S&P 500, Dollar, USDCNH Talking Points:
- Monday’s reports that the White House is fast-tracking a coronavirus vaccine didn’t seem to translate into the steadfast risk appetite bulls would hope for
- Meanwhile, the sentiment data on tap this past session reminds us of the real-world struggle felt in tangible data channels
- While liquidity conditions remains a top concern of mine, an effort to reassure on the status of US-China trade relations reads like a bid to bolster capital markets
The Bullish Breakout With Little Company
Risk appetite seemed to have caught a spark to start this week; but even with the S&P 500’s charge to record highs Monday, there wasn’t much of a confirmation to be found in other speculative outlets through that session. Keeping tabs on ‘risk appetite’ through this past day of trade, it was clear that the motivation attributed to a fast-tracked vaccine approval by the White House wouldn’t be weighty enough to shift global sentiment systemically. That can be hard to compute if the only measure you referred to was the trend setting US index or its compatriot, the Nasdaq. Both notched record highs, but their performance remains inconsistent with the backdrop and the risk-anchored measures that are frequently tracked.
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Chart of S&P 500 with Volume (Daily)
Chart Created on Tradingview Platform
It remains the case that we are still passing through well-founded seasonal doldrums. There is a reason that August is historically the lowest volume month in the calendar year for the benchmark US index. And, while there are examples of market conditions overriding the liquidity conditions prescribed by historical norms; we don’t seem to be hitting the necessary stride to put the markets into overdrive. Referring to the performance of sentiment benchmarks year-to-date, the S&P 500 remains the trend setter with its record to keep up the ill-considered enthusiasm. Yet, emerging assets, carry trade and even other equity measures around the world are clearly reticent to throw in their support. That remains my top concern moving forward: is there enough market charge in the next few weeks to override the inertia on anchored investor confidence.
| Change in | Longs | Shorts | OI |
| Daily | -1% | 6% | 2% |
| Weekly | 24% | -16% | 0% |
Chart of S&P 500 with 5-Month Rate of Change (Monthly)
Chart Created on Tradingview Platform
Forward Looking Indicators Eroding the Already Listing Economic Outlook
Looking for a meaningful foothold to keep speculative appetite charged to override the drain in liquidity typical of the season, the news trumpeted by the White House to start the week of a fast-tracked Covid vaccine didn’t exactly inspire enthusiasm day of. Market confidence in the following session showed any latent potential in this bullish windfall wouldn’t build momentum with time. Even the firms that have been the target of investment by governments (AstraZeneca, Gilead and Novavax among others) have seen their share prices stagnate. That would theoretically be the most charged of the measures to respond to pandemic relief rallies.
Chart of AstraZeneca, Gildead and Novavax (Daily)
Chart Created on Tradingview Platform
For systemic, fundamental influence; my attention shifted this past session from upstream pandemic risks to downstream economic activity potential. At the end of the past week, confidence in economic potential (really the V-shaped recovery priced for so many areas of the global economy) was undermined by the uneven outcome of the August PMIs for the developed world. The outlook was further diminished this past session when the US consumer sentiment data from the Conference Board signaled confidence was dropping fast. The 6-year low from a confidence measure that reflects on a group responsible for approximately 70 percent of the world’s largest economy does not bod well. The contrast between consumer outlook and market performance is increasingly difficult to overlook.
Chart of Consumer Confidence, Expectations and Present Conditions with S&P 500 (Monthly)
Chart Created by John Kicklighter with Data from Markit
Relative Fundamentals and a Reversal On Trade Wars
While I am keeping tabs on the open-ended fundamental themes that are prone to unpredictable update or event-centric update (like the Jackson Hole monetary policy view on Thursday, Friday), the relative considerations for exemplified for assets like FX pairs should remain an important barometer for some of the prevailing themes that simply aren’t able to override inertia…just yet. The spread of the coronavirus for example seems to be still exerting weight on pairs like EURUSD and AUDUSD where the human and economic toll continue to climb at a fast rate for the US – a factor that is contributing to the Dollar’s surpression.
| Change in | Longs | Shorts | OI |
| Daily | 8% | 5% | 7% |
| Weekly | -5% | -7% | -6% |
Chart of EURUSD with Covid Case Disparities and Net Spec Futures Positioning (Daily)
Chart Created on Tradingview Platform
Another remarkable area of fundamental heft this past session that didn’t full give way to price action was trade wars. There was an unmistakable effort between US Trade Representative Lighthizer and White House trade adviser Navarro to reassure markets of their confidence in the present state of US-China trade relations. That doesn’t seem a diplomatic move as much as one designed to reinforce market confidence. Nevertheless, I will be watching both the USDCNH and Shanghai Composite to see how the efforts land.
Chart of USDCNH (Daily)
Chart Created on Tradingview Platform
If you want to download my Manic-Crisis calendar, you can find the updated file here.
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