Here’s what I’m watching …
#1 – The China Syndrome
In Friday’s column for UWD, I talked about how China is moving from long-dated US Treasuries to short-dated US Treasuries as it prepares to move away from the dollar. That was a strong theme in the news cycle over the weekend.
China ready to discuss new reserve currency at G20 summit
Hu Xiaolian said that China, which holds about $2 trillion in foreign exchange reserves, was prepared to debate the issue as “the dollar’s dominance and U.S. economic woes could entail considerable currency fluctuations and affect the world financial situation.”
And keep your eye on the upcoming US Treasury auctions …
US bonds sale faces market resistance
The US is acutely vulnerable because it relies heavily on foreign goodwill. China and Japan alone hold 23pc of America’s $6,369bn federal debt. Suspicions that Washington is trying to engineer a stealth default by letting the dollar slide could cause patience to snap, even if Asian exporters would themselves suffer if they harmed their chief market.
Nonetheless, we are seeing the U.S. dollar rally today.
Why is that happening? The bobble-heads say (and Bloomberg repeats in parrotlike fashion) that it’s concerns over the recent announcement by North Korea that it detonated an Atomic Bomb AND testfired two missiles.
In my view, this isn’t credible. After all, gold is going lower, and it should be going higher if this was a safety move by Mister Market. I’ll show you the reason that I believe the dollar is going higher …
Crude oil is the anti-dollar now. Crude oil is up against its 200-day moving average, so traders are taking profits. Crude isn’t breaking down yet – it could still go to my target of $71. We’ll see.
Fundamentally, the market is selling into the OPEC meeting. This tells me the bears will be disappointed by whatever OPEC does, so if you have big brass ones, you might want to consider taking on new oil positions. For the bulls, Saudi Arabia says demand is firming up.
On the bearish side, there is growing evidence that members of the cartel are cheating on their quotas. And, as I’ve said many times, we are swimming in oil. This is a volatile market made more so by uncertainty.
#2 – Will S&P 500 Break Support?
Keep your eyes on this chart …
The S&P 500 futures are pointing the way lower this morning. We should know by the end of the day if it’s time to go short or if the S&P 500 is going to go higher. The third option – a continuing drift sideways … well, that’s no fun.
We’ll see Consumer Confidence and Case-Schiller Housing numbers today. They could be market drivers. North Korea is a distraction, and I’d ignore that.
Have a good Tuesday – be careful. The market could whipsaw on light volume today.
Quote for the day: Democracy is the theory that the common people know what they want, and deserve to get it good and hard. – H.L. Mencken.
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