The S&P 500 Index’s second fresh high this week saw the equity benchmark close just shy of 3,047 on Wednesday and continue its upward trajectory toward an overbought level.
Its GTI Global Strength Indicator — a smoothing oscillator showing the strength of a price — reached 66.5 intraday, the highest since mid-July. Earnings and Friday’s U.S. payrolls report may help to determine whether the technical gauge triggers its first sell signal since that month or remains in a neutral zone between 30 and 70.
Technical indicators are adored by many (just not academics). BUT if you believe in Bollinger Bands … the S&P 500 index (white line) is near the upper limit of its upper band (pink).
Do you believe in the Ichimoki Cloud? Currently, the NYA (New York Stock Exchange) is trading ABOVE the cloud.
How about the Hindenburg Omen? It was correct in signaling a market downturn way back in 2007, but has not really been a good forecast of market corrections since 2007.
Elliott Wave? The NYA seems to be at the top of wave.
Of course, The Federal Reserve impacts markets. As of today, the Fed Funds Futures market is predicting no rate cuts at the December FOMC meeting and no rate cut until the March 2020 meeting.
The then there is the China trade deal where China is indicating “no deal” unless the US rolls back more tariffs on Chinese imports.
Do we settle for Pabst Blue Ribbon in the China trade talks or go for Heineken?
In bubbles, I dream.
The Conference Board leading index printed at -0.1% MoM indicating a slow but expanding economy through early 2020.
But Jerome Powell and The Federal Reserve are manning the economic bilge pumps just in case.
Yes, The Fed will be trying to pump liquidity into the economic ship in case it takes on too much salt water.
“Man the pumps!!!”
This is an update on key economic news relating to US/China trade and UK/EU Brexit talks. Better known as Trade Fog … or simply “The Fog.”
On the Brexit side, the UK avoided recession by posting of 0.3% in August. Unfortunately, UK industrial production tanked to -1.8% YoY signaling a slowdown for the UK economy.
On the China/US trade arm wrestling match, China’s offshore currency is showing volatility as even the NBA is getting caught up in the trade scuffle.
The volatility surface for the CNH is quite steep.
Of course, trade fog helps assets such as gold to rise.
The volatility surface for gold is similar to that of the Chinese offshore currency.
Trade fog (or trade vacillation) is on the rise as seen in this chart of V2X volatility.
The V2X index is above its various historic moving averages.
As Brexit negotiation crawl along and the US meets with China or tariffs, we continue to see “The Fog” until Brexit and tariffs are finalized. Throw in Federal Reserve policy errors and we have a party!
The Fed is the God of Hellfire!
The FOMC lower the Fed’s target rate by 25 basis points to 2.00%.
The NY Fed’s SOFR rate ballooned to 5.25%.
The GCF Repo Index ballooned to 6%.
The US Treasury and Dollar Swaps curves remain … kinky.
On the news, the Dow tanked over 160 points. Is the market signaling too little for the rate cut?
The Crazy World of … Jerome Powell.
What up with that? Financial markets have gone crazy as liquidity seemingly vanishes.
(Bloomberg) — The U.S. money-market interest rate remained elevated for a third straight day, after rising to a record Tuesday.
The rate on overnight general collateral repurchase agreements, or repos, was at 2.8% early Wednesday, based on ICAP pricing. On Tuesday, it jumped to 10%, about four times greater than last week’s levels, as cash reserves in the banking system remained out of balance with the volume of securities on dealer balance sheets.
Today there was a whopping $80.05BN in bids submitted, an increase of $27 billion, or 50% more than yesterday.
It also meant that since the operation – which is capped at $75BN – was oversubscribed by over $5BN.
And the New York Fed’s Secured Overnight Financing Rate soared.
Uh oh. Has The Fed lost control?
Photo from Jesse’s Cafe Americain.