Traders Wait For OPEC, Fed, BoJ, And ECB Speakers

Originally published by AxiTrader h2 Quick recap/h2

Oil, stocks, bonds, and commodity currencies slid into week's end Friday in what continues to be a market dominated by technical traders. That is, despite all the big news and events the fact that markets continue to respect important chart points across many markets tells you no-one really has a good medium term handle on the next big trend.

So while it's quiet week of data ahead there is plenty of events with the presidential debate, and speeches from Draghi, Kuroda, Yellen and a bunch of other Fed officials. And of course, it looks like traders need to deal with another OPEC mis-fire.

Here’s what I picked up

• Crude Oil was sharply lower on Friday as the likelihood of an OPEC deal once again seem to recede into the ether. That dragged US stocks lower with the energy sector the worst performer down 1.23%. At the close the Dow Jones Industrial Average was 0.71% lower, the Nasdaq 100 dropped 0.63% and the S&P 500 was 12 points lower at 2164 for a loss of 0.57%.

• There was a little bit of Fed speak Friday with Minneapolis Kashkari at odds with Boston’s Rosengren. Kashkari said the risks are asymmetric at the moment because Fed policy can effectively deal with higher inflation and stronger growth but struggles with weaker growth and lower inflation outcomes – it’s an excellent point and one that is very hard to refute. But that doesn’t mean Boston’s Rosengren doesn’t think the Fed should get on with it and hike. Of course he dissented from the decision to leave rates on hold last week so you’d expect that.

• Possibly the biggest piece of news though was the fall in longer bond rates and the accompanying flattening of the yield curve. That will go some way to ameliorating some of the recent equity valuation concerns. US 10s closed at 1.6150% on Friday, well down from the previous week’s high of 1.75%. German 10s were back below zero with a yield of -0.08%, Japanese 10s are at -0.05%, and 10-year gilts in the UK ended at +0.72%. That’s well down from the 0.95% peak the week before.

• What a week we have a head of us. Certainly no big events in terms of economic releases, it being the last week of the month, but we have speeches by Fed chair Yellen, ECB boss Mario Draghi, and Japan’s BoJ governor Kuroda. We also have another 10 or so Fed officals speaking as well as the OPEC meeting.

• Interestingly on the Mario Draghi Speech it’s looking like German lawmakers, including finance minister Schaeuble, are after his head. Recently Schaeuble came back from the recent G20 meeting saying he knew the government needed to do more – it’s a strong indication that the world is moving toward fiscal accommodation. That’s important for growth and reflation. But politicians also play politics and if he is after Draghi to give cover for what might be uncomfortable moves in German fiscal policy this could get ugly. Bild reported that Schaeuble told lawmakers in the Bundestag to push him to defend his policies this week. Reuters is reporting that Michael Stuebgen, a conservative member of the German parliament said “It is time for the ECB to change course”. Watch this space for bonds and EUR/USD and the Euro crosses.

• And of course the US Presidential debate Monday evening US time is really something to watch. Now that the Fed is out of the way and off the table till December, and now that we are closing in on the November 11 vote traders the world over will be watching the results of the debates, this is the first of three, very closely. That’s because many traders think a Trump presidency would be initially bad for stocks. A bit like trendlines and other important technical levels that means if trump gains the ascendancy that fear could become a self-fulfilling prophecy. It’s not a comment on Trump, or indeed Clinton, simply a reflection that investors often invest with an eye to what they think others would do. Otherwise why else would you buy bonds with negative rates? And don’t tell me TINA.

• The S&P/ASX 200 rose 57 points on Friday to finish at 5431, up 1.06%, and exceed my target of a return to 5420 to close some of the GAP on the S&P 500 that opened up with August’s local collapse which continued into this month.

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• Friday’s dip in US stocks, and the not insubstantial closing of that gap, suggests a slightly weaker open for the week. The Dec SPI 200 furtures contract is down 24 points at 5396 suggesting the market will open a little under pressure.

• Certainly oil stocks will come under heavy selling pressure and there is every chance crude has a tough day in Asia after the Russian oil minister’s comments (see below) over the weekend.

• This week there is not a lot of local catalysts on the economic or data front. RBA assistant governor Edey is talking Wednesday but the data is second tier and the big moves will be driven by offshore moves in stock, bond, and commodity markets.