In today’s briefing:
- Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat
- Market Thinking September
Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat
- The post-Jackson Hole period has seen renewed tightening policies by the World’s major Central Banks, led by the US Fed
- World Central Bank Liquidity is skidding at an annualised clip of minus 30%. This squeeze is coinciding with weakening corporate profits
- Risk asset markets (eg SPX) typically lag liquidity by several months. They have two legs down, often separated by a brief rally of circa 20%. The second leg-down measures 15-20%
Market Thinking September
- September is, of course, probably the worst month for seasonality in Equity Markets, with particular anxiety around the option expiry mid month.
- The restated hawkishness of the Fed in late August saw off attempts to break through long term resistance levels and encouraged further shorting by the CTA funds, leaving us in the ‘new normal’ position of potential capitulation versus potential bear market squeeze.
- Of course, the Fed isn’t the only policy maker in town any more, with a raft of elections, in UK, Sweden, Italy, Brazil, Israel and of course the US and China coming up in the next three months, policy uncertainty remains high, not least as so many of the embedded policies of the last decade are having to be revisisted.
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