Perhaps a ‘Black Swan’ really can hide in plain sight

September 2, 2014

Given markets are quiet after the US Labor Day holiday I have a question for you.

Can a black swan hide in plain sight?

Because it seems that we might have two swans right in front of us at the moment in in the path and speed of  Fed monetary policy and the inexorable slippage and escalation in the Ukrainian situation.

Perhaps the US holiday and the mid-term election campaign kick off is what emboldened Russian troops to help Ukrainian rebels oust the Ukrainian government para-troopers from the airport near the city of Luhansk. Whatever the reason the Ukrainian President Petro Poreshenko has accused the Russians of “direct and undisguised aggression” and it does feel like we are sliding into a potential conflagration.

700 Ukrainian troops captured recently, battles continuing yet markets don’t care, with Gold still below $1,300 at $1,288 this morning.

Black swans in plain sight or am I just being too pessimistic?

Anyway the nature of the swans is that you never know so we’ll leave that as an answer for another another day and focus on overnight trade.

With no lead from the US, or expectation of what the US might do, markets were fairly quite even though the data across the globe from the Markit and HSBC PMIs released in Asia and Europe were on the weak side of the ledger.

Italy (49.8), Germany (51.4) and the EU (50.7) manufacturing PMI all missed expectations, with Italy slipping back below 50 and into the contraction zone. France was slightly better than the market expected but still the weakest of the big European economies at 46.9.

At the close, the FTSE 100 was up 0.08% to 6,825, the DAX rose 0.09% to 9,479 and the CAC slipped a minuscule 0.02% to 4,380.

On the local market, the ASX SPI 200 futures fell 5 points to 5,601 overnight which suggests a flat start to trade today and then we’ll see where Asia takes us. Something to watch are the technicals for the SPI 200 which don’t look too hot and a pullback could be in the offing if that 5,580 level gives way.

In Asia yesterday, the Nikkei rose 0.34% to 15,477 but the solid news was the performance of the Shanghai exchange which rallied 19 points and away from the important 2,200 zone to close up 0.85% at 2,236.

On Currency markets, there wasn’t a lot of action either. Sterling has climbed back above 1.66 to 1.6606 this morning, USDJPY sits at 104.33 and the euro finished largely unchanged at 1.3326. The Aussie is at 0.9333, going nowhere fast.

Here’s a question – do you think Euro can rally from here?

I’m thinking of going long in the next 24 hours depending on the price action.

Commodities could have had a big night with the escalation in Ukrainian tension but Gold remains unable to react – it’s the story of markets at the moment. What exactly is dampening gold volatility? Free money most likely. September Iron Ore rose 42 cents a tonne to $87.88 and Newcastle Coal fell $1.00 a tonne to $67.70 and is just 40 cents off the low for the past 12 months.

On the data front today, we have the RBA at 2.30pm as the highlight. Watch the language around the economic growth story and perhaps a change in rhetoric around the Aussie dollar – or not as may be the case. Also out in Australia are building approvals and the Q2 current account balance. PPI is out in Germany and then in the US tonight we get Markit and ISM PMI data.

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