There are major macroeconomic events taking place at this point in time. The Chinese stock market collapse and Yuan currency re-balancing, the collapse in oil prices, Greek default, Japanese inflation, etc. The recent softness in the global equity markets, especially, China’s has led many to believe that Chinese growth may not be what we thought it was. This has dealt a serious blow to global GDP forecasts as the Chinese economy has been charged with the task of staving off global deflation. These recent events are undermining the market’s faith in the Federal Open Market Committee’s ability to raise interest rates, even nominally at the upcoming September 17th meeting. This confluence of uncertainty has driven the short end of the yield curve down as investors have sought liquidity and safety.
It sure seems like everything in the news has been full of alarm bells lately due to Greece, China and falling oil prices in one form or another. Frankly, China’s impact on the US equity markets may be just the buying opportunity we’re looking for as several factors combine to point towards strength through the expiration of the September Dow Jones futures contract on September 18th.