Macro Morning: Eye of the storm

This is a huge week.

I’d posit it is the biggest week of the year in terms of central bank announcements and data releases and I’d suggest that by the end of this week we may not still be any clearer on where the Fed is at with regard to the Septaper (unless non-farm payrolls is weak).

Before we have a look at those let’s look back to the US stock market on Friday which opened weak but managed to eke out small gains with a strong rally on the jump in the Michigan Consumer sentiment data. At the Close the Dow (+3 pts 15,559), the S&P 500 (+2 pts 1692) and Nasdaq (+8pts 3613) snuck into the black although Europe was more mixed with the FTSE (-0.5%), DAX (-0.65%) and FTSEMIB (-0.06%) were all down while the CAC managed to rally 0.33% and Spain was 0.89% higher.

Worth noting is that based on my usual discretionary system, as opposed to my modified Turtle system that got me long Friday week back, the S&P (and the DAX et al) looks like it has topped out.

S&P 500 Daily

Clearly last week was one of ebbs and flows as you can see on the long tails on the daily bars above. My stop on the modified turtle is 1663 now and if this breaks it would trigger me into a discretionary short.

The Hilsenrath Impact continued on Friday for the US dollar which continues on the back foot against the euro (1.3285), sterling (1.5381), yen (98.09) and the Aussie (0.9250). Key driver is the expectation that the Fed will be dovish again this week but I reckon they will continue to nuance the message about the difference between the taper and interest rates. This is a difficult task and will be extremely important over the week because the market is heavily long USD’s and short Aussie, yen and GBP in particular.

On commodity markets gold also recovered from early losses ($1333.35 oz.) but like the S&P it too is dancing around at the waiting on the next catalyst higher. A break back below $1308 could get ugly this week while a break above $1345 should kick it to the next level. Crude retested the line it broke up and through and has held for the past couple of weeks and a fall below $103. 89 opens up a big fall. Our friends corn and soybeans were a bit more quiet than recently only falling 0.81% and 0.41%. Copper was 2.49% lower as fears continue to grow about the outlook for Chinese growth and particularly because the  Chinese Investment Corporation has, in the words of the FT, ” switched emphasis away from commodities to financial stocks in its overseas equity holdings over the past year”. FT article here.

Now a quick look at the data this week. We have the Bank of England, ECB and the Fed all having their meetings and announcing the results of same. We get the preliminary read on US Q2 GDP and then at the end of the week we get non-farm payrolls in the US.

We’ll know later this week but complicating things just a few hours before the Fed announcement is the US GDP for Q2 which is expected to slow to an annualised 1.2%.

Equally important now that Mark Carney has had time to get his feet under the desk is the message we get from the ECB about rates. Many expected he would hit the ground running at his first meeting but this belies the nature of central bankers, even ones as forward looking as Carney. But his second meeting is a very different kettle of fish. GBP has been gently gaining against the USD recently and Carney may want to be rid of that trend and it is clear that outside London the UK economy still needs considerable stimulus.

Likewise in Europe the ECB will be concerned that the Chinese slowdown is going to have material impacts on them even if the PMI’s have been a little better lately. So we’d expect some dovishness there too. That’s not to say its all bad in Europe because the data has been beating expectations but a weaker China means a weaker Germany.

Then of course at the end of the week we get non-farm payrolls with the market expecting +184k according to FX Street.

David Einhorn recently said that his firm had cut back positions because it saw volatility coming and wanted to take advantage of it. It is a prudent message for all of us who trade as this week we could be right as many times as we are wrong or even more but still lose money because the market whip saws.

Time to don the helmet and be careful.



  1. IMHO, the Fed WILL taper in September…

    …If for no other reason than it said it would, and of they don’t then this is tantamount to suggesting they don’t have as much perspective and control on the economy (and currency) as people think they do, and that they have been trying to give the impression they do.

    The market will lose significant faith in the Fed (and the USD) if they do not, and I actually think it would be a turning point in USD history, akin to the 1970s.

    So, to re-iterate: they WILL taper in September, because, at the very least, they MUST.

      • Yep, i’m a gold bull that is unashamedly selling some PMs into this “rally”, so to speak, to position myself later to pickup some PM stocks nice and “cheap”.

        I’m hoping for another ramp pre-SepTaper, with which I’ll offload some more PMs (admittedly, I still hold a fair bit of PMs for long-term…)

        Would be nice if silver would get a kick-along…it’s a bit of a dead-weight at the moment…again, with me still being a silver bull 😉

    • Another comment wirth sharing, too, re: SepTaper and US economy “recovery (???)”…

      A simiilar loss of faith scenario still could occur even if SepTape occurs: if the US economy performs poorly once SepTaper (likely) occurs, it says to the pundits that, as long as the prevailing econo-political obsession with certain short-term metrics prevails, then QE is a “NECESSARY” part of the economy.

      ie. QE really is QE-infinity.

      This would be a devastating impact, as the pundits would eventually realise in the medium-term that USD printing is, now, virtually “perpetual”, to “maintain the status quo” – whatever that is…

      And, why? The Fed might that “when” it becomes good to do so, they will wind back printing again….back if it didn’t work the last time when they thought it would, then why would it work this time?

      No, the Fed MUST Taper AND the US Economy MUST perform in the medium-term…

      Else, to be quite honest, the whole USD-fiat she-bang could start to come down – and I don’t think I’m exaggerating.

      IMHO, the whole USD-fiat paradigm is on a knife’s edge at the moment, and will probably remain so for the next few years, until a US economy “recovery” can be ascertained as genuine or not.

      Until then, I would expect bouts of volatility until a real Minsky moment of some sort strikes – and the fate of the USD-system is determined.

      And, let’s see how the US economy goes with higher interest rates post-SepTaper; and, how the US Fed grapples with the burgeoning reality that what counts in real life is Flow, and not Stock.

      Deadset, mate, this is knife-edge stuff: the Fed MUST taper, AND the US economy MUST recover. People/markets have already almost had enough.

      Else, the USD-fiat system will, likely, suffer massive loss-of-faith, and will, IMHO, start to unravel entirely.

      What a circus, eh?

      It will be interesting to see if more of this sort of perspective is spoken about in the coming months and years, or not – it will be an interesting gauge of where people’s heads are at.


      • migtronixMEMBER

        With oil >100USD and 10Y ~ 3% DXY shoots for the moon. I don’t think the FED can let that happen as promises to pay start getting called in (repos/swaps/leases)