In today’s briefing:
- Don’t Shoot the Piano Player
- How to Trade the Seasonal Weakness
- US Political Backdrop Keeps Economy Range Bound Despite Dovish Fed Pivot
- Copper: Holding Its Ground, Value Emerging In Equities
- EM Watch: China was WEAKENING even before the decline in Western demand
- Iron Ore Tracker (9-Sep-2024): Short-Term Bearish Signals More Prominent
Don’t Shoot the Piano Player
- The undulating prospect of a 25bps or 50bps cut at the September Fed meeting coupled with a foggy future rate path is weighing on market sentiment
- The state of financial market conditions–broadly and narrowly defined–may abruptly influence the outcome of upcoming Fed meeting/s, or vice versa
- My weekly estimate of market leverage in the US hedge fund sector in total, which remains elevated at this time, warrants more attention
How to Trade the Seasonal Weakness
- The stock market is due for a period of sloppiness and corrective action in the next two months
- However, macro and technical indicators do not point to a major market top.
- We have outlined a number of bullish tripwires for traders to take advantage of a pending sale on stock prices and buy the dip.
US Political Backdrop Keeps Economy Range Bound Despite Dovish Fed Pivot
- Fed policy is now at a critical juncture as data dependency dictates the speed of interest rate reductions. Current data indicates the US economy still has respectable momentum.
- Continued high levels of borrowing by the US Treasury could “crowd out” private sector investment. Toxic politics is boosting economic uncertainty, negatively impacting animal spirits and prospective returns on investment.
- There is no evidence of manufacturing onshoring boosting activity or capacity growth. The service and manufacturing sectors will remain range bound until political uncertainty is resolved after November’s US elections.
Copper: Holding Its Ground, Value Emerging In Equities
- Concerns about a further slowdown in the Chinese and US economies have led to the commodity complex selling off, but copper remains resilient at the 9000 USD/ton level.
- Copper inventories on the exchanges have declined by over 6% in the last three weeks, although they remain elevated at over 470k tons.
- We see pockets of value emerging in equities post the sell-off but would only trigger stocks like Southern Copper (SCCO US) and Ivanhoe Mines (IVN CN) at lower levels.
EM Watch: China was WEAKENING even before the decline in Western demand
- Since July, US macroeconomic momentum has weakened substantially.
- We are now back on a negative trajectory for cyclical growth, with signs of fading momentum in some service sectors, including leisure and hospitality.
- In the spring, we observed a significant build-up of orders relative to inventories as manufacturers sought to bypass the latent pressure from trade tariffs by front-loading activity.
Iron Ore Tracker (9-Sep-2024): Short-Term Bearish Signals More Prominent
- Iron ore broke out of its three-year band two weeks ago and, after a brief recovery, trended lower by 9% WoW. It is now within touching distance of 90 USD/ton.
- Chinese steel margins showed no signs of improving, with the average mills losing 70-80 USD/ton. Iron ore inventories continued to climb at the ports, exceeding 150 million tons.
- We would stay clear of iron ore names for the time being as we wait for iron ore to consolidate at some levels.
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