In a classic case of weak hands selling out to strong hands, and after retail got taken to the cleaners skimming off an enormous level of froth, US equities recovered overnight as the S&P rose 2.0% with a bounce in tech stocks helping the NASDAQ to fare better, up 2.7%.
But since investors have not yet mustered up the courage to fill the Tuesday Nasdaq gap, it suggests the tech sector aftershocks are still reverberating and keeping the Wall of Money sidelined in one of the most interconnected market momentum shifts in some time.
Some good news on the US labor market front as US Job Openings and Labor Turnover Survey (JOLTS) for July was again ahead of expectations – with 2.5 unemployed persons per job opening. That is well below the recent 4.6 peaks in April, although still three times the pre-virus level.
So, while there is a lot of remaining slack, job openings appear to be holding in well.
And encouragingly, there was a steady climb higher in US equity markets on Wednesday as volumes normalise, and Tech sector found its footing again as investors are easing back into the saddle with the VIX settling in below 30 again.
The Tech sector continues to set the tone with a notable change in action looking at mega-caps that drove the rebound bus yet again.
The rebound rally continues to suggest that investors remain confident about the economic prospects where a virus vaccine still provides a pillar of support, albeit with some dents in the armour. But ultimately, they remain codified around the Federal Reserve Boards’ redoubtable policy support.
All eyes on the European Central Bank
Traders have hit the pause button, given the ECB meeting’s enormity that lies in wait later today.
The expectation is that the ECB will sound relatively optimistic. And ECB President Lagarde will not say much on the euro. Indeed, this means EURUSD will likely be stronger after the meeting, especially if President Lagarde does not spend much time talking about it.
It should make for one of the most interesting post-EDB decisions media scrums in some time, with traders bringing out their stopwatches to determine the next EURUSD pivot.
I am not sure much has changed in terms of the bigger picture, and EURUSD is still heading much higher.
So there remains a heightened risk of traders tripping over one another for topside exposure once the ECB risk is out of the way.
Malaysian Ringgit finds some support
Local traders will likely hit the pause button ahead of the Bank Negara Malaysia (BNM) rates decision, which is very typical. But with global risk faring much better and oil prices getting gingerly supported by the uptick on stock markets overnight, the MYR could trade on a more favourable tone.
However, with the FTSE Russell announcement on whether MGS Ringgit denominated bonds will remain in the World Government Bond Index (WGBI) looming ominously on the near horizon (Sept 24), it might not all be a bed of roses for the Ringgit between now and then.
Although the more stout US dollar has triggered a wave of profit-taking this week in Asia FX, compounded by the latest “Trumpian” China bombast, traders were hardly providing long US dollar after the Yuan put in a resounding rally overnight as traders position long CNH into a potential Chinese CGB’s inclusion in WGBI.
Gold regains some shine
If there was any doubt that there is a very strong rally hand around the $1910 level, the latest price action should put those concerns to rest.
Indeed, give gold credit for holding up in the face of adversity even if it did take some backtracking news on the vaccine front to push the market higher. Still, gold is holding up admirably considering the rise in back end US yields and the latest US dollar bounce.
I’m by no means a bear, but I’m also not thinking $2000 anytime soon as price action is telling me for all the noise made around Fed Chair Powell’s Jackson Hole speech, the market is questioning the Fed’s ability to generate inflation rather than its resolve to hold rates down.
Sure, gold will be supported by what is known (lower-for -longer) along with the overwhelming expectations for a weaker dollar. But the key question remains for me what is going to get us to my $2300-2500 year-end target.
I like gold because the FOMC’s new policy roadmap unveiled in August solidified expectations that rates will stay low for a long time. But the market remains very unsure. Just how much of the new framework will find its way into FOMC’s 15-16? So, the September post-meeting statement is a critical question in that regard.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp