China Fever, Oil Swoon, Gold Finds Traction, Equities Upset

Summers Are For Roller Coasters – Welcome To The One Called China

After taking a tremendous beating today, the Dow, S&P 500 and NASDAQ slipped back up to near even by the close. The plunge was precipitated by shakiness in oil, but as crude stabilized, U.S. equities recovered.

Gold benefited from the dark uncertainty that China’s nearly incredible slowdown and cloddish reactions to that have engendered in markets. Many people are beginning to think that China doesn’t have either the technical know how, nor the experience nor the business culture to react to their troubles with any bit of aplomb.

A large economy can’t simply go charging off in some direction without consultation with the other big dogs. It makes no practical sense and it certainly makes no diplomatic sense in the bigger picture. China needs to be extremely careful with the way it handles both the U.S./North American economy and the European Union. It also needs to pay more heed to the needs and desires of its Asian neighbors.

So, gold rose over $15 on the day.

When we say crude stabilized, keep the party hats and noisemakers in the cupboard. West Texas was up about 0.75%. Brent North Sea was up about 1.00%. Both have fundamental factors attached to them, however. The dollar drop, although minor, emboldened traders.

There was slight shrinkage in stockpiles, but it wasn’t really enough to offset yesterdays 4% plunge in price. Traders also know the U.S. is waiting in the wings to pump up their production as soon as prices get near “normal,” meaning profitable for U.S. wells, whether standard or shale oil.

"The market needed a big drawdown to reverse the current trends and didn't get it," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.

Of note, when put in context of the possible Federal Reserve rate rise in September, is the decline closer to 2.00% of the 10-year, benchmark treasury note.

If the stock markets are the world’s thermometer, U.S. bonds are the measure of its blood pressure.

Speaking of stock markets, New York got off relatively unscathed today. The German DAX and French CAC were both off over 3%, while all of Asia was down with Hong Kong sharing the same losing sentiment with Europe. It was down 2.4%. Shanghai and Tokyo were also down but by less.

We hate to pound China too hard, but, to paraphrase the Eagles, “they are all just prisoners of their own device.”

Wishing you as always, good trading,