What space faring amoeba taught me last week

What a difference a week makes; back from holidays and the faux pre-taper tantrum, sell-offs across various asset classes have been unceremoniously reversed in their entirety. I deliberately avoided looking at or thinking about markets over the past week, preferring sun and five books.

So, I guess it is with amoeba in mind that I ponder the buy-everything rally that swept markets on Friday. Much is being laid at the door of Jerome Powell’s Jackson Hole speech, where he did what everyone thought and signalled taperings were on the agenda, but interest rate hikes were not. Why this is a surprise to any thinking individual, I know not. He was not going to say we’ll start tapering this year and immediately start hiking rates; we have an FOMC dot plot for that, folks. Amoeba.

Anyway, having not upset the narrative the street wanted to hear, FOMO on everything swung into action with the recent taper nerves US dollar buying being unwound, risk sentiment currencies rallying powerfully. Those two dark towers of momentum-driven tail-chasing speculative anarchy, oil and precious metals, recorded outsized gains. However, I note that both asset classes had already retraced most of the previous week’s losses anyway, as had the US dollar. Mr Powell just added the fresh fruit and cream to the top of the pavlova.

Equity markets in the United States, despite much handwringing from the FOMO amoeba at sideways days, a harbinger of doom to us all, never really retreated at all over the past few taper-nerves weeks. They’re all at record highs, thank you; no helter-delta here. In fact, glancing at the S&P 500 chart for this year this morning, if you had closed your eyes and clicked buy-everything on every two per-cent-ish dips, you’d have done very well, thank you. We still live in a zero per cent world, floating on an ocean of unlimited central bank money that is determined to NPV the wealth of our children to keep the lights on today, back-stopping even the dumbest business or investment ideas. A tapering won’t change that. By the way, the buy-the-two-per-cent-dip S&P 500 strategy is not investment advice, merely an observation. However, like most of the world on any topic you can imagine, I am always 100% correct in hindsight.

Notably, US bond yields have held onto most of their recent gains, sending just a sliver of a warning signal out to the buy-everything amoeba that interstellar travel is not without its perils. Like financial markets, those space-faring amoebae promise much, in this case, unlimited free energy. A sure thing? We love that. But, when not handled with care, very ugly explosions can result in mass destruction. Gosh, there I go talking about cryptos and high-yield debt again.

All eyes on US Nonfarm Payrolls

We have a Non-Farm Payrolls due at the end of the week, and a 1.0 million-plus print could see tapering tantrums back on the front foot. 800,000 likely keeps the buy-everything trading bubbling on low heat like a good sauce. A low-ball print under 500,000 jobs, while technically bad news for the recovery, will probably see taper nerves anaesthetised; bad for the US dollar, great for every other asset class you can shake a stick at.

Despite the seemingly one-way trading seen last week, I will be taking any price action today and tomorrow with a grain of salt. That is because we are approaching month-end with the usual “rebalancing” flows seen across markets. Although the week’s highlight is Friday’s Non-Farm Payrolls, it also comes before the US Labour Day holiday next Monday. I long ago learnt to disregard the price action in the hours after the release. Trading that leads to the dark side. But with a US holiday next Monday, we may not get a clear picture of the market’s reaction until well into next week. I can see plenty of whipsaws in the days ahead.

Asia will see its beginning of month dump of PMI data this week, as will the rest of the world. China’s official and Caixin Manufacturing and Non-Manufacturing PMI reads will be the only ones to escape the pre-non-farm noise. Markets at this stage are most nervous about the data showing increasing weakness as delta disruptions mount against a seemingly never-ending background of government interventions in various sectors. Thus, weaker China PMI data could cap exuberance in Asian markets, either via currencies or equities, ahead of Friday’s main event.

The data calendar is quiet in Asia today, with better Japan Retail Sales having no noticeable impact. Currency markets, in particular, will be muted with London away for the August Bank Holiday today.

Finally, being a Monday, and with amoeba on my mind, it’s time to take a brief look at bitcoin. Crypto’s have consolidated in my absence but remain near recent highs. Back in late July, in the spirit of tradeable versus investable, I did the unthinkable and got bullish on bitcoin after it broke out of a giant triangle around 34,000.00 dollars of US taxpayer back fiat currency. The target at the time was USD 51,000.00, and that came very close last week. I must also grudgingly admit that cryptos have defied the US dollar strength of past weeks. The charts suggest the USD 51,000.00 target is still in play as long as the 200-day moving average (DMA) at USD 46.100.00 remains intact. A low US Non-Farm should give them another boost, if only because the US dollar will plummet. The charts suggest USD 60,000.00 is achievable by FOMO-meba crowd, but I will reassess once USD 51,000.00 trades. Longer-time readers should not get their hopes up that I will remain bullish forever; I’ll leave that for the single-cell organisms.

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