A state of Pre-Jackson Hole position neutralityHigh hopes are riding on Chair Jay Powell’s Jackson Hole speech after an agitated August for investors amid deafening recessionary rhetoric and the escalating trade war. After several pre-Jackson Hole inspired position squeezes, investor fatigue is setting in as the markets have found themselves in a temporary state of pre-Jackson Hole position neutrality.
With choppy waters building ominously in the distance, today is little more than a period of tranquillity before all chaos breaks out.
Traders continued to focus on the FOMC split decision and outside of the aforementioned position squeezes, at the end of the day, the FOMC minutes had little bearing on markets general directions with volumes once again unsatisfactory by any standards. Speculative traders have either opted to stay hedged or stay away.
The markets are making a big ask from the Fed and while they will likely go along with the market’s expectations for more cuts, but even the most dovish amongst us must now concede the Feds will fall short of signalling a willingness to race ahead of the curve.
Both the German and French flash PMIs for August surprised to the upside, suggesting that some of the doom-and-gloom on the Eurozone economy might have been a bit overdone. However, it will take a bit more than a one basing PMI report to change the ECB’s mind, so selling pressure remains in the Euro.
It was a seesaw 24 hours in oil market amid thin to non-existent liquidity at times.
Reports of bearish derivative structures unwinding on the back of tight supplies at Cushing’s WTI hub were making the rounds and spooked Oil shorts that had been growing in numbers after yesterday’s mixed EIA report.
However, feeding the choppy narrative, macro news was also incorporated in terms of the impact on oil sentiment – President Trump made optimistic comments on the likelihood of a trade deal with China but also back-pedalled on earlier comments about the possibility of tax cuts.
With constant trade war overhang, the markets are prone to turn even more detrimental if there is not definitive evidence soon of progress on the US-China trade talks.
The decline in real interest rates has been the key driver for Gold in 2019 so with Fed policy likely to underdeliver on the market dovish expectation investors have been more inclined to reduce overextended gold hedges even more so with new signs the Eurozone economy is starting to base.
However, there remains latitude for gold investment demand to pick up. While it’s hard to image the Global economy doing a positive about-face, but its the US data prints, especially the consumption metrics that will key sentiment drivers for Gold sentiment as traders bullish mood swings will likely ebb and flow on Fed messaging for the rest of the year.
This article was written by Stephen Innes, Managing Partner at VM markets LLC