On the week Apple shares fell below their 200-week moving average for the first time since September 17, 2013, they also fell below their 55-week MA for the first time since October 2013. Apple has also lost 7% over the last 30 days, underperforming 25 of the 30 shares in the Dow Jones Industrials Average. The stock makes up 4% of the S&P500, 13% of the Nasdaq 100 and 7% of the DJIA.
The 30-member DJIA has now traded below its 200-day MA for 9 consecutive days, longer than the 8-day period during the fateful week of mid-October 2014-- the longest period since November 2012. 2012 was also the year when Apple peaked in September of that year before falling a remarkable 45% over the ensuing 7 months, losses attributed to slowing growth for iphones and rising competition from Samsung.
The China story remains the most popular scapegoat for a rapidly growing company in need of persistent momentum growth The $4 trillion wiped out over the last 7 weeks from China's stock market will be difficult for Chinese retail investors to regain. A Chinese soft landing is highly probably, but a 30% decline in the Shanghai Composite index in a matter of three weeks –leveraged—will eat into wealth for a long time. Any rebound is likely to be capitalized on by fund managers and Chinese smart money than by retail traders.
We expect 2,069 and $105 to be the next target for the S&P500 and Apple shares. Until we get there, the China story is unlikely to have changed, but the ever-developing plot of Fed hike expectations ought to be revisited.
Why is positioning in US 10-year treasury notes at its most bullish levels in 27 years despite several FOMC members calling for at least one rate hike this year? The latest positioning figures from the CFTC show longs exceeding shorts by 65,642 contracts, the biggest net long position since May 2013. Such growing bullishness on the 10-year treasury is consistent with the 5-week decline in bond yields, which coincided with plunging oil prices.
Ten-year treasury yields are testing the crucial 6-month trendline after breaking below the 200-week MA. A break below 2.08% this week should invite bond bears to further selling, until the psychological 2.00% is likely to hold.
Today's weaker than expected US reports on Jul ISM manuf (52.7 from 53.5), prices paid (49.5 from 44.0), employment (52.7 from 55.5) and June construction spending (0.1% from 0.8%) are not sufficient to remove the case from the Fedhike camp after core PCE rose to 1.3% in June.
But taking a look at speculative positioning among bond traders might give us an idea about forward-looking trades. Last week's release of record low ECI q/q has diminished odds for a Sep hike for now. The negative impact of tumbling oil on stocks and the economy outweighs the windfalls to consumers and non-energy companies, which explains the clearly direct relationship between yields and oil prices. This point is hugely debatable, but the capex realities between energy and non-energy firms as well as the use of cash for buybacks helps explains those implications.
Friday will reveal the crucial release of NFP and average hourly earnings, which will be followed by the latest Fed pronouncements at the Jackson Hole symposium later this month, before the August NFP is released on Sep 4th. Meanwhile, speculative positioning among treasury speculators should be added to your watch list.
|Construction Spending (JUN) (m/m)|
|0.1%||0.6%||1.8%||Aug 03 14:00|
Combining the net speculative futures positions of all 5 major currencies against the USD, we find CHF positioning to remain the only net long against USD, ever since the SNB decision end its EURCHF peg in January. GBP positioning is the only currency to show steady improvement against USD. Currency-by-currency analysis below.
Net longs in CHF vs USD have gradually eased since reaching 10-month high in early June.
Net speculative GBP hit the lowest net short (least negative) positioning since November, at 9,788 contracts. This week's release of the BoE quarterly inflation report shall prove crucial in tipping the balance closer to net long positioning, with most traders expecting at least one member of the BoC's MPC to vote for a rate hike this week.
CAD net shorts undergo the worst deterioration among all currencies, with 56,067 short contracts exceeding longs, the biggest net short balance since March 2014. This is a classic case of a central bank throwing the towel over tumbling oil with two rate cuts in 6 months as GDP shrank in five consecutive months, a pattern last seen in 2009.
AUD net shorts are a close 2nd to CAD deterioration as deepening erosion in the nation's mining sector force the RBA to keep the door open for further easing despite rapid Aussie depreciation. Each dead-cat bounce in Chinese equities is becoming a new reason to sell Aussie dips.
EUR net shorts continue their long and slow rebound, with US macro dynamics taking centre stage as Greece issues are pushed aside. EURUSD futures trading is the biggest in the IMM currency complex as the pair is the most heavily traded in the $5.3 trillion spot market. The pair also remains used as a proxy for the USDX.
JPY net shorts increased for the 2nd straight week after having diminished steadily throughout June and most of July. With global equities fixated at the uncomfortable combination broadening energy damage and a US central bank flirting with tightening, JPY speculators are incapable to tread far away from the safe haven route.
Net speculative interest in the British pound and Canadian dollar continues to move in opposite ways, as speculators reduce net short positions in the pound vs USD to 9,788 contracts—the lowest negative balance since November 2014, while loonie shorts contracts against USD swell to 56,067 contracts, the biggest net short balance since March 2014.
The once stable and non-volatile CAD has been damaged by two rate cuts in less than 6 months, while the pound is boosted by hawkish hints and a recovering economy.
Next week's quarterly inflation report from the Bank of England should lend fresh support to GBP bulls as it confirms the MPC's forecast that inflation will regain its 2.0% target within the next 2 years. In contrast, another disappointing GDP figure from Canada has maintained the selling of loonie bounce, especially as oil sustained a nasty end-of-week dead-cat bounce.
GBPCAD is already at 7-year highs. The more interesting play is to short CAD and long GBP against not-so obvious currency combinations. Our Premium trades currently have two CAD short and one GBP long.
|-0.2%||0.0%||-0.1%||Jul 31 12:30|
The relationship between oil prices and the euro remains unambiguously positively correlated, especially as the renewed decline in energy reflects a secular bear market in commodities, accompanied by a persistent bull in the US dollar. So does another 5% decline in oil suggests sub-$1.05 in EURUSD?
If oil resumes falling, say, after Iranian oil hits the market and China's slowdown take a turn to the worse (or fails to reverse), then how can the euro survive further damage? There are several ways, mainly via the US:
i) Prolonged oil declines will stand in the way of a Fed hike & end up capping USD gains due to renewed CPI weakness.
ii) The extent of above depends on which the US starts to import deflation via strong USD & from a weakening China/Europe.
iii) The extent of the above also depends on the reaction from equities, fretting about deflation & falling capex. The contribution of non-residential investment to Q2 GDP was -0.07%, the first negative contribution since Q3 2012.
Note the chart reveals that both oil and the euro bottomed in early 2009, well before Eurozone inflation, which was largely due to the peak in the USD, coinciding with the bottom in equities. This year, euro bulls require further improvement in inflation expectations, alongside a scaling down in Fed hike expectations.
Is that all? Not really. FX traders will want to remember that the bulk of a currency's change occur ahead of shifting policy cycles and not after.
|Eurozone CPI (JUL) (y/y) [P]|
|0.2%||0.2%||0.2%||Jul 31 9:00|
|Eurozone CPI - Core (JUL) (y/y) [P]|
|0.9%||0.8%||0.8%||Jul 31 9:00|
|GDP (Annualized) (2Q) [P]|
|2.3%||2.5%||0.6%||Jul 30 12:30|
|GDP Price Index (2Q) [P]|
|2.1%||1.5%||0.1%||Jul 30 12:30|