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12Aug2015 Market Close: Afternoon Market Rally, Oil Stable, Gold Melts Up And Investors Remain Worried About A Slowdown In China

Written by Gary

Markets closed mostly in the green, large caps mixed, small caps fractionally higher as expected. Short term indicators on the bearish side, but flat and not quite indicative which what Mr. Market wants to go. WTI oil remain stable, the U.S. dollar still challenging major support and gold melted fractionally higher.

Todays S&P 500 Chart

An afternoon rally to recover from a second day of losses following China's currency devaluation and paring steep losses as Apple and energy shares rebounded amid worries about a slowdown in China.

The Market in Perspective

Here are the headlines moving the markets.

Fed Funds Future Nearer Than You Think

The mechanics of how the Fed will raise rates after years of easing means the chances of it acting next month are likely higher than many think.

Everyone Is Probably Wrong About The US Dollar

Submitted by Lance Roberts via STA Wealth Management,

Bob Farrell once penned:

"When all the experts and forecasts agree - something else is going to happen."

This rule fits within Bob Farrell's contrarian nature. This view was also confirmed by Sam Stovall, investment strategist for Standard & Poor's, who said:

"If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?"

The point here is that as a contrarian investor, excesses are built by everyone being on the same side of the trade. Ultimately, when the shift in sentiment occurs, the reversion is exacerbated by the stampede going in the opposite direction

While this analysis is typically reserved for commentary about the stock market, it also applies to any traded commodity or asset where the price is ultimately driven by the supply and demand of buyers and sellers. In this particular case, I am specifically talking about the U.S. Dollar.

Beginning in mid-2014, fears of a "Greek" contagion spread throughout the Eurozone seinding shock waves through the financial system. The fears of instability, a run on banks, and a variety of other concerns sent foreign reserve holdings running into the perceived safety of US Treasury bonds and dollars ...

Wall St. near flat after indexes pare China-fueled losses

(Reuters) - U.S. stocks were near flat late Wednesday afternoon, paring steep losses as Apple and energy shares rebounded amid a second day of worries about a slowdown in China.

Sorry Troika, Spain's Economic Recovery Is "One Big Lie"

During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity "success stories" was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. Here's the official line from the German Council of Economic Experts:

The economic turnarounds in Ireland, Portugal, Spain and - until the end of last year - also in Greece show that the principle "loans against reforms" can lead to success. For the new program to work, Greece has to show more ownership for deep structural reforms. And it should make use of the technical expertise offered by its European partners.

As we've shown, the idea that the periphery has truly implemented anything close to "austerity" is absurd on some measures - like debt-to-GDP for instance.

Equally absurd to the 44.2% of Italian youths who are unemployed and, no doubt, to the nearly 23% of Spain's population that are jobless, is the idea that the policies imposed by the troika in exchange for aid have done anything at all to engineer what Germany ...

U.S. bank stocks sell off as investors bet the Fed will wait

NEW YORK (Reuters) - U.S. bank stocks fell 1.9 percent on Wednesday as investors bet that a weaker yuan will delay the Federal Reserve rate hikes that are expected to boost bank profits. Â

How To Trade China's "Nuclear Option" Devaluation, According To SocGen

China has officially gone the "nuclear route", SocGen says, and the read through for the global economy is not good.

The rather obvious takeaway from Beijing's FX stunner (and this would have already been clear to anyone who bothered to check the very three economic indicators that Premier Li Keqiang believes are the best gauge of economic activity in the country) is that things are far worse in China than most people were willing to admit, and when your export-driven economy is tethered to a surging currency that was set to strengthen even further in September on the heels of a possible rate hike, maintaining the peg comes at a cost.

Of course until now, everyone seemed willing to pretend that because China was somehow able to withstand the pain even as the yuan appreciated on a REER basis by some 15% in a year, that things must not be all that bad under the hood. That illusion was shattered on Tuesday.

Here's Bloomberg summarizing SocGen's take (spolier alert: it's horrible news for global demand and commodity prices, could delay Fed liftoff, and it raises the risk that the global deflationary supply glut will get worse) along with some favored trades for playing the Beijing currency nuke.

China triggering "nuclear option" of devaluation may be sign eco challanges are "much more severe than perceived thus far," SocGen strategists led by Ramon Verastegui write in note.

China eco challenges pose risk to global growth/inflation, Fed Sept. liftoff scenario, could further lower ylds at long end of curve.

Selloff in commod prices, related industries may continue as mkt discounts China slowdown, risk of supply glut from unwinding of CCFDs

Buy USD contingent flattener floors; 6M 5y-30y USD ...

Panic Buying Lifts S&P Into Green For The Week

Mission Accomplished?


Ford remains 'bullish on China' long term: Ford executive

(Reuters) - Ford Motor Co's head of global purchasing on Wednesday said the company remains "bullish on China" despite a drop in auto sales recently.

China lets yuan fall further, fuels fears of currency war

SHANGHAI (Reuters) - China's yuan fell to a four-year low on Wednesday, slumping for a second day, after the central bank devaluation on Tuesday, and sources said the government may let the currency slide even further to help exporters.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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