There is fear evident in markets that Janet Yellen is going to be surprisingly hawkish and talk up a September hike, this may be devoid of any real evidence apart from constant calls from the band of perma-hawk US economists, but, nonetheless, market liquidity has dried up in fear. Volumes have been down all week, while the volume on the S&P 500 overnight was more than 15% below its 100-day moving average and the Dow Jones had volumes down more than 27%.
The gold price has been battered this week as the threat of rising US bond yields has seen it lose 1.5%. Gold has been relatively well cushioned above the US$1,312 level since the start of July, but has been pulling back to this support level as hawkish Fed commentary has picked up in the past two weeks. Of course, should Yellen fail to follow through on her “expectedly hawkish” comments about an imminent September rate hike, gold could well be set for a rally.
US durable goods and capital goods orders both performed well overnight. Durable goods ex-transport gained 1.5% month-on-month (MoM) and capital goods nondefense ex-aircraft gained 1.6% MoM. If you saw these sorts of figures replicated throughout the third quarter that would be very positive for GDP and could help remove the major drag that we saw from inventories in the second quarter, which could provide the basis for a December rate hike. But there are a lot of "ifs" yet before that happens.
The scandal over Mylan’s pricing of its EpiPen has spilled into the broader healthcare sector in the S&P 500 overnight with the sector losing 0.8%. This is not the first time that Hillary Clinton has emphasised her concerns over seemingly egregious price hikes for healthcare products, and with her dramatically leading in the polls, a number of investors began to pile out of other high-pricing biotechs. Alexion Pharmaceuticals has dropped 5.9% in two days as the Mylan saga blew up because it mostly relies on the revenue from one of the most expensive drugs in the world – Soliris – a treatment for rare blood disorders that costs US$500,000 a year. These parts of the market may continue to struggle in the lead up to the US election if Clinton’s prospects of success continues to firm.