Week in Review – August 25

Global Stock Indices

Kind of a quiet week for developed markets (DM) though with an upward bias.

Emerging markets continue to rip higher with Brazil up almost 4 percent for the week on expectations of a massive sale of state assets, which will help the government reduce the growth of public debt and cut a widening budget deficit.

Watch China’s Shanghai, which closed at its highest level since January 2016 with the index closing Friday above strong resistance




Global Bond Yields

Capital continues to flow into emerging markets, especially the high yielders, such as Turkey with ten plus percent yields. Yield chasers also going after corporate junk with U.S. single B spreads in 10 bps on the week.  The U.S. yield curve continues to pancake.





The big event in the majors this week was the Yellen and Draghi speeches at Jackson Hole.  Most of the move in the euro came on Friday.  See the chart below how the euro/$ moved on both speeches.

A 1.20 euro/$ is going to make it tough for Draghi to swallow.   The dollar index (58 percent euro) is approaching the critical level of 92, which requires close monitoring.

Capital flows continue to bolster EM currencies.



Selected Commodities

Metals and iron ore continue their rally on expectations of better China and global economy, coupled with supply worries.  After making ten-year highs, profit takers came into zinc on Friday.

Crude down, while the crack spread and gasoline soar, on concerns over Hurricane Harvey and that gas supplies, and inversely, crude demand could be affected.

Grains continue their plummet.



Other Risk Indicators

Emerging equity markets continue to rock.  Dow Transports bounced a bit along with the Industrials.  The VIX collapsed down to an 11 handle.



What’s On Our Radar

Next week should — emphasis on should — be quiet as the summer holiday wraps up.

Let’s see how President Trump and the markets react to Saturday’s North Korea missile test, buried in the news as Hurricane Harvey dominated the tape over the weekend.  No fears of escalation as U.S.- South Korea military exercises continue.

Watching the energy markets as “nearly one-third of the nation’s refining capacity sits in low-lying areas along the coast from Corpus Christi, Texas, to Lake Charles, Louisiana.”

Watching the Shanghai for follow through.

Can the dollar index hold 92?  Trump’s poll numbers are highly correlated  with the dollar. Keep it on your radar.

Also, we are monitoring the political fallout of the pardon of Sheriff Joe.


Key Charts

China Breakout


Dolllar Index

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