For the latter part of last week and the early part of this
week, it appeared like global investors and traders wanted all the
risk they could find. However, as soon as Obama and his
administration hit the airwaves with new tough talk, everyone
seemed to lose their appetite for risk.
OBSERVATIONS ON THE GLOBAL MARKETS THIS WEEK:
- It has been "risk on" for the most part with S&P e-Mini
futures (ES) jammed higher since Sunday night and key risk
currencies like AUD/JPY and EUR/JPY seeing major buying. That
changed Tuesday morning, however, with the Syria chatter heating
- Syria looked like it would take a backseat to data points
this week up until Congress votes and/or Obama acts. However,
with the Obama administration out on the airwaves talking tough,
everyone's level of trepidation is being raised once again.
- Traders and investors may tread gently until one or all of
the following occurs:
- Syria discussions calm down;
- the flurry of interest rate announcements from global
central bankers later this week comes and goes; and / or
- the monthly jobs report here in the US on Friday comes and
- The yen was being shunned as investors were pulling money out
of safety assets and pushing it into risk assets. The US dollar
was seeing only a little of that, but is being buoyed by tapering
talk and higher rates. This shift reversed itself Tuesday,
Below are some additional notes on the bonds and currencies.
- Ten-year Treasury yield: It barely held support at 2.715%
last week, but it held nonetheless. A run in yields up to the
Fibonacci projected 3.021% may now be underway (which is bullish
for risk assets in the short term as it is unlikely that rates
would shoot higher like that if stocks are being sold off).
- High yield:
SPDR Barclays Capital High Yield Bnd ETF
(NYSEARCA:JNK) is still trading bearishly, failing to confirm
- Emerging markets bonds: Like JNK,
iShares JPMorgan USD Emerging Market Bond Fund
(NYSEARCA:EMB) is technically broken as well; it is headed to
102.50 from its current level of 105.25.
- US dollar: It is ripping higher on the resurgent tapering
talk. The DXY has already taken out "correction resistance" at
82.08, so this is no longer to be considered a short-term
correction. We should, in theory, see a rally in the DXY up to as
high as 85 in the coming weeks or months.
- Euro: It failed at 1.3409 resistance and is getting crushed.
Will the entire head-and-shoulders formation end up playing out
suggested for months
now? The euro is short-term oversold (see green box), so a bounce
should be expected and sold into.
- Yen: It was suddenly seeing massive outflows as noted above.
However, renewed Syrian concerns have some folks running for
safety once again. I will respect the price action and close out
all bullish yen positions in my models / portfolios if USD/JPY
closes above 100.203 -- but not before then.
- Aussie dollar: There was a corrective rally after 5 waves
lower were completed in the short term; fundamentally, the Aussie
dollar is rallying due to a perceived hawkish change in stance on
the part of the Reserve Bank of Australia in its interest rate
policy statement yesterday. Will this be another instance of
"hope versus reality" as I
pointed out recently
There's no short-term edge here from a technical perspective. Gun
to head, I'm going with a continued short-term rally (possibly up
to 0.9193 resistance) before the clear macro bearish trend takes
back over. I'll be shorting all things Aussie up at that resistance
if not sooner if the trading activity dictates.
Were it not for the Syrian situation, I am fairly convinced that we
would be seeing a continued "risk-on" condition in the global
markets. My call, however, would not be for a runaway rally.
Rather, I saw short-term / limited upside in stocks (1,690 was my
target for the S&P futures) and risk currencies (as reflected
in my Aussie dollar comments). I definitely felt / feel, though,
that another fairly nasty down-leg in risk would / will take place
once the upside correction played out (perhaps due to tapering,
budget battles, Ben Bernanke successor talks, or international
goings on; check this piece out by
for more on the risks we face. Now, my question is whether we will
even get to enjoy the projected bounce.