped 0.4 percent to 16,529.
Group of 20 finance ministers failed to come up with coordinated stimulus at a meeting in Shanghai, disappointing investors speculating that policy makers would do more to support the global economy after growth worries and a deepening oil rout sent stocks around the world tumbling.
“Some people were hoping for some of big, bold action from the G-20 to try and kick-start the global economy and now they’re probably disappointed looking at the outcome,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “The market is probably vulnerable as we go into March.”
China’s central bank cutting its reserve requirement ratio by 0.5 percentage point “will be interpreted positively,” said Christian Stocker, a strategist at UniCredit Bank AG in Munich. “Export sensitive companies in the U.S. and Europe as well should profit the most, even if the effect needs some time to occur.”
U.S. stocks snapped a two-day rally on Friday after signs of firming inflation fueled speculation interest rates may rise sooner than previously expected. While the S&P 500 jumped 1.6 percent in the past five trading sessions, the gains came amid the weakest volume in 2016, signaling a lack of conviction in the rally after losses of as much as 11 percent this year.
A rebound of 6.5 percent since a Feb. 11 low has erased the S&P 500’s losses for the month, putting it on track for a gain of 0.4 percent, the most since October. The benchmark is still down 4.7 percent in 2016.
Investors are also watching economic releases to gauge the trajectory of rate increases, before the Federal Reserve’s next decision on March 16. Data on pending home-sales in January are due later today, while reports on manufacturing activity will be published tomorrow.
Gold Allure Burnished
U.S. Treasury 10-year futures may continue to underperform gold over the medium-term in a global fixed-income environment punctuated by negative rates as the relative opportunity cost of holding the yellow metal decreases.
Even as market bets of reversal of the Federal Reserve policy direction increases, the ratio of Treasury futures and gold pierced through a key technical level earlier this month, signaling the commodity may retain an edge.
The ratio is now at a eight-month low, after breaching the 200-day moving average which underpinned it most of last year.
Historical pricing shows gold retains a greater room for upside while Treasury futures hovers near all-time high.
Haven demand applies to both gold and Treasury futures. But expectations of negative rates amid renewed talk of U.S. recession may weaken the dollar, boosting appeal for gold priced in greenbacks.
Eurodollar option contracts show bets that the Fed will adopt negative interest rates in 2017 have more than doubled since early January, with aggregate open interest across 2017 contracts rising to about 336,000 from year-to-date low of less than 160,000 on January 7.
To be sure, there may be a near-term correction to the ratio with DeMark indicators close to trend reversal on the daily and weekly charts.
Similar signals occurred in March and July 2014 when it pushed up the ratio.
Dollar’s elevated levels may have a bearing on Fed’s rate path as U.S. financial conditions tighten, amid fragile risk sentiment, even while central banks around the world indulge in competitive devaluation.
Gold call skew is now deepening as upside strategies take hold. Three-month call option with 110 percent strike price relative to a put option with 90 percent strike price is the highest since 2011.