And that means things got ugly all over again — unless you’re a gold bug. The metal’s closing in on $1,100 an ounce. Check out our chart of the day, which offers one theory why sellers aren’t yet done with Shanghai.
China’s worries have spread to oil, which is adding to last week’s 5% drop. With commodity prices lower, some say it looks less worrying on the inflation front, reducing the chances of a near-term Fed hike.
The CME Group’s FedWatch finds a 17% chance of a hike in September, a 34% chance in October and 54% by December. We may or may not know more when the Fed meets this week. But IG’s Chris Weston says don’t expect a “smoking gun” that provides clear evidence the Fed will hike in September.
That is something that could present another headache for dollar bulls, with the currency under pressure this morning.
That brings us to our call of the day, a contrarian stance that rides against the everything-is-going to-be-A-OK-with-the-U.S.-economy camp — chiefly, those betting against the dollar.
While Monday’s earning’s calendar looks pretty subdued, rest up, because more than 150 S&P companies are on deck to report this week. Several of those will be energy companies like Exxon Mobil and Chevron, in a sector that has failed to help boost the stock market so far.
“This sector is also the largest contributor to the year-over-year decline in both earnings and revenues for the S&P 500 as a whole,” said John Butters, senior earnings analyst at FactSet. More on that here.
Key market gauges
Wall Street is set to struggle against a sea of red. Futures on the Dow YMU5, -1.05% and the S&P ESU5, -0.85% are down, along with the Stoxx Europe 600 SXXP, -2.21% Again, the ugliness started in Asia ADOW, -1.36% with an 8.5% loss for the Shanghai Composite, SHCOMP, -8.48% while the Nikkei NIK, -0.95% also lost nearly a full 1%. China ETFs are looking wobbly too.
The IMF also says it wants more overhauls out of China ahead of a recommendation over the yuan as a reserve currency. By the way, this audio is making the round. Greece had a secret plan to go back to the drachma. Crude CLU5, -1.23% is inching further away from $48 a barrel.
Gold GCQ5, +0.90% and silver SIU5, +0.70% are in a sweet spot this morning, helped by the dollar DXY, -0.84% pullback. Contrarian signal? Hedge funds are at a gold-hating high. The economy Durable goods orders showed a 3.4% rise in June, due to strong bookings for airline passengers, but business investment was still soft.
The buzz
Israeli-based Teva TEVA, +11.76% will pay $40.5 billion for Allergan Generics AGN, +7.12% and has withdrawn its proposal to buy Mylan MYL, -14.67% Teva and Allergan are moving up, but Mylan is selling hard. Apple AAPL, -1.41% plans to start selling the Apple Watch at Best Buy BBY, -1.65% stores in August.
It’ll be the first big U.S. retailer to sell the smartwatch, reports The Wall Street Journal.U.S. authorities hit Fiat Chrysler FCAU, -5.35% with a record $105 million fine for recall lapses over millions of autos.
An independent monitor has been assigned to the auto maker to audit its prior recall processes. Closer to stateside, Puerto Rico bondholders offer up a recovery plan for the embattled island.
The call
Raoul Pal of Global Macro Investor says there is far too much herd mentality in some investment circles. In his July Monthly newsletter, provided by ZeroHedge, he takes issue with consensus views, such as those that think the U.S. economy is fine and will see a kick-in from lower oil prices.
He disagrees as well with China-stock bulls and those who think the euro will overtake the dollar. His own views — “wildly and comfortably out of consensus” — include the following: shorting the euro is the “best risk-reward trade in macro”; U.S. bonds will be a “stunning opportunity” on the long side; oil has huge downside risk; the U.S. and Europe — dragged south by Germany — could be headed for recession; equity volatility is a distinct possibility; and trouble is brewing in emerging markets.
At the core of those views is his belief that we’re “in the early stages of what will prove to be one of the biggest dollar bull markets in history, and it is going to reap devastation on the global economy...” Pal provides this chart of the dollar index, which measures the value of the U.S. dollar relative to a basket of major currencies.
“If you care about one chart and one chart only that sums up the entire risk to the world, it is this: The DXY is forming a perfect wedge. It is going to break during the summer, and the dollar is going to explode higher...”
If he’s wrong, Pal says we can keep the status quo and a meandering along of the global economy, but if we see a dollar rally again from this point, then “it is game over and the exit doors are small.”
The chart
Short Side of Long blogger Tiho Brkan says Chinese shares are set to reverse back to their 200-day moving average.
The DMA for the Shanghai Composite currently stands at 3,527.62, while the index closed at 3,725.56 today. If Brkan is right, there is still some ways to go on the downside.“Firstly, let us remember that the Shanghai Composite went as far as 55% above its 200 (daily moving average) into June of this year.
That was an extremely overbought condition, similar to the peak in 2007. My view is that, whenever an asset trades above the mean for an extended period, it tends to spend considerable amount of time below that mean too,” writes Brkan. Read the full blog here.
The quote
“I could have walked down any street of Manhattan at any time and said, ‘I’m being raped and drugged by Bill Cosby’, but who the hell would have believed me? Nobody, nobody.” — Barbara Bowman, among a group of women who have told their stories of alleged assault to New York Magazine.
marketwatch.com
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