Via Bloomberg's Richard Breslow,
It has been a sloppy day all around. The litany of discouraging news is there for all to see. It doesn’t feel particularly helpful to run down the list again. Suffice to say it’s an understatement that the people in charge are hardly distinguishing themselves. And that is a reality playing out all over the globe. If there is one word to describe the mood it would be, “discouraged.”
It just hasn’t been a session where traders were all that interested in being mollified with news that things are poised to get better in the second half of the year or work is being done on Plan B. And traders are contemplating the possibility that a lot of the world’s self-inflicted wounds may not be quite as “transitory” as we had hoped.
The irony is that this is one of those times when investors are relying on the market to just be in one of its recurring fickle periods. They recur regularly and always feel real in the moment, but are curable with a good headline or two. There are plenty of takers willing to subscribe to that view. And to be fair, there is a long weekend coming up, which makes holding marginal positions problematic. In either direction.
It’s really hard to stick with trades. Even ones still on the conviction list. Especially with so many of them struggling. To press your bets or fade extremes is a harder choice to make than usual. And how the market is positioned really does matter.
The greatest skill you can possess in this environment is a willingness to aggressively trade event risk along with the market before the fact and then hedge up to avoid the actual occasion. That’s been a winning strategy for years. Ask anyone who trades the euro.
But of course that’s only operative with known unknowns. And we seem to have more than our fair share of bolts from the blue. Relying on “base cases” has been problematic. But it is a great thing to use after the fact with the inclination of buying the rumor, selling the fact remaining so ingrained.
As the day goes on, keep an eye on the Dollar Index.
It is attempting to break higher after having marginally topped resistance. But the momentum slowed after the PBOC said China wants a stable currency. That’s code for them not yet being willing to countenance the off-shore yuan trading above 7 versus the dollar. The reaction to their comments was hardly dramatic, but can’t be ignored. And so goes the yuan, so go a lot of other currencies. Bonus: The euro has slumped right to first support.
Equity screens are a sea of red. But the S&P 500 is also getting back down to an important support level circa 2800. On the top side, 2870 is the other pivot. Don’t immediately judge a U.S. day by its Asian start. Even though it seems quite reasonable.
WTI crude topped out just where it was technically supposed to below $64. Now it is breaking $60 support, which is even bigger. It may be better to go with a break of either side than play for one. There are however, some worrying signs in other commodities.
As for bonds, their relentless behavior has been extraordinary.
And, ultimately, the biggest story. It’s as if traders are saying to the central bank, we hear everything you are saying and now we will do what we have to.