September Stabilization Set Aside for Now

The capital markets are quieter today.  Equities remain heavy, however losses are comparatively moderate.  Core bond yields are slightly softer.  The US dollar is firmer against the major and most emerging market currencies. 

The news stream is light and the focus before the ECB meeting tomorrow is the US ADP work estimate.  Expect a 200k increase after 185k in July.  The Bloomberg consensus is for a 218k rise in nonfarm payrolls when reported on Fri. 

The EIA energy report also will draw attention.  The crude stockpile expects to rise by 900k barrels.  Even when US production is not what it really was estimated under the prior methodology, output is still popular higher than consumption.  Last week's run-up to almost $50 a barrel for that Oct light sweet raw contract is a distant memory.  The nearly $1 loss today brings the contract to nearly $43.50, which is a 50% retracement of the rally off the spike low on August Twenty-four.  The next retracement level is near $42.15.

Australia reported Q2 growth had been half of what the consensus anticipated at 02% on the quarter.  The actual Australian dollar was pressed below $.7000 for the first time in six years.  It recovered to $0.7050 were it had been sold again.  A break of $0.6980 focuses on $0.6950.  On Thursday, Australia reviews retail sales and trade figures.  The derivatives markets are pricing in about a 50% chance of a November rate reduce. 

The UK reported a under expected improvement in building PMI.  The August studying stands at 57.Three, up from 57.One in July, but shy of the 57.5 consensus forecast.  Sterling has under-performed this week, despite BOE'utes Carney signaling higher rates in the UK at Jackson Hole last weekend. After the Aussie and Kiwi's 2% reduction over the past three sessions, sterling may be the weakest of the majors, shedding about 0.75%.  It has been pushed via $1.53 for the first time since earlier June.  The initial approach associated with support near $1.5250 has sparked some buying.  It that much cla goes, stronger support is near $1.5200. 

Chinese markets, which ostensibly have been the source of the increased volatility, are now closed till next Monday. President Xi offers put much importance ultimately of WWII celebration in China. Production was slowed or halted around Beijing to reduce the pollution.  Even though some reports had suggested large-scale treatment in the equity market might cease, the guiding hands of officials was still regarded as present in order to provide a few element of stability ahead of the special event. The key then is what occurs next week. 

We have argued the seemingly policy confusion is a reflection of a political struggle within China. We suggested the concentration of power by Xi means the curbing of the Leading Li.  Li is being associated with the large-scale intervention in the stock market that has failed to originate to the tide.  Xi has upped the ante by rebuking the Youth League, which is a main political faction.  Li's roots are with the League.  Xi criticized them to be out of touch and apparently trying to block Xi's changes. 

Separately, yesterday Hong Kong Monetary Authority intervened the other day to prevent the Hong Kong dollar from appreciated through the top of its peg.  The intervention was the very first since April.  Officials verified selling about HKD15.5 bln (~$2 bln) to protect the HKD7.75 level. The US dollar remained pinned there these days, suggesting the possibility of more intervention.  Official confirmation has not yet been provided. 

Reports suggest that because 2009, there have been eight occasions in which the S&P 500 offers lost more than 2% on the first trading day of a new 30 days.  The market finished the 30 days higher each time.  Twice the gain was less than 1%, as well as twice the gain had been more than 10%.  Three times the monthly gain was between 5.9% and 6.7%.  The remaining time, the market finished 2.35% higher. 

The euro is finding assistance near $1.1240.  On the topside, initial opposition is near $1.1320. Yesterday's higher was near $1.1330.  The 38.2% retracement of the move from $1.1715 on August 24 to $1.1155 on July 28 is near $1.1370. 

The dollar recorded a low near JPY119.20 late in North America the other day and has since recovered toward JPY120.50.  While the euro offers retraced almost a third of its losses, the yen has retraced 50% at JPY119.15.  A move above JPY120.Fifty today likely requires increases in the S&P 500 as well as firmer US yields.

Calmer Markets but Sense of Foreboding still Powerful is republished with permission through Marc to Market