Intraday Market Thoughts

What's after Markets' Obligatory Bounce

by Adam Button
Aug 8, 2019 14:51

The challenge is not to predict bottom picking in the markets, but how long and how high it will go. We'll look into that a bit later. Fresh cycle lows in Treasury yields and a sharp drop in equities turned around in wild trading on Wednesday. Markets bounced in the last 1 hour of NY traer and resumed into Thursday Asia & Europe when the PBOC fixed the yuan slightly stronger than was expected --despite having set the fixing below 7.00 for the 1st time since 2008. Here's Ashraf's take on CNY detailing this somewhat confusing subject. Gold also hit a six-year high above $1500.

داو جونز: بيع الإرتداد أو شراء الهبوط؟ (فيديو للمشتركين )

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What's after Markets' Obligatory Bounce - Video Arabic Aug 8 2019 (Chart 1)

The market whimpered then roared Wednesday on a sharp turnaround in Treasury yields. Early in North American trade, US 10-year yields hit a cycle low of 1.59% and 30-year yields hit 2.21%, only a few basis points from an all-time low (that was established with Fed funds at a much lower rate). That fear spilled into equity markets and the S&P 500 fell by as much as 56 points.

In addition to the PBOC fixing, comments from Evans also helped sentiment, which was a departure from Bullard's comments earlier in the week. Also helping sentiment is a US report indicating that US-China trade talks are still planned for September. A Chinese report cast some doubt on that but sentiment reversed and stocks and bonds recovered to finish the day largely unchanged.

The FX market moves played out on the same plane, but to a much smaller scale. USD/JPY fell 60 pips to 105.50 only to recoup the entire move. The Australian dollar was more impressive as it fell a full cent on the RBNZ cut but recovered virtually all the losses by the end of the day.

One asset that didn't turn around was gold. It hit a six-year high of $1510 from an open of $1475 and held most of the gains to finish above $1500. That strength in risk-positive and risk-negative environments is telling. Ashraf focused on the most likely path for gold and JPY in yesterday's Premium video below.

Markets will likely revert to watching the CNY fixing at the start of every Asian session to get a read on Beijing's intentions and markets' reactions.


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