September 11, 2016
Weekly Market Outlook
By Keith Schneider
In classic fashion, equity markets gave up all of its gains since mid-July on a panic selloff this Friday as key US equity indexesended the day down around – 2.5%, the first drop greater than 1% in 2 ½ months. This occurred on the aftermath of the ECB president Draghi leaving rates unchanged even as the Eurozone struggles with low to no growth, deflation, and the upshot of the 2008 financial crises.
Draghi said there are limits to monetary policy and countries will have to rely on fiscal stimulus. Essentially the ECB isoverwhelmed, out of monetary ammo and passing the buck togovernments. For either group, it’s a daunting task to fight the list of headwinds which added to the already mentioned includesa new possible Grexit, the actual Brexit and an ongoing refugee situation. There are more headwinds brewing but that’s what bubbles up to my cortex immediately.
If the sentiment is similar from other central bankers throughout the world, then this could be a critical inflection point for markets worldwide. The admission of the limitations to the power of central banks by bankers themselves could be a lead indicator and change to the world order.
The plunge protection teams this Friday were either overwhelmed, took the day off or are still lurking at lowerlevels. One thing for sure, the supernatural forces that seem to levitate markets whenever there has been red were nowhere present Friday.
With the exception of regional banks and Gold which were down only about. - 5%, the sell off left most asset classes deeplyin the red. The wipe out of gains that took 8 weeks to accumulate got a helping hand after comments on Thursday bybond guru Jeffery Grundlach who suggested that rates have bottomed. He then promptly left the interview and headed to the nearest fallout shelter.
One might think he was nervous about North Korea’s new and improved nuclear capabilities but that was not the case and he just sees the huge bond bubble popping with both equity and fixed income prices dropping together with no place to hide.That insight was dead on as US long bonds offered no safety on Friday and were down to -1.6%.
The technical damage was severe and the long term momentum which had already broken down in Equities in January is showing similar readings in Bonds where the 35-year trendlower in rates looks exhausted.
It’s not often they ring a bell at market highs or lows but this might be the case. Check out this week’s video as we will be covering several key charts, inflection points using some of our proprietary indicators.
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