Dow futures rose 700 points from overnight lows, shrugging off dismal German sentiment data in favor of some (denied) comments from Trump that talks continue with China…
But, since the market opened, doubts appear to have appeared…
As Europe opened, ‘someone’ suddenly decided to dump gold futures
And, as former fund manager and FX trader Richard Breslow rages this morning, “it’s beyond extraordinary how financial markets remain willing to be so haplessly complicit in allowing themselves to be so easily manipulated.”
Via Bloomberg,
It comes from years of having central bankers telling investors at what price assets are desired to trade. No one has needed to believe anything. Merely follow the bouncing bubbly ball.
But with the realization that monetary policy is running out of room, while politicians still believe the prospect of ever lower interest rates masks all sins, the world is rediscovering geopolitics. And it doesn’t like what it sees. Nor should it. That’s the bad news. As it has been on conspicuous display, the chances of circumstances spiraling out of control are higher than was credited. Not all genies can be put back into the bottle. It’s why traders are willing to be buffeted by conflicting trade news, but are thoroughly shaken by the events in Hong Kong.
The good news, and also the growing risk — if you judge the world through the prism of where the S&P 500 trades — is that so does everyone in a position of authority. Which is why it has been completely understandable to fear for the global economy, despair over critically important supply chains, accept that companies are loath to make capital investments, worry just how long consumers will be willing to keep spending and, yet, look for dips to buy.
When that mentality changes we could very well get our “Katy bar the door!” moment. But, despite the sheer ugliness of Friday’s news and price action, it hasn’t happened yet. Not as long as risk parity rules the day and sovereign wealth funds stick to their buy-and-hold equity allocations. And central banks feel obliged to keep trying to cover for the mistakes and small-mindedness of others. You will know things have changed when the bounces are perceived as the opportunities to fade, rather than the opposite. It won’t come from chasing prices lower on panicked downdrafts, but a willingness to sell when everything looks rosy.
That’s a reason markets aren’t overly concerned with the prospect of unilateral intervention in the dollar. Countries and investors need them. And if things continue to get worse with the global economy, and emerging markets most particularly, cheapening the currency would just temporarily place it at more advantageous levels to buy. Like it or not, the dollar is the ultimate safe-haven. And it is highly unlikely Treasury would be in any position to convince investors, other than for the shortest of time frames, that they would be willing to muster the amounts required to fill in demand. It has to be believable to work. And that requires requisite size. Which is unlikely when the rest of the world would only participate under duress.
Bond markets seem broken yet it’s near impossible to come up with a good reason to be a contrarian. That’s a problem, but it is what it is. As bad as equities look, they still have good support below which, at least, puts a number around the risks. It probably isn’t a coincidence that August’s low for the S&P 500 future is an important technical level. Especially as we approach month end. Or that the cash index hasn’t yet tested it at all.
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