The nature of investing is that a very small percentage of the people take money, essentially, in that poker game, away from other people who don’t know when prices go up whether that means it’s a good investment or if it’s a more expensive investment. Too many investors are reactive decision-makers. If something has gone up, they say, ‘Ah, that’s a good investment.’ They don’t say, ‘That’s more expensive. ~ Ray Dalio
In this week’s Monday Dozen we take a look collapsing manufacturing around the world, yield curves signaling higher volatility in equities ahead, the makings of a currency war, and a popped parabolic top in a major EM market along with much much more…
1) Global PMI and New Orders are both in contractionary territory for the first time this cycle (chart via MS).
2) Manufacturing is a small part of the US economy but it’s the making of physical goods that drives the business cycle. If the manufacturing ISM keeps trending lower at this pace, it’ll end up in negative territory before the year is out and consumer confidence will then likely follow suit.
3) Keep an eye on this one. The S&P 500 may be forming a textbook Broadening Top. My baseline is increased volatility and sideways action with a downside bias over the next month.
4) Is the yield curve signaling higher equity volatility ahead? Again, my money is yes… (chart via MS)
5) This 20-year seasonality chart of the S&P 500 shows that August and September have a tendency to be rough months for the market.
6) Asset manager’s equity exposure through S&P e-minis hit post-crisis highs recently (chart via BoAML).
7) First trade wars now currency wars? The USDCNY is moving above the critical spot 7-level. The Chinese yuan is now trading at its lowest point against the dollar in over a decade. Expect many a tweets about the dollar from the White House in the coming weeks.
8) EURUSD is also at a significant level. The euro came down and bounced off its downward sloping support line last week (chart is a weekly).
9) The EUR-short-funded carry trade is at risk of unwinding should volatility pick up. Positioning and risk-reversals are still pointing to a move higher in EURUSD.
10) NDR’s Recession Watch Indicator is ticking up but still well below levels that have indicated an impending recession in the past.
11) And despite the contraction in global growth and rising geopolitical uncertainty, credit conditions in the US remain very loose (chart via NDR).
12) “Three reasons why #Nifty 50 $Nifty could enter bear market phase #India
- Mkt. challenging 16-year parabolic advance – potential targets 9120 & 6420
- Possible 19-mo. right-angled broadening pattern
- Mar-Jun ’19 surge now completely reversed” ~ Chart and text via @PeterLBrandt.
Co-Founder of Macro Ops, Global Macro Fanatic, Former U.S. Marine Scout Sniper & Intelligence Professional