Home / Blog / Market Analysis / Markets Morning - Stocks and EM still funky but G10 forex settles as we await non-farms in the US tonight

Markets Morning - Stocks and EM still funky but G10 forex settles as we await non-farms in the US tonight

Market Analysis /
Greg McKenna / 07 Sep 2018

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.

That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest 

Feedback always welcome


Market Summary (7.51am Friday September 7)

There are growing calls across the Twitterverse and analyst community that now is the time to catch the knife that is falling emerging market stocks which in turn implies currencies too. Indeed a Reuters poll overnight reflects some heady expectations for recovery in EM currencies from these levels.

But the price action overnight again warned against rushing in. Utter collapses don’t often happen from a point of strength but often after a period of weakness. That is, the news this morning is that both the MSCI EM stocks gauge and currency gauge made fresh lows overnight. Certainly USDARS has fallen 2.4% after the IMF said its rushing to sort things out for Argentina, and the Real gained 0.9%. But the Rouble lost 1.5% on the prospect of more sanctions.

On developed markets there was more selling in Europe after China and most of Asia had another bad day yesterday. The Hang Seng and CSI300 lost about 1% while the Shanghai composite was down half a percent. In London the FTSE lost 0.9%, the DAX lost 0.7% and the CAC was 0.3% lower.

In the US the tech selling continued with the Nasdaq 100 off 0.9% to 7458 – it broke the recent trendline but is back above it now. The Dow is again doing its own thing with a gain of 0.18% to 26,021 while the S&P 500 has dipped 0.36%, 10 points,  to 2,878 this morning. But, as with the previous day’s move the S&P’s distance from the lows of the day (11 points) is greater or equal to the overall daily loss.So the bulls haven’t given up by any stretch of the imagination.  

And of course the ASX reversal continued again yesterday and overnight. The 200 index lost 70 points, 1.12%, yesterday to close at 6,160 and SPI 200 traders have found another 23 points of loses to lop of prices overnight. So it looks like another tough day for the local market.

To forex then and I’m wondering if currency traders aren’t betting on a benign non-farm payrolls tonight. At least in the G10 anyway. I say that because despite Ism manufacturing shooting the lights out earlier this week, despite ISM non-manufacturing last night hitting 58.5 (55.7 last, 56.8 exp), and despite jobless claims falling to another post 1969 low, the USD is strangely impotent. That’s important price action to consider of course. But it’s interesting nonetheless.

Anyway, EURUSD is flat at 1.1622, GBPUSD is up 0.2% on faint Brexit hopes at 1.2928 while USDJPY, which recovered as stocks in the US did is now lower – yes lower – on news President Trump may have Japan next in his sights for a trade battle. USDJPY is now at 110.70, down 0.74% and off the low around 110.50 as the article in the WSJ reads as conjecture on the authors part.

The Aussie has had an interesting 24 hours, not a massive range but buffeted by events and it sits up 0.15% at 72 cents. The Kiwi is flat at 0.6589 while the CAD is a little stronger by 0.2% at 1.3147 as the parties inch toward new NAFTA and as BoC’s Wilkins hints the Canadian central bank might be keen to raise rates sooner rather than later – USDCAD is at 1.3144.

On commodity markets oil is lower again despite a much bigger draw in inventories. That’s another strong message on price action folks. Put perhaps it was US Secretary of State Mike Pompeo’s concession to try to bring India back into the fold around the Iran sanctions did the damage as much as the build in Cushing inventories that the data also sold. Either way Brent has fallen 0.74% to $76.70 after retesting the break earlier. WTI is down 1.14% to $67.94 after also being higher earlier.  

Gold is back at $1200, copper is up 1% to $2.6175 in HGc1 terms amid what was a better night for base metals. Bitcoin is at $6,432 for a 7.5% since this time yesterday and US 2’s are at 2.64% while the 10’s are at 2.88% for the rounded curve to sit at 24 point’s.

And just quickly on Fed watch. John Williams, NY Fed president, said QE may have and be distorting the curve so it alone is not a reason to stop, while Charles Evans, the Chicago Fed boss, said the FOMC should raise rates to neutral and “likely a bit beyond”. Take that Kashkari and Bullard, you doves! 😊

On the day then, we get AIGroup construction PMI in Australia today, the coincident and leading economic indexes out of Japan and then trade data for France and Germany before the EU Q2 GDP 3rd estimate. We also get Chinese reserves data this evening and of course US and Canadian employment data. The Reuters survey says in the US expectations are for jobs to print 191,000, unemployment to print 3.8%, and average earnings to print 0.2% for a 2.7% yoy rate.

China trade is out tomorrow. AND, AND, AND, watch out for the possible announcement of the next tranche of tariffs on China which could come as early as tonight or the weekend

Macro Stuff that affects everyone and everything - either today or eventually


  • I’d characterise Fed speak last night as pretty hawkish. The press loves to grab the headlines from uber doves Neel Kashkari and James Bullard, often I think because it fits their narrative, sometime their hope, that the curve is telling us a recession is coming. But New York Fed president Williams last night hit back at this singular focus of the recessionistas on the curve. Reuters reports he said, “I don’t want to mechanically apply the math or the evidence from previous periods to this one. Some of the flattening is due to the effect of QE on long-term yields,”. Translating that for the non-central bankers among the readership, Williams is saying this time might actually be different for good reason.  He also said, the inverted yield curve “would not be something I would find worrisome on its own...I don’t see an inverted yield curve as being a deciding factor in terms of thinking about where we should go with policy”.
  • Chicago Fed boss Charles Evans said the FOMC should raise interest rates to neutral and “likely a bit beyond” and noted that if higher inflation results it will necessitate more tightening. Again translating that means jack rates up on current setting even before inflation accelerates. That’s hawkish. Worth noting he also said if trade derails things rates will need to rise on a shallower path.
  • And finally, Boston Fed president Eric Rosengren said, “it’s important to evaluate the costs of long periods of low rates”. He sounds a bit like Jens Weidmann doesn’t he. Watch non-farms tonight folks, obviously. The result will inform the markets view of this debate and move markets.
  • German factory orders fell another 0.9% in July after collapsing 3.9% in June. That negative read was against expectations of a bounce back 0f 1.85 and suggest President Trump’s trade war is biting. Equally to me it suggests the Chinese slowdown, the manufacturing PMI slowdowns we are seeing is real too.
  • ADP payrolls were weaker than expected last night in the US with a print of 163,000. But there was a big upgrade to the previous month to 217,000 – that’s worth noting.
  • Here's a quick look at the ISM manufacturing and non-manufacturing PMI surveys for context in the economy right now. The US does seem to have some momentum even as housing and autos feel a little like weak spots. 
Source: TradingEconomics.com
Source: TradingEconomics.com
  • And, on the outlook for stocks here's a warning both in the very short term - this month - and longer term. The tweet below from me and Jesse Felder highlights that now we have both Citibank and Goldman Sachs warning about the outlook for stocks as folks get a little exuberant. 
Source: Twitter Screenshot
Source: Twitter Screenshot
  • And then the shorter term warning comes from one of twitter's greats, Gregor Samsa who says he " looked at the sum of the monthly gains for August and September and found that the 2018 performance ranked in the 84th percentile of late summer rallies over the past 70 years".  He then asked and answered the question of "hHow does the S&P perform in September after such gains?" noting, "Realizing that the past is not always prologue,  empirical probabilities suggest there is only a 36 percent probability of making money on the long side in S&P500 in September given such large gains registered during August". AS Gregor suggests it's an analogy not a certainty - but the way the market is right now. 
  • Oh, and Nasdaq 100 update. It pierced but closed back above the recent trendline. 
Click on me, I'll expand
Click on me, I'll expand
  • The pressure from the US on Turkey is unlikely to release anytime soon and may intensify. I say that after reading on CNBC this morning that Turkey is readying construction of the site which will accommodate a Russian made missile system the US has warned the Turkish government not to deploy. Turkey is a member of NATO folks – perhaps in name only though now.
  • Schadenfreude is back folks as many in the press again report on the demise of Bitcoin and crypto’s after the big fall in the past 36 hours. I’ll share here with you a tweet from Peter L Brandt yesterday which I agree with 100% and which I have been banging on about for week. BTCUSD has to break this important support zone. But if it does, then a halving could eventuate.
Source: Twitter Screenshot
Source: Twitter Screenshot
  • He tweeted a second tweet to the chart where he said, “just to be very precise (since I know my trolls will screenshot this all), 5750 to 5900 is solid support in BTC. The bear case (and plead of UNCLE) does not begin unless market has decisive close below 5600 -- but then target would be sub $3k”. HDOLers and Schadenfrueders – what a time to have a public view on Bitcoin.  
  • Oh, and Crypto exchange Kraken is sacking 10% of its workforce Bloomy reports.

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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