September 6, 2017: Get Ready To Trade Irma
Shain Vernier • 3 min read
Pretty much every news feed in the U.S. has hourly updates on the category 5 Hurricane Irma bearing down on the Eastern seaboard. Barclays has issued a statement that Irma has the potential to be the most costly storm in the history of North America. What will the impact be on the markets?
Hurricanes Can Cause Havoc In The Markets
As of now, insurance stocks are getting blasted, but the U.S. indices are hanging in there. Many prominent insurers are down double digits in anticipation of Irma’s landfall.
It is important to keep a close eye on the performance of the insurance sector during this period. If Irma turns out to be catastrophic, then insurance companies will begin to aggressively manage their holdings. This can spike participation in currency, commodity, and equity markets.
DJIA Daily Chart- Yesterday’s Irma Sell Off
Trading natural disasters of this magnitude can be a tricky business. Projections and news items often prove false, sending shockwaves through the markets. Strong risk management practices can help any trader weather any storm.
A Few Data Releases Out This Morning
Today’s U.S. economic releases are minor ones, not crucial to the overall market dynamic. Here they are:
Event Previous Projected Actual
MBA Mortgage Applications (Aug 28) -2.3% NA 3.3%
U.S. Trade Balance (July) $-43.5B $-44.6B $-43.7B
Redbook (MoM, Aug) 2.0% NA 0.3%
Redbook (YoY, Aug) 4.3% NA 4.4%
Markit Services PMI (Aug) 56.9 56.8 56.0
I find the increase in mortgage applications and the decrease in the trade balance to be the big stories here. The trade balance reduced moderately, which will be viewed as a positive step for the U.S. economy.
Mortgage applications are up over 5% from the previous release. Amid the slowdown in home sales, this tells us that more homebuyers are being turned away by lenders. This is a definite sign that lenders are beginning to tighten up the money supply ahead of this month’s FOMC meeting.
Overview: For the first time in recent memory, our markets are influenced on a daily basis by extraordinary news items. Any trading approach must respect the impact that these fundamentals may have on active trading.