Back on the fence
A relatively muted session on Wednesday as investors sit on the fence ahead of the Jackson Hole Symposium later in the week.
It’s all gone very quiet in the markets, which is hardly surprising under the circumstances. The combination of light news flow, few economic releases and caution ahead of the Jackson Hole event has taken all of the excitement out of the markets. Instead, it’s been replaced by nervous anticipation as we wait to see what the Fed will do next.
Frankly, I wouldn’t be surprised if this turns out to be one big anticlimax, with Powell saying very little of note and instead insisting that the data will dictate any decisions in the upcoming meetings. In other words, the Chairman may simply kick the can down the road and buy the central bank a few more weeks.
Rather sensible in the grand scheme of things. But it may not do much for these markets unless it’s accompanied by something more substantial. If not, then the next few weeks may see plenty more of this kind of inactivity, as anticipation builds ahead of the September meeting.
Durable goods orders provide cause for optimism
US durable goods orders remained strong in July despite a slight dip in the headline number driven by a drop in Boeing aircraft purchases.
These are very volatile large orders which is why the core number is often a better reflection of spending habits. Core orders rose 0.7% – ahead of expectations – while the June reading was also revised higher by 0.2%.
While recent PMIs suggest growth may have slowed a little, which could be reflected in future orders, the US continues to look in a healthy position and that should be reflected in the data in the longer term.
Large cash piles and a willingness to invest is exactly what the economy needs. Supply chains and staffing issues may take the edge off in the near term.
Oil stabilises after a bumper start to the week
Oil prices have seen their resurgence grind to a halt on Wednesday, following a remarkable start to the week.
A 15% decline between early July and late August has been followed by a 10% rally this week alone as new Chinese Covid cases fell to zero, putting at ease concerns about more severe restrictions and lower growth.
The rally began to falter on Tuesday as API reported a weekly draw of only 1.622 million barrels, a little short of expectations. Prices did recover early in Europe but once again ran into a wall as we moved into the US session. This came around the 50% retracement level – July highs to August lows – and shortly after the durable goods orders release.
What we’re probably seeing is just a bit of profit-taking in choppy trading, with the 50% level providing a perfect opportunity. We have seen a small bounce after EIA reported a larger drawdown of three million barrels but prices are still largely flat on the day.
Gold rally hangs on Powell comments
Gold is also seeing some profit-taking after a bumper couple of weeks.
The yellow metal managed to break above $1,800 but failed to generate any significant momentum. There was plenty of resistance just above here, with gold rotating off the 200-day SMA before heading lower.
A move above here would have been a very bullish signal and could still come if Powell fails to signal that a taper is likely this year. While the 200-day SMA was the turning point this time, this also falls around key Fibonacci levels and a significant area of resistance over the last couple of months. A move above $1,833 could be very bullish.
Taper talk around the September decision could kill hopes of $1,800 before it even had a chance at a serious run above it. Perhaps it’s this fear that’s triggering the profit-taking we’re seeing in gold after a very good run in recent weeks. The yellow metal has rallied roughly 6% since the flash crash, not a bad return considering how bad things were looking at that point.
