It’s back to the the New Normal following last week’s global market black swan, with the only remaining vestages of that glitch in the matrix being elevated levels of investor fear. OPEC expresses concern about the state of its oily cash cow and the Reserve Bank of Australia discovers that the dark cloud of deterioration in China has a silver lining.
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World Indexes and Forex Rates
In the Calendar This Week
Mon 31 August
New Zealand ANZ Business Confidence (actual: -29.1 previous: -15.3)
Tue 1 September
China Manufacturing PMI (actual: 49.7 expected: 49.8 previous: 50.0)
China Caixin Final Manufacturing PMI (actual: 47.3 expected: 47.2 previous: 47.1)
Australia Cash Rate (actual: 2.00% expected: 2.00% previous: 2.00%)
UK Manufacturing PMI (expected: 51.9 previous: 51.9)
US ISM Manufacturing PMI (expected: 52.6 previous: 52.7)
Wed 2 September
Australia GDP q/q (expected: 0.4% previous: 0.9%)
US ADP Non-Farm Employment Change (expected: 204K previous: 185K)
Thu 3 September
Australia Trade Balance (expected: -3.10B previous: -2.93B)
UK Services PMI (expected: 57.6 previous: 57.4)
Canada Trade Balance (expected: -1.4B previous: -0.5B)
US Trade Balance (expected: -43.2B previous: -43.8B)
US Unemployment Claims (expected: 273K previous: 271K)
US ISM Non-Manufacturing PMI (expected: 58.3 previous: 60.3)
Fri 4 September
US Non-Farm Employment Change (expected: 220K previous: 215K)
Making The News
Last week, stock markets experienced a sell-off not seen since the 2008, and commodities continued selling off in unison. Australia has found that the economic derailment in China is working in its favor, while global investors are exhibiting fear-based and irrational decision-making. In a surprise turn around OPEC is willing to negotiate based on its new concerns.
Winners and Losers
Australia “In The Money”
The Reserve Bank of Australia left interest rates unchanged at 2%, today, as a declining Australian dollar buffers the impact of sliding commodity prices and a weakened outlook for trading partner China.
Reserve Bank of Australia Governor Glenn Stevens said in a statement:
Most of the available information suggests that moderate expansion in the economy continues. Equity markets have been considerably more volatile of late, associated with developments in China
Expected Fed tightening should exert additional downward pressure on the Australian dollar, currently trading just above 0.71 US dollar for $1 Australian.
Justin Tyler, an investment manager at Aberdeen Asset Management Ltd. in Sydney told Bloomberg that the weaker Australian dollar is “having an increasingly supportive impact on sectors like education and domestic tourism. However, the RBA remains aware of the risks posed by potential weakness on the part of our major trading partners, particularly China.”
Australia faces a decade-long mining investment boom that is in the process of unwinding. According to a Bloomberg survey businesses plan to cut investment by as much as 23 percent this year – many firms estimating that they can sufficiently meet demand from indebted households with their existing capacity.
OPEC: Talk To OPEC
Oil prices plunged more than 6 percent last Monday to 6-and-a-half year lows. Brent crude hit a low of $36.20 after the 2008 financial crisis, but had fallen more than 66% from last year’s high near $115. At the time of writing Brent is trading just above $49 per barrel.
OPEC has expressed concern at the drop in oil prices and, according to Reuters, is ready to talk to other oil producers.
Today’s continuing pressure on prices, brought about by higher crude production, coupled with market speculation, remains a cause for concern for OPEC and its members — indeed for all stakeholders in the industry. – OPEC Bulletin.
OPEC has, so far, refused to cut its own production output, especially in the face of other powerful producers such as Russia, refusing to lower supply.
So, for OPEC it’s “we’ll lower production if you do first“.
Market Psychology: Investors Exhibit “Chicken Shock”
The US SP 500 Index fell 3.9% to a 10-month low last Monday, and the CBOE volatility index (VIX) shot up by 50% for the first time since the 2008 credit crisis. The VIX is currently at 28.43 points and this represents a high degree of investor fear, and hence, volatility in the market. Fearful decisions are rarely rational and this is why we see heightened volatility and lower liquidity during times of market uncertainty.
Another signal comes from the relative volume of Put and Call Options released today: During the past five trading days, volume in put options has lagged volume in call options by 26.67%. The implication is that investors are, counter-intuitively, make bullish bets in their portfolios. Fair enough, options are typically employed as a means of hedging one’s bets but, even so, protecting oneself against potential upside during a derailing global economy…?
Stock Price Relative Strength: The number of stocks hitting 52-week lows is marginally greater than the number of stocks hitting highs and is at the lower end of its range, indicating investor fear.
Also In The News
Nazi Gold Train Discovered
An official update, last Friday, by the Polish government suggests that the Nazi treasure train first reported by the BBC may indeed be real. A representative of the Polish culture ministry, Poland’s National Heritage and Conservation Officer Piotr Zuchowski, reports that a man who helped hide the train, during WWII, had revealed its location shortly before he died. Proof of the train’s location has been confirmed by Polish radar.
GEO Commodities Indices Early Warning System
The SP500 Futures is sinking again.
Gimme some of that Stimulus junk you’ve got there…
This analysis is provided by xbt.social.
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The writer trades Bitcoin. Trade and Investment is risky and subject to probability and market changes. CCN.LA accepts no liability for losses incurred as a result of anything written in this report.
Charts from TradingView, financial data cartoon from Investing.com, image from Shutterstock.