As the month draws to a close in the vinegar strokes of summer ‘holidays’, stocks are currently setting up for the second best August since 2009.
Despite the collapse of US economic data…
All on the back of an excited rebound in the Yuan (and Powell’s J-Hole speech)…
Still, as former fund manager and FX trader Richard Breslow notes, it’s only Tuesday and the month runs to the end of the week, but it’s hard not to start anticipating what asset prices might look like after we all get back from the summer’s last gasp bash.
Especially since people keep telling me to ignore all this price action because the real story will only be reflected in market levels starting in September.
Eugene Fama would get a huge kick out of reading these pieces.
And we might want to be a little more circumspect in so easily dismissing what we are all witnessing in plain view. It’s not the worst time to give your biases a stress test. The beginning of the year is the time for forecasts and fantasies. The fourth quarter is for getting it right because, in fact, your year depends upon it.
No matter how bullish I want to be with respect to the dollar, it just isn’t trading well. It is serially failing one technical test after another. So much for that break higher two weeks ago.
Failure in price action is worse than never going there to begin with. Aside from the daily charts, weakness is creeping into the monthly charts and is even more pronounced as you widen out the universe you measure the currency against. Say what you will, the next few days will count. We’re that close. Which means the numbers, such as they are, will matter too. And we don’t have much central bank speech after today to muddy the waters.
Global sovereign yields are also an issue. Who’s doesn’t think yields should go higher and isn’t also a crank? But they have been right. Doesn’t matter if there’s structural issues involved or not. Being short bonds has stunk. And if you are long equities and continuing to enjoy the ride, you almost have no choice but to keep your bonds. I adore the notion of selling 10-year Treasuries near 2.8% . But I have to wonder why I keep being given the opportunity to do so.
And as much as I believe bunds are a screaming sale at the lower half of a 30-40 basis point range, it’s hard to ignore just why BTPs are back above 3% and the Turkish lira continuing to look ill.
Which brings us to everyone’s favorite whipping boy, emerging markets. What do they like? Low bond yields, a dollar under control and solid global growth. Without trade wars destroying the supply chain. If you look at the MSCI Emerging Markets Currency Index you see a really beat up measure that exudes cautious optimism. And a lot of uncertainty. If this was all baked in the cake, the index wouldn’t have spent this month making Fibonacci the proudest man on the planet. Check out the range versus the 21- and 55-month moving averages. Low and behold, we walk in today seeing it exactly in the middle of the month’s range.
The EM crisis is far from over…
Gold, by the way, is getting very interesting. It certainly came back very smartly from where it had to hold, but is now right in the sell-zone. Well worth seeing how this plays out. Perhaps wishful thinking, but this isn’t a stable level it is likely to hang out at for long.
Financial markets don’t always reflect what we think the real world would suggest. For the purposes of this exercise, just worry about what your screens are showing.