The markets have a bigger structural problem than just what to make of the ineptitude centered on how the health-care bill was handled. Even though this issue will only get worse when it fully sinks in - that the chances of it leading to some new brand of bi-partisan cooperation got less rather than more - Bloomberg's Richard Breslow warns the finger-pointing and gloating don’t leave much room for optimism.
Watching things trade on Friday afternoon baldly made the point that traders have lost confidence in their ability to interpret what’s plainly market-moving news. Far from hoping to be the first to trade, they need someone else to commit and help create the narrative. And going home with a new position over the weekend has become too daunting an experience to consider. No wonder so many funds are shuddering and then shuttering.
Coming in this morning, the dollar, equities and Treasury yields are all noticeably lower. Everything looks like it makes sense. But only if you don’t ask yourself just what people were thinking after the news hit.
The most popular idea out there, selling USD/JPY, looks good now, but there weren’t a lot of people pressing their winners late last week. They were actually covering, and just below obvious resistance, despite getting solid confirmation that they just might be onto something that could pay off nicely.
The pair is down a big figure, but only if you ignore Friday’s late 40 pip bounce. For shame. Traders remain deeply and obviously traumatized by markets and economies that haven’t read from the same script as the tea-leaf readers.
Having not bothered to sell the S&P 500 on the news you are now faced with having to decide if you want to hit the bid where support begins. The next percent is important if the post-election bounce is to hold-up. But if you sell here, you’ll be doing so where otherwise you may have been watching for signs that it might hold. Today’s drop has been big, but consider the volume.
Don’t expect the administration to suddenly pull a rabbit out of its hat. Watch for who takes the fall for this and who the replacement is in judging the market’s next leap of faith, or faithlessness.
For now The Dow is set to be down for 8 days straight - it hasn't suffered a longer losing streak since 1978 - it appears extreme positioning and extreme complacence in the face of dismal 'hard' data leaves a very fragile market desperate for a Trump 'win'.