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Author: Don Obrien

Up Go Equities, Down Goes Volatility


Up go equities, down goes volatility. Everything is fine, until it is not.

We are just a day away from Powell’s Jackson Hole speech and the market optimism is everywhere. US stocks, Chinese stocks, tech stocks, energy stocks. There is an undeniable and a blind optimism in the US stock markets.

Three numbers for the day: 3.5, 14 and 68.

3.5: The US House adopted the $3.5 trillion worth budget resolution, which along with the softening Federal Reserve (Fed) expectations and hopes that the FDA’s latest approval of the Pfizer BioNTech vaccine would be of critical help in stopping the Covid contagion boosted the US equities.

The S&P500 and Nasdaq renewed record. And by the way, the Bank of America’s research showed that the ‘number of new S&P all-time highs in 2021 is on track to be the second most in a calendar year since 1928’. And, the calendar year is not over just yet, we have 4 more months to go to beat all the records that the world has ever known with the current investor optimism.

14. JD’s shares jumped 14% on returning optimism after the company beat expectations in the second quarter, but also some dip buying probably as the company trades with more than 40% discount since the February levels. Tencent Music Entertainment jumped 12% and Alibaba gained 6%. But caution: volatility is bad, whether it is positive or negative, it is sign of stress.

According to the latest news, the SEC now wants more than 250 Chinese companies listed in the US exchanges to better inform investors about political and regulatory risks. They want these companies to give details about their shell-company structures and so. Normally, it should help investors make a better risk assessment. But is there anyone making a risk assessment these days?

AMC shares are 20% up, again.

And that’s exactly what prevents gold from gaining above the $1800 per ounce. Stocks are too appetizing, too prosperous for investors to sit on gold. The topside in gold should remain limited, as long as we see the US equities claiming new records.

Else, energy companies are doing well on the back of a recovery in oil prices. So that brings me to my third number, 68. The barrel of US crude traded at $68 yesterday, yet met solid offers at this level, which is also the 100-day moving average. I expect to see less optimist buyers between the actual levels into the $70 per barrel mark, as the perception of the market regarding the recovery may have changed, but the reality didn’t.

The latest API data revealed a slight 1.6-million-barrel decline in US crude inventories last week. The more official EIA data is due today. Lower US stockpiles haven’t been a game changer last week, they may not boost oil prices significantly this week, either.

 



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