Hi Everybody,
The political situation in the United States just went from bad to worse and I’m not even talking about North Korea, I’m talking about something the market cares about much much more, legislative reform.
The window of opportunity to repeal and replace Obamacare has now closed on the White House as Congress shut out the draft. Speaking as a person who has family in the United States I can tell you that the price for medical insurance and treatment is currently ridiculous. Most politicians agree that it needs to be changed but few can agree on how.
For now, the plan to fix America’s healthcare has been tabled as the government looks to focus on something that the stock markets care about most, reforming the tax code.
@MatiGreenspan
eToro, Senior Market Analyst
Today’s Highlights
- Sector Repeal & Replace
- Yellen Speech Tonight!
- Crypto By the Charts
Please note: All data, figures & graphs are valid as of September 26th. All trading carries risk. Only risk capital you can afford to lose.
Market Overview
As escalation continues between North Korea and the USA, many analysts confuse the surge in Gold and stronger Japanese Yen as a flight to safety. Though these analysts love to group assets into bundles and assign a single narrative, all movements can easily be explained independently.
Correlation =/= causation!!
The fact is that the markets have not shown any strong signs of correlating to the warmongering rhetoric of the aforementioned leaders. They have been batting insults at each other constantly over the last few weeks, yet the stock markets remain higher than they were since this started despite two missiles flying over Japan.
As we can see, on the days of both missile tests (yellow circles), the Dow Jones went up.
The Japanese Yen strength sometimes does indicate a flight to safety. However, in this case, it’s probably better to attribute it to the snap elections that were called yesterday in Japan. Prime Minister Shinzo Abe is a man who tries forcefully to weaken the Yen. The prospect that he may be replaced could certainly change the outlook quite drastically.
The surge in Gold is no big surprise either. The shiny metal has been one of the best performing assets since the beginning of the year and though the timing of yesterday’s surge correlates loosely with the DPRK’s statement it also correlates with a surge in Crude Oil, which began three hours prior.
Notice how the blue line began its journey up well before the white line and well before NK’s threats to down US planes.
The surge in Oil is most likely due to the expectation that the Kurds in Iraq have overwhelmingly voted for independence. The ballots are still being counted but so far it seems very strongly in favor of a yes vote.
Modest declines in the US Stock markets should be seen as a reshuffling of investor portfolios. The surge in Oil sent the energy sector up by about 1.3% while tech stocks fell about 1.4%.
Yellen Tonight
Thought this will not be an official FOMC statement, it will be important for the markets. The speech is titled: Inflation, Uncertainty, and Monetary Policy
In her last press conference, Yellen admitted that she does not fully understand inflation. According to the Fed’s best models, they should be hitting their target of 2% by now but are still coming up short.
Today’s speech should give us some insight into the Fed’s next move. Expectations of when the next rate hike will be are shifting at a rapid pace!
In this chart, we can see the implied probability of a rate hike in the December meeting going from 22% on September 7th all the way to 63% today.
So much for forward guidance!
Crypto Without China
Yesterday we saw some welcome surges in the alternative market. The question of course is where do we go from here?
We know now that most volumes from China have been shut down or shifted to neighboring countries. The loss of 13% of volumes is not insignificant but also not a show stopper.
In this graph from Cryptocompare, we can see that at the beginning of the year China was indeed the driving force of this market. However, by March the US and Japan have pretty much taken over.
The great experiment of bitcoin is now taking place in Japan where, as of April it has been declared as a legal currency and is now accepted in many stores throughout the country.
We also await news from Russia, where the Finance Ministry and the Central Bank are already drafting a law to legalize cryptocurrencies by the end of the year.
One more chart for you…
This shows us the total value of all cryptocurrencies in circulation. The black line extends from the peak on September 2nd until today.
As we can see the black line has now been broken. So according to technical analysis on this chart, the breakout could certainly indicate the beginning of a new trend depending on how things progress.
