Nothing is happening in markets, but something is going on

Readers know that I am leery of the current market.

My super is all in cash at the moment and I have a sense that there are moves underneath the fresh all-time highs in the S&P 500 and the post GFC highs in the local stock markets that something else is afoot – maybe subtle, maybe seismic but enough to give me pause and to warn trader that they should be careful for the moment.

Perhaps it is just the summer lull, perhaps I’m an old bloke out of touch with a new reality – but whatever it is it means that I’m still trading the market in front of me but watching size and stops very closely.

Indeed as I noted over at Business Insider this morning if you look at the moves in the US on a close on close basis nothing happened, nothing much anyway.

But peel back the onion, take a peek under the covers, watch what the duck is doing below the water (okay I’ll stop now) there are signs something is not a perfect in this market near all times highs as it should be.

I’m watching bonds closely and while I would highlight that everything could change after the FOMC and non-farms later this week with US 10 year Treasuries still below 2.5% , German bonds at 1.15% and maybe even the rally in Spanish bonds we are getting a window into what is happening in the minds of money managers and what money is doing.

But Graeme Jarvis from Westpac, perhaps put it best this morning when he highlighted that the high yield bond market is under pressure recently “It started in derivatives first then moved onto secondary before finally resulting in a couple of deals being pulled last week.” It’s not positive price action.

Indeed my colleague from BI US Myles Udland has written a piece on high yield bonds which might be of interest.

Anyway worth watching but at the close this morning the Dow is up just 0.13% to 16,983, the Nasdaq was 0.10% lower at 4,445 while the S&P recovered from a low at 1,967 to finish up 1 point at 1,979.

Monthly S&P 500 – Does it give you pause?

Looking at the economic releases in the US overnight the Markit Services PMI printed 60.9 against 59.8 while the composite index stayed at 61. Pending home sales had a surprise fall of 1.1% in June while the Dallas Fed Index rose to 12.4.

In Europe the FTSE was down just 0.05% to 6,788, the DAX lost 0.48% but the CAC rose 0.33%. The divergent moves continued with Milanese shares falling 0.59% while stocks in Madrid fell just 0.07%.

The impact on the ASX is that the SPI 200 September futures contract is off 7 points to 5521 after a flat start to the week (although a solid recovery from the low) on the physical market which closed yesterday at 5,577. Perhaps today we’ll see a better performance given the big bounce in iron ore and coal overnight – perhaps.

Resistance still strong

In Asia yesterday the Shanghai composite ripped higher, up 51 points or 2.42% at 2,178, after positive comments from officials about the growth outlook. The Shanghai market is now at levels not seen since mid-December 2013. The Nikkei was up 0.46% to 15,529.

On currency markets the Aussie is a little better bid at 0.9404 but it has been a very quiet night on FX markets. Euro is at 1.3438, Sterling is at 1.6981 and USDJPY is at 101.84.

On commodity markets iron ore bounced again rising $1.13 tonne to $95.13 while September coal just had a huge bounce rising $1.45 tonne to $70.30 tonne the highest level since earlier this month.

Nymex August crude fell 46 cents Bbl to $101.63, gold is at $1,305 oz while silver sits at $20.53. Copper was unchanged while the Agsa were mixed with corn up 1.31%, wheat fell 0.6% and soybeans jumped 2%.

On the data front today we get HIA new home sales in Australia before German import and export prices tonight along with UK mortgage approvals and consumer credit. In the US it’s the Redbook index, Case Shiller house price index and consumer confidence

Greg McKenna

NB: Please note all references to rates above are approximate

To learn more about Greg McKenna, read on here.

Something is cooking, thank you for the analysis.