US equities were weaker overnight with the S&P down 0.2%, as a month-end inspired profit-taking triggered a consolidation pull back after seven consecutive days of gains.
Intraday recovery propensity and cash on the sidelines remain healthy as US Fed Vice Chairman Richard Clarida reaffirmed that US interest rates will stay low for longer, suggesting systematic risks remain low and cash level remains high.
With month-end rebalancing driven weakness so far coming in on the softer side of a potentially expected -1% to -4% sell-off on the back of $80 billion of pension month-end equity selling, the month-end slide could augur well as a buy-the-dip opportunity to establish long equities and short volatility positions.
There could be some more residual rebalancing effects, while investors might be a little defensive ahead of this week’s Non-Farm Payroll data about jumping in without cause. A breakthrough on the US stimulus snaggle could be a timely “cause” event this week.
Fiscal cliff edge concerns?
Fiscal cliff edge concerns could be leaking into the discussions again with Secretary of State Steven Mnuchin telling Fox news the Democrats do not want to negotiate in good faith.
Indeed, not only is ambivalence hurting the nascent economic recovery, but more importantly, it keeps the neediest checking their mailboxes regularly while praying a second stimulus check miraculously arrived.
We are talking about people needing to buy groceries, not luxury items here. It’s time for Congress to get off their derrieres and put something actionable together.
And for airlines, Oct. 1 is an important date. Under the terms of the CARES Act, which provided up to $50 bn of help to the US airline industry. Airlines could not lay off or involuntarily furlough staff until then. As the date draws nearer, airlines are already preparing for massive job cuts, with markets estimating about 400,000 airline workers have been fired, furloughed, or told they might lose their jobs.
Clarida paints a picture of the Fed being set for the moment in terms of policy innovation now that they have revised the framework with enhanced forward guidance. They will not consider yield curve control unless things change, and negative rates are not an attractive option for the US.
The question now is whether the Sept. 15-16 FOMC meeting will yield any further concrete steps to implement the revised framework. Clarida, towards the end of the discussion on Monday, did suggest that discussing strengthened forward guidance was the natural next step.
But, as Dallas Fed President Robert Kaplan noted over the weekend, there is little reason to hurry, and it might be early enough if the decision on forwarding guidance comes by year-end. On the surface and when taken in the context from the latest minutes it suggests discussion are not far enough along so September might be a bit too early for the great Fed policy framework unveil.
From the absurd to the even more absurd.
There would be some twisted logic to stocks putting in a top today as TikTokkers and Robinhoodies sell their Apple (AAPL) and Tesla (TSLA) stocks as they have been patiently waiting for all those “free” shares from the split to arrive in their accounts before taking a profit. I know it makes no sense. That’s why it makes perfect sense this is retail trading mentality 101.
A top in stocks would also be bullish USD, presumably. Watch TSLA and AAPL price action today to see if they remain in ludicrous mode post-split. So far, they continue to grind higher maybe that thesis was too ridiculous for even this market’s ridiculousness.
Glittery future for gold
Gold remained supported overnight by a dip in US yields amid the backdrop of a weaker US dollar.
The future looks glittering for gold as the fundamental bullish factors continue falling into place beyond 2020 as the US Fed will remain mute to lower unemployment levels or higher inflation.
Hence, there is a tremendous potential for broad-based dollar weakness and higher gold prices well into 2022, suggesting we will be talking gold up for an exceptionally long time.
And given a chance, even if remote at this stage, the game-changer tail risk of an inflationary explosion higher over the next 2 or 3 years when the Fed is widely expected to sit pat, gold then starts to sound like an excellent place to hang out for a few years provided real rates remain anchored lower, which is bound to happen on any reflationary bounce.
The currency market remains in a holding pattern ahead of Friday’s Non-Farm Payroll (NFP), bound to be a lively affair. Forex traders are caught in the short term versus long term vortex.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp