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The perfect storm is brewing for the stock markets
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Loading...With the new risks of a trade war, stocks are heading into the last weeks of the summer, vulnerable to withdrawal or even correction.
The market dropped sharply in the last week, initially disappointed by Fed's more aggressive comments. They were then obliterated by President Donald Trump's fears of starting a new front in trade wars with China, which are unlikely to end any time soon.
"The real question why we think there will be a correction is that there is a big, large-scale vacuum here," said Julian Emanuel, head of equity and derivative strategy at BTIG. "Basically, it's a month and a half vacuum if you think about the direction of the rhetoric. ... The problems are China, the Fed and Brexit. In the first two you will almost hear nothing. "
Trump, threatening new $ 300 billion tariffs on Chinese goods Thursday, said the tariffs would come into force on September 1 if China did not act, but no new talks were expected before September. Economists have said that if tariffs are introduced, the risks of a recession in the US will increase, especially if businesses retreat from investment and possibly even hire. But it may also prompt the Fed to cut interest rates to save the economy when it meets in September.
Following the deluge of corporate headlines over the last few weeks, the earnings season is also muting, with about 60 large companies reporting in the coming week and no really significant economic reports until mid-month.
Emanuel commented that the S&P 500 could drop to around 2,879, though it still expects to see 3,000 by the end of the year. Shares opened last week near their highest levels, with the S&P 500 falling more than 3% last week, but still above 17% year-over-year. The chances of a correction in August are high, as for the last eight years the S&P 500 has been negative in August in six of them.
Emanuel said if the shares fall too long or too long, he expects to see some White House action that will halt sales.
"If you are president, there is no way to allow economic slowdown in an election year," he said.
Foreign exchange markets were volatile last week, but the dollar index was basically around zero by Friday afternoon. Traders monitor both the progress of the foreign exchange and fixed income markets.
As for the bond market, the yield decline over the past week has been dramatic, with about 30 basis points on a 10-year yield in just two days.
Revenues moving at an opposite price were also lower than Trump's trade threats.
"Now everyone is waiting for the next tweet. Unfortunately, there is no economic calendar for this.
Traders will watch the three auctions, $ 38 billion, in three-year notes on Tuesday; a record $ 27 billion for 10-year bonds on Wednesday and a record $ 19 billion in long-term bond auctions on Thursday.
There is also the danger that the dollar could intensify trade warfare and damage emerging market currencies and profits in the US. Chinese currency weakens against the dollar.
Currency volatility can turn into a major disruption, which could be another factor determining the mid-term trend in risky markets as the stock market.
Trader Aleksandar Kumanov Read more:
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