Macro Update As DC Dithers
Kevin Davitt | Oct 10, 2013 01:16AM ET
Macro highlights (or low-lights depending on your perspective):
- Janet Yellen is expected to be named Bernanke's replacement as head of the FOMC today. She's unequivocally a policy dove. 2014 FOMC voting members, however, swings more hawkish.
- The Cash VIX traded up toward 52 week highs yesterday/today as equities struggle with DC dysfunction.
- The market leaders (Nasdaq and RUT) have become laggards during this spat of risk off. Look at momentum darlings like Priceline, Netflix, Google, Tesla, etc. Also interesting to note that Interactive Brokers raised margin requirements on small cap stock holdings on Monday.
- Short term (funding) markets are in turmoil because of the debt ceiling overhang.
- The S&Ps are testing important trendlines - 100 day SMA which has held all of 2013 and the move off the November 2012 (DC inspired) lows.
In my opinion, the market will force the hand of Obama, Boehner, Reid, Cantor, etc.. I also imagine some of the more influential lobbyist have been on the phone a great deal of late. Their clients don't (big banks and healthcare/device companies) don't like this uncertainty. Money talks in DC....more so than ever since Citizens United.
I would not be surprised if SHORT TERM LOWS were put in this morning with:
- ESZ13 @ 1647 (S&P futures)
- TFZ13 @ 1040 (Russell 2k futures)
Finally, from a big picture standpoint, the Aussie/Yen cross matter. It was the carry trade de jour for a decade plus (borrow in low yielding currency, invest in higher yielding). I've written about it extensively in the past.
I believe the cross is at/near important support around 90. In my estimation it should hold near term, but eventually it will give way. When it does.....be very careful. This area of congestion is a confluence of some old highs (2005, 2010, 2011, 2012) as well as lows in 2007 and 2008 before it cratered during the global selloff. Watch it carefully in the coming days and weeks.
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