The global macro picture continues to be clouded with one problem after another. If it’s not China it’s the U.S. Federal Reserve. If not the Fed it’s the banks. In an unprecedented move, the British pound dropped 20%. While the VIX may have dropped and the S&P bounced back to 1930 the question haunting the markets last week is the same one this week, is the rally real?
The reality of the index futures trade is that everything at this time is oil related. At night, the US markets react to news out of Asia and Europe but the actual leadership is where the S&P comes in. After sharp declines across the board the (ESH16:CME), opened lower and sold off. The ESH16, YMH16 and NQH16 ‘could not have looked worse’ but made an early low of 1986.75 at 9:30 CT before mounting an impressive bounce. At 9:30 CT the crude oil inventory numbers came out showing a rise in inventories and the CLJ16: down ticked, sucked in some shorts and then exploded higher. On the 3:15 CT futures close the ESH traded up to 1931.00, up 45 handles from the day’s low and up 15.5 handles from Tuesdays close. Oil traded down to 30.60 and then rallied all the way back up to 32.40 as the S&P futures closed.
After the futures rallied back to the highs on the close the ESH16 rallied early in Globex all the way up to 1938.50 and sold off as the Shanghai Composite dropped sharply overnight. The weakness in Asia pushed the futures back down to the 1920.00 level and is trading 1934.50 at 6:00 am CT of volume of 255,000 contracts traded. Chin’s overnight decline was heightened concerns of continued liquidity problems just as the world’s largest economies prepare to meet in Shanghai over the weekend for the G20 meeting . Senior foreign exchange strategist Menza Issa from TD Securities said “Everyone is in the hot seat” From the discussion we have had with other trader most do not think the current crisis (s) are over and still point to China as the the weak link in the global economy with the European credit crisis right behind China. IMF Managing Director Christine Lagarde was quoted last week saying “ Are we in a 2009 moment? I don’t think so. Are we in a moment where coordination is needed? Yes,”
My own opinion is that China is going to continue to stumble leaving the rest of the world markets at bay. It not just China’s slowing economy that is a concern it’s trying to figure out what numbers are inflated and what numbers are not and as history has taught us, not everything you read on Chinese economic statistics can be trusted… In the end I expect another long day of trade here in the US and the S&P.
In Asia, 6 out of 11 markets closed lower (Shanghai Comp -6.41%), and In Europe 12 out of 12 markets are trading higher this morning (FTSE +2.12%). Today’s economic calendar starts with the Fed Dennis Lockhart speaking on the Banking Outlook Conference, in Atlanta, Durable Goods Orders, Jobless Claims, FHFA House Price Index, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, San Francisco Federal Reserve Bank President John Williams speech on the outlook, in New York, 7 Yr-Note Auction, Fed Balance Sheet and Money Supply.
Expect the Unexpected
Our View: Jeez… Sell the rally and buy weakness? That was the call but who would have thought the ES would rally 45 handles off its 1886.75 low. The ES romped higher overnight, sold off and is back on the upswing this morning. We have some economic reports and Fed speak to get past but it looks like the ESH is trying to make its way up to the 1948.00 to 1952.00 level. That said it may not be as easy as it looks. Our view, sell the early rallies and buy weakness. All sorts of buy stops above the 1938.70 level up to the 1944-46 level and above 1948 upto 1953.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed lower : Shanghai Comp -6.41%, Hang Seng -1.58%, Nikkei +1.41%
- In Europe 12 of 12 markets are trading higher: CAC +2.18%, DAX +1.30%, FTSE +2.21% at 6:00am CT
- Fair Value: S&P -2.68, NASDAQ -1.64, Dow -31.14
- Total Volume: 2.3mil ESH and 7.6k SPH
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