Talking Points:
- The S&P 500 has slipped below one of 2016's most prominent bull trend markers and now faces a 2,015 cliff
- Risk trends were shaken Thursday morning by Chinese trade figures, and there is plenty more to close the week
- Top event through the final session includes Fed speak, BoE remarks (Brexit fallout?), 3Q US bank earnings and more
See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.
We are skipping along the technical edge of a sentiment cliff. The S&P 500 slipped below a trendline that has stood as support for much of 2016. While we have yet to see the critical break that sucks the speculative wind from the broader market, the frequency of jolts seems to be increasing between the September 9th break from two months of extraordinary quiet, the follow up October 11th wedge break and this past session’s progress. What's more, this is not simply isolated to US equities, rather is an erosion of conviction in most assets and the liquidity that supports them.
The spark for this past session was an unexpected drop in Chinese trade figures which came on a troubling 10 percent decline in exports through August. While this is not unprecedented, it reminded the trading masses of the threat that the world's second largest economy can pose when its data doesn't suspiciously fall consistently in-line with analysts' expectations. With the USD/CNH pushing record highs (the prompt for intervention in December/January and arguably a key contribution to the market shock last August) and Chinese 3Q GDP ahead, we may soon see a sleeping dragon arise.
In the meantime, the final 24 hours of the trading week will offer this period's most capable concentration of scheduled event risk. The prompts for general risk trends are not particularly clear, but we will tap other themes. For skin-deep Brexit fears, the BoE will release its Credit Conditions and Bank Liabilities Surveys while Governor Carney and his deputies are due to speak at a conference. For Fed rate speculation, we are expecting Chair Yellen and notable dissenter (calling for a hike in September) Eric Rosengren to offer their views. Philadelphia Fed President Patrick Harker this past session suggested the group should have hiked in September, but that didn't budge alter the probability of a December 14th move materially (currently 66 percent). US, 3Q bank earnings will be another highlight that speaks to a steady deterioration that has gone unnoticed or conveniently ignored by the risk-focused masses. We discuss these themes and market moves in today's Trading Video.
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