Without going into a Jackson Hole preview this early in the week, former fund manager and FX trader Richard Breslow suggests, it’s probably safe to expect that the attendees will attempt to be market friendly and let everyone know that trade uncertainty diminishes economic confidence.
Traders who have been bearish toward risk-on assets have been covering positions. Or sufficiently lowered their stops as to have them elected. Presumably, they’ve decided that, for the moment, discretion is the better part of valor.
But I do find it fascinating that they seem to be doing so very begrudgingly. I’ve heard very little of the usual celebrating that goes along with what looks, on the screens, like a happy day. Something to file away for after. Although they might want to keep in mind the official histrionics that accompanied last week’s bad day.
And the fact that any number of analysts who are warning of dangerous times ahead for markets are, nevertheless, hedging their bets with recommendations such as buying peripheral European spreads.
It has been common to ascribe recent equity malaise to weaker-than-expected economic numbers. But that probably wasn’t the case.
It was partially the frenzy for buying bonds that spooked them. And that had a lot to do with hoped-for central bank activities. Which aren’t going to be simultaneously good for bonds while stock-index negative.
And, fear that there are certain important geopolitical events, like the troubles in Hong Kong, that they can’t handicap. Nor afford to ignore a priori in the bad-news-is-good-news fashion. As uncertain as events like Brexit are, there is an expected timeline that traders can try to plan for by buying protection. No one knows what the schedule, if any, is for Hong Kong. And that positively drives them to distraction.
There are two things of which you can be certain.
1. You can’t stop trading and ignoring strong technical signals because the world is a dangerous place. But I get a sense that there are a lot of people thinking flat or short is the only way to be. That’s a tough way to make a living other than in the shortest of terms. Being willing to forgo half of a two-way market is self-defeating. Although people who sell index funds, however, have no problem with those who have that attitude.
2. The dust won’t have begun to settle on the Jackson Hole speeches before all eyes will be on the G-7 meeting that begins this coming Saturday. It holds many more potential opportunities and pitfalls for markets. And it is fraught with many more uncertainties. Who would have thought that these would become digital events? That’s not a good thing. Nothing they do is likely to materially change September plans for the central banks, but it is possible it could change the forecast trajectory of rates going forward. In either direction. The agenda itself is a tough one for them to make any progress with. But it’s the side show that everyone will be watching.
Equities are up. The technical pictures for a number of the most-watched global indexes are looking either pretty good or cautiously optimistic. The dollar is bid, but it is right up against resistance and will need something new to get its upward momentum back. Spot gold is sitting right in the middle of two key pivot zones. For the most interesting trade today, watch Treasury yields. It’s possible that their straight-line path to zero may have been greatly exaggerated.