E We're Now At A Macro Crossroads

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I don’t think we see too much of a surprise in either direction. But if we do, then it could have a sizable impact on the market’s expectations for a hike. And this would affect the dollar and global markets.

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The Chinese Yuan is within spitting distance of levels not seen since 2010. This is what’s been driving the bullish action in the dollar. If this trend continues unabated it will have big implications for global markets.

But there’s no way of knowing if this is the start of the devaluation we’ve been looking for all year. I’ve been hearing reports that China’s been hitting the gas on its resource binge. It’s buying up and storing astronomical amounts of commodities. There are some reports of large coal shipments coming in, only to be bulldozed right into the harbor; presumably, because storage everywhere else is full.  This is interesting considering the country has a supply glut problem.

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The artificial demand they’ve  created has reversed Chinese pricing for commodities. You can see above that steel has been leading the charge. This Chinese buying could also be one of the reasons for recent strength in emerging markets and oil.

The Chinese may be doing this as a way to diversify their holdings into hard assets. It could also be a strategic move. The Chinese might be concerned about future international conflict and want to store up essential resources in case their Pacific supply line gets cut. There’s no way to know for sure, but it’s interesting to postulate nonetheless.

Finally, markets seem to be assuming the elections are a lock for Clinton. I think she probably wins. However, I think the market is dangerously underweighting the possibility of a Trump upset. It may be a good time to buy some insurance over the next week. We may put on a strangle since volatility is selling for a surprisingly cheap amount at the moment.

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Currency Trader 4 years ago Member's comment

Excellent article and a fine addition to this site.

Macro-Ops 4 years ago Author's comment

Appreciate it!