consumer price index

Soaring real estate, rising volatility, surging commodities and slumping stocks - Sound Familiar?

This past week marked the 13th anniversary of the bottom of the Global Financial Crisis (GFC) of 2007-2009. The March 6, 2009 stock market low for the S&P 500 marked a staggering overall value loss of 51.9%.

The GFC of 2007-09 resulted from excessive risk-taking by global financial institutions, which resulted in the bursting of the housing market bubble. This, in turn, led to a vast collapse of mortgage-back securities resulting in a dramatic worldwide financial reset.

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IS HISTORY REPEATING ITSELF?

The following graph shows us that precious metals and energy outperform the stock market as the ‘Bull’ cycle reaches its maturity. The stock market is always the first to lead, the second being the economy, and the third, being the commodity markets. But history has shown that commodity markets can move up substanti

A Look At Markets Around The World: US CPI, Sweden Riksbank EU Yields And More

A Look At Markets Around The World: US CPI, Sweden Riksbank EU Yields And More

Marc Chandler Marc Chandler 10.02.2022 14:33
February 10, 2022  $USD, Banxico, BOJ, China, Currency Movement, ECB, Inflation, Riksbank Overview: Equities in Asia extended their recovery and Europe's Stoxx 600 is up for the fourth consecutive session.  US futures, are, however, trading lower ahead of the January CPI figure.  Benchmark 10-year bond yields are mostly firmer, with the US 10-year hovering around 1.95%.  European yields are 2-4 bp higher, and peripheral-core spreads are widening a little.  The dovish hold by Sweden's Riksbank has the krona joining the yen as the laggards today, which have seen most major and emerging market currencies edge higher.  The JP Morgan Emerging Market Currency Index is posting small gains for the fourth consecutive session.   Gold made a new marginal high for the month, but met sellers around $1836, pushing it back toward $1830.  The unexpectedly large draw down in US oil stocks (4.75 mln barrels, the biggest decline since last September) had helped March WTI regain the $90 handle after a brief bout of profit-taking.  US natural gas prices are steadiest, while Europe's benchmark was a little softer.  Copper is up for a second day, while iron ore jumped by more than 5% after yesterday's 1.75% loss snapped a six-day advance.  Asia Pacific  The BOJ moved to defend its Yield Curve Control policy.  The yield on the 10-year JGB crept closer to the 0.25% cap as the market tested the central bank's resolve.  The BOJ announced it would buy an unlimited amount of 10-year bonds on Monday at a fixed rate of 0.25%.  Japanese markets are closed for a national holiday tomorrow.  It is the first such operation in 3.5 years.  With today's purchases, the Reserve Bank of Australia completed its QE.  It holds about 40% of the government's debt or around A$650 bln.  Last year, the RBA bought about three-times more bonds than the government issued.  Sequentially, the next issue is what to do with the maturing proceeds, and Governor Lowe said a decision will be made in May.  The Bloomberg survey finds most economists expect a hike in August, while the swaps market sees the hike a little earlier.  China's aggregate lending soared to record levels last month of CNY6.17 trillion.  Lending typically rises in January as new quota are tapped. However, the increase was well more than expected.  Bank lending was strong (CNY3.98 trillion), but so was shadow banking activity (the difference between bank lending and aggregate financing). Still, it seems to simply confirm what was already signaled, namely that officials have shifted their stance to support the economy.    The US dollar drew the closest to JPY116.00 in a month.  The high was made in the brief overlap of last Asia with early European activity.  There is an option for $750 mln that expires tomorrow at JPY115.75.  Support is seen a little lower, near JPY115.50. The Australian dollar is pushing toward $0.7200, a level it has not been above since January 21.  Above there, we have been looking for $0.7230.  The Aussie seems well supported, with over A$1 bln in options expiring today between $0.7150 and $0.7155, though the intraday momentum indicators are stretched.  The PBOC set the dollar's reference rate spot on the median forecast in the Bloomberg survey at CNY6.3599.  The dollar eased to a marginal new low for the week (slightly below CNY6.3540).  Note that India and Indonesia held policy rates steady.   Europe The European Commission published a new economic forecast today.  While it raised its CPI forecast this year and next, it still has the rate below 2% next year.  This year's projection was raised to 3.5% from the 2.2% forecast made last November.  Inflation next year now looks to be 1.7% rather than 1.4%.  Price pressures are anticipated to peak just shy of 5% this quarter (4.8%) and stay above 3% until Q4, when they fall to 2.1%.  The EC shaved its growth forecast for this year to 4.0% from 4.3% but sifts it into 2023 by raising its forecast by 0.3% to 2.7%.  The real interest is with the ECB forecasts in March, and some see the EC forecasts as a hint of what the central bank update may look like.   Sweden's Riksbank left policy steady as widely expected.  It now sees the H2 24 rather than in Q4 24.  The swaps market is less sanguine and has about 70 bp of tightening priced in over the next 12 months.  There were three dissents over its bond purchases and advocated a more pronounced tapering.  Governor Olsen cast the deciding vote to continue its QE.  With upward revisions in the Riksbank CPI forecasts, the decision appears to be a dovish hold.  This year's CPI forecast was raised to 2.9% from 2.3%.  Next year's CPI projection was tweaked to 2.0% from 1.9% and 2024 to 2.4% from 2.2%.  The Swedish krona is the weakest of the major currencies today, off about 0.65% against the dollar and 0.75% against the euro.   The euro remains in Tuesday's range, roughly $1.1395 to $1.1450.  It is near the upper end of the range in the European morning.  It is unlikely to make much more headway ahead of the US CPI figures.  The $1.1500 level is the important cap, and it appears to be protected in by two large option expirations there, with a 1.76 bln euro option today and a 1.9 bln euro option tomorrow.  Initial support is seen in the $1.1420-$1.1430 area.  For its part, sterling continues to chop between $1.35 and $1.36.  It reached the session high near $1.3580 in early European turnover and met a wall of sellers. Nearby support is seen at $1.3540, and then $1.3520.  The UK reports Q4 GDP and details for December tomorrow.   America Today's US January CPI may be a bit anti-climactic. Nearly everyone expects a small acceleration to 7.2%-7.3% from 7.0% at the end of last year.  The market has fully discounted a 25 bp hike next month and has about a 30% chance of a 50 bp move. Still, it may be near a peak, and at least one Fed official (Bostic) has said as much.  Remember that last year, the CPI surged from March through August.  As they drop out of the 12-month comparison, the year-over-year rate will likely ease.  Mexico reported slightly higher than expected January CPI yesterday and it reinforced expectations of a 50 bp hike today that would lift the overnight target rate to 6.0%.  It is the first meeting with the new governor, Victoria Rodrigues Ceja, at the helm.  Some observers expressed concerns that she was untested and likely dovish.  A 50 bp hike at her first meeting, especially given the fact that the economy contracted in Q3 21 and Q4 21 (a simple rule of thumb for a recession), would underscore the central bank's anti-inflation credentials.    Bank of Canada Governor Macklem sounded a hawkish note yesterday, warning that the policy rate may have to go over neutral (2.25%) in order to address the price pressures.  The swaps market has stopped just shy of this (almost 2% in 12 months and 2.25% in 24 months). Canada reports January CPI next week. It stood at 4.8% in December.    The US dollar continues to hold important support in the CAD1.2650-CAD1.2660 area.  There are options for $700 mln that expire today at CAD1.2670.  Tomorrow, the optionality is stronger.  Options for almost $4.5 bln struck between CAD1.2650-CAD1.2660 expire. Tomorrow, there is also another option for CAD1.22 bln at CAD1.2685.  Ahead of the Banxico meeting, the peso is bid.  The greenback is near three-week lows against the peso around MXN20.42-MXN20.43.  A break sets up a test on the 200-day moving average near MXN20.33.  Last month's low was near MXN20.28. Still, the North American session may be more cautious.  A bounce could lift the dollar toward MXN20.50.   Disclaimer
Are Current Market Cycles Similar To The GFC Of 2007–2009?

Are Current Market Cycles Similar To The GFC Of 2007–2009?

Chris Vermeulen Chris Vermeulen 14.03.2022 16:14
Soaring real estate, rising volatility, surging commodities and slumping stocks - Sound Familiar?This past week marked the 13th anniversary of the bottom of the Global Financial Crisis (GFC) of 2007-2009. The March 6, 2009 stock market low for the S&P 500 marked a staggering overall value loss of 51.9%.The GFC of 2007-09 resulted from excessive risk-taking by global financial institutions, which resulted in the bursting of the housing market bubble. This, in turn, led to a vast collapse of mortgage-back securities resulting in a dramatic worldwide financial reset.Sign up for my free trading newsletter so you don’t miss the next opportunity! IS HISTORY REPEATING ITSELF?The following graph shows us that precious metals and energy outperform the stock market as the ‘Bull’ cycle reaches its maturity. The stock market is always the first to lead, the second being the economy, and the third, being the commodity markets. But history has shown that commodity markets can move up substantially as the stock market ‘Bull’ runs out of steam.The current commodities rally in Gold began August 2021, Crude Oil April 2020, and Wheat in January 2022. Interestingly we started seeing capital outflows in the SPY-SPDR S&P 500 Trust ETF in early January 2022, and the DRN-Direxion Daily Real Estate Bull 3x Shares ETF starting back in late December 2021.LET’S SEE WHAT HAPPENED TO THE STOCK AND COMMODITY MARKETS IN 2007-2008SPY - SPDR S&P 500 TRUST ETFFrom August 17, 2007 to July 3, 2008: SPDR S&P 500 ETF Trust depreciated -20.12%The State Street Corporation designed SPY for investors who want a cost-effective and convenient way to invest in the price and yield performance of the S&P 500 Stock Index. According to State Street’s website www.ssga.com, the Benchmark, the S&P 500 Index, comprises selected stocks from five hundred (500) issuers, all of which are listed on national stock exchanges and span over approximately 24 separate industry groups.DBC – INVESCO DB COMMODITY INDEX TRACING FUND ETFFrom August 17 2007 to July 3, 2008: Invesco DB Commodity Index Tracking Fund appreciated +96.81%Invesco designed DBC for investors who want a cost-effective and convenient way to invest in commodity futures. According to Invesco’s website www.invesco.com, the Index is a rules-based index composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.BE ALERT: THE US FEDERAL RESERVE POLICY MEETING IS THIS WEEK!In February, the inflation rate rose to 7.9% as food and energy costs pushed prices to their highest level in more than 40 years. If we exclude food and energy, core inflation still rose 6.4%, which was the highest since August 1982. Gasoline, groceries, and housing were the most significant contributors to the CPI gain. The consumer price index is the price of a weighted average market basket of consumer goods and services purchased by households.The FED was expected to raise interest rates by as much as 50 basis points at its policy meeting this week, March 15-16. However, given the recent world events of the Russia – Ukraine war in Europe, the FED may decide to be more cautious and raise rates by only 25 basis points.HOW WILL RISING INTEREST RATES AFFECT THE STOCK MARKET?As interest rates rise, the cost of borrowing becomes more expensive. Rising interest rates tend to affect the market immediately, while it may take about 9-12 months for the rest of the economy to see any widespread impact. Higher interest rates are generally negative for stocks, with the exception of the financial sector.WILL RISING INTEREST RATES BURST OUR HOUSING BUBBLE?It is too soon to tell exactly what the impact of rising interest rates will be regarding housing. It is worth noting that in a thriving economy, consumers continue buying. However, in our current economy, where the consumers' monthly payment is not keeping up with the price of gasoline and food, it is more likely to experience a leveling off of residential prices or even the risk of a 2007-2009 repeat of price depreciation.THE POTENTIAL FOR OUTSIZED GAINS IN A BEAR MARKET ARE 7X GREATER THAN A BULL MARKET!The average bull market lasts 2.7 years. From the March low of 2009, the current bull market has established a new record as the longest-running bull market at 12 years and nine months. The average bear market lasts just under ten months, while a few have lasted for several years. It is worth noting that bear markets tend to fall 7x faster than bull markets go up. Bear markets also reflect elevated levels of volatility and investor emotions which contribute significantly to the velocity of the market drop.WHAT STRATEGIES CAN HELP YOU NAVIGATE CURRENT MARKET TRENDS?Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24 months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe we are seeing the markets beginning to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into metals, commodities, and other safe havens.IT'S TIME TO GET PREPARED FOR THE COMING STORM; UNDERSTAND HOW TO NAVIGATE THESE TYPES OF MARKETS!I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com