The Data Front and Jackson Hole

The Data Front:
I remember that we were panicking about something to start the week? Something about a Black Monday? Oh well never mind, looks like we’re all good now with US equity markets bouncing back to actually head into Friday UP on the week! Yes that’s right, overnight the S&P 500 Index surged to its biggest 2 day rally since 2009. What a week!

The fact that fear and uncertainty thinned markets out as much as they did can be blamed for the drop, while the same reasoning can be attributed to the rebound. There is no substance to the moves in either direction and markets are still vulnerable to the violent whipsaws we’ve been seeing. We’re not out of the woods yet.

Overnight we saw US Preliminary GDP data come in better than expectations:

“USD Prelim GDP q/q (3.7% v 3.2% expected)”

“USD Unemployment Claims (271K v 275K expected)”

Just as important, the Q2 revision showed a much bigger jump the previous quarter, giving an already confident Fed (in terms of growth direction anyway) yet another reason to push forward at their next meeting. The other tier 1 US data release overnight saw jobless claims beat expectations again.

Jackson Hole:
In terms of data, the US economy just keeps ticking all the boxes and with equity markets now up on the week (what a laugh) maybe New York Fed Bank President William Dudley’s expectations needed an extra day to gain some perspective:

“From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago.”

Markets are still pricing in a 1 in 3 chance that the Fed will move at its next meeting, down from 1 in 2 to start the week. But if stocks actually do manage to close up for the week, the fear will have been unfounded and the data only posting a more compelling case for the Fed to move in September.

Ignoring the fear and irrationality, a case could be made that conditions for the Fed to move in September have actually gotten better this week. Could be a screaming short opportunity across the Forex majors if you take that viewpoint at least.

Just remember that while some of the Fed big hitters including Yellen aren’t in attendance this year, the Economic Symposium held in Jackson Hole, Wyoming is this weekend. Be aware that the meetings are closed to the press but officials usually talk with reporters throughout the day so we’re sure to get some juicy soundbites tonight and over the weekend.

On the Calendar Friday:
USD Jackson Hole Symposium
GBP Second Estimate GDP q/q
USD Goods Trade Balance

Chart of the Day:
Sticking to the week’s commodities trading theme, Oil rallied more than 10% overnight, printing its largest single day rally since March 2009!

The bounce in US stocks as well as falling supply set off some short covering at current levels, causing price to break its short term bearish channel and rocket back up to test previous support as possible resistance.

Oil Daily:

Oil 4 Hourly:

Zooming into the 4 hour chart, you can see the momentum behind the break on this move. There was certainly not a lot of consolidation on the back of this breakout, so unless you take the first break immediately, you probably didn’t have a chance to catch much of the move.

Now that price has come back to re-test previous horizontal support as possible resistance, we have a clear level to manage our risk around. Yes it was a 10% rally in a single day, but that is still one ugly, bearish looking chart and I’d be much more comfortable playing from the short side.