The more things change the more they stay the same

We have now entered September and soon all of the different market actors will be back in their seats from their summer holidays, looking for opportunities in the markets.  They will be contemplating what to do in terms of allocations to differing asset classes to gain performance/outperformance into the year end.  Market participants focused on equities in the U.S. are torn between being bullish on technical picture, tax cuts, buybacks, strong Q2 reporting results and positive growth expectations for Q3.  While also very aware that with the Fed shrinking its balance sheet and hiking rates, the uncertain status of trade tariffs/trade wars, higher oil prices and inflation in general combined with an important upcoming election and general market turbulence all pointing towards a possible correction.

The actors focused on FX are trying to decide if the USD will continue its move higher on the back of growth and interest rate differentials, or will the market focus on the growing deficits and a possible slowdown on growth into the year end?  Gold has been stuck at the lower end of its trading range and is a hostage to the USD strength.  Struggling to rally at a time when the global uncertainty would seem to favor the yellow metal.  Oil is retesting the highs on the back of lower supply due to Iran sanctions, and/or due to strong global growth and troubles in other countries that produce and export. Rates globally have been trading in ranges and with inflation at the Feds target, unemployment at very low levels in the U.S. and strong growth, the market may soon have to rethink the current levels for an upward adjustment.

Growth in the U.S. as mentioned above appears to be strong and looks to maintain into the year end.

The U.K. is struggling with Brexit and looking at economic indicators such as business sentiment , manufacturing and consumer credit are all showing signs of softness.

In Europe we are seeing softer economic data out of Germany, although nothing serious,  Eurozone consumer  inflation was lower, with Core CPI at 1%.

Japan showing mixed data recently, job market and inflation trending up, while construction orders are trending lower.

China activity seems to be slowing, although the authorities are focused on pumping up the economy.

Emerging markets continue to struggle under higher USD rates and USD currency strength.

EM currencies weakness may well continue as Fed hikes continue. Chart from Saxo Analyst Ole Hansen:  select currencies vs USD in August

A lot has happened since the middle of January, but the S&P is at the same level

Our views:

  • USD to strengthen in the next few weeks
  • NOK and SEK: will strengthen given Swedish election and Riksbanken don’t surprise too much and that Norges bank stays on rate path.
  • Equities: still prefer to be cautious and think we could see a correction, for those that are bullish to buy into.  Would recommend reducing exposure if currently long.
  • Oil:  watching to see if market can break $80. 
  • Gold:  cautiously optimistic, but waiting for break of 1215 to 1230 level before getting more involved.

Contact us if you are interested in receiving real time trading signals. In doubt? Check out our track record below!

TickerDate OpenedEntry PriceStopTarget PriceCurrent Price
EURUSD Put Option / Strike 1.1300 / Exp. 26 of Sept.2/70.0056premiumbelow 1.13000.0002

Visit our Position Tracker to look at all of our realized trades and proven track record: http://www.mintermarkets.com/position-tracker/

– Mark W

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