Notes From Underground: In An Algo-Driven World Headlines Matter

Friday: Dateline. INACCURATE NEWS.

There is GOLD to be found in the digital world where headlines can move financial markets faster than your eyes can blink or your brain can separate fact from fiction. ABC investigative journalist Brian Ross published a report that said President Trump asked Michael Flynn to reach out to Russia during the campaign. The network was forced to correct the story, clarifying that the request was carried out during the transition period, and suspended Ross. President Trump tweeted that investors harmed by ABC’s action should sue for damages. Trump may actually have a legitimate opinion but I believe the President’s Tweets carry the same litmus test.

A few weeks ago, CNBC analyzed the market impact from Presidential tweets and the monetary impact was significant. The SEC should be investigating ABC but also people close to Trump to see if they are profiting from front running the Trump tweets. It’s a tough trading environment that has been even more hazardous by news people crafting headlines intended to disrupt. The SEC is failing to regulate the role of nefarious information in a hyper-speed world. Whatever happened Friday has been undone as tonight the S&Ps are making ALL-TIME HIGHS as the Senate passed a tax bill in the wee hours of Saturday morning. While the market is ecstatic the difficult work begins Monday as the Senate and House begin the reconciliation process.

Trade, don’t invest as the Twitterverse will be filled with algo-driven headlines devoid of perspective. Every trade is just that a trade. Positions should be kept to a minimum. Make sure your technical work is done and search for levels of very low risk. Imagine the opportunities that were found for the prepared on Friday. The S&Ps broke 2% on the inaccurate story but in all the tumult failed to even be lower on the week. Bottom line: If you trade HOLIDAY markets be prepared to realize unbelievable levels. You have been warned.

***The Canadian unemployment report released on Friday was far more robust than consensus. JOBS created were 79,500 versus an estimated 10,000 while the unemployment rate dropped from to 5.9% from 6.2%. This sent the Canadian dollar 2% higher. The importance of this data is relevant to the U.S. data coming out this week because of a short November. The Thanksgiving holiday means the BLS delayed the jobs report to December 8. Keep the strong Canadian data in mind as the week progresses.

***I have included year-to date-changes on various EQUITY MARKETS, COMMODITIES, FOREIGN CURRENCIES and INTEREST RATES for some perspective. The equity markets reflect the nature of an improving global economy experiencing increased growth coupled with the vast liquidity from the ECB and BOJ. (The work is courtesy of Eric Peters, one of the best global macro thinkers I have had the pressure to compare notes. He works at One River Asset Management.)

YTD Close (December 31, 2016 to November 30, 2017): 

S&P 500 +18.3%, VIX -2.76 at +11.28, Nikkei +18.9%, Shanghai +6.9%, Euro Stoxx +7.0%, Bovespa +19.5%, MSCI World +18.6%, MSCI Emerging +30.0%

USD rose +11.3% vs Turkey, +0.4% vs Brazil +0.4% vs Indonesia.

USD fell -90.1% vs Bitcoin, -11.7% vs Euro, -10.1% vs Mexico, -8.8% vs Sterling, -8.0% vs Sweden, -5.1% vs India, -5.0% vs Russia, -4.8% vs China, -4.7% vs Australia, -4.0% vs Canada, -3.8% vs yen, -3.2% vs Chile, and -0.3% vs South Africa

Gold +9.3%, silver -4.9%, oil+0.7%, copper +21.7%, iron ore -13.6%, corn -8.4%.

5y5y inflation swaps (EU -5bps at 1.70%, US -11bps at 2.31%, JP -7bps at 0.40%, and UK -10bps at 3.42%)

2yr Notes +59bps at 1.78%, 10yr Notes -3bps at 2.41

The weakness in the U.S. dollar is an important element especially because interest rates have risen while most other countries have retained their ultra-low rates. A perceived successful fiscal stimulus package coupled with rising U.S. rates usually fuel a strong currency. The Reagan tax cut of 1982 coupled with high interest rates launched the U.S. dollar on a three-year rally, which wasn’t alleviated until the 1985 Plaza Accord. If the Dollar fails to gain in 2018 with the advent of tighter money/increased fiscal stimulus it will be a warning sign that something else is at work in the global financial system. Perspective, indeed (not vacuous headlines.)

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5 Responses to “Notes From Underground: In An Algo-Driven World Headlines Matter”

  1. David Richards (@djwrichards) Says:

    re Dollar… pricing shows the market believes that rising US rates is mostly in the rear view mirror. Powell & Trump reinforce that belief.

    Instead, consider the Yuan… China is running a very hot fiscal policy with the massive OBOR. Meanwhile, they’re just starting to tighten monetary & financial conditions again, which they loosened bigly for 2016-17 and their political cycle culminating this quarter. They know they need to rinse and repeat by throttling back for 2018-20 and then goose the economy again for 2021-22 when Xi will seek a third term, unprecedented in the Chinese modern era, solidifying him as the new perennial supreme leader a la Mao. Point being, the huge Chinese fiscal stimulus (15% of GDP) combined with conditions which are just starting to be tightened substantially are matched by the similar conditions in the US in the early 1980’s under Reagan and Volcker, which cause the biggest dollar run in history. Watch for something similar from the Yuan (I suppose nobody will be more surprised than Kyle Bass, again).

  2. GreenAB Says:

    The market feels toppy here. Good news all around. It´s gonna be hard to find additional catalysts to keep the momentum going. Escpecially when CBs are about to pare back their asset buying.

    Jim Paulsen with some wise words this morning on CNBC: “this bull market has been driven by fear and that has been taken completely away now.”

    • yra harris Says:

      Green Ab–saw Paulsen and thought that was a sage point.This is going to provide for a very volatile 2018 and I think much of it emanates out of Europe and the issue with Saudi and Russia—things on the boil besides taxes

    • Chicken Says:

      I believe another way to express this is, asset prices tend to fall when central banks begin selling, correct?

      • yra harris Says:

        Chicken–you would think so unless the forces of inflation are building and real yields will remain negative for a very long time.It takes time for events to unfold especially in a world where capital flows freely in search of returns

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