5 Key Things to Watch Next Week
There were no summer doldrums for the global capital markets this week. We suspect next week is going to be just as busy and here are 5 key things that we are focusing on.
1.FOMC meeting minutes
Minutes from the Fed's 30-31 July policy deliberations will be released on Wednesday and will be closely evaluated for any additional clues regarding the beginning of the so-called QE taper - the unwinding of the Fed's expansionary quantitative easing measures. With three FOMC meetings remaining this year, speculation has focused on September as being a possible starting point. Just how generous has the Fed been? Consider the fact that the Fed's balance sheet just eclipsed a record US$ 3.6 trillion. Remember those gold ol' days when money markets traders got excited early in the morning when the Fed made a coupon pass? Alas, those boring days are over. The Fed's holdings of long-term U.S. Treasuries and agency/ MBS paper are at all-time highs. With Bernanke's top spot likely going to Yellen or Summers from early next year, look for the Fed to announce an "on Ben's watch" taper sooner rather than later - no matter how small the taper is.
2.Gold and the Metals Complex
Gold topped US$ 1,374 this week, and hasn't been this strong since June when it embarked on a quick retracement to the $ 1,180 area. Silver bulls did not miss out on the fun, and rode that metal higher to the $23.31 level - a far cry from its recent $18.20 low from June. What was behind these moves? In reality, it may be a combination of things. First, metals bulls were clearly invigorated by the ongoing focus on the Fed's taper. A delayed or smaller-than-expected taper may see speculative bids end up in the metals complex. Second, there's chatter that JPMorgan Chase Bank is short a sizable amount of Gold for delivery in its vaults, and has been scattering to cover the short in the market, resulting in the squeeze higher. Third, it was reported that Indian and China retail demand remains quite strong, offsetting some of the sovereign bids that evaporated this year. $1,400 will attract normal psychological attention, but Gold must hurdle $1,413 to give Bulls a fighting chance. The markets smell more than a passing linkage between a U.S. 10-year Note yield approaching 3.0%, the Fed's taper, and dearer Gold.
3.U.S. Equity Markets
The Dow came off this week and reached levels not seen since 5 July, and the Nasdaq gapped sharply lower at Thursday's open by nearly 44 points. Dow 15,000 will be important, but the technical reality is that the move below 15,106 was more important with 14,975 and 14,814 the next focus for bears. The Nasdaq tested major supported at 3,599 this week and bears will target the 3,540 and 3,499 areas. S&P futures were also pressured lower this week and technicians are now talking about the 1,615 area as a downside target.
4.Cable and the Loonie
We all know Canadians watch a lot of cable television, especially with NHL hockey right around the corner and winter about to start nipping away in the most overbanked country in the world. But that's not what we're talking about. Our proprietary British pound index hasn't been this strong on a weekly basis since July, and hasn't been this elevated on a monthly basis since September 2009. It's the exact opposite for the Canadian Dollar, though, as our proprietary C$ monthly index hasn't been this sickly since July 2011. The loonie doesn't get a lot of attention, but with our proprietary U.S. Dollar index as tame as its been since May, CAD is the best action at the moment in North America. Sorry, MXN! For those of you who are uninitiated and think of GBP/CAD as nothing more than a nasty ploy by Thomas Cook in Toronto or London Heathrow, the cross is less than 1 big figure away from testing levels not seen since November 2011.
The Fed's annual thinkfest-cum-symposium kicks off late next week in Wyoming, a U.S. state that few Americans will ever visit. Central bankers like to gather there - that is - if their last name isn't Bernanke. Don't expect to see Helicopter Ben in Jackson Hole this year. WY, you ask? Well, I don't know WY, other than it's remote and elevated - actually, kind of like Ben himself at those post-FOMC pressers. Other than the likely-departing Bernanke, the coolest helicopter to ever visit Jackson Hole was Stringfellow Hawk's Airwolf, but I digress (Canadians attuned to cable television reruns may catch my drift). The normal Fed media groupies and capital markets Kremlinologists will be out in full force, trying to divine the timing of the Fed's taper. We don't know any more than you do, but we're guessing you may not want to be watching Airwolf reruns on 18 September, 30 October, or 18 December.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.