For as many years as I’ve been at this game, the first thing one does in the morning is to look at the New York closes, put them in context of the economic releases of the previous day, look at what is coming up to be reported in the new day and to spend the morning trading around this while waiting for the Americans to come in and to tell us what to do next.
This morning I switched on the systems, looked at a US equity market which had opened strongly. The Dow started the day over 300 points to the good at around 16,200 points. It traded to a high of just over 16,300 points, fell back to the 16,200 area and then tanked by over 500 points in the final hour of trading to end up losing 2.09% on the day. Oops, let’s check the economics…
There was nothing out there which would have justified the selldown. The Case Shiller House Price Index complex contained no shockers with the all components being more or less in line with forecasts. The Conference Board’s August Consumer Confidence Index, on the contrary, blew away forecasts at 101.5 when the pundits had expected 93.4.
Joe SixPack is feeling good about life with affordable fuel and with the highest level of comfort with the state of the jobs market in many years. Other than a pop to the up-side in January when the country was drowning in snow, this is the best reading since August 2007.
On that basis and without knowing what is going up and down in Asia, one would have to be totally baffled. Even when knowing what is, one has the right to be totally perplexed. I shall take the coward’s way out and blame it on it being the middle of the last week of August when market rationale is smothered in sun-tan lotion except in the UK where it is wrapped in woollies and water-proofs.
Europe was significantly more rational yesterday as it bounced back; the Dax took back not only half of Monday’s losses as I had suggested yesterday morning but all of the them and some more beyond. The German index closed at 10,128.12 points, above even Friday’s close. There was, however, no sense of elation. Investors simply stepped in and bought and bought. As recently as two weeks ago the same index was trading above 11,500 points. Forget the volatility, feel the yield…
So if I don’t come in to work and immediately first look to the US, where do I look? Silly question. China’s governing control freaks are at a loss when it comes to understanding why, when they say that stocks have fallen enough and that they will make sure that they will fall no further, SixPack-Wei won’t buy it.
It might be a bit too early to speak of kitchen sinks but the PBoC’s wholesale cutting of rates yesterday takes us in that direction. The key rates, the one-year lending rate, the one-year deposit rate and the Required Reserve Requirement were all lowered. The first dropped from 4.85% to 4.60% and the second from 2.00% to 1,75%, both with immediate effect. The RRR falls from 18-1/2% to 18% with effect on September 6. I don’t think the PBoC has ever moved all three rates at the same time, irrespective of direction.
Shanghai and Shenzhen didn’t give a toss and continued to sell off yesterday. Today they have done a little better (at the time of writing both were mildly but not significantly lower) but there is no sense that Beijing has found the silver bullet. Was it not John Maynard Keynes, having blown his and his family’s fortune in the Crash of ’29, who famously declared that markets can remain irrational for longer than you can remain solvent.
A seasoned market player (and some-time highly placed teenage scribbler) wrote to me yesterday: “Another blip on life’s curve – believe me, the great China sell-off of 2015 will not even make it as a footnote in history … It’ll be on the same lines as the debt ceiling or some of the other end of year panics of the last few years … of course it’ll freak a lot of people out. So did Greece. But the China retail hot money is not that huge compared with the market. There’s (sic) a lot of wait and see clients out there – waiting for opportunities to invest…”
Meanwhile, the guessing game as to whether the Fed does or doesn’t continues. To be frank, I think they’re damned if they do and damned if they don’t and my “pin the tail on the donkey” guess is that they should but that they won’t. (That rhymes quite nicely).
Three more trading days in August then the Bank Holiday. Then another week until Labor Day on September 7 when things start to get serious again. The FOMC meets on September 17. For the “Sell in May and go away, come back on St Leger’s Day” merchants, the St Leger Festival at Doncaster is from September 9–12 and the actual St Leger, the oldest classic horse race in the world which was first run in 1776, happens on the September 12. Gentlemen, choose your weapons.
