September is usually associated with providing direction in the markets after the long summer months of chop and churn which is designed to confuse participants on where next.
The macro theme since May of this year has been rising rates globally albeit from super low historic levels. Rates have risen quickly with today seeing the 10 yr treasury back over 3%. It was yielding a mere 1.6% in may 2013. Aside from the negative impact for corporates and consumers having to pay more for refinancing and credit hedging costs have risen dramatically. Part of the problem is the speed of the move. Volatility has shot off to the moon in the credit markets in relative terms which feeds into increasing costs for interest rate spread protection and therefore is a squeeze on liquidity. No surprise then to see that US mortgage refi numbers have fallen off a cliff since the May trough in interest rates.The 30 year US fixed rate mortgage has moved up by nearly 40% in cost in the last 4 months or so from 3.35% to over 4.6% today.
Whilst developed world equity markets cling to their 4.5yr 260% gains other world equity markets have collapsed from the May highs. In dollar terms the drop is even harder. There does appear a two speed world economy at present between the DM and EM world. We are yet to see any evidence of these higher rates on demand but we must recall that economic production data often badly lags the actual shift in behavior. Consumer sentiment surveys show the continued weakness vs prior recovery periods but confidence has been adversely affected as yet by the higher rates.
WF here below on today’s disappointing factory orders all consistent with this unusually uneven recovery we are seeing.
We could also comment here on the part time job creation vs full time job creation which consistently appears in the data.
Its the big jobs report tomorrow so we must update for that tomorrow.
To the FX markets and reports.
The market theme of the rising rates and the taper has fed directly into the US$ strength story some of which have got right (CS, SC) and some have got horribly wrong, Noruma!
Note the EUR vs GBP and USD and SGD has shown weakness and continuation of her cyclical bear market chart setups as hoped! The US$ basket has bounced and the “special” pairs like the GBPNOK are running and gaining some key levels. FX has been kind and is trending nicely thus far.
Here the eurusd chart from early today. It likely, though we must wait to be sure, broke a key level today.
Lets turn to the market professionals and therefore compare the raft of the usual reports..
First up the out standing regular CS Wkly FX report:
Next up the excellent SC wkly fx report:
Sticking their guns and paying off for them.
Here the C weekly FX:
Again, scoring well.
Here the Scot Bank weekly FX report:
Of course rising rates, geopolitical tensions and a rising US$ should all feed negatively into the bullion markets but they were heavily sold earlier in the year and the seasons are usually good now. The physical picture across Asia remains unaffected by the new Indian taxes on bullion for now.
Here the usual German team’s levels and comments.
And here the Swiss Team’s considered Bullion comments and own levels.
We are begging to see some divergence in the professional participants which is a good thing. Perhaps we have indeed seen the lows for the bear raids against the asset class in spite of rising rates and US$ strength.
I’m going to sign off here. We have the key directional move ahead of us but the early move appears in motion to me centered on rising rates, us$ strength, equity consolidation and even a little weakness here ahead. Bullion, in relative terms consolidating and improving her purchasing power vs other asset classes.
All the discussion of levels, technique and more reports and charts as usual on the forum and vip area. The weekly Swiss tech report will be provided on the 10th of Sept as usual.
All the best
Rich
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