STATE OF THE MARKETS

Dollar surged on haven flows. Dollar index jumped higher, past the 107.50 mark, on Thursday after Fed’s Bullard called for a 75 basis points hike in September despite two quarters of economic contractions and what seemed to be peak inflation. Investors flocked into bond safety, sending yields lower, with the 10Y benchmark dipped to 2.84% before settling around 2.89% as New York closed. Investors don’t seem to agree with Feds as major indexes climbed higher with Dow (+0.06%), S&P (+0.23%) and Nasdaq (+0.21%), including Russell (+0.67%) finishing in the green.

In the commodity markets, crude rebounded back above $89.90/bl after reports from Goldman Sachs of no Iran deal that would flood supplies. The firmer Dollar continued to press gold lower and the metal settled below $1,758.45/oz as New York closed. Similarly, iron ore tumbled to the $106/tn handle, the lowest in eight months as global recession continued to stoke demand concerns.

In the FX space, overall sentiments seemed mixed as Dollar took the helm of demand in the short and medium term accounts as the long term accounts  sent it to offer. Demand for safe haven Swiss remained elevated while long term accounts demand more Yen alongside Aussie and Kiwi.

On Friday, traders may look to cash some profits ahead of the weekend as the calendar is light with only earnings reports from Deere & Co (DE), Vipshop (VIPS), Foot Locker (FL), Madison Square Garden (MSGE) and Buckle (BKE) with no US economic reports scheduled.

OUR PICK – No New Picks

No new picks going into the weekend. Investors speculate that the Feds is going to stay put on rates sometime next year as inflation has seemed to peak in the last reading and the economy was contracting for the last two quarters. This sentiment helped float the equities markets and this rally seemed fueled by retail. Smart money, however, continued to liquidate long term holdings and moved to bonds and short term money markets. $3.3 billion was flowing out of equities while $5.7 billion flowed into taxable bonds and $3 billion into money markets this week. Obviously some cash went to bonds safety and we expect this to continue.

Trades updates: 

Equities: VIPS (37% undervalued with 4.73 z-score), M (47% undervalued, 3.44% yields) and  T (10% undervalued, 6.16% yields) were firm this week while WBA (33% undervalued, 4.81% yields), CRON (19% undervalued with 27.82 z-score) and AUY (23% undervalued, 2.46% yields) pulled back.

FX & Commodities:   GBP/JPY has reached medium term TP1, CAD/JPY was stopped out and we remain bearish NZD/JPY and NZD/CHF.

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Disclaimer:

This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.