This weekend’s Jackson Hole meeting has provided the latest excuse for traders not to do anything. Stocks in the US were down a little, oil rallied, but overall it was a very quiet night across most other markets.
The SPI 200 is however up 5 points this morning suggesting a mildly positive open and the Aussie dollar is still hanging tough above 76 cents.
Here’s the scoreboard (7.42am):
- Dow: 18448 -33 (-0.18%)
- S&P 500: 2172 -3 (-0.14%)
- SPI 200 Futures (September): 5,518, +5 (+0.1%)
- AUDUSD: 0.7614 +0.0010 (+0.13%)
The top stories
1. Investor complacency is high as market volatility remains low and the rubber band winds ever tighter – this won’t last. This is a theme you’ll hear more about in this note and across the site in coming weeks. That because while periods of relative calm in markets are welcome, they are also unusual. They also often transition straight to periods of high volatility.
Matt Turner reports Richard Cochinos and Ran Ren at Citigroup have run the numbers and say “a preliminary conclusion suggests markets are in a 5-10% tail — defiantly suggesting complacency is running high”. In plain English that means the current very quiet trading is aberrant, an outlier, and thus unlikely to last.
So it might be time to strap on the tinfoil hat because on this basis market volatility is likely to pick up again soon. There are a lot of crowded trades out there at the moment so if we do see volatility lift it could be fast and sharp.
That volatility will periodically spike is the thesis behind PIMCO’s excellent discussion of a huge contradiction at the heart of markets right now.
2. ‘Years of Fed Missteps Fueled Disillusion With the Economy and Washington’. While we are waiting for Janet Yellen at Jackson Hole this weekend the Wall Street Journal’s Jon Hilsenreth has published an interesting article where he argues the Fed, a “once-revered central bank failed to foresee the crisis and has struggled in its aftermath, fostering the rise of populism and distrust of institutions”.
Of course you could say that of central bankers everywhere. And I’d argue the Fed has been better on the recovery side than say the ECB or BoJ. But then again that could be because of the structure of the US economy more than anything.
Maybe Lawrence Summers, a Harvard professor and former Treasury secretary sums it up best. He told Hilsenreth the Fed has “held out the prospect of tighter money, and that has had a discouraging effect on demand to a greater extent than would have been ideal”. He added that “they have lost credibility by constantly predicting tightening that, out of prudence, they didn’t deliver.”
Oh, and if you are waiting on something big from the weekend’s confab in Jackson Hole, David Scutt reports HSBC says it will be a technical discussion and not much will come of it.
3.Enough with the doom and gloom, the hedge funds say the bull market will keep on trucking. Now of course volatility in stocks might be topside. We don’t have to see a crash. That’s worth remembering as Rachel Levy reports it’s a good time to be in stocks, according to Omega Advisor’s Steve Einhorn. Einhorn is vice chairman of Lee Cooperman’s $5.5 billion hedge fund and says manufacturing is out of its recession and now growing again.
“This would be a plus for the US economy in that it would contribute to a long lasting expansion, and a growing manufacturing sector would lift [S&P500 earnings per share] and help sustain [earnings per share] growth,” he said in a note. That means the economic expansion will continue and it’s another reason “to believe that the in-place equity bull market should last a long time… at least another two years, if not longer”.
4. As if on cue – durable goods orders looked strong. Orders for goods built to last rose 4.4% from the month before, higher than the 3.4% increase expected by economists.
That also suggests the many calls we are continuing to hear from the Fed of a rate hike this year are more likely than not to be delivered. Last night Esther George, president of the Kansas City Fed, and Robert Kaplan from Dallas both said rates need to rise.
5. CITI: If Trump wins, it would be a disaster for the global economy. Even though most polls seem to be suggesting Hillary Clinton is going to win November’s US Presidential election, perhaps even in a landslide, markets are wondering what a Trump presidency might mean.
Bob Bryan reports Willem Buiter, the chief economist at Citi, said in a note to clients on Thursday that a Trump win would not be good. “Assuming, somewhat conservatively, that a Trump victory would lead to a 1 [standard deviation] increase in global policy uncertainty and a 1 [standard deviation] tightening in US financial conditions (and that the two shocks affect global growth additively), a Trump victory could lower global GDP growth by around 0.7-0.8pp,” wrote Buiter. That would knock the global economy into recession.
6. Here’s where Australia is oldest, most, and least employed. A couple of really interesting lists were published yesterday by CoreLogic and CommSec respectively. CoreLogic’s list showed the top 50 council regions that have the highest percentage of Australians aged 65 years and older with the winners being Victor Harbour in SA, Queenscliffe in Victoria, and the Great Lakes in NSW.
CommSec’s list is remarkable because it really shows how much better Sydney’s levels of employment are versus the rest of the nation.
Key data for the past 24 hours (with thanks to BNZ markets)
GE: IFO current assessment, Aug: 112.8 vs. 114.9
GE: IFO expectations, Aug: 102.4 vs. 100.1
UK: CBI retailing reported sales, Aug: 9 vs. 0 exp.
US: Durable goods orders, m/m, %, Jul P: 4.4 vs. 3.4 exp.
US: Markit services PMI, Aug P: 50.9 vs. 51.8 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Shorting good management teams can be hazardous as the 23% rally in Woolworths over the past few weeks may be demonstrating. It might be a bit early to make this call about Brad Banducci and his team. However, early signs are that they are doing a good job in difficult strategic circumstances.
Woolies share price finished up 4% on strong turnover of 3.17m shares after yesterday’s profit announcement. This may have something to do with the fact that 8% of the stock worth around $2.6bn was short leading into the result.
The chart also looks interesting. It peaked at a 38.2% Fibonacci retracement level yesterday. In a volatile situation, possible supports are yesterday’s low around $25.10; the old highs around $24 and the major support zone around 200 day moving average between $22.50 and $23. An ongoing rally without retracing to fill the gap would be a positive indication.
You can follow Ric on Twitter @ricspooner_CMC