The headline-hypersensitivity continues ahead of the G-20 meetings with an overnight drift lower instantly erased by algo panic buying on confusing lighthizer headlines.
So, how is one to manage through the next 48-72 hours of market rumors, innuendo, and news? Former fund manager and FX trader Richard Breslow has some thoughts…
Ahead of whatever the G-20 meetings deliver, markets have tried to do as little as possible. And that makes perfect sense. Still, we couldn’t avoid some subdued movements as hints, unsubstantiated comments, or just the ebb and flow of emotions about the likelihood of a particular result from the shared list of potential outcomes. Sad to say for something so important, and entirely under human control, it remains just a guessing game.
But for those who want to partake in the speculation, there is certainly no shortage of people using some kind of game theory to posit what will happen. Or more importantly for traders, what will happen after.
It has actually been a somewhat interesting day because the seeming fluctuating handicapping of possible results hasn’t been in sync between assets. There have been no signs of student body right, student body left behavior. Which strongly suggests that, so far, each individual market is clearing the business they have to rather than expressing any newfound conclusions.
Absent hard news, take everything with a grain of salt. It certainly hasn’t been a good day trading strategy to assume, as one would typically do, that the Shanghai Composite’s nice afternoon rally would spill over to the likes of emerging markets, S&P 500 futures or the Australian dollar. Leave that for early Monday.
One thing to remember as you strategize about how to react to the news is that all markets don’t open at the same time. Foreign exchange will be the only game in town from the get-go.
There will be a lot of proxy trading going on, which will need to get swapped out as other assets become available to trade. Potentially with large gaps.
It could all be quite sloppy and fun. But it might not be friendly. And, while it probably won’t matter at the beginning of the week, you can’t ignore the implications for central banks. Not that I think they are going to intervene but tailwinds versus headwinds will matter as you price future rate changes. Not to mention that the dinner also holds potential implications for European auto tariffs.
Even a deal, or the promise to delay tariffs and work toward one down the road, isn’t going to instantly cure what has been ailing the Chinese economy. Risk assets could fly without taking away the speculation surrounding a near-term PBOC cut to the reserve requirement ratio. Conversely, you might want to reread Fed Chairman Jerome Powell’s latest speech. It’s a bitterly sad commentary that no deal might end up being the less ambiguous side to trade. Although, no matter what happens the knee-jerk reactions should be pretty straightforward. Famous last words, I know.
I had an interesting debate with myself last night about how to view monthly charts with such a significant event coming on the Saturday after we close November’s books. I’ve concluded, for better or worse, that today’s is the relevant close. The reason being that if things get motoring, the important longer-term chart points will be the best guide to where there should be liquidity to source. Even if it doesn’t stop things. Just remember, momentum algorithms don’t care about my technical levels.