September hike back in play, US dollar bounces markets weaken in Asia

Quick Recap

US and European stocks struggled to go on with it on Friday night with only the UK’s FTSE putting in a decent rally with a 1% gain. That said though the bounce off the lows of last week in stocks, bonds, currencies and commodities was phenomenal.

But as I highlighted last week it was really just a natural reaction to the big swing lower which saw the market get into heavily oversold territory.

Take the ASX 200 for example. Writing in my Oz Diary of all the key events and data for the week ahead at Business Insider this week I wrote:

In a purely trading sense the rebound that we saw in the second half of last week after the acute weakness in stocks, commodities, commodity currencies and the US dollar over Monday and Tuesday was some of the easiest profits long-term traders will have ever made. That’s because markets were so oversold and ripe for a snap-back. As Robert Shiller wrote in the New York Times last Thursday the five-day decline that saw the S&P 500 lose 10% in 5 days has only happened 9 times since 1950.

That’s rare, that’s oversold, and the price action which saw the Dow, S&P and indices around the globe rebound was mirrored in everything from crude oil, to copper, to the Euro (which reversed of its rally to 1.17), bonds, the VIX and so on.

Markets were oversold and bounced.

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That snapback was the easy part.

Indeed it was the easy part here and around the globe because with Fed vice-chair Stanley Fischer put the  first Fed rate hike back on the table for this month’s meeting. That’s only a couple of week’s away.

Which means that the US dollar bulls, who have driven Euro back under 1.12 and more than 5 big figures off the high of last week, and the interest rate markets pricing a small chance of a rat hike this month can’t both be true. For mine while I don’t think they lose anything by waiting the fact that they have warned for so long about this move, the fact the US economy seems growing too strongly for zero percent interest rates both suggest to me they should and will go.

Markets seem to think that too with US stock futures opening down taking markets with them early Monday.

Now, the overnight scoreboard (8.53am AEST):

• Dow Jones-0.07% to 16,643
• Nasdaq +0.32% to 4,828
• S&P 500 +0.07% to 1,989
• London (FTSE 100) +0.9% to 6,248
• Frankfurt (DAX) -0.16% to 10,299
• Tokyo (Nikkei) +3.02% to 19,136
• Shanghai (composite) +4.81% to 3,232
• Hong Kong (Hang Seng) -1.04% to 21,612
• ASX Futures overnight (SPI September) +12 to 5,249
• AUDUSD: 0.7133
• EURUSD: 1.1195
• USDJPY: 121.22
• GBPUSD: 1.5412
• USDCAD: 1.3211
• Nymex Crude (front contract): $44.64
• Copper (US front contract): $2.3465
• Gold: $1,133
• Dalian Iron Ore (September): 446 (denominated in CNY)
• US 10 year bond rate: 2.18%
• Australian 10 year bond rate: 2.735%

On the day

So, on the data front we get company profits and inventories plus the release of the TD Securities monthly inflation gauge, private sector credit, and HIA new home sales. Builind permits and the ANZ activcity and business confidence are out in New Zealand. Japan releases housing statts and construction, retail sales are out in Germany, Greece and Italy. CPI is also out in Italy as well as the EU more broadly. Portugeuse GDP is out and in the US its Chicago PMI.

CHART OF THE DAY: S&P 500 Monthly

We’ve had a distribution of prices around the recent highs and the MACD is looking like its over done. This is a very long term chart and my target is 1600ish. 

On a shorter time frame I was expecting a rally to 2,000/2,010 from the low and that’s effectively what we saw completed last night. That doesn’t mean it can’t still rally – but in the long run US stocks look like they are biased lower. Just like gold a few years back.