Sept 24. Falling knives
–Quiet day in interest rate futures with little net change. US equities were also nearly unchanged, churning in a tight range. However, other markets did move. For example, in emerging market currencies the Brazilian real continues to plunge, ending yesterday at 4.16. (more below). New low as well in the Indonesian Rupiah and Thai Baht and Canada dollar. Aussie near new lows this morning. Industrial commodities are under pressure. For example Dec Copper settled 229.55, a new low settle for September and closing in on the August 24 low of 220. The Shanghai steel rebar contract is very near new lows, having fallen 25% since January. Same with nickel. Zinc has plunged to a new low, down 32% since the high in May. Since August 31, Nov Crude has traded a range of 50.04 to 43.89, and was 44.70 late Wednesday, much closer to the low end of the range. In short, industrial commodities are not providing even a glimmer of hope for stocks. And it’s not just metals. New lows in lumber, live cattle, and…Frozen Concentrated Orange Juice.
–At least for stocks, we can always depend on low rates providing ammunition for share buybacks, right? Not so fast. Hi yield etfs continue to fall, indicating that credit markets aren’t quite as welcoming as they once were. After re-opening from a holiday, Japan’s Nikkei fell 2.7% and is near a new low for the move.
–Today’s news includes Chgo Fed National Activity Index expected 24. Jobless Claims expected 272k and Durables -2.3%. New Home sales 515k. Because of the Pope’s visit, apparently these releases may not be exactly on time. Late in the day Janet Yellen speaks on “Inflation Dynamics and Monetary Policy”. The problem is, there are no inflation dynamics. Absolutely no reason to think she is going to modify her dour outlook given the way markets are trading. As a former treasury economist put it,
”Short-end rates move higher as the Fed gets closer to hiking, and that causes the dollar to strengthen, and that causes global funding stresses. They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created ”
–By the way, here’s a quote from Lockhart yesterday: “Markets should appreciate that the likelihood of substantial spillover to the U.S. domestic economy from developments abroad…is likely to be small.” Is that what the commodity markets are telling us?
–Don’t forget there’s a blood moon on Sept 27/28, with associated warnings of the end of days. Bummer.
–The two year note in Brazil local currency yields 16.5% and the currency has done nothing but drop. If the currency can stabilize, those notes are a huge buy.
