It was a dramatic day in that my recent posts to sell Bonds and Gold/Miners happened much faster than I expected, but also in that I potentially discovered a reason – outside of my published analysis – as to why stocks, bonds, gold moved so strongly today.
Quick Review: Yesterday the yield curve turned positive the day after I posted: Market Thoughts: Spying a Bond Pullback. Today we had both good economic data on Market PMI Service and ADP job print. We also had continued trade talk tweets, this time confirmation from China that trade talks are slated to happen for October (conveniently around China’s 90 year Anniversary of the CCP). But stocks exploded much higher than usual, and it’s not unusual to get “trade talks going well” tweets. Definitely not enough to pop yields so violently that the 10-year had its largest 1 day percentage move since the 2016 election. Even gold and silver dropped 2.5% and 5% respectively. Risk trades were clearly sold.
And I must admit, I didn’t expect SPX to push past $2945 so I missed it. I took that large expansion bar on Friday August 23rd and pressed short. Then G7 happened over the weekend. I ignored it in large part. We bounced Monday and the market has moved higher since. No Powell Punt. No Removal of Trump’s Tariffs. No NEWS that would cause the buyers to step in to the market and, well, buy so aggressively.
I looked for a reason both Technical and Macro. Usually what I find is that the macro forms and later confirms the technical. I had already posted my market thoughts from last week that I attributed more buying then selling in equities after a solid month of chopping sideways to Pension Rebalancing and/or end-of-month buying and/or stock buybacks before blackout. I wrote about it in my Monday Market Thoughts: Shaken But Not Stirred. I was in disbelief that we hadn’t/wouldn’t retest the SPX futures gap of ~2775 made on August 5th in the dark (not during market hours). In short, I was off-sides to an extent as I also admitted and as such did not expect the gap higher today in indices – getting SPX to 2% below all-time-highs.
Then a twitter follower I don’t know tagged a tweet I wrote and said something very short and to the point in response to my skepticism:
Market rallied strongly on these HK rumors now debunked.
Market rallied strongly on talk of Trump-Xi meeting. How soon before debunked.
Sold-To-You Rally Continues. https://t.co/GnlTeNvYYl
— Samantha LaDuc (@SamanthaLaDuc) September 5, 2019
“merkel and macron sided with trump at G7, and agreed to upgrade the trade resolution mechanism becasue WTO has no teeth. In effect, they put China in a box. Trump gave up a global digital tax. Merkle will act as trusted referee by all. China is now on board. A trade deal follows.” @CurrencyWar1
Hey, I did get a few things right:
“I think these metals are parabolas with a case of vertigo”
So how did that Bond Short call work out? $TNX $TLT Largest 1d percent change up move in the 10yr since the 2016 election.
And you can follow my actual trades here:
So What If There Is A Trade Deal?
What a sharp selloff in global bonds, if it occurs, would do for the rest of the world’s stock markets I really don’t know but the potential money lost in fixed income, if I’m right, could be substantial in light of what is the biggest bubble the world has ever seen….if there is something that would pop this it is the world’s central banks saying we can’t go anymore negative
And with that – potential for a US-China Trade Deal, potential Central Bank stimulus slowing, and potential expectation for reversal in economic weakness and earnings decline – markets could easily rally on relief. Some point to a “melt-up” to mimic 1995 when Fed cuts juiced stocks by 36% – and we are just half-way there in S&P for 2019 so far.
Anyway, pie-in-the-sky: that could put SPX at just about $3500.
More likely, the damage to fixed income from the popping of the Global Carry Trade Great Unwind along with Trump and Powell disappointing in some or various fashions, cause markets to fall from fatigue once they realize that structurally, the economy is different now than it was before Trump’s Trade War, Exploding Deficits/Debt, Negative Interest Rates, USD Funding obligations and Trump’s Manufacturing Recession.
Color Me Skeptical…