Fed Governors Disagree And That Aint Good
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August 28, 2015

8-31-2015 5-18-47 PM

8-28-2015 10-16-53 PM

Two Fed governors made some noise Friday.

First Fed Governor Kocherlakota suggested the Fed had more tools to use to lower interest rates and www.amuamu.eu room to do more asset purchases (QE). Later Fed Vice-Chair Fischer added more comments like:

“It’s too early to decide on September but we are heading in that direction;

Previously was a strong case for September hike but market volatility making things problematic;

We’ve got time to wait: we’ve got to take data into account; and, (this is amazing),

We don’t fully understand market volatility.

There’s a big difference between these two comments from these two so-called monetary guru’s.

And speaking of the just try! Fed, the Atlanta Fed just lowered next quarter GDP growth rates from 1.4% to 1.2%. They seem in conflict with other Fed spokespersons. And this type of news combined with confusing Fed-speak isn’t a good sign for confidence building.

Economic data included little positive as Personal Income (0.4% vs 0.4% expected & prior 0.4%) & Spending (0.3% vs 0.3% expected & prior 0.3%). Spending remains weak once again. Consumer Sentiment dropped to 91.9 vs 93.3 expected & prior 92.9). Since the sentiment data is from the prior week its likely more deterioration occurred given breathtaking stock market action.

Oil prices soared to $45 as Saudi Arabian ground troop’s invaded Yemen seizing two provinces. So geopolitical risks enter the oil price equation.

Stocks barely budged Friday. But it was “mission accomplished” for bulls as they were able to turn a wild week green. Does this mean the market chaos is over? No, since the accumulation of damage is quite real. Many investors, including myself, point to the S&P 500 breaking below its 12 month moving average on monthly charts as a significant issue. This hasn’t happened since 2007 and we know what followed later. (I would point out, there’s still one day of trading left before August is done. It would be a mighty effort to undo this, but we’ve had enough experience this week to suggest the help viagra price in canada “stick save” could be achieved Monday.)

We were fortunate our Aggressive Growth Model Portfolio scored two 40% months leaving us at an 80% return for the year. We took this last week of trading off and became comfortable spectators.

There’s a lot going on beneath the surface with China. Deutsche Bank has the report highlighted by the following note:

“Why have global markets reacted so violently to Chinese developments over the last two weeks?

There is a strong case to be made that it is neither the sell-off in Chinese stocks nor weakness in the viagra uk chemist non prescription currency that matters the most. Instead, it is what is happening to China’s FX reserves and what this means for global liquidity. Starting in 2003, China engaged in an unprecedented reserve-accumulation exercise buying almost 4trio of foreign assets, or more than all of the Fed’s QE program’s combined (chart 1). The global impact was indeed equivalent to QE: the PBoC printed domestic money and used the liquidity to buy foreign bonds. Treasury yields stayed low, curves were flat, and people called it the “bond conundrum”.

Fast forward to today and the market is re-assessing the outlook for China’s “QE”. The sudden shift in currency policy has prompted a big shift in RMB expectations towards further weakness and correspondingly a huge rise in China capital outflows, estimated by some to be as much as 200bn USD this month alone. In response, the PBoC has been defending the renminbi, selling FX reserves and reducing its ownership of global fixed income assets. The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening (QT).

What are the http://templesinaivt.org/canada-viagra-online implications? For global risk assets, they are clearly negative –global liquidity is falling. For fixed income, the impact on nominal yields is ambivalent because private safe-haven demand for bonds may offset central bank selling. But real yields should move higher, inflation expectations lower, and there should be steepening pressure on curves.

This is indeed how markets have responded over the last two weeks: as if the Fed has announced it is unwinding its balance sheet!

8-28-2015 9-28-27 PM

The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and http://www.stel.it/buy-levitra-soft loans from foreigners that could be a source of outflows (chart 2).

The bottom line is that markets may fear that QT has much more to go.”  

Equally disturbing, especially for fund sponsors, is the massive liquidation in bond and stock funds in July alone. Credit Suisse estimates $6.5 billion left equity funds in July as another $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta.

8-28-2015 9-28-52 PM

Market sectors moving higher included: Energy (XLE), Oil & Gas Exploration & Production (XOP), Retail (XRT), Biotech (IBB), Transports (IYT), Materials (XLB), Small Caps (IWM), Hedged Japan (DXJ), Russia (RSX), Gold (GLD), Gold Stocks (GDX), Canada (EWC), Commodity Tracker (DBC), Crude Oil (USO), Natural Gas (UNG), Base Metals (DBB), Silver (SLV) and the Dollar (UUP).

Market sectors moving lower included: Healthcare (XLV), Utilities (XLU), Homebuilders (ITB), Financials (XLF), Emerging Markets (EEM), Europe (IEV), Germany (EWG), European Monetary Union (EZU), Hong Kong (EWH), Brazil (EWZ), India (EPI), Asia ex-Japan (AAXJ), Australia (EWA), Italy (EWI), China (ASHR), China (FXI), International Real Estate REITs (RWX), South Africa (EZA) and many others.

The top market movers by percentage change in volume whether rising or falling is available daily.

Volume declined from previous days and breadth per the WSJ was positive while Money Flow was negative.

8-28-2015 9-29-19 PM Diary

 

 

 

 

 

Charts of the Day
  • SPY 5 MINUTE

    SPY  5  MINUTE

  • SPX DAILY

    SPX DAILY

  • SPX WEEKLY

    SPX WEEKLY

  • INDU DAILY

    INDU DAILY

  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

    RUT WEEKLY

  • NDX WEEKLY

    NDX WEEKLY

  • XLB WEEKLY

    XLB WEEKLY

  • XLE WEEKLY

    XLE WEEKLY

  • XLF WEEKLY

    XLF WEEKLY

  • TLT WEEKLY

    TLT WEEKLY

  • UUP WEEKLY

    UUP WEEKLY

  • FXE WEEKLY

    FXE WEEKLY

  • FXY WEEKLY

    FXY WEEKLY

  • GLD WEEKLY

    GLD WEEKLY

  • GDX WEEKLY

    GDX WEEKLY

  • DBB WEEKLY

    DBB WEEKLY

  • USO WEEKLY

    USO WEEKLY

  • DBC WEEKLY

    DBC WEEKLY

  • EFA WEEKLY

    EFA WEEKLY

  • EZU WEEKLY

    EZU WEEKLY

  • EEM WEEKLY

    EEM WEEKLY

  • EWZ WEEKLY

    EWZ WEEKLY

  • RSX WEEKLY

    RSX WEEKLY

  • EPI WEEKLY

    EPI WEEKLY

  • FXI WEEKLY

    FXI WEEKLY

  • NYMO DAILY

    NYMO  DAILY

    The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.


     

  • NYSI DAILY

    NYSI DAILY

    The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.


     

  • VIX WEEKLY

    VIX WEEKLY

    The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

The week is over and what a week it was. We’re fortunate to have capitalized on it then rested for all of this week.

Next week ends August but the first week of September might see more traders taking advantage of the last week of summer. I know I am.

Let’s see what happens.

 

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Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001. He is listed as one of 22 experts you need to follow on Twitter. ETF Digest was named one of the most informative ETF websites in the 10th Annual Global ETF Awards.



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Disclaimer: The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell only any security. Market sectors and related ETF's are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotation's aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com

 

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Market Summary
NYSE Composite Index S&P 500 Index Nasdaq Composite Index Russell 2000 Small Cap Index NYSE Composite Index S&P 500 Index Nasdaq Composite Index Russell 2000 Small Cap Index 10 Year Treasury Note Yield Gold Bugs Index Morgan Stanley High Tech 35 Index Market Chart
Commodity Quote Change Change % NY
Gold1,134.70-6.10-0.54 %17:15
WTI Crude Futr46.050.641.41 % 17:14
Index Quotes Change Change % Local
CRB196.780.780.40 % 17:28
US Dollar95.920.030.03 % 17:00
Index Quotes Change Change % Local
VIX26.09-5.31-16.91 %16:14
MSCI Value Daily MTD YTD
Brazil1190.816-3.38 %-3.38 %-35.01 %
Russia438.602-1.60 %-1.60 %8.32 %
India456.466-1.43 %-1.43 %-8.04 %
China56.809-2.89 %-2.89 %-13.97 %