Friday, August 18th, 2017
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S. Obata

TODAY

Markets turned a little ugly yesterday, with the S&P closing at a low taking it back to levels last seen on July 11th.  It doesn’t seem all that crazy, but given how rare the occurrences have been this year, a move greater than 1% garners some attention even in the mainstream media. Yesterday was the second largest down day of the year for the S&P 500 with its -1.54% decline.
 
The rest of the world is following suit overnight and into this morning, although some of the factors we normally associate with “risk off” are not.  US dollars, for example, remain flat to yesterday having spiked as the day wore on and then given up those gains.  Treasury bond yields are also flat this morning, holding on to the gains from yesterday.

Some traditional safe havens such as the Yen and gold are still catching a bid this morning. Gold is still toying with its key resistance level at $1300.

Fortunately, bitcoins are still pushing into new highs, which we are sure will prompt many to declare them an uncorrelated asset class.
 
“Look at the chart patterns… it’s coiling”  Jeffrey Gundlach, speaking on CNBC on August 8th talks about 10 year Treasury yields which have been range bound recently.  Mr. Gundlach expected volatility to spike higher, calling it his highest conviction trade.  Looks like a prescient call, given the VIX was at 9.8 then and closed yesterday at 14.8.  He expects bonds to fall (and yields rise) when this happens – all based on the German 10 year Bund, which “has no business trading as low as 0.50%”.  So far, the bond call has been wrong.
 
Somewhat timely article from Bloomberg yesterday. Not saying that this is a peak, but it may be worth your time to read their seven strategies for investing at market peaks. Regardless of where you are in the market cycle, risk management should always be paramount. Keep it simple, diversify and rebalance when necessary.
 
Looks like the Canadian housing market is catching the attention of the blogosphere again. Ben Carlson writes on some of the housing numbers that he finds staggering. He’s looking at the longer term relationship between U.S. and Canadian home values, and the large divergence following the financial crisis. This quote sums up his view pretty succinctly. “I don’t throw around the word ‘bubble’ loosely but the Canadian housing numbers are insane.”


Diversion:  You can still make the trek to get in the path of Monday’s coming Total Solar Eclipse.

COMPANY NEWS

Apple is looking at investing $1bb into TV to start creating original content. They are also in deep talks with movie producers such as Universal and Warner Brothers to be able to bring Hollywood movies direct to consumers at home just weeks after the release in theaters. There has been hold ups at finding a mutually beneficial way to create a premium movie download product that would likely cost somewhere between $30 and $50 a download. Foot Locker shares are down meaningfully this morning in premarket trading after reporting lower than expected sales and earnings. Other sports apparel retailers such as Nike and Adidas are down this morning following the news. Energy Capital Partners is trying to buy U.S. utility Calpine for $5.6bb in cash. Calpine is one of the few public power generators selling direct to wholesale markets.
 

COMMODITIES

Oil is up 0.45% to $47.30. Prices have rebounded since the lows in yesterday’s session. Still, oil is on track for a weekly loss of ~3%. US inventories are drawing down, which is positive. Even so, it seems as though worries about Chinese demand have spooked the market.

Gold is up 0.70% to $1,301.50. 4th time’s a charm? Prices are testing the $1300 level once again. A close at these levels would be positive; however, from a technical standpoint, it is too early to call this move a breakout to the upside.

In other commodities news…

The Gas Tankers Lurking at Sea Looking for a Better Deal” – BBG

Most Metals Ease After Surge That Took Zinc to Highest in Decade” – BBG

Dry Spell Has Canadian Wheat Harvest Headed for Six-Year Low” – BBG

BHP spends $2.5bn to extend life of Chile copper mine” – $FT
 
 

FIXED INCOME AND ECONOMICS

Canadian data watchers will have their eyes on an inflation update out at 8:30AM today. Unseasonally adjusted CPI is projected to have been flat during July which if met would be the first time since late 2016 that we’ve had consecutive months without price acceleration. Annualized headline CPI is expected to have rebounded back to the +1.2% area after dipping to +1.0 in June. Core consumer inflation is also supposed to be tracking back up to +1.3% range as well. This report will help give us more direction with regards to whether officials at the BoC should really be looking to hike rates yet again this fall. OIS spreads currently peg the chance of an October 25 tightening move at 67.0% at time of writing. Hopefully we get a decent print after yesterday’s disappointing manufacturing sales figures. Sales in Canada during June slumped by -1.8% (worse than the -1.0% consensus) and fell in 15 of the 21 categories. Outside our borders the focus will be on the University of Michigan confidence numbers out after the equity open (preliminary August numbers call for a tick up to the 94.0 level), the Jackson Hole meetings next week (Fed Chair Yellen will attend after all while the ECB has already indicated they will not deliver a policy shift during the proceedings), and follow-through from the risk-off tone in the aftermath of the terrorist attacks in Barcelona.
 

CHART OF THE DAY

QUOTE OF THE DAY

Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.

- Master Yoda


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Charts are sourced to Bloomberg unless otherwise noted.

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