The dollar weakens as Trump retreats from China trade wars; Malaysia stocks soar on election of anti-market leader; the most anti-establishment government looms in Italy and BTP spreads compress; Argentine peso plummets despite massive intervention and promises; VIX hits a 12-handle as Trump reportedly “unleashes global chaos” by abandoning the Iran deal; bonds and bullion are down as the Middle-East erupts in chaos around Gaza.
But apart from all that – stocks are up. However, as former FX trader and fund manager Richard Breslow notes, it may only be Monday, but the markets have a curious feel of capitulation about them.
“Let’s hope we are just off to a slow start or we are in for a very long week. The price action is reminiscent of traders who have lost the thread of their narratives.“
Someone has put Schrodinger’s cat back into the box. The world can justifiably be described as simultaneously growing and slowing, dangerous as all get-out and lurching toward greater geopolitical calm or being run by the inmates of a lunatic asylum yet benefiting from those extolling new visions for the modern world.
On the day, at least, outrage has been subsumed by overload. Which is fine if it represents some reevaluation of opinion. Not if it is a sign of resignation. Investors need to have opinions. And better yet, strong ones.
When traders and analysts start taking innocuous comments at face value, as they did this morning following a speech by ECB Governing Council member Francois Villeroy, it isn’t evidence of good communication policy. It represents exhaustion from having to fight city hall as well as economic fundamentals. Just ask the people who accept the inevitability that the BTP spread to bunds should be narrowing.
Meanwhile, for those still inclined to engage, the levels from last week remain very much in play.
Euro bulls have last Wednesday’s spike low to lean on and take heart from. As for targets or resistance there are plenty of choices from 1.20 and change to 1.21 and change. That’s a very tidy range to play. And you will get a lot of central bank speeches to over-react to. Or go whole hog and trade the dollar index which looks just like the euro if you stand on your head.
Keep a close eye on WTI. Being bullish is becoming a consensus trade. And lots of analysts are making awfully bold and dramatic forecasts. The short-term charts say maybe yes, maybe no. Watch Thursday’s high, which over time will increase in significance. A lot of traders are also watching $70 below. That’s a really tight set of parameters for a commodity where calls abound for double- digit moves. But that’s a good thing.
The S&P 500 is beginning to look like bonds with levels all over the place. Either it represents something for everyone or a real mess. Big picture is 2800 versus 2600. Usable for the moment would be 2750 and 2700.
As for 10-year Treasuries, you need to decide where you come out on the 3% debate. All else flows from there, but it won’t be a lot of fun.
It’s hard to call any trends but there is still plenty to do. Even if it is a dreary Monday just begging everyone to have a lie in.