Shhhh, Don’t Wake the Sleeping Markets
All the stock markets really want to do is focus on the upcoming earnings season. Unfortunately, it seems that politics are once again getting in the way of profits.
Several analysts see the latest update from Washington as a game changer that will very likely impact the time frame for healthcare reform, which in turn would delay the much awaited tax cuts and infrastructure spending.
However, while this drama is certainly weighing on the stock markets there hasn’t been any crash. There hasn’t even been a major correction in more than a year and a half.
It seems like the catalyst still hasn’t come yet. As long is there is no major shock to the financial markets, no surprising piece of news that completely changes the way people think about the health of the economy, stocks might just keep going up forever.
eToro, Senior Market Analyst
Please note: All data, figures, and graphs are valid as of July 12th. All trading carries risk. Only risk capital you can afford to lose.
If the negative pressure is indeed coming from questions surrounding the Trump family and the White House, then why are the US markets flat while the rest of the world is down about 0.5% over the past 24 hours?
The US Dollar is definitely taking a beating. Here’s a graphical representation from finvizthat show the relative performance since the beginning of the year.
The strongest performing currency is the Euro. No surprises there. Election outcomes from France, the Netherlands, and even the United Kingdom have helped propel the Single Currency forward.
So, it’s time to zoom out on the chart and see what the long-term outlook could be.
The Red line shows the recent low of 1.0339. Uncertainty was mounting around the Italian Referendum last December.
The spotted yellow line is the declining trend that’s been in place since the ECB announced they would be ramping up their QE program in September 2014.
The yellow line was broken strongly on Macron’s sweeping victory in France.
The Blue Line represents the psychological resistance of 1.1800.
Everything within red and blue represents the current range that has been holding steady since early 2015.
The rise since the beginning of the year has been pretty steady. The most likely outcome on a technical level is for the strong range to hold. However, a break of that blue line could easily send us back to pre-2015 values of around 1.35.
Canada on Board
Today, Bank of Canada Governor Stephen Poloz is expected to do something he’s never done before and raise interest rates.
It’s a dangerous move for sure. Canadian citizens have been borrowing money a lot since the interest rates are so low. Raising them now would very likely put pressure on homeowners.
However, we mustn’t keep rates on the floor forever. All the central banks of the world seem to be making a significant effort to tighten up the loose money system that’s been in place since 2009 and Canada has always been a team player.
It will be important to hear Poloz’s remarks today to see if this is a wholehearted move and whether or not to expect more of the same going forward.
Testify Ms. Yellen
The Fed Boss will most likely do everything in her power not to call too much attention to herself. This will not be an easy task. Congress has a lot of questions for the institution that holds awesome powers over all money on this planet.
Sometimes, true power is best demonstrated by restraint, which is exactly what Janet will try to prove in her carefully worded comments.
As we’ve been talking about in the daily updates, the Fed has amassed a gargantuan balance sheet that now stands at $4.5 Trillion. Lately, they’ve been mulling the thought of selling some of those assets.
For the Fed, creating money to buy assets is quite an easy task. Selling those assets is likely to be a lot more tricky.
The VIX volatility index has been seeing record lows over the past few months. Spikes on the chart indicate the market may be about to roar back into action but it would likely take a strong external force to wake groggy investors during this particularly hot summer. Yellen would prefer to let them slumber.
As always, feel free to reach me directly with any questions, comments, or feedback. My handle is @MatiGreenspan
Have a superb day ahead!
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.