by Pinchas Cohen
Key Events
- Investors put their money on the temperament follow-through of Trump and Kim
- Though gold falls along with other safe havens, it retains key gains
- Yields battle last line of risk-on
- Gasoline advances for a seventh session, while oil registers downtrend
Investors remain steadfast in their willingness to believe President Donald Trump’s declarations, no matter how transitory. They're accepting when he says things they want to hear—such as the likelihood of tax cuts in the near future—which drove the stock market up, but they also believe him when he says things they don’t want to hear—such as his North Korea focused “fire and fury” comments—which drove stocks down. After more than eight months in office, and a string of unfulfilled promises, both good and bad, Donald Trump is still moving the markets in his role as President of the US.
Global trading resumed its uptrend this morning, carrying stocks higher in Asian trading, after investors deemed Trump’s response to North Korea's recent missile launches to have been more tempered. As well, Kim Jong Un’s remarks, signaling his willingness to dial back his warlike posture, brought some relief to the escalating situation. If equity traders rely on the follow-through of someone as unstable and unpredictable as the dictator of North Korea to ease the markets, perhaps it isn’t a testament to Trump’s leadership that stocks rise on the occasion of his measured rhetoric.
Global Affairs
In blatant abandonment of risk-off sentiment, even shares of the KOSPI in neighboring South Korea rose. As well, stocks in Japan, whose airspace the ballistic missiles invaded, began repairing their value by paring losses.
European traders took their cues from the earlier Asian gains, as the Stoxx Europe 600 Index advanced across the board, with every single sector advancing.
While risk-on returned to markets with the decline of Treasury yields and the uptick of the dollar via the yen and the Swissy, gold has been the exception.
The yellow metal has held on to its breakout of its trading range since April, as well as its conquest of the $1,300 key level, even after paring 1.4 percent from yesterday’s high.
During a time when equity valuations are as high as they’ve been since before the 1929 and 2000 crashes, should investor reliance on geopolitical figures who have a proven track record of fickle behavior, on top of an actual invasion of sovereign airspace by an enemy's ballistic missile—which many would see as an act of war under other circumstances—be a reason to adopt a sense of complacency? Is the breakout of the original safe haven, gold, a signal to other safe havens that the only appropriate direction right now is higher, even while stocks are clawing back gains within weakening patterns?
The Aussie dollar leaped higher, outperforming currencies of developed nations, on better-than-expected building approvals data.
Up Ahead
5:00: Eurozone – Business Confidence (August): forecast to fall to 1.01 from 1.05.
FX traders drove up the euro at the expense of the dollar last week, after Draghi said in his Jackson Hole speech that global recovery is firming but did not talk down the euro. Some of the advance was pared, after the ECB chief tempered his earlier bullish tone, stating that significant monetary policy is still needed.
This past Sunday we wrote:
If the pair will be able to break above 1.1900 we’re likely to see a test of the psychologically significant 1.20 key price. However, a close beneath 1.1900 may suggest a correction toward the uptrend line since April 11, at 1.1700 at the current angle.
The pair completed the break above 1.1900, and after yesterday’s 1.2069 high, bears forced the single currency down, creating a bearish, long Shooting Star (though it is imperfect because of its small, lower shadow), closing below the 1.20 key price. Today, the pair is declining, currently at 1.1959, at 3:25 EDT. The 1.1900 should provide a support and a good entry point for a long position.
8:00: Germany – inflation (August, preliminary): forecast to rise to 1.8% from 1.7%.
This past Sunday, regarding Euro Bund Futures we wrote (link above):
The price has been trading within a falling channel since June 2016. Last week’s price closed on top of the downtrend line. While a close above the June 12, 165.55 high would suggest a reversal, a close back in the channel would suggest a resumption to 160.
The contract advanced, set to close for the first time outside and past the downtrend line, completing an uptrend-series with 2 peaks and troughs. This suggests an attempt on the June 2016, 169 price. A firmer breakout would be registered when the price closes above the June 165.55 high.
8:15: US – ADP Employment Report (August): forecast to see 180K jobs created, from 178K a month earlier.
Yesterday, dollar bulls – or dip buyers – fought back, forming an imperfect, because of its upper shadow, bullish hammer. Even if the USD “hammers out a bottom,” it is expected to be only within a return move to the bearish rising flag, whose breakout provides a 300-pip downward target from its point of breakout, at 93.15.
8:30: US – GDP growth (Q2, 2nd estimate): expected to see QoQ growth of 2.7%, an upgrade from the 2.6% estimate a month earlier.
The height of the Trump trade—from December through March—produced the US 10-year yield’s peaks. This represents risk-on, when investors dump bonds, allowing yields to rise, as they search for growth. Since the double-top breakout, in April, the market has traded within a range, between an attempt to return to risk-on and a strengthening of risk-off sentiment.
Yesterday’s powerful hammer, for its exceptionally long lower shadow (while imperfect, for its upper shadow) is the last risk-on fight, its last line in the sand, the June 14, 2.200 lowest point in the range bottom. Once yesterday's 2.086 low is broken with a close, we can expect the 300-basis points range below 2.100 to wipe out its part of the Trump trade.
10:30: US – EIA Crude Oil Inventories (w/e 25 August): forecast to see a drop of 200,000 barrels, from a 3.3 million barrel fall a week earlier.
Yesterday’s oil price closed below its $46.16, former August 17 trough, completely ending the recent short-term uptrend since June 21 and fully completing, by anyone's opinion, the new downtrend which began August 1, continuing within its long-term down-channel since February. Note, that the price has reached the bottom of its short-term down-channel, which increases the likelihood of a correction toward $47.25.
21:00: China – Manufacturing and Non-Manufacturing PMI (August): manufacturing PMI to fall to 51.2 from 51.4, while the non-manufacturing figure drops to 54.4 from 54.5.
The USD/CNY pair is threatening to break below its down-channel since June 27, whose bottom will turn from support to resistance and force an even steeper decline. Alternatively, should the price rebound, it may rise to 6.6500, the channel top and area if previous congestion.
Market Moves
Stocks
- Japan's TOPIX rose 0.6 percent at the close in Tokyo and the KOSPI index added 0.3 percent.
- Australia’s S&P/ASX 200 Index was flat.
- The Hang Seng Index in Hong Kong climbed 1.1 percent, while China's Shanghai Composite Index fluctuated.
- The MSCI Asia Pacific Index rose 0.1 percent.
- The Stoxx Europe 600 Index rose 0.6 percent as of 8:28 a.m. in London, the largest advance in more than a week.
- The U.K.’s FTSE 100 rose 0.5 percent, the biggest advance in more than a week on a closing basis.
- Germany’s DAX rose 0.6 percent, the largest advance in more than a week.
- S&P 500 Futures rose 0.2 percent on the biggest advance in more than a week.
Currencies
- The Dollar Index increased 0.12, percent, completing a 0.88 percent reversal from yesterday’s 91.63 low.
- The euro declined 0.2 percent to $1.1948, the biggest fall in more than a week.
- The Japanese yen fell 0.3 percent to 110.08 per dollar.
- The British pound dipped 0.1 percent to $1.2905.
Bonds
- The yield on 10-year Treasuries climbed one basis point to 2.14 percent.
- Germany’s 10-year yield increased two basis points to 0.36 percent.
- Britain’s 10-year yield gained two basis points to 1.025 percent, the largest advance in more than a week.
Commodities
- West Texas Intermediate crude dipped 0.2 percent to $46.36 a barrel, the lowest in almost six weeks, registering the second trough on a close, completing the minimum 2 peaks-and-troughs required of a trendline, and this one is down.
- Gold fell 0.1 percent to $1,307.58 an ounce.
- Gasoline for September delivery rose 3.1 percent to $1.8392 a gallon and is up more than 9 percent this week.