Commodities, Treasury reports slightly recovering from Monday weakness


Key points to remember:

  • Global markets trade higher on Tuesday with all eyes on Fed and debt ceiling talks
  • Early action could signal if the rally has legs or if more selling pressure is returning
  • VIX off Monday highs of 26, below 24, but continued volatility is possible

People who fell asleep thinking the markets were boring were woken up yesterday.

US futures and European stock markets were trading higher on Tuesday after massive losses on Monday. Asia posted modest gains, although mainland Chinese markets remained closed for a public holiday.

The question now is whether the gains from overnight trading can hold up and whether the market can take advantage of them. The first 30 minutes of today’s session could be essential. There could be a lot of follow-up selling pressure, and we’ll see if the initial strength just reflects short hedging or if people are actually starting to buy the downside. The first 30 minutes should tell the story.

Although some analysts called Monday’s action a necessary and inevitable correction, it appears the agreed catalyst for the sale was Chinese real estate giant Evergrande. With around $ 300 billion in debt, the worry is that if Beijing lets China’s second-largest real estate developer default on $ 83 million in payments due Thursday, global debt holders could be hit, shattering. the global economy.

Early Tuesday, some of the economic worries seemed to be easing. Crude was actually higher, although that may reflect concerns about US production due to hurricane-related blackouts in the Gulf of Mexico. And the 10-year yield was slightly higher, but only a few basis points. Volatility, as measured by the Cboe Volatility Index (VIX), declined slightly.

What shall we do now?

If investors have overestimated the risk Evergrande poses to global markets and China acts to contain the macroeconomic fallout while the Fed has no surprises to come this week, a sharp market rebound is all in all. plausible.

However, many investors are bracing for more volatility this fall, in part because of some of those analysts who say US markets were facing a pullback after an almost relentless pursuit of records.

Upcoming: Fed meeting

The Federal Reserve begins its two-day meeting today. Last month, Fed Chairman Jerome Powell said the central bank plans to start easing its stimulus bond purchases very soon, possibly this year. The European Central Bank (ECB) has announced that it will follow suit and reduce the amount of its own stimulus measures. The prospect of central banks starting to withdraw financial incentives even as global economic fears persist could be a factor in recent market weakness. Investors will likely attend President Powell’s press conference scheduled for 2:30 p.m. ET on Wednesday.

Tuesday’s focus will also include the House, which is expected to vote this week on the debt ceiling and an interim spending measure to keep the government running beyond the end of the fiscal year that ends on September 30. . road ahead, the bickering seems to convey a sense of uncertainty in the markets.

August housing starts and building permits came out at 8:30 a.m. ET today, followed by existing home sales expected tomorrow. Data on new home sales is expected to be released on Friday.

On the international stage, the United Nations is meeting today in New York amid concerns, including global warming, polarized relations between the superpowers and a stubborn pandemic.

There is also a earnings report to watch this afternoon as Adobe

(ADBE) is about to open his books. The company is benefiting from broader trends in technology spending, an analyst said recently, according to Barron’s.


(FDX) is also on this afternoon, and the company is an interesting one to watch as it is often seen as a derivative of consumer health.

Go to the “old school”: In recent years when the market is choppy, investors tend to flock to the same “defensive” investments. Which helps explain why the dollar, bonds, volatility, the utilities sector and other traditional “risk riders” edged up Monday morning even as major indices fell sharply. However, it’s not just defensive sectors and fixed income that tend to outperform at times like these. Some large-cap stocks also have a way of swimming against the tide, and this is something we saw in the early days of the Covid sell-off as well as the nearly 20% drop from the end of 2018.

Stocks like PepsiCo

(PEP), Honeywell (HON), CocaCola (KO), Procter & Gamble

(PG), Clorox (CLX) and other companies selling commodities either fell a bit or even rose slightly to stand out in the Sea of ​​Red on Monday. Why is that? At times like this, it’s often the “old school stocks” that people go to because they tend to want some level of certainty in times of uncertainty. While no stock is a “certain” thing, companies like the large cap companies mentioned above often have stable revenues and have a habit of paying dividends consistently quarter after quarter. There is a certain degree of predictability that sometimes serves them well when everything around them is losing ground.

Buying now, paying later is having a moment. Retailers, including Macy’s

(M), Bed Bath & Beyon

d (BBBY) and Amazon

(AMZN) over the past year have all payout options added to checkout.

For buyers who don’t qualify for credit cards, this can mean the difference between making a purchase or not. The first leads to higher sales for retailers. Installment plans are nothing new. At least two generations of homeowners have likely used installment plans to purchase washing machines and refrigerators. Plans today are often used for smaller items, such as shoes or clothing.

With the Delta variant still a factor for many people working in hourly paid jobs, financial uncertainty persists. An estimated 53 million adults in the United States do not have a traditional credit score, according to FICO

Fair Isaac Corp. score creator Installment plans are often below credit card spending limits and approved per transaction, so buyers have less flexibility in making purchases or have trouble overspending beyond their means. For retailers, this means more customers get at least one credit to make immediate purchases. So for buyers and retailers, every little bit can help.

Do you have gas? Unless you had a position in natural gas futures (/ NG), you probably missed the near-parabolic bull run that took commodity to highs not seen since February 2014. From the start of the year, / NG prices hit 130% highs, although they recently retreated from that level, while far outperforming RBOB (/ RB) gasoline futures, on the rise by 51%, and crude oil futures (/ CL), up 45%.

Winter is not here yet, but there is a storm ravaging the energy landscape, and it is centered in Europe. The gas market is tight. The low wind speeds kept power generation on the low side. And carbon prices are at record highs. All these factors combined contribute to the rise of / NG in the global gas market. In Europe, the prices of gas and electricity are increasing tremendously day by day, and the cruelty of the condition is that the seasonal coldness of winter is still three months away.

TD Ameritrade® commentary for educational purposes only. SIPC member.