Well, everyone got bored with the risk-off mood on Tuesday…
So it was time to buy some stocks.
If you really wanted to, you could plausibly attribute some of the optimism to a report out this morning from Politico which, in short, said this:
President Donald Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP’s top priorities.
That’s how low the bar is for tax reform now. We’ve “moved beyond” a series of bullet points that looked like it walked out of a high schooler’s Trapper Keeper.
The Dow managed its best day since April, while the Nasdaq rose for the first day in four:
The VIX, the dollar and yields did what you’d expect given that: down, up, up:
Despite Tuesday’s gains, there are signs of angst.
Cross-asset vol. is trending higher – albeit slowly:
As Bloomberg notes, the JPMorgan Global FX Volatility index, the VIX Index and the MOVE seem to have hit their low points in June, July and August respectively.
And the put/call ratio is near the highest since January 2016:
As far as the havens go, here’s a little context with gold and USDJPY (inverted) since the Fed minutes – so in addition to the minutes and CEOs getting nervous about Trump (Wednesday), this also captures the Cohn rumor (Thursday), the Bannon dismissal (Friday), Monday, and today:
Meanwhile, copper rose to its highest since November 2014 on Tuesday and is up something on the order of 20% YTD:
Money managers are the most bullish in 8 months, having increased their bullish LME copper bets by 552 net-long positions to 74,916.
- The net-long position was the most bullish on a Friday in eight months
- Long-only positions fell 3,273 lots to 137,225 in the week ending Aug. 18
- The long-only total was the lowest on a Friday in four weeks
- Short-only positions fell 3,825 lots to 62,309
- The short-only total was the lowest on a Friday in more than five months
And don’t forget about zinc, which is in the middle of a goddamn world-beating rally near a decade high sending China scrambling to take steps aimed at curbing short-term speculation:
European shares were nicely higher rising the most in a week. Only one sector failed to join the rally as the Stoxx 600 moved back above its 200-day moving average.
It’s worth zooming in on the DAX for a minute. German equities rose for the first time in three sessions on Tuesday, and by the most in nearly 6 weeks:
This comes amid a vociferous debate about the prospects for the euro, a debate which has taken on a new urgency with the ECB minutes flagging the risk of an “FX overshoot” last week and Draghi coming up at Jackson Hole. You can see why this matters for the DAX:
Also note this:
For their part, Capital Economics is super-excited. Here are some bullet points for those interested (as compiled by Bloomberg):
- The prospects for large-cap German equities during the remainder of 2017 are “quite bright,” despite the DAX Index’s pull-back over the past two months, Capital Economics says in a note.
- Sets DAX year-end target at 12,750, reduced from previous view of 13,500, though still implies ~5% rebound
- Doesn’t see recent DAX pull-back as a sign of things to come, as dollar/euro will likely edge back down in 2H (to $1.15), and the outlook for the German economy “remains rosy” despite some surveys which indicate a loss of momentum
- Says this year’s rally in the euro reflected foreign investors’ increased appetite for assets in the euro-zone amid greater optimism about the region’s economy; euro rise in the past two months, while DAX has fallen, has been mainly due to growing expectations of ECB tapering
- Expects ECB to continue to stress tapering will be slow and rate hikes remain a long way off, while the Fed may surprise by raising rates again in December after starting to normalize its balance sheet this autumn
- The fact that the euro-zone as a whole now appears to be doing well should provide a boost for German exports, even if the euro stays quite high
- Large-cap equities will perform better in Germany than in the U.S.
- Expects the S&P 500 to end 2017 at 2,400, slightly below where it is now
Finally, as our buddy Kevin Muir notes, Ed Yardeni’s ‘fundamental stock indicator’ is giving you the all clear:
“It wasn’t even like it was close”…