Time to get back in the game! Took my first long pause in a few years and now I'm back for more fun & games. So thanks to all my readers for your patience..let's get to it!
The big guns will most likely not be back in action until the second week of September...but that doesn't mean there's nothing out there to position for. Fed rate hike...further CNY devaluation...commodity decline...there are some themes out there to play. They have been present for some time so we need to pick our spots carefully, but so long as the theme is present, it's worth milking.
1. Themes for the week
- Risk on/Off (derives from the CNY devaluation moves...so further depreciation will most likely spark continued risk off). What have we learned this week (via Danske Markets)?
1. Daily reference rate now market based: The main change is that the daily reference rate is now market determined on the back of quotes from 10-20 banks. They are instructed to base their quote mainly on the closing rate of the CNY the previous day. CNY will continue to be kept within a daily band of +/-2% around the reference rate.
2. A managed floating regime: While the CNY reference rate is now purely market based the PBoC will continue what they call a ‘managed floating exchange rate regime’ and intervene in the spot market to ensure ‘stability in the CNY and ensure it remains at a reasonable and balanced level’ as stated by Zhang Xiaohui, assistant governor of the PBoC at the press briefing on Thursday.
3. The PBoC sees no basis for continued depreciation: At the press briefing Zhang Xiaohui also stated that ‘From the international and domestic economic and financial situation, we can see no basis right now for continued depreciation of the renminbi exchange rate’.
- Fed Liftoff (CPI + Minutes will feed into this theme)
- Policy Divergence between US, UK and EU (US is heading towards a liftoff...the UK also wants to do so asap...whereas Europe is confined to easing for the moment)
- Monetary Policy in UK (CPI will tell us how much we can believe in a liftoff in November)
- Deflationary Impact of Commodity decline (has been hurting Cad & Aud) but bond markets are also worth watching. The decline in commodity prices can have two implications for inflation. First, we could see a temporary dip back into deflation in the EU in coming months while US inflation stays around the current level of 0.2% for longer. Second, the projected rise in core inflation will be more subdued. This implies that it will take longer for the Fed to reach the 2% inflation target and thus underpins that the tightening cycle will be very gradual.
2. Charts Reflecting the Themes
Lots of chatter about the psychological 200 DMA on equities..
main message is that we're dipping a little too far on the Dow and the Dax..
CNY intervention can spark powerful temporary momentum so watch for it.
Crude is sinking still...and taking the other commodities for a ride.
This undermines inflation, and keeps the Cad and Aud in check.
Cad & Aud sort of consolidating in their protracted downtrend.
More to come? Possibly! Play the trend & theme while it lasts.
3. Quick Quality Stock Selection
I like to combine some longer term fundamental filters, alongside attractive debt ratios and valuations. Here are some names from North America and Europe, to look into further if you're looking for quality names at a discount. (screener: Financial Times)
4. Momentum Stocks
Of all the stocks around the world that Finviz tracks, only 1 passes a basic "quality" screen
and is also making new highs above the 52 week high (which is the gateway to momentum returns).
It's evidently expensive (42+ p/e) but that's normal...it's a momentum stock...and it's got some rather
attractive fundamentals. If you're looking for a potentially good mover for the next 30 days, this might be worth watching.
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