Stocks Down, Bonds Up as Risk Aversion Creeps into Markets
U.S. Equity markets are under pressure this morning as
sellers showed up after Japan
reported a weak GDP figure. Treasury Bonds are trading higher in response to
the possibility of a weaker global economy.
Talk is circulating that the Fed may have inadvertently cast
a pall on the market last week when it decided to shore up its balance sheet by
moving funds from mortgages to Treasury Bonds. This may have sent a message to
traders that the central bank is making room for more stimuli. Its action in no
way injected any confidence into the fragile markets.
Today investors will have three reports to digest to help
determine the outlook for the economy. These reports should help shed a little
light on the progress of the recovery. Even if they turn out better than
expected, the economy is still facing a huge challenge since all indications
are showing that economic activity as stalled.
The NY Fed Empire Manufacturing Index is expected to show
that manufacturing activities expanded in August to 7.50 from 5.10 reported in
July. This report should be no big deal since manufacturing has been steady.
Net Long-Term TIC Flows are expected to show a surplus. This
reports measures foreign investment flowing into the U.S. This report often shows a
surplus, but the figure usually offsets the trade balance deficit. In fact some
say it is reported to cover-up the trade deficit. Although there is a surplus
at this time, an economic slowdown in the U.S.
is likely to cause foreigners to curtail their interest in U.S. investments.
Finally the NAHB-Housing Market Index gets reported at 9am
CDT. This report should be up from the June figure, but this increase could be
deceiving since housing took a beating in June following the ending of the tax
So basically, these reports arenâ€™t expected to trigger much
interest following their initial releases. The focus will remain on the
longer-term picture and an interpretation of the Fedâ€™s next move.
The U.S. Dollar is trading mixed against most major Forex
markets, posting gains against the commodity-linked currencies and losses
against the Euro, Yen and Swiss Franc.
Early in the session, the Dollar was trading a little
firmer, but was unable to hold gains after Japanese second-quarter gross
domestic product data showed the nationâ€™s economy slowed to a crawl. The
sluggish GDP report helped China
move up to become the worldâ€™s second largest economy.
The reported slow down in the Japanese economy also may have
strengthened the governmentâ€™s case for a weaker Yen. For weeks the government
has warned that the high price of the Yen may be damaging demand for Japanese
exports, thus hurting the economy.
At the close on Friday, the Yen posted a reversal bottom for
the week. This was an indication that traders were looking for a possible
intervention. The lack of follow-through to the upside means this reversal
bottom has not been confirmed.
The main driver in the Dollar/Yen market the past few
trading sessions has been the anticipated moves by the Japanese government and
the Bank of Japan. So far all the rhetoric has amounted to a â€śverbal
interventionâ€ť, but this has been enough to scare the weaker shorts into
covering their positions.
This week Prime Minister Naoto Kan and central bank Governor Masaaki
Shirakawa meet to discuss the value of the Yen and its effect on the economy.
Look for increased volatility in the Japanese Yen as traders try to forecast
the governmentâ€™s and BoJâ€™s next move.
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Tue 17 July 2018 AA 08:30 GB- Employment A 13:15 US- Industrial Production AA 14:00 US-Powell Testimony Wed 18 July 2018 AA 08:30 GB- CPI A 12:30 US- Housing Starts/Permits AA 14:00 US-Powell Testimony Thu 19 July 2018 AA 1:30 AU- Employment AA 08:30 GB- Retail Sales A 14:30 US- EIA Crude A 12:30 US- Weekly Jobless Fri 20 Jun 2018 A 12:30 CA- CPI/Retail Sales
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