The last week of the month will be an important week for
emerging markets traders, going into what is historically the worst
month of the year - possibly the calm before the
storm.
[caption id="attachment_72063" align="alignright" width="300"
caption="He wears the weight of several trillion relatively
lightly, all things considered"]
[/caption]
Volumes remain anemic. The feature event for both developed and
emerging markets investors is
the Federal Reserve's annual conference at Jackson
Hole, Wyoming
, beginning Friday August 30. Expectations, at least in the past
few days, have become more tempered on the Fed and what it needs to
do. Certainly since the last Fed meeting, U.S. data, especially the
housing market, has strengthened significantly, to the point where
it would be almost irresponsible for the Fed to announce new
stimulus measures at Jackson Hole. The Fed's Open Market Committee
next meets September 12 and 13.
This week we have major E.U. events, including more meetings on
the European Stability Mechanism transition. The comments on Greece
seem to be getting pushed back to October 8, when the Troika will
make an announcement on Greece's progress in adhering to ECB-E.U.
requirements.
Germany's Ifo business confidence survey came out and
effectively is the fourth straight down survey. The market's
expectations for Germany's ability to withstand a global demand
slowdown are reflected in the Ifo survey. Germany's political will
behind the euro has to be tied to its falling economic data. PMIs
last week were weak; Germany has the most to lose if the euro
implodes.
Data this week: The Case-Shiller Home Price Index and the
Pending Home Sales index are biggies. GDP announcements in the U.S.
are less significant, but look at the emerging markets of India and
Brazil later in the week for signs that the two most important
BRICS remain in a growth period.
Asia: On Sunday night
the Shanghai Composite closed at March 2009 lows
, pushing yet again lower, despite the fact that Premier Wen Jiabao
has made more comments on China needing to target stimulus to
support export growth. The Asian emerging markets remain the
underperformer, at least in the core markets. Korea, despite being
upgraded last night, faces the reality that Samsung (
SSNLF
,
quote
) is going to be in a very different position following the court
verdict in favor of Apple (
AAPL
,
quote
).
Commodities: Two bellwethers for overall demand continue to tell
you that long-term commodity prices may be going lower. BHP
Billiton (
BHP
,
quote
) chief executive Marius Kloppers guided down long-term prices for
the company's core commodities: iron ore and coking coal. Recent
numbers by BHP and the reduction in its Olympic Dam project show
that global demand is just not there.
Russia's Rusal, the largest aluminum company in the world,
Sunday night lowered its aluminum demand cycle, despite projected
6% growth in aluminum demand in 2013. Rusal has downshifted its
demand outlook, and it's also cutting capacity overall by 6%,
closing down a couple of smelters. They don't see things getting
significantly stronger. I think, however, that both companies will
tell you that they don't see their markets falling apart.
Copper, meanwhile, continues to trade in a very good channel,
with higher lows since the June 4 smackdown. "Dr. Copper," as we
call it, may be a better read on what's going on in the U.S.
housing market. Also look at the CRB index. These are the
components in the commodity space, like rubber, resin, and pulp,
that are true inputs into the construction space and a real measure
of commodity strength, unlike the CRB, which is the more
widely followed gauge of the commodity sector. The CRB is
dominated by oil and commodities like wheat and corn, which have
been rallying due to supply-side concerns (Middle East
conflict and drought conditions). The CRB has been moving
higher over the last two weeks.
Outlook: If you look at the performance of emerging markets
since Bernanke's 2010 Jackson Hole speech, you've seen a 0% rally.
If you look at the performance of U.S. markets since that speech,
you've seen a 35% rally. Something's got to give. Emerging markets
have underperformed the S&P significantly, both on a two-year
basis and even more in the last six months. We've started to see
constructive developments of emerging markets bottoming first. This
is a general view and a historical call that I think you can go to
the bank on in terms of how emerging markets, at least from a
markets perspective, will bottom first.
Looking at the currency markets, you may get clues here as to
where the world is positioning from a safe-haven perspective. The
Aussie dollar and Canadian dollar continue to buck the general
uncertainly in commodities despite the fact that both their
economies are arguably highly correlated and highly linked to
commodity prices. These are both triple-As which are the
beneficiary of global flows seeking a more defensive safe haven.
Not necessarily an endorsement for the commodity complex.
