Market Gyrations
Sally Limantour
An unexpected rebound in the Feb. manufacturing survey helped support the market after a swift move down. Personal income was also up 1% which was better than expected, but the embedded core PCE was up 0.3% in Jan. after a 0.1% in Dec., or 2.3% y/y. Remember, a reading over the Fed’s 2% is taken to mean no rate cut anytime soon. Construction activity was down as was single and multi-family building. No surprise there.
In Japan, the Nikkei lost 1.35% on its 4th day of a losing streak. It has now given back all of this year’s gains. The Yen continues to rally and is fast approaching my 1st target of 86.00.The strong yen, of course, plays into the fears of “the great unwind” but the question is whether this is actual unwinding of the buildup of carry trades or… a feeding frenzy of speculators trying to jump in ahead of a potential unwinding. If anyone has a good understanding or a way of measuring this to get a handle on it I am all ears. The important thing to realize is the dollar is rising against the Euro but crashing against the yen. I think it is challenging to fully comprehend the correlation of stock markets with currencies and perhaps this uncertainty alone is enough to keep the market jittery for a while.
Bloomberg reports that it is real unwinding (versus unreal?) and will continue as “carry-trades are inherently risky and everyone wants to dump risk these days.” Meanwhile EconMin Ota is saying the Yen’s rise will not effect the economy. This makes no sense to me as the weak yen is a boon to exporters and they are the key strength for the Nikkei. The yen is making its biggest weekly gains in over a year against many currencies – Australian $, New Zealand $ and the South African rand which are all high yielders and favored carry-trade plays.
Note too, these are the commodity related currencies which is important and something to pay attention to as we have witnessed a stampede into the commodity arena both for diversification purposes and to chase returns.
In my virtual training class last night we were looking at a chart of the continuous commodity index (CCI) which is a basket of 17 commodities. Open interest recently set a record and we have seen outsized gains in different commodities over the last few years. My biggest question and fear (and we always have to carry a worse case scenario to be prepared) is what are the chances of these supposed non correlated asset classes declining in unison coupled with an unwinding of the carry trade? This is something on my radar as I hunker down the way I do on a sailboat right before a storm. Batten down the hatches! As mentioned yesterday I tightened stops in commodity position to lock in gains and they did take me out yesterday. I will observe and monitor metals, grains, etc and will write more on this sector over the weekend. Stops are your friend.
Coming in this morning, we have a pivot of 1399.00 in ESH with 1st resistance at 1410, then 1417. Support comes in at 1386.50, then 1368.25. We need to get above 1404 early to get things moving up, otherwise I suspect, given its Friday with rattled nerves we could have a fast move lower. Stay nimble and disciplined.
Rest up and enjoy the weekend.
