2017/08/18 Commentary: ‘Troika’ Into Next Week
© 2017 ROHR International, Inc. All International rights reserved.
Extended Trend Assessments reserved for Gold and Platinum Subscribers
Commentary: Friday, August 18, 2017
‘Troika’ Into Next Week
No, not the sustained collaboration Troika between the European Commission (EC), European Central Bank (ECB) and the International Monetary Fund (IMF) that is overseeing the Greek Debt Bailout. While we feel the Greek Debt Bailout situation is still festering in the background on the IMF actually only funding its commitment once the European creditor nations agree much more extensive Greek debt relief, that is not the ‘troika’ of the moment. We are rather referring to the tendency noted at many past junctures for any sustained pressure on US equities tending to require a confluence of three negative factors. Interesting in this case was seemingly more dovish than expected July 25-26 FOMC meeting minutes (our marked-up version.) That might have been a shining of the light of dovish benevolence, yet it brought concern to the equities. For much more on that see Thursday morning’s Commentary: FOMC Minutes Minuet post.
That was grounds to feel that for all of the Fed-speak on strong employment fomenting inflation there was some reason to believe the Fed was just ‘puffing’ again (like during its 2015-2016 ‘normalcy bias’ phase.) There was also the crumbling of business support for President Trump in the wake of his lame response to the fallout from the Charlottesville protest situation. This feeds the sense (previously explored at length) on the degree to which Trump’s diminished standing and distractions for the US Congress are a problem for the Trump reform and stimulus agenda; and by extension the US economy.
And while the North Korean (NOKO) situation dropped from the headlines in the wake of Trump’s domestic problems, it is due to come back into focus on annual US-South Korea major military exercises from the beginning of next week. That is important, and anyone who has not done so already might want to review our WEEKEND: NOKO Crisis Redux post that also suggested a solution. And the first step of the US reverting to silence, ratcheting down rhetoric and only reacting to whatever North Korea actually does next has seemed to occur for now. Yet there is no guarantee this will remain subdued, and the equities might have been under some pressure from anticipation of that as well.
And so the negative ‘troika’ triumphed since Wednesday morning, with some fairly predictable market responses that we are going to pursue straight away….
Authorized Subscribers click ‘Read more…’ (below) to access balance of the discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review options. As this is a ‘macro’ assessment, Market Observations remain the same as last weekend’s WEEKEND: NOKO Crisis Redux post that were updated (lower section) after Monday’s Close, and there is no Extended Trend Assessment in this post.
NOTE: Given the likelihood the US economy will now get the structural reform that we (along with Mario Draghi and others) have been loudly complaining was not forthcoming since our dual It’s Lack of Reform, Stupid posts in January 2015, we need to adjust our view that a potential economic and equity market failure is coming. We previously referred you back to our December 8, 2015 post for our major Extended Perspective Commentary. That reviewed a broad array of factors to consider Will 2016 be 2007 Redux? While a continued regime of higher taxes and more regulation (i.e. under Clinton) might have fomented a continued weak or even weaker US economy, the tax and regulation changes proposed by the Trump administration will hopefully still be approved by the Republican Congress and diminish the similar fears we had to what transpired in 2007-2008.
▪ …especially on the sharp reaction in US equities as a proxy for the overall international equities reaction. As part of the post-Yellen testimony push to a new high, the September S&P 500 future exceeded the June 2,451-46 congestion highs and held it as support into mid-July. While that support was violated on last Thursday’s NOKO confrontation inspired selloff, it was reinstated with the caveat it could be violated again if the NOKO situation deteriorates. And as suggested above, the current drop below it once again could be part of psychology turning more negative into next week.
Even though September S&P 500 future only fell into the area of weekly MA-13 in the 2,437 area last week and managed to Close above it, it is now below it after on the MA-13 move up to 2,443 this week. However, as also noted previous there always were major lower supports of more consequence which we have not mentioned in a while due to the pre-NOKO confrontation situation not leaving much chance they would be tested.
And most prominent among them is 2,405-00 late-February through mid-May congestion, which was also a retest of the major top from the March trading high. Along the way there is also specific weekly chart up channel support (from the late-March 2,317.75 selloff low) at 2,420 next week.
As also noted previous, there is also more meaningful higher resistance from last week’s activity after the failure from above the previous 2,475-80 resistance left a fresh weekly DOWN Closing Price Reversal (CPR.) That reinforced the importance of the 2,475-80 resistance at which it has failed repeatedly in the short term (now including this Wednesday), with the previous week’s 2,472 Close as the DOWN CPR signal (Tolerance is the 2,480.50 trading high from three weeks ago.)
▪ And the sustained weakness of the equities over the past couple of sessions has also reinstated last week’s ‘risk-off’ psychology that squeezed the govvies higher and they remain very firm on the factors noted above. The September Bund future remains upside leader on its rally above 162.00-.50 congestion that indicated the retest of 164.00-.50 higher congestion that was modestly exceeded on last week’s Close.
Even on the NOKO situation cooling down a bit into early this week, the downside reaction in the Bund and elsewhere was very subdued. September Bund future now back up into the higher end of that 164.00-.50 congestion range has next resistance at the more major 166.00-.50 congestion last fully tested in February and missed by a bit in June.
The previously weaker September Gilt future also finally pushing above its 126.00-.50 resistance in early August has been testing its more prominent 128.00-.50 resistance with 129.50-130.00 (last seen in mid-June) above that. The September T-note future remains the laggard in its continued churn even though it is nominally above 126-00/-16 resistance. However, as was the case back in mid-June, the 127-00 area is more critical above that with a buffer to the 127-18 mid-June trading high. Much above that it might be able to reach the extended much heavier congestion in the 129-00/130-00.
▪ As noted for the past couple of weeks (i.e. the post-ECB meeting) on foreign exchange, the evolution of the EUR/USD and US Dollar Index trends have been the most critical. That is the case due to the euro being the most heavily weighted currency in the US Dollar Index, with EUR/USD pushing to a new two-and-a-half year high at the end of July above the 1.1710 August 2105 high. While it has suffered reaction since hitting 1.1905, only back below the 1.1700 area (tested and held so far) is there any potential trend reversal. In fact, the weaker US inflation numbers have overshadowed the geopolitical flight to safety that would normally favor the greenback. At present the US Dollar Index is weakening again toward .9300 after multiple tests of the .9400 area failed to sustain real strength.
While the US dollar is generally continuing to recover against emerging currencies, this still appears more of a correction than trend reversal, for now. The most interesting is the USD/ZAR rallying back up above 13.15-.20 and the 13.30 area previous failed UP Break. Yet previous rallies above that area have stalled into the 13.50-.60 area also seen again on the recent rally prior to dropping back into the lower levels.
And after rallying for the past month USD/MXN was finally back above its failed 17.90 support (August 2016 trading low) prior to dropping back without having violated the heavier congestion and weekly MA’s just above it in the 18.00-.10 area. The balance of emerging currencies are stuck around previous trend and congestion levels.
▪ There is no Extended Trend Assessment in this post. In spite of the short-term impact of various matters reviewed previous and above, the Market Observations remain very much the same as Monday’s update of the last weekend’s WEEKEND: NOKO Crisis Redux post.
Thanks for your interest.
The post 2017/08/18 Commentary: ‘Troika’ Into Next Week appeared first on ROHR INTERNATIONAL'S BLOG ...EVOLVED CAPITAL MARKETS INSIGHTS.