Market Watch: “The Smell of Default” says Deutsche Bank


Markets were closed on this President’s Day but the day was highlighted by an ominous report entitled: “The smell of default”  from analysts at German firm Deutsche Bank that emphasized- “only the Fed can save stocks now.”

The report stated:

“Without policy intervention, there is more downside risk for equities. To avoid a further rise in U.S. defaults, we will likely need to see a Fed relent, leading to a sustainable drop in the dollar, higher oil prices and reduced energy balance sheet stress.”

The Deutsche report infers that the seemingly unrelenting selloff in world markets over the first 6 weeks of 2016 will only slow down if the U.S. Federal Reserve changes its path and begins to loosen its monetary policy. The problem for investors is that is appears, at least for now that the Fed is not yet willing to change its policy course.  Worries about the failing economy in China along with concerns about the energy sector (specifically oil) and stagnant growth in European financial companies are reasons for the poor start to the new year.

Charles Newsome, divisional director at Investec Wealth and Investment explained on CNBC,  “that the equity market is now in a bear-market, and that any rallies are an opportunity to sell.” See more below.

Meantime, while Fed Chair Janet Yellen and the FOMC continue to sit on their collective hands,  the President of the European Central Bank (The ECB) Mario Draghi told the European Parliament today that “the ECB is ready to ease policy in March, if market volatility or the effect of low energy prices impacts inflation expectations.”

Markets closed on Monday, 2/15/16 on Wall Street for President’s Day holiday.

Dow Jones Industrial Average: 15,973.84 (+313.66 / +2.00 %)

NASDAQ: 4,337.51  (+70.68 / +1.66 %)

S&P 500: 1,864.78  (+35.70 / +1.95 %)