9/1/19 Sunday

Looking at COTs:

• The very (and unusual) net long yen positioning says traders expect bad things going forward.
• The high asset manager net SPX longs says traders expect good things. Such a high level smacks of dangerous complacency.
• Relatively high Treasury net longs says traders expect more pain.
• Hugely net short positioning in the pound says traders bracing for a hard Brexit.
• Highly net short positioning in the Aussie says traders see more weakness out of China.
• Very high net long asset manager VIX positioning says traders see notable downside coming.
• Exceedingly high net long managed money gold positioning says traders expect 50bp rate cut in September, more weak data and further trade turmoil. 
• Hugely net short non-commercial copper positioning says traders expect a weak global economy going forward. 

U.S. equity futures opened Sunday evening notably in the red on new tariffs, from both sides, going into effect today. E-minis bounced back into a range between 2903 and 2912 (closed Friday at 2924) until 6:15, when the PBOC set the yuan/dollar fixing; at which point E-minis popped to just above 2915. 


They fixed the yuan at 7.883/dollar, which was just slightly weaker than Friday’s 7.879. While anything weaker than 7 is the weakest since ’08, traders keep expecting “worse”. Especially today, given the hike in tariffs and the offsetting effect of a weaker yuan. What traders continue to fail to realize is that there’s simply no way China will go hog-wild on devaluation (if they can help it), as that would for sure spark a huge capital flight (foreign investors would flee) that would absolutely exacerbate their already challenging economic setup. 


There was also a pop higher right at 6:45, when China’s Caixin Manufacturing Survey came in at an expansionary 50.4, versus the recessionary sub-50 number economists expected. While that’s unambiguously good news for the Chinese (and the global) economy (the Aussie immediately spiked higher on the news), when you consider what equities are trading on these days, it has to be viewed as a net negative for U.S. stocks; as it says China may not be suffering as bad (due to the trade war) as some are thinking, and, thus, maybe they can hold out.

Once the glee from the relatively tame (relative to expectations) fixing wears off, and the realization sets in of what a stronger than expected Chinese economy portends for trade negotiations going forward, I suspect the E-minis will trade back into that 2903 to 2912 range, if not lower come Tuesday morning — barring of course some surprise event/news/commentary (a positive trade tweet perhaps) in the meantime…