- New Science in old markets -

Stocks compress, bonds too. Will Yellen hand the election to Trump?

A couple of US equity indices made compressions yesterday:

NYSE &Trans comps

A couple of Europeans did too, although others are also near to compressing:

Fin & Ita comps

This means that a new move is imminent and we cannot usually tell which way prices will go from a compression - these are moments when markets are balanced on a knife-edge. In this case, we have a slight preference for an upward move, in the US at least, because there have already been weekly-scale compressions that broke upward and started a new multi-week trend. It is always possible for there to be a dip back toward those compressions - see the August 11th edition for more on this.

Bonds and notes are also compressing again and the trading range has become notably tight - this presumably will break soon, perhaps after Fed Chair Yellen speaks later today.

ten year and 30 year comps

Her speech, at the annual Jackson Hole symposium has been anticipated with a great deal of anxiety by markets, probably because several Fed FOMC members appear to have been setting the scene for another rate rise. Ms Yellen may confirm that inclination or downplay it but there is an important element to consider. The Fed is said to be reluctant to act in the run up to any presidential election for fear of influencing the outcome. That possibility is greater now than in prior elections. Markets would almost certainly take any strong hints about a rate rise badly and a price drop would be immediate. This would play into the hands of  Donald Trump who said earlier this month 'Sell stocks, as there are very scary scenarios ahead' - his way of saying that asset prices are artificially inflated by low rates.

Demonstrating that Trump has the ability to foresee the economic future would restore some of the lustre that his campaign has lost and might give him a winning chance. Does Yellen want to do that?


All signals courtesy of our friends at Parallax Financial Research www.pfr.com