Risk-off reared its head after Sec. Kerry’s speech yesterday afternoon about a potential intervention in Syria. This morning, we’re seeing classic risk-off, with both EUR/USD and USD/JPY lower, and Treasuries higher, something we haven’t seen in a while. Emerging markets continue to take the brunt of the damage (Philippines, Indonesia, and Thailand leaders to the downside again – see my post yesterday).
Where do the major asset classes stand after these moves? SPX futures are at an important inflection point, 10 p0ints above last week’s lows, which coincide with the 100 day moving average:
Excepting a brief moment in June, the SPX index has not traded below its 100 day moving average in all of 2013, so eyeballs are on that level (1630 in Sept futures).
The two major losers of 2013, Treasury bonds and precious metals, have perked up in the past week. Rates might have had a false breakout:
July’s high was breached, but the 10 year rate has quickly retraced back below it. Sentiment and positioning seem to have reached their negative limit on bonds.
Meanwhile, gold has moved cleanly above its resistance area in the 1350-1400 range:
As for black gold, AKA crude oil, it is testing its 2013 highs as geopolitical concerns mount:
Perhaps most interesting to me is that the Euro is actually moving lower on a day when the Yen is up almost 1% vs. the dollar. Prior to 2013, the Yen moving higher in risk-off situations (and hence USD/JPY moving lower) has generally been accompanied by a lower EUR/USD cross rate. But in 2013, that has not occurred, as Yen buying has often led to USD selling.
But today’s price action is more classically risk-off: USD/JPY is lower, and so is EUR/USD. The EUR/JPY cross rate will be an important global risk signal to watch as it nears support:
The wedge currently lines up the 128.50 level as support, and the 132.25 level as resistance.
Finally, emerging market currencies continue to get pummeled. The Indian Rupee and the Turkish Lira are both at new all-time lows vs. the USD this morning. And Brazil announced a $60 billion intervention program last week, and the currency is right back down the past 2 days, only 2% from its 4.5 year lows.
Pullbacks in U.S. risk assets have been shallow all year. But there are more warning signs this time around than during most of 2013. Watch 1630 in SPX futures as the crucial pivot point this week.