Helicopter Ben is front and centre this week as markets enter a vacuum and await his every utterance as to signals about the when, where, how and why of the taper.
That is really what it is all about in pretty much every market. The volatility that the Fed has engendered since its public discussions about the “taper” kind of makes their point insofar as markets are or were getting a bit drunk on the never ending punch bowl. So I don’t think they will resile from their key message that they are looking at winding back the economic stimulus via bond buying as and when the time is right.
And while I think their idea is entirely appropriate given the leveraged leverage that has been added to global markets via the BoJ’s policy of QE and a weaker yen their communication is going to be all important this week with the markets on tenterhooks.
But we have to get there first and we have from now until till 4 am Thursday Morning Australian Eastern Standard time – so about 95 hours from the Sydney FX open of trade to get through before we find out the when, where, how and why of the taper – what fun.
Looking back to Friday, the relationship between the Nikkei and the USDJPY is obvious, the relationship betwween the S&P 500 less so. But many were focussed on this on Friday as US stocks were let down by no growth in industrial production, capacity utilisation that came in at 77.6% and a fall in the University of Michigan Consumer confidence index from 84.5 to 82.7.
So with weaker data but fears of taper the early morning strength of US stocks evaporated into the afternoon and the Dow closed down 106 points or 0.70% at 15070, the Nasdaq was off 0.62% and the S&P 500 was 0.57% lower at 1627.
In Europe the FTSE closed up 0.05%, the DAX rose 0.40%, the CAC was 0.18% higher while in Milan stocks were 0.23% higher and stocks in Madrid were flat.
Note though that the good news from the weaker data in the US is the rally in US 10 years which are back at 2.14% from above 2.20% earlier in the week.
On FX markets the yen was much stronger but couldn’t, or can’t yet, get through the important Fibonacci level at 93.60/70 but watch out if it does. The 20 day ATR is on a steady climb toward 200 points which is double what we saw in Feb-April and almost 4 times a big a daily range as we saw in the back end of last year.
This is one of the reasons the levered bets have been coming off the table. If we assume, as would be fair, that investors sold yen and bought dollars as the yen selloff became obvious and then invested those proceeds into the US stock market and or emerging markets and maybe some Aussie dollars then we get a leveraged levered bet on purely central Bank actions by the Fed and BoJ.
But when the yen reverses the easy money isn’t as easy and positions get closed which is what we have seen over the past few weeks.
The chart above is USDJPY on the dailies and you can see it has pulled up at the 38.2% Fibo retracement support, or just above it. A break of this 94.60 level would open a move toward 90-91.
The Aussie dollar is front and centre to any debate about free money, global growth, the outlook for the Australian economy and of course any growing fear of uncertainty and risk off move in markets.
The market, as you will see in my CFTC report later this morning is as short as it has been at least since 2000 and probably ever given the increased volume over that time and it closed the week under acute pressure dropping to 0.9566 at the New York close from a high only a few hours previous at 0.9664.
This morning in early Asian trade Reuters reports it has slipped a little further to 0.9553 bi.
There are many, including Vincent Cignarella at the Wall Street Journal, who think that the Aussie might just have one more rally in it before it falls into the 80’s. Cignarella writes:
I like the Aussie dollar to bounce in the near term up to as high as perhaps $0.9875, a level that would complete the fourth wave of the current Elliott Wave cycle, longer term the U.S. dollar will prevail. So don’t get married to the trade.
By year end the Australian dollar should settle around $0.8500 but not before exploding one last time toward even with the dollar.
Now I have some sympathy with the idea that the Aussie might have another bounce higher but this is a bear market so I would rather sell the rally than get long in the hope of same. The reason I say this is that Cignarella’s comment echoes something I have seen so many times in so many markets over the past 25 years and that is people want the market to reverse from the current trend so they can get back on the trade – in this case a rally to sell into. Experience has taught me though that if a lot of people are looking for that it just might never happen.
As you can see in the weekly chart above there is support for the Aussie here and the dailies are still suggesting a bounce but my JimmyR trend indicator is in a bear market on both time frames. 0.9741 should be very large resistance at present.
Crude is apparently up on the back of the tensions in Syria which do appear to be taking on a more global and regional significance as the big powers square off and take sides. Russia in particular is very bellicose about army rebels with President Putin posing the question at G8 over the weekend of whether you want to arm people who not only kill their enemies but open them up and eat their body parts – gruesome but the video exists and with news that the Iran revolutionary guard are now in Syria fighting for Assad as well things are getting interesting in Syria and crude prces are watching.
At the close crude was up 1.20% or $1.16 to $97.89 after earlier trading at the highest level since January this year. Gold was up 0.70% to $1389 and silver rose 1.72%, Dr Copper was 0.61% higher.
Data
Westpac Consumer survey in New Zealand, Tertiary index in Japan and a G8 meeting where I’m guessing Syria will be more the topic than markets.
In Australia we have new motor vehicle sales while in Europe and specifically Italy we have Trade Balance before the Empire State Manufacturing in the US along with the NAHB.
Twitter: Greg McKenna