Stocks opened the trading week with a nearly 400 point selloff on heavy volume before a late rally took the Dow to a 177 point loss at 16,027. Global market weakness and falling oil prices continue to strike fear into the hearts of traders. Hot market sectors so far this year are gold, US Domestic utility stocks and US gubment bonds.
According to Bank of America/Merrill Lynch, global liquidity concerns are on the rise and may be behind the recent market selloff. Chris Flanagan and Mao Ding are gurus at Merrill in the US mortgage and strategy departments and they surmise that new regulatory and capital requirements are leading banks to minimize their risk exposure to sectors of the economy that are under stress. This in turn is adding to a liquidity crisis in the energy sector both domestically and globally. The solution to the problem, according to Flanagan and Ding, would be a global monetary policy response and/or a rebound in energy prices. In addition to this issue, recent moves by central gubment banks toward negative interest rates is affecting banks because all the reserves and cash they have is now costing them money and could eat into net interest margins and push profits lower. This new development could spell trouble for banks in Europe and Asia. Stay tuned!
Speaking of energy prices, oil was lower today after a meeting between Saudi Arabia and Venezuela in which Venezuela, which is near default, urged the Saudi’s to cut production and boost prices. Saudi Arabia however deferred on the request saying the real issue was Iran which is now back on the market and ramping up production. WTI crude today closed down 2.5% to $30.11 per barrel. Gold continues to rise gaining $32 an ounce to close near $1,190 an ounce.
Budweiser Beer got a boost when Payton Manning said he was going to have a cold one after the game. I wonder which wine company will benefit from Cam Newton’s post game presser.