I want to break out of the rigidity that my previous notes presented and focus instead on one dynamic and then work backwards to arrive at a market / world view.
The one dynamic I will be focusing on is price. So what are prices telling us happened today?
The Us Dollar Index (DXY) fell back from its early highs of 95.737 but still finished the day with a moderate gain.
The Euro (EUR) currency had another modest decline off the August 15th to EOM rally which neared $1.17, this predominantly due to strength in the US Dollar, as opposed to any headline risk affecting the Euro directly. The $1.15-$1.14 level looks to be the next support area and if broken we may retest the YTD lows of $1.13.
The US Treasury (TYA) market saw significant safe haven outflows and closed with sizable losses.
All eyes ahead for the US NFP Jobs Report.
Japanese (NKY) equities were down 0.1% overnight.
Indonesia equity markets (JCI) continued there sell off, down another -1.2% overnight (12% YTD).
Greece’s stock market (ASE) down another -0.7% overnight and down -5.3% MoM (-19% YTD).
Brazil’s 10yr Yield was higher overnight to +12.34% taking it to +121bps in the last month as Brazilian Stagflation takes effect.
Oil (CL1) the most bullish move in the macro space.
Gold (XAU) continues its svengali relationship with the dollar, down another -0.4% overnight (-10% YTD).
Copper (HG1)continues it’s search for the bottom, down -1.9% overnight (-22% YTD). I began the year short copper as my instrument to play China’s slowing economy. Whether I was too stupid or stuck to my guns with the driver of this trade, I did not exit the short when Copper rallied “haahrd” in June reaching $330 USD/lb.
In April, Chinese Industrial production hit 7.2, marking a high for the value added by Chinese industrial companies over the previous six reports. In June, faced with hard comps, industrial production in China sequentially began rolling over.
While the correlation between Chinese Industrial Production and Copper (HG1) remains strongly correlated. We can see a significant uptick in the pairs positive correlation after the June due to worries about demand in top consumer China that were reinforced by loans data and a firmer dollar.
To wit: A firmer U.S. Dollar currency makes dollar-denominated commodities more expensive for non-U.S. firms, which could potentially dampen demand.
Meanwhile, labor negotiations at the giant Escondida mine in Chile provided some support to declining copper prices.
Global miner BHP said it had responded to the latest contract proposal from unionized workers at its Escondida mine, the world’s largest, triggering a new round of talks that could last a month or more.
The union’s proposal, filed with the company in early June, included a salary increase of 5 percent and a one-time bonus of $34,000, equivalent to 4 percent of dividends distributed to shareholders. – CNBC
Following a mixed set of European data points, the ISM manufacturing index posted its highest reading since May of 2004.
However, the latest construction spending result was weaker than expectations.
Checking in with the domestic earning releases of the day.
RH forecast adjusted earnings per share for the third quarter; the guidance midpoint beat the average analyst estimate.
Sees 3Q adjusted EPS $1.15 to $1.33, estimate $1.21 (range $1.14 to $1.29) (Bloomberg data)
Sees FY adjusted EPS $7.35 to $7.75, estimate $6.72 (range $6.53 to $6.92) (BD)
2Q adjusted EPS $2.49
2Q net revenue $640.8 million
2Q comparable sales +5%
Raises FY18 Earnings Guidance
Sees year adjusted EPS $7.35 to $7.75, saw $6.34 to $6.83
Lowers year rev guidance by about 2%
Sees 3q adj. eps $1.15 to $1.33, saw $1.04 to $1.23
Sees 4Q adj eps $2.33 to $2.54, saw $2.16 to $2.39, EST. $2.41
Shares rise 6.4% since earnings release to $161.30 on 203,968 shares traded
7 buys, 13 holds, 2 sells
Implied volatility for Restoration Hardware (RH).
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