“Time crumbles things; everything grows old under the
power of Time and is forgotten through the lapse of Time.” (Aristotle)
The Federal Reserve, through speeches and posturing,
tamed the possible financial unrest that's been forming in the market dynamics.
However, deferring or dismissing tangible economic concerns is not going to
last for too long. After a few rallies this year, investors are taking a hard
and close look of the trends ahead. That said, here are three interesting near-term
developments:
First, the
European stock market is feeling pain, headlined by the decimation of
Deutsche Bank shares. Dispute over lawsuits from the US government
damages the perception of other banks, and this is not limited to the German
banks. In fact, banking is a less
profitable sector in which managers have trimmed jobs while facing increasing
regulatory demands. At least, for now, the fundamental weakness of a bank
facing legal challenges for lending practices stirs concerns, but this is not new
and revisits real economy concerns about revival. For the year, the
Spanish stock market is almost down 10% and the Italian broad index is down
24%. German index is down as well for the year. How is this a sign of a healthy
condition? How does this prove the European Central Bank is
"winning", when stocks are hinting of slowdown while the real economy
is in shambles? Can the ECB find further solutions?
Secondly, the
global economy weakness is being
re-visited as Emerging Market stocks and currencies weaken while commodities,
especially oil, continue to drift lower. Markets
are preparing for a new era where loose monetary policy is not the be all and
end all of solving financial issues. There was demand for EM assets,
especially for bargain hunters. After the rally in prices for EM and
commodities, investors are wondering if the run needs a breather. The Mexican
Peso is hitting a record low, which highlights the EM currency trend.
At the same time, sentiment is shifting in commodities:
“With supply gluts persisting from corn to oil,
traders are already gearing up for declines. Investors pulled $791 million
out of exchange-traded funds tracking commodities over the past month, a
reversal from earlier this year that have still left inflows up by $34.1
billion for the year.” (Bloomberg, September 15, 2016)
Third, the zero to negative interest rate environment
is not being celebrated as desired by the Central Bank’s narrative. Instead, the
longer interest rates remain very low, the more skepticism that arises
regarding further upside catalyst. The convenient script is looking
more and more nonsensical. The odds of negative rates in the US are not off the
table, which begs further unpresented concerns. For too long, the coordinated
near-zero interest policies from Japan to Europe to the US have turned from a
stimulus to a toxic catalyst. As Central Banks lose their ability to influence
markets, then a chaotic-like trend shift is expected. Collectively, investors
are running out of ideas in a period where there might be less ammunition for
sound monetary policies.
Article Quotes:
“The WTO forecast in April the global value of trade
in goods would grow by 2.8 percent this year, less than a previous forecast of
3.9 percent. Trade growth has averaged 5 percent per year since 1990, but
has not grown by more than 3 percent since 2011. Trade-dependent
Singapore expects its non-oil domestic exports to fall by 3 percent to 4
percent in 2016 from the year before. Menon said the other worry for Asia
is the tepid growth of private investments in the United States, highlighted by
huge cash piles that are not being invested by companies. A Moody's
Investors Service report earlier this year said U.S. non-financial companies were
holding $1.68 trillion in cash at the end of 2015, up 1.8 percent from $1.65
trillion the previous year.” (Reuters,
September 15, 2016)
“The Bank of England held its benchmark rate steady on
Thursday but telegraphed that it still expects to cut it again later this year
if the U.K. economy weakens as officials expect. The BOE said in a monthly
policy statement that the nine members of its Monetary Policy Committee
voted unanimously in September to maintain the BOE’s benchmark rate at 0.25%,
after cutting it from 0.5% last month. The move was part of a package
of stimulus measures to cushion the economy following Britain’s surprise vote
to leave the European Union in June. Officials also revived a long-dormant
bond-buying program and extended purchases to include corporate bonds. The
panel voted unanimously in September to press ahead with those asset purchases,
totaling £70 billion ($92.7 billion). Two policy makers, Kristin Forbes and Ian
McCafferty, in August voted against aspects of the bond-buying program but
backed the initiative in September, saying that reversing it so soon carried
risks.” (September
15, 2016)
Key Levels: (Prices as of Close: September 16, 2016)
S&P 500 Index [2,139.16] – Even the most bullish buyers
have been nervous around the 2,100 mark for over two years based on technical
charts. The recent break above 2,100 this summer seems to be fading after
peaking on August 19, 2016. Finding further upside is the challenge for the
market.
Crude (Spot) [$43.03] – The commodity’s ability to stay
above $40 is being questioned severely. Supply of oil has expanded and demand
is not quite convincing, either.
Gold [$1,308.35] – Since early
July, Gold has been slowing down its upside move. Staying above $1,300 is critical in the upcoming
days.
DXY – US Dollar Index [96.10] – Mostly an uneventful pattern.
Last Friday’s close is in-line with the 200 day moving average (96.14). Observers
are still waiting for a noteworthy macro shift.
US 10 Year Treasury Yields [1.69%] – There has been a positive trend since early
July in which yields have risen. However, the market is quite familiar with the
1.70% range, which has been seen several times this year. It is not quite clear
if the recent rise is sustainable.
Dear Readers:
The positions and strategies discussed on MarketTakers
are offered for entertainment purposes only, and they are in no way intended to
serve as personal investing advice. Readers should not make any investment
decisions without first conducting their own, thorough due diligence. Readers
should assume that the editor holds a position in any securities discussed,
recommended or panned. While the information provided is obtained from sources
believed to be reliable, its accuracy or completeness cannot be guaranteed, nor
can this publication be, in any Publish Post, considered liable for the future
investment performance of any securities or strategies discussed.
