Index Futures Net Changes and Settlements:
Foreign Markets, Fair Value and Volume:
- In Asia 9 out of 11 markets closed lower: Shanghai Comp -0.63%, Hang Seng -0.82%, Nikkei -0.05%
- In Europe 11 out of 13 markets are trading higher: CAC +0.54%, DAX +0.32%, FTSE +0.59%
- Fair Value: S&P +0.95, NASDAQ +10.13, Dow -3.66
- Total Volume: 7.86mil ESU & 570 SPU traded in the pit
Today’s Economic Calendar:
Today’s economic calendar includes Weekly Bill Settlement, Housing Starts 8:30 AM ET, Jobless Claims 8:30 AM ET, Philadelphia Fed Business Outlook Survey 8:30 AM ET, EIA Natural Gas Report 10:30 AM ET, 3-Month Bill Announcement 11:00 AM ET, 6-Month Bill Announcement 11:00 AM ET, Fed Balance Sheet and Money Supply 4:30 PM ET.
S&P 500 Futures: Turkey Risks Global Currency Crash
The S&P 500 futures, that traded weak in globex, opened yesterday’s regular session at 2825.25, down -16 handles, and printed a 2826.75 high on the open. Waves of selling then took over and pulled the index futures down throughout the early morning to a 2803.00 low, down -38.25 handles, just before 10:00 am cst.
From there, the ES bounced to a midday high of 2819.25 just after the noon hour, and then made a higher low retest at 2806.00 heading into 2:00. Strong buys came in late in the day helping the ES get back some of the losses, making a 2822.75 late day high, printing 2819.25 on the cash close, and settling the day at 2822.00, down -19.75 handles, or -0.71%.
Foreign Markets Tumble As Turkey Fumbles, DAX Falls Almost 2%, FTSE Down -1.50%
VIX 5-Day Chart
Our View: On 8/8/18 (six sessions ago) the VIX traded down to 10.54, then yesterday it traded up to 16.86 and settled at 14.64, up 9.99% on the day, and up 32.61% YTD. Clearly the short gamma / option premium sellers are back at it again, as clearing firms were sending out margin calls right after the open yesterday.
Currency wars are never good and can spread like wildfire. It never ends well for developing nations that rack up a lot in foreign currency debt, and that is where Turkey is today. Unlike the United States, whose government and companies issue bonds denominated in domestic currency, most of Turkey’s borrowing is done with foreign currencies. When the lira falls against the U.S. dollar, that makes dollar denominated debt costlier to repay. According to Bloomberg News, at least $16 billion of Turkish foreign currency-denominated bonds are coming due in the next year. This type of borrowing and the inability to pay the loans back is the perfect backdrop for currency crashes.
I would like to explain something… We write the Opening Print after the close everyday. We do not go running in and change ‘Our View’ when things happen overnight, because we have learned over the years that once the news is out the markets usually move back in our favored direction. Late in the day the ES staged a 13 handle rally, and closed 20 handles off its 2802.75 low of the day. Did we call it right? No, but at least we did not get bearish after the S&P’s fell.
Here are some additional Turkey headlines:
- Turkey to Raise Tariffs on U.S. Products
- Lira, Rupee Fuel Contagion Fears
- Turkey’s Banks Bear Weight of Crisis
Burt Dohman has been writing about an emerging market / bank / currency crisis for several months now. US policies have been stirring foreign market volatility, and we think as the midterm elections near, there could be larger jumps in volatility. Does this mean the bull market is over? We think not, but we also think it’s unwise to get overly bullish after the ES has rallied. Everything is so news driven now, you just don’t know when the next bad headline will pop up.
Our view; lets face it, trading the ES is a two way street. Sure the ES is still in an up trend, but its not the strongest trend by any means. We lean to selling the early rallies, or gap up open, and buying weakness.
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