Commodities Flash Red and Fears of a Stock Correction Loom Large
China’s growth is slowing, copper prices are dropping, volatility in the VIX is rising, and Iron Ore prices falling sharply are all signs that a larger stock market correction may be due soon. A 5-10% correction is more common than many investors think and traders should be sure that risk is carefully managed. This is not a market to have lots of risk in stocks as these key indicators are flashing early warning signs. If the Fed do announce an early taper at Jackson Hole, that could be the move that brings a sharp correction in global stocks. Is the correction now underway? Traders, be alert!
Other key events from the past week
- * NZD: Interest Rate Decision, Aug 18: The RBNZ held rates unchanged at 0.25% due to the discovery of a new COVID case for the first time in 6 months. However, the RBNZ’s projection for a 100bps rate hike next year keeps the outlook looking strong for the New Zealand Dollar in the medium term.
- * FOMC: Meeting Minutes, Aug 18: The minutes revealed tapering could be announced in Q4 2021, but the reductions may be gradual. This means expectations are still there for taper news at the Jackson Hole Symposium (Aug 26-28).
- * UK: Inflation data, Aug 18: The UK CPI came in weaker than expected at 2.0% vs 2.3% for July. This keeps the dovish board members of the MPC satisfied and means urgent pressure for a UK rate hike is reduced in the very near term.
Key events for the coming week
- * EUR: German PMI’s, Aug 23: One key question for the ECB is whether Germany will be showing signs of a slowing recovery. A sharp move lower in services & manufacturing PMI’s will raise expectations for a dovish ECB meeting in September.
- * Seasonal trades: S&P500 weakness, Aug 24: The S&P500 has lost value 60% of the time between August 29 and October 02 over the last 10 years. Will a stock correction play out again this year? Check out the seasonal pattern here.
- * USD: Jackson Hole, Aug 27: The Jackson Hole Symposium meeting will be crucial next week. The key questions are, ‘will the Fed taper?’, “when?’, and ‘how fast?’. Early and fast tapering should boost the USDJPY sharply higher, but could also be a catalyst for a correction in stocks. Risks & opportunities ahead!
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Giles Coghlan
