Ok, well the smoke has cleared a bit this morning and the mood is still risk-off, although we’re certainly not seeing anything that suggests traders and investors appreciate just how dangerous it is when two unhinged people with nukes decide to engage in a game of saber rattling one-upmanship.
There has of course been no shortage of commentary about whether Trump might have finally ushered in the correction that everyone has promised is inevitable but has so far remained ever-elusive.
Predictably, former trader Richard Breslow has a thing or five to say about all of this and the great thing about the piece you’ll read below is that Richard is so busy trying to cram as much sarcasm and cynicism into every, single sentence as possible, that by the end of it, it’s not entirely clear what it is he’s trying to tell you.
Well, other than that CPI may be more important than the threat of North Korea launching some kind of preemptive strike against US bases.
Of course we already knew CPI was more important. Because after all, we know for sure that the Fed cares about inflation when it comes to how aggressive they’ll ultimately be in normalizing the balance sheet – but we don’t know whether Janet Yellen really cares about Guam.
“I knew it, I knew it, I’ve been saying it, sometimes, all along.” Equities are over-priced, emerging markets too buoyant, traders just aren’t being prudent enough. So goes the morning commentary from people who haven’t had a clue about the markets for ages. Total vindication. After all, S&P 500 futures are a percent off all time highs. EUR/CHF, that bellwether of safe havens has crashed all the way down to within a percent of its 21-day moving average. It’s August and people need something to talk about to kill time until Friday’s CPI release.
- My two favorite story lines of the day, or I should say, telling story lines, have been “North Korea threatens to strike U.S. after Trump warning”– after all, that bad man should reason with this sensitive soul, and, this is serious enough that no one will interrupt their Hamptons vacation to buy this wealth destroying dip for maybe weeks. They’ll get bullish again in time for the holidays. Bold call. The tide has changed as Treasury yields falling to levels not seen since last Friday must be telling us something new
- Don’t get me wrong. North Korea is a very scary place. So is Washington DC, for that matter. But markets haven’t even begun to take such realities into their consciousness. War mongers have their job to do and so do the protectors of the financial conditions index. Commentators, as well as traders, trivialize all events as mere prelude to the next trade. And no one is prepared for dealing with a real crisis when it happens
- So, in that spirit, what should we watch to see how we’re likely to spend the time before Friday? The dollar index is pretty straight forward. Last week’s low is gigundo and certainly looks like a potential base. But to make that case, just like on the way down, it needs to get back above 94. A convenient pivot in-between is EUR/USD at last week’s spike low at 1.1728. That’s a range that everyone should be able to handle
- Use gold $1275 and $1250. It’s so clear on the charts it hurts. And it won’t break either level except on news
- Ignore periphery spread widening in Europe. Taking profit on Italy at YTD tightness to Germany has nothing to do with Kim Jong Un, even if the algorithms won’t pick-up on that nuance
- You certainly wouldn’t know it by looking at asset prices, but the world isn’t a happy place. Don’t mortgage the future by thinking this is just something people do because of seasonal effects. Or to pass the time until the next really important event like July CPI