economy

NZD: Non-tradeable inflation offers RBNZ a hawkish "loophole"

New Zealand’s inflation matched estimates at 0.5% quarter-on-quarter and 4.7% YoY in the 4Q print published overnight. This is a touch higher than our forecast (4.6%), but well below the 5.0% projected by the Reserve Bank of New Zealand for the period. However, non-tradeable CPI did come in hotter than expected at 1.1% QoQ, which has led to a move higher in short-term NZD rates. In FX, NZD/USD broke back above 0.6100 on the release, even though it quickly defaulted to being traded by external factors.

The stronger non-tradeable CPI may offer an excuse for the RBNZ to stick to some hawkish narrative on 28 February, although they will need to admit that general inflation pressures have declined and the economy underperformed, making any promise of higher-for-longer a harder sell to markets.

The next key release in New Zealand is the 4Q jobs report on 6 February. Until then, expect volatile Chinese sentiment and USD dyn

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Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

New POTUS, New Gold Bull Market?

Finance Press Release Finance Press Release 05.02.2021 16:34
Joe Biden’s election as president and his first economic proposal proved negative for gold prices, but the presidency might yet turn positive.The 46 th presidency of the United States has officially begun. What does that mean for the U.S. economy, politics and the precious metals market?Let’s start by noting that this will not be an easy presidency. The epidemic in the U.S. is raging, the economy is in recession , and public debt is ballooning. Foreign relations are strained while the nation is strongly polarized, as the recent riots clearly showed. So, Biden will have to face many problems, with few assets .First, as he turned 78 in November, Biden has been the oldest person ever sworn in as U.S. president. Second, his political capital is rather weak, as the 2020 election is more about Trump’s loss than Biden’s victory. In other words, many of his voters supported Biden not because of his merits but only because they opposed Trump. Third, he will have the smallest congressional majorities in several years. Democrats have only ten more seats than Republicans in the House and the same number of seats in the Senate. And even with Kamala Harris as a tie-breaker, Biden could not lose a single Democrat senator’s vote to pass any legislation in Senate.On the one hand, Biden’s tough political position seems to be negative for gold prices, as it lowers the odds of implementing the most radical, leftist political agenda. On the other hand, Biden’s difficulties also lower the chances of sound economic reforms, which is good news for the yellow metal. A divided Congress and Democratic Party with an old president at the helm, who has a weak personal base could result in political conflicts and stalemates which would prove positive for gold.When it comes to economics, Biden has already presented his pandemic aid bill, worth of $1.9 trillion. The proposal includes direct payments of $1,400 to households, $400 per week in supplementary unemployment benefits through September, billions of dollars for struggling businesses, schools, and local governments, as well as funding that would accelerate vaccination and support other coronavirus containment efforts. Biden also wants to raise the minimum wage to $15 per hour, which will not appeal to Republicans. The big size of the package will also be disliked by the GOP.The fact that Democrats have won the Georgia Senate runoffs, taking control over the Senate, increases the chances that Biden will implement his economic stimulus. The equity markets welcomed the idea of another large aid package, in contrast to bond investors who sell Treasuries, causing the yields to go up. The increase in real interest rates pushed gold prices down , as the chart below shows.It seems that investors liked the idea of big stimulus, hoping for acceleration in economic growth. However, printing more money (I know, the Treasury technically doesn’t print money – but it issues bonds which are to a large extent bought by the Fed ) and sending checks to people doesn’t increase economic output. Another problem is that the U.S. can’t run massive fiscal deficits forever and ever , hoping that interest rates will always stay low.So, although Biden’s economic stimulus may add something to the GDP growth in the short-term, it will not fundamentally strengthen the economy. Quite the contrary, the massive increase in government spending and public debt (as well as in taxation) will probably hamper the long-term productivity growth and make the already fragile debt-based economic model even more fragile. What is really worrisome is that Biden doesn’t seem to care about U.S. indebtedness – he has already spoken strongly against deficit worries and hasn’t proposed any actions to reduce the debt – and plans to unveil the additional economic stimulus.Hence, although gold declined initially in a response to Biden’s economic stimulus proposal, the new president could ultimately turn out to be positive for the yellow metal. After all, gold declined in the aftermath of the Lehman Brothers’ collapse , but it shined under Barack Obama’s first presidency. And Biden is likely to be even more fiscally irresponsible than Obama (or Trump), while the Fed under Powell is likely to even more monetarily irresponsible than under Bernanke (or Yellen ). Indeed, according to The Economist , Biden’s proposal is worth about nine percent of pre-crisis GDP, nearly twice the size of Obama’s aid package in the aftermath of the Great Recession . And, in contrast to previous crises, the Fed has announced the desire to overshoot its inflation target. All these factors should support gold prices in the long run.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Will 2021 Prompt A Big Rotation In Sector Trends? - PART I

Chris Vermeulen Chris Vermeulen 07.02.2021 19:41
An interesting question was brought to my research team recently related to sector trends in 2021 and what may shift over the next 10 to 12+ months.  It is very difficult to predict any future trends that may set up over the next year or longer, but we took the effort to consider this question and to consider where trends may change over time. The one thing my research team and I kept returning to is “how will the global economy function after COVID and how much will we return to normalcy over the next 12 to 24+ months?”  We believe this key question will potentially drive sector trends and expectations in the future.  When COVID-19 hit the globe, in early 2020, a forced transition of working from home and general panic took hold of the general public.  Those individuals that were able to continue earning while making this transition moved into a “protectionist mode” of stocking, securing, preparing for, and isolating away from risks.  This shift in our economy set up a trend where certain sectors would see benefits of this trend where others would see their economies destroyed.  For example, commercial real estate is one sector that has continued to experience extreme downside expectations while technology and Healthcare experienced greater upside expectations.Longer-term Sector Trends – What's Next?When we look at a broad, longer-term, perspective of market sectors, we can see how many sectors have rallied, some are relatively flat, and others are still moderately weak compared to pre-COVID-19 levels.  The top row of these charts, the $SPX (S&P500), XLY (Discretionary), XLC (Comm Services), and XLK (Technology) sectors have all shown tremendous rallies after the COVID-19 lows in March 2020.  We can also see that XLI (Industrials), XLB (Materials), and XLV (Healthcare) have all started to move higher recently.One needs to consider the manufacturing component of technology, S&P 500/Industrial related companies, Technology and Healthcare services/products in relationship to Materials and Material/Chemical manufacturing.  Many of these industries require massive amounts of raw materials in order to build and supply finished products to the marketplace.  This suggests a broad commodity sector rally may be setting up while other stronger sectors continue to rally.Any resurgence of the global economy after nearly a year of efforts to find an effective cure vaccine/cure for COVID-19 will likely prompt capital to search out undervalued and strong sector trends.  Given the strength of the NASDAQ & Technology sectors as well as the Discretionary sector recently, we believe a shift this likely to focus on Healthcare, Commodities (Basic Materials, Agriculture and Metals), and certain manufacturing sectors – almost like a resurgence of the manufacturing/industrial economy.SPY Monthly Chart Shows Clear Breakout Rally AttemptWhen we compare the longer-term rally in the SPY to the QQQ (see the two charts below), we can clearly see the SPY has just recently rallied above the YELLOW trend line from the lows established in 2009 & 2010.  These lows represent a critical support/resistance channel for the markets moving forward from the 2009 market bottom.  They also represent an acceleration phase cycle in price when the price moves above this level. Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!Throughout almost all of 2011~2020, we can clearly see the price trend stayed below this YELLOW level.  Recently, though, the SPY price has rallied above this level for the first time since early 2011.  This suggests a broad SPY rally as initiated and that further upside price trending is likely as long as prices stay above the YELLOW support level.  If this level fails in the future, then a larger downside price trend may prompt a deeper price correction.The important factor for this chart is the recent rally above the YELLOW support channel.  The resurgence of the global economy and global central bank support may be prompting a very strong upward price phase – something we have not seen in more than a decade.QQQ Has Continued A Very Strong Rally Since 2009Comparing the same levels of the SPY chart to the QQQ chart presents a very different picture.  The QQQ price activity has, almost continually, stayed above the same YELLOW support/resistance level originating from the 2009 bottom.  This suggests that the strength of the technology sector, a major component of the NASDAQ, drove quite a bit of upward market expansion over the last 10+ years and is continuing to drive market prices higher.  This incredible trend related to technology services, products, support, and infrastructure has really served as a technological revolution over the past 2 decades.  Yet, will these expectation last if the market changes dynamics?It appears the QQQ is poised to target the $356~$357 level, which would complete a full 200% Fibonacci Measured Move to the upside. If and when that happens, we may see some increased volatility/rotation in the NASDAQ/Technology sector after watching this sector rally more than 100% from the March 2020 COVID-19 lows.Of course, technology will still continue to play a major role in our lives, but we may see these sectors attempt to restructure and re-balance if a new Commodity/Basic Material/Manufacturing phase takes root.  This process may take place over many months or years, but we believe it is very likely given the extent of the rally phases of these sectors and the process of rebuilding a functioning global economy.In Part II of this article, we'll dive deeper into the trends and setups that make this shift in global market sector a real potential for future profits.  Remember, we are not making any call that the market it topping or collapsing from these levels.  We believe the resurgence in the global economy may prompt a restructuring of value in many sectors over the next 2 to 3 years – where Commodities, Basic Materials, and Manufacturing may suddenly become hot sectors as the global economy attempt to rebuild after COVID-19.  This does not detract from the bullish trending in current sectors, it just means many undervalued sectors may become very hot over the next 15+ months.Don’t miss the opportunities in the broad market sectors over the next 6+ months, which will be an incredible year for traders of the BAN strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Learn how the BAN strategy can help you spot the best trade setups because staying ahead of sector trends is going to be key to success in volatile markets. For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.Have a relaxing Sunday!
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Gold About To Spring As Stocks Cool Off At Highs

Monica Kingsley Monica Kingsley 08.02.2021 16:15
Stock bulls aren‘t yielding an inch of ground, and technically they have precious few reasons for doing so. It‘s still strong the stock market bull, and standing in its way isn‘t really advisable. With the S&P 500 at new highs, and the anticipated slowdown in gains over Friday, where is the momentary balance of forces? As the proverbial rubber bands gets pushed upwards still, what about those rising probabilities of seeing at least a short-term pause in the stellar pace of gains since last Monday? Gold did recover on Friday, and didn‘t disappoint after Thursday‘s slide. The weak non-farm employment data certainly helped, sending the dollar bulls packing. It‘s my view that we‘re on the way to making another dollar top, after which much lower greenback values would follow. Given the currently still prevailing negative correlation between the fiat currency and its shiny nemesis, that would also take the short-term pressure of the monetary metal(s). What would you expect given the $1.9T stimulus bill, infrastructure plans of similar price tag, and the 2020 debt to GDP oh so solidly over 108%? Inflation is roaring – red hot copper, base metals, corn, soybeans, lumber and oil, and Treasury holders are demanding higher yields especially on the long end (we‘re getting started here too). Apart from the key currency ingredient, I‘ll present today more than a few good reasons for the precious metals bull to come roaring back with vengeance before too long. Let‘s dive into the charts (all courtesy of www.stockcharts.com). S&P 500 Outlook and Its Internals Stocks keep pushing higher, and the bulls are strong regardless of the little contraction in the daily volume. The daily indicators attest to the strength of the uptrend, but the pace of daily increases looks set to slow down as minimum though. Imagine that all the constituent shares in the S&P 500 had equal weight (i.e. forget about $NYFANG) – this is the chart you get. RSP ETF is only now challenging its highs, which is however not a disappointment or a red light flashing divergence at all. The march to new highs in the S&P 500 still looks satisfactorily broad based. Market breadth confirms that very clearly. Both the advance-decline line and advance-decline volume aren‘t disappointing in the least, and new highs new lows have made a strong comeback from preceding setback. The intermediate picture is one of strength. Credit Markets and S&P 500 Sectoral Ratios High yield corporate bonds to short-term Treasuries (HYG:SHY) ratio with S&P 500 overlaid (black line) shows that the two are tracking each other tightly in recent days. Stocks haven‘t yet yielded in their attempt at taking leadership position, regardless of their performance since the start of November (which makes the attempt suspect in the very short-term, as stocks have lagged a little relative to the credit markets back then). Bearish prospects? No way, dips are still to be bought. The financials to utilities (XLF:XLU) ratio still broadly supports the stock market advance. Looking at the bond market dynamics, I expect utilities to remain under pressure while financials would gain faster. I‘m not worried by the current relatively depressed ratio‘s value, and don‘t consider it a warning sign for the S&P 500 in the least. Consumer discretionaries to consumer staples (XLY:XLP) is another leading ratio worth watching. It‘s currently at quite elevated levels, as I view the discretionaries as extended while the staples have undergone an appealing pullback. Even though that makes for short-term headwinds in the ratio, it‘s still primed to support the stock market bulls. Gold & Silver Friday‘s gold session still is cause enough for optimism among the gold bulls about an important low being made. The other option would be a brief dip below Thursday‘s lows, which I however due to more powerful $USD reversal on Friday (erasing all Thursday‘s gains on the heels of poor non-farm payrolls data), don‘t look at as the more likely scenario currently. For now, it still remains most probable that Thursday‘s bottom in gold won‘t be overcome by much, not going down to more than $1760 (though I am obviously not betting all in my trading plans on this strong support) – if at all. It‘s the „if at all“ part that I subscribe to most heavily. Silver‘s chart is the livelier one, less under pressure but given the recent squeeze-driven run, the white metal might need to cool down a bit here. The 1H real economy recovery outlook is though guaranteed to put a solid floor below any sub $26 dip should that – which is as questionable as in case of gold – happen at all. Base building at roughly current levels would be a healthy development for the bulls to rejoice. Precious Metals Ratios Checking out on the gold to all corporate bonds ($GOLD:$DJCB) ratio reveals relative strength in the yellow metal currently. It‘s trading much farther above its late Nov low than the metal itself. Similarly to the case junior miners to senior ones are making, this is a hidden sign of strength in the precious metals sector, whose next upleg is knocking on door. The miners to gold ($HUI:$GOLD) ratio‘s false breakdown announcing another upleg that I discussed on Feb 01 already, is still intact, and sending the very same signals of internal strength inside the precious metals complex. The 1H 2021 future is bright, and approaching fast. Summary The stock market keeps powering higher, and despite the rather clear skies ahead, a bit of short-term caution given the speed of the recovery and its internals presented, is in place. I wouldn‘t be surprised to see today or tomorrow a brief and weak whiff of lower prices – nothing to call home about if you were a bear, that is. The gold and silver bulls apprear to be staging a return, slowly but surely, which is consistent with the price damage repair pattern frequently experienced after sizable red candles that felt to at least part of the marketplace as out of the left field. The case for the next upleg remains as strong as it has ever been in my view. Thank you for having read today‘s free analysis, which is available in full here at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for both Stock Trading Signals and Gold Trading Signals.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Platinum Begins Big Breakout Rally

Chris Vermeulen Chris Vermeulen 10.02.2021 21:58
If you were not paying attention, Platinum began to rally much higher over the past 3+ days – initiating a new breakout rally and pushing well above the $1250 level.  What you may not have noticed with this breakout move is that commodities are hot – and inflation is starting to heat up.  What does that mean for investors/traders?DAILY PLATINUM CHART SHOWS CLEAR BREAKOUT TRENDFirst, Platinum is used in various forms for industrial and manufacturing, as well as jewelry and numismatic functions (minting/collecting).  This move in Platinum is more likely related to the increasing inflationary pressures we've seen in the Commodity sector coupled with the increasing demand from the surging global economy (nearing a post-COVID-19 recovery).  The most important aspect of this move is the upward pricing pressure that will translate into Gold, Silver, and Palladium.We've long suggested that Platinum would likely lead a rally in precious metals and that a breakout move in platinum could prompt a broader uptrend in other precious metals.  Now, the combination of this type of rally in Platinum combined with the Commodity rally and the inflationary pressures suggests the global markets could be in for a wild ride over the next 12 to 24+ months.This Daily Platinum chart highlights the recent upside breakout rally that has prompted a rally from $1050 to $1250+.  If this rally continues to target the 100% Fibonacci price extension, near $1300, then it will become very clear that Platinum is rallying away from other precious metals.  If this coincides with a continued general Commodity price rally, then we may start to see an inflationary cycle setting up that really change things – very quickly.This type of “triple-whammy” is very similar to the commodity/inflationary price rally that took place in the late 1970s and early 1980s.  For those of you that don't remember this trend, commodities started to rally in the early/min-1970s, prompting Gold to rally a low price near $100 (in 1976) to a higher level near $195 (in 1978) – but that was just the beginning.  After that rally stalled a bit, a bigger commodity price rally took place in 1979 that prompted a much bigger Gold price rally and started an inflationary price cycle that prompted the US Fed to take aggressive action in curtailing inflation.  Gold rallied from $169 in late 1978 to over $870 in early 1980 – a 420% increase.PLATINUM MAY LEAD A COMMODITY PRICE RALLYWe believe the rally in Platinum is a strong signal that a Commodity price rally is initiating and that an inflationary price cycle may be starting.  If our research is correct, evidence of this cycle phase will continue over the next 6+ months where commodities will continue to rally overall and where market inflation will become very tangible in the US and across the globe.  This will prompt the US Fed, and global central banks, to begin to take immediate action to contain any potential run-away inflation concerns – obviously tightening monetary policy and raising interest rates.Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!Platinum may rally above $1500 if this rally extends to the 200% Fibonacci price extension level – and that move may come very quickly.  This weekly Platinum chart, below, shows a green arrow that points to the 200% Fibonacci price extension level (near $1500). Remember, the commodity price rally in 1979/1980 lasted more than 24 months and prompted a big 400%+ rally in Gold.  If that type of rally were to happen today, Gold would rally to levels near $7500 (or higher).Pay attention to what is happening with Platinum and you'll start to understand the inflationary/institutional demand for this unique metal.  If our research is correct, we may see a new rally in Gold and Silver fairly quickly as Platinum acts as a catalyst for an inflationary cycle paired with a Commodity rally (very similar to the 1979 to 1980 rally). It is a great time to be an active trader in these markets.  One of our recent BAN trades just closed out for a 47% gain.  These big trends may be here for the next 24+ months and 2021 is going to be full of these types of trends and setups.  Quite literally, hundreds of these setups and trades will be generated over the next 3 to 6 months using the BAN Trader Pro technology.  The BAN Trader Pro technology does all the work for us.Don’t miss the opportunities in the broad market sectors over the next 6+ months, which will be an incredible year for traders of the BAN strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Learn how the BAN strategy can help you spot the best trade setups because staying ahead of sector trends is going to be key to success in volatile markets. For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.Have a great day!
US Industry Shows Strength as Inflation Expectations Decline

Will Tesla Charge Gold With Energy?

Finance Press Release Finance Press Release 11.02.2021 17:08
Tesla has supported the price of Bitcoin, but it can affect gold as well.The bull market in cryptocurrencies continues. As you can see in the chart below, the price of Bitcoin has recently increased to almost $47,000 (as of February 10). The parabolic rise seems to be disturbing, as such quick rallies often end abruptly.However, it’s worth noting that the price of Bitcoin has partially jumped because of the increased acceptance of cryptocurrencies as a legitimate form of currency by the established big companies. In particular, Elon Musk, the CEO of Tesla, has recently published a series of tweets that significantly affected the price of Bitcoin, Dogecoin, and other cryptocurrencies.Furthermore, Tesla updated its investment policy to include alternative assets as possible investments. In the last 10-k filing to the Securities and Exchange Commission in January 2021, Tesla stated:In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.Importantly, these assets also include gold :As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds, and other assets as specified in the future.This means that Tesla wants to diminish its position in the U.S. dollar and to diversify its cash holdings. In other words, the company lost some of its confidence in the greenback and started to look for alternatives. So, it seems that Musk and other investors are afraid of expansion in public debt , higher inflation , and the dollar’s debasement .And rightly so! The continued fiscal stimulus will expand the fiscal deficit even further, ballooning the federal debt. With the budget resolution passed last week, only a simple majority will be needed in the Senate to get Biden’s $1.9 trillion package approved, a majority that Democrats have.Remember also that the U.S. economy added only 49,000 jobs in January , while 227,000 jobs were lost in December (revised down by 87,000!). The poor non-farm payrolls will strengthen the odds of a larger fiscal stimulus and easier fiscal and monetary policies.Hence, combined with the ultra-dovish monetary policy and a Fed more tolerant to inflation, the upcoming fiscal support could ultimately be a headwind for the dollar. Initially, the prospect of fiscal support caused positive reactions on the financial markets, but as the euphoria passes, investors start to examine the long-term consequences of easy money and the large expansion of government spending. Importantly, the larger the debt, the deeper the debt trap , and the longer the zero interest rates policy will stay with us, as the Fed won’t try to upset the Treasury.Implications for GoldWhat does Tesla’s move imply for the precious metals market? Well, we are not observing the kind of rally in gold that we are currently witnessing in the cryptocurrencies sphere (see the chart below). And – given the size of the gold market – it’s unlikely that Musk & Co. could ignite a mania similar to the one seen in Dogecoin. The gold market is simply too big. Even the silver market could be too large for similar speculative plays – as the failure of the recent attempt of a short squeeze has shown.However, the update of Tesla’s investment policy is a confirmation of gold as a safe-haven asset and portfolio diversifier . If other big companies follow suit, and we see an actual reallocation of funds from the U.S. dollar towards gold, the price of the yellow metal will get an invigorating electric impulse .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Jack Dorsey and Jay-Z Team Up to Offer Bitcoin Development Trust

BeInCrypto (BeIn News Academy Ltd), we're writing about crypto. BeInCrypto (BeIn News Academy Ltd), we're writing about crypto. 12.02.2021 09:12
Twitter CEO and Bitcoin bull Jack Dorsey is creating a new Bitcoin development fund alongside rapper and entrepreneur Jay-Z. Dorsey initially announced the “₿trust” Bitcoin fund via a tweet on Feb. 12, 2021, which he describes as a “blind irrevocable trust.” The 500 BTC endowment will initially focus on Bitcoin development in Africa and India. Attached to the tweet, Dorsey added a short document where people can apply to join as a board member, of which they will be choosing three. JAY-Z/@S_C_ and I are giving 500 BTC to a new endowment named ₿trust to fund #Bitcoin development, initially focused on teams in Africa & India. It‘ll be set up as a blind irrevocable trust, taking zero direction from us. We need 3 board members to start: https://t.co/L4mRBryMJe— jack (@jack) February 12, 2021At current BTC prices of $47,650, this endowment equates to nearly $24 million, making ₿trust one of, if not the largest, fund of this nature in relative dollar terms. While Jay-Z may not have much experience in the realm of global Bitcoin development, Dorsey remains one of its top proponents. Dorsey is the CEO of the Square digital payments platform. Through Square, Dorsey offers a cryptocurrency grant program that gives funding to select Bitcoin development projects. While the tweet doesn’t explain why the fund will focus on Africa and India specifically, one can assume that the underdeveloped and restrictive financial sectors in parts of those regions are a major factor. Akon, another famous musician from the early-2000s, has also made massive efforts in cryptocurrency development in Africa. The rapper and songwriter is planning an entire smart city that he’s dubbed “Akon City” in his home country of Senegal. The city is slated to be built over the next decade and will have its own microeconomy based on a digital currency called “AKoin.” The post Jack Dorsey and Jay-Z Team Up to Offer Bitcoin Development Trust appeared first on BeInCrypto.
Gold During the Pandemic Winter

Gold During the Pandemic Winter

Finance Press Release Finance Press Release 12.02.2021 14:36
The pandemic winter will take longer than we thought. The longer we struggle with the coronavirus, the brighter gold could shine.A long, long time ago, there was a bad virus, called the coronavirus , that killed many people all around the world and severely hit the global economy. Luckily, smart scientists developed vaccines that defeated the coronavirus and ended the pandemic . Since then, humankind lived happily – and healthy – ever after.Sounds beautiful, doesn’t it? This is the story we were all supposed to believe. The narrative was that the development of vaccines would end the pandemic and we would quickly return to normalcy. However, it turns out that this was all a fairy tale – the real struggle with the coronavirus is more challenging than we thought .First, the rollout of vaccinations has been very, very slow . As the chart below shows, on February 1, 2021, only about 1.77 percent of Americans became fully vaccinated against COVID-19.Of course, full protection requires two doses, so it takes some time. But in many countries, the share of the population which received at least one dose of the vaccine is also disappointingly low, as the chart below shows.It means that our progress towards herd immunity is really sluggish . At such a pace, we are losing the race between injections and infections. And we will not reach herd immunity until the second half of the year or even the next winter…Second, there is the problem of mutations . The new strains are rapidly popping up which poses a great risk in our fight with the coronavirus. One of these new variants was identified in the United Kingdom and quickly spread through the country. Although it’s not more lethal, it’s more infectious, which makes it more dangerous overall. And the more variants emerge, it’s more likely that we could see a mutation resistant to our current treatments and vaccines. Indeed, some of the mutations change the surface protein, spike, and have been shown to reduce the effectiveness of combating the coronavirus by monoclonal antibodies.The really bad part is that these two problems are strongly connected. The longer the vaccinations take, the more active cases we have. The more active cases we have, the more mutations happen, as each new infection implies more copies of the coronavirus, which gives it more chances to mutate. The more mutations occur, the higher the odds of a really nasty strain. Therefore, the longer the vaccination process takes, the more probable it is that it will not work and that vaccine-resistant variants might emerge.Given that in many countries vaccinations are practically the only rational strategy to fight the virus, the vaccine-resistant strain would be a serious blow. Surely, some vaccines could be relatively easily updated, but their rollout would still require time – time we don’t have.What does it all imply for the gold market? Well, the more sluggish the vaccinations, the higher the risk that something goes wrong and that our battle with COVID-19 will take more time. The longer the fight, the slower the economic recovery. The longer and bumpier road toward herd immunity, the slower lifting sanitary restrictions and social distancing measures, and the later we come back to normalcy. The longer we live in Zombieland, the easier fiscal and monetary policies will be, and the brighter gold will shine.Another issue is that we shouldn’t forget about the possibility of the pandemic’s long economic shadow. A recent paper has examined the effects of 19 major previous pandemics, finding a long shadow of the economic carnage. Although financial markets are still (wrongly, I believe) betting on a V-shaped recovery, the history suggests that a double dip is likely, as eight of the last 11 recessions experienced it. Recessions sound golden, don’t they?However, there is one caveat here. The sensitivity of economic activity to COVID-19 infections and restrictions has significantly diminished since the Great Lockdown in the spring of 2020. There are three reasons for that. First, people fear the coronavirus less. Second, epidemic restrictions are better targeted and implemented. Third, entrepreneurs adopted better to cope with the epidemic.The greater resilience of the economy means a smaller downturn and fewer long-term scars, which will limit any upward COVID-19 related impact on gold prices . But a softer economic impact also implies a quicker recovery, which – together with the upcoming big government stimulus – could increase consumer prices, thus supporting gold prices through the inflation channel. Indeed, commodity prices have been surging in 2021, so gold may follow suit.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Boosting Stimulus: A Look at Recent Developments and Market Impact

A Sleepy Week for the Indices?

Finance Press Release Finance Press Release 12.02.2021 15:45
For once, we have a week in 2021 where the market really didn't move all that much.Except for weed stocks that whipsawed GameStock-like and Bitcoin and Dogecoin making waves thanks to Lord Elon, it's really been kind of a boring week for the major indices.The S&P and Nasdaq closed at another record high Thursday (Feb. 11), while the Dow barely retreated from its own record high. The red-hot Russell has lagged this week.However, it’s all relative. No index has moved upwards or downwards more than about 0.30% week-to-date.It’s about time we had a week of relative quiet in the market.The sentiment is indeed still rosy right now. The economic recovery appears to be gaining steam, and the Q1 GDP decline everyone predicted might not be as sharp as we anticipated. We could also be days away from trillions of dollars of much-needed stimulus getting pumped into the economy.Earnings continue to impress, too, and are on pace to rise by over 20% in 2021. Since 1980, only 12 years have earnings increased by 15% or more. Except for 2018, the market gained an average of 12% in all of those years.We could also days away from FDA approval of a one-dose vaccine from Johnson and Johnson (JNJ).The COVID numbers and vaccine trend could truly turn the tide of things. More people in the U.S. have now been vaccinated than total cases, and the week kicked off (Feb. 8) with vaccine doses outnumbering new cases 10-1. Dr. Fauci also claims that vaccines could be available to the general public by April.But we're not out of the woods yet. Sure this week has been calm.But it’s almost been “too calm.”I still worry about complacency, valuations, and the return of inflation.“You wouldn’t know it from the sedate action in the averages,” but Wall Street is on “a highway to the danger zone,” CNBC ’s Jim Cramer said.“In a frothy market, stocks will have enormous rallies that are totally disconnected from the underlying fundamentals.”He’s not wrong.Look at the Buffett Indicator as of February 4. Where I track this indicator usually updates once a week and shows the total U.S. stock market valuation to the GDP. If you take the US stock market cap of $48.7 trillion and the estimated GDP of $21.7 trillion, we're nearly 224% overvalued and 84% above the historical average. This ratio has not been at a level like this since the dotcom bubble.Worse? This chart was dated February 4. The market’s only risen since then.This is what I mean by don’t be fooled by the relative calm of this week.The S&P 500’s forward 12-month P/E ratio is also well above its 10-year average of 15.8. The Russell 2000 is also back at a historic high above its 200-day moving average. Tech stock valuations are again approaching dotcom bust levels.Still not sold? Look at Goldman’s non-profitable tech index. It’s approaching an absurd 250% year-over-year performance.Bank of America also believes that a market correction could be on the horizon due to signs of overheating.While I don’t foresee a crash like we saw last March, I still maintain that some correction before the end of Q1 could happen.Corrections are healthy and normal market behavior, and we are long overdue for one. They are also way more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).A correction could also be an excellent buying opportunity for what could be a great second half of the year.Bank of America also echoed this statement and said that “We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and ‘as good as it gets’ earnings revisions.”The key word here- buyable.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra-high net worth.With that said, to sum it up:While there is long-term optimism, there are short-term concerns. A short-term correction between now and the end of Q1 2021 is possible. I don't think that a decline above ~20%, leading to a bear market will happen.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. The Streaky S&P Is Back at a Record Figure 1- S&P 500 Large Cap Index $SPXThe S&P continues to trade as a streaky index. It seemingly rips off multiple-day winning streaks or losing streaks weekly.After the S&P 500 ripped off a streak of gains in 6 of 7 days, it promptly went on a 3-day losing streak, followed by another record close.I would hardly call that a 3-day losing streak, though. I’d even say it was a boring week for the S&P 500 with muted moves.The outlook is healthy, though, especially when you consider earnings. More than 80% of S&P stocks that have reported earnings thus far have beaten estimates.What could be on tap for next week? Who even knows anymore. But if earnings keep on outperforming, and the sentiment remains stable, it could be another strong week.The S&P’s RSI is ticking up towards overbought. However, because it’s still below 70, and because of the streaky manner in which the index has traded, it remains a HOLD.A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am sticking with the S&P as a HOLD.For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.For more of my thoughts on the market, such as red-hot small-caps and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
S&P 500 Correction Looming, Just as in Gold – Or Not?

S&P 500 Correction Looming, Just as in Gold – Or Not?

Monica Kingsley Monica Kingsley 12.02.2021 16:50
Stocks are clinging to the 3,900 level, and the bulls aren‘t yielding. Without much fanfare, both the sentiment readings and put/call ratio are at the greed and compacent end of the spectrum again. How long can it last, and what shape the upcoming correction would have? Right now, the warning signs are mounting, yet the bears shouldn‘t put all their eggs into the correction basket really, for it shapes to be a shallow one – one in time, rather than in price.Gold‘s hardship is another cup of tea, standing in stark comparison to how well silver and platinum are doing. At the same time, the dollar hasn‘t really moved to the upside – there is no dollar breakout. If the greenback were to break to the upside, that would mean a dollar bull market, which I don't view as a proposition fittingly describing the reality – I called the topping dollar earlier this week. The world reserve currency will remain on the defensive this year, and we saw not a retest, but a local top.This has powerful implications for the precious metals, where the only question is whether we get a weak corrective move to the downside still, or whether we can base in a narrow range, followed by another upleg (think spring). February isn't the strongest month for precious metals seasonally, true, but it isn't a disaster either. As has been the case throughout the week, I‘ll update and present the evidence of internal sectoral strength also today.One more note concerning the markets – in our print-and-spend-happy world, where the give or take $1.9T stimulus will sooner or later come in one way or another, we better prepare on repricing downside risk in the precious metals, and also better not to fixate on the premature bubble pop talk too closely. I have been stating repeatedly that things have to get really ridiculous first, and this just doesn‘t qualify yet in my view. All those serious correction calls have to wait – in tech and elsewhere, for we‘re going higher overall – like it or not.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and Its InternalsThird day of hesitation, this time again with a thrust to the downside. Marginally increasing volume, which speaks of not too much conviction by either side yet. As the very short-term situation remains tense, my yesterday‘s words still apply today:(…) I think this corrective span has a bit further to run in time really. (…) the bears are just rocking the boat, that‘s all.The market breadth indicators are deteriorating, without stock prices actually following them down. Thus far, the correction is indeed shaping to be one in time and characterized by mostly sideways trading. Unless you look at the following chart.Volatility has died down recently, yet a brief spike (not reaching anywhere high, just beating the 24 level) wouldn‘t be unimaginable to visit us by the nearest Wednesday. In all likelihood, it would be accompanied by lower stock prices. Well worth watching.Credit Markets and TechThere is a growing discrepancy between high yield corporate bonds (HYG ETF) and its investment grade counterpart (LQD ETF). Both leading credit market ratios have been diverging not only since the end of Jan, but practically throughout 2021. The theme of rising yields is exerting pressure on the higher end of the debt market as the stock investment fever goes on – that‘s my take.No, this is not a bubble – not a parabolic one. The tech sector is gradually assuming leadership in the S&P 500 advance, accompanied by microrotations as value goes into favor and falls out of it, relatively speaking. Higher highs are coming, earnings are doing great, and valuations aren‘t an issue still.Gold, Silver and RatiosUnder pressure right as we speak ($1,815), the yellow metal‘s technical outlook hasn‘t flipped bearish. Should we get to last Thursday‘s lows, it would happen on daily indicators ready to flash a bullish divergence once prices stabilize. But for all the intense bearish talk, we haven‘t broken below the late Nov lows.For those inclined so, I am raising the arbitrage trade possibility. Long silver, short gold would be consistent with my prior assessment of the gold-silver ratio going down. Similarly to bullish gold bets, that‘s a longer-term trade, which however wouldn‘t likely take much patience to unfold and stick.A bullish chart showing that gold isn‘t following the rising yields all that closely these days. Decoupling from the Treasury yields is a positive sign for the sector, and exactly what you would expect given the (commodity) inflation and twin deficits biting.Silver continues to trade in its bullish consolidation, and unlike in gold, its short-term bullish flag formation remains intact. The path of least resistance for the white metal remains higher.Gold juniors (black line) keep their relative strength vs. the senior gold miners, and the mining sector keeps sending bullish signals, especialy when silver miners enter the picture.SummaryThe stock market tremors aren‘t over, and the signs of deterioration keep creeping in. The bull run isn‘t however in jeopardy, and there are no signals thus far pointing to an onset of a deeper correction right now.The gold bulls find it harder to defend their gains, unlike the silver ones. That‘s the short-term objective situation, regardless of expansive monetary and fiscal policies, real economy recovery, returning inflation and declining U.S. dollar. The new upleg keeps knocking on the door, and patience will be richly rewarded.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

S&P 500 Correction Delayed Again While Silver Runs

Monica Kingsley Monica Kingsley 15.02.2021 14:15
The window of opportunity for the stock bears is slowly but surely closing down as Friday‘s gentle intraday peek higher turned into a buying spree before the closing bell. The sentiment readings and put/call ratio are at the greed, euphoric and compacent end of the spectrum again. I asked on Friday:(…) How long can it last, and what shape the upcoming correction would have? Right now, the warning signs are mounting, yet the bears shouldn‘t put all their eggs into the correction basket really, for it shapes to be a shallow one – one in time, rather than in price.Today, I‘ll say that waiting for a correction is like waiting for Godot. Trust me, I have come to experience quite some absurd and Kafkaesque drama not too long ago. What an understatement.One week ago, I called the dollar as making a local top, and look where we are in the process. Coupled with the steepening pace of rising long-dated Treasury yields, that‘s a great environment for financials (XLF ETF) as they benefit from the widening yield curve.Gold remains a drag on the precious metals performance, with silver and platinum flying. The miners‘ outlook and internal dynamics between various mining indices, provides a much needed proof to those short on patience. Little wonder, after 5+ months of downside correction whose target I called on Aug 07 in the article S&P 500 Bulls Meet Non-Farm Payrolls. Little wonder given the monstrous pace of new money creation beating quite a few prior interventions combined.Yet, the precious metals complex is coming back to life as the economic recovery goes on, and will get new stimulus fuel. Commodity prices are rising steeply across the board, yet inflation as measured by CPI, will have to wait for the job market to start feeling the heat, which it obviously doesn‘t in the current pace of job creation and low participation rate. Until labor gets more powerful in the price discovery mechanism (through market-based dynamics!), the raging inflationary fire will be under control, manifesting only in (financial) asset price inflation. That‘s precisely what you would expect when new money is no longer sitting on banks‘ balance sheets, but flowing into the economy. Again quoting my Friday‘s words:(…) One more note concerning the markets – in our print-and-spend-happy world, where the give or take $1.9T stimulus will sooner or later come in one way or another, we better prepare on repricing downside risk in the precious metals, and also better not to fixate on the premature bubble pop talk too closely. I have been stating repeatedly that things have to get really ridiculous first, and this just doesn‘t qualify yet in my view. All those serious correction calls have to wait – in tech and elsewhere, for we‘re going higher overall – like it or not.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and Its InternalsThe weekly S&P 500 chart is still one of strength, without a top in sight. And the lower volume, I don‘t view as concerning at all.After a three day sideways consolidation, stock bulls forced a close higher on Friday. Low volume, but still higher prices. The bears missed an opportunity to act, having hesitated for quite a few days. Not that the (big picture) path of least resistance weren‘t higher before that, though.The market breadth indicators got a boost on Friday, but it‘s especially the new highs new lows that have a way to go. One would expect a bigger uptick given Friday‘s price advance, but the overall message is still one of cautious but well grounded optimism.Credit Markets, Treasuries and DollarThe high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio performance is lining up nicely with the S&P 500 one, and definitely isn‘t flashing a warning sign for the days to come.Long-term Treasuries are declining at a faster pace than has been the case in late 2020, which is (not immediately right now, but give it time and it‘ll turn out to be) concerning. Thus far though, the money flows are positive for the stock (and other risk on) markets as the liquidity tide keeps hitting the tape.Who suffers? The dollar. No, it‘s not breaking higher (retracing breakout before a run higher – no) above the 50-day moving average or any way you draw a declining resistance line on higher time frames. The greenback is getting ready for another powerful downleg.Gold and SilverGold bulls have repelled another selling wave, which was however not the strongest one. The fact there was one in the first place even, is more (short-term) concerning for the gold bulls. But please remember that it was first gold that got it right in jumping higher on the unprecedented money printing spree as we entered spring 2020, followed by copper, base metals, agricultural commodities, and also oil now (remember my recent bullish calls for over $80 per barrel in less than 2 years). Gold keeps catching breath, frustrating the bulls who „know“ it can only go higher, but its spark isn‘t there at the moment. A perfect example is Monday‘s session thus far – spot gold 0.25% down, spot silver 1.25% up. It‘s been only on Friday when I touted the gold-silver spread trade idea as not having exhausted its potential yet, not by a long shot:(…) For those inclined so, I am raising the arbitrage trade possibility. Long silver, short gold would be consistent with my prior assessment of the gold-silver ratio going down. Similarly to bullish gold bets, that‘s a longer-term trade, which however wouldn‘t likely take much patience to unfold and stick.Silver keeps acting in a bullish way, tracking commodities ($CRB) performance much better than gold does at the moment. While both are a bullish play with the many factors arrayed behind their upcoming rise, it‘s silver that will reap the greatest rewards – today and in the days and weeks ahead. Gold and Silver MinersBack to the beaten down and underperforming gold. See that the yellow metal still isn‘t following the rising yields all that closely these days. Decoupling from the Treasury yields bodes well for precious metals universally, and it‘s precisely what you would expect given the (commodity) inflation, twin deficits biting, and the dollar balancing on the brink.The miners examination also proves no change in the underlying bullish dynamic that is largely playing out below the surface. We‘re seeing the continued outperformance of junior gold miners vs. the seniors, and also the great burst of life in the silver miners – these are outperforming ever more visibly the rest of the mining companies.This is a long awaited chart to flip bullish. Thus far, we have had one recent bullish divergence only (the GDX refusal to break to new lows when gold broke below its Jan lows) – once gold miners start leading the yellow metal, the sentiment in the precious metals community would get different compared to today really.SummaryThe deterioration in stock market got postponed with the latter half of Friday bringing in fresh buying pressure. Would the bears appear, at least to rock the boat a little? They had a good chance all the prior week, but didn‘t jump at the opportunity. Their window is closing, slowly but surely. The stock bull run is on, and there are no signals thus far pointing to an onset of a deeper correction soon.The gold bulls continue lagging behind their silver counterparts, predictably. That‘s the objective assessment regardless of unprecendented monetary and fiscal policies, unfolding real economy recovery, inflation cascading through the system, and the dollar struggling to keep its head above water. The new upleg keeps knocking on the door, and patience will be richly rewarded (unless you took me up on the gold-silver arbitrage trade, and are popping the champagne already).
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Still No S&P 500 Correction, Still No Real Change in the Metals

Monica Kingsley Monica Kingsley 16.02.2021 16:11
Yesterday‘s thin volume session didn‘t bring any material changes as the window of opportunity for the stock bears to act, is slowly but surely closing down. Friday‘s intraday move brought increasingly higher prices, and Monday‘s trading extended gains even more. Euphoric, complacent greed as evidenced by the sentiment readings and put/call ratios, is on.I asked on Friday:(…) How long can it last, and what shape the upcoming correction would have? Right now, the warning signs are mounting, yet the bears shouldn‘t put all their eggs into the correction basket really, for it shapes to be a shallow one – one in time, rather than in price.Both on Monday and today, I‘ll say that waiting for a correction is like waiting for Godot. Right from the horse‘s mouth as my personal experience with quite some absurd and Kafkaesque drama got richer recently.The dollar keeps topping out, which I called it to do a week ago – and its losses have been mounting since. Long-dated Treasury yields are rising in tandem, which is a great environment for financials (XLF ETF) and emerging markets (EEM ETF). The former benefit from the widening yield curve, the latter from plain devaluation.Gold performance is still short-term disappointing, and silver and platinum are leading. But it‘s the miners and the moves between various mining indices, that work to soothe the bulls‘ impatience. Understandable as we are in 5+ months of downside correction whose target I called on Aug 07 in the article S&P 500 Bulls Meet Non-Farm Payrolls, witnessing record pace of new money creation.The ongoing economic recovery will get new stimulus support, and that will work to broaden the precious metals advance. Commodity prices are universally rising, and over time, inflation as measured by CPI, will do so too. But not until the current pace of job creation picks up and participation rate turns – we‘re far from that moment. Until then, inflation will be apparent only in (financial) asset prices, which is in line with new money no longer sitting on banks‘ balance sheets, but flowing into the real economy. Again quoting my Friday‘s words:(…) One more note concerning the markets – in our print-and-spend-happy world, where the give or take $1.9T stimulus will sooner or later come in one way or another, we better prepare on repricing downside risk in the precious metals, and also better not to fixate on the premature bubble pop talk too closely. I have been stating repeatedly that things have to get really ridiculous first, and this just doesn‘t qualify yet in my view. All those serious correction calls have to wait – in tech and elsewhere, for we‘re going higher overall – like it or not.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and Its InternalsThe bulls had an opportunity to act for quite a few days in a row, yet missed it. Their inaction confirms that the path of least resistance for stocks is to still rise.The market breadth indicators have improved on Friday, but especially the new highs new lows has a way to go. It could have ticked upwards more given Friday‘s price advance, but didn‘t. The put/call ratio has moved upwards (see chart below), but the overall message is still one of cautious yet reasonable optimism – not enough to trigger the sizable correction quite some participants are constantly awaiting.Credit Markets, Treasuries and DollarThe high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio performance isn‘t out of whack with the S&P 500, but the investment grade corporate bonds to longer dated Treasuries (LQD:IEI) are not confirming exactly. Before the corona crash, the high yield ones were leading the investment grade ones for countless quarters. From the Mar 2020 bottom, the investment grade ones were in the pool position. And since the end of Dec 2020, the high yield ones are leading again, but investment grade ones aren't going up anymore, but down the way long-term Treasuries do. One more sign of the euphoric stage in stocks we're in.Long-term Treasuries are the chart to watch for the market to throw a fit – or not. They‘re declining at a faster pace than has been the case in late 2020, which can bring about trouble - not immediately right away, but over time it can turn out so. The dynamic of money moving into the stock market is thus far still positive as the many risk on assets are gaining on the fast pace of new money creation. The worry about a sudden, sharp reversal is misplaced for now.The dollar is on the receiving end – there is no breakout verification before a run higher in progress – no. Neither above the 50-day moving average, nor any way you draw a declining resistance line on higher time frames. The greenback is about to test and break below its 2021 lows. Solidly below.Gold and SilverGold bulls stood their ground on Friday, yet their yesterday‘s and today‘s performance is rather weak. Not disastrously so, but still indicative of the headwinds gold bulls face. Gold‘s spark isn‘t there at the moment. Putting it into context, please remember that it was first gold that jumped in the unrivalled money printing era arrival in spring 2020, followed by copper, base metals, agricultural commodities, and also oil now (remember my recent bullish calls for over $80 per barrel in less than 2 years). Silver price action is the bullish one, in line with commodities ($CRB) performance being much stronger now. Silver is definitely better positioned to benefit from the upcoming precious metals rise – today and in the days and weeks ahead. Gold and Silver MinersThe heat gold is taking from rising Treasury yields, is also progressively weaker. The decoupling from rising nominal (real) yields bodes well for precious metals universally, and it‘s precisely what you would expect given the (commodity) inflation, twin deficits, and the dollar on the brink.Gold to all corporate bonds chart reflects the current dillydallying nicely. Gold isn‘t breaking down into a bearish downtrend. The miners examination also proves no change in the underlying bullish dynamic playing out below the surface. Junior gold miners are oputperforming. the seniors, and there is also the great burst of life in the silver miners – these are outperforming ever more visibly the rest of the crowd.Once this chart flips bullish, we have the new upleg clearly visible. Thus far, we have had one recent bullish divergence only (the GDX refusal to break to new lows when gold broke below its Jan lows) – once gold miners start leading the yellow metal, the sentiment in the precious metals community would get different compared to today really.SummaryThe deterioration in stocks got postponed as both Friday and Monday brought new buyers into the market. Would the bears appear, at least to rock the boat a little? I stand by my call that they had a good chance all the prior week, but didn‘t jump at the opportunity – their window is closing, slowly but surely. The stock bull run is on, and there are no signals thus far pointing to an onset of a deeper correction soon.The gold bulls continue lagging behind their silver counterparts, predictably, with both under pressure in Tuesday‘s premarket. Coupled with the miners‘ signals, and unprecendented monetary and fiscal stimulus, unfolding real economy recovery, inflation making its way through the system, and the dollar struggling to keep its head above water, the new PMs upleg is a question of time.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Is That the S&P 500 And Gold Correction Finally?

Monica Kingsley Monica Kingsley 17.02.2021 16:21
The stock bears finally showed they aren‘t an extinct species – merely a seriously endangered one. Yesterday‘s close though gives them a chance to try again today, but they should be tame in expectations. While there is some chart deterioration, it‘s not nearly enough to help fuel a full on bearish onslaught in the S&P 500. There is no serious correction starting now, nothing to really take down stocks seriously for the time being.The Fed remains active, and monetary policy hasn‘t lost its charm (effect) just yet. Commodities and asset price inflation has been in high gear for quite some time, yet it‘s not a raging problem for the Main Street as evidenced by the CPI. Food price inflation, substitution and hedonistic adjustments in its calculation, are a different cup of tea, but CPI isn‘t biting yet.Meanwhile, the real economy recovery goes on (just check yesterday‘s Empire State Manufacturing figures for proof), even without the $1.9T stimulus and infrastructure plans. Once we see signs of strain in the job market (higher participation rate, hourly earnings and hours worked), then the real, palpable inflation story can unfold. But we‘re talking 2022, or even 2023 to get there – and the Fed will just let it overshoot to compensate for the current and prior era.Meanwhile, the wave of new money creation (we‘re almost at double the early 2020 Fed‘s balance sheet value - $4T give or take then vs. almost $7.5T now – and that‘s before the multiplier in commercial banks loan creation kicks in) keeps hitting the markets, going into the real economy, predictably lifting many boats. It‘s my view that we have to (and will) experience a stock market bubble accompanied by the precious metals and commodities one – to a degree, simultaneously, for the stock market is likely to get under pressure first. Again, I am talking the big picture here – not the coming weeks.Meanwhile, the intense talk of S&P 500 correction any-day-week-now is on, just as outrageous gold, silver and miners‘ drop projections. Let‘s examine the bear market is gold – some say that the late 2015 marked bottom, I‘m of the view that the 2016 steep rally was a first proof of turning tide. But the Fed got serious about tightening (raising rates, shrinking its balance sheet), and gold reached the final bottom in Aug 2018. Seeing through the hawks vs. dove fights at the Fed in the latter half of 2018 (December was a notable moment when Powell refused to the markets‘ bidding, remained hawkish in the face of heavy, indiscriminate selling across the board – before relenting).Since then, gold was slowly but surely gathering steam, and speculation in stocks was on. The repo crisis of autumn 2019 didn‘t have a dampening effect either – the Fed was solidly back to accomodative back then. These have all happened well before corona hit – and it wasn‘t able to push gold down really much. The recovery from the forced selling, this deflationary episode (which I had notably declared back in summer 2020 to be a one-off, not to be repeated event), was swift. Commodities have clearly joined, and the picture of various asset classes taking the baton as inflation is cascading through the system, is very clear.Quoting from my yesterday‘s analysis:(…) The dollar keeps topping out, which I called it to do a week ago – and its losses have been mounting since. Long-dated Treasury yields are rising in tandem, which is a great environment for financials (XLF ETF) and emerging markets (EEM ETF). The former benefit from the widening yield curve, the latter from plain devaluation.Gold performance is still short-term disappointing, and silver and platinum are leading. But it‘s the miners and the moves between various mining indices, that work to soothe the bulls‘ impatience. Understandable as we are in 5+ months of downside correction whose target I called on Aug 07 in the article S&P 500 Bulls Meet Non-Farm Payrolls, witnessing record pace of new money creation.The ongoing economic recovery will get new stimulus support, and that will work to broaden the precious metals advance. Again quoting my Friday‘s words:(…) in our print-and-spend-happy world, where the give or take $1.9T stimulus will sooner or later come in one way or another, we better prepare on repricing downside risk in the precious metals, and also better not to fixate on the premature bubble pop talk too closely. I have been stating repeatedly that things have to get really ridiculous first, and this just doesn‘t qualify yet in my view. All those serious correction calls have to wait – in tech and elsewhere, for we‘re going higher overall – like it or not.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookFinally, there is a whiff of bearish activity. Will it last or turn out a one day event as thus far in Feb? The chances for a sideways correction to last at least a little longer, are still on, however the short- and medium-term outlook remains bullish.Credit Markets and TreasuriesHigh yield corporate bonds (HYG ETF) wavered yesterday, trading in a sideways pattern during recent days. Encouragingly, yesterday‘s session attracted increasing volume, which I read as willingness to buy the dip. One dip and done?Long-term Treasuries (TLT ETF) are the key chart on my radar screen right now. The rise in yields is accelerating, and if progressing unmitigated, would throw a spanner into many an asset‘s works. Even though it‘s not apparent right now, there is a chance that we‘ll see a slowdown, even a temporary stabilization, over the coming sessions. The larger trend in rates is higher though, and in the dollar to the downside.Gold, Silver and CommoditiesThe heat gold is taking from rising Treasury yields, has gotten weaker recently, with the decoupling from rising nominal (real) yields being a good omen for precious metals universally. The dynamics of commodity price inflation, dollar hardly balancing under the weight of unprecedented economic policy and twin deficits, attests to the gold upleg arriving sooner rather than later.Let‘s step back, and compare the performance of gold, silver, copper and oil. The weekly chart captures the key turns in monetary policy, the plunge into the corona deflationary bottom, and crucially the timing and pace of each asset‘s recovery. Gold and silver were the first to sensitively respond to activist policies, followed by copper, and finally oil. Is their current breather really such a surprise and reversal of fortunes? Absolutely not.SummaryThe bearish push in stocks has a good chance of finally materializing today. How strong will its internals be, will it entice the bulls to step in – or not yet? The stock bull run is firmly on, and there are no signals thus far pointing to an onset of a deeper correction with today‘s price action.The gold bulls continue lagging behind their silver counterparts, predictably, with both under continued pressure. The yields are rising a bit too fast, taking the metals along – temporarily, until they decouple to a greater degree. Combined with the miners‘ signals, and unprecendented monetary and fiscal stimulus, unfolding real economy recovery, inflation making its way through the system, and the dollar struggling to keep its head above water, the new PMs upleg is a question of time.
Boosting Stimulus: A Look at Recent Developments and Market Impact

S&P 500 Correction – No Need to Hold Onto Your Hat

Monica Kingsley Monica Kingsley 18.02.2021 16:09
Yesterday‘s bearish price action in stocks was the kind of shallow, largely sideways correction I was looking for. Not too enthusiastic follow through – just rocking the boat while the S&P 500 bull run goes on. Stocks are likely to run quite higher before meeting a serious correction. As I argued in yesterday‘s detailed analysis of the Fed policies, their current stance won‘t bring stocks down. But it‘s taking down long-term Treasuries, exerting pressure on the dollar (top in the making called previous Monday), and fuelling commodities – albeit at very differnt pace. The divergencies I have described yesterday, center on weak gold performance – not gaining traction through the monetary inflation, instead trading way closer in sympathy with Treasury prices. Gold has frontrunned the other commodities through the corona deflationary shock, and appears waiting for more signs of inflation. It didn‘t make a final top in Aug 2020, and a new bear market didn‘t start. It‘s my opinion that thanks to the jittery Treasury markets, we‘re seeing these dislocations, and that once the Fed focuses on the long end of the curve in earnest, that would remove the albatross from gold‘s back.I can‘t understate how important the rising yields are to the economy (and to the largest borrower, the government). Since 1981, we‘ve been in one long bond bull market, and are now approaching the stage of it getting questioned before too long. The rates are rising without the real economy growing really strongly, far from its potential output, and characterized by a weak labor market. Not exactly signs of overheating, but we‘ll get there later this year still probably.It‘s like with generating inflation – the Fed policies for all their intent, can‘t command it into happening. The Treasury market is throwing a fit, knowing how much spending (debt monetization) is coming its way, and the Fed‘s focus is surely shifting to yields at the long end. Bringing it under control would work to dampen the rampant speculation in stocks, and also lift gold while not hurting commodities or real economy recovery much. Sounds like a reasonable move (yield curve control), and I believe they‘re considering it as strongly as I am talking about it.Let‘s quote yesterday‘s special report on gold, inflation, and commodities:(…) the wave of new money creation (we‘re almost at double the early 2020 Fed‘s balance sheet value - $4T give or take then vs. almost $7.5T now – and that‘s before the multiplier in commercial banks loan creation kicks in) keeps hitting the markets, going into the real economy, predictably lifting many boats. It‘s my view that we have to (and will) experience a stock market bubble accompanied by the precious metals and commodities one – to a degree, simultaneously, for the stock market is likely to get under pressure first. Again, I am talking the big picture here – not the coming weeks.Let‘s examine the bear market is gold – some say that the late 2015 marked bottom, I‘m of the view that the 2016 steep rally was a first proof of turning tide. But the Fed got serious about tightening (raising rates, shrinking its balance sheet), and gold reached the final bottom in Aug 2018. Seeing through the hawks vs. dove fights at the Fed in the latter half of 2018 (December was a notable moment when Powell refused to the markets‘ bidding, remained hawkish in the face of heavy, indiscriminate selling across the board – before relenting).Since then, gold was slowly but surely gathering steam, and speculation in stocks was on. The repo crisis of autumn 2019 didn‘t have a dampening effect either – the Fed was solidly back to accomodative back then. These have all happened well before corona hit – and it wasn‘t able to push gold down really much. The recovery from the forced selling, this deflationary episode (which I had notably declared back in summer 2020 to be a one-off, not to be repeated event), was swift. Commodities have clearly joined, and the picture of various asset classes taking the baton as inflation is cascading through the system, is very clear.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and Its InternalsFinally, a daily downswing – not meaningful, but it‘s as good as it gets. The slightly lower volume though shows that there is not a raging conviction yet that this sideways move is over.The market breadth indicators aren‘t at their strongest. Both the advance-decline line and advance-decline volume dipped negative, which isn‘t worrying unless you look at new highs new lows as well. While still positive, $NYHL is showing a divergence by moving below the mid-Feb lows. Seeing its decline to carve a rounded bottom a la end Jan would be a welcome sight to the stock bulls. Before then, nothing stands in the way of muddling through in a shallow, corrective fashion.Credit Markets and TreasuriesThe divergence in both leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – show the bond market strains. HYG:SHY clearly supports the S&P 500 rally, while LQD:IEI isn‘t declining in tandem with long-term Treasuries. Instead, it‘s carving out a bullish divergence as it‘s trading well above the Sep and Oct lows – unlike the TLT.Speaking of which, such were my words yesterday, calling for a Treasury reprieve to happen soon:(…) Long-term Treasuries (TLT ETF) are the key chart on my radar screen right now. The rise in yields is accelerating, and if progressing unmitigated, would throw a spanner into many an asset‘s works. Even though it‘s not apparent right now, there is a chance that we‘ll see a slowdown, even a temporary stabilization, over the coming sessions. The larger trend in rates is higher though, and in the dollar to the downside.The dollar is still topping out, and a new daily upswing doesn‘t change that – I look for it to be reversed, and for the new downleg reasserting itself.Gold, Silver and CommoditiesThe encouraging, budding short-term resilience of gold to rising Treasury yields, got a harsh reality check yesterday. While the latter ticked higher, gold declined regardless. Closing at the late Nov lows, it‘s still relatively higher given the steep rise in long-term Treasury yields since. A bullish divergence, but a more clear sign of (directional) decoupling (negating this week‘s poor performance) is needed.Let‘s look again at gold, silver, and commodities in the medium run. Silver decoupled from gold since the late Nov bottom in both, while commodities haven‘t really looked back since early Nov. Till the end of 2020, gold wasn‘t as markedly weak as it has become since, and actually tracked the silver recovery from the late Nov bottom. And the reason it stopped, are the long-term Treasury yields, which quickened their rise in 2021. It looks like an orderly decline in TLT is what gold would appreciate – not a rush to the Treasury exit door.SummaryThe bearish push in stocks has a good chance of finally materializing also today. How strong will its internals be, will it entice the bulls to step in again? Signs are for this correction to run a bit longer in time – but the stock bull run is firmly on, and there are no signals thus far pointing to an onset of a deeper correction right away.The gold bulls recovered a little of the lost ground, but that doesn‘t flip the short-term picture their way in the least. While the yellow metal is leading silver today, its overall performance in the short run remains disappointing, and the silver-gold spread trade I introduced you to a week ago, a much stronger proposition. Still, given the miners‘ signals, unprecendented monetary and fiscal stimulus, unfolding real economy recovery, inflation making its way through the system, and the dollar struggling to keep its head above water, the new PMs upleg is a question of time.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Will Biden Overheat the Economy and Gold?

Finance Press Release Finance Press Release 19.02.2021 13:14
Under the Biden administration the economy could overheat, thereby increasing inflation and the price of gold.In January, Biden unveiled his plan for stimulating the economy, which is struggling as the epidemic in the U.S. continues to unfold. Pundits welcomed the bold proposal of spending almost $2 trillion. Some expenditures, especially on vaccines and healthcare, sound pretty reasonable. However, $1.9 trillion is a lot of money! And a lot of federal debt , as the stimulus would be debt-funded!So, there is a risk that Biden’s package would overheat the economy and increase inflation . Surprisingly, even some mainstream economists who support the deficit spending, notice this possibility. For instance, former Treasury Secretary Larry Summers, said that Biden’s stimulus could lead the economy to overheat, and that the conventional wisdom is underestimating the risks of hitting capacity. Although he doesn’t oppose the idea of another stimulus, Summers noted that “if we get Covid behind us, we will have an economy that is on fire”.Indeed, this is a real possibility for good reasons. First, the proposed package would not only be large in absolute terms (the nominal amount), but also relative to the GDP . According to The Economist , Biden’s proposal is worth about nine percent of pre-crisis GDP, nearly twice the size of Obama’s aid package in the aftermath of the Great Recession .And the stimulus is also large relative to the likely shortfall in the aggregate demand. I’m referring here to the fact that the winter wave of the coronavirus would be less harmful for the economy – and that there have already been big economic stimuli added last year, including a $900 billion package passed no earlier than in December.Oh yes, politicians were really spendthrift in 2020, and – without counting the aid passed in December – they injected into the economy almost $3 trillion, or about 14 percent of pre-crisis GDP, much more than the decline in the aggregate demand. In other words, the policymakers added to the economy more money that was destroyed by the pandemic .But the tricky part is that Americans simply piled up most of this cash in bank accounts, or they used it for trading, for instance. Given the social-distancing measures and limited possibilities to spend money, this outcome shouldn’t actually be surprising. However, the hoarding of stimulus shows that it has not yet started to affect the economy – but that can change when the economy fully reopens and people unleash the hoarded money. If all this cash finally reaches the markets, prices should go up.You see, the current economic downturn is unusual. It doesn’t result from the fact that Americans don’t have enough income and cannot finance their expenditures. The problem is rather that people cannot spend it even if they wanted to. Indeed, economic disruption and subdued consumer spending are concentrated in certain sectors that are most sensitive to social distancing – such as the leisure, transport and hospitality industries – rather than spread widely throughout the whole economy. So, when people will finally be able to spend, they will probably do so, possibly accelerating inflation .As well, normally the Fed would tighten its monetary policy to prevent the rise in prices. But now the U.S. central bank wants to overshoot its inflation target, so it would not hike interest rates only because inflation raises to two percent or even moderately above it.Another potential inflationary driver is dollar depreciation, which seems likely, given the zero-interest rates policy and the expansion in the U.S. twin deficit .Hence, without the central bank neutralizing the fiscal exuberance, it’s possible that Biden’s plan would overheat the economy, at least temporarily. Of course, that’s not certain and given the small Democrats’ majority in Congress, the final stimulus could be lower than the proposed $1.9 trillion. But it would remain large and on top of previous aid packages and pent-up demand, which makes the overheating scenario quite likely.Actually, investors have already started to expect higher inflation in the future – as the chart below shows, the inflationary expectations have already surpassed pre-pandemic levels.From the fundamental perspective, this is good news for the gold market. After all, gold is bought by some investors as an inflation hedge . Moreover, the acceleration of inflation would lower real interest rates , keeping them deeply in negative territory, which would also be positive for the yellow metal.So, although the expectations of higher fiscal stimulus plunged gold prices in January, more government spending – and expansion in budget deficits and public debt – could ultimately turn out to be supportive factors for gold. Especially if easy fiscal policy will be accompanied by the accommodative monetary policy – in particular quantitative easing and a rising Fed’s balance sheet – and inflation.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Why the Sky Is Not Falling in Precious Metals

Monica Kingsley Monica Kingsley 19.02.2021 16:03
Stocks are predictably staging a continued recovery from the mostly sideways correction – a shallow one not strong enough to break the bulls‘ back. Credit markets are largely behaving – with the exception of long-term Treasuries, which I see as highly likely to draw the Fed‘s attention – just as I discussed in detail yesterday. The S&P 500 keeps doing fine, and so does my open position there – in the black again. On one hand, volatility remains low regardless of intraday attempts to rise, on the other hand, the put/call ratio has risen quite high yesterday – it‘s as if the traders are expecting a shoe to drop, similarly to the end of Jan. Will it, is there any on the horizon?Treasuries at the long-end are falling like a stone, and those on the short end (3-months) are seeing higher prices in 2021. The bond market is clearly under pressure, and exerting influence primarily upon precious metals (and commodities such as oil, which are experiencing a down day today, after quite a string of foreseeable gains). The bearish sentiment in gold and miners is running rampant, and it‘s been only yesterday when I answered a question on ominous head and shoulders patterns in the making, at my own site. This clearly illustrates the razor edge we‘re at in precious metals:(…) This is more often than not the case with H&S patterns – they are not the most reliable ones, highly judgemental at times, and their targets are more often than not far away, which makes them a not fully reliable trading proposition when a long enough time (trade) series is taken. I rather look at what is driving individual moves – which asset classes influence it the most at a given time? Where to look for so as to get most precise information? With gold and gold miners (they still trade quite tightly together), it's the Treasury yields on the long end.As I wrote in today's (Feb 18) precious metals report, despite the new 2021 lows in TLT, gold isn't amplifying the pressure – it's trading well above the $1,770 level, and enjoys a stronger session today than silver. Look at the gold – TLT evolving relationship, as that's the key determinant right now. The post-Nov dynamic speaks in gold's favor – under the surface. Don't underestimate the Fed either.Plenty to talk and cover in the precious metals really – just as usual at such crossroads. Let‘s briefly recap all the ducks lining up in stocks first.Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 and VolatilityRepeated lower knots mark a refusal to decline as the daily dips keep being bought. Given the constructive developments in high yield corporate bonds and its key ratio (HYG and HYG:SHY), I fully expect the uptrend to keep reasserting itself once again. The talk about a top, imminent correction or stretched valuations, is still premature.The best known volatility measure is still refusing to rise on a lasting basis, indicating that the environment remains favorable to higher stock prices.Dollar and TreasuriesThe world reserve currency is on the doorstep of another powerful decline, and not initiating a bull market run. The caption says it all – this is the time for antidollar plays to thrive in our era of ample credit, unprecedented money creation that‘s triggering a Roaring Twenties style of speculative environment, not a Kondratieff winter with a deflationary shock as you might hear some argue.Look around, check food, energy, or housing prices, and you‘ll see how connected to reality are the calls of those writing that inflation isn‘t a problem (monetary inflation lifting many asset classes). Check that against Fed President Daly stating that the inflationary pressures now point downwards… and make your own conclusions about the new money wave hitting the real economy.Gold, Silver and MinersJust as gold is challenging (resting on) the late Nov lows, so is the miners to gold ratio. That‘s a key one – I mentioned at the very end of Jan that I would like to see it start to lead higher. Seeing the latest two-day losing streak, it‘s not happening, and the late Jan breakdown which might have turned out to be false, may not materialize in the short run. Let‘s get a proper perspective by displaying this chart in weekly format.Is this the dreadful breakdown threating doom and gloom in the precious metals? Zooming out definitely provides a very different take – a more objective one than letting (fear) emotions run high and tickitis to take over.We‘re still consolidating, and not making lower lows – regardless of this week‘s increased gold sensitivity to rising yields as seen in the plunging TLT values. Inflation is making its way through the system as surely as Titanic‘s watertight compartments were filled with water. I‘ve discussed on Wednesday at length inflation, past Fed action and asset appreciation, and yesterday explained why the central bank will be tied into a war on two fronts as it gets to seek control over the yield curve at the long end too.Another short-term worrying chart as silver miners are caught in last days‘ selling whirlwind. Even the juniors lost their short-term edge over the seniors, making me think that a potential washout event before a more universal sectoral rebound, might be at hand.Pretty worrying for those who are all in gold – unless they took me up on last Friday‘s repeated idea that silver is going to outperform gold in the next precious metals upleg, which I formulated that day into a spread (arbitrage) trade long silver, short gold. Check out the following chart how that would have worked out for you.The dynamics favoring silver are unquestionable – starting from varied and growing industrial applications, strengthening manufacturing and economy recovery, poor outlook in silver above ground stockpile and recycling, to the white metal being also a monetary metal. Silver is bound to score better gains than gold, marred by the Bitcoin allure, would. SummaryThe bearish push in stocks didn‘t indeed take the sellers far – just as I wrote yesterday, there was no reason to hold on to your hat. The stock bull run is firmly entrenched, and there are no signals thus far pointing to an onset of a deeper correction right away as all we‘re going through, is a shallow correction (in time especially).Bearish dollar, $1.9T or similar stimulus not priced in, and yet gold isn‘t taking a dive. Amid very positive fundamentals, it‘s the technicals that are short-term challenging for gold – we‘re in truly unchartered territory given the economic policies pursued. I stand by my call to watch the TLT chart very closely – it looks like an orderly TLT decline is what gold needs, not a selling stampede. Despite the current disclocation with gold being the weakest of the weak (I am looking at commodities for cues), I still stand by the call that a new PMs upleg is only a question of time – a shortening one, at that.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Kiss of Life for Gold

Monica Kingsley Monica Kingsley 22.02.2021 16:24
The narrow trading range in stocks continues, and the shallow sideways correction will eventually resolve itself with another upleg. The signs are countless, and the riskier part of the credit market spectrum agrees. As money flows from the Tresury markets, and sizable cash balances are sitting on many a balance sheet, there is plenty of fuel to power the S&P 500 advance.With volatility in the tame low 20s and the put/call ratio again moving down, the bears‘ prospects are bleak. As I wrote last week, their time is running out, and a new stock market upleg approaches. It‘s the bond market that‘s under pressure, with both investment grade corporate bonds and long-dated Treasuries suffering in the accelerated decline.Gold is the most affected, as the sensitivity of its reaction to the rising long-tern yields, has picked up very noticeably. How long before these draw both the Fed‘s attention and action – what will we learn from Powell‘s testimony on Tue and Wed? And when will the much awaited stimulus finally arrive, and force repricing beyond the metals markets?Before that, gold remains on razor‘s edge, while silver leads and platinum flies for all the green hydrogen promise. The dollar has given back on Thu and Fri what it gained two days before, and remains in its bear market. Not even rising yields were able to generate much demand for the world reserve currency. Its lower prices stand to help gold thanks to the historically prevailing negative correlation, counterbalancing the Treasury yields pressure.Plenty of action that‘s bound to decide the coming weeks‘ shape in the precious metals. And not only there as oil experienced 2 days of lossess in a row – practically unheard of in 2021 so far. On Saturday, I‘ve added a new section to my site, Latest Highlight, for easier orientation in the milestone calls and timeless pieces beyond the S&P 500 and gold. Enjoy!Let‘s get right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookThe weekly indicators suggest that a reversal is still not likely. There is no conviction behind the weekly decline, and signs are still pointing to a sideways consolidation underway.The daily chart reflects the relatively uneventful trading – we‘re in a phase of bullish base building before powering off to new highs. See how little the daily indicators have retreated from their extended readings, and the barely noticeable price decline associated.S&P 500 InternalsAll the three market breadth indicators show improved readings, and my eyes are on new highs new lows throwing their weight behind the prior two indicators‘ advance. The overall impression is one of balance.The value to growth (VTV:QQQ) ratio shows that tech (XLK ETF) has fallen a bit out out of step recently – we‘re undergoing another microrotation into value stocks. The stock market leadership is thus broadening, confirming the findings from the advance-decline line (and advance-decline volume) examination.Credit MarketsOne chart to illustrate the bond market pressures – high yield corporate bonds are holding gained ground while investment grade corporate bonds and long-dated Treasuries are plunging like there is no tomorrow. With each of their rebound attempt sold, the dislocations are increasing – a great testament to the euphoric stage of the stock market advance. Gold and TreasuriesGold price action isn‘t as bearish as it might seem based on last week‘s moves. Yes, the readiness to decline in sympathy with rising yields, is diconcerting, but the yellow metal stopped practically at the late Nov lows, and refused to decline further. Low prices attracted buying interest, and due to the overwhelmingly negative sentiment for the week ahead, the yellow metal may surprise on the upside. Time for the bulls to prove themselves as the tone of coming weeks‘ trading in gold is in the balance.The daily chart‘s correlation coefficient has moved into strongly positive territory in 2021, illustrating the headwinds gold faces. Despite the prevailing wisdom, such strongly positive correlation isn‘t the rule over extended periods of time. That‘s the message of the daily chart – but let‘s step back and see the bigger picture similarly to the way I did on Friday witht the $HUI:$GOLD ratio.Not an encouraging sight at the moment. The tightness of mutual relationship is there, and given the decreased focus on timing (one candle representing one week) coupled with the correlation coefficient being calculated again over a 20 period sample, the week just over shows that regardless of the post-Nov resilience, gold is clearly getting under more pressure.Gold and DollarLet‘s do the same what I did about long-term Treasuries and gold, also about the dollar and gold. Their historically negative correlation is receding at the moment as the two face their own challenges. The key question is when and from what level would the fiat currency and its nemesis return to trading in the opposite directions. Such a time is highly likely to be conducive to higher gold prices.On the weekly chart, the negative correlation periods are winning out in length and frequency. Certainly given the less sensitive timining component through weekly candlesticks and 20-period calculation, the current strength and level of positive correlation is rather an exception and not a rule. Combining this chart‘s positive correlation between the two with the daily chart‘s negative yet rising readings, highlights in my view a potential for seeing an upset in the momentary relationship.In other words, the gold decline over the past now almost 7 months going hand in hand with mostly sliding dollar, would turn into higher gold prices accompanied by lower dollar values. How much higher gold prices, that depends on the long-term Treasuries market – that‘s the one playing the decisive role, not the dollar at the moment.Gold, Silver and MinersSilver is doing fine, platinum very well, while gold struggles and needs to prove itself. That‘s the essence of the long silver short gold trade idea – the silver to gold ratio attests to that.Quoting from Friday‘s analysis:(…) The dynamics favoring silver are unquestionable – starting from varied and growing industrial applications, strengthening manufacturing and economy recovery, poor outlook in silver above ground stockpile and recycling, to the white metal being also a monetary metal. Silver is bound to score better gains than gold, marred by the Bitcoin allure, would. Final chart of today‘s extensive analysis is about the two miners to gold ratios, and the divergencies they show. The ETF-based one (GDX:GLD) is sitting at support marked by both the late Nov and late Jan lows, while $HUI:$GOLD is probing to break below its late Jan lows, and these were already lower than the respective late Nov lows.Both ratios are sending a mixed picture, in line with the theme of my latest reports – gold is on razor‘s edge, and the technical picture is mixed given its latest weakness. That‘s the short run – I expect that once the Fed‘s hand is twisted enough in TLT and TLH, and speculation on yield curve control initiation rises, the focus in the precious metals would shift to inflation and its dynamics I‘ve described both on Wed and Fri. SummaryThe sellers in stocks aren‘t getting far these days, and signals remain aligned behind the S&P 500 advance to reassert itself. Neither the Russell 2000, nor emerging markets are flashing divergencies, and the path of least resistance in stocks remains higher.Gold‘s short-term conundrum continues - positive fundamentals that are going to turn even more so in the near future, yet the key charts show the king of metals under pressure, with long-term Treasury yields arguably holding the key to gold‘s short-term future. The decoupling events seen earlier this month, got a harsh reality check in the week just over. Yet, that‘s not a knock-out blow – the medium- and long-term outlook remains bright, and too many market players have rushed to the short side in the short run too.
New York Climate Week: A Call for Urgent and Collective Climate Action

FOMC Minutes Disappoint Gold Bulls

Finance Press Release Finance Press Release 22.02.2021 17:26
The recent FOMC minutes are hawkish and negative for the price of gold, but the Fed will remain generally dovish for some time.Last week, the Federal Open Market Committee (FOMC) published minutes from its last meeting in January . They reveal that Fed officials became more optimistic about the economy than they were in December. The main reasons behind the more upbeat economic projection were the progress in vaccinations, the government’s stimulus provided by the Consolidated Appropriations Act 2021, and the expectations of an additional sizable tranche of fiscal support in the pipeline:Most participants expected that the stimulus provided by the passage of the CAA in December, the likelihood of additional fiscal support, and anticipated continued progress in vaccinations would lead to a sizable boost in economic activity.The Committee members were so convinced that the longer-run prospects for the economy had improved, that they decided to skip reference to the risks to the outlook in their official communications:in light of the expected progress on vaccinations and the change in the outlook for fiscal policy, the medium-term prospects for the economy had improved enough that members decided that the reference in previous post-meeting statements to risks to the economic outlook over the medium term was no longer warranted.Hence, the recent minutes are generally hawkish and bad for gold . They show that the FOMC participants turned out to be more optimistic about the U.S. economy over the medium-term, as they started to expect “strong growth in employment, driven by continued progress on vaccinations and an associated rebound of economic activity and of consumer and business confidence, as well as accommodative fiscal and monetary policy.”And, although they acknowledged that inflation may rise somewhat in 2021, the Fed officials generally were not concerned about strong upward pressure, with “most” participants still believing that inflation risks were weighted to the downside rather to the upside. In other words, they expect more growth than inflation.Implications for GoldThe Fed officials that have become more optimistic about the economy are proving negative for gold prices. Gold shines most when the Fed is pessimistic about GDP growth and the labor market, as these two factors are more prone to loosen the Fed’s monetary policy . In other words, gold prices need more inflation than economic growth in order to grow. Alternatively, gold needs the Fed to do something and expand its monetary accommodation.Indeed, the last week hasn’t been good for the price of the yellow metal. As the chart below shows, it declined below $1,800 to $1,773 on Thursday (Feb. 18), the lowest level since November 2020.Of course, the decline in the gold prices was more related to the significant selloff in the U.S. bond market than to the FOMC minutes. The bond yields increased sharply. For instance, the 10-year TIPS yields rose from -1.06 on February 10 to -0.87 on February 18, 2021, as one can see in the chart below.However, both events clearly show elevated expectations about the medium-term economic growth. Both investors and central bankers have become more optimistic about the future amid progress in vaccinations and greater prospects for additional fiscal stimulus. The strengthened risk appetite has supported equity prices, making some investors head for the exits in the gold market .Having said that, although gold prices still have some room to go lower – especially if real interest rates rally further – the fundamentals are still positive . I’m referring here to the fact that the U.S. economy has fallen into the debt trap . Both private and public debt is enormous. In such an environment, the interest rates cannot significantly increase, as they would pose a great risk to an overvalued equity market and Treasury. So, the Fed wouldn’t allow for really high interest rates and would intervene, either through expanding its quantitative easing program or through capping the yield curve .Another issue is that the Fed is not going to change its dovish monetary policy anytime soon. Even in the recent, relatively upbeat minutes, Fed officials acknowledged that economic conditions were far from the central banks’ targets:Participants observed that the economy was far from achieving the Committee’s broad-based and inclusive goal of maximum employment and that even with a brisk pace of improvement in the labor market, achieving this goal would take some time (…) Participants noted that economic conditions were currently far from the Committee’s longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved.Moreover, the Fed’s staff assessed the financial vulnerabilities of the U.S. financial system as being notable . The asset valuation pressures are elevated, and vulnerabilities associated with business and household debt increased over the course of 2020, from levels that were already elevated before the outbreak of the pandemic . So, given all these fragilities, it is unlikely that we will see a really hawkish Fed or significantly higher interest rates. There is also a possibility of the next financial crisis, given the high debt levels. All these factors should support gold prices in the long-term, although more declines in the short-term are possible of course, due to the more positive sentiment among investors and rising bond yields.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

GBPUSD Steadies On Lockdown Lifting Optimism

John Benjamin John Benjamin 24.02.2021 07:26
USD turns volatile as Powell testifies to CongressEURUSD Perched In Resistance Area The euro currency is strongly consolidating within the resistance levels of 1.2177 and 1.2144.Price action managed to rise to the upper level of the range before giving back the gains. The volatility in the tight range comes as the Federal Reserve Chairman Jerome Powell testifies to Congress.A breakout above 1.2177 could open the way for the common currency towards wider gains. This will potentially see price action rising to test the highs from January this year.Alternately, if prices fail near the resistance level then we expect a move back lower.To the downside, support at 1.2050 should hold the declines for the moment.The British pound sterling, which has already seen a strong bull run got another boost on Tuesday.The UK Government prepared a roadmap towards re-opening its economy. This puts further upside pressure on the currency pair which is already enjoying a strong rally.Price action is trading outside the rising price channel currently. With the Stochastics oscillator firmly in the overbought levels, the upside momentum could fail.Any downside corrections could stall near the 1.3951 level of support for the moment.Given that the currency pair has been pushing higher on a steady note, we could expect a brief pullback in the near term.WTI Crude Oil Pulls Back From A New 13-Month High Oil prices surged higher intraday on Tuesday. Prices tested a new 13-month high of 62.96 in the early Asian trading session.However, since then, oil prices gradually drifted back lower. The test of support near 60.87 confirms that prices are well supported at this level.However, for the short term, oil prices will need to breakout higher and continue further to maintain the bullish trend.The Stochastics oscillator on the four-hour chart is also likely to signal another push to the upside.For the moment, the line in the sand is the 60.87 technical support. If oil prices lose this support, then we expect a deeper correction down to 57.35 or toward the 19 Feb lows of 58.56.Gold Gains Slow As Price Approaches 1817.79 The precious metal pulled back just a few points away from the 1817.79 level of technical resistance.The Stochastics oscillator which is currently signaling a hidden bearish divergence could see a continuation in price to the downside.This is unless, of course, the precious metal manages to breakout above the 1817.79 price level. Such a move will potentially open the way toward the 1850 handle.Meanwhile, if prices drift lower then we could expect a move closer to the 1764 level of support. However, it is unlikely that this level of support will be tested once again.
How Bond Yields Are Affecting Gold

How Bond Yields Are Affecting Gold

Finance Press Release Finance Press Release 24.02.2021 17:54
As U.S. Treasury yields rise, gold, which is seen as an inflation hedge, is hurting. Despite the obvious warning signs, investors remain bullish.After Monday’s (Feb. 22) supposedly “groundbreaking” rally, the situation in gold developed in tune with what I wrote yesterday . The rally stopped, and miners’ decline indicated that it was a counter-trend move.Figure 1Despite Monday’s (quite sharp for a daily move) upswing, the breakdown below the neck level of the broad head-and-shoulders remains intact. It wasn’t invalidated. In fact, based on Monday’s rally and yesterday’s (Feb. 23) decline, it was verified. One of the trading guidelines is to wait for the verification of the breakdown below the H&S pattern before entering a position.What about gold stocks ratio with other stocks?Figure 2It’s exactly the same thing. The breakdown below the rising long-term support line remains intact. The recent upswing was just a quick comeback to the broken line that didn’t take it above it. Conversely, the HUI to S&P 500 ratio declined once again.Consequently, bearish implications of the breakdowns remain up-to-date . Having said that, let’s consider the more fundamental side of things.Swimming Against the CurrentAfter trading lower for six consecutive days, gold managed to muster a three-day winning streak. However, with the waves chopping and the ripple gaining steam, every swim higher requires more energy and yield’s decelerating results.For weeks , I’ve been warning that a declining copper/U.S. 10-Year Treasury yield ratio signaled a further downside for gold. And with the ratio declining by 2.88% last week, gold suffered a 2.51% drawdown.Please see below:Figure 3Over the long-term, the ratio is a reliable predictor of the yellow metal’s future direction. And even though the weekly reading (3.04) hit its lowest level since May 2020, it still has plenty of room to move lower.Figure 4For context, I wrote previously:To explain the chart above, the red line depicts the price of gold over the last ~21 years, while the green line depicts the copper/U.S. 10-Year Treasury yield ratio. As you can see, the two have a tight relationship: when the copper/U.S. 10-Year Treasury yield ratio is rising (meaning that copper prices are rising at a faster pace than the U.S. 10-Year Treasury yield), it usually results in higher gold prices. Conversely, when the copper/U.S. 10-Year Treasury yield ratio is falling (meaning that the U.S. 10-Year Treasury yield is rising at a faster pace than copper prices), it usually results in lower gold prices.As the star of the ratio’s show, the U.S. 10-Year Treasury yield has risen by more than 47% year-to-date (YTD) and the benchmark has surged by more than 163% since its August trough.Please see below:Figure 5On Jan. 15 , I warned that the U.S. Federal Reserve (FED) had painted itself into a corner. With inflation running hot and Chairman Jerome Powell ignoring the obvious, I wrote that Powell’s own polices (and their impact on real and financial assets) actually eliminate his ability to determine when interest rates rise.As a result, the central bank had two options:If they let yields rise, the cost of borrowing rises, the cost of equity rises and the U.S. dollar is supported (all leading to shifts in the bond and stock markets and destroying the halcyon environment they worked so hard to create).To stop yields from rising, the U.S. Federal Reserve (FED) has to increase its asset purchases (and buy more bonds in the open market). However, the added liquidity should have the same net-effect because it increases inflation expectations (which I mentioned yesterday, is a precursor to higher interest rates). Opening door #2, Powell’s deny-and-suppress strategy is now playing out in real time. On Feb. 23 – testifying before the U.S. Senate Banking Committee – the FED Chairman told lawmakers that inflation isn’t an issue.“We’ve been living in a world for a quarter of a century where the pressures were disinflationary,” he said.... “The economy is a long way from our employment and inflation goals.”And whether he’s unaware or simply ill-informed, commodity prices are surging. Since the New Year, oil and lumber prices have risen by more than 24%, while corn and copper prices are up by more than 14%.Please see below:Figure 6In addition, relative to finished goods, the entire basket of inputs is sounding the alarm.Figure 7To explain the chart above, the blue line is an index of the price businesses receive for their finished goods. Similarly, the green line is an index of the price businesses pay for raw materials. As you can see, the cost of doing business is rising at a torrent pace.More importantly though, Powell’s assertion that inflation is an urban legend has been met with eye rolls from the bond market . To repeat what I wrote above: Powell’s own policies (and their impact on real and financial assets) actually eliminate his ability to determine when interest rates rise.Case in point: the U.S. 10-year to 2-year government bond spread is now at its highest level since January 2017.Please see below:Figure 8To explain the significance, the figure is calculated by subtracting the U.S. 2-Year Treasury yield from the U.S. 10-Year Treasury yield. When the green line is rising, it means that the U.S. 10-Year Treasury yield is increasing at a faster pace than the U.S. 2-Year Treasury yield. Conversely, when the green line is falling, it means that the U.S. 2-Year Treasury yield is increasing at a faster pace than the U.S. 10-Year Treasury yield.And why does all of this matter?Because the above visual is evidence that Powell has lost control of the bond market.At the front-end of the curve, Powell can control the 2-year yield by decreasing the FED’s overnight lending rate (which was cut to zero at the outset of the coronavirus crisis). However, far from being monolithic, the 5-, 10-, and 30-year yields have the ability to chart their own paths.And their current message to the Chairman? “We aren’t buying what you’re selling.” As such, the yield curve is likely to continue its steepening stampede.Circling back to gold, all of the above supports a continued decline of the copper/U.S. 10-Year Treasury yield ratio. With yields essentially released from captivity, even copper’s 8.02% weekly surge wasn’t enough to buck the trend.As a result, gold’s recent strength is likely a mirage. The yellow metal continues to bounce in fits and starts, thus, it’s only a matter of time before the downtrend continues. Furthermore, with the USD Index still sitting on the sidelines, a resurgent greenback would add even more concrete to gold’s wall of worry.And speaking of gold’s wall of worry, the sentiment surrounding it is far from being negative.Figure 9 - Source: Investing.comThe above chart shows the sentiment of Investing.com’s members. 64% of them are bullish on gold. As you can see above, there are also other popular markets listed: the S&P 500, Dow Jones, DAX, EUR/USD, GBP/USD, USD Index, and Crude oil. The sentiment for gold is the most bullish of all of them. Yes, the general stock market is climbing to new all-time highs every day now, and yet, people are even more bullish on gold than they are on stocks.When gold slides, the sentiment is likely to get more bearish and particularly high “bearish” readings – say, over 80% would likely indicate a good buying opportunity. Naturally, this is not the only factor that one should be paying attention to.The bottom line? As it stands today, being long the precious metals offers a poor risk-reward proposition. However, in time (perhaps over the next several months), the dynamic will reverse, and the precious metals market will shine once again.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Why Tech Is Giving Me Jeepers – Watch Out, Gold

Monica Kingsley Monica Kingsley 25.02.2021 16:08
Powell testimony is over, with markets rejoicing the promise of still accomodative Fed. Value keeps surging over growth, and regardless of yesterday‘s great performance, tech has a vulnerable feel to it – semiconductors lead higher, fine, but communications didn‘t confirm, and the healthcare-biotech dynamic isn‘t painting an outperformance picture either. Real estate isn‘t taking as strong a cue while consumer discretionaries recovery could also be stronger. Thus far though, no need to think about taking losses to optimize your gains elsewhere.Just as I wrote yesterday:(…) the financials benefiting from the greater spread, won‘t save the day, as the key chart to watch now is technology and also healthcare. … The sectoral outlook remains mixed, even as value continues greatly outperforming growth this month. … Long-term Treasuries are starting to hold greater sway over the stock market fate now, too. The dollar‘s woes thus far continue playing out largely in the background.Did gold shake off the TLT shackles? I‘m getting increasing doubts that only a strong move to the upside would dispel. As long-term Treasuries were staging an intraday reversal, gold took an intraday plunge before recovering. Not a good sign of internal intraday strength. Could it be a bullish flag? Still possible, but again, gold would have to rally from here. Doing so would result in a bullish divergence in its daily indicators.The precious metals sectoral dynamics remains positive though – silver and platinum are bullishly consolidating, and as I‘ll show you in today‘s final chart, the many mining indices are doing fine as well. The overly strong reflationary (I would call a spade a spade, and say inflationary) efforts are driving commodities higher in a supercycle just starting out.Not to get complacent, GameStop (GME) squeeze has made a comeback yesterday. Will it coincide with broader stock market woes on par with late Jan? Way too early to say – let‘s jump right into the charts for an objective momentary view instead.Here they are, all courtesy of www.stockcharts.com.S&P 500 and Its InternalsStrong S&P 500, everything looks fine on the surface – just as should be, befitting buy the dip mentality. Strong volume, no meaningful intraday setback, so far so good.The equal weight S&P 500 chart is looking better and better day by day. New highs, strong uptrend, broadening leadership. It‘s a mirror reflection of the big names‘ woes, and a testament to value outperforming growth. This bull run is far from making a top.Credit MarketsHigh yield corporate bonds (HYG ETF) had a good day yesterday, and so did the high yield corporate bonds to short-dated Treasuries (HYG:SHY) ratio. Yet it‘s the daily stock market outperformance that is noticeable here – optimistic sign of an all clear signal. I‘m not taking it totally at face value given tech performance – in a short few days, I can easily become more convinced though.TechnologyStrong daily tech (XLK ETF) upswing, yet only half the prior downside erased so far, and the volume could be higher compared to the preceding downswing. Semiconductors (XSD ETF) are leading again, fine. Yet it‘s the heavyweight names that matter the most to me right now – check out yesterday‘s observations:(…) The tech jury is still out, and this heavyweight sector remains vulnerable, with consequences to the S&P 500 if it doesn‘t keep on the muddle through recovery path at the very least.DollarLook how little the Powell tremors achieved – the dollar bulls are still on the run. Upswings are being sold as the greenback remains on the defensive, targeting much lower lows this year. The technical rebound is over, and not even higher yields can help the greenback much.Gold, Silver and MinersFor a second day in a row, gold‘s performance isn‘t convincing – the willingness to clearly and directionally decouple from rising yields, is being questioned. On the other hand, e.g. the 10-year UST yield is approaching the summer 2019 lows – it‘s at 1.38% now. I‘m looking for the rising rates to slow down and possibly even pull back a little from here over the coming weeks. Or would the market just like to slice through that resistance? Inflation isn‘t universally that strong right now yet I think – just look at the velocity of money.Everything silver related is doing fine, silver miners (SIL ETF) rebounded strongly, First Majestic Silver Corp (AG) and Hecla (HL) are in clearly bullish patterns. The white metal‘s every dip is being bought, the silver-to-gold ratio keeps improving, and even gold juniors (GDXJ) started once again outperforming the seniors (GDX). The bullish signals under the surface keep increadingly more coming to the fore, and the miners to gold ratio‘s ($HUI:$GOLD and GDX:GLD) is the final ingredient missing.SummaryStock bulls did great yesterday, but everything isn‘t fine yet in the tech realm. Due to its sheer weight in the S&P 500 index, pulling the cart a bit more enthusiastically is what the 500-strong index needs to take on new highs, because value stocks can‘t do it all.Gold and silver fared mostly well during the Powell testimony part II, yet gold didn‘t convince me really again. I look for the yellow metal bulls to get tested soon. The wildcard is reaction to the rising Treasury yields as they‘re in a key resistance zone of summer 2019 lows overall (10-year approaching it, and as regards 30-year, it‘s been overcome already). Plunging dollar and short-term gold-dollar correlation moving to positive figures, isn‘t a pleasant sight for coming days.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Gold Declines Despite Powell’s Easy Stance

Finance Press Release Finance Press Release 25.02.2021 18:13
Powell testified before Congress and reiterated the Fed’s dovish stance, but nevertheless, gold continued to slide.On Tuesday, Powell testified before the United States Senate Committee on Banking, Housing, and Urban Affairs. He offered no big surprises, so the markets were little changed. But the price of gold ended that day with a slight loss, as the chart below shows – perhaps just because Powell didn’t surprise, and struck a dovish tone.Anyway, what did the Fed Chair say? In his prepared remarks, Powell acknowledged the improved outlook for later this year . As I noted in the last edition of the Fundamental Gold Report about the recent FOMC minutes , a more optimistic Fed about the U.S. economy is bad news for gold.Additionally, Powell downplayed concerns about the recent rises in the bond yields (see the chart below), calling them “a statement of confidence” for an improving U.S. economic outlook, or “a robust and ultimately complete recovery”. This is also a negative comment for the yellow metal, as it would prefer the Fed reacting more aggressively to the increasing rates, and, for instance, implementing the yield curve control . The higher the yields, the worse it is for gold, which is a non-interest bearing asset.However, Powell also made some dovish comments . First of all, he reiterated that the Fed’s easy stance will last very long – longer than it used to be in the past . This is because the Fed implemented last year a new monetary framework, according to which the U.S. monetary policy will be informed by the assessments of shortfalls of employment from its maximum level, rather than by deviations from its maximum level. Moreover, the Fed will seek to achieve inflation that averages two percent over time. These changes imply that the Fed will not tighten monetary policy solely in response to a strong labor market, but only to an increase in inflation . However,But inflation must not merely reach two percent – it should rise moderately above two percent for some time in order to prompt the U.S. central bank to taper the quantitative easing and hike the federal funds rate .The second reason why the interest rates will stay lower for longer is that the economy is a long way from the Fed’s employment and inflation goals, and “it is likely to take some time for substantial further progress to be achieved”. On Wednesday, Powell acknowledged that it may take more than three years to reach these goals. This means that the Fed will treat any possible increases in inflation this year as temporary and will leave interest rates unchanged.Implications for GoldWhat does Powell’s testimony imply for the gold market? Well, gold bulls may be disappointed as the Fed Chair didn’t sound too dovish . He neither announced an expansion in the quantitative easing, nor the yield curve control, nor negative interest rates , nor a “whatever it takes” approach. And it seems that the yellow metal needs such things right now in order to survive – just like fish need water.However, the rising bond yields could become a problem at one point for the Fed. If they continue to rise, Uncle Sam will not be happy, and the Fed will have to step into the market to buy government bonds. The central bank and Treasury are good old friends and the close relationship between Powell and Yellen may only strengthen this beautiful friendship – and support gold prices.Moreover, the increasing bond yields (despite an ultra-dovish Fed) imply that reflation trade is strong. So far, investors just expect a return of inflation to a moderate level, but given the enormous surge in the broad money supply (see the chart below) and Biden’s mammoth fiscal plan, the risk of overheating is non-negligible.It would be really strange if such an aggressive monetary expansion wouldn’t affect the prices. As one can see, the growth in the M2 money supply is 2.5 times faster than during the Great Recession . Actually, we are already seeing inflation – but in the asset markets, not the CPI . The stock and house prices are surging. The commodity sector has also already been gaining and gold may follow suit .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
US Industry Shows Strength as Inflation Expectations Decline

GBPUSD Holds Steady Above 1.41

John Benjamin John Benjamin 26.02.2021 09:21
USD gives back gains as risk currencies riseEuro Rises To A Three-Month High The euro currency finally broke past the resistance area of 1.2177 – 1.2144. The breakout pushed the common currency to a three-month high on an intraday basis.The gains come as the US dollar failed to maintain its reversal on Wednesday.If the current momentum continues then we might get to see the Euro once again attempting to test the 6 January highs of 1.2349.However, ahead of these gains, a pullback to establish support near 1.2177 would be ideal.For the moment, the EURUSD is still not out of the woods unless we see a higher low forming above the resistance area.The British pound sterling is giving back the gains from Wednesday. The declines come as the cable rose to a new three and half year high earlier this week.The current declines come as investors head into the weekend with the drop likely coming as a result of profit-taking.The GBP currency has enjoyed a strong rally and got an additional boost as the UK is already preparing plans for re-opening its economy.For the moment the pullback is likely to be met with skepticism. A continuation below Wednesday’s low of 1.4080 could, however, see the currency pair making a short-term correction.The downside could be supported near the round number 1.4000 level.Crude Oil Holds Steady At A 13-Month High Oil prices are steady after rising to a new 13-month high. The gains come as the latest report shows a drop in US Crude oil output.The weaker dollar is also helping the commodity to maintain its hold. For the moment, prices are supported near the trendline.Still, even a close below the trendline could keep the upside bias intact.The support area near 60.87 will hold the prices from posting further declines.But a close below 60.87 could potentially open the way for oil prices to fall further. This could see the 57.35 level coming under scrutiny next.Gold Prices Slip As Treasury Yields Rise The precious metal continues to trade weak with price action extending declines for a third consecutive day.The declines come as Treasury yields are rising higher. Investors are betting that the global economy will re-open quicker than anticipated with appetite for further stimulus falling.Gold prices have been trading within the 1817 and 1764 levels since the middle of February.We expect this sideways range to continue.To the downside, gold prices will likely retest the previously formed support at 1764.22.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Finally- the Stock Market Tanks

Finance Press Release Finance Press Release 26.02.2021 16:07
Surging bond yields continues to weigh on tech stocks. When the 10-year yield pops by 20 basis points to reach a 1-year high, that will happen.Tuesday (Feb. 23) saw the Dow down 360 points at one point, and the Nasdaq down 3% before a sharp reversal that carried to Wednesday (Feb. 24).Thursday (Feb. 25) was a different story and long overdue.Overall, the market saw a broad sell-off with the Dow down over 550 points, the S&P falling 2.45%, the Nasdaq tanking over 3.50%, and seeing its worst day since October, and the small-cap Russell 2000 shedding 3.70%.Rising bond yields are a blessing and a curse. On the one hand, bond investors see the economy reopening and heating up. On the other hand, with the Fed expected to let the GDP heat up without hiking rates, say welcome back to inflation.I don’t care what Chairman Powell says about inflation targets this and that. He can’t expect to keep rates this low, buy bonds, permit money to be printed without a care, and have the economy not overheat.He may not have a choice but to hike rates sooner than expected. If not this year, then in 2022. I no longer buy all that talk about keeping rates at 0% through 2023. It just can’t happen if bond yields keep popping like this.This slowdown, namely with the Nasdaq, poses some desirable buying opportunities. The QQQ ETF, which tracks the Nasdaq is down a reasonably attractive 7% since February 12. But there still could be some short-term pressure on stocks.That correction I’ve been calling for weeks? It may have potentially started, especially for tech. While I don’t foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of March could happen.I mean, we’re already about 3% away from an actual correction in the Nasdaq...Bank of America also echoed this statement and said, “We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and as good as it gets’ earnings revisions.”Look. This has been a rough week. But don’t panic, and look for opportunities. We have a very market-friendly monetary policy, and corrections are more common than most realize.Corrections are also healthy and normal market behavior, and we are long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017), and we haven’t seen one in a year.A correction could also be an excellent buying opportunity for what could be a great second half of the year.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:While there is long-term optimism, there are short-term concerns. A short-term correction between now and the end of Q1 2021 is possible. I don’t think that a decline above ~20%, leading to a bear market, will happen.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- To Buy or Not to Buy?Figure 1- Nasdaq Composite Index $COMPThis downturn is so overdue. More pain could be on the horizon, but this road towards a correction was needed for the Nasdaq.Before February 12, I would always discuss the Nasdaq’s RSI and recommend watching out if it exceeds 70.Now? As tracked by the Invesco QQQ ETF , the Nasdaq has plummeted by nearly 7% since February 12 and is trending towards oversold levels! I hate to say I’m excited about this recent decline, but I am.While rising bond yields are concerning for high-flying tech stocks, I, along with much of the investing world, was somewhat comforted by Chairman Powell’s testimony the other day (even if I don’t totally buy into it). Inflation and rate hikes are definitely a long-term concern, but for now, if their inflation target isn’t met, who’s to fight the Fed?Outside of the Russell 2000, the Nasdaq has been consistently the most overheated index. But after its recent slowdown, I feel more confident in the Nasdaq as a SHORT-TERM BUY.The RSI is king for the Nasdaq . Its RSI is now under 40, which makes it borderline oversold.I follow the RSI for the Nasdaq religiously because the index is simply trading in a precise pattern.In the past few months, when the Nasdaq has exceeded an overbought 70 RSI, it has consistently sold off.December 9- exceeded an RSI of 70 and briefly pulled back.January 4- exceeded a 70 RSI just before the new year and declined 1.47%.January 11- declined by 1.45% after exceeding a 70 RSI.Week of January 25- exceeded an RSI of over 73 before the week and declined 4.13% for the week.I like that the Nasdaq is almost the 13100-level, and especially that it’s below its 50-day moving average now.I also remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.Because of the Nasdaq’s precise trading pattern and its recent decline, I am making this a SHORT-TERM BUY. But follow the RSI literally.For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Will There Be Roaring Twenties for Gold?

Finance Press Release Finance Press Release 26.02.2021 16:59
The 2020s might be less roaring than the 1920s, which seems like good news for gold.The United States is strongly polarized, with blue versus red, liberals versus conservatives, and so on. People are divided along many lines, but the biggest division line is between those who count decades from 0 to 9 and those who count them from 1 to 10. It is intuitive for many people to adopt the first method, especially that we think of decades as ‘the 20s’, ‘the 30s’, and so on. However, the catch is that there was no Year Zero, so the first decade of the common era was years 1 to 10. Following this logic, the current decade started on January 1, 2021, not January 1, 2020.So, I feel fully entitled to investigate how gold will behave in the new decade. The issue is especially interesting as some analysts claim that we are entering the Roaring Twenties 2.0. Are they correct?On the surface, there are some similarities. The 1920s were a decade that followed the nightmare of World War I and the Spanish Flu pandemic . It was a time of quick economic growth (the U.S. GDP grew more than 40 percent in that period) and rapid technological innovation fueled predominantly by the rising access to electricity and big improvements in transportation (automobiles and planes).Fast forward one century and we land in the 2020s, which is a decade following the nightmare of the coronavirus pandemic . There are hopes for an acceleration in technological progress driven mainly by the rising scope of remote work, digital solutions, cloud computing, artificial intelligence, Internet of Things, 5G networks, robotization, super-batteries, electric vehicles, and so on. And given the pent-up demand and months spent in lockdowns, consumers are ready to congregate and spend!However, there are good reasons to be skeptical about the narrative of the Roaring Twenties 2.0 . The era of post-war prosperity was fueled by the return to the normalcy in the sphere of economic policy. I refer here to the fact that after WWI, there was a successful transition from a wartime economy to a peacetime economy. In contrast, in the aftermath of the Great Recession , there is a gradual transition from the peacetime economy to a wartime economy, that was only accelerated during the epidemic and the Great Lockdown .In particular, both the government spending and the fiscal deficits were sharply reduced in the post-war era. In consequence, the U.S. public debt declined, especially in real terms. Similarly, the Fed reversed its monetary policy and allowed for monetary contraction (and quick recession) in 1919-20 to reverse wartime inflation .In other words, the tighter monetary and fiscal policies led to an environment of economic prosperity. Also helpful for the U.S. were developments such as trustbusting and an economic recovery in Germany after its hyperinflation – all developments that will not replay in the 2020s.In contrast, neither the fiscal policy nor the monetary policy are going to normalize anytime soon , even if the COVID-19 pandemic is brought under control. The national debt has risen by almost $7.8 trillion under Trump’s presidency – a level that rivals Italy’s. The debt-to-GDP ratio has soared, as the chart below shows. And Joe Biden doesn’t worry about deficits – instead, with his plan of $1.9 trillion economic stimulus, he is going to balloon the public debt even further by increasing government spending.But maybe we shouldn’t worry about the debt? After all, after WW2, the public debt was even higher, but the economy didn’t collapse – actually, it grew so rapidly that the debt-to-GDP ratio diminished significantly. Yup, that’s correct, but after the pandemic, the economy will not recover as quickly as in the aftermath of WW2. Oh, and by the way, the economy grew its way out of debt only thanks to several years of high inflation .Therefore, the current complacency and naïve belief in low- interest rates and debt-driven economic recovery makes the scenario of the Roaring Twenties 2.0 not very likely, despite all the fantastic technological progress we are observing. So, instead of acceleration, we could rather observe an economic slowdown due to the poor economic policy that hampers the expansion of the private sector. Indeed, the recent report by the World Bank warns about the lost decade: “If history is any guide, unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes.” This is good news for the gold market.But even if the Roaring Twenties 2.0 do happen, it wouldn’t have to be very bad for the yellow metal. It’s true that the 1920s was a period of wealth, prosperity, and decadence in which people didn’t think about preserving capital and investing in safe-haven assets such as gold . In contrast, there was a lot of risk-taking fueling the boom in the stock market. However, the Roaring Twenties were an inflationary period of debt-driven growth that ended in the systemic economic crisis called the Great Depression – and gold can shine in such an macroeconomic environment .Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
New York Climate Week: A Call for Urgent and Collective Climate Action

Stocks, Gold – Rebound or Dead Cat Bounce?

Monica Kingsley Monica Kingsley 01.03.2021 15:10
None of Friday‘s intraday attempts to recapture 3,850 stuck, and the last hour‘s selling pressure is an ill omen. Especially since it was accompanied by high yield corporate bondsh weakening. It‘s as if the markets only now noticed the surging long-end Treasury yields, declining steeply on Thursday as the 10y Treasury yield made it through 1.50% before retreating. And on Friday, stocks didn‘t trust the intraday reversal higher in 20+ year Treasuries either.Instead, the options traders took the put/call ratio to levels unseen since early Nov. The VIX however doesn‘t reflect the nervousness, having remained near Thursday‘s closing values. Its long lower knot looks encouraging, and the coming few days would decide the shape of this correction which I have not called shallow since Wed‘s suspicious tech upswing. Here we are, the tech has pulled the 500-strong index down, and remains perched in a precarious position. Could have rebounded, didn‘t – instead showing that its risk-on (high beta) segments such as semiconductors, are ready to do well regardless.That‘s the same about any high beta sector or stock such as financials – these tend to do well in rising rates environments. Regardless of any coming stabilization / retreat in long-term Treasury yields, it‘s my view that we‘re going to have to get used to rising spreads such as 2y over 10y as the long end still steepens. The markets and especially commodities aren‘t buying Fed‘s nonchalant attitude towards inflation. Stocks have felt the tremors, and will keep rising regardless, as it has been historically much higher rates that have caused serious issues (think 4% in 10y Treasuries).In such an environment, the defensives with low volatility and good earnings are getting left behind, as it‘s the top earners in growth, and very risk-on cyclicals that do best. They would be taking the baton from each other, as (micro)rotations mark the stock market bull health – and once tech big names join again, new highs would arrive. Then, the $1.9T stimulus has made it past the House, involves nice stimulus checks, and speculation about an upcoming infrastructure bill remains. Coupled with the avalanche of new Fed money, this is going into the real economy, not sitting on banks‘ balance sheets – and now, the banks will have more incentive to lend out. Margin debt isn‘t contracting, but global liquidity hasn‘t gone pretty much anywhere in February. Coupled with the short-term dollar moves, this is hurting emerging markets more than the U.S. - and based on the global liquidity metrics alone, the S&P 500 is oversold right now – that‘s without the stimulus package. It‘s my view that we‘re experiencing a correction whose shape is soon to be decided, and not a reversal of fortunes.Just like I wrote at the onset of Friday:(…) Would we get a bounce during the U.S. session? It‘s possible to the point of likely. The damage done yesterday though looks to have more than a few brief sessions to run to repair. True, some stocks such as Tesla are at a concerning crossroads, and in general illustrate the vulnerability of non-top tech earners within the industry. Entering Mon‘s regular session, the signs are mixed as there hasn‘t been a clear reversal any way I look at it. Still, this remains one of the dips to be bought in my view – and the signs of it turning around, would be marked by strengthening commodities, and for all these are worth, copper, silver and oil especially.As for gold, it should recover given the retreating long-term yields, but Fri didn‘t bring any signs of strength in the precious metals sector, to put it mildly. Look for TLT for directions, even as real rates, the true determinant, remain little changed and at -1%, which means very favorable fundamentals for the yellow metal. And remember that when the rate of inflation accelerates, rising rates start to bite the yellow metal less.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Its InternalsFriday‘s session doesn‘t have the many hallmarks of a reversal. Slightly higher volume, yet none of the intraday upswings held. The Force index reveals that the bears just paused for a day, that there wasn‘t a true reversal yet. The accumulation is a very weak one thus far, and the sellers can easily show more determination still.Credit MarketsHigh yield corporate bonds (HYG ETF) are plain and simple worrying here. The decent intraday upswing evaporated as the closing bell approached. A weak session not indicative of a turnaround.The high yield corporate bonds to short-dated Treasuries (HYG:SHY) performance was weaker than the stock market performance, which isn‘t a pleasant development. Should the bond markets keep trading with a more pessimistic bias than stocks, it could become quite fast concerning. As said already, the shape of the correction is being decided these days.Stocks, Smallcaps and Emerging MarketsAfter having moved hand in hand, emerging markets (EEM ETF) have weakened considerably more over the prior week than both the S&P 500 and the Russell 2000 (IWM ETF). EEM is almost at its late Jan lows – given Fri‘s spike, watching the dollar is key, and not just here.TechnologyTechnology (XLK ETF) didn‘t reverse with clarity on Friday, regardless of positive semiconductors (XSD ETF) performance. At least the volume comparison here is positive, and indicates accumulation. Just as I was highlighting the danger for S&P 500 and gold early Thursday, it‘s the tech sector that holds the key to the 500-strong index stabilization.Gold and SilverReal rates are deeply negative, long-dated Treasuries indeed turned higher on Friday, yet gold plunged right to its strong volume profile support zone before recovering a little. Its very short-term performance is disappointing, It was already its Tue performance that I called unconvincing – let alone Wed‘s one. I maintain that it‘s long-dated Treasury yields and the dollar that are holding the greatest sway. Rates should retreat a little from here, and the gold-dollar correlation is only slightly positive now, which translates into a weak positive effect on gold prices.But it‘s silver that I am looking to for earliest signs of reversal – the white metal and its miners have the task clear cut. Weeks ago, I‘ve been noting the low $26 values as sufficient to retrace a reasonable part of prior advance, and we‘ve made it there only this late. Thu and Fri‘s weakness has much to do with the commodities complex, where I wanted still on Thu to see copper reversing intraday (to call it a risk-on reversal), which it didn‘t – and silver suffered the consequences as well. Likewise now, I‘m looking to the red metal, and will explain in today‘s final chart why.Precious Metals RatiosThere is no better illustration of gold‘s weakness than in both miners to gold ratios that are bobbing around their local lows, rebounding soundly, and then breaking them more or less convincingly again. The gold sector doesn‘t yet appear ready to run.Let‘s get the big picture through the copper to oil ratio. Its current 8 months long consolidation has been punctured in the middle with oil turning higher, outperforming the red metal – and that brought the yellow one under pressure increasingly more. Yet is the uptick in buying interest in gold a sign of upcoming stabilization and higher prices in gold that Fri‘s beaten down values indicate? Notably, the copper to oil ratio didn‘t break to new lows – and remains as valuable tool to watch as real, nominal interest rates, and various derivatives such as copper to Treasury yields or this very ratio.SummaryStock bulls are almost inviting selling pressure today with the weak finish to Fri‘s session. While the sectoral comparisons aren‘t disastrous, the credit markets indicate stress ahead just as much as emerging markets do. Still, this isn‘t the end of the bull run, very far from it – new highs are closer than quite a few might think.Gold and silver took an even greater beating on Fri than the day before. Naturally, silver is much better positioned to recapture the higher $27 levels than gold is regarding the $1,800 one. With the long-dated Treasuries stabilization indeed having resulted in a short-term dollar upswing, the greenback chart (and its effects upon the metals) is becoming key to watch these days. Restating the obvious, gold is far from out of the woods, and lacking positive signs of buying power emerging.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Worst for Stocks Over?

Finance Press Release Finance Press Release 01.03.2021 15:39
Is the worst of what the last few weeks brought over? February started off with so much promise, only to be ruined by surging bond yields.The way that bond yields have popped has weighed heavily on growth stocks. Outside of seeing a minor comeback on Friday (Feb. 26), the Nasdaq dropped almost 7% between February 12 and Friday’s (Feb. 26) close.Other indices didn’t fare much better either.The spike bond yields, however, in my view, are nothing more than a catalyst for stocks to cool off and an indicator of some medium to long-term concerns. But calling them a structural threat is a bit of an overstatement.Rising bond yields are a blessing and a curse. On the one hand, bond investors see the economy reopening and heating up. On the other hand, with the Fed expected to let the GDP heat up without hiking rates, inflation may return.I don’t care what Chairman Powell says about inflation targets this and that. He can’t expect to keep rates this low, buy bonds, permit money to be printed without a care, and have the economy not overheat.He may not have a choice but to hike rates sooner than expected. If not this year, then in 2022. I no longer buy all that talk about keeping rates at 0% through 2023. It just can’t happen if bond yields keep popping like this.So was the second half of February the start of the correction that I’ve been calling for? Or is this “downturn” already over?Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of this month could happen.Corrections are also healthy and normal market behavior, and we are long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017), and we haven’t seen one in almost a year.A correction could also be an excellent buying opportunity for what could be a great second half of the year.Pay attention to several things this week. The PMI composite, jobs data, and consumer credit levels will be announced this week.We have more earnings on tap this week too. Monday (March 1), we have Nio (NIO) and Zoom (ZM), Tuesday (March 2) we have Target (TGT) and Sea Limited (SE), Wednesday (March 3), we have Okta (OKTA) and Snowflake (SNOW), and Thursday (March 3) we haveBroadcom (AVGO).My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:The downturn we experienced to close out February could be the start of a short-term correction- or it may be a brief slowdown. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- a Buyable Slowdown?Figure 1- Nasdaq Composite Index $COMPThe Nasdaq’s downturn was so overdue. Even though more pain could be on the horizon, I like the Nasdaq at this level for some buying opportunities.If more losses come and the tech-heavy index dips below support at 13000, then it could be an even better buying opportunity. It can’t hurt to start nibbling now, though. If you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.Plus, if Cathie Wood, the guru of the ARK ETFs that have continuously outperformed, did a lot of buying the last two weeks, it’s safe to say she knows a thing or two about tech stocks and when to initiate positions. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler wouldn’t have just named anyone the best stock picker of 2020.Before February 12, I would always discuss the Nasdaq’s RSI and recommend watching out if it exceeds 70.Now? As tracked by the Invesco QQQ ETF , the Nasdaq has plummeted almost 7% since February 12 and is closer to oversold than overbought. !While rising bond yields are concerning for high-flying tech stocks, I, along with much of the investing world, was somewhat comforted by Chairman Powell’s testimony last week (even if I don’t totally buy into it). Inflation and rate hikes are definitely a long-term concern, but for now, if their inflation target isn’t met, who’s to fight the Fed?Outside of the Russell 2000, the Nasdaq has been consistently the most overheated index. But after its recent slowdown, I feel more confident in the Nasdaq as a SHORT-TERM BUY.The RSI is king for the Nasdaq . Its RSI is now around 40.I follow the RSI for the Nasdaq religiously because the index is merely trading in a precise pattern.In the past few months, when the Nasdaq has exceeded an overbought 70 RSI, it has consistently sold off.December 9- exceeded an RSI of 70 and briefly pulled back.January 4- exceeded a 70 RSI just before the new year and declined 1.47%.January 11- declined by 1.45% after exceeding a 70 RSI.Week of January 25- exceeded an RSI of over 73 before the week and declined 4.13% for the week.I like that the Nasdaq is almost at its support level of 13000, and especially that it’s below its 50-day moving average now.I also remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.Because of the Nasdaq’s precise trading pattern and its recent decline, I am making this a SHORT-TERM BUY. But follow the RSI literally.For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Gold Continues Declines on Bond Yield Jitters

Finance Press Release Finance Press Release 02.03.2021 16:30
The economy seems to be recovering, while bond yields are increasing again, sending gold prices down.Not good. Gold bulls can be truly upset. The yellow metal continued its bearish trend last week. As the chart below shows, the price of gold has declined from $1,807 on Monday (Feb. 22) to $1,743 on Friday (Feb. 26).What happened? Well, last week was full of positive economic news. In particular, personal income surged by 10 percent in January, compared to only 0.6-percent rise in the previous month. Meanwhile, consumer spending increased 2.4 percent, following a 0.4-percent decline in December. This means that, on an absolute basis, personal consumption expenditures have almost returned to the pre- pandemic level, as the chart below shows.Additionally, durable goods orders jumped by 3.4 percent in January versus a 1.2-percent increase one month earlier. Moreover, initial jobless claims declined from 841,000 to 730,000 in the week ending February 20, as the chart below shows. It means that the economic situation is improving, partially thanks to the December fiscal stimulus.And, on Saturday (Feb. 27), the House of Representatives passed Biden’s $1.9 trillion stimulus package. Although the bill has yet to be approved by the Senate, the move by the House brings us one step closer to its implementation. Although the additional fiscal stimulus may overheat the economy and turn out to be positive for gold prices in the long-term, the strengthened prospects of higher government expenditures can revive the optimism in the financial markets, negatively affecting the safe-haven assets such as gold .Finally, on Saturday, the FDA authorized Johnson & Johnson’s vaccine against COVID-19. This decision expands the availability of vaccines, which brings us closer to the end of the epidemic in the U.S. and offers hope for a faster economic recovery. The new vaccine is highly effective (it provides 85-percent protection against severe COVID-19 28 days after vaccination) and most importantly, requires only one dose, which facilitates efficient distribution. So, the approval of another vaccine is rather bad news for gold and could add to the metal’s problems in the near future.However, the most important development from the last week was the jump in the bond yields . As the chart below shows, after a short stabilization in the first half of the week, the yields on the 10-year Treasuries indexed by inflation rose from -0.79 to -0.60 percent on Thursday (Feb. 25). This surge in the real interest rates is negative for the price of gold.Implications for GoldWhat does this all mean for the price of gold? Well, the increase in the bond yields is clearly bad for the yellow metal. Although they have partially risen to strengthened inflation expectations, the real interest rates have also soared. It means that investors expect wider fiscal deficits and expanding vaccination to accelerate inflation only partially, but in a large part, it will speed up real economic growth. This is a huge problem for gold, as real interest rates are a key driver of gold prices.An additional issue is that the expectations of higher economic growth and inflation create accompanying expectations for the Fed to tighten its monetary policy and hike the federal funds rate , which exerts downward pressure on gold prices.This is what we were afraid of at the beginning of the year. We noted that the real interest rates were so low that the next move could be up. Importantly, there is further room for upward trajectory, as the real interest rates are still importantly below the pre-pandemic level.However, we wouldn’t bet on the return to the levels seen last year. After all, interest rates didn’t return to the pre-crisis level after the Great Recession , so it’s unlikely that they will do it now. Additionally, investors should remember that the U.S. government is now so heavily indebted that if Treasury yields continue to increase, the Fed would have to intervene. A failure to do so would mean that the interest expenses would grow too much, creating serious problems for the Treasury. So, the current bearish trend in gold may not last forever – although it may still take some time.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

What Correction in Stocks? And Gold?

Monica Kingsley Monica Kingsley 02.03.2021 16:30
Stocks thoroughly rebounded yesterday, and corporate credit markets did even better. These are optimistic signs as the shape of the correction has been decided – again, as shallow, less than 5% one. Long-termTreasuries are no longer in a free fall, volalility has retreated back to the low 20s, and the put/call ratio swung back towards the bottom of its recent range.Technology has rebounded as well, and the microrotations in the stock market keep being the haollmark of stock bull‘s health, and the risk-on (high beta) sectors and segments such as financials, semiconductors, or capex (capital expenditure such as construction and engineering) - and airlines are catching breath too.Such was the sectoral themes likely to do well that I mentioned yesterday:(…) That‘s the same about any high beta sector or stock such as financials – these tend to do well in rising rates environments. Regardless of any coming stabilization / retreat in long-term Treasury yields, it‘s my view that we‘re going to have to get used to rising spreads such as 2y over 10y as the long end still steepens. The markets and especially commodities aren‘t buying Fed‘s nonchalant attitude towards inflation. Stocks have felt the tremors, and will keep rising regardless, as it has been historically much higher rates that have caused serious issues (think 4% in 10y Treasuries).In such an environment, the defensives with low volatility and good earnings are getting left behind, as it‘s the top earners in growth, and very risk-on cyclicals that do best. They would be taking the baton from each other, as (micro)rotations mark the stock market bull health – and once tech big names join again, new highs would arrive. Then, the $1.9T stimulus has made it past the House, involves nice stimulus checks, and speculation about an upcoming infrastructure bill remains. Coupled with the avalanche of new Fed money, this is going into the real economy, not sitting on banks‘ balance sheets – and now, the banks will have more incentive to lend out. Margin debt isn‘t contracting, but global liquidity hasn‘t gone pretty much anywhere in February. Coupled with the short-term dollar moves, this is hurting emerging markets more than the U.S. - and based on the global liquidity metrics alone, the S&P 500 is oversold right now – that‘s without the stimulus package. It‘s my view that we‘re experiencing ... not a reversal of fortunes. … this remains one of the dips to be bought in my view.All right, we‘re seeing a rebound in progress, on the way to new highs – but what about the embattled gold? Its seasonality component was „slated“ to help the bulls in Feb, and the king of metals instead succumbed to nominal yields pressure. Would the Mar historically negative slant be likewise invalidated – and again precisely for the reason called long-dated Treasuries?Regardless of the immensely positive fundamentals behind the precious metals (including real rates, the true determinant, little changed and at -1%), it has thus far been commodities and Bitcoin who rose and held on to their gains since the 2H 2020. Please remember the big picture chart about commodities and precious metals taking turns in rising that I presented on Feb 17. The bullish case for gold (let alone silver) isn‘t lost – merely thoroughly questioned these weeks of sordid $HUI:$GOLD underperformance.Are we seeing signs of decreasing financial asset price inflation – or an accelerating one? It‘s the inflation and inflation expectations that are weighed against the nominal rates trajectory. As the rate of inflation accelerates, rising nominal rates would bite the yellow metal less – and there is no denying that the risk of inflation is running as high as can be.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookSo far, so (very) good in stocks – volume is lagging but the Force index still flipped positive, indication that at worst, we‘re likely to muddle through in a sideways to higher trading pattern over the nearest days.Credit MarketsAfter a worrying move on Friday, high yield corporate bonds (HYG ETF) are once again assuming leadership, and I see this chart as the one with more bullish implications for the coming days than the S&P 500 alone. That‘s the dynamic I am looking for in a good run.Both leading credit market ratios – high yield corporate bonds to short-dated Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated ones (LQD:IEI) – are looking to get back in closer sync than has been the case in 2021 thus far. It would take time, but would prove that the stock market can still keep on rising when faced with even higher nominal rates than we saw thus far.TechnologyTechnology (XLK ETF) clearly reversed, and while the volume isn‘t convincing on a standalone basis, coupled with semiconductors (XSD ETF) and other value stocks performance, it‘s encouraging enough to treat any significant correction calls heard elsewhere, as again plain wrong and premature, for the full picture view didn‘t support such calls in the first place, and you know what is being said about every broken clock being right twice a day…Having said so, let‘s turn to precious metals, which offered more than a few bullish signs way earlier in Feb. Based on the evolving charts and gold‘s failure to gain credible traction, I was at least able to time most of the downside before it happened – such as last week. Still, there has been little bullish that could be said about the PMs complex, as encouraging signs emerged only to be gone shortly. So, where do we stand at the moment?Gold and Copper to Oil RatioRising TLT rates are turning a corner, but the yellow metal is staying at the strong volume profile support zone that marks the April-May consolidation zone. Earlier today, gold cut all the way to its lower end (that‘s low $1,700s) before rebounding. The danger zone hasn‘t been cleared in the least yet, but the signs of silver reversing once again from a double test of $26, is as encouraging as copper rising again, and oil not tanking.The copper to oil ratio whose long-term perspective I featured yesterday, is making a clear turn on the daily chart. Coupled with the TLT stabilization, and the dollar trading with relatively little correlation to gold these days, the table is set for a short-term rebound in the metals. How far would these take the sector? The numerous bears would have you believe that not too far & that another downleg to ridiculously low values is at hand, but I am not convinced and prefer reading the tape instead. Yes, even in the mostly bearish PMs chart setups where nothing bullish has stuck for longer than several day over the past weeks. I repeat that the $1.9T stimulus bill (and infrastructure bill, even slavery reparations if we get that far really) hasn‘t been truly factored in by the markets – and yesterday‘s S&P 500 action proves that.Silver and MinersSilver keeps consolidating in a bullish pattern well above $26 still (not that it would be the line in the sand though), and when the silver miners (SIL ETF) start leading again, a new silver upleg would be born. For now, these are still mirroring the weak gold miners‘ performance, which is free from bullish signals for the yellow metal still. The gold sector isn‘t yet ready to run, plain and simple.SummaryStock bulls are on a solid recovery path, and new all time highs are again closer in sight. Crucially, the corporate credit markets and S&P 500 sectoral performance confirm, and once emerging markets join (the dollar weakens again), more fuel to the rally would be available.Gold remains precariously perched, yet isn‘t breaking down – the bull run off last spring‘s consolidation remains intact – regardless of the short-term gloom and doom. I see the metals as likely to recover next as the Treasury yields stop biting. Restating the obvious, gold is far from out of the woods.
Mixed Start for Stocks in March

Mixed Start for Stocks in March

Finance Press Release Finance Press Release 03.03.2021 15:08
After March kicked off with a session that indicated the worst for stocks may be over (for now), Tuesday saw the indices sell-off towards the close.At least Rocket Mortgage (RKT) had a good day, though! And, at least the 10-year yield didn’t spike either. But that could change. Yields ticked up overnight to 1.433%, after President Biden pledged enough vaccine supply to inoculate every American adult by the end of May.So, where do we go from here? This positive economic and health news is excellent for reopening. But rising bond yields are a blessing and a curse. On the one hand, bond investors see the economy reopening and heating up. On the other hand, with the Fed expected to let the GDP scorch without hiking rates, inflation may return.I don’t care what Chairman Powell says about inflation targets this and that. The price of gas and food is increasing already. In fact, according to Bloomberg, food prices are soaring faster than inflation and incomes.For January, Consumer Price Index data also found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in the prices of all goods included in the CPI.Can you imagine what this was like for February? Can you imagine what it will be like for March? I’m not trying to sound the alarm - but be very aware. These are just the early warning signs.So about March. Will it be more like Monday or Tuesday? Was the second half of February the start of the correction that I’ve been calling for? Or is the “downturn” already over? Only time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of this month could happen.Rising bond yields are concerning. Inflation signs are there. But structurally, I don’t think it will crash the market (yet).Corrections are also healthy and normal market behavior, and we are long overdue for one. It’s been almost a year now. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).A correction could also be an excellent buying opportunity for what could be a great second half of the year.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- a Buyable Slowdown?Figure 1- Nasdaq Composite Index $COMPThe Nasdaq’s slowdown has been long overdue. Even though more pain could be on the horizon, I like the Nasdaq at this level for some buying opportunities.But I’d prefer it drop below support at 13000 for real buying opportunities.But it can’t hurt to start nibbling now. If you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.Plus, it’s safe to say that Cathie Wood, the guru of the ARK ETFs, is the best growth stock picker of our generation. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler seems to think so too. Her ETFs, which have continuously outperformed, focus on the most innovative and disruptive tech companies out there. Not to put a lot of stock in one person. But it’s safe to say she knows a thing or two about tech stocks and when to initiate positions- and she did a lot of buying the last few weeks.I also remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.Before February 12, I would always discuss the Nasdaq’s RSI and recommend watching out if it exceeds 70.Now? As tracked by the Invesco QQQ ETF , the Nasdaq has plummeted almost 5.5% since February 12 and is closer to oversold than overbought!But it’s still not enough.Outside of the Russell 2000, the Nasdaq has been consistently the most overheated index. But after its recent slowdown, I feel more confident in the Nasdaq as a SHORT-TERM BUY.The RSI is king for the Nasdaq . Its RSI is now around 45.I follow the RSI for the Nasdaq religiously because the index is merely trading in a precise pattern.In the past few months, when the Nasdaq has exceeded an overbought 70 RSI, it has consistently sold off.December 9- exceeded an RSI of 70 and briefly pulled back.January 4- exceeded a 70 RSI just before the new year and declined 1.47%.January 11- declined by 1.45% after exceeding a 70 RSI.Week of January 25- exceeded an RSI of over 73 before the week and declined 4.13% for the week.Again- if the index drops below 13000, and the RSI hits undeniably overbought levels, get on the train.But because we haven’t declined just enough, I am making this a SHORT-TERM BUY. But follow the RSI literally and take profits once you have the chance to.For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Gold Approaches $1,700 on Rising Economic Confidence

Finance Press Release Finance Press Release 04.03.2021 16:39
Gold remains in a bearish trend as economic confidence has improved, however, inflation can change all that around.The chart presenting gold prices in 2021 doesn’t look too encouraging. The yellow metal continued its bearish trend at the turn of February and March. So, as one can see, the price of gold has declined from $1,943 on January 4 to $1,711 on Wednesday (Mar. 3) This means a drop of 232 bucks, or 12 percent since the beginning of the year.What is happening in the gold market? I would like to blame the jittering bond market and increasing bond yields , but the uncomfortable truth is that the yellow metal has slid in the past few days despite the downward correction in the bond yields. If you don’t believe, take a look at the chart below. This is an important bearish signal, given how closely gold is usually linked to the real interest rates .So, it seems that there are more factors at work than just the bond yields. One of them is the recent modest strengthening of the greenback , probably amid rising U.S. interest rates and ECB officials’ remarks about possible expansion of the ECB’s accommodative stance if the selloff in the bond market continues.Another piece of bearish news for the gold market is that President Joe Biden struck a last-minute stimulus deal with Democratic Senators that narrows the income eligibility for the next round of $1,400 stimulus checks. It means that the upcoming fiscal stimulus will be lower than previously expected, negatively affecting inflation expectations and, thus, the demand for gold as an inflation hedge .Lastly, I have to mention the high level of confidence in the economy. Indeed, the recent rise in the bond yields may just be a sign of more optimism about the economic recovery from the pandemic recession . Hence, despite all the economic problems the U.S. will have to face – mainly the huge indebtedness or actually the debt-trap – investors have decided to not pay too much attention to the elephants in the room. As the chart below shows, the credit spread (ICE BofA US High Yield Index Option-Adjusted Spread), which is a useful measure of economic confidence, has returned to the pre-pandemic level, indicating a strong belief in the state of the economy. This is, of course, bad for safe-haven assets such as gold.Implications for GoldWhat does this all mean for gold prices? Well, from the long-term perspective, the recent slide to almost $1,700 could just be noise in the marketplace. But gold’s disappointing performance is really disturbing given the seemingly perfect environment for the precious metals . After all, we live in a world of negative interest rates , a weak U.S. dollar, rising fiscal deficits and public debt , soaring money supply and unprecedented dovish monetary and fiscal policies . So, the bearish trend may be more lasting, as market sentiment is still negative. Investors usually turn to gold, a great portfolio diversifier and a safe haven , when other investment are falling. But the worst is already behind us, the economy has already bottomed out, so confidence in the economy is now high, and equities are rising.Having said that, the recent jump in the bond yields also means rising inflation expectations . Indeed, as the chart below shows, they have already surpassed the levels seen before the outbreak of the pandemic .Actually, the 5-year breakeven inflation rate has reached 2.45 percent, the highest level since the midst of the Great Recession . So, in some part, investors are selling bonds, as they are preparing for an reflation environment marked by higher inflation . At some point, if the fear of inflation strengthens, then economic confidence will waver, and investors could again turn toward gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Correction for Nasdaq- More Indices to Follow?

Finance Press Release Finance Press Release 05.03.2021 15:31
I called Jay Powell's bluff a week ago. Remember when he said last week that we're still far from The Fed's inflation targets?Well, I was right to doubt him. The market didn't like his change in tone Thursday (Mar. 5).You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won't change while admitting that inflation may " return temporarily ," how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:It's a significant backtrack from saying that inflation isn't a concern. By admitting that inflation "could" return temporarily, that's giving credence to the fact that it's inevitable.The Fed can't expect to let the GDP scorch without hiking rates. If inflation "temporarily returns," who is to say that rates won't hike sooner than anyone imagines?Fool me once, shame on me, fool me twice...you know the rest. If Powell changed his tune now about inflation, what will he do a few weeks or months from now when it really becomes an issue?Does Jay Powell know what he's doing, and does he have control of the bond market?A reopening economy is a blessing and a curse. It's a blessing for value plays and cyclicals that were crushed during COVID and a curse for high-flying tech names who benefitted from "stay-at-home" and low-interest rates.The Senate will be debating President Biden’s $1.9 trillion stimulus plan. If this passes, as I assume it will, could it actually be worse for the economy than better? Could markets sell-off rather than surge? Once this passes, inflation is all but a formality.Look, it's not the fact that bond yields are rising that are freaking out investors. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. But it's the speed at which they've risen that are terrifying people.According to Bloomberg , the price of gas and food already appear to be getting a head start on inflation. For January, Consumer Price Index data also found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in all goods included in the CPI.The month of January. Can you imagine what this was like for February? Can you imagine what it will be like for March?I'm not trying to sound the alarm- but be very aware. These are just the early warning signs.So, where do we go from here? Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels remain in motion for a healthy 2021, that correction that I've been calling for has already started for the Nasdaq. Other indices could potentially follow.Finally.Corrections are healthy and normal market behavior, and we have been long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).Most importantly, this correction could be an excellent buying opportunity.It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be careful, but be a little bold right now too.There's always a bull market somewhere, and valuations, while still somewhat frothy, are at much more buyable levels now.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. A further downturn by the end of the month is very possible, but I don't think that a decline above ~20%, leading to a bear market, will happen.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- From Overbought to Oversold in 3 Weeks?Figure 1- Nasdaq Composite Index $COMPThe Nasdaq is finally in correction territory! I have been waiting for this. It’s been long overdue and valuations, while still frothy, are much more buyable. While more pain could be on the horizon until we get some clarity on this bond market and inflation, its drop below 13000 is certainly buyable.The Nasdaq has also given up its gains for 2021, its RSI is nearly oversold at about 35, and we’re almost at a 2-month low.It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.Plus, it’s safe to say that Cathie Wood, the guru of the ARK ETFs, is the best growth stock picker of our generation. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler seems to think so too. Her ETFs, which have continuously outperformed, focus on the most innovative and disruptive tech companies out there. Not to put a lot of stock in one person. But it’s safe to say she knows a thing or two about tech stocks and when to initiate positions- and she did a lot of buying the last few weeks.I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.I also think it’s an outstanding buying opportunity for big tech companies with proven businesses and solid balance sheets. Take Apple (AAPL), for example. It’s about 30% off its all-time highs. That is what I call discount shopping.What’s also crazy is the Nasdaq went from overbought 3 weeks ago to nearly oversold this week. The Nasdaq has been trading in a clear RSI-based pattern, and we’re at a very buyable level right now.I like the levels we’re at, and despite the possibility of more losses in the short-run, it’s a good time to start to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Stimulus And Consumers Are The Keys To Further US/Global Economic Recovery – Part I

Stimulus And Consumers Are The Keys To Further US/Global Economic Recovery – Part I

Chris Vermeulen Chris Vermeulen 08.03.2021 03:55
At this point in our lives, we are hoping the new COVID-19 vaccines will do their part to help move the world towards more normal consumer and economic activities.  The US Senate recently a new $1.9 Trillion stimulus package that should continue to provide assistance to various levels of consumer, state governments, and corporate enterprises.  The next question in our mind is “what will the recovery look like if/when it happens?”.  We need to look at three critical components of the global economy to help answer this question: Consumer Activity, Debt, and Supply/Demand Functions.Consumer activity makes up more than 60% of the US GDP.  It also drives money flow as consumers engage in economic activity, create credit for new purchases and help to balance the supply/demand equilibrium functioning properly.  The participation of the consumer within an economy is essential for a healthy growing economy.WHERE ARE CONSUMERS NOW & WHERE WILL THEY BE IN THE FUTURE?The US has passed more than $4 Trillion in COVID-19 stimulus over the past 12+ months.  At the same time, global central banks have also engaged in various easy money policies to spark global economic activity.  When we combine the efforts of world governments and central banks, we've seen an unprecedented amount of money deployed throughout the globe recently – and that money needs to find its purpose and use in the global economy quickly of the global economy is going to recover enough to spark a new wave of economic growth.We believe two key components of consumer engagement are at play right now; investing/trading in the US and global markets and Real Estate.  Whereas US consumers have been reducing debt exposure on credit cards and tightening their spending in other ways, trading volumes in the stock market Indexes and ETFs have increased dramatically over the past 12 months.  Additionally, low supply and low interest rates have kept the US housing market active, in addition to the boost in activity from people moving to more rural areas as the work-from-home phenomenon settles into the new normal.CASE-SHILLER HOME PRICE INDEXThis Case-Shiller 20-City Composite Home Price Index chart, below shows how quickly home prices have rallied over the past 12 months. Just prior to the COVID-19 pandemic, this index was flattening.  Then the moratorium on foreclosures and extended assistance for homeowners pulled many homes back off the market in early 2020.  That reduced supply and prompted a rally in home prices across the US.The assistance provided to these “at-risk” homeowners accomplished two very important economic benefits.  It eliminated a wave of new foreclosures (albeit possibly temporarily) and it prompted a seller's market because supply had been constricted.  The result is that many homeowners witnessed a 6% to 10% increase in their home values over the last 12+ months.DELINQUENCY RATES ON CONSUMER LOANSUnlike in 2006-2008 when delinquency rates skyrocketed during the housing crisis, throughout the COVID-19 pandemic, delinquency rates collapsed to the lowest levels over the past 25+ years.  Consumers took their extra capital, stimulus checks, and federal assistance and used the past 12+ months to eliminate certain debts.  Even though we are starting to see an uptick in delinquency rates in Q4 2020, these levels would have to climb considerably before we get close to the levels before the COVID-19 pandemic.Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!This suggests that a broad spectrum of US consumers are in a much better economic position related to revolving debt, or credit card debt, than they were before the COVID-19 pandemic.  If these consumers begin to engage in a new economic recovery by engaging in a healthy credit expansion, we may see a boost to certain sectors of the economy over the next 24 to 36+ months.REAL PERSONAL CONSUMPTION EXPENDITURESUnlike many other indicators, Real Personal Consumption has risen past the pre-COVID-19 peak levels.  This suggests that consumers are still spending money on Durable Goods and are continuing to buy essential items to support their lifestyles and families.  Yes, there are a number of people that are unemployed or have transitioned to other types of work, but the stimulus efforts and extended unemployment assistance has translated into real consumer engagement for Durable Goods, as we can see from the chart below.Remember, Durable Goods are not typically found at Grocery Stores or Walmart.  They are items that have extended life-cycles (greater than three years); such as cars, planes, trains, furniture, appliances, jewelry, and books.  This rise in Durable Goods suggests that a large segment of the US consumer is actively engaged in making bigger-ticket purchases recently – possibly as a result of buying a new home, transitioning away from traditional work environments, and/or repositioning family essentials in preparation for a post COVID-19 world.  This type of economic engagement may continue for many months forward.CONSUMER PRICE INDEX – ALL URBAN CONSUMERSThe following Consumer Price Index chart shows that general consumer prices briefly dipped when COVID-19 hit in March 2020, but they have since rallied to new highs.  This is partially a result of the rise in home prices and rising commodity prices, which contribute to a rise in price levels for consumers.All of this data is showing that the US consumer is actually much more economically healthy than consumers were in the midst of the 2007-08 housing crisis. The stimulus efforts and partial economic shutdown did result in a large number of displaced or disadvantaged consumers, but it also shows that many US consumers were able to quickly transition into a different type of economic environment with very little extended economic risks.The new $1.9 Trillion stimulus package will offer even more assistance to consumers.  This new stimulus will be spent as new COVID-19 vaccines are being rolled out, suggesting the US is quickly moving away from extended risks related to the pandemic.  This means consumers will likely start attempting to go back to normal in certain ways.  Does this mean that the recovery efforts will strengthen the bullish price trend in the future and the US stock markets will continue to rally?In our effort to better identify opportunities for traders and investors as the post-COVID-19 recovery unfolds, we will continue to identify various market sectors that my research team and I believe have a strong potential for increased bullish price trends.  All of the data we've presented so far suggests the US consumer is much healthier than many people consider and that many US consumers are still actively engaged in some type of work/income solution.  The only reason why housing, durable goods, CPI, and other economic indicators continue to rise is because US consumers are actively engaged in buying/consuming bigger, durable goods.  This suggests the new $1.9 Trillion COVID relief effort may begin to push the US economy further into overdrive, and possibly pushing the supply/demand balance even further beyond the equilibrium zone.Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.In Part II of this article, we'll take the data we've reviewed already and apply it to current market conditions, trends, and technical setups as we look for new opportunities in consumer-based sectors.  My team and I believe some very big sector trends are going to set up as a result of everything that is converging on the US and global markets.  It's time to get ready for some big trends. 
Boosting Stimulus: A Look at Recent Developments and Market Impact

No More Rocking the Boat in Stocks But Gold?

Monica Kingsley Monica Kingsley 08.03.2021 15:23
Stocks sharply reversed intraday, and closed just where they opened the prior Friday. That indicates quite some pressures, quite some searching for direction in this correction that isn‘t over just yet. Stocks have had a great run over the past 4 months, getting a bit ahead of themselves in some aspects such as valuations. Then, grappling with the rising long-term rates did strike.So did inflation fears, especially when looking at commodities. Inflation expectations are rising, but not galloping yet. What to make of the rising rates then? They‘re up for all the good reasons – the economy is growing strongly after the Q4 corona restrictions (I actually expect not the conservative 5% Q1 GDP growth, but over 8% at least) while inflation expectations are lagging behind. In other words, the reflation (of economic growth) is working and hasn‘t turned into inflation (rising or roughly stable inflation expectations while the economy‘s growth is slowing down). We‘re more than a few quarters from that – I fully expect really biting inflation (supported by overheating in the job market) to be an 2022-3 affair. As regards S&P 500 sectors, would you really expect financials and energy do as greatly as they do if the prospects were darkening?So, I am looking for stocks to do rather well as they are absorbing the rising nominal rates. It‘s also about the pace of such move, which has been extraordinary, and left long-term Treasuries trading historically very extended compared to their 50-day moving averages. Thus, they‘re prone to a quick snapback rally over the next 1-2 weeks, which would help the S&P 500 regain even stronger footing. And even plain temporary stabilization of theirs would do the trick.This is taking me directly to gold. We have good odds of long-term rates not pressuring the yellow metal as much as recently, and inflation expectations are also rising (not as well anchored to 2% as the Fed thinks / says). As I‘ll show you in the charts, the signs of decoupling have been already visible for some time, and now became more apparent. And that‘s far from the only suggestion of an upcoming gold upswing that I‘ll bring you today.Just as I was calling out gold as overheated in Aug 2020 and prone to a real soft patch, some signs of internal strength in the precious metals sector were present this Feb already. And now as we have been testing for quite a few days the first support in my game plan, we‘re getting once again close to a bullish formation that I called precisely to a day, and had been banging the bearish gold drum for the following two days, anticipating the downside that followed. Now, that‘s what I call welcome flexibility, extending to accentuated, numerous portfolio calls.And the permabears keep (losing capital through many bullish years in a row in some cases) calling for hundreds bucks more downside after a respite now, not even entertaining the thought that gold bottom might very well not be quarters ahead. It‘s easier to try falsely project own perma stickers onto others. Beware of wolves in ill-fitting sheep clothing. Look at full, proven track records, compare varying perspectives of yesteryear too, and wave off cheap halo effects.It‘s the above dynamic between nominal rates taking a breather, dollar getting back under pressure, commodities continuing their rise and stocks gradually resuming theirs – see the ebbing and flowing that I‘m laying down in the daily analyses on the revamped homepage, and you‘ll get a knack for my timings of local tops or bottoms just the way I did in the early Sep buying climax or in the corona crash.True mastery is in integrating and arguing opposing views with experience and adaptability daily. People are thankfully able to recognize these characteristics on their own – and they have memory too. Who needs to be told what to read and consider by those embracing expertise only to turn against it when the fruits were no longer theirs? Sour grapes. Narrow thinking is one of the dangers of our era replete with empty and shallow shortcuts. Curiosity, ingenuity and diligence are a gift to power mankind – and what you get from financial analysts – forward in a virtuous circle.If gold prices rise from here, they have bounced off support. Simple as that, especially given the accompanying signs presented. There is time to run with the herd, and against the herd – in both bull and bear trends, constantly reevaluating the rationale for a position, unafraid to turn on a dime when justified.Whatever else bullish or bearish I see technically and fundamentally in rates, inflation and dollar among much else, I‘ll be duly reporting and commenting on as always. It‘s the markets‘ discounting mechanism of the future that counts – just as gold cleared the deflationary corona crash in psring 2020, just as it disregarded the tough Fed tone of 2H 2018, just as it sprang vigorously higher in early 2016 stunning bears in all three cases with sharp losses over many months, or just as stocks stopped declining well before economic news got better in April 2020 or March 2009. Make no mistake, the markets consider transitioning to a higher inflation environment already now (the Fed timidly says that reopening will spike it, well, temporarily they say), when inflation expectations are still relatively low, yet peeking higher based on the Fed‘s own data. Such were my Friday‘s words:(…) Let‘s keep the big picture – gold is in a secular bull market that started in 2018 (if not in late 2015), and what we‘re seeing since the Aug 2020 top, is the soft patch I called. The name of the game now, is where the downside stops – I am not capitulating to (hundreds dollars) lower numbers below $1,650 on a sustainable basis. The new precious metals upleg is a question of time even though the waiting is getting longer than comfortable for many, including myself. Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and Its InternalsStrong rebound after more downside was rejected, creating a tweezers bottom formation, with long lower knots. This is suggestive of most of the downside being already in. The Feb 25 upswing had a bearish flavor to it, while the Mar 1 one looked more constructive – and Friday‘s one is from the latter category. That doesn‘t mean though this correction won‘t be in the 5% range. The 3,900 zone is critical for the bulls to pass so as to clear the current precarious almost no man‘s land.The market breadth indicators are actually quite resilient given how far this correction has reached. New highs new lows are holding up still very well, yet they too indicate that this correction has further to go in time. While the bullish percent index still remains in the bullish territory, it indicates how far the correction has progressed technically, and that we can‘t declare the bullish spirits as having returned just yet.Credit MarketsHigh yield corporate bonds (HYG ETF) ilustrate this fragility for they haven‘t rebounded as strongly as stocks. This correction doesn‘t appear to be as really over just yet, also given the sectoral picture that I am showing you next.S&P 500 Sectoral LookTech reversed, but higher volume would be welcome to lend the move more credibility. This sector is still the weakest link in the whole S&P 500 rebound, and not until I see the $NYFANG carve out a sustainable bottom (this needn‘t happen at the 200-day moving average really), I can declare this correction as getting close to over. The bullish take on the volume is that the value sector has undergone strong accumulation, as can be readily seen in the equal weight S&P 500 index (RSP ETF). The above chart shows that cyclicals are performing strongly – with industrials (XLI ETF) and energy (XLE ETF) leading the charge as the tech and defensives are trying to stabilize, and the same is true about consumer discretionaries (XLY ETF).Gold‘s Big Picture ViewGold‘s weekly chart shows two different stages in the reaction to rising long-term rates. The first half was characterized by the two tracking each other rather closely, yet since late Dec, the nominal rates pressure has been abating in strength within the mutual relationship. While TLT plunged, gold didn‘t move down as strongly. Real rates are negative, nominal rates rose fast, and inflation expectations have been trending higher painfully slowly, not reflecting the jump in commodities or the key inflation precursor (food price inflation) just yet – these are the factors pressuring gold as the Fed‘s brinkmanship on inflation goes on. Once the Fed moves to bring long-term rates under control through intervention – hello yield curve control or at least twist – then real rates would would be pressured to drop, which would be a lifeline for gold – the real questions now are how far gold is willing to drop before that, and when that Fed move would happen. Needless to add as a side note regarding the still very good economic growth (the expansion is still young), staglation is what gold would really love.Copper and Silver Big Picture ViewThe red metal keeps rising without end in sight, reflecting both the economic recovery and monetary intervention. This is a very bullish chart with strong implications for other commodities and silver too. That‘s the essence of my favorite play in the precious metals – long silver short gold spread, clearly spelled out as more promising than waiting for gold upswing to arrive while the yellow metals‘ bullish signs have been appearing through Feb only to disappear, reappear, and so on.As you can see, silver performance approximates commodity performance better than gold one. And as the economic recovery goes on, it‘s indeed safer to be a silver bull than a gold bull – another of my early Feb utterances.Miners to Gold Big Picture ViewThis gold sectoral ratio made an encouraging rebound last week, but isn‘t internally as strong as it might appear, because the juniors (GDXJ ETF) aren‘t yet outperforming the seniors (GDX ETF), which had been the case in early 2021 and late in Feb as well – right till I sounded the alarm bells on Feb 23-24. This is precisely why I was not bullish in tone at all in the past week, as gold hadn‘t been acting as strongly now as it had been right before the Feb 22 upswing that I called. And I am missing this ingredient at the moment still.SummaryStock bulls stepped in and repaired much of Thursday‘s damage, flipping the balance of power as more even at the moment. While the medium-term factors favor the bulls, this correction is slated to go on still for longer, as all eyes are on tech (big names) as the deciding sector.Gold still remains acting weak around the lower border of its support zone, silver is refusing to decline more, and signs overall favoring a rebound, are appearing. It‘s still a mixed bag though, with especially gold being far from out of the woods yet.
New York Climate Week: A Call for Urgent and Collective Climate Action

How to Join the Mining Party… Before it Ends

Finance Press Release Finance Press Release 08.03.2021 18:39
Forget gold and silver for a moment. Do you hear the music? Yes, it’s coming from the mining ETFs club. But how long will the party last?And more importantly, why miners, you may ask? Because miners tend to outperform in the early days of a major rally.After closing only $0.10 below my initial downside target of $31 on Mar. 1 , the GDX ETF could be ripe for an upward revision. Able to ignore much of last week’s chaos, the GDX ETF’s outperformance of gold and silver signals that the tide has likely turned.Please see below:Figure 1To that point, I warned on Mar. 1 that help was on the way:The GDX ETF has garnered historical support at roughly $29.52. The level also coincides with the early-March high, the mid-April low and the 61.8% Fibonacci retracement level. As a result, a corrective upswing to ~$33/$34 could be the miners’ next move.Furthermore, after alerting subscribers on Mar. 4 – writing that when gold moves to $1,692, we’ll automatically open long positions in the miners – the GDX ETF ended Friday’s (Mar. 5) session up by 3.2% from my initial entry of ~$30.80 - $31. Thus, from here, the GDX ETF has roughly 3.8% to 7.0% upside (as of Friday’s close) before the $33/$34 levels signals that the momentum has run its course.For now, though, positioning for more upside offers a solid risk-reward proposition . Prior to the initial decline, miners were weak relative to gold . However, after outperforming on Mar. 5, their steady hand was a sign of short-term strength. If you analyze the chart below, you can see that the size and shape of the current price action actually mirrors what we witnessed back in April.Please see below:Figure 2 - VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020For context, I wrote on Mar. 5:Miners stopped their decline practically right in my target area, which I based on the 50% Fibonacci retracement and the 2020 highs and lows. Moreover, the proximity of the $31 level corresponds to the 2019 high and the 2016 high. Since so many support levels coincide at the same price (approximately), the latter is likely to be a very strong support. Moreover, the RSI was just close to 30, which corresponded to short-term buying opportunities quite a few times in the past.In addition, a short-term upswing could provide a potential pathway to $35 – as this level also corresponds with the GDX ETF’s late-February high, its monthly declining resistance line and its 50-day moving average. The abundance of resistance levels – combined with the fact that an upswing would further verify the GDX ETF’s breakdown below the neckline of its potential head and shoulders pattern – should keep the upward momentum in check.Over the medium-term, the potential head and shoulders pattern – marked by the shaded green boxes above – also deserves plenty of attention.For context, I wrote previously:Ever since the mid-September breakdown below the 50-day moving average , the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.(…)The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder (figure 2 - both marked with green) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.Due to the uncanny similarity between the two green rectangles, I decided to check what happens if this mirror-similarity continues. I used purple, dashed lines for that. There were two important short-term price swings in April 2020 – one shows the size of the correction and one is a near-vertical move higher.Copying these price moves (purple lines) to the current situation, we get a scenario in which GDX (mining stocks) moves to about $31 and then comes back up to about $34. This would be in perfect tune with what I wrote previously. After breaking below the head-and-shoulders pattern, gold miners would then be likely to verify this breakdown by moving back up to the neck level of the pattern. Then, we would likely see another powerful slide – perhaps to at least $24.This is especially the case, since silver and mining stocks tend to decline particularly strongly if the stock market is declining as well. And while the exact timing of the market’s slide is not 100% clear, stocks’ day of reckoning is coming . And it might be very, very close.As I explained previously, based on the similarities to the 1929 and 2008 declines, it could be the case that the precious metals sector declines for about 3 months after the general stock market tops. And it seems that we won’t have to wait long for the latter. In fact, the next big move lower in stocks might already be underway, as the mid-Feb. 2021 top could have been the final medium-term top.In conclusion, the gold miners should continue to glisten as oversold conditions buoy them back to the $33-$35 range. Due to the GDX ETF’s recent strength, combined with gold rallying off of the lows on Mar. 5, the PMs could enjoy a profitable one-week (or so) party. However, with the celebration likely to be short-lived, it’s important to keep things in perspective. While this week’s performance may elicit superficial confidence, medium-term clouds have already formed. As a result, positioning for an extended rally offers more risk than reward.(We normally include the "Letters to the Editor" section in the full version of Gold & Silver Trading Alerts only, but today I decided to include it also in this free version of the full (about 10x bigger than what you just read) analysis, so that you get the idea of how this part of the analysis looks like. It might be quite informative too. Enjoy:)Letters to the EditorQ: Could you update your thoughts regarding physical [gold and silver] for those looking to acquire additional positions - specifically, what do you think premiums and availability are going to look like when/if spot goes a $100 or $200 down from here? By way of example, I bought some U.S. gold buffaloes at $1854 spot at $1954. Those same coins at $1710 spot are still around $1930, if there are any to be found.A: It’s a tough call, because the premium values don’t follow the technical patterns. Still, based on the analogy to situations that seem similar to what we saw recently, it seems that we can indeed say something about the likely physical values close to the likely $1,450 bottom.Figure 43 - Source: didthesystemcollapse.orgThe above chart shows the eBay premium for 1 oz Gold American Eagle coins over the spot gold price.In April 2020, the premium spiked at about 14%. It was likely even higher in March (we don’t have the direct data), but the volatility back then was bigger than it is right now, so it seems that the current premium and the April 2020 premium values are a better proxy for the future bottoming premiums than the March 2020 bottom premium would be. If the volatility increases, one could see the premium at about 15% or so.With gold at about $1,450, the above-mentioned information means Gold American Eagle coins can cost about $1,670.Still, since gold futures prices seem more predictable than the prices of bullion coins, I’d focus on the former even while timing the purchase of the latter.Moreover, please note that I’m planning to focus on buying mining stocks close to the bottom and move to metals only later. The reason is that miners tend to outperform in the early days of a major rally (just like they did in the first quarter of 2016). The fact that the premium is likely to be high when gold bottoms in a volatile manner is yet another reason for the above. When switching from mining stocks to physical holdings several weeks or months later, one might be buying at a smaller premium over the spot, and also after having gained more on miners than on the metals. Of course, the above is just my opinion, and you can purchase whatever you want – after all, it’s your capital and your investment decisions.Q: Please note that I am glad to see gold moving downwards but I am a little confused – the trading report I just received recommends selling at 1690ish but the mailing previously said 1450ish - please see attached.Could you please investigate and advise.A: If anything in the Gold & Silver Trading Alerts seems confusing, please refer to the “Summary”, the trading/investment positions, and the “Overview of the Upcoming Part of the Decline” sections for clarification. In this case, we exited the remaining short positions when gold hit $1,693 and almost immediately entered long ones (when gold hit $1,692). We now have long positions in the mining stocks with the plan to exit them in a week or so, and re-enter short positions then, because the next big move is likely to be to the downside (perhaps as low as $1,450 or so). Also, the above is just my opinion, not a recommendation or investment advice.Q: Hi P.R., thanks for the advice on this trend, it’s been an amazing trade.As I’m trading on XAUUSD, are you also able to advise the targets for a gold long entry,or should I wait for the final bottom before opening any longs?A: I’m very happy that you’re making profits thanks to my analyses. While I think that the very short-term (for the next 5 trading days or so) outlook for gold, silver and mining stocks is bullish, I think the targets are more predictable for mining stocks than they are for gold and – especially – silver. Still, this time, the short-term upside target for gold is also relatively clear – at about $1,770. That’s why I put the $1,758 in the “For-your-information target” for gold in the “Summary” section below.Q: Are we looking for the short-term upside move to be 1-5 weeks before the final decline into the 1350-1500 zone? I'm a little unsure of the timing you're laying out.A: I’m looking for the short-term upswing to take place between 1 and 3 weeks – that’s the part of the “Overview of the Upcoming Part of the Decline” section about it:It seems to me that the initial bottom has either just formed or is about to form with gold falling to roughly $1,670 - $1,680, likely this week.I expect the rebound to take place during the next 1-3 weeks.After the rebound (perhaps to $33 - $34 in the GDX), I plan to get back in with the short position in the mining stocks.In my opinion it’s most likely that this counter-trend rally will take about 1 – 1.5 weeks. Then, I think that the decline to about $1,450 in gold will start.Q: Thank you for sending out the Alert # 2 with the new changes in the Gold and Silver trades today. This is necessary, so please send out the alert once you enter back to the short positions, please.A: I’m happy that you enjoyed this intraday Alert. I will indeed send you – my subscribers – an intraday confirmation that the long positions were closed and when we enter new short positions. Still, please note that we already have binding profit-take exit prices in place, which means that when prices move to the target levels (e.g., GDX to $33.92), the long positions should be automatically closed, and profits should be taken off the table – even without an additional confirmation from me (it takes time for me to write and send the message and then some time usually passes before one is able to act on my message).Q: You have informed us to make the move when the Gold price “REACHES” $1693.00. My question is; Does the word “Reach” mean when the price touches that point, if only for a moment, or does “Reach” mean when it closes the day at or below $1693.00?Thank you for your response to this question.A: “Reaching” a price means the same thing as “touching” the price or “moving to” the price. This means moving to this price level on an intraday basis – even for just one tick . If I mean closing prices, I will specifically describe them as such.For instance, I currently have binding exit positions for the current long position in the mining stocks – and these are exactly the price levels that I have put in my brokerage account as a limit sell order.Q: Please comment on the Hindenburg Omen for stocks:Figure 44 - Source: RefinitivA: Thanks. The Hindenburg omen is not one of the most reliable indicators - even on the above chart, it’s clear that most of the signals were not followed by declines. Please note how many fake initial signals there were before stocks finally declined in 2019 or 2020. There are many other reasons to think that stocks are going to move much lower, though. In the very short-term they could still move higher, but this move could be fake and could turn out to be the right shoulder of the head-and-shoulders top formation.Q: 1) for shorter-term trades such as the potential 10% pop in the GDX, is NUGT better?2) the plan after we re-enter a short trade when the GDX gets to $33/$34 might mean a longer haul before we hit rock bottom . You have mentioned time-scales up to 20 weeks (ish). Due to a longer holding period , would the CFD route be a cheaper route when compared to NUGT? I’m asking in general terms because each provider imposes different fees and I don’t expect you to comment on the fees charged by IG, which is the service I use.I also recognize that NUGT only offers 2 X leverage, whereas CFD’s offer up to five times leverage.Finally, the manner in which you detail the rich tapestry of the economic forces that impact PMs is revealing and educational. I find this all fascinating.I have my own views which can be summed up like this: How many inflationary false-dawns and panics has the bond market had? Ever since 2008, when the FED launched QE, there have been numerous bouts and hissy fits of inflationary expectations that have subsequently sunk like a dodgy soufflé. I think this time is no different and it’s entirely possible the 30-year bond could drop to ZERO. I am in the deflationary camp.How might the 10 year at zero or possibly sub-zero and longer, out on the duration curve to (TLT ETF) dropping to 0.5%, affect the price of gold?Your thoughts as ever, are much appreciatedA: 1) That depends on whether one seeks leverage or not, and how much thereof. Please note that some short-term trades could sometimes become medium-term trades if the market decides to consolidate or move in the other direction before continuing the predicted trend. In this case, non-leveraged instruments are at an advantage over the leveraged ones, because they don’t suffer from the back-and-forth trading as much as the leveraged ones do.If one’s desired exposure to the GDX ETF wouldn’t exceed the cash that one dedicated to trading, then in order to have the same exposure one would simply have half of the capital employed in NUGT (which is 2x leveraged). This way, the exposure would be identical, but the NUGT would imply additional risk of losing more capital if the trade takes much longer than planned and/or if the price moves adversely first.Please note that there is also an additional way to gain leverage (it’s not available for everyone, though) and that is through the use of margin on one’s brokerage account. I’d prefer to use margin for the GDX before aiming to gain leverage through NUGT.In other words, I’d first use more cash for GDX before I’d go into NUGT. If I wanted to have even bigger exposure than the one achieved by employing more capital to GDX, I would then consider using margin, and then I would consider using NUGT if I still wanted to get more leverage.There might be some traders who would seek to combine both for even bigger leverage (buying NUGT on margin), but this is definitely not something that I’d recommend to most people. In fact, it seems that in many cases, sticking to the GDX would be a good way to go.2) I think I already replied to the first part of your question (NUGT vs. CFD) above. Also, for other people reading this reply – please note that CFDs (contracts for difference) are not available in many areas, including the USA and Canada.I’m glad to read that you enjoy reading my explanations of the current situation in the markets (precisely, my opinions on it).Real interest rates are one of the most important drivers for gold (along with the USD Index), so a drop in the 10-year rates to zero or sub-zero levels would likely be very beneficial for the gold prices.Figure 45Also, based on the pace at which the rates have rallied recently, they might be topping here, but… There was no decline in the previous 40 years that was as big as what we saw between 2018 and 2020. Consequently, the corrective upswing might be bigger as well. Also, the above chart is not necessarily the scale that is big enough to make very long-term conclusions.Figure 46Over the past centuries, whenever the rates fell very low, they then rallied back up with vengeance. After WW2, it theoretically would have been a “good idea” to keep stimulating the economy with low rates – and yet, they soared. Right now, the monetary authorities strive to be very dovish and keep pumping liquidity into the system, and yet the rates are rallying anyway.So, while the analogy to the previous years – or the past few decades – suggests that the rally in the rates might be over or close to being over, the very long-term chart suggests otherwise.To make the situation even more complicated, if the stock market has already topped in February, and we have already entered the Kondratiev winter cycle, it means that we can theoretically expect the rates to fall, then rise in a credit crunch, and then fall much lower.All in all, the outlook for the interest rates is anything but simple and clear. Perhaps what we see right now already IS the credit crunch and the 10-year rates are on their way to above 2% - after all, they used to return above their 200-day moving average after the previous medium-term declines. It seems to me that the move above 2% in the 10-year rates could correspond with gold’s decline below $1,500.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

9 March 2021

Stock market news Stock market news 09.03.2021 11:47
Savills: 2021 will see the stars align for sale and leaseback transactionsSale and leaseback transactions (S&LB) in Europe reached a total of €8.4bn in 2020, 8.5% higher than the five year average, with the trend set to continue into 2021 according to Savills. Also in Poland, Savills sees an increasing number of companies willing to take the sale and lease back route mainly in industrial and retail sectors.Data from the international real estate advisor shows that although the 2020 volume was 10% lower than 2019, historically there has been a significant correlation between property prices and S&LB activity, which translates into an increasing number of S&LB transactions when yields are moving in. This current period is indeed an ideal time for S&LB transactions to take place as rising prices trigger owner-occupiers’ interest in selling their properties, whilst investment opportunities are scarce on the market.Oli Fraser Looen, Joint Head of Regional Investment Advisory, EMEA, Savills, commented: “The increased need for businesses to find liquidity to shore up balance sheets or make acquisitions in the current and post-Covid environment, will help S&LB transactions to become increasingly popular during 2021. Our view is that H2 2021 will see a record number of corporate-led S&LB deals. These sales will be welcomed by the increasing wall of capital which will be hunting long income assets as they try to match liabilities.”Logistics leadsIn terms of sector breakdowns, logistics popularity continues to gain momentum off the back of rising e-commerce. Lydia Brissy, Director, European Research, Savills, commented: “With limited product on the market, strong competition has naturally driven down yields by around 312 bps to as low as 3% in core locations, over the past 10 years. With strategic footprint, omnichannel improvement and the integration of automation processes to consider, many ecommerce operators are having to inject large investment volumes to maintain market share. As such, a S&LB transaction makes strong commercial sense for some logistics owner-occupiers.”As a result, European logistics S&LB activity increased regularly since the end of 2013 and reached a record level last year, €3.4bn, approximately 15% higher than in 2019. At the same time, the overall logistics investment market increased by 4% only, confirming that limited supply is restraining the overall activity in the sector.In terms of other sectors, retail S&LB transactions were largely confined to supermarket and hypermarket retailers with the grocery sector proving its resilience during country lockdowns. Such resilience has caught investors’ attention seeking to maintain their retail exposure resulting in the compression of supermarket yields. On average across Europe, prime supermarket yields moved in by 14bps between 2019 and 2020 whilst during the same period, prime shopping centre yields softened by 39bps. For offices, despite a strong prime yield compression recorded since 2009 (270bps on average across the major European cities), office S&LB has only risen slightly and sporadically since 2013. Nevertheless last year the office S&LB investment totalled €3.4bn.Lydia Brissy continued: “The office sector has gone through a reassessment of its fundamental role over the past 12 months, leaving most office occupiers in a status quo situation. Although S&LB is one potential exit towards flexibility, potential investors will be wanting to asses the combination of location, occupier sector and covenant in order to consider a purchase.”Location location locationIn terms of geographical spread, it was France that led the charge, by a number of large transactions , including most notably the sale of the future large office scheme named Harmony located in La Garenne-Colombes, which will be the headquarters of Engie.In Germany, which follows as the second biggest S&LB beneficiary, the volume was predominantly boosted the sale of the Hamburg Commercial Bank HQ bought buy Signa Holding and the sale of Randome House from Bertelsmann to Allianz Real Estate.In the Netherlands, the S&LB volume nearly tripled last year, predominantly due to many sales from logisticians, including notably the sale from DSV of a 115,0000 warehouse to Savills IM. Nevertheless, the sale & leaseback of the Jumbo supermarket portfolio was the largest deal recorded last year.In the UK, S&LB activity was also mainly driven by the logistics sector although supermarket brands including most notably Waitrose and LondonMetric have also been active in selling.Focus on PolandLukasz Frominski, Associate Director, Investment, Savills Poland, commented: Over the past two years we have observed that owner occupiers in Poland are becoming more educated in understanding and in turn pursuing a SLB strategy. They see the benefit in this solution to help them boost and grow their business faster in our dynamically expanding and developing economy. Also professional net lease investors are conducting deals in a fast track mode that is particularly attractive to companies who otherwise have to deal with often slow performing banks. To succeed the property owner needs a good story, a strong covenant and attractive real estate.John Palmer, Director, Head of Industrial Investment, Savills Poland, adds: Despite the downward pressure on yields across all jurisdictions, Poland still benefits from a significant and appealing pricing gap compared to Western European opportunities. Therefore a purchaser acquiring a S&L in Poland can purchase an investment, often with the same named corporate covenant found on similar deals in Western Europe, whilst delivering significantly better returns to the ultimate investors.-ends-For further information, please contact:Isabel Stoddart, Savills press office Tel: +44 (0) 7580 587746Jan Zaworski, Communication Manager Tel: +48 (0) 666 363 302Founded in the UK in 1855, Savills is one of the world's leading property agents with 600 offices across the Americas, Europe, Asia Pacific, Africa and the Middle East offering a broad range of specialist advisory, management and transactional services.Should you not wish to receive Savills press releases, please email us at: kontakt.rodo@savills.pl. Click here for our Privacy Policy.
US Industry Shows Strength as Inflation Expectations Decline

STIMULUS AND CONSUMERS ARE THE KEYS TO FURTHER US/GLOBAL ECONOMIC RECOVERY – PART II

Chris Vermeulen Chris Vermeulen 09.03.2021 13:46
This is a continuation of our extended technical review of what my research team and I believe will be required for the US/Global markets to enter a stronger post-COVID-19 recovery phase. If you missed Part I of this research series then you can find it here: www.thetechnicaltraders.com/stimulus-and-consumers-are-the-keys-to-further-us-global-economic-recovery-part-i/. In this Part II, we will look at how potential currency shifts will prompt new trending in various economic sectors.   The past 20+ years have really changed how the markets operate from a standpoint of capital deployment and capital function.  We certainly live in interesting times from a trader and investor perspective. There is more capital floating around the globe right now than ever before... and that changes certain things.The Components Of A Frenzied Global MarketThe first and most notable change is to create volatility at levels we have really never seen before.  The average daily price range on the QQQ or SPY charts is more than 3x historical price range levels.  This simple fact shows that a 1% price range, which used to be considered a moderately large price range for the price to move, is now considered a below normal range.  This new level of volatility has applied to many of the largest SPY and NASDAQ-related stock symbols over the past few years as capital was deployed into various sectors with increasing speed and volition.We profit from volatility by using non-directional options trading strategies.Watch our webinar on How To Become An Options Strategy Master now!The US and global central banks have continued to deploy easy money policies since the 2008-09 Housing/Credit crisis which has perpetuated a Roaring-20s type of mentality throughout the world.  Even though we could point out certain nations that are underperforming economically, generally the world has seen an unprecedented rise in credit, debt, and associated spending capabilities over the past 10+ years.  This level of unusual economic expansion comes with certain consequences, similar to the expansion that led up to the 2008-09 Housing/Credit crisis.It also has to be noted that COVID-19 has really altered the way consumers are engaging in the economy right now.  Online, stay-at-home, avoid outside risks type of activities have really become the new normal. Many sociologists continue to suggest consumers may be slower to move back into old economic habits (pre-COVID-19 spending habits).  This change in how people perceive risks and adopt new economic processes will likely lead to a rise in digital productivity, the adoption of technology solutions, and a change of spending habits, which could prompt a much bigger transition for certain market sectors that have been overlooked recently.Watch Chris and Neil Present at The Mad Hedge Traders and Investors Summit - Click to Register for FREE!One thing that has certainly benefited from COVID-19 is the number of new investors/traders plying their skills (and hard-earned cash) in the markets.  We've never seen anything like this explosive growth in retail market participation over the past 20+ years.  The closest we've come to this level of retail trader participation in the equities and financial markets was in 1998~99 during the height of the DOT COM bubble.  This incredible consumer participation in the global equities trends/trading has helped propel many US major indexes/sectors to incredible heights – and it may not end any time soon.The following Monthly ratio chart, comparing the growth in the QQQ, SPY, and GOLD since January 1, 2009 (the anchor price) highlights how the frenzy of investing really started to accelerate after 2012 and began to move into a parabolic trend in 2016.  If you follow the MAGENTA QQQ ratio after the vertical dateline on this chart, you will see how early 2017 started a dramatic acceleration in volatility and trending as the QQQ accelerated higher by more than +186%.  Meanwhile, the SPY, which was somewhat overlooked throughout this rally phase, moved higher by only +85%.Where is the Consumer?  Has The Consumer Really Retreated Because Of COVID-19?One prime example of this frenzy is this recent Yahoo! Finance story about burned Banksy Art which sold for over $390,000 as a Non-Fungible Token. The idea that anyone would buy a burned piece of art for this price shows that money has turned into a game for some people.  The gamification of wealth has likely transitioned into global social thinking in ways that we have not even considered yet.Even though we've highlighted how the global equity/financial markets have rallied considerably over the past 5+ years, we still need to see the consumer reenter the economy in a more traditional sense. This M1 Velocity of Money chart shows that after the 2009 peak, the velocity of money, the rate at which money is exchanged within an economy, has collapsed to levels we have not seen in 60+ years, and quite possibly below levels relative to the Great Depression (1930s).So, what's happening in the world right now to present these types of charts/data?  How can the world be flush with capital/cash and the data show that the consumer is still actively engaged in purchasing various items, which include very active engagement in the global equity markets and speculative trading positions, while the M1 Velocity of Money data shows an incredible collapse after COVID-19 hit?The answer is simple.  The US Federal Reserve has pushed more cash into the global economy over the past 10+ years than at any time in history (more than $16 Trillion since 2009).  Prior to that date the total amount of capital/debt the US Fed only pushed a total of $10.6 Trillion into the economy over a 40-year time span.  There is nearly 3x the total number of US dollars floating around the globe right now than at any time since prior to the 1950s.Eventually, we are certain that, this extended cash will translate into GDP growth – which will strengthen the Velocity of Money ratio over time.  What it will take is for the economy and the consumer to transition into a new form of expansion related to the post-COVID-19/post Technology euphoria that is currently taking place.Over the next 20 to 30+ years, we are going to see some very big trends in various sectors and commodities.  The global central banks have pushed so much capital out into the world that, once it finds its true economic purpose, we believe the function of this capital will be deployed into various economic components in ways we have not even considered yet.  New industry, new forms of consumer products, and consumer participation will likely evolve where capital can be put to use to improve the GDP levels.  Cryptos may be the start, a stepping stone, toward a much more dynamic solution for how capital is used and deployed within the global marketplace.Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.In Part III of this research article, my team and I will continue to explore the future possibilities and make some suggestions as to how you can prepare for these big trends right now.  Remember, this is a longer-term outlook of opportunities for traders/investors.  The real gains related to this research will come 5 to 10+ years out into the future if you are able to identify how and where capital is being deployed for gains. Have a great day!
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Gold Drops below $1,700, while Senate Passes Biden’s Plan

Finance Press Release Finance Press Release 09.03.2021 14:14
Gold remains inert to President Biden’s large and hazardous economic plan, and ended up dropping below $1,700.President Joe Biden’s $1.9 trillion COVID-19 stimulus is coming! On Saturday, the U.S. Senate passed the American Rescue Plan on a party-line 50-49 vote. This means that after the House’s vote on Tuesday, Biden could sign the bill into law soon, and those $1,400 payments to most Americans could start to go out as soon as this month.The final bill includes not only $400 billion in checks of $1,400 to most Americans, but also $300 a week in extended unemployment benefits, and $350 billion in aid to state and local governments.The American Rescue Plan would be one of the largest stimulus packages in U.S. history. It would also be one of the most frivolous and superfluous economic programs. There is simply no need for such a large plan. Please take a look at the chart below.As one can see, U.S. personal income has increased during the pandemic, not decreased. Once again, people are now receiving higher income than one year ago. So, Biden’s stimulus with another round of $1,400 checks is not economically or socially justified.Indeed, the U.S. economy is already recovering. On Friday (Mar. 5), we got surprisingly good data about the American labor market , that showed the economy added 379,000 jobs in February, much above expectations. Meanwhile, the unemployment rate has slightly decreased further, as one can see in the chart below. Employment is still down by 9.5 million, or 6.2 percent, from the pre-pandemic level seen one year ago, but additional unemployment benefits or plain checks will not help bring people back into employment – in fact, the effect may turn out to be the reverse.Hence, Biden’s fiscal stimulus will bring little benefit to the economy, while significantly expanding the federal debt and risking overheating the economy. Indeed, the plan is estimated to increase the already high public debt (see the chart below) by an additional ten percentage points as a share of GDP .Implications for GoldWhat does this all mean for gold prices? From the fundamental point of view, Biden’s plan should be positive for the yellow metal. This is because it can increase inflation in the long-run, if people finally decide to spend all the money they got from Uncle Sam. It will not happen in the immediate future, as households will initially save the received payments, and some of them will repay their debts, but they are likely to spend more this year, to compensate for curbed consumption in 2020.However, whether Biden’s plan turns out inflationary or not, it will expand the already mammoth public debt. It should weaken the position of the greenback and increase the odds for a debt crisis or paying out this debt through inflation or financial repression. The higher the debt, the more difficult it will be for the Fed to normalize interest rates (welcome to the debt trap , my friends). All these factors should support gold prices in the long run.However, gold remains deaf to Biden’s disharmonious symphony. Indeed, as the chart below shows, the yellow metal has declined below the important level of $1,700 last week. It seems that the fiscal stimulus (together with the rollout of vaccinations and the economic recovery) has so far strengthened the risk appetite among investors who don’t focus on long-term consequences of the fiscal stimulus.This may change one day, but the sentiment in the gold market is clearly negative right now, and the fundamentals are more positive. The fundamentals may come to the fore in the end. However, gold may struggle further, especially if real interest rates go up again.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Stocks Shaking Off Weak Tech As Gold Bottoms?

Stocks Shaking Off Weak Tech As Gold Bottoms?

Monica Kingsley Monica Kingsley 09.03.2021 15:28
Stocks spiked higher, but not before going sideways to down prior on the day. And the close to the session hasn‘t been convincing either – does it count as a reversal? In my view, we haven‘t seen one yesterday really, regardless of this correction not being over just yet. There are still some cracks I tweeted yesterday about in need closing first, such as the worrying corporate bonds performance, manifest in the HYG:SHY ratio, or the tech searching for the bottom (it‘s $NYFANG precisely). Quoting from yesterday‘s extensive analysis spanning beyond stocks, metals and the Fed:(…) Stocks have had a great run over the past 4 months, getting a bit ahead of themselves in some aspects such as valuations. Then, grappling with the rising long-term rates did strike.So did inflation fears, especially when looking at commodities. Inflation expectations are rising, but not galloping yet. What to make of the rising rates then? They‘re up for all the good reasons – the economy is growing strongly after the Q4 corona restrictions (I actually expect not the conservative 5% Q1 GDP growth, but over 8% at least) while inflation expectations are lagging behind. In other words, the reflation (of economic growth) is working and hasn‘t turned into inflation (rising or roughly stable inflation expectations while the economy‘s growth is slowing down). We‘re more than a few quarters from that – I fully expect really biting inflation (supported by overheating in the job market) to be an 2022-3 affair. As regards S&P 500 sectors, would you really expect financials and energy do as greatly as they do if the prospects were darkening?Stocks are well positioned to keep absorbing the rising nominal rates. What has been the issue, was the extraordinarily steep pace of such move, leaving long-term Treasuries trading historically very extended compared to their 50-day moving averages. While they can snap back over the next 1-2 weeks, the 10y Treasury bond yield again breaking 1.50% is a testament to the Fed not willing to do anything at the moment. Little does the central bank care about commodities moves, when it didn‘t consider any market moves thus far as unruly.Gold market offered proof of being finally ready for a rebound, and it‘s visible in the closing prices of the yellow metal and its miners. Being more than a one day occurence, supported by yesterday presented big picture signals, the market confirmed my yesterday‘s suggestion of an upcoming gold. It appears we‘ll get more than a few days to assess the legs this rally is made of, facilitating nimble charting of the waters ahead my usual way:(…) Just as I was calling out gold as overheated in Aug 2020 and prone to a real soft patch, some signs of internal strength in the precious metals sector were present this Feb already. And now as we have been testing for quite a few days the first support in my game plan, we‘re getting once again close to a bullish formation that I called precisely to a day, and had been banging the bearish gold drum for the following two days, anticipating the downside that followed. Flexibility and broad horizons result in accentuated, numerous other portfolio calls – such as long Bitcoin at $32,275 or long oil at $58 practically since the great return with my very own site. We‘re now on the doorstep of visible, positive price outperformance in the gold miners (GDX ETF) as gold prices didn‘t break the higher bullish trend by declining through both the Mar 4 presented supports of my game plan. As I wrote yesterday, if prices move higher from here, they have simply bounced off support, especially given the accompanying signs presented, not the least of which is the dollar getting back under pressure. Make no mistake, the greenback isn‘t in a bull market – it‘s merely consolidation before plunging to new 2021 lows. I have not been presenting any USDX declining resistance lines and breakout arguments, because prices can be both above such a line, and lower than at the moment of „breakout“ at the same time – ultimately, rising and declining supports and resistances are a play on the speed of the move, where pure inertia / deceleration / reprieve doesn‘t break the prior, higher trend. And as I called in summer 2020 the dollar to roll over and keep plunging, that‘s still what‘s unfolding.How does it tie in to commodities and stocks? We‘re not at extreme moves in either, and I see copper, iron, oil, agrifoods as benefiting from the reflationary efforts greatly. Similarly and in spite of the $NYFANG travails, it would be ill-advised to search for stock market tops now (have you seen how well the Dow Industrials is doing?) – no, we‘re not approaching a top that I would need to call the way I did in the early Sep buying climax. This is still the time to be running with the herd, and not against it – you can ignore the noise to the contrary for both the S&P 500 and commodities have a good year ahead. As for precious metals, we might have seen the bottom already – and in any case by the current shape of things, I don‘t see it occuring quarters ahead and hundreds buck lower.Bringing up the constant reevaluation of position‘s rationale, market reactions and narratives:(…) It‘s the markets‘ discounting mechanism of the future that counts – just as gold cleared the deflationary corona crash in psring 2020, just as it disregarded the tough Fed tone of 2H 2018, just as it sprang vigorously higher in early 2016 stunning bears in all three cases with sharp losses over many months, or just as stocks stopped declining well before economic news got better in April 2020 or March 2009. Make no mistake, the markets consider transitioning to a higher inflation environment already now (the Fed timidly says that reopening will spike it, well, temporarily they say), when inflation expectations are still relatively low, yet peeking higher based on the Fed‘s own data. Gold is in a secular bull market that started in 2018 (if not in late 2015), and what we‘re seeing since the Aug 2020 top, is the soft patch I called. The name of the game now, is where the downside stops – and it‘s one of the scenarios that it has just happened, especially if gold convincingly closed back above $1,720 without undue delay.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookWe have seen two intraday reversals to the downside yesterday, yet I think the effects would prove a temporary obstacle to the bulls only. Such candlestick patterns usually slow down the advance, but don‘t end it – and that‘s consistent with my yesterday‘s words of most of the downside being already in. Once the 3,900 zone is confidently passed, the bears would have missed the chance to reach below Thursday‘s lows.Credit MarketsHigh yield corporate bonds (HYG ETF) still ilustrate ongoing fragility for they have plunged below their Feb lows. This correction doesn‘t appear to be as totally over just yet, also given the sectoral picture that I am showing you next.Put/Call Ratio and VolatilityOption players clearly aren‘t concerned by yesterday‘s S&P 500 price action, and the VIX is painting a similarly neutral picture – just as the sentiment overall. Very good, we‘re primed to go higher next, from a starting position far away from the extreme greed levels.Technology and ValueThe sectoral divergence continues, and tech is still the weakest link in the whole S&P 500 rebound. The big $NYFANG names, the Teslas of this world, are the biggest drag, and not until these carve out a sustainable bottom (this needn‘t happen at the 200-day moving average really), I can declare this correction as getting close to over. It‘s the cyclicals, it‘s value stocks that is pulling the 500-strong index ahead, with financials (XLF ETF), industrials (XLI ETF) and energy (XLE ETF) leading the charge.Treasuries and DollarNominal, long-term Treasury rates have at least slowed their quickening Feb pace, even in the face of no action plan on the table by the Fed – the dollar moved higher on the realization next, and it‘s my view that once new Fed intervention is raised, it would have tremendous implications for the dollar, and last but not least – the precious metals.Gold and SilverFinally, this is the much awaited sign, enabling me to sound some bullish tone in gold again – the miners are outperforming the yellow metal with more than a daily credibility, which I view as key given the lackluster gold price action before yesterday (absence of intraday rebounds coupled with more downside attempts). It would turn stronger once the gold juniors start outperforming the seniors, which is not the case yet.Coupled with the 4-chart big picture view from yesterday, it‘s my view that the gold market is laying the groundwork for its turning:(…) Real rates are negative, nominal rates rose fast, and inflation expectations have been trending higher painfully slowly, not reflecting the jump in commodities or the key inflation precursor (food price inflation) just yet – these are the factors pressuring gold as the Fed‘s brinkmanship on inflation goes on. Once the Fed moves to bring long-term rates under control through intervention – hello yield curve control or at least twist – then real rates would would be pressured to drop, which would be a lifeline for gold – the real questions now are how far gold is willing to drop before that, and when that Fed move would happen. Needless to add as a side note regarding the still very good economic growth (the expansion is still young), stagflation is what gold would really love.Silver is carving out a bottom while both copper and platinum are turning higher already – these are That‘s the essence of one of my many profitable plays presented thus far – long silver short gold spread – clearly spelled out as more promising than waiting for gold upswing to arrive while the yellow metals‘ bullish signs have been appearing through Feb only to disappear, reappear, and so on.SummaryStocks haven‘t seen a real reversal yesterday, but more backing and filling till the tech finds bottom, appears due. The medium-term factors favor the bulls, but this correction isn‘t over yet, definitely not in time.Now, gold can show some strength – and silver naturally even more. The signs overall favoring a rebound, are appearing with increasing clarity for the short term, and the nearest weeks will show whether we have made a sustainable bottom already, or whether the $1,670 zone will get tested thoroughly. The bulls have the upper hand now.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

That’s Why You Buy the Dips

Finance Press Release Finance Press Release 10.03.2021 14:41
Days like Tuesday (Mar. 9) are why you buy the dips. It was nothing short of a reverse rotation from what we’ve seen as of late. Bond yields moved lower; tech stocks popped.That’s why I called BUY on the Nasdaq.Inflation fears and the acceleration of bond yields are still a concern. But it looks as if things are stabilizing, at least for one day. The lesson here, though, is to be bold, a little contrarian, and block out the noise.Unless you’ve been living under a rock, you know that recent sessions have been characterized by accelerating bond yields driving a rotation out of high growth tech stocks into value and cyclical stocks that would benefit the most from an economic recovery. The Nasdaq touched correction territory twice in the last week and gave up its gains for the year.But imagine if you bought the dip as I recommended.The Nasdaq on Tuesday (Mar. 9) popped 3.7% for its best day since November. Cathie Wood’s Ark Innovation ETF (ARKK) surged more than 10% for its best day ever after tanking by over 30%. Semiconductors also rallied 6%.Other tech/growth names had themselves a day too: Tesla (TSLA) +20%, Nvidia (NVDA) +8%, Adobe (ADBE) +4.3%, Amazon +3.8%, Apple (AAPL) +4.1%, and Facebook (FB) +4.1%.In keeping with the theme of buying the dip, do you also know what happened a year ago yesterday to the date? The Dow tanked 7.8%!There’s no way to time the market correctly. If you bought the Dow mirroring SPDR DJIA ETF (DIA) last March 9, you’d have still seen two weeks of pain until the bottom. However, you’d have also seen a gain of almost 36% if you bought that dip and held on until now.Look, I get there are concerns and fears right now. The speed at which bond yields have risen is concerning, and the fact that another $1.9 trillion is about to be pumped into a reopening economy makes inflation a foregone conclusion. But let’s have a little perspective here.Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%.So is the downturn overblown and already finished?Time will tell. I think that we could still see some volatile movements over the next few weeks as bond yields stabilize and the market figures itself out. While I maintain that I do not foresee a crash like what we saw last March and feel that the wheels remain in motion for an excellent 2021, Mr. Market has to figure itself out.A correction of some sort is still very possible. I mean, the Nasdaq’s already hit correction territory twice in the last week and is still about 3-4% away from returning to one. But don’t fret. Corrections are healthy and normal market behavior. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).Most importantly, a correction right now would be an excellent buying opportunity. Just look at the Nasdaq Tuesday (Mar. 9).It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be cautious, but be a little bold too.You can never time the market.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- That’s Why I Called BUYFigure 1- Nasdaq Composite Index $COMPFor the second time in a week, the Nasdaq hit correction territory and rocketed out of it. It saw its best day since November and proved once again that with the Nasdaq, you always follow the RSI. There could be more uncertainty over the next few weeks as both the bond market and equity market figure themselves out. However, the Nasdaq declines were very buyable, as I predicted.If you bought the dip before Tuesday’s (Mar. 9) session, good on you. Be a little bit bold and fearless right now. Take Ark Funds guru Cathie Wood, for example. Many old school investors scoffed at her comments on Monday (Mar. 8) after she practically doubled down on her bullishness for her funds and the market as a whole. After crushing 2020, her Ark Innovation Fund (ARKK) tanked over 30%. Many called her the face of a bubble. Many laughed at her.Tuesday, March 9, ARKK saw its best day in history.I’m not saying that we’re out of the woods with tech. All I’m saying is don’t try to time the market, don’t get scared and have perspective.The Nasdaq is once again roughly flat for the year, its RSI is closer to oversold than overbought, and we’re still below the 50-day moving average, near a 2-month low, and right around support at 13000.It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.Mike Wilson , chief investment officer at Morgan Stanley, had this to say about recent tech slides- “I don’t think this is the end of the bull market or the end of tech stocks per se, but it was an adjustment that was very necessary.”I like the levels we’re at, and despite the possibility of more “adjustments” in the short-run, it’s a good time to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.For an ETF that attempts to correlate with the performance of the NASDAQ directly, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as when small-caps will be buyable, more thoughts on inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Big Trading Week for Stock Markets

Big Trading Week for Stock Markets

Finance Press Release Finance Press Release 15.03.2021 14:51
Last week went a lot better than the week before. Especially if you’re a Nasdaq bull and bought the dip ( like I recommended Feb 24 ).The real story, though? We’ve still got the Dow, S&P, and Russell firmly at record highs.This week should be full of excitement for the indexes. Will we see more record highs? Will the Nasdaq catch up and recover? How will the newly signed $1.9 trillion “America Rescue Plan” impact the market? Will inflation fears and accelerating bond yields spook investors again?As you can see, there are clearly questions right now for stocks- despite the wheels in motion for pent-up consumer spending and a strong stock rally. Plus, we’ll start having many retail investors with an extra $1,400 to spend looking to have a little fun.Inflation fears and surging bond yields are still a concern and have caused significant volatility for growth stocks. But let’s have a little perspective here. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. Plus, jobless claims beat estimates again and came in at 712,000. This is nearly the lowest they’ve been in a whole year. Last week’s inflation data also came in more tamer than expected.So what should you pay attention to this week?More inflation data, jobless claims, and consumer sentiment will be released throughout the week, for one.But pay incredibly close attention to the Fed. Bonds still remain the market’s biggest wild card. With the Fed meeting Tuesday and Wednesday, bond yields could take their cue from what they say. No action is expected to be taken, and the Fed is expected to indicate more substantial growth. Fed officials are also not expected to alter their interest rate outlook and may stick to the plan of keeping rates this low through 2023.If this goes as expected, bond yields could potentially pop again, reinvigorating the rotation into value and cyclical plays and out of tech and growth plays.Time will tell what happens.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Is the Dow *Gulp* Overbought?Figure 1- Dow Jones Industrial Average $INDUNot much new to report on this. Except for that, it keeps ticking up towards overbought territory and hitting record highs. Year-to-date, we’re now up about 7.1%- almost double what the S&P and Nasdaq have done so far this year.It also managed to gain over 4% this past week.I don’t feel that we’re buyable at all right now. If you have exposure, HOLD and let it ride. Maybe start to consider taking some profits too.The index could greatly benefit from the stimulus package due to all of the cyclical stocks it holds. I can definitely foresee some pops in the index as investors digest the unprecedented amount of money being pumped into the economy, coupled with reopening excitement. But you can’t expect the index to keep going up like this and setting records every day. Plus, the RSI is almost 69 and showing overbought signs.So, where do we go from here?Many analysts believe the index could end the year at 35,000, and the wheels are in motion for a furious rally. But you could do better for a buyable entry point.From my end, I’d prefer to stay patient, assess the situation, and find better buying opportunities.My call on the Dow stays a HOLD, but we’re approaching SELL.For an ETF that aims to correlate with the Dow’s performance, the SPDR Dow Jones ETF (DIA) is a reliable option.For more of my thoughts on the market, such as tech, if small-caps are buyable, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
New York Climate Week: A Call for Urgent and Collective Climate Action

Are The US Markets Sending A Warning Sign?

Chris Vermeulen Chris Vermeulen 16.03.2021 01:05
After an incredible rally phase that initiated just one day before the US elections in November 2020, we've seen certain sectors rally extensively.  Are the markets starting to warn us that this rally phase may be stalling?  We noticed very early that some of the strongest sectors appear to be moderately weaker on the first day of trading this week.  Is it because of Triple-Witching this week (Friday, March 19, 2021)?  Or is it because the Treasury Yields continue to move slowly higher?  What's really happening right now and should traders/investors be cautious?The following XLF Weekly chart shows how the Financial sector rallied above the upper YELLOW price channel, which was set from the 2018 and pre COVID-19 2020 highs.  Early 2021 was very good for the financial sector overall, we saw a 40%+ rally in this over just 6 months on expectations that the US economy would transition into a growth phase as the new COVID vaccines are introduced. Be sure to sign up for our FREE market trend analysis and signals now so you don’t miss our next special report!We are also concerned about an early TWEEZERS TOP pattern that has set up early this week.  If price continues to move lower as we progress through futures contract expiration week, FOMC, and other data this week, then we may see some strong resistance setting up near $35.25.  Have the markets gotten ahead of themselves recently?  Could we be setting up for a moderately deeper pullback in price soon?The following SSO, ProShares S&P 500 ETF Weekly chart, shows a similar setup.  Although the rally in the SSO is not quite the same range as the XLF, we are seeing a solid TWEEZERS TOP pattern setup on the SSO chart over a period of many weeks.  We also found the moderate weakness in the US indexes interesting this morning.  Last week, we continued to see very strong buying trends.  Today, we see those trends have almost vanished.  Are the markets setting near highs waiting for some announcement or news to push them into a new trend?The US stock markets have not experienced a moderate price pullback since August 2020 – when the SPY pulled back almost 11%.  Volatility is still quite high with 2% to 3%+ swings between trading days.  A moderate pullback from these levels could represent another -8.5% to -14% decline before true support is found.Watching the Yields, Precious Metals, and the moderate weakness in trend that started this trading week, we can only suggest that active traders/investors remain moderately cautious.  Our BAN Trader Pro strategy is currently 100% CASH (no trades) for a reason.  Pay attention to this rotation in the markets and the moderate weakness recently.Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.Have a great week!
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

ECB Accelerates Its Asset Purchases. Gold Needs Fed to Follow Suit

Finance Press Release Finance Press Release 16.03.2021 16:16
The ECB accelerated its asset purchases, but unless the Fed follows suit, gold may continue its bearish trend.On Thursday (Mar. 11), the European Central Bank decided to accelerate its asset buying under the Pandemic Emergency Purchase Program :Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.The decision came after a rise in the European bond yields that has mirrored a similar move in the U.S. Treasuries (see the chart below). Christine Lagarde , the ECB President, was afraid that increasing borrowing costs could hamper the economic recovery, so she decided to talk down the bond yields.Indeed, the growth forecasts for the EU have deteriorated recently amid the persistence of the pandemic and painfully slow rollout of the vaccines. According to the ECB, the real GDP of the bloc is likely to contract again in the first quarter of the year. So, the increase in the market interest rates could additionally drag down the already fragile economic recovery:Market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. Banks use risk-free interest rates and sovereign bond yields as key references for determining credit conditions. If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy. This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.Implications for GoldWhat does this all mean for gold prices? Well, the ECB’s move should prove rather negative for the price of gold , at least initially. This is because the loosening of the European monetary policy could weaken both the euro and gold against the U.S. dollar. Indeed, as the chart below shows, although the price of gold increased on Thursday, it declined one day later.Moreover, the acceleration in the ECB’s quantitative easing could further widen the divergence in the interest rates (that started rising in the third quarter of 2020, as one can see in the chart below) between the U.S. and the EU, which should also support the greenback at the expense of the yellow metal.On the other hand, the fact that the ECB has intervened in the markets – announcing acceleration in the pace of its asset buying program, after a certain rebound in the bond yields – could turn out to be positive for gold prices, at least in the long-run. This is because it shows how fragile the modern economies are and how dependent they have become on cheap borrowing guaranteed by the central banks.As I noticed earlier in the past, we are in the debt trap – and the central banks will not allow for the true normalization of the interest rates. The latest ECB’s action is the best confirmation that suppression of the real interest rates will continue, thus supporting gold prices. After all, the ECB has effectively put a cap on bond yields, introducing an informal yield curve control.So far, only the ECB has intervened in the markets, but other central banks could follow suit. This week, the Fed will announce its decision on the monetary policy. And we cannot exclude that the American central bank will also signal a more dovish stance to calm the turmoil in the bond markets and prevent further increases in the interest rates. One thing is certain: gold needs some fresh dovish hints from the Fed to go up. Unless the Fed further eases its stance, I’m afraid that gold will continue its bearish trend .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Intraday Market Analysis – Gold Consolidates Gains

John Benjamin John Benjamin 17.03.2021 08:27
XAUUSD builds support for a comebackA weaker US dollar has offered gold the opportunity to make a comeback just ahead of the Fed meeting later today.After having established a base at the round number 1700 the precious metal is struggling to clear the resistance at 1740, which coincides with the 20-day moving average. A neutral RSI suggests there is still room on the upside and a bullish breakout could add an extra $20 to the ounce (1760).However, in the case of a retreat below 1700, the price action is likely to go sideways and test the previous support at 1675.USDCAD capped by the falling trendlineThe Canadian dollar rises further as improvements in the domestic economy may lead the central bank to cut back on its QE.The bearish trendline from March 2020 has so far contained the US dollar’s multiple rebounds. The break below 1.2470 has confirmed that sellers are still in control.As the RSI dipped into the oversold area, short-term traders may take profit and cause a brief bounce. The zone between the psychological level of 1.2600 and the trendline is where strong selling interests would be.EURJPY tumbles to the trendlineThe euro took a hit after the suspension of the AstraZeneca shots caused a hiatus in the vaccine campaign across the continent.A diverging RSI in the overbought zone suggests an overextension and a loss in the bullish momentum. The pair is testing the rising trendline as the RSI goes into oversold. A failure to bounce back could send the price to the 20-day moving average (128.85).On the upside, 130.40 may keep a lid on the price action for the next few days.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Stock March Madness - Who you got?

Finance Press Release Finance Press Release 17.03.2021 14:42
Prepare yourself. March Madness could be here. No, I’m not talking about the college basketball tourney either.Stocks will be hanging onto Jay Powell’s every word and every breath on Wednesday (Mar. 17) and scrutinize his thoughts on interest rates and inflation.Pretty much, we’re the Fed’s hostages until this thing gets some clarity. Even if Powell says nothing, the markets will move. That’s just how it’s going to work.Rick Rieder, BlackRock’s CIO for global fixed income, echoed this statement. “I think the last press conference, I think I watched with one eye and listened with one ear. This one I’m going to be tuned in to every word and the markets are going to be tuned in to every word. If he says nothing, it will move markets. If he says a lot, it will move markets.”Jay Powell is the biggest market mover in the game now. What’s coronavirus anymore?So far, it’s been a relatively tame week for the indices. The Nasdaq’s continued playing catch-up and has outperformed, while the Dow and S&P are still hovering around record highs.The wheels are in motion for pent-up consumer spending and a strong stock rally. Plus, we have that $1.9 trillion stimulus package heating up the economy and an army of retail traders with an extra $1,400 to play with.Inflation fears and surging bond yields are still a concern and have caused significant volatility for growth stocks. But let’s have a little perspective here. Plus, jobless claims beat estimates again and came in at 712,000. This is nearly the lowest they’ve been in a whole year. Last week’s inflation data also came in more tamer than expected.But bonds yields still remain the market’s biggest wild card. Yes, yields are still at a historically low level, and the Fed Funds Rate remains 0%. But depending on how things go around 2 pm Wednesday (Mar. 17), yields could potentially pop again, reinvigorating the rotation into value and cyclical plays and out of tech and growth plays.Time will tell what happens.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Russell 2000- Lessons LearnedFigure 1- iShares Russell 2000 ETF (IWM)The Russell 2000 was the biggest laggard on Tuesday (Mar. 16). I think I’m starting to figure this index out, though, for a solid entry point.I have been kicking myself for not calling BUY on the Russell after seeing a minor downturn when the markets got rocked in the second half of February. I may have broken my own rule about “not timing the market” also. I’ve wanted to buy the Russell 2000 badly forever but never thought it dipped hard enough (whenever it did). I was waiting for it to at least approach a correction.But I think I figured out a pattern now. Notice what happened with the Russell almost every time it touched or minorly declined below its 50-day moving average. It reversed. Look at the above chart. Excluding the large crash and subsequent recovery in late-March and April 2020, 5 out of the last 6 times the Russell did this with its 50-day, it saw a sharp reversal. The only time it didn’t was in October 2020, when the distance between its 50-day and its 200-day moving average was a lot more narrow.Now, look at the index. As tracked by iShares Russell 2000 ETF (IWM) , its rally since November and year-to-date have been mind-blowing. Pretty much, this is the one reason why I’m more cautious about buying the index.Since the market’s close on October 30, the IWM has gained about 51.04% and more than doubled ETFs’ returns tracking the more major indices.Not to mention, year-to-date, it’s already up 19.12% and around at an all-time high.With that $1.9 trillion stimulus package set to greatly benefit small businesses, the Russell 2000 could pop even more.Unfortunately, I’m keeping this a HOLD. But I am monitoring the Russell 2000 closely.Aggressive stimulus, friendly policies, and a reopening world bode well for small-caps in 2021. I think this is something you have to consider for the Russell 2000 and maybe overpay for. The next time the index approaches its 50-day moving average, I will be a little more aggressive.For more of my thoughts on the market, such as tech, if small-caps are buyable, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Squaring the Bets Prior to the Fed

Squaring the Bets Prior to the Fed

Monica Kingsley Monica Kingsley 17.03.2021 15:14
Barely visible, but still a red candle – does yesterday mark a turning point? Even the volatility index refused to decline further on the day, and the option traders increased their put allocations. Is this a real reason to be cautious, or it represents mere window dressing before the Fed?When it comes to the sectoral view, not much has really changed in the S&P 500. Technology rose yesterday but gave up all intraday gains. Value stocks appear ready for a breather, and financials, energy and industrials all declined. That doesn‘t bode extraordinarily well for today‘s session, but this is not the place to look at when it comes to trading today‘s markets.It‘s the long-term Treasuries that I am focused on the most. Still as extended as lately ever relative to their 50-day moving average, they‘re weighing heavily on the markets. Stocks have gotten used to their message of rising inflation and economic recovery as we‘re still in the reflation phase, and not in the inflation one – but it‘s the precious metals that are suffering here, showing best in the copper to 10y Treasury yield ratio.I am not looking for the Fed to act today by adjusting its forward guidance stance or language, or taking a U-turn on inflation. No, they‘ll maintain the transitory stance even though markets are transitioning to a higher inflation environment already. The Fed won‘t do much this time.My prior Monday‘s words ring true also today:(…) Inflation expectations are rising, but not galloping yet. What to make of the rising rates then? They‘re up for all the good reasons – the economy is growing strongly after the Q4 corona restrictions (I actually expect not the conservative 5% Q1 GDP growth, but over 8% at least) while inflation expectations are lagging behind. In other words, the reflation (of economic growth) is working and hasn‘t turned into inflation (rising or roughly stable inflation expectations while the economy‘s growth is slowing down). We‘re more than a few quarters from that – I fully expect really biting inflation (supported by overheating in the job market) to be an 2022-3 affair. As regards S&P 500 sectors, would you really expect financials and energy do as greatly as they do if the prospects were darkening?So, I am looking for stocks to do rather well as they are absorbing the rising nominal rates. And this still translates into yesterday‘s throughts:(…) Global liquidity isn‘t retreating exactly, emerging markets are building a solid base regardless of the dollar going higher two days in a row, and emerging market bonds are fighting to recover just as much as long-dated Treasuries. Coupled with the sectoral analysis, this is conducive for the unfolding stock market upswing and for commodities as well. We‘re still in a constructive environment for both, and I look within the latter at especially copper, nickel and iron to do well. For gold, the key question remains whether copper upswings will outpace any yield increases on the long end, which have moderated their increases in Mar compared to Feb. That‘s good but not nearly enough given that even gold afficionados have come to expect lower prices lately quite en masse. Sign of capitulation off which the upswing was born? Yes, and the key questions now are whether we‘re seeing a pause, or a top in the upswing, and whether the next selling pressure would break below the $1,670 zone or not – see my early March game plan. The volume profile thin zone around $1,760 appears out of reach for now, without a Fed catalyst. I don‘t look for the central bank to invite any speculation on when the next rate hike might come (forget Brazil‘s example). They might not even talk about bringing down rates at the long end through a twist program. I certainly don‘t look for clues as to increasing the $120bn monthly pace of monetary injections. Unless the market perceives the Fed as underplaying the threat of inflation and showing tolerance to its palpable overshoot, the overall mix of positions and conference statements might bring gold under renewed pressure as it meanders a little below $1,730 as we speak.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookThe S&P 500 upswing took another daily breather yesterday in the end, and the volume doesn‘t send clear signals either way. Consolidation followed by new highs appears though the most likely scenario.Credit MarketsAfter quite some time, stocks are trading at very elevated levels relative to the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio. Now, it‘s three days in a row that the latter doesn‘t confirm the stock market upswing. The bulls better be cautious here over at least a few sessions as the latest historical evidence shows that Fed pronouncements haven‘t been accompanied by fully risk-on moves exactly.Let‘s not forget the big picture, and that‘s of the stock market rising at the expense of debt instruments. Please note how little has the early Mar correction achieved in denting the S&P 500 appeal. The stock market bull is alive and well, very well actually.Gold in the StraitsGold still remains resilient to rising yields, but its inability to rally convincingly is worrying for the bulls. After all, this $1,730 zone shouldn‘t have been any real obstacle after three days of the rally, yet the yellow metal had to rise from the dead on Friday to fight another day. And given that it hasn‘t progressed since, it makes me think the bulls are hanging around for a remotely possible Fed surprise only.It‘s only the miners that are kind of still positive here. Yet, even their upswing was challenged yesterday, but that was on low volume. And that‘s constructive for the bulls when it comes to interpreting yesterday‘s events.The lack of silver outperformance before the sellers take over, is another sign why the upswing might not be over just yet. Still, these are just secondary clues, for nothing is more bullish than rising prices, which is what we obviously haven‘t seen in the metals much really.Key Ratio SpeaksWhile not tracking each other as closely as lately, the copper to 10y Treasury yield is sending an ominous signal still. The key question is whether long-dated Treasuries rise, or gold falls – I am not looking for copper to deviate from the current steeply rising trajectory much.SummaryS&P 500 is again entering daily consolidation mode, justifying my decision to take some of the prior profits off the table earlier today. While the Fed won‘t likely deliver real surprises later today, the credit markets are flashing warning signs more noticeably than yesterday. Still, the stock market bull is very far from making a top.Gold is being increasingly more challenged and stuck in the $1,730 zone, instead of clearing it.The yellow metal awaits today‘s Fed pronouncements, and barring a dovish(ly perceived) surprise, it looks ready to give up a portion of recent gains. All eyes on long-term Treasuries remains the battle cry.
New York Climate Week: A Call for Urgent and Collective Climate Action

Reversing the Fed Moves?

Monica Kingsley Monica Kingsley 18.03.2021 15:22
Fed messaging was rightfully interpreted as dovish – full employment is in effect its single mandate now. Yes, the central bank will tolerate higher inflation, and has prepped the markets for its advent (as if these didn‘t know already). Powell managed to walk the fine line between economic optimism, pushback on the idea of raising rates or taper, and yet implicitly acknowledged the growing liquidity concerns with one little, gentle prod. Markets naturally liked the tone, overlooking no mention of action on rising yields, and stocks, metals and commodities turned positive on the day – quite strongly so. The dollar declined visibly as long-term Treasuries recovered intraday losses on high volume. Highly charged finish to the day, but today‘s analysis will show that little has actually changed in its internals. Rates are rising for the good reason of improving economy and its outlook, reflation (economic growth rising faster than inflation and inflation expectations) hasn‘t given way to all out inflation, and stocks with commodities remain in a secular bull market. We‘re in the decade of real assets outperforming paper ones, but that will become apparent only much later into the 2020s.So, the central bank confirmed my yesterday‘s assessment of its tone and Treasuries take:(…) I am not looking for the Fed to act today by adjusting its forward guidance stance or language, or taking a U-turn on inflation. No, they‘ll maintain the transitory stance even though markets are transitioning to a higher inflation environment already. The Fed won‘t do much this time.They might not even talk about bringing down rates at the long end through a twist program. I certainly don‘t look for clues as to increasing the $120bn monthly pace of monetary injections. Unless the market perceives the Fed as underplaying the threat of inflation and showing tolerance to its palpable overshoot, the overall mix of positions and conference statements might bring gold under renewed pressure as it meanders a little below $1,730 as we speak.Long-term Treasuries … are weighing heavily on the markets. Stocks have gotten used to their message of rising inflation and economic recovery... – but it‘s the precious metals that are suffering here, showing best in the copper to 10y Treasury yield ratio.For gold, the key question remains whether copper upswings will outpace any yield increases on the long end, which have moderated their increases in Mar compared to Feb. That‘s good but not nearly enough given that even gold afficionados have come to expect lower prices lately quite en masse. Sign of capitulation off which the upswing was born? Yes, and the key questions now are whether we‘re seeing a pause, or a top in the upswing, and whether the next selling pressure would break below the $1,670 zone or not – see my early March game plan. The volume profile thin zone around $1,760 appears out of reach for now, without a Fed catalyst.And while we got a good confidence building one yesterday, I don‘t see it as strong enough to power precious metals higher immediately. It‘s nice that gold is decoupling from the rising yields but I view its upswing as demanding on current and future patience. Gold miners are still showing the way, and will be a key barometer in telling whether today‘s premarket downswing in antidollar, risk-on plays is a meaningful turn or not. For now, the renewed long-term Treasury yield increases (and tech selloff to a degree) point to reemergence of lingering Fed doubts.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookThe upper knot in the S&P 500 upswing spells short-term caution. The chart posture would be stronger without it, but at the same time, the volume and candle itself aren‘t ones of reversal. The most likely outcome of upcoming sessions still appears as resumption of the prior grind higher, which is in line with my yesterday‘s message of consolidation followed by new highs as the most likely scenario.Credit MarketsThe long upper knot in the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio shows that the bond market isn‘t on board with the Fed – at a time when stocks aren‘t panicking in the least. Given the big picture in the economy and the combo of monetary and fiscal policy initiatives, I look for this to be a storm in the tea cup when it comes to (higher future) stock prices, and I am keenly on the lookout for possible deterioration in the corporate bond markets as relates to the S&P 500.Technology and ValueThe tech upswing wasn‘t really convincing, but it‘s been value stocks‘ turn to drive higher S&P 500 prices. No change in dynamic here. It‘s however the relation to not as strong Russell 2000 or emerging markets yesterday that hints at headwinds in stocks for today. A play on patience, again.Inflation ExpectationsYesterday‘s Fed message gave no reason for these to decline, and prior uptrend continues unabated. Bond yields haven‘t though frontrunned them yesterday, which I however look to see changed today.Precious MetalsThe gold ETF formed a bullish candle, tracking the rising miners well. But likewise to the HYG:SHY ratio‘s upper knot message, this one is concerning as well. The key question is about the staying power of GDX outperformance – the key argument for the gold market character having changed with the Mar 08 bottom, which might very well be THE bottom, and not a local one. The decoupling of the yellow metal from rising yields is even more visible now than when I first showed you the weekly $GOLD - TLT overlay chart two weeks ago.Platinum goes down while the copper engine runs (and silver did join in yesterday). This chart sends a message of short-term indecision extending to other commodities, including oil. SummaryS&P 500 is in my view merely testing the buyers‘ resolve, and doesn‘t want to turn the consolidation on declining VIX into a rush to the exit door. Despite the surprisingly early turn against the Fed day move, this doesn‘t represent a trend change or arrival of the dreaded steep correction. The stock market bull is very far from making a top.Gold is again under pressure today, back in the $1,730 zone instead of having cleared it. Understandable given the dollar and Treasuries reversal of yesterday‘s Fed moves, but not rushing to the downside head over heels.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Return of the Rising Yields

Finance Press Release Finance Press Release 19.03.2021 14:47
March Madness started on Thursday (Mar. 18), but stocks got the jump on their own brackets this week. Let’s dive in.Although Wednesday (Mar. 17) saw the indices have a nice St. Patrick’s day green reversal thanks to Jay Powell babying us on inflation thoughts again, Mr. Market isn't stupid. Manic, but not stupid. We saw a return to the strong rotation trend out of growth stocks the day after Powell's testimony (Mar. 18).Thursday (Mar. 18) saw bond yields surge to their highest levels in what seems like forever. The 10-year yield popped 11 basis points to 1.75% for the first time since January 2020, while the 30-year rate climbed 6 basis points and breached 2.5% for the first time since August 2019.Predictably, the Nasdaq tanked by over 3% for its worst session in 3-weeks.Jay Powell and bond yields are the most significant market movers in the game now. Get ready for the market next week when he testifies to Congress. That'll be a beauty. What's coronavirus anymore?So after what's been a relatively tame week for the indices, we can officially say bye-bye to that.Bond yields, though, are still at historically low levels, and the Fed Funds Rate remains at 0%. With the Fed forecasting a successful economic recovery this year, with GDP growth of around 6.5% -- the fastest in nearly four decades -- the wheels could be in motion for another round of the Roaring '20s.The problem, though, is that the Great Depression came right after the first Roaring '20s.Many are sounding the alarm. However, like CNBC's Jim Cramer, others think the current headwinds are overblown, and a mirror of the 2015-2016 downturn is based on similar catalysts.Figure 1: Jim Cramer TwitterCramer argued that Powell is a talented central banker willing to "let the economy continue to gain strength so that everyone has a chance to do well."Nobody can predict the future, and these growth stock jitters from rising bond yields may be overblown. But for now, it's probably best to let the market figure itself out and be mindful of the headwinds.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Nasdaq- Another Buyable Dip?Figure 2- Nasdaq Composite Index $COMPThe last time I switched my Nasdaq call to a BUY on Feb 24 , that worked out very well. I will use the same criteria again for the Nasdaq as the market figures out bond yields: The RSI and the 13000 support level. I need the Nasdaq’s RSI to dip below 40 while also falling below 13000 before buying.We’re not quite there. This is an excellent dip, but it’s really only one down day and its worst down day in weeks. I think we may have some more buying opportunities next week if bond yields pop due to Jay Powell’s testimony. I mean, it seemingly always happens after he speaks.Pay very close attention to the index and its swings.If the tech sector takes another big dip, don’t get scared, don’t time the market, monitor the trends I mentioned and look for selective buying opportunities. If we hit my buying criteria, selectively look into high-quality companies and emerging disruptive sub-sectors such as cloud computing, e-commerce, and fintech.HOLD, and let the RSI and 13000-support level guide your Nasdaq decisions. See what happens over subsequent sessions, research emerging tech sectors and high-quality companies, and consider buying that next big dip.For an ETF that attempts to correlate with the performance of the NASDAQ directly, the Invesco QQQ ETF (QQQ) is a good option.For more of my thoughts on the market, such as a potentially overbought Dow Jones, small-caps, inflation, and emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
US Industry Shows Strength as Inflation Expectations Decline

Breaking the Spell of Rising Yields

Monica Kingsley Monica Kingsley 19.03.2021 15:00
Markets didn‘t buy into the Fed messaging, and quite a few moves were reversed. Stocks declined, commodities got under pressure, and oil took it on the chin. Long-dated Treasuries plunged again as the dollar reversed Wednesday‘s losses. Overall picture is one of nervousness as the Fed‘s statements and their consistency are getting a second look. Plus, triple witching can exaggerate today‘s trade swings, getting reversed in subsequent sessions too.The greatest adjustment is arguably in the inflation projections – what and when is the Fed going to do before inflation raises its ugly head in earnest. There is still time, but the market is transitioning to a higher inflation environment already nonetheless. In moments of uncertainty that hasn‘t yet turned into sell first, ask questions later, let‘s remember the big picture. Plenty of fiscal support is hitting the economy, the Fed is very accomodative, and all the modern monetary theory inspired actions risk overheating the economy later this year. As I wrote yesterday:(…) Rates are rising for the good reason of improving economy and its outlook, reflation (economic growth rising faster than inflation and inflation expectations) hasn‘t given way to all out inflation, and stocks with commodities remain in a secular bull market. We‘re in the decade of real assets outperforming paper ones, but that will become apparent only much later into the 2020s.The largely undisturbed rise in commodities got checked yesterday just as stocks did, but the higher timeframe trends (technical and fundamental drivers) hadn‘t changed, which will be apparent once the dust settles. As I‘ll lay out in today‘s analysis, the gold market is springing back to life, and the precious metals upswing rationale is still very much on the table, and the decoupling from rising nominal yields goes on – I view yesterday‘s selloff in the miners as partially equity markets driven.Bottom line, I made good decisions to subscribers‘ benefit by closing profitable stock market positions before the downswing hit, and not writing off gold.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookOrderly downswing yesterday that wouldn‘t stand out on the chart in a few weeks really. The only stunning thing about it is how soon after Wednesday‘s FOMC it came. Yet, this chart isn‘t sending signals of a key reversal just in.Credit MarketsThe non-confirmation in the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio caught up with the 500-strong index yesterday. Is a new downtrend starting here? While high yield corporate bonds for the all the Treasuries market turmoil haven‘t arguably bottomed yet, the degree to which they can pull stocks down still, is an open question. Conversely, once HYG swings higher again, stocks would get on a firmer footing.Technology and ValueThe tech sold off again, and the interest-rate sensitive defensives (utilities, consumer staples and REITs) suffered yesterday. Yes, even the sharply recovering real estate sector did. Coupled with value stocks giving up intraday gains, the stock market internals have (not insurmountedly, but temporarily) deteriorated.Gold and SilverGold not following the declining TLT path is the most important green shoot within the market. The yellow metal held up very well in yesterday‘s selling pressure across the board, and not even gold miners (viewed through a $HUI overlay or $HUI:$GOLD ratio) gave up on the upswing – more downside price action in the latter would have to come today to cast real doubts.Weekly chart examination of essentially equivalent metrics (enriched with the key copper ingredient) shows clearly the PMs decoupling stage – silver cast off the shackles still in 2020 while gold is doing so now. It‘s still early on in the process, but invalidating excessively bearish targets – gold has the benefit of my doubt, until I call that one off. I don‘t think that would happen today.Crude OilThe one-way trip starting in Nov met its largest downswing yesterday, signifying we better get used to oil no longer moving in one direction only. Amid the reports of excess stockpiles and European lockdowns denting the demand, OPEC+ is keeping up with the production cuts, undermined largely by Iranian exports only. But look how little has the oil index ($XOI) declined – it‘s relative position shows the excessive nature of yesterday‘s move. In my view, oil would be rangebound once it bottoms, before breaking higher again. The world economy is improving, leading indicators are rising, and the only fly in the ointment are yields, and a stronger dollar pressuring emerging markets. The forces of reflation, liquidity and demand growth will outweigh this unfolding, temporary setback. SummaryS&P 500 is once again experiencing downswing, yet the VIX hasn‘t truly spiked – and neither has the put/call ratio. While there is no stampede to the exit door, the market internals have deteriorated, and may take more than a few sessions to get repaired. For one, tech is again in the driving seat.Gold has been quite resilient lately, and yesterday‘s developments also outside of the bonds arena are boding well for the $1,670 bottom hypothesis. Especially given the hints presented above, and that stock market weakness coupled with safe haven play attraction, might help here further.
Tide Is Turning in Stocks and Gold

Tide Is Turning in Stocks and Gold

Monica Kingsley Monica Kingsley 22.03.2021 13:51
Friday‘s session ended in a tie, but it‘s the bears who missed an opportunity to win. Markets however dialed back their doubting of the Fed, which has been apparent in the long-term Treasuries the most. One daily move doesn‘t make a trend change likely though, especially since the Mar pace of TLT decline is on par with Feb‘s and higher than in Jan. While Treasuries paused in early Mar, they‘re now once again as extended vs. their 50-day moving average as before.And that poses a challenge for interest rate sensitive stocks and to some degree also for tech - while I expect value to continue to lead over growth, technology would recover some of the lost ground on rates stabilization. And it‘s true that the $UST10Y move has been a very sharp one, more than tripling from the Aug 2020 lows.Inflation expectations are rising, and so is inflation – PPI under the hood thus far only. Financial assets are rising, perfectly reflected in (this month consolidating) commodity prices. Cost-driven inflation is in our immediate future, not one joined at the hip with job market pressures – that‘s waiting for 2022-3. The story of coming weeks and months is the stimulus avalanche hitting while the Fed still merrily ignores the bond market pressures.And stocks are going to like that – with tech participating, or at least not standing too much in the way, S&P 500 is primed to go to new highs rather shortly. Given the leadership baton being firmly in the hands of value, smallcaps are likely to outperform the 500-strong index over the coming weeks and months. The volatility index is confirming with its general downtrend, commodities, including oil, will be the 2021+ place to be in – just see how fast is Thursday‘s steep correction being reversed. I‘ll be covering black gold more often based on popular demand, so keep your questions and requests coming!The precious metals upswing goes on, and landed the yellow metal comfortably above $1,740. Not too spectacular, but the miners are still painting a bullish picture. I view the increasing appeal of the yellow metal (alongside the bullish sentiment hitting both Wall and Main Street) as part of the inflation trades, as decoupling from rising yields which increased really fast. As gold is arguably the first asset to move in advance of a key policy move, it might be sensing the Fed being forced (i.e. the markets betting against the Fed) to moderate its accomodative policy. Twist, taper – there are many ways short of raising the Fed funds rate that would help put pressure off the sliding long-dated Treasuries, not that these wouldn‘t be susceptible to move higher from oversold levels. And just like the yellow metal frontrunned the Fed before the repo crisis of autumn 2019, we might be seeing the same dynamic today as well.For the cynical and clairvoyant ones, we might sit here in 3-6 months over my notes on „the decoupling that wasn‘t“ - all because rates might snap back from the current almost 1.8% on the 10-year bond.For now, my Friday‘s words remain valid also today:(…) The greatest adjustment is arguably in the inflation projections – what and when is the Fed going to do before inflation raises its ugly head in earnest. There is still time, but the market is transitioning to a higher inflation environment already nonetheless. In moments of uncertainty that hasn‘t yet turned into sell first, ask questions later, let‘s remember the big picture. Plenty of fiscal support is hitting the economy, the Fed is very accomodative, and all the modern monetary theory inspired actions risk overheating the economy later this year. Rates are rising for the good reason of improving economy and its outlook, reflation (economic growth rising faster than inflation and inflation expectations) hasn‘t given way to all out inflation, and stocks with commodities remain in a secular bull market. We‘re in the decade of real assets outperforming paper ones, but that will become apparent only much later into the 2020s.The largely undisturbed rise in commodities got checked yesterday just as stocks did, but the higher timeframe trends (technical and fundamental drivers) hadn‘t changed, which will be apparent once the dust settles.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 Outlook and InternalsFriday‘s session on understandably high volume and with some intraday volatility, closed with prices little changed. While the daily indicators are weakening, I see that as a temporary move that would be followed by higher highs in the index.Market breadth indicators are largely constructive, attesting to the broad base of the current S&P 500 advance. Even on little changed days such as Friday, both the advance-decline line and advance-decline volume have risen. I wouldn‘t be concerned with the weak new highs new lows here much as the sectoral structure remains positive – both technology (XLK ETF) and value stocks (VTV ETF) have rejected further intraday declines.Credit MarketsHigh yield corporate bonds have turned higher, and so did their ratio to short-dated Treasuries (HYG:SHY). This is a positive factor for further gains in stock prices.Smallcaps and Emerging MarketsThe Russell 2000 (IWM ETF) isn‘t flashing any warning signs, and continues performing as robustly as the 500-strong index. Given the stage of the bull market we‘re at, smallcaps can be expected to start outperforming at some point in the future, just the same way their underperformance was over since early Nov. As regards emerging markets, their base building accompanied with Friday‘s upswing when faced with rising yields and solid dollar, is encouraging.Gold and SilverThe gold upswing is progressing along, and the daily consolidation in the miners (GDX ETF) isn‘t an issue when compared to a stronger gold performance. Friday was also characterized by a bigger upswing in the junior miners (GDXJ ETF) than in the seniors (GDX ETF), which is positive. The overall impression is of GDX readying a breakout above late Jan and early Feb lows, which bodes well for the precious metals sector as such next – especially given that this decoupling is happening while nominal yields aren‘t truly retreating.Both silver and platinum continue their base building while copper, the key ingredient within the copper to Treasury yields ratio, keeps bullishly consolidating. Silver miners aren‘t sending signals of underperformance, which means that the precious metals upswing dynamics remain still healthy on a closing basis. As regards premarket silver weakness, putting it into context with other markets is key – thus far, it‘s the odd weak one, so I am not jumping to conclusions yet.SummaryS&P 500 trading was undecided on Friday, yet didn‘t bring any clues invalidating the bullish outlook. Volatility remains low, but the put/call ratio has risen, even without a corresponding downswing (or danger of seeing one). The Fed doubting induced pullback appears more than likely in its closing stages.Gold had another resilient week, and the precious metals upswing examination bodes well for the move higher to still continue. Miners are leading, and the yellow metal keeps breaking the spell of higher Treasury yields, supported by copper not yielding ground either.
New York Climate Week: A Call for Urgent and Collective Climate Action

Will Trump-Biden Twin Deficit Support Gold?

Finance Press Release Finance Press Release 22.03.2021 17:48
Twin deficits could negatively affect the U.S. economy, thereby supporting the yellow metal.Twins. Many parents will tell you that they double the blessing. But economists would disagree, claiming that twins – i.e., twin deficits – could be negative for the economy. The recent deterioration in the U.S. current account and fiscal balance has sparked renewed debate over the twin deficit and its impact on the exchange rate – and the price of gold.A twin deficit occurs when large fiscal deficits coexist with big trade deficits . The former happens when the government spends more money than it raises with taxes, while the latter is the result of imports exceeding exports. A historical example of the U.S. twin deficit occurred in the 1980s, when a significant expansion in the federal budget deficit accompanied a sharp deterioration in the nation’s current account balance. According to the Institute for International Economics’ report , “from 1980 to 1986, the federal budget deficit increased from 2.7 percent of GDP to 5 percent of GDP ($220 billion) and the current account deficit increased from 0 to 3.5 percent of GDP ($153 billion).”Another example might be the 2000s. According to the New York Fed’s research paper , from 2001 to 2005, the U.S. current account and fiscal balances plunged by 3 and 4 percent of GDP , respectively. So, there is some correlation between these two. And some economists even believe that there is a causal relationship, i.e., that increases in budget deficits cause an increase in current account deficits. The link is believed to work as follows: higher deficits increase consumption, so imports expand and the trade deficit widens. However, both deficits actually have a common root: the increase in the money supply . When the Fed creates money ex nihilo to monetize the federal debt , it enables America to both borrow and consume more goods from abroad.Regardless, in absolute terms, these old twin deficits were miniscule compared to the current one. As the chart below shows, the U.S. current account deficit (green line) has expanded significantly under Trump (despite all the trade wars !) and is approaching the historical record of $800 billion seen in 2006.But what happened to the U.S. trade deficit is nothing compared to the fiscal deficit! As you can see in the chart above, it ballooned from $984 billion in fiscal year of 2019 to $3.1 trillion in 2020!So, if we simply add these two deficits together, we will see that that the U.S. twin deficits have reached a record level . As the chart below shows, it has expended from $850 billion in 2014 to $3.8 trillion in 2020!Now, the question is how the twin deficits could affect the price of gold. Well, from looking at the chart above, it’s hard to tell. Gold rallied in the 1970s, when the twin deficit was miniscule, while it entered a bear phase when the twin deficit started to increase. However, the yellow metal skyrocketed both in the 2000s and in the 2020s, when the twin deficit ballooned.The key issue is what distinguishes the 1980s from the 2000s (and 2020)? I’ll tell you. In the former period, expansionary fiscal policy coincided with tight monetary policy . In consequence, the real interest rates increased, which encouraged capital inflows and strengthened the U.S. dollar. So, gold was melting.Luckily for the yellow metal, this time, the easy fiscal policy is accompanied by the accommodative monetary policy . The Fed has already slashed the federal funds rate and it’s conducting quantitative easing to suppress the bond yields . Actually, some analysts believe that the U.S. central bank will implement the yield curve control to prevent any significant increases in the interest rates .Hence, the combination of American monetary drunkenness and fiscal irresponsibility that largely contributed to the great expansion in the twin deficits should result in the weakening of the greenback . This, at least, is what we observed in the 2000s, as the chart below shows.And this depreciation of the U.S. dollar should ultimately support gold prices , especially if we see reflation and the next commodity boom. It’s true that since its peak in August 2020, gold has been positively correlated with the greenback, but the inverse relationship can be restored one day. Investors shouldn’t forget that the dollar is not the only driver of gold prices – other factors also play a role. In the second half of the past year, both the real yields and the risk appetite increased, which outweighed the impact of the weakening dollar. Luckily, the Fed is ready to prevent any significant upward pressure on the Treasury yields coming from the twin deficits. That’s good for gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Powell Sounds Dovish, but Is He Dovish Enough for Gold?

Finance Press Release Finance Press Release 23.03.2021 16:13
Although dovish, Powell downplayed the bond yield rally. The Fed’s more tolerant stance on inflation is good for gold, but the metal may continue its bearish trend in the short-term.In the last edition of the Fundamental Gold Report, I analyzed the latest FOMC statement on monetary policy and economic projections . Today, I would like to focus more on Powell’s press conference . My reading is that the Fed Chair sounded like a dove. First of all, he emphasized several times that the jump in inflation this year will be only transient , resulting from the base effects and rebound in spending as the economy continues to reopen. And Powell explicitly stated that the US central bank will not react to this rise in consumer prices (emphasis added):Over the next few months, 12-month measures of inflation will move up as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transient effects on inflation (…) I would note that a transitory rise in inflation above 2 percent, as seems likely to occur this year, would not meet this standard [i.e., the Fed’s goals of maximum employment and stable prices].Second, Powell also pointed out that we are still far, far away from reaching the Fed’s employment and inflation goals. So, investors shouldn’t expect any hikes in the interest rates or any taper tantrum anytime soon. He was very clear on that, saying that it’s not yet time to start talking about tapering, and that the Fed will announce well in advance any decision to taper its quantitative easing program. Indeed, in a response to the question “is it time to start talking about talking about tapering yet”, he said:Not yet. So, as you pointed out, we’ve said that we would continue asset purchases at this pace, until we see substantial further progress. And that's actual progress, not forecast progress. (…) We also understand that we will want to provide as much advance notice of any potential taper as possible. So, when we see that we’re on track, when we see actual data coming in that suggests that we're on track to perhaps achieve substantial further progress, then we'll say so. And we'll say so well in advance of any decision to actually taper.Third, the Fed Chair reiterated a few times that the Fed’s changed its approach and it will not react to the forecast progress, but only to the actual progress , stating that:the fundamental change in in our framework is that we’re not going to act preemptively based on forecasts for the most part. And we’re going to wait to see actual data (…) And we’re committed to maintaining that patiently accommodative stance until the job is well and truly done.It makes some sense, of course, but it also increases the risk that the Fed’s response to rising inflation will be delayed. The same stance was adopted in the 1970s, when the central bankers believed that they would have plenty of time to react to any dangerous increases in consumer prices. But such an approach resulted in inflation getting out of control, leading to great stagflation . Gold shined then.Implications for GoldWhat does this all mean for the gold prices? Well, latest Powell’s remarks were dovish, which should support the yellow metal. But, as the chart below shows, we don’t see such a support reflected in the gold prices (London P.M. Fix).Part of the problem is that the bond yields continued to rise, after a short pullback amid the FOMC statement, exerting further downward pressure on the gold prices. A related issue here is that although Powell sounded generally dovish , he expressed a relaxed view on the current rally in the interest rates. Indeed, when replying to a question on the bond selloff, Powell just said that “we think the stance of our monetary policy remains appropriate”. So, his comments imply that the bond yields have room to move further up in the near-term, thus hurting the price of gold .However, there is certainly a level of interest rates that would be uncomfortable for the Fed (and Treasury), forcing it to intervene more decisively in the financial markets, and we’re not necessarily far from this level. Furthermore, given the rising inflation and inflation expectations, the real interest rates should rise at a slower pace than the nominal yields, and if they do actually fall, they would support the price of gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

How to Stop Being Scared or Shaken Out Of Winning Trades

Chris Vermeulen Chris Vermeulen 24.03.2021 23:29
The markets really frightened a lot of people in the last month. We've received lots of emails and comments from people wondering what's happening in the markets and why thedeeper downtrend didn't prompt new trade triggers. Well, the quick answer is “this downtrend did prompt new BAN trade triggers and this pullback is still quite mild compared to historical examples”. Allow me to explain my thinking.The recent FOMC meeting as well as the expiration of the future contracts usually prompts some broad market concerns. Many professional traders refuse to trade over the 7+ days near an FOMC meeting – the volatility levels are usually much higher and this can throw some trading strategies into chaos. Our BAN Trader Pro strategy handles volatility quite well most of the time.Recently, theBAN Trader Pro strategyinitiated new trade triggers of subscribers and myself. Our members are engaged in the best-performing assets for the potential upside price rally that may take place over the next couple of months. Our strategies target opportunities based on proven quantitative technology – not emotions and use proven position management to maximize gains while reducing drawdowns.Transportation Index Daily Chart Is BullishThis leading index shows early strength in the market with an upside target of $14,668. That is a 3.5%-4.5% upside move ahead of us.Recently, we've seen some substantial support in the Transportation Index that aligns with our BAN Trader Pro strategy. The rally in the Transportation Index, which usually leads the US economy by at least 2 to 4 months, suggests the markets are actively seeking out a support level/momentum base for another rally phase. Using a Fibonacci Extension tool, we can clearly see the TRAN has another 3.5% to 4.5% to rally before reaching the 100% measured move target near $14,668. This level represents a full 100% rally phase equaling the initial rally from levels near $12,000 which started back in February 2021.Dow Jones Industrial Index Daily Chart is BullishThe Dow Jones Industrial Average has already reached the 100% Fibonacci Measured move – and broken above that level. If the markets rally from this recent pullback, webelieve a 4% to 5%+ rally in the Dow index is very possible. This type of bullish price trend suggests a target level near $34,000.One thing, many traders fail to consider is these 4% to 5% rallies in the Transportation Index and/or the Dow Jones Industrial Average will likely prompt an 8% to 20%+ rally in some of the best-performing assets/sectors. For example, after the bottom in early February, during a time when the index rallied less than 1%, the best-performing assets we tracked rallied more than 7% to 25%. The strength of these top-performing sectors/symbols can be very powerful – even while the US major indexes are drifting sideways.If the Transportation and Dow Index rally 4% or more over the next few weeks, then some of the best performing sectors will strong gains in our favor. It depends on how strong these top-performing sectors react to the underlying momentum associated with each symbol though.How to Avoid Emotional Trading DecisionsTrading based on emotions can lead to early, and sometimes foolish, entry and exits of positions. The market has a way of faking/shaking price which often prompt traders to react to the 2% to 4% swings in the markets as if they are catastrophic. Some of the best advice we can offer active traders other than becoming part of our trading group and pre-market analysis and trade alerts are..._ Trust your system/strategy and follow it from entry to exit trigger._ Define your risks and run the strategy efficiently_ Develop ways to identify andresolve strategy failure early and often_ Trading involves risks – learn to execute the strategy within your risk parameters (position sizing)_ Don't let emotions control you. Trade rules should protect you during high & low volatility conditions.If you don't have a strategy and can't see yourself sticking to these simple rules, then maybe it is time to find a better strategy or to attempt to develop some of these tactics into your existing strategy. You can follow me to success with my ETF Swing Trading Strategy, or our Options Trading Strategy at any time if you want all the work done for you.Be sure to sign up for our free market trend analysis and signals now|soyou don’t miss our next special report!Far too many people get lucky with a strategy then leverage their trading because they feel they will never fail. Failure of any strategy, often represented as the largest drawdown amount, should be multiplied by at least 3x when comparing risks. Just because your strategy showed one period of drawdown representing a -$5,500 loss does not mean that type of price activity is an isolated event. That type of drawdown could happen repeatedly, over a very short period of time, representing a -$16,500loss.The strongest strategy components are those that help to contain losses, manage risks and allow for the protection of capital. Remember, “living to trade another day” is far more important than huge gains off of one or two trades followed by a string he big losers that blow up your account.In closing, get ready for a recovery in stock prices. With the indexes poised to move higher by another 3.5% - 5% before reaching the next 100% measured move suggests some sectors will post spectacular gains. Don't let emotions dictate your decisions – run your strategy (or find a better strategy to trade with). The best performing sectors/symbols usually continue to outperform the US major indexes when trending higher.Don't miss the opportunities in the broad market sectors over the next 6+ months. 2021 and beyond are going to be incredible years for traders and investors. Staying ahead of these sector trends is going to be key to developing continued success. As some sectors fail, others will begin to trend higher. Learn how BAN Trader Pro can help you spot the best trade setups and deliver alerts to your phone and inbox.We've built this technology to help us identify the strongest and best trade setups in any market sector. Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades. You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Powell and Yellen Sound Upbeat. Don’t They Like Gold?

Finance Press Release Finance Press Release 25.03.2021 14:40
Both Powell and Yellen testified before Congress. They sounded upbeat on the U.S. economy, but gold’s reaction was weak.What a combo! Both Fed Chair Jerome Powell and the U.S. Treasury Secretary Janet Yellen testified before Congress this week. They spoke about the economic response to the economic crisis caused by the Covid-19 pandemic and the Great Lockdown .In his prepared remarks , Powell sounded rather hawkish , as he noted that “the recovery has progressed more quickly than generally expected and looks to be strengthening.” As well, during the Q&A session, the Fed Chair seemed to be very confident about the economy and the central bank’s monetary policy . In particular, Powell told senators that 2021 was “going to be a very, very strong year in the most likely case.”He also downplayed worries about higher inflation expressed by some lawmakers, arguing that the environment of low inflation we have observed for years before the epidemic won’t change anytime soon:We think the inflation dynamics that we’ve seen around the world for a quarter-century are essentially intact — we’ve got a world that’s short of demand, with very low inflation. We think those dynamics haven’t gone away overnight, and won’t.And Powell dismissed concerns about the supply disruptions as well, saying that “a bottleneck, by definition, is temporary”.In a sense, Powell is right. A lot of supply disruptions are short-lived. But there are more inflationary factors operating right now, to name just a surge in the broad money supply . So, I’m afraid that he might be too conceited and understated the risk of higher inflation. You know, a lot of economic trends last – until they don’t. I’m referring here to the fact that the macroeconomic conditions change not gradually but rather abruptly. Inflation may remain low as long as inflation expectations are well-anchored, but if they become unanchored, inflation may rise quickly.Importantly, Powell was also unmoved by the recent rally in the bond yields :Rates have responded to news about vaccination, and ultimately, about growth (…) In effect there’s been an underlying sense of an improved economic outlook (…) That has been an orderly process. I would be concerned if it were not an orderly process, or if conditions were to tighten to a point where they might threaten our recovery.Yellen also sounded rather hawkish in her prepared remarks , as she wrote that “we may see a return to full employment next year.” Yellen also admitted that asset valuations are high, but that she wasn’t worried about financial stability, nevertheless: “I’d say that while asset valuations are elevated by historical metrics, there’s also belief that with vaccinations proceeding at a rapid pace, that the economy will be able to get back on track”. However, she argued that economy needed more help to recover fully.Importantly, Yellen admitted that higher taxes would be likely needed to raise revenues for increased government spending: “But longer run, we do have to raise revenue to support permanent spending”. Tax hikes could be negative for Wall Street and the economy, and thus, supportive for the price of gold.Implications for GoldWhat do Powell and Yellen’s testimonies imply for the gold prices? Well, the two most important economic figures in the U.S. didn’t surprise the markets, so the yellow metal reacted little to their statements, as the chart below shows.However, as both Powell and Yellen sounded rather optimistic about economic growth this year, their remarks might prove negative for the yellow metal. What can be particularly bad for gold is Powell’s calm stance regarding the rising bond yields. Of course, he could just put a good face on higher interest rates , but gold would prefer a more dovish stance. However, gold’s lack of a larger bearish reaction to rather upbeat testimonies from Powell and Yellen can actually be taken as an optimistic symptom. Anyway, a more accommodative stance of the Fed would be very helpful for the yellow metal.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Is Silver the New Gold?

Finance Press Release Finance Press Release 26.03.2021 14:30
Many analysts expect silver to outperform gold this year. It’s possible, but investors shouldn’t count on improving economic conditions and industrial demand.Silver has recently become a hot investment theme. For months, if not years, some analysts claimed that silver is undervalued relative to gold. Then, at the beginning of 2021, Reddit revolutionaries tried to trigger a short squeeze in silver. Although that attempt failed, silver has, so far, clearly been outperforming gold this year , as the chart below shows. So, is silver now a better investment than gold?Well, why would it be? After all, many investors buy silver for the same reasons that they purchase gold – it’s a rare, monetary metal which may be used as an inflation hedge , a safe-haven asset against tail risks , or a portfolio diversifier . It’s just cheaper than gold – and this is why it’s often called the poor man’s gold.Indeed, silver has a very high positive correlation with gold . Just take a look at the chart below, which illustrates the movement of gold and silver prices since April 1968. The shapes of the lines are very similar and the correlation coefficient is as high as 0.90!On the other hand, silver may indeed outperform gold. After all, silver has a dual nature. It is not only a monetary asset – like gold – but also an industrial commodity. This implies that silver is more business cycle -sensitive than gold. Therefore, given that the global economy is recovering from the deep recession caused by the coronavirus pandemic and the Great Lockdown , silver may outperform gold. In other words, although both gold and silver could benefit from reflation during the recovery, improving economic conditions could support the latter metal more .Another argument for silver shining brighter than gold in 2021 is the historical pattern according to which silver prices tend to follow gold prices with some lag, just to catch up with them later – often overreacting compared with gold’s behavior.So much for theory. Let’s move on to the data now and analyze the previous economic crisis , i.e., the Great Recession , and the following recovery. As the chart below shows, both metals moved generally in tandem, however, silver was more volatile than gold .For example, from its local bottom in mid-2007 to its local peak in early 2008, silver rose 79 percent, while gold “only” 57 percent. Then, in the first phase of the global financial crisis , silver plunged 58 percent (from $20.92 to $8.88), while gold slid 30 percent (from $1011.25 to $712.5). Subsequently, silver skyrocketed 448 percent, reaching a peak of $48.7 in April 2011. Meanwhile, the price of gold reached its peak of $1875 a little bit later, in September 2011, gaining 166 percent. Finally, silver plunged 46 percent by the end of 2011, while gold dropped only 19 percent. This shows that the economic recovery and industrial revival that followed the Great Recession didn’t help silver to shine. Actually, the bluish metal underperformed gold .Similarly, silver plunged more than gold (25 versus 17 percent) in the run-up to the burst of the dot-com bubble , as one can see in the chart below. It also gained less than gold in the aftermath of the 2001 recession (25.4 versus 27.5 percent), and then it plunged in the third quarter of 2002, significantly underperforming gold.Therefore, the recent history doesn’t confirm the view that silver should be outperforming gold in the early stages of a recovery, because it’s an industrial commodity that benefits from improving economic conditions. Silver was never in a bullish mode when gold was in a bear market, and it rather tends to rally rapidly in the late stage of the commodity cycle, like in the 2000s.Actually, one can argue that silver has the best period behind itself. After all, it soared 141 percent from late March to September 2020, while gold rallied “only” 40 percent. So, it might be the case that the catch-up period, in which silver outperforms gold, is already behind us. Indeed, as the chart below shows, the gold-to-silver ratio has recently declined to a more traditional range of 60-70.This, of course, doesn’t mean that silver cannot rise further. However, it seems that the metal has already caught up somewhat with its more precious cousin . So, it’s possible that silver can outperform gold in 2021, as Biden’s focus on renewable energy may help silver – as a major part of the metal used in industry is now linked to solar panels and electronics, but history teaches us that investors shouldn’t count on industrial demand . Silver didn’t outperform gold during recoveries from the previous recessions. Although silver has a dual nature, its price is highly correlated with gold prices. Therefore, macroeconomic factors, such as the U.S. dollar , real interest rates , risk appetite, inflation , public debt , monetary policy , fiscal policy , etc., should have a stronger impact on silver than industrial demand . As always, those entering the silver market should remember that silver price movements are more violent than in the gold market.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Why It‘s Reasonable to Be Bullish Stocks and Gold

Why It‘s Reasonable to Be Bullish Stocks and Gold

Monica Kingsley Monica Kingsley 26.03.2021 15:02
Another day, another reversal – and a positive one for stocks. Universal sectoral weakness gave way to a unison rebound amid constructive outside markets. After weeks of on and off fits over rising Treasury yields, S&P 500 ran into headwinds on their retreat, and recaptured its luster yesterday as long-dated Treasuries (TLT ETF) rolled over to the downside. I guess nothing boosts confidence as much a troubled 7-year Treasury auction.While it‘s far from full steam ahead, it‘s a welcome sight that the reflation trade dynamic has returned, and that technology isn‘t standing in the way. I think we‘re on the doorstep of another upswing establishing itself, which would be apparent latest Monday. Credit markets support such a conclusion, and so does the premarket turn higher in commodities – yes, I am referring also to yesterday‘s renewed uptick in inflation expectation.Neither running out of control, nor declaring the inflation scare (as some might term it but not me, for I view the markets as transitioning to a higher inflation environment) as over, inflation isn‘t yet strong enough to break the bull run, where both stocks and commodities benefit. It isn‘t yet forcing the Fed‘s hand enough, but look for it to change – we got a slight preview in the recent emergency support withdrawal and taper entertainment talking points, however distant from today‘s situation.Now, look for the fresh money avalanche, activist fiscal and moterary policy to hit the markets as a tidal wave. Modern monetary theorists‘ dream come true. Unlike during the Great Recession, the newly minted money isn‘t going to go towards repairing banks‘ balance sheets – it‘s going into the financial markets, lifting up asset prices, and over to the real economy. So far, it‘s only PPI that‘s showing signs of inflation in the pipeline – soon to be manifest according to the CPI methodology as well.Any deflation scare in such an environment stands low prospects of success. That concerns precious metals – neither rising, nor falling, regardless of the miners‘ message. After the upswing off the Mar 08 lows faltered, the bears had quite a few chances to ambush this week, yet made no progress. And the longer such inaction draws on, the more it is indicative of the opposite outcome.Yes, that‘s true regardless of the dollar continuing down for almost a month since my early Feb call before turning higher. When I was asked recently over Twitter my opionion on the greenback, I replied that its short-term outlook is bullish now – while I think the world reserve currency would get on the defensive and reach new lows this year still, it could take more than a few weeks for it to form a local top. Once AUD/USD turns higher, that could be among its first signs.Regarding gold, yesterday‘s words are true also today:(…) Gold is again a few bucks above its volume profile $1,720 support zone, and miners aren‘t painting a bullish picture. Resilient when faced with the commodities selloff, but weak when it comes to retreating nominal yields. The king of metals looks mixed, but the risks to the downside seem greater than those of catching a solid bid.That doesn‘t mean a steep selloff in a short amount of time just ahead – rather continuation of choppy trading with bursts of selling here and there. What could change my mind? Decoupling from rising TLT yields returning – in the form of gold convincingly rising when yields move down. Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookYesterday‘s reversal was overall credible – more so in its internals than as regards the daily volume. On a positive and contrarian note, the put to call ratio reached higher highs yesterday, leaving ample room to power a swift upswing should it come to that. And it could as quite many investors are positioned for a downswing in stocks.Credit MarketsThe high yield corporate bonds to short-dated Treasuries (HYG:SHY) ratio gave up all of yesterday‘s gains, but isn‘t leaving stocks as extended here. Much depends upon whether squaring the risk-on bets would continue, or not. Both stocks and the ratio appear consolidating here, and not rolling over to the downside.Value and TechnologyValue stocks (VTV ETF) finally showed clear leadership yesterday, the volume didn‘t disappoint, and technology (XLK ETF) recovered from prior downside on top. Closing about unchanged, it‘s key to the S&P 500 upswing continuation with force as opposed to muddling through.Gold in the SpotlightThe troubled miners got a little less problematic yesterday. The GDX ETF recovered from intraday losses while gold didn‘t exactly plunge. Its opening strength was a pleasant sight as more often than not, miners‘ weakness while gold goes nowhere, is a signal for going short the metal. But as this sign didn‘t result in a gold slide, my viewpoint is turning bullish again because we might be seeing fake miners weakness that would be resolved over the coming week with an upswing. Now that the Wall and Main Street expectation for the coming week aren‘t probably as bullish as for the week almost over, an upswing would be easier to pull off (should it come to that).Big picture view remains (positively) mixed – the selling pressure is retreating but gold isn‘t yet reacting to declining yields. Once it clearly does, the waiting for a precious metals upswing would be over.Silver and MinersSilver staged an intraday reversal, which copper couldn‘t pull off. Not that it attempted to, but still the commodities selloff appears a bit overdone, given that nothing has fundamentally changed. Both gold and silver miners stabilized on the day, meaning that the sector is in a wait and see mode, unwilling to turn bearish just yet.SummaryThe odds of an S&P 500 upswing have gone up, and volatility made a powerful retreat below 20 once again. Value stocks have turned upwards, and the stock bulls appear readying another run.Miners closed at least undecided yesterday, but gold and silver miners showing outperformance again is missing. Both metals still remain vulnerable to short-term downside. Once gold strengthens on declining yields, that would be another missing ingredient in the precious metals bull market.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Precious Metals Miners Setting Up For A Breakout Rally – Wait For Confirmation

Chris Vermeulen Chris Vermeulen 26.03.2021 19:23
Precious Metals have continued to slide sideways as the US stock markets have rallied into the FOMC meeting last week.  Not by coincidence, metals have continued to base/bottom near recent lows as concerns about the global debt/credit markets, central banks, and precious metal supplies continue to linger.  The US Fed indicated it will do whatever is necessary to support the recovering economy.  The question my research team asks in relation to the basis for a move in metals/miners is “do the global markets believe the global central banks still have control of the underlying global banking/credit markets well enough to prevent another massive rally in metals?”.This question should be first and foremost for metals precious metals enthusiasts.  Recently, there has been quite a bit of concern related to a Silver Squeeze and COMEX deliveries.  Currently, there is some speculation that the Perth Mint has a very limited supply of physical metals on hand and nearly 60x that amount on their balance sheets (Source: https://www.reddit.com/r/Wallstreetsilver/comments/mc18no/perth_mint_unallocated_silver_is_not_backed_by/).  We're no expert related to this lack of physical inventory, but if it is true, then a breakout rally in metals (a true metals SQUEEZE) could be just days or weeks away.Wait For Confirmation Of Miners Bullish BreakoutThe charts we are including in this article suggest “Wait For Breakout Confirmation” because we believe the current technical/price setup may prompt a bit of an extended bottoming formation.  If and when the breakout in miners happens, the upside price move could be very quick and efficient.The Weekly NUGT chart, below, shows how well price has consolidated near the $51 level and how the extended downside trend line (originating from the 2016 peak) aligns with the current price level.  Our researchers believe once this trend line is breached to the upside, NUGT may attempt a rally to levels above $108, the 0.618 Fibonacci Price Extension level, fairly quickly (possibly within 3 to 6+ months).  The $146 target level, a full 100% Fibonacci measured move, would represent a massive +167% price rally in NUGT (if it happens).  Quite literally, this breakout setup could be very explosive if and when it happens.Junior Silver Miners Showing Stronger Support – Waiting For Breakout ConfirmationThe following Weekly SILJ Junior Silver Miners chart shows a different type of price setup.  Junior Silver Miners have held up much stronger than Gold Miners over the past 6 months.  The reported Silver Squeeze could prompt a really big breakout trend IF and WHEN the current Pennant/Flag formation completes (which appears to be only a few weeks away).Be sure to sign up for our free market trend analysis and signals nowso you don’t miss our next special report!The first (0.618) Fibonacci target is near $20.50 – a 40% increase from current price levels.  The second target, a100% Fibonacci measured move, is near $25.25 – a 74% increase from current price levels.  Ideally, this type of breakout move in Metals Miners will happen as a pause in the upward movement of the US Dollar takes place.I believe the US stock market will continue to rally 4% to 8%, or more, over the next (3 to 5+) few weeks.  After that, we may start to see more weakness in the US stock market and the price trends leading up to this period of weakness is where we think Metals and Miners may start to rally.Again, we need to wait for confirmation of these breakout moves.  The technical/price setup we are seeing in both NUGT and SILJ suggests a potential breakout move may happen within the next 2 to 5+ weeks. There could be a deeper downside price move, a washout price low, that happens as the APEX of this move completes.  It is not uncommon for a “washout” trend to happen near a Flag/Pennant APEX.Overall, the next few weeks in the markets suggest we are likely to see fairly big sector trends and moderately strong support for Metals and Miners.  The strength of the US Dollar will likely keep metals from attempting any type of breakout move for a few more weeks.  When the Metals/Miners breakout move starts, though, it could be VERY EXPLOSIVE.Don’t miss the opportunities to profit from the broad market sector rotations we expect, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.Have a great weekend!
New York Climate Week: A Call for Urgent and Collective Climate Action

Intraday Market Analysis – Bullish Case

John Benjamin John Benjamin 29.03.2021 08:00
USDJPY accelerates rallyThe US dollar climbs as the US economy is gaining steam while other parts of the world face new Covid restrictions.The pair has shot up to last June’s high at 109.85 after it broke out of the consolidation range under 109. The bias remains strongly bullish, though an overbought RSI would suggest a temporary pullback as traders take profit.In that case, the rising trendline and 20 and 30-hour moving averages would become the demand zone. A deeper retracement may find support from the former resistance at 109.20.XAUUSD awaits breakout catalystA firm US dollar is weighing on gold as Treasury yields hold ground. The recovery stalled after the price broke below the rising trendline, denting the optimism for a swift rebound.The precious metal is likely to stay range-bound until a catalyst, be it fundamental or technical, triggers a breakout.1718 is a key support and a bearish breakout could deepen the correction towards 1700.To the upside, bulls will need to remove 1745 to bring back confidence. After that, an extended rally may carry the price to 1780.GER 30 surges to new highEquity markets recovered swiftly after lower-than-expected US personal consumption expenditure quelled the fear of reflation.The DAX has bounced off the key short-term support at 14430 to challenge the all-time high at 14800.Solid momentum above a bullish MA cross confirms that buyers are still in control of the price action. A close above 14800 may convince more trend followers to join in and push the index higher.To the downside, 14590 would be the immediate support for the RSI to cool off.
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What Could Slay the Stock & Gold Bulls

Monica Kingsley Monica Kingsley 29.03.2021 15:31
Put/call ratio didn‘t lie, and the anticipated S&P 500 upswing came on Friday – fireworks till the closing bell. Starting on Thursday, with the rising yields dynamic sending value stocks higher – and this time technology didn‘t stand in the way. What an understatement given the strong Friday sectoral showing, acocmpanied by the defensives swinging higher as well. And that‘s the characterization of the stock market rise – it‘s led by the defensive sectors with value stocks coming in close second now.Still last week, the market confirmed my early Friday‘s take:(…) While it‘s far from full steam ahead, it‘s a welcome sight that the reflation trade dynamic has returned, and that technology isn‘t standing in the way. I think we‘re on the doorstep of another upswing establishing itself, which would be apparent latest Monday. Credit markets support such a conclusion, and so does the premarket turn higher in commodities – yes, I am referring also to yesterday‘s renewed uptick in inflation expectation.Neither running out of control, nor declaring the inflation scare (as some might term it but not me, for I view the markets as transitioning to a higher inflation environment) as over, inflation isn‘t yet strong enough to break the bull run, where both stocks and commodities benefit. It isn‘t yet forcing the Fed‘s hand enough, but look for it to change – we got a slight preview in the recent emergency support withdrawal and taper entertainment talking points, however distant from today‘s situation.Commodities have indeed turned again higher on Friday, as seen in both copper and oil – and so did inflation expectations. While some central banks (hello, Canada) might be ahead in attempting to roll back the emergency support, the Fed isn‘t yet forced by the bond market to act – which I however view as likely to change over the coming months.With 10-year Treasury yields at 1.67%, last week‘s decline didn‘t reach far before turning higher. Remembering stock market woes the first breach of 1.50% caused, stocks have coped well with the subsequent run up – while in the old days of retirees actually being able to live off interest rate income, a level of 4% would bring about trouble for S&P 500, now the level is probably just above 2%. Yes, that‘s how far our financialized economy has progressed – and I look for volatility to rise, and stocks to waver and likely enter a correction at such a bond market juncture. As always, I‘ll be keeping a close eye on the signs, emerging or not, as we approach that yield level.Again quoting my Friday‘s words, what else to expect as the bond markets takes notice:(…) Now, look for the fresh money avalanche, activist fiscal and moterary policy to hit the markets as a tidal wave. Modern monetary theorists‘ dream come true. Unlike during the Great Recession, the newly minted money isn‘t going to go towards repairing banks‘ balance sheets – it‘s going into the financial markets, lifting up asset prices, and over to the real economy. So far, it‘s only PPI that‘s showing signs of inflation in the pipeline – soon to be manifest according to the CPI methodology as well.Any deflation scare in such an environment stands low prospects of success. For deflation to succeed, a stock market crash followed by a depression has to come first. And as inflation is firing on just one cylinder now (asset price inflation not accompanied by labor market pressures), it isn‘t yet strong enough to derail the stock bull run. The true inflation is a 2022-3 story, which is when we would be likely in a full blown financial repression and bond yields capped well above 2% while inflation rate could run at double that figure. Then, the Fed wouldn‘t be engaged in a twist operation, but in yield curve control, which the precious metals would love, for they love low nominal and negative real rates.Gold might be already sensing that upcoming pressure on the Fed to act – remember their run for so many months before the repo crisis of autumn 2019 broke out:(…) After the upswing off the Mar 08 lows faltered, the bears had quite a few chances to ambush this week, yet made no progress. And the longer such inaction draws on, the more it is indicative of the opposite outcome.Not only that gold miners outperformed the yellow metal on Friday, with their position relative to silver, the king of metals is sending a signal that it would be the one to take leadership in the approaching precious metals upswing. And the dollar wouldn‘t be standing in the way – let‘s continue with my Friday‘s thoughts:(…) When I was asked recently over Twitter my opionion on the greenback, I replied that its short-term outlook is bullish now – while I think the world reserve currency would get on the defensive and reach new lows this year still, it could take more than a few weeks for it to form a local top. Once AUD/USD turns higher, that could be among its first signs.Once higher rates challenge the stock market bull, the dollar would do well in whiff of deflationary environment (remember the corona runup of spring 2020), but it would be the devaluation that would break it – and it‘s my view that devaluation would not happen against other fiat currencies, but against gold (and by extension silver). With devaluation (it‘s still far away in the future), a true inflation would arrive and stay, which forms a more drastic scenario to the more orderly one I discussed earlier in today‘s article.Another challenge for the stock market bull comes from taxes, as the current and upcoming infrastructure stimuli (wait, there is the $2T one to move the U.S. to a carbon-neutral future on top) would result in higher tax rates next year, which would further hamper productive capital allocation as people and institutions would seek to negate their effect. Needless to say, gold, miners and real assets would do very well in such an environment.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookStrong S&P 500 upswing on Friday, on a not too shabby volume. The key question is whether the bulls can keep the momentum on Monday, and ideally extend the gains at least a little. Signs are they would be able to achieve that.Credit MarketsHigh yield corporate bonds (HYG ETF) reached the mid-Mar highs, and need to confirm Friday‘s upswing – odds are they would continue higher on Monday as well, because the volume comparison is positive and daily indicators don‘t appear yet ready to turn down.Inflation ExpectationsInflation expectation as measured by Treasury inflation protected securities to long-dated Treasuries (TIP:TLT) ratio, keep making higher highs and higher lows – the market is recalibrating towards a higher inflation environment, but not yet running ahead of the Fed as the 10-year Treasury yield (black line) shows. It‘s so far still orderly.Smallcaps and Emerging MarketsThe Russell 2000 (IWM ETF, upper black line) is underperforming the S&P 500, and so are the emerging markets (EEM ETF) – both signals of the defensive nature of the stock market upswing. The animal spirits aren‘t there to the full extent (don‘t be fooled by the strong VTV showing), but have been making a return since Thursday.Gold, Silver and MinersA new turn is taking shape within the Tuesday-challenged precious metals upswing – the miners appear yet again assuming leadership. The call I made on Thursday, hinting at a change, appears materializing to the bulls‘ benefit.Comparing gold and silver at the moment, results in the conclusion of the yellow metal leading higher after all – and the positive turn in copper (which is also reflected in the copper to 10-year Treasury yield ratio) confirms that.Crude OilBlack gold keeps defending the 50-day moving average, showing the reflation trade in both commodities and stocks isn‘t over yet. The oil index ($XOI) is once again pointing higher, and so is the energy ETF (XLE). While Friday‘s volume was relatively modest, oil has good prospects to keep recovering this week.SummaryThe odds of an S&P 500 upswing were confirmed by the Friday‘s upswing, in line with the put/call ratio indications. Credit markets concur, and while the sectoral constellation isn‘t totally bullish, it can still carry the index to new highs.Miners made an important turn higher relative to gold, and the sector can enter today‘s trading on a stronger footing than was the case on Friday. The green shoots in the precious metals sector appear likely to take a turn for the better this week and next. As always, keeping a close eye on the gold‘s relationship to nominal yields, is essential – be it decoupling from rising ones, or a strong upswing on retreating ones.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

How To Spot Boom and Bust Cycles

Chris Vermeulen Chris Vermeulen 29.03.2021 16:04
One of the most important aspects of trading is being able to properly identify major market cycles and trends. The markets will typically move between four separate stages: Bottoming/Basing, Rallying, Topping/Distribution, and Bearish Trending.  Each of these phases of market trends is often associated with various degrees of market segment trending as well.  For example, one of the most telling phrases of when the stock market is nearing an eventual Topping/Distribution phase is when the housing market gets super-heated.  Yet, one of the most difficult aspects of this Excess Phase rally trend is that it can last many months or years, and usually longer than many people expect.Until Gold Really Starts To Rally, Expect A Continued Rally In The Stock MarketWhen an Excess Phase rally is taking place in the stock market, we expect to see the Lumber vs. Gold ratio moving higher and typically see the RSI indicator stay above 50.  Demand for lumber, a commodity necessary for building, remodeling, and other consumer essential spending, translates well as an economic barometer for big-ticket consumer spending. Extreme peaks in this ratio can often warn of a pending shift in consumer spending and how the stock market reacts to an Excess Phase Peak.  Let's take a look at some of the historical reference points on this longer-term Weekly Lumber vs. Gold chart below.First, the 1992 to 2005 ratio levels represent a moderately low Gold price level compared to a somewhat inflated Lumber price level.  You can see how that dramatically changed between 2005 and 2012 – this was a time when Gold started a historic rally phase just before the Housing/Credit crisis of 2008-09.Since that time, the Lumber to Gold ratio has stayed below historical low reference points (near 0.6).  This shift in the Lumber to Gold ratio suggests that demand for Gold outpaced demand for Lumber over the past 10+ years.  Now, the Lumber to Gold ratio is climbing back to levels near or above that 0.6 level and may soon move higher if the post-COVID economic recovery continues while demand for Gold stays somewhat muted.Traders need to pay attention to this current rally in the Lumber vs. Gold ratio because a breakout rally above the 0.60 level would likely mean a continued rally phase for the US stock market and strong sector trending related to consumer spending, housing, and speculative sectors.  Whereas, a failure to rally above the 0.60 level at this stage may indicate that the US stock market will begin to stall and potentially move into a sideways correction before starting a new trend.Be sure to sign up for our free market trend analysis and signals nowso you don’t miss our next special report!Lastly, we have drawn some Std Deviation channels on this longer-term Lumber to Gold Weekly chart above.  It is very important to understand that a continued rally in the Lumber to Gold ratio will break above the upper downward sloping channel from the 1999 peak and potentially prompt a big upside price rally – likely pushing the US stock market to extended new highs.A Closer Look At The Current SetupWhen we zoom into the current price trends on the following Lumber to Gold ratio chart below, we can clearly see the two recent rally trends; the first after the 2016 US elections and the second after the COVID-19 bottom.  The most important aspect of this chart right now is that any continued rally in the Lumber to Gold ratio may quickly breach the 0.60 historical range and potentially prompt a very big rally in the US stock market over the next few months.The new COVID stimulus and the continued efforts to pass an Infrastructure Bill in the US Congress may prompt enough of a capital injection into the US economy to set off a “booster phase” rally at this stage in the economic recovery.  One simply can't rely on the fact that the Lumber to Gold ratio is near a historically critical level, we need to actually wait to see confirmation of a breakdown in this trend before we can say what is likely to happen in the near future.  If the ratio climbs above 0.60 and continues to rally higher, then it is very likely that the US and Global stock market trends will also continue much higher.Historical Peaks & Rallies – When To Be ConcernedThis longer-term Lumber to Gold ratio chart shows how the SPY continued to rally through various stages of the rally in the ratio level. We also have to remember the peak in 2000 was related to two important economic events; the DOT COM bubble burst and the 9/11 terrorist attacks.  Subsequently, the breakdown in the Lumber to Gold ratio that started in 2004 was related to a broadly weakening housing market trend – prompted by an ever-increasing Fed Funds Rate which began in 2004-05.  Currently, we have the US Fed promising “near-zero” rates through 2022 and an easy money policy throughout that time to support stronger global market recovery.  Barring any unforeseen credit, economic, or global market event, we believe a breakout rally in the Lumber to Gold ratio, assuming Gold stays below $2250 and does not enter a breakout rally phase, will coincide with a moderately strong US stock market rally.When should you start to be concerned that a top is setting up based on this ratio?Very simply put, when you see Gold start to rally above $2150~$2250 and breakout into a true rally while the price of Lumber begins to fall somewhat sharply, then we believe traders should start to actively protect positions and prepare for a bigger breakdown in the stock market trend.  Until Gold starts to react as a proper hedge, this speculative “excess phase” rally will likely continue higher.As a warning for all our friends and followers, a breakdown of this upside rally trend could be sudden if a major market event takes place.  For example, if a sudden collapse in the credit/debt markets were to happen (related to risk exposure or bank/financial firm failures), then we may see a very sudden breakdown in this ratio.  Additionally, if war or geopolitical economic tensions break out where excessive global risks become a factor, then we may also see this ratio turn negative quickly.Traders need to understand the potential for a continued stock market rally near these current levels is quite strong, but there are still risks of a sudden breakdown in trending.  The question that nobody can answer is “what will the catalyst event be and when could it happen?”. Until then, trade the hottest sectors using my Best Asset Now strategy, which you can learn NOW by signing up for my FREE webinar that will teach you how to find the best sectors to trade.Until the end of the trend is upon us, get ready for some really interesting global market trends and sector opportunities.  It is very likely that volatility will stay higher than normal prompting 2% to 4%+ rotations in market trends.  These next few years are going to be a trader's dream market in terms of trending and price rotation. For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.Enjoy your Sunday!
Liquidity Boost for Stocks and Gold?

Liquidity Boost for Stocks and Gold?

Monica Kingsley Monica Kingsley 30.03.2021 15:53
Friday‘s great run gave way to yesterday‘s consolidation, and stock bulls appear in need of more before taking out the psychological 4,000 mark. The Archegos crash isn‘t causing contagion fears the way GameStop in late Jan did. The current volatility and put/call ratio simply doesn‘t reflect that.The theme is still one of reflation – while inflation expectations are rising, and so are the inflation data for those who care to examine them closely enough, true inflation isn‘t yet here with us. Markets are merely transitioning to a higher inflation environment already, not buying the Fed‘s transitory explanation. Commodities are basing at the conquered levels before another run higher.Make no mistake though, the current S&P 500 upswing is heavily reliant on the defensive sectors – technology isn‘t standing in the way, utilities and consumer staples are doing great, and so are several areas within the real estate sector such the residential one, or REIT ETFs that can be expected to keep doing well. Couple that with value stocks not really retreating, and you get the current view of S&P 500 advance structurally.Credit markets though are a little lagging behind – thanks to the return of rising yields, working its predictable magic on investment grade corporate bonds as well. Such were my points from yesterday‘s extensive analysis, diving into the big picture across the markets and the economy:(…) With 10-year Treasury yields at 1.67%, last week‘s decline didn‘t reach far before turning higher. Remembering stock market woes the first breach of 1.50% caused, stocks have coped well with the subsequent run up – while in the old days of retirees actually being able to live off interest rate income, a level of 4% would bring about trouble for S&P 500, now the level is probably just above 2%. Yes, that‘s how far our financialized economy has progressed – and I look for volatility to rise, and stocks to waver and likely enter a correction at such a bond market juncture. As always, I‘ll be keeping a close eye on the signs, emerging or not, as we approach that yield level.The bond market isn‘t merely anticipating an economic recovery that has good chances of overheating still this year, it‘s also reacting to:(…) the fresh money avalanche, activist fiscal and moterary policy to hit the markets as a tidal wave. Modern monetary theorists‘ dream come true. Unlike during the Great Recession, the newly minted money isn‘t going to go towards repairing banks‘ balance sheets – it‘s going into the financial markets, lifting up asset prices, and over to the real economy. So far, it‘s only PPI that‘s showing signs of inflation in the pipeline – soon to be manifest according to the CPI methodology as well.Any deflation scare in such an environment stands low prospects of success. Continuing:(…) For deflation to succeed, a stock market crash followed by a depression has to come first. And as inflation is firing on just one cylinder now (asset price inflation not accompanied by labor market pressures), it isn‘t yet strong enough to derail the stock bull run. The true inflation is a 2022-3 story, which is when we would be likely in a full blown financial repression and bond yields capped well above 2% while inflation rate could run at double that figure. Then, the Fed wouldn‘t be engaged in a twist operation, but in yield curve control, which the precious metals would love, for they love low nominal and negative real rates.As I wrote on Twitter, it‘s a question of time when gold starts anticipating the policy turn, snifffing it out just like the Fed having to abandon hawkish positions of late 2018, or the runup to the repo crisis of autumn 2019. We got quite a few decoupling signs, some on prolonged basis, but gold isn‘t yet leading commodities the way it did both before and after the corona deflationary shock. Let‘s not forget about the currencies and arbitrage opportunities there – the yen carry trade is still very much alive, making it a no brainer to borrow in declining currency while parking the proceeds elsewhere – and the one-way trading in $USDJPY in 2021 is a fitting testament thereof. A powerful argument against deflation on our doorstep, by the way.Quite to the (deflationary shock) contrary at the moment – both commodities and precious metals are under pressure in today‘s premarket session. Another undoing of the miners‘ outperformance?Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookDaily consolidation on average volume – no hinting at serious troubles down the road. Buy the dip mentality still rules the day.Credit MarketsHigh yield corporate bonds (HYG ETF) chart looks a bit tired to the upside – the bulls had to defend against a serious downswing yesterday first. Contracting volume precedes rising volume, and the best the bulls can hope for, is sideways trading coupled with downswing rejection followed by another move higher.Technology and ValueTechnology (XLK ETF) repelled an intraday downswing while value stocks (VTV ETF) merely couldn‘t keep up all the gained ground during the day. So far so good in the run up or base building on the path to new all time highs.Gold in the SpotlightThe daily resilience in the miners would come under heavy pressure today, and GDX can be expected to close lower. Would they still show outperformance vs. the yellow metal? I wouldn‘t bet the farm on it – it appears the Mar 04 game plan will be tested soon instead.Miners to gold (black line) still keeps painting a bullish picture on the weekly chart, as it refuses to follow the yellow metal to the downside. Where would it be should the $1,670 support zone get tested again – would that level be sufficient enough to power a rebound?Silver, Miners and CopperSilver clearly illustrates the sectoral weakness – the selling waves get harder to repel, and upswing attempts are happening on lower volume. While copper goes sideways, the white metal is breaking lower, and its miners aren‘t showing any strength at all.SummaryS&P 500 keeps consolidating Friday‘s gains without signs of upcoming, groundbreaking weakness. With volatility at around 20, the path of least resistance remains overall higher – until tech says no more. Again, no hint at that today still.Gold is again approaching the $1,670 support, and miners‘ performance will send as valuable clues just as before the Mar 08 bottom. Given today‘s downswing, that will be an even more important indication, bearing medium-term consequences as well.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Has Gold “Ever Given” to You?

Finance Press Release Finance Press Release 30.03.2021 17:01
Neither the Suez Canal blockade nor the SLR exemption’s expiration should significantly affect gold, whose price is likely to be soon shaped by other factors.Do you think you’ve had a bad day? If yes, then imagine the helmsman of the Ever Given who somehow managed to get his giant container ship stuck in the Suez Canal, disrupting global trade and causing economic damage worth millions of dollars each hour. Sure, the blockade won’t sink the global economy (pun intended), but it won’t help it either. After all, the Suez Canal is the gateway between Europe and Asia, through which around 12-13% of world trade flows, as does 30% of the world's daily shipping container freight. So, every day of obstruction disrupted the movement of goods worth about $9 billion, having a significant impact on global trade.Of course, the world won’t end, and ships can always choose an alternative route around the Cape of Good Hope at the southern tip of Africa, but this route takes several days longer. So, the blockade has significantly delayed the consignments of goods and fuel, and exacerbated the already pandemic-disturbed supply channels. As a reminder, there are shortages of containers, semi-conductors, and other inputs and finished goods, that have significantly lengthened delivery times and pushed prices up. Although the blockade of the Suez Canal was temporary, it added additional disruption on top of existing supply problems. Meanwhile, the central banks and governments interpret everything as demand problems that need to be addressed through easy monetary policy and loose fiscal policy .The accident of the Ever Given won’t significantly impact gold prices. And, as the chart below shows, we haven’t seen any substantial effects so far.However, the blockade could remind investors (if they somehow managed to forget amid the pandemic ) that black swans exist and fly low, and it’s reasonable to have a portion of one’s investment portfolio in safe havens such as gold (for instance, the insurance part of the portfolio ). Additionally, the upward pressure on prices (although limited) could strengthen the appeal of gold as an inflation hedge , especially considering that officially reported inflation is likely to jump next month because of the low base effect and all the recent supply disruptions.Fed Allows for Expiration of SLRAnd now for something completely different. The Federal Reserve Board announced that the temporary change to its supplementary leverage ratio , or SLR, for bank holding companies will expire as scheduled on March 31. What does this mean for the U.S. economy and the gold market?The SLR is a regulation that requires the largest U.S. banks to hold a minimum level of capital. The ratio says how much equity capital the banks have to hold relative to their total leverage exposure (3% in the case of large banks and 5% in the case of top-tier banks). To ease strains in the Treasury market during the Covid-19 epidemic , the Fed temporarily excluded the U.S. Treasuries and central bank reserves from the calculation. In other words, banks could increase their holdings of government bonds and central bank reserves without raising equity capital.But now, with the exemption expired, their equity capital will be calculated again relative to the banks’ total leverage exposure, including Treasuries and central bank reserves. So, it might be the case that the banks will have to either increase the amount of equity (which is rather unlikely) or reduce the amount of government bonds. And if they sell Treasuries, it would add to the upward pressure on the bond yields . This would prove rather negative for gold, which is a non-interest-bearing asset.However, it doesn’t have to be the case. I mean here that the U.S. eight large and systematically important banks wouldn’t fall below their 5% regulatory minimum. Actually, they are said to have a roughly 25% buffer above minimum thresholds, so the expiry of the SLR exemptions doesn’t have to significantly affect the functioning of the Treasury market, at least not immediately. Hence, the impact of the expiration of the SLR exemption could have limited effect on the gold market , if any.It seems that the price of the yellow metal will be rather shaped by the real interest rates , the U.S. dollar, inflation, the level of confidence in the U.S. economy, etc. In the short-term, the focus on economic recovery could continue the downward pressure on gold prices, but in the long-term, the stagflation theme could resurface and push the price of the yellow metal up.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Stocks: big moves!

Kseniya Medik Kseniya Medik 31.03.2021 11:05
Stepping up the ladder to 4000 The stock market keeps steadily going upwards towards the mark of 4000. While there have been and will be inevitable dropdowns below the support of the 50-MA, the overall trend is a clear uptrend. What's important is that the recent turbulence was not as high as the one in September-October - that's a sure sign of true recovery and stabilization of the economy seen in the corporate environment. Having that as a background, let's review particular stocks now. Tweeting down No one can deny Elon Musk the liberty to say whatever he finds necessary on Twitter. That doesn't mean it does any good to the valuation of Tesla, though. Sometimes we may even think that he does it intentionally like that time when he said that Tesla's value is too high - and the stock dropped. The announcement that Tesla may be bought with Bitcoins didn't prevent the stock price from going down. Partially, because of another controversial tweet about unions that the US authorities are considering as a possible threat to labor union participants. On the other side, there was another comment that Elon Musk tweeted - and eventually deleted is that very soon, Tesla may weigh more than Apple. Whatever there is, the support of 550 is there, and it may be reached again. At the same time, a bounce upwards is also possible. For this reason, if you're considering taking a rather risky mid-term position, you may think of buying Tesla - that's if you're ready to hold out enough time until it starts recovering. Because when it does, then from the current $600 to the all-time high of $900 it's a 50% value growth potential. Chinese affairs Alibaba is now under double pressure. First, Jack Ma's company is under direct pressure, scrutiny, and counteraction from the side of the Chinese authorities. Second, strategically, global geopolitical tension between China and the "Western world" growing around the Uyghur region is making the future of Alibaba even more cloudy than it is now. In any case, the stock is now at nine-month lows. Moreover, it trades above the support zone of 215-220. Technically, a bounce upwards is very possible. If it happens, then there is the entire $100 above to meet the all-time high again. Potentially, it's an almost 50% value gain possibility - that may take a few months, though. Therefore, Alibaba may be a risky buy for a long-term strategy. Or, observe it further as fundamentally, grounds are shaking beneath Jack Ma's feet. Beating everyone Shooting up from $50 to $54, Coca-Cola performed as well as never since the start of the recovery. Definitely, it's one of the best performers of the S&P 500 so far. Fundamentally, it has a very good business outlook. Sales are going better and better, most observers suggest it's a buy stock - for a long-term scenario. For the short-term, though, you have to take into account that this growth was really aggressive. Not that it never happens in the stock market but this stock has been oscillating between the two sides of the indicated channel since March. Currently, it's in an upswing. However, observe it closely as it approaches $55. At or slighly above that mark, it may reverse to do a technical correction - in this case, it may go all the way down to $51-52. Therefore, observe possible reversal pattern in the shotrt-term - they may occur at any time. Remember that you can trade stocks not only through Metatrader 5 but also through the FBS Trader app!
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Tax Hikes are Coming

Finance Press Release Finance Press Release 31.03.2021 15:54
End of the month and first quarter of 2021. Is time going fast or slow? Markets have been moving at a dizzying pace to start the year.As a side note, this will be our last newsletter for this week because the market is closed on Friday (Apr. 2).The first quarter of 2021 is officially almost finished. Time flies when you’re having fun, right? While a broad correction did not happen by now, as I expected, the Nasdaq did enter correction territory twice since February. Despite the Nasdaq’s muted moves on Tuesday (Mar. 30), it’s right on the edge of its third foray into correction territory.The market themes remain. There is still as much uncertainty for tech stocks today as there were at the start of March. Until there’s some clarity on inflation and bond yields, I can’t foresee this ending anytime soon.Consider this too. President Biden is about to unveil a $2 trillion infrastructure plan during Wednesday’s session (wasn’t it supposed to be $3 trillion?). While this is great for America’s crumbling infrastructure, let’s be honest- does this economy, while recovering, need anymore spending?Plus, how do you think he will pay for this? Hiking taxes- namely corporate taxes . Those gains that high growth stocks saw after Trump cut corporate taxes in 2017 could very well go away. The market may have priced in a lot of optimism. It may have already priced in some pessimism from potential inflation. But one thing it has not priced in is a possible tax hike.This concerns me.Rising bond yields + Rising taxes= A double whammy of bad news for tech stocks.However, despite the “what ifs,” for now, three pillars remain in motion as a strong backdrop for stocks:VaccinesDovish monetary policy full of stimulusFinancial aidMy goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:The market has to figure itself out.More volatility is likely, and we could experience more muted gains than what we’ve come to know over the last year. Inflation, interest-rate worries, and the potential for tax hikes should be the primary tailwinds. However, a decline above ~20%, leading to a bear market, appears unlikely for now.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. Russell 2000- Time to Pounce?Figure 1- iShares Russell 2000 ETF (IWM)The climate right now supports the Russell 2000. The current economic policy is tailor-made for small-caps. The best part, though? The Russell is still very buyable.I kicked myself for not calling BUY on the Russell after it saw a minor downturn during the second half of February. I wasn’t going to make that mistake again.After the iShares Russell 2000 ETF (IWM) went on its latest rally to start March, I checked out the chart. I noticed that almost every time it touched or minorly declined below its 50-day moving average, it reversed.Excluding the recovery in April from last year’s crash, 5 out of the previous 6 times the Russell did this with its 50-day, it saw a sharp reversal. The only time it didn’t was in October 2020, when the distance between its 50-day and its 200-day moving average was a lot more narrow.Fast forward to Tuesday (Mar. 23). The Russell 2000 saw its worst day since February 25, dropped below its 50-day, and I switched the call to a BUY.Now, as we start the final week in March, we may be looking at the 6th reversal after dipping below its 50-day. The IWM has been up about 3% since March 24.Aggressive stimulus, friendly policies, and a reopening world bode well for small-caps in 2021. I think this is something you have to consider for the Russell 2000 and maybe overpay for.Consider this too. The Russell is on track for its first losing month in almost five months. According to the chart, it may have also found double-bottom support.Based on macro-level tailwinds, its first losing month in five, potentially finding double-bottom support, its RSI, and where it is in relation to the 50-day moving average, I feel that this is a solid time to BUY.For more of my thoughts on the market, such as tech, inflation fears, and why I love emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Stocks, Gold and the Troubling Yields

Monica Kingsley Monica Kingsley 31.03.2021 16:03
Yesterday‘s consolidation in stocks was a bullish one, and the S&P 500 upswing has good prospects of proceeding unimpeded. Strange but true if you consider that also a plan to considerably raise taxes would be announced today, so as to help pay for the stimulus wave. The bond markets are calmly overlooking that so far, enabling the run to the 4,000 mark.And it still appears a question of time. Inflation isn‘t yet biting (forget about the German CPI data for now), fresh money keeps hitting the markets, and Archegos is about to become a distant memory. Stocks seem immune to the rising yields spell at the moment, meaning that value trades can remain at elevated levels while technology is stuck in no man‘s land and defensives are consolidating recent sharp gains (consolidating until the rising yields come back with vengeance).And there is little reason given the Fed‘s stance why they shouldn‘t. Much of the marketplace is buying into the transitory inflation story, and inflation expectations aren‘t yet running too hot. As the economic growth is stronger than current or future inflation, we‘re still at a good stage in the inflation cycle – everyone benefits and no one pays.When such reflation starts to give way to decreasing or stagnant growth rates accompanied by rising inflation metrics, the stock market performance stops being as positive as it had been since the Mar 2020 bottom. At such a time, the current transitioning to a higher inflation environment would be at a very different (commodity prices) stage, and so would the bond yields (no longer well below 2% on 10-year Treasuries).Points made in my Monday‘s extensive analysis, ring true also today:(…) With 10-year Treasury yields at 1.67%, last week‘s decline didn‘t reach far before turning higher. Remembering stock market woes the first breach of 1.50% caused, stocks have coped well with the subsequent run up – while in the old days of retirees actually being able to live off interest rate income, a level of 4% would bring about trouble for S&P 500, now the level is probably just above 2%. Yes, that‘s how far our financialized economy has progressed – and I look for volatility to rise, and stocks to waver and likely enter a correction at such a bond market juncture. As always, I‘ll be keeping a close eye on the signs, emerging or not, as we approach that yield level.Gold isn‘t yet sensing the coming Fed intervention – similar to Europe or Australia, the central bank would have to take aim at the long end of the curve in earnest – yield curve control I raised mid-Feb already, as twist wouldn‘t be enough at that stage. Look for a full fledged financial repression and deflation standing no chance then – boon to all real assets, a time when gold would truly shine.For now though, Fed‘s credibility isn‘t being questioned and challenged in the markets. Bond yields are rising in an orderly fashion – if you can consider the 2021 run as orderly. I can‘t but I am not calling the shots at the Fed either so as to highlight the record 2021 TLT price extension below its longer-term moving averages. The unchallenged USD/JPY exchange rate shows that the yesterday mentioned yen carry trade is running hot:(…) making it a no brainer to borrow in declining currency while parking the proceeds elsewhere – powerful argument against deflation on our doorstep, by the way.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookStocks consolidated in a bullish fashion, and the stage is set for an upswing next. I see it as merely a question of time, and the early reaction to non-farm employment change, is neutral – look for the key Friday figure though.Credit MarketsHigh yield corporate bonds (HYG ETF) underperformed yesterday as both the investment grade corporate bonds and long-dated Treasuries rose. The HYG daily volume shows that this upswing isn‘t a done deal yet.Russell 2000 and Emerging MarketsWhile the 500-strong index is basing, both smallcaps (IWM ETF) and emerging markets (EEM ETF) attempt a turn higher. See how elevated $SPX remained vs. the two – it‘s clear the current upswing is a defensive one.Gold in the SpotlightGold miners weren‘t able to repeat their Monday‘s feat exactly, but aren‘t plunging faster than gold either. Sending inconclusive signals, is the takeaway – unless you step back and look at exactly the same weekly chart, which reveals miners comfortably outperforming the yellow metal. Be still ready for a coming test of my Mar 04 game plan, though.Gold with the overlaid copper to 10-year Treasury yield ratio (black line) shows that in the current (consolidation) phase of the commodities bull run, gold has lost its luster with yesterday‘s upswing. Again, how fast and from what level would it regain its footing, is the key question - $1,670 or not.Silver, Platinum and CopperSilver selling pressure unfortunately still dominates as the volume shows. White metal is in the straits much more than copper or platinum, which are merely going sideways (just as oil is).SummaryS&P 500 keeps consolidating Friday‘s gains without signs of upcoming, groundbreaking weakness. With volatility moving down again, the path of least resistance is still up – and tech isn‘t saying no.Gold is again in the proximity of the $1,670 support, and miners‘ performance will send as valuable clues just as before the Mar 08 bottom. Nothing convincing to draw conclusions either way at the moment.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Will Biden’s Infrastructure Plan Rebuild Gold?

Finance Press Release Finance Press Release 01.04.2021 17:23
Biden just announced an ambitious and expensive infrastructure plan. Will it rebuild gold?Yesterday (Mar. 31), President Joe Biden the big infrastructure plan , the second major legislative initiative after the $1.9 trillion coronavirus relief plan passed in early March. The proposal includes about $2.2 trillion in new spending over eight years, boosting government expenditures even further .Despite the name, the plan assumes that only a part would be spent on infrastructure. To be more specific, Biden wants to spend $600 billion on transportation infrastructure (such as bridges, roads, airports, etc.), and more than $300 billion on improving utilities infrastructure (drinking-water pipes, electric grids, broadband). He also proposes to put more than $300 billion into building and upgrading housing and schools, $400 billion to care for elderly and disabled Americans, and almost $600 billion in research and development infrastructure, manufacturing, and job training.That doesn’t sound bad at all (after all, infrastructure is critical), but there is a catch. The plan assumes that all the spending will be financed by tax hikes. Biden proposes to raise the U.S. corporate tax rate from the 21 percent set by Trump to 28 percent, as well as to eliminate all fossil fuel industry subsidies and loopholes. So, according to the proposal, the tax reforms will add about 0.5 percent of GDP in fiscal revenues, which are believed to fully pay for investments within the next 15 years.Implications for GoldWhat does Biden’s infrastructure plan mean for the U.S. economy? Well, I won’t argue that American infrastructure needs upgrading. There is a bipartisan agreement here. The problem is, however, that government spending programs are usually inefficient, and cost more than initially planned . Additionally, the plan seeks to give the government a significant role in new important areas, and to introduce anti-business and pro-labor unions regulations.So, generally speaking, the proposal stems from Biden’s progressive belief that government can and should be a primary driver for economic growth, which is just plain wrong. As both economic theory and empirics show, the private sector is inherently more efficient than the bureaucrats (you can ask people in the former communist countries whether it’s true). Such a revolution in U.S. economic policy will weaken the allocative efficiency and hamper the long-term pace of economic growth.Last but not least, the idea to raise taxes when the economy hasn’t fully recovered from the pandemic recession is controversial, at least. Higher taxes will weaken corporate America and redistribute resources from the private sector to the public sector, negatively affecting the economy in the long-run. As well, I don’t believe that the tax revenues will fully finance the plan, so the fiscal deficits will increase further, ballooning even more the already mammoth pile of federal debt (see the chart below).And how will Biden’s infrastructure plan affect the gold market? Well, in the long-run, higher government spending, public debts, inflation , and corporate taxes should hamper the pace of economic growth and weaken corporate America and Wall Street. Hence, the proposal could be positive for gold prices, at least from the fundamental point of view .However, Biden’s bold actions seem to be welcomed so far by the financial markets. This is because the fiscal stimulus – and the rollout of vaccination – is strengthening the risk appetite. There are also hopes that the “go big” approach will allow the American economy to recover more swiftly than previously expected and quicker than its European peers. These expectations could propel the bond yields further up (see the chart below), also strengthening the U.S. dollar, and creating additional downward pressure on the gold prices .Therefore, although the Fed will have to step in and ease its monetary policy if the interest rates rise too much, the bond yields have room to move higher. This upward trend could continue to put gold under pressure , unless the yellow metal finds a way to diverge from its relationship with interest rates, for example, by attracting more investors worried about inflation.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

What is the target for S&P?

Kseniya Medik Kseniya Medik 02.04.2021 12:09
S&P 500 is trading just below the key milestone of 4000. It’s likely to hit this level by the end of this week. What is the reason for this growth and what is the forecast? Let’s find out! Biden’s infrastructure plan Stocks were mixed on Wednesday as Biden announced its $2.25 trillion infrastructure plan to offset the corporate tax increase from 21% to 28%. The US President said this tax hike would bring $2 trillion over 15 years. However, some Democrats are still able to cut the increase to less than 28%. Unlike Nasdaq’s big jump, S&P 500’s growth was modest. This huge plan includes $620 billion in spending on transportation, including electric-vehicle incentives, and $500 billion – on growing the domestic manufacturing sector, with a focus on the chip industry and green manufacturing. Thus, it has a greater impact on the tech Nasdaq than S&P 500. However, the overall effect was taken positively by investors as the US economy will recover faster with the government’s help. On the other hand, the tax hike is a negative factor for stocks. Best month since November March was the best month for S&P 500 since November and their fourth positive month in five! It gained more than 4%. Bullish forecasts Sanford C. Bernstein strategists projected S&P 500 at 8000 in 100 months (eight and a half years). Let’s wait and see! Technical analysis S&P 500 (US 500) has been rising and rising without any stops since the coronavirus hit the markets in late February of the last year. It has broken through the key psychological mark of 4000. The way up to 4050 is open now. If it manages to break it, it may jump higher to the next round number of 4100. However, as we can notice, the upper line of Bollinger Bands lies just above the current price, indicating the price is too high. Besides, after the price breaks such significant resistance levels, it usually retraces back. It’s a so-called natural sell-off, after which the price will continue rising. However, if bulls keep momentum the rally up will continue without any stops. Just in case, support levels are 4000 and 3945. Important! The trading of stock indices will be close today at 16:00 MT because of the Easter holidays. Remember that you can trade stocks not only through Metatrader 5 but also through the FBS Trader app!
New York Climate Week: A Call for Urgent and Collective Climate Action

S&P 500 Fireworks and Gold Going Stronger

Monica Kingsley Monica Kingsley 05.04.2021 15:13
Bullish run in stocks is on, driven by tech gains and value swinging higher as well. Throughout the markets, risk-on has been making a return as long-dated Treasury yields retreated, dollar fell and commodities continue their bullish flag formation. As I have tweeted on Thursday, it were the investment grade corporate bonds that signalled the turnaround in yields spreading to TLT next. Given such a constellation, the dollar‘s appeal is taking a dive as the bond market gets its reprieve. When nominal yields retreat while inflation (and inflation expectations) keep rising, real rates decline, and that leads to dollar‘s decline.Stocks are more focused on the tidal wave of liquidity rather than the tax increases that follow behind. So far, it‘s still reflation – tame inflation expectations given the avalanche of fresh money, real economy slowly but surely heating up (non-farm payrolls beat expectations on Friday), and not about the long-term consequences of tax hikes:(…) Reduction in economic activity, unproductive moves to outset the effects, decrease in potential GDP? Remember the time proven truth that whatever the percentage rate, the government always takes in less than 20% GDP in taxes. The only question is the degree of distortions that the tax rate spawns.And as the falling yields were embraced by tech with open arms, the sector‘s leadership in the S&P 500 upswing is back. As you‘ll see further on, the market breadth isn‘t pitiful either – slight non-confirmation yes, but I am looking for it to be gradually resolved with yet another price upswing, and that means more open profits (that‘s 7 winning stock market 2021 trades in a row).The Fed thus far quite succeeded in passing the inflation threat off as transitory, but the rebalancing into a higher inflation envrionment is underway – just look at the bullish consolidation across many commodities.The crucial copper to 10-year Treasury yield ratio is slowly turning higher as the red metal defends gained ground, oil rebound is progressing and lumber is moving to new highs. And don‘t forget the surging soybeans and corn either. Apart from having positive influence upon S&P 500 materials or real estate sectors, precious metals have welcomed the turn, rebounding off the double bottom with miners‘ leadership and silver not getting too hot yet. And that‘s positive for the white metal‘s coming strong gains – let alone the yellow one‘s.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Its InternalsSlightly lower volume during the whole week and Friday is merely a short-term non-confirmation. It isn’t a burning issue as stocks closed the week on a strong note. The bullish price action on the heels of improving credit markets and technology-led S&P 500 upswing, has good chances of going on.See by how much market breadth improved vs. Thursday – both the advance-decline line and advance-decline volume turned reasonably higher, and given the tech leadership in the upswing, new highs new lows merely levelled off. For them to turn higher, value stocks would have to step to the fore again.Credit MarketsThe high yield corporate bonds to short-dated Treasuries (HYG:SHY) ratio confirmed the stock market upswing with its own bullish move, and the two are overlaid quite nicely at the moment. No whiff of non-confirmation here.Tech and ValueTech (XLK ETF) rose strongly, and value stocks (VTV ETF) stocks more than defended prior gains. Even financials (XLF ETF) moved higher, regardless of the rising Treasuries. The breadth of the stock market advance isn‘t weak at all, after all.Gold in the SpotlightLet‘s quote the assessment from my Easter update:(…) There had been indeed something about the gold decoupling from rising Treasury yields that I had been raising for countless weeks. The rebound off Mar 08 low retest is plain out in the open, miners keep outperforming on the upside, and the precious metals sector faces prospects of gradual recovery, basing with a tendency to trade higher before the awaited Fed intervention on the long end of the curve comes – should the market force its hand mightily enough. Either way for now, given the rising inflation and inflation expectations, a retreat in nominal rates translates into a decline in real rates, which is what gold loves.That‘s the dynamic of calm days – once the Fed finally even hints at capping yields, expect gold fireworks. Remember, the ECB, Australia and others are in that fight at the long end of the curve already. And with so much inflation in the pipeline as the PPI underscores, an inflationary spike is virtually baked in the cake.Another weekly gold chart, this time with miners overlaid. Since the Mar 08 bottom, their outperformance has become very apparent, and miners made a higher high as gold approached the bottom last week. Coupled with the waning power of the sellers, these are positive signs for the precious metals sector.Gold‘s daily chart reveals the rebound‘s veracity – just as sharp as the dive to the second bottom was. Silver moved higher, scoring smaller gains than the yellow metal, which isn‘t however an issue as the white metal tends to outperform in the latter stages of precious metals upswings. We aren‘t there yet, and haven‘t seen it outperform in mid-Mar either.SummaryS&P 500 has challenged and conquered the 4,000 mark, and the upswing‘s internals keep being aligned bullishly. No sharp correction in sight indeed.Precious metals rebound lives on, accompanied by the miners‘ outperformance. Copper and many commodities keep consolidating, which is actually bullish given the retreat in yields. Another confirmation of the approaching upleg in commodities and precious metals as inflation starts running hotter and hotter.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Ladies and Gentlemen, Mr. Dollar is Back

Finance Press Release Finance Press Release 06.04.2021 16:43
Previously dismissed, the USDX may now be back with a vengeance. Sentiment is swinging away from shorts and there is an uncanny historical pattern.With a potential bearish pattern already broken, the USDX is resuming its journey northward. And why is it geared to do well? Is it because the U.S. economy is ripping head? Definitely not - that’s not happening. It’s rather because other regions (think Europe and Japan) are doing even worse.The dollar’s imminent rise doesn’t mean that gold can’t still experience some very short-term upswing, but for the medium-term, the precious metals continue to face bearish headwinds.With the greenback laying back and enjoying a well-deserved Easter vacation, gold, silver and the gold miners avoided a dollar-drama for at least another day. However, with the USD Index working to regain its supremacy, along with investors’ respect, the ‘death of the dollar’ narrative has quietly dissipated from the investing zeitgeist.Case in point: the USD Index has broken above its monthly declining resistance line and has already made four new highs since the New Year. More importantly though, because the precious metals have a strong negative correlation with the U.S. dollar, the upward momentum has coincided with an 8.78% drawdown of gold, a 6.18% drawdown of silver and a 6.41% drawdown of the GDX ETF.Please see below:And showing no signs of slowing down, with a well-rested USD Index itching to get back to work, we could see ‘business as usual’ in the coming days. On Apr. 2, I warned that a short-term correction could usher the USD Index back to its March high.That’s exactly what happened yesterday (Apr. 5).However, with the corrective culmination approaching the finish line, the USD Index remains poised to resume its uptrend.Adding to the optimism, the tide has already gone out on a sea full of USD Index shorts. And because Warren Buffett once said that “only when the tide goes out do you discover who's been swimming naked,” highly leveraged speculators could be the next to follow.Please see below:To explain, notice how oversold periods in 2014 and 2018 – where net-speculative short interest as a percentage of total open interest (based on the CoT data) was extremely high – preceded sharp rallies in the USD Index? Thus, with 2021 the most extreme on record, the forthcoming rally should be significant.How significant? Well, let’s take a look at how things developed in the past – after all, history tends to rhyme.Wayback PlaybackLet’s focus on what happened when the net speculative positions were significantly (!) negative and then they became significantly (!) positive, so without paying attention to tiny moves (like the one that we saw last summer), let’s focus on the more meaningful ones (like the one that we see right now – the net positions just became visibly positive – over 16%, after being very negative for quite some time.In short, that’s how the following profound rallies started:The big 2008 rally (over 16 index points)The big 2009 – 2010 rally (over 14 index points)The 2011 – 2012 rally (over 11 index points)The 2013 rally (“only” over 5 index points)The big 2014 – 2015 rally (over 20 index points)The 2018 rally (over 15 index points)The current rally started at about 89, so if the “normal” (the above shows what is the normal course of action) happens, the USD Index is likely to rally to at least 94, but since the 5-index point rally seems to be the data outlier, it might be better to base the target on the remaining 5 cases. Consequently, one could expect the USD Index to rally by at least 11 – 20 index points, based on the net speculative positions alone. This means the upside target area of about 105 – 114.Consequently, a comeback to the 2020 highs is not only very likely, but also the conservative scenario.Moreover, let’s keep in mind that the very bullish analogy to the 2018 rally remains intact. Please see below:To explain, I wrote on Friday (Apr. 2):What we saw yesterday definitely qualifies as a small correction. In fact, even if it was doubled it would still be small. And – more importantly – it would be in perfect tune with what happened in 2018 during the big rally.After rallying visibly above the:93 level200-day moving average61.8% Fibonacci retracement level based on the final part of the declinethe USD Index moved back below the 93 level. This happened in May 2018 and it happened last week.Since both rallies are so similar, it’s nothing odd that we see a pullback in a similar situation.Back in 2018, the pullback was small and quick. It ended without the USD Index reaching its 200-day moving average. The pullback ended when the USDX moved approximately to its previous high and slightly below the 61.8% Fibonacci retracement.Applying this to the current situation (previous high at about 92.5, the 61.8% Fibonacci retracement at about 92.7, and the 200-day moving average at 92.66), it seems that the USD Index would be likely to find its bottom in the 92.3 – 92.7 area.Because of this, the outlook remains profoundly bearish for the gold , silver , and mining stocks over the medium term (even though the next few days are relatively unclear, especially due to gold’s triangle-vertex based reversal that’s due this week ). If you analyze the table below, you can see that the precious metals tend to move inversely to the U.S. dollar.The 2017-2018 AnalogueBut as the most important development affecting the precious metals, the USD Index’s 2017-2018 analogue is already unfolding before our eyes. With this version likely to be titled ‘The Resurgence: Part 2,’ while history often rhymes, it’s rare for it to rhyme with this level of specificity . For context, in 2018, the USD Index’s breakout above its 50-day moving average is exactly what added gasoline to the USDX’s 2018 fire. And after the 2018 breakout, the USDX surged back to its previous high. Today, that level is 94.5.Even more ominous for the precious metals, when the USD Index turned a short-term decline into consolidation in mid-2018, can you guess what happened next? Well, the USD Index moved significantly higher, while gold moved significantly lower.Please see below:USDX Broke a Potential Bearish PatternLikewise, a potentially bearish pattern that I had been monitoring – where the USD Index’s price action from July to October 2020 mirrored the price action from December 2020 to February/March 2021– has officially been broken . With the USD Index’s medium-term breakout trumping the former, the potentially bearish pattern has been invalidated and the USD Index remains on a journey to redemption.But to what end?Well, if we look back at 2020, the USD Index attempted to recapture its previous highs. But lacking the upward momentum, the failure was followed by a sharp move lower. Today, however, the USD Index has broken above its previous highs and the greenback verified the breakout by consolidating, moving back toward the previous lows and rising once again. Now, the USD Index is visibly above its previous highs .Taken together, and given the magnitude of the 2017-2018 upswing , ~94.5 is likely the USD Index’s first stop. And in the months to follow, the USDX will likely exceed 100 at some point over the medium or long term.No, not because the U.S. is doing so great in economic terms. It’s because it’s doing (and likely to do) better than the Eurozone and Japan, and it’s this relative performance that matters, not the strength of just one single country or monetary area. After all, the USD Index is a weighted average of currency exchange rates and the latter move on a relative basis.In conclusion, while the USD Index’s decline on Apr. 5 created a goldilocks environment for the precious metals, the latter should have enjoyed a much larger upswing. However, with the U.S. 10-Year Treasury yield jumping by another 2.37% and the precious metals still shaken from a string of false breakouts, their relatively weak performance was quite revealing. Think about it: if gold, silver and the gold miners can’t make up ground when their main adversary retreats, how are they likely to respond when the USD Index regains its mojo? As a result, with the USD Index’s attitude about to shift from accommodating to unkind, gold, silver and the gold miners will likely see lower levels before forming a lasting bottom.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Fed Officials Shift Focus to Inflation Amid European and British Currency Upside Momentum

Intraday Market Analysis – Deeper Correction

John Benjamin John Benjamin 08.04.2021 08:14
USDJPY continues to pull back The US dollar struggles to find buyers amid dovish FOMC minutes. The pair has met stiff selling pressure near the psychological level of 111.00 from last March. An RSI divergence was an indication that the rally was already losing steam. A breakout below 109.30 could trigger a deeper correction to the demand area between 108.40 and the 30-day moving average found on the daily chart. A rebound will need to lift offers around 110.55 first before more buyers would commit their chips. USOIL awaits breakout Oil prices came under pressure after data showed an increase in US oil production at the end of March. The upbeat sentiment has softened after the US crude dipped below the 20 and 30-day moving averages for the first time in four months. The bearish MA cross may attract more sellers. On the hourly chart, the price action is currently in a rectangle consolidation between 57.20 and 62.20. A bearish breakout could trigger a broader sell-off towards 52s, while 64.70 would be the immediate target on the upside. UK 100 tests major resistance The FTSE 100 has reached a three-month high after Boris Johnson confirmed that the UK’s economy would reopen next week. The index is rising along the 20-hour moving average and is heading towards the previous high at 6960. A breakout above that major resistance could open the door to the pre-covid level (7400). The RSI has entered the overbought area and may draw a temporary pullback. In this case, the resistance-turned-support 6805 would be the level to watch for trend followers.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

U.S. Labor Market Is Recovering. Will Gold Too?

Finance Press Release Finance Press Release 08.04.2021 16:55
The March nonfarm payrolls were surprisingly strong. If the current favorable trend in the U.S. labor market continues, gold may struggle.As the chart below shows, in March 2021, total nonfarm payrolls rose by 916,000 , following gains of 468,000 in February (after an upward revision). The latest gains were the largest since August 2020. It’s important to note here that job growth was widespread, although led by gains in leisure, hospitality, education, and construction.Furthermore, the U.S. economy added significantly more jobs than expected . Economists surveyed by MarketWatch forecasted 675,000 additions, but it turned out that employment in January and February combined was 156,000 higher than previously reported. Also on the positive side, the unemployment rate declined from 6.2 to 6 percent , as the chart below shows. As the unemployment rate is much below its high from April 2020, it’s clear that the U.S. labor market is recovering from the pandemic recession .However, significant slack remains. First, the unemployment rate is still 2.5 percentage points higher compared to February 2020, before the pandemic started. Second, the broader unemployment rates, which paint a more accurate picture of unemployment, are even further from their pre-pandemic levels. For instance, the broadest U-6 rate was 10.7 percent in March, i.e., 3.7 percentage points above the level seen in early 2020. Third, the labor-participation rate is 1.8 percentage points lower than its pre-pandemic level, which means that many people simply dropped out from the labor market instead of searching for a job.Implications for GoldWhat does it all mean for the yellow metal? Well, gold’s reaction to a generally good employment situation report was positive . As the chart below shows, the London price of the shiny metal increased from $1,726 on April 1 to $1,745 on April 6, 2021, when the fixing resumed after the holidays.The explanation for gold’s positive reaction might lie in the fact that although the employment report was positive, it won’t be enough to alter the Fed’s monetary policy . As a reminder, the U.S. central bank wants to see “substantial further progress” towards labor market repair before tapering the asset purchases and raising the interest rates . Of course, further such reports with almost one million job gains would force the Fed to admit that the situation improved substantially.However, the Fed would like to see a continuation of the current trend for a while before it will alter its stance. Indeed, as Chicago Federal Reserve Bank President Charles Evans recently said, “those conditions will not be met for a while (…) Policy is likely on hold for some time.”And it won’t be easy to sustain the current favorable trend in the labor market. This is because the large share of the unemployed are long-term unemployed, roughly 43 percent, and there is a risk that these people will get discouraged and drop out from the labor market. It’s easier to put short-term unemployed than long-term unemployed into work again.Regardless, gold’s reaction amid the surprisingly strong nonfarm payrolls report and the accompanying rise in the bond yields could be seen as encouraging . Some analysts even believe that the yellow metal has bottomed out.However, given that the U.S. outpaces its major peers in the pace of economic recovery, it might be too early to call the return of the gold bulls . So, the medium-term downside risks remain present in the gold market. Although the single report won’t cause an immediate shift in the Fed’s stance, if this trend continues, the market expectations of the Fed’s tapering and hikes in the federal funds rate could move up, exerting downward pressure on gold prices.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Will Upcoming Inflation Take Gold With It?

Finance Press Release Finance Press Release 09.04.2021 16:25
Inflation is coming. Gold may benefit from it, especially if inflation turns out to be more long-lasting than central bankers and markets believe.Brace yourselves, inflation is coming ! Importantly, not only grumblers such as myself are talking about rising prices right now, but even the Fed officials themselves admitted that inflation will jump this year. Indeed, in the latest dot plot , the Federal Open Market Committee (FOMC) expects that the PCE annual percent change will soar from 1.3 percent in December 2020 to 2.4 percent at the end of this year. Importantly, their projections increased significantly in the last three months when they amounted to 1.8 percent.And remember, we are talking here about the official inflation figures. The real inflationary pressure, which also affects asset prices, is much stronger. Furthermore, the pandemic changed the composition of consumption, as people are buying more goods and less services. And guess what, the prices of goods are rising more than the prices of services, so many people’s actual consumption baskets have become more expensive than official ones, implying that true inflation is higher than the officially reported one, as the IMF has recently admitted .Does this mean that the FOMC members have all suddenly become monetary hawks worried about higher inflation? Not at all. The Fed believes that inflation will be temporary, caused by the base effects (very low inflation readings in the second quarter of 2020) and by the reopening of the economy that will trigger higher consumer spending and some increases in prices.The U.S. central bank might be right. After all, there will be some temporary forces at play. There always are, but – oh, what a funny thing! – the Fed always cites “transient effects on inflation” when it’s increasing, but not when it’s declining. The problem is, however, that the markets don’t believe the U.S. central bank . Please take a look at the chart below, which displays inflation expectations over the next five and ten upcoming years.As you can see, both medium-term and long-term inflation expectations have significantly increased in the last few months. It means that investors don’t only expect a temporary rise in inflation – on the contrary, they forecast a more persistent increases in prices . Indeed, Mr. Market believes that inflation will be, on average, 2.5 percent in the next 5 years and almost 2.3 percent in the next 10 years, significantly above the Fed’s target of 2 percent.Of course, it might be the case that Mr. Market is wrong, and Mr. Powell is right. But what is disturbing is the Fed’s confidence – or, rather overconfidence – that it can contain inflation if it turns out to be something more than only a temporary phenomenon. Such a conceit led to stagflation in the 1970s. Gold shined at that time.Then, as today, the central bank focused more on the maximum employment than inflation, believing that it can always control the latter by raising the federal funds rate if necessary. But, as Robert J. Barro, from Harvard University, points out , “the problem is that hiking short-term rates will have little impact on inflation once high long-term expected inflation has taken root.”And the recent Fed’s actions, including the new monetary framework, according to which the U.S. central bank tries to overshoot its target for some time, may easily waste the reputational capital that was created by Paul Volcker and de-anchor inflation expectations.In other words, a negative shock can be accommodated by the central bank without long-lasting effects, as people understand that it’s a unique one-off event, after which everything will return to normalcy. But the Fed is far from normalizing its monetary policy . On the contrary, it has recently signaled that it wouldn’t raise interest rates preemptively to prevent inflation, as it could hamper the economic recovery. The risk here is that if people start to view exceptional as the new normal, their inflation expectations could shift, and become unanchored.To sum up, it might be the case that markets are overstating short-term inflation risks. But it’s also possible that politicians and central bankers understate the longer-term inflationary dangers , as Kenneth Rogoff, also from Harvard University, argues . After all, unlike in the aftermath of the Great Recession , when only the monetary base skyrocketed, the pace of growth of the broad money supply also soared this time – and it’s still increasing, as the chart below shows.In other words, while all the created liquidity after the global financial crisis of 2007-2009 flowed mainly into the financial markets, during the pandemic , it flowed into the real economy to a much larger extent, which can create more inflationary pressure.What’s more, the easy monetary policy is now accompanied by a very loose fiscal policy and the unprecedentedly large fiscal deficits , which could push the economy deeper into the debt trap . This could undermine the central-bank independence and prevent a timely normalization of interest rates , not to mention the weakening of globalization’s downside impact on inflation, caused partially by demographic factors and reshuffling in supply chains. Last but not least, the rising commodity prices and international transport costs, accompanied by the weakening U.S. dollar, may be harbingers of an approaching inflation monster.What does it all mean for the gold market? Well, the jump in inflation in 2021 should be positive for the yellow metal , which could gain as an inflation hedge . The downward pressure on the real interest rates should also be supportive for gold prices, although the rally in the bond yields may counteract this effect. But if Powell is right and inflation turns out to be only temporary, then gold may be hard hit, and we could see a goldilocks economy again (i.e., fast economic growth with low inflation). However, if markets are right, or if the long-term inflationary risks materialize, which even investors may understate, gold should shine.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial for all of our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
The SPY Is Nearing Resistance @ $410... Read On To Find Out What Is Next

The SPY Is Nearing Resistance @ $410... Read On To Find Out What Is Next

Chris Vermeulen Chris Vermeulen 09.04.2021 21:49
My shorter-term analysis for the markets continues to stay Bullish and suggests the US reflation trade, the strengthening of the US and the global economy, and recovery from the COVID-19 restrictions will likely prompt a moderately strong upside price trend leading into at least mid Q2:2021.  The recent strength of the US Dollar is helping to push capital into the US markets as foreign investors attempt to shift capital away from Emerging Market and currency weakness and the Treasury Yield rallies seem to have indicated a moderate warning related to global central banks attempting to front-run inflation concerns.SPY Targeting $410, then $425 or higherIf the US Dollar continues to strengthen and foreign capital continues to flow into the US stock market, then my research team and I believe a continued “melt-up” bullish price trend will continue, similar to what happened in 2018~2019.  As we can see on the chart below, the upside price target for the SPY is $410.15.  Once that level is reached, we believe a moderate sideways Bull Flag will set up and prompt another upside price rally targeting $425~$430.The rally in the US stock market will likely continue until key factors break down.  We don't know what those key factors are going to be, but we are watching our custom indexes and proprietary price modeling systems to identify if and when that breakdown takes place.  Currently, we don't see any real risk to a sudden downside price trend based on our research.  Of course, some sudden collapse in the global credit/banking industry, war, or some other unknown externality could easily disrupt the current balance of the markets.Right now, we are targeting the $410 level on the SPY and expect the next leg higher to target $425~430.  We believe the current market environment supports a continued $24~$28 Fibonacci Expansion range stepping higher as moderate pullback events take place after reaching subsequent upside targets.  This “upward stepping” price pattern will likely continue as the reflation trade pushes a continued “melt-up” price event. Remember, our research may change suddenly if needed and the best way to stay ahead of these market setups/trends is to get my daily BAN Trader Pro pre-market video that covers the charts of the major indexes, bonds, gold and silver, and other asset classes and sectors delivered top your inbox every morning. As with all things, we make decisions based on what we know right now and not based on what may or may not happen as a guess.  Our research and custom indicators suggest a strengthening US Dollar will pull foreign capital investments into US sectors/stocks and likely prompt another “melt-up” type of trend over the next few weeks and months.Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those Best Assets Now that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.Lastly, take some time this weekend to check out all the great speakers at the Wealth 365 Summit, the world's largest online trading and investment conference. Make sure you register today!Have a great weekend!
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Intraday Market Analysis – Testing Daily Support

John Benjamin John Benjamin 13.04.2021 08:29
USDCHF retreats to major supportThe US dollar is treading water as traders await inflation data which would dictate the next movement.The greenback has fallen back to test the medium-term support (0.9210) from the daily chart after a three-month-long rally.An RSI divergence right above the key level is a sign that the correction has lost its momentum. Though a bullish breakout above 0.9280 will be needed to confirm a reversal.To the downside, a drop below the said support would trigger a new round of sell-off towards 0.9140.XAUUSD looks for supportGold is striving to consolidate its latest gains after a fall in US yields last week. After having established a solid support base at 1677, the price has rallied back to March’s high at 1757.A bullish breakout could lead to a sharp recovery as a result of triggering stop-losses and momentum buying.But for now, an overbought RSI has prompted profit-taking within the supply area. 1730 is the first line of defense as the metal pulls back to rebuild support.A deeper correction may lead to test 1710.US 30 rises along the trendlineThe Dow Jones flies high after Chairman Jerome Powell expressed his optimism in an interview that the US economy was set for a strong rebound.Following a breakout above its latest consolidation range (33250), the index has been grinding up along a rising trendline.The psychological level of 33400 would be the next target for the bulls. Though an overshot RSI may lead to a temporary pullback.The 30-hour moving average is the immediate support. Further down, 33510 along the trendline may see more buying interests.
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Dovish Fed and Higher Inflation Equals Stronger Gold

Finance Press Release Finance Press Release 13.04.2021 16:47
The latest FOMC minutes were dovish, especially in light of the recent increase in inflation. That’s good for gold.Last week, The Federal Open Market Committee (FOMC) published minutes from its last meeting in March . They show that – in light of positive economic indicators – the members of the Committee turned out to be more optimistic about the U.S. economy since the previous meeting. But this is what we already know from the March economic projections.What is new and much more important is that Fed officials expressed the view that despite all the progress, the economic situation remained unsatisfactory with many indicators still far from the pre-pandemic level and the Fed’s long-term targets:Despite these positive indicators and an improved public health situation, participants agreed that the economy remained far from the Committee's longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook.In consequence – and this is probably the key message from the recent minutes – the FOMC members reaffirmed that they are in no rush to taper the quantitative easing . Furthermore, the U.S. central bank will announce a change in the pace of asset purchases well in advance:Participants noted that it would likely be some time until substantial further progress toward the Committee's maximum-employment and price-stability goals would be realized and that, consistent with the Committee's outcome-based guidance, asset purchases would continue at least at the current pace until then. A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee's goals.And the hike in the federal funds rate will happen only after the start of the normalization of the Fed’s balance sheet . So, given a lack of any communication in this regard, investors shouldn’t expect any increases in the interest rates for years .Last but not least, the Fed not only started to expect higher inflation – as a reminder, the FOMC participants expect 2.4 percent PCE inflation in 2021 – but it also “viewed the risks of upside inflationary pressures as having increased since the previous forecast”. However, the central bankers still believe that the increase in inflation this year will be transitory due to the base effects and supply disruptions:In the near term, the 12-month change in PCE prices was expected to move above 2 percent as the low inflation readings from the spring of last year drop out of the calculation. Most participants also pointed to supply constraints that could contribute to price increases for some goods in coming months as the economy continued to reopen. After the transitory effects of these factors fade, however, participants generally anticipated that annual inflation readings would edge down next year.This is a puzzling view in light of the fact that many participants “judged that the release of pent-up demand could boost consumption growth further as social distancing waned.” So, in some magical way, the release of pent-up demand could boost consumption, but not prices, and inflation could be increased only by supply factor, but not by demand factors.Implications for GoldWhat do the recent FOMC minutes imply for the yellow metal? Well, the increase in expected and actual inflation rates combined with the Fed’s dovish stance could create downward pressure on the real interest rates and the U.S. dollar, thus supporting gold prices . The yellow metal could also benefit from the elevated demand for inflation hedges in an environment of stronger upward pressure on prices.Indeed, the price of gold jumped shortly on Thursday (Apr. 8) above $1,750, as the chart below shows. This upward move was temporary, though, but that can change soon, as the inflation genie has popped out of the bottle.The Producer Price Index increased by one percent in March , twice more than in February, and significantly above the expectations of a rise of 0.4 percent. As well, the final demand index moved up 4.2 percent for the twelve months ended in March, the largest increase since September 2011. Meanwhile, the index for all commodities surged even more (12 percent!), in the fastest pace since the Great Recession , as the chart below shows. Importantly, the Consumer Price Index has also been rising recently (I will cover this report in the next edition of the Fundamental Gold Report).Of course, the rise in inflation may also increase the nominal bond yields, which could be negative for the gold market. However, the rally in the bond yields was mainly caused by the fact that investors priced in a more aggressive path of the federal funds rate than the FOMC members have indicated. But after the recent minutes it seems that these traders are starting to capitulate and will not fight the Fed anymore. This would be good news for the gold market.Indeed, the second quarter started much better for the yellow metal than the awful beginning of the year, and there are some reasons (dovish Fed, higher inflation, limited potential for further rally in the bond yields) for cautious optimism. But the key problem is that the Fed is still relatively hawkish compared to the Bank of Japan or the European Central Bank . Well, we will see, stay tuned!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Many Sectors Are Primed For Another Breakout Rally - Are You?

Chris Vermeulen Chris Vermeulen 13.04.2021 21:42
As we start moving into the Q1:2021 earnings season, we need to be aware of the risks associated with the volatility often associated with earnings data and unknowns.  Nonetheless, there are other factors that appear to be present in current trends which suggest earnings may prompt a moderately strong upside breakout rally – again.One key factor is that the US markets are already starting to price in forwarding expectations related to a reflation economy – a post-COVID acceleration in activity, consumer participation, and manufacturing.  Secondarily, we must also consider the continued stimulus efforts, easy monetary policy from the US Fed, and the continued trending related to the 12+ month long COVID-19 recovery rally. In some ways, any damage to the economy related to COVID-19 may have already happened well over 6+ months ago.  Certainly, there are other issues we are still dealing with and recovering from, but the strength of the US economy since May/June of 2020 has been incredible.  When we combine the strength of the economic recovery with the extended support provided by the US Fed and US government stimulus/policy efforts, we are left with only one conclusion:  the markets will likely continue to rally until something stops this trend.Just this week, after stronger inflation data posted last week, and as earnings data starts to hit the wires, we are seeing some early signs that the US major indexes are likely to continue to trend higher – even while faced with odd earnings data.  If this continues, we may see the US major indexes, and various ETF sectors, continue to rally throughout most of April – if not longer.Come watch over 60 investment and trading LEGENDS share their secrets with you for free – click here for your FREE REGISTRATION!Today, Aphria (APHA), announced a third-quarter “miss” on sales, and net operating loss fell more than 14%.  This tugged many Cannabis-related stocks lower and pulled the Alternative Harvest ETF (MJ) lower by over 4%.  Still, the Transportation Index, Financial sector ETF (XLF), and S&P500 SPDR ETF (SPY) rallied to new all-time highs.This suggests the market is discounting certain sector components as “struggling” within a broadly appreciating market trend.  In this environment, even those symbols which perform poorly won't disrupt the Bullish strength of the general markets.  Because of this, we believe the overall trend bias, which is Bullish, will continue to push most of the market higher over the next few days/weeks... at least until something happens to break this trend or when investors suddenly shift away from this trend.SPY Rally May Be Far From Over At This StageLet's start by reviewing this SPY Daily chart below (S&P500 SPDR ETF).  As you can see, the recent rally has already moved above the GREEN 100% Fibonacci Measured Move target level near $410.  Any continued rally from this level would suggest an upside price extension beyond the 100% Fibonacci Measured Move level is initiating.  This type of trending does happen and can often prompt a higher target level (possibly 200% or higher) above our initial targets.What is interesting in our review of these charts is the SPY may be rallying above recent price range targets, using the Fibonacci Measured Move technique, but other sectors appear to really have quite a bit of room to run.Transportation Index Continues To Suggest Stronger US RecoveryThis Transportation Index Daily Chart, TRAN, suggests a target level near $15,627 so it is reasonable to assume the Transportation Index may continue to rally more than 4% higher from current levels.  Ideally, if this were to happen, it would suggest the broader economic recovery is strengthening and we may expect to see the US major indexes continue to rally higher as well.At this time, when economic data and Q1:2021 earnings are streaming into the news wires, we usually expect some extended volatility in the markets.  The VIX may rally back above 19 to 24 over time if the markets reflect the varied earnings outcomes we expect.  Yet, we believe the overall bias of the markets at this stage of the trend is solidly Bullish.Financial Sector ETF Ready To Rally Above $37The Financial sector ETF (XLF), as seen in the following chart, is poised to break higher after a dramatic recovery in price after December 2020.  The rally from $29 to over $35 represents a solid +20% advance and the recent resistance level, near $35.30, is a key level to watch as this sector continues to trend.  Once that resistance level is breached, we believe a continued rally attempt will target $37, then $39.40.The expected recovery in the US economy will prompt more consumer spending and the use of credit.  Over the past 8+ months, US consumers have worked to bring down their credit levels and saved more money because of the change in how we addressed COVID work-styles and lack of travel (and extra money from the Stimulus payments).  That may not change right away, but eventually, consumers will start to engage in the economy as travel starts to recover and summer activities start to take place.  This suggests spending, travel, vacationing, eating out and other activities will prompt a new wave of economic activity within the Financial Sector.The US markets are uniquely poised to further upside price gains because the US has such a dynamic core economy.  Our base of consumers is, generally, working in jobs, saving more, and more capable of traveling within the US to engage in summer activities.  Because of this, we believe the continued recovery of the US economy will prompt another wave of higher prices throughout the Q1:2021 earnings season.  We believe a number of solid earnings and expectations will support the market and future expectations will support a continued moderate price rally in certain sectors.The strongest sectors are going to continue to be the best performers over time.  Being able to identify and trade these sectors is key to being able to efficiently target profits.  You can learn more about the BAN strategy and how to identify and trade better sector setups by registering for our FREE webinar here.  We've built this technology to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.Happy Trading!
Intraday Market Analysis – Extended Rally

Intraday Market Analysis – Extended Rally

John Benjamin John Benjamin 14.04.2021 08:34
EURUSD tests major resistanceA 2.6% yoy rise in US CPI has so far failed to impress traders as the Fed may remain patient longer than the market.After a short consolidation around 1.1900, the RSI has receded from the overbought area, laying the groundwork for a new round of rallies. The next target would be the key resistance level of 1.1990 from the daily chart.A bullish breakout may signal that the euro could resume its year-long rally.In case of a pullback, 1.1870 is a critical support to keep the optimism intact.EURGBP builds bullish momentumThe pound struggles across the board after Britain’s economy showed a slower than expected growth in February.The euro has previously come under selling pressure near the daily supply area (0.8730). The RSI has since retreated into the neutrality zone.Despite profit-taking, the pair has stayed afloat above 0.8620 which would suggest that buyers are still in control of the price action.A surge above the said resistance could trigger a runaway rally as a combination of short-covering and fresh buying.UKOIL trades in narrowing rangeBrent crude ticked up after data showed oil imports into China surged 21% in March. The price action remains range-bound however for lack of a major catalyst.The narrowing consolidation is a sign of the market’s indecision and a breakout is bound to happen soon.A bearish MA cross on the daily chart may weigh on the sentiment but as long as 61.20 holds firm as support, there is a chance of a rebound.On the upside, a rise above 65.15 could extend the rally towards 68.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

ING believes EUR/USD will break 1.20, and you?

Kseniya Medik Kseniya Medik 15.04.2021 13:28
What is moving the markets these days? What are the main drivers of currency pairs?First, the vaccination pace. The second, the recovery speed. And finally, investors are concerned about how soon the central banks will tighten the policy (increase rates or/and cut asset purchases).Let’s analyze the most traded pair – EUR/USD. At the first sight, the US is doing better than the Euro Area. The percentage of vaccinated people is much higher in the US than in the EU. Elsewhere, after problems with AtraZeneca’s vaccine, Johnson & Johnson stopped sending its vaccine to the EU as well because of the possible negative side effects.While the US does not depend on J&J, Europe may suffer a delay of 3-4 months to obtain its goal to vaccinate 70% of the population. As a result, it may significantly worsen the situation in Eurozone and press the euro down.However, EU Retail sales came out much better than expected this Monday: 3.0% vs the forecast of 1.3%. It’s just the beginning of further growth – more to come in the months ahead! Elsewhere, according to Barclays, European people acquired savings at 600 billion euros ($714 billion) during long lockdowns. But when they feel free to go out without any restrictions, they will tend to spend them more. So, consumer spending will grow and help the economy to recover.ForecastsING foresees the tentative recovery for Europe. The bank points that the USD has started losing its steam and the breakout of EUR/USD above 1.2000 is very likely! According to ING’s model, EUR/USD is undervalued by almost 2%. Indeed, if you look at the chart below, you’ll notice that the RSI indicator is well below 70.00 level, so it’s not overbought.US retail sales todayToday US retail sales will come out at 15:30 MT and will have a great impact on EUR/USD. The general rule is that if US retail sales are better than expected, the USD will surge; if worse – the USD will fall. However, some analysts believe that if retail sales come out better than the forecasts, it may fuel the ongoing risk-on sentiment and press down the USD, which will push EUR/USD higher. Anyway, follow the results and keep an eye on the charts.Tech analysisEUR/USD has failed to cross the resistance of 1.1990-1.2000 so far. However, if it does, the way up to the 100-day moving average of 1.2050 will be open.On the flip side, if it breaks below the 50-day moving average of 1.1960, the way down to the 200-day moving average of 1.1890 will be clear.Download the FBS Trader app to trade anytime anywhere! For personal computer or laptop, use MetaTrader 5!
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Inflation Soared in March. Will Gold Jump Too?

Finance Press Release Finance Press Release 15.04.2021 17:42
Inflation accelerated its pace in March, which should support gold when economic confidence softens.The U.S. CPI inflation rate rose 0.6% in March , following a 0.4% increase in February. It was the biggest monthly jump since August 2012. The move was larger than most analysts expected. However, I’m not surprised at all, as after February’s CPI report, I wrote that inflation “may rise further in the coming months”.The acceleration in the inflation rate was driven mainly by a 9.1% spike in the gasoline prices over the past year (in March 2020, the price of oil plunged). But the core CPI monthly rate, that excludes energy and food prices, also accelerated to 0.3% in March, from 0.1% in February.So, inflation has finally reared its ugly head, which is even more clearly seen on an annual basis. The overall CPI soared 2.6% over the last 12 months ending in March, following a 1.7% increase in the preceding month. Meanwhile, the core CPI jumped 1.6%, following a 1.3% rise in February. Hence, as the chart below shows, inflation has not only increased significantly since the bottom in May 2020, but it has also substantially surpassed the Fed’s target.What’s important is that the recent jump in inflation is not a one-off event. We can expect that high inflation will stay with us for some time, or it can accelerate further next month, given the fact that oil prices plunged deeply in April 2020 (some oil futures even fell into negative territory!). So, the next CPI reading will have to factor in a quadrupling of oil prices over the year.Implications for GoldWhat does it all mean for the price of gold? Well, higher inflation should support gold , which is perceived as an inflation hedge . Furthermore, higher inflation should decrease or at least soften the rise in the real interest rates , further supporting the price of the yellow metal.As the chart below shows, gold’s immediate response was positive, yet rather limited, with the price of the yellow metal increasing to almost $1,748 on Tuesday (Apr.13). After all, the increase in inflation was widely expected given the base effects and the latest Fed’s economic projections. So, no big surprises here.However, I believe that inflation hasn’t said its last word yet . It could be just the beginning. You see, the current mainstream view is that inflation is no longer a problem in the contemporary economy, and that the 1970s-like stagflation will never happen again. Furthermore, the Fed believes that it would be able to contain inflation if it turns out to be really problematic. As Powell said in his recent interview ,The economy has changed. And what we saw in the last couple of cycles is that inflation never really moved up as unemployment went down. We had 3.5% unemployment, which is a 50-year low for much of the last two years before the pandemic. And inflation didn’t really react much. That means that we can afford to wait to see actual inflation appear before we raise interest rates.The Fed Chair is right. The economy has changed. But the economic laws haven’t. So, the combination of the recent surge in the broad money supply , the supply disruptions, demographic shifts, base effects, and the realization of the pent-up demand, may still lead to inflation. And remember that the Fed’s new monetary regime is more tolerant to upward price pressure, which increases the odds of inflation getting out of control.In other words, I believe that the risk of stagflation is underestimated. With increasing vaccination, unlocking the economy, and expectations of a vigorous recovery, economic confidence is high. So, investors should focus more on economic growth than on inflation. However, I bet that when this post-pandemic euphoria wanes, there will be a deterioration in economic confidence, caused either by more persistent and higher inflation than expected, or higher bond yields , or problems with the private and public debts . When this happens, gold should rally again.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Earnings Season’s Hot Start

Earnings Season’s Hot Start

Finance Press Release Finance Press Release 16.04.2021 15:42
“Other than my Cincinnati Bengals breaking my heart, few things are more consistent than stocks higher in April.”As a stock nerd and NFL fan, I love this quote from Ryan Detrick , the chief market strategist at LPL Financial.Historically in April, the S&P 500 has seen gains in 14 of the past 15 years. April has also been the strongest month for stocks over the past 20 years.April 2021 has been no exception. Although March, and Q1, for that matter, ended with more questions than answers, this month has been nothing but white-hot.The month kicked off with a blowout jobs report. It then continued with two consecutive weeks of jobless claims crushing estimates, retail sales coming in almost ⅓ higher than projected, and bank earnings blowing past forecasts. The Dow Jones and S&P 500 seemingly hit fresh record-highs every other day, and despite complications with JnJ’s one-dose vaccine, all signs point towards our life returning to normal by this summer.While optimism is high right now, I implore you to remain cautious. I’m really not sure how much higher the Dow and S&P can go without pulling back somewhat. Not to mention, it still has not been smooth sailing for Cathie Wood stocks or SPACs for the last two months either. This rotation into recovery names is very real.Remember that every month in 2021 thus far has started off hot and saw a pullback and volatility occur by the second half of the month.We are now officially in the latter half of April. Although, as I said, April is historically a strong performing month, think about this. By the second half of January, we had Reddit trades spooking investors. In February and March, we had surging bond yields, inflation fears, or Jay Powell comments that rubbed people the wrong way. These concerns won’t just disappear because we want them to. If we could make things magically disappear, COVID would’ve been over yesterday.According to Binky Chadha , Deutsche Bank’s chief U.S. equity strategist, we could see a significant pullback between 6% and 10% over the next three months because of potentially full valuations and inflation fears. Even if this $2 trillion infrastructure plan doesn’t pass in full, do we really need to spend any more trillions with an economy starting to turn red hot?Plus, how do you think this will be paid for? Hiking taxes- namely corporate taxes . Those gains that high growth stocks saw after Trump cut corporate taxes in 2017 could very well go away. While President Biden has indicated a willingness to negotiate his 28% corporate tax proposal, it’s still a tax hike.My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.With that said, to sum it up:We’re hot right now.However, we could see more volatility and more muted gains than what we’ve come to know over the last year.April is historically strong, but please monitor overvaluation, inflation, bond yields, and potential tax hikes. Be optimistic but realistic. A decline above ~20%, leading to a bear market, appears unlikely. Yet, we could eventually see a minor pullback by the summer, as Deutsche Bank said.Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck. The Dow Jones- How Much Higher Could We Go?Figure 1- Dow Jones Industrial Average $INDUThe Dow Jones remains red hot in 2021. Strong bank earnings, a recovering economy, and the potential for further infrastructure spending have sent the index to record highs in what seems to be every other day. Unfortunately, we are nowhere close to buyable any longer and are firmly overbought with an RSI over 72.For the longest time, I’ve said to HOLD the Dow and let the gains ride. Now, I think it’s an excellent time to trim and take profits. Many analysts believe the index could end the year at 35,000 or higher, and the wheels are still in motion for that to happen. The problem, though? We’re above 34,000, and we’re only in mid-April.You could do a heck of a lot better for a buyable entry point.Having Dow exposure is valuable. The index has many strong recovery cyclical plays that should benefit from what appears to be an economic recovery and reopening going even better than expected. The Dow could also be quite beneficial as a hedge against volatile growth stocks and SPACs. You won’t see bond yields spooking this index as much.But at this level, it’s probably better to SELL and consider trimming profits.For an ETF that aims to correlate with the Dow’s performance, the SPDR Dow Jones ETF (DIA) is a great option.For more of my thoughts on the market, such as tech, inflation fears, and why I love emerging market opportunities, sign up for my premium analysis today.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Matthew Levy, CFA Stock Trading Strategist Sunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits' employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Gold Rebounds Amid Positive Economic Reports

Finance Press Release Finance Press Release 20.04.2021 10:55
Several economic indicators have surprised us on the positive side. Nevertheless, the price of gold has rebounded.Finally! The price of gold has been rising recently . As the chart below shows, the yellow metal rebounded from the late March bottom of $1,684 to above $1,770 on Friday (Mar. 16). This could be a promising start to the second quarter of 2021, which looks better than the first.As you know, gold struggled at the beginning of the year, falling under strong downward pressure created by the improving risk appetite and rising bond yields . But the strength of these factors has begun to fade. You see, it seems that economic confidence has reached its maximum level, and it could be difficult for markets to become even more euphoric.Please take a look at the chart below which shows the level of credit spreads – as you can see, they have fallen to very low levels, which implies that they won’t get much lower than they are right now. So, it appears that the next big move will rather be a rise in credit spreads or a decline in economic confidence.Second, it seems that the rally in bond yields has run out of fuel , at least for a while. The U.S. long-term real interest rates reached their peak of minus 0.56% on March 18 of this year. Since then, they are in a sideways or even downward trend, declining to almost -0.70% last week, as you can see in the chart below.As I explained earlier several times, the markets didn’t buy the Fed’s story of allowing inflation to rise substantially without hiking interest rates for several weeks or even months. However, it seems that Powell and his colleagues have finally managed to convince investors that they are really serious about the new framework, which puts full employment over inflation.Of course, there are also positive geopolitical factors contributing to the rebound in the gold prices . The tensions between the U.S. and China, as well as the U.S. and Russia, have been rising recently. However, it seems that the decline in bond yields allowed gold to catch its breath, and that the macroeconomic outlook – including the credit spreads, interest rates, inflation, monetary policy and fiscal policy – will remain the key driver of gold prices throughout the year.Implications for GoldWhat does all this mean for the price of the yellow metal? Well, the recent jump in the price of gold is encouraging. What is important here is that this rebound occurred amid the flood of positive economic data . For instance, the initial jobless claims have decreased to 576,000, a lower level than expected and the lowest since the pandemic started, as the chart below shows.Additionally, retail sales surged 9.8% in March , following a 2.7% decline in February, while the Fed’s Beige Book reported that “national economic activity accelerated to a moderate pace from late February to early April”. Additionally, both the Philadelphia Fed manufacturing index and the Empire State manufacturing index surprised us on the a positive side.The fact that gold held its gains and continued the rebound even after the publication of several positive economic reports is bullish . Of course, it might be simply the case that the reduction in the real interest rates simply outweighed other indicators, but it’s also possible that gold’s bears got tired.Indeed, the sentiment was so negative in the gold market that it couldn’t get much worse than it already was. Gold shined brightly during the Great Lockdown and economic crisis . But now, when the economy is recovering, gold has become persona non grata . However, this might imply that we are either close to or we have already reached the bottom. Only time will tell, of course, but the macroeconomic outlook seems to be rather friendly for the price of gold, especially if the real interest rates stop rising or even start declining again.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

USD/TRY: testing all-time highs

Kseniya Medik Kseniya Medik 22.04.2021 10:05
Today, USD/TRY is peaking above 8.30 - that's the zone of the all-time highs! The first time the Turkish lira dropped that much value was in November 2020. Back then, a new Turkish Central Bank governor was appointed to put it back onto a healthy course - and Naci Aqbal managed to do it countering double-digit inflation. Eventually, USD/TRY dropped below 7.00. However, unfortunately for the Turkish lira, Naci Aqbal had to leave his post in February - and the national currency of Turkey responded by losing value again. Taking into account these constant staff changes in the highest ranks of the Turkish Central Bank, it's not a surprise that the national Turkish currency behaves in such an unstable manner. On top of that, see that, global investors are increasingly losing faith in the Turkish economy that is becoming less attractive for investment and hence propels the lira's depreciation. One of the reasons for the current upswing of USD/TRY may be the announcement that Joe Biden may officially recognize the actions of the Ottoman Empire in 1915 towards the Armenian population as genocide - a move that will definitely strike hard at the US-Turkish relations, and the Turkish authorities already warned their American counterparts of that. In the meantime, this move may be considered as US warning to Turkey as well: so far, while being in the NATO, Turkey did not hesitate to purchase Russian arms raising questions - at least, on the American side - about the true nature of its intentions and loyalty to the military alliance. In any case, the US-Turkish relations are becoming worse day by day, and that's pressing on the Turkish lira. If it continues like that, USD/TRY may well reach 9.00 in the nearest future. Download the FBS Trader app to trade anytime anywhere! For personal computer or laptop, use MetaTrader 5!
Boosting Stimulus: A Look at Recent Developments and Market Impact

The Tax Plan to Slay the Stock Bull?

Monica Kingsley Monica Kingsley 23.04.2021 16:11
A day like almost any other – S&P 500 about to take again on the ATHs until the capital gains tax hike proposal came, shaving off 50 points in stocks within an hour. The 4,415 support held though, both before and after the closing bell. Are we ready to shake off the cold water and resume running higher again?Depends on where you look – stocks have quite some recovering still to do, and it‘s the precious metals and commodities that are performing best today. Both as an index and sectoral collection, the S&P 500 sustained broad damage, concentrated in the tech heavyweights. The volatility spike has been partially repelled but option traders seem expecting another shoe to drop, which attests to us better dampening expectations of a fast return above 4,170.Look still though how little has changed, as if the tax raising plans haven‘t been around since the infrastructure bill or implicitly even before. It‘s still April, and markets are pricing in not only this select reality, but broader tax increases coming. Yes, they have woken up, and the reflation paradigm is getting an unwelcome companion. This hit won‘t bring down the bull, but will slow it down – and the implications for broader economy will only hasten the pronounced advent of the commodities supercycle (well underway since the corona deflationary crash last year). As the Chinese say, may you live in interesting times, and I am glad to have caught the April 2020 turnaround reasonably well. I‘m bringing this up just to say that this isn‘t the time to turn bearish on stocks yet – not in the least. The initial panic is over, real economy keeps recovering (amazing how fast were the reasonably good unemployment claims of yesterday forgotten, right?), inflation expectations aren‘t running progressively hotter, and Treasury yields continue retreating.Another argument for why this is a storm in a tea cup (I‘m talking merely stock market perspective now, not the very real consequences about to hit the economy like a trainwreck in slow motion), is the Russell 2000 and emerging markets performance yesterday – reasonably bullish given the setback most keenly felt in the S&P 500 and Bitcoin. Unless the latter recaptures $52,500 promptly and convincingly, it‘s going to remain in hot water as yet another tax cash cow on the horizon, which aligns nicely with the Yellen weekend cryptos announcement. A bit over 24hrs ago in response to a question from my great West Coast subscriber, I highlighted Bitcoin vulnerability as it has been unable to revert back above the 50-day moving average, drawing the $52,500 line in the „bulls still have a chance“ sand. Now, I would have to be convinced by the upswing‘s strength recapturing said level, which I‘m not expecting even though the asset trades quite extended relative to the lower border of its daily chart Bollinger Bands.Thus far, precious metals, copper, oil and other commodities are holding up best – little surprising given the risk-off nature of yesterday‘s move and potentially misplaced hopes that the 28% collectibles tax on the metals would survive. These things tend to creep.Gold or miners held up reasonably well yesterday, and I look for them to be fastest in recapturing the lost ground, followed by silver. The precious metals upleg has started, we‘re in a real assets super bull market, and this little hiccup won‘t derail it. The sad implication would actually drive it as capital formation would be hampered, unproductive behaviors encouraged, and potential output lowered. Pretty serious consequences – add to which inflation as that‘s what the Fed ultimately wants, and the recipe for more people falling into higher tax brackets through illusory gains, is set. Then, as inflation starts firing on all cylinders – a 2022-3 story when the job market starts overheating – the pain would be felt more keenly. And this is supposed to be the environment where the dollar would be in a bull run, now and ever? Wake up:(…) we‘re in the decade of precious metals and commodities super bull runs – and these are well underway. The debasement of fiat currencies against real assets is set to continue, and will accelerate given the unprecedented fiscal and monetary support already and ahead – sorry dollar bulls, the greenback declines are resuming – just look at the yen and yields nodding to the metals upswing.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookThe intraday reversal is thus far lacking volume and follow through. That means it would be premature to jump to conclusions as to the shallow correction extending deeper.Credit MarketsThe high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio isn‘t panicking either. So far, the move has been hesitant and orderly.Technology and ValueValue keeps being most resilient, and the tech sector stands in the middle, dragged lower by the heavyweights. I would like these to stop leading to the downside so as to declare the correction as approaching its end in terms of prices.Inflation ExpectationsThe inflation expectations are in a momentary limbo, but seem as likely to rise again shortly. That would be one more piece of the puzzle bringing real rates down, making the yellow metal‘s fundamental outlook more positive (as if it hadn‘t been already).Gold and SilverThe decline across the gold sector has been orderly yesterday, and the retreating yields (helped by the stock market turmoil) are putting a nice floor below the king of metals. I look for miners to keep leading higher shortly again.The key message is the one by the copper to 10-year Treasuries yield – a little hesitation yesterday, hinting at a little more time being necessary to overcome the $1,800 barrier next.SummaryThe S&P 500 is at a crossroads determining how low would the shock-facilitated consolidation stretch. Thus far, signs are modestly leaning in favor of the worst being in, and a gradual repair coming next.Gold and miners took a daily dive in sympathy with stocks yesterday, but I look for the precious metals sector to recover fastest, and overcome the next resistance convincingly.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Will a Fiscal Revolution Raise Gold to the Throne?

Finance Press Release Finance Press Release 23.04.2021 16:29
Revolution, baby! There is growing acceptance for an aggressive fiscal policy, which could be supportive for gold prices from the fundamental, long-term point of view.We live in turbulent times. The pandemic is still raging and will most likely have lost lasting effects on our society. But a revolution is also happening right before our eyes. And I don’t mean another storming of the U.S. Capitol or the clash of individual investors with big fish on Wall Street. I have in mind something less spectacular but potentially more influential: a macroeconomic revolution.I refer here to the growing acceptance of easy fiscal policy . In the aftermath of the Great Recession , the central banks adopted an aggressive monetary policy , slashing interest rates to almost zero and introducing quantitative easing . It has become a new norm since then.But fiscal policy was another kettle of fish. Although almost nobody cared about balanced government budgets, people at least pretended to worry about overly large fiscal deficits and an overly quick accumulation of public debt . For example, while Obama wanted $1.8 trillion in fiscal stimulus in a response to the global financial crisis of 2007-09, Congress passed a package of about $800 billion, as Republicans opposed larger spending. But in March 2020, Congress passed the CARES act worth about $2 trillion (and additional significant stimulus in December 2020), with the full support of Republicans.Even Germany – the country famous for its fiscal conservatism – ran a fiscal deficit in 2020 and – what’s more – agreed to issue bonds jointly with other EU countries, although it was previously a taboo. The International Monetary Fund (IMF), another bastion of economic orthodoxy, which advocated for austerity and balanced budgets for years, gave up during the epidemic and started to call for more fiscal stimulus to fight the economic crisis .And this fiscal revolution is already seen in data. As the chart below shows, the U.S. fiscal deficit has increased from 4.6 percent of GDP in 2019 (which was already at an elevated level) to 15 percent of GDP in 2020, the highest level in the post-war era.According to the IMF’s Fiscal Monitor Update from January 2021 , fiscal deficits amounted to 13.3 percent of GDP , on average, in advanced economies, in 2021, a spike from 3.3 percent seen in 2019. As a consequence, the gross global debt approached 98 percent in 2020 and it’s projected to reach 99.5 percent of the world’s GDP by the end of this year.What is important to note here is that government support wasn’t limited mainly to the financial institutions and big companies (such as automakers), as was the case in 2009, but it was distributed more widely. There was a huge direct money transfer to Main Street, including checks for practically all citizens. This is important for two reasons.First, money flowing into the economy through nonfinancial institutions and people’s accounts may be more inflationary. This is because money doesn’t stay in the financial market where it mainly raises asset prices, but it’s more likely to be spent on consumer goods, boosting the CPI inflation rate . Higher officially reported inflation (and relatively lower asset prices) should support gold , which is seen by investors as an inflation hedge .Second, the direct cash transfer to the people creates a dangerous precedent. From now, each time the economy falls into crisis, people will demand checks. It means that fiscal responses would have to be increasingly larger to meet the inflated expectations of the public. It also implies that we are approaching a universal basic income, with its mammoth fiscal costs and all related negative economic and social consequences.Summing up, we live in revolutionary times. The old paradigm that “central banks are the only game in town” has been replaced by the idea that fiscal policy should be more aggressively used. Maintaining balanced budgets is also a dead concept – who would care about deficits when interest rates are so low?However, assigning a greater role to fiscal policy in achieving macroeconomic goals increases the risk of higher inflation and macroeconomic instability, as politicians tend to be pro-cyclical and reckless. After all, the economic orthodoxy that monetary policy is better suited to achieve macroeconomic stability didn’t come out from nowhere, but from awful experiences of the fiscal follies of the past. I’m not a fan of central bankers, but they are at least less short-sighted than politicians who think mainly about how to win the next election and stay in power.Hence, the growing acceptance of easy fiscal policy should be positive for gold prices , especially considering that it will be accompanied by an accommodative monetary policy. Such a policy mix should increase the public debt and inflation, which could support gold prices. The caveat is that investors have so far welcomed more stimulus flowing from both the Fed and the Treasury. But this “go big” approach of Powell and Yellen increases the longer-term risk for the economy, which could materialize – similar to the pandemic – sooner than anyone thought.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial for all of our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

No Upsetting the Apple Cart in Stocks or Gold

Monica Kingsley Monica Kingsley 26.04.2021 15:35
The tax hike proposal shock is over, and S&P 500 took again on the ATHs on Friday. Buying pressure throughout the day lasted almost till the closing bell, and is likely to continue this week as well. And why shouldn‘t it – has anything changed? The artificial selling any capital gains tax hike would generate, is likely to come before year end – not now:(…) Look still though how little has changed, as if the tax raising plans haven‘t been around since the infrastructure bill or implicitly even before. It‘s still April, and markets are pricing in not only this select reality, but broader tax increases coming. Yes, they have woken up, and the reflation paradigm is getting an unwelcome companion. This hit won‘t bring down the bull, but will slow it down – and the implications for broader economy will only hasten the pronounced advent of the commodities supercycle (well underway since the corona deflationary crash last year). The move towards risk-on was clearly there, overpowering the USD bulls yet again as the dollar bear market has reasserted itself. It‘s not just about EUR/USD on the way to its late Feb highs, but about the USD/JPY too – the yen carry trade is facing headwinds these days, acting as a supportive factor for gold prices. While these went through a daily correction, commodities pretty much didn‘t – lumber is powering to new highs, agrifoods didn‘t have a down day in April, copper and oil scored respectable gains. The market is in a higher inflation environment already, and it will become increasingly apparent that commodity-led inflation is here to stay.Back to stocks and bonds, the S&P 500 took well to a daily rise in Treasury yields – and that‘s the key factor overall. The turnaround was most clearly seen in tech heavyweights but defensive sectors such as consumer staples or utilities didn‘t do well (they‘re interest rate sensitive, after all), and Dow Jones Industrial Average traded closer to the optimistic side of the spectrum. The second piece of the puzzle came from value stocks and financials, which are working to put an end to their own shallow correction – just as you would expect when rates take a turn higher.So, another volatility spike has been banished, but option traders aren‘t yet satisfied, and keep piling into protective instruments. I view this as a fuel of the upcoming rally continuation, unless the tech‘s earnings batch doesn‘t disappoint as Netflix subscriber base growth did.One more argument in favor of the S&P 500 upswing, comes from the smallcaps – the time of their outperformance, is approaching. Likewise emerging markets are starting to do better, and the dollar effect is part of the explanation.Gold took sensitively to the rise in yields, and retreating dollar didn‘t lift it up really. The yellow metal disregarded proportional increase in inflation expectations, and so did the miners – indicating that a brief soft patch in the precious metals sector can‘t be excluded. This doesn‘t change my Friday‘s thoughts that:(…) The precious metals upleg has started, we‘re in a real assets super bull market, and this little hiccup won‘t derail it. The sad implication would actually drive it as capital formation would be hampered, unproductive behaviors encouraged, and potential output lowered. Pretty serious consequences – add to which inflation as that‘s what the Fed ultimately wants, and the recipe for more people falling into higher tax brackets through illusory gains, is set. Then, as inflation starts firing on all cylinders – a 2022-3 story when the job market starts overheating – the pain would be felt more keenly. Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookIt‘s not an issue that the two latest upswings happened on decreasing volume as I view the preceding modest volume spike as a sign of weak selling turning into accumulation. There is plenty of doubt to drive further S&P 500 gains.Credit MarketsBoth high yield corporate bonds to short-term Treasuries (HYG ETF) and investment grade ones (LQD ETF) have risen on Friday, and the divergence to long-dated Treasuries is another key factor driving the risk-on return conclusion.Technology and FinancialsThe $NYFANG strength was the key deciding factor in the S&P 500 upswing, and value stocks didn‘t stand in the way much either. Financials joined in the upswing by tech are a sign of the shallow correction drawing to its end.Gold & Miners WeeklyCompare this chart to the one that I published on Thursday – the red candle smacking of reversal is actually just an initial rejection in my view. It‘ll take a while to return back above the 50-day moving average, but that‘s a question of time merely. Gold miners are still outperforming, and the upside momentum in the gold sector merely paused. We may see a brief pullback as the bears try their luck, but it will be only a temporary setback – there is no telling weakness in any of the markets I am looking at that would indicate otherwise.Gold, Silver and Key RatioThe copper to 10-year Treasury yield ratio shows that the markets aren‘t buying the transitory inflation story – the rush into commodities goes on, and justifiably so. Just look how much silver has been resilient, and the white metal is uniquely positioned to benefit both from the economic recovery, forced shift into green economy, and building monetary pressures.Seniors vs. JuniorsThroughout the 10+month long correction, juniors had been the more resilient ones, but it was the seniors that I called to lead gold out of the bottom. And they did, meaning that juniors had underperformed over the coming month clearly. Once animal spirits return even more to the precious metals sector, their outperformance is likely to return as the market appetite for ounces in the ground grows. We aren‘t there yet, but the new upleg is well underway.SummaryThe S&P 500 turned around convincingly, and new highs are a question of a rather short amount of time – be prepared though for headline risks should we get an (unlikely) earnings disappointment.Gold and miners are in consolidation mode as they failed to take advantage of plunging dollar and rising commodity prices, but the precious metals sector is likely to play a catch up relative to commodities as its sluggish post Aug performance would get inevitably forgotten.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

The Inflation Tsunami About to Hit

Monica Kingsley Monica Kingsley 27.04.2021 15:59
Stocks went on to push higher yesterday – the pressure is building. Trends in place since last week, remain in place for this earnings rich one too. Reflation still rules, reopening trades are well underway, and inflation expectations are modestly turning up again without putting too much strain on the Treasury markets.While Monday wasn‘t an example of a risk-on day, the markets are clearly moving there:(…) overpowering the USD bulls yet again as the dollar bear market has reasserted itself. It‘s not just about EUR/USD on the way to its late Feb highs, but about the USD/JPY too – the yen carry trade is facing headwinds these days, acting as a supportive factor for gold prices. While these went through a daily correction, commodities pretty much didn‘t – lumber is powering to new highs, agrifoods didn‘t have a down day in April, copper and oil scored respectable gains. The market is in a higher inflation environment already, and it will become increasingly apparent that commodity-led inflation is here to stay.Yesterday was a great day for commodities again as these scored stronger gains than tech or $NYFANG, the main winners within the S&P 500 (defensives took it on the chin – seems like we‘re about to see rates move higher again). Anyway, VIX didn‘t object as options traders piled into the clearly complacent end of the spectrum again. Both the Russell 2000 and emerging markets loved that – the best days for smallcaps are clearly ahead:(…) the time of their outperformance, is approaching.Gold miners didn‘t outperform the yellow metal yesterday while silver did – are the ingredients for a metals‘ top in place? I don‘t think so, and have actually called out on Twitter the GDX downswing as likely to be rejected and ending with a noticeable lower knot. And here we are. No changes to my Friday‘s thoughts that:(…) The precious metals upleg has started, we‘re in a real assets super bull market, and this little hiccup won‘t derail it. The sad implication would actually drive it as capital formation would be hampered, unproductive behaviors encouraged, and potential output lowered. Pretty serious consequences – add to which inflation as that‘s what the Fed ultimately wants, and the recipe for more people falling into higher tax brackets through illusory gains, is set. Then, as inflation starts firing on all cylinders – a 2022-3 story when the job market starts overheating – the pain would be felt more keenly. When even Larry Summers starts talking the dangers of an inflationary wave, things are really likely getting serious down the road. On a side note, my tomorrow‘s analysis will be briefer than usual, and published probably a bit later as I have unavoidable dental treatment to undergo. Thank you everyone for your patience and loyalty – it‘s already a little over 3 months since I could start publishing totally independent. Thank you so much for all your support!Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookThe bears are certainly running (have certainly run) out of time, and the upper knot of yesterday‘s session looks little concerning to me. Tesla enjoying the Bitcoin moves, more tech earnings soon, and favorable sectoral composition of the S&P 500 advance favor the coming upswing.Credit MarketsDebt instruments got under pressure – high yield corporate bonds (HYG ETF) and investment grade ones (LQD ETF) have declined in a signal of non-confirmation, and joined the long-dated Treasuries in their downswing. I am not yet convinced this is a serious enough more to warrant a change in S&P 500 outlook.Technology and FinancialsThe $NYFANG strength continues, powering tech higher – and that‘s the engine behind solid S&P 500 performance. Notably, financials weren‘t waiting yesterday on other value stocks turning higher, and that‘s bullish.Gold, Silver and MinersGold caught a bid, and refused to decline intraday, which almost matches the miners‘ performance. Given these two daily stands, I‘m in favor of disregarding the usual outperformance warning of silver doing considerably better.This is the proper view of the miners and miners to gold ratio – noticeable outperformance in the latter while the former is getting ready to rise again.Gold and the Key RatioAs is visibly even more true today than yesterday, the copper to 10-year Treasury yield ratio shows that the markets aren‘t buying the transitory inflation story – the rush into commodities goes on, and justifiably so. This chart is clearly unfavorable to lower metals‘ prices.SummaryThe S&P 500 keeps pushing for new all time highs, which looks to be a matter of relatively short time only. Credit markets non-confirmation is to be disregarded in favor of strong smallcaps, emerging markets and cornered dollar in my view.Gold and miners are in consolidation mode, but this is little concerning to the bulls. No signs of an upcoming reversal and truly bearish plunge - the precious metals sector is likely to play a catch up relative to commodities as its sluggish post Aug performance would get inevitably forgotten.
Will Euro and Gold Go Up With Pandemic Upturn in Euro Area?

Will Euro and Gold Go Up With Pandemic Upturn in Euro Area?

Finance Press Release Finance Press Release 27.04.2021 16:39
The worst may already be behind the euro area’s economy. This bodes well – both the euro, as well as gold, can benefit from it.The Governing Council of the European Central Bank met last week, keeping its monetary policy unchanged. The inaction was widely expected - no surprises here. The June meeting could be much more interesting as the ECB will have to decide whether or not to slow its bond buying under the Pandemic Emergency Purchase Programme that was accelerated in the second quarter of the year. Given the dovish stance of the European policymakers, and the bank’s pledge to provide the markets with favorable financing conditions during the pandemic, we shouldn’t expect any tapering soon.Certainly, there are important dovish parts of the latest ECB’s statement on its monetary policy . It stems from the grim economic situation in the euro area. The real GDP declined by 0.7 per cent in the fourth quarter of 2020, and it is expected to decrease again in the first quarter of 2021. The nearest future doesn’t look promising:The near-term economic outlook remains clouded by uncertainty about the resurgence of the pandemic and the roll-out of vaccination campaigns. Persistently high rates of coronavirus (COVID-19) infection and the associated extension and tightening of containment measures continue to constrain economic activity in the short term.However, investors should always look beyond the near-team outlook. In the medium-term, the situation in the euro area looks much better. As the ECB notes, this is because the current virus wave seems to have peaked in Europe, while the pace of vaccination is accelerating:Looking ahead, the progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021.Furthermore, the European Union’s 750 billion euro recovery fund has cleared a key court challenge. Last week, the Germany’s constitutional court dismissed objections to the European aid package.All these factors are positive for the euro and, thus, also for the price of gold. As you can see in the chart below, gold was highly correlated with the spread between the American and German long-term government bond yields - the widening divergence in the US and European interest rates that started in August 2020 pushed the yellow metal down.Implications for GoldThe third wave of pandemic has already peaked in Europe; therefore, the old continent may somewhat catch up with the US. This could narrow the divergence in yields, creating downward pressure on the greenback while supporting the gold prices .Another positive factor for the euro and the yellow metal is the fact that although inflation jumped in both the US and the euro area, it’s much higher in the former country as the chart below shows. So, the purchasing power parity could support the common currency, as well as gold, against the greenback.What’s funny here is that Lagarde , just as Powell , argued that inflation “has picked up over recent months on account of some idiosyncratic and temporary factors and an increase in energy price inflation”. Sure, some idiosyncratic and temporary factors helped inflation to soar, but there are always some idiosyncratic and temporary factors. All the same, the central bankers point to them only when inflation rises, never when it declines. They always refer to these factors to justify their dovish bias and easy monetary policy.Of course, it might be the case that inflation won’t materialize, just like it never did after the Great Recession . But this time may be really different due to the surge in the broad money supply and a huge increase in government spending in the form of direct cash transfers to citizens who are hungry for traveling, eating in restaurants, and generally a normal life with all its money-spending. So, inflation is the wild card, which makes it reasonable to have some gold in investment portfolios . Investors should remember that gold is an investor’s asset rather than a demand asset, which means that in periods of reflation , gold initially lags commodities, only to outperform them and shine brightly in later phases.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Enough Consolidation Already!

Enough Consolidation Already!

Monica Kingsley Monica Kingsley 29.04.2021 15:43
Stocks are readying another push higher, and not just on the heels of the still accomodative Fed. The Fed won‘t simply remove the punch bowl, let alone discuss removing it, and will keep repeating the transitory inflation mantra ad nauseam. The ingredients are in place for a continued upswing in stocks and commodities. Look for nominal yields to continue rising, and my hunch is that won‘t be enough to turn the dollar around. We‘re about to experience continuously rising inflation expectations, rising nominal yields, and declining dollar:(…) When even Larry Summers starts talking the dangers of an inflationary wave, things are really likely getting serious down the road. (…) we‘re in the decade of precious metals and commodities super bull runs – and these are well underway. The debasement of fiat currencies against real assets is set to continue, and will accelerate given the unprecedented fiscal and monetary support already and ahead – sorry dollar bulls, the greenback declines are resuming – just look at the yen and yields nodding to the metals upswing.And the emerging markets are embracing the unfolding currency moves – they are rising with more vigor than the Russell 2000 lately. Little wonder for they are farther from their prior highs than the smallcaps. When it comes to S&P 500 sectors, yesterday brought us a rare rotation out of tech while the heavyweights still eked out minor gains – and that rotation is as telling a sign of a risk on sentiment returning as much as the credit market performance is.The key more in the gold sector was in the miners, whose continued resilience is a good omen. In other words, what a recovery from the daily setback I covered amply between the regular trading sessions on Tuesday and Wednesday. Enriching the examination with copper and yen performance, let alone real yields, leads to a universally bullish verdict on the precious metals upcoming price path.What‘s not to love about this reflation before inflation starts to bite noticeably more? Forget about those pesky commodities and my incessant bullish calls within the sector too…Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 OutlookStocks are merely gathering strength before another upswing. Enough consolidation already, seems to be the rallying cry here.Credit MarketsA strong sign of risk-on returning here – high yield corporate bonds (HYG ETF) clearly outperformed investment grade ones (LQD ETF), and these mirrorer the long-dated Treasuries performance.Technology and FinancialsAnother proof of risk-on is in both the technology performance disregarding $NYFANG holding ground, and in the Dow Jones Industrial Average weakness. Value stocks and cyclicals such as financials (XLF ETF) are having a field day, and as will be apparent from today‘s oil analysis, energy (XLE ETF) is a great pick as well.Gold, Silver and MinersGold caught a bid, and refused to decline intraday, but the miners scored gains – that‘s as bullish as it gets. It might seem disappointing in light of nominal yields not going anywhere, but only until you examine the great copper performance.Gold‘s volume hints at accumulation within this flag-approximating consolidation, where the next upswing would be ushered in by the miners. Note how silver gave up prior day‘s gains, and remains ready to join strongly next.Crude OilOil is in an upswing mode, and the bullish spirits are confirmed by the oil sector ($XOI) moves. The multiweek consolidation is in its closing stages.SummaryThe S&P 500 keeps pushing for new all time highs, and remain well positioned to close there any day now, especially since the credit markets favor risk on, and the defensives underperformance concurs.Gold and miners are ready for another upswing, and the commodities performance, inflation expectations and nominal yields trajectory favor that. The inability of the sellers to push prices below $1,760 speaks volumes.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Will Powell Lull Gold Bulls to Sweet Sleep?

Finance Press Release Finance Press Release 29.04.2021 16:20
The Fed left its monetary policy unchanged. However, the lack of any action amid economic recovery is dovish – good news for gold.On Wednesday (Apr. 28), the FOMC has published its newest statement on monetary policy . The statement wasn’t significantly altered. The main change is that the Fed has noticed the progress on vaccinations and strong policy support, and that, in consequence, the economic outlook has improved.Previously, the US central bank said that indicators of economic activity and employment “have turned up recently, although the sectors most adversely affected by the pandemic remain weak”, while now these indicators “have strengthened”, while “the sectors most adversely affected by the pandemic remain weak but have shown improvement”. So, the Fed acknowledged the fact that the economy has significantly recovered .Similarly, the US central bank is no longer considering the epidemic as posing “considerable” risks to the economic outlook. Instead, the pandemic “continues to weigh on the economy, and risks to the economic outlook remain”. It means that the Fed has become more optimistic and does not see risks as considerable any longer. This is bad for the price of gold although it’s not a very surprising modification, given the progress in vaccinations. However, no hawkish actions will follow, so any bearish impact for gold should be limited.Another important alteration is that inflation no longer “continues to run below 2 percent”, but it “has risen, largely reflecting transitory factors”. This would be normally a hawkish change with bearish implications for gold. But the Fed doesn’t worry about inflation and is not going to hike the federal funds rate anytime soon, even when inflation remains above the target for some time. As Powell pointed out, “the economy is a long way from our goals, and it is likely to take some time for substantial further progress to be achieved.” Thus, gold bulls may sleep peacefully .Implications for GoldIndeed, they can relax with Mr. Powell on guard. The Fed Chair has reiterated during his press conference that the US central bank is not going to tighten its dovish stance and reduce the quantitative easing:It’s not time to start talking about tapering. We'll let the public know well in advance. It will take some time before we see substantial further progress. We had one great jobs report. It is not enough to start talking about tapering. We'll need to see more data.Uncle Jay and his bedtime stories… about inflation that is only “transitory”. Once upon a time,the PCE inflation [is] expected to move above 2% in the near term. But these one-time increases in prices are likely to have only transitory effects on inflation.Well, sure. Nonetheless, this is the favorite story of central bankers all over the world told to naive citizens. Just wait for the April inflation readings – they will be something! Of course, it is going to be too early to declare persistently higher inflation, but I’m afraid that the Fed may be too carefree about such a possibility.So, in the aftermath of the generally dovish FOMC meeting, the dollar slid yesterday, while the price of gold went up . Gold continued its recovery from the March bottom, as depicted in the chart below. This makes sense: after all, the Fed reiterated that it would maintain its current ultra easy stance for the foreseeable future, despite the fact of acknowledged improved economic outlook.In other words, the Fed’s inaction made the US central bank more dovish given the better economic outlook and higher inflation. The statement’s language about the coronavirus and the economy was more optimistic, but inflation was considered to be transitory and no hawkish actions were signaled. So, the recent FOMC meeting should be positive for the gold prices from the fundamental point of view , although gold may continue its recent, generally lackluster performance for a while. Of course, the expansion of Fed’s accommodative monetary policy would be much better for the yellow metal, but the lack of any hawkish signals could still clean the room for gold for further upward moves.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
US Industry Shows Strength as Inflation Expectations Decline

Gold Sings a “Hot N Cold” Song

Finance Press Release Finance Press Release 30.04.2021 18:18
Although spring has begun, we can still find ourselves in winter, or even summer. Gold may benefit from such a seasonal aberration.Oh, how wonderful, spring has finally started, hasn’t it? We have April, after all. Well, in calendar terms, it’s indeed spring, but economically it can be summer already or still the beginning of winter. How so? I refer here to Kondratiev cycles (also known as Kondratieff cycles or Kondratyev cycles).As a reminder, Nikolai Kondratiev was a Russian economist who noted in the 1920s that capitalist economies experience long super-cycles, lasting 40-60 years (yup, it’s not a very precise concept). His idea was that capitalism was not on an inevitable path to destruction, but that it was rather sustainable and cyclical in nature. Stalin didn’t like this conclusion and ordered a prison sentence and, later, an execution for Kondratiev. And you thought that being an economist is a boring and safe profession!The Kondratiev cycles, also called waves, are composed of a few phases, similar to the seasons of the year. In 2018, I defined them as follows:Spring : economic upswing, technological innovation which drives productivity, low inflation , bull market in stocks, low level of confidence (winter’s legacy).Summer : economic slowdowns combined with high inflation and bear market in stocks, this phase often ends in conflicts.Autumn : the plateau phase characterized by speculative fever, economic growth fueled by debt, disinflation and high level of confidence.Winter : a phase when the excess capacity is reduced by deflation and economic depression, debt is repaid or repudiated. There is a stock market crash and high unemployment rate , social conflicts arise.However, other economists define these phases in a slightly different manner. For them, spring is an inflationary growth phase, summer is a period of stagflation (inflationary recession ), autumn a deflationary growth period, while winter is a time of deflationary depression.So, which phase are we in? That’s a very good question. After all, the whole concept of Kondratiev cycles is somewhat vague, so it’s not easy to be precise. But some experts believe that we are likely in the very early part of the winter after a very long autumn . Indeed, there are some important arguments supporting such a view.First, we have been experiencing a long period of disinflation (and later just low inflation), a decline in the bond yields , and economic growth fueled by debt. I refer here to the time from the end of the Great Recession until the Covid-19 pandemic , but one can argue that autumn lasted since the early 1980s, when both interest rates and inflation peaked, as the chart below shows.Second, winter is believed to be a depression phase with stock and debt markets collapsing, but with commodity prices increasing. And this is exactly what we are observing right now. I refer here to the rally in several commodity prices. This is at least partially caused by the disruption in the supply chains amid the epidemic in the U.S. and worldwide pandemic, but if the bull market in commodities sets in for good, this could be a negative harbinger for the stock market. After all, more expensive raw materials eat into corporate profits.Third, winter is thought of as a period that tears the social fabric of society and deepens the inequalities. The data is limited, but the coronavirus crisis has been one of the most unequal in modern U.S. history, as its costs have been borne disproportionately by the poorer parts of society that have been unable to work online.So, “winter is coming” may be a belated warning, as winter could have already begun. Later during this period, we could see bankruptcies of firms and financial institutions, and even some governments, as a delayed consequences of the coronavirus crisis. This is bad news for the whole of Westeros and its economy, but good for gold. Investors who don’t like the cold should grab a golden blanket to hedge them from the winter.However, in 2018, I expressed the opinion that summer may come in the 2020s, as the debts are rising and the inflationary pressure is growing:As the global economy recovered and now expands, inflation is low, while stocks still rally, we enjoy spring. This is why gold has remained in a broad sideways trend in the last few years. However, as we are on the edge of the next technological revolution, confidence is finally rising and there are worries about higher prices, and we could enter the summer phase in the not-so-distant future.And I still believe that my opinion makes sense. Indeed, after the global financial crisis of 2007-9, we have seen several spring features: low inflation, a bull market in stocks, and a low level of confidence (after all, there was “the most hated rally in the stock market”), which was a legacy of winter, i.e., the collapse of Lehman Brothers and the following economic crisis .And summer is generally a period of stagflation, which is exactly what I’m expecting. You see, after a strong economic recovery in the nearest quarters, the U.S. economy is likely to return to a mediocre pace of economic growth, but with much higher inflation. After all, there is strong monetary and fiscal stimulation ongoing right now, another feature of summer. Meanwhile, winter is generally a deflationary period, so the specter of inflation rather suggests that summer may be coming and investors should hedge themselves against waves of gold.Luckily, gold offers its protection not only against winters, but also against summers . Indeed, gold performs the worst during autumns, when there is disinflation, like in the 1980s and the 1990s, and the best during winters (due to the economic crisis – remember the 2000s?) and the summers (due to high inflation – remember the 1970s?).Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial for all of our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Will Biden Build Back Better… Gold?

Finance Press Release Finance Press Release 04.05.2021 13:22
New spending is coming! And because of that, Biden’s speech to Congress was fundamentally positive for gold.Last week was full of big events. The FOMC released its newest statement on monetary policy meeting, while Powell held the press conference. On the same day, President Joe Biden made his first speech to Congress . Let’s take a look at his words.First of all, Biden laid out his American Jobs Plan , which proposes more than $2 trillion to upgrade US infrastructure and create millions of jobs. No matter that infrastructure spending has no stimulus effect, according to economic research .Second, if you think that $2 trillion is a lot of money, given America’s huge indebtedness, you are clearly wrong. Two trillion is practically nothing and definitely not enough, so Biden proposed another $1.8 trillion American Family Plan in investments and tax credits to provide lower-income and middle-class families with inexpensive childcare.Third, Biden understands that all these expenditures cannot be funded solely by increasing already huge fiscal deficits (see the chart below) and issuing new bonds.So, he proposed a hike in tax rates:It’s time for corporate America and the wealthiest 1% of Americans to pay their fair share. Just pay their fair share (…) We take the top tax bracket for the wealthiest 1% of Americans –those making $400,000 or more – back up to 39.6%.No matter that corporate taxes are implicit taxes on labor and that the current proposals for tax hikes are unlikely to fund the White House’s ambitious plans.Biden also proposed several reforms of the labor market: a 12-week paternal leave for families and an increase of the minimum wage to $15 an hour.So, in short, his speech called for several bold economic policies aiming to increase government spending and strengthen the American welfare state. Sounds good… for gold.Implications for GoldWhat does the Biden speech, and more generally his economic agenda, imply for the precious metals market? Well, it seems that the President cares not only about the workers, but also about the gold bulls. His plan is fundamentally positive for the yellow metal . After all, Biden wants to further increase government spending, which will weaken the long-term pace of economic growth and add to the mammoth pile of the public debt .There are also hints that this massive government spending flowing directly to the citizens could ignite inflation . After all, the US economy has already recovered from the pandemic recession , at least in the GDP terms, as the chart below shows. So, Biden’s economic agenda risks that the economy will overheat igniting inflation.He also adopted a more confrontational stance toward China, which could elevate the geopolitical worries and increase the demand for safe-haven assets such as gold .Another potential benefit is the proposal to raise corporate taxes, which is clearly negative for the US stock market and the greenback . Hence, gold could gain at their expense, especially if we see a pullback in the equity market…Last but not least, the increase in the minimum wage, and other labor market reforms, will not help in a quick employment recovery, so the Fed will maintain its dovish policy for longer. Indeed, we should look at Biden’s message together with the Fed’s signals. Biden proposed trillions of dollars in new spending, while Powell reiterated no hurry to raise interest rates . What a policy mix! We have both easy monetary policy and loose fiscal policy , a golden policy mix , indeed.Gold didn’t react strongly to these events, which is a bit disturbing, but this can be explained by the gains on Wall Street, as investors felt reassured that a financial bonanza would last undisturbed. So, the economic confidence remains high, but if it wanes, especially if inflationary threats come to the surface, gold may perform better.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

BOE may go hawkish on May 6

Kseniya Medik Kseniya Medik 04.05.2021 15:29
What will happen?Bank of England will make a policy statement on Thursday at 14:00 MT (GMT+3). It’s widely expected that the bank may raise its growth projections and, more importantly, taper its quantitative easing programme, by cutting asset purchases. If it happens, the GBP will get a stimulus to rise. Indeed, most of the recent economic indicators revealed that the British economy is recovering faster than the BOE forecast in February. Both manufacturing and services industries showed the strongest numbers in seven years in April. Retail sales jumped in March. Well, but what if no policy tightening? In this case, the GBP is likely to fall. Tech analysisGBP/USD has been trending up for over a year already. If it manages to break above the chain of recent highs of 1.4000, it will rally up to the high of February 24 at 1.4150. On the flip side, if it breaks below the low of April 30 at 1.3800, it may fall to the lower trend line, which the pair is unlikely to cross on the first try as it has failed to break below this line for over a year. Download the FBS Trader app to trade anytime anywhere! For personal computer or laptop, use MetaTrader 5!
US Industry Shows Strength as Inflation Expectations Decline

Forex majors: short-term and long-term

Kseniya Medik Kseniya Medik 05.05.2021 12:19
EUR/USD: a downswing loomingAt the beginning of the virus hit, EUR/USD was in the zone of 1.10. By the end of 2020, it rose to 1.2350. Since then, it’s been going mostly downwards as the USD is gaining momentum with the recovering US economy. Currently, it trades around 1.20, and if the US economic optimism stays for another month or two, we are likely to see the pair challenge the tactical supports of 1.17 and 1.16.GBP/USD: post-BrexitFrom the depths of 1.20 at the beginning of the pandemic, this pair has been going upwards almost in a straight line to reach 1.42 in February. Since then, it dropped some of the gains and has been floating below 1.40. Pound’s offensive may have stopped due to the accumulating effect of Brexit as the UK is seeing a lower financial dynamic than before. Locally, 1.38 and 1.38 are the supports bears may be aiming at. If these get broken in the coming weeks, it may be a start of a whole new multimonth downswing back to 1.20.EUR/GBP: bouncing upwards or five-year lowsWhile this pair dropped to 0.83 in the first part of 2020, it has been trading around 0.90 in the second part. However, it ceded most of the gains during previous months going down to 0.85 in April. That level turned out to be a tactical low that sent the currency pair into the upside. EUR/USD bounced off that level a month ago to reach 0.87 – this is the current resistance level. Currently, the pair is on the way downwards after bouncing off it a few days ago. If bears keep pulling, it may reach 0.86 and aim at 0.85 once again. In the larger perspective, the behavior of EUR/GBP in the coming weeks will indicate if it is going to re-take the gains made through 2020 or go further downwards to the five-year lows of 0.83.Download the FBS Trader app to trade anytime anywhere! For personal computer or laptop, use MetaTrader 5!
Lumber and Copper Are Surging. Will Gold Join the Party?

Lumber and Copper Are Surging. Will Gold Join the Party?

Finance Press Release Finance Press Release 06.05.2021 15:47
There’s no inflation … None at all. Only, completely by accident, lumber prices are skyrocketing. Gold is likely to remain silent, but it may catch up later.The rise in lumber prices can be seen in the chart below:What a surge! It happened because of the limited supply and strong demand for new houses. But it’s not just lumber. Many raw commodities are rallying too. The price of copper, for example, has just approached its record height (from February 2011), as the recovery of the global economy boosted demand. Just take a look at the price below.Indeed, the trend is up. Commodity prices are on the rise as a whole as the chart below clearly shows. Even Warren Buffet warned investors against a “red hot” recovery, saying that his portfolio companies were “seeing very substantial inflation” amid shortages of raw materials.Of course, commodity price inflation and consumer price inflation are quite different phenomena, as consumers don’t buy lumber or copper directly but only finished products made from these materials. However, at least part of this producer price inflation may translate into higher consumer prices, as producers’ ability to pass higher costs on consumers has recently increased – people have a large holding of cash and are willing to spend it.Implications for GoldWhat do rallying commodity prices imply for the precious metals? Well, rising commodity prices signal higher inflation, which should increase the demand for gold as an inflation hedge . Of course, there might be some supply disruptions and bottlenecks in a few commodities. However, the widespread character and the extent of the increase in prices suggest that monetary policy is to blame here and that inflation won’t be just transitory as the Fed claims.What’s more, the commodity boom is usually a good time for precious metals . As the chart below shows, there is a strong positive correlation between the broad commodity index and the precious metals index.There was a big divergence during the pandemic when commodities plunged, while gold at the same time shined brightly as a safe-haven asset . So, the current lackluster performance of the yellow metal is perfectly understandable during the economic recovery.Indeed, the rebound in gold has been weak, and gold hasn’t even crossed $1,800 yet, although it was close this week, as the chart below shows.There was a rally on Monday (May 3) amid a retreat in the US dollar, but we were back in the doldrums on Tuesday, amid Yellen’s remarks about higher bond yields . She said that interest rates could rise to prevent the economy from overheating:It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economyHowever, Yellen clarified her statements later, explaining that she was not recommending or predicting that the Fed should hike interest rates. Additionally, several FOMC members made their speeches, presenting the dovish view on the Fed’s monetary policy . For example, Richard Clarida, Fed Vice Chair, said that the economy was still a long way from the Fed’s goals and that the US central bank wasn’t thinking about reducing its quantitative easing program .Anyway, the price of gold has been trading sideways recently as it couldn’t break out of the $1,700-$1,800 price range. This inability can be frustrating, but the inflationary pressure could help the yellow metal to free itself from the shackles. The bull market in gold started in 2019, well ahead of the commodities. Now, there is a correction , but gold may join the party later . It’s important to remember that reflation has two phases: the growth phase when raw materials outperform gold and the inflation phase when gold catches up with the commodities. So, we may have to wait for a breakout a little longer, but once we get it, new investors may flow into the market, strengthening the upward move.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Intraday Market Analysis – US Dollar Fails To Find Support

John Benjamin John Benjamin 07.05.2021 07:26
USDCHF tanks to new lowsThe US dollar falls as higher continuing jobless claims point to volatility in the labour market. The bearish MA cross from the daily chart is a reminder of the US dollar’s weakness across the board.The latest consolidation has ended up with a breakout below 0.9110 in continuation of the downtrend. As the RSI shows an oversold situation, profit-taking could lead to a short rebound towards the resistance at 0.9145.However, this might turn out to be a dead cat bounce if trend followers seize it as an opportunity to sell into strength. 0.9020 would be the next target in the next round of sell-off.GBPUSD consolidates recent gainsSterling found support after the BoE raised its forecast for Britain’s economy and hinted at reducing its stimulus programme.The bullish MA cross on the daily chart may give buyers an edge as the price action wraps up its sideways action. A confirmation may come in with a breakout above 1.3960.Strong momentum above the psychological level of 1.4000 could prompt short-term sellers to bail out. This would resume the pair’s upward trajectory.On the downside, the demand zone between 1.3800 and 1.3840 is of interest for those wishing to bet against a soft greenback.US 30 extends all-time highThe Dow extended gains to an all-time high as investors rebalance assets away from over-stretched growth stocks.The index continues to grind higher along the 20-day moving average as a sign of optimism.Following its breakout above the 33700-34250 range, buyers seem to have regained control of the price action. A runaway rally gained traction after sellers closed their positions when it was still cheap to do so.An overbought RSI may suggest a temporary pullback. 34200 is the immediate support in case of a pullback. Further down, 33770 would be a critical level to maintain the short-term bullish fever.
US Industry Shows Strength as Inflation Expectations Decline

Transportation Index Continues To Grind Higher

Chris Vermeulen Chris Vermeulen 07.05.2021 14:25
If the face of last week's sideways price action and almost in a rebellious manner today (May 4, 2021), the Transportation Index is moving higher while the US major indexes are all broadly lower.  VIX has shot up over 20 again (over +13% higher) and the NASDAQ is off by more than 300 points (-2.75%) as I write this article.  Yet, the Transportation Index is bucking the trends and trading higher.WHAT DOES IT MEAN WHEN THE TRANSPORTATION INDEX BUCKS THE MAJOR INDEX TRENDS?My team and I have often highlighted the Transportation Index in our past research article. The reason we watch this index so closely is that it tends to lead market trends by at least 30 to 60 days.  In short, the Transportation Index is a measure of future expectations related to freight, shipping, transportation, and the movement of goods and commodities across the US and across the globe.  When an economy contracts, the Transportation Index will likely follow major indexes lower as future expectations related to economic activity contract.  When a recession or deep price correction happens, the Transportation Index usually moves sharply lower as the sudden shock of an unexpected economic contagion vastly alters future economic expectations.  But generally, the Transportation Index tends to front-run economic expectations.The fact that the US major indexes are all broadly lower while the Transportation Index is moderately higher (and really running counter to the bearish trending) today suggests this price decline is a technical pullback in price – not a broad market contagion event.  As we interpret this early stage price rotation, we have to call it as we see it right now - Crude Oil is higher, the Transportation Index is higher, and the US Dollar rebounded higher yesterday.  Until we see confirmation within all three of these components related to a change in price trend, we believe the current move is a technical pullback of the bullish price trend, meaning the markets just got ahead of themselves recently and this is a common pullback.We are fairly early into this pullback and things may change if it progresses downward over the next few days/weeks.  But right now the strength in the Transportation Index, the US Dollar, and Crude Oil are suggesting the markets are expecting a continued reflation trade (upward trending) to continue at some point in the near future.  If the Transportation Index were to fall below $14,800 on a deep price decline, then we would immediately become very concerned that a broad market bearish price trend has set up, possibly setting off a very deep price correction.As I highlighted in yesterday's research article, precious metals will likely continue to rally in a moderate upside price trend because both Gold and Silver have recently started a new Advancing Cycle Phase. This start of a new Cycle Phase may be prompting some early rotation in the US major indexes right now and we'll just have to watch and see how this proposed technical pullback plays out over the next few days/weeks.Watch previous Pivot Low levels for support in the markets.  We are seeing some increased volatility and when markets break previous “stand-out” pivot lows, that's when we want to prepare for the potential of a deeper downside price trend. The basis of Fibonacci Price Theory is that price is always seeking new highs and new lows – thus, the breach of a major “stand-out” pivot low could be interpreted as a major breakdown in price trending.The bigger question is, will you be ready to jump into the strongest sectors when this downside trending ends?  Do you know which sectors present the best opportunities for future profits?  You can learn more about how I identify and trade Gold, Silver, and the markets by watching my FREE step-by-step guide to finding and trading the best sectors. Don't miss the opportunities in the broad market sectors over the next 6+ months.  Staying ahead of these sector trends is going to be key to developing continued success in these markets. My BAN Trader Pro newsletter service does all the work for you with daily pre-market reports, proprietary research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers. Sign up today!
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Inflation Knock-knock-knockin’ On Golden Door

Finance Press Release Finance Press Release 07.05.2021 16:43
Inflation is not coming. It is already here! Gold should benefit, given that it could be higher and more lasting than the pundits believe.“Knock, knock, knockin’ on heaven’s door”, so sing Bob Dylan and Guns N’ Roses. Now, inflation is knocking on the golden door. According to the BLS , the U.S. CPI inflation rate recorded a monthly jump of 0.6% in March, while soaring 2.6% on an annual basis. And the core inflation has also accelerated. So, inflation has significantly surpassed the Fed’s target of 2% , as one can see in the chart below.And remember that this is what the official data shows, which rather underestimates the true inflation. This is because of several issues, including hedonic quality adjustments, shifts in the composition of the consumer baskets and methodological changes. It is enough to say that the rate of inflation calculated by the John Williams’ Shadow Government Statistics that uses methodology from the 1980s is over 10% right now.There are some controversies about this alternate data, but I would like to focus on something else. The CPI doesn’t include houses (or other assets) into the consumer baskets, as they are treated as investments. The index only takes rents into account. But homeowners don’t pay rents, so for them, the cost of shelter, which accounts for about one-fourth of the overall CPI, is the implicit rent that owner-occupants would have to pay if they were renting their homes. And this component rose just 2 percent in March, while the Case-Shiller Home Price Index, which measures the actual house prices, soared more than 11% in January (the latest available data). According to Wolf Street , if we had replaced the owners’ equivalent rent of primary residence with the Case-Shiller Index, the CPI would have jumped 5.1 instead of 2.6%. The chart below shows the difference between these two measures.Hence, inflation has come, and even the official data – which can underestimate the level of inflation that ordinary people deal with in their daily lives – confirms this. If you’ve been buying food lately, you know what I mean. Now, the question is whether this inflation will be temporary or more lasting.Powell , his colleagues and the pundits claim that higher inflation will only be a temporary phenomenon caused by the base effect. The story goes like this: the CPI plunged in March 2020, which created a lower base for today’s annual inflation rate. There is, of course, a grain of truth here. But let’s take a look at the chart below. It shows the CPI, with both March 2020 (red line) and February 2020 (green line) as a base. As you can see, in the latter case the index jumped 2.3%. Yes, lower, but not significantly lower than 2.6% when compared to March 2020. So, the Fed shouldn’t blame the base effects for accelerating inflation (and funny thing: have you heard the pundits talking about the base effect when they were talking about vigorous GDP recovery?).Instead, central bankers should blame themselves and their insane monetary policy . After all, as the chart below shows, the Fed’s balance sheet has soared $3.4 trillion (or 81%), while the broad money supply (measured by M2) has increased more than $4 trillion (or 26%) from February to date.They could also blame reckless fiscal policy . Growing government spending, enabled by a rising pile of debts monetized indirectly by the Fed, has headed for Main Street. This, combined with a jump in the broad money supply, is the key change compared to the Great Recession when almost all stimuli flowed into Wall Street and big corporations. Sure, some people use the received money to increase savings and repay debts. But with the reopening economy, some of the pent-up demand will be realized. Actually, many Americans have already started spending free time traveling like crazy after being locked in homes for so long.And this is very important: consumers are therefore more eager to accept higher prices. It shouldn’t be surprising given all the checks they got and how hungry for normal life they are. As I reported last month , companies are reporting rising prices of commodities and inputs (partially because of the supply disruptions too), but so far their power to pass the producer price inflation to consumers has been limited. However, this is changing . The April report IHS Markit U.S. Services PMI observes thatRates of input cost and output charge inflation reached fresh record peaks, as firms sought to pass on steep rises in input prices to clients (…) A number of companies also stated that stronger client demand allowed a greater proportion of the hike in costs to be passed through. The resulting rate of charge inflation was the quickest on record.All these reasons suggest that higher inflation could be more lasting than most of the so-called experts believe (although the officially reported inflation doesn’t have to show it). This is good news for the yellow metal . Higher inflation implies lower real interest rates and stronger demand for gold as an inflation hedge . What is important here is that we have more inflationary pressure in the pipeline exactly at the time when the Fed has become more tolerant of inflation. So, the combination of higher inflation with a passive central bank position sounds bullish for gold . The key issue here is whether the markets believe that the Fed will allow for higher inflation. So far, they have been skeptical, so the expectations of interest rates hikes accumulated and the bond yields rallied. But it seems that the Fed has managed to convince the markets that it’s even more incompetent than it is widely believed. If the distrust in the Fed strengthens, gold should return to its upward trajectory from the last year.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
US Industry Shows Strength as Inflation Expectations Decline

Gold Jumps above $1,800. What’s Next?

Finance Press Release Finance Press Release 11.05.2021 16:54
Gold jumped above $1,800, and it’s the disappointing jobs data that added fuel to the fire.The gold market is a funny place. On Thursday (May 6), I complained that the yellow metal couldn’t surpass $1,800:The price of gold has been trading sideways recently as it couldn’t break out of the $1,700-$1,800 price range. This inability can be frustrating, but the inflationary pressure could help the yellow metal to free itself from the shackles.And voilà, just later that day, the price of gold finally jumped above $1,800, as the chart below shows. Hey, maybe I have to complain about gold more often?But jokes aside. The move is a big deal, as gold has finally broken above the key resistance level. What’s important here is that the breakthrough wasn’t caused by some negative geopolitical or economic shock, but rather by fundamental and sentiment factors.So, what happened? First, there is a weakness in the US dollar . With global economic recovery progressing, the safe-haven appeal of the greenback is simply vanishing. Another issue here is – and I pointed this out in the Fundamental Gold Report dedicated to the latest ECB’s meeting – that the pandemic in the Eurozone has reached its peak. So, the worst is already behind the euro area, and it can catch up with the US now, supporting the euro and gold against the dollar.Second, the bond yields have been heading lower recently . As one can see in the chart below, the real interest rates have corrected significantly since their peak in March. In early May, the 10-year TIPS yields slid further, returning to almost -0.90 percent.What is noteworthy here, the real interest rates declined more than the nominal interest rates. It resulted from the increase in the expected inflation. Indeed, as the chart below shows, the 10-year breakeven inflation rate jumped in early May . As a reminder, I wrote on Thursday that “the inflationary pressure could help the yellow metal to free itself from the shackles” and this is exactly what happened.Implications for GoldWhat does gold’s jump above $1,800 imply for its future? Well, the crossing of an important obstacle is always a positive development. The decline in the interest rates, coupled with the weakness in the US dollar, means that the markets are convinced that the Fed would remain very dovish, even despite the rising inflation .Other positive news for the gold market is April’s nonfarm payrolls that came in below the forecasts. The US economy added only 266,000 jobs last month (see the chart below), although many analysts and even the FOMC members expected a nearly 1 million increase in employment. Such a disappointment made traders slash the bets on the pace of the Fed’s monetary tightening. A softer expected path of the federal funds rate is a fundamentally positive factor for gold.In other words, the weak employment report relieves a lot of the pressure put on the Fed to tighten its monetary policy. So, the US central bank will continue to provide monetary support, despite all the progress observed in the economy, and that easy stance will stay with us for longer than previously expected. In that sense, April’s disappointing jobs data may be a game-changer for gold, and it could add fuel to the recent rally that started on Thursday.Of course, one weak employment number doesn’t erase the impressive economic recovery. Moreover, I would like to see that gold hold the recent gains through the coming days before organizing a party for the gold bulls. However, it seems that I was right in saying that the second quarter would be much better than the first one. Gold is indeed gaining momentum! And, what’s really important, the yellow metal started to rise amid a strong economic recovery – it implies that we can be observing important, bullish shifts in the market sentiment towards gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

Where's The Beef? Is The US Fed Behind The Inflation Curve?

Chris Vermeulen Chris Vermeulen 12.05.2021 17:24
We recently completed some interesting research related to one of our newest Custom Indexes – the Commodities to Smart Cash Index (C2SC Heat Index) - weighted by the US Dollar and VIX.  We've been reviewing this new index for months watching it to see how it reacts to various trends in Lumber, Gold, Treasury Yields, the Smart Cash Index, and other weighted values.  Recently, we added the Fed Funds Rate to this chart and suddenly things took on a different perspective.We had drawn horizontal lines on the Commodities to Smart Cash index highlighting historical high, low, and confluence price levels.  Historically, when we see a chart that channels in a sideways range, one can often identify high and low price thresholds while also trying to find a confluence level (where a continued rise or decline in price is likely to continue). We can see how the US Fed reacted to rising inflationary concerns almost immediately as the C2SC Index rose near or above 6.5 (the RED Confluence level) throughout the past 25 years.  Each time, in 1994, 1999, and 2005, when a period of increasing inflationary trends, the Fed was quick to act to contain inflation.  The only time the Fed acted differently was in 2013~2015 and in 2020~now.Where's The Fed?  Watch Precious Metals For Signs Of PanicIn 2013~2015, the C2SC Index rose above the Confluence level (the RED line) multiple times, yet the Fed kept rates extremely low – ignoring inflationary risks at that time.  Then, in 2016, the Fed raised rates very slightly in an effort to test the global market's reaction to tightening financial policy ahead of a big US election event.  By mid-2017, the C2SC index started rising and the US Fed continued to raise interest rates.  By late 2017, the C2SC index had risen past the RED Confluence level again and the US Fed continued to raise rates well into early Summer 2018. In August 2018, the Fed attempted another 0.25% raise that broke the market trend and prompted a broad market decline into December 2018.  In reaction to this breakdown in US markets, the US Fed dropped the Fed Funds Rate from 2.5% to 1.5% in a panic move.  It stayed at that level until COVID-19 hit in February/March 2020.Looking at the C2SC index, commodities have rallied more than 300% above the past 25 years of historic highs recently while Yields and Gold/Silver continue to stay rather muted in trends.  Our concern is that the US Fed, in an effort to spark a solid post-COVID-19 economic recovery, has ignored the risks related to the extreme excess phase rally taking place throughout the globe in commodities, Cryptos, non-tangible speculative assets (NFTs, digital and others) as well as the risks associated with an eventual raising of interest rates to curb this inflationary excess phase.  Gold and Silver have just started what appears to be a new bullish price trend.  Will the US Fed be pushed to raise rates soon to curb this incredible bubble rally?We started bouncing around the idea that the US Fed was inadvertently prompting a South Seas Company type of bubble event by allowing gross amounts of capital into the markets and artificially keeping interest rates near zero.  For those of you who don't know the story of the South Seas  Company in London (1720), you can read more about it here: https://www.britannica.com/event/South-Sea-BubbleFOMO Hyper-inflation Continues (until it ends)In short, The South Seas Company was awarded £7 million to finance the war against France by the House of Lords.  This bill, known as the South Sea Bill, allowed the South Sea Company a monopoly on the trade to South America (mostly Slave trade) and was expected to be a boost to the companies bottom line as the war with France ended with the Treaty of Utrecht (1713).  Over the next 5+ years, the South Seas Company enjoyed robust profits and trade. Shares of the South Sea Company rose to 10x their value.  Then, the South Seas Company, with King George I of Great Britain as governor of the company in 1781, suggested taking over the national debt of Great Britain in 1720. Sign up for my free trading newsletter so you don’t miss the next opportunity!The South Seas Company accomplished this incredible feat and shares started to skyrocket higher from $128.5 to over $1000 in just 7 months.  As the hype continued to drive speculation and rumors, other stocks (some newly formed companies) were quick to catch the hype and quickly rallied to extreme highs as false statements, word-of-mouth hype and a general hyperbolic frenzy continued to drive speculation.What brought down the South Seas Company was unbridled rumors, outright lies, hyperbolic speculation, and, eventually, a flood of money from France's modernized economy.  When the trend finally broke down, it took about 12 months for the entire bubble to deflate – leaving speculative investors holding empty bags.The rally of the South Seas Company is very similar to what we are seeing right now in the US economy and in digital assets.  There were a number of facets in place to drive this type of hyperbolic rally.  First, the South Seas Company took over the national debt – essentially acting like the US Federal Reserve for Great Britian.  Secondly, the wild speculation related to ongoing business activities and future expectations prompted an over-enthusiastic buying frenzy – driving prices higher by 10x traditional valuation levels.In the end, with all the speculation, hype and people of title involved, the expected profits and returns from the South Seas Company never really materialized.  The stock price started to decline and finally broke downward very sharply near late 1720 – almost 3 months after it peaked.Is The US Fed Preparing To Make A Move Soon?The recent rally in the US stock markets has seemed to stall recently, as can be seen in this Smart Cash Index chart below.  Still, the recent rally since the November 2020 elections is nothing short of amazing – very similar to the rally in 2017 and into early 2018 – almost straight up.Our research team believes a continued market rally may keep attempting to “melt-up” as long as the US Fed does not step in to try to curb inflationary aspects of the markets.  It is hard to argue that traders and investors are going to suddenly change their minds in the midst of this FOMO rally - although, it does happen at some point.There are really two concerns related to how this may end: the US Fed suddenly acting to curb inflation by raising rates and/or the consumers suddenly realizing the valuation levels have exceeded realistic expectations.  We feel the rise in commodity prices as well as the current uptrend in precious metals and Copper may be pushing consumers closer and closer to that sudden realization that valuations are grossly advanced in comparison to real expectations.When you look at this Smart Cash Index Monthly chart, below, you see that the Fed Funds Rate is still anchored near ZERO while the Smart Cash Index is nearing the highest levels since the January 2018 Ultimate Peak.  The primary difference is that the US Federal Reserve is not acting to raise rates like they were in 2018 or even just before the Housing Bubble (2005~06).  This suggests the rally may continue in a hyper-inflation trend and may push well beyond anyone's expectations in the near future. Remember, our C2SC Heat Index is showing the current rally is nearly 300%+ above normal upper ranges.  How far will it go?  We really don't know how far this could continue to rally or where the ultimate peak is going to set up.  All we can suggest at this point in time is that we've entered uncharted waters and we don't have many historical reference points to use for our analysis. All we can do is ride this trend out using our advanced price modeling systems and watch for signs of a breakdown in support and correlative assets (like Precious Metals, Bonds, Utilities, and the Fed Funds Rate). If the Fed suddenly starts making moves to address pending inflation, then we may see some big volatility hit the markets.  We feel the Fed will slowly move to address inflationary concerns over the next 12+ months – not move in a sudden, aggressive manner. We need to watch how commodities continue to rally and how consumers react to these inflationary price concerns.  If global consumers suddenly shift away from spending as prices continue to rally, then we may start to see a dynamic shift in how the economy continues to expand/recover.  Consumers become very protecting of capital/resources when an economy shifts from expansion to contraction.Either way, there are going to be some really big trends in 2021 and 2022 for traders/investors.  This is the type of setup that can make fortunes for skilled traders/investors.  The bigger question is, will you be ready to jump into the strongest sectors when this downside trending ends?  Do you know which sectors present the best opportunities for future profits?  You can learn more about how I identify and trade the markets by watching my FREE step-by-step guide to finding and trading the best sectors. Don’t miss the opportunities in the broad market sectors over the next 6+ months.  Staying ahead of these sector trends is going to be key to developing continued success in these markets. My BAN Trader Pro newsletter service does all the work for you with daily pre-market reports, proprietary research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers. Sign up today!Have a great week!
US Industry Shows Strength as Inflation Expectations Decline

Inflation Monster Rears Its Ugly Head. Will Gold Beat It?

Finance Press Release Finance Press Release 13.05.2021 16:33
Inflation surged 4.2% in April, but gold declined in response. What is happening?Unbelievable! The “non-existent” inflation keeps getting stronger. The CPI increased 0.8% in April , after rising 0.6% in March. The pundits cannot blame energy prices for this jump, as the energy index decreased slightly. This shows that the surge in inflation wasn’t caused just by the base effect. Apart from energy, all major component indexes increased last month. In particular, the index for used cars and trucks rose 10.0%, which was the largest monthly increase since the series began in 1953.As a result, the core CPI, which excludes food and energy, soared even stronger in April, i.e., 0.9%, following a 0.3% jump in March. It was the largest monthly increase since April 1982. But still, there is no inflationary pressure in the economy…And now for the best part, the true crème de la crème of the recent BLS report on inflation : As the chart below shows, the overall CPI surged 4.2% over the 12 months ending in April , while the core CPI jumped 3.0%. These annual rates followed, respectively, 2.6% and 1.6% increases in March.So, there was a huge acceleration in inflation last month! The last occurrence of such high inflation was in 2008 during the Great Recession . The quickening was a surprise for many analysts, but not for me. When analyzing the March CPI report , I wrote that it wasn’t an outlier:What’s important is that the recent jump in inflation is not a one-off event. We can expect that high inflation will stay with us for some time, or it can accelerate further next month.And indeed, inflation escalated in April. In May, however, inflation could be softer, but it will remain relatively elevated, in my view.Implications for GoldWhat does the hastening in inflation imply for the precious metals market? Well, the London P.M. Gold Fix has barely moved, as the chart below shows. What’s more, the New York spot gold prices have decreased in the aftermath of the April report on the CPI.What happened? Shouldn’t gold have reacted more positively to the surprising speeding up of inflation? As an inflation hedge – it should. But this is far more complicated. First, the bond yields have increased to reflect higher inflation, as traders started to bet that the Fed would have to hike interest rates faster than previously expected.But the April CPI report won’t force the U.S. central bank to alter its monetary policy and adopt a more hawkish line . After all, they expected acceleration in inflation, and they will simply describe it as a transitory development. As a reminder, the Fed focuses now more on the labor market than price stability – and with employment still more than 8 million short of the pre-pandemic level, the Fed will likely maintain its dovish stance .Indeed, Fed Vice Chair Richard Clarida reiterated that the U.S. central bank is far away from tightening its monetary policy and confirmed that higher inflation than anticipated won’t alter the Fed’s course, as it would prove to be temporary:The economy remains a long way from our goals, and it is likely to take some time for substantial further progress to be achieved (…) This is one data point, as was the labor report (...) We have been saying for some time that reopening the economy would put some upward pressure on prices.What’s more, although traders focused initially on the implications of higher inflation on the federal funds rate and the U.S. monetary policy, in the longer-term gold should come into more favor as a hedge against higher inflation or even stagflation – after all, in April, we witnessed surprisingly disappointing nonfarm payrolls and a surge in inflation. Of course, single reports are not enough, but inflationary risks have definitely risen recently, and we could see some portfolio rebalancing toward gold later this year.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

When Euphoria Ends, Gold Bulls Enter the Scene

Finance Press Release Finance Press Release 14.05.2021 16:11
Market participants are very optimistic about an economic recovery, but these positive expectations may be exaggerated. The end of this euphoria should be good for gold.The optimism about the pace of economic recovery from the 2020 recession is growing. The analysts race in upward revisions of GDP growth in the coming quarters. For example, the IMF – in the April 2021 edition of the World Economic Outlook – expects at the moment that the US economic output will increase by 6.4% this year, compared to the 5.1% growth forecasted in January.The euphoric mood has some justification, of course. The vaccination is progressing, entrepreneurs are used to operating under sanitary restrictions, economies are reopening and governments are spending like crazy. At the same time, central banks are maintaining ultra-easy monetary policy , keeping financial conditions loose.Furthermore, some economic data is consistent with strong rebounding, especially in manufacturing. For instance, the IHS Markit U.S. Manufacturing PMI Index posted 59.1 in March, up from 58.6 in February – being the second-highest value on record since May 2007 when data collection began. Services are also recovering vigorously, as the IHS Markit US Services PMI Index registered 60.4 in March, up from 59.8 in February. It’s the fastest rate of growth since July 2014.Now, the question is how strong the current boom is and how long it is going to last. Well, there is no need to argue that we will see a few strong quarters of GDP growth in the US and other countries. But for me, the euphoria is exaggerated. You see, the current recovery is not surprising at all. As the Great Lockdown plunged the world into a deep economic crisis , the Great Unlocking is boosting the global economy.And there is the base effect . There was a low base in 2020, so the seemingly impressive recovery in 2020 is partially merely a statistical phenomenon. Let’s illustrate this effect. In Q2 2020, the real GDP plunged from $19,020 to $17,302 trillion or 9.03%year-over-year, as the chart below shows.However, the rebound to the pre-recession level would imply the jump of 9.93%, almost one percentage higher! This is how the math works: when you divide a numerator by a smaller denominator, you get a greater percentage. So, it would be alarming if the recovery were not strong after one of the deepest crises in history.Another issue that makes me more skeptical than most pundits is the fact that the main reason behind economic growth upgrades is massive fiscal stimulus . Uncle Sam injected more than 13 percent of the GDP in government spending (only in 2020) that ballooned the fiscal deficits . Meanwhile, the Fed widened its balance sheet by almost $4 trillion. So, it would be quite strange if we didn’t see impressive numbers in light of such unprecedented inflows of monetary and fiscal liquidity. But it means that the impressive recovery in statistics is driven, at least partially, by soaring money supply and public debt (see the chart below).And my three last concerns. First, the job recovery is more sluggish than the GDP recovery . The unemployment rate is still above the pre-pandemic level, while the labor force participation stands significantly below the level seen in February 2020. Second, a full return to normal life will occur if vaccines remain effective. But there is a tail risk of new variants of the virus, which could even be vaccine-resistant . Third, history teaches us that when the pandemic ends, social unrest may reemerge. After all, the epidemic left us with deepening inequalities and rising living costs.What does it all mean for the gold market? Well, the market euphoria about the economic rebound is negative for gold. We have already seen how these optimistic expectations freed the risk appetite and boosted economic confidence, sending bond yields higher, but gold prices lower.However, just as the doomsday scenarios created in the midst of the epidemic were excessively negative, the current ones seem to be too optimistic. I expect that with the year progressing, these expectations will soften or shift to the medium-term, which could be more challenging. After all, the low base effect will disappear, and both the monetary and fiscal policies will have declining marginal utility. At the same time, there will be an increased risk of high inflation , debt crisis , stock market correction or even financial crisis . After all, the current levels of stock indices are partially caused not by fundamentals, but by the elevating risk tolerance thanks to the central banks standing behind most asset classes ready to intervene in case of problems.It seems that this process has already begun and the reopening trade is waning. Economic confidence is very high, so the room for further increases is limited. The low-hanging fruits have been collected, and when economies reopen fully, the structural problems will become more important than the cyclical ones. Investors have started to worry about higher inflation, especially because the Fed remains unmoved by rising prices. A jobless recovery would prolong the Fed’s very dovish stance , as the US central bank focuses now on full employment rather than on stable prices. All these factors explain why the price of gold has been rebounding recently, and why it can rise even further later this year , although the fact that the US enjoys a stronger recovery than the EU or Japan could support the interest rates and the greenback , creating some downward pressure on the yellow metal.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
US Industry Shows Strength as Inflation Expectations Decline

Stock Market Attempts To Break Support Channel – What's Next?

Chris Vermeulen Chris Vermeulen 19.05.2021 22:12
The recent price volatility related to the surprise Jobs number, nearly ten days ago, and the potential for inflationary price trends extended beyond the Fed expectations has created a unique type of sideways price rotation on the INDU chart.  This recent price volatility suggests the markets are struggling to identify future trend bias as well as attempting to shake out certain traders and investors (running stops).Additionally, the downside price trend we've recently seen in Lumber, breaking away from the continued rally mode, and Bitcoin, breaking downward nearly -54% from recent highs, suggests a broad market “washout” is taking place.  How far will this trend continue?  Will the US stock market break downward like Bitcoin has recently done?  Let's take a look at the charts and try to answer some of these questions.Before we continue exploring charts, I suggest readers review some of my recent research posts relating to this potential downward price trend in the US/Global markets, including: Are We Days Away From Potential Gann/Fibonacci Price Peak? (March 17, 2021); Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues (April 25, 2021); and Are Apple, Tesla, and Bitcoin Entering a Technical ‘Excess Phase Top’? Should You Be In Cash Right Now? Part II (May 15, 2021).Expect Continued Price Volatility As Markets Attempt To Establish New TrendsWe'll start by exploring the Dow Jones Industrial Average Daily chart, below, and the first thing we want to highlight is the extended upward (YELLOW) price trend channel.  This upward sloping price channel has been in force since the March 2020 COVID-19 lows.  It was confirmed by the November 2020 lows and retested in March 2021.  Typically, when price channels this strongly over an extended period of time, the price channel becomes a psychological barrier/wall for price trending.  When it is breached or broken, price trends often react moderately aggressively – with excessive volatility.Over the past 10+ days, near the right edge of this chart, we can see that price has started to react with much higher volatility and broad sideways price trends.  It appears the INDU chart has entered a new phase of market price activity – moving away from moderately low volatility bullish trending and into much higher volatility sideways rotation.  We attribute this to a shift in how traders and investors perceive the future actions of the US Fed and how risks are suddenly much more prominent than they were 3+ weeks ago.  It appears the “rally euphoria” has ended and traders are starting to adjust expectations related to a slower economic reflation of the global economy.Depending on how traders and investors perceive the future growth opportunities in the US and global markets, as well as how new strains of the COVID-19 virus may continue to disrupt global economies, we may see a fairly big change in trend throughout the rest of 2021 and possibly into 2020.  In our opinion, the tremendous rally phase that took place between October 2020 and now has been anchored on the perception that the COVID vaccines would allow for an almost immediate and nearly full economic recovery attempt.  Now, after we are seeing various new strains of COVID ravage India, Europe, Africa and parts of South-East Asia, expectations may be changing quickly.Everything Hinges On How Price Reacts Near The YELLOW Support Channel LineThis Weekly Dow Jones Industrial Average chart highlights the same upward sloping price trend from the March 2020 COVID-19 lows.  It also shows the start of the broad market rotation over the past three weeks and highlights three key “standout lows” that we interpret as critical support levels.  These support levels are at $32,090, 30,575, and $29,875.Sign up for my free trading newsletter so you don’t miss the next opportunity!If we continue to see downward price trending which breaks through the YELLOW upward sloping price channel line, it is very likely that price will continue to move lower while attempting to find new support near these standout low price levels.  This suggests any breakdown in the INDU may prompt a further -5% to -11% downside price move.If the recent price rotation stalls and continues to find support above the YELLOW upward sloping price channel line, then we expect the US markets to transition into a sideways bottoming formation which will prompt another rally attempt in the near future. Everything hinges on what happens over the next few weeks related to this key YELLOW upward sloping price channel.What this means for traders and Investors is that certain market sectors are still posed for strength and growth over the next 6 to 12 months.  The recent downside price volatility suggests broad market concerns related to a continued reflation trade are certainly evident in how the markets are trending.  Yet, within this potential sideways rotation, there are sectors and trends that still present very real opportunities for profits. If the major US indexes find support above the YELLOW price channel line and attempt to mount another rally, traders need to be prepared for this potential opportunity in the markets – attempting to target the best and strongest market sectors.As I just mentioned, everything hinges on what happens over the next few days and weeks related to the YELLOW price support channel.  One way or another, the markets are either going to attempt to rally higher while this support channel holds or a bigger breakdown event may take place as price breaks below the support channel and attempts to find new, lower, support.Learn why we moved our BAN clients into CASH over a week ago and learn how we use the BAN trading strategy to manage risks and take advantage of the strongest market sectors. Please take a minute to learn about our BAN Trader Pro strategy and how it can help you identify and trade better sector setups.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.Enjoy the rest of your day!!
Gold Approaches $1,900 amid FOMC Minutes and Crypto Sell-Off

Gold Approaches $1,900 amid FOMC Minutes and Crypto Sell-Off

Finance Press Release Finance Press Release 20.05.2021 16:31
The latest FOMC minutes were dovish, especially in light of the recent increase in inflation and elevated asset valuations. What does it mean for gold?Yesterday, the FOMC published minutes from its last meeting in April . They’ve shown two things doing that: first, that some of the central bankers are worried about the inflation and elevated asset valuations; and, second, that the Fed is going to remain dovish despite all these concerns .Indeed, some FOMC participants noted that the demand for labor had started to put some upward pressure on wages. Moreover, a number of them pointed out the protracted supply disruptions and the insufficient pre-emptive hawkish reaction from the Fed as potentially inflationary factors:A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year. They noted that in some industries, supply chain disruptions appeared to be more persistent than originally anticipated and reportedly had led to higher input costs. (…)A couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.When it comes to financial stability and asset valuations, several FOMC members pointed out elevated risk appetite and very low credit spreads . And certain participants noted dangers related to the low interest rates and excessive risk-taking: if the risk appetite fades, the asset prices could decline with potentially harmful consequences for the financial sector and the economy:Regarding asset valuations, several participants noted that risk appetite in capital markets was elevated, as equity valuations had risen further, IPO activity remained high, and risk spreads on corporate bonds were at the bottom of their historical distribution. A couple of participants remarked that, should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy. A number of participants commented on valuation pressures being somewhat elevated in the housing market. Some participants mentioned the potential risks to the financial system stemming from the activities of hedge funds and other leveraged investors, commenting on the limited visibility into the activities of these entities or on the prudential risk-management practices of dealers’ prime-brokerage businesses. Some participants highlighted potential vulnerabilities in other parts of the financial system, including run-prone investment funds in short-term funding and credit markets. Various participants commented on the prolonged period of low interest rates and highly accommodative financial market conditions and the possibility for these conditions to lead to reach-for-yield behavior that could raise financial stability risks.So, given all these concerns about financial stability and higher inflation, the Fed should send some hawkish signals, right? Not at all! On the contrary, the US central bank reiterated its ultra-dovish stance, justifying that the economy was far from achieving full employment.Participants commented on the continued improvement in labor market conditions in recent months. Job gains in the March employment report were strong, and the unemployment rate fell to 6.0 percent. Even so, participants judged that the economy was far from achieving the Committee's broad-based and inclusive maximum-employment goal. Payroll employment was 8.4 million jobs below its pre-pandemic level. Some participants noted that the labor market recovery continued to be uneven across demographic and income groups and across sectors.After all, higher inflation would only be transitory, and when these short-term factors fade, inflation will decrease:In their comments about inflation, participants anticipated that inflation as measured by the 12-month change of the PCE price index would move above 2 percent in the near term as very low readings from early in the pandemic fall out of the calculation. In addition, increases in oil prices were expected to pass through to consumer energy prices. Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease. Looking further ahead, participants expected inflation to be at levels consistent with achieving the Committee's objectives over time (…) Despite the expected short-run fluctuations in measured inflation, many participants commented that various measures of longer-term inflation expectations remained well anchored at levels broadly consistent with achieving the Committee's longer-run goals.Yeah, sure, but why should we believe the Fed if they were surprised by the CPI readings in April? They anticipated inflation moving above 2 percent, and meanwhile the CPI inflation surged above 4 percent as the chart below shows!But at least inflation expectations remain well-anchored, don’t they? Well, not exactly . As the chart below shows, the market-based expectations of inflation have significantly risen recently. Similarly, the University of Michigan’s index that measures inflation expectations for the next five years rose from 2.7 percent in April to 3.1 percent in May – it’s the highest level in a decade.Interestingly, even the Fed staff doesn’t believe in transitory inflation. After all, they forecast that the actual GDP would be above its potential until 2022-2023:With the boost to growth from continued reductions in social distancing assumed to fade after 2021, GDP growth was expected to step down in 2022 and 2023. However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over much of this period, leading to a decline in the unemployment rate to historically low levels.Economics 101 teaches us that when the economy operates above its potential, it implies overheating and inflation that reflects more fundamental or lasting factors than base effects and short-term supply disruptions.Implications for GoldWhat do the recent FOMC minutes imply for gold? Well, the Fed remaining dovish despite all the inflationary risks and elevated asset valuations (many assets plunged yesterday, especially cryptocurrencies) is bullish for gold .Sure, a few members became ready to start talking about tapering the quantitative easing and tightening the monetary policy :A number of participants suggested that if the economy continued to make rapid progress toward the (policy-setting) Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.However, “a number” is not “the majority”, so we shouldn’t expect such a discussion in the mainstream anytime soon, especially in light of the disappointing April nonfarm payrolls and recent declines in the stock market.The price of gold rose yesterday, approaching $1,900. It might have been due to the FOMC minutes, but also the sell-off in cryptocurrencies and the following outflow of money from them into old, good gold.Given these shifts in the marketplace, it seems that Fed’s worries about fading risk appetite were justified. If risk appetite wanes further, gold should shine as a safe-haven asset .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Rising Cost Pressure - What Will Mr. Powell and Mr. Gold Do?

Finance Press Release Finance Press Release 25.05.2021 15:53
The latest IHS Markit Flash U.S. Composite PMI signals very fast economic expansion – but also strong inflationary pressure. Good news for gold, overall.On Friday, the recent IHS Markit Flash U.S. Composite PMI has been published . There are two pieces of news for gold - one good and one bad. Let’s start with the negative information. The report signals an unprecedentedly fast expansion in business activity in May . Indeed, the composite index surge from 63.5 in April to 68.1 this month established a new record.More importantly, both manufacturing and services sectors’ markets have shown strong growth. The former index rose from 60.5 in April to 61.5 in May (also a new record), while the PMI for services soared from 64.7 to 70.1, marking the sharpest jump since data collection for the series began in October 2009. Such an unprecedentedly fast acceleration of growth in the PMI signals strong economic growth, which is clearly bad news for the safe-havens such as gold (however, strong economic growth is something everyone expected, so it might be already priced in as well).The good information is, however, that at least part of this growth is inflationary , as soaring demand greatly improved the firm’s pricing power. And the input costs have surged, leading to the sharpest rise in output charges since the end of the Great Recession when the data collection started:Increasing cost burdens continued to be keenly felt, as the rate of input price inflation soared to a new survey record high, often linked to a further marked worsening of supplier performance. Commonly noted were increases in PPE, fuel, metals and freight costs amid significant supplier delays.The steep rise in costs fed through to the sharpest increase in output charges since data collection began in October 2009, with record rates of inflation registered for both goods and services as soaring demand boosted firms’ pricing power.What’s more, wage inflation is also coming , as the report says that entrepreneurs couldn’t find people to fill the vacancies. It seems that generous benefits introduced in a response to the recession discouraged people from searching for work, and slack in the labor market is greatly exaggerated.Although a solid expansion in staffing levels eased some pressure on backlogs in the service sector, manufacturers registered the fastest rise in work-in-hand on record amid raw material shortages. While job creation was again seen in the goods-producing sector, the rise was the slowest for five months, linked in part to difficulties filling vacancies.In other words, the post-pandemic natural employment will be simply lower because of the institutional changes, not because of weak aggregate demand. How would you explain otherwise the fact that entrepreneurs cannot find workers amid employment lower by 8 million when compared to the pre-pandemic level?But this is good news for gold. The subdued employment would be a great excuse for the Fed to say that there is slack in the labor market, the aggregate demand is weak, and the economy remains fragile and below the Fed’s targets, so it still needs easy monetary conditions. Hence, Powell would stay passive and would even avoid starting to think about tapering the quantitative easing and hiking interest rates . Dovish Fed and rising prices would support gold prices.So, high inflation (see the chart below) should remain with us for a while . Indeed, manufacturers worry that raw material shortages “could extend through 2021” and producer price inflation translates into consumer price inflation with a certain lag. Anyway, high inflation won’t disappear in one or two months, but it could last for at least a few or even several months if the Fed remains ultra- dovish and people lose confidence in the central bank’s ability to maintain price stability.If this scenario happens, inflation expectations could cease to be “well-anchored” and inflation could get out of control, just as it did during stagflation in the 1970s. Chris Williamson, Chief Business Economist at IHS Markit, seems to agree with me in his comment on the report:The May survey also brings further concerns in relation to inflation, however, as the growth surge continued to result in ever-higher prices. Average selling prices for goods and services are both rising at unprecedented rates, which will feed through to higher consumer inflation in coming months.Implications for GoldWhat does the recent IHS Markit Flash U.S. Composite PMI imply for gold? Well, strong economic activity is bad for gold, given that it usually shines during bad times. However, the yellow metal doesn’t like genuine, real growth, but it performs pretty well during inflationary periods . Of course, part of the growth comes from the reopening of the economies, but there is no doubt that this expansion is accompanied by high inflation.I’ve been warning readers since the very early part of the pandemic that the following expansion will be more inflationary than the previous one. This is excellent news for gold, which entered a bear market in 2011-2013 (i.e., when the former expansion settled down). What’s important here is that the economic environment is more inflationary (we have easier monetary and fiscal policies ) while at the same time the Fed is highly tolerant of high inflation – this is a truly dangerous cocktail, but it could be quite tasty for gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Stock Market Cycles Tipping The Balance From Euphoria To Complacency - Is Gold Setting Up For A Rally Above $2000 Again?

Chris Vermeulen Chris Vermeulen 27.05.2021 01:28
Gold has set up a very strong confluence pattern across multiple foreign currencies recently.  This upside confluence pattern suggests that Gold has now moved into a much stronger bullish price phase compared to various currency pairs.  This upside move in precious metals aligns very well with my broad market cycle phase research. I urge traders/investors to start paying attention as we transition into this new longer-term cycle phase.Recently, my team and I published a series of articles related to these longer-term cycle phases and how they related to the current market trends.  The biggest concept we want to highlight is that we've transitioned away from an Appreciation cycle phase and into the early stages of a Depreciation cycle phase.  Often, near this type of transition, the global markets experience a unique type of Excess Phase Peak.  This type of price pattern happens because traders/investors are slower to identify the end of a trend and often attempt to continue the Thrill/Euphoric phase of the previous market trend – until the markets prove them wrong.You can review some of our most recent research posts about these topics here: US Dollar Breaks Below 90 - Continue To Confirm Depreciation Cycle Phase (May 23, 2021); Bitcoin Completes Phase #3 Of Excess Phase Top Pattern - What Next? (May 20, 2021) and; What To Expect - A Critical Breakout Warning For Gold, Silver & Miners Explained (May 18, 2021).Stock Market CyclesThe custom graphic shown below highlights the phases of typical market trends through various stages of market trends.  My team and I believe we have crossed the peak level (or are very near to that crossover point) and have begun to move into the Complacency and Anxiety phases of the market trend.  As suggested, above,  the psychological process for traders/investors at this stage is to hope and plan for the never-ending bullish price trend while the reality of the market trend suggests a transition has already started taking place and the market phase has shifted.Our research suggests the last Appreciation phase in the market took place from mid/late 2010 to mid/late 2019.  That means we started a transition into a Depreciation cycle phase very near to the beginning of 2020.  Our belief that a moderate price rotation is pending within the markets stems from the excess phase rally that took place after the COVID-19 virus event.  We've witnessed the sideways price trend in precious metals over the past 8+ months which suggested that global traders were confident an economic recovery would take place (eventually).  Yet, the question before everyone is, as we move away from an Appreciation cycle phase and into a Depreciation cycle phase, what will that recovery look like?  Can we expect the recovery to be similar to levels seen in the previous Appreciation cycle phase?  Let's take a look at how these phases translated into trends in the past.Appreciation and Depreciation Cycle PhasesThe first Depreciation cycle phase (1983~1992) took place after an extended deflationary period where the debt to GDP was rather low comparatively. It also took place within a decade or so after the US moved away from the Gold Standard.  The strength in trending we saw in the US stock market was directly related to the decreasing interest rates and strong focus on credit/equities growth throughout that phase.The second Depreciation cycle phase (2001~2010) took place after the DOT COM rally prompted a huge boom cycle in equities and as a series of US/global events rocked the US economy.  First, the September 11, 2001 attack in New York, and second, by the engagement in the Iraq War.  Additionally, the US Fed was actively supporting the US economy after the 9/11 terrorist attacks, which prompted many American's to focus on supporting a stronger US economy.  This, in turn, prompted a huge rally in the housing market as banks and policies supported a large speculative rally (FOMO) in Real Estate.The current Depreciation cycle phase (2019~2027+) comes at a time where the US Fed has been actively supporting the US/global economy for more than 11 years and after an incredible rally in Real Estate and the US stock market.  Additionally, a new technology, Crypto currencies, has taken off throughout the world as an alternate, decentralized, asset class – somewhat similar to how the DOT COM rally took off. As we've seen this incredible rally in global equities, Cryptos, commodities and other assets over the past 7+ years, we believe the last Appreciation cycle phase is transitioning into an Excess Phase Peak (see the Euphoria/Complacency phases above), which may lead to some incredibly volatile price trends in the future.Sign up for my free trading newsletter so you don’t miss the next opportunity!You may be asking yourself, “how does this translate into precious metals cycles/trends?” after we've gone through such a longer-term past cycle phase review...The recent upside price trends in precious metals are indicative of two things; fear and demand.  First, the economic recovery and new technology are increasing demand for certain precious metals and rare earth elements (such as battery and other technology).  Second, the move in Gold and Silver recently is related to credit, debt, economic and cycle phase concerns.  As we've seen Bitcoin move dramatically lower and as we start to move into a sideways price trend in the US stock market, there is very real concern that the past price rally has reached an intermediate Excess Phase Peak.Please take a moment to learn about our BAN Trader Pro strategy and how it can help you identify stock market cycles, which phase we are in, and how that will lead us to trade better sector setups.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.Have a great day!!
Boosting Stimulus: A Look at Recent Developments and Market Impact

Gold Surpasses $1,900. What’s Next?

Finance Press Release Finance Press Release 27.05.2021 16:45
Gold surpassed $1,900 most recently – and it’s likely that the rally will continue for a while.Gold bulls have an opportunity to celebrate. As the chart below shows, the price of gold has been rising recently. And yesterday (May 26) it finally jumped above $1,900, which is an important psychological level.The question we should ask now is “what’s next?” Well, as the jokes go on, the price of gold will either go up or down. But in earnest, there are significant downside risks for the yellow metal. First of all, the Fed could overreact to rising inflation and increase real interest rates .However, these worries seem to be overblown. The Fed’s monetary policy is always asymmetrical, i.e., it eases its stance in response to recession more than it tightens it in response to inflation. The federal funds rate gets lower and stays at these low levels for longer, partially because of all the enormous indebtedness of the contemporary economy.The tapering is surely the risk that looms on the horizon. But the Fed will maintain its quantitative easing and zero-interest-rate policy for at least the rest of 2021. So, there is still room for gold to move further north , especially after the recent turmoil in the cryptocurrency market resulting in renewed confidence in gold as an attractive inflation hedge .After all, the US monetary policy is loose, and real interest rates are still in negative territory. The fiscal policy remains very easy, and the public debt is high. Inflation is huge and rising. And there is also an issue of depreciation of the greenback . The Fed’s easy stance, low interest rates and high inflation weaken the US dollar, supporting gold prices.Last but not least, the level of risk appetite/confidence in the Fed and the economy has already reached its peak, as the GDP has recovered with an unprecedentedly high pace of growth. In other words, the post- pandemic euphoria is behind us – now the harsh, inflationary reality sets in. Maybe we won’t repeat the 1970s stagflation , but inflation is probably more deeply embedded than the Fed thinks. And it seems that the markets are finally getting this idea, pushing some investors into gold’s warm and shiny embrace .Implications for GoldWhat does it all mean for gold prices? Well, recently two broad trends have dominated the markets: rising inflation expectations and rising economic confidence. In other words, market participants expected reflation . However, economic confidence has peaked, and now investors focus more on inflation. So, we are moving slowly from the reflation phase to the inflationary phase, which is beneficial for gold – if this trend continues, the yellow metal could continue its upward march.Every investor should remember one great historical pattern, basically as old as the Roman Empire. The money supply is first aggressively boosted with the excuse that “there is no inflation”. When upward pressure on prices becomes clear, that excuse transforms into “inflation is transitory” or into “the rise in inflation is caused by idiosyncratic factors”. Have you heard about Arthur Burns, the Fed Chair in the 1970s and the predecessor of Paul Volcker ? As Stephen Roach notes on him:Over the next few years, he [Burns] periodically uncovered similar idiosyncratic developments affecting the prices of mobile homes, used cars, children’s toys, even women’s jewelry (gold mania, he dubbed it); he also raised questions about homeownership costs, which accounted for another 16% of the CPI. Take them all out, he insisted!Finally, the officials admit that there is inflation, but they blame it on speculators and other external, unfavorable or even hostile factors. To be clear, I’m not predicting hyperinflation or even double-digit inflation in the US, but recent economic reports suggest that upward price pressure could be more lasting than the Fed and the pundits believe.So, inflation could remain elevated for a while , especially given that the description of Burns downplaying it is worryingly similar to the current Fed’s stance under Powell . As Stephen Roach points out, the current size of fiscal and monetary stimuli is unprecedented, especially taking into account the pace of the recovery:Today, the federal funds rate is currently more than 2.5 percentage points below the inflation rate. Now, add open-ended quantitative easing – some $120 billion per month injected into frothy financial markets – and the largest fiscal stimulus in post-World War II history. All of this is occurring precisely when a post-pandemic boom is absorbing slack capacity at an unprecedented rate. This policy gambit is in a league of its own.Indeed, but gold loves chess, gambits included. After all, chess is a royal game, while gold is a royal metal!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Will Gold Shine Under Bidenomics?

Finance Press Release Finance Press Release 28.05.2021 17:46
Bidenomics is a big departure from sound economics. But when reason sleeps, gold fortunes are born.Biden’s triumph in the presidential election does not just mean that a new man lives in the White House. It actually implies a fundamental shift in economic policy . Some analysts even see Biden’s agenda as a decisive break with neoliberalism or “Washington consensus”.You see, in the old orthodoxy, most economists trusted in markets, argued for privatization, deregulation, and liberalization. Taxes and social benefits should be low and don’t discourage work and investments. The governments should run balanced budgets, avoiding large and permanent fiscal deficits , while central banks should hike interest rates to prevent inflation from running out of control.The focus was on scarcity and limited supply. The economy was believed to operate generally at potential, so the key factors to fast economic growth were structural reforms and adequate supply-side policy to strengthen incentives to work and invest. Governments shouldn’t run fiscal deficits as they could crowd out private investments, and they shouldn’t stimulate the demand as it would misallocate resources and could overheat the economy, leading to inflation. The monetary policy was better suited to occasionally fight economic crises .How much has changed! Now, the focus is on slack and the demand side of the economy. The growth is held by chronic lack of demand – this is the key tenet of Keynesian economics, the hypothesis of secular stagnation, and the Modern Monetary Theory – so, governments and central banks should continuously stimulate the economy through easy monetary and fiscal policies . As real interest rates are low and demand is weak, rising public debt is not a problem. Inflation is not a problem either; after all, if there is always slack in the economy which operates below its full potential, there is practically no risk of inflation.Indeed, Biden has pushed the American Rescue Plan Act of $1.9 trillion (or about 9%of the GDP ) without presenting any plan of longer-term deficit reduction. And additional huge government expenditures are coming with Biden’s infrastructure plan. It seems that no one is interested any longer in how the government is going to pay for its spending and obligations, or in long-term consequences of practically unprecedentedly large fiscal deficits (see the chart below). Interest rates are low, so let’s live like there’s no tomorrow!Another notable example is, of course, the Fed’s new monetary framework. The US central bank has ultimately disregarded the idea of the Philips curve and the natural rate of unemployment . There is no level of employment that could boost the inflation rate, so there is no need for any preventive actions. What really counts is the actual inflation rate, not the expected one. The central bank shouldn’t fight with symmetrical deviations from the economy’s long-term path determined by technological progress and other supply-side factors any longer, but only with shortfalls from the full employment.So, what does Bidenomics (and Powellomics) imply for the gold market? Well, Biden is not the first politician who thinks that there are no economic limits to his ideas. But the pandemic and the economic crisis, the environment of ultra-low interest rates, and the fact that the Democratic base has shifted further to the left implies that Bidenomics may become a radical departure from sound economics. However, a crazy idea that “borrow & spend without a limit” is the key to prosperity is positive for the gold market , as the yellow metal is a safe-haven asset and a hedge against insane economic policies.What is important here is the fact that we have actually tested this approach. In 1960, just like today, the Keynesian economists who dominated in the mainstream (and politicians who trusted them) thought that the main task of economic policy is to actively and permanently stimulate aggregate demand. The result was stagflation in the 1970s, as it turned out that economies may overheat as well. Gold shined then, so it should also benefit today from similarly unsound economic ideas and policies.So far, the pace of economic recovery has been fast, while the inflation rate has remained limited. But this may change quickly when people stop trusting that the Fed and the government will swiftly take action to contain inflation if it breaks out. However, given the current mindset and macroeconomic ideas, how probable is it that the policymakers will accept substantial interest rate hikes, cuts in spending, and probably also a recession when faced with 1970s-style inflation? Not very likely, indeed. Hence, if inflation continues to rise, while the Fed remains ultra- dovish , inflationary expectations may become unanchored, and inflation may get out of control taking gold with it on a wild journey north.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Intraday Market Analysis – USD Needs Further Support

John Benjamin John Benjamin 31.05.2021 10:28
USDCHF rebounds from daily supportThe US dollar popped up after April’s core personal consumption expenditure rose by 3.1%.The pair has bounced off 0.8930, a key support on the daily chart. Momentum above the psychological level of 0.9000 is a sign of strong conviction from the buy-side. A break above 0.9045 may reverse the bearish sentiment and open the door to the daily resistance at 0.9090.As the RSI has overshot above 80, buyers might show caution in chasing after green candles. 0.8970 would be the first support in case of a pullback.EURGBP struggles to find supportSterling climbed after the BoE commented it may look at discussing rate hikes if the economy continues to improve.The euro has given up all recent gains after the pair broke below 0.8620. This is a reminder that the pair is still in a wide consolidation range between the base of the rebound (0.8480) and the key daily resistance (0.8720).The RSI is rising back from the oversold territory. 0.8560 may turn out to be temporary support if sentiment deteriorates. A pullback is likely to meet stiff selling pressure near 0.8640.CADJPY surges towards a 3-year highThe Japanese yen is still licking its wounds after both CPI and the unemployment rate fell short of expectations.The loonie has been trading in the 89.60-90.70 range to consolidate its gains. Last week’s pop caught the short side by surprise.Stop-losses and momentum buying exacerbated the rally. This confirmed that buyers are still in control of the price action despite recent attempts to break lower.There is a chance of a brief retracement towards 90.30 to cool off the RSI. January 2018’s high at 91.50 would be the next target.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Biden Proposes $6 Trillion Budget. Will Money Flow Into Gold?

Finance Press Release Finance Press Release 01.06.2021 16:02
Biden proposes $6 trillion of government spending in the 2022 fiscal year. This continuation of ultra-loose fiscal policy could support gold in the long run.On Friday (May 28), the White House presented the President’s budget for the 2022 fiscal year that starts on October 1, 2021. Biden trumped Trump and proposed $6 trillion, over one trillion more than Trump in his last year’s proposal for $4.8 trillion. Furthermore, POTUS wants to raise government outlays to up to $8.2 trillion by 2031.According to the White House, the proposed fiscal agenda will further increase the total federal debt-to-GDP ratio , from the current 129.1% to 136.9% by 2031. Meanwhile, the federal debt held by the public is estimated to rise from the current 100.7% to 108.5% of the GDP. The current level of the US public debt compared to the size of the economy is presented in the chart below.Despite the increase, Janet Yellen , Treasury Secretary, said that “it is a fiscally responsible program”. Yeah, right. Of course, it’s true that real interest rates are very low, and therefore the debt service costs are bearable; but the interest rates could go up one day. And even when the bond yields are low, there is still the crowding out effect and other negative consequences, as higher government expenditures imply higher taxes and fewer resources for the private sector. Last but not least, the GDP has practically returned to the pre-pandemic level, so such big fiscal programs are clearly excessive and could add to inflationary pressure.Implications for GoldWhat does the budget for the next fiscal year mean for gold prices? Well, although Trump was trumped in the last elections, trumpism is still doing well. Here I’m referring to the fact that Trump started to balloon the government spending and fiscal deficits well before the pandemic . Then the coronavirus hit and the fiscal policy became even looser. And now President Biden raises the stake, widening the budget deficit and public debt despite the recovery from the economic crisis .In the short term, it doesn’t have to be good news for gold. This is because big deficits and federal debt could exert upward pressure on the Treasury yields, resulting in higher interest rates, which would suppress the price of gold.Also of importance is the fact that the 2021 fiscal year was a period with an unprecedented size of the fiscal stimulus. So, although Trump proposed ‘only’ $4.8 trillion of government spending and almost $1 trillion of deficit, the actual numbers were much bigger: $7.2 and $3.7 trillion, respectively. In contrast, Biden’s proposal sees the budget deficit worth ‘only’ $1.8 trillion. In relative terms, the fiscal deficit is projected to decline from the current 16.7% to 7.8%.Of course, the actual numbers will probably be bigger than the White House’s projections. But still, when compared to the previous year, the fiscal policy will become tighter – on a relative basis. However, the fiscal policy will remain ultra-loose; the fiscal deficits are never assumed to decline below $1.3 trillion or 4.2 percent of the GDP, and the public debt is projected to reach a level not seen since World War II.However, the Fed is ready to intervene if the interest rates increase too much. And, at some point, the current ‘debt elephant’ will become too big to pretend it’s not present in the room. The current policy mix of ultra-loose monetary policy and ultra-loose fiscal policy (despite the economic recovery) is unprecedented and raises the risk of a debt crisis in the more distant future. It seems that some policymakers are starting to notice that, as they switched their narrative from “debt is no problem” to “we have to pay for it through raising corporate taxes”. We can see that even in the White House’s document, as it factors in an increase in the corporate tax rate from 21% to 28%.Hence, the continuation of the US’s irresponsible fiscal policy could add to the positive momentum in the gold space, especially while taking into consideration that all these new social and infrastructure programs arrive during a period of economic expansion and inflationary pressure. So, the era of big government (with bigger government expenditures and fiscal deficits) and higher inflation is back. It could be, thus, an era of shining gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
US Industry Shows Strength as Inflation Expectations Decline

Reversals, Inflation, and Scares of Any Kind

Monica Kingsley Monica Kingsley 02.06.2021 15:59
S&P 500 stumbled in its upward run again, but has it been decisively so? VIX has risen, the put/call ratio as well – but that‘s little more than white noise, for nothing has dramatically changed in the markets. We‘re chopping along without advance clues either way – unless you look at inflation expectations and Treasury yields. The Jun 10 CPI reading is ahead:(…) While I think that the red hot CPI inflation would die down a little (i.e. not keep rising ever as steeply as was the case with Wednesday‘s data) once the year on year base to compare it against normalizes, a permanently elevated plateau of high and rising inflation would be a reality for more than foreseeable future simply because the Fed would be as behind as Arthur Burns was in fighting the 1970s inflation, and upward price pressures in the job market pressures would kick in.The much awaited Jun 10 CPI readings would likely come on the hotter side of the spectrum, but would be part and parcel of a continued move to a higher inflation environment where commodities‘ pressures are amplified by job market ones – not that the distortions and disincentives to work wouldn‘t be there.The Treasury market‘s lull only means that inflation trades have been dialed back somewhat, but haven‘t been broken. As I wrote on May 27, so far it‘s only the precious metals that are relentlessly calling the Fed‘s bluff – by rising almost in a straight line. And when you thought the transitory or permanently elevated inflation debate couldn‘t get any more ridiculous, there comes the Dudley dove talking how transitory could become permanent – it‘s almost as miraculous as being half pregnant.Seriously, it‘s a testament to the Fed communication‘s success that the transitory story has been swallowed hook, line and sinker to this degree. We‘re getting a temporary reprieve but the cost-push inflation isn‘t going away. At the same time, we‘re in a reflationary period before inflation starts biting noticeably more. How close before the wheels come off, and would that come from inflation or growth worries? There are two distinct possibilities: GDP growth and its projections start sputtering, or inflation (including inflation expectations) don‘t come down nearly enough as much as the transient camp believes. I‘m in the latter camp.Timing is everything, though. Any growth scare wouldn‘t materialize before we „discover“ that inflation isn‘t really going away. Add the job market pressures entering the fray – discussed on May 19 – you‘ll sooner take fright over persistent inflation hitting the growth prospects than seeing them downgraded first. No deflationary scare quarters ahead either, sorry – 2021 will be another good year in stocks.This also speaks against a sharp (think 10% and higher) correction in the stock market over the summer, and likewise affects commodities. These would employ a wait and see approach, with precious metals sticking out like a sore finger. Forget the taper dog and pony show. When the Fed is forced to move, precious metals win – either way.Gold and silver aren‘t giving up gained ground – why should they? Miners have awaken from their slumber, and the greater risk in this bull market run is being out rather than in. The new long consolidation will get an upside breakout in its own due time, across the board.Crude oil sharply rose on the OPEC pronouncements (U.S. can‘t possibly act as a swing producer anymore – the policy supporting that isn‘t there anymore), and the upswing has been supported by the oil index. The daily chart remains bullish, and the pressure to go higher I discussed yesterday, is being resolved.Bitcoin and Ethereum are likewise preparing to overcome yesterday‘s modest retracement of prior rebound. The charts in both speak in favor of taking on the red resistance line discussed yesterday. The strength to go higher is there.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq OutlookS&P 500 daily reversal leaves much to be desired, and neither the Nasdaq 100 is plunging.Credit MarketsHigh yield corporate bonds scored gains while the quality debt instruments treaded water. That‘s an inconclusive, yet mildly positive sign for the risk-on trades.Technology and ValueIt‘s only select tech segments that are being hit here. I‘m leaning towards microrotations rather than huge red flag explanation.Gold, Silver and MinersA sideways and volatile day in gold, where rising miners and not throwing a spanner in the works nominal yields, are casting their verdict.The copper to 10-year Treasury yield ratio is the only one to bring about (short-term) wrinkles.No worries though as the copper chart is by no means in a crash mode – nominal yields retreat isn‘t over, and would power both metals higher (as it interplays with inflation). Aka real rates rule.Crude OilCrude oil offered a one-way session, and its upswing was amply supported by volume. Oil companies didn‘t lag behind – the next upswing is underway with not too many resistances ahead.SummaryS&P 500 is getting ready for another upside breakout – it‘s a question of time.Gold and silver remain well bid and technically primed to go higher, let alone fundamentally.The upleg is very far from over, and the only watchout in the short run is the copper to 10-year yield ratio.Crude oil consolidation is over, and odds favor a new upleg to proceed.Bitcoin and Ethereum are consolidating, but rebound continuation is more probable.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Gold Seems Stuck at $1900. Are Inflationary Fears Exaggerated?

Finance Press Release Finance Press Release 03.06.2021 14:06
Gold is fluctuating around $1,900 amid a sideways trend in real interest rates and a decline in inflationary expectations.Gold surpassed $1,900 at the end of May. However, it has been struggling since then to rally decisively above this level. Instead, the price of the yellow metal has been oscillating around this level, as the chart below shows.Why is that and what does it mean for the gold market? Well, on the one hand, we could say that the yellow metal is in a normal pause during an uptrend. However, the lack of more aggressive price appreciation amid high inflation , ultra-loose monetary policy , depreciating dollar and super easy fiscal policy could be seen as disturbing.From a fundamental perspective, the timid price behavior of gold could be explained by a sideways trend in real interest rates . Their lackluster movement, in turn, could have resulted from the downward correction in long-term inflationary expectations (blue line), as the chart below shows.Investors’ inflation bets have lost some steam, starting a debate about whether expectations of inflation have already peaked. After all, it might be the case that inflation fears have been exaggerated and investors have overshot, as they often do. In addition, some of the FOMC members signaled that it could be a good idea to begin discussing tapering quantitative easing .If this was really the peak of inflationary expectations, the news would be bad for gold, which is seen as a hedge against inflation . However, many analysts expect that inflation expectations have room for further rises and could reach levels close to 3%.Implications for GoldWhat does all this mean for the price of gold? Well, market-based inflationary expectations have recently declined, dragging the real interest down and restraining gold from moving upward. However, inflation worries won’t disappear anytime soon . After all, the PCE inflation , the favorite Fed’s inflation gauge, jumped 3.1% in April, beating the expectations. Even in the Eurozone, where price pressure is usually lower than in the US, the inflation rate rose from 1.6% to 2% in May, which is the highest level since October 2018.Furthermore, consumer-based inflationary expectations jumped from 3.4% to 4.6% in May, so inflation worries are still around. They could increase the uncertainty and increase the safe-haven demand for gold . Although higher uncertainty could limit some spending, we should remember that households have accumulated more than $2 trillion in excess savings during the pandemic . So, inflation may be more lasting than many policymakers and pundits believe . If inflation doesn’t turn out to be merely transitory, gold could gain some fuel for the upward march.Higher inflation implies weakened purchasing power of the dollar. If we add America’s growing public debt problem to constantly rising prices, the downward trend in the greenback could continue, supporting the price of gold.Of course, only time will tell whether or not current inflation worries are justified. However, please note that the economy didn’t collapse last year due to a lack of liquidity but due to the Great Lockdown . The implication is that the Fed has increased money supply well above demand , injecting a lot of liquidity into the system. The expansion in the Fed’s balance sheet and commercial banks’ credit (after all, this time not only the monetary base has jumped, but the broad money supply as well), combined with the Great Unlocking, generated a great inflationary wave that lifted all asset classes: from commodities, through equities, to cryptocurrencies , including crypto-memes like Dogecoin.And it might be just a coincidence, but the Fed introduced a new monetary regime that is prone to higher inflation also during the last year. A cynical interpretation could be that the Fed knew very well that its last year’s monetary expansion could result in higher inflation.Hence, inflationary expectations didn’t have to peak, and they could increase later this year supporting gold prices . Having said that, if inflation really turns out to be only transitory, the current situation wouldn’t be much different from 2011-2013, when gold prices struggled amid expectations of monetary policy tightening . Of course, the Fed is even more dovish now under Powell than under Bernanke or Yellen , but higher inflation would be an additional argument for a bull market in gold .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

When Markets Get Scared and Reverse

Monica Kingsley Monica Kingsley 03.06.2021 16:09
S&P 500 wasted another good opportunity to rise – one where the credit markets were largely aligned. Is it a sign of upcoming tremors that the 500-strong index couldn‘t defend the daily gains? Commodities weren‘t under pressure, the dollar wasn‘t surging (looking at the closing prices), precious metals did well, and even lumber enjoyed a white candle again.Inflation expectations retreated, and so did Treasury yields – what‘s holding stocks then? Neither uncertainty about the Fed policy, nor surging inflation cutting into P&L, nor crashing bonds – what we‘re seeing is run of the mill volatility as stocks move both into a structurally higher inflation environment, and await Fed moves which are much farther down the time line than the markets appreciate. Heck, even the option traders keep undergoing the earlier announced shift to complacency.Yes, the taper talk has dialed back the inflation trades to a degree, but hasn‘t knocked them off in the least. In a reflation, both stocks and commodities do well, and we‘re still far away from worrying about weakening GDP growth rates (today‘s ADP and unemployment data are a good proof thereof) – in my view, worries about inflation not retreating nearly enough during this Treasury market lull (taking up this summer) would come into the picture first.Reopening trades aren‘t over, the housing market activity (housing starts, new home sales) has slowed down a little while XLRE keeps running, financials remain as strong as value (yes, there is more juice in that trade still), and no mad rush into tech (growth) is underway. Capacity utilization isn‘t at the top of the pre-corona range exactly, and oil prices (these serve as additional tax, a drag on the economy) aren‘t biting nearly enough. The job market isn‘t at the strongest either, and the hours worked don‘t match prior extremes either. Last but not least, global supply chains haven‘t entirely recovered to meet the reopenings-boosted demand.Plenty of extra reasons why I talked the transitory vs. getting structurally elevated (unanchored) inflation yesteerday:(…) The Treasury market‘s lull only means that inflation trades have been dialed back somewhat, but haven‘t been broken. As I wrote on May 27, so far it‘s only the precious metals that are relentlessly calling the Fed‘s bluff – by rising almost in a straight line. And when you thought the transitory or permanently elevated inflation debate couldn‘t get any more ridiculous, there comes the Dudley dove talking how transitory could become permanent – it‘s almost as miraculous as being half pregnant.Seriously, it‘s a testament to the Fed communication‘s success that the transitory story has been swallowed hook, line and sinker to this degree. We‘re getting a temporary reprieve but the cost-push inflation isn‘t going away. At the same time, we‘re in a reflationary period before inflation starts biting noticeably more. How close before the wheels come off, and would that come from inflation or growth worries? There are two distinct possibilities: GDP growth and its projections start sputtering, or inflation (including inflation expectations) don‘t come down nearly enough as much as the transient camp believes. I‘m in the latter camp.Timing is everything, though. Any growth scare wouldn‘t materialize before we „discover“ that inflation isn‘t really going away. Add the job market pressures entering the fray – discussed on May 19 – you‘ll sooner take fright over persistent inflation hitting the growth prospects than seeing them downgraded first. No deflationary scare quarters ahead either, sorry – 2021 will be another good year in stocks.This also speaks against a sharp (think 10% and higher) correction in the stock market over the summer, and likewise affects commodities. These would employ a wait and see approach, with precious metals sticking out like a sore finger. Forget the taper dog and pony show. When the Fed is forced to move, precious metals win – either way.In other words, we‘re undergoing stock market and commodities‘ gyrations as we‘re settling into the new reality of higher inflation including expectations, which isn‘t yet putting the stock market to test. Neither the 10-year yield rising way over 2.5% would derail the sttock bull run – but the associated volatility would be keenly felt already at the 2% level. We‘re very far from that, meaning I am not worried about the stock market leadership baton passing exlusively over to tech (growth) stocks. That would equal panic.Gold ascent is slowing down, but miners don‘t support a lasting downswing. Volatility around the $1,900 mark, yes but a plunge on stock market downswing / Fed tapering / commodities reversal, no – as if any of the three actually applied. After initial selling when liquidity needs to be raised no matter where from (the AMC saga coming soon to a theater near you), gold is likely to recover, and faster than silver (the white metal would suffer from any marked slowdown in inflation, I must add).Crude oil rose strongly once again, and so did the oil index – the energy sector ETF is doing great. The daily chart still remains bullish, offering no clues of a reversal, let alone of a correction.Bitcoin and Ethereum recovery goes on, and I‘m looking for more base building before the bulls take on and overcome the red ETH resistance line featured on Tuesday. Patience is needed before more confidence returns into the sector.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 OutlookS&P 500 and Nasdaq wavering in latest days is an eloquent warning sign that the bears will try their luck – and they would ultimately fail.Credit MarketsHigh yield corporate bonds actually outperformed the rest of the crowd, making the SPX stumble harder to stomach.Technology and ValueTechnology had a mixed day while value remains unyielding. It‘s true that the daily leadership was with XLK yesterday, but that still remains white noise as value isn‘t yet down and out. Not by a long shot.Gold, Silver and MinersGold rose a little stronger than the miners yesterday, but the move in either shouldn‘t be overrated. While the yellow metal can‘t break higher with confidence now, its dips remain to be bought.The copper to 10-year Treasury yield ratio stabilized yesterday, but the swing in either copper or long-dated Treasuries spells no short-term calm.Bitcoin and EthereumBitcoin and Ethereum charts are solidly recovering, but some breather next wouldn‘t surprise me. Overall, the stage remains set to go higher.SummaryWhat doesn‘t go up, must come down – but look for any S&P 500 downside to be largely bought when the dust settles.Gold and silver remain well bid, but the slowing pace of gains means that the bears might come out from hibernation – only to be repelled though. Look for copper to stabilize as a precondition, with miners not falling through the floor.Crude oil odds favor a new upleg to proceed, but unless commodities and metals rebound, black gold would get vulnerable.Bitcoin and Ethereum are peeking higher, and rebound continuation is more probable than other scenarios.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
New York Climate Week: A Call for Urgent and Collective Climate Action

The Return of Inflation. Can Gold Withstand the Dark Side?

Finance Press Release Finance Press Release 04.06.2021 12:49
Inflation broke into the economy violently. It’s a destructive, dark force. But gold can resist it, being after all a much stronger asset than Anakin Skywalker.Last month, I wrote that “inflation is knock, knock, knockin’ on golden door”. I was wrong. Inflation didn’t knock, it broke down the door! Indeed, as the chart below shows, the core CPI surged 3%, while the overall CPI annual rate soared 4.2% in April – this is twice the Fed’s target!Now, the question is whether this elevated inflation will turn out to be just “transitory”, as the Fed and the pundits claim, or become more permanent. On the one hand, given that April-May 2020 was the worst phase of the pandemic with the deepest price declines, the current high inflation readings are perfectly understandable, and we could see lower numbers later this year.On the other hand, inflation may be higher and/or more persistent than many analysts believe . After all, the April reading came as a shock for them and even for the top US central bankers. For example, Richard Clarida, the Fed Vice-Chair, said: “I was surprised”. It shows that there is more in high inflation than just the base effect. Indeed, the CPI index with February 2020, i.e., the last pre-pandemic month as a base, has jumped 3.1% so far – lower but still significantly above the Fed’s target.It shouldn’t be surprising given the surge in the broad money supply and increase in fiscal transfers to citizens. Incomes are higher and people are ready to spend their money. Stronger demand met with supply shortages, so the prices rose. And what is important, the increases are widespread: from commodities to used cars and houses.However, there are a few important upside risks to inflation . First, a rise in wages. Although employment is far from the pre-epidemic level, entrepreneurs struggle to find workers. Therefore, they could be forced to increase wages to pull employees away from generous government benefits. If passed on, higher input costs would translate into higher consumer prices.Second, a housing boom . Rising housing prices show that inflationary pressure is something more than just CPI inflation, and all this could drive shelter inflation higher. More importantly, though, as shelter dominates in the CPI basket, the official inflation would rise as a result.Third, an increase in inflationary expectations. In May, the University of Michigan index that gauges near-term inflation expectations surged to 4.6%from 3.4%in April. What’s important, the index that measures inflation expectations for the next five years also rose – from 2.7% in April to 3.1% in May, which is the highest level in a decade. As the chart below shows, the market-based inflation expectations have also been surging recently.This is a very important development, potentially even a game-changer. You see, inflation remained low for years partially because Americans didn’t expect high inflation. They used to see persistent inflation as a thing of the past. They had strong confidence in the Fed , believing that the US central bank would quickly intervene to prevent inflation.However, that belief could go away now . The Fed’s new monetary framework and officials’ speeches clearly indicate that the US central bank has become more tolerant of higher inflation. The Fed has returned – just like in the 1970s – to focus on full employment and its “shortfalls” instead of deviations, forgetting that economies can become too hot as well as too cold. Given the dominance of doves in the Fed – but also in the Treasury with Yellen as a Secretary – one can reasonably doubt whether or not the US central bank is ready to hike the federal funds rate in response to higher inflation. Just like in the years before the Great Stagflation , the Fed could decide that it’s better to live with inflation than bear the pain of combating it.More importantly, such a fight would be challenging now, as the public debt is a few times higher.As the chart below shows, the federal debt held by the public is now 100% of the GDP , four times larger than throughout the 1970s. Hence, the increase in interest rates would amplify fiscal deficits even more. To paint the perspective, April’s core CPI was the highest since 1982, when the Fed was trying to control inflation, and interest rates were double-digit. So, the government would be obliged to cut its expenditures, while the climate is rather to spend as much money as possible. Therefore, the Fed is under strong pressure not to tighten its monetary policy .What does all this mean for the gold market? Well, when people question the willingness or ability of the government and central bank to tame inflation, they expect it to go higher, which increases the actual inflation and make it more persistent. Such a negative surprise, with inflation expectations unanchored, would make prices rise abruptly – but also the demand for gold as an inflation hedge would increase . Given the widespread economic repercussions and elevated uncertainty triggered by higher inflation – which is one of the biggest threats to this economic cycle – gold could gain as a safe-haven asset .Of course, gold is not a perfect inflation hedge in the short term. If interest rates increase or the Fed tightens monetary conditions in response to inflation, gold may struggle. Actually, a start of normalization of the monetary policy could push gold downward, just as it happened in 2011.However, given the current pretending that “there is no inflation” by the Fed, it’s likely that the US central bank won’t react promptly, remaining behind the curve. The delay in tightening could de-anchor inflationary expectations and trigger an inflationary spiral, pushing real interest rates down but also gold prices up.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Another Taper Mirage Comes and Goes

Monica Kingsley Monica Kingsley 04.06.2021 16:01
S&P 500 succumbed to the bears – partially. The ADP figures lifted the dollar and put Treasury yields under pressure, which equals encouraging speculation that taper is coming. Rest assured, it isn‘t in practice, apart from communication exercises otherwise known as forward guidance, all happening during a week when the Fed injected $32bn into the markets. Today‘s non-farm payrolls can modestly boost that fata morgana, but it‘s a taper bridge too far. They can‘t meaningfully tighten, and they know it – look what happened last time Powell emphatically insisted (Dec 2018).But the market reaction is what matters, and yesterday‘s session in (not only tech) stocks, precious metals and commodities, highlights the degree to which the transitory inflation story has been swallowed hook, line and sinker, dialing back the inflation commodity trades meaningfully (sideways). Should the transition into a higher inflation environment be appreciated for what it is, the dive in gold, silver and copper wouldn‘t have been that steep. On the other hand, the sharpest moves tend to be the countertrend ones – yes, I‘m still of the opinion that the current reflationary period with reopening rush (more juice left in value over growth trades) is conducive to higher stock market and commodity prices. Including precious metals, naturally.For more proof, look at the barely budging inflation expectations (TIP:TLT rather than RINF which got spooked a bit too much – similarly to tech yesterday), and have a read of my extensive Wednesday and Thursday analyses, well worth it each but best when combined for your daily dose of countenance in the markets. What‘s new now, are the taper starting date (as if the discussion was initiated in the first place at all) considerations:(…) what‘s holding stocks then? Neither uncertainty about the Fed policy, nor surging inflation cutting into P&L, nor crashing bonds – what we‘re seeing is run of the mill volatility as stocks move both into a structurally higher inflation environment, and await Fed moves which are much farther down the time line than the markets appreciate. Heck, even the option traders keep undergoing the earlier announced shift to complacency.Yes, the taper talk has dialed back the inflation trades to a degree, but hasn‘t knocked them off in the least. In a reflation, both stocks and commodities do well, and we‘re still far away from worrying about weakening GDP growth rates (today‘s ADP and unemployment data are a good proof thereof) – in my view, worries about inflation not retreating nearly enough during this Treasury market lull (taking up this summer) would come into the picture first.Moreover, the taper talk and market reaction to it, are exposing a key vulnerability in the Treasury market. The Fed is well aware that its ample support is a condition sine qua non, and that rising yields (rising real rates) aren‘t in the largest borrower and real economy‘s interests. Financial repression has to come into the picture, and that‘s one of the reasons why precious metals have been on a tear lately. We‘re also a long way from inflation breaking the back of stock market bulls:(…) we‘re undergoing stock market and commodities‘ gyrations as we‘re settling into the new reality of higher inflation including expectations, which isn‘t yet putting the stock market to test. Neither the 10-year yield rising way over 2.5% would derail the sttock bull run – but the associated volatility would be keenly felt already at the 2% level. We‘re very far from that, meaning I am not worried about the stock market leadership baton passing exlusively over to tech (growth) stocks. That would equal panic.Gold got spooked, and the PMs dive bore signs of panic, but like it or not, the weakness has been consistent with the commodities retreat. While gold is the ultimate currency, real money in the JPM‘s own admission, it‘s sensitive to real rates moves – and expectations thereof. These took a hit yesterday, and it was as I warned earlier, more readily apparent in silver. Quoting yesterday‘s comment at my own site:(…) ADP data came in positive, dollar rose and so did yields as the market (incorrectly) thinks that taper is closer. And tomorrow’s strength in non-farm payrolls would only reinforce that. The truth is though that the Fed can’t withdraw some liquidity, raise rates or even slow down the monetary expansion. Gold and commodities beyond copper (not oil though) are reacting, and miners don’t offer clues that this daily setback would be over. The taper smoke and mirrors game got a new lease on life, but the inflation trades aren’t over.In other words, we have a way to go in stabilizing the metals, but these prices would prove a buying opportunity – not a selling one.Oil is a different cup of tea – rising but not yet exerting enough pressure to sink the GDP growth story. Elevated, but supported by the oil index. A breather next would not be unimaginable – it would be welcome.Cryptos got hit by the broken heart emoji Elon tweet, well what can I say about such tweets. Doge to the moon next? The bulls need to regain footing, and rather fast.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq OutlookS&P 500 took a smaller hit than Nasdaq, and the volume in either isn‘t consistent with a reversal storyline. As said yesterday, I am looking for the bears to ultimately fail.Credit MarketsHigh yield corporate bonds intraday reversal is equally worrying as the long-term Treasuries dive to its daily lows.Technology and ValueTechnology including $NYFANG overreacted in my view – but value continued to cheer the rise in yields. That‘s one more reason why stocks aren‘t dipping anywhere far.Gold, Silver and MinersGold plunge doesn‘t reveal weakness through miners leading to the downside, and while respectable, the volume could have been bigger. The plunge seems overdone when nominal yields are concerned.Silver and copper have been the missing pieces in the puzzle of gold‘s steep move yesterday. Note however that the copper to 10-year Treasury yield ratio isn‘t breaking down in any way.Bitcoin and EthereumBitcoin and Ethereum plunged on the headline, but would likely recover as the unrealistic taper expectations are dialed back.SummaryS&P 500 bears served us the raid yesterday, but I am looking for a swift recovery of the ground lost. The taper myth isn‘t simply to be taken seriously.Gold and silver remain well bid, and not even yesterday‘s plunge was a chart game changer. Dips remain to be bought, and the bull run is very far from over. As I wrote yesterday, the bears might come out from hibernation – only to be repelled though. Look for copper to stabilize as a precondition, with miners not falling through the floor.Crude oil is relentlessly rising, and as long as other commodities join in the party, a meaningful correction isn‘t favored. In other words, today‘s price action won‘t almost definitely see one.Bitcoin and Ethereum aren‘t as weak as the chart would suggest, and once yet another Elon disappointment is worked off (high hopes, disappointment, new hopes – wash, rinse, repeat), no thinking about thinking about talking taper would support the crypto bulls.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

Where Next in the Taper Drama

Monica Kingsley Monica Kingsley 07.06.2021 12:02
S&P 500 duly rose on the little weaker than expected non-farm payrolls as the taper theme (start of discussions moving to serious contemplation) got dialed back. The Fed‘s forward guidance manouevers can continue, and inflation trades breathed a sigh of relief. Encouragingly for the S&P 500, reflation trades weren‘t affected as evidenced by value stocks rising again regardles of the long-dated Treasuries action.Of course, volatility welcomed the retreat in yields as much as technology did – but the option traders aren‘t buying into the upswing nearly as much. Practically speaking, Friday‘s moves in the dollar, some commodities and precious metals, reversed a great chunk of the preceding day‘s bigger swings. The guessing game on the Fed‘s taper goes on, and the upcoming CPI readings won‘t add to the markets‘ peace. Most likely, fuelling the sense of taper urgency as the inflation figures won‘t be coming on the low side. Add in the job market slowly catching fire, and you‘ll understand why I have been calling for months for elevated inflation readings.It‘s the market reaction what matters – what is at stake, is how much the Fed is still expected to fight inflation, whether it plays ostrich in toeing the transitory line much to the satisfaction or dismay of the marketplace. As I wrote on Friday:(…) Should the transition into a higher inflation environment be appreciated for what it is, the dive in gold, silver and copper wouldn‘t have been that steep. On the other hand, the sharpest moves tend to be the countertrend ones – yes, I‘m still of the opinion that the current reflationary period with reopening rush (more juice left in value over growth trades) is conducive to higher stock market and commodity prices. Including precious metals, naturally.Moreover, the taper talk (...is…) exposing a key vulnerability in the Treasury market. The Fed is well aware that its ample support is a condition sine qua non, and that rising yields (rising real rates) aren‘t in the largest borrower and real economy‘s interests. Financial repression has to come into the picture, and that‘s one of the reasons why precious metals have been on a tear lately. We‘re also a long way from inflation breaking the back of stock market bulls.So stocks have taken the risk-on cue, amply reversing Thursday‘s losses – but the same can‘t be said about gold, silver or copper. Precious metals pared Thursday‘s setback to a good degree only, and these words apply to miners as well. Not that conducive conditions hadn‘t been in place to facilitate more gains, but the optimism over Fed moves being dialed back to a more distant future, is more guarded. Understandably so when Janet Yellen would welcome higher inflation and higher rates as per her G7 meeting proclamation. The bulls aren‘t out of the woods – all eyes on nominal yields, inflation expectations and the dollar now.Oil is refusing to budge, and the oil index doesn‘t favor too much downside. Should commodities stall again though, oil would be no exception – in spite of its next upleg getting underway after the long sideways consolidation (with a bullish slant, however).Cryptos can‘t get their mojo, but aren‘t falling through the floor either. The consolidation goes on, and bulls better step in and overcome Thursday‘s highs for the recovery to continue. That‘s not unimaginable for Ethereum or Cardano, though – it‘s only that Bitcoin is acting really weak relatively speaking.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq OutlookBoth S&P 500 and Nasdaq 100 grew sharply, and if you look under the hood, the signals are positive. If only higher volume confirmed them.Credit MarketsHigh yield corporate bonds met an intraday setback, which is part of the short-term watchouts.Technology and ValueTechnology including $NYFANG dialed back Thursday‘s overreaction – just as was likely, and the value stocks confirming in the upswing stretching over to high beta plays in tech as well, are a positive sign for Monday.Gold, Silver and MinersIt‘s nice that gold recovered from yet another dive but, its white candle could have closed nearer to the daily highs – it‘s concerning that it didn‘t, and the same applies to miners. The return of strength has been suboptimal when nominal rates solely are assessed. Of course, that ties in to the retreat in inflation expectations being the other side of the coin, coupled with rising rates expectation underpinning the dollar.Silver recovered stronger than copper, but the red metal‘s ratio enriched with 10-year Treasury yield view, could have driven stronger gold gains. However, silver‘s outperformance isn‘t worrying here.Crude OilCrude oil is continuing its low volatility rise, volume isn‘t drying up, and the oil index supports the upleg to proceed.SummaryS&P 500 bears got on the defensive again, and credit markets give the bulls benefit of the doubt. How will another attempt at all time highs unfold, is to be closely observed for signs of strength / weakness.Gold and silver remarkably rebounded, but could have recouped even more of Thursday‘s losses. It remains a (short-term) red flag they didn‘t. The bulls haven‘t proved themselves entirely, which can be explained by yields, inflation and dollar.dynamics.Crude oil bullish chart message hasn‘t weakened one iota on Friday, and black gold‘s upleg remains underway – while a meaningful correction isn‘t favored, taking a breather would be healthy.Bitcoin and Ethereum meek recovery, bottom searching after Elon‘s broken heart emoji tweet goes on, and the Miami show didn‘t help much. The longer prices stay this low without steadily attempting a march higher, the more vulnerable they are.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

US Government Stimulus Went Wrong. How Will Gold React?

Finance Press Release Finance Press Release 08.06.2021 19:18
Gold may benefit from government money flooding households and people less willing to work – as evidenced by the low value of nonfarm payrolls.According to the recent BLS Employment Situation Report , total nonfarm payrolls rose by 559,000 in May, following disappointing increases of 278,000 in April, as the chart below shows. What is disturbing here is that this time the US economy also added significantly fewer jobs than expected – economists surveyed by MarketWatch forecasted 671,000 additions. Moreover, labor force participation and employment-population rates were little changed, remaining significantly below the pre-pandemic levels.On the positive side, the unemployment rate edged down from 6.1% to 5.8%, as the chart above shows. However, even though the number of unemployed people fell considerably from its recent high in April 2020, it remains well above the level seen before the Covid-19 epidemic. In February 2020, 5.7 million Americans were without a job, while now it is 9.3 million. It means that the labor market is still far from recovery . Or, actually, given all the generous unemployment benefit supplements introduced during the pandemic, the new equilibrium unemployment rate may be simply higher than in the past.Implications for GoldAnyway, the new employment situation report is positive for the gold market . May nonfarm payrolls report is disappointingly weak and missed expectations for the second month in a row. It means that the April report wasn’t just an accident, and the US labor market has to face some serious problems.The sad truth is that Americans don’t want to work. Even the decline in the unemployment rate was caused to a large extent by the drop in the labor participation rate, as workers just left the labor market. This fact explains why employers report worker shortages despite an army of a few million unemployed people. According to the recent Fed’s Beige Book , many companies have difficulties finding new employees, so they had to boost their wages to attract candidates:It remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople (…) A growing number of firms offered signing bonuses and increased starting wages to attract and retain workers.Even the BLS admitted that “rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages”. Indeed, wage increases accelerated to 2% in May year-over-year, up from just 0.4% in the previous month. They could add to the inflationary pressure or reduce companies’ margins and investments, reducing the pace of real economic growth. So, the jump in wages seems to be good for gold . Hence, the yellow metal could continue its long-term upward trend after the recent pullback below $1,900 (see the chart below).Additionally, disappointing employment situation news will postpone tapering of the Fed’s quantitative easing . The weak nonfarm payrolls report gives a strong hand to the doves within the FOMC who don’t want to even start talking about talking about tapering. Hence, the US monetary policy should remain very dovish , with the real interest rates at ultra-low levels supporting gold prices . Indeed, the expected path of the federal funds rate , derived from the Fed Fund futures , has declined from the prior levels.In other words, although May nonfarm payrolls report is an improvement when compared to April, the level of employment is still 7.6 million below its pre-pandemic peak. So, even if we see further improvement later this year (which is likely, as many states end the unemployment benefit supplements this month), it will take several more months to fully eliminate the slack in the labor market. The implication is clear: precious metals investors shouldn’t bet on a change in the Fed’s stance anytime soon. And as the yellow metal is very sensitive to tapering fears, this is positive news for gold bulls.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Risk Off Markets, Seriously?

Monica Kingsley Monica Kingsley 09.06.2021 15:55
S&P 500 hard at work erasing that early bear raid, but the bulls managed to stage a comeback. Yet, the risk off atmosphere is palpable in bonds, rallying as if no inflation were on the horizon. Or as if no taper was coming.Rest assured, it isn‘t:(…) The dollar doesn‘t look to be turning around – Thursday‘s upswing has been erased, but look for the greenback to reflexively rise when confronted with „taper now“ prospects. But is the Fed ready to welcome higher rates, and work towards them? I look for plenty of assurances that the support would be very gradually withdrawn so as not to affect the markets…Toothless compromises for public consumption fit into the picture greatly too...Look, the $6T boondoggle is dead on arrival, and won‘t turn out nearly so in the end and fast enough, which would take a little pressure off the still hot inflation trades. Commodities, followed by silver, and finally gold would feel (by extent of reaction) the short-term pinch, but remember that inflation fires on two engines - and the job market one is arriving:(…) Commodities exerting cost-push influence, and job market pressures, would be a one-two punch to the transitory inflation arguments. Deflationary shock simply isn‘t likely at the moment – the market will more probably find out the Fed isn‘t as serious about taper as it pretends to be – the ostrich pose. Or we might be cushioned into a higher inflation environment actually (thank you, Janet), being told it‘s for our own good.Gold is more vulnerable than silver to a scared dump, and the miners weakness shows it won‘t be smooth sailing for the yellow metal either. Copper consolidation doesn‘t add to the certainty, but the red metal‘s bullish bias is clearly there, both in the short run and medium-term as I had been stating months ago that you can‘t (attempt to) build a green economy without copper, silver, or nickel, among much else. It‘s massive and we‘re in a commodities superbull already – and the lumber arguments (not confirmed by timber weakness as I remarked) can be easily refuted by the $CRB index performance.Crude oil daily consolidation didn‘t reach far, again – and the oil index still doesn‘t support deeper downside that could be bought. Yes, the days of higher oil are still coming, for black gold prices can‘t wreck the real economy just yet. Last but not least, the U.S. is no longer a swing producer (wildcard for prices) as the rig count shows.Bitcoin is showing rare daily strength, testing the late May lows while both Ethereum and Cardano are way weaker. The Bitcoin upswing is thus likely to run out of steam.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq OutlookS&P 500 again defended gained ground, and Nasdaq 100 again rose a little – the 500-strong index rally is still likely to be driven by the tech sector in the very short term.Credit MarketsHigh yield corporate bonds‘black candle looks ominously – but only for the short term. Quality debt instruments rising is a sign of rush to safety and uncertainty ahead of tomorrow‘s CPI. It‘s though still a bullish sign that HYG rose.Technology and ValueTechnology including $NYFANG had a relatively good day, but the black candle is a sign of unease in stocks, underlined by value.Gold, Silver and MinersGold held up quite well once again, but the miners repeated non-confirmation is a loud warning, in spite of the nominal yields retreat. Rebalancing in safety trades ahead.Silver isn‘t flashing warning signs of outperformance in any way, and it‘s the copper chart indecision that‘s soundly affecting the red metal‘s ratio to the 10-year Treasury yield. So far so good.Crude OilCrude oil bulls had to defend against meek premarket selling yesterday, and the volume still supports them.SummaryS&P 500 tremors will likely be resolved to the upside when the CPI and other dust settles, and I am not looking for a Nasdaq disappointment either.Gold and silver are likely to repel the onslaught miners‘ weakness is signalling, with the white metal getting under pressure more than the yellow one – at a time when GDX and HUI would attempt to throw off the PMs bulls.Crude oil chart remains bullish, and dips are likely to be bought. Getting stretched but no real breather on the horizon just yet (apart from CPI).Bitcoin upswing better be viewed with a healthy dose of suspicion while Ethereum keeps sideways consolidating.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Will Gold Rally Continue in the Upcoming Months?

Finance Press Release Finance Press Release 10.06.2021 15:25
May was certainly a positive month for the yellow metal. Gold could keep its momentum later this year, but a lot depends on the Fed and inflation.We left May in the rearview mirror, and as the chart below shows, it was the second positive month in a row for the yellow metal. Gold rose 7% last month – this is 12.3% since the local bottom on March 31, 2021 . The jump was driven mainly by inflation fears, a weak greenback and a decrease in real interest rates .Hence, I was right: the second quarter has been so far much better for the shiny metal than the first one, in which it declined by 11%. Gold even jumped temporarily above $1,900 at the turn of May and June. Since then, it has been fluctuating around this level. All this means that the yellow metal fully recovered its Q1 losses, finishing last month virtually flat year-to-date.Now, the key question is: what’s next for gold? Outlooks are, as always, divided. Some analysts point out that gold’s struggle to move decisively north above $1,900 amid all the increase in the money supply , public debt and inflation is disturbing and has bearish implications for the future. For instance, the French bank Société Générale still believes that we will see $2,000 per ounce by the end of the year, but its conviction towards this forecast has weakened. I have to admit – the lack of a stronger rally in gold is something I also worry about.But on the other hand, some believe that gold is still in a long-term bull trend . For instance, the World Gold Council , in its latest Gold Market Commentary , points out that sentiment towards gold became more bullish in May , as net positioning on COMEX futures rose to its highest level since February. Moreover, not only gold ETFs recorded their first monthly inflows since January 2021, but also the highest ones since September 2020.Furthermore , the WGC’s 2021 Central Bank Gold Reserves Survey reveals a slightly stronger conviction towards gold , as there is a growing recognition among central banks of gold’s performance during periods of economic crises . The report notes that 21% of central banks expect to increase their gold reserves within the next year (value relatively unchanged from last year’s survey) and that no central bank expects to sell gold this year – down from 4% in 2020.Also, Commerzbank remains bullish on gold despite recent volatility . Although the German bank expects that the Fed will start tapering its quantitative easing by the fourth quarter, it’s forecasting rising inflation. As a result, nominal interest rates will stay below the inflation rate leaving real bond yields significantly below zero.Implications for GoldWhat does all this imply for the gold market? Well, there are both downside and upside risks for gold in the future . Possible drawbacks are the unwinding of the Fed’s bond-buying program and the new tightening cycle . Strengthening expectations of asset purchases tapering and normalization of the ultra-dovish monetary policy could trigger an increase in the interest rates and outflows from the gold market.To the other group of factors, I would include higher inflation. After all, we have never seen such coexistence of dovish monetary policy and easy fiscal policy . Not surprisingly, investors started to worry about record-breaking inflation. As the chart below shows, market-based probabilities derived from options (calculated by the Minneapolis Fed , which computes probabilities from option prices) show that the previous expectations of the CPI annual rate above 3% over five years have significantly increased recently. Higher inflation would increase demand for gold as an inflation hedge and decrease real interest rates, supporting gold prices.So, gold’s future depends on the Fed’s reaction to rising inflation , or whether or not investors will focus on nominal and real interest rates. If the US central bank stays behind the inflation curve, real interest rates will stay in the negative territory, supporting the price of gold. However, if the Fed tightens its monetary policy decisively, or if investors focus on rising nominal bond yields in a response to inflation, the yellow metal may go down.To that point, the most recent changes in the Fed’s framework, comments from the FOMC members and disappointing data about the US labor market suggest that we are far away from any serious tightening. So, gold has room for moving higher.Having said that, it seems that gold needs more negative events (or even a kind of financial crisis ) to rally decisively further . So far, the US economy remains in the boom phase and higher inflation doesn’t seem to significantly disrupt the functioning of the markets. Perhaps gold bulls will have to wait a bit longer until we move from reflation to stagflation . Today’s report on inflation and upcoming FOMC meeting could provide more clues about gold’s future – stay tuned!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Inflation Storm Coming

Monica Kingsley Monica Kingsley 10.06.2021 16:15
S&P 500 going nowhere, repelling selling pressure concentrated to value as tech mostly defended the daily ground – that‘s a fair summary of the stock market going into today‘s CPI. VIX rising and the put/call ratio as complacent as can be, are signs of quite some moves ahead.I won‘t go into the transitory vs. getting permanently elevated inflation arguments too much today – see them covered in detail namely on Jun 08, Jun 02, May 27, May 17, and May 12.Over the coming month – most likely starting with the CPI readings for September – the low yearly base effect and reopening rush would be sufficiently history. But the strained and disrupted supply chains beyond microchips, high cost base as evidenced by the CRB index lumping many commodities together, difficulties hiring, and not exactly labor market friendly policies a la minimum wages, would deliver a one-two punch to the transitory concepts – because transitory as in temporary, brings up to my mind J. M. Keynes „In the long run, we‘re all dead“ quote.As I‘ve stated on Twitter, commodities with silver, then gold are more in danger than stocks for today - but even these would eventually recover. The Fed isn‘t in a position to do more than token steps to satisfy public consumption, so keep in mind the big picture regarding taper, rate raising, or even the (market declared so historically) balance sheet contraction success on a lasting basis (we‘re not in the post WWII era when the U.S. could grow its way out of debt as in the „City on the Hill“ inspirational speech decades later.(…) The dollar doesn‘t look to be turning around – Thursday‘s upswing has been erased, but look for the greenback to reflexively rise when confronted with „taper now“ prospects. But is the Fed ready to welcome higher rates, and work towards them? I look for plenty of assurances that the support would be very gradually withdrawn so as not to affect the markets…Toothless compromises for public consumption fit into the picture greatly too...Look, the $6T boondoggle is dead on arrival, and won‘t turn out nearly so in the end and fast enough, which would take a little pressure off the still hot inflation trades. Commodities, followed by silver, and finally gold would feel (by extent of reaction) the short-term pinch, but remember that inflation fires on two engines - and the job market one is arriving.Commodities exerting cost-push influence, and job market pressures, would be a one-two punch to the transitory inflation arguments. Deflationary shock simply isn‘t likely at the moment – the market will more probably find out the Fed isn‘t as serious about taper as it pretends to be – the ostrich pose. Or we might be cushioned into a higher inflation environment actually (thank you, Janet), being told it‘s for our own good.Gold is confirming yesterday mentioned point of being more vulnerable than silver to a scared dump, and the miners weakness still shows it won‘t be smooth sailing for the yellow metal either. And it isn‘t. Copper is worrying down even more, hinting that today‘s session will be far from a calm one in the bond arena. Remember though the big picture once again:(…) the red metal‘s bullish bias is clearly there, both in the short run and medium-term as I had been stating months ago that you can‘t (attempt to) build a green economy without copper, silver, or nickel, among much else. It‘s massive and we‘re in a commodities superbull already – and the lumber arguments (not confirmed by timber weakness as I remarked) can be easily refuted by the $CRB index performance.Crude oil would likely be among the more hesitant movers today, still consolidating.Bitcoin has shown rare daily strength yesterday – one that wasn‘t reflected universally in the crypto space. However impressive daily run, residual doubts remain, and Ethereum is still range bound.Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq OutlookS&P 500 again didn‘t move much, and neither did Nasdaq. Both calm and nervousness before today‘s CPI, likely to be resolved higher.Credit MarketsHigh yield corporate bonds‘ yet another black candle looks ominously – but only for the short term. Quality debt instruments rising is a sign of rush to safety and uncertainty ahead of CPI. As said yesterday too, it‘s though still a bullish sign that HYG rose.Technology and ValueTechnology including $NYFANG again had a relatively good day, and the unease shown by its black candle is to be seen foremost in value.Inflation ExpectationsThey‘re moving lower, but the TIP:TLT ratio isn‘t to be trusted even as the lull in yields remains on through the summer.Gold, Silver and MinersThe above is a picture of momentary stress to be reversed like a spring board, exactly in line with either of these two tweets before that happened: first on inflation, second on transitory vs. permanently elevated.Bitcoin and EthereumThe crypto bulls aren‘t out of the woods yet, but it‘s not unreasonable to expect the biting inflation to improve their stance.SummaryS&P 500 remains well positioned for further gains, and it paid off to wait through the premarket tremors in Nasdaq too.Gold and silver are well positioned to withstand the pressures, and the miners to invalidate their recent weakness.Crude oil would likely hitch a ride in a tight range on the bullish side, without sprinting.Bitcoin and Ethereum look to be entereing a wait and see session today – the bulls have much work ahead, not only in bringing Ethereum out of its sideways consolidation.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
New York Climate Week: A Call for Urgent and Collective Climate Action

Intraday Market Analysis – USD Fakes Rebound

FXMAG Team FXMAG Team 11.06.2021 09:53
USDCHF fails to bounce backThe US dollar surged after May’s core CPI rose by 3.8% yoy.The pair remained under pressure after it broke below the lower band of the consolidation range at 0.8930. An oversold RSI has led to a brief whipsaw, which has turned out to be more of an opportunity to sell into strength.Unless the greenback can lift the offers around the psychological level of 0.9000, the price could see another round of sell-off. February’s low at 0.8870 would be the next target should the pair dip below 0.8920.EURJPY capped by key resistanceThe euro weakened after the ECB maintained its accommodative monetary stance.The pair has so far kept its bullish bias following a rally above April 2018’s high at 133.48. The price action has bounced off 132.90, the base of a previous rally which also coincides with the 20-day moving average on the daily chart.133.80 is a major resistance, as its breach could clear the path for an extended rally above 134.However, a drop below the aforementioned congestion area may prolong the sideways actions towards 132.50.GER 30 seeks support on key daily levelThe DAX consolidates gains as investors weigh high valuation against the pace of recovery.On the daily chart, a bullish MA cross is a sign of acceleration in the rally after a six-week-long consolidation.The index is currently looking for support from the 20-day moving average (15475). Bullish sentiment remains strong as long as buyers hold above this key level. Failing that, 15350 would be the next line of defense.On the upside, a recovery to 15720 would bring in momentum players for a runaway rally.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

The FED Holds the Market. How Long Will It Last?

Finance Press Release Finance Press Release 11.06.2021 15:59
With investors discrediting fundamentals to follow the FED’s instruction, it seems everything relies now on a few people’s say-so.It's a Bird, It's a Plane, It's the FEDWith Jerome Powell, Chairman of the U.S. Federal Reserve (FED), donning his cape like Superman and his monetary crew akin to The Avengers, investors’ faith in the FED was on full display on Jun. 10. Case in point: with the headline Consumer Price Index (CPI) surging by 4.93% year-over-year (YoY) – the highest YoY percentage increase since 2008 – the bond, stock and currency markets barely flinched.The commodity PPI surged by 17.25% YoY in April. And if you exclude the 17.36% YoY jump in July 2008, it was the largest YoY percentage increase since December 1974. For context, the commodity PPI often leads the headline CPI and that’s why tracking the former’s movement is so important. Moreover, reconnecting with the green line implies a ~5.50% YoY percentage increase in the headline CPI.Please see below:And with the indicator proving quite prescient once again, the gap on the right side of the chart was nearly filled on Jun. 10.Furthermore, while investors continue to see the world through the FED’s X - Ray Vision, “base effects” are now the primary defense among the superhero’s supporters. However, as I’ve mentioned on several occasions, it’s important to remember that the core CPI increased by 0.74% month-over-month (MoM). And if you exclude April’s rise of 0.92% (which was only one month ago), it was the highest MoM percentage increase since 1982.Please see below:The FED Has Become Independent Thought’s KryptoniteOn top of that, with the YoY percentage change in the headline CPI running extremely hot, the real federal funds rate is now at its second-lowest level ever . For context, the federal funds rate is the overnight lending rate set by the FOMC, while the real federal funds rate is adjusted for inflation by subtracting the YoY percentage change in the headline CPI.Please see below:So how can we explain investors’ lack of prudence?Well, as Bloomberg eloquently put it on Jun. 10… Source: BloombergThus, with the FED mesmerizing investors and keeping them under its spell, market participants have determined that it’s easier to follow the FED rather than fight it. However, when screaming fundamentals are dismissed as irrelevant, it often ends badly for those who fail to heed the warnings. To that point, while the Producer Price Index (PPI) – which will be released on Jun. 15 – will provide important clues on the inflationary trajectory, Nordea’s trend model signals that YoY CPI prints still have plenty of room to run.Please see below:To explain, the light blue line above tracks the YoY percentage change in the headline CPI, while the dark blue line above tracks the projected YoY percentage change in Nordea’s trend model. If you analyze the right side of the chart, you can see that April and May’s prints were accurately forecasted. More importantly, though, with the dark blue line signaling that the headline CPI should rise by more than 7% YoY in the coming months, investors’ faith in the FED will be put to the test over the medium term.Likewise, even though the FED has become independent thought’s kryptonite, if investors dismiss the scorching inflationary summer, they’ll likely incur deeper burns in the fall.To explain, I wrote on Jun. 10:With the Jun. 15/16 policy meeting not leaving enough time for FED officials to “communicate very early, very often what we’re going to do” (spoken by Philadelphia FED President Patrick Harker) and the Jul. 27/28 policy meeting excluding a summary of the FED’s economic projections, either the Jackson Hole Economic Symposium (late August) or the Sep. 21/22 policy meeting is when the fireworks will likely begin.With the U.S. Bureau of Labor Statistics (BLS) revealing on Jun. 8 that U.S. job openings surged to an all-time high of 9.286 million – and came in well above the consensus estimate of 8.300 million – the only thing depressing the U.S. labor market are ill-advised enhanced unemployment benefits.Please see below:To explain, the red line above tracks U.S. nonfarm payrolls, while the green line above tracks U.S. job openings. If you analyze the relationship, you can see that the latter is often a strong predictor of the former. However, with enhanced unemployment benefits still in effect until mid-to-late June or early July (across ~25 states) – and nationwide until Sep. 6 (expected) – the shift likely won’t occur overnight. But once the benefits expire, U.S. nonfarm payrolls will likely spike in August (reflecting July’s data) and September (reflecting August’s data) and lift the U.S. 10-Year Treasury yield and the USD Index in the process.The bottom line? With a potential spike in the Shelter CPI likely to coincide with a major resurgence in the U.S. labor force, September has all of the necessary ingredients to force the FED’s hand .The ECB Is Not Reducing AnythingOn top of that, I warned that prophecies of the European Central Bank (ECB) reducing its bond-buying program in June were much more semblance than substance.I wrote on Apr. 27 :Recent whispers of the ECB tapering its bond-buying program are extremely premature. With the European economy still drastically underperforming the U.S., it’s actually more likely that the ECB increases the pace of its bond-buying program.And after the ECB released its monetary policy decision on Jun. 10, what was clear before now is the reality.Please see below: Source: ECBIn addition, ECB President Christine Lagarde said the following during her press conference:"The U.S. economic situation and the Euro Area economic situation are very different stories. The two economies are at different points in the recovery cycle. ""Any discussion about exit from the PEPP would be premature, too early, and it will come in due course, but certainly, for the moment it is too early and premature – simple as that.""Any kind of transition, exit, whatever you call it, has not been discussed"And although the ECB increased its Eurozone GDP growth, as well as inflation expectations, and Lagarde even said that “there was [a] debate on the pace of the purchase, on some of the analytical aspects of the use of our instruments,” she reiterated: Source: ReutersThe bottom line?While the EUR/USD remains materially overvalued, the ECB’s policy is not the only fundamental data point that supports this thesis. Case in point: it was a trifecta for Germany (Europe’s largest economy) on Jun. 9, with imports, exports, and consequently the German trade balance, all missing economists’ consensus estimate. To explain, exports rose by 0.30% MoM versus 0.5% expected, imports fell by 1.7% MoM versus a decline of 1.1% expected and the trade balance came in at €15.9 billion versus €16.3 billion expected.Please see below:The S&P 500 Is Losing MomentumFinally, while it may not be visible on the surface, the S&P 500’s momentum continues to decelerate. Even though the U.S. equity benchmark followed the ‘ don’t fight the FED’ mantra to another all-time high on Jun. 10, optimism is waning. Case in point: while the YoY percentage change in the FED’s balance sheet (released on Jun. 10) was roughly flat this week, the YoY percentage change in the S&P 500 continues to move lower. And with a summertime soirée likely the last “hurrah!” for the S&P 500 and the FED’s balance sheet – with all signs pointing to the latter tightening in September – a move lower for both variables will likely occur over the medium term.Please see below:The red line above tracks the YoY percentage change in the S&P 500, while the green line above tracks the YoY percentage change in the FED’s balance sheet. If you analyze the relationship, you can see that investors’ optimism often rises and falls with the pace of the FED’s asset purchases. To that point, the FED’s YoY rate of expansion of its balance sheet peaked (for good) during the third week of February and has been in free fall ever since. Similarly, the S&P 500’s YoY rate of expansion peaked during the third week of March and has declined substantially.The bottom line? With the weekly metric hitting a 2021 low on Jun. 3 and a reduction of the FED’s bond-buying program poised to push the YoY percentage change into negative territory in the coming months (again, likely in September), the S&P 500 is slowly running out of gas.In conclusion, the FED has mesmerized the investing public once again, and saving the day doesn’t even require the central bank to do anything anymore. However, with reality undefeated and a major regime shift likely to occur in September, there are only a few hours left until the clock strikes midnight. Moreover, with bond market imbalances at or near their all-time highs, the PMs will likely detest the forthcoming climax. Think about it: if the PMs can only muster tepid rallies when the fundamentals are historically (though synthetically) tilted in their favor, the price action could get ugly once the sanity finally prevails.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
US Industry Shows Strength as Inflation Expectations Decline

Is Gold Really an Inflation Hedge?

Finance Press Release Finance Press Release 11.06.2021 17:19
Inflation is back, and that’s usually depicted as good for gold. But is the yellow metal still a hedge against inflation, or has something changed?Inflation has returned. This is partly understandable. After all, during the Covid recession , consumers and businesses accumulated a lot of cash as their spending was reduced, while revenues were sustained by money transfers from the government. These funds are now entering the economy, which makes demand grow much faster than supply, thus boosting prices. After some time, supply may catch up, curbing inflation. However, there is an important risk that inflation will turn out to be higher and/or more permanent than many analysts believe.From the fundamental point of view, gold should benefit from higher inflation. But why? In theory, there are several channels by which inflation supports the yellow metal. First, the inflationary increase in the money supply makes all goods and services more expensive, including gold. Indeed, the scientific paper by Lucey and others finds a reliable long-run relationship between gold and the US money supply.Second, gold is a real, tangible and rare good with limited supply that cannot be increased quickly or at will. These features make gold a key element during the so-called flight into real values or into hard assets, which happens when inflation gets out of control. In other words, gold is the ultimate store of value which proved to hold its worth over time , unlike paper currencies that are subject to inflation and lose their value systematically.Third, inflation means the loss of purchasing power of the currency, so when the greenback depreciates quicker than its major peers, the dollar-denominated price of gold increases. Fourth, when inflation is unexpected or when the Fed remains behind the curve and doesn’t hike nominal interest rates , real interest rates decline, supporting gold prices.Fifth, high inflation increases economic uncertainty, which increases safe-haven demand for gold . In other words, an outbreak of inflation introduces some turbulences and leads to portfolio rebalancing, thus increasing gold’s appeal as a portfolio diversifier . During inflation, bonds underperform, so gold’s attractiveness increases.And last but definitely not least, gold is perceived as an inflation hedge . But is it really a good hedge against inflation? I analyzed this issue a few years ago – it would be nice to provide an update in light of more recent developments. So, let’s take a look at the chart below, which shows gold prices and CPI annual inflation rates.As one can see, the relationship between these two series is far from being perfect. Actually, the correlation coefficient is significantly below zero (-0.41), which means that the correlation is negative ! It means that although there are certain long-term trends – for example, gold rallied during stagflation in the 1970s and entered a bear market during the disinflation period in the 1980s and 1990s – there is no positive relationship between the CPI annual percentage change and the price of gold on a monthly basis.In other words, the data shows that gold may serve as an inflation hedge only in the long run , as gold indeed preserves its value over a long time (for example, in the period from 1895 to 1999, the real price of gold increased on average by 0.3% per year). It is a good choice for investors also when there is relatively high and accelerating inflation, usually accompanied by fears about the current state of the U.S. dollar and a lack of confidence in the Fed and the global monetary system based on fiat monies .However, let’s not draw conclusions too hastily. The chart below also presents the CPI and gold – but this time both series are year-on-year percentage changes (previously we had gold prices, now we have annual percentage changes in these prices).Have you noticed something? Yup, this time both series behave much more similarly . Indeed, the correlation coefficient is now positive (0.44). Hence, there is a positive relationship between gold and inflation although not always seen in absolute prices (but in changes in these prices), and not always seen in the CPI (as inflation has broader effects not limited only to consumer prices).Summing up the above analysis, it seems justified to claim that gold could benefit from the current elevated levels of inflation, especially if it turns out to be more lasting than commonly believed. It will also be good for gold if the Fed remains dovish and tolerant of inflation surpassing its target significantly.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Inflation Soars 5%! Will Gold Skyrocket?

Finance Press Release Finance Press Release 15.06.2021 15:56
With the CPI annual inflation rate spiking 5% in May, gold could have gained a lot in response. However, it rallied only $20. Should we prepare for more?Whoa! Inflation soared 5% in May – quite a lot for a nonexistent (or transitory) phenomenon! But let’s start from the beginning. The CPI rose 0.6% in May, after increasing 0.8% in April. Meanwhile, the core CPI, which excludes food and energy, soared 0.7%, following a 0.9% jump in April. So, given that the pace of the monthly inflation rate decelerated, we shouldn’t worry about inflation, right? Well… we should.First of all, inflation was higher than expected , as the consensus forecast was a 0.4% increase. Inflation surprised pundits once again, but not me. Last month, I wrote in the Fundamental Gold Report that “Inflation escalated in April. In May, however, inflation could be softer, but it will remain relatively elevated, in my view” – and this is exactly what happened. However, the unexpected rise in inflation is positive news for gold, as such a surprise should decrease the real interest rates .Second, pundits cannot blame energy prices for this jump, as the energy index was flat. Apart from energy and medical care services, which decreased slightly, all index components increased last month. In particular, the index for used cars and trucks soared again (7.3%). Also, the indexes for new vehicles and apparel surged in May, which shows that inflationary pressure is broad-based .Last but definitely not least, the latest BLS report on inflation reveals that the overall CPI skyrocketed 5% for the 12 months ending May (before seasonal adjustment), followed by a 4.2% spike in April. For context, the annual inflation rate has been trending up every month since January, when the 12-month change was just 1.4%. Therefore, we’ve just seen the largest move since a 5.4% jump for the period ending in August 2008 , just one month before the bankruptcy of Lehman Brothers that triggered the global financial crisis and deflationary Great Recession .But that’s not all! The annual core CPI rate soared 3.8% last month after rising 3% in April, as the chart below shows. It was the fastest pace since June 1992. So, the Fed cannot by any manner of means blame higher inflation on food or energy prices.Supply disruptions are not a credible explanation either, as the inflation acceleration is broad-based. How likely would it be, that the production of virtually all goods and services would face supply bottlenecks at the same time and extent? Indeed, a significant boost in the broad money supply is a much more convenient explanation for widespread price increases.Implications for GoldWhat does accelerating inflation imply for the gold market? Well, on the one hand, higher inflation should be positive for the yellow metal , as it means a stronger demand for gold as an inflation hedge . Additionally, higher inflation could lower the real interest rates, also supporting gold prices. And indeed, the price of gold has risen from about $1,870 to $1,890 in a response to the inflation spike.On the other hand, some analysts point out that stronger inflation could be rather negative for the yellow metal , as the Fed would have to tighten its monetary policy , taper its quantitative easing and hike the federal funds rate to contain inflation. After all, the overall CPI annual rate is more than twice as high as the Fed’s target. Moreover, the mediocre gold’s reaction to the surge in inflation suggests that investors are worried about a normalization of the ultra-dovish monetary policy .However, the Fed has recently become more tolerant of higher inflation, and Powell is likely to continue claiming that inflation is merely transitory. Also, on Thursday, the European Central Bank held its regular monetary policy meeting and maintained its elevated flow of stimulus, even though recovery takes hold. And the Fed may do the same, i.e., nothing, tomorrow.Nevertheless, the relaxed stance of the ECB and the Fed could come out as incorrect. We have the economy operating above potential, with big fiscal injections along with a very easy monetary policy. Such a combination could bring us to an environment of higher and more lasting inflation, which could disrupt the market later in the future.After all, many indicators suggest that financial markets believe in the narrative of “transitory” inflation. But if inflation proves to be more permanent than expected, there could be some turmoil in the markets – and gold could benefit from it. Gold is not always a good inflation hedge, and it could suffer somewhat if the nominal interest rates increase; however, it should prosper if the real interest rates decline further.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Gold Asks: Will the Economic Boom Continue?

Finance Press Release Finance Press Release 17.06.2021 15:59
The US GDP has already recovered from the pandemic recession. What’s next for the economy and the gold market?Ladies and Gentlemen, the economic crisis has ended. Actually, not only is the recession over but so is the recovery! This is at least what the recent GDP readings are indicating. As the chart below shows, the US nominal GDP has already jumped above the pre-pandemic level . The real GDP, which takes inflation into account, remained in the first quarter of 2021 below the size of the economy seen at the end of 2019, but it will likely surpass this level in the second quarter of the year.As one can see in the chart below, in terms of GDP growth, the situation is a bit worse, as the annual percentage changes are still below the pre-epidemic level . However, this should change in the second quarter of 2021 when the growth pace is likely to peak amid base effect and reopening of the economy.So, the question is: what’s next? Will the economic boom become well-established or will we see a lot of volatility or even new slumps? Given the recent flux of disappointing high-frequency indicators that fell considerably short of expectations (just think about April’s nonfarm payrolls ), the question is very relevant.Well, there are many threats to growth , that’s for sure. The first is, of course, the ever-evolving coronavirus and its new variants. However, judging by preliminary evidence, the vaccines should remain effective, allowing economies to function freely.The second obvious danger is clearly the economy overheating and higher inflation . The Fed and the Congress injected a lot of liquidity into the economy although it would recover if it was left to its own devices thanks to the rollout of vaccinations and easing lockdowns. So, much of government funds arrived just when the economy practically recovered, which is a recipe for higher prices and inflation-related turbulences in the financial markets.Third, the increase in debt – both private and public – makes the global economy more fragile. Given the level of indebtedness, even small increases in real interest rates would be dangerous. They would increase the costs of servicing debts for the governments and could hit the asset prices. The fact that the Fed will be under great pressure to remain very dovish is, of course, positive for gold prices . Even if we see some effort to normalize the monetary policy , interest rates and the Fed’s balance sheet will never return to the pre-recession levels.Last but not least, there is a threat of financial crisis . Many people are worried that there is a bubble in the stock market (and in other markets as well, such as the cryptocurrency market). Indeed, the equities have been reaching new peaks and the valuations are elevated. The margin debt has also jumped. Not surprisingly, the relative frequency of Google searches for the “stock market bubble” has recently risen (just as for the word “inflation”).Even the Fed in its latest Financial Stability Report expressed some concerns. This is what the Fed Governor Lael Brainard said in a statement linked to the report :Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year. Equity indices are setting new highs, equity prices relative to forecasts of earnings are near the top of their historical distribution, and the appetite for risk has increased broadly, as the "meme stock" episode demonstrated. Corporate bond markets are also seeing elevated risk appetite, and the spreads of lower quality speculative-grade bonds relative to Treasury yields are among the tightest we have seen historically. The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.To sum up, the US economy has already recovered from the coronavirus recession, which is bad for safe-haven assets such as gold , as the yellow metal doesn’t like economic expansions. However, there are important threats to sustainable economic growth, which should support the price of gold.Actually, there is still room for gold to rally further . This is because we are in an inflationary phase of the economic expansion (this boom will be more inflationary than the post- Great Recession period), and all the money created during the pandemic has flowed into the asset markets, pushing their prices into elevated levels not necessarily justified by fundamentals (just think about Dogecoin). Gold could benefit from such a bubble, as well as from an inflationary and hot environment. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
US Industry Shows Strength as Inflation Expectations Decline

Gold: The Fed Wreaked Havoc on the Precious Metals

Finance Press Release Finance Press Release 18.06.2021 17:02
Gold declined yesterday, or I should say, it rushed down at breakneck speed. And while it might have been a surprise for some, it wasn’t for me.However, we should stay alert to any possible changes, as no market moves in a straight line. Tread carefully.On a side note, while I didn’t check it myself (well, it’s impossible to read every article out there), based on the correspondence I’m receiving, it appears I’ve been the only one of the more popular authors to be actually bearish on gold before the start of this week. Please keep that in mind, along with me saying that yesterday’s decline is just the beginning, even though a short-term correction might start soon. Having that in mind, let’s discuss what the Fed did (and what it didn’t do) in greater detail.Look What You DidWith the U.S. Federal Reserve’s (FED) reverse-repo nightmare frightening the liquidity out of the system, I highlighted on Jun. 17 that the FED raised the interest rate on excess reserves (IOER) from 0.10% to 0.15%.I wrote:The FED hopes that by offering a higher interest rate that it will deter counterparties from participating in the reverse repo transactions. However, whether it will or whether it won’t is not important. The headline is that the FED is draining liquidity from the system and increasing the IOER is another sign that the U.S. federal funds rate could soon seek higher ground.Please see below:To explain, the red line above tracks the U.S. federal funds rate, while the green line above tracks the IOER. If you analyze the behavior, you can see that the two have a rather close connection. And while we don’t expect the FED to raise interest rates anytime soon, officials’ words, actions and the macroeconomic data signal that the taper is likely coming in September.And in an ironic twist, while the question of whether it will or whether it won’t seemed reasonable at the time, the tsunami of reverse repurchase agreements on Jun. 17 signal that 0.15% just isn’t going to cut it. Case in point: while the FED hoped that the five-basis-point olive branch would calm institutions’ nerves, a record $756 billion in excess liquidly was shipped to the FED on Jun. 17 . For context, it was nearly $235 billion more than the daily amount recorded on Jun. 16.Please see below:To explain the significance, I wrote previously:A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.The green line above tracks the daily reverse repo transactions executed by the FED, while the red line above tracks the U.S. federal funds rate. Moreover, notice what happened the last time reverse repos moved above 400 billion? If you focus your attention on the red line, you can see that after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. Thus, with current inflation dwarfing 2015 levels and U.S. banks practically throwing cash at the FED, is this time really different?Furthermore, I noted on Jun. 17 that the FED’s latest ‘dot plot’ was a hawkish shift that market participants were not expecting.I wrote:The perceived probability of a rate hike by the end of 2022 sunk to a 2021 low on Jun. 12. However, after the FED’s material about-face on Jun. 16, I’m sure these positions have been recalibrated.Please see below:And as if the chart above had been inverted, the perceived probability of a rate hike by the end of 2022 has now surged to more than 90%.The Death Toll of June 17thIn addition, while I’ve been warning for months that the bond market’s fury would eventually upend the PMs, not only has the FED’s inflationary misstep rattled the financial markets, but the U.S. 30-year fixed-rate mortgage (FRM) jumped to 3.25% on Jun. 17.Please see below: Source: Mortgage News DailyFurthermore, please read what Matthew Graham, COO of Mortgage News Daily, had to say:“Markets were somewhat surprised by the Fed's rate hike outlook. Granted, the Fed Funds Rate (the thing the Fed would actually be hiking) doesn't control mortgage rates, but the outlook speaks to how quickly the Fed would need to dial back its bond buying programs (aka "tapering"). Those programs definitely help keep rates low. The sooner the Fed begins tapering, the sooner mortgage rates will see some upward pressure .”To that point, with tapering prophecies officially morphing from the minority into the consensus, the PMs weren’t the only commodities sent to slaughter on Jun. 17. For example, the S&P Goldman Sachs Commodity Index (S&P GSCI) plunged by 2.37% as the inflationary unwind spread. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals.Exacerbating the selling pressure, China’s National Food and Strategic Reserves Administration announced on Jun. 17 that it would release its copper, aluminum and zinc supplies “in the near future” in a bid to contain the inflationary surge that’s plaguing the region. As a result, if the psychological forces that led to the surge in cost-push inflation come undone, the USD Index could move from the outhouse to the penthouse.To explain, I wrote on Apr. 27:Why is the behavior of the S&P GSCI so important? Well, if you analyze the chart below, you can see that the S&P GSCI’s pain is often the USD Index’s gain.To explain, the red line above tracks the USD Index, while the green line above tracks the inverted S&P GSCI. For context, inverted means that the S&P GSCI’s scale is flipped upside down and that a rising green line represents a falling S&P GSCI, while a falling green line represents a rising S&P GSCI. More importantly, though, since 2010, it’s been a near splitting image.Inflation Is Still ThereIn the meantime, though, inflationary pressures are far from contained. And while the S&P GSCI’s plight would be a boon for the USD Index, the greenback still has plenty of other bullets in its chamber. Case in point: with the FED poised to taper in September and investors underpricing the relative outperformance of the U.S. economy, VANDA Research’s latest FX Outlook signals that over-optimism abroad could lead to a material re-rating over the summer.Please see below:To explain, the chart on the right depicts investors’ expectations of economic strength across various regions. If you analyze the second (CAD) and the third (GBP) bars from the right, you can see that positioning is more optimistic than the economic growth that’s likely to materialize. Conversely, if you analyze the first bar (USD) from the left, you can see that positioning is more pessimistic than the economic growth that’s likely to materialize. As a result, with U.S. GDP growth poised to outperform the U.K., Canada, and the Eurozone, an upward re-rating of the USD Index could intensify the PMs selling pressure over the medium term.On top of that, while the inflation story is far from over (and will pressure the FED to taper in September), the Philadelphia FED released its Manufacturing Business Outlook Survey on Jun. 17. And while manufacturing activity dipped in June, “the diffusion index for future general activity increased 17 points from its May reading, reaching 69.2, its highest level in nearly 30 years .”In addition, “the employment index increased 11 points, recovering its losses from last month,” and “the future employment index rose 2 points … [as] over 59 percent of the firms expect to increase employment in their manufacturing plants over the next six months, compared with only 5% that anticipates employment declines.” For context, employment is extremely important because a strengthening U.S. labor market will likely put the final nail in QE’s coffin.But saving the best for last:“The prices paid diffusion index rose for the second consecutive month, 4 points to 80.7, its highest reading since June 1979 . The percentage of firms reporting increases in input prices (82 percent) was higher than the percentage reporting decreases (1 percent). The current prices received index rose for the fourth consecutive month, moving up 9 points to 49.7, its highest reading since October 1980 .”Please see below: Source: Philadelphia FEDInvestment Clock Is TickingAlso, signaling that QE is living on borrowed time, Bank of America’s ‘Investment Clock’ is ticking toward a bear flattener in the second half of 2021. For context, the term implies that short-term interest rates will rise at a faster pace than long-term interest rates and result in a ‘flattening’ of the U.S. yield curve.Please see below:To explain, the circular reference above depicts the appropriate positioning during various stages of the economic cycle. If you focus your attention on the red box, you can see that BofA forecasts higher interest rates and lower earnings per share (EPS) for S&P 500 companies during the back half of the year.As further evidence, not only is the FED’s faucet likely to creak in the coming months, but fiscal stimulus may be nearing the dry season as well.Please see below:To explain, the blue bars above track the U.S. budget deficit as a percentage of the GDP. If you analyze the red circle on the right side of the chart, you can see that coronavirus-induced spending was only superseded by World War Two. Moreover, with the law of gravity implying that ‘what goes up must come down,’ the forthcoming infrastructure package could be investors’ final fiscal withdrawal.The Housing MarketLast but not least, while the S&P 500 has remained relatively upbeat in recent days, weakness in the U.S. housing market could shift the narrative over the medium term.Please see below:To explain, the red line above tracks the S&P 500, while the green line above tracks U.S. private building permits (released on Jun. 16). If you analyze the arrows, you can see that the former nearly always rolls over in advance of the latter . For context, the S&P 500 initially peaked before building permits in 2018 and alongside in 2015. However, in 2018, when the S&P 500 recovered and continued its ascent – while building permits did not – the U.S. equity benchmark suffered a roughly 20% drawdown. Thus, if you analyze the right side of the chart, you can see that building permits peaked in January and have declined significantly. And if history is any indication, the S&P 500 will eventually follow suit.In conclusion, the PMs imploded on Jun. 17, as taper trepidation and the USD Index’s sharp re-rating dropped the guillotine on the metals. And with the FED’s latest ‘dot plot’ akin to bullet holes in the PMs, the walking wounded is still far from a recovery. With inflation surging and the FED likely to become even more hawkish in the coming months, the cycle has materially shifted from the goldilocks environment that the metals once enjoyed. And with the two-day price action likely the opening act of a much larger play, the PMs could be waiting months for another round of applause.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Calling the Fed‘s Bluff

Monica Kingsley Monica Kingsley 22.06.2021 15:51
S&P 500 risk-on trading yesterday confirmed that it would have indeed been too early to write off value stocks. Financials, energy sprang higher, accompanied by the as of late usual tech suspect – the heavyweights though merely defended gained ground. Coupled with the credit market perspectives, it was a clear risk-on day as evidenced by the VIX and put/call ratio. The markets have turned on a dime, ignoring the Fed messaging of prior week as shown in the surging CRB index, reversing dollar and Treasuries:(…) Given the ease with which precious metals and then select commodities such as copper or soybeans tumbled, rate hikes might appear to be baked in the cake now – but in reality, it‘s the unyielding inflation that would prove rather persistent than transitory.The Fed did the bare minimum, acknowledging inflation in passing, implying it would go away on its own. But it‘s more complicated than that – bank credit creation isn‘t strong, and had been declining before bond yields bottomed in Aug 2020. Are banks reluctant to lend, or customers to borrow? The result of production not ramping up as wildly as expected (reopening trades) is compounding the disturbed supply chains and commodity prices rising (cost-push inflation). Add to that job market pressures, and you have a recipe for inflation being more transitory than originally thought. In other words, cyclical and structural as import-export prices hint at too.Money in the system isn‘t flowing into production or capacities expansion – inventories have instead been drawn down, and need to be replenished. Just as I have written the prior Monday, that would be putting upside pressure on prices as much Europe awakening or hard hit countries such as India springing back. So, fresh money results in excess liquidity, trapped in the system, and flowing to bonds, which explains the Fed‘s need to act and fix repo rate at 0.05%. So much for the recent spike in Treassuries – this whiff of „almost deflation“ has it wrong, and yields will revert to rising – regardless of when exactly (or if) other parts of the intended $6T stimulus package get enacted.Sure, the Fed actions have shortened the (sideways) lull in Treasuries, made the dollar spike, but haven‘t changed the underlying dynamic of the free market not willing to pick up the slack in credit creation should the Fed indeed taper. Chances are, they would still taper, but later in 2022 – such was and still is my expectation, with bank credit creation being (hopefully) the key variable on their watch as a deciding factor. In the meantime, the inflation problem will get even more embedded – not a fast galloping inflation or hyperinflation, but a serious problem raising its ugly head increasingly more through the years to come.In short, the Fed played the dot plot perceptions game which amounts to no serious attempt to nip inflation in the bud. The markets (precious metals, commodities) got thrown off prior trends, but will see through the bluff that can‘t be followed by actions. The inflation trades (and by extension modest rise in yields as we drift towards 2.50% on the 10-year before that tapering actually starts, with positive consequences for financials and cyclicals) haven‘t been killed off, and will reassert themselves when the markets test the Fed (and they will). To be clear, I am calling for persistently elevated (not hyper) inflation (PCE deflator readings coming soon) with the 10-year yield reverting to its more usual trading range – so essential to financial repression reducing the real value of all obligations.For now, the dollar is supported by all the tightening messaging, and as extended as it had been on a daily basis after Friday‘s close, yesterday‘s reversal had a strong consolidation feel to it, meaning that the dollar upswing might not be over just yet. The same thing can‘t be said about Treasuries, which look set to go on an overall slowly but surely rising yield path. Additionally, more calm on the risk-off (tightening) front means less panicked safe haven flows that leave out gold and silver, whose moves are sensitive to inflation and inflation expectations (among much else).The PCE deflator would surely come below the CPI reading – by default thanks to „weighted substitution“ effects. But the fact of current inflation not meaningfully decelerating remains sticking out as a sore thumb – the Fed is playing games and jawboning inflation expectations, which thanks to the real economy including job market constrainst described above, would prove of temporary effect, springing higher as a temporarily submerged water polo ball.For gold and silver, this means a patience game where the factors remain still arrayed behind their rise. Remember, the Fed can‘t tighten as fast as it projects to – seriously raising tapering looks slated for Jackson Hole, with actual execution coming next year. Provided that bank credit creation springs back to life, this needn‘t be a problem for stocks. Rate hikes though are a different cup of tea – any thought of normalizing yields is misplaced as Greenspan, Bernanke, and Powell were able to hike Fed funds rate to lesser and lesser levels, which means that with my anticipated, persistent inflation for years to come, even the projected (market-based, for it would be the markets who raise rates, not the Fed) return to e.g. 2.5 – 3.0% range on the 10-year, would guarantee real rates conducive to the precious metals bull run.Crude oil, given the extent its prices are set outside of the U.S. control (no longer a swing producer, rig count having troubles reaching pre-corona levels given the current policies), is better positioned than the metals, where we have to wait before these „get it“. Reopening, reflation and uptick in economic activity will work to lift black gold, and energy stocks agree. In spite of short-term technical non-confirmations, the picture remains bullish, and a deep plunge in oil unlikely.Cryptos don‘t offer a happy sight for the bulls as the key 30,000 support in Bitcoin looks likely to be tested soon. Yesterday‘s move also in Ethereum reveals newfound bearish vigor. Not that the news out of China would be helpful here.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 daily downswing looks successfully reversed – just as the Friday‘s intraday attempt to close the HYG gap hinted at. With tech leadership intact, good days for Nasdaq are a mainstay.Credit MarketsHolding on to the gained ground in high yield corporate bonds while TLT doesn‘t run wild again, would be the best scenario for further stock gains.Technology and ValueBoth technology and value did great yesterday, and it‘s been the cyclicals, high beta pockets driving the S&P 500 upswing. Even the Russell 2000 decisively joined, but don‘t look for much of outperformance in smallcaps (still an understatement).Gold, Silver and MinersGold and miners are still trading in corrective depths, with not nearly enough convincing upswing attempt yet. Still, precious metals are well positioned to benefit from the Fed inability to move as much as it gives impression it would. Once silver gets whiff of both the Fed‘s predicament and current (plus expected) inflation not yielding much ground, it would lead gold higher again. It‘s a process though and we haven‘t even started it yet (today‘s Powell testimony would be insightful).Crude OilBlack gold remains well positioned to rise again as the oil index correction ran its course.SummaryS&P 500 looks ready to consolidate gained ground before attempting another push higher, led by Nasdaq again.Gold and silver aren‘t out of the woods just yet but I‘m lookign for tentative return of confidence – a marathon rather than sprint.Crude oil looks likely to extend gains without much deeply reaching consolidation.Bitcoin and Ethereum are approaching decision time, where the floor could fall out pretty fast if the bears aren‘t stopped at 30,000 in BTC. The weekly basing pattern is intact for now, but prices returning good 5,000 higher would help also the ETH bulls with an even chance in this prolonged consolidation – to be resolved with a steep move either way, the risks of which being to the downside, are highly pronounced.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

Will Gold Survive Hawkish Fed?

Finance Press Release Finance Press Release 22.06.2021 15:58
The recent Fed’s hawkish turn is fundamentally negative for gold prices but there is still some hope.The hawkish counter-revolution within the Fed continues. On Friday, St. Louis Fed President James Bullard said that the recent FOMC shift towards a faster tightening of monetary policy was a natural response to faster economic growth and higher inflation than anticipated:We were expecting a good year, a good reopening, but this is a bigger year than we were expecting, more inflation than we were expecting, and I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures.Bullard also noted that “Powell officially opened the taper discussion this week”. Indeed, in my Friday edition of the Fundamental Gold Report , I focused on the changed dot-plot , which suggested that FOMC members were ready to hike interest rates twice in 2023. However, the second major shift in the stance of the US central bank was that the Fed officials started to “talk about talking about” tapering.In his prepared remarks for the press conference, Powell said:At our meeting that concluded earlier today, the Committee had a discussion on the progress made toward our goals since the Committee adopted its asset purchase guidance last December. While reaching the standard of “substantial further progress” is still a way off, participants expect that progress will continue. In coming meetings, the Committee will continue to assess the economy’s progress toward our goals. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.In plain English, it means that the Fed could announce tapering at any of its future meetings, depending on the assessment of the incoming data. However, to avoid a replay of the taper tantrum , the Fed will “give advance notice before announcing any decision”. So, September is the first probable date of a hawkish announcement about tapering of quantitative easing , which could be preceded by some clues as early as in July:That is, you know, the process that we're beginning now at the next meeting. We will begin, meeting by meeting, to assess that progress and talk about what we think we're seeing, and just do all of the things that you do to sort of clarify your thinking around the process of deciding whether and how to adjust the pace and composition of asset purchases.Another hawkish shift in the Fed’s thinking, which is worth pointing out, is that it dropped the phrase in the statement saying that the pandemic is weighing on the economy. So, although it’s still cited as a risk, Powell and his colleagues officially ceased to see the pandemic as a constraint on economic activity. It means that, as I already wrote earlier in my reports, the US economy has returned to the pre- epidemic level or has shifted from the recovery to the expansion phase.Implications for GoldWhat does it all mean for the yellow metal? Well, the Fed triggered some panic selling in the gold market last week. Actually, on Thursday, there was the largest one-drop of 2021 in response to the more hawkish stance of the US central bank, as the chart below shows.The bearish reaction is understandable, as the Fed’s readiness to reduce its asset purchases and end the policy of zero interest rates is fundamentally negative for the yellow metal . More hawkish FOMC implies higher real interest rates and a stronger dollar, the two most important drivers of gold prices. Furthermore, when the US central bank becomes more hawkish, it means that it’s more confident in the economy – and gold struggles when the economy is strong.However, some analysts claim that the selloff was exaggerated . After all, the Fed still maintains that higher inflation is transitory; but transitory inflation doesn’t mix with earlier interest rate hikes. So, we will have either more lasting high inflation (but the Fed is slow to admit it), or the Fed doesn’t really want to increase its interest rates substantially. In both cases, gold should benefit, either from higher inflation and lower real interest rates, or from more dovish Fed than it’s currently perceived.So, the bullish case for gold is not dead yet, but if the Fed really becomes more hawkish and determined to tighten its monetary policy (while high inflation turns out to be transitory), gold may struggle during the upcoming tightening cycle , unless it triggers some economic turmoil.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

XAUUSD tests critical daily support

FXMAG Team FXMAG Team 23.06.2021 10:17
Intraday Market Analysis – Gold Looks For Rebound CatalystThe US dollar catching its breath offers bullions some respite.Gold is now hovering above May’s low at 1760, an important support from the daily chart. Its breach could invalid the rally from late March.The bullish RSI divergence indicates that the sell-off may have lost steam in this demand zone. A combination of profit-taking and fresh buying could help the metal recover.A confirmation would be close above the psychological level of 1800, which would then convince buyers to join in.USDCHF struggles on high groundThe US dollar softens, as Fed Chairman Jerome Powell insists on not raising interest rates too soon.The pair has come under pressure near 0.9250, previously a support that has turned into a key resistance. The RSI divergence suggests a loss in the upward momentum and buyers may close out at the first sign of weakness.0.9170 is the immediate support. Its breach could trigger a 100-pip fall to the next level at 0.9070. A rally above the said resistance may propel the price to above 0.9300.NAS 100 grinds along bullish trendlineThe US tech index shrugged off inflation fear and recovered to an all-time high.Price action has bounced off of the rising trendline established in late March. This is a strong bullish indication amid sell-offs across equity markets.The RSI has returned to the neutral area, allowing buyers to accumulate without appearing to overdo it. The Nasdaq has broken above 14220 and may trigger a runaway rally towards 14400 as momentum players stake in. 14080 near the trendline is a key support to monitor.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Fed’s Liquidity Circus and Gold

Finance Press Release Finance Press Release 23.06.2021 11:23
Fed pumped so much money into the financial system, that the latter started sending it back. How will this and Fed’s more hawkish tone impact gold?With Jerome Powell, Chairman of the U.S. Federal Reserve (FED), testifying before Congress on Jun. 22, his prepared remarks signaled that the FED remains on autopilot. Despite saying that “job gains should pick up in coming months as vaccinations rise,” he added that “we at the FED will do everything we can to support the economy for as long as it takes to complete the recovery.”And while Powell supported our thesis by saying that “labor demand is remarkably strong and over time we will find ourselves with low unemployment and wages going up across the spectrum,” when asked if inflation is transitory, he responded:“[Perhaps] all of the overshoot in inflation comes from categories such as rising used car and trucks, airplane tickets, hotel prices that have been affected by the reopening of the economy. [And while] these effects have turned out to be larger than we expected , the incoming data are consistent with the view that these factors will wane over time .” For context, of course inflationary pressures will “wane over time.” That’s not up for debate. However, “when” is the key question.But in a bid to remove any doubt, he added:" We will not raise interest rates preemptively because we fear the possible onset of inflation . We will wait for evidence of actual inflation or other imbalances."Thus, while investors clearly cheered the FED Chair’s dovish sentiment on Jun. 22, Powell (for better or worse) still remains out of touch with reality. Case in point: the Philadelphia FED released its Nonmanufacturing Business Outlook Survey on Jun. 22. And while “the full-time employment index fell 20 points to 4.3 in June after rising 17 points last month,” the report revealed that “both future activity indexes suggest that the respondents expect overall improvement in nonmanufacturing activity over the next six months.”Please see below: Source: Philadelphia FEDMore importantly, though, with the inflation drama still unfolding, the report showed more of the same:“After reaching its all-time high in May, the prices paid index mostly held steady in June at 49.0 Forty-nine percent of the firms reported increases, none reported decreases , and 33 percent of the firms reported stable input prices. Regarding prices for the firms’ own goods and services, the prices received index rose 12 points to 28.9 in June, its highest reading since June 2018.”Please see below: Source: Philadelphia FEDSimilarly, the Richmond FED also released its Survey of Manufacturing Activity on Jun. 22. And while the report cited that “average growth rates of both prices paid and prices received by survey participants declined slightly but remained elevated in June,” employment was more optimistic, with the report revealing that “many manufacturers increased employment and wages in June and [expect] further increases in the next six months.”Please see below: Source: Richmond FEDWhat’s more, while the FED admitted its inflation error on Jun. 16 – as evidenced by the increase in its forecast for the headline Personal Consumption Expenditures (PCE) Index – Powell is now pretending that growth doesn’t exist. For context, the FED increased its 2021 real GDP growth estimate from 6.5% to 7.0% on Jun. 16, so Powell’s assertion on Jun. 22 that the economy "is still a ways off" is quite the contradiction.Moreover, absent a severe spread of the Delta variant – which White House chief medical advisor Dr. Anthony Fauci said was “the greatest threat in the U.S. to our attempt to eliminate COVID-19” – U.S. economic growth should easily outperform its developed-market peers.For example, many deflationists cite the slowdown in loan activity as a sign of a weak U.S. economy. However, with U.S. commercial banks releasing their deposit figures on Jun. 22, the argument is much more semblance than substance.Please see below:To explain, the green line above tracks deposits held by U.S. commercial banks, while the red line above tracks consumers’ revolving and credit card loans. If you analyze the right side of the chart, you can see that a material gap is present. However, with unprecedented fiscal policy (stimulus checks and enhanced unemployment benefits) flooding consumers’ bank accounts with dollars, why borrow money if you already have the cash to make the purchase?To that point, if we compare U.S. commercial banks’ deposits to the U.S. federal debt, the connection is even clearer.Please see below:To explain, the green line above tracks deposits held in U.S. commercial banks, while the red line above tracks the U.S. federal debt. If you analyze the sharp move higher in 2020, it’s another sign that U.S. citizens don’t need to borrow money when the government is already writing the checks. For context, there is a slight lag because the U.S. federal debt references Q1 data and U.S. commercial banks’ deposits reference Q2 data.Likewise, while rising U.S. nonfarm payrolls remain the key piece to solving the FED’s puzzle, the idea that monetary support is helping the real economy lacks credibility. To explain, the FED sold a record $792 billion worth of reverse repurchase agreements on Jun. 22. Moreover, when the FED buys $120 billion worth of bonds per month, the cash filters throughout the U.S. banking system and then financial institutions exchange that cash for Treasury securities on a daily basis, is QE really helping anyone?Please see below: Source: NY FEDFor context, I wrote previously:A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.More importantly, though, after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. On top of that, the liquidity drain is at extreme odds with the FED’s QE program. For example, the FED aims to purchase a combined $120 billion worth of Treasuries and mortgage-backed securities per month. However, with daily reverse repurchase agreements averaging $520 billion since May 21, the FED has essentially negated 4.33 months’ worth of QE in the last month alone.To that point, the flood of reverse repurchase agreements signals that financial institutions have no use for the FED’s handouts. Think about it: if commercial banks could generate higher returns by originating loans for consumers and businesses, wouldn’t they? And with 74 counterparties participating on Jun. 22 – up from 46 on Jun. 7 – the FED’s liquidity circus is now on display every night.If that wasn’t enough, I’ve highlighted on several occasions that gold exhibits a strong negative correlation with the U.S. 10-Year real yield (inflation-adjusted). And unsurprisingly, when the latter peaked in late 2018 and began its descent, it was off to the races for gold.Please see below:To explain, the gold line above tracks the London Bullion Market Association (LBMA) Gold Price , while the red line above tracks the inverted U.S. 10-Year real yield. For context, inverted means that the latter’s scale is flipped upside down and that a rising red line represents a falling U.S. 10-Year real yield, while a falling red line represents a rising U.S. 10-Year real yield.More importantly, though, if you analyze the relationship, you can see that before the U.S. 10-Year real yield plunged, gold was trading below $1,250 (follow the arrow). Conversely, once the U.S. 10-Year real yield hit an all-time low of – 1.08% in 2020, gold was trading above $2,000.Thus, what emotional gold investors fail to appreciate is that the yellow metal benefited from abnormally low interest rates. And with further strength dependent on another all-time low, the FED’s tightening cycle (which is already subtly underway) paints an ominous portrait of gold’s medium-term future.To that point, with Morgan Stanley telling its clients that “ We are past “Peak Fed” for the cycle and the market knows it ,” overzealous gold investors ignore the difficult realities that lie ahead.Please see below:To explain, the blue line above tracks the U.S. 10-Year real yield and important fundamental developments are marked in red. If you analyze the “Peak Fed” labels near 2012 and 2020 and compare them with gold’s behavior on the first chart above, you can see how abnormally low U.S. 10-Year real yields coincided with abnormally high gold prices. As a result, with the former poised to move higher in the coming months, the yellow metal will likely head in the opposite direction.What’s more, not only are the PMs dodging bullets from the bond market, but the USD Index has barely made its presence felt. For example, while the FED’s hawkish shift (even if Powell won’t admit it) is extremely bullish for the greenback, market participants – who are willing to give the FED the benefit of the doubt – still remain skeptical of the recent rally.Please see below:To explain, the black line above tracks Citigroup’s USD Positioning Alert Indicator (PAIN). For context, the index gauges whether or not positioning is crowded in the currency market. If you analyze the right side of the chart, you can see that U.S. dollar sentiment has fallen off of a cliff. However, with all signs pointing to a September taper, a violent short-covering rally could catch many investors off guard.As further evidence, when the FED delivered its taper announcement in December 2013, the USD Index recorded (with a delay) one of its sharpest rallies ever.Please see below:To explain, the green line above tracks the USD Index. If you analyze the left side of the chart, you can see that after the FED revealed its hand, the USD Index found a bottom and surged roughly six months later. Thus, with a similar announcement likely in the fall, the PMs could be confronted with even more negativity.And no, Basel 3 is not likely to be a game-changer for the gold market in the near term – I discussed that on June 2 .In conclusion, while the gold, silver, and mining stocks remain ripe for a short-term rally (no market moves in a straight line and PMs are no exception), their medium-term outlook remains extremely treacherous. And though Powell calmed investors’ nerves on Jun. 22 and market participants remain loyal followers, it’s important to remember that he is far from omniscient. After a significant about-face regarding the future trajectory of the headline PCE Index – a forecast that he made only three months ago – his confidence game is all about sentiment. Thus, while investors will give him the benefit of the doubt until the bitter end, the recent behavior of the bond market, the USD Index and the precious metals signal that the winds of change have already begun to blow.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
New York Climate Week: A Call for Urgent and Collective Climate Action

Powell Didn’t Come to Gold’s Rescue – What Now?

Finance Press Release Finance Press Release 24.06.2021 16:50
Powell’s testimony to Congress failed in generating a rebound in gold prices; thus, the bearish trend could continue.On Tuesday (June 22) the Fed Chair testified before the Select Subcommittee on the Coronavirus Crisis, U.S. House of Representatives . Before Powell’s appearance in Congress, there were some hopes that he would soften the Fed’s hawkish signals from the previous week. However, these hopes only partially materialized.This is because Powell’s testimony was basically a confirmation of the last FOMC meeting . In particular, he reiterated the view that higher inflation would be transitory, as “a substantial part or perhaps all of the overshoot in inflation are from categories directly affected by reopening.”Actually, some of his remarks were quite hawkish , as he said that the price pressures “don't speak to a broadly tight economy, but these effects have been larger and may persist longer than expected”. The admission that strong inflationary pressure could last longer than expected suggests that Powell is more worried about inflation than several months ago. He even explicitly admitted that “5% inflation is not acceptable.”Luckily for the gold bulls, there were also some dovish comments . In particular, Powell said that the Fed wouldn’t hike the federal funds rates too quickly based only on inflationary worries:We will not raise interest rates preemptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances.Of course, it doesn’t make any sense, as actual inflation is already 5%, more than twice the target, and the Fed hasn’t reacted. The US central bank remains passive because it believes that inflation will prove to be transitory. However, it means that it actually acts based on expectations, not the current data, contrary to what the Fed is saying when justifying its ultra-dovish stance.And Atlanta Fed President Raphael Bostic also sent some dovish signals in an interview with National Public Radio’s Morning Edition he gave the next day after Powell’s testimony. He adhered to the view about temporary inflation, but he explained that the time horizon of this temporariness would be longer than previously thought:The recent jump in prices will prove temporary, but "temporary is going to be a little longer than we expected initially... Rather than it being two to three months it may be six to nine months.However, Bostic didn’t mention the necessity to hike in the face of prolonged high inflation. On the contrary, he pointed out that the Fed shouldn’t announce the victory in the jobs battle too quickly: “We have to make sure our policies don't pivot in ways that make it look like we are declaring victory prematurely.”Implications for GoldWhat does all this mean for the yellow metal? Well, theoretically, more lasting high inflation with unchanged dovish stance of the US central bank s hould be positive for gold prices , as an unresponsive Fed implies lower real interest rates , which usually support the yellow metal.However, gold hardly reacted to either Powell’s or Bostic’s comments . As the chart below shows, contrary to some hopes, Powell’s testimony failed in sending strong dovish signals that would be able to overwrite the hawkish turmoil triggered by the recent dot-plot . So, there was no rebound in gold prices. Instead, the price of the yellow metal merely stabilized at about $1,775.The lack of any rebound is a bad sign, indicating gold’s weakness (especially given that some other assets rebounded a bit this week after the post-FOMC turmoil ). This suggests that gold prices have room for further declines. It seems that gold would need a very dovish surprise from the Fed to go the other way, which is not likely without some kind of economic crisis or at least an influx of significantly negative economic data.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

FED: What’s Going On Behind the Scenes?

Finance Press Release Finance Press Release 25.06.2021 15:49
The FED allows banks to do much more than what is proper based on the “economy is still bad” narrative. What does this mean for a private investor?Banking on a ComebackWith the U.S. Federal Reserve (FED) releasing its annual bank stress tests on Jun. 24, Vice Chairman for Supervision Randal Quarles said that “the banking system is strongly positioned to support the ongoing recovery." For context, the FED’s stress tests analyze the health of U.S. banks’ balance sheets and reveal how they would fare if hypothetical economic doomsdays were to occur.And while Chairman Jerome Powell told Congress on Jun. 22 that the U.S. economy "is still a ways off," the results of the stress tests are a contradiction. Case in point: the report revealed that since “all 23 large banks tested remained well above their risk-based minimum capital requirements […] the additional restrictions put in place during the COVID event will end .”Translation? The FED will allow U.S. banks – like JPMorgan , Bank of America and Citigroup – to resume share buybacks and standard dividend payments (roughly $130 billion worth) as of next month.Please see below: Source: U.S. FEDOn top of that, the FED considers the following a scary situation:“The severely adverse scenario is characterized by a severe global recession accompanied by a period of heightened stress in CRE and corporate debt markets. The U.S. unemployment rate climbs to a peak of 10-3/4 percent in the third quarter of 2022, a 4 percentage point increase relative to its fourth quarter 2020 level. Real GDP falls 4 percent from the end of the fourth quarter of 2020 to its trough in the third quarter of 2022. The decline in activity is accompanied by a lower headline consumer price index (CPI).”However, even if this hypothetical malaise occurs, the FED believes that all 23 banks will pass the test with flying colors.Please see below: Source: U.S. FEDTo explain, the third column from the left depicts the banks’ regulatory capital ratios under the “severely adverse scenario.” Moreover, if you compare the results with the fourth column from the left, you can see that even if an economic meteor strikes, participants’ ratios will still remain above their regulatory minimums. For context, common equity tier 1 capital (CET1) is the most liquid source of banks’ capital, and the CET1 ratio is used to gauge banks’ ability to absorb losses should an economic shock occur.But why is all of this so important?Well, if the FED was so worried about the U.S. economy, would it allow financial institutions to frivolously spend their collateral on dividends and share buybacks? Remember, U.S. banks supply credit card loans, mortgages, commercial loans and finance the sectors that were hardest hit by COVID-19 (commercial real estate, hospitality, energy, etc.). Thus, with the FED giving banks the ‘all-clear,’ it’s a sign that the U.S. economy is much stronger than the FED lets on.In addition, The White House announced on Jun. 24 that a $1.2 trillion infrastructure deal was reached . And calling the milestone “the largest federal investment in public transit in history and the largest federal investment in passenger rail since the creation of Amtrak,” lawmakers want to cook the U.S. economy until it boils. For context, the agreement includes $579 billion of new spending with the rest being diverted from untapped coronavirus-relief funds.Please see below: Source: The White HouseMore importantly, though, with U.S. lawmakers hell-bent on pushing the limits of inflation and economic growth, the ominous impulse remains bullish for the U.S. 10-Year Treasury yield and the USD Index. Regarding the latter, if U.S. GDP growth outperforms the Eurozone, the EUR/USD – which accounts for nearly 58% of the movement of the USD Index – should suffer in the process. Likewise, with the U.S. 10-Year Treasury yield materially undervalued relative to realized inflation and prospective GDP growth , unprecedented spending should put upward pressure on interest rates. Furthermore, the bullish cocktail should force the FED to taper its asset purchases in September .To explain, while the PMs are allergic to a rising U.S. 10-Year Treasury yield, the latter doesn’t have to move for the metals to suffer. For example, following the FED’s announcement on Jun. 16, the U.S. 2-Year, 3-Year and 5-Year Treasury yields surged. And while the development flattened the U.S. yield curve – meaning that short-term interest rates rose while long-term interest rates stood pat – the PMs still suffered significant drawdowns. Thus, while the U.S. 10-Year Treasury yield remains ripe for an upward re-rating, even if it stays in consolidation mode, short-term interest rate pressures are just as ominous.Will We See Another Inflation Surprise?To that point, with the Personal Consumption Expenditures (PCE) Index scheduled for release today, another inflation ‘surprise’ could rattle the bond market once again. To explain, I wrote on Jun. 22:The FED increased its year-over-year (YoY) headline PCE Index forecast from a rise of 2.40% YoY to a rise of 3.40% YoY on Jun. 16. However, with the Commodity Producer Price Index (PPI) surging by 18.98% YoY – the highest YoY percentage increase since 1974 – the wind still remains at inflation’s back. Moreover, with all signs pointing to a YoY print of roughly 4% to 4.50% on Jun. 25, the “transitory” narrative could suffer another blow on Friday.As further evidence, the Kansas City FED released its Manufacturing Survey on Jun. 24. And with the composite index rising from 26 in May to 27 in June, Chad Wilkerson, vice president and economist at the KC FED, had this to say about the current state of affairs:“Regional factory activity rose again in June and expectations for future activity were the highest in survey history . While the majority of firms continue to face increasing materials prices and labor shortages, many firms have also increased selling prices and capital expenditures for 2021.”To that point, while the KC FED’s prices paid and prices received indexes declined slightly from their all-time highs, both gauges remain above their prior historical peaks.Please see below:To explain, the green line above tracks the KC FED’s prices paid index, while the red line above tracks the KC FED’s prices received index. If you analyze the right side of the chart, you can see that both remain extremely elevated.On top of that, survey respondents provided the following anecdotal evidence: Source: KC FEDAlso supportive of future economic growth, U.S. manufacturers spent $36.218 billion on machinery in May (the data was released on Jun. 24) – only a slight decrease from the all-time high of $36.364 billion set in April. And with machinery representative of long-lived assets that have high breakeven costs, the recent splurge signals that manufacturers remain optimistic about the recovery.Please see below:To explain, the green line above tracks manufacturers’ machinery orders, while the red line above tracks the YoY percentage change in the Private Employment Cost Index (ECI). If you analyze the relationship, you can see that when manufacturers invest in long-term equipment, wage inflation often follows. As a result, if the two lines continue their ascent, it will only increase the odds that the FED tapers in September. Forecasting more hawkish, not more dovish FED seems to be appropriate at this time.Knock Knock? It’s China, We Want More MoneyOn top of that, with the U.S. goods trade balance (exports minus imports) revised to -$88.11 billion on Jun. 24, foreign production is required to stock U.S. shelves. And with the Shanghai Containerized Freight Index (the cost to ship from China) unrelenting in its parabolic rise, it’s another indicator that inflationary pressures are unlikely to abate anytime soon.Finally, with the FED selling another $813 billion worth of reverse repurchase agreements on Jun. 24 (~$53 million below the all-time high set on Jun. 23), the liquidity drain remains on schedule.Please see below: Source: NY FEDTo explain the significance, I wrote previously:A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.More importantly, though, after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. On top of that, the liquidity drain is at extreme odds with the FED’s QE program. For example, the FED aims to purchase a combined $120 billion worth of Treasuries and mortgage-backed securities per month. However, with daily reverse repurchase agreements averaging $520 billion since May 21, the FED has essentially negated 4.33 months’ worth of QE in the last month alone.In conclusion, while the PMs should recover a meaningful chunk of last week’s downswing, their medium-term outlook isn’t so sanguine. With FED hawks and doves splintered down the middle, the fundamentals are firmly tilted in the former’s favor. And with inflation and U.S. GDP growth both accelerating concurrently, unemployment is the only card left for the doves to play. However, with enhanced unemployment benefits expiring in early July for roughly 30% of claimants, U.S. nonfarm payrolls should show strength in August and September. Thus, with the FED’s taper talk likely to grow louder over the next few months, the PMs may not like what they will hear.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Is There a Next Housing Bubble That Will Make Gold Shine?

Finance Press Release Finance Press Release 25.06.2021 16:33
Home prices are surging, making some investors worry about the housing market. These fears seem to be exaggerated, but bubble-like conditions are widespread.House prices are surging. As the chart below shows, the S&P/Case-Shiller U.S. National Home Price Index has reached 239 in February 2021, the highest number in history and about 30% higher than during the 2006 peak.What’s more, the National Home Price Index has jumped 12% year-over-year in February , which is the highest annualized gain since January 2006 when the housing bubble started deflating as can be seen in the chart below. At the same time, inventory in many regions has hit record lows.Not surprisingly, some analysts started to worry about the formation of the next housing bubble . The previous one led to the global financial crisis . However, at least some part of the recent increases can be explained by other factors than mere expectations of price increases, which characterizes a bubble.The mortgage rates plunged thanks to the Fed’s zero-interest-rate policy and accommodative monetary policy . The easy fiscal policy with stimulus checks also added fuel to the fire, especially given that people couldn’t spend money on services, so they spent more on housing.The demographic factors also helped to move prices up. Many Millennials have just entered the prime home-buying age, and the pandemic made a lot of people demand more space as they work remotely.In other words, the recent surge in prices is likely a result of an imbalance between tight supply (that rises too slowly to meet booming demand fueled by low interest rates ) and income growth rather than an irrational exuberance. Furthermore, lending standards are also tighter now. Please take a look at the chart below, which shows the home price index vis-à-vis the GDP (presented also as an index).As one can see, in the 2000s there was a clear, huge divergence between the pace of GDP growth and the pace of home prices’ appreciation that lasted a few years before the bubble burst. But since the end of the Great Recession , the growth in house prices was below the GDP growth. Therefore, I would say that there is no bubble in the housing market. Not yet, at least – house prices started to diverge from GDP growth during the pandemic recession …Hence, it would be smart to monitor the housing market carefully. However, so far, gold bulls shouldn’t count on the housing bubble and its burst as important factor that could support the price of the yellow metal. Nevertheless, the recent ultra-low real interest rates and high inflation should support both: gold and houses . After all, they are both hard assets sensitive to interest rates and are being eagerly bought during inflationary periods.More importantly, despite the fact that it’s maybe too early to call the national bubble in the housing market (although some locations are really hot), in many markets there are bubble-like conditions. Just think about soaring stock market indices reaching one record after another. Or negative-yielding bonds worth about $18 trillion. Or surging used car prices that have just hit an all-time high. Or lumber that has become America’s hottest commodity.Or Dogecoin, a cryptocurrency that was created as a joke. It has gained about 8,500% this year, despite the recent sell-off in the cryptocurrency market. As a popular tweet commented on this, “Moderna created a lifesaving vaccine in record time and is worth $70 billion. Dogecoin became a meme and is worth $87 Billion.”The widespread character of these price increases is the reason why some analysts refer to the “everything bubble”. It might be an exaggeration, but the scope of bubble-like conditions clearly shows that markets are awash in liquidity. All this new money supply and excess liquidity simply entered the economy, exerting inflationary pressure across the board and boosting mainly risk assets.Indeed, there is inflation, but still mainly in the asset markets, not in the consumer sphere. However, this is changing, as the April CPI reading has clearly indicated. Producer/commodity inflation could advance into the next stage in which consumer prices are also generally increasing. Inflated asset valuations and rising prices of goods suggest that caution is warranted, and it would be smart to allocate some portion of the investment portfolio toward gold.The bottom line is that the global expansion will continue, which is bad for gold. However, the growth is fueled by excessive liquidity and ultra-low interest rates, which also creates inflationary pressure and bubble-like conditions. Gold could be supported by all this – it may even thrive if inflation turns out to be higher and more lasting than it’s widely believed.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
US Industry Shows Strength as Inflation Expectations Decline

Credit Spreads Declined Unprecedentedly. Will Gold Follow?

Finance Press Release Finance Press Release 29.06.2021 16:23
When credit spreads narrow, it’s bad for gold. But this time there is a silver lining we can look for, although it’s quite adverse for the economy.There are several important factors affecting gold prices. Many analysts focus mainly on the US dollar and real interest rates . However, what is sometimes even more important is economic confidence. Of course, the level of economic confidence is partially reflected in the strength of the greenback and the bond yields . However, I would like to focus today on credit spreads , an often overlooked indicator of economic confidence.Why such a topic? It’s simple, just take a look at the chart below. As you can see, the ICE BofA US High Yield Index Option-Adjusted Spread, which is a proxy for a spread between the yield on below-investment-grade-rated corporate debt and Treasuries of the same duration, has recently declined to a very low level. To be more precise, the analyzed indicator slid from almost 11 in March 2020 to 3.1 at the end of June (the lowest reading since July 2007 , the time just before the Great Recession started).Implications for GoldOK, great, but what does this mean for the gold market? Well, this is a negative development for gold prices, but with a silver lining . Let me explain. When credit spreads are narrow or in a narrowing trend, it means that economic confidence is high or in a rising trend. In such an environment, risk appetite is strong and demand for safe-haven assets such as gold is low. The fact that credit spreads have reached their multi-decade lows indicates that the economic expansion is doing well. If the boom continues, the Fed will eventually normalize its monetary policy a bit, and the interest rates will increase. Additionally, US banks have cleared the Fed’s recent stress tests, which means that they will no longer face restrictions on how much they can spend buying back stock and paying dividends. This change might strengthen the financial sector, additionally boosting economic confidence among investors. And this is all bad for the yellow metal.However, we can look at very low credit spreads from the other side. After all, they have already decreased profoundly and further significant declines are not very likely. Furthermore, the last time they were so narrow was mid-2007, i.e., just a couple of months before the outbreak of the global financial crisis .Hence, it might be the calm before the storm . The economic crisis , by definition, occurs when confidence is high and almost nobody expects any problems. A related issue here is whether the markets are properly assessing the risk. The low risk premium partially results from the low Treasury yields, which push investors who seek profits into riskier securities.Some analysts point out the risks related to the surge in the public debt or inflation . For example, David Goldman notes that the rising gap between prices paid by the producers and prices received by customers ( June Philadelphia Manufacturing Business Outlook Survey ) could depress output in the future, as companies wouldn’t be able to maintain profit margins in such an environment.The bottom line is that the US economy has recovered and the economic expansion continues undisturbed. Given this trend and high economic confidence, despite the soaring prices and indebtedness, gold may struggle for some time .However, credit spreads may widen abruptly when the next crisis hit, as they did in the aftermath of the collapse of the Lehman Brothers . In other words, although the economic confidence is strong, some important downside risks for the US economy are still present, and they could materialize later in the future . Perhaps investors know this – according to the WGC , we saw inflows to the gold ETFs last week, despite the plunge in gold prices. It shows that investors could have been taking advantage of lower prices to buy gold as a portfolio diversifier and protection against tail risks .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Roaring Comeback of Reflation and Commodities

Monica Kingsley Monica Kingsley 02.07.2021 15:45
S&P 500 broadening leadership and fresh reflationary ATHs are here – the FOMC „tightening“ hit notwithstanding. Energy, financials and industrials I discussed yesterday and before, were among the leaders, with tech not staying far behind. Crucially, the tech breadth was also improving – such rotations are the stock bull market‘s health. Neither the VIX nor the put/call ratio are arguing. The sentiment going into today‘s non-farm payrolls, remains constructive, and unlikely to result in reconstruction of the Fed tightening bets. Such was my real-time Twitter interpretation.Credit markets remained constructive, and risk-on this time – that‘s in line with value upswing, accompanied by the Treasury yields‘ inability to retreat further. Near the top of its recent range, the 10-year Treasury yield is trading within the summer bond market calm atmosphere, and so are the beaten down inflation expectations at a time when:(…) the dollar is catching a strong bid. We‘re still in a reflation, in the reopening trades stage – one where inflation expectations have been (unduly) hammered down while inflation hasn‘t taken a corresponding turn. Notably, commodities haven‘t been derailed in the least, so pay no attention to lumber – the real assets‘ world is much richer and profitable.Remember the big picture – fiscal stimulus very much on, monetary accomodation aggressive, no worries about the economic expansion slowing down. Pickup in economic activity associated with inventories replenishment is sure to be kicking reliably on. Open long profits in the S&P 500 and Nasdaq can keep growing!Precious metals are waking up from their slumber, not meaningfully led higher by the miners yet, but base building and peeking higher. Yesterday‘s thoughts apply for days and weeks to come:(…) stabilized post FOMC, as the real rates effect and underestimated inflation is working in their favor. Coupled with commodities on fire, more than partially suspect Fed tightening and tapering promises, silver is the metal that would do better on the rebound after the smackdown. And it did yesterday.Crude oil was catapulted higher on the Saudia Arabia – Russia negotiation speculation, but the production increase is the figure to watch today. Below 500,000 barrels per day, it‘s expected to be $WTIC bullish, but a bigger figure shouldn‘t be surprising. The $76 - $77 area in oil looks tough to crack this week, so taking respectable oil profits off the table early yesterday, was a good move. Regardless of the oil stocks strength, a temporary, volatile (countertrend) move shouldn‘t surprise today.Crypto bears are still probing lower values in Bitcoin and Ethereum, and the short-term balance of forces appears flipping into their favor - Ethereum is getting hit comparatively more.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 is going higher, with tech marginally contributing to the advance.Credit MarketsCredit markets performance was clearly risk-on yesterday, but the time for quality debt instruments to play a little catch up (in the corporate space), looks approaching.Technology and ValueThe anticipated value upswing extended gains yesterday, bringing it almost within spitting distance of prior highs. At the same time, tech scored gains too.Gold, Silver and MinersGold rebounded even though miners didn‘t confirm – as said yesterday, the yield-inflation spread is getting too out of whack here, let alone the mispriced inflation expectations.Silver and copper declined yesterday, but their recent consolidation patterns haven‘t been broken – upswing continuation remains likely here.Crude OilCrude oil remains strong, but vulnerable to today‘s headline risk.SummaryS&P 500 keeps trading near its highs, with a bullish bias, characterized by sectoral rotations and improving market breadth including in Nasdaq.Gold and silver bulls are getting on the move, as the depressed nominal yields are helping attract buying interest – real rates at work.Crude oil is momentarily vulnerable, but its strongly bullish chart isn‘t in danger of being derailed in the still solidly expanding real economy across the world.Bitcoin and Ethereum bulls are again on the short-term defensive, but the weekly charts posture isn‘t yet in jeopardy. The bulls though are losing a tactical advantage.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

FED: U.S. Cocktail of Growth and Inflation

Finance Press Release Finance Press Release 02.07.2021 16:06
The inflationary cauldron continues to boil. However, the USDX and Treasuries are undervalued relative to U.S. GDP growth prospects. What’s going on?The Rising Tide of InflationWhile investors are all-in on the U.S. Federal Reserve’s (FED) “transitory” narrative, the inflationary cauldron continues to boil. Case in point: the IHS Markit released its manufacturing PMI on Jul. 1 and the report read that “June PMI data from IHS Markit signaled the joint-fastest improvement in the health of the U.S. manufacturing sector on record.”Please see below:Moreover, demand remained resilient:“New orders growth remained substantial in June, despite the rate of expansion easing from May's historic high. The pace of increase was the second-fastest on record, with firms continuing to note marked upturns in demand from both new and existing clients.”More importantly, though:“Suppliers' delivery times lengthened to the greatest extent on record in June, as component shortages and transportation issues exacerbated supply-chain woes. Subsequently, vendors hiked their charges. Input costs rose at the fastest pace since data collection for the series began in May 2007 , as greater global demand for inputs put pressure on material shortages. Manufacturers were able to partially pass on higher costs to clients, however, as the rate of charge inflation matched May's historic peak .”Please see below: Source: IHS MarkitOn top of that, the J.P.Morgan Global Manufacturing PMI (also released on Ju1. 1) had a similar message: Source: IHS Markit, J.P. MorganThus, while FED Chair Jerome Powell told Congress on Jun. 22 that the U.S. economy "is still a ways off” and that "we will not raise interest rates preemptively because we fear the possible onset of inflation., we will wait for evidence of actual inflation or other imbalances:”The FED increased its 2021 real GDP growth forecast from 6.5% to 7.0% on Jun. 16.The headline Personal Consumption Expenditures (PCE) Index rose by 3.91% year-over-year (YoY) on Jun. 25 and came in ahead of the FED’s revised forecast of 3.4%.The bottom line? Powell’s gambit is a classic case of ‘do as I say, not as I do.’To that point, The International Monetary Fund (IMF) raised its 2021 U.S. GDP growth forecast from 4.6% to 7.0% on Jul. 1 (pending the passage of U.S. President Joe Biden’s recent infrastructure package).Please see below: Source: ReutersSimilarly, The U.S. Congressional Budget Office (CBO) doubled its 2021 U.S. GDP growth forecast on Jul. 1. Excerpts from the report read:“As the pandemic eases and demand for consumer services surges, real (inflation-adjusted) GDP is projected to increase by 7.4% and surpass its potential (maximum sustainable) level by the end of 2021.In CBO’s projections, employment grows quickly in the second half of 2021 —reflecting increased demand for goods and services and the waning of factors dampening the supply of labor, including health concerns and enhanced unemployment insurance benefits.”In addition, the group’s “PCE price index” forecast of a 2.8% YoY rise is still too low, and forthcoming prints will likely surprise to the upside.Please see below: Source: CBOPiecing it all together: with economic growth projected to reach the levels last seen in 1984, does the FED need to purchase a combined $120 billion worth of Treasuries and mortgage-backed securities per month? As a reminder, the FED’s daily reverse repurchase agreements averaged $642 billion in June and the transactions essentially negated 5.35 months’ worth of QE in the last month alone. However, the psychological effect isn’t the same as an actual taper announcement.Please see below:The U.S. 10-Year Treasury YieldOn top of that, the last time U.S. economic growth hit 7%, the USD Index and the U.S. 10-Year Treasury yield reached highs of 151 and 11% respectively. And while similar strength is unlikely to emerge this time around, it’s still a reminder of how low the pair’s current readings are relative to the prospective GDP growth.To that point, while the long-end of the U.S. yield curve remains in its own little world, Goldman Sachs expects the U.S. 10-Year Treasury yield to end 2021 at 1.90% (roughly 44 basis points higher than the Jul. 1 close).Please see below:Likewise, Robin Brooks, chief economist at the Institute of International Finance (IIF), predicts that the U.S. cocktail of growth and inflation should result in higher long-term interest rates in the coming months. Source: ReutersAs further evidence, following the spike in the headline PCE Index on Jun. 25, the U.S. 10-Year Treasury yield is now trading at its lowest level relative to realized inflation since the mid-1970s.Please see below:To explain, the green line above tracks the U.S. 10-Year Treasury yield, while the red line above tracks the YoY percentage change in the headline PCE Index. If you analyze the relationship, it’s been nearly 50 years since the U.S. 10-Year Treasury yield has underperformed to this degree. As a result, while the front-end of the U.S. yield curve (2s, 3s, 5s) is destined to move higher as the taper talk heats up, participation from the long-end (10s, 20s, 30s) will only add to the PMs’ ills.The USD Up, the EUR DownFurthermore, with the FED’s hawkish shift lighting a fire under the greenback, U.S.-Eurozone growth differentials should also propel the USD Index higher over the medium term. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index.To that point, I warned on Apr. 8 that a shift in the central bank sentiment would uplift the U.S. dollar over the medium term.I wrote:On Mar. 31, the International Monetary Fund (IMF) released its fourth quarter Currency Composition of Official Foreign Exchange Reserves (COFER). The U.S. dollar’s fourth-quarter share of allocated FX reserves fell to its lowest level since 1995, and coincidentally, the USD Index often tracks global central banks’ net-purchases of U.S. dollars (25-year correlation of 0.70).And with a current reading of 59%, you may be thinking: the ‘death of the dollar’ is unfolding before our eyes. Keep in mind though: global central banks often behave like average investors. Meaning? They buy after an uptrend is already in place. Case in point: since 1995, 83% of major USD Index bottoms were followed by an increase in allocated FX reserves . For context, the largest increase occurred from 2014 to 2015 (2.67%), while the lone decrease occurred from 2018 to 2019 (– 1.21%).Please see below:In addition, because the current reading of 59% is 1.70 standard deviations (SD) below the 25-year average, there is a ~4.5% chance that dollar-share declines in the coming months and a ~95.5% chance that dollar-share increases (applying standard normal probabilities).Fast forward to the present, and the IMF announced on Jun. 30 that the U.S. dollar’s share of allocated FX reserves increased from 58.94% to 59.54%.Please see below:In addition, I warned that the euro would likely head in the opposite direction:The euro is another critical component. Following the same script, global central banks often buy the euro after it rises and sell the euro after it falls. More importantly though, euro-share has a seven-year correlation of 0.92 with the EUR/USD . For context, euro-share is currently 0.30 SD above its seven-year average, which implies a ~62% chance of moving lower in the coming months.And surprise, surprise, the euro’s share of allocated FX reserves decreased from 21.29% to 20.57%.Please see below:The bottom line?While central banks have warmed up to the U.S. dollar once again, its current share of allocated FX reserves is still 1.53 SD below its 25-year average (which implies a ~93.7% chance of moving higher). Thus, if the momentum continues, it could add to the PMs selling pressure in the coming months.Nonfarm Payrolls Incoming!Finally, with U.S. nonfarm payrolls scheduled for release today, I noted that outperformance likely won’t materialize until August or September. However, with initial jobless claims (released on Jul. 1) coming in better than expected – at 364,000 vs. 390,000 expected – the U.S. Department of Labor (DOL) revealed that “this is the lowest level for initial claims since March 14, 2020, when it was 256,000.”Please see below: Source: DOLAnd while it’s more of a wild card at this point, U.S. nonfarm payrolls have been lagging behind the recent decline in initial claims.To explain, the red line above tracks U.S. nonfarm payrolls, while the green line above tracks inverted initial jobless claims. For context, inverted means that the latter’s scale is flipped upside down and that a rising green line represents falling initial jobless claims, while a falling green line represents rising initial jobless claims. If you analyze the relationship, you can see that U.S. nonfarm payrolls have some catching up to do. Thus, while we don’t expect any substantial progress until August or September, a strong print for June would serve as a pleasant surprise.In conclusion, the PMs remain range-bound, as they debate whether the next catalyst will be bullish or bearish. However, with U.S. economic growth poised to outperform in the coming months, not only are the USD Index and Treasury yields (both long and short) undervalued relative to U.S. GDP growth prospects, but inflation is surging, and a forthcoming taper should only add to their upward momentum. As a result, the medium-term outlook remains bearish for the precious metals market, even though the long-term outlook is bullish.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFA Founder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Intraday Market Analysis – USD Seeks Support Post-NFP

FXMAG Team FXMAG Team 06.07.2021 08:48
EURUSD struggles to bounceThe US dollar drops after an uptick in last month’s unemployment rate. Sentiment towards the euro grew a tad more bearish after it fell below 1.1850, the support of the recent consolidation range.However, an RSI divergence suggests a loss in the downward momentum, and its double-dip into the oversold territory may make sellers reluctant to double down. Buyers will need to lift offers around 1.1880 before they could push for a reversal.Below 1.1800, the pair would be heading towards the daily support at 1.1710 by default.XAGUSD rallies above resistanceBullions bounce back as weaker-than-expected jobs data take a toll on the US dollar.On the daily chart, silver has found support at the 61.8% (25.70) Fibonacci retracement level from the late March rally. 26.50 has so far capped the bulls’ attempts.The latest breakout is a confirmation of the previously mentioned bullish RSI divergence. The bears may rush to cover their bets before it becomes too expensive to do so.27.20 would be the next target when the rebound gains traction.GER 30 looks to break out of triangleThe DAX 30 consolidates near its recent peak as the euro zone’s economy picks up steam.The index is in an ascending triangle as buyers are willing to pay up. This often occurs as a continuation pattern as the price will typically breakout in the same direction as the underlying trend.A close above 15750 may prompt the last sellers to cover. The RSI stays neutral, laying the groundwork for a breakout. A runaway rally could lift offers towards the milestone at 16000.A drop below 15500, however, may trigger a correction to 15280.
Intraday Market Analysis – USD Seeks Support Post-NFP - 06.07.2021

Intraday Market Analysis – USD Seeks Support Post-NFP - 06.07.2021

FXMAG Team FXMAG Team 06.07.2021 08:48
EURUSD struggles to bounceThe US dollar drops after an uptick in last month’s unemployment rate. Sentiment towards the euro grew a tad more bearish after it fell below 1.1850, the support of the recent consolidation range.However, an RSI divergence suggests a loss in the downward momentum, and its double-dip into the oversold territory may make sellers reluctant to double down. Buyers will need to lift offers around 1.1880 before they could push for a reversal.Below 1.1800, the pair would be heading towards the daily support at 1.1710 by default.XAGUSD rallies above resistanceBullions bounce back as weaker-than-expected jobs data take a toll on the US dollar.On the daily chart, silver has found support at the 61.8% (25.70) Fibonacci retracement level from the late March rally. 26.50 has so far capped the bulls’ attempts.The latest breakout is a confirmation of the previously mentioned bullish RSI divergence. The bears may rush to cover their bets before it becomes too expensive to do so.27.20 would be the next target when the rebound gains traction.GER 30 looks to break out of triangleThe DAX 30 consolidates near its recent peak as the euro zone’s economy picks up steam.The index is in an ascending triangle as buyers are willing to pay up. This often occurs as a continuation pattern as the price will typically breakout in the same direction as the underlying trend.A close above 15750 may prompt the last sellers to cover. The RSI stays neutral, laying the groundwork for a breakout. A runaway rally could lift offers towards the milestone at 16000.A drop below 15500, however, may trigger a correction to 15280.
New York Climate Week: A Call for Urgent and Collective Climate Action

The Rise of Precious Metals and Commodities

Monica Kingsley Monica Kingsley 06.07.2021 16:15
S&P 500 closed Friday on a strong note, and as the holiday-shortened week is usually accompanied by positive seasonality, it would be reasonable to expect extension of gains. Is therre any show stopper at the moment? Credit markets are strong and in a risk-on mode – but what about the odd strength in long-dated Treasuries? Are the stock traders getting it right – or the bond ones? Remember that such divergencies can take a long time to resolve, and don‘t require immediate action. It‘s the same with the Industrials and Transports in the Dow theory. So, don‘t jump to S&P 500 bearish conclusions just yet.The stock market advance is characterized by improving market breadth, and a fresh push of reflationary trades. It would have been all too easy to lose one‘s cool post the June FOMC, and declare value to have topped – while tech amply helped by heavyweights powers the S&P 500 advance, value performance ain‘t too shabby. Even financials are weathering relatively well the retreating yields pressure, counterbalanced by the Fed relaxing share buybacks and dividend rules. Real assets including energy are surging again, and the Fed‘s bluff is being called.Little wonder when all the central bank did, was influence inflation expectations, and precisely nothing about current inflation – let alone pressures in the pipeline. I‘ve discussed the cost-push pressures building up, leading to inflation becoming unanchored. Add job market pressures beyond the difficulties in hiring, and the issue grows more persistent. While it‘s not biting overly noticeably for the financial markets to take notice the way they did in Mar and early May, left unattended, inflation would come to bite in the not so distant future. The takeaway is that with the constant redefinitions of what transitory should mean now, the concept of Fed as inflation fighter is subject to well deserved mockery.Look for the lull in Treasury market to continue, it‘s almost goldilocks economy as the monetary and fiscal support rivals wartime footing circumstances. Makes you wonder what would be on the table if we were faced with a recession. Thankfully, that‘s not on the horizon – we‘re in a multi-year economic expansion that won‘t end with the tapering or tightening games this year or next, not in the least.As I wrote on Friday, thinking also about the value strength:(…) accompanied by the Treasury yields‘ inability to retreat further. Near the top of its recent range, the 10-year Treasury yield is trading within the summer bond market calm atmosphere, and so are the beaten down inflation expectations at a time when the dollar is catching a strong bid. Notably, commodities haven‘t been derailed in the least, so pay no attention to lumber – the real assets‘ world is much richer and profitable.Remember the big picture – fiscal stimulus very much on, monetary accomodation aggressive, no worries about the economic expansion slowing down. Pickup in economic activity associated with inventories replenishment is sure to be kicking reliably on. Open long profits in the S&P 500 and Nasdaq can keep growing!Precious metals are duly reacting today to the pressures to go higher, building up for weeks. Look for miners to confirm the upswing that isn‘t going unnoticed in the commodities arena either.Crude oil took off on the absence of OPEC+ deal, but I am looking for it to base in the $70s before we see triple digit crude prices next week. The Brent crude lag looks a bit suspicious to me, so a little breather might be in order here.Crypto bears are getting a beating, with the odds favoring upswing to continue – the Ethereum outperformance of Bitcoin is conducive to the accumulation thesis I had been mentioning for weeks.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 is going higher, and so is Nasdaq. The decreasing volume might usher in a little consolidation over time but there is no imminent reason to call for one today.Credit MarketsCredit markets performance remains strong across the board, but I am looking for TLT to face headwinds soon.Technology and ValueTech is up, value is up – what else to wish for? Defending the gained ground, that is.Gold, Silver and MinersGold is attempting to go higher, and based on the yield-inflation spread getting ever more compressed and a tad off inflation expectations, I‘m looking for miners to confirm the upcoming gold advance.Silver and copper are also building energy to go higher, and it‘s my view they would surge to recapture a good portion of the post FOMC decline before taking a breather.Bitcoin and EthereumStrong base building in the cryptos continues, and the bulls have the tactical advange at the moment.SummaryS&P 500 keeps trading near its highs, with a bullish bias, characterized by sectoral rotations and improving market breadth including in Nasdaq. A little sideways consolidation appears looming, but I am looking for a positive week.Gold and silver bulls are getting ever more strongly on the move, and Friday‘s upper knot is a preview of things to come – the depressed nominal yields with unrelenting inflation are helping attract buying interest.Crude oil enjoyed more than its fair share of good news, but remains bullish today‘s tremors notwithstanding. Great future ahead for black gold, the Saudi Arabia – UAE spat regardless.Bitcoin and Ethereum bulls are the favored side these days as the weekly charts posture isn‘t yet in jeopardy. The basing pattern looks to be one of accumulation rather than distribution.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the four publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals and Bitcoin Trading Signals.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Will Strong June Nonfarm Payrolls Add To Gold's Problems?

Finance Press Release Finance Press Release 06.07.2021 17:30
The US economy created 850,000 jobs in June. It could be another nail in gold’s coffin – what will the yellow metal do?850,000. This is how many jobs the US economy added in June. It means that the recent nonfarm payrolls came above the forecasts (economist predicted 700,000 created jobs) and are much higher than the 583,000 in May or the deeply disappointing 269,000 in April (see the chart below). Big gains occurred in sectors heavily hit previously by the pandemic, i.e., in leisure and hospitality (343,000), public and private education (269,000), professional and business services, retail trade, and other services.Furthermore, employment in April and May was revised upward by 15,000. The acceleration in the pace of job increases is a good sign for the US post-pandemic economy and a bad development for the gold market.The only relief for gold could be the fact that the unemployment rate increased from 5.8% to 5.9%, as the chart above shows. This increase was a negative surprise, as economists forecasted a decline to 5.6%. This is also quite paradoxical –unemployment remains relatively high despite a record number of job openings.Another potentially supportive factor for the gold market could be the 3.6% annual increase in wages, which means there will be higher wage inflation that could add to the consumer inflationary pressure. On the other hand, stronger wages could also support the Fed’s hawkish arguments for reducing quantitative easing and raising interest rates rather sooner than later.Implications for GoldThe newest employment situation report is negative for the yellow metal mainly because it strengthens the position of hawks within the FOMC. With strong labor market, there are higher chances that the Fed will normalize its monetary policy earlier. As a reminder, some of the central banks believe that the Fed has already reached its inflation targets. So, the labor market target is what’s left. Strong job gains in June moved the US economy much closer to achieving this Fed’s goal and erasing worries that came in the aftermath of the extremely disappointing April reading.In other words, the strong employment report may add to the current weakness in gold in the medium-term. What the yellow metal needs right now is the flux of unambiguously poor economic data that could trigger the dovish counterrevolution within the US central bank, not the positive reports that strengthen further the expectations of earlier hikes in the federal funds rate. So, the recent report could increase the bond yields and support the American dollar, creating downward pressure on gold.However, the initial response of the yellow metal was positive. As the chart below shows, the price of gold increased on Friday. This is probably because the report wasn’t as good as it could be – i.e., although the nonfarm payrolls release beat expectations, the unemployment rate increased, suggesting that the Fed may, after all, not taper as soon as some investors believe.Gold’s performance amid strong payrolls data is reassuring a bit. The yellow metal is still in the game; it may even return more decisively to the spotlight if investors cease to be relaxed about higher inflation. So far, the US central bank believes that inflation is transitory and markets are calm, but inflation may turn out to be more persistent than the Fed officials and the pundits claim. In such a scenario, the FOMC will have to catch up, which could trigger volatility or even recession; this is an environment in which investors could again switch to gold. But this is still a song of the future, and in the meantime, gold may struggle.Anyhow, for now, investors are focused on the upcoming (tomorrow!) minutes from the latest FOMC meeting. They should provide us with more clues about the Fed’s monetary policy and the direction of gold prices in the future.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Gold: The Tapering Clock Is Ticking

Finance Press Release Finance Press Release 08.07.2021 15:42
With the FED increasingly hawkish and the USDX rising from the ashes, don’t be fooled by the recent upswing in gold. The bears are getting ready.With the reflation trade getting cut off at the knees, the only asset class not feeling the pain is U.S. equities. However, while shorts capitulate and send the U.S. 10-Year Treasury higher (and the yield lower), the flattening of the U.S. yield curve screams of a potential recession. However, while the development is bullish for the USD Index and bearish for the PMs, investors are putting the cart before the horse.To explain, while the U.S. 10-Year Treasury yield languishes in its depressed state, J.P. Morgan told clients on Jul. 6 that the Treasury benchmark is roughly three standard deviations below its model-implied fair value. For context, J.P. Morgan believes that the U.S. 10-Year Treasury yield should trade at roughly 1.60%, and, given the three-sigma underperformance, standard normal probabilities imply a roughly 99.9% chance that the Treasury benchmark will move higher over the medium term.Please see below:However, while the bond market ‘wants what it wants’, it’s important to remember that a flattening of the U.S. yield curve has the same effect on the PMs. For example, while I’ve been warning for months that the U.S. Federal Reserve (FED) will likely taper its asset purchases much sooner than investors expect, the minority view is now the consensus. And with that, the hawkish shift reduces inflation expectations, reduces growth expectations and often results in lower long-term interest rates. However, while the U.S. 10-Year Treasury yield still remains significantly undervalued in our view, ‘the ghost of tapering past’ has investors aiming to front-run a September reveal.As evidence, the FED released the minutes from its Jun. 15/16 policy meeting on Jul. 7. An excerpt from the report read:“Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of in-coming data.”And surprise, surprise, while I’ve been warning for some time that surging inflation will likely force the FED’s hand, the report revealed:Source: U.S. FEDThe Container WarBut with long-term yields signaling the death of inflation, is a regime shift already underway? Well, I warned previously that inflationary pressures are unlikely to abate anytime soon:I wrote:With the U.S. Census Bureau revealing on Jun. 8 that U.S. imports from China (goods) totaled nearly $38 billion in April, more and more data signals that the U.S. economy will continue to feel the inflationary burn. Shipping costs are also exploding at an unprecedented rate.Please see below:To explain, the lines above track the shipping costs to-and-from various regions. If you analyze the dark blue line sandwiched in the middle ($6.5K), average shipping costs continue to skyrocket. Moreover, if you’re shipping from Shanghai to Rotterdam, New York or Genca, global businesses are nowhere near solving these “transitory” issues.And providing another update on Jun. 28, the situation has only worsened.To explain, if you compare the first chart to the one directly above, you can see that the composite container rate (the dark blue line) has increased from $6.5K to $8.1K in only two weeks. What’s more, shipping from Shanghai to Rotterdam (the gold line) has increased from $10.5K to $12.0k, while Shanghai to New York (the gray line) has risen from $7.6K to $11.2K. As a result, does it seem like inflationary pressures are a thing of the past?To that point, with the old adage implying that ‘the third time’s the charm,’ the surge lives on.Please see below:To explain, the composite container rate has now gone from $6.5K through $8.1K to $8.4K in less than a month. And with shipping costs from China (Shanghai) leading the charge, the FED’s “transitory” narrative still lacks empirical credibility.To that point, can you guess which trading partner accounts for 17.3% of U.S. imports?Source: U.S. Census BureauThe bottom line? While the bond market may ‘wish upon a star,’ inflationary pressures are unlikely to subside until the FED tapers its asset purchases (and/or raises interest rates).What Can the Services PMI Tell Us?As further evidence, the Institute for Supply Management (ISM) released its services PMI on Jul. 6. And while the headline index declined from 64 in May (an all-time high) to 60.1 in June, inflation remained abundant:“Prices paid by service organizations for materials and services increased in June, with the index registering 79.5 percent, 1.1 percentage points lower than May’s reading of 80.6 percent. 17 services industries reported an increase in prices paid during the month of June … [with] only [one] industry reporting a decrease.”In addition, ISM Chair Anthony Nieves added:“According to the Services PMI, 16 services industries [out of 18] reported growth. The composite index indicated growth for the 13th consecutive month after a two-month contraction in April and May 2020. The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high. Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”For context, the ISM requires written permission before redistributing any of its content, and that’s why I quoted the findings rather than including a screenshot of the report. However, if you want to review the source material, you can find it here.Likewise, IHS Markit also released its U.S. services PMI on Jul. 6. An excerpt from the report read:“Contributing to the robust rise in activity across the service sector was a further marked increase in new business at the end of the second quarter. Alongside strong customer demand, firms attributed the upturn in new sales to the acquisition of new clients. Although the rate of new business growth slipped to a three-month low, it was still the third-fastest on record.”And following right along:Source: IHS MarkitFurthermore, while oil prices have surged in 2021 so far, major companies haven’t increased their capital investments. As a result, not only are U.S. crude oil inventories still ~6% below their historical average (as of Jun. 30), but dormant supply could put upward pressure on prices in the coming months.Please see below:To explain, the gold line above tracks the Brent price, while the blue line above tracks major oil companies’ capital expenditures. If you analyze the right side of the chart, you can see that investments in drilling infrastructure have fallen off a cliff. And with demand likely to remain abundant as economies reopen, fuel, gasoline and heating oil prices will likely remain elevated.The Swagger of the USDXFinally, with the USD Index regaining its swagger and the EUR/USD falling from grace, the cocktail of a hawkish FED and fundamental underperformance is weighing heavily on the euro. Moreover, with growth differentials poised to widen in the coming months, U.S. dollar strength could cast a dark shadow over the PMs.Please see below:To explain, the various lines above track Bank of America’s quarterly projections for G6 real GDP levels. If you focus your attention on the dark blue (U.S.) and light blue (Eurozone) lines, you can see that the former is leading the pack, while the latter is vying for the last place. On top of that, the U.S.’s projected outperformance of Japan, Canada, and the U.K. is bullish for the USD/JPY and the USD/CAD but bearish for the GBP/USD.In conclusion, while the PMs remain upbeat, it’s likely another case of ‘been there, done that.’ For example, it was roughly four months ago that falling real yields helped uplift gold before it eventually collapsed. And with a similar event unfolding once again, gold has demonstrated rational (though, superficial) strength. However, with the clock ticking toward a taper announcement and the USD Index rising from the ashes, the corrective upswing is likely another head fake within gold’s medium-term downtrend.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

FOMC Minutes: A Confirmation of Fed’s Hawkish Shift?

Finance Press Release Finance Press Release 08.07.2021 15:55
The latest FOMC minutes were… mixed. The discussion between hawks and doves continues giving gold no comfort. Who will gain the upper hand?Yesterday, the FOMC published the minutes from its last meeting in June. Investors who counted on some clear clues are probably disappointed, as the minutes can please both hawks and doves. Indeed, the report showed that the Fed officials are divided on their inflation outlook and the appropriate course of action. The dovish side believes that the recent high inflation readings are transitory and they will ease in the not-so-distant future, while the hawkish camp worries that the upward pressure on prices could continue next year:Looking ahead, participants generally expected inflation to ease as the effect of these transitory factors dissipated, but several participants remarked that they anticipated that supply chain limitations and input shortages would put upward pressure on prices into next year. Several participants noted that, during the early months of the reopening, uncertainty remained too high to accurately assess how long inflation pressures will be sustained.Importantly, most FOMC members recognized that the risks to inflation forecasts leaned more to the upside. This means that the hawkish shift is indeed real, although the Fed will remain very accommodative:Although they generally saw the risks to the outlook for economic activity as broadly balanced, a substantial majority of participants judged that the risks to their inflation projections were tilted to the upside [emphasis added] because of concerns that supply disruptions and labor shortages might linger for longer and might have larger or more persistent effects on prices and wages than they currently assumed. Several participants expressed concern that longer-term inflation expectations might rise to inappropriate levels if elevated inflation readings persisted. Several other participants cautioned that downside risks to inflation remained because temporary price pressures might unwind faster than currently anticipated and because the forces that held down inflation and inflation expectations during the previous economic expansion had not gone away or might reinforce the effect of the unwinding of temporary price pressures.As a consequence of fast economic growth and higher inflation than expected, some participants suggested that it would be appropriate to taper the quantitative easing and hike the federal funds rate sooner than previously thought. Or, to be at least prepared if higher inflation turns out to be more persistent than the consensus sees it:In light of the incoming data and the implications for their economic outlooks, a few participants mentioned that they expected the economic conditions set out in the Committee's forward guidance for the federal funds rate to be met somewhat earlier than they had projected in March (…)Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data (…)Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than-anticipated progress toward the Committee's goals or the emergence of risks that could impede the attainment of the Committee's goals.However, despite all these hawkish commentaries, the majority of FOMC members remains extremely cautious and believe that the economy has still a long way to achieve the Fed’s targets, especially full employment:Many participants remarked, however, that the economy was still far from achieving the Committee's broad-based and inclusive maximum-employment goal, and some participants indicated that recent job gains, while strong, were weaker than they had expected.So, given that the economy hasn’t yet fully recovered, inflation will likely be just transitory, and there is high uncertainty about the economic outlook, it would be premature to tighten the monetary policy and raise the interest rates:Participants generally agreed that the economic recovery was incomplete and that risks to the economic outlook remained. Although inflation had risen more than anticipated, the increase was seen as largely reflecting temporary factors, and participants expected inflation to decline toward the Committee’s 2 percent longer-run objective (…)Several participants emphasized, however, that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation. In their view, this heightened uncertainty regarding the evolution of the economy also implied significant uncertainty about the appropriate path of the federal funds rate (…)Participants discussed the Federal Reserve’s asset purchases and progress toward the Committee’s goals since last December when the Committee adopted its guidance for asset purchases. The Committee’s standard of “substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue (…) Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation. As a result, several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases.Implications for GoldWhat do the recent FOMC minutes imply for gold? Well, in some sense, not so much. The minutes don’t include any revolutionary insights we are not aware of. Moreover, they lacked any clear guidelines about the future US monetary policy, as we could find both hawkish and dovish remarks in them.And indeed, the price of gold was little changed in the aftermath of the FOMC minutes, and it remained slightly above $1,800 it reached the day before (see the chart below).However, the minutes haven’t offered any significant dovish counterweight to the recent hawkish statement and the dot-plot. The statement is often more aggressive than nuanced and soft. Hence, although the minutes do show the discussion among the Fed’s officials, the hawkish shift is real. Perhaps the most important part of the document is the paragraph about the transition into a post-pandemic world.Members judged that the economic outlook had continued to improve and that the most negative effects of the pandemic on the economy most likely had occurred. As a result, they agreed to remove references in the FOMC statement that noted that the virus was "causing tremendous human and economic hardship" and that "the ongoing public health crisis continues to weigh on the economy." Instead, they agreed to say that progress on vaccinations had reduced the spread of COVID-19 and would likely continue to reduce the negative economic effects of the public health crisis.So, although the recovery is not completed and the economy hasn’t reached the Fed’s goals yet, the normalization of the US monetary policy has begun. It’s a fundamentally negative development for the gold market. Of course, gold bulls may find some comfort in the fact that it will still take at least a few meetings to develop and announce a plan of tapering the asset purchases; the interest rates cycle will start only later. Another positive factor is, of course, that gold managed to stay above $1,800 despite the lack of any clear dovish signals in the minutes.Nonetheless, the Fed’s hawkish U-turn – unless reversed because of another economic crisis, or unless accompanied by stagflation – should imply higher bond yields, a stronger greenback and, thus, weaker gold.In other words, the minutes won’t change the current market narrative, which assumes that the economic recovery is on track while inflation is just transitory. As a reminder, the latest job gains were surprisingly strong, which moves the US economy closer to full employment. Such a narrative implies strong economic confidence and limited demand for safe-havens such as gold.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

ECB Changed Monetary Strategy. Will It Alter Gold’s Course?

Finance Press Release Finance Press Release 13.07.2021 12:20
The ECB adopts a new inflation target. Is the European Central Bank mimicking the Fed or doing its own thing? The revolution in central banking is spreading. Following the Fed, the European Central Bank has also modified its target. Last week, after an 18-months review of its monetary policy framework, the ECB published a statement on its monetary policy strategy, deciding to change its goal from “below but close to 2%” to a more symmetric aim of “2% inflation over the medium term”. The most important part of the statement is below:The Governing Council considers that price stability is best maintained by aiming for two per cent inflation over the medium term. The Governing Council’s commitment to this target is symmetric.The symmetry means that the ECB considers both overshooting and undershooting as equally bad. In the previous framework, the ECB clearly believed that downside deviations from inflation were less harmful than upside deviations.The medium-term orientation means that the ECB accepts short-term deviations of inflation from the target, and acknowledges lags and uncertainty in the application of the monetary policy to the economy and to inflation. In particular, the ECB stated that there might be transitory periods in which inflation is moderately above target. However, similarly to Fed, neither “medium-term” nor “moderately” were defined more specifically.Another interesting point in the statement is the recognition that “the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation rate that is relevant for households”. So far, the ECB only covers costs of rents in the case of tenants. It doesn’t mean that the ECB will start including house prices in its measures of consumer inflation, but it’s a move toward more accurate measures that will better show true inflationary forces operating within the economy.Last but definitely not least, the ECB emphasized the importance of climate change for price stability, monetary policy, and central banking:Climate change has profound implications for price stability through its impact on the structure and cyclical dynamics of the economy and the financial system. Addressing climate change is a global challenge and a policy priority for the EU. Within its mandate, the Governing Council is committed to ensuring that the Eurosystem fully takes into account, in line with the EU’s climate goals and objectives, the implications of climate change and the carbon transition for monetary policy and central banking. Accordingly, the Governing Council has committed to an ambitious climate-related action plan. In addition to the comprehensive incorporation of climate factors in its monetary policy assessments, the Governing Council will adapt the design of its monetary policy operational framework in relation to disclosures, risk assessment, corporate sector asset purchases and the collateral framework.The ECB’s ambitious climate-related action plan was announced during a separate press conference. The blueprint includes broader macroeconomic modelling, developing new indicators, conducting climate stress tests, etc. In particular, in the future, the ECB will be purchasing only adequately green assets:The ECB will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria, in line with its mandate. These will include the alignment of issuers with, at a minimum, EU legislation implementing the Paris agreement through climate change-related metrics or commitments of the issuers to such goals.It doesn’t make any sense, of course. After all, as John Cohrane pointed out, “climate change poses no measurable risk to the financial system”. This is because the climate is not likely to cause a sudden, unexpected and enormous economic effect that could endanger the financial system. Climate is not weather – and even sudden natural disasters barely affect the financial system. Central banks should focus on price stability and not engage in achieving social or political goals. The deviations from their traditional narrow mission could only destroy their independence and, thus, their ability to hold inflation under control and prevent big financial crashes.Implications for GoldThe ECB’s change is dovish, as it shows that the European central bankers are now more eager to tolerate an overshoot. It means that both the Fed and the ECB started to be more tolerant of overshoot exactly when inflation became higher. What a coincidence! The HCIP for the Eurozone is presented in the chart below.So, the alteration could be seen as fundamentally positive for inflation hedges such as gold. However, the ECB could be less aggressive than the Fed. As Christine Lagarde said during the press conference, “Are we doing average inflation-targeting like the Fed? The answer is no, very squarely”.On the other hand, a more dovish ECB should translate into a stronger dollar relative to both the euro and gold. But it’s also possible that the change in the monetary framework won’t significantly affect the precious metals, as the ECB is already ultra-dovish and has problems with even reaching the target, not to mention overshooting it.It seems that gold is reacting now more to the decrease in the bond yields rather than to the changes in the US or EU monetary policies. As long as the interest rates are declining, gold is catching its breath. But this decrease may be temporary, so better watch out! Powell’s testimonies to Congress next week could provide us with more clues about gold’s outlook.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

Gold: Ominous Clouds Gather Above the Metals

Finance Press Release Finance Press Release 14.07.2021 14:39
The news hitting the market is clouding the precious metals outlook – higher U.S. Treasuries and a hawkish FED are turning into a dangerous concoction.Running Out of ExcusesWith investors’ attention span rivaling that of a young child, the inflationary carousel has gone from hot to cold and to hot once again. For example, after short-covering, the Delta variant and the FED’s hawkish shift dropped the guillotine on the U.S. 10-Year Treasury yield, the long-term benchmark languished in defeat. However, with inflation’s reincarnation once again shifting the narrative, I warned on Jul. 9 that investors are still underestimating the inflationary fervor.I wrote:With the Consumer Price Index (CPI) scheduled for release on Jul. 13, another dose of reality could be forthcoming. Case in point: with the Commodity Producer Price Index (PPI) surging by 18.98% year-over-year (YoY) in May – the highest YoY percentage increase since 1974 – the print implies a roughly 5% to 5.5% YoY increase in the headline CPI. To explain, when the commodity PPI increased by 17.4% YoY in July 2008, the headline CPI rose by 5.3% in August. Thus, with the commodity PPI surging by 18.98% in May, all signs point to another ‘surprising’ headline CPI print for June.To that point, with the headline CPI surging by 5.32% YoY on Jul. 13 (vs. 4.90% expected), the “transitory” narrative suffered another body blow. For context, all inflation is transitory. However, there is a profound difference between three months of transitory inflation and 12 months of transitory inflation.Please see below:To explain, the green line above tracks the YoY percentage change in the commodity PPI, while the red line above tracks the YoY percentage change in the headline CPI. If you analyze the relationship, you can see that the pair have a close connection.Likewise, while investors comb through the print and search for aberrations that support their outlook, they’re missing the most important link. For example, with the Used Cars and Trucks CPI surging by 45.2% YoY in June, disbelievers suggest that once the outlier recedes, it will quell the inflationary momentum. For context, I’ve been warning since April that the Manheim Used Vehicle Index signaled a profound jump in the Used Cars and Trucks CPI.Despite that, while investors lament the obvious (of course the Used Cars and Trucks CPI will decelerate in the coming months), the commodity PPI is still the most important indicator of where the inflation story is headed next.Please see below:To explain, the scatterplot above depicts the relationship between the headline CPI and the commodity PPI (since 1994). For context, the headline CPI is plotted on the vertical axis, while the commodity PPI is plotted on the horizontal axis. If you analyze their movement, you can see that the pair have a strong linear relationship (correlation). Moreover, if you focus your attention on the right side of the chart, you can see that the commodity PPI has only risen by 15% YoY or more (for a month) five times since 1994. On top of that, if you follow the red arrow, you can see that the PPI/CPI relationship remains on trend. The bottom line? If the commodity PPI (which is scheduled for release today) remains hot, then expect the headline CPI to follow suit.The Economy Growing… Too Much?Furthermore, while the Used Cars and Trucks CPI is poised to slow over the medium term, I warned on Jun. 3 that rent inflation could easily take its place. For context, the Shelter CPI accounts for more than 30% of the movement of the headline CPI. And with The Federal National Mortgage Association (Fannie Mae) projecting that the Shelter CPI will increase from “2.0%annualized to about 4.5%” and “last through at least 2022,” the “‘transitory’ increases to the rate of overall inflation may be more prolonged than many are expecting.”Please see below: Source: Fannie MaeLikewise, with inflation surging and the U.S. Federal Reserve (FED) pouring gasoline on the fire, St. Louis FED President James Bullard told the Wall Street Journal (WSJ) on Jul. 12 (released on Jul. 13) that “I am a little bit concerned that we’re feeding into an incipient housing bubble ... [and] I think we don’t need to be doing that with the economy growing at 7%.”Please see below:Source: WSJIn addition, Conagra Brands CEO Sean Connolly also warned on Jul. 13 that “this is an atypical level of inflation [and] it’s the highest inflation level our company has seen in as many years as we can remember.” For context, Conagra Brands is an American food manufacturer and is home to well-known brands such as Marie Callender’s, Healthy Choice and Slim Jim.Please see below:Source: BloombergIf that wasn’t enough, JPMorgan CEO Jamie Dimon was asked during the company’s Q2 earnings call on Jul. 13 about how the current recovery compares to the recovery following the global financial crisis (GFC). He responded:“I think they're completely different fundamentally…. The consumer, their house value is up, their stock rises up, their incomes are up, their savings are up, their confidence are up. The pandemic is kind of in the rearview mirror. Hopefully, nothing gets worse with it. And they're ready to go.”He added:“Jobs are plentiful, wages are going up. These are all good things. And so, obviously, if the inflation can be worse than people think, I think it will be a little bit worse with these kinds of things. I don't think it's all temporary, but that doesn't matter if we have very strong growth.”Even more revealing, while Dimon said that he’s “not predicting” that the U.S. 10-Year Treasury yield “goes to 3%,” he mentioned that “you may have growth in the second half this year [that’s] stronger than it's ever been in the United States of America.” Furthermore, CFO Jeremy Barnum said that the largest bank in the U.S. is putting its money where its mouth is and that’s why the cash on its balance sheet has not been invested in U.S. Treasuries.Please see below:Source: JPMorgan/Seeking AlphaFinally, with the Chicago FED releasing its Survey of Business Conditions (CFSBC) on Jul. 13, its labor cost index is now at an all-time high and its non-labor cost index remains materially elevated. Thus, the FED is running out of excuses for not scaling back its bond-buying program.Source: Chicago FEDIn conclusion, the PMs continue to hope for a bullish catalyst, but the news hitting the market is clouding their outlook. While conventional wisdom suggests that surging inflation is bullish for the gold, silver, and mining stocks, the cocktail of higher U.S. Treasury yields and a hawkish FED more than offsets the optimistic long-term argument. As a result, while the PMs may generate short-term bursts of strength, and their very long-term outlook remains favorable, their medium-term outlook is extremely ominous. With the USD Index gunning for 93, and surging inflation likely to force the FED’s hand, a September taper is unlikely to elicit a positive response from the metals.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
New York Climate Week: A Call for Urgent and Collective Climate Action

Inflation Soars, Powell Remains Unmoved. What about Gold?

Finance Press Release Finance Press Release 15.07.2021 12:06
The CPI surged 5.4% in June, but Powell still sees inflation as transitory. For now, gold has risen under the dovish Fed’s wing amid higher inflation.Did you think that 5% was high inflation? Or that inflation has already peaked? Wrong! Inflation rose even further in June, although it was already elevated in May. Indeed, the consumer price index surged 0.9% in the last month, following a 0.6% jump in May. It was the largest one-month change since June 2008, during the Great Recession.Importantly, the Core Price Index, which excludes food and energy, also rose 0.9%(after a 0.7% increase in the previous month). It shows that inflation is accelerating not only because of higher energy prices but also due to more structural, underlying trends.On an annual basis, the inflationary outlook is even scarier. The CPI soared 5.4% in June, following a 5% jump in May. It was the largest annual change since August 2008, just before the bankruptcy of the Lehman Brothers and the outbreak of the global financial crisis. As the chart below shows, the inflation annual rate has been trending up every month since the beginning of 2021. So, how much “temporality” can be found here?However, the real shocker is that the core CPI surged 4.5%, the largest 12-month increase since November 1991 (see the chart above)! Ups, Houston, we have a problem, an inflationary problem! Or at least a surprise, as June inflation numbers came significantly above expectations.Furthermore, high inflation could persist later this year, or it could even accelerate further – this is at least what the producer prices suggest. The PPI for final demand increased 1.0% last month after rising 0.8% in May. On an annual basis, it surged 7.3%, following a 6.6% rise in May. It was the largest gain since November 2010. Additionally, rising producer prices could translate (with some lag) into rising consumer prices.Of course, inflationary pressure may soften later this year. After all, the index for used cars and trucks soared 10.5% in June (MoM) and 45.2% (YoY), as the chart below shows, accounting for more than one-third of the surge. However, inflation is already more persistent than expected, and it could remain elevated for longer than believed.In other words, although the surge in inflation is partially caused by the supply bottlenecks and the recovery from the pandemic, it has also structural origins that are not entirely linked to the epidemic. You can think about the increase in the broad money supply and easy fiscal policy with stimulus much larger than the output gap. As one can see in the chart above, the index for shelter – the biggest component of the CPI, not hit directly by the pandemic – has also been increasing recently.Implications for GoldWhat does the acceleration in inflation mean for the gold market? On the one hand, higher inflation should increase the demand for gold as an inflation hedge. It could also decrease the real interest rates and weaken the US dollar, also supporting the yellow metal. But on the other hand, higher inflation could translate into expectations of more hawkish Fed and higher interest rates, which could negatively affect gold.Luckily for gold bulls, it seems that the acceleration in inflation won’t change the Fed’s course. Powell downplayed the inflation threat in his yesterday’s testimony to Congress. He continued seeing higher inflation as transitory and said that conditions to trigger a policy shift are “still a ways off.”As a consequence, the price of gold increased yesterday to above $1,820, temporarily reaching $1,830. It’s not surprising, as an unmoved Fed amid higher inflation is a fundamentally positive factor for the yellow metal.However, the upward move was very modest given the circumstances, which isn’t particularly encouraging. Investors seem to still believe that inflation is just transitory, and it won’t be a problem for the economy. But the Fed’s tightening cycle will come sooner or later (think about Bank of Canada or Reserve Bank of New Zealand which have already tightened their monetary policies), possibly with some hawkish twists later this year, so gold bulls should remain cautious.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Gold Asks: Has Inflation Already Peaked?

Finance Press Release Finance Press Release 16.07.2021 22:41
Inflation surged in May, and some worry that it has already reached its peak. Has it indeed? This issue is key for the Fed and the gold market.Inflation has soared recently. The CPI annual rate surged 5% in May, which was the fastest jump since the Great Recession. However, the Fed officials still maintain that inflation will only be temporary. Some of the analysts even claim that inflation has already peaked, and it will decelerate from now on. Are they right?Well, they present a few strong arguments. First, there is no doubt that the recent rise in prices has been partially caused by the problems with the supply chains. But, luckily, the bottlenecks are short-lived phenomena, and they always resolve themselves, i.e., by the magic of market mechanism. The best example may be lumber prices which were skyrocketing earlier this year but which have recently declined, as production surged in response to rallying prices.Second, the detailed data on inflation shows that the surge in the overall inflation index was partially driven by categories that were heavily distorted by the pandemic, such as used cars or airline fares. The increases in these categories are not surprising or worrying, given the current recovery from the epidemic.Third, the market-based inflation expectations have already peaked. As the chart below shows, both 5-year and 10-year breakeven inflation rates have reached their heights in May. Since then, the former ones have declined from above 2.7% to about 2.3%, while the latter from above 2.5% to about 2.2%It means that the markets bought the Fed’s narrative about temporary inflation and started to worry less about it.Should gold investors do the same? I’m not so sure. To be clear, I acknowledge and always acknowledged that the supply problems contributed to the acceleration in inflation. However, the risk of inflation doesn’t solely depend on continuously rising commodity prices. And the Fed officials always say that increases in inflation rates are temporary, as they don’t want to admit they failed in maintaining price stability.Some fundamental factors supporting high inflation are still in force. First, as the chart below shows, the broad money supply is still increasing fast (although there was a deceleration since February), as the monetary impulses probably haven’t been fully transmitted into the real economy yet.Second, both the monetary and fiscal policies remain very easy. Given President Biden’s fiscal agenda and the continuous increase in the public debt, the Fed is unlikely to materially normalize its monetary policy.Third, we know that in response to input cost inflation, producers raised their charges at an unprecedented pace. It means that their power to pass on greater costs has increased, which could increase both inflation and consumers’ expectations of inflation in the future.Fourth, we have just finished recovering from the economic crisis. Usually, inflationary pressures only intensify with the progress of the business cycle. With a developing and then maturing economic expansion, employment will rise, manufacturing capacity will be more fully utilized, and inflation could prove to be more persistent than anticipated by the pundits. Please remember that the fiscal stimulus the economy got was greater than the estimated size of the output gap, so the risk of overheating is still present, even if some bottlenecks have resolved.Last but not least, the rise in inflation wasn’t driven solely by the recovery from the pandemic. Some categories which were severely hit by the epidemic are not surging. For example, the index for food away from home rose annually by 4% in May 2021. Meanwhile, some core components surged. For instance, the index for shelter, which makes almost one-third of the overall index, increased from 1.5% in February to 2.2% in May 2021, as the chart below shows. It suggests that inflation may be more broad-based than many analysts think.What does all this mean for the gold market? Well, if inflation remains high or even continues to rise, the real interest rates will remain in negative territory, supporting gold prices. However, there is an important caveat: upward inflationary surprises could force the Fed to send fresh hawkish messages or even taper its quantitative easing earlier than planned, pushing the nominal bond yields higher and creating selling pressure on gold prices.It seems that so far investors were more worried by the sooner-than-expected hikes in the federal funds rate than by the rising inflation and the fact that the FOMC members have raised their inflation forecasts by an entire percentage point. Gold bulls need a shift in investors’ focus. Otherwise, the markets could remain optimistic about the future, purchasing risky assets rather than safe havens such as gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Inflation Nation: Pressure Builds, Underwater Beach Ball

Finance Press Release Finance Press Release 19.07.2021 06:28
Last week’s excessive CPI print marked the top of the S&P 500 for the week. As the market continues to digest the data, where is the breaking point for inflation and interest rates?Did you watch Fed Chair Powell testify in front of the Senate and House last week? It seemed to be like watching certain angry congresspeople calling for interest rates to be kept lower for longer. Do they want hyperinflation? Other groups of Senators reflected on what the inflationary environment was like in the early 1980s.As Chair Powell testified, bonds rose (yields fell), and the S&P 500 was mostly lower. Clearly, there was a bid under the bonds (keeping interest rates lower). All of this came over a two-day period following the monstrous CPI print.Recapping Tuesday through Friday in the E-Mini S&P 500 Futures Last Week:Figure 1 - E-Mini S&P 500 Futures July 12, 2021 - July 16, 2021, 10:00 PM ET, 30 Minute Candles Source stooq.comA. Tuesday 8:30 AM: CPI Data 0.9% vs. 0.5% expected, highest run rate ex-food and energy in 30 years.B. Tuesday 1:00 PM: Weak 30-Year bond auction offered at 2.00% yieldC. Wednesday: Fed Chair testimonyD. Thursday: Fed Chair testimonyE. Friday: NY Cash Market OpenWe can see the large CPI print was bearish for the index, and the market recovered. Then, we had the bond auction, which had very weak demand at 2.00%, and the index sold off again. It recovered once again, tested the highs, and was rejected. The Fed testimonies on Wednesday and Thursday kept the S&P 500 bid and sideways.As all of this was occurring last week, I was eyeballing the index all day, each day, wondering when it would all become too much to keep the index afloat.On Friday, we got a bullish Retail Sales number at 8:30 AM before the NY cash open, and then a bearish UoM Consumer Sentiment Print at 10:00 AM. The NY open was lower even before the bearish UoM print at 10:00 AM. It seemed like the index finally couldn’t bear the inflation data. The weak bond auction, and the congressional rhetoric during the Fed 2-day testimony any further and had to break. It actually made sense.I want to illustrate the above A through E points in terms of interest rates last week.Taking a look in terms of the 10-Year note yield:Figure 2 - 10-Year Treasury Yield July 12, 2021 - July 16, 2021, Daily Candles Source stockcharts.comThe question I pose here: What if interest rates were rising towards the end of last week?It doesn’t seem like the current market would be able to handle it. However, the Fed must use tools to curb inflation. This inflation seems anything but transitory or temporary at this point.If bond yields were going higher on Friday with the market lower, how much would the INdex have dropped? That is the million-dollar question.Rates do need to rise. But, if the Fed is not going to begin tapering (slowing bond purchases) or raising rates incrementally, what will happen with inflation?If you hold a beach ball underwater, it eventually will pop up. You can’t keep it underwater forever.This is food for thought as we begin the week.Now, let’s cover all nine markets we are following for Premium Subscribers.Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Rafael ZorabedianStock Trading StrategistSunshine Profits: Effective Investment through Diligence & Care* * * * *This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.
New York Climate Week: A Call for Urgent and Collective Climate Action

Powell Gave Congress Dovish Signs. Will It Help Gold?

Finance Press Release Finance Press Release 20.07.2021 14:41
Powell admits that inflation is well above the Fed’s target, but he still considers it transitory. Gold increased in response – only to fall again.Last week, Powell testified before Congress. On the one hand, Powell admitted in a way that inflation had reached a level higher than expected and is above the level accepted by the Fed in the longer run:Inflation has increased notably and will likely remain elevated in coming months before moderating.It means that the Fed was surprised by high inflation, but it doesn’t want to admit it explicitly. Instead, Powell admitted that inflation would likely stay at a high level for some time. The obvious question here is: why should we believe the Fed that inflation will really moderate later this year, given that the US central bank failed in forecasting inflation in the first half of 2021?What’s more, Powell acknowledged that he hasn’t felt comfortable with the current level of inflation:Right now, inflation is not moderately above 2%; it is well above 2%. The question is, where does it leave us six months from now? It depends on the path of the economy.It means that, at some point in the future, if high inflation turns out to be more persistent than expected, the Fed will act to bring inflation back to lower levels. However, nobody knows when exactly it could happen – and I bet that, for political reasons, it would happen rather later than sooner.Indeed, even though inflation turned out to be higher than previously thought, Powell downplayed the danger of rising prices, reiterating the view that inflation is transitory. In particular, Powell maintained that recent price hikes were closely related to the post-pandemic recovery and would fade after some time:The high inflation readings are for a small group of goods and services directly tied to reopening.I dare to disagree. It’s true that the hike in the index for used cars accounted for one-third of the June CPI jump. But two-thirds of 5.4% is 3.6%, still much above the Fed’s target! Anyway, in line with its narrative, the Fed doesn’t see a need to rush with its tightening cycle. After all, the US labor market is – according to Powell and his colleagues from the FOMC – still far from achieving “substantial further progress”, with 7.5 million jobs missing from the level seen before the start of the pandemic. So, the tapering of quantitative easing is – as Powell noted – “still a ways off”. So, overall, Powell’s remarks were dovish and positive for the yellow metal.Implications for GoldWhat does Powell’s recent testimony imply for the gold market? Well, the yellow metal initially rose after his appearance in Congress. This is probably because investors bought the narrative about transitory inflation and decided that monetary taps would stay open for a long time and tapering would start later than investors expected in the aftermath of the recent dot-plot. The rising cases of the Delta variant of the coronavirus is another reason why investors could bet that the Fed would maintain its accommodative monetary policy. So, the bond yields declined, while the price of gold increased as the chart below shows.However, gold’s reaction was disappointingly soft given the dovishness of Powell’s remarks, and the yellow metal declined again later last week amid some better-than-expected economic data. It seems that there is hesitancy among precious metals investors about whether or not to take a more decisive step with purchases of gold. The reason is probably that, sooner or later, the interest rates will have to rise in response to inflation. It means that the opportunity costs of holding gold will increase, exerting some downward pressure on gold.Nevertheless, the real interest rates should remain low, so gold prices shouldn’t drop like a stone. Actually, in the longer run, when inflation creates some economic problems while the economic growth slows down, the yellow metal could finally benefit from the stagflationary conditions.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

The Delta Variant Spreads. Will It Mutate Gold?

Finance Press Release Finance Press Release 22.07.2021 14:35
The coronavirus strikes back! It’s bad news for almost everyone and everything… except for merciless gold.So, were you hoping that the epidemic was over? After all, millions of people got vaccinated, and the economy is booming. Restrictions have been generally lifted, the Fed removed the parts related to the pandemic from its monetary policy statement… why bother then?The answer is: Delta. And I’m referring to the Sars-Cov-2 variant that causes Covid-19. As you know, viruses mutate from time to time as they spread and replicate. Delta is one of such mutations. Most mutations are not dangerous or even dumb (they weaken the viruses). But the problem with Delta is that it’s “the fastest and fittest” of all coronavirus variants, as the WHO described it. Just think about Rambo on steroids or a witcher that has just taken all his potions. Oh… Anyway, you got the point.In particular, Delta is much more contagious than the original strain, and is spreading about twice as fast. A person infected with the classic version of the coronavirus can spread it to 2.5 other people, while a person with Delta can infect 3.5-4 other people. Delta might also be more severe and more lethal than the original strain.The good news is that many people have been vaccinated and the vaccines (especially the mRNA-type) protect nicely against Delta. However, the bad news is that many people still haven’t gotten the shots, for many reasons. The tricky part here is that, given the high transmission rate of Delta, we would need 90% or even more people to be vaccinated to reach herd immunity, which is still a song of the future.High transmissibility is the reason why Delta has become the dominant strain in the globe. It also increases the risk of further, potentially even more dangerous, mutations (more transmissions, more chances to evolve into Terminator). In other words, Delta’s fast transmission could reignite the pandemic. As the chart below shows, this is actually already happening.As one can see, Delta reversed the trend of the declining number of new cases, spreading particularly quickly in the United Kingdom. But the U.S. Covid-19 cases also soared, surging 70% last week, while deaths went up 26%.Implications for GoldWhat do rising cases of Delta mean for gold? Well, I would say that Delta is fundamentally positive for gold and could mutate it into a more bullish strain. If the pandemic accelerates, governments may reintroduce some of the sanitary restrictions or even lockdowns. A new wave of the epidemic would also increase the chances of a big infrastructure bill in the US and other fiscal stimuli, while the Fed would likely remain dovish for longer than it would without Delta. So, inflation could intensify even further, while the real interest rates would drop. Therefore, concerned investors would turn to inflation hedges and safe havens such as gold.However, what’s described above is the medium-term effects that Delta would cause if it triggered a new wave of cases and restrictions. In the short run, however, gold may decline, as worried investors would sell the assets and turn to the US dollar. This is what we saw in March 2020 but also on Monday (July 19, 2021). As the chart below shows, the London price of gold has declined, as the stronger greenback counterweighted the decline in the equities (Dow plunged more than 2%) and bond yields.Furthermore, the next Great Lockdown is unlikely. Even if the government reintroduces some restrictions, their economic impact will be much smaller than during the earlier waves, as economies have adapted to operating under the epidemiological regime. Importantly, a new wave would be mainly limited to unvaccinated people, which would reduce the burden of health care systems and chances of hard lockdowns.However, Monday’s equity selloff suggests a change in the market narrative. Investors have possibly realized that they had too optimistic expectations – economic growth may actually be slower than they thought. They have priced in a very strong recovery, which doesn’t have to materialize if a new pandemic wave hits the economy. Slower growth plus high inflation equals stagflation, gold’s favorite environment.Having said that, it may take a while until gold rallies, as the end of reflation trade may also imply that some investors will sell commodities, including, to some extent, gold. Also, please note that the optimism and gains have quickly returned to the stock market, so the economic impact of Delta may be limited.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

Silver, the exception

Korbinian Koller Korbinian Koller 23.07.2021 11:28
We highly advocate to never throw good money after bad money and only use Anti-Martingale strategies. However, the rare situation that Silver finds itself in right this moment allows for adding paper plays to your physical silver holdings. The reasons are as following: While the spot price dipped below US$25, physical acquisition prices held relatively steady. This stretch between spot and actual Silver purchase prices shows an imbalance that works like a rubber band effect. As such, we would even be as confident to say this is still a physical acquisition of silver opportunity.First and foremost, recent silver price drops shouldn’t cause you to sell your physical holding. Secondly, it is worth considering taking on small position-sized spot silver trades to leverage one’s physical holdings.Fundamentally thinking: Has anything changed?Are supply chain discrepancies fixed?Is the economy on solid grounds?Has money printing stopped, as the FED Balance sheet hits a new all-time high?FED balance sheet as of July 21st, 2021. The balance sheet of the Federal Reserve (US central bank) has hit another all-time high as FED president Jerome Powell keeps the printing press rumbling despite spiraling inflation. Just last week alone, total assets rose by another US$39billion to US$8,240.5billion. This is equal to around 37% of US’s GDP.Do not be deterred by temporary price imbalances, but look at the larger picture and the necessity of some wealth preservation insurance.Gold/Silver-Ratio in US-Dollar, Daily Chart, Stretched and ready to snap back:Gold/Silver-Ratio, daily chart as of July 22nd, 2021.It isn’t only the “stretch play” between spot and actual physical silver acquisition price that is an edge on silver entries right now. The Gold/Silver-ratio also has had a recent run-up in price, where Silver eventually will have to catch up to its big brother Gold. The daily chart above shows how the “stretch” between the two precious metals rose from a level of 62 to 73 over the last six months. An imbalance extreme that will have to return to its mean (and beyond) at some point.Weekly Chart, Silver in US-Dollar, Silver, the exception, Buying zone opportunity:Silver in US-Dollar, weekly chart as of July 22nd, 2021.If you give the up-sloping green buying channel a look at the weekly chart above, you will find that each time price penetrated this zone, a sturdy leg up followed. You will find a histogram of fractal volume analysis to the right of the chart. It illustrates extended bars, meaning good support, at price levels between US$24 and US$25. You can also find an indicator divergence on the “turbo” (thin yellow line) on the Commodity Channel Index oscillator (indicator below the volume bars).With the round number of US$25 showing good previous support for price reversals, we are confident in a longer-term play to be engaged at these levels. As contrarians, we take entries at the lower part of this up sloping bull flag. Consequently, possibilities open up to finance trades at higher levels. In addition, we are already positioned if prices break through the upper resistance line (red horizontal line).  Silver in US-Dollar, Daily Chart, Good timing for risk reduction:Silver in US-Dollar, daily chart as of July 22nd, 2021.The daily chart provides the opportunity to fine-tune one’s entry. Consequently, we stack our odds one more time and reduce risk. Silver prices already reversed from US$24.80 levels to the upside, and we posted real-time entries for this trade in our free Telegram channel. We use our quad exit strategy to reduce/eliminate risk early on.A closer look at the chart above shows that this first attempt might not be successful right away for follow-through. We have strong resistance above us (red horizontal box). In addition, the yellow line represents the simple 200-moving average. Probably the most observed moving average, and as such significant in technical analysis.Consequently, we expect prices to decline from there and providing a low-risk double bottom entry near the US$25 levels. This would allow the reader ample time to compare their findings. Compare your charts and trading system with our approach to plan a possible trade setup. We are fully transparent and as such, feel free to ask questions in our free Telegram channel.Silver, the exception:Things that are hard to do are most of the time the right actions in trading. Doubling up at a time when the hard thing was to honor your stop does not reduce your cost average. Even though, your broker makes it sound so alluring, instead it increases your risk massively. And yet, this 100-year cycle has dealt us right now an unusual card. Times require us to pay extra attention to making the right moves not to get train wrecked.The stern action right now is to be a contrarian early enough to hold cards or, better said, physical Silver before it will be unattainable. This allows for exceptional moves, but not by adding more risk. Instead, by identifying unusual opportunities in alignment with timing and not insisting on old paradigms. There is no shame in easing into this with prudence and small position size. Ignoring exceptional circumstances and procrastinating might become a costly path of action. We invite you to our free Telegram channel to ask questions of any kind to form a self-directed opinion to take care of your financial future actively.Feel free to join us in our free Telegram channel for daily real time data and a great community.If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter.By Korbinian Koller|July 23rd, 2021|Tags: Crack-Up-Boom, FED balance, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 CommentsAbout the Author: Korbinian KollerOutstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Gold’s Behavior in Various Parallel Inflation Universes

Finance Press Release Finance Press Release 23.07.2021 12:44
The current high inflation could theoretically transform into hyperinflation, disinflation, stagflation, or deflation. What does each mean for gold?Inflation, inflation, inflation. We all know that prices have surged recently. And we all know that high inflation is likely to stay with us for a while, even if we assume that the CPI annual rate has already peaked, which is not so obvious. But let’s look beyond the nearest horizon and think about what lies ahead after months of high inflation, and what consequences it could have for the gold market.From the logical point of view, there are three options. Inflation rates could accelerate further, leading to hyperinflation in an extreme case. They could remain more or less the same, resulting possibly in stagflation when the pace of GDP growth decelerates. And, finally, the rates of annual changes in the CPI could slow down, implying disinflation, or they could even become negative – in this scenario, we would enter the world of deflation. So, which of these “flations” awaits us?Although some commentators scare us with the specter of hyperinflation, I would reject this variant. Surely, the inflation rate at 5% is relatively high, but it’s not even close to 50%, which is an accepted hyperinflation threshold. We also don’t see people getting rid of depreciating money as quickly as possible – instead, the demand for money has been rising recently (or, in other words, the velocity of money has been decreasing).It’s also worth remembering that hyperinflation usually occurs when fiscal deficits are financed by money creation, especially when the government cannot raise funds through borrowing or taxes, for example because of a war or other sociopolitical convulsions. Sure, the budget deficits are partially monetized, but we are far from the situation in which the US government would be unable to collect taxes or find lenders ready to buy its bonds. Hence, gold bugs counting on hyperinflation may be disappointed – but I doubt that they would really want to live during the collapse of the monetary system.The opposite scenario, i.e., deflation, is also unlikely. To be clear, asset price deflation is possible if some of the asset bubbles burst, but the absolute declines in the consumer prices, similar to those observed during the Great Depression, or even the Great Recession, are not very probable. The broad money supply is still increasing rapidly, the fiscal policy remains easy as never, and the Fed remains ultra-dovish and ready to intervene to prevent deflation. For deflation to happen, we would need to have the next global financial crisis which would severely hit the aggregate demand and oil prices.Although there are significant vulnerabilities in the financial sector, it’s definitely too early to talk about significant deflation risks on the horizon. As with hyperinflation, this is bad news for gold, as the yellow metal performs well during the deflationary crises (although at the beginning, people usually collect cash, disposing of almost all assets).So, we are left with two options. Inflation will either diminish to its previous levels (maybe to slightly higher readings than before the pandemic), and we will return more or less to the Goldilocks economy, or inflation will stay relatively high (although it may subside a bit), while the economic growth will slow down significantly (and more than inflation). It goes without saying that the latter option would be much better for gold than the former one, as gold doesn’t like periods of decelerating inflation rates and of a decent pace of economic growth (remember 1980 and the 1990s?). So, could gold investors reasonably ask whether we will experience disinflation or stagflation?Well, the Fed believes that the current high inflation readings will prove to be temporary and we will return to the pre-epidemic era of low inflation. But you can’t step in the same river twice, and you can’t step in the same economy twice. You can’t undo all the monetary and fiscal stimulus nor the surge in the broad money supply and the public debt (see the chart below).So, the pre-pandemic low inflation readings are not set in stone. And the impact of some deflationary forces could be exaggerated by the central bankers and the pundits – for example, the recent ECB research shows that “the disinflationary role of globalization has been economically small”.Hence, I worry about stagflation. And I’m not alone. The results of the latest biannual survey of the chief U.S. economists from 27 financial institutions for the U.S. Securities Industry and Financial Markets Association also highlight the risks of high inflation and stagnation. They reveal that 87% of respondents consider “stagflation, as opposed to hyperinflation or deflation, as the bigger risk to the economy.”Actually, the GDP growth is commonly projected to slow down significantly next year. For example, according to the recent Fed’s dot-plot, the pace of the economic growth will decline from 7% in 2021 to 3.3% in 2022. It’s still fast, but less than half of this year’s growth. And it’s likely to be slower, as the FOMC members tend to be overly optimistic.The stagflation scenario could be positive for gold, as the yellow metal likes the combination of sluggish (or even negative) growth and high inflation. Indeed, gold shined in the 1970s, the era of The Great Stagflation. Of course, there are important differences between then and now, but the economic laws are immutable: the mix of easy fiscal policy and monetary policy superimposed on economic reopening is a recipe for overheating and, ultimately, stagflation.However, so far, the markets have bet on transitory inflation. Moreover, they are focused on fast economic expansion and the Fed’s hawkish signals. But we could see more uncertainty later this year when higher interest rates and inflation hamper the economic activity. In that case, gold could get back on track.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

ECB Turns Even More Dovish. Breakthrough for Gold?

Finance Press Release Finance Press Release 27.07.2021 15:46
The ECB has become the exact opposite of the FED in terms of monetary policy. This dovishness might actually be bad news for gold.The European Central Bank held its monetary policy meeting last week. It was an important event, as it was the first meeting since the adoption of the new ECB’s strategy, and as the ECB has introduced some changes. It left the interest rates unchanged, but it modified its forward guidance.Long story short, the ECB announced that it would keep its policy rates at ultra-low levels for even longer than previously pledged, as it doesn’t want to tighten prematurely:In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.Previously, the ECB maintained that it would keep the interest rates unchanged until inflation expectations converge with the central bank’s target. The change implies that the ECB is unlikely to raise the interest rates until at least 2023, as this is when the projection horizon ends. Central bankers want inflation to be stable at the target, and they won’t hike without tapering quantitative easing earlier.Additionally, the ECB has decided to keep the pace of its asset purchases under the Pandemic Emergency Purchase Programme at the current (faster than it was originated) pace over the third quarter of 2021:Having confirmed its June assessment of financing conditions and the inflation outlook, the Governing Council continues to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.So, the ECB’s monetary policy has become even more accommodative. The alteration could be explained by two factors: the ECB’s new strategy and the Delta variant of the coronavirus. But the real reason is, of course, protecting the European government from the market interest rates – however, this is a topic for another discussion.I have covered both of the ‘official’ factors recently, warning my readers that the change in the strategy implies that the ECB has adopted an even more dovish stance and that the spread of Delta could prompt the central banks to further loosen their stance. This is exactly what has happened – as Christine Lagarde pointed out during her press conference:The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty.Implications for GoldWhat does the change in the ECB’s monetary policy imply for the gold market? Well, one could say that more dovish central banks are positive for gold, which likes the environment of low interest rates and bond yields.However, economics is about relative values. So, from the point of view of the comparative analysis, the ECB’s dovish shift is bad news for the yellow metal. This is why the Fed looks hawkish in comparison to the ECB, its main counterparty. After all, the Fed has actually started talking about tapering and monetary policy normalization, while the ECB has just announced that it would keep its quantitative easing at an elevated pace and would maintain its ultra-low interest rates for even longer.Hence, the greenback appreciated relative to the euro after the ECB’s monetary policy meeting. Although a stronger dollar creates downward pressure on the yellow metal, the price of gold barely moved and is still trading around $1,800, as the chart below shows.However, there is a silver lining here. Some market participants were actually disappointed that the ECB didn’t provide a stronger adjustment. Indeed, no monetary bazookas this time. Moreover, the ECB’s decision was not unanimous, so there is some sort of a hawkish camp. Last but not least, it might be the case that the Fed will also loosen its stance if the Delta variant spreads in a dangerous way. Having said that, the divergence in monetary policy and interest rates across the pond should be a headwind for gold prices for a while.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Intraday Market Analysis – USD Sees Few Bids

FXMAG Team FXMAG Team 30.07.2021 09:00
USDJPY tests key supportThe Japanese yen finds support as June’s unemployment rate fell below 3%.A bearish MA cross on the daily chart is likely to cloud buyers’ mood. The pair has met stiff selling pressure near 110.60.The FOMC whipsaw was a sign that sellers still retain control since the downturn started earlier this month. 109.40 is a key support and its breach would invalidate last week’s rebound. Sellers would then be eager to push below 109.00.On the upside, a bounce will need to clear 110.20 to make the mood turn around.USDCHF in a deeper correctionThe US dollar tumbled as US GDP growth in Q2 came out below market expectation.The breakout below 0.9120 was a confirmation that the bears have gained the upper hand following a three-week-long consolidation. Bearish sentiment accrued as momentum traders jumped in aggressively.The price is heading towards the psychological level of 0.9000, right above the critical support (0.8930) on the daily chart.An oversold RSI may cause a limited rebound which is likely to be capped by 0.9165.US 30 breaks to new highsThe Dow Jones index found support from the prospect of continuous stimulus in the US.The index consolidated its gains after it rallied above the peak at 35100. 34800 is a fresh support as buyers have a stake in after the breakout confirmation.US indices lately have been exhibiting a volatility pattern in which a sharp drop is followed by strong bidding.While sentiment remains generally positive, a deeper pullback here may test 34500. As the rally resumes, 35500 would be the next target.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Gold, USDX: Did Powell Spoil the Party?

Finance Press Release Finance Press Release 30.07.2021 16:05
The party was just gathering steam, and then… Powell entered, the ultimate spoilsport, making the Fed dovish again. How long till he gets kicked off?The War on DebtWith Jerome Powell, Chairman of the U.S. Federal Reserve (FED), struggling to adequately define “transitory” during his press conference on Jul. 28, the market narrative has shifted from ‘hawkish FED’ to ‘dovish FED.’ And with the U.S. dollar bearing the brunt of investors’ wrath, the ‘all-clear’ sign flashed in front of the PMs. However, with post-FED rallies mainstays in the PMs’ historical record, the recent euphoria is much more semblance than substance. Thus, while Powell’s persistent patience elicits fears of financial repression, today’s economic environment lacks many of the qualities that made the gambit viable in the past.To explain, financial repression includes measures such as direct government financing (the FED prints money and lends it directly to the U.S. Treasury), interest rate caps (yield curve control) and extensive oversight of commercial banks (reserve requirements, controlling the flow of credit). In a nutshell: governments use the strategy to keep interest rates low and ensure that they can finance their debt. And with the U.S. federal debt as a percentage of GDP currently at 128% (updated on Jul. 29), some argue that’s exactly what’s happening. Moreover, with the U.S. 10-Year real yield hitting an all-time low of -1.15% on Jul. 28, is the FED simply turning back the clock to the 1940s?To explain, during World War Two, surging inflation helped the U.S. government ‘inflate away’ its debt. Think of it like this: if an individual borrows $100 at a 2% interest rate and repays the balance in full after one year, the total outlay is $102. However, if inflation is running at 4% (negative real yield), putting that money to work should result in an asset that’s worth $104 by the end of the year. As a result, the individual nets $2 (104 – 102) due to the inflation rate exceeding the nominal interest rate. And as it relates to the present situation, if the FED keeps real yields negative, then asset price inflation and economic growth should outpace nominal interest rates and allow the U.S. government to ‘inflate away’ its debt.However, the strategy is not without fault. For one, financial repression occurs at the expense of bondholders. And with pension funds still required to meet the guaranteed outlays for retirees, suppressing bond yields hampers their ability to match assets and liabilities without incurring more risk.More importantly, though, the FED doesn’t control the long end of the U.S. yield curve. For one, the FED owns roughly 23% of the U.S. Treasury market, and it has a monopoly on confidence, not long-term interest rates. Second, the U.S. 10-Year Treasury yield has dropped because investors fear that the Delta variant and/or the FED’s forthcoming taper will depress the U.S. economy. And eager to front-run the potential outcome, bond investors have positioned for slower growth, lower inflation, and, eventually, a reenactment of the FED cutting interest rates.For context, even Powell himself admitted on Jul. 28 that the decline has caught him off-guard:Source: BloombergLikewise, following WW2, the U.S. government implemented structural reforms that are not present today. For example, prudent fiscal policy emerged in the late 1940s, with the government reducing spending and prioritizing debt reduction. In stark contrast, today’s U.S. government is already finalizing an infrastructure package and the federal deficit as a percentage of GDP is still growing. For context, a deficit occurs when the governments’ outlays (expenditures) exceed its tax receipts (revenues).Please see below:To explain, the green line above tracks the U.S. federal surplus/deficit as a percentage of GDP. If you focus on the period from 1943 to 1950, you can see that after the deficit peaked in 1943, reduced spending and strong GDP growth allowed the green line to move sharply higher. Conversely, if you analyze the right side of the chart, you can see that current spending still outpaces GDP growth (green line moving lower), and stoking inflation is unlikely to solve the problem.U.S. 10-Year Treasury Yield Decouples… By a LotCircling back to the bond market, the U.S. 10-Year Treasury yield currently trades at an all-time low relative to realized inflation.Please see below:To explain, the scatterplot above depicts the relationship between the headline Consumer Price Index (CPI) and the U.S. 10-Year Treasury yield (available data dates back to 1967). For context, the headline CPI is plotted on the horizontal axis, while the U.S. 10-Year Treasury yield is plotted on the vertical axis. If you analyze the dot labeled “Current Reading,” you can see that the U.S. 10-Year Treasury yield has never been lower when the headline CPI has risen by 5% or more year-over-year (YoY). In fact, even if the headline CPI declined to the FED’s 2% YoY target, the U.S. 10-Year Treasury yield at 1.27% would still be the lowest relative reading of all time.However, it’s important to remember that different paths can still lead to the same destination. For example, if inflation turns out to be a paper tiger, a profound decline in inflation expectations will have the same negative impact on the PMs as a sharp rise in the U.S. 10-Year Treasury yield.Please see below:To explain, the green line above tracks the U.S. 10-Year Treasury yield, while the red line above tracks the U.S. 10-Year breakeven inflation rate. If you analyze the gap on the right side of the chart, it’s a decoupling of the ages. However, while the two lines are destined to reconnect at some point, if the red line falls off a cliff, the impact on the PMs will likely mirror the 2013 taper tantrum. For context, gold fell by more than $500 in less than six months during the event.Finally, and most importantly, U.S. Treasury yields are only one piece of the PMs’ bearish puzzle. Knowing that one shouldn’t put all their eggs in one basket, betting the farm on the U.S. 10-Year Treasury yield would be investing malpractice. That’s why self-similar patterns, ratios, technical indicators, the relative behavior of the gold miners, the USD Index and the FED’s taper timeline are all prudently considered when forming our investment thesis.As an example, if gold had a perfect correlation with the U.S. 10-Year real yield, the yellow metal would be trading at roughly $1,940. However, with many other factors worthy of our attention, gold’s material underperformance indicates that a mosaic of headwinds undermines its medium-term outlook.In conclusion, Powell’s party was in full swing on Jul. 29, as the PMs and the USD Index headed in opposite directions. However, with the yellow metal still confronted with a tough road ahead, the fundamental outlook remains dicey over the next few months. For example, with the all-time imbalance in the U.S. Treasury market eliciting little optimism, it took Powell’s dovish remarks to ignite the recent fervor. And with both developments likely to reverse in the coming months, the PMs’ upside catalysts may fade with the summer sun.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Gold at a Crossroads of Hawkish Fed and High Inflation

Finance Press Release Finance Press Release 30.07.2021 18:27
Gold has been trading sideways recently, but this won’t last forever – the yellow metal is likely to move downward before continuing its rise.So, so you think you can tell heaven from hell, a bull market from a bear market? It’s not so easy, as gold seems to be at a crossroads. On the one hand, accelerating inflation should take gold higher, especially that the real interest rates stay well below zero. On the other hand, a hawkish Fed should send the yellow metal lower, as it would boost the expectations of higher bond yields. The Fed’s tightening cycle increases the interest rates and strengthens the US dollar, creating downward pressure on gold.However, gold is neither soaring nor plunging. Instead, it seems to be in a sideways trend. Indeed, as the chart below shows, gold has been moving in a trading zone of $1,700-$1,900 since September 2020.Now, the obvious question is: what’s next? Are we observing a bearish correction within the bull market that started in late 2018? Or did the pandemic and the following economic crisis interrupt the bear market that begun in 2011? Could a new one have started in August 2020? Or maybe gold has returned to its sideways trend from 2017-2018, with the trading corridor simply situated higher?Oh boy, if I had the answers to all the wise questions that I’m asking! You see, the problem is that the coronavirus crisis was a very special recession – it was very deep but also very short. So, all the golden trends and cycles have intensified and shortened. What used to be years before the epidemic, took months this time. Welcome to a condensed gold market!Hence, I would say that the peak of July 2021 marked the end of the bull market which started at the end of 2018, and triggered a new bear market, as traders decided that the vaccines would save the economy and the worst was behind the globe. This is, of course, bad news for all investors with long positions.I didn’t call the bear market earlier, as the combination of higher inflation and a dovish Fed was a strong bullish argument. However, the June FOMC meeting and its dot-plot marked a turning point for the US monetary policy. The Fed officials started talking about tapering, divorcing from its extraordinary pandemic stance.So, I’ve become more bearish in the short-to-medium term than I was previously. After all, gold doesn’t like the expectations of tapering quantitative easing and rising federal funds rate. The taper tantrum of 2013 made gold plunge.Nonetheless, the exact replay of the taper tantrum is not likely. The Fed is much more cautious, with a stronger dovish bias and better communication with the markets. The quantitative tightening will be more gradual and better announced. So, gold may not slide as abruptly as in 2013.Another reason for not being a radical pessimist is the prospects of higher inflation. After all, inflation is a monetary phenomenon that occurs when too much money is chasing too few goods – and the recent rate of growth of the broad money supply was much higher than the pace needed to reach the Fed’s 2% target. The inflationary worries should provide some support for gold prices. What gold desperately needs here is inflation psychology. So far, we have high inflation, but markets remain calm. However, when higher inflation expectations set in, gold may shine thanks to the abovementioned worries about inflation’s impact on the economy – and, thanks to stronger demand for inflation hedges.In other words, gold is not plunging because the Fed is not hawkish enough, and it’s not rallying because inflation is not disruptive enough. Now, the key point is that it’s more likely that we will see a more hawkish Fed (and rising interest rates) sooner than stagflation. As the chart below shows, the real interest rates haven’t yet started to normalize. When they do, gold will suffer (although it might not be hit as severely as in April 2013).Therefore, gold may decline shortly when the US central bank tapers its asset purchases (and the bond yields increase) while the first bout of inflation softens. But later, gold may rise due to the negative effects of rising interest rates and the second wave of higher inflation.In other words, right now, the real economy is thriving, so inflation is not seen as a major problem, as it is accompanied by fast GDP growth. However, the economy will slow down at some point in the future (partially because of higher inflation) – and then we will be moving towards stagflation, gold’s favorite macroeconomic environment.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get a 7-day no-obligation trial for all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Best Assets to Profit Now On

Monica Kingsley Monica Kingsley 02.08.2021 16:10
S&P 500 is in consolidation mode, underpinned by the Fed liquidity inflows. The mid-July dip has been readily bought, and the ascent‘s steepness bodes well for the bulls. No need to be spooked by the tech weakness or valuations just yet – with the Fed having the markets‘ back e.g. via the newly introduced $500bn backstop or repo market interventions, the buy-the-dip crowd will wake up to any discounts like Pavlovian dogs to a bell.As market breadth is on the mend, the VIX is still making lower highs and lower lows – the July winds though have changed that dynamic a little. Summer doldrums are about volatility, which is justifiably keeping the stock bulls on edge in the last few days. While the Fed‘s bluff has been called and the inflation / reopening trades haven‘t gone the way of the dodo bird, some caution is in place if you‘re also focused on portfolio performance (see the upper third of my homepage) – my Jul 06 words are valid also today:(…) Little wonder when all the central bank did, was influence inflation expectations, and precisely nothing about current inflation – let alone pressures in the pipeline. I‘ve discussed the cost-push pressures building up, leading to inflation becoming unanchored. Add job market pressures beyond the difficulties in hiring, and the issue grows more persistent. While it‘s not biting overly noticeably for the financial markets to take notice the way they did in Mar and early May, left unattended, inflation would come to bite in the not so distant future. The takeaway is that with the constant redefinitions of what transitory should mean now, the concept of Fed as inflation fighter is subject to well deserved mockery.Look for the lull in Treasury market to continue, it‘s almost goldilocks economy as the monetary and fiscal support rivals wartime footing circumstances. Makes you wonder what would be on the table if we were faced with a recession. Thankfully, that‘s not on the horizon – we‘re in a multi-year economic expansion that won‘t end with the tapering or tightening games this year or next, not in the least.The economic expansion is set to continue, and Treasury yields aren‘t signalling an impending recession. The Fed is ill-positioned to withdraw liquidity the way it attempted to in 2018, which means that asset price inflation is here to stay – both in the paper and real assets. I‘m still looking for more gains in stocks, precious metals and commodities in general as the tapering / tightening June drama has worked as much (cheap) magic as it could have already. Inflation expectations are tame at the moment, but look for inflation to be way stickier that the pundits see it to – apart from all the arguments I have made in the weeks and months before, there is the real estate market and owners' equivalent that‘s making up roughly a third of CPI. The dollar though looks range bound – I‘m not looking for it to break to new lows any time soon.Gold is well suported by retreating real rates, and the miners‘ underperformance is slowly getting better. I‘m not too worried by the underperforming silver at the moment – the white metal is notorious for its fake shows of weakness, on time frames higher and lower. The commodities bull train (star performer copper – I hope you‘re also enjoying sizable long profits in the red metal that I‘m covering in newly introduced Copper Trading Signals).Oil is a mixed bag with the oil sector and energy underperformance, but that‘s no obstacle to riding enormous open long profits from my Jul 19 call. Triple digit oil looks set to have to wait till next year – I‘m looking for $80 to be reliably capping the upside for now as OPEC+ is (should be) also aware of demand destruction should prices rise too high.Cryptos have sprung to life over July, and the continued Ethereum outperformance bodes well. Considerable patience is still needed though before we can talk of bull trend resumption – but the worst certainly appears to be over.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 isn‘t offering conclusive short-term clues either way, which is why I prefer waiting for an opportune entry point (remember my portfolio focus) – the bears would try their luck this month definitely, but I‘m not looking for their lasting success. Credit MarketsCredit markets performance remains generally supportive – in spite of HYG lagging behind, and Friday‘s whiff of risk-off trading. Encouragingly, TLT is starting to lag behind in the medium run, and that carries implications for growth and interest rate sensitive sectors.Technology and ValueTech heavyweights are taking a noticeable breather, but the rest of the crowd is stepping in – and that equals rotation, still more juice in the reflation trades.Gold, Silver and MinersGold hasn‘t rolled over, far from it – I look for the slow and steady march higher to continue in the medium term. Miners are improving, and Friday‘s show of strength would deserve a companion one of these days too. I‘m still looking for miners to confirm the upcoming gold advance.Silver and copper are diverging, and I look for it to be resolved with the white metal‘s upswing eventually, just as various Treasury or real assets to Treasury ratios point to.Crude OilBlack gold is perched a bit too high after the strong rebound, and upcoming energy sector performance would help the commodity tremendously. Keep the price appreciation expectations tame though – crude oil will do better next year.SummaryS&P 500 remains in a bull market, with no signs of having topped out. As volatility looks to be picking up, expect quite a few buying opportunities in the days and weeks ahead.Gold and silver bulls‘ patience is getting tested, but the underlying dynamics behind the bull run are unbroken. Silver would join the yellow metal in rising, and miners‘ springing back to life on a more consistent basis, would be a key sign to watch for.Crude oil lacks the strength to take on $80 at the moment, let alone $75, and sideways trading looks likely to rule the coming days and probably weeks. Bitcoin and Ethereum bulls have done a great job thus far, and the accumulation hypothesis has been almost fully confirmed by now – taking out 44,000 in Bitcoin is what would provide the final confirmation.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Risk-Off Moves Returning

Risk-Off Moves Returning

Monica Kingsley Monica Kingsley 04.08.2021 16:31
In line with the pressing circumstances I told you about on Jul 29 at my site, today's report will again have to be way shorter than usual, and focus only on select charts so as to drive position details of all the five publications.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookIn spite of yesterday‘s upswing, S&P 500 keeps going sideways, and the indicators aren‘t all clear on the bulls‘ great prospects. The vulnerability to a bear raid is still very much there.Credit MarketsCredit markets didn‘t really reverse yesterday – the risk-off sentiment remains very much on in spite of HYG erasing intraday losses. The stock market bulls aren‘t out of the woods in spite of the improving market breadth.Gold, Silver and MinersMiners‘ strong showing yesterday bodes well for both precious metals, and I‘m looking for more gains in the sector. Remember that declining real rates on account of the risk-off bond moves, increase gold‘s appeal just as much as any worries about a decelerating economy or external shocks.Crude OilYesterday‘s downswing was partially bought, and the energy sector increase (great performance within the S&P 500) would point to a reversal soon. I‘m though not convinced that the bottom is in and that the bears have said their last word. CopperCopper has traded on a weak note yesterday, and hasn‘t convincingly stabilized just yet. The volume indicating buying interest isn‘t there.Bitcoin and EthereumTrading little changed, both cryptos are more than likely to go higher next, even if the indicators aren‘t yet hinting at that possibility strongly. Should they turn from here (likely in the current atmosphere, alongside with PMs), that would be a promising sign for the bulls.SummaryIn place of summary today, please see the above chart descriptions for my take.Thank you for having read today‘s free analysis, which is available in full here at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

The Tapering Clock Is Ticking: Fed Gives Gold Some Time

Finance Press Release Finance Press Release 06.08.2021 16:55
The Fed acknowledged the economy’s progress, but it’s still not “substantial progress.” In short, Powell merely slowed the hand of the tapering clock.Last week (July 28, 2021), the FOMC published its newest statement on monetary policy. The publication was barely altered. The Fed noted that the US economy has continued to strengthen, although the sectors most heavily hit by the pandemic haven’t fully recovered yet. According to the FOMC members, the economy continues to depend on the course of the coronavirus, but not “significantly” anymore. So, the Fed acknowledged that the American economy has strengthened (even with the recent worries about delta variant) and that we are returning to post-epidemic normalcy. Theoretically, it’s bad news for gold, but this is something we all know, so the practical impact should be minimal.A much more interesting change in July’s FOMC statement is the part about the Fed’s asset purchases:Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.As one can see, the US central bank admitted that the economy had made progress towards its goals, but it was just “progress”, while the Fed needs “substantial further progress” to normalize its monetary policy. So, we still have some distance to the tapering of quantitative easing.However, the emphasis that economy has made progress towards Fed’s goals is a hawkish signal that the tightening cycle is on the way. This is, at least, how markets interpreted the message, as the likelihood of a 2022 interest rate hike has initially increased after the FOMC meeting, according to the CME’s FedWatch tool.This would be bad for gold, but Powell held out a helpful, dovish hand. During his press conference, Fed Chairman noted that the US economy is far away from reaching “substantial further progress” toward the maximum employment goal.So, what would substantial further progress be? I'd say we have some ground to cover on the labor market side. I think we're some way away from having had substantial further progress with max -- toward the maximum employment goal. I would want to see some strong job numbers. And that's kind of the idea.Powell also reiterated that the Fed would provide advance notice before tapering its asset purchases and that the liftoff of the interest rates is still a long way ahead of us, as the Fed won’t raise the federal funds rate before tapering:In coming meetings the Committee will again assess the economy’s progress toward our goals, and the timing of any change in the pace of our asset purchases will depend on the incoming data. As we have said, we will provide advance notice before making any changes to our purchases (…)We’re clearly a ways away from considering raising interest rates. It’s not something that is on our radar screen right now. You know, so when we get to that question, when we start to get to the question of liftoff, which we are not at all at now or near now, that’s when we’ll ask that question. That is when that will become a real question for us (…)And, again, it’s not timely for us to be thinking about raising interest rates right now. What we’re doing is we're looking at our asset purchases and judging what is right for the economy and judging how we -- how close we are to substantial further progress and then tapering after that.Implications for GoldWhat does the recent FOMC meeting imply for the gold market? Well, as the chart below shows, the recent statement on monetary policy wasn’t particularly impactful on the yellow metal. Gold declined slightly below $1,800 on the day of the publication, but it increased to $1,829 the next day. Since then, the price of the yellow metal has returned to the level of around $1,800.However, the FOMC’s decision may have some longer-term implications for the gold market as well. On the one hand, the statement and Powell’s press conference were dovish, as they emphasized that – despite some progress – the substantial progress hasn’t materialized yet, so we are still ahead of the tapering, not even mentioning any hikes in the interest rates. So, gold could catch its breath.On the other hand, the tapering clock is ticking. In June, the Fed started talking about tapering, while last month it noted that some progress has been made towards its goals. It’s likely that within a few months mere progress will transform into substantial progress, especially given that the job gains in July were strong and above the forecasts. With further improvements in the labor market, the expectations of a more hawkish Fed should strengthen, exerting downward pressure on the gold prices.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

The Newest Nonfarm Payrolls Crushed Gold Like a Sandcastle

Finance Press Release Finance Press Release 10.08.2021 11:52
The US economy added almost 1 million jobs in July, building solid ground for tapering. Meanwhile, the PMs’ sandy foundations crumbled spectacularly.Another blow to gold! July’s nonfarm payrolls came in strong. As the chart below shows, the US labor market added 943,000 jobs last month, following 938,000 additions in June (after an upward revision). More than one-third of all gains occurred in leisure and hospitality, reflecting the economy’s reopening after the Great Lockdown.What’s more, the nonfarm payrolls surprised the markets on the positive side. The economists surveyed by MarketWatch forecasted “only” 845,000 gains. Additionally, the employment in May and June combined was 119,000 higher than previously predicted. Another positive revelation was the decline in the unemployment rate from 5.9% to 5.4% – a much lower level than it was expected (5.7%), as the chart above shows.Although the number of employed people is still down by 5.7 million from its pre-pandemic level in February 2020, it’s much higher than in April 2020 (by 16.7 million) – a clear sign that the US labor market is recovering from the last year’s recession and heading into full employment.Importantly, the July nonfarm payrolls came in one week after the strong advance estimate of the US GDP in Q2 2021. According to the Bureau of Economic Analysis, the real GDP increased 12.2% year-over-year (or 1.59% quarter-to-quarter or 6.5% at an annual rate). As the chart below shows, it was the quickest pace of economic growth since the fourth quarter of 1950. Of course, the number results from a very low base last year, but it doesn’t change the fact that the economy has strengthened recently.Implications for GoldWhat does the recent employment report imply for the gold market? Well, in the last Fundamental Gold Report, I pointed out that the Fed started the countdown to the tapering of its quantitative easing and would announce it later this year:The tapering clock is ticking. In June, the Fed started talking about tapering, while last month it noted that some progress has been made towards its goals. It’s likely that within a few months mere progress will transform into substantial progress, especially given that the job gains in July were strong and above the forecasts. With further improvements in the labor market, the expectations of a more hawkish Fed should strengthen, exerting downward pressure on the gold prices.The latest surprisingly strong nonfarm payrolls bring us closer to the beginning of the Fed’s tightening cycle. You see, the thing the Fed lacked to recognize “substantial progress” towards its goal of maximum employment was a few strong employment reports. Last month, the US economy added almost 1 million jobs, which significantly reduced the slack in the labor market.If August turns out to be similarly strong, the FOMC could announce the start of the tapering of its asset purchases in September. Actually, some analysts believe that Powell could signal it in his speech in Jackson Hole at the end of August.So, in line with my previous commentary, the strong nonfarm payrolls lifted the expected path of the federal funds rate, sending gold prices much lower. According to the CME FedWatch Tool, the odds of an interest rate hike in December 2022 increased after the publication of the employment report from 58.8% to 66.2%. As a result, the price of gold plunged from around $1,800 to $1,760, as the chart below shows.Unfortunately, gold has further room to continue its slide. Each positive economic news or any hawkish signal from the Fed (e.g., Richard Clarida, Fed Vice Chair, expressed his belief last week that “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022”) could add to the expectations of higher interest rates and to the downward pressure on the yellow metal.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

Inflation Trades – Rebounding or Sinking

Monica Kingsley Monica Kingsley 10.08.2021 15:43
Again, today’s report will be shorter than usual, and focus on select charts so as to drive position details of all the five publications.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookYesterday‘s S&P 500 downswing was driven by tech, and it wasn‘t the heavyweights that pulled it down. Yes, Nasdaq is in as precarious short-term position as the 500-strong index – about to fall steeply just as gold did? Probably not, but vulnerable to a corrective move that could easily reach a few percent. The infrastructure bill is rather factored into the expectations, and similarly to Fed taper looming, any surprise could serve as a selling catalyst. The drying up volume may not be a sign of no more sellers here, but rather of combination of timid sellers and drying up pool of buyers. With the strong CPI data likely to be announced tomorrow, the bears would likely try their luck.Credit MarketsHigh yield corporate bonds are only relatively resilient – they are under the same kind of pressure as quality debt instruments. Credit spreads are likely to start widening again in confirmation of the continued albeit doubted economic expansion – as yields start their (slow) march higher again, look for the ride in equities to get rockier, and for tech to start diverging. Last but not least, the market breadth indicators aren‘t exactly at their strongest – signs of weakening (warranting caution in stocks) are impossible to miss.Gold, Silver and MinersWeekly gold chart shows just how overdone the plunge has been – and that it went at odds with both TIPS and (understandably once again) rising inflation expectations. The chart also reveals the success of Fed‘s June actions in i.a. driving gold down. Does the market seriously believe that the Fed would turn into an inflation fighter? That they wouldn‘t lag behind both the incoming forward looking and lagging inflation metrics? Make no mistake, the June ISM services PMIs were the highest ever – there is plenty of inflation in the pipeline, and you‘re in essence making a bet whether the central bank will duly mop up the excesses, or not. I‘m in the latter camp, and that means the current gold and silver values are highly interesting to the medium-term investor and trader.Crude OilOil has rebounded off the premarket lows, and is likely to turn higher from here. Note the oil sector resilience vs. what would likely turn out as overdone selling before yesterday‘s regular session kicked in.CopperCopper has likewise stabilized in the PMs induced selloff hitting commodities as well. On one hand the volume doesn‘t indicate local low being reached already, on the other the 4.20s zone is likely to hold unless a game changer strikes. That‘s unlikely at the moment – the inflation data this week are more than likely to support real assets, even if they give the Fed an excuse / justification to indicate improving economy conditions in Jackson Hole, and announce taper in September. Look for commodities to recover then fast, faster than precious metals.Bitcoin and EthereumThe crypto upswing goes on, without respite, with every dip promptly bought. As the $48-50K resistance in Bitcoin approaches, look for air to become a little thinner – it would take time to overcome it, and Ethereum can be relied upon in showing the direction. It‘s also positive to see both leading cryptos rebound almost as strongly off the capitulation July lows.SummaryIn place of summary today, please see the above chart descriptions for my take.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

CPI Fuel and the Smoldering Inflation Fire

Monica Kingsley Monica Kingsley 11.08.2021 16:04
For all the CPI hoopla, remember that this is a monthly figure – all data tend to fluctuate, especially those heavily massaged ones (substitution, hedonistic adjustments, owners‘equivalent rent coupled with exclusion of certain essentials for their prices are deemed too volatile).The Fed keeps walking a very fine line, and it‘s a success that the market isn‘t revolting – given the infrastructure bill passing Senate, calls on OPEC+ to increase production, it‘s clear to me that whatever today‘s figure, inflation will keep being a thorn in its side for a long time – as simple as putting 2 + 2 together. Again, today’s report will be shorter than usual, and focus on select charts so as to drive position details of all the five publications.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 keeps holding up but Nasdaq not very much so – quoting from yesterday‘s analysis:(…) Yes, Nasdaq is in as precarious short-term position as the 500-strong index – about to fall steeply just as gold did? Probably not, but vulnerable to a corrective move that could easily reach a few percent. The infrastructure bill is rather factored into the expectations, and similarly to Fed taper looming, any surprise could serve as a selling catalyst. The drying up volume may not be a sign of no more sellers here, but rather of combination of timid sellers and drying up pool of buyers. With the strong CPI data likely to be announced tomorrow, the bears would likely try their luck.Credit MarketsCredit market weakness is catching up ever more with high yield corporate bonds as they are getting under the same kind of pressure as quality debt instruments. Credit spreads are likely to start widening again as we‘re still in an economic expansion, and that would lift stock market spreads such as financials to utilities. Anyway, with rising yields look for the ride in equities to get rockier, and for tech to be diverging – yesterday was a preview of things to come. Gold, Silver and MinersYesterday, I made a case for why we‘re at an interesting valuation point in gold and silver. The daily chart view though still looks as bleak as ever – merely price stabilization while miners continue leading lower. The dust hasn‘t indeed settled and the success of Fed‘s June actions is still with us as inflation expectations and TIPS are being ignored:(...) Does the market seriously believe that the Fed would turn into an inflation fighter? That they wouldn‘t lag behind both the incoming forward looking and lagging inflation metrics? Make no mistake, the June ISM services PMIs were the highest ever – there is plenty of inflation in the pipeline, and you‘re in essence making a bet whether the central bank will duly mop up the excesses, or not. I‘m in the latter camp, and that means the current gold and silver values are highly interesting to the medium-term investor and trader.Crude OilOil has rebounded off Monday‘s premarket lows, but has met selling pressure even before today‘s message to OPEC+ was announced. I‘m counting on the oil sector continued resilience, but am not looking for similarly smooth sailing in black gold all that fast. Not at all.CopperCopper paints a brighter picture by quite a few hues, and the commodity index has likewise sprang to life vigorously. The 4.20s support zone is likely to hold unless a game changer strikes, which has gotten a little more unlikely compared to yesterday (watching the news tape). The inflation data are more than likely to support real assets, even if they enable the Fed to declare improving economy conditions in Jackson Hole, and announce (watered down) taper (with strings attached) in September. Look for commodities to recover then fast, faster than precious metals.Bitcoin and EthereumThe slow motion crypto upswing goes on, without respite – consolidating and likely to continue. More fighting is expected around $48-50K in Bitcoin, but shouldn‘t affect Ethereum all that much. SummaryIn place of summary today, please see the above chart descriptions for my take.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Silver, the value price spread

Silver, the value price spread

Korbinian Koller Korbinian Koller 13.08.2021 13:39
The value regarding a concerning future is more represented in prices for gold and silver stocks, which weren’t as dramatically affected as they are in more meaningful selloffs. We also encourage the reader to google 1-ounce coins or 100 oz bars of Silver on eBay to find physical acquisition prices not to be reduced as they should be. For 17 months, the spread between physical and spot price in Silver is now present. This means buyers are willing to purchase at an exuberantly higher premium than the paper price.With no indications of fundamental reasoning that justifies paper prices going down, we find risk reduction to our physical holdings. Risk being our most dominant concern is as such more to the side this being a spread between value and price, and as such, we have added to our exposure on a physical level finding this to be a buying opportunity.Looking at trading “paper precious metals prices”, either exuberant emotions of traders and/or price manipulation I present. Hence, we still see a pretty risky environment. While we see a possibility of even lower price levels, such trading behavior is temporary. Typically, extreme states are short-lived.Silver in US-Dollar, Daily Chart, Don’t get rattled:Silver in US-Dollar, daily chart as of August 13th, 2021.The debate about the possibility of market manipulation in the precious metal sector is exhausting, to say the least. While we understand a possible frustration of market participants this to be the cause for losses, it is yet another reason for emotional behavior in market participation which we extremely discourage no matter the reason for triggering. Emotional behavior does principle-based find no place in market play. It clouds the mind and limits the ability for proper trade execution.Gold is the big brother to Silver and is used as a barometer for the health of a nation. It makes Gold political and should be reason enough to find possible strong forces to influence such a barometer. But this should still be irrelevant to the principles on how one allocates money in speculative spot price plays.Keeping one’s emotions in check is one of the best ways to ensure a chance of a positive outcome on a series of one’s bets.The daily chart shows that last Friday’s price action was the precursor setup for the exuberant move when Asian markets opened for the week. Friday’s close (see 1) at the day’s lows, after a strong down trending day near a significant supply zone (see2), weakened this support. It took little pressure to open the flood gates for a self-perpetuating motion. A chain of stops got triggered when markets opened for the week. Once the rubber band was stretched, we had a quick V-shaped bounce for most of the previous down move.This down move was followed by the typical small range indecision sideways day. Prices advanced modestly on Wednesday and again sold on Thursday. It is now the focal point to follow price behavior for a possible retest near the week’s lows zone.We are looking for a possible aggressive entry on a half-size position size. But we will only expose capital if a supply zone is hit with speed to take advantage of an action/reaction principle. Should the price steadily but slowly decline, we will not engage in the markets from a long perspective. Daily Chart, Gold in US-Dollar, Silver relatively weak:Gold in US-Dollar, daily chart as of August 13th, 2021.Another reason why we are relatively conservative in taking a long position right now in Silver is its relative weakness towards Gold.A look at the daily chart of Gold above reveals that the price bounce within this week was nearly double as strong as the one of Silver (see 1/2). Gold’s price decline on Thursday was also a lot more modest. As such, we are not in a hurry to expose capital. We rather trade a possible turning point reactionary after price confirmation.  Silver in US-Dollar, Weekly Chart, Silver, the value price spread:Silver in US-Dollar, weekly chart as of August 13th, 2021.But it isn’t our concern at this point, where speculative short-term entries on spot price trading in Silver are to be determined. What we want to point out is the value stretch. An extreme example would be the fact, that one ounce of silver is enough to feed a family of five for 38 days in Venezuela right now (equaling 3.8 million Bolivars). It is foolish and extreme to argue, “oh well, this is in Venezuela, and something like this could never happen where I live.” Moderate, which in our opinion is the way to go, is thinking in insurance terms and low-risk opportunities to purchase such an insurance, Silver.The larger weekly time frame already indicates that we might be at an entry opportunity for just such a positioning of physical Silver for a long-term wealth preservation perspective.Prices have held a bit above the 0.618 Fibonacci retracement level. Recent price low extremes are within the last thirteen months’ sideways range extremes from US$21.66 to US$30.14. With the relative weakness divergence to Gold, a decline towards a 50% retracement level would spell “opportunity” to us. In general, from a large time frame perspective of a multi-year hold, physical silver acquisitions at spot price levels here, irrespective of the premium to be paid, seem decent to us in the entry range between US$20.70 to $23.75.Silver in US-Dollar, Monthly Chart, The big picture counts:Silver in US-Dollar, monthly chart as of August 13th, 2021.Where clarity cements itself is on the monthly timeframe. One can make out how substantial the move up from last year’s lows at US$11.64 was. On top, the price retracement from this year’s highs is proportionally harmonious. Most likely it’s nothing, but just taking a breath before the possibility of a trend continuation.Supportive to this bullish picture are two significant fractal volume analysis support zones (1,2), right below current price levels (see histogram to the right of the chart).Silver, the value price spread:It is essential to differentiate market speculation and wealth preservation regarding engagement into the silver markets.We do not claim to have a crystal ball to see clearly into the future. Still, when joggling with numbers, it is hard to believe a statement that all is honky dory. That the economy is sound, and that Federal Reserve policy and money printing aren’t having any adverse effect.We have seen irrational trader behavior over and over again. With the ego’s domain on insisting on being right and a lack of accepting responsibility for losing trades, emotions get out of hand pretty quickly. Minds cannot find reasons for prices declining. Promptly a dam can break, and a self-fulfilling prophecy is in motion. We urge you not to participate in further confusing, more emotion triggering mental debates. Avoid letting rage run rapidly. Value price spread opportunities cease to exist for those individuals tied in emotional frictions and frustrations. Take a step back and examine sound fundamental reasoning for your longer-term holdings and extended multiple-decade wealth preservation opportunities.Feel free to join us in our free Telegram channel for daily real time data and a great community.If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter.By Korbinian Koller|August 13th, 2021|Tags: Crack-Up-Boom, FED balance, Gold/Silver-Ratio, inflation, low risk, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 CommentsAbout the Author: Korbinian KollerOutstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

The Long Shadow Over Reflation Trades

Monica Kingsley Monica Kingsley 16.08.2021 16:13
Consumer confidence undershoot didn‘t bring down stocks as the retreat in yields (away from the reflation trades) didn‘t spook value stocks, and only lifted tech. It‘s true that XLK isn‘t firing on all cylinders, and the semiconductors‘ lag is just as concerning as Russell 2000 underperformance – so much for explaining the risks in stocks. But as I wrote on Friday:(…) Inflationary pressures building up aren‘t spooking the markets, there is no forcing the Fed‘s hand through rising yields. The bond vigilantes seem a distant memory as yields are trading well below their historical band, stunningly low given the hot inflation data. I‘m not saying red hot because the monthly CPI figure came in line with expectations, providing relief to the transitory camp. But last week‘s ISM services PMI and yesterday‘s PPI paint a very different story (to come).My call about summer lull in bonds before these slowly but surely make their way higher (the 10-year to 1.80%), is turning out just as well as the inflation expectations‘ continued rebound. The cheap magic of Fed‘s June jawboning is losing its luster. Stocks steady and making marginally higher ATHs practically daily, uneven credit markets, gold holding up well following Monday‘s hit job, oil and copper trading in narrow ranges while the crypto uptrend goes on – fresh profits harvested across the markets yesterday, and growing today.Regarding the taper noises many Fed speakers made during the week (it isn‘t just about Dallas), some form of taper looks indeed coming, even though they would have a hard time pulling it off against decelerating economy and massive fresh spending. Mission impossible if you will. Still, they make the appearance of wanting to try – wouldn‘t tanking markets and fresh calls to do something be a perfect excuse to expanding balance sheet solidly again? But they must at least internally in the Eccles building understand that a move against inflation is long overdue, and perhaps a repetition of June FOMC wouldn‘t do the trick this time.Again, today’s report will be shorter than usual, and focus on select charts so as to drive position details of all the five publications.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookTech continues catching up with value overall holding ground, and that means S&P 500 is ever so slightly ahead over Nasdaq these days. But once another phase of rising yields returns, look for the divergence between the two to reappear.Credit MarketsCredit markets upturn continues, and on lowest volume in recent months – suspicious, but not enough given the lackluster moves elsewhere. Bond performance was still positive for stocks‘ fragile rally.Gold, Silver and MinersMiners‘ weakness that I wrote about on Friday, was indeed deceptive. The yellow metal surged higher, surpassed only by silver (the white metal was the odd one out with its Thursday‘s fake weakness). What a welcome bullish turn of events driven by retreating dollar and nominal yields, with the weakening consumer confidence casting a shadow over the economy too.Crude OilOn one hand, crude oil decline on lower volume is less credible, on the other hand, the oil sector fell even more. Sideways trading in black gold looks set to continue (closer to $60 than $80 within the range I mentioned lately), but I look for it to be eventually resolved with an upswing.CopperCopper upswing was again rejected, and the commodity index went nowhere. Still, the red metal managed to rise on the week – no small feat given the creeping doubts about where the real economy‘s growth path is headed.Bitcoin and EthereumSome more base building in cryptos, and encouragingly it‘s above the 200-day moving average in Bitcoin while Ethereum isn‘t weak. The benefit of the doubt is still with the bulls.SummaryIn place of summary today, please see the above chart descriptions for my take.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Between a Rock and a Hard Place

Monica Kingsley Monica Kingsley 17.08.2021 15:45
No, it‘s not about stocks, however well they hang on to recent gains. ATHs hit again amid recovering corporate credit markets, with both tech and value contributing. Value though was looking more vulnerable going into yesterday‘s session, and just one look at financials or energy confirms that – in the world of question marks over high pace of economic growth, it‘s the Fed that‘s between a rock and hard place.On one hand, they have stubborn and quickening inflation to deal with (or pretend to deal with through the FOMC, the federal open mouth committee) – getting ahead of the curve means serious tightening (okay, first getting less loose monetarily, which is what taper is about). Given China‘s slowdown and corresponding U.S. figures projected, it would be a tall order to turn off the spigot into a weakening (but still growing) economy – that has potential to trigger quite a correction in stocks and risk-on assets. Note copper and oil paring recent gains, and going largely sideways for weeks – not rolling over, but the light is amber, irrespective of the infrastructure bill.On the other hand, if the central bank does nothing, inflation would grow even more entrenched, sinking the stock market and economy over time, anyway. Don‘t forget about the massive spending – the Fed turning restrictive isn‘t the math favored outcome here.Bond yields aren‘t squeezing the Fed‘s hand – the market is paying more attention to growth than inflation at the moment. And that means headwinds for the reflation and commodity trades as these would find rising rates more conducive. Copper to gold ratio is seeing every spike sold since June, underlining the tug of war between the prospects of economy roaring ahead vs. hunkering down.In such an environment of uncertainty, gold is the winner – just as I summarized it yesterday:(…) Regarding the taper noises many Fed speakers made during the week (it isn‘t just about Dallas), some form of taper looks indeed coming, even though they would have a hard time pulling it off against decelerating economy and massive fresh spending. Mission impossible if you will. Still, they make the appearance of wanting to try – wouldn‘t tanking markets and fresh calls to do something be a perfect excuse to expanding balance sheet solidly again? But they must at least internally in the Eccles building understand that a move against inflation is long overdue, and perhaps a repetition of June FOMC wouldn‘t do the trick this time.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookAgainst all odds euphemistically said, the slow grind higher in stocks continues, with tech getting momentarily a little stronger than value. Volume is so far still behind the upswing – regardless of what the VIX and put/call ratio look like, the bulls aren‘t yet challenged.Credit MarketsCredit markets upturn continues, but not before having to repel heavy selling at the open. The chart offers no warning signs for the bulls at the moment, with the exception of risk-on optimism being vulnerable to a suddent souring that would hit many advancing stocks hard. Financials weakness yesterday is a watchout reflective of Treasury yields path.Gold, Silver and MinersGiven the growth fears sentiment of the moment, miners‘ underperformance is more understandable – the yellow metal is set to do well in such circumstances. Silver weakness reflects select commodities such as copper getting under pressure, which equals risk-off undercurrents.Crude OilEnergy stocks do a little worse in such an environment, making the daily oil resilience a temporarily good sign – one that I wouldn‘t read too much into for now as the volume isn‘t consistent with a budding reversal.CopperLikewise in copper, the modest rebound off the lows isn‘t convincing – there are no signs of heavy buying thus far, making the local bottom still elusive.Bitcoin and EthereumCrypto base building goes on, and the recent price action remains positive for the bulls.SummaryWhile the risk of a correction in stocks grows, in many commodities it‘s already here. The decelerating economy as evidenced by today‘s retail sales, is lifting primarily gold, and isn‘t any obstacle to cryptos just yet – the dollar isn‘t biting and yields remain range bound, therefore I look for inflation trades to eventually return to strength.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Taper Tantrum a Week Before Jackson Hole

Monica Kingsley Monica Kingsley 18.08.2021 17:16
Stocks have recovered off the intraday lows yesterday, in what is one of the less severe battles of the unfolding taper tantrum – commodities such as copper and oil bear the brunt thereof, which is perfectly understandable given the slowdown in economic expansion. My yesterday‘s analysis coupled with Monday‘s one has all the details of the fundamental backdrop and Fed positioning (little changed with yesterday‘s Powell virtual townhall meeting).Markets are simply being nervous here, and it‘s my view that the economic recovery hasn‘t yet peaked, for when I look at various yield spreads, we haven‘t reached levels consistent with the peak (e.g. in the 10-year over 2-year Treasury, by far not). I continue to think we‘re approximately midway into the expansion, and only yield curve inversion would herald an approaching recession to me.Again, today’s report will be a little shorter than usual, and focus on select charts so as to drive position details of all the five publications.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bears made their appearance, finally – and the increasing volume tells that they‘re probably not done yet. Sideways trading is the best the bulls can hope for, and looking at the credit markets, I‘m not looking for a swift bullish resolution before a thorough test first. Yes, the odds of a serious correction in the S&P 500 have increased again.Credit MarketsNoticeable hiccup in the credit markets appeared yesterday, making the short-term outlook definitely not bullish. Sideways to down seems to be the most likely scenario.Gold, Silver and MinersIn spite of continued miners‘ underperformance, gold resilience is understandable in the current risk-off environment with safe haven assets such as Treasuries being sought in order to take cover from the reflation trades getting under fire (and that affects silver too, for it trades as both a precious metal and a commodity).Crude OilEnergy stocks paint a grim picture, and crude oil‘s downside doesn‘t appear to be over in spite of momentary and relative resilience.CopperThe local bottom has been indeed elusive, as yesterday‘s price action shows. No signs it‘s in either today – the volume is slowly rising, and the bulls haven‘t made their presence known much. When the taper bets get reversed though, look for a swift reversal to the upside – probably not as steep as in gold lately, but still clearly noticeable.Bitcoin and EthereumCryptos gave up solid intraday gains yesterday, and haven‘t quite come back today – the outlook is a bit unclear at the moment, with the decisive break of either $48,000 or $44,000 in Bitcoin serving as a litmus test of where next we‘re going.SummaryWhile the risk of a correction in stocks grows, in many commodities it‘s already here – and getting more pronounced. The decelerating economy and margin debt retreat are taking their toll as much as taper fears, making the dollar rise in what can be described as a (mini) taper tantrum already here.Does it change the reflation and economic expansion story? I don‘t think so as this has farther to go before rolling over, therefore I look for inflation trades to eventually return to strength, and for gold to take advantage of continued monetary accommodation.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
New York Climate Week: A Call for Urgent and Collective Climate Action

Fed to Taper This Year – What Are the Odds?

Finance Press Release Finance Press Release 19.08.2021 13:51
The latest FOMC minutes show that the Fed will likely taper quantitative easing this year. It’s largely priced in, but downside risks to gold remain.Yesterday, the FOMC published minutes from its last meeting in July. The publication is rather hawkish, as it shows growing appetite among the Fed officials for tapering the quantitative easing as early as this year:Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal.The discussion about the tapering of the Fed’s asset purchases must have been the key point of July’s FOMC meeting, as it was reiterated later in the minutes with a similar conclusion:Most participants anticipated that the economy would continue to make progress toward those goals and, provided that the economy evolved broadly as they anticipated, they judged that the standard set out in the Committee’s guidance regarding asset purchases could be reached this year.Additionally, starting tapering sooner rather than later has several advantages, as it would help to manage the upward risk of the inflation outlook, giving the Fed the opportunity to hike the federal funds rate sooner, if needed. It would also allow the US central bank of a more gradual pace of tapering, reducing the risk of the taper tantrum:Several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement (…)Some participants suggested that it would be prudent for the Committee to prepare for starting to reduce its pace of asset purchases relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated and because an earlier start to reducing asset purchases would most likely enable additions to securities holdings to be concluded before the Committee judged it appropriate to raise the federal funds rate.What’s more, although FOMC participants decided that the economy had not yet achieved the Committee’s broad-based and inclusive maximum-employment goal, a majority of them stated that most of the negative factors which weighed on the employment growth would ease in the coming months, warranting the start of the tapering.Last but not least, the Fed seemed to become more hawkish on inflation. The staff considered the risks of the inflation projection to be tilted to the upside, while FOMC members started to see it as potentially more persistent than previously believed:Looking ahead, while participants generally expected inflation pressures to ease as the effect of these transitory factors dissipated, several participants remarked that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices into 2022.It seems that someone at the Fed has finally noted that inflation had jumped above 5%, as the chart below shows!Of course, there were also dovish parts, in particular related to the possibility that the spread of the Delta variant of the coronavirus would hamper the economic growth, or that the slack in the labor market could be greater than commonly believed. Thus, several participants emphasized that the Fed should be patient with tapering and that it would be better to start it early next year:Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labor market as not being close to meeting the Committee’s “substantial further progress” standard or because of uncertainty about the degree of progress toward the price-stability goal (…) Those participants stressed that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans on asset purchasesImplications for GoldWhat do the recent FOMC minutes imply for the gold market? Well, they came in, on balance, hawkish, so they should be negative for the yellow metal. However, the initial reaction was bullish. Perhaps investors were afraid that the minutes would be even more hawkish. The decline in equities could also fuel some safe-haven demand for gold. It’s worth noting that the reaction was rather muted, as the publication didn’t offer any groundbreaking revelations. It seems that next week’s annual Jackson Hole conference could provide more clues about the future US monetary policy.Having said that, the minutes clearly show that tapering is coming. The Fed could announce it as early as in September, as Dallas Fed President Robert Kaplan prefers, and start it later this year. So, precious metals investors should brace for the inevitable. Luckily, the Fed’s tightening cycle is largely priced in, but any unexpected acceleration in the pace of the monetary policy normalization could rattle the gold market.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Taper Squeeze Is On!

Monica Kingsley Monica Kingsley 19.08.2021 15:44
Fed minutes as the straw to break the camel‘s back? This time, they weren‘t as uneventful as so often before, making the markets look for taper to indeed come – and sooner than expected. Quite a courageous proposition given that commercial bank credit creation isn‘t ready to take up the slack, and then some. The markets thus reassessed the short-term prospects, reacting with a modest degree of panic not only in select commodities, but finally also in stocks. Seems like the few percent correction I warned about on Tuesday as approaching, is finally here and unfolding:(…) in the world of question marks over high pace of economic growth, it‘s the Fed that‘s between a rock and hard place.On one hand, they have stubborn and quickening inflation to deal with (or pretend to deal with through the FOMC, the federal open mouth committee) – getting ahead of the curve means serious tightening (okay, first getting less loose monetarily, which is what taper is about). Given China‘s slowdown and corresponding U.S. figures projected, it would be a tall order to turn off the spigot into a weakening (but still growing) economy – that has potential to trigger quite a correction in stocks and risk-on assets. Note copper and oil paring recent gains, and going largely sideways for weeks – not rolling over, but the light is amber, irrespective of the infrastructure bill.On the other hand, if the central bank does nothing, inflation would grow even more entrenched, sinking the stock market and economy over time, anyway. Don‘t forget about the massive spending – the Fed turning restrictive isn‘t the math favored outcome here.Bond yields aren‘t squeezing the Fed‘s hand – the market is paying more attention to growth than inflation at the moment. And that means headwinds for the reflation and commodity trades as these would find rising rates more conducive. Copper to gold ratio is seeing every spike sold since June, underlining the tug of war between the prospects of economy roaring ahead vs. hunkering down.Looking at market reaction to the approaching taper (no mention of tightening – Powell learned his 2018 lesson though I still say that the Fed would have a much harder time withdrawing liquidity now), quite universal selling followed next – with the exception of the dollar, gold and to a degree Treasuries.Taking on inflation through the dollar doesn‘t come without its own risks, though – while taking down commodities a notch or two, global growth would face headwinds too. Treasury yield spreads aren‘t yet thankfully signalling more slowdown ahead – yields look ready to keep chopping, and only very gradually to start rising again. Rising greenback though isn‘t a silver bullet in extinguishing inflation given still stubborn rent prospects (it‘s one third of CPI) and wage pressures, let alone mounting supply chain issues when it comes to smooth international shipping (yes, China terminals restrictions etc). And I‘m not even raising corona anymore but look for the official start of flu season (Sep 15) to get interesting, if you know what I mean.This is the time to be picky about where to be exposed to risks, which asset classes are likely to ride the taper and growth storms best. I think it would be copper over oil, and gold over silver. The stock market correction appears in its opening stages indeed, and cryptos still chopping around would be a great result. It‘ll take a while for the dollar to roll over to the downside, but look for it to do so over the medium to longer term, and keep an eye on Treasuries – would be great if they confirmed my midpoint economic cycle hypothesis and didn‘t spike. Finally, I expect the Fed to come to its senses as not enough of what‘s left of the free market, would step up to the plate and finance growing „building back better“ deficits. So far, so good.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookVolume hasn‘t increased all that much, but look for it to change as we approach a fresh buying opportunity. For now, look for the downside risks to continue.Credit MarketsPowerful reversal in credit markets, spelling more trouble for the riskier parts of the spectrum. Indeed as I wrote yesterday, the risk-on optimism was vulnerable to a suddent souring that would hit many advancing stocks hard. Gold, Silver and MinersGold resilience in the face of weakening miners, is a good sign – look for the yellow metal to lead precious metals sector higher. Miners‘ weakness reminds me of the setup before 2016, and we know what happened over the coming months back then. Silver together with copper would improve, and the same is true about nickel – all three are a must for green economy.Crude OilEnergy stocks keep doing worse in such an environment, and while a solid support in oil is approaching, we aren‘t there yet – the selling pressure hasn‘t really decreased.CopperCopper is closer to its support than oil, but the knife didn‘t stop falling yet. The volume examination is though more encouraging than in the case of black gold.Bitcoin and EthereumCryptos have pared gains, and are treading water at the moment – look for vulnerabilities to likely manifest here over the coming days too. It would be very premature and unreasonable to talk about shift to bearish outlook, though.SummaryThe Fed looks decided to try walking the fine line and taper, but that wouldn‘t come without its own set of consequences as described in the opening part of today‘s extensive report. Continuing with the paragraph right before the chart section…Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Inflation Accelerates in June. Will Gold Finally React?

Finance Press Release Finance Press Release 20.08.2021 17:11
Inflation surged in June to 5.4%. It may retrace soon, but there’s a good chance that it will increase again later, boosting gold at last.The inflation monster has reared its ugly head. The CPI annual rate surged to 5.4% in June, accelerating from already mind-blowing 5% in May. It was the hottest pace since the Great Recession. However, Powell and his colleagues from the FOMC still claim that inflation will only be temporary, as it was boosted by the reopening from the Great Lockdown, while others predict a replay of the stagflation from the 1970s. Who is right?Well, it’s true that some inflation measures will decline in the near future. After all, the economy faces supply chain bottlenecks, which are causing price spikes. The global shortage in the supply of semiconductors chips is one of the temporary problems that led to the annual 45.2% spike in the price of used cars in June, accounting for more than one-third of the surge in the overall index.However, used vehicle prices are skyrocketing not just because of the problems on the supply side, but also because of a higher-than-expected demand. And where did this strong demand come from? You got it – from the extra cash that has been created and distributed to people. There is so much liquidity in the markets thanks to very easy fiscal and monetary policies that people just want to buy stuff, no matter the price.As Milton Friedman notes, “inflation is always and everywhere a monetary phenomenon” – prices cannot keep on rising without the expansion of money supply. So, supply bottlenecks are only one driver of rising inflation – the surge in the broad money supply, the reduced pace of globalization and the complacent stance of central banks are other factors.What’s more, even if we drop the subindex for used cars from the calculation, the annual inflation rate would be 3.6%, almost twice the Fed’s target. Indeed, there is still some base effect, but even if we compare the recent inflation readings to February 2020, we see in the chart below that the CPI is 4.7% higher than before the pandemic.So, some improvement in the supply of semiconductors (if we drop out low CPI readings from the calculation) could soften inflation somewhat in July or later this year. However, even if inflation backs out of its current pace, it will likely remain elevated; even experts admit it. The economists polled by the Wall Street Journal forecast that inflation will drop to 3.2% by the end of this year and stay above 2% through 2023.There is still high inflationary pressure that should keep consumer prices boosted. For instance, the ISM® Prices Index registered 92.1%in June, indicating that raw materials’ prices increased for the 13th consecutive month. The index has risen to its highest level since July 1979. Producer prices are also rising, while transportation costs, in particular freight prices, are skyrocketing. All this should add to the inflationary pressure, possibly translating into higher consumer prices in the future.Another important issue is that inflation often comes in waves. So, even if the first bout ends soon, it won’t mean that the threat of high inflation is going to disappear. It might be the case that we are just in a transitional phase, slowly moving into a period of higher inflation. Please take a look at the chart below. As you can see, the stagflation from the 1970s didn’t show up overnight.Instead, the first wave started in 1965 and peaked a year later. However, in 1967, the second wave began, which peaked in 1970. Then, inflation eased, giving false hopes, but it accelerated again in 1973-1975, and – after another temporary retreat –in 1978-1980.So, the first bout of inflation always looks temporary, but it may lay the groundwork for even higher inflation, especially if inflation expectations de-anchor. And, indeed, although medium-term consumer expectations remain stable, one-year expectations have recently risen, as the chart below shows. In the case of New York Fed’s Survey of Consumer Expectations (red line), they have soared 0.8 percentage points, reaching 4.8% – a new series high.What does it all imply for the gold market? Well, initially, the impact of inflation might be negative. This is because the markets will eventually react to higher inflation and the more hawkish Fed. So, the bond yields will rise, increasing the opportunity costs of holding gold.However, after some time, higher inflation will become disruptive for the economy. Either real household incomes or corporate profits will decline (depending on the companies’ ability to pass surging costs), while higher interest rates will trigger some defaults. When inflationary psychology sets in and people start to worry about all the bad consequences of inflation, gold should shine. So far, the party goes on; but a hangover lurks just around the corner.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get a 7-day no-obligation trial for all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

U-Turn and Quite for Real

Monica Kingsley Monica Kingsley 23.08.2021 13:38
What doesn‘t go down, must go up? With a little Kaplan help, sideways S&P 500 trading well above 4,370 – 4,375 area spurted higher as the taper prospects rebalancing worked its magic. As I had been writing thoughout the week and well before, mathematics of growing deficits doesn‘t favor decreasing asset purchases. On top, the economy appears a little slowing down – while no recession this year or next is likely – we‘re midpoint in the expansion cycle as per my credit spread indicators – the slowdown looks inevitable, and the only question is the extent and seriousness of any Fed tapering.The talking has thus far lifted the dollar, enabling the central bank to take on inflation through the back door. Combined with the decreasing margin debt (first sign that something with the M2 rate of growth is amiss), the reflation and commodity trades have suffered, and all it took was a mere 2.5% from S&P 500 ATHs to make the Fed blink as per the title of my prescient Friday article.Treasuries though aren‘t yet convinced, having merely wavered – they‘re overestimating the odds of economic growth turning negative. The same trading action describes the dollar, and inflation expectations dipped on the day as well. As a result, expect the turn to risk on beyond stocks, to continue in fits and starts – Friday was but a first swallow revealing that the Fed is ready to step in when things start to look bleak for the „generally accepted metric of economic success“, the stock market.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookReversal continuation on not outstanding but still good volume – it‘s the high beta internals that bode well for the coming week, as it‘s about the degree of value and tech outside $NYFANG performance.Credit MarketsHigh yield corporate bonds have led the reversal in credit markets, while the quality debt instruments remain elevated, with especially Treasuries still doubting the stock market rebound. That‘s but one of the signs of caution for the S&P 500 bulls.Gold, Silver and MinersMiners finally stopped falling, but much more needs to happen so as to brighten the PMs outlook considerably. Thus far, just gold can be counted on to be resilient while silver is being challenged alongside commodities during any selloffs.Crude OilEnergy stocks stopped their daily decline, and the sellers might be getting exhausted here – anyway, the local bottom appears approaching, and today‘s premarket trading taking black gold over $64, highlights that.CopperCopper rebounded, and very strongly. The volume didn‘t disappoint either – some trading between the two moving averages appears likely next. I‘m not counting on a steep and immediate rebound above the 50-day moving average in spite of the positive fundamentals behind copper and other base metals just yet.Bitcoin and EthereumMore base building over the weekend gave way to upswing continuation – the path of least resistance is still up.SummaryMonday‘s trading shows the markets are taking the dialing back of Fed‘s taper seriously, and risk-on assets are surging, accompanied by the dollar retreating. And that bodes well for value stocks today as opposed to tech behemoths. Thus far, it‘s only precious metals where the upswings are much tamer, compared to copper or oil.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Best Real Assets to Catch Fire Now

Monica Kingsley Monica Kingsley 24.08.2021 16:37
Friday‘s optimism carried over to Monday, and far from only in stocks. Pendulum swinging the taper tough talk being just talk, worked powerfully to lift the beaten commodities – and unlike on Friday, oil joined in. The celebrations were a little too powerful, and I‘m looking for at least a modest daily consolidation in yesterday‘s star performers today.What was most powerful though, was the daily reversal in the dollar while yields remained pretty much unchanged. The dialing back of taper didn‘t lift the dollar exactly – the repo market being fixed through meager 5 basis points rate, served it better. Anyway:(…) As I had been writing thoughout the week and well before, mathematics of growing deficits doesn‘t favor decreasing asset purchases. On top, the economy appears a little slowing down – while no recession this year or next is likely – we‘re midpoint in the expansion cycle as per my credit spread indicators – the slowdown looks inevitable, and the only question is the extent and seriousness of any Fed tapering.And with much of the tapering done through the repo market in a way already, the focus will shift to the balooning deficits and debt ceiling so as to confront the disappointment creeping in through Monday‘s PMIs and more. I‘m not looking though for a deterioration strong enough to derail the stock market and commodities bull runs. Let alone the precious metals one. A good signal thereof would be widening credit spreads on the long end as the short end has been flattened already.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookReversal continuation on still strong volume – the 500-strong index is likely to consolidate the sharp 2-day gains, and so is Nasdaq, the more so if a slight risk-off whiff appears again. All it takes is one less than dovish Fed pronouncement.Credit MarketsHigh yield corporate bonds gapped higher, and closed on a strong note – daily consolidation wouldn‘t be out of the question. Overall positive turn in credit markets – one that is able to carry the stock indices during the coming days.Gold, Silver and MinersMiners joined in the gold upswing, in what reflects more than a daily weakness in the dollar. Silver is catching fire too, and yesterday‘s summary about the PMs upswing being the tamest thus far, might need revisiting once the fiscal and monetary realities sink in.Crude OilEnergy stocks stabilization facilitated the oil rebound, and black gold mustered strength seen last in mid Jul. The local bottom is in, and too much of a retracement would be a gift to the bulls.CopperCopper rebound continues, and stabilization at around 4.25 would be very constructive for the bulls so as to take on the 50-day moving average next. The copper chart retains strongly bullish flavor even if we might go a little sideways first still.Bitcoin and EthereumCryptos are still short-term undecided – backing and filling before another upswing wouldn‘t be at all surprising.SummaryFollowing Monday‘s gains, consolidation in the risk-on sentiment is likely for today, except for the most beaten down commodities and precious metals (these can continue extending gains). Thereafter, look for more short-term trigger happiness as the markets strive to decipher the upcoming Jackson Hole statements, and preposition themselves accordingly.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

Inflation Is Prone To Delta. The Same With Gold?

Finance Press Release Finance Press Release 24.08.2021 16:47
Delta variant caused fresh supply-chain disruptions. Effects? Slower growth and higher inflation. Sounds like a perfect mix for gold!The Delta variant of the coronavirus is spreading all around the world. Although it won’t affect the world economy as much as the first wave of the pandemic, it will add to the already existing problems. Namely, the rising number of new cases will prolong the supply disruptions, hampering the GDP growth and strengthening the already high inflation (see the chart below).In particular, last week, the Ningbo-Zhousan port in eastern China was partially closed until further notice after its worker was infected with the Delta strain. The problem is that it’s the world’s third-busiest cargo port, so its closure will cause fresh pressure to the already disrupted shipping industry.The spread of the Delta variant and related disturbances in global trade have already caused Goldman Sachs to cut its forecasts for the US economy from 6.4% to 6% this year. “The impact of the delta variant on growth and inflation is proving to be somewhat larger than we expected”, the bank’s analysts explained in a note to the clients. The supply chain’s hurdles are expected to curb production and further raise prices, which would lower the purchasing power of consumers and limit their spending.It implies that high inflation will likely stay with us for longer than the Fed thinks, just as I’ve been saying for a long time. The current situation shows a disturbing resemblance to the 1970s. As you know, inflation was surging then, but the US central bank was downplaying it, blaming the temporary effects of the first oil shock. The result of such a careless stance was the Great Stagflation and the need to aggressively hike federal funds rate by Paul Volcker. Inflation was defeated, but a double-dip recession emerged.We also have a negative supply shock now (or, I should say, a series of shocks). It’s not an oil shock, but it’s also significant, as the issue broad-based — namely, the semiconductor shock and container shock, which hit all kinds of products. Semiconductors are key for the modern economy. They are used in various industries from consumer electronics to vehicles, and you practically cannot transport goods without containers. And as in the 1970s, the Fed believes that inflation is transitory and will go away on its own.Yeah. Maybe it would happen if we had to deal with the supply shocks only. But the economy has also been hit by demand shocks – i.e., by the surge in the broad money supply and fiscal deficits used to finance cash transfers to the citizens and generous unemployment benefits. All this adds to inflationary pressures.Implications for GoldWhat does all this mean for the gold market? Well, slower economic growth and higher inflation due to the spread of the Delta variant are good news for gold. It brings us closer to a stagflationary environment, which should be welcomed by the yellow metal. Although gold doesn’t always protect against inflation, it served as a good inflation hedge during the 1970s, so we could reasonably expect similar performance during the potential 2020s stagflation.Unfortunately, there is one big scratch in this picture: the Fed’s tapering of quantitative easing. More persistent inflation could mobilize inflation hawks to tighten monetary policy in a more rushed manner. As a result, the bond yields could increase, especially given that they are at very low levels, creating downward pressure on gold prices.Luckily, history teaches us that bond yields can increase in tandem with gold prices. As the chart below shows, this is what happened in the 1970s. After all, what really counts for the gold market is real interest rates, and they could stay at an ultra-low level or even decline further if inflation surges.Last but not least, the Delta variant is also likely to hamper economic growth. So, the Fed could actually become more dovish and postpone the end of its asset purchases, especially given that it has already expressed some concerns about the Delta spread. So, although the price of gold could decline further amid potential normalization in interest rates, inflation risk should provide some support or even materialize, pushing inflation itself higher.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Jackson Hole Ahead! What Should We Expect?

Finance Press Release Finance Press Release 26.08.2021 16:39
Gold prices fluctuate around $1,800, waiting for signals from the Fed at Jackson Hole. Which way will we go after the conference?Finally! The price of gold returned above $1,800 this week, as the chart below shows. It’s a nice change after the slide in early August. Although gold has rebounded somewhat, bulls shouldn’t open the champagne yet. A small beer would be enough for now, as the yellow metal already retreated from $1,800 on Wednesday (the fact that gold was unable to stay above this level is rather disappointing).So, what is happening on the gold market and what are its prospects? Well, it seems that two narratives are competing with each other ahead of the Jackson Hole conference. The first one is that Powell could provide some clues about the Fed’s tightening cycle, signaling when the tapering would start and how this process would look like. In other words, after July’s FOMC minutes, which came in more hawkish than expected, some analysts expect another hawkish signal from the Fed this week. Gold may suffer due to this, although tapering of the quantitative easing is already priced in to a large extent.On the other hand, the recent rebound in gold prices might have been caused by investors positioning for a more dovish Fed than before. This is because of the Delta variant of the coronavirus, which is spreading quickly through the US, as the chart below shows.The rising number of new cases could soften the Fed’s stance or temper its tapering plans. Indeed, Minneapolis Fed President Neel Kashkari said that “COVID-19 delta variant matters a lot”, while Dallas Fed President Robert Kaplan admitted that he might “rethink his call for the Fed [to] start to taper its 120 billion per month and bond purchases if it looks like the spread of coronavirus Delta variant is slowing economic growth.” Of course, both presidents are not voting members of the FOMC this year, but their comments may still be indicative of the thinking within the Fed.After all, the US central bank says that it’s data-dependent, and some data seems to confirm recent worries about Delta’s impact on the GDP growth. For instance, the HIS Markit Flash U.S. Composite PMI Output Index declined from 59.9 in July to 55.4 in August. This means that U.S. business activity growth slowed for the third month in a row, partially due to Delta and softer consumer demand. The Fed’s more dovish tone and postponement should be positive for gold prices.Having said that, investors have to remember that Delta’s impact on the economy would be rather limited, as economic agents have already accommodated to the pandemic and nobody wants further lockdowns.Implications for GoldWhat does all this mean for the gold market? Well, the Jackson Hole conference might determine gold’s future direction, as many investors are waiting on the sidelines just to hear what Powell and other central bankers have to say. However, it’s also possible that this year’s symposium will be less impactful than expected. I mean, Powell could refrain from announcing any timeline of the Fed’s tightening cycle, preferring to wait until the FOMC September meeting when August non-farm payrolls are available and it is easier to assess the economic impact of Delta.However, the lack of hawkish action is dovish action. So, it’s possible that gold investors will find delight in Jackson Hole. However, this “a bit dovish scenario” might already be priced in, so a lot depends on the details of Powell’s speech. My bet is that he will point out both the economy’s strength and the threats of the Delta variant. Nonetheless, I don’t expect that Delta will radically change the Fed’s stance on tapering, so medium-term downward pressure on gold should remain intact.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
US Industry Shows Strength as Inflation Expectations Decline

Nixon’s Closure of Gold Window Still Supports Gold Prices

Finance Press Release Finance Press Release 27.08.2021 14:58
August marks the 50th anniversary of Nixon’s closure of the gold window, the end of the gold standard that still affects the global economy.It’s been 50 years since one of the most important events in contemporary – or, perhaps, all of – economic history. And, no, I don’t mean the foundation of the Nasdaq stock exchange nor the bankruptcy and nationalization of Rolls-Royce. Half a century ago, on August 15, 1971, President Richard Nixon closed the gold window. It meant that America unilaterally canceled the convertibility of the US dollar to gold. Nixon’s action was a nail in the coffin of the Breton Woods system and the beginning of the current monetary system (or, actually, the current non-system) based on freely floating fiat currencies (the ultimate end of the gold standard came in 1973). So, for the first time in history, money ceased to have any intrinsic value, use value, and any links to the precious metals or other commodities. Humankind has begun an experiment with national fiat monies that weren’t in any, even the loosest way, backed by gold.How did this experiment go then? Not very well… The idea was that unshackling the dollar from gold would allow the Fed to conduct independent and ‘scientific’ monetary policy to boost economic growth and provide full employment while avoiding harmful recessions. Nixon’s shock was also presented as an action that would halt inflation and strengthen the stability of the dollar. As President Nixon promised himself in a television speech on August 15, 1971:The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world (…)I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. (…)The effect of this action, in other words, will be to stabilize the dollar.Well, it didn’t work out as planned. The greenback plunged by a third during the 1970s. It also lost a lot of its domestic purchasing power. The average annual inflation rate between August 1971 and May 2021 was almost 4%, generating a cumulative price increase of about 560%. Indeed, as the chart below shows, the Consumer Price Index is now 6.6 times higher than in mid-1971.It means that $1 then is equivalent in purchasing power to about $6.6 today, an increase of $5.6. In other words, a dollar today only purchases less than 18% of what it could buy back then (so, it has lost more than 82%of its purchasing power since 1971). So much about curbing inflation and stabilizing the dollar.Other promises have also been broken. The unemployment rate was, on average, higher, while the GDP growth was slower in the period after 1971. And since Nixon terminated the gold standard, there have been a lot of financial instability and several economic crises, including the stagflation in the 1970s and the global financial crisis in 2008-09.The post-1971 monetary system was good at only one thing: at boosting the money supply and the public debt. Without the gold anchor, the Fed could create money (as well as the Treasury) and spend it more freely than under the gold standard. Indeed, as the chart below shows, both the monetary base and the federal debt have accelerated since the 70s, surging to a level about 650 times greater.Hence, the closure of the gold window still has an impact on the global economy and the precious metals markets. If gold continued to serve as the ultimate money, monetary and fiscal policies would be more rational and the public debt wouldn’t exceed 100% of GDP in peacetime.It means that the lack of the gold standard is, somewhat paradoxically, good for gold prices. When Nixon killed the Breton Woods, some analysts claimed that the price of the yellow metal would decline without being linked to the dollar. As we all know, and as the chart below shows, the opposite happened.Over the past fifty years, the price of gold has soared about 4100% – or more than 7.7% annually, on average. Additionally, given all the instabilities present in the contemporary monetary system based on fiat currencies, unlimited money-printing and monetization of debt, in the long run, the price of gold may only continue its upward trend.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get a 7-day no-obligation trial for all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Taper Shock That Never Was

Monica Kingsley Monica Kingsley 27.08.2021 16:42
Yes, more paring the risk-on bets came yesterday, indiscriminately taking down stocks (tech and value alike), oil and copper. The overall shape of the consolidation in real assets (commodities and precious metals) remains bullish though – it‘s mainly in the S&P 500 that the hanging man candle is giving me a pause – temporarily lower stock prices would be favored by the VIX too.Regardless of that:(…) Margin debt is contracting, M2 not exactly at the prior rates of growth, but celebrations in the paper and real asset markets largely go on. Gold and silver are understandably lagging in the drummed up taper expectations, but I‘m not looking for any kind of dramatic statement from the Fed. The two steps forward, one step backwards melodrama is likely to continue into the September FOMC, and even that may very well leave the markets guessing. The Fed is in no position to tighten, the economic recovery is likely to continue, and the central bank won‘t kill it – which means continuous noises, and data dependecy as they like to call it.What we have seen thus far, and are likely to see next, are stealth real attempts to test the markets‘ tolerance to the continuing monetary largesse to the extent permitted by actual fiscal realities (nice qualifier to say „don‘t expect too much“), verbal interventions projecting the (sooner than anticipated, and most importantly, actually viable in the marketplace) taper (and later tightening) images while seeing the dollar hovering in a position of relative strength (useful tool to take on cost inflation). Make no mistake, Powell is keen to cement his legacy, and that doesn‘t involve succumbing to the hawkish (ehm, considered as hawkish in our loose monetary era) calls during a slowdown in the real economy growth.As I wrote in the extensive daily analysis a week ago:(…) Taking on inflation through the dollar doesn‘t come without its own risks, though – while taking down commodities a notch or two, global growth would face headwinds too. Treasury yield spreads aren‘t yet thankfully signalling more slowdown ahead – yields look ready to keep chopping, and only very gradually to start rising again. Rising greenback though isn‘t a silver bullet in extinguishing inflation given still stubborn rent prospects (it‘s one third of CPI) and wage pressures, let alone mounting supply chain issues when it comes to smooth international shipping (yes, China terminals restrictions etc). And I‘m not even raising corona anymore but look for the official start of flu season (Sep 15) to get interesting, if you know what I mean.As you can see, there are plenty of potential headwinds, and Monday‘s slowdown in PMIs illustrates that perfectly. The Fed will continue walking a fine line, not willing to rock the (stock market namely) boat too much. They‘ve done a good job in preparing the markets for the taper, and should they decide to actually start it in Sep or Oct, it wouldn‘t make for a smooth market experience.The risks of a policy mistake are still with us, and that‘s why I‘m not looking for overly courageous and ambitious taper path taken. Whenever taper comes, it‘s going to momentarily shock, but a keen eye would be cast so that it doesn‘t derail the status quo.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookStocks aren‘t willing to move too much, but their current position is perilous. Short-term perilous as the willingness to rebound off last week‘s lows shows.Credit MarketsCredit markets are sending conflicting signals, highlighting risk-on trades‘ vulnerability, but an actual downswing in these hasn‘t happened yet. A taper surprise would do the job, and close the shears wide open between HYG and the rest of the crowd.Gold, Silver and MinersQuite some bullish consolidations going on in gold and silver – their bullish flag approximations are ready to spring higher once the taper uncertainty gets removed to a degree. As I wrote yesterday, my bet was still on not too much downside followed by shaking off whatever little clarity is introduced by the Fed. Crude OilSo far so good for the bulls – the brief time for a short in oil came and went. The rebound is unlikely to roll over to the downside hard and fast.CopperCopper consolidates even more bullishly than oil does – the 50-day moving average resistance will be challenged soon again.Bitcoin and EthereumCryptos keep on consolidating, and just as precious metals, aren‘t rolling over to the downside in the least. Fresh upleg looks approaching.SummaryI‘m looking for the risk-on trades to continue performing well, in spite of any Jackson Hole curveballs introduced. The thinning monetary fuel air at markets‘ disposal would power different assets more selectively than was the case in first half of 2021, though.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Silver is a real purchasing power

Korbinian Koller Korbinian Koller 29.08.2021 17:24
You get bombarded with financial terms and economic and historical theories that make the mysteries of the market even harder to decipher. In effect, market workings aren’t as difficult to understand. They are psychological in nature and, when left alone, regulate themselves quite efficiently. We mean to say that without outside interference, the market is like a breath, and prices go up, sideways, down, sideways, and up again. It is a pendulum from averages to extremes and again returns to the mean. Once interfered, things get out of whack. One such interference was the abandonment of the gold standard. It served as a limitation to the discretionary monetary policy. It prevented extremes, prevented the economy from running out of breath. Now, silver is a real purchasing power.What do we mean by that? When fiat currency gets a regulating hand not by a free market but the meddling of politics trying to micromanage a market mainly through narrative, manipulation of the psyche of market participants, restraints are out the door. Human greed is taking over and worse, the ego suggesting that we can control an entity like the market with a degree of variables so high that any intervention is speculation at best. Such failing efforts typically turn markets sour..What this means for you is that unnatural extremes are at work, affecting your portfolio disproportional.Easily, an illusion is created to be fooled that one’s monetary gains in the market are plentiful. However, the reality is that when comparing your percentage gains to the actual purchasing power of what this money buys you, a rude awakening is guaranteed.When looking at your monthly expenditures for basic needs like living costs and food, it is astounding why that narrative has not found its way into the news yet. What is real is what precious metals like gold and silver are buying you now and in the future. A change of thinking is necessary to think in real purchasing power and not in percentage gains on fiat currency advancements.S&P 500 in US-Dollar, Weekly Chart, Too clean:S&P 500 Index in US-Dollar, weekly chart as of August 28th, 2021.The weekly chart of the S&P 500 above shows how unnatural the growth of the stock market is. Typically, in a self-regulating market, you will find no such clean up-drift. Why would all these companies have doubled in value in a time of economic crisis? Printed money flowing directly into the market has more than doubled the index value in less than 18 months? We would call this rather an upward market crash, where your purchasing power loses value. We are watching the lower green line of the linear regression channel for a price violation. It would indicate a confirmation that exuberance has come to an end and an early indication for watching larger time frame silver entries after a brief steep decline.Monthly Chart, Gold/Silver-Ratio, Ready for an extra boost:Gold/Silver-Ratio, monthly chart as of August 28th, 2021.Another indicator we have an eye on is the gold/silver ratio. We entered the early stages (orange line) of a ratio level where silver might be turning. Consequently, silver could be gaining momentum towards gold. Should prices reach the red box, we aggressively look for a smaller time frame, low-risk silver entry spots.  Silver in US-Dollar, Monthly Chart, Bullish between the lines:Silver in US-Dollar, monthly chart as of August 28th, 2021.A monthly look at silver shows a decisive breakout from a multiyear sideways range. Exhausted after a 159% advance, silver is trading within a range again for more than a year. We first had a double bottom, followed by a double top to define the range, and right now, a triple bottom showed strength. This strength could prove to be very significant if held through this month. We identified two essential details as well. For one, the white dotted line shows higher lows on the range lows, indicating strength. And secondly, prices did not return towards the mean(blue line), indicating directional strength as well.Silver in US-Dollar, Daily Chart, A bullish tone:Silver in US-Dollar, daily chart as of August 28th, 2021.Zooming into the daily time frame, we can see that we have entered into a short-term, low-risk advancement window after Friday’s strong close. For one between US$24 and US$24.50, the price finds itself not obstructed by a support/ resistance zone. Secondly, from a fractal volume analysis point (green histogram to the right of the chart), prices can also advance easier between the prices of US$23.90 and US$ 25.15. There are two edges derived from this data. A significant fending off the low range from US$23 to US$24 will make a strong point for higher timeframes if this month closes above US$24.25 and a bullish tone for the upcoming week.Silver is a real purchasing power:Precisely 50 years ago, Richard Nixon gave up the gold standard. And greed got yet again hold on to the market. We find these extremes in the stock market unsustainable and investments into the precious metal sector to be a prudent hedge for balancing your REAL purchasing power. Probabilities speak against a long-term outcome that human nature finds its way naturally back to the mean. More likely, we crash as we have in the past. A scenario that can result in a rude awakening for the many who trusted in narratives well-orchestrated. Most follow their intuitions to hold on to outdated paradigms at a time when buying insurance in the form of physical precious metal investments is one’s safest bet.Feel free to join us in our free Telegram channel for daily real time data and a great community.If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.By Korbinian Koller|August 29th, 2021|Tags: Crack-Up-Boom, Gold/Silver-Ratio, inflation, low risk, Russell 2000, Silver, silver bull, Silver Chartbook, silversqueeze, technical analysis, time frame, trading principles|0 CommentsAbout the Author: Korbinian KollerOutstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent. Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Gold Moves Above $1,800 After Jackson Hole

Finance Press Release Finance Press Release 31.08.2021 13:03
The Jackson Hole is over — we left it in the rearview mirror. Gold moved higher in an immediate reaction, but bullish joy may be premature.The 2021 Jackson Hole Economic Symposium “Macroeconomic Policy in an Uneven Economy” is already a thing of the past. It was a stimulating conference with a few interesting presentations. But the key appearance for the financial markets was Powell’s speech. Let’s dig into it!So, the Fed Chair started his remarks with the observation that even though the pandemic recession was the briefest yet deepest on record, the pace of the recovery has exceeded expectations. That being said, the economic expansion has been uneven, and its continuation is threatened by the Delta variant of the coronavirus, high inflation and the remaining slack in the labor market. However, Powell was generally optimistic about the future, saying that the prospects were good for continued progress toward maximum employment, while the elevated inflation would likely be temporary:The baseline outlook is for continued progress toward maximum employment, with inflation returning to levels consistent with our goal of inflation averaging 2 percent over time.Actually, Powell was so optimistic about the US economy that he stated that the criteria for tapering of the quantitative easing had been met. The key passage from his speech is as follows:We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance. My view is that the "substantial further progress" test has been met for inflation. There has also been clear progress toward maximum employment. At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.This passage is clearly hawkish, as it implies that the Fed will probably end its asset purchases this year if nothing bad happens.However, the price of gold futures increased on Friday (after Powell’s remarks) from around $1,790 to almost $1,820, as the chart below shows. Why? Well, it seems that the markets read between the lines and interpreted the Fed Chair’s speech as actually quite dovish, or less hawkish than expected.After all, Powell didn’t present any clear timeline of the Fed’s tightening cycle. Although the Fed Chair mentioned that it could be appropriate to start reducing the pace of asset purchases this year, he also noted some uncertainty about the spread of Delta and its economic aspect.What’s more, Powell reminded the public that the tapering doesn’t automatically imply hiking the federal funds rate, as raising interest rates would require much more progress towards the Fed’s goals:The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test. We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.So, we will not see higher interest rates anytime soon, despite higher inflation. This is clearly a dovish signal, and it supports gold prices. After all, the Fed’s monetary policy will remain accommodative, even after the start of tapering. The Fed will still be purchasing assets — the only difference is that it will do so at a slower pace, which means that its balance sheet will remain enormous (see the chart below), implying still large reinvestments of principal repayments.Implications for GoldWhat does it all mean for the gold market? Well, although Powell stated that the Fed’s test of “substantial further progress” had been met for inflation and suggested that it would soon be met for employment as well, his speech didn’t include any revolutionary insights. And, more importantly, it didn’t include any tapering statement. As a result, gold caught its breath.However, the bullish joy may be premature. The Fed is likely to taper this year, especially if August nonfarm payrolls prove to be strong. Also, the FOMC may issue a tapering statement after its September meeting, announcing the start of reducing the pace of asset purchases in the last quarter of the year. So, the downward pressure on gold prices could stay with us in 2021. On the other hand, the Fed clearly pointed out that the timeline for tapering is not the timeline for interest rates, which could stay at ultra-low levels for months, if not years, working in favor of gold.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Dialing Back the Euphoria

Monica Kingsley Monica Kingsley 31.08.2021 15:49
Fireworks largely continued yesterday. In stocks, it must be said – but the picture isn‘t one of universal strength as tech and value diverged again. As VIX is trading near the lower end of its recent spectrum, the bulls better wait for when Friday‘s Powell euphoria gets questioned in the markets. The most important turn of last week had been the removal of immediate and hard hitting taper (together with misplaced tightening notions) – now, we‘re enjoying the kiss of life this breathed into quality assets. Quality, that means those in strong, established bull uptrends, and those beaten down a bit too much in the prior whiff of fear.We‘ll have to be selective as the fuel supply powering the „practically everything“ statement below, is getting tighter:(…) The hazy taper silhouette remains just that, and his speech brough more implicit assurances that any dreaded hawkish turn, which was what the markets were clearly fearing given the jubilee thereafter. Practically everything caught a spark – tech, value, amazingly smallcaps, silver, gold, copper, a little lagging oil. It‘ll take a while for the currently undervalued emerging markets to catch up – look for that to happen once the dollar bids farewell to its trading range (it looks getting ready to test its lower border, in due time).Credit markets confirm the risk-on moves to continue – there is no immediate warning to the contrary. But as you‘ll read further on, daily gyrations are likely to come back, and that has implications for the daily rotations between tech and value. Crucially, the dollar isn‘t protesting, and remains subdued. Given the crosscurrent of real economy slowdown in incoming economic data, and inventories replenishment needs amid challenged supply chains, the USD price action hints at the world reserve currency getting ready to welcome lower values. Understandably, that has positive implications for emerging markets as these saw their valuations decline a bit too much.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookStrong upswing on the surface, but stocks look likely to consolidate the move next. By consolidate, I mean I am not looking for any kind of overly sharp a drop.Credit MarketsCredit markets are supporting the stock market upswing, but getting a little tired – a brief pause wouldn‘t be unimaginable.Gold, Silver and MinersGold, silver and miners got under modest pressure yesterday, but the silver downswing points to its temporary nature. Precious metals look primed to do better in the coming days.Crude OilCrude oil bulls barely closed the day unchanged, and a modest setback looks likely before higher prices reestablish themselves.CopperCopper is sending even more bullish signals than silver does – don‘t look at the red metal to escape the brief consolidation coming first though.Bitcoin and EthereumAs stated yesterday, cryptos keep on consolidating, base building, making mostly higher highs and higher lows. It appears only a question of time before the fresh upleg comes. SummaryRisk-on trades look to be questioned a little next – what else to expect followintg the Powell dovish speech. Look for it to be a temporary move only though as there isn‘t enought reasons or catalysts to derail the bull market runs.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

We‘re Not Done Yet

Monica Kingsley Monica Kingsley 01.09.2021 15:54
Creeping deterioration gave way to early selling that took S&P 500 to 4,515, but no further. The bears fumbled again, and credit markets don‘t look like giving them another opportunity (judging by yesterday‘s close). VIX barely moved higher, and the shape of daily sectoral rotations doesn‘t favor a larger decline. Some meandering sideways to up as I wrote yesterday, for sure though.Today‘s ADP employment change isn‘t likely to be favorable to the roaring economy story, but the deceleration of economic growth should still prove temporary – the credit spreads point to a revival that‘s coinciding with financial stress abating. As the Fed isn‘t likely to pull the rug from underneath, the slow grind higher in paper and real assets, is about to continue as financial markets remain the destination for the fresh money created. And no shaddow tapering of M2 or debt ceiling is likely to change that. Moreover, look for inflation woes to keep gaining steam and prominence going into the year end – an ever bigger problem for 2022 and the years ahead. The dollar isn‘t in a position to take too much of the cost pressures off, and the job market isn‘t either:(…) Crucially, the dollar isn‘t protesting, and remains subdued. Given the crosscurrent of real economy slowdown in incoming economic data, and inventories replenishment needs amid challenged supply chains, the USD price action hints at the world reserve currency getting ready to welcome lower values. Understandably, that has positive implications for emerging markets as these saw their valuations decline a bit too much.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookYesterday‘s consolidation looks to have done the job thus far, and the bulls are likely to embrace even a poor jobs figure as that indicates the Fed wouldn‘t likely even think about taking the punchbowl away a little.Credit MarketsCredit markets are facing daily crossroads – either HYG consolidates without meaningful downside breaking below yesterday‘s lows while quality debt instruments rebound, or the high yield corporate bonds would show daily weakness and join LQD and TLT. An outcome closer to the first scenario is more likely in my view.Gold, Silver and MinersGold and gold miners scored an upswing yesterday, and the price recovery is likely to go on. The headline risk is certainly to the upside these weeks.Crude OilCrude oil keeps consolidating without rolling to the downside. There isn‘t too much conviction behind yesterday‘s downswing, making the market positioned for an upside surprise.CopperCRB Index is pointing lower, but copper stubbornly held ground. That‘s not likely to stay that way, but I‘m looking for any dip to be reversed relatively soon, and not to take the red metal below the 50-day moving average for too long.Bitcoin and EthereumIf there is one thing that Ethereum performance shows, it‘s that there‘s a lot of life in cryptos, but Bitcoin isn‘t reaping the rewards at the moment. Look for the upswing to continue, and for Bitcoin to join in eventually.SummaryRisk-on trades still appear to be questioned some more – yesterday‘s move didn‘t convince one way or the other. After the taper uncertainty got tapered, look for attention to shift to the real economy growth. Underneath the surface, the potential for precious metals to take cue from any hiccup and rebound, is increasing.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Surging Home Prices and Gold – What’s the Link?

Finance Press Release Finance Press Release 02.09.2021 14:17
US home prices are surging, increasingly raising worries about inflation. Could gold follow houses? If so, why?Home price growth in the US has accelerated even further, reaching a new record. The S&P/Case-Shiller U.S. National Home Price Index rose from 255.3 in May to 260.9 in June, boosting the annual percentage gain from 16.8% to 18.1%, as the chart below shows. That’s the largest jump since 1988 when the series began.Why is it so important? Well, for two reasons. First, such quick growth in home prices increases the risk of a housing bubble and all related economic problems. Please note that home prices are surging now even faster than in the 2000s, which ended in a financial crisis and the Great Recession.Second, rallying home prices add to the inflationary pressure. What’s important, this year’s impressive home inflation hasn’t shown up in the CPI yet. It will though, as increases in house prices translate into housing inflation, which lifts consumer price measures. This effect may be substantial, given that shelter represents one-third of the overall CPI and about 40% of the core CPI.Indeed, the recent research from the Dallas Fed, entitled “Surging House Price Expected to Propel Rent Increases, Push Up Inflation”, finds that rising housing prices are usually a leading indicator for rents that are included in the CPI. According to the authors, the correlation between house price growth and rent inflation is the strongest with about an 18-month lag. It means that rent inflation is likely to increase substantially over the next two years, contributing materially to consumer price indexes:Our forecasting model shows that rent inflation and OER inflation are expected to increase materially in 2022 and 2023. Given their weights in the core PCE price index (which excludes food and energy), rent and OER together are expected to contribute about 0.6 percentage points to 12-month core PCE inflation for 2022 and about 1.2 percentage points for 2023. These forecasts also suggest that rising inflation for rent and OER could push the overall and core PCE inflation rates above 2 percent in 2023, when current supply bottlenecks and labor shortages may have subsided.So, this research suggests that inflation could stay significantly above the Fed’s target in the coming years and that it might be more persistent than it’s widely believed by the central bankers and Wall Street. In other words, the Fed’s own research suggests that the US central bank might be wrong in claiming that inflation will prove to be temporary – after all, the core inflation is expected to stay above 2%, even when supply-side disruptions resolve.Importantly, soaring home prices are not the only factor adding to inflation worries. Another one is the fall in consumer confidence in August, partly because of stronger expectations of inflation. According to the Conference Board, consumers’ inflation expectations over the next year increased from 6.6% in July to 6.8% in August.Last but not least, inflation in the Eurozone has also surged recently. It soared from 2.2% in July to 3% in August, far above expectations and the ECB’s target. The global character of inflation (although it’s stronger in the US) suggests that it’s not caused merely by idiosyncratic factors (as Powell claims), but rather by the combination of supply-side disturbances and demand factors, such as an increase in the money supply entering the economy through consumer spending.Implications for GoldWhat does it all mean for the gold market? Well, rising home prices imply that inflation will be higher in the future than widely expected. Higher inflation could increase the demand for gold as an inflation hedge. It’s also the best guarantee that real interest rates will stay low, which should support gold. More persistent inflation increases the odds of stagflation, gold’s favorite macroeconomic environment.However, higher inflation could force the Fed to adopt a more hawkish stance and, for example, accelerate its tapering of quantitative easing, which could exert some downward pressure on gold. Actually, this is what is happening right now. Given high inflation, low bond yields and the US dollar in a sideways trend, gold seems undervalued to many analysts. On the other hand, the narrative about transitory inflation combined with the prospects of the Fed’s tightening cycle could make gold struggle.Having said that, gold has recently managed to return above $1,800 again, while September is historically a good month for gold. So, we will see – this month’s FOMC meeting could be crucial in determining the yellow metal’s path.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
What‘s Not to Love About Crypto Fireworks

What‘s Not to Love About Crypto Fireworks

Monica Kingsley Monica Kingsley 02.09.2021 16:04
Another weak selling attempt in stocks – are these setting up for tomorrow‘s NFPs volatility? It sure appears so, but buy the dip mentality looks likely to emerge victorious. The current period of low VIX will probably give way to a brief spike, which within bull markets is usually resolved with another upswing.No matter the momentary hesitation in the credit markets, where we‘re moving two steps forward, one step backwards. Or rather two steps backwards, as can be seen this week. Risk off is still with us as key commodities aren‘t surging, leaving yesterday‘s silver upswing a little suspect on a daily basis. Copper and oil are struggling somewhat at the moment as well, taking (a bit too much) time as the dollar is only modestly declining and yields aren‘t rising.The current trading environment favors still risk off, sectoral rotations are tame, and inflation expectations continue basing before money printing becomes an ever bigger problem for 2022 and the years ahead. Ethereum keeps doing wonders, and Bitcoin is joining in – finally, as expected. Hope you‘re riding open profitable positions too!Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookTwo recent upswing rejections, that‘s the only thing standing out this week. The sideways to up grind goes on, and as tomorrow‘s NFPs aren‘t likely to throw a serious spanner in the works, it‘s set to continue.Credit MarketsCredit markets are still facing crossroads – either HYG consolidates without meaningful downside breaking below yesterday‘s lows while quality debt instruments rebound, or the high yield corporate bonds would show daily weakness and join LQD and TLT. An outcome closer to the first scenario was more likely in my view yesterday, and did materialize. The issue is that it‘ll likely have to play out once again today. So, expect the risk-on parts of the market to do worse than tech.Gold, Silver and MinersNot a picture of daily strength in the precious metals – the bulls will have to wait for the real move tomorrow. Ìn spite of silver outperformance, the headline risk is still to the upside these weeks.Crude OilCrude oil rose from the dead yesterday, and would better clear the $69 fast to the upside. The daily volume is indicative of accumulation, so the bulls still have a good chance.CopperCRB Index was little changed while copper dived. Steep downswing continuation is unlikely – the inflation trades aren‘t rolling over, and neither is the real economy. The current soft patch is likely to be resolved with another upswing in the red metal, bringing it back above the 50-day moving average.Bitcoin and EthereumCryptos are waking up again, and it‘s about the prolonged Bitcoin consolidation giving way to an upswing too. More gains were indeed ahead.SummaryRisk-on trades continue facing headwinds, but look for them to gain the upper hand. Tomorrow‘s NFPs aren‘t likely to really disappoint, or to invite fresh Fed speculations. Solid close to the week seems at hand.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Feeling the Heat of Slowing Economy

Monica Kingsley Monica Kingsley 03.09.2021 16:17
S&P 500 got ahead of itself early in the session, and corrected somewhat. Credit markets though didn‘t paint a picture of caution – it‘s risk on there. VIX didn‘t make much progress rising or falling, but today‘s NFPs day would bring a more eventful trajectory. I‘m not looking for any meaningful derailment of the reflation trades – yesterday‘s outperformance of value vs. tech, was encouraging just as much as CRB getting back within spitting distance of prior highs. The market sentiment appears to be up, and yesterday‘s moves telegraph no disappointment expected, just as I tweeted prior to the data release. The real economy recovery still has reasonable traction, and while slowing down, the financial stress is abating – and the steady return of risk appetite in smallcaps, emerging markets, oil or copper, highlight that just as much as the dollar getting under pressure again.But the figure came at 235k vs. 720k expectated – that‘s a serious undershoot. Off the bat, gold and silver would benefit tremendously, while the dollar not so much. Let‘s see how well the corresponding rise in Treasury yields would help to underpin the world reserve currency and value stocks…In short, forget about tapering into a weakening economy that doesn‘t see labor participation or hours worked rising. The Fed won‘t take that gamble soon, and we know what that means for real assets (and stocks too as inflation and yields aren‘t yet breaking the bull) – fresh money finding its way into financial markets, lifting prices. Time to reap the rewards as I did overnight in the oil arena, or keep doing in both Bitcoin and Ethereum.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookYesterday brought higher prices and tight range in S&P 500 while Nasdaq declined on the risk-on moves returning to the stock and bond markets.Credit MarketsCredit markets strongly turned up. And the HYG-LQD-TLT dynamics is conducive to further gains in value stocks especially. Simply put, the quality instruments upturn has been encouraging.Gold, Silver and MinersPrecious metals are approaching decision time, and I‘ve been for many days looking for an upside surprise – the bulls are likely to attend to it really soon.Crude OilCrude oil bulls took the opportunity, and ran with it – the oil sector reasonably confirms the upswing.CopperCRB Index continues its strong recovery, and copper won‘t remain below the 50-day moving average for too long – look for the red metal to shake off the August blues.Bitcoin and EthereumCryptos are springing higher again, and Bitcoin is joining in while I look for Ethereum to lead.SummaryEven though NFPs disappointed, risk-on trades should welcome the Fed‘s inability to taper, which would help Treasury yields rise. Precious metals, cryptos and real assets will likely be today‘s clear winners while stocks consolidate. As I wrote yesterday, no fresh Fed speculations were invited by today‘s data.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Feeling the Heat of Slowing Economy - 03.09.2021

Monica Kingsley Monica Kingsley 03.09.2021 16:22
S&P 500 got ahead of itself early in the session, and corrected somewhat. Credit markets though didn‘t paint a picture of caution – it‘s risk on there. VIX didn‘t make much progress rising or falling, but today‘s NFPs day would bring a more eventful trajectory. I‘m not looking for any meaningful derailment of the reflation trades – yesterday‘s outperformance of value vs. tech, was encouraging just as much as CRB getting back within spitting distance of prior highs. The market sentiment appears to be up, and yesterday‘s moves telegraph no disappointment expected, just as I tweeted prior to the data release. The real economy recovery still has reasonable traction, and while slowing down, the financial stress is abating – and the steady return of risk appetite in smallcaps, emerging markets, oil or copper, highlight that just as much as the dollar getting under pressure again.But the figure came at 235k vs. 720k expectated – that‘s a serious undershoot. Off the bat, gold and silver would benefit tremendously, while the dollar not so much. Let‘s see how well the corresponding rise in Treasury yields would help to underpin the world reserve currency and value stocks…In short, forget about tapering into a weakening economy that doesn‘t see labor participation or hours worked rising. The Fed won‘t take that gamble soon, and we know what that means for real assets (and stocks too as inflation and yields aren‘t yet breaking the bull) – fresh money finding its way into financial markets, lifting prices. Time to reap the rewards as I did overnight in the oil arena, or keep doing in both Bitcoin and Ethereum.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookYesterday brought higher prices and tight range in S&P 500 while Nasdaq declined on the risk-on moves returning to the stock and bond markets.Credit MarketsCredit markets strongly turned up. And the HYG-LQD-TLT dynamics is conducive to further gains in value stocks especially. Simply put, the quality instruments upturn has been encouraging.Gold, Silver and MinersPrecious metals are approaching decision time, and I‘ve been for many days looking for an upside surprise – the bulls are likely to attend to it really soon.Crude OilCrude oil bulls took the opportunity, and ran with it – the oil sector reasonably confirms the upswing.CopperCRB Index continues its strong recovery, and copper won‘t remain below the 50-day moving average for too long – look for the red metal to shake off the August blues.Bitcoin and EthereumCryptos are springing higher again, and Bitcoin is joining in while I look for Ethereum to lead.SummaryEven though NFPs disappointed, risk-on trades should welcome the Fed‘s inability to taper, which would help Treasury yields rise. Precious metals, cryptos and real assets will likely be today‘s clear winners while stocks consolidate. As I wrote yesterday, no fresh Fed speculations were invited by today‘s data.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Weak August Payrolls: Why We Should Care

Finance Press Release Finance Press Release 07.09.2021 14:44
A disappointing nonfarm payrolls report came. If the Fed postpones the tapering announcement considerably, gold might be able to rally for longer.They say that September is a good time for gold. Indeed, historically, gold used to shine during the ninth month, and the yellow metal also started this year’s September on a good note. As the chart below shows, it jumped above $1,800 on the last day of August, and it has continued its rebound since then.So, what happened? Well, on Friday, the newest report on the US labor market was revealed. The publication showed that the American economy added only 235,000 jobs in August, as one can see in the chart below. The number came much below expectations (of more than 700,000) and much below the impressive gains in July (above one million, after an upward revision). It was also the worst report since January 2021.To be clear, the Bureau of Labor Statistics Employment Situation Report included some positive news as well. For instance, the unemployment rate declined from 5.4% to 5.2%, as the chart above shows. Additionally, it turned out that employment in June and July combined was 134,000 higher than previously reported. However, these strong revisions are not enough to outweigh the disappointing nonfarm payrolls.Implications for GoldWhat does the fresh report on the US job market imply for the gold market? Well, the slowdown in employment growth lowers the odds that the FOMC will announce the timeline of its tightening cycle this month. Before the employment report was published, many analysts bet that the Fed would present a plan of tapering of its asset purchases as early as at the September meeting. Now it’s not so clear, as it seems that the spread of the Delta variant of the coronavirus weighs on the economic activity. And, as a reminder, the Fed focuses now more on its employment mandate rather than the price stability. Weak payrolls mean that the shortfall from full employment will be eliminated later than previously anticipated.It goes without saying that a more dovish Fed is positive for gold prices, as the postponement of normalization of the US monetary policy provides relief for the yellow metal. The prospects of the tightening cycle were creating downward pressure on gold earlier this year.Another hidden positive factor for the gold market is the stagflationary character of the recent employment report. You see, job growth slowed down while wage inflation accelerated. According to the BLS, wages jumped 0.6% in August, up from a 0.4% increase in July. Indeed, we have inflation above 5%, while the economy is slowing down despite all the monetary and fiscal stimulus it got. It doesn’t sound good, does it? Given the size of monetary and fiscal injections, the economy should be booming, but it’s far from doing so. Well, prices are booming, but the economic activity is far from being spectacular right now.The bottom line is that the August nonfarm payrolls might be, in a sense, a game-changer for the gold market. To be clear, the Fed won’t drop its plans to tighten monetary policy entirely (especially that August nonfarm number often disappoints initially), but it may postpone the beginning of tapering and reduce its asset purchases even more gradually than it was previously thought.However, they can still announce tapering this year. Another caveat is that gold failed to rally above $1,835, despite the softened expectations of the future path of the federal funds rate. But it seems that gold bulls can enjoy the ride – at least for a while – until some hawkish comments from the Fed rattle markets again. One thing is sure: a long quiet summer has ended and a more windy fall has started. The upcoming FOMC minutes should provide some clues as to whether or not gold will face more headwinds or tailwinds later this year.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Boosting Stimulus: A Look at Recent Developments and Market Impact

Partying On Meets USD Upswing

Monica Kingsley Monica Kingsley 07.09.2021 16:28
S&P 500 didn‘t get hammered on the NFPs miss – stocks did reasonably well, saved by the daily rush into tech. Volatility didn‘t spike throughout the week at all, and credit markets maintain their risk-on posture. Still, the real economy deceleration made itself heard, pushing back Fed taper speculations even further from September. Jerome Powell wanted to see more jobs data, and would want even more so now. I wouldn‘t be really surprised if no taper was announced in November.Markets are thus far unconcerned about a policy mistake in letting inflation get entrenched even more – Treasury yields moved up, but don‘t expect to see them gallop just yet. Slow and steady, orderly grind higher is the most likely trajectory ahead, and even that won‘t propel the dollar higher, or keep it really afloat. Greenback‘s support is at 91.70, and I‘m looking for it to give in over the nearest weeks, which carries tremendous implications for commodity and precious metals trades. And for risk assets in general.Precious metals thus far remain tame, and should continue chugging along just fine. Commodities such as copper and oil won‘t be derailed, but might panic temporarily in case of really bad incoming data. Copper‘s continued underperformance of the commodity index highlights the growth woes of the day, and even if the red metal might look to some as ready to roll over, the positive stockpile situation should cushion potential downside. In short, I‘m not looking for a meaningful disturbance to the commodities bull, as the inventory replenishment cycle has far from run its course, and inflation is bound to get hotter this year still.As written on Friday:(…) In short, forget about tapering into a weakening economy that doesn‘t see labor participation or hours worked rising. The Fed won‘t take that gamble soon, and we know what that means for real assets (and stocks too as inflation and yields aren‘t yet breaking the bull) – fresh money finding its way into financial markets, lifting prices.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookFriday‘s result could have been worse, way worse – and shows stocks still remain focused on money printing more than anything else.Credit MarketsCredit markets posture remains risk-on, and the inflation worries are reflected in the quality instruments. High yield corporate bonds remain in an uptrend, supportive of risk taking.Gold, Silver and MinersPrecious metals benefited strongly on the assumption of Fed erring on the side of tardiness in announcing taper – inflation expectations are remaining tame thus far. Gold and silver ascent is though getting increasingly more confirmed by the miners turning higher too.Crude OilCrude oil ran into a setback, but didn‘t roll over decisively – some more sideways trading before higher prices emerge, is likely. Look to the dollar for direction.CopperCRB Index continues its strong recovery, and copper is taking a brief rest at the 50-day moving average. While weakening real economy would hurt it, the red metal‘s supply/demand situation would cushion temporarily lower prices. Technically, the bulls better step in fast and take prices solidly above 4.40 in order to steer clear of the danger zone.Bitcoin and EthereumFollowing long weekend gains, cryptos are under pressure today – it looks like a daily setback and not a reversal. Golden cross is approaching.SummaryNFPs disappointment isn‘t likely to derail the risk-on trades, and would actually work in pushing the taper timing further into the future, which would likely result in further stock market and other asset gains. The alternative to taper earlier would force a correction, for which I am afraid there‘s no appetite.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

September Smackdown Coming Next?

Monica Kingsley Monica Kingsley 08.09.2021 15:47
S&P 500 declined, with tech holding up best – the volatility spike is here as real economy deceleration is joined by Evergrande fears. Both paper and real assets took it on the chin, and yields together with the dollar rose. As for greenback and Treasuries upcoming price path:(…) Treasury yields moved up, but don‘t expect to see them gallop just yet. Slow and steady, orderly grind higher is the most likely trajectory ahead, and even that won‘t propel the dollar higher, or keep it really afloat. Greenback‘s support is at 91.70, and I‘m looking for it to give in over the nearest weeks, which carries tremendous implications for commodity and precious metals trades. And for risk assets in general.Precious metals, copper and oil bore the brunt of souring sentiment, with cryptocurrencies joining in the slide later through the day. But have the material facts changed, or all we got was a whiff of risk-off? September is likely to be volatile, it seasonally is, and August had been a surprisingly calm month. You know what they say about periods of lower volatility giving way to those of higher readings… Time to buckle up.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe S&P 500 downswing was a value driven one. Risk-on has to wait for now.Credit MarketsCredit market slide would have to stop before the stock market bulls can think about recovery – yesterday‘s picture gives a daily scare impression.Gold, Silver and MinersHigher yields and rush into the dollar did hurt precious metals, but I‘m not looking for a fresh and steep downleg to be starting here. When the momentary sense of panic calms down (it can happen relatively fast), precious metals would have an easier time rising on the monetary policy and inflation projections.Crude OilCrude oil ran into another setback, but the buying interest bodes well – I‘m looking for a gradual price recovery to continue.CopperWhile copper is hurt by the weakening real economy and underperforming the CRB Index, commodities haven‘t rolled over to the downside – the commodities superbull remains intact. Copper bulls are bidding their time, and would likely step in on the heels of positive news out of China.Bitcoin and EthereumBitcoin looks to have found a temporary floor, but it would be very premature to declare a fresh upswing to be about to start – medium-term chart damage has been done.SummaryYesterday‘s risk-off day is likely to get at least partially reversed today, and I‘m not looking for it to break the stock market and commodity bull runs. As for precious metals and cryptos, I‘m looking for their recovery to start in earnest once the dollar and yields once again paint a favorable picture.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Gold Back Below $1,800!

Finance Press Release Finance Press Release 09.09.2021 16:35
Easy come, easy go. The yellow metal rallied on Friday just to plunge on Tuesday. What’s your next move, Mr. Gold?Ugh, the recent rally in gold prices was really short-lived. As the chart below shows, the price of gold increased after the publication of disappointing nonfarm payrolls on Friday. However, it declined as soon as on Tuesday, and on Wednesday it slid below $1,800.I have to admit that I expected a more bullish performance. To be clear: I was far from opening champagne. For instance, I pointed out that the tapering of quantitative easing remained on the horizon, and I expressed some worries that gold’s rally was rather moderate despite the big disappointment of job gains:Another caveat is that gold failed to rally above $1,835 despite softened expectations of the future path of the federal funds rateHowever, I thought that the likely postponement of the Fed’s tightening cycle in the face of weak employment data would allow gold to catch its breath for a while. Well, it did, but only for a few days.The quick reversal is clearly bearish for gold. Sure, without disappointing job numbers, the yellow metal could perform even worse. However, the inability to maintain gains indicates gold’s inherent weakness in the current environment.Of course, the recent decline in gold prices was at least partially caused by new developments in the financial markets, namely: the strengthening in the US dollar and the rise in the bond yields. So, one could say that earlier bullish news was simply outweighed by later bearish factors.However, please note that the US dollar strengthened and the interest rates rose amid an increase in risk aversion. The fact that gold, which is considered to be a safe-haven asset, drops when investors become more risk-averse, is really frustrating.What’s more, some analysts pointed out that the dollar strength and higher yields were not enough to account for the plunge in gold prices – so, it seems that the momentum is simply negative and gold wants trade lower, no matter the fundamentals.Indeed, neither the negative real interest rates, nor curbed dollar, nor high inflation were able to get gold to rise decisively this year. Nor the recent weak nonfarm payrolls that lifted the expectations of a more dovish Fed and the postponement of normalization of the monetary policy.Implications for GoldWhat does it all mean for the yellow metal? Well, the recent volatility in the gold market reminds us that in fundamental analyses it’s smart not to draw too far-reaching conclusions from the immediate price reactions and to look beyond the hustle and bustle of the trading pits. It also confirms that I was right, writing in the recent Fundamental Gold Report that “a long quiet summer has ended, and a more windy fall has started”.Now, I have to point out that fundamental factors turned out in recent days to be more positive for the gold market than a few weeks ago. The announcement of the Fed’s tapering will be likely postponed from September to November 2021. Indeed, yesterday’s remarks of the New York Fed President John Williams at St. Lawrence University suggest that the FOMC may continue its wait-and-see approach this month and taper later in 2021:There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.Meanwhile, the economic activity has slowed down, partially because of the spread of the Delta variant of the coronavirus. For example, the recent edition of the Beige Book says that:Economic growth downshifted slightly to a moderate pace in early July through August (…) The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.Given that inflation remains high, the slowdown in economic growth will push the economy into stagflation, which should be a positive macroeconomic environment for gold.Having said that, more bullish fundamentals without positive momentum could not be enough. As I’ve written earlier, gold has recently shrugged all the bullish factors off – it’s focused now on the economic normalization after the pandemic recession and the upcoming Fed’s tightening cycle. So, it seems to me that gold needs more than the postponement of tapering (think about next economic crises, the decline in economic confidence, or the abandonment of monetary policy normalization) to rally decisively. Until this happens, it is likely to continue its struggle.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Stagflation: A Stagnation Breaker?

Finance Press Release Finance Press Release 10.09.2021 16:07
One word shakes the markets, causing a lot of fear: stagflation. Is it coming? Will it push gold out from stagnation? Let’s find out.One of the greatest risks cited currently by the markets is stagflation. The term means a situation in which there is high inflation and stagnation at the same time. So far, we have only had high inflation (CPI annual rate has soared 5.4%, and almost 5% if we take the quarterly average), but some analysts believe that inflation has already peaked. However, the economic growth is fast (the GDP surged 12% in Q2 2021 year-over-year), as the chart below shows. So, why bother?Well, although a recession is rather not lurking around the corner, slowing economic momentum quite clearly is. The GDP growth for the second quarter (although impressive) came below expectations, the consumer confidence declined, and, more generally, the index of US data surprises has recently turned negative.Among negative surprises, we should point out the decline in retail sales by 1.1% in July, which was worse than expected (0.3%) and the drop in the New York Fed’s Empire Manufacturing Index from 43.0 in July to 18.3 in August, much below the expected 29.0. So, the recent decline in the bond yields may not be as nonsensical as it may seem.I warned my readers a long time ago that the recovery from the pandemic would be spectacular but short-lived and caused mainly by the low last year’s base. If you lock the economy, it plunges; when you open it, it soars, simple as that. Now the harsh reality steps in, and it’s yet to be seen how the US economy will perform in a post-pandemic reality with the spreading Delta variant of the coronavirus, a slowdown in China’s economy, and without government stimulus.When it comes to the price front, it’s also highly uncertain. Inflation has softened a bit in July, but it remains high, and I’m afraid that it could prove to be more persistent than it’s believed by the Fed and some analysts. The latest Empire Index, mentioned above, tells us: although the index of manufacturing activity fell more than expected, the inflationary pressure strengthened. As the report says, “input prices continued to rise sharply, and the pace of selling price increases set another record”.What’s disturbing in all this – and this is why inflation may stay with us for longer – is that the Fed is downplaying the inflation risk. And even the monetary policy 101 says that the best way of preventing inflation is acting early as inflation pressure builds up. Friedrich Hayek, a great economist and a Nobel Laureate, once compared taming inflation to catching a tiger by the tail – it’s not an easy task when the cat has already escaped the cage. The problem is that when central bankers wait to see the whites of inflationary tiger’s eyes before acting, it’s already too late. If you stare at the tiger in the eyeballs, you are probably to be eaten soon – unless you hike interest rates abruptly, choking economic growth off.Going into specifics, the Fed’s view that inflation is transitory mainly rests on the belief that price increases are caused by supply disruptions related to the epidemic. However, inflation is not limited to just a few feverish components — it’s broad-based. In particular, the cost for shelter, the largest component of the CPI, has also been gradually rising, even though the owner’s equivalent rent component doesn’t reflect properly the recent record surge in U.S. home prices (see the chart below). If this is not inflation, I don’t know what is!The increase in house prices is important here, as Gita Gopinath, Chief Economist and Director of the Research Department, IMF, admitted at the end of July: “More persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation”.What does it all mean for the gold market? Well, stagflation should be negative for almost all assets. When we have a stagnant economy coupled with high inflation, stocks and bonds are selling off together. In such an environment gold shines, as it is a safe haven uncorrelated with other assets.Stagflation is so terrifying because the Fed won’t be able to rescue Wall Street simply by cutting interest rates, as it could only add fuel to the inflation fire. The only viable solution would be to engineer another ‘Volcker moment’ and tighten monetary policy decisively to combat inflation. Given that debts are much higher than in the 1970s and some analysts even point to a debt trap, it could put the economy into a severe economic crisis. So far, investors seem not to worry about high inflation, but just as things go well until they don’t, investors are relaxed until they don’t. For all these reasons, it seems smart to own such portfolio diversifiers as gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
New York Climate Week: A Call for Urgent and Collective Climate Action

Risk On Is Back!

Monica Kingsley Monica Kingsley 10.09.2021 16:08
S&P 500 decline was at odds with the credit markets doing fine yesterday – it looks to me the bears mustered all the strength they could. And that wasn‘t too much really – this week‘s woes look to be over, and VIX ready to decline once again, which means that both tech and value can look forward for higher prices.Keeping in mind yesterday‘s big picture:(…) did you notice the degree of bearishness that such a measly downswing elicited? Given where the Fed and Treasury are in monetary and spending plans, nothing has changed – the debt ceiling drama is still out of the markets‘ focus alongside pretty much everything else including Evergrande and similar fears. Who could have forgotten the late Jan GameStop, or then Archegos? And the markets keep rising on the staircase liquidity wave interrupted by a fresh stimulus here and there:I‘m looking for a solid close across the paper and real assets, and for cryptos to join in next week. As for precious metals, the basing continues – but the miners to gold ratio (HUI:GOLD) isn‘t breaking to new lows. Gold and silver are waiting for the right catalyst, the downside is limited, and outshined by the upside potential.Anyway, time to lock in significant open profits in oil and copper while letting them grow!Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe S&P 500 downswing appears stronger than it internally is at the moment – we have likely seen the lows for quite a few trading sessions ahead.Credit MarketsCredit market continues turning up, and this is the most encouraging element for me in looking for a full-fledged return to risk-on.Gold, Silver and MinersGold and silver are stable in the very short run, and can surprise on the upside – yesterday‘s stabilization is merely a starting point. As real rates go more negative, look for attention to shift to this tailwind for higher precious metals prices.Crude OilCrude oil confirmed how volatile it can be as the U.S. inventories report facilitated selling, but the high volume hints at accumulation. I continue leaning bullish.CopperCopper and CRB Index exchanged directions yesterday, and I am looking for a good day in both later today – even if in the context of real economy deceleration.Bitcoin and EthereumBitcoin and Ethereum are modestly down today, but not breaking down. The serious upswing attempt looks to have to wait for next week.SummaryRisk-on is likely to gain the upper hand shortly as yet another weak selling wave is drawing to its end. Crucially, the dollar is rolling over, and that bodes well for both real and paper assets.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Asia Morning Bites: Singapore Industrial Production and Global Market Updates

Fabled September Storms

Monica Kingsley Monica Kingsley 15.09.2021 16:03
S&P 500 faded the opening upswing, breaking below Monday‘s lows. High yield corporate bonds didn‘t surprise by at least closing unchanged, and neither did the quality debt instrument facilitate an upswing within tech or interest rate sensitive sectors such as utilities. In spite of the solid potential for an intraday rally attempt that could take stocks closer to 4500 again, none materialized.The bears are taking a breather as evidenced by the VIX rejecting the upside move – but the volatility metric doesn‘t appear yet ready to roll over to the downside either. While the (mistaken) notion of cooling down CPI could have pushed stocks a little higher, markets appear more focused on the decelerating real economy, on the almost stagflationary atmosphere that‘s going to have stocks in its grip for the remainder of 2021: (…) CPI coming in neither too hot, nor too cold, would be in line with my recent expectations of inflation becoming entrenched and elevated. Still, the figures support the transitory notion to a degree – the markets are obviously afraid of high inflation forcing Fed‘s mistake, and any reading that won‘t light the immediate inflation fires, would be considered good for the risk-on assets. More so probably for real ones as opposed to stocks. Finally, more time for the Fed to act implies better possibilities for precious metals bulls.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bears retook initiative, making quite a progress when sectoral view is engaged. It doesn‘t mean though the sentiment can‘t flip bullish at short notice, except that there is none at the moment.Credit MarketsCredit markets turned risk-off, and unless HYG kicks in again, the stock market bulls can‘t think about crossing back above 4,500.Gold, Silver and MinersGold embraced the retreating yields and wavering dollar, followed by miners and silver. The heavier than usual volume shows accumulation, but the bulls better arm themselves with patience.Crude OilCrude oil hesitated yesterday, and oil stocks likely declined merely in sympathy with the stock market. Black gold‘s daily resilience can very well mean a broader commodity upswing is at hand.CopperCopper had been trading a bit too much at odds with the CRB, and remains prone to an upside reversal. I‘m not looking for the 50-day moving average to give in.Bitcoin and EthereumBitcoin golden cross is here, and cryptos are likely to continue their measured rise. Crucially, Ethereum outperformance is still with us.SummaryRisk taking – or should it be properly called „hedging“ – lit the fuse behind real assets as paper ones lag. While the dollar hasn‘t experienced much selling pressure yet in spite of retreating Treasury yields, its any modest decline is likely to be more than mirrored by the rising commodities, fitting well what one would look for in a slowing down economy with still rampant money printing.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

False Dawn or Not

Monica Kingsley Monica Kingsley 16.09.2021 14:52
S&P 500 rose after an initial consolidation, and its advance was broad based. Modest dollar weakness accompanied by a daily increase in yields powered value and tech alike as the pendulum swang to risk-on again. VIX indeed had trouble rising, and the volatility metric has decidedly cooled down for now. These September storms seem quite tame, compared to last year or before.Commodities though remain on a tear – base metals, energy, and finally to be joined by agriculture. Oil resolved the two day consolidation with an upswing, and didn‘t dink on the inventories report. Precious metals didn‘t have a good day, and the only positive sign was some miners resilience – the disconnect between copper and silver grows wider in spite of both metals (just as much as nickel) being needed for the green economy. Staying with copper, the red metal though has dealt me a nice opportunity to swiftly grab sizable daily profits yesterday, bringing the portfolio chart to a fresh high. Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bears lost initiative, and the 50-day moving average once again stood firm – for the n-th time this year. Seems like no correction can make it too far too fast...Credit MarketsCredit markets erased the prior risk-off turn, and HYG kicked into solid (not high, but very solid) gear again, confirming the daily upswing in S&P 500 as having legs.Gold, Silver and MinersGold remains stuck since the Jun FOMC taper verbal plays capped further upside – the yellow metal has for now trouble overcoming 1,800, and could very well slowly grind a little lower in a fake show of weakness, only to rally on the no Sep taper announcement. As stated yesterday, the bulls better arm themselves with patience.Crude OilCrude oil bulls had a field day, and oil stocks overwhelmingly approved of the upswing. As we‘re nearing the $74 - $76 area of prior local highs, expect a bit of consolidation before higher prices follow, with triple digit oil sticker slated for 2022.CopperAfter trading a bit too much at odds with the CRB, copper indeed staged an upside reversal yesterday. As its underperformance vs. the broad commodities index grows, look for not entirely smooth sailing in the red metal ahead.Bitcoin and EthereumBrief consolidation after the Bitcoin golden cross is here as both leading cryptos consolidate last two days‘ gains.SummaryRisk taking in real assets has been to a degree joined by the paper ones yesterday. Big picture, both classes are expected to do well unless the Fed presses the break pedal, and decreases its pace of monetary activism. As that‘s unlikely to happen over the nearest weeks, we can look forward for riding out the Sep storms, to be followed by more price gains namely in commodities and stocks.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
New York Climate Week: A Call for Urgent and Collective Climate Action

Softening Inflation: Gold Jumps Again

Finance Press Release Finance Press Release 16.09.2021 14:55
Inflation softened further in August, and gold reacted positively. Look closely at what the Fed’s doing, as that’s where the clues for the future are.Consumer inflation eased further in August. According to the latest BLS report on inflation, the CPI increased 0.3% last month after rising 0.5% in July. The core CPI, which excludes food and energy prices, also softened — it rose 0.1% after increasing 0.3% in the preceding month. It was the smallest increase since February 2021. The deceleration was mainly caused by declines in the index for used cars and trucks, which fell 1.5%, and in the index for transportation services, which decreased 2.3% (driven by a sharp fall of 9.1% in airline fares).However, on an annual basis, the overall inflation stayed practically unchanged, rising again at a disturbingly high pace, as the chart below shows. The overall index surged 5.3% in August, following 5.4% in the previous month. Meanwhile, the core CPI soared 4%, following a 4.3% jump in July.So, as one can see in the chart above, inflation peaked in June and decelerated for the second month in a row. However, what I wrote last month remains valid: “[inflation] remained disturbingly high, despite the deceleration in several subindexes, including the index for used cars. I dread to think what inflation would be if these categories weren’t moderate!”Inflation did soften, but it remains elevated and above 5% on an annual basis. Moreover, it doesn’t have to go away anytime soon. Why? The first reason is that the supply-chain crisis hasn’t ended yet. The supply-side problems are keeping the producer prices hot. In August, the PPI for final demand rose 0.7%, following 1% in July. Although the monthly pace decreased, it was still above expectations. But over the past 12 months, the producer price inflation soared 8.3%, significantly faster than 7.8% in July. It was the biggest jump since November 2010, when the series started, as the chart below shows.The unresolved supply-chain crisis and stubbornly high producer price inflation imply that inflationary pressures are likely to persist and to be translated into higher consumer prices in the future. Because inventories are tight and because the mindset has changed, producers are relatively easily passing on higher costs to consumers.Secondly, the index for shelter – the biggest component of the CPI – has been rising gradually since February 2021, and it accelerated from 2.79% in July to 2.82% in August, as the chart above shows. As a reminder, home prices – which are not covered by the CPI – have been surging recently, which should translate into further increases in the index for shelter.Last but not least, the annual growth of the M2 money supply has stabilized at about 12%, as the chart below shows. It’s of course much lower than the 27% recorded in February 2021, but it’s still almost twice as fast as the 6.8% seen just before the pandemic started. And the easy fiscal policy could also add something to the inflationary pressures if the fiscal deficits are monetized. All these developments suggest that inflation isn’t disappearing just yet.Implications for GoldWhat does the August report on the CPI imply for the gold market? Well, theoretically, softer inflation should be negative for assets sensitive to inflation such as gold. The yellow metal is seen as an inflation hedge, but the data says that it shines when inflation is high and accelerating. So, the deceleration should be bad news for gold.However, as the chart below shows, the price of gold has increased after the publication of the inflation report, jumping again above $1,800. Just as one month ago, slightly softer inflation has offered some hopes that inflation would prove to be transitory, in line with Powell’s narrative, and provide the Fed with an excuse to continue its ultra-dovish monetary policy. Indeed, according to the CME FedWatch Tool, the expectations for the Fed’s tightening cycle have diminished slightly from the previous week. For instance, the odds for the interest rate hike in December 2022 have declined from 54% to 50%, so it’s a coin toss. The softening of these expectations has supported gold prices.However, the dark clouds are still present on the horizon. Although the August CPI eases somewhat the need for the Fed to begin to taper its quantitative easing, the inflation report shouldn’t materially change the Fed’s stance. After all, inflation is still significantly above the target and partial normalization of the monetary policy is coming anyway.What’s more, this month the FOMC statement will be accompanied by a fresh dot-plot. As a reminder, the latest Fed’s projections plunged gold prices, as they revealed that the US central bankers were eager to hike the federal funds rate earlier than previously thought. Given the increase in inflation since June and all the employment progress the economy made, the upcoming dot-plots could be hawkish and send gold prices lower. You have been warned.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Intraday Market Analysis – USD Struggles To Find Bids

Jing Ren Jing Ren 29.07.2021 09:52
EURUSD attempts reversal The US dollar tumbled after Fed Chairman Jerome Powell said it is nowhere near a rate hike. The RSI divergence was a giveaway that the sellers may have taken their feet off the pedals. The break above 1.1820 suggests that buyers were trying to get back into the game. As the pair grinds its way up, a close above 1.1850 may foreshadow a U-turn in the coming days, prompting sellers to cover. 1.1880 could be the last hurdle and its clearance may trigger a runaway rally. 1.1770 is a fresh support in case of a pullback. CADJPY tests psychological level The Canadian dollar inched higher after a better-than-expected CPI in June. The bulls are looking to extend the rebound from 85.50, a major support on the daily chart, in order to resume the fifteen-month long uptrend. The break above the support-turned-resistance of 87.60 has put the bears under pressure. The psychological level of 88.00 has so far capped the loonie’s advance. However, an oversold RSI may help gather more buying interest. 86.60 is the immediate support if the consolidation drags on. NAS 100 recoups losses The Nasdaq 100 recovers from profit-takings as investors continue to digest Q2 earnings. The technical pullback has found bids on the 20-day moving average (14800). Buyers were quick to see the oversold RSI as a bargain indicator. The bullish mood remains intact as long as the price is above the previous demand zone near 14550 from the daily chart. Consolidation may run its course for a few more hours as short-term bulls rebuild their stakes. Those armed with patience may wait for a clean break above the peak at 15140.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher?

Finance Press Release Finance Press Release 17.09.2021 15:54
August marked the 50th anniversary of Nixon’s abandonment of the gold standard. It caused so many problems for the economy…and gold didn’t take over?Last month marked the 50th anniversary of President Nixon’s suspension of the convertibility of US dollars into gold. This move broke the last, thin link between world currencies and the yellow metal, effectively ending the ersatz of the gold standard that we still had back then (the official end came in March 1973, marking the start of an era of freely-floating fiat currencies).I wrote about the collapse of the Bretton Woods in the last edition of the Gold Market Overview, but as it was a truly revolutionary event that paved the way for today’s monetary conditions, it’s worth mentioning the topic again.You see, as weak the diluted post-war version of the gold standard was, it limited the US central bank’s ability to increase the money supply, as there was still a possibility that other participants of the system would redeem their dollars for gold. But Nixon “suspended temporarily” the convertibility of the dollar into gold, and while gold is away, the mice will play. Without any true constraints, the pace of annual money growth hit double digits. The CPI inflation rates followed, and the great stagflation of 1970s emerged, as the chart below shows.What’s more, without the discipline imposed by the gold standard, the central bank could much easier monetize the public debt. The governments could spend more, maintain fiscal deficits and increase their indebtedness. In short, without gold as an anchor for monetary policy, we got more money printing, more debt, higher inflation, and more severe financial crises.Now, one could ask: if the current monetary system, or – as some analysts prefer to call it – non-system is so bad, why isn’t the price of gold higher? Shouldn’t it be rallying, indicating how rotten our fiat-money-debt-fueled economy is?Well, there are many answers to this questions. First of all, let’s note that the price of gold has already surged about 4100%, or more than 7.7% annually, on average, since 1971 (see the chart below), which is really something!Second, financial markets are great supporters of the current monetary system, as they love loose monetary policy and liquidity drips from the central banks. Please remember that the US stock market welcomed the closure of the gold window by increasing 3% the next day after Nixon’s infamous speech.Third, even poor systems can work for a while. Communist economies didn’t collapse immediately, despite their obvious inefficiency. The Breton Woods worked for almost 30 years despite its evident flaws. Furthermore, there were some institutional changes implemented in order to strengthen the current system, such as central banks’ independence, inflation targeting, prohibition of direct monetization of public debt, etc.However, probably the most important reason is that the gold standard was in a way replaced by the US dollar standard, as the greenback substituted gold as the world’s reserve currency. In such a system, there is simply no alternative to the US dollar as a global reserve. This is because America became even more central to global finance than it was in 1971 and because practically all countries conduct similarly unsound monetary and fiscal policies (and some central banks like the ECB or BoJ are even more radical than the Fed). The greenback’s strength limits dollar-denominated gold prices.However, it’s worth remembering that unlike the gold standard, under which currencies were backed by gold (or: they were actually defined as units of gold’s weight), today’s currencies are backed only by the reputation of their issuers, which is not set in stone. This is actually why the Breton Woods eventually collapsed. Initially, the US enjoyed a great reputation, and no one even dared to question Uncle Sam’s ability to convert dollars to gold. But the prolonged war in Vietnam, Johnson’s great social programs, increased government spending and growing deficits undermined this reputation, and other countries started to demand gold for their dollars.The same may happen in the future, especially given that Trump has left some scratches on America’s reputation. With Biden continuing his predecessor’s populist economic doctrine, the greenback should face further headwinds. What’s more, with ultra-low interest rates and a mammoth pile of debt, the room for inflating the economic bubble is limited. Although the return to the gold standard seems unlikely, the recurring business cycles and economic crises are more than certain. That’s great news for gold.In other words, the current system persists mainly thanks to the faith in the central banks’ ability to control inflation, even without the discipline of the gold standard. However, this belief can break down one day. The Fed might be right that the current high inflation is temporary. But if not, we could have “Powell’s shock”, which could strengthen gold, just as Nixon’s shock did.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Rescued by the Fed Again?

Rescued by the Fed Again?

Monica Kingsley Monica Kingsley 22.09.2021 15:55
S&P 500 recovered only to dive again – carving out a base? The bulls are attempting to, but neither value, nor tech, nor the credit markets are convincing. The dust is settling though, and the bears are equally in need of a fresh reason to sell – the intraday tug of war is entirely reasonable as Evergrande failed to spook the markets more. Just wait for what happens when the markets come face to face with another unacknowledged event of this magnitude. In our era, it‘s about the contagion effect, manic-depressive market psychology, and uncertainty of the impact. It‘s not only about China real estate cooling down, spilling over to Hong Kong. Wtll the House approval on the bill to suspend fresh borrowing obstacles and avoid a partial shutdown do? What would the Senate say – and then everyone as the tax tsunami keeps approaching? Global liquidity isn‘t rising after all either.Fed taper is a side show, but still one that too many are glued to. The dollar would suffer if it doesn‘t materialize later today – and it won‘t be announced, which would make precious metals rejoice.Back to stocks, these are also likely to welcome no taper. The Fed has been already tightening (which means these days it was decreasing the pace of expansion) through the back door, bringing down inflation expectations in spite of the real world input costs, shipping rates and frail supply chains challenges on top of the job market issues. Transitory inflation is still the mainstream thesis – the shift to real assets will become more accentuated once the realization of a higher and entrenched inflation arrives. And it‘s not about real estate and owners‘ equivalent rent either.Commodities did welcome yesterday‘s reprieve, and Treasury yields are unlikely to clobber them the way perceived systemic risks could (did). In a decelerating real economy faced with numerous deflationary pressures, the slow and steady rising yields phase, is deferred for now. And when these do rise again, it may or may not be about returning economic growth, but forced by the systemic realities. Remember that rates are very low by historic comparisons, and the resilence to absorb a modest rise (think 10-year more than a bit above 2%) won‘t be there without consequences.Cashing in on the S&P 500 short profits yesterday, was reasonable from the total portfolio risk point of view (did I say a fresh high was reached?).Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookDaily hesitation followed by more downside, but volume is decreasing – stocks look readying an upswing attempt.Credit MarketsHigh yield corporate bonds merely kept opening gains – there is still hesitation, and the window of opportunity for the bulls is narrow.Gold, Silver and MinersPositive price action of gold, joined by silver – the waiting miners reveal that a little consolidation is likely before the Fed speaks.Crude OilOil stocks show that the appetite for oil might be returning, and that‘s confirmed by the volume examination. Commodities such as oil and copper stand to benefit from calming the Evergrande and central bank jitters.CopperCopper gave up opening losses only to rebound before the closing bell. Volume could have been larger, but the beaten down red metal can keep rebounding at its own pace – the smaller volume is an indication it won‘t be a one-way path.Bitcoin and EthereumBitcoin and Ethereum haven‘t really recovered from the selloff, and the bears are holding the upper hand now.SummaryMy yesterday‘s question „Is the selling over, is it not?“ has the same answer „Still inconclusive, but time for the bears is running short.“ It looks like the markets are positioning for a return to risk-on based on today‘s FOMC, which is what quite a few would like to take as an opportunity to sell into strength. The point is the Fed won‘t surprise today, and the price gyrations are likely to continue, albeit at a lesser magnitude.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Boosting Stimulus: A Look at Recent Developments and Market Impact

How Do You Get Inflation Under Control?

Finance Press Release Finance Press Release 22.09.2021 16:20
Raise the dollar, drop the metals. Under most possible scenarios, things don’t look good for gold, silver, and mining stocks – for the medium-term.With the USD Index and U.S. Treasury yields the main fundamental drivers of the PMs’ performance, some confusion has arisen due to their parallel and divergent moves. For example, sometimes the USD Index rises while U.S. Treasury yields fall, or vice-versa, and sometimes the pair move higher/lower in unison. However, it’s important to remember that different economic environments have different impacts on the USD Index and U.S. Treasury yields.To explain, the USD Index benefits from both the safe-haven bid (stock market volatility) and economic outperformance relative to its FX peers. Conversely, U.S. Treasury yields only benefit from the latter. Thus, when economic risks intensify (like what we witnessed with Evergrande on Sep. 20), the USD Index often rallies while U.S. Treasury yields often fall. Thus, the economic climate is often the fundamental determinant of the pairs’ future paths.For context, I wrote on Apr.16:The PMs suffer during three of four possible scenarios:When the bond market and the stock market price in risk, it’s bearish for the PMsWhen the bond market and the stock market don’t price in risk, it’s bearish for the PMsWhen the bond market doesn’t price in risk, but the stock market does, it’s bearish for the PMsWhen the bond market prices in risk and the stock market doesn’t, it’s bullish for the PMsRegarding scenario #1, when the bond market and the stock market price in risk (economic stress), the USD Index often rallies and its strong negative correlation with the PMs upends their performance. Regarding scenario #2, when the bond market and the stock market don’t price in risk, U.S. economic strength supports a stronger U.S. dollar and rising U.S, Treasury yields reduce the fundamental attractiveness of gold. For context, the PMs are non-yielding assets, and when interest rates rise, bonds become more attractive relative to gold (for some investors). Regarding scenario #3, when the stock market suffers and U.S. Treasury yields are indifferent, the usual uptick in the USD Index is a bearish development for the PMs (for the same reasons outlined in scenario #1). Regarding scenario #4, when the bond market prices in risk (lower yields) and the stock market doesn’t, inflation-adjusted (real) interest rates often decline, and risk-on sentiment can hurt the USD Index. As a result, the cocktail often uplifts the PMs due to lower real interest rates and a weaker U.S. dollar.The bottom line? The USD Index and U.S. Treasury yields can move in the same direction or forge different paths. However, while a stock market crash is likely the most bearish fundamental outcome that could confront the PMs, scenario #2 is next in line. While it may (or may not) seem counterintuitive, a strong U.S. economy is bearish for the PMs. When U.S. economic strength provides a fundamental thesis for both the USD Index and U.S. Treasury yields to rise (along with real interest rates), the double-edged sword often leaves gold and silver with deep lacerations.In the meantime, though, with investors eagerly awaiting the Fed’s monetary policy decision today, QE is already dying a slow death. Case in point: not only has the USD Index recaptured 93 and surged above the neckline of its inverse (bullish) head & shoulders pattern, but the greenback’s fundamentals remain robust. With 78 counterparties draining more than $1.240 trillion out of the U.S. financial system on Sep. 21, the Fed’s daily reverse repurchase agreements hit another all-time high.Please see below:Source: New York FedTo explain, a reverse repurchase agreement (repo) occurs when an institution offloads cash to the Fed in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the Fed at an alarming rate. And while I’ve been warning for months that the activity is the fundamental equivalent of a taper – due to the lower supply of U.S. dollars (which is bullish for the USD Index) – the psychological effect is not the same. However, as we await a formal taper announcement from the Fed, the U.S. dollar’s fundamental foundation remains quite strong.Furthermore, with the Wall Street Journal (WSJ) publishing a rather cryptic article on Sep. 10 titled “Fed Officials Prepare for November Reduction in Bond Buying,” messaging from the central bank’s unofficial mouthpiece implies that something is brewing. And while the Delta variant and Evergrande provide the Fed with an excuse to elongate its taper timeline, surging inflation has the Fed increasingly handcuffed.As a result, Goldman Sachs Chief U.S. Economist David Mericle expects the Fed to provide “advance notice” today and set the stage for an official taper announcement in November. He wrote:“While the start date now appears set, the pace of tapering is an open question. Our standing forecast is that the FOMC will taper at a pace of $15bn per meeting, split between $10bn in UST and $5bn in MBS, ending in September 2022. But a number of FOMC participants have called instead for a faster pace that would end by mid-2022, and we now see $15bn per meeting vs. $15bn per month as a close call.”On top of that, with stagflation bubbling beneath the surface, another hawkish shift could materialize.To explain, I wrote on Jun. 17:On Apr. 30, I warned that Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), was materially behind the inflation curve.I wrote:With Powell changing his tune from not seeing any “unwelcome” inflation on Jan. 14 to “we are likely to see upward pressure on prices, but [it] will be temporary” on Apr. 28, can you guess where this story is headed next?And with the Fed Chair revealing on Jun. 16 what many of us already knew, he conceded:Source: CNBCMoreover, while Powell added that “our expectation is these high inflation readings now will abate,” he also conceded that “you can think of this meeting that we had as the ‘talking about talking about’ [tapering] meeting, if you’d like.”However, because actions speak louder than words, notice the monumental shift below?Source: U.S. FedTo explain, if you analyze the red box, you can see that the Fed increased its 2021 Personal Consumption Expenditures (PCE) Index projection from a 2.4% year-over-year (YoY) rise to a 3.4% YoY rise. But even more revealing, the original projection was made only three months ago. Thus, the about face screams of inflationary anxiety.What’s more, I highlighted on Aug. 5 that the hawkish upward revision increased investors’ fears of a faster rate-hike cycle and contributed to the rise in the USD Index and the fall in the GDXJ ETF (our short position).Please see below:And why is all of this so important? Well, with Mericle expecting the Fed to increase its 2021 PCE Index projection from 3.4% to 4.3% today (the red box below), if the Fed’s message shifts from we’re adamant that inflation is “transitory” to “suddenly, we’re not so sure,” a re-enactment of the June FOMC meeting could uplift the USD Index and upend the PMs once again. For context, the FOMC’s July meeting did not include a summary of its economic projections and today’s ‘dot plot’ will provide the most important clues.Please see below:Finally, with CNBC proclaiming on Sep. 21 that the Fed is “widely expected to indicate it is getting ready to announce it will start paring back its $120 billion in monthly purchases of Treasuries and mortgage-backed securities,” even the financial media expects some form of “advance notice.”Source: CNBCThe bottom line? While the Delta variant and Evergrande have provided the Fed with dovish cover, neither addresses the underlying problem. With inflation surging and the Fed’s 2% annual target looking more and more like wishful thinking, reducing its bond-buying program, increasing the value of the U.S. dollar, and decreasing commodity prices is the only way to get inflation under control. In absence, the Producer Price Index (PPI) will likely continue its upward momentum and the cost-push inflationary spiral will likely continue as well.In conclusion, the gold miners underperformed gold once again on Sep. 21 and the relative weakness is profoundly bearish. Moreover, while the USD Index was roughly flat, Treasury yields rallied across the curve. And while Powell will do his best to thread the dovish needle today, he’s stuck between a rock and a hard place: if he talks down the U.S. dollar (like he normally does), commodity prices will likely rise, and inflation will likely remain elevated. If he acknowledges reality and prioritizes controlling inflation, the U.S. dollar will likely surge, and the general stock market should suffer. As a result, with the conundrum poised to come to a head over the next few months (maybe even today), the PMs are caught in the crossfire and lower lows will likely materialize over the medium term.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

So Much for Hawkish Fed

Monica Kingsley Monica Kingsley 23.09.2021 15:54
So long – better said (as if it did apply in the first place). If June FOMC showed us anything, it was the power of (cheap) talk. We‘ve gone a long way since inflation‘s (getting out of hand) existence was acknowledged – yesterday, we were treated to very aggressive $10-15bn a month taper plans, cushioned with the „may be appropriate“ and Nov time designations. Coupled with the few and far away rate hikes on the dot plot, something fishy appears going on.While the real economy recovery progress has been acknowledged (how does that tie in with GDP downgrades and other macroeconomic realities I raised in yesterday‘s extensive analysis?), I think that the bar is being set a bit too high. Almost as if to give a (valid) reason for why not to taper right next. And the theater of taper on-off could go on, otherwise called jawboning, as markets reaction to this fragile phase of the economic recovery (marked by increasing deflationary undercurrents as shown by declining Treasury yields and contagion risks – make no mistake, Evergrande is the tip of the iceberg, real estate has been heating up over the last 1+ year around the world, and in the U.S. we have BlackRock mopping up residential real estate supply, underpinning high real estate prices especially when measured against income). Don‘t forget the weak non-farm payrolls either when it comes to the list of excuses to choose from.At the same time, we have not been entertained by the debt ceiling drama nearly enough yet. Right, the Fed is projecting the aura of independence, which made a Sep decision all the more unlikely. And who says we‘re short of drama these days?So, S&P 500 looks seeing through the Fed fog, but don‘t forget about the historical tendency to fade the first day (FOMC day) move during the next 1-2 days. So, I‘m looking for a certain paring off of yesterday‘s upswing in both paper and real assets. And that includes backing and filling in both commodities, precious metals and cryptos.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bulls are on the move, running into headwinds though – more intraday hesitation (inan overall up day with a notable upper knot) is expected.Credit MarketsHigh yield corporate bonds again merely kept opening gains – there is still hesitation, but the bullish spirits are ever so slowly returning.Gold, Silver and MinersGold was still stunned by the taper plans presented, and miners are bidding their time. We haven‘t turned the corner yet.Crude OilOil stocks confirmed the oil upswing, and black gold‘s chart still maintains bullish posture.CopperCopper didn‘t really hesitate – the red metal produced another wild upswing, but the volume and base is lacking, and might take a moment to establish itself.Bitcoin and EthereumBitcoin and Ethereum rebounded, but the volume could have been larger – what was amiss there, could be compensated by prices hanging above at least the midpoint of yesterday‘s white candle.SummaryThe balance of power is shifting to the bulls, who are about to face a retracement attempt of yesterday‘s upswing, however. The degree of its mildness would hint at what to expect next – crucially, the dollar is getting the Fed (not a hawk) message, which would serve to cushion any hiccups taking markets lower over the nearest days.Thank you for having read today‘s free analysis, which is available in full here at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US Industry Shows Strength as Inflation Expectations Decline

So Much for Hawkish Fed - 23.09.2021

Monica Kingsley Monica Kingsley 23.09.2021 15:55
So long – better said (as if it did apply in the first place). If June FOMC showed us anything, it was the power of (cheap) talk. We‘ve gone a long way since inflation‘s (getting out of hand) existence was acknowledged – yesterday, we were treated to very aggressive $10-15bn a month taper plans, cushioned with the „may be appropriate“ and Nov time designations. Coupled with the few and far away rate hikes on the dot plot, something fishy appears going on.While the real economy recovery progress has been acknowledged (how does that tie in with GDP downgrades and other macroeconomic realities I raised in yesterday‘s extensive analysis?), I think that the bar is being set a bit too high. Almost as if to give a (valid) reason for why not to taper right next. And the theater of taper on-off could go on, otherwise called jawboning, as markets reaction to this fragile phase of the economic recovery (marked by increasing deflationary undercurrents as shown by declining Treasury yields and contagion risks – make no mistake, Evergrande is the tip of the iceberg, real estate has been heating up over the last 1+ year around the world, and in the U.S. we have BlackRock mopping up residential real estate supply, underpinning high real estate prices especially when measured against income). Don‘t forget the weak non-farm payrolls either when it comes to the list of excuses to choose from.At the same time, we have not been entertained by the debt ceiling drama nearly enough yet. Right, the Fed is projecting the aura of independence, which made a Sep decision all the more unlikely. And who says we‘re short of drama these days?So, S&P 500 looks seeing through the Fed fog, but don‘t forget about the historical tendency to fade the first day (FOMC day) move during the next 1-2 days. So, I‘m looking for a certain paring off of yesterday‘s upswing in both paper and real assets. And that includes backing and filling in both commodities, precious metals and cryptos.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bulls are on the move, running into headwinds though – more intraday hesitation (inan overall up day with a notable upper knot) is expected.Credit MarketsHigh yield corporate bonds again merely kept opening gains – there is still hesitation, but the bullish spirits are ever so slowly returning.Gold, Silver and MinersGold was still stunned by the taper plans presented, and miners are bidding their time. We haven‘t turned the corner yet.Crude OilOil stocks confirmed the oil upswing, and black gold‘s chart still maintains bullish posture.CopperCopper didn‘t really hesitate – the red metal produced another wild upswing, but the volume and base is lacking, and might take a moment to establish itself.Bitcoin and EthereumBitcoin and Ethereum rebounded, but the volume could have been larger – what was amiss there, could be compensated by prices hanging above at least the midpoint of yesterday‘s white candle.SummaryThe balance of power is shifting to the bulls, who are about to face a retracement attempt of yesterday‘s upswing, however. The degree of its mildness would hint at what to expect next – crucially, the dollar is getting the Fed (not a hawk) message, which would serve to cushion any hiccups taking markets lower over the nearest days.Thank you for having read today‘s free analysis, which is available in full here at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

FOMC Pushes Gold Prices Down

Finance Press Release Finance Press Release 23.09.2021 16:04
Brace yourselves, gold bulls, as the Fed clears the way for tapering and shifts interest rate liftoff to 2022. You’ve been warned.Yesterday (September 22, 2021), the FOMC published its newest statement on monetary policy. There are just a few alterations in the publication, which mainly reflect changes in the economic environment. The Fed noted that the sectors most adversely affected by the pandemic “have improved in recent months, but the rise in COVID-19 cases has slowed their recovery”, while inflation “is elevated” (last time, the Fed wrote that “inflation has risen”).However, the most important change is, of course, the signal about a slowdown in the pace of asset purchases. The Fed acknowledged the economy’s progress towards the goals of price stability and maximum employment, and said that tapering of quantitative easing could soon be warranted:Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. Although this is not a revolution in the Fed’s thinking and it’s not a surprise for the markets, the move is hawkish. The statement shows that the US central bank is determined to begin tapering soon despite the weak non-farm payrolls in August. The Fed didn’t provide any date, but investors could expect an announcement in October or November and effective implementation by the end of this year.Thus, the statement is negative for the gold prices. However, the silver lining is that the FOMC decided to write “moderation” instead of simply “tapering”. For me, this particular phrasing sounds softer, which gives some hope that tapering will be very gradual. So, the Fed’s monetary policy would remain accommodative for quite a long time.September Dot-Plot and GoldNow, let’s move on to the Fed’s newest economic projections that accompanied the statement. As the table below shows, the FOMC expects slower GDP growth, higher unemployment rate and higher inflation this year compared to its June’s forecasts.To be more precise, the FOMC expects that the GDP will jump 5.9% in 2021, compared to the 7% rise expected in June. It’s still an impressive surge but significantly slower than it was expected just three months ago. So, it seems that the Fed has taken the negative impact of the spread of the Delta variant of the coronavirus into account. Similarly, the unemployment rate is forecasted to decrease to 4.8% instead of to 4.5% expected in the previous projections.Meanwhile, the US central bank has also increased its inflation outlook. The FOMC members believe now that the PCE inflation will jump 4.2% this year, compared to 3.4% seen in December. The core PCE inflation is also expected to rise faster, i.e., 3.7%, versus 3% projected previously. So, the Fed expects a slowdown in the GDP growth combined with acceleration in inflation, which sounds stagflationary at the margin. These forecasts, when analyzed alone, should be positive for gold prices.However, the US central bank also updated its forecast for the interest rates. And I don’t have good news. In the latest edition of the Fundamental Gold Report (September 16, 2021), I warned readers of hawkish changes in the expected path of the federal funds rate.Given the increase in inflation since June and all the employment progress the economy made, the upcoming dot-plots could be hawkish and send gold prices lower. You have been warned.And, indeed, according to the fresh dot plot, the FOMC considers one interest rate hike next year as appropriate at the moment. On top of that, the Fed sees three additional 25-basis points increases in 2023, and three more in 2024 (and more hikes later in the future). So, instead of two hikes in 2023, we have one upward move as soon as in 2022 and three more in the following year. It means that the curve of the expected federal funds rate has become much steeper, which could make gold struggle.Implications for GoldWhat do the latest FOMC statement and dot-plot imply for the gold market? Well, the Fed cleared the way to taper its asset purchase program and signaled that the first interest rate hike could occur sooner than expected. Not surprisingly, the price of gold declined in response to the shift in the timeline of the interest rates liftoff, in line with my expectations.When it comes to the future, I believe that when the dust settles, gold may find some short-term relief. However, my guess is that gold will struggle until the Fed’s tightening cycle is well underway.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Deflationary Winds Howling

Deflationary Winds Howling

Monica Kingsley Monica Kingsley 24.09.2021 15:54
Without looking back, S&P 500 rallied in what feels as a short squeeze in ongoing risk-off environment. Daily rise in yields was not only unable to propel the dollar, but resulted in a much higher upswing in tech than value stocks – and that‘s a little fishy, especially when the long upper knot in VTV is considered.The post-Fed relief simply took the bears for a little ride, and the Evergrande yuan bond repayment calmed the nerves. As if though the real estate sector was universally healthy – I think copper prices and the BHP stock price tell a different story. Things will still get interested in spite of PBOC moving in. The current macroeconomic environment will be very hard (economically and politically) to tighten into – have you noticed that the Turkish central bank unexpectedly cut rates?As I have written yesterday:(…) If June FOMC showed us anything, it was the power of (cheap) talk. We‘ve gone a long way since inflation‘s (getting out of hand) existence was acknowledged – yesterday, we were treated to very aggressive $10-15bn a month taper plans, cushioned with the „may be appropriate“ and Nov time designations. Coupled with the few and far away rate hikes on the dot plot, something fishy appears going on.While the real economy recovery progress has been acknowledged (how does that tie in with GDP downgrades and other macroeconomic realities I raised in yesterday‘s extensive analysis?), I think that the bar is being set a bit too high. Almost as if to give a (valid) reason for why not to taper right next. And the theater of taper on-off could go on, otherwise called jawboning, as markets reaction to this fragile phase of the economic recovery (marked by increasing deflationary undercurrents as shown by declining Treasury yields and contagion risks – make no mistake, Evergrande is the tip of the iceberg, real estate has been heating up over the last 1+ year around the world, and in the U.S. we have BlackRock mopping up residential real estate supply, underpinning high real estate prices especially when measured against income). Don‘t forget the weak non-farm payrolls either when it comes to the list of excuses to choose from.At the same time, we have not been entertained by the debt ceiling drama nearly enough yet. Right, the Fed is projecting the aura of independence, which made a Sep decision all the more unlikely. And who says we‘re short of drama these days?Given the S&P 500 sectoral performance and not exactly stellar market breadth, this is the time to be cautious, if you‘re a bull. Precious metals haven‘t yet caught the safe haven bid, but aren‘t decisively declining either. Dialing back the risk in stocks makes select commodities more vulnerable – copper more so than oil or natural gas, and cryptos are a chapter in its own right.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThe bulls closed yesterday on a strong note, but the upswing was arguably a bit too steep on a very short-term basis.Credit MarketsHigh yield corporate bonds giving up their intraday gains coupled with rising yields in quality debt instruments, that‘s not entirely a picture of strength in the credit markets.Gold, Silver and MinersGold declined on the no Fed taper celebrations, and the sectoral weakness is concentrated in the miners. When it comes to silver, the white metal would be influenced by the copper woes – look for good news on the red metal front before expecting the same for silver, that‘s the short-term assessment.Crude OilOil stocks performance lends credibility to the oil upswing, and black gold‘s chart is still bullish – energies are likely to do well even if any CRB hiccups occur.CopperCopper hesitation is back, and both the bulls and bears are waiting as shown by the low volume. The bears have the advantage here.Bitcoin and EthereumBitcoin and Ethereum are suffering on renewed China headlines about cracking on crypto trading. The bears haven‘t gained full traction, though.SummaryYesterday‘s risk-on turn is likely to get questioned, with one day delay – revealing that it‘s not about the Fed setting a tad unrealistic taper pace and conditions. With no fresh stimulus coming, financial assets are facing a fiscal cliff in their own right, that‘s the big picture conclusion, which should temper the bullish appetite across many an asset class.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
European Central Bank's Potential Minimum Reserve Increase Sparks Concerns

Will Biden’s Neo-Populist Economic Doctrine Support Gold?

Finance Press Release Finance Press Release 24.09.2021 16:18
Biden scaled back on his infrastructure bill. However, with all the remaining cards still in play, his economic agenda should be positive for gold.Inflation, bond yields, monetary policy… that’s all interesting and crucial to understand trends in the gold markets – but, hey, what’s up in politics? A lot has happened recently on this front. In particular, last month, the world was shocked by the chaotic withdrawal of US troops from Afghanistan. The messy pullover and the quick takeover of the country by the Taliban is not only the end of Biden’s honeymoon but also America’s great failure. Some analysts even say that the fall of Kabul is another Saigon time for the US. Indeed, it goes without saying that the collapse in Afghanistan is a huge blow to America’s reputation. So, it could weaken the faith in Uncle Sam and its currency, which could be positive for gold in the long run.However, the end of the US mission in Afghanistan doesn’t pose any direct threats to America (although terrorism could thrive under the Taliban regime) or to the greenback. So, I don’t expect any substantial, long-lasting moves in gold prices (always remember that geopolitical events cause only short-lived fluctuations, if any).Another recent important development in the US policy was that the Senate passed a $1 trillion bipartisan infrastructure bill, which is a big step in pushing Biden’s economic agenda through Congress. The economic effect will probably be smaller than expected, as public stimulus rarely works as intended. So, I don’t expect any material impact on gold prices, especially given that this additional government spending has already been priced in.However, I would like to point out that Biden has scaled back his infrastructure plans from $2.2 trillion and agreed to spend these funds over a longer period. It means that the US fiscal policy, although still unprecedentedly easy, is normalizing somewhat (see the chart below), at least compared to Democrats’ initial huge plans (however, they are still working on a budget resolution that would allow them to approve a complementary $3.5 trillion spending plan). A normalization of the fiscal policy is bad for gold prices, especially when coupled with the Fed’s tightening cycle.Let’s step back — it turns out that it’s quite fruitful to look at Biden’s economic agenda from a bit broader perspective. It becomes clear that Biden – despite his hatred for Trump – actually continues Trumponomics. Nouriel Roubini calls Biden’s doctrine “neo-populist” and sees the paradox in the fact that it “has more in common with Trump’s policies than with those of Barack Obama’s administration, in which the current president previously served”.Indeed, every president from Bill Clinton to Obama favored trade liberalization and a strong dollar while respecting the Fed’s independence. They were also understanding the importance of the moderate fiscal policy (although the practice differed, especially after the financial crisis of 2007-9). They were far from being laissez-faire advocates, but at least they didn’t question the economic orthodoxy.Then Trump stepped in, inaugurating a trade war with China, and imposing tariffs on goods from other countries as well. He also questioned the Fed’s actions, which supported a weak greenback and ballooned fiscal deficits even before the epidemic started.Biden’s rhetoric is softer and his actions less erratic, but he has maintained Trump’s tariffs, pursuing similar nationalist and protectionist trade policy. He even widened the already large budget deficit, continuing the spending spree financed by public debt. Although Biden doesn’t openly favor a weak dollar, the current administration is far from pursuing a strong-dollar policy. He also supported large direct cash transfers to citizens that Trump started in response to the pandemic. Last but not least, Biden fights with Big Business, introducing some anti-monopoly policies.What does it all mean for the gold market? Well, the continuation of neo-populist economic doctrine and shifting away from sound economics (I wrote about this earlier this year) implies generally looser monetary and fiscal policies. Larger debts create a risk of a debt crisis, while downplaying the inflationary pressures (as for populists, price stability is less important than employment gains, rising wages, or reducing inequalities) increases the odds of inflation crisis or even stagflation (big government and huge indebtedness could hamper the pace of GDP growth).As we know from Latin America, the rules of populists and MMT-like policies never end well. And, as we know from the 1970s, constant stimulation of the economy (because there is still some slack) and neglecting the dangers of inflation could be disastrous. So, Bidenomics should be generally supportive of gold.Having said that, investors should remember that many more factors influence gold prices than just the President’s actions. A part of Biden’s presidency will coincide with the economic expansion from the pandemic recession and normalization of the interest rates that will likely create downward pressure on the yellow metal.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Reflation vs. Stagflation

Monica Kingsley Monica Kingsley 27.09.2021 13:17
S&P 500 didn‘t give in to the opening weakness, and eked out minor gains. There was no selling into the close either – the table looks set for the muddle through to continue on Monday. Tech and value – uninspiring on the day, and the same could be said of the credit markets. Rising yields (the market believes in taper, it appears) across the board, with high yield corporate bonds holding up much better than quality debt instruments – I have seen stronger risk-on constellations really.Importantly, the huge weekly jump in Treasury yields (the 10-year yield jumped over 20 basis points to 1.47%) failed to lift the dollar, which says a lot given the risk-off entry to the week. Meanwhile, the Fed jawboning continues, and the bigger picture leaves the ambitious Nov tapering suspect.At the same time, the Fed‘s foot is to a large degree off the gas pedal, and even global liquidity is shrinking. New taxes are kicking in, job market woes are persisting, inflation isn‘t going away any time soon, challenged supply chains are forcing globalization into reverse, workforce is shrinking, GDP growth is decelerating, and no fresh fiscal initiatives are on the horizon – sounds like a recipe for stagflation.As I wrote on Friday:(…) The post-Fed relief simply took the bears for a little ride, and the Evergrande yuan bond repayment calmed the nerves. As if though the real estate sector was universally healthy – I think copper prices and the BHP stock price tell a different story. Things will still get interested in spite of PBOC moving in. The current macroeconomic environment will be very hard (economically and politically) to tighten into – have you noticed that the Turkish central bank unexpectedly cut rates?Precious metals should love the ever more negative real rates, and the financial repression that does accompany them. Commodities and real assets are bound to do great long-term, and stocks would enjoy the most the reflationary stage, the early stage of inflation where everyone benefits and no one pays. In spite of all the real world inflation, we‘ve not yet entered its nasty, late phase.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookFriday brought a daily pause in the upswing – the bulls however didn‘t yield to the sellers through the day.Credit MarketsHigh yield corporate bonds gave up less ground than quality debt instruments, whose downswing was arguably a bit too steep. The non-confirmation of the stock market advance though is barely visible.Gold, Silver and MinersGold managed to hold ground in spite of the steep rise in yields, but miners keep on being more and more undervalued – if you‘re a long-term investor, these are very interesting prices throughout the PMs sector. Silver keeps trading at odds with copper, and both metals (including a couple more), are required for the green economy shift.Crude OilOil stocks paused on Friday, and so will the oil upswing likely too next. Energies though remain bullish, and dips are to be bought.CopperCopper closed at weekly highs, but hesitated still when compared to the CRB Index. All isn‘t well if you look at BHP (or FCX), which is a proxy for both copper and China.Bitcoin and EthereumBitcoin and Ethereum have recovered from the China crypto trading crackdown notice, and keep repelling the bears successfully.SummaryRisk-on wasn‘t dethroned on Friday, but didn‘t convince either. Apart from select commodities, strong gains were absent. Wait and see on low volume day – one that is likely to carry over into Monday. Risk-on assets still haven‘t cut the corner (no recapturing of the 50-day moving average), and the VIX below 19 is slowly approaching the lower border of its recent range, meaning that volatility can surprise us shortly again.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Gold Could See Tapering as Soon as November!

Gold Could See Tapering as Soon as November!

Finance Press Release Finance Press Release 28.09.2021 15:35
It’s Powell’s doing, as always... the Chair signaled that tapering could be announced as soon as next month. What does this mean for gold bulls?In the latest edition of the Fundamental Gold Report, I covered the FOMC’s newest statement on monetary policy and the dot-plot. I concluded that “gold will struggle until the Fed’s tightening cycle is well underway”. As the chart below shows, the yellow metal has been struggling for the most part of this year, and I don’t expect any shifts from that trend anytime soon.Now, it’s high time to analyze Powell’s press conference! In his prepared remarks, the Fed Chair offered a rather upbeat view on the US economy:Real GDP rose at a robust 6.4% pace in the first half of the year, and growth is widely expected to continue at a strong pace in the second half (…) Looking ahead, FOMC participants project the labor market to continue to improve.Powell also downplayed the inflationary risk. He acknowledged that inflation has stayed at a high level for longer than the Fed expected, but, at the same time, he reiterated the Fed’s view of the transitory nature of elevated inflation:These bottleneck effects have been larger and longer-lasting than anticipated, leading to upward revisions to participants’ inflation projections for this year. While these supply effects are prominent for now, they will abate, and as they do, inflation is expected to drop back toward our longer-run goal.However, the question is: why should we trust the Fed’s current inflation outlook, given that its previous forecasts were clearly wrong and underestimated greatly the real persistence of inflation?Last but not least, Powell offered more clues about tapering of quantitative easing. Although no decision has yet been made, “participants generally view that, so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate”. So, my conclusions would be: given that tapering is said to be very gradual, it’s likely that it will start sooner rather than later.Powell and GoldIndeed, the Q&A session suggests that the Fed could announce tapering as soon as November. It all depends on whether the substantial further progress test for employment will be met or not. For Powell it is now “all but met”, even though it could happen as soon as the next meeting. After all, many of the FOMC members believe that this test has already been met:So if you look at a good number of indicators, you will see that, since last December when we articulated the test and the readings today, in many cases more than half of the distance, for example, between the unemployment rate in December of 2020 and typical estimates of the natural rate, 50 or 60 percent of that road has been traveled. So that could be substantial further progress. Many on the Committee feel that the substantial further progress test for employment has been met. Others feel that it's close, but they want to see a little more progress. There's a range of perspectives. I guess my own view would be that the test, the substantial further progress test for employment is all but met. And so once we've met those two tests, once the Committee decides that they've met, and that could come as soon as the next meeting, that's the purpose of that language is to put notice out there that could come as soon as the next meeting. The Committee will consider that test, and we'll also look at the broader environment at that time and make a decision whether to taper.It seems as though the only condition to be yet fulfilled is that the September employment report has to be “decent”. It doesn’t have to be fantastic, but it can’t be a disaster. Powell says:So, you know, for me, it wouldn't take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. And others on the Committee, many on the Committee feel that the test is already met. Others want to see more progress. And, you know, we’ll work it out as we go. But I would say that, in my own thinking, the test is all but met. So I don’t personally need to see a very strong employment report, but I’d like it see a decent employment report.Implications for GoldWhat does Powell’s press conference imply for the gold market? Well, the Fed Chair sounded generally hawkish. He was rather optimistic about the GDP growth and progress in the labor market. Powell also downplayed risks related to Evergrande’s indebtedness.And, most importantly, he signaled that tapering could be announced as soon as November, as many FOMC members believe that the substantial progress towards the Fed’s goal has been already achieved. This is bad news for gold prices.There is, however, a silver lining. There will be no interest rate hikes while the Fed is tapering. So, the real interest rates should stay at ultra-low levels, providing some support for the yellow metal.Having said that, the dot-plot shows that half of FOMC members forecast the first interest rate hike by the end of next year. As a consequence, the market odds for the liftoff in December 2022 increased from 52.9% on September 16 to 72.7% on September 23, 2021. If the federal funds rate goes the hawkish way, it should continue to create downward pressure on gold prices.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Dovish to Hawkish Fed: Sounds Bearish for Gold

Finance Press Release Finance Press Release 29.09.2021 16:31
With a more hawkish Fed disposition, non-commercial traders remaining dollar-strong, and the EUR/USD sinking, it doesn’t bode well for the metals.With U.S. Treasury yields continuing their ascent on Sep. 28, the mini taper tantrum pushed the NASDAQ 100 over a cliff. And with the USD Index loving the surge in volatility, the greenback further cemented its breakout above the neckline of its inverse (bullish) head & shoulders pattern. And looking ahead, the momentum should continue. Case in point: Fed Chairman Jerome Powell testified before the U.S. Senate Banking Committee on Sep. 28. In his prepared remarks, he said:“Inflation is elevated and will likely remain so in coming months before moderating. As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”Furthermore, while I’ve been warning for months that Powell remains materially behind the inflation curve, his prepared remarks didn’t have a single mention of “base effects” or “transitory.” Instead, the Fed chief’s new favorite buzz word is “moderating.”In any event, while I warned on several occasions that the composite container rate has gone from $6.5K to $8.1K to $8.4K to 9.4K, Powell finally admitted that the supply chain disruptions have “gotten worse:”“Look at the car companies, look at the ships with the anchors down outside of Los Angeles,” he said. “This is really a mismatch between demand and supply, we need those supply blockages to alleviate, to abate, before inflation can come down.”For context, the composite container rate is now at $10.4K (the blue line below):To that point, with inflation surging and the Fed materially behind the eight ball, even the doves have turned hawkish since Powell unveiled his accelerated taper timeline on Sep. 22.New York Fed President John Williams told the Economic Club of New York on Sep. 27:“I think it’s clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment. Assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted.”Likewise, Fed Governor Lael Brainard added that labor-market conditions may “soon” warrant a reduction in the Fed’s bond-buying program:“The forward guidance on maximum employment and average inflation sets a much higher bar for the liftoff of the policy rate than for slowing the pace of asset purchases,” Brainard told the National Association for Business Economics on Sep. 27. “I would emphasize that no signal about the timing of liftoff should be taken from any decision to announce a slowing of asset purchases.”For context, she tried to calm investors’ nerves by separating rate hikes from tapering. However, with “a much higher bar” for “liftoff” implying a much lower bar for tapering, QE is likely on its deathbed.Rounding out the hawkish rhetoric, Chicago Fed President Charles Evans also told the National Association for Business Economics on Sep. 27 that “I see the economy as being close to meeting the 'substantial further progress' standard we laid out last December. If the flow of employment improvements continues, it seems likely that those conditions will be met soon and tapering can commence.”And why are these three voices so important?Well, with Powell ramping up the hawkish rhetoric on Sep. 22 and his dovish minions following suit, their messaging is much different than the hawk talk that we normally hear from Bullard, Kaplan and Rosengren. For context, the latter two actually resigned for ethical reasons after their questionable day trading activity became public.Please see below:To explain, the graphic above depicts Bank of America’s FOMC dove-hawk spectrum. From left to right, the blue areas categorize the doves, while the red areas categorize the hawks. If you analyze the third, fourth and fifth columns from the left, you can see that Evans, Powell, Brainard and Williams are known for their dovish dispositions. However, with all four materially shifting their stances in the last week, the hawkish realignments are bullish for U.S. Treasury yields, bullish for the USD Index and bearish for the PMs.For example, the U.S. 10-Year Treasury yield has risen by 19% over the last five trading days. What’s more, the U.S. 5-Year Treasury yield has risen by 24% over the last seven trading days and ended the Sep. 28 session at a new 2021 high. For context, the last time the U.S. 5-Year Treasury yield closed above 1% was Feb. 27, 2020.Please see below:Source: Investing.comOn the opposite end of the double-edged sword slashing the gold price, the USD index is also reasserting its dominance. And with the greenback’s fundamentals also uplifted by higher U.S. Treasury yields, the current (and future) liquidity drains support a stronger U.S. dollar. For one, after 83 counterparties drained more than $1.365 trillion out of the U.S. financial system on Sep. 28, the Fed’s daily reverse repurchase agreements hit another all-time high.Please see below:Source: New York FedTo explain, a reverse repurchase agreement (repo) occurs when an institution offloads cash to the Fed in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the Fed at an alarming rate. And while I’ve been warning for months that the activity is the fundamental equivalent of a taper – due to the lower supply of U.S. dollars (which is bullish for the USD Index) – as we await a formal announcement from the Fed, the U.S. dollar’s fundamental foundation remains robust.Second, non-commercial (speculative) futures traders, asset managers and leveraged funds’ allocations to the U.S. dollar remain strong.Please see below:To explain, the dark blue, gray, and light blue lines above represent net-long positions of non-commercial (speculative) futures traders, asset managers and leveraged funds. When the lines are falling, it means that the trio have reduced their net-long positions and are expecting a weaker U.S. dollar. Conversely, when the lines are rising, it means that the trio have increased their net-long positions and are expecting a stronger U.S. dollar. And while asset managers and leveraged funds’ allocations (the gray and light blue lines) remain slightly below their 2021 highs, non-commercial (speculative) futures traders’ allocation to the U.S. dollar has now hit a new 2021 high. As a result, a continuation of the theme should uplift the U.S. dollar and negatively impact the performance of the gold and silver prices.Finally, with the EUR/USD accounting for nearly 58% of the movement of the USD Index, the currency pair has sunk below 1.1700 once again. And with the Fed’s inflationary conundrum dwarfing Europe’s predicament, I warned on Jul. 20 that the dichotomy is bullish for the U.S. dollar.I wrote:Not only is the U.S. economy outperforming the Eurozone, but the Fed and the ECB are worlds apart.Please see below:To explain, the green line above tracks the year-over-year (YoY) percentage change in the Eurozone Harmonized Index of Consumer Prices (HICP), while the red line above tracks the YoY percentage change in the U.S. HICP. If you analyze the right side of the chart, it’s not even close. And with the U.S. HICP rising by 6.41% YoY in June and the Eurozone HICP rising by 1.90%, the Fed is likely to taper well in advance of the ECB.To that point, with the rhetoric above guiding the Fed down a hawkish path, the ECB is heading in the opposite direction. For example, ECB President Christine Lagarde said on Sep. 28 that there are “no signs that this increase in [Eurozone] inflation is becoming broad-based. The key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term…. Monetary policy should normally ‘look through’ temporary supply-driven inflation, so long as inflation expectations remain anchored.”As a result:Source: the Financial TimesThe bottom line? With U.S. Treasury yields and the USD Index firing on all cylinders, the PMs remain caught in the crossfire. And with both variables still having the fundamental wind at their backs, the Fed’s hawkish shift should help underwrite further gains over the medium term.In conclusion, the PMs declined on Sep. 28 and the gold miners continued their underperformance. And with the Fed’s inflationary anxiety sparking a mini taper tantrum, the PMs remain stuck in no man’s land. Furthermore, with the general stock market also feeling the heat, a sharp correction could accelerate the ferocity of the PMs’ current downtrend. As a result, their medium-term outlooks remain quite bearish.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Powell: Inflation Might Not Be Transitory, After All

Finance Press Release Finance Press Release 30.09.2021 15:59
At a panel discussion, Fed Chair finally admitted that inflation could be more (!) long-lasting than expected. What does it mean? Hawks. Lots of them.CapitulationWith Fed Chairman Jerome Powell finally having his ‘come-to-Jesus’ moment on Sep. 29, the central bank chief’s skittish words helped light a fire under the USD Index. For context, I’ve been warning for months that Powell remains materially behind the inflation curve. And with his indecisive speech upending the Fed’s confidence game, the gambit is showing signs of unraveling.Speaking at an ECB panel discussion on Sep. 29, he said:“The current inflation spike is really a consequence of supply constraints meeting very strong demand. And that is all associated with the reopening of the economy, which is a process that will have a beginning, middle and an end. It’s very difficult to say how big the effects will be in the meantime or how long they last.”For context, first it was “base effects,” then it was “transitory” and now “it’s very difficult to say.”He continued:“It’s also frustrating to see the bottlenecks and supply chain problems not getting better – in fact, at the margins apparently getting a little bit worse. We see that continuing into next year probably, and holding up inflation longer than we had thought.”What’s more, Powell actually admitted that the Fed is facing a conundrum that it hasn’t dealt with “for a very long time.”“Managing through that process over the next couple of years is… going to be very challenging because we have this hypothesis that inflation is going to be transitory. We think that’s right. But we are concerned about underlying inflation expectations remaining stable, as they have so far.”Wow. If that’s not capitulation, I don’t know what is.For context, I wrote on Sep. 24:I’ve warned on several occasions that the only way for the Fed to control inflation is to increase the value of the U.S. dollar and decrease the value of commodities. However, with commodities’ fervor accelerating on Sep. 23 – a day when the USD Index declined – the price action should concern Chairman Jerome Powell. As a result, FOMC participants’ 2022 inflation forecast is likely wishful thinking and they may find that a faster liquidity drain (which is bullish for the U.S. dollar) is their only option to control the pricing pressures.Speaking of which, the S&P Goldman Sachs Commodity Index (S&P GSCI) has rallied by ~5% for the month of September. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals. However, energy accounts for roughly 54% of the index’s movement.Please see below:Source: S&P GlobalAs well, if you analyze the graphic below, you can see the impact that rising energy prices had on the S&P GSCI’s performance in September (MTD returns as of Sep. 27).To that point, with Brent and WTI surging recently and the latter on track for six straight weeks of weekly gains, Goldman Sachs has upped its year-end Brent target to $90 a barrel. Calling it the “revenge” of the old economy, Jeff Currie, Goldman Sachs global head of commodities research, said that “poor returns saw capital redirected away from the old economy to the new economy. It’s not unique to Europe, it’s not unique to energy, it’s a broad-based old-economy problem.”Thus, in his view, commodity prices need to be “much higher to get returns sufficient to start attracting capital. People wanted a quick return, and now you’re paying the price for it.”Please see below:Supporting the thesis, Bank of America commodities strategist Francisco Blanch told Bloomberg on Sep. 28 that Brent could hit $100 a barrel in 2022 and that a “cold winter” could actually pull forward the forecast.He said:“First, there is plenty of pent up mobility demand after an 18 month lockdown. Second, mass transit will lag, boosting private car usage for a prolonged period of time. Third, pre-pandemic studies show more remote work could result in more miles driven, as work-from-home turns into work-from-car. On the supply side, we expect government policy pressure in the U.S. and around the world to curb cap-ex over coming quarters to meet Paris goals. Secondly, investors have become more vocal against energy sector spending for both financial and ESG reasons. Third, judicial pressures are rising to limit carbon dioxide emissions. In short, demand is poised to bounce back and supply may not fully keep up, placing OPEC in control of the oil market in 2022.”Now, the important point isn’t whether or not Currie and Blanch are correct. The important point is that higher oil prices are mutually exclusive to Powell’s 2% inflation goal. For example, the Commodity Producer Price Index (PPI) – which is a reliable indicator of the next month’s Consumer Price Index (CPI) – recorded its highest monthly year-over-year (YoY) percentage increase in August since 1974. What’s more, the sky-high reading occurred with the S&P GSCI declining by ~2% in August (that’s why monitoring surging container rates is so important). However, as mentioned, the S&P GSCI has already risen by ~5% in September and container rates have also made new highs. As a result, Powell’s hawkish shift isn’t nearly hawkish enough to solve his inflationary dilemma.Inflation Isn’t Going AnywhereAs further evidence, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on Sep. 28. And while the headline index turned negative as output slumped, pricing pressures remained materially elevated.Please see below:Source: Richmond FedLikewise, the Dallas Fed released its Texas Manufacturing Outlook Survey on Sep. 27. The report revealed:“Prices and wages continued to increase strongly in September. The price indexes climbed further, with the raw materials prices index at 80.4 and the finished goods prices index at 44.0, an all-time high. The wages and benefits index held steady at a highly elevated reading of 42.7.”For a visual of the overall index, please see below:Furthermore, the Dallas Fed also released its Texas Service Sector Outlook Survey and its Texas Retail Outlook Survey on Sep. 28. And though the U.S. service sector has suffered the brunt of the Delta variant’s wrath, pricing pressures remained. The report revealed:“Wage pressures eased in September, though remained at historically high levels, while price pressures remained highly elevated. The wages and benefits index declined from 32.6 to 26.9. The selling prices index was largely unchanged at 20.2, with nearly a quarter of firms reporting increased prices compared with August, while the input prices index inched up one point to 42.9.”More importantly, though, the Texas Retail Outlook Survey revealed:“Retail price pressures surged once again in September after some signs of moderation in August, while wage pressures held steady. The selling prices index surged nearly 11 points to 50.4 – with 58 percent of retailers increasing prices compared with August – while the input prices index increased from 41.3 to 50.1. The wages and benefits index was flat at 24.6.”For a visual of the overall index, please see below:And as the drama unfolds and Powell’s inflationary conundrum intensifies, his hawkish rhetoric on Sep. 29 helped sink the EUR/USD. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index. And with the currency pair collapsing below 1.1600 on Sep. 29 and closing below key 2020 support, the European dam could be about to break.Please see below:Reverse Repos Hit Another All-Time High!Also bullish for the U.S. dollar, with Powell’s liquidity circus still on full display, there is too much money floating around with too little use. And upping the ante on what I’ve been highlighting for months, after 80 counterparties drained nearly $1.416 trillion out of the U.S. financial system on Sep. 29, the Fed’s daily reverse repurchase agreements hit another all-time high.Please see below:Source: New York FedTo explain, a reverse repurchase agreement (repo) occurs when an institution offloads cash to the Fed in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the Fed at an alarming rate. I’ve been warning for months that the activity is the fundamental equivalent of a taper due to the lower supply of U.S. dollars (which is bullish for the USD Index). Thus, while we await a formal announcement from the Fed, the U.S. dollar’s fundamental foundation remains robust.The bottom line? Powell’s only hope to curb inflation is to strengthen the U.S. dollar and weaken commodity (including gold and silver) prices. For context, major futures contracts are priced in U.S. dollars. And when the dollar rallies, it’s more expensive for foreign buyers (in their currency) to purchase the underlying commodities. As a result, a stronger U.S. dollar often stifles demand. And with the current supply/demand dynamics favoring higher commodity prices, Powell will have to work his magic — strengthen the dollar and reduce demand — if he wants his inflation problem to subside.In conclusion, gold, silver (ouch) and mining stocks sunk like stones on Sep. 29. And with the USD Index cutting through 94 like a knife through butter, new 2021 lows in the EUR/USD were accompanied by new 2021 highs in the USD Index. Moreover, with the momentum poised to continue, the PMs’ medium-term outlooks remain quite somber. As a result, further weakness will likely materialize before brighter days emerge (probably) near the end of the year.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
We’re Close to Hitting the Debt Ceiling: Gold Doesn’t Care

We’re Close to Hitting the Debt Ceiling: Gold Doesn’t Care

Finance Press Release Finance Press Release 30.09.2021 16:07
Another fiscal year, another governmental fight to raise the debt limit. A failure spells a crisis, but gold turns a blind eye and continues its fall.So, America has a new tradition! The government shutdown is coming. A new fiscal year starts tomorrow, and if Congress fails to agree on a budget by the end of today, the government will shut down.What does it mean for the US economy? According to Treasury Secretary Janet Yellen, the failure to lift the debt ceiling could be a catastrophe:If the debt ceiling is not raised, there would be a financial crisis, a calamity. It would undermine confidence in the dollar as a reserve currency (…) It would be a wound of enormous proportions (…) It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history. The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.She also clarified in a separate letter sent to Congress that the Treasury could run out of money by October 18, 2021:We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18.  At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.  It is uncertain whether we could continue to meet all the nation’s commitments after that date.Her rhetoric was rather gloomy. As a result, the risk aversion softened, while stock prices dropped. So, gold prices had to increase, right? Well, not exactly. As the chart below shows, the price of the yellow metal continued its downward trend that accelerated in September, partially caused by more hawkish expectations for the tapering timeline and future path of the federal funds rate.So, what is happening in the gold market? I would point out three crucial factors right now. First, the US dollar has appreciated recently. Yes, despite worries about the debt ceiling, the greenback has strengthened. It shows that there is simply no alternative. Another issue is that people have seen this movie before, and they know how it ends. At some point, Congress will pass a new debt limit and return to its spending spree.Second, the bond yields have increased. For example, the nominal yields on 10-year Treasuries jumped from about 1.3% last week to almost 1.5% on Monday (September 27, 2021), as the chart below shows. The recent dot-plot revealed that the FOMC members want to raise the federal funds rate earlier than previously thought, which has been transmitted into the yield curve, creating downward pressure on gold. Higher interest rates imply higher opportunity costs of holding bullion.Third, the market sentiment still seems to be negative toward gold. It’s partially justified by the macroeconomic environment ⁠— namely, the rapid recovery from the pandemic recession. As the global economy is improving, the central banks are about to tighten their monetary policy.Implications for GoldWhat does it all imply for the gold market? Well, the environment of strengthening dollar and rising bond yields is negative for the yellow metal. Higher interests make bonds more attractive relative to gold. The worries about the debt ceiling will likely be short-lived and won’t provide gold with a needed lifeline. The current downward trend in gold shows that the market simply doesn’t care about the government shutdown. The only hope is an inflationary crisis, but (so far) worries about inflation have been entailing higher interest rates rather than strong demand for gold as an inflation hedge.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
New York Climate Week: A Call for Urgent and Collective Climate Action

Stock Market Correction: One More Spark to Light the Fire?

Finance Press Release Finance Press Release 01.10.2021 15:55
With earnings season beginning in October, a profound correction of the S&P 500 could add fuel to the fire of the already well-supported U.S. dollar.While the USD Index was largely flat on Sep. 30, the EUR/USD closed at a new 2021 low. And because the currency pair accounts for nearly 58% of the movement of the USD Index, its performance is material. Moreover, while I’ve been warning for months that the Fed and the ECB are worlds apart, the EUR/USD still hasn’t priced in the magnitude of the divergence.Please see below:To explain, the chart on the right is where you should focus your attention: the purple bars above depict the change in investors’ hawkish central bank bets since Sep. 20, while the pink diamonds above depict the performance of various currencies during that same timeframe. If you analyze the column labeled “USD,” you can see that the Fed’s hawkish rhetoric has ramped up bets on further tightening. However, if you analyze the pink diamond near the bottom of the purple bar, you can see that the U.S. dollar’s performance hasn’t matched the fervor. Conversely, if you analyze the column labeled “EUR,” you can see that investors’ expectations of lower-for-longer Eurozone interest rates haven’t budged, and the euro has held up quite well. For context, the GBP (11.9% of the USD Index’s movement) and the CAD (9.1% of the USD Index’s movement) have largely offset one another. With the former not pricing in any of investors’ hawkish bets and the latter pricing in nearly all of investors’ hawkish bets, the divergence is largely a wash. However, with the U.S. dollar still underpriced and few upside catalysts available for the euro, more EUR/USD downside should commence over the medium term.Supporting that argument, Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets, told clients that “the ECB is intent upon maintaining favorable financing conditions to perpetuate the recovery narrative. As a consequence, we expect the central bank to consider PEPP transitioning into the Asset Purchase Programme [APP].” And with that, “slower growth into 2023 will help limit medium-term price gains. Although headline HICP risks testing 13-year highs, the ECB’s adjusted inflation remit will allow the bank to look through short-term price spikes, especially as core prices are expected to remain relatively well-contained. Alongside fiscal policy developments, that will promote a lower-for-longer trajectory for interest rates, and as a result, a weaker EUR in 2022.”And advocating for just that, ECB Governing Council Member Mario Centeno told CNBC on Sep. 27 that “we were fooled by some news on inflation in the past, which prompted us to act in the wrong way, so we don’t want, definitely, to commit the same sort of errors this time.... We need to guarantee favorable financing conditions to all sectors in our economy as we go out of [the] crisis, and we are not yet there, we are not yet out of the woods.”And how does all of this impact Centeno’s taper timeline?Source: CNBCIn addition, while the ECB’s PEPP program should conclude at the end of March 2022, its APP program isn’t going anywhere. And when the central bank announced its PEPP “recalibration” on Sep. 9, I warned that the ECB’s liquidity spigot should remain on full blast much longer than the Fed’s.I wrote:While the deceleration may seem like a monumental shift, the move is much more semblance than substance: net APP purchases will still be reinvested “for an extended period of time past the date when [the ECB] starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.”Likewise, with many ECB officials aiming to avoid a “cliff effect” when the PEPP program unwinds, Reuters reported that the central bank could expand its APP program to offset the damage. The bottom line? Tapering in Europe is nothing like tapering in the U.S.Please see below: Source: ReutersReverse Repos Strike AgainAlso supporting a stronger U.S. dollar, the Fed’s waterfall of QE is running out of reservoirs. And after 92 counterparties drained nearly $1.605 trillion out of the U.S. financial system on Sep. 30, the Fed’s daily reverse repurchase agreements hit another all-time high.Please see below:Source: New York FedTo explain, a reverse repurchase agreement (repo) occurs when an institution offloads cash to the Fed in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the Fed at an alarming rate. And while I’ve been warning for months that the activity is the fundamental equivalent of a taper – due to the lower supply of U.S. dollars (which is bullish for the USD Index) – as we await a formal announcement from the Fed, the U.S. dollar’s fundamental foundation remains robust.Furthermore, with the Fed’s daily reverse repos averaging $642 billion in June, $848 billion in July, $1.053 trillion in August, and $1.211 trillion in September, the accelerated liquidity drain further supports a stronger U.S. dollar.Stock Market On Its Last Legs?What’s more, with the safe-haven bid also an important piece of the USD Index’s puzzle, the stock market’s recent struggles still haven’t manifested into a full-blown correction. However, with seasonal factors signaling more weakness ahead, a profound drawdown of the S&P 500 could accelerate the pace of the USD Index’s uprising.Please see below:To explain, the blue and green bars above track the average monthly performance of the S&P 500 after a new U.S. President takes office. If you analyze the columns labeled “Sep” and “Oct,” you can see that the end of summer often elicits the worst monthly performances. And while the S&P 500 capped off September with a 1.19% decline, the weakness should continue in October.As evidence, Bed Bath & Beyond’s stock plunged by more than 22% on Sep. 30. And with supply chain disruptions and weak demand clashing with U.S. policy uncertainty, optimism is on shaky ground. For example, the retailer’s second-quarter adjusted EPS came in at $0.04 vs. $0.52 expected, while revenue came in at $1.99 billion vs. $2.06 billion expected. Moreover, the company slashed its third-quarter adjusted EPS guidance to between flat and $0.05, with revenue ranging from $1.96 billion to $2 billion. Analysts were expecting figures of $0.28 and $2.02 billion respectively.And while I’ve highlighted the issue on several occasions, CFO Gustavo Arnal lamented the fervor of surging freight costs. He said during the company’s Q2 earnings call:“What we're seeing now in the second quarter is, look, significant freight cost increases well above what we had anticipated. We had anticipated 240 basis points. We got 360 basis points. We're still projecting some sequential increase in freight costs as we go from Q2 to Q3.”Furthermore, CEO Mark Tritton said that the Delta variant has also “created a challenging and volatile environment:”“In August, the final and largest sales month of Q2, traffic unexpectedly slowed, and, therefore, sales did not materialize as we had anticipated. External disruptive forces such as the resurgence of COVID-19 cases and growing Delta fears created a challenging and volatile environment. This is particularly evident in large southern states, such as Florida and Texas, as well as California, which, in aggregate, represent approximately 30% of our total sales. From July to August, traffic trends evolved in this state and worsened by double-digit percentages.”As a result:“As the quarter progressed, particularly in August, conditions worsened relative to our thoughtful preparations. The speed of industry inflation and lead time pressures outpaced our plans to offset these headwinds, and as a result, we did not pivot fast enough, especially on price and margin recovery.”The bottom line? With the U.S. dollar already supported by a strong technical and fundamental foundation, a profound correction of the S&P 500 could be the next spark that lights the bullish fire. And with earnings season beginning in early/mid-October, more disappointments like what we witnessed with Bed Bath & Beyond could encourage the next correction. More importantly, though, given the PMs’ strong negative correlations with the U.S. dollar, a sharp move higher in the greenback could coincide with a sharp move lower in the PMs.In conclusion, the PMs rallied on Sep. 30, but the bearish thesis remains unchanged: the USD Index is poised for an upward re-rating and U.S. Treasury yields still have the medium-term wind at their backs. Moreover, with the general stock market showing signs of stress, a real bout of panic could also uplift the USD Index and upend the PMs. As a result, lower precious metals prices should materialize over the next few months.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
US Industry Shows Strength as Inflation Expectations Decline

Have We Bought a Golden Ticket to the 1970s?

Finance Press Release Finance Press Release 01.10.2021 17:31
It turned out that time travel is possible, after all. All you need is reckless monetary policy and, boom, you are back in the 1970s. Gold seems to like such voyages!Have you ever dreamed about time travel? Now it’s totally possible, courtesy of the Federal Reserve. Thanks to its dovish monetary policy, we are going back to the 1970s. Just as fifty years ago, the US central bank is letting inflation rise, claiming that the employment goal is much more important and that the Philips Curve has flattened. In the 1970s, they thought similarly, but it turned out that you can overheat the economy, after all! And just as Arthur Burns half a century ago, Jerome Powell believes that inflation is caused only by a few particular categories, and it will prove to be transitory.I’ve been pointing out these disturbing parallels for months. Now, as Kenneth Rogoff, Professor at Harvard University, noted, with the US humiliating exit from Afghanistan and the fall of Kabul, the similarities between the 1970s and the 2020s are growing. Other dangerous resemblances are relative fast growth in the money supply (see the chart below), fiscal deficits, and the presence of supply-side shocks (but instead of oil shocks we suffer from semiconductor shock and disruptions in other supply chains).Rogoff also points out some important differences, namely, the independent central bank readiness to hike the federal funds rate if inflation gets out of control, and much lower interest rates that provide the Treasury with room for its lax spending.There is a grain of truth in Rogoff’s claims. The central bank’s independence is much more strongly established, and Powell is a far cry from Burns who was submissive to President Nixon. However, please note that both private and public debts are much higher than fifty years ago. This mammoth pile of debt makes interest rate hikes much more politically painful. The high indebtedness is already a reason why the Fed maintains a dovish stance and will normalize its monetary policy at very a gradual pace.Remember the Fed’s recent attempts to roll back quantitative easing and bring interest rates back to more normal levels? The economic slowdown and the repo crisis forced the Fed to cut the federal funds rate again and return to the asset purchases. It was in 2019, much before the pandemic started. So, never underestimate the power of the debt trap!What does it all mean for gold? Well, if we are really going into the 1970s, gold could be one of the biggest winners. The yellow metal enjoyed a bull market then, so a similar positive scenario could replay now.Although, fifty years ago the US economy entered stagflation, i.e., a period of high inflation and economic stagnation. The current situation is clearly not so bad — inflation is lower than in the 1970s, while the GDP growth is positive. However, the recent slowdown in economic growth, despite massive monetary and fiscal stimulus, suggests that a mini-stagflation may be underway. The spread of the Delta variant of the coronavirus hampers the economic growth, and both monetary and fiscal policies remain loose, contributing to the upward price pressure.If the Fed’s story about transitory inflation is wrong, it will need to tighten its policy more decisively than expected. An abrupt tightening cycle could be negative for gold prices, as the yellow metal prefers an environment of low bond yields. However, aggressive steps to combat inflation could also cause a plunge in the prices of risky assets or even a financial crisis. So, if the Fed stays long behind the curve, gold should ultimately benefit – either from accelerating inflation or from the Fed’s harsh tightening triggering a sovereign debt crisis or an economic crisis (as a reminder, Paul Volcker contained inflation, but the US economy entered into a recession).Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Between a Rock and a Hard Place - 05.10.2021

Monica Kingsley Monica Kingsley 05.10.2021 15:43
S&P 500 stopped consolidating in the 4,340s shortly after the open, and went largely one way since – except for the run up to the closing bell, which I used to grab short profits off the table. The overnight pump is at work today – not vigorously, but still. Given the credit market posture (yields not rising much on the day), a brief retracement in tech can be expected – especially since yesterday‘s outage news were what powered it in the first place.VIX has gone nowhere yesterday, and looks unwilling to spend much time below 21 really. We‘re at crossroads where the supports I mentioned on Thursday, are giving way one after another. 4,260s are next in line, followed by 4200s – it would take time to get there, and Friday‘s non-farm payrolls could be the catalyst. Unless they come in outrageously weak, the Fed is likely to announce taper in Nov – monetary policy deceleration into a weakening economy while inflation expectations are rising, supply chains increasingly strained to the point that the International Chamber of Shipping has issued a red alert warning of a global transport systems collapse – make you go hmm. Something tells me the Fed won‘t be as successful jawboning inflation as in June – its favorite metric, the PCE deflator, isn‘t yielding, and the realization that inflation is here to stay, is creeping in. I don't know how so much of the financial universe could have been duped by the transitory narrative... for so long.The energy squeeze is on – I cashed in sizable oil profits yesterday (check at my site the portfolio performance at fresh highs!) – the dollar is stalling, cryptos are rising and adding to open profits too, while precious metals are waking up. I‘m looking for silver to lead and be more resilient – the gold to silver ratio falling first below 73 would be a welcome confirmation of the budding broad recognition of inflation across the markets.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 volume doesn‘t show the buyers are serious here. This downswing isn‘t over.Credit MarketsHYG was really weak yesterday, but the quality debt instruments positioning hints at a reprieve, at a risk-off led S&P 500 pause next.Gold, Silver and MinersGold and silver upswing was finally joined by the miners – the sentiment is warming up to further gains.Crude OilThe crude oil elevator hasn‘t stopped yet, but I wouldn‘t be surprised by a consolidation of gained ground next.CopperCopper upswing was a bit too readily sold into, and the volume wasn‘t stellar. This long sideways trend isn‘t over yet.Bitcoin and EthereumBitcoin and Ethereum are approaching the early Sep highs – and look likely to overcome them.SummaryStock market bears still have the upper hand, and credit markets are signalling caution. None of the intraday reversals to the upside have stuck, and we haven‘t reached a local bottom yet. Coupled with the stagflationary undertones, the cyclically sensitive commodities have a harder time than oil. The dollar is likely to come under increasing pressure, which would underpin precious metals and commodities alike.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

OPEC+ Sticks to Its Tight Supply Plan, So What Now?

Finance Press Release Finance Press Release 05.10.2021 16:57
OPEC+ is not adjusting its (perhaps too gradual) uplift in supply, sending the WTI to its highest since 2014 (and for Brent since 2018).Market AnalysisThe surge in oil and gas prices threatens to extend the rise in energy prices in general, and consequently to worsen the levels of inflation observed in the United States and Europe. Thus, central banks are under further pressure to tighten their monetary policies quickly. This galloping inflation also frightens the tech sector, whose cash needs are very important. Regarding natural gas, the onset of winter with colder temperatures could further accelerate the shift in demand from gas to oil.In short, since energy is the heart of the global economy, if inflationary prices are accelerating further, they could lead to a global state of tachycardia, which would rapidly spread to other sectors and, consequently, threaten the entire economy… it’s not impossible, though, to navigate through such dangerous waters with profits. Detailed positions for oil/natural gas trading can be found in my premium Oil Trading Alerts.Keeping an eye on everything energy-related emerging on the horizon and holding the helm firmly during the storm is what I do when cruising through charts — especially at sea full of black waters.Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Sebastien BischeriOil & Gas Trading Strategist* * * * *The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
US Industry Shows Strength as Inflation Expectations Decline

Will Q4 2021 Be Better for Gold?

Finance Press Release Finance Press Release 05.10.2021 16:57
The third quarter of 2021 was bad for gold, with a particularly awful September. Could the remainder of the year be any better for the yellow metal?September is believed to be, from the historical point of view, one of the best months for gold. Well, September 2021 definitely wasn’t very good for the yellow metal. As the chart below shows, the price of gold declined almost 4% in that month (from $1,814.85 at the end of August to $1,742.80 at the end of September).Actually, the whole third quarter was rather disappointing for the yellow metal, which lost 1.15% over the last three months. However, it was still much better than the disastrous first quarter of the year in which gold plunged more than 10%. So far, the yellow metal is 7.67% down year-to-date.But why did gold perform so poorly last month despite elevated inflation and all the risks present to the US economy? Long story short, rising bond yields and the stronger greenback were the main headwinds for gold in September and, more generally, in the whole Q3 2021, as one can see in the chart below.In the first half of the year, the US dollar performed rather poorly, but a more hawkish Fed helped to revive the greenback and push interest rates higher. In such an environment, any safe-haven bets – amid the uncertainty about the debt ceiling, debt problems in China, etc. – were channeled into the US dollar alone. In other words, because of the expectations of the Fed’s tapering, the recent risk-off sentiment has benefited only the greenback, not gold. So, gold’s appeal as a safe-haven asset has diminished recently. The same applies, actually, to gold’s status as an inflation hedge.To be clear, the whole issue is more nuanced. I believe that gold still has anti-inflationary features, especially when inflation is very high and accelerating. I also think that gold will retain its purchasing power over the long run. It might simply be the case that rising interest rates counterweighed the reasons for investing in gold during inflation, especially given that it seems that the Fed convinced the markets that inflation would only be temporary.However, if inflation turns out to be more persistent, the Fed could find itself behind the curve, while the real interest rates could stay at very low levels. In such a scenario, the demand for gold as a hedge against inflation could rise again. As a reminder, there are many arguments for high inflation staying with us for longer. Even Powell admitted last week that inflationary pressure would run into next year:It’s also frustrating to see the bottlenecks and supply chain problems not getting better — in fact at the margins apparently getting a little bit worse (…) We see that continuing into next year probably, and holding up inflation longer than we had thought.Implications for GoldWhat does it all imply for the gold market? Well, the recent jump in gold prices is quite welcoming. However, it doesn’t change gold’s bearish outlook for the fourth quarter of 2021. Gold has been unable to surpass $1,800, and it looks like it wants to keep falling. In particular, any new hawkish comments from the Fed could push gold prices down even further.Having said that, I’m more optimistic about gold in 2022. One reason is that, over time, the narrative about transitory inflation will look less and less convincing. Meanwhile, the odds of some inflationary crisis, or stagflation, should be higher and higher.Second, the Fed’s tightening cycle seems to already be priced in to a large extent. So, the actual moves could start supporting gold at some point, in line with the logic of “sell the rumor, buy the fact”, especially if the moves are accompanied by dovish rhetoric, as it was partially the case during the last tightening cycle of 2015-2019.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Fed: Singing the Inflation Blues

Fed: Singing the Inflation Blues

Finance Press Release Finance Press Release 06.10.2021 16:49
With inflation surging and Powell praying for a “transitory” miracle, the troubles confronting the Fed are accelerating, not decelerating.“I got the blues, Got those inflation blues”-- B.B. KingTo explain, I wrote on Sep. 24:I’ve warned on several occasions that the only way for the Fed to control inflation is to increase the value of the U.S. dollar and decrease the value of commodities. However, with commodities’ fervor accelerating on Sep. 23 – a day when the USD Index declined – the price action should concern Chairman Jerome Powell. As a result, FOMC participants’ 2022 inflation forecast is likely wishful thinking and they may find that a faster liquidity drain (which is bullish for the U.S. dollar) is their only option to control the pricing pressures.To that point, with energy prices increasingly unhinged and WTI on pace for its seventh-straight week of weekly gains, the S&P Goldman Sachs Commodity Index (S&P GSCI) has been on fire recently. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals. However, energy accounts for roughly 54% of the index’s movement.Please see below:To explain, the green line above tracks the S&P GSCI’s current rally off of the bottom, while the red line above tracks the S&P GSCI’s rally off of the bottom in 2009-2010 (following the global financial crisis). If you analyze the middle of the chart, you can see that the S&P GSCI has completely run away from the 2009-2010 analogue. For context, at this point in 2009-2010, the S&P GSCI had rallied by 77% off of the bottom. However, as of the Oct. 5 close, the S&P GSCI has now rallied by 154% off of the April 2020 bottom.Furthermore, with higher energy and materials prices exacerbating the cost-push inflationary spiral, signs of stress remain abundant. For example, IHS Markit released its U.S. Manufacturing PMI on Oct. 1. And while the headline index declined from 61.1 in August to 60.7 in September, Chris Williamson, Chief Business Economist at IHS Markit, said that “prices charged for those goods leaving the factory gate also surged higher again in September, rising at a rate exceeding anything seen in nearly 15 years of survey history.”Please see below:Source: IHS MarkitSinging a similar tune, the Institute for Supply Management (ISI) released its Services PMI on Oct. 5. For context, the U.S. service sector has suffered the brunt of the Delta variant’s wrath. And though pricing pressures aren’t as feverish as they are in the U.S. manufacturing sector, the report revealed that inflation increased at a “faster” pace and that “all 18 services industries reported an increase in prices paid during the month of September.”In addition, PepsiCo released its third-quarter earnings on Oct. 5. And after beating analysts’ estimates on both the top and bottom lines, the beverage giant raised its full-year guidance. However, while demand remains resilient, 11.6% year-over-year (YoY) consolidated net revenue growth coincided with a 3% decline in diluted earnings per share (EPS).Despite that though, CEO Ramon Laguarta told analysts during the company’s Q3 earnings call that “what we're seeing across the world is much lower elasticity on the pricing that we've seen historically,” and as a result, price hikes are scheduled to commence in the coming months. For context, ‘elasticity’ attempts to quantify the change in demand that results from a change in price. And with CFO Hugh Johnston expecting charge inflation to outpace cost inflation going forward, “lower elasticity” is materially problematic for the Fed.Please see below:Source: PepsiCo/The Motley FoolIf that wasn’t enough, BMO Harris Bank announced on Oct. 5 that it will increase its minimum hourly wage for all branch and call-center employees by a “20 Percent Minimum” to $18 an hour. For context, BMO Harris Bank has more than 500 branches and more than 12,000 employees in the U.S.Please see below:Source: BMO Harris BankMore importantly, though, with Powell’s inflationary conundrum helping swing the double-edged sword that’s been fundamentally slashing the PMs, the USD Index rallied by 0.20% on Oct. 5 and U.S. Treasury yields strengthened across the board.Please see below:Source: Investing.comAs it relates to the dollar story, the USD Index’s fundamental strength is underwritten by the ‘dollar smile.’ To explain, when the U.S. economy is trudging along, the U.S. dollar tends to underperform. However, when the U.S. economy craters and a safe-haven bid emerges, the U.S. dollar often outperforms. Conversely (and similarly), when the U.S. economy is booming and higher interest rates materialize, the U.S. dollar also outperforms.By the way, I’ve discussed the situation in the USD Index at length in today’s video.For context, I indicated on Sep. 22:The USD Index and U.S. Treasury yields can move in the same direction or forge different paths. However, while a stock market crash is likely the most bearish fundamental outcome that could confront the PMs, scenario #2 is next in line. When U.S. economic strength provides a fundamental thesis for both the USD Index and U.S. Treasury yields to rise (along with real interest rates), the double-edged sword often leaves the PMs with deep lacerations.To that point, with a mix of both playing out in the present, Sebastien Galy, senior macro strategist at Nordea, signalled clients that the dollar smile remains alive and well:“The dollar should continue to be supported by expectations of an eventual series of Fed rate hikes and the value of the dollar as a safe haven against a potential equity correction…. The downward trend in EUR/USD is likely to return in the coming weeks and months, suggesting EUR/USD around the 1.10 handle and potentially below that before moving higher.”As for the yield story, Lindsey Piegza, chief economist at Stifel Financial, told clients that “markets appear increasingly jittery as the realization of a higher sustained level of inflation eventually resulting in a higher level of rates appears to be finally sinking in.... Against the backdrop of elevated inflation and rapidly rising energy costs, many market participants are skeptical the FOMC will be able to maintain these low rates for another year, let alone two.”The bottom line? With inflation running away from the Fed, suppressing commodity prices (by strengthening the U.S. dollar and/or raising interest rates) is the only way to calm the inflationary pressures. If not, surging commodity prices will likely further suppress consumer confidence, upend corporate profit margins, culminate with demand destruction and the stock market should suffer mightily (which is also bullish for the U.S. dollar). As a result, with Powell creating an even larger inflationary wildfire the longer he waits, the PMs could confront immense volatility over the medium term.In conclusion, the PMs were mixed on Oct. 5, though trouble looms large in the months ahead. With the USD Index and U.S. Treasury yields ripe for upward re-ratings, the Fed’s “transitory” narrative hasn’t aged well. And with the PMs’ main villains doing a lot of their fundamental damage since Powell turned hawkish, more upside catalysts should emerge over the medium term. As a result, the PMs’ outlook remains profoundly bearish over the next few months.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Boosting Stimulus: A Look at Recent Developments and Market Impact

Gold Outlook: The Inflation Chasm Between Europe and the US

Finance Press Release Finance Press Release 07.10.2021 15:45
With inflation more than two times lower in Europe than in the US, the divergence between the economic zones deepens day by day. How might it impact gold?QE InfinityWhile I’ve warned on several occasions that the Fed and the ECB are worlds apart, the latter now wants to provide more QE once it concludes QE. To explain, with the ECB’s PEPP program set to expire at the end of March 2022, the central bank is increasingly worried about a bond market sell-off. And with sluggish Eurozone growth, exorbitant sovereign debt and a lack of fiscal impulse increasing the ECB’s anxiety, officials are studying “alternatives” to suppress interest rates in the Eurozone’s most debt-ridden countries.Please see below:Source: BloombergFor context, I’ve been warning for months that the ECB would disappoint euro bulls.I wrote on Apr. 27:Recent whispers of the ECB tapering its bond-buying program are extremely premature. With the European economy still drastically underperforming the U.S., it’s actually more likely that the ECB increases the pace of its bond-buying program. Case in point: while the EUR/USD ignores the reality, last week’s PEPP purchases (€22.2 billion) by the ECB were the highest since June 2020. Moreover, since its March meeting, the ECB has increased its average daily PEPP purchases per week from €2.90 billion to €3.60 billion.To that point, with reality in fashion once again, the EUR/USD closed at a new 2021 low on Oct. 6 and sunk to its lowest level since July 2020. For context, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the performance of the currency pair is material.Please see below:Furthermore, with the Fed closing in on a taper announcement and the ECB searching for new ways to extend QE, the divergence is profoundly bullish for the U.S. dollar. To explain, rising Eurozone inflation (which pales in comparison to the U.S.) underwrote misguided optimism for a hawkish shift. However, ECB President Christine Lagarde reiterated her dovish stance on Oct. 5, saying that “we should not overreact to supply shortages or rising energy prices, as our monetary policy cannot directly affect those phenomena.”The Inflation Divergence Is ProfoundMoreover, while the Eurozone headline Harmonized Index of Consumer Prices (HICP) increased by 3.4% year-over-year (YoY) in September (released on Oct. 1), the U.S. headline HICP surged by 6.77% in its latest print (released on Aug. 18). Even more revealing, if you exclude the inflationary impacts of food and energy prices, the Eurozone core HICP only increased by 1.9% YoY in September.Please see below:Source: EurostatIn stark contrast, the U.S. core Consumer Price Index (CPI) – which also excludes the inflationary impacts of food and energy prices and the latest release is more current than the U.S. HICP – increased by 4% YoY in August (released on Sep. 14).Please see below:In addition, while the Eurozone headline HICP at 3.4% YoY is still higher than the ECB’s 2% annual inflation target, it’s important to keep things in perspective. For example, since Lagarde has been leading the ECB, the Eurozone headline and core HICP have trended 0.8% and 1.7% below her annual targets. What’s more, when indexed from the beginning of 2012, Eurozone headline HICP is still 8% below the ECB’s 2% annual inflation trend.Please see below:Source: Frederik DucrozetTo explain, the red and blue lines above track the index levels of the Eurozone headline and core HICP, while the gray line above tracks the index level assuming the ECB has been meeting its 2% annual inflation target since the beginning of 2012. If you analyze the material gap on the right side of the chart, you can see that the ECB is far from achieving its objectives.Likewise, if we zoom in on the roughly two-year chart, both the Eurozone headline and core HICP are still tracking materially below the ECB’s annual inflation targets.Please see below: Source: Frederik DucrozetCyclical Slowdown Ahead?Furthermore, while the ECB studies “alternatives” to prevent interest rates from spiking in high-debt countries like Greece, Italy and Portugal, Germany – Europe’s largest economy – has suffered a significant economic setback. To explain, Germany is a manufacturing-heavy economy and exports are an important component of German GDP. However, with German factory orders plunging by 7.7% on Oct. 6 – with foreign demand down by 9.5% and domestic demand down by 5.2% – it was the sharpest month-over-month (MoM) decline since April 2020. For context, the consensus estimate was for a 2.1% decline.Please see below:Piecing it all together, with interest rate anxiety merging with a cyclical slowdown in Europe, Danske Bank expects lower-for-longer ECB policy to contribute to a lower-for-longer EUR/USD. The Danish bank’s strategists told clients:“There has been no shortage of calls for EUR/USD to 1.30, of pieces written on a regime shift having happened in fiscal policy, oversubscription to social bonds and much more. However, narratives change…. Stagflation, rapid cyclical slowdown, rising interest rates and a correction in valuations may prove to be a very negative capital shock to the euro area and its asset prices. We target 1.13 in spot EUR/USD in the next year but if stagflation, cyclical slowdown and rising rates become dominant themes, then there seem to be clear downside to such estimate.”Adding to the bearish euro thesis, with U.S. nonfarm payrolls scheduled for release on Oct. 8, a strong print could usher the EUR/USD even lower. For example, ADP’s private payrolls came in at 568,000 vs. 428,000 expected on Oct. 6. And though ADP’s data is an extremely poor predictor of U.S. nonfarm payrolls, Nela Richardson, chief economist at ADP, provided the following context:“The labor market recovery continues to make progress despite a marked slowdown from the 748,000 job pace in the second quarter. Leisure and hospitality remains one of the biggest beneficiaries to the recovery, yet hiring is still heavily impacted by the trajectory of the pandemic, especially for small firms. Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”And expecting those “solid job gains” to materialize sooner rather than later, J.P. Morgan strategists told clients that “we are looking for a 575,000 gain in jobs [on Oct. 8]. The driver for an above-consensus forecast is the expected rebound in the leisure and hospitality sectors.” For context, the consensus estimate is for 500,000 jobs added.The bottom line? While the EUR/USD is finally starting to reflect fundamental reality, more downside should materialize in the coming months. With the Fed accelerating its hawkish rhetoric (and Chairman Jerome Powell’s shift the most noteworthy), the ECB is headed in the opposite direction. And while I’ve been warning for months that the Eurozone’s economic recovery is much more fragile than the U.S.’, the seeds are now sown for a profound divergence in central bank policy.Moreover, while U.S. nonfarm payrolls may or may not accelerate the timeline on Oct. 8, it’s important to remember that the medium-term implications remain intact: the Fed should taper at a much faster pace than the ECB and the liquidity drain should pressure the FED/ECB ratio and the EUR/USD in the coming months. More importantly, though, with the EUR/USD’s pain the USD Index’s gain, the latter’s strong negative correlation with gold, silver and mining stocks should result in further downside for the PMs over the medium term.In conclusion, the PMs were mixed once again on Oct. 6, though silver, was the worst performer of the bunch. Moreover, with the USD Index recapturing 94, and the front-end of the U.S. yield curve rallying as well, a recovering U.S. labor market should add more upward momentum to the PMs’ fundamental villains. As a result, the precious metals’ current consolidations will likely give way to sharp drawdowns in the coming months.Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and silver that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care* * * * *All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

Inflation Finally Meets Wall Street’s Ears! Is Gold Next?

Finance Press Release Finance Press Release 07.10.2021 15:50
At last, something is happening! Rising oil and gas prices sparked inflation worries among investors. However, gold hasn’t benefited so far…It took Wall Street a while to find out about inflation above 5%, but it seems that investors have finally noticed that we live now in a world of elevated inflation. I have always known that only the smartest minds work on Wall Street! So, right after they finally learned how to operate a computer and found the BLS website, they got scared and started selling equities. As a consequence, the U.S. stock index futures declined yesterday morning.All right, I was a bit mean to the Wall Street traders. They panicked not because of the CPI rates but because of soaring oil prices. As the chart below shows, the WTI crude oil has recently approached $80 per barrel, while the price of natural gas has more than doubled in recent weeks (left axis). A propos, if you want to know more about oil, gas and the energy sector, as well as keep track of all price moves happening there (and possibly profit from them!), I can recommend a great place to do so - Oil Trading Alerts.The rising oil prices triggered inflation worries, as higher energy prices could translate into higher consumer inflation, and higher consumer inflation could trigger a more hawkish Fed’s action than previously anticipated. In particular, the US central bank could taper its quantitative easing faster than expected, especially if September nonfarm payrolls turn out to be decent. After all, good news is right now bad news for stocks, not to mention gold.I’ve been warning for a long time now that inflation could be more lasting than the pundits claim. And here we are, the high inflation readings couldn’t be downplayed any longer, so the IMF admitted yesterday in its flagship report World Economic Outlook that elevated inflation could last by mid-2022:Headline inflation is projected to peak in the final months of 2021, with inflation expected back to pre-pandemic levels by mid-2022 for both advanced economies and emerging markets country groups, and with risks tilted to the upside.However, the baseline scenario assumes that inflation expectations remain anchored. And although the IMF is right that market-based measures of long-term inflation expectations have stayed relatively anchored so far, the measures based on surveys of consumers have clearly de-anchored recently, as the chart below shows.I don’t know on which planet IMF economists live, but in my world such a graph shows anything but well-anchored inflation expectations. So, I would say that upside risks to the IMF’s baseline scenario are more probable than the authors are willing to admit. In fact, even they acknowledge that risks remain tilted slightly to the upside over the medium term:Sharply rising housing prices and prolonged input supply shortages in both advanced economies and emerging market and developing economies, and continued food price pressures and currency depreciations in the latter group could keep inflation elevated for longer.Implications for GoldWhat does it all imply for the gold market? Well, as usual, I’m obliged to say that, theoretically, higher inflation should be positive for gold, which is considered to be an inflation hedge. However, theoretical links, which we can analyze in isolation, in reality work together with other forces, as economy is a complex system. In our case, gold is not getting much benefit from strengthening inflation worries as bond yields are rising in tandem, supporting the real interest rates. Gold’s disappointing performance in the inflationary environment (see the chart below) is also caused by the prospects of the Fed’s tightening cycle.So, it seems that gold could remain in the downward trend in the near future, especially if the Employment Situation Report, which is scheduled to be released on Friday, doesn’t disappoint. However, the Fed will have to reverse its course at some point –they will not hesitate whether they should fight with the overheating or stimulate the economy during a crisis. And this will allow gold to shine again.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Will the Surge in Spending on Goods Include Gold?

Finance Press Release Finance Press Release 08.10.2021 16:14
Consumers’ expenses on goods soared amid the pandemic crisis. Will gold benefit from this spending spree?“We need lower [consumer demand] growth to give the supply chain time to catch up, or differently spread out growth”, said Morten Engelstoft, chief executive of Maersk-owned APM Terminals, in September. Even though I’m fully aware of the supply-chain crisis, Engelstoft’s remarks struck me. Companies usually complain about soft consumers’ appetite, not about strong demand, and they don’t call for a reduction in expenditures!Something strange is happening here, indeed. So, I decided to dig into this issue a bit deeper, and I was even more struck by the data I found. Please take a look at the chart below, which shows the US real personal consumption expenditures on services (red line) and on goods (green line). As you can see, people’s spending on goods has increased about 15% since February 2020.Let’s repeat it, adding some context: we experienced the deepest recession since the Great Depression, but the personal expenditures on goods are not lower, but higher! And they are substantially higher, as 15% is a giant disturbance to the production system, which is very difficult to be accommodated in such a short time.Why is it so important? Well, it’s a unique development. As the chart above shows, after the global financial crisis in 2007-2009, consumer spending on goods has returned to the pre-crisis level only in 2012. This difference is caused by two things. The first is enormous fiscal stimulus passed in response to the epidemic. As a result, the demand for goods, especially durables, surged, boosting inflation.The second is the fact that the Covid-19 crisis wasn’t a crisis of aggregate demand, but it was a structural crisis, i.e., it was characterized by the substantial shift in the structure of spending. As you can see in the chart above, the personal consumption expenditures on services haven’t yet returned to the pre-pandemic level. In other words, because of the Great Lockdown, people couldn’t leave their money in restaurants, hotels, movie theatres, etc., so they started to buy more stuff. However, the government and central banks acted as if the problem was aggregate demand, so they boosted the money supply and fiscal deficits, contributing to the rising prices of goods.What does it all mean for the gold market? The first implication is that the current expansion is and will be, as I warned shortly after the economic crisis, more inflationary than the recovery from the Great Recession. Inflation is already high, and it may increase even further, or at least stay at the elevated level for a while, given the scale of supply-side challenges.According to Brian Sondey, chief executive of Triton International, the world’s largest container leasing company, “consensus in the industry is we’re unlikely to see a cleaning up of the situation until deep into next year”. This means that inflation could be more lasting than the Fed claims. Gold should benefit from higher inflation and lower real interest rates, but only if Powell and his colleagues don’t become more hawkish in response to persistent price pressure and interest rates don’t rise significantly. Luckily for gold, the FOMC seems to be focused on employment much more than inflation.The second implication is that the current expansion may prove to be unsustainable; the economy could slowly revert to the structure and trends from before the pandemic. In this scenario, the demand for services would rise, but the demand for goods would fall. If the demand for goods declines, companies could reduce their investments. Then, the supply-chain disruptions could become aggravated, while the economy could enter a new recession. What’s important, in this case, a recession could be accompanied by relatively elevated inflation. In such a stagflationary environment, gold might shine.Of course, this is just a scenario, and it might turn out that the structure of demand for goods and services won’t return to the pre-pandemic level and the economy will enter a new, steeper path of growth. In this more optimistic scenario, gold would struggle. The coming months will be crucial for the future of the economy and the precious metals market.One thing is certain, however. We are not yet on a nice, riskless post-pandemic path and important structural shifts are still ahead of us. Last year, the shifts in consumer spending and mammoth monetary and fiscal stimulus perhaps helped to avoid a more serious recession, but at the expense of higher inflation. We can still enter a recession though — at this time, with stronger price pressure. Nonetheless, given all the risks ahead of us, gold should still be of interest to investors.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
New York Climate Week: A Call for Urgent and Collective Climate Action

S&P 500 Uphill Battle

Monica Kingsley Monica Kingsley 12.10.2021 15:46
S&P 500 bulls missed a good opportunity, and credit markets close doesn‘t add to bullish sentiment. High yield corporate bonds led the selling in what turned out a strong risk-off day in debt. Light volume, holiday days often don‘t end up on a weak note, which highlights the challenges the bulls are faced with. Yes, today‘s overnight upswing will likely get tested.Sure, credit market could take the reprieve I was looking for instead of yesterday, today. Would stocks enthusiastically follow through? Value had great trouble yesterday even when faced with rising yields. All that‘s necessary is a spark, and tomorrow‘s CPI is likely to deliver that. I‘m looking for a reasonably hot number that wouldn‘t show the massaged figure‘s further deceleration. Talking numbers powerful enough to make the Fed move – and more importantly to make the markets force the Fed to move – I asked yesterday whether there are:(…) creeping worries about Fed policy mistake in letting inflation become an even bigger problem than it is already? Not that it‘s not set to become one – even the lazy and slow PCE deflator has scored a jump not seen in decades.For perspective, wholesale prices in Germany just jumped over 13% year on year. The increasing doubts would be seen in the pressure on USD – the dollar looks set to swing lower next. Not breaking down, but gradually trending lower. It‘s telling that not even higher yields could power it up over the past week. Whatever the chart pattern it‘s in, the inflation expectations dynamics is likely to catch up with it as real rates will have trouble keeping up. And that‘s a boon in this war of attrition, in this waiting game in precious metals.Meanwhile, commodities aren‘t hesitating, and the shallow intraday oil declines are promptly being bought up. Faced with slowing real economy, even copper is waking up after a long slumber. Bitcoin is around 15% off its all time high. What else to add?Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 reversed on solid volume – not outstanding one, but good enough to leave the medium-term advantage with the bears.Credit MarketsHYG kept plummeting as the session drew to its close, and the credit markets assessment for this week, isn‘t a positive one.Gold, Silver and MinersPrecious metals didn‘t send bullish signals yesterday, but the fireworks can be expected tomorrow. All it takes is a few Fed speakers underplaying the evolution of inflation.Crude OilCrude oil retreated from $82, yet remains perched above $80. Its trading range is likely to remain quite narrow, and a sideways consolidation (consolidation in time) shouldn‘t be surprising.CopperCopper finally having come alive, is a good sign for precious metals as well. It‘s an encouraging sign of daily outperformance.Bitcoin and EthereumBitcoin is rising while Ethereum pauses – the daily indicators are vulnerable to a consolidation, but overall, the path of least resistance is still up. SummaryStock market rebound will likely run out of steam, and consolidate before the next major move. Odds are that the bears aren‘t done yet – as I often say, it‘s the bond markets that usually have it right, and stocks are more often than not catching up with being on the wrong side. Despite seasonal tendencies to appreciate now, the focus is rightfully on Fed‘s inflation brinkmanship. I view this as Treasuries making the move without waiting for the Fed‘s blessing. Real assets and cryptos stand to benefit as inflation expectations keep trending up.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Gold Can’t Rise on Weak Payrolls

Finance Press Release Finance Press Release 12.10.2021 15:56
The US economy added only 194,000 jobs in September, falling short of expectations, but the Fed can still taper soon — and gold knows it.Another disappointment from the economy! The September nonfarm payrolls came surprisingly weak. As the chart below shows, the US labor market added only 194,000 jobs last month, much below the expectations (analysts forecasted about half a million added jobs). The disappointing numbers followed the additions of 1,091,000 in July and 366,000 in August (after an upward revision). The most recent job gains were the weakest since December 2020.However, the overall report was generally more positive than the headline. First of all, the unemployment rate declined from 5.2% to 4.8%, as the chart above shows. It’s a positive surprise, as economists expected a drop to only 5.1%. In absolute terms, the number of unemployed people fell by 710,000 - to 7.7 million. It’s a considerably lower level compared to the recessionary peak, but still significantly higher than before the pandemic (5.7 million and unemployment rate of 3.5%).Second, taking revisions into account, the employment in July and August combined is 169,000 higher than previously reported. It means that the monthly job growth has averaged 561,000 so far this year and about 550,000 over the last three months.Third, the main reason for the very weak nonfarm payrolls was a decline in local and state government education - by 161,000. Most back-to-school-hiring typically occurs in September, but the recruitment last month was lower than usual, which some analysts attribute to early retirement of some teachers, mask-wearing mandates and vaccination requirements. Another issue is that the report is based on data that was collected when the Delta variant of the coronavirus was reaching its peak, and now the situation looks better.Implications for GoldWhat does the recent employment report imply for the Fed’s monetary policy and the gold market? Well, Fed Chair Jerome Powell told reporters during his press conference in September that he would like to see a “reasonably good” or “decent” employment report before deciding that the Fed’s threshold for reducing its asset purchasing program has been met.So, you know, for me, it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. And others on the Committee, many on the Committee feel that the test is already met. Others want to see more progress. And, you know, we’ll work it out as we go. But I would say that, in my own thinking, the test is all but met. So I don’t personally need to see a very strong employment report, but I’d like it see a decent employment report.Now, the question is whether 194,000 job gains are decent enough to taper the quantitative easing. Interpreting words of an oracle is never an easy task. The September payrolls are neither strong nor a catastrophe. However, given the level of expectations and the fact that job gains were weaker than in August (commonly considered a great disappointment) I wouldn’t describe the latest payrolls as “decent”.However, we have to remember that the overall report was much better than the payrolls analyzed in isolation. Given the significant decline in the unemployment rate, the September employment report can be defended as “decent”. So, the Fed can still taper in November, or announce it at least, especially that some members of the FOMC were ready to tighten US monetary policy already in September.It seems that my line of thinking is in line with the market’s interpretation of the Fed’s likely course of action. The price of gold jumped briefly on Friday above $1,780, but it could not break the resistance or hold this position and returned quickly to its recent comfort zone of $1,750-1,760. The rather shy reaction of the yellow metal can be seen on the chart below.Gold’s inability to shine in response to the second weak nonfarm payrolls in a row or to the inflation worries is quite disappointing. Well, Mr. Market decided that the September employment report wouldn’t restrain the Fed from tapering. The focus on the upcoming tightening cycle creates downward pressure on gold prices, which counterweighs worries about the labor market or inflation.However, it might be the case that the price of the yellow metal will bottom somewhere around the actual start of tapering, and, without all that pressure around the tapering announcement, it could be free to move upward again.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Intraday Market Analysis – EUR Builds Up Bullish Reveal

Intraday Market Analysis – EUR Builds Up Bullish Reveal

John Benjamin John Benjamin 29.10.2021 08:55
EURUSD cuts through resistanceThe euro surges as the market prices in inflation pressure despite the ECB’s dovish message.Bullish candles have pushed the single currency above the triple top (1.1665) which sits on the 30-day moving average, paving the way for a reversal. Strong momentum is a sign of short-covering from those caught on the wrong side of the market.An overbought RSI could temporarily limit the range of the rally. However, renewed optimism may send the pair to the daily resistance at 1.1750. 1.1620 is the support in case of a pullback.USDJPY tests demand zoneThe Japanese yen recouped losses after the BOJ sees a weak yen as positive for Japan’s economy. And the US dollar has come under pressure near a four-year high.An overbought RSI on the daily chart points to an overextension. On the hourly level, the pair has found bids around 113.30 near a previous consolidation range.A bearish breakout would test the round number at 113.00, which lies on the 20-day moving average and is critical in safeguarding the uptrend. The bulls need to lift 114.30 before they may resume the rally.US 30 pulls backs for supportThe Dow Jones consolidates as investors digest earnings near the all-time high.A breakout above the August peak at 35600 and a bullish MA cross from the daily timeframe indicate an acceleration on the upside as the rally continues.Pullbacks could be an opportunity to buy low. An overbought RSI has triggered a minor sell-off below 35600, shaking out weaker hands in the process. A drop below 35450 would lead to the psychological level of 35000. 35830 is now a fresh resistance.
When Will the Party End?

When Will the Party End?

Michael Pento Michael Pento 04.02.2021 16:45
When Will the Party End? I’d like to explain why these already-stretched markets could crash by the start of the 3rd quarter. I’ve been warning over the past month, or about, that my Inflation/Deflation and Economic Cycle Model SM is forecasting a potential crash in equities around the start of Q3 this year. Of course, this timing could change and I would only take action in the portfolio if the Model validates this forecast to be correct. Nevertheless, here’s why the bubble we are currently riding higher in the portfolio could burst around that time. During the late Q2 early Q3 timeframe the following macroeconomic conditions will be occurring: The second derivative of y/y growth and inflation will be surging. As a direct consequence, Bond yields will be surging Whatever tax increases to pay for the Biden administration’s stimulus packages should have been passed. The next trillion-dollar COVID stimulus package will be months in the rear-view mirror and the $900 billion package signed by Trump in late December will be even further behind. The chatter around Fed tapering its $120 billion per month bond purchase program will then reach a crescendo. Just look how the market sold off today on just a routine Fed meeting—one without the spiking inflation yet to come. By the way, Mr. Powell reinforced his record-breaking easy monetary policy. Finally, the COVID vaccines will be close to reaching maximum distribution and their genuine efficacy and effect on the economy will then be known. If the vaccines work anywhere near as advertised, Powell indicated in his press conference today that it would be a strong catalyst towards normalizing monetary policy. Hence, the economy will then realize its maximum re-opening status--thus, putting further upward pressure on interest rates. To sum up: we will have higher taxes, much higher interest rates and rapidly rising inflation. All this will occur at the same time the market will be worrying about front-running the Fed’s exit from record manipulation of bond and stock prices. There will be immense pressure on the Fed to cut back on monetary stimulus at exactly the wrong time: the cyclical peak of economic growth. Indeed, the ROC in growth will be on the precipice of rapidly falling during late Q3 and Q4 because of waning fiscal stimulus, the threat of reduced monetary stimulus and interest rates that are becoming intractable. This will leave Mr. Powell with a huge problem. If the stock and bond prices are already crashing due to inflation (while the Fed Funds Rate is already at 0% and QE is at a record high rate, then the Fed won’t be automatically able to save the day by instituting more QE and rate cuts. While it is true that a central banker can easily fix a bear market caused by recession and deflation--simply by pledging to create more inflation--it cannot easily arrest a bear market if it is caused by spiking rates and inflation. Powell may be rendered powerless to stop the market from plunging precipitously. It may only be in the wake of the carnage of a deflationary depression that Powell’s potential move to buy stocks has any real benefit. Only then will his printing press become effective. Alas, that will be way too late for those who suffered going over the cliff and the multiple years you have to wait to make up the loss. PPS will try to protect our gains and profit from the coming gargantuan reconciliation of asset prices. In contrast, the deep state of Wall Street will buy and hold your retirement account into the abyss.
Don‘t Fear Risk-Off

Don‘t Fear Risk-Off

Monica Kingsley Monica Kingsley 01.11.2021 13:50
Not confirmed by bonds, the S&P 500 advances regardless – the daily yields retreat is powering tech while value goes nowhere. Higher beta sectors such as financials are sputtering, revealing the defensive nature of the stock market advance – at least to this degree, stocks and bonds are in tune. Yes, risk-off is winning these days, and it would be only up to VIX to join the fray, but the key volatility measure is likely to keep complacently trading around the 17 level. In other words, not too far from the bottom of its recent range, and not indicating imminent change of the bull market character.While we have seen much better market breadth readings in the years gone by (the narrow leadership is reminiscent perhaps of the late 1990s), there‘s no chart proof of the behemoths being in kind of getting really serious trouble (with the possible exception of Facebook). True, smallcaps have largely gone sideways over the many months, but midcaps are already breaking higher, and that won‘t be unnoticed by the Russell 2000 (soon to follow).The bears haven‘t thus far made any serious appearance, and 4,550s held with ease in spite of the dollar reversing Thursday‘s losses. All the more encouraging is the relative strength of both gold and silver when faced with one more daily decline in inflation expectations – as if balancing before the Fed act changes anything.I ask, how serious can they be about delivering on taper promises when prices increase relentlessly (look at Europe too), these are being blamed on supply chain bottlenecks without acknowledging their persistent and not transitory nature, and the real economy is markedly slowing down (not in a recession territory, but still)?Looking at commodities, we‘re reliving the 1970s, and cryptos are still the key beneficiary of monetary largesse – precious metals aren‘t a dead asset class in the least, they just frontrunned it all and peaked in August 2020 as I alerted you to back then. Fresh upswing is in the making.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 once again decisively reversed upwards, and even though the daily indicators are weakening, the rally can easily go on. Dips are to be bought.Credit MarketsHYG keeps acting weak, but this is being overlooked by stocks as tech remains driven by NYFANG.Gold, Silver and MinersGold‘s lower knot indicates accumulation, and miners reversing higher would be a great confirmation. Regardless, such a result when dollar rose steeply and yields with inflation expectations retreated, is encouraging.Crude OilCrude oil again held $81, looks set to return above $84 again. XOI and XLE weakness has to be understood in terms of the challenged VTV, and isn‘t here to stay.CopperCopper is providing a buying opportunity, and looks likely to join other base metals (especially alluminum) and broader commodity index strength as agrifoods wake up too.Bitcoin and EthereumThe Bitcoin and Ethereum upswings can go on – it looks to be a question of a relatively short time when cryptos are done with the sideways correction.SummaryS&P 500 indeed got at 4,610s instead of suffering setbacks, and the same holds true for real assets next. Across the board, these have performed well in spite of the USD upswing and decreasing inflation expectations, which I chalk down to pre-Wednesday positioning. Therefore, I‘m taking the high beta weakness with a pinch of salt, and the same goes for precious metals or the economic cycle sensitive copper. As for oil, the U.S. economy can (and will have to) withstand prices higher than $90 as 2022 arrives.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Fed Game Plan

Fed Game Plan

Monica Kingsley Monica Kingsley 02.11.2021 14:54
S&P 500 hesitation against weakening bonds – what gives? The yield curve keeps flattening, but long-dated Treasury yields seem again on the verge of another upswing, which hasn‘t propped up the dollar yesterday much. The only fly in the ointment of a risk-off atmosphere, was value outperforming tech. Overall, stocks haven‘t made much progress, and are vulnerable to a quick downswing attempt, which probably though wouldn‘t come today as the VIX doesn‘t look to favor it. Wednesday, that could be another matter entirely. Still, there is no imminent change to the stock bull run on the horizon – the focus remains on ongoing Fed accomodations, which s why: (…) The bears haven‘t thus far made any serious appearance, and 4,550s held with ease in spite of the dollar reversing Thursday‘s losses. All the more encouraging is the relative strength of both gold and silver when faced with one more daily decline in inflation expectations – as if balancing before the Fed act changes anything. I ask, how serious can they be about delivering on taper promises when prices increase relentlessly (look at Europe too), these are being blamed on supply chain bottlenecks without acknowledging their persistent and not transitory nature, and the real economy is markedly slowing down (not in a recession territory, but still)? Tomorrow‘s Fed taper announcement wouldn‘t change a lot – so much can (and will) happen in the meantime, allowing them to backpedal on the projections, making rate hikes even more of a pipe dream. The Fed isn‘t taking inflation seriously, hiding behind the transitory sophistry, and that‘s one of the key drivers of rates marching up, rising commodities, and surging cryptos. Look for more oil and natgas appreciation while copper goes up again too. Precious metals are still waiting for a catalyst (think dollar weakening when even rising rates won‘t provide much support, and inflation expectations trending up faster than yields) – a paradigm shift in broader recognition of Fed obfuscation and monetary policy being behind the curve. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 is entering a brief consolidation, with 4,590s being first support, followed by the high 4,550s (if the bears can make it there). Given though yesterday‘s sectoral rotation, that‘s not likely happening today. Credit Markets HYG keeps acting really weak, volume is picking up, and buyers aren‘t able to force at least a lower knot. Rising yields aren‘t reflecting confidence in the economic recovery, but arrival of stagflation bets. Gold, Silver and Miners Gold indeed swung higher, but needs more follow through including volume, otherwise we‘re still waiting for the catalysts mentioned at the opening part of today‘s analysis, which would also help the silver to gold ratio move higher. Crude Oil Crude oil keeps going up again,and is likely to extend gains above $84 even as this level presents a short-term resistance. Copper Copper buying opportunity is still here, and the red metal is primed to play catch up to the CRB Index again. Probably not so vigorous as before, and taking more time to unfold, but still. Bitcoin and Ethereum The Bitcoin and Ethereum upswings can and do go on – as stated yesterday, it was a question of a relatively short time when cryptos are done with the sideways correction. Summary S&P 500 is likely to pause today, and the bond market performance would be illuminating. Ideally for the bulls, some semblance of stabilization would occur, tipping the (bullish) hand for tomorrow. That‘s the big picture view - the very initial reaction to taper announcement would likely be disappointing, and eventually reversed. Cryptos, commodities (first oil, then copper) would react best, with precious metals figuring it out only later. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Lip Service to Inflation, Again

Lip Service to Inflation, Again

Monica Kingsley Monica Kingsley 03.11.2021 14:54
S&P 500 quick downswing attempt indeed didn‘t come – fresh highs were confirmed by bonds. Even if just on a daily basis, that‘s where the bias is – long stocks still, but with a wary eye as Treasuries and corporate bonds need to kick in on a more than daily basis. I‘m taking it as that the bullish expectations for today are really high – so much so that better than expected non-farm employment change resulted in a sell the news reaction. So, how does that line up with today‘s FOMC? Dovish undertones are obviously expected – at least in attempting to sweep the hot inflation under the rug, spinning it somehow else than with the tired transitory horse. Discredited one too. So, how would the taper message be delivered, and could it go as far as $15bn a month asset purchase reduction while avoiding rate hike mentions as much as possible? Even if $15bn is indeed the announced figure, I‘m looking for the Fed to soften it before it can run its course, i.e. before 2H 2022 arrives – the economy isn‘t in such a great shape to take it, and the fresh spending bill (whatever the price tag), needs central bank‘s support too. Let‘s recall my yesterday‘s words about how that‘s likely to translate into market moves: (…) Overall, stocks haven‘t made much progress, and are vulnerable to a quick downswing attempt, which probably though wouldn‘t come today as the VIX doesn‘t look to favor it. Wednesday, that could be another matter entirely. Still, there is no imminent change to the stock bull run on the horizon – the focus remains on ongoing Fed accomodations. Tomorrow‘s Fed taper announcement wouldn‘t change a lot – so much can (and will) happen in the meantime, allowing them to backpedal on the projections, making rate hikes even more of a pipe dream. The Fed isn‘t taking inflation seriously, hiding behind the transitory sophistry, and that‘s one of the key drivers of rates marching up, rising commodities, and surging cryptos. Look for more oil and natgas appreciation while copper goes up again too. Precious metals are still waiting for a catalyst (think dollar weakening when even rising rates won‘t provide much support, and inflation expectations trending up faster than yields) – a paradigm shift in broader recognition of Fed obfuscation and monetary policy being behind the curve. The Fed turning even more dovish than expected, would light the fireworks – they‘re likely to pay lip service to inflation similarly to Jun, but it won‘t pack the same punch. Inflation expectations haven‘t peaked, and the yield curve is about to steepen again as rates would mostly be moving higher. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 keeps rising, and is setting itself up for a brief disappointment. We aren‘t though making a top with capital t. Credit Markets Universal risk-on move in the credit market, on volume that didn‘t disappoint, which just confirms the bulls‘ overall technical advantage. Gold, Silver and Miners Gold downswing left a lot to be desired – we aren‘t likely staring at a true slide next. I actually look for silver (and the cyclically sensitive commodities such as copper, and also oil) to outperform gold in the wake of the Fed move. Crude Oil Crude oil didn‘t move much on a closing basis, but the bulls need more time to retake the reins. Copper Copper really doesn‘t want to decline, and remains slated to play catch up to the CRB Index again. The improving bullish outlook requires just time now – selling volume is drying up, tellingly... Bitcoin and Ethereum Bitcoin and Ethereum bulls haven‘t yielded, and keep the overall technical advantage. Should prices dip below $58K in BTC without solid buying materializing, now that would make me wary. But the Fed won‘t be hawkish., no. Summary Potential S&P 500 bear raid is approaching, and the more dovish the Fed would be, the shallower dip in stocks can be expected. Yes, the bulls keep having the upper hand – credit markets have behaved. As mentioned yesterday, that‘s the big picture view - the very initial reaction to taper announcement would likely be reversed higher. Cryptos, oil, copper would react best, with precious metals figuring it out only later – unless the Fed negatively surprises, in which case cryptos would be prone to wilder swings (but not downside reversal in earnest). Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
November Monthly

November Monthly

Marc Chandler Marc Chandler 03.11.2021 15:17
Three main forces are shaping the business and investment climate:  Surging energy prices, a dramatic backing up of short-term interest rates in Anglo-American countries, and the persistence of supply chain disruptions.  The US and Europe have likely passed peak growth.  Fiscal policy will be less accommodative, and financial conditions have tightened. Japan appears to be getting a handle on Covid and after a slow start.  Its vaccination rate has surpassed the US.  The lifting of the formal state of emergency and a hefty dose of fiscal stimulus is expected to be delivered in the coming months. Many developing economies have already lifted rates, some like Brazil and Russia, aggressively so.  They will likely finish earlier too.      US light sweet crude oil rose nearly 12% last month, even though US inventories rose last month for the first time since April.   The price of WTI rose almost 10% in September.  Statistically, the rise in oil prices is strongly correlated with the increase in inflation expectations.  OPEC+ will boost supplies by another 400k barrels a day at the start of November and is committed to the same monthly increase well into 2022.   At the same time, new Covid infections in several Asia-Pacific countries, including China, Singapore, and Australia, warn of the risk of continued supply-chain disruptions.  In Europe, Germany and the UK recently reported the most cases since the spring. Belgium is tightening curbs.  Bulgaria is seeing a rise in infections, and Romania was at full capacity in its intensive care facilities.  The fact that Latvia lags the EU in vaccination at about 50% leaves it vulnerable.  The US may be lagging behind Europe, and the next four-six weeks will be critical.  Roughly 40% of Americans are not fully vaccinated.   The rise in price pressures and the gradual acknowledgment by many central bankers that inflation may be more persistent have helped spur a significant backing up of short-term rates in the Anglo-American economies. The ultimately deflationary implications of the surge in energy prices through demand destruction and the implications for less monetary and fiscal support still seem under-appreciated. Yet, the market has priced in aggressive tightening of monetary policy over the next 12 months.   The focus of the foreign exchange market seems squarely on monetary policy.  From a high level, the central banks perceived to be ahead in the monetary cycle have seen stronger currencies. The likely laggards, like the Bank of Japan, the Swiss National Bank, and the ECB, have currencies that underperformed.  Norway and New Zealand have already raised rates and are expected to do so again in November.    Of course, as you drill down, discrepancies appear.  In October, the Australian dollar was the top performer among the major currencies with a 4% gain.  It edged out the New Zealand dollar and the Norwegian krone, whose central banks are ahead of the Reserve Bank of Australia.  The RBA has pushed against market speculation that has 90 bp of tightening priced into 12-month swaps.  The Australian dollar outperformed sterling by about 2.5% in October even though the Bank of England has been so hawkish with its comments that the market had little choice but to price in a high probability of a hike as early as the November meeting.  In fact, the market has the UK's base rate above 50 bp by the end of Q1 22.  This is important because in its forward guidance that BOE has identified that as the threshold for it to begin unwinding QE by stopping reinvesting maturing issues.  Interestingly enough, when the BOE meets on March 17 next year, it will have a sizeable GBP28 bln maturity in its portfolio.   In an unusual quirk of the calendar, the Federal Reserve meets before the release of the October jobs report.  All indications point to the start of the tapering process.  It is currently buying $120 bln a month of Treasuries ($80 bln) and Agency Mortgage-Backed Securities.  The pace of the reduction of purchases is a function of the duration, and the Fed has clearly indicated the tapering will be complete around mid-year. That suggests reducing the purchases by about $15 bln a month.  Chair Powell indicated that unlike the Bank of England, the Fed will stop its bond purchases before raising rates. A faster pace of tapering would be a hawkish signal as it would allow for an earlier rate hike.  The gap between when the tapering ends and the first rate hike does not appear predetermined. Powell has talked about the economic prerequisites, which emphasize a full and inclusive labor market in the current context. The Fed funds futures entirely discount a 25 hike in July, with the risk of a move in June.  Comments by several officials hint that the Fed may drop its characterization of inflation as transitory, which would also be understood as a hawkish development.   Partly owing to the extended emergency in Japan, it is marching to the beat of a different drummer than the other high-income countries. Inflation is not a problem.  In September, the headline rate rose to 0.2% year-over-year, the highest since August 2020.  However, this is a function of fresh food and energy prices, without which the consumer inflation stuck below zero (-0.5%).  In December 2019, it stood at 0.9%.  In addition, while fiscal policy will be less accommodative in Europe and the US, a sizeable supplemental budget (~JPY30 trillion) is expected to be unveiled later this year.   After expanding by 1.3% quarter-over-quarter in Q2, the Chinese economy slowed to a crawl of 0.2% in Q3, which was half the pace expected by economists. Some of the decline in economic activity resulted from the virus and natural disasters (floods). Still, some of it stemmed from an effort to cut emissions in steel and other sectors.  The problems in China's property development space, accounting for a large part of its high-yield bond market,  unsettled global markets briefly.  Talk of a Lehman-like event seems a gross exaggeration. Still, given the sector's importance to China's economy (30% broadly measured) and the use of real estate as an investment vehicle, it may precipitate a structural shift in the economy.   The Communist Party and the state are reasserting control over the economy's private sector and the internet and social network.  It has also weighed in on family decisions, like the number of children one has, how long a minor should play video games, the length of men's hair, what kind of attributes entertainers should have, and appropriate songs to be played with karaoke.   It seems to be reminiscent of part of the Cultural Revolution and a broader economic reform agenda like Deng Xiaoping did in the late 1970s and Zhu Rongji in the 1990s.  At the same time, Beijing is wrestling with reducing emissions and soaring energy prices, which also dampen growth. Even though consumer inflation is not a problem in China (0.7% year-over-year in September), Chinese officials still seem reluctant to launch new stimulative fiscal or monetary initiatives. Moreover, new outbreaks of the virus could exacerbate the supply chain disruptions and delays fuel inflation in many countries.  The aggressiveness in which investors are pricing G10 tightening weighed on emerging market currencies in October.  The JP Morgan Emerging Market Currency Index fell by almost 0.8% last month after falling 2.9% in September, the largest decline since March 2020.  The continued politicization of Turkey's monetary policy and the aggressive easing saw the lira tumble nearly 7.5% last month, which brings the year-to-date depreciation to 22.5%.   On the other hand, Brazil's central bank has aggressively hiked rates, and the 150 bp increase in late October brought this year's tightening to 575 bp and lifting the Selic to 7.75%.  Yet, it is still below the inflation rate (10.34% October), and the government has lost the confidence of domestic and international business.  The Brazilian real fell nearly 3.5% last month to bring the year-to-date loss to almost 7.8%.   Our GDP-weighted currency basket, the Bannockburn World Currency Index, snapped a two-month decline and rose by 0.35%.  The rise in the index reflects the outperformance of the currencies against the dollar.  The currencies from the G10 countries, including the dollar, account for about two-thirds of the index, and emerging markets, including China, the other third.  The yen was the weakest of the majors, falling 2.3%.  It has a weighting of 7.5% in the BWCI.   Among the emerging market currencies in our GDP-weighted currency index, the Brazilian real's 3.4% decline was the largest, but its 2.1% weighting minimizes the drag.  It was nearly offset by the Russian rouble's 2.5% advance.  It has a 2.2% weighting in our basket.  The Chinese yuan, which has a 21.8% share, rose by 0.6%.      Dollar:   The market is pricing in very aggressive tightening by the Federal Reserve.  As recently as late September, only half of the Fed officials anticipated a hike in 2022.  The December 2022 Fed funds futures are pricing in a little more than two hikes next year. More than that, the market is discounting the first hike in June next year, implying a transition from completing the bond-buying to raising rates with no time gap.  The disappointing 2% Q3 GDP exaggerated the slowing of the world's largest economy.  We note that the supply-side challenges in vehicle production halved the growth rate.  Growth is likely to re-accelerate in Q4, but we continue to believe that the peak has passed.  While inflation is elevated, the pace of increase slowed in Q3.  Consider that the PCE deflator that the Fed targets rose at an annualized rate of 4.0% in Q3 after a 5.6% pace in Q2.  The core rate slowed to an annualized pace of 3.3% last quarter, half of the speed in the previous three months.  The infrastructure spending plans have been reduced, and some of the proposed tax hikes, including on corporations, appear to be dropped as part of the compromise among the Democratic Party.   Euro:  For most of Q3, the euro has been in a $1.17-$1.19 trading range.  It broke down in late September, and was unable to recapture it in October.  Instead, it recorded a new low for the year near $1.1525.  A convincing break of the $1.1500 area could signal a move toward $1.1300. The single currency drew little support because growth differentials swung in its favor in Q3:  the Eurozone expanded by 2.2% quarter-over-quarter while the US grew 2% at an annualized pace.  The ECB is sticking to its analysis that the rise in inflation is due to transitory factors while recognizing that energy prices may prove more sticky.  That said, news that Gazprom may boost gas sales to Europe after it finishes replenishing Russian inventories after the first week in November, natural gas prices fall at the end of October.  After the Pandemic Emergency Purchase Program ends next March, decisions about the asset purchases next year will be announced at the December ECB meeting along with updated forecasts.   (October indicative closing prices, previous in parentheses)   Spot: $1.1560 ($1.1580) Median Bloomberg One-month Forecast $1.1579 ($1.1660)  One-month forward  $1.1568 ($1.1585)    One-month implied vol  5.1%  (5.1%)         Japanese Yen:  The dollar rose 2.3% against the yen in October to bring the year-to-date gain to nearly 9.5%.  The Bank of Japan will lag behind most high-income countries in the tightening cycle, and the higher US yields are a crucial driver of the greenback's gains against the yen.  Japan's headline inflation and core measure, which only excludes fresh food, may be rising, but they are barely above zero and, in any event, are due to the surge in energy prices. In response to the weakening yen, Japanese investors appear to have boosted their investment in foreign bonds, while foreign investors increased their holdings of Japanese stocks.  The LDP and Komeito maintained a majority in the lower chamber of the Diet. A sizeable stimulus supplemental budget is expected to help strengthen the economic recovery now that the formal emergencies have been lifted.  In Q3, the dollar traded mainly between JPY109 and JPY111.  It traded higher in the second half of September rising to nearly JPY112.00.  The dollar-yen exchange rate often seems to be rangebound, and when it looks like it is trending, it is frequently moving to a new range.  We have suggested the upper end of the new range may initially be the JPY114.50-JPY115.00.  The four-year high set last month was about JPY114.70.  A move above JPY115.60 could target the JPY118.50 area.     Spot: JPY113.95 (JPY111.30)       Median Bloomberg One-month Forecast JPY112.98 (JPY111.00)      One-month forward JPY113.90 (JPY111.25)    One-month implied vol  6.4% (5.6%)   British Pound:  Sterling rallied around 4 1/3 cents from the late September low near $1.34.  The momentum stalled in front of the 200-day moving average (~$1.3850).  After several attempts, the market appeared to give up.  We anticipate a move into the $1.3575-$1.3625 initially, and possibly a return toward the September low. The implied yield of the December 2021 short-sterling interest rate futures rose from 22 bp at the end of September to 47 bp at the end of October as the market.  It was encouraged by Bank of England officials to prepare for a hike at the meeting on November 4, ostensibly while it is still providing support via Gilt purchases.  If there is a surprise here, it could be that, given the unexpected softening of September CPI and the fifth consecutive monthly decline in retail sales, rising Covid cases, that the BOE chooses to take the more orthodox route.  This would entail ending its bond purchases, as two MPC members argued (dissented) at the previous meeting and holding off lifting rates a little longer.        Spot: $1.3682 ($1.3475)    Median Bloomberg One-month Forecast $1.3691 ($1.3630)  One-month forward $1.3680 ($1.3480)   One-month implied vol 6.8% (7.1%)      Canadian Dollar:  The three drivers for the exchange rate moved in the Canadian dollar's favor in October and helped it snap a four-month slide against the US dollar.  First, the general appetite for risk was strong, as illustrated by the strength of global stocks and the record highs in the US.  Second, the premium Canada pays on two-year money more than doubled last month to almost 60 bp from 25 bp at the end of September.  Third, commodity prices in general and oil, in particular, extended their recent gains.  The CRB Index rose 3.8% last month, the 11th monthly increase in the past 12, to reach seven-year highs.  The Bank of Canada unexpectedly stopped its new bond purchases and appeared to signal it would likely raise rates earlier than it had previously indicated.  The swaps market is pricing 125 bp of rate hikes over the next 12 months, with the first move next March or April.  Still, the US dollar's downside momentum stalled near CAD1.2300.  There is scope for a corrective phase that could carry the greenback into the CAD1.2475-CAD1.2500 area.     Spot: CAD1.2388 (CAD 1.2680)  Median Bloomberg One-month Forecast CAD1.2395 (CAD1.2580) One-month forward CAD1.2389 (CAD1.2685)    One-month implied vol 6.2% (6.9%)      Australian Dollar:  The Aussie's 4% gain last month snapped a four-month, roughly 6.5% downdraft.  Despite RBA Governor Lowe's guidance that the central bank does not anticipate that the condition to hike rates will exist before 2024 is being challenged by the market.  Underlying inflation rose above 2% in Q3. The central bank's failure to continue defending the 10 bp target of the April 2024 bond spurred speculation that it would be formally abandoned at the November 2 policy meeting.  The RBA's inaction unsettled the debt market.  The two-year yield soared almost 70 bp last month, and the 10-year yield rose nearly 60 bp.  Although the RBA could have handled the situation better, New Zealand rates jumped even more.  Its two-year yield jumped 80 bp while the 10-year yield surged by 58 bp.  Last month, the Australian dollar's rally took it from around $0.7200 to slightly more than $0.7550, where it seemed to stall, just in front of the 200-day moving average.  We suspect the October rally has run its course and see the Aussie vulnerable to a corrective phase that could push it back toward $0.7370-$0.7400.  The New Zealand dollar has also stalled ($0.7220), and we see potential toward $0.7050.       Spot:  $0.7518 ($0.7230)        Median Bloomberg One-Month Forecast $0.7409 ($0.7290)      One-month forward  $0.7525 ($0.7235)     One-month implied vol 9.1  (9.0%)        Mexican Peso:  The peso eked out a minor gain against the dollar last month.  However, the nearly 0.4% gain understated the swings in the exchange rate last month.  The dollar's recovery seen in the second half of September from almost MXN19.85 to nearly MXN20.40 at the end of the month was extended to a seven-month high around MXN20.90 on October 12.  It then proceeded to fall to almost MXN20.12 before the greenback was bought again.  A move above the MXN20.60 area now would likely signal a test on last month's high and possibly higher. Recall that the dollar peaked this year's peak set in March was near MXN21.6350. The economy unexpectedly contracted in Q3  by 0.2% (quarter-over-quarter).  Nevertheless, with the year-over-year CPI at 6% in September, Banxico will see little choice but to hike rates at the November 11 meeting. The market expects a 25 bp increase.  A 50 bp hike is more likely than standing pat.       Spot: MXN20.56 (MXN20.64)   Median Bloomberg One-Month Forecast  MXN20.42 (MXN20.41)   One-month forward  MXN20.65 (MXN20.74)     One-month implied vol 9.6% (11.0%)      Chinese Yuan: Our starting point is the yuan's exchange rate is closely managed.  The fact that the yuan rose to four-month highs against the dollar and a five-year high against the currency basket (CFETS) that the PBOC tracks imply a tacit acceptance.  While it is tempting for observers to link the appreciation to securing an advantage as it secures energy supplies and other commodities, we note that the yuan's gains are too small (0.6% last month and less than 2% year-to-date) to be impactful.  We suspect that the dollar's recent weakness against the yuan will be unwound shortly.  The US government continues to press its concerns about the risk for investors in Chinese companies listed in the US and American companies operating in China. At the same time, the FTSE Russell flagship benchmark began including mainland bonds for the first time.  China's 10-year government bond is the only one among the large bond markets where the yield has declined so far this year (~16 bp).  On the other hand, Chinese stocks have underperformed.  That said, some investors see this underperformance as a new buying opportunity.  The NASDAQ Golden Dragon Index that tracks Chinese companies listed in the US fell by 30% in Q3 and gained 5% in October, its best month since February.  Lastly, the Central Committee of the Chinese Communist Party meets November 8-11 this year, a prelude to the important National Party Congress in 2022 that is expected to formally signal the third term for President Xi.     Spot: CNY6.4055 (CNY6.4450) Median Bloomberg One-month Forecast  CNY6.4430 (CNY6.4470)  One-month forward CNY6.4230 (CNY6.4725)    One-month implied vol  3.5% (3.4%)    Disclaimer
Leading the Taper Run

Leading the Taper Run

Monica Kingsley Monica Kingsley 05.11.2021 15:02
No S&P 500 pause to speak of – bonds support the buying pressure. The broad turn to risk-on has value holding up relatively well while tech remains in the driver‘s seat. The daily weakness in financials looks misleading, and as a function of retreat in yields – I‘m looking for stabilization followed by higher prices. Real estate though is starting to smell a rat – I mean rates, rising rates. Slowly as the Fed didn‘t give the green light, but they would acommodate the unyielding inflation.There was something in the taper announcement for everyone – the hawks are grasping at the possibility to increase taper pace should the Fed start to deem inflation as unpleasantly hot. I wrote about the dovish side I take already on Wednesday when recapping my expectations into the meeting.Coupled with non-farm payrolls coming in above expectations, the table is set to reassure the stock bulls that further gains are possible while the lagging commodities move up. Precious metals would continue recovering from the pre-taper anxiety, and miners with copper kicking back in, would be the confirmation. The dollar should welcome the figure corresponding to yields increase, buying a little more time.One more note on oil – its downswing is positive for the stock bulls as its retreat works to increase disposable income, and in the zero rates environment, kind of acts as a shadow Fed funds rate. Regardless, I‘m standing by the call for triple digit oil prices in 2022.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 fireworks are continuing with improving participation, and the path of least resistance remains higher.Credit MarketsUniversal risk-on move in the credit market still continues, and the long HYG knot isn‘t a sign of a reversal – the bulls merely got ahead of themselves, that‘s all.Gold, Silver and MinersGold easily reversed the pre-taper weakness, and so did silver. I‘m now looking for the miners to catch up, and a good signal thereof would be a fresh commodities upswing. No, CRB Index hasn‘t peaked.Crude OilCrude oil hasn‘t peaked either, and appears attracting buying interest already. While $80 were breached, the commodity is getting ahead of itself on the downside – the oil sector doesn‘t confirm such weakness.CopperCopper has stabilized in the low 4.30s, and an upswing attempt is readying – its underperformance of CRB Index would get reversed.Bitcoin and EthereumBitcoin and Ethereum consolidation goes on, and nothing has changed since yesterday – stabilization followed by slow grind higher is what‘s most likely next.SummaryS&P 500 stands to benefit from real economy revival, earnings projections and taper being conducted in the least disruptive way, apparently. Credit markets have made up their mind, and aren‘t protesting the risk-on sentiment, which has come from a temporary commodities retreat (hello, China). Inflation worries should though still return to the fore as the rising rates aren‘t as much a result of improving economy and yield spreads, which the precious metals are sensing already.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Gold FINALLY Breaks Free Amidst S&P INSANITY

Gold FINALLY Breaks Free Amidst S&P INSANITY

Mark Mead Baillie Mark Mead Baillie 08.11.2021 08:13
Gold, after 18 weeks of being stuck in a maniacal Short trend without price really going anywhere, FINALLY broke the bonds of the M word crowd by flipping to Long -- but not without a mid-week scare: more later on that affair. But we begin by assessing the stark INSANITY besetting the parabolic performance of the S&P 500, +25% year-to-date. It settled yesterday (Friday) at 4698 (reaching 4718 intra-day), a record closing high for the seventh consecutive session. Such phenomenon has occurred but five other times in the past 41 years! So here's a multiple choice question for you: Ready? Across all those years (i.e. from 1980-to-date), what is the longest stretch of time between all-time highs for the S&P 500? â–  a) eight monthsâ–  b) just over three yearsâ–  c) slightly less than six yearsâ–  d) all of the above (for you WestPalmBeachers down there)â–  e) none of the above If having answered "e)", you are correct: the longest stint was almost seven-and-one-quarter years from 24 March 2000 through the DotComBomb up to 13 Jul 2007. 'Twas the complete antithesis of the current paradigm of an all-time high every single trading day. But wait, there's more: those of you who were with us way back in the days at AvidTrader may recall our technically having "mild", "moderate" and "extreme" readings of both oversold and overbought conditions for the S&P. Well, get a load of this: yesterday was the S&P's 12th consecutive day with an "extremely overbought" reading. During these 41 years, that has only happened once before, 36 years ago in 1985. And the price/earnings ratio then was a respectable 10.5x: today 'tis five times that much at 54.4x (!!!) easily more than double the S&P's lifetime median P/E (since 1957) of 20.4x. And still more: Every time the S&P moves from one 100-point milestone to the next, 'tis a FinMedia "big headline deal", albeit the percentage increase comparably narrows. Nonetheless, trading gains and losses are measured by the point, not the percentage. And from 1980-to-date, the S&P has gone from 100 to now 4700, (i.e. through 46 milestones. Upon having just achieved the 4600 level on 29 October, the average number of trading days over these past 41 years to reach each 100-point milestone is 236 (just about a year's worth). But now from 4600-4700 took just five days! Cue John McEnroe: "You canNOT be SERious!!" 'Course, every trend reaches a bend, if not its end. And whilst the market is never wrong, something will the S&P upend. You regular readers already know the "earnings are not there" to support even one-half the S&P's current level. Moreover, 'tis said when the Federal Open Market Committee does nudge up its Bank's Funds rate, 'twill be "Game Over" for the S&P, (something of which the Fed is very fearful). "But mmb, even a rise from just 0.25% to only 0.50% maintains a really low rate..." Nominally still low, yes Squire: but upon it occurring, the Fed shall have doubled the cost for every bank that comes to the borrowing window, from which one can then ask banking clientele: "How's that variable rate loan workin' out for ya?" And thus falleth the first domino. And the S&P. Have a great day. Gold had a great day yesterday in settling out the week at 1820. But as noted, 'twas not before a mid-week scare. With Gold wallowing on "The Taper of Paper" Wednesday -- down at 1758 (a three-week low) -- the tried-and-true, widely followed daily moving average convergence divergence (MACD) crossed to negative. Such previous 11 negative crossings had averaged downside follow-through of 86 points. Thus within that technical vacuum, another run sub-1700 was placed on Gold's table. What instead followed was a one-day whipsaw, Gold's MACD finishing the week with a positive cross, and even better, the weekly parabolic Short trend FINALLY being bust per the first Gold-encircled dot in our weekly bars graphic: FINALLY too Gold had its first Friday in five of not being flogged ostensibly by the M word crowd. Should they thus have left the building, in concert with both the daily MACD back on the positive side and the weekly parabolic again Long, the door is open for Gold to glide up into the 1900s toward concluding 2021. As for the five primary BEGOS Markets, here are their respective percentage tracks from one month ago (21 trading days)-to-date, the S&P having swiftly replaced Oil as the leader of the pack. Of more import, note the rightmost bounce for Gold and the Bond. Why are those two stalwart safe havens suddenly getting the bid? (See our opening commentary on S&P INSANITY): Meanwhile as we waltz into the waning two weeks of Q3 Earnings Season, of the S&P's 505 constituents, 426 have reported (450 is typically the total within the seasonal calendar), of which 340 (80%) have bettered their bottom lines from Q3 of a year ago when much of the world purportedly was "shut down". Thus such significant improvement was expected: "They better have bettered!" Yet as noted, our "live" P/E is at present 54.4x. Thus to bring earnings up to snuff such as to reduce the P/E to its lifetime median of 20.4x, bottom lines need increase by 167%: but the median year-over-year increase (for those 396 constituents with positive earnings from both a year ago and now) is only 19%. Thus for those of you scoring at home, a 19% increase is nowhere near the "requisite" 167%. "Look Ma! Still no earnings!" (Crash). Still earning to grasp good grace is the track of the Economic Barometer, which bopped up a bit on the week's headline numbers. To be sure, October's Payrolls improved with a decline in the Unemployment Rate and a jump in the Institute for Supply Management's Services Index. But with a return of folks to the workplace (excluding those who've post-COVID decided they don't need to work) came a plunge in Q3's Productivity combined with a spike in Unit Labor Costs. As well, October's growth in Hourly Earnings slowed and the Average Workweek shortened, such combination suggesting temporary jobs materially lifted the overall Payrolls number. Also less highlighted was September's slowing in Factory Orders, shrinkage in Construction Spending, and the largest Trade Deficit recorded in the Baro's 24-year history. Here's the whole picture from one year ago-to-date with the S&P standing up straight: To our proprietary Gold technicals we go, the two-panel graphic featuring price's daily bars from three months ago-to-date on the left with the 10-day Market Profile on the right. And note the "Baby Blues" of linear regression trend consistency being abruptly stopped in their downward path thanks to Friday's "super-bar" -- Gold's best intra-day low-to-high run in nearly four weeks -- and the highest closing price since 04 September. As well in the Profile, price sits atop the entire stack, which you'll recall for the prior two weeks was at best a congestive mess. But to quote Inspecteur Clouseau, "Not any moooure...": As for Silver, she's not as yet generating as much comparable excitement. At left, her "Baby Blues" continue to slip even as price gained ground into week's end. At right, the price of 24 clearly is her near-term "line in the sand". Still, our concern a week ago of her falling into the low 22s has somewhat abated, albeit the daily parabolic trend remains Short; however a quick move to 24.700 ought nix that condition. "C'mon, Sister Silver!": So there it all is. We see Gold as poised to FINALLY move higher toward year-end, (barring a resurgence of the M word crowd). And we see the S&P as poised for its off-the-edge-of-the-Bell-curve INSANITY to cease, (barring an economic erosion that instead furthers the flow of free dough). After all, bad is good, just as Gold is always good. In that spirit to conclude for this week, here are three good bits from a few of the smartest (so we're told) people in the world: Betsey "With an e" Stevenson says with respect to folks not returning to the workforce post-COVID that "...It’s like the whole country is in some kind of union renegotiation..." That is True Blue Michigan-speak right there. But think about it: when you've got a) the upper labor hand, and b) the aforementioned free dough that you popped into the stock market to thus gain some 38% since the economy first shutdown, why work, eh? Besides, the feeling of marked-to-market wealth is a beautiful thing. Elon "Spacey" Musk now notes that Tesla has not contracted with Hertz to sell 100,000 four-wheel batteries. Recall when that deal first was announced, the price of TSLA went up many times more than the additional incremental return of the transaction. But hardly has it since retracted. 'Course, the company's Q3 earnings were "fantastic", in turn nicely bringing down the stock's P/E to just now 345.8x. And comparably as you already know, the only other two S&P 500 constituents classified as being in the sub-industry category of "Automobile Manufacturers" are Ford (P/E now 26.1x) and General Motors (P/E now 7.7x). But a shiny object that rolls, too, is a beautiful thing. Peter "Techie" Thiel has just opined that the soaring price of bits**t is indicative of inflation being at a "crisis moment" for the economy. 'Tis not ours to question this notion; rather 'tis beyond our pay grade to understand it. What we do understand is that THE time-tested (understatement) indicator and mitigator of inflation -- i.e. Gold -- is priced at such an attractively low level versus where it "ought" be (i.e. 3981 per our opening graphic's decree), that never again such a beautiful opportunity shall we see! Cheers! ...m... www.deMeadville.com www.TheGoldUpdate.com
Inflation Is Not The Only Consequence Of The Russian Invasion

And the Dollar Bounces Back, While BOE is in Focus

Marc Chandler Marc Chandler 04.11.2021 11:30
Overview:  The Federal Reserve announced tapering and, like the Reserve Bank of Australia earlier in the week, did not validate expectations for an aggressive rate hike.  Now the focus is on the Bank of England, where several officials seemed to goad the market into lifting short-term rates. The S&P 500 and NASDAQ rallied to new record highs yesterday and helped raise global shares today.  Among the large markets in the Asia Pacific region, only Taiwan and India did not participate in today's dance.  In Europe, the Stoxx 600 is extending its advance for the sixth consecutive session and nine of the past ten.  US futures are trading firmer.  The market is trimming yesterday's 5.5 bp rise in the US 10-year yield. It is about 3 bp lower near 1.57%.  European yields are 1-3 bp lower. The dollar, which slipped lower after the FOMC meeting, is back with a vengeance today.  It is gaining against all the majors, with the euro bearing the brunt, off about 0.5% to return toward the week's lows below $1.1550.  The yen is the most resilient and is flattish.  Emerging market currencies are also mostly lower.  The Chinese yuan is the strongest emerging market currencies today with about a 0.15% gain, recouping its losses of the past two sessions.  The Polish zloty is the weakest, off 0.6%, despite the larger than expected 75 bp hike yesterday.  Gold was tarnished by 1% yesterday, its biggest loss since mid-October, but is steadied today, up around 0.4% near $1777.  December WTI extended its pullback from $85 seen at the start of the week to dip briefly below $80.  It has firmed back above $81 in the European morning ahead of the OPEC+ meeting outcome.  Cooper prices have stabilized after tumbling 1% yesterday.   Asia Pacific  The final reading of Japan's service and composite PMI was unchanged from the preliminary estimate, with both at 50.7. The services component was the first above the 50 boom/bust level since January 2020.  The composite is at the highest since April.  The virus and formal emergency hobbled the economy, but the economy is on the mend, though out of sync with the other major economies.  Japan intends to use fiscal policy in a pro-cyclical fashion.  Prime Minister Kishida is preparing a large stimulus budget, and it is expected to be unveiled around the middle of the month.  Australia is also emerging from a soft economic period.  Real retail sales fell 4.4% in Q3, faring a little better than economists expected.  Separately, it reported its September trade surplus in line with expectations of about A$12.2 bln.  However, how it got, there was a bit different than anticipated.  First, the August trade surplus was shaved to A$14.7 bln from A$15.1 bln as imports were revised to show a 2% gain instead of a 1% loss. Second, exports fell 6% in September, twice the decline expected, but this was offset by a 2% decline in imports, rather than a 1% gain.  First thing tomorrow, the central bank issues its monetary policy statement, which is hoped to shed more light on the RBA's intent.  The US dollar is straddling the JPY114.00 area.  It reached a three-day high slightly below JPY114.30 and has held above JPY113.90.  Two large options expire today, but they have likely been neutralized.  The first is for nearly $2 bln at JPY114.00, and the other is for $1.8 bln at JPY114.30.  The Australian dollar extended yesterday's recovery to reach $0.7470 before meeting a wall of sellers, which drove it back to almost $0.7425.  Yesterday's low was set near $0.7410.  A break of $0.7400 could signal a test on the $0.7365 area.  The greenback finished yesterday at its best level against the Chinese yuan in almost three weeks, but it continues to be sold on moves above CNY6.40.  Today's yuan gain has nearly recouped the past two session's decline.  Meanwhile, the PBOC continues to set the dollar's reference rate slightly above where bank models project.  Today's fix was at CNY6.3943, while the median (Bloomberg) had it at CNY6.3926.  The PBOC has been relatively generous with its money market provisions.  New fiscal spending this month and next is expected to provide more liquidity.   Europe Before the Bank of England's last meeting (September 23), the December short-sterling interest rate futures implied a yield of 13 bp.  It is now yielding 46 bp.  The market appears to have a 15 bp hike discounted, but economists are split.  A hawkish hold could be delivered if the BOE signaled its intention to raise rates shortly while ending its bond-buying operations early.  With weak retail sales (down five months in a row through September), softer than expected September CPI, and no employment data since the furlough program, is the urgency exaggerated?   The eurozone flash services PMI was shaved lower to 54.6 from 54.7, and this led to the paring of the composite reading to 54.2 from 54.3.  It was the third consecutive decline in the composite PMI.  German and French preliminary estimates were confirmed.  Spain surprised on the upside with a service reading of 56.6.  Economists had expected a 55.8 report after 56.9 in September.  The smaller than expected decline saw a 56.2 composite, down from 57.0, but not as soft as expected.  Italy disappointed.  The services PMI fell to 52.4 from 55.5.  The median forecast was 54.5.  The composite stands at 54.2, down from 56.8.   Germany's September factory orders showed a muted response after August's revised 8.8% drop (initially reported as a 7.7% decline).  The 1.3% gain was less than expected and solely a function of foreign orders (6.3%).  Moreover, the foreign orders were from outside the euro area.  They rose by 14.9%, offsetting August's 14.7% fall.  Domestic orders fell by 5.9%.  It is the third consecutive month domestic orders declined.   The euro has been pushed below $1.1550, where a 1.1 bln euro option expires today.  It initially tried extending yesterday's post-Fed gains but stalled a little above $1.1615.  That area now looks like formidable resistance.  Support is seen in the $1.1525-$1.535 area, but note that the $1.1490 level corresponds to the (50%) retracement objective of the euro's rally from March 2020 lows.  A break of that targets the $1.13 area.  Similarly, sterling's advance yesterday was marginally extended but stopped in front of $1.3700, which is also below the 20-day moving average.  It has been sold in the European morning ahead of the BOE outcome. It has found support in front of $1.3600. Below there, the $1.3575 area marks the (61.8%) retracement target of the rally from the late September low near $1.3410.  Sterling's retreat has left the intraday momentum indicators stretched, warning of the risk of a bounce after the BOE.   America By announcing it would reduce its bond-buying starting this month by $15 bln (a month), the Federal Reserve delivered as expected. The Fed's statement was modified slightly, saying that the elevated prices are "expected" to be transitory.  There was no hawkish surprise, and Chair Powell's tried to thread the proverbial needle by acknowledging that price pressures are likely to continue well into next year.  Treasury Secretary Yellen suggested a similar scenario recently.  The dollar softened, and stocks rallied on the news.   Separately, we note that recently President Biden said he would soon make an announcement about the Fed Chair, whose term expires next February.  Yellen has defended Powell on two issues--financial market regulation and the officials trading/investing--suggests that if Biden does not re-nominate Powell, he would likely have to overrule his Treasury Secretary.   Powell cited the dramatic rise in the Employment Cost Index at yesterday's press conference.  Today, the US reports a more holistic measure of labor costs:  unit labor costs, which incorporates productivity.  The fact of the matter is that unit labor costs fell in H1. However, they are volatile quarter-to-quarter, and unit labor costs likely rise sharply in Q3.  It appears that many employers thought to get by over the summer, waiting for the end of the extra federal unemployment compensation and the re-opening of schools to free up labor without having to pay up for it.  Indeed, Q3 non-farm payroll growth averaged 488k a month, the lowest three-month average since February. This is because the employers preferred to have the existing workers do more overtime than hire.  However, the end of the benefits and re-opening of schools so far proved insufficient.  Another factor that Powell could have cited was the loss of immigrant workers. Pre-pandemic immigrants accounted for one-in-five manufacturing workers and closer to one-in-four in some industries like semiconductors, medical equipment, and food processing.  This squeeze end around November 8 as the border will be re-opened with work visas.  The US has lobbied OPEC+ to boost output faster.  Part of the problem is that some OPEC+ members, like Nigeria and Angola, have been unable to increase production, leaving OPEC+ short of the 400k barrels a day they were going to add last month.  Separately, the US reportedly will join new talks with Iran later this month.  The prospect of Iranian oil also weighed on prices.  In addition, some of the large shale producers have indicated plans to boost output. The US also reports the September trade balance.  A record shortfall is expected of a little more than $80 bln.  Weekly jobless claims pale in comparison to tomorrow's national employment report.  Canada reports September's merchandise trade balance.  Through August, Canada has reported an average monthly surplus of $700 mln.  In the first eight months of 2020, the average deficit was a little more than C$3 bln and in the same period, in 2019 recorded an average deficit of C$1.5 bln. The US dollar spiked to almost CAD1.2460 yesterday but reversed lower and settled on its lows near CAD1.2390.  It is consolidating and straddling CAD1.2400 today.  There is an option for nearly $800 at CAD1.2420 that expires today and one for $515 mln at CAD1.2375 that expires tomorrow.  The intraday momentum indicator suggests limited upside in early North America.  The greenback posted a potential key reversal against the Mexican peso yesterday by first making a new high for the move (~MXN20.98) and then selling off to close below the previous session's low.  Yesterday's low (~MXN20.5150) has held so far today as the dollar consolidates mostly below MXN20.60.  An option for $430 mln at MXN20.55 expires today.  A break of MXN20.50 sees nearby support around MXN20.47 (the 20-day moving average ) and MXN20.44 (the 6.18% retracement objective of the dollar's rally from late last month).  Disclaimer
Meaning Of The Bull Market - The Opposition To The Bear One

Where‘s the Beef?

Monica Kingsley Monica Kingsley 04.11.2021 15:18
S&P 500 embraced the dovish taper - $10bn a month pace gives the Fed quite a breathing room without having to revisit the decision unless markets force it to. The taper is as dovish as can be, with rate raising escaping attention. Talk of no rocking the boat, for the markets, economy and fiscal policy initiatives just can‘t do without. The more dovish scenario of my yesterday‘s presentation came true: (…) So, how would the taper message be delivered, and could it go as far as $15bn a month asset purchase reduction while avoiding rate hike mentions as much as possible? Even if $15bn is indeed the announced figure, I‘m looking for the Fed to soften it before it can run its course, i.e. before 2H 2022 arrives – the economy isn‘t in such a great shape to take it, and the fresh spending bill (whatever the price tag), needs central bank‘s support too. The initial reaction has been very positive in stocks, and overly weak in precious metals and commodities. The real assets downswings are though being reversed in line with my Tuesday‘s expectations – and in today‘s premarket tweets on the unfolding price moves. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 rose without any brief disappointment – the top with capital t clearly isn‘t in, so don‘t think about standing in the bulls‘ way much. Credit Markets Universal risk-on move in the credit market continues, and the sectoral reaction to rising Treassury yields is a very positive one. Bonds and stocks are obviously seeing through the taper fog. Gold, Silver and Miners Gold was afraid of the hawkish outcome, which had zero real chance of happening – and miners spurted higher decisively first. Let‘s see the initial and misleading weakness in real assets being reversed, one by one – and silver do great again. Crude Oil Crude oil has likewise flashed extraordinary weakness – one to be reversed with vengeance. The Fed can‘t print oil, and the energy crunch goes on as nothing has changed yesterday for black gold. Copper Copper gyrations don‘t change the fact the red metal is ready to swing higher next. Just wait for its reaction when broader strength returns to the CRB Index – we won‘t have to wait too long. Bitcoin and Ethereum Bitcoin and Ethereum haven‘t been jubilant about the dovish news, but haven‘t come down beforehand either. Stabilization followed by slow grind higher is what‘s most likely next. Summary S&P 500 benefited the most from the taper message delivery, and the bulls keep having the upper hand – with increasing confirmation from the credit markets. The very initial reaction to taper announcement – namely its bearish anticipation – is indeed being reversed higher within commodities and precious metals. No tantrum, no rocking the boat – and asset prices are going to love that. Get ready for rising yields that would gradually stop underpinning the dollar – patience with the latter. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Here We Go Again - Gold Simply Can’t Stand $1,800!

Here We Go Again - Gold Simply Can’t Stand $1,800!

Arkadiusz Sieron Arkadiusz Sieron 02.11.2021 15:05
  The yellow metal couldn’t face the downward pressure and declined abruptly on Friday. What happened, and why did it fail? Friday was a brutal time for gold. The price of the yellow metal dropped sharply from around $1,795 to $1,775 in the early morning hours in the US. Am I surprised? Not at all. In Thursday’s edition of the Fundamental Gold Report, I wrote that “gold may struggle until the Fed’s tightening cycle starts. You have been warned!”, and, as if on cue, gold wasn’t able to maintain its position around $1,800 and declined. Actually, gold prices have been testing and failing to hold this key psychological level for the last three weeks. What exactly happened on Friday? Well, the Bureau of Economic Analysis published the report on personal income and outlays in September 2021. The publication shows that U.S. nominal consumer spending increased 0.6%, while the disposable personal income declined 1.3%, reflecting a decrease in government social benefits. Additionally, the annual rate of change in personal consumption expenditures price index accelerated from 4.2% in August to 4.4% in September (see the chart below), the highest pace since January 1991. Wait. Inflation rose, but gold prices declined? Exactly. Inflation is fundamentally positive for gold in the long run, but so far – as I explained last week – “inflationary worries have been counterweighted by the expectations of the Fed’s tightening cycle”. The relationship is simple: higher inflation translates into higher expectations of a more hawkish Fed. The odds of an interest rate hike in June 2022 increased from 23.1% - recorded at the end of September - to 61.6% on October 22 and 65.7% on October 29, 2021. As a result, the bond yields increased, while the greenback strengthened. There is also another possible driver of rising interest rates and an appreciating US dollar. CPI inflation in the euro area accelerated to 4.1% in October from 3.4% in September, reaching the highest value since July 2008. However, the ECB kept its monetary policy unchanged last week despite quickly rising prices. Moreover, it’s not signaling any tightening of its stance, maintaining that high inflation is transitory even though Christine Lagarde acknowledged that the decline in inflation would take longer than the central bank had initially expected. The point here is that the ECB remains an outlier among central banks, which either have already tightened or signaled tightening of their monetary policy. This means that the US dollar is likely to appreciate against the euro, which should be another headwind for gold. Having said that, this scenario will occur if the markets believe in a dovish stance of the EBC. The rising yields on German bonds indicate that the markets don’t entirely trust Lagarde’s rhetoric and expect a more hawkish stance of the ECB, which would be fortunate for gold.   Implications for Gold What does higher US inflation imply for the gold market? Well, not so much in the short run. Even though I’ve seen some signs of a bullish revival in the gold market, the bulls remain too weak to challenge the $1,800 level. That’s too much, man! Luckily, better times are coming for gold. Have you seen the advance estimates of the durable goods orders (0.4% decline in September) or of the GDP in the third quarter of this year? According to the BEA, real GDP increased at an annual rate of 2.0% (annualized quarterly growth), much below the 6.7% reported in Q2 and much below the expectations of 2.8% growth. When it comes to the annual percentage growth year-over-year, real GDP rose 4.9% compared to 12.2% in Q2, as the chart below shows. So, the pace of growth remains historically fast, but it’s decelerating quickly. Given that the economy has already reopened and energy and transportation crises are hurting growth (not to mention inflation wreaking havoc), we should expect a further slowdown on the way. And this brings us closer to… yes, you guessed it, stagflation. To be clear: we are still far from stagnation, but the economic slowdown after a spectacular post-pandemic recovery is already unfolding. When we add it to high inflation, we should get an environment supportive of gold prices. However, supportive factors won’t be able to fully operate until the Fed starts hiking interest rates and gold prices bottom out. Sometimes one needs to hit rock bottom to succeed later; perhaps that’s also the case with gold. Time will tell. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Getting Back To Risky Assets As A Result Of Russian Move?

Calling the Precious Metals Bull

Monica Kingsley Monica Kingsley 08.11.2021 16:54
S&P 500 paused to a degree, but bonds didn‘t – we‘re far from a peak. That though doesn‘t mean a brief correction (having a proper look at the chart, sideways consolidation not reaching more than a precious couple of percentage points down) won‘t arrive still this month. It‘s a question of time, and I think it would be driven by tech weakness as the sector has reached lofty levels. It‘ll go higher still, but this is the time for value and smallcaps. And when the dollar starts rolling over to the downside (I‘m looking at the early Dec debt ceiling drama to trigger it off), emerging markets would love that. And commodities with precious metals too, of course – sensing the upcoming greenback weakness has been part and parcel of the gold and silver resilience of late. Precious metals are only getting started, but the greatest fireworks would come early spring 2022 when the Fed‘s failure to act on inflation becomes broadly acknowledged. For now, they‘re still getting away with the transitory talking points, and chalking it down to supply chain issues. As if these could solve the balance sheet expansion or fresh (most probably again short-dated) Treasuries issuance (come Dec) – the Fed is also way behind other central banks in raising rates. Canada, Mexico and many others have already moved while UK and Australia are signalling readiness – the U.S. central bank is joined by ECB in hesitating. Don‘t look for the oil breather to last too long – black gold is well bid above $78, and hasn‘t made its peak in 2021, let alone 2022. As I wrote on Friday, its downswing that works to increase disposable income (serving as a shadow Fed funds rate in the zero rates environment), would prove short-lived. The real economy would have to come to terms with stubbornly high oil prices – and it will manage. The yield curve is starting to steepen modestly again, and fresh spending initiatives would breathe some life into the stalling GDP growth. Next year though, don‘t be surprised by a particularly weak (even negative) quarterly reading, but we aren‘t there by a long shot, I‘m telling you. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 looks getting ripe for taking a pause – the rising volume isn‘t able to push it much higher intraday. Credit Markets HYG strength indeed continues, and it‘s a good sign that quality debt instruments are joining – the reprieve won‘t last long though (think a few brief weeks before rates start rising again). Gold, Silver and Miners Gold and silver continue reversing the pre-taper weakness, and miners are indeed joining in. I‘m looking for more gains with every dip being bought. Crude Oil Crude oil hasn‘t peaked, and looks getting ready to consolidate with a bullish bias again. $85 hasn‘t been the top, and the energy sector remains primed to do well. Copper Copper is deceptively weak, and actually internally strong when other base metals are examined. As more money flows into commodities, look for the red metal to start doing better – commodities haven‘t topped yet. Bitcoin and Ethereum Bitcoin and Ethereum consolidation has come to an end, and the pre-positioned bulls have a reason to celebrate as my prior scenario– stabilization followed by slow grind higher is what‘s most likely next – came to fruition. Summary S&P 500 breather is a question of time, but shouldn‘t reach far on the downside – the credit markets don‘t support it. Commodities are catching up in the (dovish as assessed by the markets too) taper aftermath, and precious metals are sniffing the dollar‘s weakness a few short weeks ahead. With fresh money not needed to repair commercial banks‘ balance sheets, it flows into the financial markets, and the taper effects would be negated by the repo operations – yes, I‘m not looking for a liquidity crunch. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
How Strange! Gold Rises on Strong Payrolls!

How Strange! Gold Rises on Strong Payrolls!

Arkadiusz Sieron Arkadiusz Sieron 09.11.2021 15:20
US economy added 531,000 jobs in October, surpassing expectations. Gold reacted… in a bullish way, and jumped above $1,800! The October nonfarm payrolls came surprisingly strong. As the chart below shows, the US labor market added 531,000 jobs last month, much above the expectations (MarketWatch’s analysts forecasted 450,000 added jobs). So, it’s a nice change from the last two disappointing reports. What’s more, the August and September numbers were significantly revised up – by 235,000 combined. Let’s keep in mind that we also have the additions of 1,091,000 in July and 366,000 in August (after an upward revision). Additionally, the unemployment rate declined from 4.8% to 4.6%, as the chart above shows. It’s a positive surprise, as economists expected a drop to 4.7%. In absolute terms, the number of unemployed people fell by 255,000 - to 7.4 million. It’s a much lower level compared to the recessionary peak (23.1 million), however, it’s still significantly higher than before the pandemic (5.7 million and the unemployment rate of 3.5%). Implications for Gold What does the recent employment report imply for the precious market? Well, gold surprised observers and rallied on Friday despite strong nonfarm payrolls. As the chart below shows, the London P.M. Fix surpassed the key level of $1,800. To show gold’s reaction more clearly, let’s take a look at the chart below, which shows that the price of gold futures initially declined after the October Employment Situation Report release. Only after a while, it rebounded and rallied to about $1,820. It’s a surprising behavior, as gold usually reacted negatively to strong economic data. Until now, gold liked weak employment reports as they increased the chances of a dovish Fed that would continue its easy monetary policy. Now, something has changed. But what? Well, some analysts would say that nothing has changed at all. Instead, they would tell us that the latest employment report is not as strong as it seems. In particular, the labor force participation rate was unmoved at 61.6% in October and has remained within a narrow range of 61.4% to 61.7% since June 2020, as the chart below shows. The lack of any improvement in the labor force participation rate could be interpreted as a lack of full employment and used by the Fed as an excuse to leave interest rates unchanged for a long time. I’m not convinced by this explanation. “Full employment” does not mean that all people are working, but all people who want to work are working. And, as the chart above shows, the fact that after the Great Recession the labor participation rate didn’t move back to the pre-crisis level didn’t prevent the Fed from hiking interest rates in 2015-2019. There is also another possibility. It might be the case that investors are now focusing on inflation. The employment report showed that the average hourly earnings have increased by 4.9% over the past twelve months, raising some concerns about wage inflation and general price pressure in the economy. Remember: context is crucial. If the new narrative is more about high inflation, good news may be positive for gold if they also indicate strong inflationary pressure. Although I like this explanation, it’s not free from shortcomings. You see, stronger inflation concerns should increase inflation premium and bond yields. However, the opposite is true: the real interest rates declined last week (see the chart below), enabling gold to catch its breath. After all, the markets are expecting a more dovish Fed than before the announcement of tapering. This is a fundamentally positive development for the gold market. Having said that, it’s too early to declare the start of the breakout. If inflation stays high, the US central bank could have no choice but to hike interest rates next year. Also, although the recent jump despite strong payrolls is encouraging, gold has yet to prove that it can stay above $1,800. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
GBP tries to recover after disappointing UK GDP figures

GBP tries to recover after disappointing UK GDP figures

Walid Koudmani Walid Koudmani 12.11.2021 11:12
GBP tries to recover after disappointing UK GDP figures The Pound is attempting to recover after today's disappointing preliminary UK GDP report provided another worrying sign for the post-pandemic recovery, showing a growth of 1.3% compared to the expected 1.5%. Furthermore, as the economy contends with rising inflation, supply shortages and labour issues, pressure remains on the Bank of England to adjust monetary policy after it chose to remain on hold in the latest meeting. Consumer spending rebounds despite supply issues and rising costs  While UK GDP figures came in below expectations, consumer spending managed to rebound significantly in October with an increase of 14,2% as a rise in demand for takeaways and digital entertainment boosted spending. Despite ongoing inflation concerns and rising household bills, consumer spending increased in several sectors but fell slightly when it came to retail spending as interest in goods such as clothing decreased while the travel sector had it's best month since before the pandemic with spending on international travel recovering noticeably. These figures provide an encouraging sign for the economy as it heads into the festive season but as supply shortages,rising inflation and labour issues persist, it will be essential to see how the government and BoE adapt to the situation moving forward. Download our Mobile Trading App:   Google Play   App Store  
Netflix Stock (NFLX) Ahead Of Important Data, XAUUSD Chart's Reduced Amplitudes - Swissquote's MarketTalk

Inflation to the Moon - Gold Wears a Space Suit!

Arkadiusz Sieron Arkadiusz Sieron 11.11.2021 16:06
  Inflation rears its ugly head, surging at the fastest pace since 1990. The yellow metal has finally reacted as befits an inflation hedge: went up. Do you know what ambivalence is? It is a state of having two opposing feelings at the same time –this is exactly how I feel now. Why? Well, the latest BLS report on inflation shows that consumer inflation surged in October, which is something I hate because it lowers the purchasing power of money, deteriorating the financial situation of most people, especially the poorest and the least educated who don’t know how to protect against rising prices. On the other hand, I feel satisfaction, as it turned out that I was right in claiming that high inflation would be more persistent than the pundits claimed. After the September report on inflation, I wrote: “I’m afraid that consumer inflation could increase even further in the near future”. Sieron vs. Powell: 1:0! Indeed, the CPI rose 0.9% last month after rising 0.4% in September. The core CPI, which excludes food and energy prices, accelerated to 0.6% in October from 0.1% in the preceding month. And, as the chart below shows, the overall CPI annual rate accelerated from 5.4% in September to 6.2% in October, while the core CPI annual rate jumped from 4% to 4.6%. This surge (and a new peak) is a final blow to the Fed’s fairy tale about transitory inflation. As one can see in the chart above, the CPI rate has stayed above the Fed’s target since March 2021, and it won’t decline to 2% anytime soon. This contradicts all definitions of transitoriness I know. What’s more, the October surge in inflation was not only above the expectations – it was also the biggest jump since November 1990, as the chart below shows. Unfortunately for Americans, it might not be the last word of inflation. This is because over 80% of CPI subcomponents were above the Fed’s target of 2%, which clearly indicates that high inflation is not caused merely by the reopening of the economy but also by the broad-based factors such as the surge in the money supply.   Implications for Gold Ladies and gentlemen, gold finally reacted to surging inflation! As the chart below shows, the price of gold (Comex futures) spiked from below $1,830 to above $1,860 after the BLS report on CPI. Why did gold finally notice inflation and react as a true inflation hedge? Well, it seems that the narrative changed. Until recently, investors believed the Fed that inflation would be transitory. Reality, however, has disproved this story. Another factor I would like to mention is the FOMC’s recent announcement of tapering of its quantitative easing. That event removed some downward pressure from the gold market. By the way, this is something I also correctly predicted in the Fundamental Gold Report that commented on September inflation report: “it seems that until the Fed tapers its quantitative easing, gold will remain under downward pressure. Nonetheless, when it finally happens, better times may come for gold.” Indeed, yesterday’s rally suggests that gold recalled its function as a hedge against inflation. Until today, I was cautious in announcing the breakout in the gold market, as the yellow metal jumped above $1,800 only recently. However, the fact that gold managed not only to stay above $1,800 but also to continue its march upward (in tandem with the US dollar!) suggests that there is bullish momentum right now. Having said that, investors should remember about the threat of a more hawkish Fed. Higher inflation could support the monetary hawks within the FOMC and prompt the US central bank to raise interest rates sooner rather than later. The prospects of a tightening cycle could weigh on gold. However, as long as investors focus stronger on inflation than on tightening of monetary policy, and as long as the real interest rates decrease, or at do not increase, gold can go up. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Evergrande Make Gold Grand?

Will Evergrande Make Gold Grand?

Arkadiusz Sieron Arkadiusz Sieron 12.11.2021 18:57
  Evergrande’s debt issues are a symptom of China’s deep structural problems. If the crisis spills over wider, gold may benefit, but we are still far from such a scenario. Beijing, we have a problem! Evergrande, one of China’s largest real estate developers and biggest companies in the world, is struggling to meet the interest payments on its debts. As the company has more than $300 billion worth of liabilities, its recent liquidity problems have sparked fears in the financial markets. They also triggered a wave of questions: will Evergrande become a Chinese Lehman Brothers? Is the Chinese economy going to collapse or stagnate? Will Evergrande make gold grand? The answer to the first question is: no, the possible default of Evergrande likely won’t cause a global contagion in the same way as Lehman Brothers did. Why? First of all, Lehman Brothers collapsed because of the run in the repo market and the following liquidity crisis. As the company was exposed to subprime assets, investors lost confidence and the bank lost its access to cheap credit. Lehman Brothers tried to sell its assets, which plunged the prices of a wide range of financial assets, putting other institutions into trouble. Unlike Lehman Brothers, Evergrande is not an investment bank but a real estate developer. It doesn’t have so many financial assets, and it’s not a key player in the repo market. The exposure of important global financial institutions to Evergrande is much smaller. What’s more, we haven’t seen a credit freeze yet, nor an endless wave of selling across almost all asset classes, which took place during the global financial crisis of 2007-2009. Given that the Lehman Brothers’ bankruptcy was ultimately positive for gold (although the price of the yellow metal declined initially during the phase of wide sell-offs), the fact that Evergrande probably doesn’t pose similar risks to the global economy could be disappointing for gold bulls. However, gold bulls could warmly welcome my answer to the second question: the case of Evergrande reveals deep and structural problems of China’s economy, namely its heavy reliance on debt and the real estate sector. As the chart below shows, the debt of the private non-financial sector has increased from about 145% of GDP after the Great Recession to 220% in the first quarter of 2021. So, China has experienced a massive increase in debt since the global financial crisis, reaching levels much higher than in the case of other economies. The rise in indebtedness allowed China to continue its economic expansion, but questions arose about the quality and sustainability of that growth. As Daniel Lacalle points out, The problem with Evergrande is that it is not an anecdote, but a symptom of a model based on leveraged growth and seeking to inflate GDP at any cost with ghost cities, unused infrastructure, and wild construction. Indeed, the levels and rates of growth of China’s private debt are similar to the countries that have experienced spectacular financial crises, such as Japan, Thailand, or Spain. But the significance of China’s real estate sector is much higher. According to the paper by Rogoff and Yang, the real-estate sector accounts for nearly 30% of China’s GDP. On the other hand, China has a relatively high savings rate, while debt is mostly of domestic nature. China’s financial ties to the world are not very strong, which limits the contagion risks. What is more, the Chinese government has acknowledged the problem of excessive debts in the private sector and started a few years ago making some efforts to curb it. The problems of Evergrande can be actually seen as the results of these deleveraging attempts. Therefore, I’m not sure whether China’s economy will collapse anytime soon, but its pace of growth is likely to slow down further. The growth model based on debt and investments (mainly in real estate) has clearly reached its limit. In other words, the property boom must end. Rogoff and Yang estimate that “a 20% fall in real estate activity could lead to a 5-10% fall in GDP”. Such growth slowdown and inevitable adjustments in China’s economy will have significant repercussions on the global economy, as – according to some research – China’s construction sector is now the most important sector for the global economy in terms of its impact on global GDP. In particular, the prices of commodities used in the construction sector may decline and the countries that export to China may suffer. Given that China was the engine of global growth for years, it will also slow down, and, with lower production, it’s possible that inflation will be higher. Finally, what do the problems of China’s real estate sector imply for the gold market? Well, in the short term, not so much. Gold is likely to remain under downward pressure resulting from the prospects of the Fed’s tightening cycle. However, if Evergrande’s problems spill over, affecting China’s economy or (a bit later) even the global economy, the situation may change. Other Chinese developers (such as Fantasia or Sinic) also have problems with debt payments, as investors are not willing to finance new issues of bonds. In such a scenario, the demand for gold as a safe-haven asset might increase, although investors have to remember that the initial rush could be into cash (the US dollar) rather than gold. Unless China’s problems pose a serious threat to the American economy, the appreciation of the greenback will likely counterweigh the gains from safe-haven inflows into gold. So far, financial markets have remained relatively undisturbed by the Evergrande case. Nevertheless, I will closely monitor any upcoming developments in China’s economy and their possible effects on the gold market. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
XAUUSD (Gold) And XAGUSD (Silver) - A Technical Look

Gold 'n Silver 'n CPI Oh My!

Mark Mead Baillie Mark Mead Baillie 15.11.2021 09:26
The Gold Update by Mark Mead Baillie --- 626th Edition --- Monte-Carlo --- 13 November 2021 (published each Saturday) --- www.deMeadville.com  Let's start with October's Consumer Price Index (CPI) as reported by the U.S. Bureau of Labor Statistics: its excitedly-disseminated reading was +0.9% (which annualized is a whopping +10.8%). "Oh, 'tis the worst in 30 years!", they say. "Oh, 'tis the worst in 40 years!", some say. We say: "C'est très exagéré." Why? Because Labor has established this level -- or higher -- three times prior during the 24 years of our maintaining the Economic Barometer: for September 2005 'twas +1.2%; for June 2008 'twas +1.1%; and recently for this past June 'twas (as is now) a like +0.9%. Here's that history: Such exaggerative reporting of this October's +0.9% CPI growth arguably does have merit, for 'tis a very concerning rate of inflation. However as Grandpa Hugh would encourage today's news desks : "Get it first, but FIRST, get it RIGHT!" as opposed to the current-day media mantra of "Fake it FIRST, but fake it as FACT!" 'Course there are other sources that find far greater inflation; however in sticking with Labor's "official" measure, glaringly missing from the subsequent reportage is that -- following those three prior inflationary pops -- came cooling over at least the few ensuing months. 'Tis per the rightmost column of "next" three-month CPI average growth in the below table: Again, ours is not to belittle the seriousness of October's +0.9% CPI rise; rather 'tis to simply show it in the context of historical fact. Please notify a media outlet near you. Seriousness, indeed. For of further practical import (on the assumption that neither do you eat, nor use petroleum-based products), October's Core-CPI growth of +0.6% has already been realized four times just in the prior 15 months. Critical concern there, and justifiably so given the price of Oil has risen from 39.82 at mid-year 2020 to 83.22 at October 2021's settle (+109%). For from the "That's Scary Dept." the cumulative rise in the full CPI across that same 16-month-to-date stint is only +7.3% ... solely by that metric, folks have been gettin' off easy despite higher petrol prices! Fortunately, Gold and Silver may be FINALLY gettin' off their respective butts via their inflation mitigative role. Which obviously points to their having so much farther up to go. Per our opening Gold Scoreboard, price settled out the week yesterday (Friday) at 1868, its second-best single-week performance thus far this year on both a points (+47.7) and percentage (+2.6%) basis. Thus comparatively, 'tis a fine leap forward for Gold. However as you ad nausea already know, even in accounting for its supply increase, Gold by StateSide M2 currency debasement "ought" today be 3986. As well is the ever-annoying fact of Gold first hitting the present 1868 level a decade ago on 19 August 2011 when the money supply was just 44% of what 'tis today, ($9.457 trillion vs. $21.343 trillion). "Got Gold?" And as for Sweet Sister Silver, 'twas her third best weekly performance year-to-date, albeit settling yesterday at 25.41 is a price first achieved 11 years ago on 04 November 2010. "Got Silver?" (Oh and from the "Gold Plays No Currency Favourites Dept." the Dollar recorded its fifth best up week of the year. "Got Bucks?" We'd rather Swiss Francs). Moreover, from our always revered "The Trend is Your Friend Dept." as we saw a week ago, Gold's weekly parabolic trend -- after an intolerably lengthy stint as Short with little net price decline -- did flip to Long. And as is the rule rather than the exception, price this past week continued higher. Which begs your question: "How much does price rise when this happens, mmb?" Bang on cue there, Squire. And the answer is: across the 43 prior Long weekly parabolic trends since 2001, the median increase in the price of Gold is +8.3%. Thus by that number, from Gold's trend flip price back at 1820, an +8.3% increase this time 'round would bring us to 1971. Modest perhaps by valuation expectations, but a start. Too, some of you may recall this sentence from our 02 October missive wherein we nixed our year's forecast high of 2401: "...The more likely scenario shall well be Gold just sloshing around into year-end, trading during Q4 between 1668-1849..." Fab to already be wrong there! For here are the weekly bars and parabolic trends from this time a year ago-to-date: Now in the midst of all this inflation trepidation came Dow Jones Newswires this past week with "The Economic Rebound From Covid-19 Was Easy. Now Comes the Hard Part." Makes sense given everything having been shutdown last year. But: how bona fide actually is "Rebound"? Let's look at corporate earnings, (now yer not gonna get this anywhere else, so pay attention): with but a week to run in Q3 Earnings Season, most of the S&P 500 constituents that report within this calendar timeframe have so done, and with fairly admirable results: 80% bettered their bottom lines, (or as we said a week ago "better have bettered" given the economic shutdown of last year). Yet here's the dirty little secret: many mid-tier and smaller companies have also reported, by our count 1,368 of 'em. And of that bunch, we found just 56% of them did better. That is a Big Red Flag given mid-to-small businesses drive the American economy. We doubt your money manager knows that number. In addition to the past week's inflation reports, lost in the shuffle were the Econ Baro metrics showing September's Wholesale Inventories as backing up, whilst November's University of Michigan Sentiment Survey fell to a 10-year low, the 66.8 level not seen since November 2011. 'Course the S&P loving bad news, its Index roared upward to finish the week at 4683, a mere 36 points below its all-time high. Together with the Baro, here's the year-over year picture: Now to some impressive precious metals' technicals via our two-panel graphic of Gold's daily bars from three months ago-to-date on the left and those for Silver on the right. "Impressive" as when the falling baby blue dots of trend consistency reverse course back up without having dropped to mid-chart, the buyers are clearly in charge: As for the 10-day Market Profiles for Gold (below left) and Silver (below right), life is good at the top: Good as well is Gold's buoyant positioning within its stack: The Gold StackGold's Value per Dollar Debasement, (from our opening "Scoreboard"): 3986Gold’s All-Time Intra-Day High: 2089 (07 August 2020)Gold’s All-Time Closing High: 2075 (06 August 2020)2021's High: 1963 (06 January)The Gateway to 2000: 1900+10-Session directional range: up to 1871 (from 1759) = +112 points or +6.4%Trading Resistance: none per the ProfileGold Currently: 1868, (expected daily trading range ["EDTR"]: 25 points)Trading Support: Profile notables are 1864 / 1827 / 1793The 300-Day Moving Average: 1822 and falling10-Session “volume-weighted” average price magnet: 1816The Final Frontier: 1800-1900The Northern Front: 1800-1750On Maneuvers: 1750-1579The Weekly Parabolic Price to flip Short: 16862021's Low: 1673 (08 March) The Floor: 1579-1466Le Sous-sol: Sub-1466The Support Shelf: 1454-1434Base Camp: 1377The 1360s Double-Top: 1369 in Apr '18 preceded by 1362 in Sep '17Neverland: The Whiny 1290sThe Box: 1280-1240 Next week brings 14 metrics into the Econ Baro; consensus expectations look for it to turn higher. To be sure, turning higher have been Gold and Silver as inflation their prices stir; and yet their levels now 10 years on are the same as they were; thus their doubling from here can well be a blur! Cheers! ...m... www.deMeadville.com www.TheGoldUpdate.com
CPI Shocker Lifted the Greenback, which now needs to Take a Breath

CPI Shocker Lifted the Greenback, which now needs to Take a Breath

Marc Chandler Marc Chandler 15.11.2021 10:14
The jump in US headline CPI above 6% crossed some Rubicon and injected dynamic into the process.  The dollar rallied, and new highs for the year were recorded against the euro and sterling.  The dovish tapering announcement by the Fed on November 3 was completely unwound as the December 2022 Fed funds futures returned to the high-yield mark of 66 bp ahead of the weekend.   The two-year yield rose from about 39 bp at the start of the last week to almost 55 bp.  The volatility of the bond market (the equivalent of the VIX for the S&P 500) surged back to the year's high (above 78%).   Ultimately, the idea that R-star, the real short-term interest rate when the US economy is at full capacity and inflation stable, has continued to trend lower will likely cap nominal rates.  Equities wobbled, and the S&P 500 snapped an eight-day advance, and the NASDAQ's 11-day rally stalled.  US equities stabilized and posted modest gains in the past two sessions.   The rise in price pressures requires the Federal Reserve to be more flexible to address a range of possible outcomes.  The pace of the tapering is the main constraint on policy.  The FOMC statement committed the Fed to reduce the bond-buying by $15 bln in November and December.  While it anticipated that the pace would continue, it reserved the right to adjust the rate.  This is likely to be the focus in the run-up to the mid-December meeting.  To finish QE in March, as St. Louis Fed's Bullard, a noted hawk, has argued, the Fed would need to double its pace of tapering to $30 bln a month starting in January.  What is at stake is when the Fed's rate hike cycle can begin, not the terminal rate, which is expected to be below 2%.   Dollar Index:  The CPI saw the Dollar Index surge to convincingly surpass the (38.2%) retracement target of the decline from the March 2020 high (~103) to the January 6 low (~89.20).  That retracement (~94.55) had been penetrated briefly before, but it did not stick.  This time, the Dollar Index rose to new highs for the year, slightly above 95.25.  The next retracement (50%) is found a little above 96.00, and the (61.8%) objective is almost 97.75.   The momentum indicators suggest a high is not yet in place, but the move since the mid-week CPI shocker, above the upper Bollinger Band (~95.00) warns against chasing it.  That said, initial support is likely in the 94.60-94.75 area.   Euro:  The euro was driven below $1.15 after the US CPI report and failed to resurface above this previous floor, which now acts as resistance.  A low near $1.1435 was recorded ahead of the weekend.  Neither the MACD nor Slow Stochastic is over-extended, but, as we saw with the Dollar Index, the exchange rate is outside the Bollinger Band (slightly below $1.1465) and settled below it for the third consecutive session ahead of the weekend. There is little chart support until the $1.1290-$1.1300 area is approached.  Moreover, if the euro has carved out some kind of topping pattern, the risk may extend toward $1.10.   Japanese Yen:  From around mid-September through mid-October, the dollar broke out of the old JPY109-JPY111 range to reach JPY114.70 on October 20.  It consolidated at lower levels and approached JPY112.70 on November 9.  The jump in the US CPI reported the following day lifted the greenback to JPY114.00, and it reached JPY114.30 before the weekend.  We often experience the dollar-yen exchange rate as a pair often rangebound.  We had anticipated a JPY113-JPY115 range and would allow about a half a yen range or so violation. The MACD has flatlined, while the Slow Stochastic has turned higher.  Although the fit is not perfect, we still look at US yields for directional cues.   British Pound:  Sterling had been turned lower on November 4 from $1.37 by the BOE, who caught the market leaning too far over its skis, arguably encouraged to do so by official rhetoric.  Its attempt to recover was stalled near $1.36, and the US inflation jump set it to new lows for the year.  The low ahead of the weekend was slightly below $1.3355.  The MACD is entering oversold territory, while the Slow Stochastic, which leveled off, seems to be slipping into over-extended territory as well.  After closing for two sessions below the lower Bollinger Band, it finished the week back above it (~$1.3355).  A close above $1.3400 would suggest a consolidative phase lies ahead.  Last December, sterling recorded lows $1.3135-$1.3185, and the risk is for this area to be tested.   Canadian Dollar:  Since the US CPI surprise, the Canadian dollar has been the weakest of the major currencies, falling around 0.75% against the greenback.  It was the third consecutive weekly decline for the Loonie, which was preceded by a five-week advance.  The US dollar posted an outside up day in the middle of last week on the back of the CPI news.  It rallied from slightly below CAD1.2390 to a little above CAD1.25.  On Thursday, when US and Canadian banks were closed for holidays, the dollar rose to almost CAD1.2600 and made a marginal new high ahead of the weekend.  This met the (50%) retracement of the US dollar's decline since the CAD1.29 level was approached a couple of days before the September 22 FOMC meeting.  The Slow Stochastic is over-extended, though the MACD has more scope to run.  Here too, the market moved quickly, and the greenback settled the past two sessions above the Bollinger Band (~CAD1.2555). The CAD1.2480 area may offer initial support.   Australian Dollar:  The Australian dollar recorded the low for the year on August 20, near $0.7100.  It recovered into early September (~$0.7480) before being turned back to $0.7170 by the end of the month. The Aussie launched another advance last month that carried to around $0.7555 and the 200-day moving average.  It has come under new pressure this month and fell to nearly $0.7275 ahead of the weekend, meeting the (61.8%) retracement target of the overall rally since August 20.  It closed on a firm note above $0.7300.  The Slow Stochastic is over-extended and could turn up next week.  The MACD is still pointing lower.  After settling out the Bollinger Band on Wednesday and Thursday, the Aussie moved back into it (~$0.7300) ahead of the weekend.  Initial resistance is seen in the $0.7335-$0.7355 band.   Mexican Peso:  The US CPI boosted the dollar by nearly 1.6% against the peso, the most in five months.  It was the only advance of the week, but it was sufficient for the greenback to close around 0.6% stronger.  The high for the week (~MXN20.7225) was recorded in the hours after the central bank delivered its fourth quarter-point rate hike.  Banxico showed no appetite to increase the pace, unlike other regional central banks, even though CPI is still accelerating.  Still, the greenback slightly exceeded the (61.8%) retracement target (~MXN20.70) of its decline from the November 3 high (~MXN20.98) to the November 9 low (~MXN20.2515) before retreating ahead of the weekend.  Support is seen around the 20-day moving average (~MXN20.42).  Among emerging market currencies, the Brazilian real (~2.3%) and the Chilean peso (1.6%) fared best.  The Hungarian forint (~-2.9%) and the Turkish lira (-2.75) saw the largest losses.  The JP Morgan Emerging Market Currency Index fell by about 0.40% last week, the eighth weekly decline in the past ten.   Chinese Yuan:  One would not know it by reading much of the free financial press, but the Chinese yuan is the strongest currency in the world this year.  Its 2.3% advance eclipses the Canadian dollar, the only major currency stronger against the US dollar on the year (~1.3%).  The tensions in Europe and the pullback in oil prices saw the Russian rouble tumble almost 2.3% last week.  It was knocked from its perch as the top performer, allowing the yuan to pull ahead.  The dollar settled last week, slightly under CNY6.38, its lowest close since May 31, when it recorded a three-year low (~CNY6.3570).  The trend line connecting the 2014 dollar-low and 2018 low is frayed in May and June but essentially held.  It is now being violated more convincingly.   Sentiment toward investment in China has become in fashion again.  The NASDAQ Golden Dragon Index that tracks Chinese companies that trade in the US rallied nearly 7% last week.  China's 10-year yield of 2.80% may not sound particularly exciting, but it is the only benchmark that has not sold off this year.  The yield has fallen 20 bp.    Disclaimer
Oil holds steady as Biden considers releasing SPR

Oil holds steady as Biden considers releasing SPR

Walid Koudmani Walid Koudmani 15.11.2021 11:41
 Oil holds steady as Biden considers releasing SPR While oil prices have become exceedingly volatile in recent times after rising supply concerns and various production issues, prices have managed to stabilise with WTI hovering in the $80 range after retreating from a high of almost $85 reached last week. Meanwhile, calls on president Biden to release the country's strategic petroleum reserves (SPR) have mounted, as concerns for the rising price of gasoline has led many US politicians, including senate majority leader Schumer to pressure the president. This comes after OPEC decided once again to leave the rate of increase in production unchanged, despite oil prices having a significant impact on consumer activity and playing a significant part in the recent inflation discussions. While there is a lack of major data releases today, traders will be looking for any news relating to the supply of oil as an announcement by the US president could cause a short term immediate reaction for prices, while it's long term impact could ultimately be less significant.  Stock markets on edge after mixed Chinese data European indices have managed to start the day almost unchanged after a mostly positive Asian session, which saw the majority of stocks in the region gain slightly despite the mixed Chinese data. While Chinese industrial production increased 3.5% YoY in October (exp. 3.0% YoY) and retail sales were 4.9% YoY higher (exp. 3.5% YoY), urban investments increased only by 6.1% YoY (exp. 6.3% YoY) and showed the lowest daily steel output since December 2017 along with an alarming 17% drop in cement output, which is an important indicator for construction activity in the world's second largest economy. Investors could be more cautious heading into this week as several central bankers are expected to share their outlook on economic growth and as Wall Street earnings season nears its conclusion. Download our Mobile Trading App:   Google Play   App Store  
MSFT, Johnson&Johnson and More Companies With Reports to be Released shortly

Weekly S&P500 ChartStorm - 14 November 2021

Marc Chandler Marc Chandler 15.11.2021 11:20
The S&P500 ChartStorm is a selection of 10 charts which I hand pick from around the web and post on Twitter. The purpose of this post is to add extra color and commentary around the charts. The charts focus on the S&P500 (US equities); and the various forces and factors that influence the outlook - with the aim of bringing insight and perspective. Hope you enjoy! p.s. if you haven’t already, subscribe (free) to receive the ChartStorm direct to your inbox, so you don’t miss out on any charts (you never know which one could change the whole perspective!) Subscribe Now 1. Vacciversary: Can you believe, an entire year has passed since the Pfizer vaccine announcement. Markets had a strong immediate reaction, and since then have chalked up some 34% in gains. Of course a bunch of other factors are also at play, and we also had delta along the way, but you have to think at some level if there were no vaccine that the ride in markets might have been a little rougher. Source: @LarryAdamRJ 2. Investor Movement Index: The IMX moved down slightly in October - this continues the pattern of movement downwards from the peak in optimism of a few months ago. This is typically not a healthy sign for sentiment indicators i.e. reaching an extreme and then leveling off. Source: TD Ameritrade 3. Investment Manager Index: On the other hand, the Markit IMI rebounded further in November with risk appetite surging to multi-month highs and expected returns reaching a new (albeit short history - newish survey) high. Source: @IHSMarkitPMI 4. Euphoriameter: Even my own Euphoriameter composite sentiment indicator has ticked higher so far in November as valuations and bullish surveyed sentiment remain high and volatility lulls back towards complacency. Source: @topdowncharts 5. Investor Sentiment vs Consumer Sentiment: But not all sentiment indicators are at the highs: consumer sentiment has been decidedly less optimistic. I mentioned in a recent video that the UoM consumer sentiment indicator was perhaps overstating the extent of the decline, but the other 2 consumer confidence indicators I track for the USA have also started to drop off recently. This has left quite the divergence between consumer sentiment and investor sentiment. A large part of this is probably down to the inflationary shock that is currently facing the global economy due to pandemic disruption to the global supply chain *and* unprecedented monetary + fiscal stimulus (remember: supply shortages/backlogs and the associated inflation surge don’t exist if there is no demand —> demand has been boosted by stimulus —> and stimulus helps stocks ——> gap explained). Source: @takis2910 6. Real Earnings Yield: Another effect of the surge in inflation has been a plunge in the real earnings yield: again this can be squared up by noting that stimulus has been a key driver of the inflation shock and a key driver of the surge in asset prices —> surging asset prices (stock prices) leads to a lower nominal earnings yield (again: gap explained). So is this a problem? Perhaps, but one way or the other it will probably be transitory (if you can read between the lines a little there!!). Source: @LizAnnSonders 7. Valuations: Valuations rising = risks rising... but then again it's a bull market, so POLR is higher (for now). n.b. “POLR” = path of least resistance: basic notion that in markets and life when a force is set in motion an object will not change its motion/trajectory unless another force acts on it... That means a bull market will carry on until something changes e.g. a crisis, monetary policy tightening, recession, regulations/politics, (or a combination of all of those!). Source: @mark_ungewitter 8. Household Financial Asset Allocations: We all know by now that equity allocations by households is at/near record highs. But one surprise: cash holdings have jumped and are apparently on par with debt (bonds etc) ...even as cash rates suck (and are even suckier when you consider the real interest rate). Probably an element of booking gains, stimulus payments, and precautionary savings. Recall though: the job of cash is preservation of capital (and optionality) vs generating returns, as such. Source: @MikeZaccardi 9. S&P500 Constituents Return Distribution: I thought this was interesting - especially the tails of the distribution - a lot of heavy lifting being done at the tails. But also that ”s” — tails (i.e. big dispersion between left and right tails). Source: @spglobal via @bernardiniv68 10. The Five Biggest Stocks: The bigness of the biggest stocks in the index is biggening more bigly. Serious though: the market is increasingly lop-sided, this means diversification may be diminishing as systematic risk will be increasingly driven by specific risk. Source: @biancoresearch Thanks for following, I appreciate your interest! !! BONUS CHART: Leveraged ETF trading indicator >> Click through to the ChartStorm Substack to see the bonus chart section https://chartstorm.substack.com/p/weekly-s-and-p500-chartstorm-14-november Follow us on: Substack https://topdowncharts.substack.com/ LinkedIn https://www.linkedin.com/company/topdown-charts Twitter http://www.twitter.com/topdowncharts
The Greenback Slips at the Start the New Week

The Greenback Slips at the Start the New Week

Marc Chandler Marc Chandler 15.11.2021 12:19
Overview:  While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today.  First, Biden and Xi will talk by phone later today.  Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol.  Equities in the Asia Pacific region were mostly firmer, with China a notable exception among the large markets, even though the October data was generally stronger than expected.  Europe's Stoxx 600, which has fallen only once this month, is edging higher to new records, while US futures are enjoying a firmer bias.  Benchmark 10-year yields are 1-2 bp lower, which puts the Treasury yield near 1.55%.  The European periphery is outperforming the core.  The dollar is soft.  The Scandis and Antipodeans lead the move, while the euro, yen, and British pound are little changed.  Emerging market currencies are also mostly stronger.  Here the Philippine peso is notable as it falls the most in seven weeks as corporates bought dollars.  After falling by 0.65% last week, the JP Morgan Emerging Market Currency Index is edging higher today.  Gold is snapping a seven-day rally, stalling near $1868.  Support is seen in the $1842-$1845 area.  January WTI  was sold again as it poked above $80.  It is pinned near last week's lows (~$78.65) as the US response is awaited.  European natural gas futures are firm as the capacity auction results are awaited, and Europe faces its first cold snap of the season.  Iron ore and copper prices are posting small losses.   Asia Pacific Japan's Q3 GDP disappointed, but it is old news and will likely spur Prime Minister Kishida to support a large supplemental budget, which could be unveiled by the end of the week.  Economic growth in the world's third-largest economy contracted for the fifth quarter in the past eight.  The 0.8% loss of output in Q3 was more than the 0.2% expected by the median forecast in Bloomberg's survey.  Consumption (-1.1%), business spending (-3.8%), and public investment (-1.5%) did the most damage.  The GDP deflator was unchanged from Q2 at -1.1%.  The Japanese economy is recovering here in Q4.  Talk of the size of the supplemental budget has increased to around JPY40 trillion (~$350 bln) from JPY30 trillion.  It is expected to include a cash payment for 18-year olds and younger, a tax break for companies that boost wages, a new subsidy for domestic travel, snd pay hikes for caregivers. China's October data was stronger than expected but does not shake off concern that the world's second-largest economy is struggling.  The year-over-year pace of retail sales rose for the second consecutive month in the face of expectations for a decline.  The 4.9% increase follows the 4.4% gain in September and 2.5% in August. In October 2020, it rose 4.3% year-over-year.  Industrial output rose 3.5% from a year ago. It was the first increase since March. Last October, it had increased by 6.9%. The surveyed joblessness was steady at 4.9%.  Fixed asset investment and property investment slowed.  Chinese officials have not addressed the economic slowdown with large-scale fiscal or monetary initiatives.   We have suggested that the dollar-yen exchange rate has entered a new range after trending higher from mid-September through mid-October.  That new range is likely JPY113-JPY115, and to find the floor, the dollar briefly traded below JPY112.80 last week. After spiking back to JPY114.00 on the US CPI surprise, the greenback continues to hover around there, the middle of the range.  Tomorrow's expiring options ($830 mln at JPY113.40 and $1.6 bln at JPY114.30) may mark the near-term range.  The Australian dollar is building on its pre-weekend recovery.  It saw a low slightly above $0.7275 on Friday and settled on its highs (a little above $0.7330).  It has risen to $0.7365, and the intraday momentum is getting stretched.  Look for resistance near $0.7375.  The greenback edged slightly lower against the Chinese yuan to record a new six-month low (~CNY6.3785) before recovering within a narrow range.  It is trading slightly above CNY6.3830 in late dealings. The PBOC set the dollar's reference rate at CNY6.3896, a little below the median forecast of CNY6.3896 (Bloomberg survey).  The PBOC rolled over in full the policy loans (CNY1 trillion) coming due this month, and the overnight repo rate fell by seven basis points to 1.78%, the lowest in three weeks.   Europe Tensions between the UK and EU appear to have taken a step away from the brink.  A deal on medicine supplies from other parts of Great Britain to Northern Ireland may have been the critical catalyst.  Reports suggest a de-escalation of UK rhetoric threatening to invoke Article 16, which allows for unilateral over-riding of the Northern Ireland Protocol under certain circumstances of serious economic, environmental, or societal risks.  Separately, two polls have begun showing Labour is edging ahead of the Tories. The Opinium poll (published in the Guardian) gave Labour a one percentage point lead, the first since January.  The Savanta Com Res poll (for the Daily Mail) put Labour ahead by six percentage points at 40%.  The main issue appears to be Prime Minister Johnson's handling of several ethics issues.  His personal support has also waned.    The US was warning at the end of last week that Russian may be preparing to invade Ukraine. Moscow seems to be acting out of fear, fear of the US and Europe creeping presence in Ukraine.  If Ukraine is going to remain independent, Russia insists it can only be a (weak) buffer state.  US rhetoric seemed aggressive in Moscow.  Last month US Defense Secretary Austin argued that no third country [i.e., Russia] has a veto over NATO membership decision[i.e., Ukraine].    Poland, Lithuania, and Latvia are considering formally requesting NATO consultations, while the EU is expected to announce new sanctions on Belarus later today.  Separately, we note reports that India has begun taking delivery of the S-400 air defense missile system from Russia (part of a $5.5 bln deal), which is the same that earned Turkey American sanctions.   The euro edged above the pre-weekend high, but the tone remains fragile, and for the third consecutive session has been unable to resurface above old support at $1.1500.  Since the US CPI report in the middle of last week, it has fallen, and the sideways movement could alleviate the overextended technical condition.  Sterling extended its pre-weekend recovery to reach $1.3440 before sellers reemerged to knock it to the session low of almost $1.3400.  We suspect it can move higher in North America today and target the $1.3480 area.   America The US seems more eager for the Biden-Xi call than Beijing  Expectations should be low, and with no actionable outcome likely (not even a statement), there appears to be little reason to spin it as a virtual summit. The top officials and the senior staff of the two largest economies should talk.  Previously, there were high-level meetings regularly.  Since their last call, a new US-UK-Australian alliance was announced that will result in Australia acquiring nuclear-powered submarines, and it was confirmed that the US has had military personnel in Taiwan since last November.  China continues with its intimidation campaign of repeatedly entering Taiwan's air-identification zone. China's assessment of the US is unlikely to have changed.  Beijing sees the same thing many others do.  Biden's approval rating has fallen to near 41%, and less than that has a favorable view of his handling of the economy.  At the end of last week, the Univerity of Michigan's consumer sentiment measure (preliminary November) fell to its lowest in a decade.  Surveys continue to point to the likelihood that the Democratic Party will lose both houses of Congress in next year's mid-term.  And to underscore the pressure on Biden, the US Court of Appeals (5th Circuit) sustained a block on OSHA's ordered vaccine mandate (or weekly test).  With the sixth plenum over,  Xi has, by all accounts, confirmed his ascendancy and domination of Chinese politics for years to come.   The week's economic calendar for the US begins off slowly.  The November Empire State manufacturing survey is on tap.  It has been in a sawtooth pattern, alternating between gains and losses for the past five months.  It fell sharply (19.8 from 34.3) in October and is expected to have turned up in November.  The US reports October retail sales and industrial production figures tomorrow. Fed officials begin taking to the public stage starting tomorrow.  Over the course of the week, around 11 officials are scheduled to speak.  In addition to US bills, the Treasury Dept sells 20-year bonds, whose auctions have been among the most challenging for coupons, and 10-year TIPS at the end of the week.   Canada reports September manufacturing and wholesale sales today, but the October existing home sales may be more important.  Tomorrow Canada reports housing starts, but the highlight of the week is Wednesday's October CPI.  Price pressures are accelerating in Canada, and the headline CPI is likely to move toward 5% (4.4% in September).  The swaps market is pricing in about 65 bp of tightening in six months.  This week, Mexico has a light economic diary after last week's higher than expected CPI (6.24%) and Banxcio's 25 bp rate hike (to 5%).  Brazil also has a light economic calendar this week.  Last week featured a further rise in (IPCA) CPI (10.67% vs. 10.25%) and weak September retail sales (-1.3% vs. -0.6% median forecast in Bloomberg's survey after a revised -4.3% fall in August). Last week's US CPI shocker saw the greenback jump from around CAD1.24 to slightly above CAD1.26, roughly the 50% retracement of the slump from CAD1.2900 on September 20.  It settled last week on a soft note, and some follow-through selling has seen the US dollar eased to about CAD1.2525.  A break here sees CAD1.2500 and then possibly CAD1.2470.  Since last September, the greenback has moved into a new and higher range against the Mexican peso.  It has not traded much below MN20.12.  Nor has it spent much time above MXN20.90.  It is in the pre-weekend range (~MXN20.45-MXN20.72).  Look for the consolidative day to continue through the local session.  The Brazil real was the strongest emerging market currency last week, rising almost 1.6% against the US dollar.  The US dollar found support around BRK5.40. Trendline support (from June, August, and September lows) and the 200-day moving average are near BRL5.36.   Disclaimer
Getting Real on PMs and Inflation

Getting Real on PMs and Inflation

Monica Kingsley Monica Kingsley 15.11.2021 15:47
S&P 500 indeed rose but bond markets couldn‘t keep the encouraging opening gains. Can stocks still continue rallying? They look to be setting up for one more downleg of maximum the immediately predecing magnitude, which means not a huge setback. The medium-term path of least resistance remains up – the Fed is still printing a huge amount of money on a monthly basis, and it remains questionable how far in tapering plans execution they would actually get – I see the risks to the real economy coupled with persistently high inflation as rising since the 2Q 2022 (if not since Mar already, but most pronounced in 2H 2022).Stocks are still set for a good Dec and beyond performance – just look at VIX calming down again. It‘s that the debt ceiling drama resolution would allow the Treasury to start issuing fresh debt, and that would weigh heavily on the dollar. That‘s a good part of what gold and silver are sniffing out, and if you look at the great white metal‘s performance, it‘s the result of inflation coming back to the fore as the Fed itself is now admitting to high inflation rates through the mid-2022, putting blame on supply chain bottlenecks. Oh, sure. The real trouble is that inflation expectations are starting to get anchored – people are expecting these rates to be not going away any time soon.Precious metals are going to do great, and keep scoring excellent gains. Surpassing $1,950 isn‘t out of the realm of possibilities, but I prefer to be possitioned aggressively while having more conservative expectations. Not missing a dime this way. Copper is awakening too, and commodities including oil would be doing marvels. If in doubt, look at cryptos, how shallow the corrections there are.A few more words on yields – as more fresh Treasury issued debt enters the markets, look for yields to rise. Coming full circle to stocks and my Friday‘s expectations:(…) TLT though is having trouble declining further, and that means a brief upswing carrying over into stocks, is likely.TLT downswings would be less and less conducive to growth, so if you‘re still heavily in tech, I would start eyeing more value.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 bulls are on the move, and let‘s see how far they make it before running into another (mild, again I say) setback.Credit MarketsCredit markets opening strength fizzled out, but the weakness is getting long in the tooth kind of. I view it as a short-term non-confirmation of the S&P 500 upswing only.Gold, Silver and MinersGold and silver are on a tear, and rightfully so – I am looking for further gains as both gold and silver miners confirm, and the macroeconomic environment is superb for PMs.Crude OilCrude oil bulls keep defending the $80 level, with $78 serving as the next stop if need be – after Friday, its test is looking as an increasingly remote possibility – the two lower knots in a series say. Anyway, black gold will overcome $85 before too long.CopperCopper ran while commodities paused – that‘s a very bullish sign, for both base and precious metals. The lower volume isn‘t necessarily a warning sign.Bitcoin and EthereumBitcoin and Ethereum are still consolidating, and the relatively tight price range keeps favoring the bulls – and they‘re peeking higher already.SummaryS&P 500 bulls are holding the short-term upper hand, but the rally may run into headwinds shortly. Still, we‘re looking at a trading range followed by fresh highs as a worst case scenario. Yes, I remain a stock market bull, not expecting a serious setback till probably the third month of 2022. Precious metals are my top pick, followed by copper – and I am definitely not writing off oil, let alone cryptos. Inflation trades are simply back!Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
UK Unemployment figures improve ahead of BoE decision

UK Unemployment figures improve ahead of BoE decision

Walid Koudmani Walid Koudmani 16.11.2021 12:06
UK Unemployment figures improve ahead of BoE decision Today's positive unemployment figures continue the recent trend which has seen unemployment fall for several months in a row and reach the lowest level in 2021. This paints a slightly brighter picture for the economy as many businesses contend with rising prices, labour shortages and supply chain issues and could be used by the Bank of England to justify adjusting monetary policy after unexpectedly leaving it unchanged in its most recent meeting.  Crypto market in the red after US infrastructure bill passes  After several days of gains, which saw Bitcoin hover near it's all time high as many other altcoins managed to reach new highs, we are seeing a significant pullback in the crypto market today with most tokens down over 10% and BTC trading around $60,000. This comes after news that China will be intensifying the repression of crypto currency mining by imposing punitive electricity prices on households that mine crypto. Furthermore, US president Biden signed the $550 Billion infrastructure deal which includes some major tax implications for most retail crypto investors as it would require them to report their holdings. While these factors may frighten some investors and newcomers to the market, some experienced traders will have seen similar sized corrections in the past and could potentially be eyeing opportunities as mainstream adoption of cryptocurrencies and NFT's continues to move further. On the other hand, the extreme volatility that the market is prone to could lead to a potential domino effect if more negative news were to emerge and take prices to new lows. Download our Mobile Trading App:   Google Play   App Store  
Technical Analysis - Support And Resistance - Terms You Should Know

Key event risk and front of mind this week...

Chris Weston Chris Weston 16.11.2021 12:15
UK jobless claims (Tuesday 18:00 AEDT) and Oct CPI (Wed 18:00 AEDT) New home prices (today at 12:30 AEDT), Retail sales, industrial production, fixed-asset investment, property investment (all today 13:00 aedt) Aussie Q3 wage data (Wed 11:30 AEDT) RBA gov Lowe speaks (Tues 13:30 AEDT) US retail sales (Wed 00:30 AEDT), Fed speeches all week with the highlight vice-chair Clarida (Sat 04:15 AEDT) The inflation debate is still the hottest ticket in town – it is promoting higher volatility (vol) in rates markets and bonds, with a small pick-up seen in FX volatility (vol). Equity markets are still, however, calm, with the VIX at 16.3% with falling demand to hedge potential drawdown. This divergence in implied vol across asset class remains a key talking point, but there is no doubt that the boat is not yet tipping with correlations among stocks almost at zero, and cyclical sectors (of the S&P500) still holding up well vs defensives. If the US high yield credit spread accelerated above 273bp above the US 10yr Treasury (currently 267bp), then again, I think equities would be a better sell.  Now this dynamic may change, especially if the debt ceiling comes into play in mid-Dec…but what are the signs to look for over a medium-term?  A higher vol regime will make conditions far more prosperous for equity short-sellers and change the dynamics in FX markets, with renewed downside demand for high beta FX (AUD, NZD, CAD, and MXN). The USD will turn from one being driven by pro-cyclical forces – i.e. relative economics and rate settings - to one sought for safe-haven demand, with the JPY also benefiting.  (Implied volatility benchmarks across asset class) Firstly, I would start with the rates markets – we can see a bit over 2 hikes priced into US fed funds future by the end-2022, with rates ‘lift off’ starting in July. I think if we priced in over 3 hikes in 2022 it could become more problematic for risk assets. Looking out the Eurodollar rates curve, we see a reasonably aggressive pace of hikes in 2022 and 2023, but then the pace markedly declines with barely anything priced for 2024 and 2025. In essence, the market sees hikes as front-loaded suggesting the Fed are in fact not dramatically behind the curve – a factor that is one of the core debates in macro.  We see an 89bp differential between the Eurodollar Dec 2025 and Dec 2022 futures contracts – if this moves back to say 140bp then this could be the market feeling that inflation is going to be a far greater problem and rate hikes are being more aggressively priced throughout the next four years. (Orange – US 5y5y forward rate, white – Fed’s long-term dot plot projection) Also, if the US 5y5y forward rate (the markets view on the ‘terminal’ fed funds rate – now 1.94%) pushed above 2.50% (the Fed’s long-term dot plot projection), again, I think this would be a trigger for far higher volatility and risk aversion.  A move to 2.50% won't play out overnight, if at all, and we’ll need to see real evidence that the US labour force participation rate is not going above 62%, while unit labour costs stay elevated and supply chains heal at a glacial pace. However, if the forward rate was eyeing 2.5% I think this could be a factor many strategists will point to for the VIX to sustain a move above 20%. The gold market is perhaps one of the more classic signs of inflationary concerns – this is a play on US ‘real’ (adjusted for inflation expectations) rates though, where the combination of a better economy in Q4, record negative US real rates and rising inflation is one the gold bulls will seek out precious metals. The Fed may need to promote a move higher in real rates, but the knock-on effect is they risk the stock market finding sellers – notably in growth stocks. A downside break of -2% in 5yr US real Treasury’s could be the trigger for gold to push into and above $1900.  Many debate the linkage between inflation expectations and the real economy. I’m not sure it matters when people are feeling the effects for themselves, and much has been made of the recent NFIB small business survey and Friday’s University of Michigan consumer sentiment survey, which hit the lowest levels since August 2011.  Clearly inflation is not popular and is increasingly the key political issue – I’d argue if real rates break to new lows this could accelerate inflation hedges, while a move through 2.7% in US 5y5y inflation swaps (currently 2.55%) would also play into the idea that perhaps the Fed, at the very least, need to radically reduce the pace of QE in the December FOMC meeting.  Clearly, the US Nov CPI (released 11 Dec) is going to be a big event for markets to digest and the signs are price pressures will continue to build from the current 6.2% YoY pace.  Crude and gasoline also play a key role in shaping sentiment – Senate Majority Leader Schumer has called on President Biden to release an element of the US’s Strategic Petroleum Reserves (SPR). This is a factor that has been talked up since OPEC rejected the US’s calls to increase output by more than 400k barrels. However, the introduction of Schumer into the mix just adds fuel to the fire and this may weigh on crude. So, a few indictors I am watching that could spur the market into a belief the Fed are genuinely behind the curve – I’d argue the market isn’t there yet, but if the factors I mention don’t show evidence of dissipating then we could see forward rates move to levels that could highlight the Fed need to act far more intently – that is where risk dynamics could markedly change.
Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Marc Chandler Marc Chandler 16.11.2021 14:03
Overview: The much-heralded Biden-Xi meeting left little impression on the capital markets.  Equities in the region were mixed, and China's main markets fell, alongside Australia, South Korea, and India.  European equities continue their upward market, with the Stoxx 600 gaining for a fifth consecutive session. US futures are softer.  The bond market is quiet, with the US 10-year yield softer slightly below 1.60%.  European benchmark yields are 1-2 bp lower and the periphery is outperforming the core.  Encouraged by a strong employment report, sterling is the strongest of the majors, gaining about a third of one percent.  Most major currencies are trading with a heavier bias, and the euro is pinned near 19-month lows.  The dollar is gaining against most emerging market currencies.  The Turkish lira is off more than 1.5% as the market prices in a 100 bp cut on Thursday.   Hungary's disappointing Q3 GDP (0.7% vs. 1.0% forecasts) may limit the aggressiveness of the central bank today.  A 30 bp hike after two 15 bp moves was expected.  Gold is extending its rally and has taken out the downtrend drawn off the January and June highs (found ~$1872 today).  The next target is around $1900.  Oil is firm, and the January WTI contract is straddling the $80-level.  European natural gas is rising as new supplies are low, and there is a further delay in the certification process of the Nord Stream 2 pipeline.   Yesterday's 9% advance has been extended by another 8% today.  Iron ore has steadied, while copper is struggling after falling 1% yesterday.   Asia Pacific There is not much to say about the Xi-Biden "virtual summit."  The call reportedly lasted three hours.  The one concrete thing to emerge is that US business executives will have an easier/quicker time entering China.  Separately, Hong Kong's Chief Executive used her regular briefing to justify the decision to allow JP Morgan's CEO to skip the city's 21-day hotel quarantine because of the size of the bank's operations.  This speaks to the difference between the rule of law and the rule by law that some observers make.  Returning to regular meetings between the senior officials from both countries seems to be the logical way forward, but both sides appear to draw domestic benefits from demonizing the other.  In the US, the Biden administration uses the threat of China to justify building a 21st-century infrastructure. At the same time, Beijing plays the nationalistic chords to strengthen the loyalty to the Communist Party even as its delivery of improved living standards slows or stalls.   The minutes from the recent Reserve Bank of Australia meeting contained no surprises.  The exit from the yield curve control policy seems clumsy, but the RBA seems adamant that a rate hike next year is unwarranted.  The market remains convinced officials are wrong.  The swaps market has about 75 bp discounted over the next 12 months, with the hikes and risks increasing beginning in late H1 22. In a speech after the minutes were released, Governor Lowe referred to a hike in 2024 as "still plausible," but this seemed like a slight climb down from it being the "central case."  On the other hand, elevated price pressures and border controls have driven the unemployment rate to 3.4%, its lowest level since 2008, and lifted the participating rate to match record highs. The Reserve Bank of New Zealand will likely hike rates again next week.  The swaps market is pricing in nearly 50 bp of tightening by the RBNZ over the next three months and almost 140 bp in the following nine months.  It is difficult to see a more hawkish outlook.  The five basis point jump in the US 10-year yield helped lift the greenback to JPY114.30, matching its best level since November 1 (JPY114.45).  There is an option for $1.6 bln at JPY114.30 that expires today.   The four-year high was set on October 20 near JPY114.70.  The Japanese economy is recovering after a larger than expected contraction in Q3.  A large supplemental budget is expected as early as the end of the week but before month-end in any event.  As if confirming the lack of new insight from the RBA minutes, the Australian dollar is trading within yesterday's range (~$0.7320-$0.7370).  A break of the $0.7300 area would weaken the technical tone, while a move above $0.7380 signals a stronger recovery after finishing last month near $0.7550.  The Chinese yuan rose to new five-month highs today before pulling back.  The dollar fell to CNY6.3670 and rebounded to a new session high slightly above yesterday's high near CNY6.3850.  The PBOC set the dollar's reference rate at CNY6.3924, a little above the (Bloomberg survey) median projection of CNY6.3920. Ironically, the yuan's high was recorded as the Biden-Xi call got underway.  It trended lower through the rest of the session.   Separately, the PBOC boosted its liquidity injection via seven-day repos to CNY50 bln from CNY10 bln on Monday and rolled off its full medium-term lending yesterday, easing technical pressure in the money market.   Europe The UK's employment data is especially important in light of the BOE concerns about the labor market now that the furlough program has ended.  Around one million workers were on the program when it ended. The BOE surprised the market by not raising rates at the meeting earlier this month. Governor Bailey continues to blame the market for misconstruing his remarks and expressing his unease with the "inflation situation."  He said he wanted to see what happens now that the furlough program ended before hiking, but it is not clear that today's data is sufficient.  However, the preliminary indications suggest the UK labor market is normalizing quickly.  October payrolls rose by 160k. Jobless claims fell by nearly 15k after a revised decline of almost 86k in September (initially estimated at -51.1k).  In the three months through September, the UK employment rose by 247k, and the ILO measure of unemployment fell to 4.3% from 4.5%.  Of note, the next employment report will be issued two days before the next MPC meeting (December 16).     Governor Bailey acknowledged that his decision not to hike rates earlier this month was close.  The swaps market has a little more than a 55% chance of a hike in December and has it fully priced it in for the first meeting next year (February 3). The central bank's chief economist, Pill, said there was no evidence yet that higher inflation was seeping into general pay levels.  Starting salaries appear to be increasing, but it may not be lifting the pay for existing workers.  Separately, a technical glitch with an internet-based order system caused the BOE to postpone a bond purchases operation until Thursday.  The QE operations take place three times a week at a pace of slightly more than GBP3 bln a week, with an eye toward finishing them by year-end.   There is another twist to the saga of the controversial Nord Stream 2 pipeline.  Hopes that the completed pipeline could become operational soon were dealt a fresh blow by the German regulator, who suspended the certification process.  The technical issue was a change in the legal form of the operating company.  Nord Stream 2 AG established a subsidiary that would own and operator the German section of the pipeline.  There is some thought that after this delay, the corporate reorganization could expedite the eventual approval.   Coronavirus deaths spiked in Germany to the six-month highs, and the government is debating how to control the fourth pandemic wave. Ironically, Japan now has the highest inoculation rates among the G7. It reported the lowest number of new infections in 18 months. The euro was sold below $1.1400 yesterday and has been unable to resurface above there.  Since the $1.15 level broke, we have suggested the next target is near $1.1290-$1.1300. The ECB's dovish rhetoric contrasts with the prospect of a more hawkish posture by the Federal Reserve.   We continue to see an acceleration of the Fed's tapering as the most likely outcome of the December FOMC meeting, while next month's ECB meeting is more about extending the bond-buying after the Pandemic Emergency Purchases Program ends next March.  The prospects of a rate hike next month lifted sterling to four-day highs near $1.3475, but there does not look like there is the interest to test the $1.35 area, which holds a GBP407 mln option that expires today.  Initial support is now seen in the $1.3400-$1.3420 area. The euro is sliding for the third consecutive session against steering and looks poised to test the year's low near GBP0.8400 in the coming days. The UK reports October CPI figures tomorrow, and they are expected to have accelerated.    America The US economic growth is improving this quarter after the disappointing 2% annualized pace in Q3.  It will be reflected in the consumption and production data.  Today sees October retail sales, a little more than 40% of overall consumption, and industrial production, including factories and utilities, mining, and drilling.  Headline retail sales will likely be lifted by the first increase in auto sales in six months.  The core components, which exclude autos, gasoline, building materials, and food services, are forecast (Bloomberg, median) to rise a solid 0.9%.  It would be the third consecutive monthly gain, the first since Q3 20.  Consumer spending rose 2% at an annualized rate in Q3 and is expected to grow closer to 5% this year, having peaked in Q2 at 6.7%.  Industrial production fell in August and September but is expected to have snapped back in October as the recovery from Hurricane Ida took hold.  The median forecast (Bloomberg survey) is for a 0.8% gain.  The rig count rose by 23, matching the most since January.  According to the recent jobs report, manufacturing employment rose by 60k in October.  Few have noted it, but if confirmed, it would be the largest monthly increase since August 1998.  That said, the Markit manufacturing PMI and ISM manufacturing index fell.   The Biden administration's $1.75 trillion "Build Back Better" bill is in the balance.  Some argue that the surge in inflation has been spurred by the government's spending and transfer payments and are opposed to new large-scale spending.  However, the bill's defenders argue that it has been scaled back, and much of the expenditures will be covered by new revenue.  The non-partisan Congressional Budget Office, the arbiter of such scoring, will publish its full cost estimate on Friday.  Meanwhile, expectations that an announcement will be made shortly on the Fed's leadership were fanned by comments from the Senate Banking Chairman (Brown), who said he was told a decision was "imminent."  It was widely expected before the end of next week.  Reports suggest that Treasury Secretary Yellen has opined that Brainard would be a credible pick, but she is recommending Powell, emphasizing continuity and avoiding the politicization of the post.   Meanwhile, the Fed's Bullard, Barkin, and Daly speak today.  Note that Daly was interviewed for a Board of Governor slot but appears to have turned it down. Canada reports October housing starts today ahead of the October CPI figures tomorrow.  The headline rate is expected to approach 5% though the underlying measures are lower.  The market is positioned for a hike in the March-April period next year.  Recall that the jump in US CPI sent the greenback up from just below CAD1.2400 to slightly above CAD1.2600 at the end of last week.  It reversed lower before the weekend and slipped briefly below CAD1.2500 today, roughly the (50%) retracement of the CPI-inspired gains, before rebounding. Initial resistance is seen in the CAD1.2535-CAD1.2560 area.  Mexico's economic diary is light, and the movement of the peso may reflect broader forces.  For the past three sessions, the dollar has been consolidating in a broad range against the peso (~MXN20.45-MXN20.72). Within that range, initial support may be in the MXN20.55 area.   Disclaimer
Biden Signs a Bill to Revive Infrastructure… and Gold!

Biden Signs a Bill to Revive Infrastructure… and Gold!

Arkadiusz Sieron Arkadiusz Sieron 16.11.2021 14:13
Gold rallied thanks to the changed narrative on inflation, and Biden’s infrastructure plan can only add to the inflationary pressure. Huge price moves ahead? I have a short quiz for you! What the government should do to decrease inflation that reached the highest level in 30 years? A) Decrease its expenditure to make room for the Fed to hike the federal funds rate. B) Press the US central bank to tighten its monetary policy. C) Deregulate the markets and lower taxes to boost the supply side of the economy. D) Introduce a huge infrastructure plan that will multiply spending on energy, raw materials, and inputs in general. Please guess which option the US government chose. Yes, the worst possible. Exam failed! At the beginning of November, Congress passed a bipartisan infrastructure bill. And President Biden signed it on Monday (November 15, 2021). To be clear, I’m not claiming that America doesn’t need any investment in infrastructure. Perhaps it needs it, and perhaps it’s a better idea than social spending on unemployment benefits that discourage work. I don’t want to argue about the adequacy of large government infrastructure projects, although government spending generally fails to stimulate genuine economic growth and governments rarely outperform the private sector in effectiveness. My point is that $1.2 trillion infrastructure spending is coming at the worst possible moment. The US economy is facing supply shortages and high inflation caused by surging demand, which choked the ports and factories. In short, too much money is chasing too few goods, and policymakers decided to add additional money into the already blocked supply chains! I have no words of admiration for the intellectual abilities of the members of Congress and the White House! Indeed, the spending plan does not have to be inflationary if financed purely by taxes and borrowing. However, the Fed will likely monetize at least part of the newly issued federal debt, and you know, to build or repair infrastructure, workers are needed, and steel, and concrete, and energy. The infrastructure spending, thus, will add pressure to the ongoing energy crisis and high producer price inflation, not to mention the shortage of workers. Implications for Gold What does the passing of the infrastructure bill imply for the gold market? Well, it should be supportive of the yellow metal. First, it will increase the fiscal deficits by additional billions of dollars (the Congressional Budget Office estimates that the bill will enlarge the deficits by $256 billion). Second, government spending will add to the inflationary pressure, which gold should also welcome. After all, gold recalled last week that it is a hedge against high and accelerating inflation. As the chart below shows, gold not only jumped above the key level of $1,800, but it even managed to cross $1,850 on renewed inflation worries. The infrastructure bill was probably discounted by the traders, so its impact on the precious metals market should be limited. However, generally, all news that could intensify inflationary fears should be supportive of the yellow metal. You see, the narrative has changed. So far, the thinking was that higher inflation implies faster tapering and interest rates hikes and, thus, lower gold prices. This is why gold was waiting on the sidelines for the past several months despite high inflation. Investors also believed that inflation would be transitory. However, the recent CPI report forced the markets to embrace the fact that inflation could be more persistent. What’s more, tapering of quantitative easing started, which erased some downward pressure on gold. Moreover, despite the slowdown in the pace of asset purchases, the Fed will maintain its accommodative stance and stay behind the curve. So, at the moment, the reasoning is that high inflation implies elevated fears, which is good for gold. I have always believed that gold’s more bullish reaction to accelerating inflation was a matter of time. It’s possible that this time has just come. Having said that, investors should remember that market narratives can change quickly. At some point, the Fed will probably step in and send some hawkish signals, which could calm investors and pull some of them out of the gold market. My second concern is that gold could have reacted not to accelerating inflation, but rather to the plunge in the real interest rates. As the chart below shows, the yields on 10-year TIPS have dropped to -1.17, a level very close to the August bottom. When something reaches the bottom, it should rebound later. And if real interest rates start to rally, then gold could struggle again. However, I’ll stop complaining now and allow the bulls to celebrate the long-awaited breakout. It’s an interesting development compared to the last months, that’s for sure! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
The Elephant in the Room

The Elephant in the Room

Monica Kingsley Monica Kingsley 16.11.2021 15:42
S&P 500 is starting to run into a setback even if VIX doesn‘t reveal that fully. Credit markets going from weakness to weakness spells more short-term woes for stocks – a shallow downswing that feels (and is) a trading range before the surge to new ATHs continues, is likely to materialize in the second half of Nov. We may be in its opening stages – as written yesterday: (…) Can stocks still continue rallying? They look to be setting up for one more downleg of the immediately predecing magnitude, which means not a huge setback. The medium-term path of least resistance remains up – the Fed is still printing a huge amount of money on a monthly basis, and it remains questionable how far in tapering plans execution they would actually get – I see the risks to the real economy coupled with persistently high inflation as rising since the 2Q 2022 (if not since Mar already, but most pronounced in 2H 2022). Stocks are still set for a good Dec and beyond performance. The elephant in the room is (the absence of) fresh debt issuance lifting up the dollar, making it like rising yields more. Not only that these are failing to push value higher, but the tech resilience highlights the defensive nature of S&P 500 performance. Crucially though, precious metals are seeing through the (misleading dollar strength) fog, and are sharply rising regardless. Make no mistake, with the taper reaction, we have seen what I had been expecting (or even better given that I prefer reasonably conservative stance without drumming up expectations either way) – I had been telling you that the hardest times for the metals are before taper. And the magnitude and pace of their upswing casts a verdict on the Fed‘s (likely in)ability to follow through with the taper execution, let alone initiate the rate raising cycle without being laughed off the stage as markets force these regardless of the central planners. The galloping inflation expectations are sending a very clear message: (…) if you look at the great white metal‘s performance, it‘s the result of inflation coming back to the fore as the Fed itself is now admitting to high inflation rates through the mid-2022, putting blame on supply chain bottlenecks. Oh, sure. The real trouble is that inflation expectations are starting to get anchored – people are expecting these rates to be not going away any time soon. Precious metals are going to do great… Copper is awakening too, and commodities including oil would be doing marvels. TLT downswings would be less and less conducive to growth, so if you‘re still heavily in tech, I would start eyeing more value. Let me add the Russell 2000 and emerging markets to the well performing medium-term mix. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls didn‘t make it too far before running into another (mild, again I say) setback – so far, a sideways one. Credit Markets Credit markets renewed their march lower, and unless they turn, the S&P 500 upswings would remain on shaky ground (if and when they materialize). Gold, Silver and Miners Gold and silver remain on a tear, and even for the breather to unfold, it takes quite an effort. The bears clearly can‘t hope for a trend change. Crude Oil Crude oil bulls keep defending the $80 level, with $78 serving as the next stop if need be – these consecutive lower knots keep favoring the bulls, just when the right catalyst arrives. Whether that takes one or two days or more, is irrelevant – it will happen. Copper Copper ran into an unexpected setback, which however doesn‘t change the outlook thanks to its relatively low volume. I‘m still looking for much higher red metal‘s prices. Bitcoin and Ethereum Bitcoin and Ethereum are seeing an emerging crack in the dam that doesn‘t tie too well to developments elsewhere. The bulls should step in, otherwise this yellow flag risks turning into a red one. Summary S&P 500 bulls are now holding only the medium-term upper hand as the rally is entering a consolidation phase. Anyway, this trading range would be followed by fresh ATHs, which would power stocks even higher in early 2022. Precious metals have quite some catching up to do, and the long post Aug 2020 consolidation is over. Copper, base metals, oil and agrifoods are likely to keep doing great as inflation expectations show that inflation truly hasn‘t been tamed in the least. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Inflation Is Not The Only Consequence Of The Russian Invasion

Gold holds steady ahead of FED speeches

Walid Koudmani Walid Koudmani 17.11.2021 14:31
Gold holds steady ahead of FED speeches Precious metals have experienced some significant volatility in recent times with the price of gold hovering in a $30 range over the last week and after gaining around 5% since the start of November. This comes despite the significant gains made by the US Dollar which traditionally tends to have an inverse correlation with the price of gold and which has recently reached the highest level since July 2020 as the USD index hovers around 95.946 after reaching a high of 96.255. On the other hand, rising inflation expectations, which have been downplayed extensively by the Federal reserve, continue to drive demand for gold as investors attempt to find covers against it and as markets remain uncertain about upcoming monetary policy decisions. Furthermore, the recent pullback seen in cryptocurrencies has also boosted demand for the precious metals as some seek more traditionally stable opportunities to invest, especially given the fact that gold has had a tendency to perform well heading into the end of the year. Today's Fed speeches could shed some light on what the US central bank is likely to do in the upcoming meeting and what it's outlook for the economy is as inflation continues to reach record levels and as investors seek refuge from rising inflation and excess volatility. Oil deepens decline despite lower than expected API report Whil oil prices have been the topic of discussion for weeks, we are now beginning to see a reversal as both Brent and WTI started the day with a downard gap and with the latter trading at the lowest level since the beginning of November. Traders await today's EIA inventory report for confirmation of yesterday's API report which showed a lower than expected increase in US crude inventories, as demand rises and supply issues remain a topic of discussion. Furthermore, several OPEC representatives and members have reiterated their view to not increase production levels as they foresee a potential market surplus heading into the end of the year due to a projected drop in demand. On the other hand, fuel prices have continued to rise which has led to many businesses transferring those costs onto consumers and ultimately impacting the post pandemic economic recovery. Download our Mobile Trading App:   Google Play   App Store
European Gas Jumps, while the Euro and Yen Slump

European Gas Jumps, while the Euro and Yen Slump

Marc Chandler Marc Chandler 17.11.2021 15:31
Overview: The prospects that the 6.2% CPI will prompt the Fed to move quicker continue to underpin the dollar.  The euro fell to about $1.1265, its lowest level since last September, and the Japanese yen slumped to a fresh four-year low.  The JP Morgan Emerging Market Currency Index tumbled 1% yesterday, the largest decline since February.  A more stable tone is evident in Europe, as the euro has recovered above $1.13, and the JP Morgan Index is paring yesterday's losses.  The dollar is holding just below JPY115.00.  Asia Pacific equities did not fare well.  Only China and Taiwan markets, among the large regional markets, managed to rise.  Europe's Stoxx 600 is edging higher for the sixth consecutive session.  Recall it has fallen only once since October 27.  US futures are narrowly mixed. The bond market is quiet, with the US 10-year hovering around 1.62%.  European yields are a little softer.  Gold slid below $1850 yesterday but has snapped back today to test the $1860 area.  Crude oil is heavy, with the January WTI contract around $78.80, unable to resurface above $80 amid talk that the US and China may coordinate the release of strategic holdings.  Gas prices are up another 7% in Europe today after surging 16% yesterday and 9% on Monday. Due to "unplanned maintenance," a Belarus pipeline to Poland has been shut down, which may last three days.  Iron ore prices are giving back around half of yesterday's 1.2% gain, for the third loss in four sessions.  Copper is off for a third session, losing after dropping 2.2% in the past two sessions.   Asia Pacific Japan's October trade data disappointed.  Exports and imports were weaker than expected, and this resulted in a smaller deficit. Exports slowed to 9.4% year-over-year, down from 13% in September, defying expectations for a small double-digit increase.  Imports were up 26.7% from a year ago, off the heady 38.2% pace seen in September and below the 31.8% projected.  The resulting trade deficit of JPY67.4 bln was about a fifth of what economists anticipated (Bloomberg survey).  It is the third consecutive monthly deficit.  In the first seven months of the year, Japan recorded two deficits.  A year ago, Japan recorded a JPY840 bln surplus.   Reports suggesting that the possibility that the US and China coordinate the drawdown of strategic oil reserves are light on details, but the suggestion itself is enough to weigh on prices.  Still, the International Energy Agency yesterday echoed the broad assessment of America's EIA in anticipating that the tightness of the oil market could ease shortly.   Increased output in the US, Saudi Arabia, and Russia may account for half of the 1.5 mln barrel a day anticipated increase in supply. Nevertheless, the acting head of the EIA warned tapping the US Strategic Petroleum Reserve would have a short-term impact, for which other dynamics would quickly overshadow it.  Separately, note that the API estimated a slight build of 655k barrels in US stocks this past week, while gasoline inventories fell.   In other regional developments, Australia's wage price index rose a modest 0.6% in Q3 for a year-over-year pace of 2.2%.  This was in line with expectations.  It would seem to support the RBA's argument that it need not be in a hurry to raise rates.  The June 2022 T-bill yield settled last month at 69 bp and is now near 40 bp.  Separately, China appears to be allowing "high quality" property developments to return to the asset-backed securities market to raise capital after a three-month hiatus. Lastly, reports suggest Beijing is moving ahead with its import substitution plans to reduce dependency on foreign technology.    The dollar approached JPY115.00, where an option for almost $610 mln expires today.  The dollar has not traded above there since March 2017.  Since the dollar broke above JPY112.00, we have suggested that JPY114.50-JPY115.00 may mark the top of the new range.  While this has worked for the past month, the risk is on the upside.  A convincing break of around JPY115.50 would target the JPY118.00 area.  Initial support is now seen near JPY114.70.  Note that the upper Bollinger Band is slightly below JPY114.80.  The Australian dollar is trading near its lowest level since October 6, near $0.7265.  It is holding above a trendline connecting the August and September lows, which is found near $0.7250 today, but little stands in the way of a test on the $0.7200 in the coming days.  An option for a little more than A$800 mln at $0.7300 is set to expire today.  After posting a key upside reversal yesterday, the US dollar consolidated against the Chinese yuan today, and no follow-through buying materialized.  Instead, it seemed that the local market took advantage of the pop above CNY6.39 to sell the greenback, which is straddling CNY6.38 in late dealings.  The reference rate was set at CNY6.3935, just below the bank projections (CNY6.3936, according to the median in the Bloomberg survey).  We note that the yuan is also at its best level since 2015 against the trade-weighted CFETS basket the PBOC uses.   Europe On the heels of a strong employment report, the UK reported a larger than expected increase in the October CPI.  The preferred measure, which includes owner-equivalent housing costs, jumped to 3.8% from 2.9%.  The older measure rose to 4.2% from 3.1%.  On the month, consumer prices rose 1.1% rather than the 0.8% economists forecast (Bloomberg median). Flattered by increasing gas and electricity prices.  Core prices rose 3.4% year-over-year, accelerating from 2.9% in September and defying forecasts for a 3.1% pace.  Separately, producer prices, both input and output, also rose more than expected.  Lastly, UK house prices rose 11.8% year-over-year in September, up from a revised 10.2% in August.  The recent peak was 12.6% in June, which was the highest since 2004.    European gas prices are at one-month highs.  Belarus has stopped its pipeline to Poland, claiming unplanned maintenance issues, while the border tensions and earlier threats raise suspicions of a political move.  Separately, the German regulator suspended the certification process of the controversial Nord Stream 2 pipeline as corporate assets are rearranged.  Separately, a German court yesterday dismissed an environmental challenge to the pipeline.  Lastly, we note that the virus flare-up continues in Europe, and Germany and the Czech Republic reported a record number of cases. The euro surpassed our $1.1290 Fibonacci target and did not find bids until the $1.1265 area in Asian turnover.  The single currency has been in a tight range in Europe, holding above $1.1300.  Initial resistance is seen around $1.1330 now.  A move above yesterday's high, near $1.1385, is needed to lift the tone. We suspect the near big target is closer to $1.10.  Sterling slipped to a three-day low, slightly below $1.34, but shot up to the session high near $1.3375 on the inflation news. However, the momentum was not sustained, and sterling is little changed in late morning European turnover near $1.3430. The euro briefly traded below GBP0.8400 for the first time since March 2020 but snapped back.  An 840 mln euro option at GBP0.8445 expires today and another for about 620 mln euros at GBP0.8450 expires tomorrow.   America US retail sales surged last month, and the 1.7% rise was the best since March.  After slowing in Q3, consumption is off to a strong start in Q4.  Industrial production was also much stronger than expected, rising 1.6% compared with the 0.9% gain anticipated by economists (median, Bloomberg survey).  The US reports October housing starts today, and they are expected to have recovered from the 1.6% decline seen in September. Housing starts fell in Q3 but are seen rising in Q4, encouraged by an easing of some supply chain issues.   In fact, on several fronts, there are preliminary signs that the disruptions are dissipating.  Some reports suggest that the shortage of semiconductor chips may be passed, and US auto sales rose in October for the first time in six months.  Both the EIA and IEA have forecast a more balanced oil market, and some measures of shipping costs have moderated. The Los Angeles port has reportedly reduced the number of empty containers by around a quarter this month as six new sweeper ships have been brought into operation.  In addition, we note that the re-opening of US borders means immigrant workers may begin returning.  There is still much debate, of course, on the extent that the elevated price pressures are the result of supply chain disruptions.  A report by the Bank for International Settlements estimates that without the supply problems, US inflation would be closer to 2.5% and eurozone inflation near 1.5%. President Biden is expected to make his Fed announcements in the next few days, according to reports, but it could slip into early next week.  Powell is still the favorite, and he has Treasury Secretary Yellen's in support.  Yellen warns that action is needed soon on the debt ceiling.  Her efforts may be exhausted early next month.  Lastly, San Francisco Fed President Daly opined she was more bullish on the economy than a year ago.  This seems backward to us.  A year ago, the vaccine was announced, and fiscal stimulus was anticipated after the US election. Going forward, there will be less monetary and fiscal stimulus.  The pent-up demand ("excess savings") is projected to be exhausted by early next year, and, as we have noted, the doubling of the price of oil has preceded the last three recessions in the US. We suspect that there is sufficient stimulus and need to rebuild inventories to sustain reasonably strong growth for the next few quarters, but by the second half of next year, sub-3% growth will return as the norm.  Canada reports October CPI figures today.  The headline is likely to rise to 4.7% from 4.4% in September (Bloomberg median).  However, the base effect points to a further rise this month and December, when in 2020, the CPI rose 0.1% and fell 0.2%, respectively.   The underlying core rates are also increasing.  The Deputy Governor of the Bank of Canada cautioned about the high degree of uncertainty around potential structural shifts in the labor market that make it challenging to gauge full employment with any degree of confidence.  He pointed to economic areas that still show slack.  The market is expecting the first hike next March/April.  Note that tomorrow, the "Three Amigos" (Biden, Trudeau, and AMLO) meet in the US amid concern that the US "Build Back Better" has strong nationalistic elements, including for electric vehicles.     The US dollar posted an outside up day against the Canadian dollar yesterday, and follow-through buying has lifted it to around CAD1.2585.  At the end of last week, the high set was slightly above CAD1.2600, which close approximates the (50%) retracement of the greenback's decline since the September 20 high near CAD1.29.  The next retracement (61.8%) is found by CAD1.2665.  Still, we expect that a firm CPI report will lend the Loonie some support.  The session low, set in late Asia, near CAD1.2540, may be protected a CAD1.2545 option for $600 mln that expires today.  The greenback is consolidating against the Mexican peso today after rallying yesterday from about MXN20.56 to nearly MXN20.85.  The high from earlier this month was near MXN20.98.  It has not been above MXN21.00 since March.  Initial support is seen around MXN20.60.   Disclaimer
Investors Expect High Inflation. Golden Inquisition Ahead?

Investors Expect High Inflation. Golden Inquisition Ahead?

Arkadiusz Sieron Arkadiusz Sieron 18.11.2021 15:33
  Inflation expectations reached a record high. Is gold preparing a counterattack to punish gold bears? In a , nobody expects the Spanish inquisition. In the current marketplace, everyone expects high inflation. As the chart below shows, the inflation expectations embedded in US Treasury yields have recently risen to the highest level since the series began in 2003. Houston, we have a problem, an unidentified object is flying to the moon! The 5-year breakeven inflation rate, which is the difference between the yields on ordinary Treasury bonds and inflation-protected Treasuries with the same maturity, soared to 2.76% on Monday. Meanwhile, the 10-year breakeven inflation rate surged to 3.17%. The numbers show the Treasury market’s measure of average CPI annual inflation rates over five and ten years, respectively. The chart is devastating for the Fed’s reputation if there’s anything left. You probably remember how the US central bank calmed investors, saying that we shouldn’t worry about inflation because inflation expectations are well-anchored. No, they don’t! Of course, the current inflation expectations oscillate around 3%, so they indicate that the bond market is anticipating a pullback in the inflation rate from its current level. Nevertheless, the average of 3% over ten or even just five years would be much above the Fed’s target of 2% and would be detrimental for savers in particular, and the US economy in general. I’ve already shown you market-based inflation expectations, which are relatively relaxed, but please take a look at the chart below, which displays the consumer expectations measured by the New York Fed’s surveys. As one can see, the median inflation expectations at the one-year horizon jumped 0.4 percentage point in October, to 5.7%. So much for the inflation expectations remaining under control!   Implications for Gold Surging inflation expectations are positive for the gold market. They should lower real interest rates and strengthen inflationary worries. This is because the destabilized inflation expectations may erode the confidence in the US dollar and boost inflation in the future. So, gold could gain as both an inflation hedge and a safe haven. And, importantly, the enlightened Fed is likely to remain well behind the curve in setting its monetary policy. This is even more probable if President Biden appoints Lael Brainard as the new Fed Chair. She is considered a dove, even more dovish than Powell, so if Brainard replaces him, investors should expect to see interest rates staying lower for longer. So, inflation expectations and actual inflation could go even higher. Hence, the dovish Fed combined with high inflation (and a slowdown in GDP growth) creates an excellent environment for gold to continue its rally. After all, the yellow metal has broken out after several months of consolidation (as the chart below shows), so the near future seems to be brighter. There are, of course, some threats for gold, as risks are always present. If the US dollar continues to strengthen and the real interests rebound, gold may struggle. But, after the recent change, the sentiment seems to remain positive. Anyway, I would like to return to the market-based inflation expectations and the famous Monty Python sketch. With an inflation rate of 3%, which is the number indicated by the bond market, the capital will halve in value in just 24 years! So, maybe it would be a too-far-reaching analogy, but Monty Python inquisitors wanted to use a rack to torture heretics by slowly increasing the strain on their limbs and causing excruciating physical pain (luckily, they were not the most effective inquisitors!). Meanwhile, inflation hits savers by slowly decreasing the purchasing power of money and causing significant financial pain. With the inflation rate at about 6%, hedging against inflation is a no-brainer. It’s a matter of financial self-defense! You don’t have to use gold for this purpose – but you definitely can. After several disappointing months, and the lack of gold’s reaction to inflation, something changed, and gold has managed to break out above $1,800. We will see how it goes on. I will feel more confident about the strength of the recent rally when gold rises above $1,900. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Monthly Macro Outlook: The transitory narrative continues to fall apart

Monthly Macro Outlook: The transitory narrative continues to fall apart

Christopher Dembik Christopher Dembik 19.11.2021 09:25
Summary:  The economist consensus anticipates inflation will start falling from early next year. We disagree. We consider the market to be too complacent regarding upside risks to the inflation outlook. The great awakening of workers and the steady rent increase (for the United States) are two of the factors which are likely to maintain inflation uncomfortably high into 2022, in our view. October CPI figures released earlier this week confirm that inflationary pressures may last longer than initially expected. Inflation reached levels which have not been seen for decades in the United Kingdom (+4.2% YoY), in the eurozone (+4.1% YoY) and in Canada (+4.7% YoY). In Canada, the jump in inflation is the strongest recorded in 18 years. For now, investors are confident. They believe the U.S. Federal Reserve and European Central Bank’s narrative that inflation will start to fall from early next year. This is far from certain, in our view. From supply chain bottlenecks to energy prices, everything suggests that inflationary pressures are far from over. Expect energy prices to continue increasing as temperatures will drop in Europe from next week onwards. This will weigh on November CPI data which will be released next month. The peak in inflation has not been reached. We fear investors are too complacent regarding upside risks to the inflation outlook. Every economic theory says inflation will be above 2% next year : ·         The Phillips curve is alive and well : workers are demanding higher salaries, amongst other advantages and their expectations are rising. ·         Monetarism : the global economy is characterized by large deposits, desire to spend and to convert cash into real assets. ·         Commitment approach : the U.S. Federal Reserve (Fed) and the European Central bank (ECB) have a dovish bias. This is confirmed by their new inflation strategy (symmetric 2% inflation target over the medium term for the ECB and inflation of 2% over the longer run for the Fed). ·         Fiscal approach : high public debt and fiscal dominance (central banks need to remain dominant market players in the bond market to avoid a sharp increase in interest rates). ·         Supply-side approach : supply bottlenecks due to the zero Covid policy in China and central banks’ trade off higher inflation for a speedier economic recovery (the ECB especially). ·         Green transition : this is basically a tax on consumers. What has changed ? The wage-price spiral has started. In countries where the labor market is tight, workers are asking for higher salaries. In the United States, the manufacturer John Deere increased salaries significantly : +10% this year and +5% in 2023 and in 2025. It also agreed to a 3% bonus on even years to all employees, for instance. But this is happening in countries where the unemployment rate is high too. In France, the unemployment rate is falling. But it remains comparatively elevated at 7.6% in the third quarter. Earlier this week, the French Minister of Economy, Bruno Le Maire, called for higher salaries in the hospitality industry. A survey by the public investment bank BPI and the pro-business institute Rexecode show that 26% of small and medium companies are forced to propose higher salaries to find employees. Those which are reluctant choose to reduce business activity. The pandemic has fueled a great awakening of workers, in our view. They are demanding more : better job conditions, higher wages, more flexibility and purpose from work. This is more noticeable in countries facing labor shortage. But it is also visible in all the other developed economies to a variable extent.   U.S. steady rent increase is a game-changer. Until now, supply bottlenecks were the main driver behind the jump in prices. Now, housing costs (which represent about a third of living cost) and prices in the service sector are accelerating too. The rental market is tight, with low vacancy rates and a limited stock of available rentals. Expect rents to move upward in the coming months. According to official figures, owner’s equivalent rent, a measure of what homeowners believe their properties would rent for, rose 3.1% YoY in October. This certainly underestimates the real evolution of rents. Based on data reported by real estate agents at national level, the increase is between 7% and 15% YoY. All in all, this reinforces the view that inflationary pressures are proving more persistent than expected. The moment of truth : Expect investors not to question much the official narrative that inflation is transitory, for now. But if inflation does not decrease from 2022 onwards, investors will have to adjust their portfolio to an environment of more persistent inflation than initially anticipated. This may lead to market turmoil. In the interim, enjoy the Santa Claus rally which has started very early this year. The new inflation regime in the United States
Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Marc Chandler Marc Chandler 19.11.2021 13:58
Overview:  Concerns about the virus surge in Europe cut short the euro's bounce and sent it back below $1.1300 and are also weighing on central European currencies, including the Hungarian forint, despite yesterday's aggressive hike of the one-week deposit rate.  Austria has reintroduced a hard 20-day lockdown.  Germany's health minister warned that the situation deteriorated and vaccines were not enough to break the wave.  He was explicit that a lockdown cannot be ruled out.  The US dollar is trading broadly higher.  Only the yen is resilient on the day, but sterling is the only major currency that has edged higher this week.  The Scandis and euro are off more than 1%.  Speculation that Turkey may announce measures over the weekend to stabilize the lira may be helping to deter new sales today after yesterday's rout.  In the nine-day drop through today, it is depreciated by almost 15%.  The JP Morgan Emerging Market Currency Index is off for the fourth consecutive session to bring this week's loss to more than 2%, the most in five months.  Equities do not know of the consternation in the foreign exchange market.  Disappointing Alibaba results weighed on the Hang Seng (~-1%), while most other large regional bourses but Taiwan and India closed the week on an up note.   Europe's Stoxx 600 snapped a six-day advance yesterday. It was only the second loss since October.  It began firmer today but has reversed lower, putting at risk the six-week rally.   US futures are mixed, with the NASDAQ outperforming.  Bond markets are in rally mode as well.   The US 10-year yield is off three basis points to approach the week's low near 1.53%.  European bonds are off mostly 3-5 basis points, even in the UK, where retail sales surprised on the upside.  Gold is steady, finding support near $1850.  Oil initially extended yesterday's recovery but is reversing lower, leaving the January WTI contract set to test yesterday's low near $76.45.  This is the fourth consecutive weekly fall in crude oil.  European natural gas (Netherlands benchmark) is off 4.4% today, the third drop in a row, and pares the week's gain to almost 19%.  In Singapore, iron ore prices jumped 5.7% to break a five-week slide that saw prices tumble by about 28%.   Copper is firmer and paring this week's loss to around 2%.   Asia Pacific There were two developments in Japan to note.  First, October CPI was largely in line with expectations.  Surging gasoline prices (seven-year highs) helped keep the headline rate positive for the second month (0.1% year-over-year).  Excluding fresh food, the core rate was steady at 0.1%.  However, the deflationary forces are evident when fresh food and energy are removed.  The measure deteriorated to -0.7% from -0.5%, the most since June (-0.9%).    Second, Prime Minister Kishida unveiled an overall package of JPY78.9 trillion (~$690 bln). It is larger than the previous two pandemic packages. "Fiscal measures" refer to spending, investment, and loans, and this is seen worth about JPY55.7 trillion.  It is not clear yet, how much represents new spending as opposed to the reallocation of funds from earlier budgets that were not used. However, it appears to be about JPY32 trillion of new spending.   The Chinese yuan, up a modest 2.1% for the year, is the strongest currency.   Against a trade-weighted basket (CFETS), the yuan is pulling back from a six-year high set earlier this week as the euro recovers a cent.  Consider that the yuan has appreciated by more than 9% against the euro and 11.5% against the yen this year.  That means that investment in China has the same tailwind as the dollar and is compensated a bit for the relative lack of transparency and liquidity.  The Financial Times estimates that foreign holdings of Chinese bonds and stocks rose to around $1.1 trillion at the end of September, about a 13% increase this year.  China's stock market has underperformed this year, and the CSI 300 is off around 7% this year.  On the other hand, China's bonds have fared well.  It is the only 10-year bond that has not weakened this year.  China's figures show foreign direct investment has risen by almost 18% this year through October to nearly $142 bln.   The dollar is posting an outside down day against the Japanese yen by first rising above yesterday's high before reversing and taking out yesterday's low. It is approaching the week's low near JPY113.75 in the European morning.  Below there, support is seen around JPY113.60.  A break would warn of a return to JPY113.00.  The Australian dollar has been sold to its lowest level since October 6, when it recorded a low of almost $0.7225.   It has broken the trendline that connected the August and September lows (~$0.7250).  The September low was around $0.7170 and maybe the next important technical target.  The dollar is trading with a firmer bias against the Chinese yuan, but the greenback remains in the range set on Tuesday (~CNY6.3670-CNY6.3965).  The dollar gained on the yuan four sessions this week, the most since July, but the net gain of less than 0.2% still shows an extraordinarily steady exchange rate.   With the yuan near six-year highs against its trade-weighted basket (CFETS), the PBOC warned against one-way moves and encouraged financial institutions to bolster fx risk management.  It set the dollar's reference rate at CNY6.3825, slightly above expectations (Bloomberg survey) for CNY6.3822.   Europe The stronger than expected October retail sales capped the week's data that points to a rebounding economy and boosts the chances of a rate hike next month.  A strong jobs report was followed by a larger than expected rise in CPI and PPI.  Retail sales jumped 0.8% in October, and the September series was revised to flat from -0.2%. It was the first increase since April.  Pre-Xmas sales were reported.  Separately, the UK government reported that the cost of servicing the national debt has risen more than three-fold over the past year, leaving the budget deficit higher than anticipated.  It appears that the swaps market is pricing in a 15 bp hike at the December 16 BOE meeting, though some are talking about a bigger move.    Several ECB officials, including President Lagarde, have successfully pushed back against expectations of a 20 bp rate hike next year that had appeared discounted by the swaps market earlier this month. The market has pushed it into early 2023.  The implied yield of the December 2022 Euribor futures contract has fallen 20 bp this month.  The December 2022 Eurodollar futures contract is moving in the opposite direction.  The implied yield has risen by about 4.5 bp this month.  The net result is the US premium has increased to over 125 bp, the highest since last March.  In late 2019, the premium was around 180 bp.  This is recognized as a factor helping lift the dollar against the euro, and it appears to have become more salient recently.   The euro's bounce yesterday, its first gain in seven sessions (since the US CPI shocker), stalled near $1.1375, where a 780 mln euro option expires today.   The euro traded quietly in Asia before being sold aggressively as news of the virus hit the wires.  The euro traded through $1.1285 before catching a bid.  Resistance now will likely be encountered around $1.1320.  The euro is posting its first back-to-back weekly of more than 1% since March 2020.  Sterling is also sliding back toward the week's lows, just above $1.3400.  A break could signal a test on the $1.3350 area, but it appears stretched on an intraday basis.  While the euro-sterling cross is practically flat, the euro has punched below CHF1.05 for the first time in six years.  It would not be surprising to learn that the SNB has been intervening.  There appears to be little chart support until closer to CHF1.0250. America The nonpartisan Congressional Budget Office offered its evaluation of the Biden administration's Build Back Better initiative.  It sees $1.636 trillion in spending over the next decade and almost $1.27 trillion in revenue.  That leaves a deficit of $367 bln.  A notable difference between it and the administration is how much more revenue will be generated by increasing the number of IRS agents.  Even if it passes the House of Representatives, it will likely be marked up in the Senate.  The jockeying for position and spin around it will likely dominate the session, which sees no US economic reports outside of the rig count later today.  The Fed's Clarida and Waller speaker today.  It seems that most market participants still see the Fed behind the curve and disagree with our idea that to secure the ability to respond to a wide range of possible outcomes, the Federal Reserve may accelerate its tapering starting in January.   It is not clear exactly when the debt ceiling will be reached, but it is being played.  The Democrats do not want to lift it through the reconciliation process, though they have forced the Republicans to do so in the past.  The Republicans appear to have the discipline and will to oppose.  No one seems to think the US will really default, and getting even this close seems undignified.  Yet, the desire to avoid being caught out encouraged investors to demand a high yield on the four-week bill sold.  Yesterday's auction saw the yield more than double to 11 bp (annualized).  It is the highest yield since July 2020.  In contrast, the eight-week bill, which is thought to be beyond the shenanigans, yield slipped to 4.5 bp from six previously and a higher bid-cover ratio.   Canada reports September retail sales figures today.  After a 2.1% rise in August, some weakness is expected.  Ahead of it, the Canadian dollar is trading at new lows for the week, though it is faring better than the other dollar-bloc currencies.  The US dollar is approaching the (61.8%) retracement objective of the decline since the CAD1.29 level was tested on September 20.  The retracement level is near CAD1.2665, and a break would target CAD1.2700-CAD1.2750.  The upper  Bollinger Band is found near CAD1.2655 today.   The Mexican peso is also under pressure.  It, too, has fallen to a new low for the week today.  The greenback looks set to test the eight-month high set earlier this month near MXN20.98.  Note that the central bank's Deputy Governor warned that inflation was accelerating, and it could rise to 7% this month and 7.1%-7.3% next month.  In October, the CPI stood at 6.24% year-over-year.  Banxico meets next on December 16, the day after the FOMC meeting.  Lastly, we note that the Brazilian real is off for four consecutive sessions coming into today.  The dollar closed above its 20-day moving average against it yesterday and looks poised to probe above BRL5.60 today. The high for the month was closer to BRL5.70.   Disclaimer
The Wild Card Is Back

The Wild Card Is Back

Monica Kingsley Monica Kingsley 19.11.2021 15:58
S&P 500 rose, once again driven by tech and not value. That‘s still defensive, mirroring the weak credit markets posture. While waiting for bonds to turn – not that there wouldn‘t be an optimistic HYG open yesterday – the Austria lockdown news sent markets into a tailspin, the fear being good part of Europe would follow suit rather sooner than later. Oil has taken the crown of panicked selling, stocks held up better, and precious metals weren‘t changed much. Sure, any crippling of European economic activity would take a toll at the most sensitive commodities, but in light of energy policies across much of the Western world, it‘s my view that oil prices would be affected only in the short-term. This isn‘t a repeat of the Apr 2020 liquidation sending black gold negative. Rest of the world would be happy to step in, U.S. included, as we‘re entering winter with comparatively very low stockpiles from oil to copper – and don‘t get me started on silver. If you want green economy, these metals are essential, and oil is still in huge demand in the interim. Fed money printing hasn‘t vanished, debt ceiling awaits, and dollar is so far still solidly underpinned. Banking sector and emerging markets performance isn‘t panicky, but some time for stocks to come back at ATHs, is needed. Precious metals resilience is encouraging for commodities, which need the most time to recover (eyes on energy). Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls have the upper hand, but short-term volatility and uncertainty is creeping in. Still, there is no sinking the bull right here, right now. Credit Markets Tentative signs of credit markets stabilization are here, and HYG turnaround to last, is the missing sign. I‘m though not looking for risk-off slant to disappear, which would slow down the coming rise in yields. Gold, Silver and Miners Gold and silver are still consolidating, and the more time passes at current levels, the less opportunity the bears have. The chart remains very bullish as precious metals are anticipating inflation to come. Crude Oil Crude oil bulls are facing spanner in the works today, and it‘s my view the sellers wouldn‘t get too far. I‘m looking at oil sector to presage that. Copper The copper setback was soundly bought, and commodities hardly sold off, the same for other base metals. I still like the chart posture – favors the bulls. Bitcoin and Ethereum Bitcoin and Ethereum bears took the gauntlet, and another opportunity to pause might be here. I‘m not yet optimistic prices would hold out before the upleg resumes. Summary S&P 500 bulls keep hanging in there, as if waiting for bonds to come to their senses. The credit markets non-confirmation being probably in its latter stages, was my yesterday‘s point – but with corona panic returning, all short-term bets are off. Looking at the big picture, energy hasn‘t been fixed, precious metals are set to rise sharply, and inflation hasn‘t yet knocked off stocks or the real economy. Look for VIX to keep rising from the current 17.50 level. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
The Telegraph Publishes Misleading Story about Omicron

Covid Surge Compounds Monetary Divergence to give the Euro its Biggest Weekly Loss in Five Months

Marc Chandler Marc Chandler 22.11.2021 09:39
Strong US consumption and production figures kept the greenback well supported last week on the heels of the jump in CPI to 6.2%.  Meanwhile, the surge of Covid cases in Europe underscores the divergences with the US, sending the euro to new lows for the year.   At the same time, oil prices headed south for the fourth consecutive week, matching the longest decline in more than two years.  It did not favor the Norwegian krone, the weakest of the majors, with a 2.15% drop.  It brought this year's loss to almost 3.5%, despite it being the first G10 central bank to hike rate, with another likely next month.   The prospects of a Bank of England rate hike next month were lifted by the strong inflation and retail sales figures.  Sterling was the best performing major currency, rising a little more than 0.25% against the dollar.  It also traded at its best level against the euro since March 2020.  At the end of the week, the euro also broke down against the Swiss franc, trading below CHF1.05 for the first time since July 2015.   Japan's October CPI showed that excluding fresh food and energy, the world's third-largest economy has still not broken free of deflation's grip (-0.7% year-over-year).  A weaker yen is not a problem for Japanese policymakers or corporates.  Japan has averaged a monthly trade surplus this year through October of about JPY7.8 bln a month, hardly the stuff that should excite protectionists.  The BIS estimates that eurozone inflation would be closer to 1.5% than the 4.1% reported in October without the supply chain disruptions. The weakness of the euro does not appear problematic for the ECB either.  With the Fed already slowing the pace of its monetary accommodation, a stronger dollar reinforces the policy thrust. Even though net exports shaved Q3 growth by about 1.1 percentage points, it has yet to spur criticism, and September was a record shortfall.   Dollar Index:  The Dollar Index rose for the fourth consecutive week.  It met the (50%) retracement objective of its slide from March 2020 (~103.00) to the January 6 low (~89.20), which is found near 96.10.  DXY stalled ahead of the weekend, just shy of the high set in the middle of the week near 96.25. A move above there targets the next retracement (61.8%), which is close to 97.75.    The MACD is over-extended but still headed higher, while the Slow Stochastic appears to be turning lower.  Support is seen around 95.50.  The market seems to have discounted much of the good news for the dollar and Fed policy.  We note that the US 2-year yield fell almost six basis points last week.  That leaves it off about 4.5 bp this month, despite the strong CPI reading, robust retail sales, and industrial output figures. Euro: The divergence of monetary policy has been the critical weight on the euro, but at the end of last week, it seemed that surge in Covid cases in Europe helped drive the single currency to new lows. It fell to $1.1250 ahead of the weekend to take out the mid-week low near $1.1265.  The weekly loss of about 1.3% is the biggest in five months.  Recall that the $1.1290 area represented the (61.8%) retracement of the rally that began in March 2020.  The momentum indicators are stretched, but a possible bullish divergence is appearing in the Slow Stochastic. A cap seems to be forming around $1.1375.  After repeated tests, and much to the chagrin of the Swiss National Bank, the euro was sold through CHF1.05 ahead of the weekend for the first time since July 2015.  Given its modus operandi, the SNB is likely resisting.  There is little on the charts ahead of CHF1.0250.  In the second half of last week, the euro found support near GBP0.8385, its lowest level since March 2020.  Support is seen close to GBP0.8275-GBP0.8300.  Lastly,  the euro found support near JPY128.00, which has more or less withstood several tests since moving above there in February.   Japanese Yen:  The greenback recorded a new four-year high against the yen, less than a handful of pipis from JPY115 in the middle of last week.  It reversed lower and settled ever so slightly below the previous session's low to leave a key reversal in its wake.  It recorded the week's low ahead of the weekend near JPY113.60.  Since the dollar pushed above JPY112 early last month, we have suggested a JPY113-JPY115 trading range.  It did trade to about JPY112.75 on November 10 and 11 but snapped back into the range.  The US 10-year note futures (December contract) posted a key reversal in the middle of last week, too, and also ended the week at eight-session highs, which, of course, means lower yields.  The dollar-yen exchange rate still seems to be a range-bound creature, more the most part, and heavily influenced by external factors, like US 10-year yield and broader risk appetites.  British Pound:  Sterling outperformed the other major currencies last week, but the 0.3% gain is nothing to write home about.  It remained within the previous week's range. It was unable to sustain the upside momentum after approaching the (50%) retracement objective of the decline since the month's high and outside down day on November 4 (BOE meeting).  That retracement stands at $1.3525.  The strong CPI report on November 17 helped lift sterling to the week's high near $1.3515.  However, the underlying strength of the dollar proved too much, and ahead of the weekend, sterling traded a little below $1.3410.  The momentum indicators have turned higher, and as long as $1.3400 holds, sterling looks attractive.  However, the market appears to have a 15 bp hike at next month's meeting fully discounted.  While it remains a distinct possibility, if not a likelihood, but 100% confidence may leave sterling vulnerable to a reassessment.  Canadian Dollar:  The US dollar rose for the fourth consecutive week against the Canadian dollar, matching the longest advance since early last year.  With the pre-weekend gain, the greenback met the  (61.8%) retracement objective of decline since CAD1.29 was approached on September 20, found near CAD1.2665. The US dollar's broad strength, coupled with the stock market wobble (a proxy for risk), and the drop in crude prices by around 4.25%, the fourth consecutive weekly decline shaved about 0.75% off the Canadian dollar.  The implied yield of the June 2022 Banker Acceptances fell last week and is now about 10 bp lower than at the end of last month.  The MACD is headed up though over-extended, while the Slow Stochastic has flatlined at extreme levels and has not yet confirmed the new highs.  The US dollar continues to hug the upper Bollinger Band, which will begin the new week near CAD1.2650. Australian Dollar:   The Aussie fell for the third straight week, and ahead of the weekend, approached $0.7225, last seen in early October.  As seen with some of the other currency pairs, the MACD is still warning of currency weakness, while the Slow Stochastic is flatlining but over-extended.  The trendline connecting the August and September lows initially held last week. It (~$0.7240) yielded ahead of the weekend, but the Aussie managed to close back above it.   It needs to resurface above $0.7300 to be anything meaningful.  Softer than expected, wage growth may have reinforced the RBA's message to the markets, and the yield of the June 2022 T-bill futures fell seven basis points last week and is now down 31 bp on the month.   Mexican Peso:  Emerging markets currencies remain out of favor in a strong dollar environment.  The JP Morgan Emerging Market Currency Index slumped by more than 2% last week, the most since June.  The Turkish lira collapsed by nearly 11%.  The Indian rupee rose by 0.3%, the strongest in the EM space.  The greenback made a new marginal high in two-and-a-half weeks before the weekend, slightly below MXN20.89.  The momentum indicators are constructive for the dollar, but it is at the upper end of its recent range (~MXN20.12-MXN21.00).  The high for the year was set in March near MXN21.64, and it will come into view when the greenback rises above MXN21.15.   Chinese Yuan:   By shadowing the dollar so tightly, the yuan is dragged higher on a trade-weighted basis in the stronger greenback environment. The yuan is at six-year highs on the basket the PBOC tracks (CFETS).  The PBOC reportedly stressed the importance of exchange risk management ahead of the weekend, and it may be a warning that its willingness to tolerate a stronger yuan is limited.  The yuan slipped an inconsequential 0.12% against the dollar last week.  For nearly the past five weeks, the exchange rate has been mostly confined to a CNY6.38-CNY6.40 range.  It is a fuzzy range and allows for around a big figure in both directions. The index of Chinese companies listed in the US (NASDAQ Golden Dragon Index) fell about 5.7% last week.  The major benchmarks in China, including the CSI 300, posted small gains.  The Hang Seng fell 1.1% last week, and most of that was before the weekend on disappointing earnings from Alibaba (-10.3% in HK).     Disclaimer
Electrification and urbanisation will drive growth in copper

Electrification and urbanisation will drive growth in copper

Peter Garnry Peter Garnry 22.11.2021 08:26
Summary:  Copper is an essential metal in our green transformation driven by electric vehicles and upgrades to our electric grid infrastructure. The ongoing urbanisation in the world is also driving construction which is one of the key demand drivers for copper. The demand outlook looks strong, but how can investors get exposure to copper. We explore the different options and highlights specifically six miners with high exposure to copper. The long-term growth drivers of copper The green transformation will electrify the global economy as cars go electric and more homes in colder areas will switch from natural gas as heating source to that of air to water heat pumps. In warmer parts of the world we will continue to see an acceleration in air conditioners to cool homes. The main usage of refined copper is for electrical applications, but it is also used in housing (pipes and fittings), cars, telecommunication and industrial machines. Copper has the second highest thermal conductivity at room temperature among pure metals and is thus the preferred metal used in electrical applications. As the world electrifies in the name of the green transformation and rapid urbanization continues in Asia, Africa, and South America, copper will continue to enjoy strong annual growth rates. How to get exposure to copper? Copper has been rebranded as a green metal because of its importance for the green transformation and investors are increasingly asking us how to invest in copper. The most direct way is of course to invest in high grade copper futures on COMEX (part of CME Group) with the current active contract being the Mar 2022 contract (Saxo ticker: HGH2), but the contract has a contract value of around $106,537 at current level making it inaccessible to most retail investors. One could also invest through CFD on futures (Saxo ticker on the Mar 2022 is COPPERUSMAR22) where the investor could buy 100 pounds of copper instead of 25,000 pounds in the futures reducing the contract size to $425. However, getting exposure through CFDs and futures the investor must regularly roll the contract to the next active contract, and the investor could also incur financing cost increasing the drag on performance. The chart below shows the continuous futures contract on high grade copper since 2002. Source: Saxo Group Few miners offer pure exposure to copper Another way to get exposure to copper that removes the difficulties of rolling futures or CFD contracts is to invest in mining companies that extract or refine copper. The table below shows 16 mining companies with exposure to copper with Codelco, the largest copper producer in the world, absent from the list as the Chilean miner is only listed in Chile and thus not investable for our clients. The copper mining industry has delivered a median total return in USD of 132.6% over the past five years beating the global equity up 105% in the same period. The rising copper prices the past year driven by investors positioning themselves in green metals (defined as metals that will play a key role in the green transformation) which in turn has pushed up revenue in the industry by almost 40%. Sell-side analysts are generally bullish on copper miners with a median upside of 16% from current levels. In our view investors should select one or two copper miners to get exposure and avoid the ETFs on the industry as they are too broad-based and lack the pure exposure profile needed to play the copper market. Name Market cap (USD mn) F12M EV/EBITDA Revenue growth (%) Price-to-target (%) 5Y return (USD) Revenue from copper (%) Antofagasta PLC 18,871 5.1 43.8 3.4 166.6 84.8 First Quantum Minerals Ltd 14,962 5.1 41.9 20.9 111.3 84.2 Southern Copper Corp 45,944 8.6 39.7 3.1 128.9 81.6 KGHM Polska Miedz SA 7,026 3.8 28.3 26.4 80.0 73.8 Jiangxi Copper Co Ltd 9,843 7.2 44.6 37.8 27.3 71.0 OZ Minerals Ltd 6,397 7.6 38.7 -6.1 288.4 60.0 Glencore PLC * 65,890 4.5 -7.5 13.9 78.2 39.0 Boliden AB 9,291 5.1 26.2 3.7 68.1 35.0 Freeport-McMoRan Inc 57,080 5.7 55.5 13.2 193.3 33.7 Teck Resources Ltd 14,468 3.9 28.7 19.9 22.0 27.0 BHP Group Ltd 131,046 4.0 41.7 18.6 136.4 26.0 Zijin Mining Group Co Ltd 39,925 8.8 27.4 52.1 396.4 22.7 Anglo American PLC 47,342 3.5 59.0 15.7 262.8 22.3 MMC Norilsk Nickel PJSC 47,479 5.1 27.1 13.5 191.1 20.6 Rio Tinto PLC 98,497 3.6 39.5 15.8 149.2 11.5 Vale SA 60,329 2.5 77.2 87.6 111.4 5.5 Aggregate / median 674,389 5.1 39.6 15.7 132.6 34.4 Source: Bloomberg and Saxo Group* EBITDA contribution as Glencore does not breakdown revenue split on metals As the table also show, there is no such thing as pure exposure to copper except for futures, options and CFDs on the underlying copper. The miner with the highest revenue exposure to copper is Antofagasta with 84.8% revenue share from copper extraction and refining. Most copper miners also extract gold and silver as part of their copper operations. Out of the 16 copper miners in our list, only 6 of these miners have more than 50% of revenue coming from copper extraction and refining. Outlook and risks High grade copper futures have been range trading for more than half a year as slowing demand out of China due to a slowdown in housing construction has weighed on the demand side. On the positive side inventories have been tight in copper which has helped support the copper price and the global pipeline of new copper mines, but also potential tax charges in Chile and Peru (roughly around 40% of global supply) could negative impact supply and keep copper prices high. The annualized growth rate in global refined copper demand has been around 3% in the period 2009-2020. China has for many years been the key driver of demand growth for copper, but going forward electrification (electric vehicles and air-to-water heat pumps and urbanization in India will begin to play a bigger marginal role on demand creating a more steady and diversified demand picture. In 2022, demand outside China will be driven by construction, grid infrastructure, and transport. Another risk to copper demand is significantly higher interest rates next year as that would curtail growth in construction which is interest rate sensitive.
Inflation Risk: Milton Friedman Would Buy Gold Right Now

Inflation Risk: Milton Friedman Would Buy Gold Right Now

Arkadiusz Sieron Arkadiusz Sieron 19.11.2021 16:50
Powell maintains that inflation is transitory, but the monetary theory of inflation suggests otherwise. So, elevated inflation could stay with us!, Some economists downplay the risk stemming from elevated inflation, saying that comparisons to the 1970s style stagflation appear unfounded. They say that labor unions are weaker and economies are less dependent on energy than in the past, which makes inflationary risks less likely to materialize. Isabel Schnabel, Board Member of the European Central Bank, even compared the current inflationary spike to a sneeze, i.e., “the economy’s reaction to dust being kicked up in the wake of the pandemic and the ensuing recovery”. Are those analysts right? Well, in a sense, they are. The economy is not in stagnation with little or no growth and a rising unemployment rate. On the contrary, the US labor market is continuously improving. It’s also true that both the bargaining power of workers and energy’s share in overall expenditure have diminished over the last fifty years. However, general inflation is neither caused by wages nor energy prices. Higher wages simply mean lower profits, so although employees can consume more, employers can spend less. If wages are set above the potential market rates, then unemployment emerges - not inflation. Similarly, higher energy prices affect the composition of spending, but not the overall monetary demand spent on goods and services. It works as follows: when the price of oil increases, people have to spend more money on oil (assuming the amount of consumed oil remains unchanged), which leaves less money available for other goods and services. So, the overall money spent on goods won’t change. As a consequence, the structure of relative prices will change, but widespread prices increases won’t happen. In other words, Milton Friedman’s dictum remains valid: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”. It’s quite a simple mechanism, even central bankers should be able to understand it: if the stock of goods remains unaltered while the stock of money increases, this, as Frank Shostak put it, “must lead to more money being spent on the unchanged stock of goods – an increase in the average price of goods” Let’s look at the chart below, which displays the annual growth rates in the broad money supply (M2, red line) and in the CPI (green line). We can notice two important things. First, in the 1970s, the pace of broad money supply growth was relatively high, as it reached double-digit values at some point. As a consequence, inflation accelerated, jumping above 10% for a while. In other words, stagflation was born. Since then, the rate of growth in the money supply never reached double-digit numbers on a prolonged basis, including the Great Recession, so high inflation never materialized. And then the pandemic came. In March 2020, the money supply growth rate crossed the 10% threshold and never came back. In February 2021, it reached its record height of 27.1%. The pace of growth in the M2 money aggregate has slowed down since then, dropping to a still relatively high rate of 13%. This is a rate that is almost double the pre-pandemic level (6.8% in February 2020) and the long-term average (7.1% for the 1960-2021 period ). So, actually, given the surge in the broad money supply and the monetary theory of inflation, rapidly rising prices shouldn’t be surprising at all. Second, there is a lag between the money supply growth and the increase in inflation rates. That’s why some analysts don’t believe in the quantity theory of money – there is no clear positive correlation between the two variables. This is indeed true – but only when you take both variables from the same periods. The correlation coefficient becomes significant and positive when you take inflation rates with a lag of 18-24 months behind the money supply. As John Greenwood and Steve Hanke explain in opinion for Wall Street Journal, According to monetarism, asset-price inflation should have occurred with a lag of one to nine months. Then, with a lag of six to 18 months, economic activity should have started to pick up. Lastly, after a lag of 12 to 24 months, generalized inflation should have set in. If this relationship is true, then inflation won’t go away anytime soon. After all, the money supply accelerated in March 2020 and peaked in February 2021, growing at more than four times the “optimal” rate that would keep inflation at the 2-percent target, according to Greenwood and Hanke. In line with the monetarist description, the CPI rates accelerated in March 2021, exactly one year after the surge in the money supply. So, if this lag is stable, the peak in inflation rates should happen in Q1 2022, and inflation should remain elevated until mid-2022 at least. What does it mean for the gold market? Well, if the theory of inflation outlined above is correct, elevated inflation will stay with us for several more months. Therefore, it’s not transitory, as the central bank tells us. Instead, inflation should remain high for a while, i.e., as long as the money supply growth won’t slow down and go back below 10% on a sustained basis. What’s more, the velocity of money, which plunged when the epidemic started, is likely to rise in the coming months, additionally boosting inflation. So, I would say that Milton Friedman would probably forecast more persistent inflation than Jerome Powell, allocating some of his funds into the yellow metal. Gold is, after all, considered to be an inflation hedge, and it should appreciate during the period of high and rising inflation. Although so far gold hasn’t benefited from higher inflation, this may change at some point. Actually, investors’ worries about inflation intensified in October, and gold started to show some reaction to the inflationary pressure. My bet is that the next year will be better for gold than 2021: the Fed’s tightening cycle will already be inaugurated, and thus traders will be able to focus on inflation, possibly shifting the allocation of some of their funds into gold as a safe-haven asset. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
With Gold and the Buck, as Told, You're in Luck

With Gold and the Buck, as Told, You're in Luck

Mark Mead Baillie Mark Mead Baillie 22.11.2021 08:17
The Gold Update by Mark Mead Baillie --- 627th Edition --- Monte-Carlo --- 20 November 2021 (published each Saturday) --- www.deMeadville.com As time is at a bit of a premium for penning this week's missive, (even as Gold is priced at a massive discount by valuation), let's jump right in. The macro question at large we oft receive is: â–  "How come Gold isn't much higher with all the money printing?" Macro indeed per the above Gold Scoreboard, price having settled yesterday (Friday) at $1847, just 46% of our valuation level of $3993. To be sure per the right-hand panel Gold is, on balance, in ascent toward chasing the unconscionable rise in the U.S. "M2" money supply; yet the gap from here to up there remains HUGE! The micro question of late we oft receive is: â–  "How come Gold is going up even if the Dollar is also going up?" Micro indeed as such phenomenon does on occasion occur given (for the ad nauseath time) Gold plays no currency favourites. To be sure, both Gold and the Buck have been on the rise per their percentage tracks for the 15 trading days thus far in November. Here as shown, Gold is +3.5% and the Dollar Index is +2.1%. Yes, Gomer, it really can happen: In fact "surprise, surprise, surprise" if measuring from mid-year 2014, (albeit their respective routes hardly are in linear harmony), Gold is +39.7% and yet the Dollar Index is +20.4%. So even more broadly there, no directional favoritism. And yet from that date some seven years ago, the supply of Gold is only +10.7% whereas the U.S. "M2" money supply is +88.4%. Further with specific respect (or lack thereof) to the Dollar, recall from Econ 101 class that more of something (in this case much more) makes it worth less, arguably in the Dollar's case worthless. And yet an inevitable -- some say forcibly imminent -- Federal Reserve interest rate increase (versus, for example, sovereign bank rates in Europe still seen as staying essentially negative for the foreseeable future), is therefore getting the Dollar a bid such as to push the Buck into the lead of the currencies' so-called Ugly Dog Contest. 'Course, attempting to explain irrationality is an exercise in same, in this case more Dollars nonetheless being worth more whatevers. And even irrespective of inflation, we read speculation this past week of the €uro ultimately collapsing ... and being replaced by the Dollar. "What?" But then, could such dual-continent currency still be deemed a "Federal Reserve Note"? Either way, we wouldn't recommend your losing sleep over this whimsy. For if you've Gold, you're fine. And looking .9999 fine is our chart of Gold's weekly bars with their parabolic long trend, now neatly in place these past three weeks. Yes, Gold put in an acceptable net loss for this recent week after having been up for five of the prior seven. However, the daily table therein of our BEGOS Markets "Breakout?" suggestions popped up last evening with "Sell" for both precious metals. So some further slipping may be seen into the ensuing week; yet on balance by the bars' structure in the chart, the 1800s not only appear safe, but the dashed regression trend line is now more perceptively rotating from negative toward positive. And that would tie in well (as historically noted last week) with Gold reaching 1971 during this new parabolic Long run: Thus having awakened the dip buyers, let's turn to the StateSide economy, by which our Economic Barometer had a sound week and sufficiently so as to put it on pace toward recording its second best month year-to-date. For the week's 14 incoming metrics, 12 were improvements over the prior period, the only two negatives being inflationary October Import Prices (even ex-Oil) and a slight slowing in that month's Housing Starts. But the latter was mitigated by growth in Building Permits, plus a firm increase in November's National Association of Home Builders Index. November also scored marked increases for both the New York State Empire and Philly Fed Indexes. Other positives included October's Retail Sales, Industrial Production, Capacity Utilization, and the Conference Board's lagging read of Leading Indicators. "'Tis all good, right?" Well, just bear in mind there, Bunky, that much of Q3's Gross Domestic Product "growth" was mitigated by a very high Chain Deflator, (i.e. inflationary rather than real growth): And as to Q3 Earnings Season, it just ended as follows: for the S&P 500, 80% of reporting constituents beat both estimates and prior period results. 'Tis rare when the latter keeps up with the former. However more broadly, 1,440 other mid-cap and smaller companies by our tabulation found just 56% having actually improved over 2020's Q3 shutdown period. That's an uh-oh... But in toto, great economics (arguably inflationarily but not really) + great earnings (by estimates but not always actual growth) = S&P 500 all-time highs. Moreover, money is pouring into the stock market per the website's S&P Moneyflow page: "Let's all buy high!" 'Tis quite extraordinary. "So then maybe this a blow-off top, mmb..." Squire, we long ago stopped counting the number of would-be S&P blow-off tops. Remember: as we've herein put forth for many-a-year, this is now the age of the stock market being the Great American Savings Account. "You have to be IN!" they say. "Gold's for the BIN!" they say. And then there's the ever-annoying individual blurter: "I bought X back at blah and am now making BLAH!" For whom we have this important reminder: the market capitalization of the S&P 500 as of Friday night is $41.4 trillion; yet the liquid M2 money supply of the U.S. is but half that at $21.4 trillion. So when it all goes wrong, good luck in getting out with something. Meanwhile amongst it all going good, we read that a record number of StateSide workers are quitting their jobs, the notion being they can do better doing something else. Watch for this great mania of "There's a better way!" and "My stocks are so up!" ultimately ending with "What was I thinking?" Then from the "We Knew This Was Coming Dept." it seems just mere weeks go by before yet again U.S. Treasury Secretary Janet "Old Yeller" Yellen has to chase down the Legislature 'cause she's run out of dough to make the country go. For sanity's sakes: "Got Gold?" Hopefully as the Fed Chair passes to Lael "The Brain" Brainard, she and the Treasury Secretary can sort it all out. (See too: "In Like Flint", 20th Century Fox, '67). From steely flint to a wee loss of glint describes at present our precious metals. Per the two-panel graphic below, we see on the left a bit of a topping pattern in the daily bars, but again with structural support still well within the 1800s. Then on the right in Gold's 10-day Market Profile, 1864 clearly is the dominant price traded across these past two weeks: Silver, too, shows similar toppiness per her daily bars (at left) with the low 24s/high 23s as supportive; then in her Profile (at right), 25.15 is where the bulk of Sister Silver's action has been: In sum, we see a bit of near-term pullback for Gold and Silver, but nothing really materially daunting, especially given the notion of 1971 during Gold's current parabolic up run; (you'll recall from a week ago, arriving at that level equates to the median gain of the 43 prior parabolic Long trends since the year 2001). And at some point -- you know, and we know, and everyone from Bangor, Maine to Honolulu and right 'round the word knows that -- the Buck ultimately shall run out of luck. Indeed to that end (and so much more), in having opened with a couple of questions, let's close with one that came in this past week from a highly-valued publisher of The Gold Update: "Do you think $1900 is nigh?" Our response in kind: "$4000 is nigh." Cheers! ...m... www.deMeadville.com www.deMeadville.com
Best Pick for Corona Woes

Best Pick for Corona Woes

Monica Kingsley Monica Kingsley 22.11.2021 15:49
S&P 500 stumbled as value plunged – corona fears are back as Austria lockdown might very well be followed soon by Germany. The mood on the continent is souring, and coupled with accelerating German inflation data, helping to underpin the dollar. Overall, the reaction reminds me of the corona market playbook of Feb-Mar 2020 when I aggresively took short positions, riding them all the way down to the Mar 23 bottom. So, why am I not beating the bearish drum today as well? We have a lot of incoming stimulus (both monetary and fiscal), the economy is slow but the yield curve hasn‘t inverted the way it did in 2019 – make no mistake, we‘re in a rate raising cycle (even if the Fed didn‘t move, the markets would force it down the road). I know, pretty ridiculous notion with 10-year yield at 1.54% and Oct YoY CPI at 6.2% - but the rates being even more negative elsewhere, help to explain the dollar 2021 resilience. That‘s the bullish side to last week‘s bearish argument. What gold and silver are sniffing out, is that the Fed would have to reverse course once the tapering effects start biting some more – not now, with still more than $100bn monthly addition. Cyclicals and commodities that had massively appreciated vs. year ago (oil doubled), are feeling the pinch of fresh economic activity curbs speculation in spite of the polar shift of U.S. strength in energy of 2019 and before. Begging the OPEC+ to increase production might not do the trick, and with so much inflation already in (and still to come), the key investment theme is of real assets strength. Precious metals have broken out, are no longer an underdog, and the inflation data will not decelerate for quite a few months still. And even as they would, it would come at a palpable cost to the real economy, and the resolute fresh stimulus action wouldn‘t be then far off. As I wrote in Apr 2020, it‘s about the continuous stimulus that‘s the go-to response anytime the horizon darkens, for whatever reason. Wash, rinse, repeat. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls still have the upper hand, and value recovery accompanied by good tech defence of high ground gained, is the awaited mix. The market breadth is narrowing, and needs to be reversed to give the bulls more breathing room. Credit Markets Once corona returns to the spotlight, bets on „reversion to the mean“ in credit markets are off. Weakening data get more focus, and flight to safety is on, puncturing the trend of rising yields that would inevitably lead to yield curve control. Gold, Silver and Miners It‘s as if the gold and silver bulls don‘t trust the latest rally – I think that‘s a mistaken belief for we have turned the corner, and precious metals are about to shine – of course, invalidating the latest miners weakness in the process. Crude Oil Crude oil bulls didn‘t recover from Friday‘s spanner in the works, and while the dust hasn‘t settled, black gold is prone to an upside reversal at little notice. I‘m not overrating the oil index weakness. Copper Copper smartly recovered, moving at odds with the CRB Index, which I treat (especially given Friday‘s Austria news repercussions) as a vote of confidence that the economy isn‘t rolling over to a deflationarry hell (pun intended). Bitcoin and Ethereum Bitcoin and Ethereum are still going sideways in this correction, but today‘s lower knot is encouraging. The consolidation though still appears to have a bit further to go in time. Summary S&P 500 bulls keep hanging in there, and the waiting for bonds to come to their senses might take a while longer. Tech keeps cushioning the downside, and we haven‘t peaked in spite of the many warnings. Value and Russell 2000 upswings would be good confirmations of the stock bull market getting fresh fuel. Precious metals would have the easiest run in the weeks ahead – commodities in general not so much. Their breather is though of a temporary nature as all roads lead to real assets. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Betting on Hawkish Fed

Betting on Hawkish Fed

Monica Kingsley Monica Kingsley 23.11.2021 15:46
S&P 500 reversed from fresh ATHs as spiking yields sent tech packing. Value didn‘t soar, but held up considerably better – still, stock bulls are getting on the defensive. Markets have interpreted the Powell nomination as a hawkish choice. I‘ve written the prior Monday:(…) the Fed is still printing a huge amount of money on a monthly basis, and it remains questionable how far in tapering plans execution they would actually get – I see the risks to the real economy coupled with persistently high inflation as rising since the 2Q 2022 (if not since Mar already, but most pronounced in 2H 2022.Inflation hasn‘t moved to the Fed‘s sights, and yesterday‘s rection in yields and precious metals is a bit too harsh. While rates are on a rising path as I‘ve written yesterday, precious metals overreacted. True, the bullish argument for the dollar stepped to the fore as yields differential between the U.S. and the rest of the world got more positive, and at the same time, various yield spreads keep compressing. That‘s a reflection of less favorable incoming economic data. Just as much as Friday‘s reaction was about corona economic impact projections, yesterday‘s one was about monetary policy anticipation.Inflation expectations though barely budged – the decline doesn‘t count as trend reversal. CPI isn‘t done rising, and the more forward looking incoming data (e.g. producer prices) would confirm there is more to come. All in all, it looks like precious metals (and to a smaller degree commodities), are giving Powell benefit of the doubt, which I view to be leading to disappointment over the coming months. Should Powell heed the markets‘ will, the real economy would weaken dramatically, forcing him to make a sharp dovish turn – and he would, faster than he flipped since getting challenged in Dec 2018.We‘re experiencing an overreaction in real assets – as stated yesterday:(…) the Fed would have to reverse course once the tapering effects start biting some more – not now, with still more than $100bn monthly addition. Cyclicals and commodities that had massively appreciated vs. year ago (oil doubled), are feeling the pinch of fresh economic activity curbs speculation in spite of the polar shift of U.S. strength in energy of 2019 and before. Begging the OPEC+ to increase production might not do the trick, and with so much inflation already in (and still to come), the key investment theme is of real assets strength.Precious metals have broken out, are no longer an underdog, and the inflation data will not decelerate for quite a few months still. And even as they would, it would come at a palpable cost to the real economy, and the resolute fresh stimulus action wouldn‘t be then far off. As I wrote in Apr 2020, it‘s about the continuous stimulus that‘s the go-to response anytime the horizon darkens, for whatever reason. Wash, rinse, repeat.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 bulls lost the momentary upper hand, and value recovery isn‘t yet strong enough to carry it forward. A less heavy move in bonds – temporary yields stabilization – would be needed to calm down stock market nerves.Credit MarketsTreasuries held up best, and that‘s characteristic of a very risk-off sentiment. The low volume in HYG isn‘t a promise of much strength soon returning.Gold, Silver and MinersPrecious metals turned sharply lower, and haven‘t stabilized yet. Bond market pressures are keenly felt even though inflation expectations didn‘t follow with the same veracity. The next few days will be really telling.Crude OilCrude oil bulls have made a good move, and more strength needs to follow. The fact that it would be happening when the dollar is strengthening, and many countries are tapping their strategic reserves, bodes well for black gold‘s recovery.CopperCopper springboard bulding goes on, and the CRB Index isn‘t tellingly yielding – the hawkish Fed bets better be taken with a (at least short-term) pinch of salt.Bitcoin and EthereumBitcoin and Ethereum are still going sideways, and today‘s resilience is a good omen – across the board for risk assets.SummaryS&P 500 bulls need tech to come alive again, and odds are it would with a reprieve in spiking yields. While bond markets are getting it right, yesterday‘s fear in corporate bonds was a bit too much – the Fed isn‘t yet in a position to choke off the real economy through slamming on the breaks. Markets are prematurely speculating on that outcome, which would be a question of second or third quarter next year. Treasuries have though clearly topped, and stocks do top with quite a few months‘ lag – we aren‘t there yet. Enjoy the commodities ride, and confidence gradually returning to precious metals.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Article by Decrypt Media

More Public Debt Is Coming. Another Gold’s Rally Ahead?

Arkadiusz Sieron Arkadiusz Sieron 23.11.2021 15:13
  Democrats are not slowing down - the social spending bill follows the infrastructure package. Will gold benefit, or will it get into deep water? Will the American spending spree ever end? On Monday last week (November 15, 2021), President Biden signed a $1 trillion infrastructure package, and just a few days later, Biden’s social spending bill worth another $1.75 trillion passed the US House of Representatives. Apparently, $1 trillion was not enough! Apparently, we don’t already have too much money chasing too few goods. No, the economy needs even more money! Yes, I can almost hear the lament of American families: “we need more money, we already bought everything possible, we already own three cars and a lot of other useless crap, but we need more! Please, the almighty government, give us some bucks, let your funds revive our land”. Luckily, the gracious Uncle Sam listened to the prayers of its poor citizens. Given the above, one could think that the US economy is not already heavily indebted. Well, it’s the exact opposite. As the chart below shows, the American public debt is more than $27 trillion and 125% of GDP, but who cares except for a few boring economists? Of course, neither infrastructure nor spending bill will increase the fiscal deficits and overall indebtedness to a similar extent as the pandemic spending packages. These funds will be spread over years. Additionally, the fiscal deficit should narrow in FY 2022 as pandemic relief spending phases out (this is already happening, as the chart below shows), while the economic recovery combined with inflation tax bracket creep increases tax revenues. However, both of Biden’s bills will increase indebtedness, lowering the financial resilience of the US economy. What’s more, the overall debt is much larger than the public debt I focused on here. Other categories of debt are also rising. For instance, total household debt has jumped 6.2% in the third quarter of 2021 year-over-year, to a new record of $15.2 trillion.   Implications for Gold What does the fiscal offensive imply for the precious metal market? In the short run, not much. Fiscal hawks like me will complain, but gold is a tough metal that does not cry. Both of Biden’s pieces of legislation have been widely accepted, so their impact has already been incorporated into prices. Actually, the actual bills could be even seen as conservative – compared to Biden’s initial radical proposals. In the long run, fiscal exuberance should be supportive of gold prices. The ever-rising public debt should zombify the economy and erode the confidence in the US dollar, which could benefit the yellow metal. However, the empire collapses slowly, and there is still a long way before people cease to choose the greenback as their most beloved currency (there is simply no alternative!). So, it seems that, in the foreseeable future, gold’s path will still be dependent mainly on inflation worries and expectations of the Fed’s action. Most recently, gold prices have stabilized somewhat after the recent rally, as the chart below shows. Normal profit-taking took place, but gold found itself under pressure also because of the hawkish speech by Fed Governor Christopher Waller. He described inflation as a heavy snowfall that would stay on the ground for a while, rather than a one-inch dusting: Consider a snowfall, which we know will eventually melt. Snow is a transitory shock. If the snowfall is one inch and is expected to melt away the next day, it may be optimal to do nothing and wait for it to melt. But if the snowfall is 6 to 12 inches and expected to be on the ground for a week, you may want to act sooner and shovel the sidewalks and plow the streets. To me, the inflation data are starting to look a lot more like a big snowfall that will stay on the ground for a while, and that development is affecting my expectations of the level of monetary accommodation that is needed going forward. So, brace yourselves, a janitor is coming with a big shovel to clean the snow! Just imagine Powell with a long-eared cap, gloves, and galoshes giving a press conference! At least the central bankers would finally do something productive! Or… maybe shoveling is not coming! Although the Fed may turn a bit more hawkish if inflation stays with us for longer than expected previously, it should remain behind the curve, while the real interest rates should stay ultra-low. The December FOMC meeting will provide us with more clues, so stay tuned! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Tech Sell-Off Continues

Tech Sell-Off Continues

Marc Chandler Marc Chandler 23.11.2021 22:41
November 23, 2021  $USD, EMU, Federal Reserve, Oil, OPEC+, SPR, UK, US Overview:  The markets are unsettled.  Bond yields have jumped, tech stocks are leading an equity slump, and yesterday's crude oil bounce reversed.  Gold, which peaked last week near $1877, has been dumped to around $1793.  The tech sell-off in the US carried into the Asia Pacific session, and Hong Kong led most markets lower.  The local holiday let Japanese markets off unscathed, though the Nikkei futures are off about 0.4%.  Australia and India managed to post minor gains as the MSCI Asia Pacific Index fell for the fourth time in five sessions.  Europe's Stoxx 600 has slid around 1.5% today, its fourth consecutive decline, but has clawed back nearly half the gains.  It is the longest retreat in two months.  US futures are lower, with the NASDAQ leading the move.   Near 1.64%, the US 10-year yield is at the upper end of this month's range.  Last month it reached 1.70%.  European bond yields are mostly 4-6 bp higher, and peripheral spreads have widened a little.  The dollar is sitting in the middle of the major currencies.  The dollar bloc, sterling, and the Norwegian krone, which are the risk-on, levered to growth currencies, are weaker.  The euro, yen, and Swiss franc are little changed but firmer.  The dollar briefly traded above JPY115.00 in Asia, without Tokyo,  before being pushed back. The steady euro has taken some pressure off most of the regional currencies.  The Turkish lira has been in a virtual freefall following President Erdogan's spirited defense of his efforts to drive down rates.    There was around 10 lira to the dollar in the middle of November.  Today, at its peak, there is about 12.48 lira to the dollar.   Asia Pacific Over the weekend, Japan expressed willingness to cap its strategic reserves.  Press reports indicated yesterday that India is amenable to coordinating a release of some of its oil stocks.  South Korea may also participate.  It has been under consideration for a couple of weeks, at least, in the US, and China appears willing to repeat September's release of crude from its reserves.  However,  it seems naive to have expected OPEC+ to simply standby.  January WTI posted a bearish outside down day ahead of the weekend by trading on both sides of the previous day's range and settling below the previous session's low.  Follow-through selling yesterday took it down about $1.20 from the close, but when OPEC+ announced that a coordinated release of the oil could prompt it to reconsider its own plans.  It is to meet next week to review its strategy. Through yesterday's low, January WTI had retreated by nearly 11% from the October 25 higher near $83.85.   A band of resistance is seen between $78 and $80.   OPEC+ had previously agreed to boost output by 400k barrels a day per month to restore pre-pandemic output levels.  That said, not all the members can produce their quota, leading to a shortfall.  OPEC+, the IEA, and EIA all seem to agree that supply-demand considerations shift in next year, and the market will once again be in oversupply.  Moreover, OPEC+ argues that the real dislocation is not with oil as its with gas.   The US imports about 2.9 mln barrels a day, India, about 4.2 mln, and Japan, about 3.1 mln barrels a day.  South Korea imports around 2.5 mln barrels a day.  Together it is around 12.7 mln barrels a day of imports.   If together, 100 mln barrels are released, about eight days of imports would be covered.  This is a high estimate.  India, for example, has indicated it may release 5 mln barrels.   Australia's flash November PMI was better than expected.  Manufacturing edged up to 58.5 from 58.2, while services rose to 55.0 from 51.8.  This produced a 55.0 composite reading, a gain from 52.1 in October.  Recall, the pandemic and lockdown led to weakness in the economy in the May-August period.  The composite PMI bottomed in August at 43.3.  It has risen for three months but remains well off the peak in April of 58.9.  Separately, New Zealand real retail sales were hit in Q3 by the social restrictions, but the drop was not quite as bad as feared.  Reall retail sales fell 8.1% after a 3.3% increase in Q2.  Economists (Bloomberg median) had anticipated a 10.5% pullback.  The RBNZ meets the first thing tomorrow and is widely expected to hike 25 bp, to lift the cash rate to 0.75%. There is still a slight bias toward a larger move in the swaps market.   The dollar briefly traded above JPY115.00 for the first time since March 2017.  We note that Japanese dealers were on holiday and did not participate in the move.  As risk-off sentiment took over, the dollar was sold back to JPY114.50.  Resistance in Europe has been found near JPY114.80.  Note that there is an option for about $980 mln at JPY115.50 that expires tomorrow.  The Australian dollar initially edged lower to almost $0.7210, its lowest levels since October 1 before steadying. A break of $0.7200 signals a retest of the late September low near $0.7170.  Initial resistance is seen in the $0.7230-$0.7250 area.  The PBOC is sending plenty of verbal signals that it does not want to see strong yuan gains, and today's fixing underscores that point.  The dollar's reference rate was set at CNY6.3929, wider than usual above the market expectation (Bloomberg) for CNY6.3904.  The greenback is firm inside yesterday's range.  Caution is advised here as the PBOC could escalate its disapproval.   Europe The flash EMU November PMI was better than expected.  The aggregate manufacturing PMI rose to 58.6 from 58.3.  The market anticipated a decline.  The service PMI rose to 56.6 from 54.6, also defying expectations for a sequentially weaker report.  The composite snapped a three-month slide and rose to 55.8 from 54.2.   The cyclical peak was in July at 60.2.    A flash release is made for Germany and France.    German manufacturing slowed slightly (57.6 from 57.8) and held up better than expected (Bloomberg median 56.9).  Services actually improved (53.4 from 52.4).  The composite rose to 52.8 from 52.0 to end a three-month downdraft after peaking in July at 62.4.  French numbers were even better.  The manufacturing PMI rose to 54.6 from 53.6.  The service PMI rose to 58.2 from 56.6.   The composite improved to 56.3 from 54.7 to snap a four-month fall.  Recall that yesterday the Bundesbank warned that the German economy may practically stagnate this quarter and that inflation may approach 6% this month.   The UK's flash PMI was more mixed.  The manufacturing PMI had been expected to have slowed but instead improved for the second consecutive month (58.2 from 57.8).  Services were nearly as weak as anticipated slipping to 58.6 from 59.1.  The composite eased slightly to 57.7 from 57.8, ending a two-month recovery from the June-August soft patch.  Meanwhile, Prime Minister Johnson's rambling speech yesterday hurt people's ears, and in terms of substance,  the changes to social care funding that may result in lower-income people having to sell homes to pay for support did not go over well.  It is spurring talk of a possible cabinet reshuffle.  The euro has edged to a new low for the third session today, slipping to almost $1.1225 before catching a bid that lifted it back to $1.1275.  There is an option for around 765 mln euros at $1.1220 that expires today.  The nearby cap is seen in the $1.1290-$1.1310 area.   The euro may struggle to sustain upticks ahead of tomorrow's US PCE deflator report (inflation to accelerate).    Sterling met new sellers when it poked above $1.3400. It has ground lower in the European session, and sterling fell to almost $1.3355.  Note that the low for the year and month was set on November 12, slightly above $1.3350.  We see little chart support below there until closer to $1.3165.   America We suspect many pundits exaggerated the link between the renomination of Powell for a second term and the sell-off in US debt and technology shares.  First, it was not a surprise.  Second, it assumes a substantive difference in the conduct of monetary policy between Powell and Brainard.  There isn't.  The difference was on regulatory issues and on the role of climate change.  Third, the idea that the Fed may accelerate its bond purchases next month was sparked by the high CPI reading on November 10.  Yesterday, Bostic joined fellow Fed President Bullard.  Two governors (Clarida and Waller) also seem to be moving in that direction (Waller may be faster than Clarida). The fact or the matter, nearly all of the high-frequency data for October, including employment, auto sales,  retail sales, industrial production, and inflation, came in higher than expected.  The US sees the preliminary November PMI today.  It is expected to have risen for the second consecutive month after fall June-September.   The reception to yesterday's US two- and five-year note auctions was relatively poor.  The higher yields (compared with the previous auctions) did not produce better bid-cover ratios.  Today the Treasury comes back with $55 bln seven-year notes and re-opens the two-year floater.  Many observers see the debt ceiling constraint being likely an early 2022 problem rather than this year.  Still, tomorrow's sale of the four-week bill may be the test.  Recall that at last week's auction, the 4-week bill yield doubled to 11 bp.   Europe's virus surge and social restrictions became a market factor last week.  Many think that the US is a few weeks behind Europe.  The seven-day infliction rate in the US rose 18% week-over-week.  Several states, including Colorado, Minnesota, and Michigan, are being particularly hard hit.  Nationwide 59% of Americans are reportedly fully vaccinated. However, it leaves about 47 mln adults and 12 mln teens unvaccinated.  The risk-off mood and the drop in oil prices are helping the US dollar extend its gains against the Canadian dollar.  The greenback, which started the month below CAD1.24, is now pushing close to CAD1.2750 to take out last month's high.  A move above here would target CAD1.28 and then the September high near CAD1.2900.  Still, the market is getting stretched, and the upper Bollinger Band is slightly below CAD1.2730.  The risk-off mood does not sit right with the Mexican peso either.  The dollar settled above MXN21.00 yesterday, its highest close in eight months.  The same forces have lifted it to MXN21.1250 today. However, the anticipated gain in September retail sales (0.8% Bloomberg median after a flat report in August) may not give the peso much support if the risk-off continues. The high for the year was set on March 8 near MXN21.6360.   Disclaimer
FX Update: USD kneejerks higher as Powell gets nod for second term

FX Update: USD kneejerks higher as Powell gets nod for second term

John Hardy John Hardy 23.11.2021 17:08
Summary:  US President Biden will tap Jay Powell for a second term as Fed Chair and will nominate Lael Brainard to be promoted to Vice Chair of the Fed, a move that sent the USD modestly higher and US yields sharply higher, though some of the reaction may have been on pent-up reaction to prior developments. Elsewhere, the descent in the Turkish lira is turning dire, while the kiwi is weaker ahead of an RBNZ meeting tonight. FX Trading focus: USD follows US yields higher in the wake of Powell getting nod for 2nd term Surprising a sizable minority and perhaps myself to a degree, US President Biden will tap Jay Powell for a second term as Fed Chair, while seeking to promote Lael Brainard from her current position to Vice Chair. The most prominent reason given for not going with Brainard is that her confirmation process may have proven contentious, something Biden wanted to avoid, and given extensive Democratic party support for Powell, the progressive wing aside, it was always the “easy option”. Brainard will still have to go through a confirmation process with the Senate. More interesting is the Brainard was not nominated to Vice Chair in the banking supervision and regulation role that the soon-gone Quarles occupied, a role that many envisioned for her. Biden has more nominees to consider for Quarles’ replacement and other empty spots, but continuity appears assured, though a Vice Chair Brainard will carry more weight when she dissents on non-monetary policy issues in the future (she never dissented on FOMC votes but has dissented more than 20 times on board votes linked to loosening regulation on US financial institutions). Other positions at the Fed will need filling as well, including the replacement of Quarles as banking supervisor. The market reaction to the news was fairly straightforward and “as expected” algorithmically, i.e., Brainard was supposed to be the more dovish pick, so Biden going with Powell saw the USD stronger as the market priced in about 10 basis points more in the way of Fed hikes through the end of next year. It’s tough to tell whether some of the reaction was the market simply adjusting to have this important issue “out of the way” allowing traders to price in other recent developments, like hot US data and Fed Vice Chair Clarida’s comments on possibly speeding up the pace of the Fed’s taper of asset purchases at the December FOMC meeting. The next test for whether this USD move can extend will be with tomorrow’s October PCE Inflation print and the FOMC minutes. For USDJPY, as I argue below, an extension higher  likely needs more upside from longer US yields. US President Biden will speak today on the economy and “lowering prices for the American people” which many believe will include a release of crude oil from US strategic reserves. That’s a risky move if it fails. Chart: USDJPYUSDJPY spilled over the 115.00 barrier in the wake of Powell getting the nod for a second term, with  the move now trying to decide whether it can stick. Arguably, the rise in Fed policy expectations don’t mean much if the longer end of the US yield curve remains anchored as it has lately, which continues to suggest that the market sees inflation as transitory and/or that Fed potential on rates will max out around 2.0% and crush the growth and inflation outlook. While 10-year US yields were sharply higher yesterday, they’re still bogged down in the range since the pivot high of 1.70% in October and the cycle high near 1.75% all the way back at the end of March. The logjam needs to break there and send US long yields higher for better fundamental support for a significant break above the 115.00 level in USDJPY. European politics in the spotlight – with Germany dealing with a new Covid ave and the ongoing natural gas and power crunch, it is time for the government coalition to announce itself and begin ruling. An announcement of the “stoplight” coalition could be imminent and we’ll have to watch the awkward combination closely, particularly the LDP Lindner’s attitude toward spending as the traditionally liberal party’s supply side principles are at odds with its Social Democratic and Green coalition partners inclinations, although energy emergencies are not political, but must be dealt with.  Elsewhere, Italian president Mattarella announced he will be stepping down. If, as some believe, an effort is made to replace his mostly ceremonial role with Mario Draghi, elections would have to be held. And the French election season will only heat up from here, where we watch whether Macron can keep the populists Zemmour and Le Pen at bay.  The Euro is getting very cheap – bigger fiscal, an ECB reverse repo facility, and a non-Covid constrained outlook by spring could have EURUSD in a very different place by then. Antipodean action- the Aussie has risen sharply versus the kiwi (NZD) over the last couple of sessions as the news flow for the  Aussie has improved notably, with China’s central bank possibly signaling it is ready to bring stimulus, some of the news flow in the property sector improving, and especially as iron ore prices have jumped sharply, particularly overnight, on all of the above plus anticipation that China will have to increase steel output soon. The Reserve Bank of New Zealand was one of the quickest central banks to turn hawkish over the summer and abandon QE and was only delayed slightly in hiking rates by New Zealand’s first Covid outbreak in many months over the summer. The central bank chief Adrian Orr has made it clear that the bank is on the path or many more rate hikes to come and the market has priced in a policy rate of 1.50% by the April meeting of next year versus the current 0.50%. Most believe that the central bank will only hike 25 bps tonight but a significant minority believe that the bank will hike 50 bps. As important will be the market mood (if risk sentiment is weak on further US yield rises, for example, the impact of any RBNZ move may be muted) and whether guidance is able to meet lofty expectations for further tightening. The NZ 2-year yield has traded flat at elevated levels since late October, while NZDUSD has declined, arguably on the fresh momentum in Fed expectations, so moving the needle may require that the RBNZ deliver a 50 basis point hike and even more hawkish guidance. Turkish lira move getting downright disorderly – Turkish President was out yesterday complimenting the recent Turkish Central Bank chief’s decision to cut rates another 100 basis points and declaring that the Turkish government would concentrate on policies that encourage economic growth. In rather dire language, he drew parallels between the current situation and the struggle to form the modern Turkish state in 1923 in the wake of World War I. As of this writing, USDTRY traded near 12.50 after starting last week near 10.00, a breathtaking move. Much more of this kind of price action, and the risk of hyperinflation will swing into view. Table: FX Board of G10 and CNH trend evolution and strengthThe most important trend shift was yesterday’s huge dump in precious metals – look at the momentum scores for the last 2- and 5 days. Otherwise, most trends of late are extending with the exception of the badly fading NZD. Table: FX Board Trend Scoreboard for individual pairsThe precious metals in for a rough ride on the USD- and US yield move in the wake of the Fed Chair nomination move yesterday. Elsewhere, getting some hefty trend readings in USD/SEK and UDS/NOK, which remain high beta to Euro weakness. Upcoming Economic Calendar Highlights (all times GMT) 1445 – US Nov. Flash Markit Manufacturing and Services PMI 1500 – UK BoE Governor Bailey at House of Lords 1500 – US Nov. Richmond Fed Manufacturing 1730 – ECB's Makhlouf to speak 1800 – Canada Bank of Canada’s Beaudry to speak 2130 – API’s Weekly Petroleum Stock Report 0030 – Japan Nov. Flash Manufacturing and Services PMI 0100 – New Zealand RBNZ Official Cash Rate Announcement
Market Quick Take - November 22, 2021

Market Quick Take - November 22, 2021

Saxo Bank Saxo Bank 22.11.2021 10:04
Summary:  Equity markets closed last week somewhat mixed, but the Asian session was mostly strong on indications that the Chinese PBOC is shifting its attitude on monetary policy toward easing. Elsewhere, the difficult wait for the Fed Chair nomination news continues this week ahead of the US Thanksgiving holiday on Thursday. Crude oil bounced after finding support overnight, but the risk of SPR release and Covid demand worries still linger. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - a new week following a new all-time high in US equities on the close on Friday, which is starting with Nasdaq 100 futures opening up higher trading around the 16,610 level in early European trading. Last week showed that investors and traders are utilizing the Covid-19 lockdown playbook selling off physical companies while buying online companies that are better equipped to navigate new lockdowns in Europe. With the US 10-year yield remaining in a range around the 1.55% there is nothing from preventing equities from extending recent gains. EURUSD and EURGBP – new Covid restrictions across Europe, which has become the center of the latest Covid wave, have crimped sentiment for the euro, as has the still very elevated power and natural gas prices. EURUSD has traded back down toward the lows of the cycle near 1.1265 overnight, with the next psychological magnet lower likely the 1.1000 area as long as the big 1.1500 break level continues to provide resistance. In EURGBP, last week saw the break of the prior major pivot low near 0.8400, with the next objective the post-Brexit vote low near 0.8275. USDJPY – threatened support on Friday on a spike lower in long US treasury, but a reversal of much of that action by this morning in late Asian trading is likewise seeing USDJPY trying to recover back into the higher range, with a focus on the recent top just short of 115.00. We likely need for long US treasury yields to sustain a move higher to support a major foray above this huge 114.5-115.00 chart area, which has topped the market action since early 2017. Meanwhile, if risk sentiment worsens further in EM and darkens the outlook for JPY carry trades there, while US treasuries remains rangebound or head lower, the JPY could squeeze higher as the speculative interest is tilted heavily short. Gold (XAUUSD) extended Friday’s drop below $1850 overnight, before bouncing ahead of key support in the $1830-35 area. The risk of a quicker withdrawal of Fed stimulus supporting real yields and the dollar has for now reduced gold's ability to build on the technical breakout. However, the price softness on Friday helped attract ETF buying with Bloomberg reporting a 10 tons increase, the biggest one-day jump since January 15. Gold’s biggest short-term threat remains the tripling of futures long held by funds during the past seven weeks to a 14-month. Most of that buying being technical driven with the risk of long liquidation now looming on a break below the mentioned support level.   Crude oil (OILUKJAN22 & OILUSDEC21) opened softer in Asia after Friday’s big drop but has so far managed to find support at $77.85, the previous top from July. The market focus has during the past few weeks shifted from the current tight supply to the risk of a coordinated reserve release, a renewed Covid-driven slowdown in demand and recent oil market reports from the EIA and IEA pointing to a balanced market in early 2022. Speculators who for the last six weeks have been net sellers of crude oil futures cut their combined WTI and Brent long to a three-month low in the week to November 16. Focus on SPR and Covid risks this week US treasuries (SHY, IEF, TLT). Government bond yields worldwide dropped as new lockdown measures were imposed in Austria on Friday. Ten-year yields tumbled to 1.55%, and they are likely to continue to trade range-bound as the debt ceiling issue will continue to compress long-term yields as volatility peaks in money markets. Investors will focus on this week’s PCE index, FOMC minutes and any news regarding a change of leadership of the Federal Reserve. If Brainard is appointed as Fed chair, the market will expect low rates for longer, thus inflation expectations will advance putting upward pressure on yields. Thus, it is unavoidable to continue to see the 5s30s continue to flatten. German Bunds (IS0L). We expect European sovereigns, in general, to continue to benefit from news related to a surge of Covid cases and lack of collateral as the year ends. Yet, the perception of inflation is changing among ECB members with Isabel Schnabel last week saying that the central bank will need to be ready to act if inflation proves more durable. Therefore, as we enter in the new year, and collateral shortages will be eased, we anticipate spreads to resume their widening. What is going on? Fed Vice Chair Clarida suggests faster Fed taper - in comments on Friday, suggesting that the December FOMC meeting could speed the pace at which the Fed will reduce its asset purchases. “I’ll be looking closely at the data that we get between now and the December meeting...It may well be appropriate at that meeting to have a discussion about increasing the pace at which we are reducing our asset purchases.” China’s central bank signals that it may ease policy. In a monetary policy report from Friday, the PBOC dropped language from prior reports, including phrase suggesting that the bank will maintain “normal monetary policy” and a promise not to “flood the economy with stimulus”. This comes in the wake of considerable disruption in the property sector as the government cracks down on an overleveraged property sector. Asian equities were mostly higher on the news, especially in Korea, although the Hang Seng index was slightly in the red as of this writing. Ericsson to acquire cloud provider Vonage in $6.2bn deal. This pushes the Swedish telecommunication company into the cloud communication industry seeking to add more growth to the overall business. Vonage has delivered 11% revenue growth in the past 12 months hitting $1.4bn with an operating margin of 10.4%. Global proceeds from IPOs hit $600bn in record year. This is the biggest amount since 2007 and almost 200% above the level in 2019 highlighting the excessive risk sentiment in equities. More confusing signals from Bank of England. Governor Bailey said in an interview for the Sunday Times that risks to the country are “two-sided” at the moment as growth slows and inflation rises, and that the cause of inflation problems is supply side constraints and that “monetary policy isn’t going to solve those directly.” Similarly, BoE Chief Economist Huw Pill said on Friday that the Bank of England said that the weight of evidence was shifting in favour of rate hikes but that he has not yet made a decision, encouraging observers to focus on the longer term rather than meeting-to-meeting decision. US shared intelligence with allies suggesting potential for Russia to invade Ukraine - according to Bloomberg sources. The intelligence noted up to 100,000 soldiers could be deployed in such a scenario, and that some half of that number are already in position.  Russian president Vladimir Putin denied Russia intends to invade, but seemed to pat himself on the back for “having gotten the attention of the US and is allies, which he accused of failing to take Russia’s ‘red lines’ over Ukraine seriously”, as the article puts it. What are we watching next? Who will US President Biden nominate to head the Fed next February? Powell is still seen as more likely to get the nod that Brainard by roughly two to one, and this Fed Chair nomination issue is hanging over the markets, as the current Fed chair term ends in early February and from comments made last week by President Biden, an announcement could come any day. One uncertainty that would come with a Brainard nomination is the potential difficulty of having her nomination approved by the Senate. The nomination news could generate significant short-term volatility on the choice of the nominally more dovish Lael Brainard over current Fed Chair Powell, though we see little difference in the medium-longer term implications for monetary policy, and the Fed is likely to get a prominent new regulatory role either way (under Brainard or someone else if she is nominated to replace Powell). Will Germany announce a Covid lockdown? - Friday saw some volatility on Austria’s announcement of a full Covid lockdown, with Germany’s health minister saying that a similar move in Germany could not be ruled out. Later that day, that was contradicted by comments from another minister. Meanwhile, resistance against Covid restrictions has turned violent in Netherlands. Earnings Watch – the number of important earnings is falling rapidly, but this week Tuesday is the most important day with key earnings from Xiaomi, XPeng and Kuaishou, both important Chinese technology companies. Also on Tuesday, US companies such as Medtronic, Autodesk and Dell Technologies are worth watching. Monday: Sino Pharmaceutical, Prosus, Zoom Video, Agilent Technologies Tuesday: Xiaomi, Kuaishou Technology, Compass Group, Medtronic, Analog Devices, Autodesk, VMWare, Dell Technologies, XPeng, HP, Best Buy, Dollar Tree Wednesday: Deere, Thursday: Adevinta Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0900 - Switzerland SNB weekly sight deposit data1330 – US Chicago Fed Oct. National Activity Index1500 – US Oct. Existing Home Sales1730 – ECB's Guindos to speak2145 – New Zealand Q3 Retail Sales2200 – Australia Nov. Flash Services & Manufacturing PMI0105 – Australia RBA’s Kohler to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Waking Up the Giants

Waking Up the Giants

Monica Kingsley Monica Kingsley 24.11.2021 16:03
S&P 500 recovered from session lows, and is likely to keep chopping around in a tight range today. Tech found solid footing in spite of sharply rising yields, which value (finally) embraced with open arms. The riskier end of credit markets doesn‘t yet reflect the stabilization in stocks, which is a first swallow. Make no mistake though, the fresh Fed hawkish talking games are a formidable headwind, and animal spirits aren‘t there no matter how well financials or energy perform. These are though clearly positive signs, which I would like to see confirmed by quite an upswing in smallcaps. All in all, this is still the time to be cautiously optimistic, and not yet heading for the bunker – that time would probably come after the winter Olympics (isn‘t it nice how that rhymes with the post 2008 summer ones‘ price action too?). Market reaction to today‘s preliminary GDP data will likely be a non-event, and we‘ll still probably make fresh ATHs before stocks enter more turbulent times. In spite of the cheap Fed talk still packing quite some punch, let‘s keep focused on the big picture and my doubts as to the Fed‘s ability to carry out the taper, let alone (proactive? No, very much behind the curve) rate raising plans – as said the prior Monday or yesterday: (…) the Fed is still printing a huge amount of money on a monthly basis, and it remains questionable how far in tapering plans execution they would actually get – I see the risks to the real economy coupled with persistently high inflation as rising since the 2Q 2022 (if not since Mar already, but most pronounced in 2H 2022. (…) True, the bullish argument for the dollar stepped to the fore as yields differential between the U.S. and the rest of the world got more positive, and at the same time, various yield spreads keep compressing. That‘s a reflection of less favorable incoming economic data. Just as much as Friday‘s reaction was about corona economic impact projections, yesterday‘s one was about monetary policy anticipation. Inflation expectations though barely budged – the decline doesn‘t count as trend reversal. CPI isn‘t done rising, and the more forward looking incoming data (e.g. producer prices) would confirm there is more to come. All in all, it looks like precious metals (and to a smaller degree commodities), are giving Powell benefit of the doubt, which I view to be leading to disappointment over the coming months. Should Powell heed the markets‘ will, the real economy would weaken dramatically, forcing him to make a sharp dovish turn – and he would, faster than he flipped since getting challenged in Dec 2018. Inflation expectation indeed held up during the day, marking modest, lingering doubts about Fed‘s ability to execute. Its credibility isn‘t lost, but would be put to a fresh test over the nearest weeks and months. The real economy can still take it, and not roll over – we are in the very early tapering stage so far still. Commodities are pointing the way ahead, and it‘s time for precious metals to shake off the inordinately high levels of fear, which mark capitulation more than anything else. Just when I was writing that it‘s as if the PMs bulls didn‘t trust the latest rally... Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls stepped in, the volume is semicredible. I like the lower knot, and would look for increasing market breadth to confirm the short-term reversal. It‘s my view we haven‘t made a major top on Monday. Credit Markets It‘s too early to call a budding reversal in credit markets – HYG needs to pull its weight better. Gold, Silver and Miners Precious metals haven‘t yet regained footing, but that moment is quickly approaching – in spite of the above bleak chart. Compare to the Jun period – Fed‘s talk was more powerful then. Crude Oil Crude oil bulls have made a good move, and more strength did indeed follow. The bottom is in, and many countries tapping their strategic reserves, proved an infallible signal. I look for consolidation followed by further strength next. Copper Copper springboard is getting almost complete, and I think the drying up volume would be resolved with an upswing. The daily indicators are positioned as favorably as the CRB Index is. Bitcoin and Ethereum Bitcoin and Ethereum are still correcting, and the upcoming Bitcoin move would decide the direction over the next few weeks. The takeaway from cryptos hesitation is that real assets can‘t expect overly smooth sailing yet. Summary S&P 500 bulls would ideally look to value outperforming tech on the upside, confirmed by HYG at least stopping plunging. A brief yields reprieve would come once the Fed steps away from the spotlight, which is another part of the bullish sentiment returning precondition set. Overall, the very modest S&P 500 moves keep favoring the bulls within the larger topping process. Keep in mind that the Fed isn‘t yet in a position to choke off the real economy through slamming on the breaks, it‘s just the forward guidance mind games for now. We are waiting for the bit more seriously than last time meant, but still a bluff, getting questioned again, as inflation expectations haven‘t broken down, and are facilitating the coming PMs and commodities runs. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Turkey gets a Reprieve before US Thanksgiving, but Capital Strike may not be Over

Turkey gets a Reprieve before US Thanksgiving, but Capital Strike may not be Over

Marc Chandler Marc Chandler 24.11.2021 14:28
November 24, 2021  $USD, Currency Movement, Germany, Japan, Mexico, RBNZ, Turkey Overview:  The dramatic collapse of the Turkish lira was like an accident one could not help look at, but it was not an accident, but the result of a disregard for the exchange rate and compromised institutions.  The lira was off around 15% at its worst yesterday, before settling 11.2% lower.  After falling for 11 sessions, it has steadied today (~2.7%)  but the capital strike may not be over.  On the other hand, the Reserve Bank of New Zealand delivered the 25 bp rate hike and seemed to give hawkish guidance, and yet the New Zealand dollar was sold and the worst-performing of the major currencies, off 0.65% through the European morning.  The tech losses on Wall Street yesterday weighed on Asia Pacific equities today, where the large markets fell but in China.  Europe's Stoxx 600 is less tech sensitive and is trying to snap a four-day air pocket, but early gains have been reversed. The US futures point to around a 0.5% lower opening.  The greenback has a firmer bias ahead of the full economic calendar ahead of tomorrow's holiday.  The yen is the notable exception.  The greenback rose to a new multi-year high near JPY115.25 but has come back offered and is straddling the JPY115 level in late morning turnover in Europe.  Emerging market currencies are mixed, though the JP Morgan Emerging Market Currency Index is firmer after six consecutive down sessions.  Gold is steadying after a four-day drop that took it from around $1870 to about $1782. Oil extended yesterday's recovery after the concerted agreement to release strategic reserves from six countries but is struggling to sustain the upside momentum.  The market was unimpressed with the new supply and had it (and more?) discounted.  European (Dutch) gas rose 8% yesterday and remains firm today.  Iron ore prices are higher for the fourth session, during which time it has risen by around 20%.  Copper is also firmer for the second session.  It is up about 4.5% from the middle of last week's low.   Asia Pacific The Reserve Bank of New Zealand hiked its cash rate 25 bp to 0.75%.  It was widely expected, and many had leaned to a 50 bp move.  The forward guidance saw the cash rate at 2.0% at the end of next year.  The swaps market had this nearly priced in as well.  This might help explain the profit-taking on the New Zealand dollar.  The 2-year yield fell 14 bp, and the 10-year yield eased by 5.5 bp.  New Zealand stocks defied the regional pressure and rose by about 0.6%.   Japan's economy is recovering. The economy contracted by 0.8% in Q3, but after a slow start, the vaccination program has been successful.  It has allowed a re-opening of the economy.  This is evident in the flash PMI report.  The manufacturing PMI rose to 54.2 from 53.2, and the services PMI improved to 52.1 from 50.7.  The composite new stands at 52.5 (from 50.7) and represents a new cyclical high.  Recall that it bottomed in August at 45.5.  The fiscal support being offered by the supplemental budget is pro-cyclical; it will accelerate the recovery.   The break of JPY115.00 has seen limited follow-through dollar buying.  It peaked near JPY115.25 in Asia and fell to around JPY114.80, where it has found a bid in European dealing.  The nearly $950 mln option that expires today at JPY115 has likely been neutralized (hedged/offset), and the one at JPY115.50 for $1.2 bln may be too far away to be impactful.  Our idea of a JPY113.-JPY115 range is being tested, but recall that earlier this month, the dollar has slipped to almost JPY112.70.  The range is not carved in stone, and some fraying is inevitable.  Still, a move above JPY115.50 would suggest that this consolidation since mid-October is over, and a new and higher range is likely.  Next:  JPY118-JPY120, maybe.  The Australian dollar leaked lower and briefly dipped below $0.7200 for the first time since October 1.  There is an option that is expiring today there for about A$355 mln.  It steadied after early Asia Pacific trading and approached the nearby cap near $0.7230.  A move above here would help the technical tone.  Officials appear to have broken the one-way trading in the yuan.  It has been alternating between gains and losses this week, but the movement has been small, and the yuan is virtually unchanged this week.  The reference rate was set at CNY6.3903, slightly more than the market expected (Bloomberg) of CNY6.3898.   Lastly, we note that South Korea is widely expected to hike the seven-day repo by 25 bp tomorrow, following a similar hike in August.   Europe It has taken the better part of the two months, but the new German coalition appears to have been agreed upon.  However, what the soon-to-be Chancellor Scholz is inheriting is a mess.  The Bundesbank warned recently that the economy may be stagnating this quarter (though the flash PMI yesterday did not confirm this), and inflation may be approaching 6%.  Moreover, the covid infection rate has reportedly doubled in the past two days.  The US CDC put Germany (and Denmark) on a heightened travel advisory.   As one would expect, this is taking a toll on sentiment.  The IFO investor survey showed this.  The current assessment fell to 99.0 from 100.2.  The expectations component eased to 94.2 from 95.4.  The assessment of the overall business climate stands now at 96.5, down from 97.7. After falling for the fifth consecutive month,  it is at the lowest level since April.   The euro's losses were extended to almost $1.12.  The weakness seems most pronounced in Europe, which lends credence to ideas that European financial firms are key sellers, which some related to year-end adjustments.  However, the three-month cross-currency basis swap has steadied since Monday, and pressure on the euro remains.   We note that the two-year US-German interest rate differential rose for the fourth consecutive session yesterday to reach 135 bp, the most since last March, but is steadying today.  Since the convincing break of $1.13, we do not see strong chart support until closer to $1.10.  Sterling made a margin new low for the year yesterday near $1.3345.  It remains stuck near there in quiet turnover.  The $1.3400 area offers nearby resistance.  Here we see little technical support until around $1.3165.  America The US holiday tomorrow is forcing a heavy data release schedule today.  Not all the data is of equal importance.  Of the first set of reports, the weekly jobless claims will command attention.  They have fallen for the past seven weeks and are at their lowest level since the pandemic (268k).  The November national employment report is due at the end of next week, and another 500k jobs were thought to have been filled.  The October trade balance and durable goods orders are notable.  Nearly all the October data has been reported better than expected.  Growth differentials warn of the risk of a wider trade shortfall.  The revisions to Q3 GDP (likely higher) are unlikely to capture much attention as it is too backward-looking.   The second batch of data may see a bigger market reaction, especially in the debt market.  The US is expected to report a jump in personal spending (consumption needs to accelerate if the economy strengthens this quarter).  Income is likely to recover a bit from the 1.0% drop reported in September.  The market may be most sensitive to the deflators.  Here inflation is set to accelerate.  The headline is projected to rise above 5%, while the core should peak above 4%.   Lastly, new homes sales surged 14% in September and maybe lucky to sustain those higher levels in October.  Late in the session, when many in the US may be winding down ahead of the holiday, the FOMC minutes from this month's meeting will be released.  The current focus is on the possibility that the Fed accelerates its tapering next month, and anything that sheds light on this could shape the market's reaction.    The US dollar reversed lower yesterday after reaching CAD1.2745.  It settled near its lows (~CAD1.2670), but there has been no follow-through selling, and the five-day moving average, which it has not closed below since November 15, held (~CAD1.2660). Initial resistance is seen now around CAD1.2700-CAD1.2720.  We note that Canadian bonds are under some pressure, and the 10-year yield is above 1.80%, the highest level since April 2019.  The dollar rose to MXN21.30 yesterday and remains firm, even if off the high today.  News that Mexico's President pulled the nomination of Herrera, the former finance minister, as the next central bank governor, injected some volatility into the peso.  Reports suggest that Herrera's nomination was retracted a few months ago but was kept confidential.  It is not clear what happens next.  Some suspect Herrera may still get the nomination.  It does not appear that any official statement or clarification has been provided.  The median seems to be playing up the likelihood of some announcement in the coming days.  Meanwhile, Mexico reports its bi-weekly CPI figures, and inflation is still accelerating.  Tomorrow's final Q3 GDP is expected to confirm that the economy contracted.  The dollar recorded the high for the year against the peso in March near MXN21.6360.   Disclaimer
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - November 24, 2021

Saxo Bank Saxo Bank 24.11.2021 09:53
Macro 2021-11-24 08:40 6 minutes to read Summary:  US equity markets bounced back from an extension of the sell-off from the highs of Monday, perhaps in part as a firm US 7-year treasury auction saw yields settling back lower, just after that particular benchmark had notched a new high yield for the cycle. Today sees a flurry of US data and the FOMC Minutes all crammed into the last day before the long Thanksgiving weekend in the US, where markets are closed tomorrow and only open for short session on Friday. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - Nasdaq 100 recovered from steep losses late in yesterday’s session which has extended this morning on a positive session in Asia driven by improved sentiment in Chinese equities on good earnings releases. Nasdaq 100 futures are trading 1.4% higher than yesterday’s lows. The key thing to monitor is still the US 10-year yield and the USD for clues of where US equities are going. If Nasdaq 100 futures can extend their momentum today the 16,443 level is the natural gravitational point in this market sitting at the 50% retracement level over the past three trading sessions. USDJPY – The  USDJPY outlook is predominantly a question of “will it or won’t it sustain a break above 115.00?” And the answer to that question is likely coincident with whether long US treasury yields will rise above the 1.75% highs established earlier this year. After a strong 7-year US treasury auction yesterday, US longer yields dipped from session highs, drawing out the suspense on USDJPY direction here. AUDNZD – after the RBNZ meeting proved far less hawkish than the market has priced, it feels as if it will be difficult for the momentum in higher RBNZ rate expectations to return as the bank likely waxed a bit cautious overnight (more below) to give itself more time to assess how quickly the tightening in the bag and a few more planned hikes already priced in are affecting the NZ economy. In Australia, meanwhile, the economy is emerging from lockdowns and rate expectations could close the gap, with an additional possible source of support from China, where stimulus may be on the way, and where the anticipation of a rise in steel output has sharply boosted iron ore prices (Australia’s largest export). AUDNZD may have bottomed out now and we watch for whether this sharply rally off the bottom could have legs for at least 1.0600 as AU vs. NZ yield spreads mean revert. Gold (XAUUSD) trades higher after finding support ahead of $1781. The slump this week below  $1835 area was triggered by rising Treasury yields following the renomination of Jerome Powell as Fed chair. The oversized downside reaction, however, was caused by long liquidation from hedge funds who had been rushing into gold before and after the recent CPI shock. Gold’s short-term ability to bounce will mostly depend on whether the washout has triggered a big enough reduction of recently established and now loss-making positions. A sharp drop in open interest in COMEX gold futures and two days with double the normal trading volume could indicate most of the adjustments have now been executed. Crude oil (OILUKJAN22 & OILUSJAN21) jumped the most in two weeks yesterday after a US initiated release of strategic reserves underwhelmed in its size and details. Most of the oil being offered to refineries will have to be returned at a later date while international contributions were smaller than expected. Refineries are already processing crude near the seasonal pace so the market doubt how much extra oil they may need. Also, and more important, the OPEC+ alliance called the move unjustified given current conditions and as a result they may opt to reduce future production hikes, currently running near 12 million barrels per month. Ahead of today’s EIA stock report, the API last night reported a 2.3 million barrel increase with stockpiles at Cushing also rising US treasuries (SHY, IEF, TLT). At the beginning of the day, the yield curve bear flattened with 7-year yields breaking above 1.55% before the 7-year auction. It led many to believe that it could be a catastrophic bond sale as demand for Monday’s 2-year and 5-year Treasuries was weak. Surprisingly, bidding metrics were strong with the bid-to-cover ratio being the highest since September 2020, and the yield stopping through by 1bps at 1.588%. Following the auction, the yield curve steepened slightly amid lower breakeven rates and less aggressive rate hikes for 2022. We expect the bond market to continue to be volatile as the market adjusts expectations for rate hikes next year. Yet, the long part of the yield curve is likely to remain in check until a resolution to the debt ceiling is not found. Todays’ Personal Consumption Expenditures might revive inflation fears reversing gains in the Asia trading session. Italian BTPS (BTP10). Italian government bonds sold off for the second day in a row as German and French PMI beat expectations, hinting at the inevitable end of the PEPP program. To weaken sentiment in BTPS was also news that President Mattarella is going to vacate his position in January leaving a political vacuum. Parties are pushing Draghi to get that position to get rid of him and go to early elections. If that were to happen, the stability that Italian BTPS enjoyed since Draghi is leading the government will vanish provoking a fast widening of the BTPS-Bund spread. What is going on? EU gas prices surged back above $30/MMBtu (€90/GWh) yesterday in response to rising winter demand, low power production from wind farms and increased competition from Asia which is ramping up its LNG imports. The US imposing additional sanctions aimed at Russia’s Nord Strem 2 pipeline also received some unwelcome attention. Sky-high day ahead prices for power adding to the pain with some countries approaching record highs. Power plants are burning more coal which is cheaper and more profitable and it has helped drive the emissions future (CFIZ1) to a new all-time high this week above €70 per tons. RBNZ hikes only 25 basis points, statement somewhat cautious. The majority of market participants were looking for a 25-basis point hike from the RNBZ overnight, but enough were looking for 50 bps that the 0.25% hike to take the official cash rate to 0.75%  rate triggered a sell-off in the kiwi. But it was the guidance that was a bit more of a surprise than the rate move, as the RBNZ noted that, while further rate rises would be needed, “the Committee expressed uncertainty about the resilience of consumer spending and business investment....(and) also noted that increases in interest rates to households and businesses had already tightened monetary conditions.” The 2-year NZGB yield dropped 14 basis points overnight to 1.94% as the market lowered rate hike expectations out the curve. Turkish lira descent accelerates – yesterday was a wild day for the TRY, which fell almost 20% in a single day yesterday before stabilizing slightly, on fresh rhetoric from Turkish president Erdogan, who complimented the recent Turkish Central Bank decision to cut rates again and who continues to use belligerent rhetoric against the standard EM playbook for dealing with a devaluing currency (vicious belt tightening via rate hikes, etc.). Chinese equities are rebounding on good earnings releases. Yesterday’s earnings releases from Xiaomi, Kuaishou Technology, and XPeng  have lifted sentiment in Chinese equities. Kuaishou was a positive surprise given the technology crackdown in China and XPeng overtook NIO in Q3 on EV deliveries showing that the company can ramp up production. ECB Vice President Luis de Guindos says inflation drivers are becoming more structural. In a speech yesterday in Madrid, the central banker said that “the ECB is continuously pointing out that the inflation rebound is of a transitory nature....However, we have also seen how in recent months these supply factors are becoming more structural, more permanent.” Euribor futures far out into 2024 and 2025 are several ticks lower from recent highs, but also up a few ticks from yesterday’s lows, as the market is only pricing for the ECB to move back to 0% rates by around the beginning of 2025. What are we watching next? Busy US Economic Calendar ahead of long holiday weekend - the majority of US office workers take a long weekend that includes Thanksgiving Day tomorrow and the Friday as well, with a lot of the data that normally would have been spread out over the rest of the week all piled up into a heap in early US hours today. The key number to watch today is the October PCE Inflation numbers, where the headline “PCE Deflator” and “PCE Core Deflator” are expected to show year-on-year readings of 5.1%/4.1% respectively vs. 4.4%/3.6% in September, which would mean the hottest pace of inflation since the early 1990’s. Much later in the day we have the FOMC minutes from the November 3 meeting, which should be interesting for whether the debate on whether the Fed needs to tighten policy more quickly is becoming more heated. Earnings Watch – the rest of the week in terms of earnings will be quite light with today’s focus on Deere which sells equipment to the agricultural sector and thus is a good indicator on this sector. Wednesday: Deere Thursday: Adevinta Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0900 – Germany Nov. IFO Survey 1330 – US Weekly Initial and Continuing Jobless Claims 1330 – US Oct. Advance Goods Trade Balance 1330 – US Q3 GDP Revision 1330 – US Oct. Durable Goods Orders 1430 – UK BoE’s Tenreyro to speak 1500 – US Oct. PCE Inflation 1500 – US Final University of Michigan Sentiment Survey 1500 – US Oct. New Home Sales 1530 – EIA's Weekly Crude and Product Inventory Report 1700 – EIA’s Natural Gas Storage Change 1900 – US FOMC Meeting Minutes   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
The Turkish Lira rebound, but hardly for long

The Turkish Lira rebound, but hardly for long

Alex Kuptsikevich Alex Kuptsikevich 25.11.2021 13:55
The Turkish Lira added 10% against the dollar and Euro from lows at the start of Wednesday. At the beginning of trading on Thursday, there was also a relative calm in the exchange rate performance. However, an important question to be answered in the coming days is how temporary this calm will be. The fundamentals for the Turkish currency are unchanged: The Turkish central bank and the President continue to argue about the benefits of low-interest rates for the economy and benefits of competitiveness through a weaker currency. But it should not be forgotten that these factors only have a positive effect when the currency has stabilised, and the financial markets have a point of reference. Right now, the economy is suffering a severe shock from a 40% devaluation of the Lira against the USD so far this month to yesterday low. Even worse, such rate hikes are shaping expectations for further depreciation and further spurring sales of the Lira. Retailers and manufacturers in such circumstances prefer to fix prices of goods in harder currencies, which causes a shock freeze in economic activity. The example of Apple’s retail shops being closed because of the Lira’s devaluation is striking but hardly the only one. What we are likely seeing today, and perhaps for the next couple of days, is just a brief moment of stabilisation before a new wave of pressure on the Lira, which could continue right up to the policy changes. Whether it will be capital controls or rate hikes is an open question, but for sure, the answer won’t be easy.
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - November 26, 2021

Saxo Bank Saxo Bank 26.11.2021 09:25
Macro 2021-11-26 08:30 6 minutes to read Summary:  Fears linked to a new and different covid variant discovered in South Africa helped send a wave of caution over global markets overnight. Stocks in Asia and the US slumped, Treasuries rallied while the dollar traded near a 16-month high. Crude oil shed 3% and gold rose with the detection of the new covid strain. US markets will have a shortened session today as many are still away for the holiday, aggravating liquidity concerns ahead of the weekend. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equity futures shot lower from the moment they opened overnight on the new Covid variant news, a jolting development after Wednesday’s pre-Thanksgiving holiday closed seemed to show risk sentiment trying to make a stand after some early last week, and perhaps in part in anticipation of the traditionally strong seasonal run into the winter holidays in late December. Given poor liquidity today in the US as many are away from their desks for a long holiday weekend and the market is only for a half session, any significant flows by traders looking to reduce risk could mean significant volatility. Stoxx 50 (EU50.I) - the main European equity futures contract is down 3.2% on the news of a new more infectious Covid strain as it increases the probability of new lockdowns to safeguard hospitals. We observe the pandemic playbook in equities with technology and online companies falling less than physical companies such as miners, energy, and retailers. Stoxx 50 futures have broken below the 50% retracement level measured on the recent runup since early October. The next critical support levels are at 4,125 and 4,058. As this is a Friday, the liquidity situation could be significantly worsened and exacerbate intraday moves. USDJPY and JPY crosses – The huge shift in market mood overnight saw risk aversion sweeping across global markets driving US treasuries back higher and US yields lower, and triggering a huge jolt of JPY buying, as the JPY trading up against all of its G10 peers. USDJPY is well back below the 115.00 level that was broken overnight and the classic “risk proxy” AUDJPY was blasted for steep losses, with GPJPY also in particularly steep retreat. Another pair worth watching is EURJPY, where there is a well-defined range low near 128.00. Further risk aversion and falling yields could support a significant extension of the JPY rally if we are seeing a sustained change of mood here. Gold (XAUUSD) traded higher overnight as renewed Covid fears spread to financial markets with US Treasuries trading sharply higher, thereby reducing the threat that earlier in the week helped send gold crashing below $1835. A combination of high inflation and the economic risks associated with the new virus strain could provide renewed demand following the recent washout. US ten-year real yields slumped to –1.09% while the nominal yield dropped to 1.54% just days after threatening to break above 1.7%. From a technical perspective, a break above $1816 would signal renewed strength and a possible fresh challenge towards the $1830-35 resistance area. Crude oil (OILUKJAN22 & OILUSJAN21) slumped on renewed Covid concerns ahead of next week’s OPEC+ meeting. The market got caught up in a wave of caution overnight with Brent falling 3% as the new and fast mutating virus variant drives worries about renewed restrictions on mobility at the time when the existing delta is already triggering renewed lockdowns in Europe. Next week’s OPEC+ decision on production levels for January has suddenly been made extra hard with the risk of weaker Covid-related demand coming on top of the SPR release announcement earlier this week. US treasuries (SHY, IEF, TLT). A new Covid wave is leading investors to fly to safety provoking yields to drop roughly 10bps across the whole US yield curve. However, we expect the bond rally to be short-lived for several reasons. First, the market has learnt through earlier new strains that Covid is temporary. Secondly, a renewal of lockdown measures would make supply chain bottlenecks worse, introducing even more inflationary pressures to the economy. Therefore, it’s necessary for central banks to stop stimulating demand, keeping intact the recent Fed’s hawkish tilt. We expect more aggressive monetary policies beginning with an acceleration of the pace of tapering in December, followed by earlier interest rate hikes expectations. It will be inevitable for yields to resume their rise and the yield curve to bear flatten. Today investors will find poor liquidity in markets due to the Thanksgiving holiday, cautious will be needed. German Bunds (IS0L). The new German government unveiled a governing coalition deal. Among the extensive list of policies, bond investors should focus on the accommodative fiscal policies for 2022 and 2023, the beginning of a “decade of investment” and the rejection of a new lockdown amid a record rise of Covid cases. More spending translates to higher Bund yields. However, yields remain muted as Europe becomes the new epicenter of Covid-19 infections. With news of the new South Africa strain, yields might fall until we’ll have a full picture of what is happening. Italian BTPS (BTP10). Italian government bonds remained in check as governments in Europe move forward to impose new restrictions due to a rise Covid-19 infections. Yet, investors should remain vigilant as the PEPP program will still end in March. To weaken sentiment in BTP’s further is also the news that President Mattarella is going to vacate his position in January leaving a political vacuum. Parties are pushing Draghi to il Quirinale to get rid of him and go to early elections. If that were to happen, the stability that Italian BTPS enjoyed since Draghi entered in Italian politics will vanish provoking a fast widening of the BTPS-Bund spread. What is going on? What we know about the new Covid virus variant that’s hurting markets. The new Covid virus variant, with a scientific description of B.1.1.529 but with no Greek letter yet designated, has been identified in South Africa and observers fear that its significant mutations could mean that current vaccines may not prove effective, leading to new strains on healthcare systems and complicating efforts to reopen economies and borders. Researchers have yet to determine whether it is more transmissible or more lethal than already known variants. As of Thursday, 90% of 100 positive PCR tests in a specific area of South Africa were of the new variant. The South Korean central bank raised its policy rate 25 bps to 1.00% as expected and signaled further rate hikes to come, saying that rates are still accommodative after now having hiked twice for this cycle. The Swedish Riksbank kept rates at 0%, sees lift-off by the end of 2024. This is the first time the bank has indicated a positive rate potential in their policy forecast horizon. SEK tried to rally yesterday, but is stumbling badly overnight, with EURSEK is soaring this morning in correlation with the decline in global market sentiment, as the Swedish krona is very sensitive to the EU economic outlook and a weaker euro and to risk sentiment more generally. The 2021 EURSEK high near 10.33 is suddenly coming into view after the pair traded south of 10.00 less than two weeks ago. Australia Retail Sales leap 4.9% month-on-month versus 2.2% expected, as lockdowns ended across the country, but with the market is not in the right place to celebrate the news as new Covid strain fears elsewhere dominate the news flow and the Aussie traditionally trades weaker when risk sentiment tanks as it has done since last night. What are we watching next? This is a remarkable and violent shift in mood at an awkward time for markets - as the most liquid global market, the US, was out yesterday for a holiday and the Friday after Thanksgiving (today) usually sees the vast majority of traders and investors still on holiday, with the US equity market only open for a half session. Ahead of the weekend and with the new virus news afoot, markets may have a hard time absorbing new trading flows and the risk of gap-like moves rises. Black Friday consumer spending – retail sales during Black Friday today and over the weekend is often a good barometer on consumer confidence and causes big moves in retailers the following week as their weekend sales are announced. Earnings Watch – the new Covid-19 virus strain observed in South Africa is obviously overshadowing the two important earnings releases from Meituan and Pinduoduo, but they are important for investors investing in Chinese technology companies. Despite Chinese companies at the margin have fared better than expected on earnings in Q3, estimates for Q4 and beyond are still coming down. Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0800 – ECB President Lagarde to speak0830 – Sweden Oct. Retail Sales1300 – UK Bank of England Chief Economist Huw Pill to speak1330 – ECB Chief Economist Lane to speak   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
New virus strain pulls back online vs offline bets in equities

New virus strain pulls back online vs offline bets in equities

Peter Garnry Peter Garnry 26.11.2021 11:52
Equities 2021-11-26 11:20 7 minutes to read Summary:  Equities markets are selling off due to new virus strain due to this strain being much more infectious than the current dominant variants, but more importantly uncertainty over how effective the vaccines will be on this new strain. This uncertainty lifts the probability of more lockdowns and travel restrictions and as a result traders selling off physical companies in energy, mining, financials and consumer discretionary against health care, utilities, and technology stocks. While overshadowed of today's risk-off event there have been several key news out on Chinese equities related to Didi Global, Evergrande, and Meituan which we cover in today's equity update. Equities react to increased likelihood of new lockdowns Financials markets are in upheaval over a new Covid virus strain (called the Nu variant) has been identified in South Africa, which seems to be more infectious than the current dominant strains. With Europe and some northern parts of the US in a stretched situation to an already high number of new cases and hospitalizations, this new virus strain comes at the worst possible time. The good thing is that the more infectious the virus get the less likely it is to also get more virulent, but it can still put pressure on hospitals. Equities are reacting negatively because it is unknown at this point to what degree the vaccines will be effective against the new strain, and thus it increases risk of new lockdowns which leads to an economic hit. Another good thing is that South Africa has been open and transparent about the virus strain which means that countries can react faster and because societies are better prepared the impact overall on the economy such be less than initially during the pandemic. The online vs offline companies trade is expressed today Due to the rising probability of lockdowns, which was already in play before the news of the new virus strain, traders and investors are again pulling out the pandemic playbook on equities. The chart below shows Nasdaq 100 futures vs Stoxx 50 futures over the past 10 trading days which expresses the online/technology vs offline/physical companies. The idea is that online companies can better weather new lockdowns where as companies operating in the physical world obviously are more impacted by travel restrictions and potential lockdowns. Smaller companies are also more vulnerable which is why Russell 2000 futures and the global index on small cap companies are under pressure today. Liquidity is thin today going into the weekend and being on the backside of Thanksgiving in the US (trading in US equities ends today at 1300 EST) and thus the initial reaction in equities was aggressive, whereas a couple of hours into trading European equity futures have bounced back somewhat. Not surprisingly the worst performing sectors today in Europe are energy (lower demand for oil), financials (potential hit to loan books), industrials (more supply constraints and lower demand), consumer discretionary (lower demand for cars and other large consumer items), where as health care, utilities, and technology companies are less off as these sectors are necessities and can weather lockdowns better. China equities continue to weighed down by bad stories Besides the risk-off trade in equities several key stories have hit Chinese equities over the past 24 hours. The Chinese government has asked Didi Global to delist from NYSE emphasizing once again the hidden volatility in Chinese listed stocks in the US. Our view remains that investors that want exposure to China should do that through mainland and Hong Kong listings. Stocks related to the housing market was impacted negatively today from news that Evergrande’s founder Hui Ka Yan has sold shares worth $344mn which is seen as a negative for the company and the industry’s outlook, as the Chinese government is urging Hui to use his own wealth to bolster the company’s finances. Finally, Meituan has reported Q3 earnings showing revenue growth of 38% as expected but operating margins under pressure leading to widening losses as the technology crackdown and “Common Prosperity” are forcing Meituan to increase operating expenses on social security for its gig workers. Appendix: 5-year chart on Nasdaq 100 and Stoxx 50 futures
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - November 25, 2021

Saxo Bank Saxo Bank 25.11.2021 09:49
Macro 2021-11-25 08:45 6 minutes to read Summary:  Asian stocks and US equity futures traded higher overnight as traders weighed Chinese efforts to support its economy, and after solid US economic data combined with persistent price pressures added to market concerns, the Fed may speed up its removal of policy support to curb inflation. In Treasuries, shorter maturity advanced while longer dated retreated after failing to break key resistance. The dollar trades close to a 16-month high while the crude oil market held steady with focus on next week's OPEC+ meeting. US cash markets are closed for Thanksgiving today with limited price activity expected. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - yesterday’s less bad than feared PCE inflation for October reversed momentum in US interest rates and pulled equities and especially US technology stocks higher. With the recent Powell and Brainard statements it is clear, that the Fed will put more weight on inflation than employment as we go into 2022, and thus the pressure will remain on interest rates and high duration assets such as technology stocks. Nasdaq 100 futures sit at 16,414 in early European trading and will have to overcome the 50% retracement level at 16,435 in order to continue the upward momentum. USDJPY – while US equities and US interest rates turned around yesterday, the reaction in USDJPY was less muted ending the sessions higher underscoring the strong USD momentum. The outlook is still predominantly a question of “will it or won’t it sustain a break above 115.00” which depends on whether the US 10-year yield can push into new highs for the year above the 1.75% level. Gold (XAUUSD) trades higher after once again managing to find support in the $1780 area. Another strong read on US inflation, this time the Fed’s favored PCE Deflator, helped flatten the US yield curve with the yield on short dated maturities rising while US ten-year notes ended lower after failing to break key resistance in the 1.7% area. The big price slump below $1830 this week was primarily caused by long liquidation from funds who had been rushing into gold before and after the recent CPI shock. Gold’s short-term ability to bounce will mostly depend on whether the washout has triggered a big enough reduction of recently established and now loss-making positions. From a technical perspective, a break above $1816 is the minimum requirement for calm to emerge. Crude oil (OILUKJAN22 & OILUSJAN21) has settled into a nervous wait-and-see mode with focus on the Dec 2 OPEC+ meeting after its advisory board said the US-led coordinated release of reserves may drive a crude oil surplus early next year. This comes after the alliance called the move unjustified given current conditions and as a result, they may opt to reduce future production hikes when they meet on Tuesday. Yesterday’s EIA report was price supportive with crude oil stocks only seeing a small 1 million barrels increase despite a sharp drop in exports and another injection from strategic reserves. US treasuries (SHY, IEF, TLT). Yesterday, we received a thorough list of data, which might have just given more reasons to the Fed to accelerate the pace of tapering during the next FOMC meeting. The PCE index rose to 5%, the highest since 1981 while inflation expectations for the next 5 years stuck to 3%. Jobless claims fell to the lowest since 1969, indicating that jobs are recovering fast. Lastly, the FOMC minutes showed that members are beginning to worry about less transitory inflation, provoking rate hikes expectations to accelerate by the end of the day. However, due to the looming holiday, US Treasuries remained muted. 5-year UST futures this morning are down during the Asian session despite low liquidity, indicating that sentiment is bearish. Friday’s trading session will also be affected by low liquidity due to the Thanksgiving schedule. We will have a better picture on Monday, but it looks likely yields will continue their rise and the yield curve flattening. German Bunds (IS0L). The new German government unveiled a governing coalition deal. Among the extensive list of policies, bond investors should focus on an accommodative fiscal policy for 2022 and 2023, the beginning of a “decade of investment” and the rejection of a new lockdown amid a record rise of Covid cases. More spending translates to higher Bund yields. However, yields remained mutes as Europe becomes the new epicenter of Covid-19 infections. Yet, Bunds remain vulnerable, and rates might move higher as US Treasury yields resume their rise. Italian BTPS (BTP10). Italian government bonds remained in check as governments in Europe move forward to impose new restrictions due to a rise Covid-19 infections. Yet, investors should remain vigilant as the PEPP program will still end in March. To weaken sentiment in BTPS further is also the news that President Mattarella is going to vacate his position in January leaving a political vacuum. Parties are pushing Draghi to il Quirinale to get rid of him and go to early elections. If that were to happen, the stability that Italian BTPS enjoyed since Draghi entered in Italian politics will vanish provoking a fast widening of the BTPS-Bund spread. What is going on? Europe’s Covid problem is deteriorating, and with the region now accounting for almost 60% of global Covid deaths, the risk of more lockdowns and restrictions continue to rise. German business climate in November slumped slightly more than expected to its lowest in five months as local companies grapple with supply bottlenecks and the mentioned fourth wave of COVID-19. Fed officials at their last meeting were open to removing policy support at a faster pace to rein in inflation. Since then, data have shown accelerating price pressure, not least after the Fed’s favorite gauge, the PCE Deflator rose 5% YoY, the fastest pace in three decades. "Various participants" noted the FOMC should be ready to tweak the tapering pace and raise the target range for the Fed funds rate sooner than currently expected if inflation continues to run higher, minutes showed. By now, the market has priced in a total of three rate hikes for 2022. EU gas trades higher again today, reaching $30.7/MMBtu (€93.5/GWh) today in response to rising winter demand, low power production from wind farms and increased competition from Asia which is ramping up its LNG imports. Sky-high day ahead prices for power adding to the pain with some countries approaching record highs. Power plants are burning more coal which is cheaper and more profitable and it has helped drive the emissions future (CFIZ1) to a new all-time high this week above €72.5 per tons. What are we watching next? The USD and US interest rates will make or break equities - it is clear that interest rate sensitivity is picking up as a theme as US interest rates are trading just below the two recent local highs in March and October. The USD is strong which puts pressure on emerging markets and any indications that the USD is losing momentum will improve flows into emerging market equities and bonds. Black Friday consumer spending – retail sales during Black Friday tomorrow and over the weekend is often a good barometer on consumer confidence and causes big moves in retailers the following week as their weekend sales are announced. Earnings Watch – with Thanksgiving today in the US market activity will be significantly lower than normal. Only earnings release today is from Norwegian Adevinta, which has already reported with operating income in Q3 coming in a bit lower than consensus. Thursday: Adevinta Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0700 – German Q3 GDP 0700 – German GfK Consumer Confidence   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Focusing On US CPI, Fed, Commodities and Bank Of Japan - Saxo Market Call

Market Quick Take - November 29, 2021

Saxo Bank Saxo Bank 29.11.2021 09:48
Macro 2021-11-29 08:40 6 minutes to read Summary:  The market is trying to brush off fears that the new omicron covid variant may significantly disrupt the global economy, with only partial success as cases of the variant have been discovered in multiple countries outside of the original outbreak area. Equities and crude oil markets have erased a portion of the enormous losses from Friday, but the Japanese yen strength actually accelerated at times overnight as Japan will move to halt entry by all foreign visitors. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equity futures with especially Nasdaq 100 futures are charging ahead trading above the 50% retracement level based on Friday’s price action. The new Covid variant has for now made the market put monetary tightening on pause for a while until we get a better picture of the new variant and its impact. This is supporting US technology stocks as it puts less upward pressure on interest rates. Stoxx 50 (EU50.I) - European equities were down the most on Friday logically bouncing back the most in today’s session with Stoxx 50 futures trading at the 50% retracement level of Friday’s selloff at the 4,151 level. The next big resistance level on the upside is 4,189. If the new Covid variant ends up restricting mobility and travelling we expect Europe and emerging markets to perform worse than US equities. USDJPY and JPY crosses – The Friday meltdown in risk sentiment saw the Japanese yen rallying strongly, with a classic risk proxy pairing like the AUDJPY suffering its worst single day draw-down since the pandemic outbreak in March of 2020. While other markets tried to put on a hopeful face at the start of the week in Asia today, it is notable that the JPY strength has actually accelerated, perhaps in part as Japan is taking the remarkable step of banning all inbound travel from foreign destinations starting tomorrow. In USDJPY, we watch the important pivot low of 112.73, a fall through which could set up a challenge of the 111.50-111.00 zone that supports the trend from the lows of early 2021. Speculative positioning is quite short the JPY, so there is considerable potential fuel for an extension of this JPY rally. EURJPY has broken down through the important 128.00 area support overnight. EURUSD – the squeeze higher in EURUSD on Friday appears linked with the market moving quickly to remove expectations of Fed rate hikes in the wake of the news of the new omicron covid variant, which improves the equation for the euro from a “yield spread” perspective. For EURUSD to trade to new cycle lows from here, we would likely either need to see a return to new highs for the cycle in Fed expectations or some new meltdown in sentiment that would reward the US dollar more as a safe haven. Resistance is perhaps 1.1350-1.1385. Gold (XAUUSD) failed to attract a strong safe haven bid on Friday to push it through resistance at $1816. This despite multiple tailwinds emerging from the omicron-driven carnage after bond yields slumped while the dollar and the VIX jumped. Instead, a slump across industrial metals spread to silver and platinum, thereby curtailing golds potential upside. Gold trades lower today with other markets making a tentative recovery in the belief Friday’s selloff was overdone. However, until we have more details about the virus (see below) the markets will remain nervous as can be seen in fresh yen strength this Monday (see above). Four failed attempts to break below $1781, a key Fibonacci level, may also offer returning bulls some comfort. Crude oil (OILUKJAN22 & OILUSJAN21) suffered one of its largest one-day crashes on Black Friday in response to worries the new omicron virus variant could drive renewed demand weakness caused by widespread lockdowns and travel bans. Equally importantly was probably the very bad timing with the news hitting the markets on a low liquidity day after the Thanksgiving holiday. The market traded higher in Asia as buyers concluded the selloff was overdone while also speculating OPEC+ may act to support prices when they meet on Thursday. The group may decide to postpone the January production increase or if necessary, temporary cut production into a period that was already expected to see the return of a balanced market. Ahead of the meeting and until we know more about the new strain and its associated risks, the market will remain very volatile. US Treasuries (IEF, TLT). The omicron strain will be in the spotlight this week as well as monetary policies expectations and the non-farm payrolls on Friday. Jerome Powell’s speech tomorrow and on Wednesday will be key as the Coronavirus and CARES act will be discussed. It’s likely that rates will remain compressed across the yield curve as there continue to be uncertainties surrounding the omicron strain. Yet, we expect the Federal Reserve to stick to their hawkish agenda and accelerate the pace of tapering in December as inflation will continue to be a concern. It implies, the yield curve will continue to bear flatten, and could even invert as economic expectations dive, pinning down long-term yields. If the White House looks to add more stimulus, that would imply more bond issuance, putting further pressure in the front part of the yield curve. German Bunds (IS0L) and Italian BTPS (BTP10). This week’s focus will be the Eurozone CPI flash numbers and news concerning Covid lockdowns and restrictions. Friday’s flight to safety provoked yields to drop across the euro area, including among sovereigns with a high beta such as Italy. The reason behind it is that German Bunds are tightly correlated to US Treasuries and that the market was anticipating more accommodative monetary policies from the ECB, which have been benefitting mostly the periphery. Investors should remain cautious. Indeed, inflation remains a big focus and could drive towards less accommodative policies rather than more. What is going on? Market is grappling with what to do about the omicron covid variant. The worst impact so far is from the speed with which countries are moving to halt inbound foreign travel, with many countries stopping all flights from South Africa and other countries in the region, while Japan has taken the dramatic step of halting all inbound foreign travel from tomorrow. More hopeful indications from virologists in the virus origin area are anecdotally that this variant is not particularly virulent, although others point out that too little is known about the virus’ effects on more vulnerable patients. Weak Black Friday spending in the US, particular in-store sales. While up strongly from last year’s virus impacted activity at physical stores, US Black Friday spending in-store was down some 28% from 2019 levels and the online shopping on Friday was at $8.9 billion vs. $9.0 billion in 2019, rather disappointing totals, although some suggest that Americans have brought forward their holiday shopping this year because of widespread fears of shortages of popular products. What are we watching next? Whether market can quickly recover from fresh wave of virus concerns. The virus concerns triggered by the new variant were a jarring development, given the prior focus recently on inflation and central banks having to bring forward tightening plans to stave off inflationary risks. US stocks have been the quickest to try to put a brave face on the situation and there is some support for equities as rate hike expectations from the Fed have dropped sharply and long US treasury yields are also sharply lower, but it will take time to learn how transmissible and virulent this new omicron virus strain is, as well as how much damage will be done to growth and sentiment by new limitations on travel and other restrictions. We also have to recall that prior to this news, Europe was the epicenter of the latest wave of the delta variant and was already trading somewhat defensively. US President Biden is set to speak this evening on the new virus variant. The UN FAO will publish its monthly World Food Price Index on Thursday, and another strong read is expected, although the year-on-year increase look set to ease from 31.3%. November has been another strong month for the grains sector led by wheat due to strong demand and worries about the Australian harvest. Elsewhere Arabica coffee trades near a ten-year high on increased concerns about production in Brazil. Before Friday’s carnage across markets the Bloomberg Agriculture Spot index had reached a 5 ½-year high after rallying by 40% during the past year. Earnings Watch – earnings this week are light with the key ones to watch being Li Auto, Snowflake, Crowdstrike, Elastic, and DocuSign. Monday: Sino Biopharmaceutical, China Gas, Acciona, Li Auto Tuesday: Bank of Nova Scotia, Salesforce, Zscaler, NetApp, HP Enterprise Wednesday: Trip.com, Royal Bank of Canada, National Bank of Canada, Snowflake, Synopsys, Crowdstrike, Veeva Systems, Okta, Splunk, Elastic, Five Below Thursday: Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, Cooper Cos, Marvell Technology, DocuSign, Ulta Beauty, Asana, Dollar General, Kroger Friday: Bank of Montreal Economic calendar highlights for today (times GMT) 0830 – Sweden Q3 GDP 0830 – ECB's Guindos to speak 0930 – UK Oct. Mortgage Approvals 1000 – Euro Zone Nov. Confidence Surveys 1130 – ECB's Schnabel to speak 1300 – Germany Nov. Flash CPI 1330 – Canada Oct. Industrial Product Prices 1530 – US Nov. Dallas Fed Manufacturing Survey 1715 – ECB President Lagarde to speak 2000 – US Fed’s Williams (voter) to speak 2005 – US Fed Chair Powell gives opening remarks at conference 2350 – Japan Oct. Industrial Production 0030 – Australia Oct. Building Approvals 0100 – China Nov. Manufacturing and Non-manufacturing PMI 0200 – Australia RBA’s Debelle to speak  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Things are not adding up any longer in the car industry

Things are not adding up any longer in the car industry

Peter Garnry Peter Garnry 29.11.2021 13:49
Equities 2021-11-29 13:00 10 minutes to read Summary:  In today's equity research note we take a look at the global car industry. Since late 2005 it has been a low growth industry also reflected in the low total return of the industry prior to the pandemic. But during the pandemic and with the high revenue growth rates of pure electric vehicles makers the industry's combined market value across traditional carmakers and pure EV-makers has gone to unprecedented levels reflecting excessive expectations that we do not think can hold. The reason behind this is the acceleration in EV adoption and we provide concrete alternatives to bet on this transition without getting exposure to pure EV-makers with elevated equity valuations. Market value does not add up with structural growth profile This year should have been the year when the global car industry came back from the dismal 2020 impacted by the global pandemic and a 6% rise in global new passenger car registrations could be interpreted as the industry coming back. However, as the chart on car registrations in the US, Europe, and China shows, the global car market has been weakening the past couple of months and most notably in Europe. In fact, the combined new car registrations across the three largest car markets in the world are down 19% from the peak in August 2018. Since December 2015, global new car registrations have only grown by 1.8% annualized with a clear saturation starting in early 2017 and then turning into a longer term decline by late 2018. It seems that the global car market has become saturated and the pandemic exacerbated an already weak industry on the demand side. As demand came back, the car industry faced new issues on supplies of semiconductors. In the early days of the pandemic, car manufacturers cancelled orders on semiconductors as they believed demand to be weak for a long time, but as governments unleashed unprecedented stimulus economies weather the pandemic and with the vaccines approved in late 2020, the economy came roaring into 2021. But car manufacturers buy lower margin semiconductors and as they were late to come back ordering semiconductors, the semiconductor industry had already found willing buyers due to high demand on graphics cars for gaming and crypto, and semiconductors used in datacenters and computers. Car manufacturers were put back in line and have ever since scrambled to get priority causing production to be reduced on lack of semiconductors. The pandemic and climate change awareness also happened to ignite demand for electric vehicles (EVs) and the EV transition may have reached an inflection point where it is beginning to drive postponement of buying a gasoline car. Why buy a technology that is being phased out and why not buy an EV when governments are providing incentives to do so? Despite these structural challenges and low growth profile the MSCI World Automobile Index has exploded in value over the past 18 months driven by a bonanza in EV-makers and excessive expectations best exemplified around the Rivian IPO. From December 2005 to the peak in new car registrations in August 2018, the index gained 5.2% annualized compared to 3.9% annualized gains over the period in new car registrations. This highlights that market value more or less follows volume plus/minus changes in price mix and operating margins. With the recent gain in the global index on car manufacturer the industry’s market value has become completely unanchored to the underlying structural growth rate. The only explanation that can justify this is new car registrations quickly closes the drawdown from August 2018 and that EVs can be manufactured at higher operating margins, but this requires that competitive forces do not force retail prices on new cars down to the old profitability level on gasoline cars. Source: Bloomberg EV bonanza will end in a graveyard The key change in the car industry is the production ramp-up of EVs as consumers are increasingly demanding these new cars. Public markets have been flooded with new car companies producing only EVs and the market is currently putting a higher market value on the 11 largest EV-makers compared to the 11 largest traditional carmakers. As we have written in previous research notes this reflects excessive expectations on EVs that we find difficult to justify given the structural growth profile of the overall car industry. Having said that the outlook for cars over the coming three decades is clearly in our view. ICEs will experience a negative growth profile while EVs will have a steep growth curve over the next 10 years before gradually slowing down. But are pure EV-makers the best play? At current market values, we believe expectations are set above what these companies can deliver and we encourage investors to find other ways to bet on the high growth rates in EVs. One way is to find exposure among semiconductor companies with exposure to cars, lithium miners or battery makers for the batteries to EVs. The list below highlights a few names across this supply chain for EVs. Infineon Technologies (semiconductors) NXP (semiconductors) Renesas (semiconductors) Texas Instruments (semiconductors) STMicroelectronics (semiconductors) Jiangxi Ganfeng Lithium (lithium miner) Albemarle (lithium miner) SQM (lithium miner) Livent (lithium miner) Orocobre (lithium miner) Panasonic (battery) QuantumScape (battery) TDK (battery) Gotion High-tech (battery) Varta (battery) Should carmakers spin off their EV units? Given the market value on pure EV-makers the traditional carmakers should in our view consider spinning out their EV units into separate businesses with their own public listing, but maintaining majority shareholder control. The higher market value for a pure EV-business could be used to raise significant amount of capital to accelerate growth in production, but a separate business unit could reduce friction from internal culture and political fights. The recent problems internally at VW show that labour unions and workers in the traditional internal combustion engine divisions will make the transition difficult. Porsche is a good bet on a specific EV spinoff from a traditional carmaker and something that could yield a significant valuation improvement. Porsche is aiming to get 40% of revenue from EVs in 2025. If traditional carmakers are not spinning off their EV units, we believe they will have difficulties keeping up with pure EV-makers.
Sentiment Remains Fragile

Sentiment Remains Fragile

Marc Chandler Marc Chandler 29.11.2021 14:08
November 29, 2021  $USD, Covid, Currency Movement, Federal Reserve, Inflation, Japan Overview: The fire that burnt through the capital markets before the weekend, triggered by the new Covid mutation, burned itself out in the Asian Pacific equity trading earlier today. A semblance of stability, albeit fragile and tentative, has emerged. Europe's Stoxx 600 is up about 1%, led by real estate, information technology, and energy.  US index futures are trading higher, with the NASDAQ leading.  Benchmark 10-year yields are firmer.  The US 10-year Treasury yield has risen about six basis points to 1.53%.  European yields are mostly 1-2 basis points higher, while the UK Gilt yield is up four basis points. The dollar remains, as we say, at the fulcrum of the major currencies, but in an opposite way, with the funding currencies that rallied strongly before the weekend seeing their gains pared today, while the dollar bloc and Scandis trade firmer.  Among the emerging market currencies, the liquid and freely accessible currencies, such as the South African rand, Russian rouble, and Mexican peso are leading the recovery.  The Turkish lira and central European currencies, perhaps dragged down by the softer euro, underperform.  The JP Morgan Emerging Market Currency Index is slightly firmer after falling around 0.4% before the weekend.  Gold held support near $1780 but has been unable to resurface above $1800.  January WTI jumped by about 5% after the 13% drop at the end of last week.  Iron ore surged 6.5%, recouping in full the 5.6% decline in the last session to approach its recent highs.  Winter weather is beginning to be experienced in Europe, and natural gas (Netherlands) is up 7.75% after falling 4.8% ahead of the weekend.  Copper is recouping a little less than half of last Friday's nearly 4% fall.   Asia Pacific Faced with much unknown about the new mutation, several Asia Pacific countries are opting to close their borders to foreign travelers.  Initially, countries limited the travel ban to a handful or so of countries from Southern Africa.  It does appear that the omicron variant has been around before being sequenced in South Africa, and it is has been found in several countries. However, the origin is still not clear.  While some reports from South Africa suggest mild symptoms, there is good reason for the World Health Organization's caution.  If a new vaccine is needed for the variant, reports suggest it could take around 100 days.  Recall that Japan has lifted its formal emergency in late September, and the economy is rebounding as anticipated.  Today's data showed retail sales rose for a second month in October.  The 1.1% increase lifted the year-over-year rate to 0.9%.   Purchases of clothing and food surged by 9.2%.  Auto sales, still hampered by supply chain disruptions, was the only category that fell.  After a frustratingly slow start, Japan's inoculation efforts have been successful, and the vaccination rate is above 75%.   Before news of the new variant broke, the dollar was around JPY115.50.  It fell to nearly JPY113.00 before the weekend.  It recovered in early dealing to almost JPY113.90 before the weakness of the regional equities contributed to its push lower.  Bloomberg pricing data showed it recorded a JPY112.99 low near midday in Tokyo.  It bounced to almost JPY113.65 in late dealings and has been consolidating in the European morning.  The option for $350 mln at JPY113.40 that expires today has likely been neutralized.  The market appears to be waiting for a new development to push it out of the JPY113-JPY114 range.  The Australian dollar held the pre-weekend low slightly below $0.7115 and is making session highs late in the European morning near last Friday's high (~$0.7155).  Nearby resistance is seen in the $0.7180-$0.7200 area. Recall that last week's 1.55% decline was the fourth consecutive weekly loss and the largest in three months.  The greenback gave up its pre-weekend gain against the Chinese yuan and a bit more today.  It did not even trade above CNY6.39 today, settling above it at the end of last week.  As we have noted, it remains within the range set on November 16 of roughly CNY6.3670-CNY6.3965. The PBOC set the dollar's reference rate at CNY6.3872 and continued to set it above expectations (CNY6.3858, via Bloomberg).   Two issues seem to be receiving attention today.  First are the prospects of easing by the PBOC in the face of continuing weakening of the economy. The November PMI will be released starting first thing tomorrow.  Second, China's property developers have an estimated $1.3 bln in debt servicing next month, following $2 bln this month.   Europe Outside of the virus, two issues dominate investors' attention in Europe today.  First are the November inflation reports from Spain and Germany ahead of the preliminary aggregate figures tomorrow.  The other is the increasingly bellicose rhetoric between the UK and France over the channel crossings and fishing.   Spain's harmonized November CPI rose by 0.3% to lift the year-over-year rate to 5.6%.  It is the fastest pace since 1992.  It follows October's 1.6% increase and 5.4% 12-month rate.  Food and energy were the main drivers.  The increase was in line with forecasts.  In September, the central bank's chief economist had anticipated that November could be the peak in inflation and anticipated it falling back below the 2% target in 2022.  German states are reporting their November CPI figures, and the country's measure will be reported late today.  The states' measures are consistent with forecasts calling for the nation's harmonized measure to fall around 0.2%.  However, the year-over-year pace is projected to accelerate to 5.5% from 4.6% due to the base effect.  The EMU aggregate preliminary CPI is forecast (Bloomberg median) to be flat on the month for a 4.5% year-over-year pace (up from 4.1% in October).  The core rate is projected to climb to 2.3% from 2.0%.  The euro poked slightly above $1.1330 at the end of last week and settled just above $1.1315.  It traded near $1.1260 in late Asia/early Europe and caught a bid that brought it back to about $1.1290.  There is a 1.7 bln euro option at $1.13 that expires today.  The intraday momentum indicators are getting stretched, warning of the downside risk in early North American activity.  Sterling recorded a new low for the year ahead of the weekend, near $1.3280. It is trading in about a quarter-cent range today, around $1.3335, and staying within last Friday's range.  The pre-weekend high was closer to $1.3365.   After an eight-day rally, the December short-sterling interest rate futures contract is trading slightly heavier today.  The market expectations have shifted from a good chance of a hike next month to a bit more than a third of a chance.   America The US auto sales and jobs highlight this week, but Fed officials are out in force too.  Today Powell, Williams, and Hasson speak at an innovation conference, and Bowman discusses the central bank and indigenous economies. Tomorrow, Powell and Yellen testify before a Senate committee on the CARES Act.  Their prepared remarks are expected to be released later today that may also work for the testimony on Wednesday on the same topic before a House committee.    Tuesday, Clarida discusses the Fed's independence, while Williams will speak on food security.  The Beige Book, in preparation for next month's FOMC meeting, is due Wednesday too.  No fewer than five Fed officials speak in the second half of the week.  Our initial bias continues to be for faster tapering at the December FOMC meeting. It still seems to be the prudent course to maximize the Fed's ability to respond to a broad range of probable economic outcomes.  The US pending home sales and the Dallas Fed manufacturing survey, due today, are not typically market movers.  And today is unlikely to be an exception.  Canada reports its Q3 current account surplus (expected to be around C$5.7 bln, up from C$3.6 bln in Q2.  It also reports raw material and industrial prices for October.  The week's highlight is tomorrow's September and Q3 GDP, followed by Friday's employment report.  Mexico reports October unemployment figures (median forecast in Bloomberg's survey calls for a 4.07% rate, down from 4.18% in September). Concerns about President AMLO's appointment to the central bank lingers even though the peso may benefit from the correction to the 1.6% pre-weekend drop.   The US dollar spiked to almost CAD1.28 before the weekend.  It fell to nearly CAD1.2720 today.  The pullback was seen in Asia, and it has been consolidating since then.  Still, the greenback looks vulnerable to a further retracement of the pre-weekend gains. Initial potential extends toward CAD.2680-CAD1.2700.   The broader risk appetites may be the key today for both the Canadian dollar and Mexican peso.  The greenback jumped to MXN22.1550 amid the pre-weekend turmoil.  This now marks the high for the year.  It pulled back initially to MXN21.6850 in Asia, but the selling pressure eased, and it traded in an MXN21.7630-MXN21.9000 range in Europe.  We suspect the combination of the trajectory of US monetary policy plus the concerns about the central bank of Mexico boosts the chances that the peso underperforms generally.  Moreover, rising price pressures and a weak economy put officials in a difficult position, especially given AMLO's reluctance to deploy fiscal measures to support the economy.   Disclaimer
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - December 1, 2021

Saxo Bank Saxo Bank 01.12.2021 09:27
Macro 2021-12-01 08:45 6 minutes to read Summary:  Even more whiplash for global markets yesterday as Fed Chair Powell has clearly set an entirely different tone ahead of his new term as Fed Chair, saying that it was time to retire the word transitory when discussing inflation and pointing to accelerating the slowing of Fed asset purchases, among other comments. This led to a sharp repricing of Fed expectations higher just after they had been taken sharply lower by the news of the omicron covid variant. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - the initial reaction to Powell’s statement about retiring “transitory” inflation was lower equities and higher interest rates, but the subsequent price action has not followed through. Nasdaq 100 futures, which are the most interest rate sensitive, are trading at the high end of the recent trading range around the 16,380 level with the obvious resistance level at 16,438. Short-term the price action way be confusing with low signal-to-noise ratio, but our view has been clear for over a year, and that is, that inflation is coming and in size not seen in many decades. This will have a negative effect on the most richly valued equities such as our bubble basket on stocks. Stoxx 50 (EU50.I) - one would think that Powell’s comments on inflation would lift value stocks and interest rates, and thereby creating a bigger rebound in European equities, but that is not what we are observing this morning. Stoxx 50 futures are trading around the 4,100 level with an important resistance level at 4,125; if this level can be overcome then our view is that Stoxx 50 futures could go to 4,200 and test the 200-day moving average. USDJPY and JPY crosses – whiplash for JPY cross traders yesterday, as the hawkish comments from Fed Chair Powell on inflation took Fed expectations for next year sharply back higher. Longer US yields, to which USDJPY is normally more sensitive, were less impacted, somewhat muting the impact on USDJPY, but the development came at a critical time, just after USDJPY had dipped below 112.73 range support yesterday. The reversal is a tentative sign that the pair will avoid pushing lower, but we would likely need to see the entire US yield curve lifting to have support for a renewed rally focusing on the 115.00+ recent top. EURUSD - will the ECB be forced to change its tune? Christine Lagarde’s insistence that inflation is a temporary phenomenon is under severe strain, even as she has been out this week defending this viewpoint, as was the ECB’s Schnabel, who boldly claimed that the November CPI data (more below) would prove the peak of the cycle. EURUSD churned sharply yesterday from a high of 1.1383 to a low of 1.1236 on the Fed Powell comments (below) before rebounding to 1.1336. The resilience later in the day despite a sharp repricing of Fed expectations is an interesting development, but the price action would need to threaten above 1.1500 to point to a technical reversal of the recent large sell-off. Crude oil (OILUKFEB22 & OILUSJAN21) trades sharply higher after hitting a three-month low on Tuesday in response to omicron related demand worries and general weak risk sentiment following Fed chair Powell’s comments on inflation. The market attention now turns to tomorrow’s OPEC+ meeting where the group may decide to pause production hikes while signaling a willingness to cut production should the demand suffer from fresh initiatives to curb mobility, especially for overseas travel. As a sideshow, the EIA will release its weekly inventory report later with the API reporting a 0.7m barrels draw in crude oil stock while fuel stocks rose. Gold (XAUUSD) trades higher after once again recovering from a Powell statement. Yesterday the Fed chair confirmed his recent change in focus away from creating jobs towards increasing efforts to curb elevated inflation. Risk appetite took another setback on the news but has recovered overnight as traders weighed positive regional economic data and divided views from drugmakers over how effective existing vaccines are against omicron. Overall, gold chart looks increasingly messy with no clear signal to be found at present. A break above the 21-DMA at $1820 is needed to spark fresh momentum interest while support continues to be found below $1780. US Treasuries (IEF, TLT). Powell’s testimony in front of the senate put things in perspective: inflation is not transitory, and the Federal Reserve will use its tools to stop it. These words provoked a fast bear-flattening of the yield curve where short term yields rose faster than log-term yields were dropping. We expect this trend to continue throughout winter as a new wave of covid will pin down the long part of the yield curve, but the Fed is likely to accelerate the pace of tapering. An inversion risk cannot be excluded. The 20s30s part of the yield curve is already inverted, while the 7s10s is just 7bps to get inverted. Although the 2s10s and 5s30s spreads are much wider, any flattening can pose a threat to next year’s Fed’s interest rate hike agenda. Powell and Yellen will testify again in front of the Senate today. Job numbers remain a big focus for Friday. US junk bonds (HYG, JNK). According to Bloomberg Barclays indexes, junk bonds’ OAS widened by 30bps to 330bps amid Friday’s selloff reflecting the lack of liquidity in markets. Despite negative real rates continuing to support corporate bond valuations, it’s safe to expect junk bond spreads to widen throughout the end of the year amid poor liquidity. If the volatility in rates remains sustained, the widening of spreads could accelerate, posing a threat also for stocks. German Bunds (IS0L) and Italian BTPS (BTP10). Inflation accelerated more than expected in the Eurozone during the month of November setting the yearly figure to 4.9%. Inflation figures together with the new German government adds to the catalysts of higher Bund yields. However, covid distortions are keeping yield in check. We exclude Bund yield to rise to test 0% until the new wave of covid eases. However, as soon as the worries concerning covid ease, they will resume their rise. What is going on? Fed Chair Powell confirms that Fed emphasis has shifted to inflationary risks. In testimony before a Senate committee yesterday, Fed Chair Powell waxed far more hawkish than the market anticipated on inflation concerns, saying outright that it is time to retire the word “transitory” regarding the description of inflation, that “the risk of higher inflation has increased” and that “the risk of persistent high inflation is also a major risk to getting back to such a labor market.“ (referring to the pre-pandemic labor market). Powell also pointed to the likelihood that the Fed would wind down Fed balance sheet expansion more quickly than previously anticipated: “perhaps a few months sooner”. In response, expectations for Fed rate hikes next year were jolted back higher, just after they had been jolted lower by the omicron covid variant news. Hot EU CPI numbers for November. Preliminary headline November EU CPI was out at 4.9% year-on-year, far above the 4.5% expected and the 4.1% in October and by far the highest inflation print since the launch of the euro. Core CPI rose to 2.6% year-on-year, above the 2.3% expected and the October level of 2.0%. This is also the highest level since the launch of the euro in 1999. Germany’s incoming chancellor Scholz speaks on inflation, compulsory covid vaccination. The political pressure on the ECB to act is ratcheting higher after incoming German chancellor Scholz said that action must be taken if inflation fails to drop, though he seemed now to accept the notion that inflation is linked to covid measures and the spike in energy prices. He also spoke yesterday in favor of mandatory covid shots. Salesforce shares down 6% on Q4 guidance. Investors are used to being spoiled by Salesforce with consistently beating analyst expectations, but last night the cloud application software company disappointed on Q4 guidance with revenue in line and adj EPS at $0.72-0.73 vs est. $0.82. The company also announced that Bret Taylor will become co-CEO next to founder Marc Benioff in a sign that the founder may soon step down like so many other technology founders in recent years. What are we watching next? Markets adjusting to new reality of a more hawkish Fed. In particular if the omicron variant of the covid virus proves a temporary distraction, global markets will need to adjust the major adjustment in the Federal Reserve’s focus and what that could mean for the US dollar and asset valuations ahead. Fed Chair Powell’s rhetoric yesterday likely mean a heightened reactivity to incoming data from here on out, all modulated in the very near term by headline risks in either direction on the omicron variant. The first major data points are the ISM Service index and November jobs report up on Friday. The Average Hourly Earnings could take over in importance from the payrolls change number if it shows more aggressive rises, as it seems clear that labor supply is the chief problem US companies face, as seen in record job availability and “quits” as workers leave jobs for greener pastures. ADP employment figures for November. With the US economy operating at full capacity according to estimates from CBO, continued strong job gains will add fuel to the “inflation fire”, so today’s ADP figures could more interest rates and equities. Economists are looking at 525K vs 571K in October which would be a significant two-month change for an economy that has closed the output gap, but on the other hand, the US economy is still short around 8.5mn jobs from current levels to where employment would have been if we did not have the pandemic. Earnings Watch – growth investors will have their eyes on Snowflake set to report after the market close with analysts expecting FY22 Q3 (ending 31 Oct) revenue growth of 92% y/y. Crowdstrike, being one of the fastest growing cyber security companies in the world, will also be key to watch today. Wednesday: Trip.com, Royal Bank of Canada, National Bank of Canada, Snowflake, Synopsys, Crowdstrike, Veeva Systems, Okta, Splunk, Elastic, Five Below Thursday: Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, Cooper Cos, Marvell Technology, DocuSign, Ulta Beauty, Asana, Dollar General, Kroger Friday: Bank of Montreal Economic calendar highlights for today (times GMT) 0730 – Switzerland Nov. CPI 0815-0900 – Euro Zone Final Nov. Manufacturing PMI 1315 – US Nov. ADP Employment Change 1330 – Canada Oct. Building Permits 1445 – US Nov. Final Markit Manufacturing PMI 1500 – US Fed Chair Powell, Treasury Secretary Yellen to testify before House panel 1500 – US Nov. ISM Manufacturing 1530 – DOE’s Weekly Crude Oil and Fuel Inventories 1900 - Fed Beige Book 0030 – Australia Oct. Trade Balance   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Oil attempts to recover after massive end of week sell-off

Oil attempts to recover after massive end of week sell-off

Walid Koudmani Walid Koudmani 29.11.2021 13:25
Oil prices experienced a significant shock towards the end of last week with WTI dropping almost 14% after news emerged of the new Omicron covid variant which threatened to impact several major aspects of the economy in the near future. While details surrounding the situation remain unclear, fears related to potential lockdowns or restrictions have impacted many assets with a particular focus on oil as the commodity has experienced significant volatility in recent months. Part of the problem is also the unclear situation related to supply, as OPEC decided to delay it’s technical meeting from Monday and Tuesday to Wednesday and Thursday as the group awaits further details from the WHO on the severity of the variant. In the meantime, we can see a significant rebound in oil prices today with WTI hovering around $71.60 and Brent trading at $75 while investors pay close attention to any news regarding the developing circumstances and as governments deliberate on potential measures to contain the spread. UK consumer credit data disappoints Today’s slightly below expectations mortgage lending continues to show the reluctance of UK consumers as they contend with increasingly high property prices, rising inflation and uncertainty regarding the covid-19 situation. Furthermore,a cause of concern could be that net lending to individuals was significantly below expectations, coming in at £2.3B compared to the expected £9.7B, this could lead to a slower than expected economic rebound as we head into the holiday season which could be exacerbated by other factors such as potential lockdowns or restrictions.
Fragile Calm Returns and Powell's Anti-Inflation Rhetoric Ratchets Up

Fragile Calm Returns and Powell's Anti-Inflation Rhetoric Ratchets Up

Marc Chandler Marc Chandler 01.12.2021 14:08
December 01, 2021  $USD, China, Currency Movement, EMU, Federal Reserve, Japan, PMI, South Korea, UK Overview:  Into the uncertainty over the implications of Omicron, the Federal Reserve Chairman injected a particularly hawkish signal into the mix in his testimony before the Senate.  These are the two forces that are shaping market developments.  Travel restrictions are being tightened, though the new variant is being found in more countries, and it appears to be like closing the proverbial barn door after the horses have bolted. Equities are higher.  The MSCI Asia Pacific Index, led by South Korea, and India, rose for the first time in four sessions, and Europe's Stoxx 600 is recouping more of yesterday's loss.  US futures are trading more than 1% higher.  Benchmark yields are higher.  The 10-year US Treasury yield is up four basis points though is still below 1.50%.  European yields are mostly 3-5 bp higher, though Italy's benchmark is 8 bp higher near 1.05%.  The dollar remains the fulcrum of the see-saw, but the funding currencies (yen, Swiss franc, and euro) are lower, and the dollar bloc is higher.  The dollar is pulling back against the Turkish lira after approaching TRY14 yesterday, even though President Erdogan's rhetoric about pushing for even lower rates seemed to have ratcheted up.  Emerging market currencies are more broadly mixed, but the JP Morgan Emerging Market Currency Index is up for the third consecutive session to match the longest advance in nearly three months.  Gold posted an outside down day yesterday, but there has been no follow-through selling today, and the yellow metal is consolidating inside yesterday's range.  January WTI slipped below $65 yesterday and is pushing above $69 today ahead of the OPEC meeting.   Dutch natural gas prices are firm, recouping most of yesterday's loss.  Iron ore and copper prices are also retracing yesterday's weakness.   Asia Pacific China's Caixin manufacturing PMI unexpectedly slipped below the 50 boom/bust level, albeit barely (49.9).  It was expected to be unchanged at 50.6.  It had eased below 50 in August (49.2).  Recall that the world's second-largest economy nearly stagnated in Q3 (0.2% quarter-over-quarter), and it appears to be accelerating here in Q4. Still, many look for the PBOC to provide more stimulus, perhaps in the form of a cut in reserve requirements, as it did this past July.  Separately,  officials seem to be cracking down harder on the "variable interest entity" structure that characterizes offshore listings, especially in the US.   Japan's November manufacturing PMI was revised to 54.5 from 54.2.  It stood at 53.2 in October.  The world's third-largest economy is recovering.  Australia reported Q3 GDP contracted by 1.9%, less than the 2.7% contraction economists had projected (Bloomberg median).  Its economy also is recovering.  The November manufacturing PMI was confirmed at 59.2, up from 58.2 previously.  House prices in Australia and New Zealand rose last month but sequentially at a slower pace.  To round out this regional overview, note that South Korea's exports in November were stronger than expected, pointing to robust foreign demand.  Exports rose 32.1% year-over-year.  Economists (Bloomberg median) expected a 27.2% pace after 24.1% in October.   It is the strongest pace since August.  Imports jumped 43.6% year-over-year, which was also more than expected, and follows a 37.7% increase previously.   The dollar is firm after being sold to its lowest level against the yen yesterday since October 11 (~JPY112.55).  It stalled near JPY113.60 in late Asia, which is slightly lower than the high seen in the US yesterday in response to the Fed's Powell hawkish pivot. However, barring fresh negative impulses, the JPY113 area may offer support again.  The Australian dollar is firm near yesterday's highs after falling to a new low for the year yesterday.  That low (~$0.7065) approached the (38.2%) retracement objective of the Aussie's rally from the March 2020 low near $0.5500.  A move now above $0.7080 would lift the technical tone and target the $0.7120-$0.7150 area.  The greenback initially fell to nearly CNY6.36, just ahead of the year's low recorded in May near CNY6.3570, before recovering to around CNY6.3720.  Resistance may be seen in the CNY6.3750-CNY6.3800 area.  The PBOC set the dollar's reference rate CNY6.3693.  The market (Bloomberg survey) had anticipated CNY6.3682.   Europe Covid was surging in several parts in Europe, including Germany, before the sequencing of the Omicron variant, and things have gotten worse.  The economic impact is beginning to be evident.  Germany's October retail sales, which economists had expected to recover after falling by 1.9% in September, disappointed with a 0.3% decline. The final November manufacturing PMI was revised to 57.4 from the flash 57.6 (and 57.8 in October).  It is the fourth consecutive decline.  The French manufacturing PMI was revised to 55.9 from the preliminary estimate of 54.6 (53.6 in October).  It is the first gain since May.  Economists hoped that Spain's manufacturing PMI was going to rise after falling for two months through October.  Instead, it fell again (51.1 vs. 57.4) to stand at its lowest level since March.  Italy is the standout.  Its manufacturing PMI was stronger than expected, jumping to 62.8 from 59.7, representing a new cyclical peak.  The aggregate for the eurozone as a whole edged up to 58.4 from 58.3 in October, but slower than the 58.6 flash estimate.  Still, it managed to eke out its first gain since June.  The UK's November manufacturing PMI stands at 58.1, down slightly from the preliminary estimate (58.2).  It was at 57.8 in October.  It is the second consecutive monthly gain after falling from June through September.  The UK economy grew by 1.3% in Q3 and is expected to slow to 1.1% this quarter.  The implied yield of the December 2021 short-sterling interest rate futures fell for eight sessions coming into this week.  It has been choppy so far this week, and net-net, the yield is about 1.5 bp higher than at the end of last week.  The overnight index swaps imply about a 40% chance of a hike next month.   The euro traded on both sides of Monday's range yesterday and closed above Monday's high.  However, there has been no follow-through buying today, and a consolidative tone has emerged.  A move above $1.1400 is needed to lift the tone, and it most likely won't happen today.  A 1.2 bln euro option is struck there that expires today.  The focus is on the downside. So far, it has held above $1.13, and support is seen around $1.1290.  Sterling recorded the low for the year yesterday, a little below $1.3200.  It stopped shy of our $1.3165 target, the (38.2%) retracement of cable's recovery from the March 2020 low. Its bounce off yesterday's lows fizzled out near $1.3330. Note that there is a GBP600 mln option at $1.33 that expires tomorrow.   America We have argued that the US October CPI surprise (6.1%) was a pivot point for Fed officials, even a reputed dove like San Francisco's Daly.  We also detected a change in rhetoric, and this point was driven home by Fed Chair Powell yesterday.  He clearly brandished his anti-inflaton credentials. Powell declared that the Fed would use its tools to step inflation from becoming entrenched.  At the same time, he recognized that it cannot assess Omicron now, though it clearly poses a risk.  Still, the next FOMC meeting is two weeks away, and by then, more information will be known.  Powell confirmed that the Fed would discuss the pace of tapering.  While the Fed will stop referring to inflation as transitory, Powell echoed Yellen's recent assessment that price pressures are projected to ease in H2 22.  Of note, the short end of the coupon curve sold off, but the long end remained firm.  The 30-year bond yield slipped to its lowest level since January, and the 2-10 year curve flattened 13 bp to below 90 bp, the flattest in 10 months.   The North American economic calendar is jammed today.  The US sees ADP's private-sector jobs estimate. Around 525k jobs are expected to have been filled, down from 571 in October.  In the last three months, the ADP estimate has undershot the official measures by an average of 23k.  Year-to-date, the average under-estimate is a little more than 50k.  November auto sales are expected to have risen for the second consecutive month after falling from May through September.  The final manufacturing PMI will also be reported.  The flash reading was the first increase since July.  The ISM manufacturing survey will also be published.  It has been a bit more resilient than the PMI.  Late in the session, the Beige Book will be released.  Canada reports October building permits (expected softer after the 4.3% gain in September) and the manufacturing PMI (57.7 in October).  Mexico reports its manufacturing PMI and IMEF surveys.  The central bank's inflation report is also due.  Mexico reports October worker remittances today.  They have averaged $4.15 bln a month this year through September.  The average for the same period in 2020 was $3.33 bln, and in 2019 $3.03 bln.  Note that the average trade deficit this year (through October) is almost $1.2 bln.   After reaching almost CAD1.2840 yesterday, its highest level since the September FOMC meeting, the greenback has come back offered today. It briefly and marginally traded below yesterday's CAD1.2730 low.  It needs to convincingly break below CAD1.2720 to be of any technical significance.  Initial resistance now may be seen near CAD1.2780.  The dollar peaked against the Mexican peso at the end of last week near MXN22.1550.  It is moving lower for the third consecutive session, and found initial support around MXN21.27 today.  The MXN21.20 area is the halfway mark of last month's range.  A move above  MXN21.40 may signal the dollar's downside correction is over.   Disclaimer
FED says inflation is no longer transitory

FED says inflation is no longer transitory

Walid Koudmani Walid Koudmani 01.12.2021 15:56
While investors were waiting for several data releases yesterday, many were surprised by FED chairman Powell's comments relating to inflation, quantitative easing and the ongoing concerns tied to the new omicron variant. The central banker has decided to change his tone on inflation and now said that it is time to stop using the term transitory, a term he and many other central bankers have used to calm markets, when referring to the ongoing rise in prices. No surprises are expected in today's testimony but with the current risk moods, any further indications of a change in monetary policy moving forward could add pressure to the markets as they contend with growing uncertainty and mixed data. Nationwide HPI continues to rise Today’s Nationwide HPI showed a slight increase in house prices with annual house price growth increasing in November to 10.0% after a 0.9% MoM increase while also showing a 30% drop in housing transactions. The index continues to highlight rising inflation along with its impact on different sectors of the economy and while focus in recent days has been on the new variant, today’s HPI could add pressure to the Bank of England to potentially take action in the near future by adjusting it’s policy to control the extent of the impact.
It‘s the Fed, Not Omicron

It‘s the Fed, Not Omicron

Monica Kingsley Monica Kingsley 01.12.2021 15:51
S&P 500 plunged on accelerated tapering intentions, and much of the risk-on sectors and commodities followed – even precious metals declined a little in sympathy. But where is the larger reasoning? If the Fed truly intends to taper faster in its belated fight against inflation, it‘s a question of not only markets throwing a tantrum, but of the real economy keeling over. Inflation is a serious problem, including a political one, and here come the Omicron demand-choking effects if the fear card gets played too hard. Thankfully, reports indicate that the alleged variant is merely more contagious and having comparatively milder effects. That‘s how it is usually turns out with mutations by the way – remember that before the number 30 frequently thrown around, shuts off thinking including in the markets. The world‘s economic activity didn‘t come to a standstill with Delta, and it appears such a policy route won‘t be taken with Omicron either. That‘s why I was telling you on Monday that any inflation reprieve the scary news buys, would likely turn out only temporary. Unless the Fed decides to make it permanent, which is what I am doubting based on its track record and the more rocky landscape ahead that I talked in mid Nov extensive article. For now, the Fed‘s pressure is real, and premarket rallies that are sold into during regular sessions, must be viewed with suspicion. It‘s not that we‘ve flipped into a (secular) bear market, but the correction is palpable and real – I‘m not looking for the habitual Santa Claus rally this year. Big picture, the precious metals resilience is a good sign, and return of cyclicals with commodities is the all-clear signal that I‘m however not expecting this or next week. Cryptos resilience is encouraging as much as various stock market ratios (XLY:XLP offers a more bullish view than XLF:XLU – I‘ve been covering these helpful metrics quite often through 2020), which makes me think we‘re in mostly sideways markets for now. At least as I told you on Monday, the (rational / irrational) fears started getting ignored by the markets, meaning we‘re on a gradually improving track. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 isn‘t out of the hot water, and it‘s still just a close in the 4670s that would mark the end of peril to me. The financial sector has to turn, strength has to come to smallcaps simultaneously – the 500-strong index is still performing in a too risk-off way. Credit Markets Positive HYG divergence isn‘t enough – the broad underperformance of S&P 500 must be reversed to establish stronger stock market foundations. Powell just added to the risk-off posture in bonds, and I‘m looking keenly at the expected, ensuing (in)ability to absorb less loose monetary conditions. Gold, Silver and Miners Precious metals are acting weak, but not overly weak. When the markets get fed up with having to bear the tapering / tightening (real and verbal) interventions, it would be gold and silver that rise first. Crude Oil Crude oil turned out indeed weakest of the weak when fear overruled everything. Capitulation is a process, and it‘s quite underway already in my view. The way black gold crashed, the way it would rise once the sky meaningfully clears. Copper Copper weakness is what I don‘t trust here as other base metals did quite better. But again, yesterday was an overreaction to the Fed news that it would discuss speeding up taper. Just discuss. Bitcoin and Ethereum Bitcoin and Ethereum holding relatively high ground, is a reason to think the risk-on scales would tip positive. While BTC is still correcting, I‘m looking for it to join Ethereum. Summary S&P 500, risk-on and commodities aren‘t yet on solid footing as Powell pronouncements outweighed the dissipating corona uncertainty. Either way, the effects on inflation would be rather temporary – inflation indicators clearly haven‘t topped yet as the implicit Fed admission of dropping the word temporary confirms. Once the tightening mirage gets a reality check in the economy and markets, look for precious metals to truly shine. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
FX Update: Powell is now an inflation fighter, not a punchbowl spiker

FX Update: Powell is now an inflation fighter, not a punchbowl spiker

John Hardy John Hardy 01.12.2021 16:30
Forex 2021-12-01 15:25 4 minutes to read Summary:  Fed Chair Powell cemented recent evidence that the Fed has changed its stripes from a punch bowl refiller for the economy and the labor market to an inflation fighter at large. The market is finding it tough to absorb this message, given the recent market choppiness and virus distractions, but interesting that the US dollar has not found more strength on this momentous pivot. FX Trading focus: Hawkish broadside from Powell Fed Chair Powell cemented the impression that the Fed has shifted firmly into inflation fighting mode with an appearance yesterday before a Fed panel. The rhetoric was direct and of a make-no-mistake variety. Powell said that the end of balance sheet expansion would likely wind down a few  months sooner than originally foreseen, even with the current omicron variant of covid concerns. He also spelled out that it is probably time to retire the word “transitory” when discussing inflation, ad said that the risk of higher inflation has increased. Perhaps most interesting was a comment that persistent higher inflation brought a risk to getting the labor market back to where it was pre-covid. It is crystal clear at this point that the Fed has pivoted to inflation-fighting and tightening and will move in that direction as quickly as it can until the inflation numbers improve markedly. Of course, the market was already adjusting to clear signs that the Fed is moving into a far more hawkish stance early last week, only to be sidelined viciously by the omicron variant worries in recent days. Were it not for that interlude, Fed expectations would likely be at new cycle highs as yesterday’s signals from Powell make the Fed shift as clear as day. As it is, we have only clawed back a majority of the 2022 hikes priced in pricing of Fed rate hikes, still some 8 basis points to go for end of year Fed pricing (the “omicron discount” being perhaps 15 basis points or more?). The two curious things are that the US yield curve continues to viciously flatten and the market continues to price the terminal Fed rate for the coming hiking cycle at 2.00%. The inability for the longer yields to lift higher recently may be reining in the USD upside for. The other indicator besides yield-curve shifts that is making waves here on my radar screen of financial conditions is the measure of corporate credit, where spreads have blown wider, as discussed over the last couple of episodes of the Saxo Market Call podcast. The bluntness from the Fed yesterday may have driven the particularly bad day for junk bonds as the new style from the Fed could lead investors in the riskiest debt to conclude that they may be allowed to twist in the breeze down the road if inflation levels stay high, rather than receiving endless bailouts that keep zombie companies in business and able to forever roll forward their debts. We are set up for an interesting 2022 that will likely look very different from 2021. The shift in Fed rhetoric will make the market extra-sensitive to US data and developments that impact inflation, from energy prices, to the CPI/PCE data itself and the average hourly earnings data perhaps even more than the usual nonfarm payrolls change focus. Today’s Beige Book could be interesting for anecdotal evidence from interviews with companies on their impression of supply constraints, wage adjustments and issues finding qualified workers, etc. Today’s November ADP Payrolls was another strong 500k+ as expected. Chart: USDJPYUSDJPY was handcuffed by developments yesterday – on the one hand with the USD supported by a rise in Fed expectations, but on the other hand, JPY traders finding no fresh reason to bid up the JPY as the long end of the US yield curve remains pinned at quite low yields and there has been no shift in the Fed’s “terminal rate” – where the market sees the Fed rate hike cycle peeking out. So the price action bobbed well back above the 112.73 range pivot level that was broken yesterday, but has a steep wall to climb to threaten the 115.00+ cycle highs again, something that would likely require the entire Fed yield curve to lift, and more aggressively than expectations for policy normalization elsewhere. Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strengthAgain, the market is finding the reaction function increasingly difficult to the recent jolts in inputs. Note the huge momentum shift in SEK, where the market overdid the recent squeeze, but the strength there will likely only improve once the euro bottoms and the outlook for EU yields and fiscal improves. Table: FX Board Trend Scoreboard for individual pairs.Well entrenched trends are few and far between, but the EURCNH and EURCHF downtrends stand out, with the latter’s lack of volatility after recent direction changes remarkable. The Swiss franc does well as a safe haven and does well because the SNB can’t be seen weakening the currency when inflation pressures are rising. Upcoming Economic Calendar Highlights (all times GMT) 1500 – US Fed Chair Powell, Treasury Secretary Yellen to testify before House panel 1500 – US Nov. ISM Manufacturing 1530 – DOE’s Weekly Crude Oil and Fuel Inventories 1900 - Fed Beige Book 0030 – Australia Oct. Trade Balance
Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank Saxo Bank 02.12.2021 14:35
Saxo Bank has today released its 10 Outrageous Predictions for 2022. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets: The plan to end fossil fuels gets a rain check Facebook faceplants on youth exodus The US mid-term election brings constitutional crisis US inflation reaches above 15% on wage-price spiral EU Superfund for climate, energy and defence announced, to be funded by private pensions Women’s Reddit Army takes on the corporate patriarchy India joins the Gulf Cooperation Council as a non-voting member Spotify disrupted due to NFT-based digital rights platform New hypersonic tech drives space race and new cold war Medical breakthrough extends average life expectancy 25 years While these predictions do not constitute Saxo’s official market forecasts for 2022, they represent a warning against the potential misallocation of risk among investors who might typically assign just a one percent chance of these events materialising.  It’s an exercise in considering the full extent of what is possible, even if not necessarily probable, and particularly relevant in the context of this year’s unexpected Covid-19 crisis. Inevitably the outcomes that prove the most disruptive (and therefore outrageous) are those that are a surprise to consensus. Commenting on this year’s Outrageous Predictions, Chief Investment Officer at Saxo Bank, Steen Jakobsen said:   “The theme for 2022 Outrageous Predictions is Revolution. There is so much energy building up in our inequality-plagued society and economy. Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it’s not a question of whether we get a revolution but a more a question of when and how. With every revolution, some win and some lose, but that’s not the point—if the current system can’t change but must, a revolution is the only path forward. A culture war is raging across the globe and the divide is no longer simply between the rich and the poor. It’s also the young versus the old, the educated class versus the less educated working class, real markets with price discovery versus government intervention, stock market buy-backs versus R&D spending, inflation versus deflation, women versus men, the progressive left versus the centrist left, virtual signalling on social media versus real changes to society, the rentier class versus labour, fossil fuels versus green energy, ESG initiatives versus the need to supply the world with reliable energy—the list go on. We collaborated globally on Covid vaccines in 2020 and 2021. Now we need a new Manhattan Project–-type endeavour to set the marginal cost of energy, adjusted for productivity, on the path to much lower levels while eliminating the impact of our energy generation on the environment. Such a move would unleash the most significant productivity cycle in history: we could desalinate water, make vertical farms feasible almost anywhere, increase computer powers to quantum states, and continue to explore new boundaries in biology and physics.” Remember that the world is forever evolving if at varying speeds, while business and political cycles are always finite.” The Outrageous Predictions 2022 publication is available here with headline summaries below: 1. The plan to end fossil fuels gets a rain check Summary: Policymakers kick climate targets down the road and support fossil fuel investment to fight inflation and the risk of social unrest while rethinking the path to a low-carbon future. Realising the inflationary threat from surging commodities prices and the risk of an economic train wreck due to the unrealistic timeline for the green energy transition, policymakers kick climate targets down the road. They relax investment red tape for five years for oil production and ten years for natural gas production, to encourage producers to ensure adequate and reasonably priced supplies that bridge the gap from the energy present to the low-carbon energy future. This development has already jacked up prices and price volatility, not only for energy, but also for industrial metals, most of which are needed in greater quantities for the green transformation push. On top of this, surging energy prices have spiked prices for diesel and especially fertiliser, important farming costs that raise concerns about the production of key food crops. Market impact: The iShares Stoxx EU 600 Oil & Gas ETF (Ticker: EXH1:xetr) surges 50 percent as the whole energy sector gets a new lease on life 2. Facebook faceplants on youth exodus Summary: The young abandon Facebook’s platforms in protest at the mining of personal information for profit; the attempt by Facebook parent Meta to reel them back in with the Metaverse stumbles. Facebook has gone from being a vibrant hub of young people, to a platform for older “boomers” as young people would say. Young people are increasingly turned off by Facebook’s algorithms turning their social media experiences into that of homogenous feedback loops of identical content, or even worse, hateful and disinforming content. Facebook’s own research suggests that teens spend 2 to 3 times longer on TikTok than on Instagram (which is Facebook’s youngest social media asset), and that Snapchat is the preferred way to communicate with friends. A new company name (Facebook is now called Meta) and brand identity to separate and shield Instagram (its most valuable current asset), together with creating a new product tailored towards young people, is the exact same playbook tobacco companies have used for years. But in 2022, investors will realise that Meta is rapidly losing the young generation and thus the future potential and profitability of the company. In a desperate move, Meta tries to acquire Snapchat or TikTok while throwing billions of dollars into building the creepy Metaverse, which is aimed at surveilling users more directly than ever before and getting young people back into Meta’s universe of social media platforms, in the perceived wisdom that being a first mover is always best in technology. The plan struggles to take off as the young generation fails to sign up. Market impact: Facebook parent company Meta struggles, down 30 percent versus the broader market and is urged to spin off its components as separate entities, shattering Zuckerberg’s monopolistic dreams. 3. The US mid-term election brings constitutional crisis Summary: The US mid-term election sees a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023. The chaotic 2020 US Presidential Election was a scary moment for many US institutions. The sitting president Donald J. Trump initially refused to conceded defeat in the election and complained that the election was stolen, a claim that was never seriously challenged in a court of law but one which had widespread sympathy among the Trump base. A crowd of hard-core believers in the stolen election conspiracy was encouraged by the President’s rhetoric to a sufficient degree to storm Capitol Hill and “stop the steal”, i.e., to prevent the election result from being made official on January 6, 2021, in a scene unprecedented in US history. Prior to this, and then again later in the hotly contested Senate run-off elections in Georgia, dedicated election officials—many of them Republican—were doing their duty to tally the real results while risking their life amidst threats—even death threats—from extremists. In 2022, the Republicans ensure that no such traditional duty-bound officials are in the “wrong” place, with all election-related positions filled by toe-the-line partisans ready to do anything to tilt the results to suppressing voter turnout. In the wake of the 2022 election, a handful of key Senate and House races come down to the wire and one or both sides move against certifying the vote, making it impossible for the new Congress to form and sit on its scheduled first day of January 3, 2023. Joe Biden rules by decree and US democracy is suspended as even Democrats also dig in against the Supreme Court that was tilted heavily by Trump. A full-blown constitutional crisis stretches over the horizon over the stand-off as 2023 gets under way. Market impact: extreme volatility in US assets, as US treasury yields rise and the USD drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice. 4. US inflation reaches above 15% on wage-price spiral Summary: By the fourth quarter of 2022, the wages for the lower half of US incomes are rising at an annualised 15% clip as companies scramble to find willing and qualified workers who are increasingly selective due to a rising sense of entitlement as jobs are plentiful relative to the meagre availability of workers at all skill levels. The official US CPI reached a peak at 11.8% in February 1975. It wasn’t until the recession of 1980-82 and brutal policy rate increases to levels as high as 20% that inflation was finally killed. In 2022, the Federal Reserve and Fed chair Jerome Powell repeats the same mistake all over again as the post-Covid outbreak economy and especially the labour market are severely supply constrained, making a mockery of the Fed’s traditional models. Powell believes millions of Americans will return to work and fill some of the 10.4 million open job positions as Covid-19 fades. But this is plain wrong. Some have retired early due to the crisis and thus have permanently left the US workforce. The big difference between today and yesterday is that the pandemic has fuelled a great awakening of workers. Across sectors and income classes they realise they are now more empowered than ever. They demand a better experience: better job conditions, higher wages, more flexibility and a sense of purpose from work. Coupled with persistent inflationary pressures coming from the production side, the energy crisis and labour shortage, this results in unprecedented broad-based double-digit annualised wage increases by Q4. As a consequence, US inflation reaches an annualised pace above 15% before the start of 2023, for the first time since WWII. This prompts the Federal Reserve into a too-little, too-late move to tighten monetary policy faster in a desperate effort to tame inflation. But the central bank has lost credibility; it will take time to regain it. Market impact: extreme volatility in US equity and credit markets. The JNK high-yield ETF falls as much as 20% and the VIXM mid-curve volatility ETF soars as much as 70%. 5. EU Superfund for climate, energy and defence announced, to be funded by private pensions Summary: To defend against the rise of populism, deepen the commitment to slowing climate change, and defend its borders as the US security umbrella recedes, the EU launches a bold $3 trillion Superfund to be funded by pension allocations rather than new taxes. The security umbrella provided by the US during the Cold War and afterwards over much of Eastern Europe is rapidly fading and threatens to fail entirely in the years ahead as the US looks east at far more serious economic and military rivals. French President Macron, backed by a Draghi moving to stave off Italy’s own rise of the populists, rolls out a vision for an “EU Superfund” that will address the three-fold priorities of defence, climate and the related clean energy transition. Given the EU’s aging population and heavy tax burdens, policymakers know that it will be impossible to finance the Superfund with higher taxes on incomes or other traditional tax revenues. Instead, France has a light-bulb moment as it seeks to overhaul its pension system and looks at Europe’s enormous pensions. It decides that all pensions for all workers above the age of 40 must allocate a progressively larger portion of their pension assets into Superfund bonds as they age. This allows new levels of fiscal stimulus in the EU even with the sleight-of-hand trick of hiding the spending in inflation and negative real returns on low-yielding Superfund bonds that are actually EU bonds in disguise. At the same the younger generation enjoys a stronger job market and less unfair tax burdens as the system proves such a success that income taxes are lowered progressively. Market impact: Bond yields harmonise across Europe, leading to German Bunds underperforming. EU defence, construction and new energy companies are some of the best performers. 6. Women’s Reddit Army takes on the corporate patriarchy Summary: Mimicking the meme stock Reddit Army tactics of 2020-21, a group of women traders launch a coordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies. Women are not willing to wait any longer. Tired of the lack of progress, 2022 sees a massive grass-roots effort based on social media platforms to force companies that break civil rights laws to address unfair and sexist, racist, ageist and ableist practices. Although women have been struggling with lower salaries, they have higher saving rates than men. Those savings will now come in handy as they decide to take the situation into their own hands and throw their considerable influence around in a #metoo movement in financial markets. In contrast to the often-nihilistic original Reddit Army, the Women’s Reddit Army will be more sophisticated, with women traders coordinating a long squeeze by shorting stocks of selected patriarch companies. At the same time, they will direct funds to companies with the best metrics on female representation in middle management and among executives. Instead of condemning the development, politicians worldwide welcome and support their cause, putting even more pressure on companies with outdated patriarchal attitudes, poor gender equality in pay, and under-representation of women on boards and in management to address the errors of their ways. Market impact: The movement gets real results as the broader market catches on to the theme and joins in, forcing targeted company prices sharply lower, which sees companies scrambling to change their ways. It marks the beginning of a gender parity renaissance in markets. 7. India joins the Gulf Cooperation Council as a non-voting member Summary: The world’s geopolitical alliances will lurch into a phase of drastic realignment as we have an ugly cocktail of new deglobalising geopolitics and much higher energy prices. Countries reliant on imports for the majority of their energy inputs in a rapidly deglobalising world will need to move fast to strategically reorientate strategic alliances and secure long-term energy supplies. One such alliance could involve India, with its mighty technology sector, joining the Gulf Cooperation Council (GCC) as non-voting member, or in some sort of free trade zone. This alliance would see a reduction in India’s energy insecurity as it secures long-term import commitments. Interregional trading zones will secure “closer to home” production and investment, combined with the security of reliable supplies from India’s point of view, and a reliable destination market from the GCC’s point of view. The alliance helps lay the groundwork for the GCC countries to plan for their future beyond oil and gas and for India to accelerate its development via huge new investments in infrastructure and improvements in agricultural productivity together with fossil fuel imports, bridging the way to a post-carbon longer-term future. Market impact: The Indian rupee proves far more resilient than its EM peers in a volatile year for markets. The bubbly Indian stock market corrects with other equity markets in early 2022 but proves a strong relative performer from the intra-year lows. 8. Spotify disrupted due to NFT-based digital rights platform Summary: Musicians are ready for change as the current music streaming paradigm means that labels and streaming platforms capture 75-95 percent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them grab back their fair share of industry revenues. While the early days of NFTs have looked chaotic and dangerous for asset buyers, the outlook is bright for NFT technology. Not only does an NFT-based platform offer a new way to verify the ownership of rights, but also a way to distribute rights without intermediaries, i.e., a completely decentralised system obviating the need for a centralised platform. The use case for NFTs could prove particularly compelling in the next step for the technology for content generators in the music industry as musicians feel unfairly treated by the revenue sharing models of the current streaming platforms like Spotify and Apple Music. These models don’t guide individual subscribers’ fees to the actual music an individual subscriber listens to. Rather, all subscription fee revenues are aggregated and distributed based on every artist’s share of total streams. In addition, the platforms take a substantial cut, which together with the cut paid to labels is some 75 percent or more of the total revenue. In 2022, an NFT-based service takes hold and begins offering music from notable stars – perhaps the likes of Katy Perry, The Chainsmokers and Jason Derulo, all of whom have recently backed an effort to create a new blockchain-powered streaming platform. Other well-known artists begin pulling their music from the now “traditional” streaming platforms, which suddenly find themselves terminally disrupted. Investors see the eventual writing on the wall for podcasts, movies and other forms of digitisable contents as well. Market impact: Investors recognise that Spotify’s future is bleak, sending its shares down 33 percent in 2022. 9. New hypersonic tech drives space race and new cold war Summary: The latest hypersonic missile tests are driving a widening sense of insecurity as this tech renders legacy conventional and even nuclear military hardware obsolete. In 2022 a massive hypersonic arms race develops among major militaries as no country wants to feel left behind. In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China on all fronts—economic and military. Other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU. Hypersonic capabilities represent a game-changing threat to the long-standing military strategic status quo, as the technology brings asymmetric new defensive and offensive capabilities that upset the two massive pillars of military strategy of recent decades. The first is the potential for devastating hypersonic tech defence against the conventional attack capabilities of long-range bombing aircraft, as well as the so-called “deep water” navy of ships that can bring the fight to any corner of the globe without refuelling. The second pillar of the old Cold War era was the principle of mutually assured destruction (MAD) in the event of nuclear war, under which it was pointless to launch a nuclear war as long as there was still time for the opponent to launch an equally destructive ICBM counterattack from land- and submarine-based ballistic missiles. But the speed and agility of hypersonic tech introduces the belief that superior defence could thwart an attack entirely and even allow for new first-strike capabilities. Market impact: massive funding for companies like Raytheon that build hypersonic tech with space delivery capabilities and underperformance of “expensive conventional hardware” companies in the aircraft and ship-building side of the military hardware equation. 10. Medical breakthrough extends average life expectancy 25 years Summary: Young forever, or for at least a lot longer. In 2022, a key breakthrough in biomedicine brings the prospect of extending productive adulthood and the average life expectancy by up to 25 years, prompting projected ethical, environmental and fiscal crises of epic proportions. The year 2022 sees a breakthrough from a multi-factor approach, as a cocktail of treatments is put together that tweaks cell-level processes in order to extend their life and thus the life of the organism composed of those cells. It’s not cheap, but it’s effective and has already been demonstrated on laboratory mice containing human DNA, extending their lives some 30% and more. The prospect of a massive leap in human quality of life and life expectancy are huge wins for mankind but bring an enormous ethical and financial quandary. Imagine that almost everyone can look forward to living to an average age of 115 and more healthily. What would this mean for private and government pensions, or even the ability or desire to retire? And what about the cost to the planet if it is set to support billions more people, not to mention whether or not there is enough food to go around? And then there is the ethical question of whether it is humane to not make the cocktail available to everyone. In short, how would our value systems, political systems and planet cope?
December Monthly

December Monthly

Marc Chandler Marc Chandler 02.12.2021 15:00
December 01, 2021  $USD, Macro The pandemic is still with us as the year winds down and has not yet become endemic, like the seasonal flu.  Even before the new Omicron variant was sequenced, Europe was being particularly hard hit, and social restrictions, especially among the unvaccinated, were spurring social strife.  US cases, notably in the Midwest, were rising, and there is fear that it is 4-6 weeks behind Europe in experiencing the surge.  Whatever herd immunity is, it has not been achieved.  Moreover, despite plenty of vaccines in high-income countries, inoculation efforts in many low-income countries won't begin in earnest until next year.   That said, the new variant has injected a new element into the mix, and it is with a heightened degree of uncertainty that we share our December outlook.  Given the unknowns, policymakers can choose the kind of error they are willing to make. They are trying to minimize their maximum regret.  The utmost regret is that the mutation is dangerous and renders the existing vaccines and treatment significantly less effective.  This will leave them vulnerable to accusations of over-reacting if the Omicron turns out to be a contagious but less deadly variation.   Meanwhile, there has been some relief to the supply chain disruptions.  Covid-related factory closures in Asia, the energy shortage, and port congestion are easing. Large US retailers have stocked up for the holiday shopping season, some of which chartered their own ships to ensure delivery. There are also preliminary signs that the semiconductor chip shortage may be past its worst.  Indeed, the recovery of the auto sector and rebuilding of inventories will help extend the economic expansion well into next year, even though fiscal and monetary policy are less supportive for most high-income countries.  The flash November US manufacturing PMI saw supplier delivery delays fall to six-month lows.   We assume that the US macabre debt ceiling ritual will not lead to a default, and even though it distorted some bill auctions, some resolution is highly probable.  The debate over the Build Back Better initiative, approved by the House of Representatives, will likely be scaled back by moderate Democratic Senators and Republicans.  Besides assessing the risks posed by the new variant, the focus in December is back on monetary policy.  Four large central banks stand out.  The Chinese economy has slowed the People's Bank of China quarterly monetary report modified language that signals more monetary support may be forthcoming.  Many observers see another reduction in reserve requirements as a reasonable step.  Unlike in the US and Europe, which saw bank lending dry-up in the housing market crisis (2008-2009), Beijing is pressing state-owned banks to maintain lending, including the property sector.   The Federal Reserve meets on December 15.  There are two key issues.  First, we expect the FOMC to accelerate the pace of tapering to allow it to have the option to raise rates in Q2 22.  The Fed's commitment to the sequence (tapering, hikes, letting balance sheet run-off) and the current pace of tapering deny the central bank the needed flexibility.  The November CPI will be reported on December 10.  The headline will likely rise to around 6.7%, while the core rate may approach 5%.  Second, the new "Summary of Economic Projections" will probably show more Fed officials seeing the need to hike rates in 2022.  In September, only half did.  The rhetoric of the Fed's leadership has changed.  It will not refer to inflation as transitory and is signaling its intention to act.  The European Central Bank and the Bank of England meet the day after the FOMC.  The ECB staff will update its forecasts, and the key here is where it sees inflation at the end of the forecasting period.  In September, it anticipated that CPI would be at 1.5% at the end of 2023.  Some ECB members argued it was too low.   It may be revised higher, but the key for the policy outlook is whether it is above the 2% target.  We doubt that this will be the case.  While the ECB will likely announce that it intends on respecting the current end of the Pandemic Emergency Purchase Program next March, its QE will persist. The pre-crisis Asset Purchase Program is expected to continue and perhaps even expand in Q2 22.  The "modalities" of the post-emergency bond-buying program, size, duration, and flexibility (self-imposed limits) will be debated between the hawks and doves.  With eurozone inflation approaching 5% and Germany CPI at 6%, the hard-money camp will have a new ally at the German Finance Ministry as the FDP leader Linder takes the post.  On the other hand, the Social Democrats will name a Weidmann's replacement at the head of the Bundesbank, and nearly anyone will be less hawkish.   While we correctly anticipated that the Bank of England would defy market expectations and stand pat in November, the December meeting is trickier.  The decision could ultimately turn on the next employment and CPI reports due 1-2 days before the BOE meeting.  The risk is that inflation will continue to accelerate into early next year and that the labor market is healing after the furlough program ended in September.  On balance, we suspect it will wait until next year to hike rates and finish its bonds purchases next month as planned.   Having been caught wrong-footed in November, many market participants are reluctant to be bitten by the same dog twice. As a result, the swaps market appears to be rising in about a 35% chance of a 15 bp move that would bring the base rate up to 25 bp.  Sterling dropped almost 1.4% (or nearly two cents) on November 4, the most since September 2020 when the BOE failed to deliver the hike that the market thought the BOE had signaled.   The combination of a strong dollar and the Fed tapering weighed emerging market currencies as a whole.  The JP Morgan Emerging Market Currency Index fell by about 4.5% in November, its third consecutive monthly decline, bringing the year-to-date loss to almost 10%.  It fell roughly 5.7% in 2020.  Turkey took the cake, though, with the lira falling nearly 30% on the month.  It had depreciated by 15% in the first ten months of the year.  This follows a 20% depreciation last year.  Ten years ago, a dollar would buy about 1.9 lira.  Now it can buy more than 13 lira.  The euro's weakness was a drag, and the geopolitical developments (e.g., Ukraine, Belarus) weighed on central European currencies. The central bank of Hungary turned more aggressive by hiking the one-week deposit rate by 110 bp (in two steps) after the 30 bp hike in the base rate failed to have much impact.  The forint's 3.1% loss was the most among EU members.   Colombian peso was the weakest currency in Latam, depreciating by almost 5%. It was not rewarded for delivering a larger than expected 50 bp rate hike in late October.  Bannockburn's GDP-weighted global currency index (BWCI) fell by nearly 1% in November, the largest monthly decline since June.  It reflected the decline of the world's largest currencies against the dollar.  Three currencies in the index proved resilient  On the GDP-weighted basis, China has immense gravity, with a 21.8% weighting (the six largest EM economies, including China, account for a 32.5% of the BWCI). It appreciated by about two-thirds of a percent. The Brazilian real managed to rise (~0.25%) too.  Since the day before the Omicron variant was sequenced, the Japanese yen gained a little more than 2%, reversing the earlier decline that had brought it to four-year lows.  It rose by  0.7% in November, making it the strongest currency in the index.  Among the major currencies, the Australian dollar fell the most, declining about 5.2%.  The Canadian dollar was next, with around a 3% loss.   As it turns out, the dollar (Dollar Index) recorded its low for the year as shocking events were unfolding in Washington on January 6.  The bottomed against the yen and euro the same day.   The greenback did not bottom against the Australian dollar until February, but it took it until early June to put in a low against sterling and the Canadian dollar.  The BWCI peaked in early June and, by the end of last month, had retreated by about 2.7%.  We suspect it may decline by another 2%, which would return it the levels of late 2019.  That, in turn, implies the risk of a stronger dollar into the first part of next year.     Dollar:  The jump in US CPI to above 6%, and a strong sense that it is not the peak, spurred speculation that the Federal Reserve would likely accelerate the pace of tapering at the December meeting. Several Fed officials seemed sympathetic, including San Francisco President Daly, who is perceived to be a dove. The minutes of the November meeting underscored the central bank's flexibility over the pace of tapering.  At the same time, most of the high-frequency data for October came in stronger than expected, lending credence to ideas that after a disappointing Q3, the world's largest economy is accelerating again in Q4.  The divergence of monetary policy and the subsequent widening interest rate differentials is the primary driver of expectations for dollar appreciation against the euro and yen.  The market had been leaning toward three rates hikes in 2022 before news of the new Covid mutation emerged and trimmed the odds.  Powell was renominated for a second term at the helm of the Federal Reserve, Brainard was nominated to be Vice-Chairman.  There is still the Vice-Chair for supervision and an empty governor seat for President to Biden to fill.  In addition to the changes in leadership, the rotation of the voting members of the FOMC brings in a somewhat more hawkish bias next year.   Euro:  In contrast with the US, eurozone growth is set to slow in Q4. After two quarters that growth exceeded 2% quarter-over-quarter, growth is likely to moderate to below 1% in Q4 21 and Q1 22.  Food and energy are driving inflation higher.  The EC continues to negotiate with the UK over changes to the Northern Ireland Protocol.  The dispute over fishing licenses and migrant crossing of the channel are also unresolved sources of tension with the UK. Tensions between the EC and Poland/Hungary over the rule of law, judicial independence, and civil liberties have also not been settled.  As was the case in the spring, Russia's troop and artillery movement threatened Ukraine, though the tension on the Poland/Belarus border has eased.  The ECB's leadership continues to maintain the price pressures are related to the unusual set of circumstances but are ultimately temporary.  Its December 16 meeting, the last one before Bundesbank President Weidmann steps down, is critical. In addition to confirming the end of the Pandemic Emergency Purchase Program in March 2022, and the expansion of the Asset Purchase Program, the ECB staff will update its inflation forecasts.  The focus here is on the 2023 CPI projection of 1.5%.  There was a push back against it in September, and a slight upward revision is likely. Nevertheless, it will probably remain below the 2% target.  The swaps market is pricing in a 25 bp hike in 2023.   (November indicative closing prices, previous in parentheses)   Spot: $1.1335 ($1.1560) Median Bloomberg One-month Forecast $1.1375 ($1.1579)  One-month forward  $1.1350 ($1.1568)    One-month implied vol  7.1%  (5.1%)         Japanese Yen:  Japan has a new prime minister who has put together a large fiscal stimulus package that will help fuel the economic recovery that had begun getting traction since the formal state of emergency was lifted at the end of September.  After a frustratingly slow start, the inoculation efforts have started bearing fruit, with vaccination rates surpassing the US and many European countries.  Unlike most other high-income countries, Japan continues to experience deflationary pressures.  Food and energy prices may be concealing it in the CPI measure, but the GDP deflator in Q2 and Q3 was  -1.1%. However, the BOJ does not seem inclined to take additional measures and has reduced its equity and bond-buying efforts.  The exchange rate remains sensitive to the movement of the US 10-year note yield, which has chopped mostly between 1.50% and 1.70%. With a couple of exceptions in both directions, the greenback has traded in a JPY113-JPY115 range.  The emergence of the new Covid mutation turned the dollar back after threatening to break higher.  A convincing move above the JPY115.50 area would likely coincide with higher US rates and initially target the JPY118 area.    Spot: JPY113.10 (JPY113.95)       Median Bloomberg One-month Forecast JPY113.30 (JPY112.98)      One-month forward JPY113.00 (JPY113.90)    One-month implied vol  8.2% (6.4%)   British Pound:  Sterling never fully recovered from disappointment that the Bank of England did not hike rates in early November.  Market participants had understood the hawkish rhetoric, including by Governor Bailey, to signal a hike.  The implied yield of the December 2021 short-sterling interest rate futures plummeted by 30 bp by the end of the month, and sterling has not seen $1.36, let alone $1.37, since then.  Indeed, sterling chopped lower and recorded new lows for the year in late November near $1.3200.  Growth in the UK peaked in Q2 at 5.5% as it recovered from the Q1 contraction.  It slowed to a 1.3% pace in Q3 and looks to be slowing a bit more here in Q4.  The petty corruption scandals and ill-conceived speeches by Prime Minister Johnson have seen Labour move ahead in some recent polls.  An election does not need to be called until May 2024, but the flagging support may spur a cabinet reshuffle.  The next important chart point is not until around $1.3165 and then the $1.30 area, which holds primarily psychological significance.       Spot: $1.3300 ($1.3682)    Median Bloomberg One-month Forecast $1.3375 ($1.3691)  One-month forward $1.3315 ($1.3680)   One-month implied vol 7.5% (6.8%)      Canadian Dollar:  The Canadian dollar appreciated by almost 2.4% in October and gave it all back, plus some in November.  Indeed, the loss was sufficient to push it fractionally lower for the year (-0.4%), though it remains the best performing major currency against the US dollar.   The three major drivers of the exchange rate moved against the Canadian dollar last month.  First, its two-year premium over the US narrowed by 17 bp, the most in four years.  Second, the price of January WTI tumbled by around 18.2%.  Commodity prices fell more broadly, and the CRB Index snapped a seven-month rally with a 7.8% decline.  Third, the risk appetites faltered is reflected in the equity markets. The Delta Wave coupled with the new variant may disrupt growth.  Still, the swaps market has a little more than two hikes discounted over the next six months.   The government is winding down its emergency fiscal measures, but the spring budget and election promises mean that the fiscal consolidation next year will be soft.     Spot: CAD1.2775 (CAD 1.2388)  Median Bloomberg One-month Forecast CAD1.2685 (CAD1.2395) One-month forward CAD1.2770 (CAD1.2389)    One-month implied vol 7.2% (6.2%)      Australian Dollar:  The Australian dollar fell by more than 5% last month, slightly less than it did in March 2020.  It did not have an advancing week in November after rallying every week in October.  Australia's two-year premium over the US was chopped to less than 10 bp in November from nearly 28 bp at the end of October.  The Reserve Bank of Australia pushed back against aggressive rate hike speculation.   The unexpected loss of jobs in October for the third consecutive month took a toll on the Australian dollar, which proceeded to trend lower and recorded the low for the year on November 30, slightly below $0.7065.  A break of $0.7050 would initially target $0.7000, but convincing penetration could spur another 2-2.5-cent drop.  The 60-day rolling correlation between- changes in the Australian dollar and the CRB commodity index weakened from over 0.6% in October to below 0.4% in November. The correlation had begun recovering as the month drew to a close.       Spot:  $0.7125 ($0.7518)        Median Bloomberg One-Month Forecast $0.7195 ($0.7409)      One-month forward  $0.7135 ($0.7525)     One-month implied vol 9.7%  (9.1%)        Mexican Peso:  The broadly stronger US dollar and the prospects of more accelerated tapering weighed on emerging market currencies in November, but domestic considerations also weighed on the peso.   The Mexican peso fell by around 4.1%, the most since March 2020.  The economy unexpectedly contracted by 0.4% in Q3.  There is little fiscal support to speak of, while monetary policy is becoming less accommodative too slowly compared with some other emerging markets, such as Brazil.  Price pressures are still accelerating, and the bi-weekly CPI rose above 7% in mid-November. The swaps market discounts nearly a 25 bp hike a month for the next six months.  The government's policies, especially in the energy and service sectors, are not attractive to investors.  President AMLO dealt another blow to investor confidence by retracting the appointment of former Finance Minister Herrera for his deputy to head up the central bank starting in January.  This is seen potentially undermining one of the most credible institutions in Mexico.  Lastly, Mexico's trade balance has deteriorated sharply in recent months and through October has recorded an average monthly trade deficit of nearly $1.2 bln this year.  In the same period, in 2020, it enjoyed an average monthly surplus of almost $2.5 bln, and in the first ten months of 2019, the average monthly trade surplus was a little more than $150 mln.     Spot: MXN21.46 (MXN20.56)   Median Bloomberg One-Month Forecast  MXN21.23 (MXN20.42)   One-month forward  MXN21.60 (MXN20.65)     One-month implied vol 14.9% (9.6%)      Chinese Yuan:  The Chinese yuan has been remarkably stable against the US dollar, and given the greenback's strength, it means the yuan has appreciated sharply on a trade-weighted basis.  Going into the last month of the year, the yuan's 2.6% gain this year is the best in the world.  Chinese officials have signaled their displeasure with what it sees as a one-way market.  At best, it has orchestrated a broadly sideways exchange rate against the dollar, mainly between CNY6.37 and CNY6.40. The lower end of the dollar's range was under pressure as November drew to a close.   Even though the Chinese economy is likely to accelerate from the near-stagnation in Q3 (0.2% quarter-over-quarter GDP), it remains sufficiently weak that the PBOC is expected to consider new stimulative measures.  It last reduced reserves requirements in July, and this seems to be the preferred avenue rather than rate cuts.  Yet, given the interest rate premium (the 10-year yield is around 2.85%), record trade surpluses ($84.5 bln in October), portfolio inflows, and limited outflows, one would normally expect a stronger upward pressure on the exchange rate.    Spot: CNY6.3645 (CNY6.4055) Median Bloomberg One-month Forecast  CNY6.38 (CNY6.4430)  One-month forward CNY6.3860 (CNY6.4230)    One-month implied vol  3.5% (3.5%)    Disclaimer
The coronavirus pandemic has changed many things around the world.

The coronavirus pandemic has changed many things around the world.

Walid Koudmani Walid Koudmani 02.12.2021 18:42
From an investor's perspective, volatility in the financial markets has never been so high. On the other hand, from the consumer point of view, prices did not change so dramatically in such a short time before. Where do the paths of investors and consumers cross? This usually takes place on the commodity market, and the most important raw material is, of course, crude oil and its processed products. From negative prices to nearly $ 100 a barrel The arrival of COVID-19 has led to unprecedented anomalies in the oil market. At one point, the price of a barrel of oil dropped significantly below zero. Due to restrictions around the world, many people have stopped traveling, flying or even going to shops. At one point, crude oil demand fell by as much as 1/3, or roughly 30 million barrels a day. Due to the huge disproportion between supply and demand, the organization of oil-exporting countries, i.e. OPEC, together with other important countries, decided to jointly limit production in order to restore the normal price situation on the market. Production restrictions by the OPEC cartel and other producers such as Russia continue to this day. In the meantime, however, measures have been taken to stimulate the economy after the coronavirus stagnation. Tons of cash poured from central banks and governments, leading to a significant recovery. There was a fear that oil might be running out, which is why OPEC + decided to moderately restore production. However, this process turned out to be too slow to meet market expectations, resulting in a 100% increase in prices. There was even speculation that the price would rise to $ 100 a barrel, which was a problem for consumers in the past. Too high prices could have curtailed demand. The coronavirus continues to haunt markets In recent months, we witnessed several coronavirus waves and limited restrictions. They did not have any real impact on the market, besides production expectations. Usually, the sell-off of riskier assets, such as oil, lasted about 2 weeks. In view of the next expected wave of Covid-19, OPEC + decided not to increase production. It turned out that the group was right. The Omicron variant suddenly impacted ordinary people and investors. Black Friday brought a huge discount not only in stores, but also in the financial markets. Crude oil fell by 15% in one session. The risk of imposing further restrictions, similar to those from the first lockdown, hit investors' moods. If you look at Austria, where another lockdown was introduced, the mobility dropped well below levels which we observed a few weeks ago, or even before the first wave of the pandemic. If current vaccines prove to be ineffective against Omicron, travel will be reduced, flights will be suspended, people will remain at home and the demand for oil will decrease. The vast majority of the population would prefer much cheaper oil, but not OPEC +. If the group already sees a clear oversupply of oil in Q1 2022, then with an additional decline in demand due to Omicron, further OPEC + actions are possible. Will we pay less at gas stations? Probably yes. However, it must be remembered that the price of gasoline depends not only on the price of crude oil. The price components are in most cases: Crude oil Refining margin Distribution and Marketing Taxes In the United States, the share of crude oil in the cost of fuel is as high as 50%. On the other hand, in non-oil producing countries, distribution costs and taxes account for a much larger share. Therefore, even if prices are now 25% lower compared to the high of the current bull market, it will lower fuel prices by just a few percent. That is why some countries decide to take other steps, such as reducing VAT or excise duty. What's next for oil? The world was very scared of expensive oil, but the seasonality still points to limited demand at the beginning of the new year. In such a case, the growth dynamics would be slowed down anyway. That is why we should not expect major efforts from OPEC +. On the other hand, the group would like to keep prices around $ 70-80 per barrel, which allows long-term planning of further mining projects. Therefore, in the future, we should expect further action from OPEC +, which will be aimed at keeping the price in this range.
Hawks Triumph, Doves Lose, Gold Bulls Cry!

Hawks Triumph, Doves Lose, Gold Bulls Cry!

Arkadiusz Sieron Arkadiusz Sieron 02.12.2021 17:20
The hawkish revolution continues. Powell, among the screams of monetary doves, suggested this week that tapering could be accelerated in December! People live unaware that an epic battle between good and evil, the light and dark side of the Force, hard-working entrepreneurs and tax officials is waged every day. What’s more, hawks and doves constantly fight as well, and this week brought a victory for the hawks among the FOMC. The triumph came on Tuesday when Fed Chair Jerome Powell testified before Congress. He admitted that inflation wasn’t “transitory”, as it is only expected to ease in the second half of 2022. Inflation is therefore more persistent and broad-based than the Fed stubbornly maintained earlier this year, contrary to evidence and common sense: Generally, the higher prices we’re seeing are related to the supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy. But it’s also the case that price increases have spread much more broadly and I think the risk of higher inflation has increased. Importantly, Powell also agreed that “it’s probably a good time to retire that word.” You don’t say! Hence, the Fed was wrong, and I was right. Hurray! However, it’s a Pyrrhic victory for gold bulls. This is because the recognition of the persistence of inflation pushes the Fed toward a more hawkish position. Indeed, Powell suggested that the FOMC participants could discuss speeding up the taper of quantitative easing in December: At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner, and I expect that we will discuss that at our upcoming meeting in a couple of weeks. What’s more, Powell seemed to be unaffected by the Omicron coronavirus strain news. He was a bit concerned, but not about its disturbing impact on the demand side of the economy; he found supply-chain disruptions that could intensify inflation way more important. That’s yet another manifestation of Powell’s hawkish stance.   Implications for Gold What does the Fed’s hawkish tilt imply for the gold market? Well, gold bulls get along with doves, not hawks. A more aggressive tightening cycle, including faster tapering of asset purchases, could boost expectations of more decisive interest rates hikes. In turn, the prospects of a more hawkish Fed could increase the bond yields and strengthen the US dollar. All this sounds bearish for gold. Indeed, the London price of gold dropped on Wednesday below $1,800… again, as the chart above shows. Hence, gold’s inability to stay above $1,800 is disappointing, especially in the face of high inflation and market uncertainty. Investors seem to have once again believed that the Fed will be curbing inflation. Well, that’s possible, but my claim is that despite a likely acceleration in the pace of the taper, inflation will remain high for a while. I bet that despite the recent hawkish tilt, the Fed will stay behind the curve. This means that the real interest rates should stay negative, providing support for gold prices. The previous tightening cycle brought the federal funds rate to 2.25-2.5%, and we know that after an economic crisis, interest rates never return to the pre-crisis level. This is also what the euro-dollar futures suggests: that the upcoming rate hike cycle will end below 2%. The level of indebtedness and financial markets’ addiction to easy money simply do not allow the Fed to undertake more aggressive actions. Will gold struggle in the upcoming months then? Yes. Gold bulls could cry. But remember: tears cleanse and create more room for joy in the future. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
RBA Jettisons Yield Curve Control but Continues to Resist Market Pressure

RBA Jettisons Yield Curve Control but Continues to Resist Market Pressure

Marc Chandler Marc Chandler 03.11.2021 10:54
Overview: The third record close of the S&P 500 failed to lift Asia Pacific and European shares today.  In Asia, the large bourses fell, except South Korea, which rallied a little more than 1%.  Europe's Stoxx 600 is threatening to snap a three-day advance, while US index futures are soft.  The US 10-year yield is firm, around 1.56%.  European bonds are rallying.  Peripheral yields are off 8-9 bp, while core rates are 3-5 lower.  The Reserve Bank of Australia formally abandoned its yield-curve control, and the local debt market was quiet, but the Australian dollar is selling off and dragging the other dollar-bloc currencies lower.  Only the yen, among the majors, is gaining on the greenback.  Emerging market currencies are faring better, led by Asian currencies and most central and eastern European currencies.  The JP Morgan Emerging Market Currency Index is rising for the first time in five sessions.  Gold continues to consolidate within the range set before the weekend (~$1771-$1801) but is a bit softer on the day.  Oil prices are firm, and the December WTI contract is at the upper end of the $80-$85 range that has prevailed since mid-October.  Copper initially moved higher but reversed lower, and a break of $432 could signal another two percent decline.   Asia Pacific The Reserve Bank of Australia formally jettisoned its yield-curve control of targeting the April 2024 bond yield at 10 bp.  The market expected this after the RBA had been missing in action as the yield soared.  Today, the on-the-run 3-year yield fell six basis points after falling 21 yesterday.  It has now returned below 1%.  Governor Lowe did not fully capitulate but is trying to hold on to a middle ground.  He said the central bank will be patient on rates, and it is still plausible not to raise rates until 2024. However, he acknowledged rates could be lifted in 2023.  The swaps market is pricing in almost 80 bp of tightening over the next 12 months, with a 10 bp hike seen in six months.   European and American equities have recovered from the wobble in mid-September that sparked fear that Evergrande's losses would trigger a Lehman-like event.  Yet, the problem with Chinese property developers continues, even though Evergrande took advantage of its 30-day grace period, it serviced its debt.  China's high yield bond market is dominated by the property development sector.  The yields rose for eight consecutive sessions through yesterday and briefly rose above 20% last week.  Estimate debt servicing costs amount to around $2 bln this month.  House sales and prices are falling, a separate challenge to the economy than the energy crunch and high commodity prices.  It is still unclear whether Chinese officials are prepared to take more decisive action to support the economy, like a cut in reserve requirements.  New economic initiatives may emerge from the Communist Party's Central Committee meeting (November 8-11).  Officially it will focus on the achievements in preparation for the 20th Congress next year that will likely confirm another term for President Xi but possibly shuffle other senior posts.   The dollar rose to almost JPY114.45 yesterday and has come back offered today.  It has slipped below the 20-day moving average (~JPY113.55) for the first time since September 23.  Last week's low was closer to JPY113.25.  A break of JPY113.00 could signal losses toward JPY112.60 initially.  The price action is lending credence to the JPY114.50-JPY115.00 being the top of the new range. The lower end of the range is less clear.  The Australian dollar's 4% rally led the majors last month, but it stalled near the 200-day moving average (~$0.7555) and is breaking down today.  It has taken out last week's lows (~$0.7465) marginally, but the downside momentum has continued in the European morning.  There is near-term scope toward $0.7435 and maybe $0.7410.   The PBOC set the dollar's reference rate at CNY6.4009, firmer than the median (Bloomberg) forecast of CNY6.3986. The gap was slightly wider than it has been.  The last time the gap was more than 20 pips was October 20. So if it is a protest, it is still faint. Meanwhile, stricter virus curbs took a toll on Chinese equities. The greenback has risen above CNY6.40 on an intraday basis but continues to struggle to sustain it on a closing basis.   Europe The EMU final manufacturing PMI was slightly lower than the preliminary estimate, owing to a softer than expected Spain reading and a downward revision in Germany.  The aggregate stands at 58.3, down from 58.5 initially and 58.6.  It is the fourth consecutive decline, but it can hardly be considered weak.  Germany's manufacturing PMI was lowered to 57.8 from the 58.2 preliminary projection and 58.4 in September.  The French reading was tweaked up to 53.6 from 53.5.  It is still down from 55.0 and is the fifth straight loss.  Spain disappointed with a 57.4 report.  It was projected to be unchanged at 58.1, which seemed optimistic from the get-go.  Italy offered an upside surprise.  Its manufacturing PMI rose to 61.1 from 59.7.  Economists had expected some slippage.   Some pressure on the euro appeared to be coming from the cross against the Swiss franc.  Since the Fed met in September through the end of last week, the euro fell about 3.35% against the franc. Sight deposits rose steadily in October after falling in the first half of September.  Last week's increase was the most in two months as the euro broke below CHF1.08 for the first time since  May 2020. The rise in sight deposits is consistent with stepped-up intervention by the Swiss National Bank.  Yesterday, the euro fell against the Swiss franc, even as it rose against the dollar.  Clearly, the intervention is not arresting the euro's weakness. SNB is more likely moderating the decline.   Moreover, if the SNB also seeks to maintain a certain currency allocation of its reserves, it needs to acquire dollars after acquiring euros.  And if it does not want to grow reserves like Japan or China, it will sell some of the euros for dollars, minimizing the intervention effect on reserve accumulation.  The value of the SNB's reserves declined slightly in the year through September.    The pace of the euro's decline against the franc has accelerated in the past two sessions and closed below the lower Bollinger Band (two standard deviations below the 20-day moving average) for the second consecutive session.  Last year's low was set near CHF1.05 and yesterday, the euro pushed briefly through CHF1.0550.  It is now near CHF1.0570. The next technical support may be around CHF1.0250. However, speculators in the futures market see it differently.   They have the largest net short franc position (~19.3k contracts) since December 2019 and the smallest gross longs (~1245 contacts) since 2003.   French President Macron is holding back from imposing retaliatory measures against the UK over the fishing license dispute.  Reports suggest that Jersey is considering granting temporary licenses to French trawlers.  Separately, despite some confusing gas flows yesterday (from Germany to Poland), Russia says Putin's promise to boost gas shipment to Europe starting next week, after Gazprom completely rebuilding its domestic inventories, remains intact.  Look for results shortly of the auctions for pipeline capacity.   After falling a little more than 1% before the weekend, the euro bounced back yesterday and managed to close above $1.16. Follow-through buying was limited to about $1.1615, but it has struggled to sustain the positive momentum.  There is an option for 1.8 bln euros at $1.1585 that expires today.  A break signals a test on nearby support seen in the $1.1540-$1.1560 area.  Last week's low was about $1.1535, and the year's low is closer to $1.1525.  Sterling is off for the third consecutive session.  It reached $1.3630, the lowest level since October 14, which is about the (50%) retracement objective of last month's rally.  Some sales may have been related to the GBP316 mln option at $1.3650 that expires today.  The next (61.8%) retracement is by $1.3575.  America Today is the quietest day of the week for North American economic data. However, there is one feature, monthly autos sales.  Due to the supply chain disruptions, especially semiconductor chips, auto production has been crushed, and by extension, auto sales.  This is not limited to the US by any means.   Yesterday, Japan reported that October auto sales are off slightly more than 30% year-over-year in October. European auto registrations, a proxy for sales, were down 23.1% year-over-year in September.  Last week's Q3 GDP showed that growth was halved to 4% but the problems in the auto sector.  In September, US auto sales were about 25.5% below September 2020 sales.  Bloomberg's survey found a median forecast for October sales of 12.5 mln vehicles (seasonally adjusted annual basis), which would be the first increase since April.  Cox Automotive warns of another decline to 11.8 mln vehicles. The US Treasury unexpectedly boosted its Q4 borrowing needs to about $1.02 trillion, or around $312 bln more than it anticipated in August.  It appears to be largely a function of adjusting its cash balances and the calculations around the debt ceiling.  It is projecting Q1 22 borrowing needs at less than half of the Q4 sum.  Of course, it is assuming that the debt ceiling will be raised or suspended. Still, tomorrow's quarterly refunding announcement is expected to reduce its coupon offerings for the first time since 2016.  Separately, but not totally unrelated, the Democratic Party is still struggling to agree on the infrastructure initiative.   The US dollar continues to consolidate against the Canadian dollar but is enjoying a firmer tone today.  The Bank of Canada met on October 27, and it surprised the market by ending its bond-buying program and acknowledging the risk of an earlier hike.  The US dollar covered a range of roughly CAD1.2300 to CAD1.2435.  It has remained in that range since then. We note that speculators in the futures market switched to a net long position for the first time since early September in the week through last Tuesday.  The greenback is knocking on initial resistance in the CAD1.2400-CAD1.2410 area, and a break could signal a move toward CAD1.2430-CAD1.2450.  An option for about $900 mln expires tomorrow at CAD1.2450.  The greenback has a five-day rally in tow against the Mexican peso.  Earlier today, it pushed above last month's high (~MXN20.90), but it has stalled.  It is trading little changed on the session around MXN20.8500 as the North American session is about to start.   Still, unless it can break below MXN20.80, we look for higher levels.  That said, the pace of the dollar's rally is threatening the upper Bollinger Band (~MXN20.95)
Huge News! The Fed’s Tapering Is Finally Here!

Huge News! The Fed’s Tapering Is Finally Here!

Arkadiusz Sieron Arkadiusz Sieron 04.11.2021 15:04
The Fed has announced tapering of its quantitative easing! Preparing for the worst, gold declined even before the release - will it get to its feet? . Ladies and gentlemen, please welcome to the stage the one and only tapering of the Fed’s quantitative easing! Yesterday was that day – the day when the FOMC announced a slowdown in the pace of its asset purchases: In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage‑backed securities by at least $35 billion per month. It’s all but a bombshell, as this move was widely expected by the markets. However, what can be seen as surprising is the Fed’s decision to scale back its asset purchases already in November instead of waiting with the actual start until December. Hawks might be pleased – contrary to doves and gold bulls. How is the tapering going to work? The Fed will reduce the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities each month: Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. So, instead of buying Treasuries worth $80 billion and agency mortgage‑backed securities worth $40 billion (at least), the Fed will purchase $70 billion of Treasuries later this month and $35 billion of MBS, respectively. Then, it will buy $60 billion of Treasuries and $30 billion of MBS in December, $50 billion of Treasuries and $25 billion of MBS in January, and so on until the last round of purchases in May 2022. This means that the quantitative easing will be completed by mid-year if nothing changes along the way. The announcement of the tapering was undoubtedly the biggest event; however, I would like to point out one more modification. The sentence “inflation is elevated, largely reflecting transitory factors” was replaced in the newest statement with “inflation is elevated, largely reflecting factors that are expected to be transitory”. It’s not a big alteration, but “expected to be” is weaker than simply “is”. This means that the Fed’s confidence in its own transitory narrative has diminished, which implies that inflation might be more persistent than initially thought, which could support gold prices more decisively at some point in the future. The Fed also explained why prices are rising: “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors”. Unsurprisingly, the Fed didn’t mention the surge in the money supply and the unconventional monetary and fiscal policies, just “imbalances”! Implications for Gold What does the Fed’s announcement of a slowdown in asset purchases imply for the gold market? Well, the yellow metal showed little reaction to the FOMC statement, as tapering was in line with market expectations. Actually, gold prices fell to three-week lows in the morning — right after the publication of positive economic data but before the statement. However, gold started to rebound after the FOMC announcement, as the chart below shows. Why? The likely reason is that both the statement and Powell’s press conference were less hawkish than expected. After all, the Fed did very little to signal interest rate hikes. What’s more, Powell expressed some dovish remarks. For instance, he said that it was a bad time to hike interest rates: “it will be premature to raise rates today” (…) We don’t think it is a good time to raise interest rates because we want to see the labor market heal more.” The bottom line is that gold’s reaction to the FOMC statement was muted, as tapering was apparently already priced in. The lack of bearish reaction is a positive sign. However, gold’s struggle could continue for a while, perhaps until the Fed starts its tightening cycle. For now, all eyes are on Friday’s non-farm payrolls. Stay tuned! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Shockingly slow job growths Vs unemployment dive

Shockingly slow job growths Vs unemployment dive

Alex Kuptsikevich Alex Kuptsikevich 03.12.2021 15:15
In November, The US economy created 210K jobs, a shockingly low number compared with the expected 550K. And this is the weakest increase since January.This indicator noted a close correlation with the dynamics of new coronavirus cases, which are also at their highest since the beginning of the year in the USA.Average hourly earnings rose by 0.3%, maintaining the annual rate of 4.8% and falling short of expectations of a rise to 5.0%. It will not be surprising if policymakers comment in the coming days to raise the question of whether the recovery is losing steam. This is a negative surprise for the dollar as it reduces the pressure on the Fed with accelerated unwinding and faster rate hikes.The unemployment rate and the share of the economically active population, measured differently, contrasting sharply with the data above, marking a significant improvement. The unemployment rate has collapsed from 4.6% to 4.2%. This is a return to the multi-year norm, indicating a full labour market recovery. Notably, however, the economically active population has risen to 61.8%, indicating that the fall in unemployment is not the result of a shrinking labour force.Traditionally, markets pay more attention to month-on-month changes in employment numbers, but in this case, the effect of this extremely weak NFP data is balanced by a healthy, low unemployment rate.
NFP Quick Analysis: Weak report? Not when looking under the hood, and not for stocks

NFP Quick Analysis: Weak report? Not when looking under the hood, and not for stocks

FXStreet News FXStreet News 04.12.2021 17:39
The US has gained only 210K jobs in November, and wage growth slowed to 4.8%. Participation finally increased and the jobless rate dropped. The Fed will likely speed up tapering, but with less rush. Company profits are set to rise, paving the way for a Santa Rally. Less than half of expectations – that is the headline from November's Nonfarm Payrolls, which showed an increase of only 210K jobs vs. 550K expected. Wage growth also fell short of expectations with only 4.8% YoY instead of 5% projected. A halt in salaries is undoubtedly deflationary. Less money in Americans' pockets means less price pressure, especially in core inflation – what matters to the Federal Reserve. The figures come shortly after Fed Chair Jerome Powell said it is time to retire the term "transitory" when referring to inflation. Will he change his mind? Barely. The 0.2% miss in annual wage growth could result in a slower acceleration of tapering – currently at $15 billion – but not a cancellation of the policy. That explains the drop in the dollar, albeit a mild one. The greenback could find other reasons to rise, such as Omicron fears, or other developments. However, the Unemployment Rate dropped from 4.6% to 4.2%, a substantial drop, while the PArticipation Rate advanced from 61.6% to 61.8%, Finally, more Americans are returning to the workforce. While that goes hand in hand with weaker wages – more employees mean more competition for jobs and lower salaries – it initially seems confusing that jobs grew by only 210K. The reason for the confusion is the Bureau of Labor Statistics' separate surveys for constructing the NFP. Beyond the details of these surveys, the important thing to note is that the US economy continues growing at a fast pace, drawing people back in. That implies more sales for corporations, albeit with lower inflation. In one word – Goldilocks. Stocks are set to weather Fed tightening and rally into Christmas. Somewhat weaker Fed action with more people able to buy is good news for investors.
Bonds Didn‘t Disappoint

Bonds Didn‘t Disappoint

Monica Kingsley Monica Kingsley 03.12.2021 15:57
S&P 500 sharply rebounded, and signs are it has legs. My key risk-on indicator to watch yesterday, HYG, turned up really strongly. No problem that the dollar didn‘t decline, it‘s enough that financials and energy caught some breath. We‘re turning to risk-on as Omicron didn‘t cause the sky to fall. What a relief! Seriously, it doesn‘t look that hard lockdowns would be employed, which means the market bulls can probe to go higher again. What I told you on Wednesday already in the title It‘s the Fed, Not Omicron, today‘s non-farm payrolls illustrate. Such was the game plan before the data release, and this refrain of bad is the new good, is what followed. The Fed is desperately behind the curve in taming inflation, and its late acknowledgment thereof, doesn‘t change the bleak prospects of tapering (let alone accelerated one) into a sputtering economy. What we‘re experiencing currently in the stock market, is a mere preview of trouble to strike in 2022. We‘re in the topping process, and HYG holds the key as stated yesterday. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 returned above the 50-day moving average, the volume wasn‘t suspicious – the bulls have regained the benefit of the doubt, and need to extend gains convincingly and sectorally broadly next. Credit Markets HYG successfully defending gained ground, would be a key signal of strength returning to risk-on assets and lifting up S&P 500. There is still much to go – remember that the sharpest rallies happen in bear markets, so all eyes on HYG proving us either way. Gold, Silver and Miners Precious metals weakness looks deceptive and prone to reversal to me – the real fireworks though still have to wait till the Fed gets doubted with bets placed against its narratives. Crude Oil Crude oil plunge is getting slowly reversed, about to. Beaten down the most lately, black gold is readying an upside surprise. Copper Copper is turning higher, taking time, but turning up – it‘s positive, but still more of paring back recent setback than leading higher. I‘m reasonably optimistic, and acknowledge much time is needed to reach fresh highs. Bitcoin and Ethereum The bearish ambush of Bitcoin and Ethereum didn‘t get too far – crypto consolidation goes on, no need to panic or get excited yet. Summary S&P 500 is in a recovery mode, and the bulls look ready to prove themselves. The keenly watched HYG close presaged the odds broadly tipping the risk-on way, just as much as cyclicals did. It‘s a good omen that commodities are reacting – not too hot, not too cold – with precious metals in tow. In tow, as the Fed isn‘t yet being doubted – the NFPs are a first swallow of its inability to carry out tapering plans till the (accelerated or not) end. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Semblance of Stability Returns though Geopolitical Tensions Rise

Semblance of Stability Returns though Geopolitical Tensions Rise

Marc Chandler Marc Chandler 06.12.2021 12:39
December 06, 2021  $USD, China, Currency Movement, EU, Hungary, Italy, Russia Overview:  The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week.  Asia Pacific equities traded heavily, and among the large markets, only South Korea and Australia escaped unscathed today.  Europe's Stoxx 600 is trading higher, led by energy, financials, and materials.  US futures are narrowly mixed.  Similarly, Asia Pacific bonds played a little catch-up with the large Treasury rally ahead of the weekend.  The US 10-year had approached 1.30% but is now up almost four basis points to almost 1.39%.  European yields are also a little firmer, though Italian bonds are outperforming after the pre-weekend credit upgrade by Fitch. The dollar is mixed.  The yen and Swiss franc are the heaviest, while the Scandis lead the advancers.  Among the emerging market currencies, most liquid and freely accessible currencies are higher, while India, Indonesia, and Turkey are trading lower.  The JP Morgan Emerging Market Currency Index has a four-week drop in tow and is starting the new week with a small gain.  Gold initially moved higher but is now little changed.  Iron ore and copper remain firm.  January WTI is trading firmly within the pre-weekend range, while natural gas, which collapsed by 24% in the US last week, extended its sell-off today.  European natural gas (Dutch benchmark) is trading lower after rising for the past five weeks.   Asia Pacific As tipped by Chinese Premier Li last week, the PBOC cut reserve requirement by 0.5%.  This frees up an estimated CNY1.2 trillion.  Many market participants had anticipated the timing to help banks pay back borrowing from the Medium-Term Lending Facility.  Banks owe about CNY950 bln on December 15 and another CNY500 bln on January 15.   Separately, several property developers have debt serving payments due and Evergrande is at the end of a grace period today.  Lastly, the US and a few other countries are expected to announce a diplomatic boycott of the Winter Olympics.  This is seen as largely symbolic as few diplomats were going to attend due to the severe quarantine imposed by Chinese officials.   China needs bargaining leverage if it is going to influence US policy.  It might come from an unexpected source.   While recent press reports focused on China's attempt to project its power into Africa, they have missed a potentially more impactful development.  Consider the Caribbean, which the US often acts as if it is theirs.  Barbados became a constitutional republic last week, though it is still a member of the UK Commonwealth.  The left-of-center government is friendly toward Beijing.  Under the Belt Road Initiative, Barbados and Jamaica have received several billion dollars from China.  Moreover, a recent US State Department report found that the two countries have voted against the US around 75% of the time at the UN last year.   This week, the regional highlights include the Reserve Bank of Australia (outcome first thing tomorrow in Wellington) and the Reserve Bank of India (December 8).  The RBA may revise up its economic outlook, yet, it is likely to continue to push against market expectations for an early hike.  The derivatives market appears to have the first hike priced in for late next summer.    India is expected to be on hold until early next year but could surprise with a hike.  China is expected to report trade figures tomorrow and the November CPI and PPI on Wednesday.  Lending figures may be released before the weekend.  Japan's highlights include October labor earnings and household spending tomorrow, the current account, and the final Q3 GDP on Wednesday.   The dollar's range against the yen on November 30 (~JPY112.55-JPY113.90) remains dominant.  It has not traded outside of that range since then.  The rise in US yields and equities has helped the dollar regain a toehold above JPY113.00.  The pre-weekend high was near JPY113.60, which might be too far today.  The Australian dollar traded below $0.7000 before the weekend and again today, but the selling pressure abated, and the Aussie has traded to about $0.7040. A band of resistance from $0.7040 to $0.7060 may be sufficient to cap it today.   The dollar has been in essentially the same range against the Chinese yuan for three sessions (~CNY6.3670-CNY6.3770).  If the dollar cannot get back above CNY6.38, a new and lower range will appear to be established.  The PBOC set the dollar's reference rate at CNY6.3702.  The market (Bloomberg median) had projected CNY6.3690.   Europe Germany's new government will take office in the middle of the week.  It has three pressing challenges.  First is the surge in Covid, even before the Omicron variant was detected.  Second, the economy is weak.  Last week's final PMI reading picked up some deterioration since the flash report and the 0.2 gain in the composite PMI more than 10.0 point fall in the previous three months. Third, today Germany reported dreadful factory orders.  The market had expected a slight pullback after the 1.3% gain in September.  The good news is that the September series was revised to a 1.8% gain.  However, this is more than offset by the 6.9% plummet in October orders.  If there is a silver lining here, it is that domestic orders rose 3.4% after falling in August and September.  Foreign orders plunged 13.1%, and orders from the eurozone fell by 3.2% (after falling 6.6% in September).  Orders outside the euro area collapsed by 18.1%.  The sharp drop in factory orders warns of downside risk to tomorrow's industrial production report.  Industrial output fell by 3.5% in August and 1.1% in September. Before today's report, economists were looking for a 1% gain.  Germany also reports the December ZEW survey tomorrow. Again, sentiment is expected to have deteriorated.  The third issue is Russia.  Reports suggest the US has persuaded Europe that Russia is positioned to invade Ukraine early next year.  US intelligence assessment sees Russia planning a multifront offensive.  Putin and Biden are to talk tomorrow.  Meanwhile, Putin makes his first foreign visit today in six months.  He is in India.  India is buying an estimated $5 bln of Russian weapons, including the S-400 anti-aircraft system that Turkey purchased to the dismay of Washington, which banned it from the F-35 fighter jet program.  India is a member of the Quad (with the US, Japan, and Australia), a bulwark against China.  A Russian official was quoted in the press claiming India sent a strong message to the US that it would not tolerate sanctions against it.  The regional alliances are blurry, to say the least. The US maintains ties with Pakistan.  India has had border skirmishes with China.  Russia and China have joint military exercises.   Before the weekend, Fitch upgraded Itay's credit rating one notch to BBB.  It cited the high vaccination rate, increased public and private spending, and confidence in the Draghi-led government's ability to spend the 200 bln euro funds from the EC prudently.  Recall that last week's composite PMI rose to 57.6 to snap a two-month decline.  The market (Bloomberg median) sees the Italian economy as one of the strongest in Europe this year, expanding around 6.3%.  The IMF sees it at 5.8%. The euro has been confined to about a quarter-cent range on both sides of $1.1300.  It is within the pre-weekend range (~$1.1265-$1.1335).  It was offered in Asia and turned better bid in the European morning.  Still, the consolidative tone is likely to continue through the North American session.  A move above the 20-day moving average (~$1.1335), which has not occurred for over a month, would help lift the technical tone.  Sterling tested $1.3200 before the weekend, and it held.  The steadier tone today saw it test the $1.3265 area.  It will likely remain in its trough today, though a move above the $1.3280-$1.3300 area would be constructive.   America Today's US data includes the "final" look at Q3 productivity and unit labor costs.  These are derived from the GDP and are typically not market-movers.  The US also reported that the October trade balance and improvement have been tipped by the advance merchandise trade report.  October consumer credit is due late in the session, and another hefty rise is expected ($25 bln after nearly $30 bln in September.  Consumer credit has risen by an average of $20.3 bln this year.  It fell last year and averaged $15.3 bln in the first nine months of 2019.  No Fed officials speak this week, and the economic highlight is the November CPI report at the end of the week.   Canada reports October trade figures and IVEY survey tomorrow.  The highlight of the week is the Bank of Canada decision on Wednesday.  It is not expected to do anything, but officials will likely be more confident in the economic recovery, especially after the very strong jobs report before the weekend.  The Canadian dollar's challenge is that the market has five hikes already discounted for the next 12 months.  Mexico reports November vehicle production and exports today.  The economic highlights come in the second half of the week.  November CPI on Thursday is expected to see the headline rate rise above 7%.  Last month alone, consumer prices are projected to have risen by 1%.  On Friday, Mexico is expected to report that industrial output rose by 0.9% in October after falling 1.4% in September.  Brazil reports its vehicle production and exports today and October retail sales on Thursday before the central bank meeting.  A 150 bp increase in the Selic rate, the second such move in a row, has been tipped and will put the key rate at 9.25%.  Ahead of the weekend, the IPCA measure of inflation is due.  It is expected to have ticked up closer to 11% (from 10.67%).  Lastly, we note that Peru is expected to deliver another 50 bp increase to its reference rate on Thursday, which would lift it to 2.5%.   The US dollar posted an outside up day against the Canadian dollar ahead of the weekend.  The risk-off mood overwhelmed the positive implications of the strong jobs data.  There has been no follow-through selling of the Canadian dollar today.  The pre-weekend US dollar low near CAD1.2745 is key.  Last Wednesday's range remains intact for the greenback against the Mexican peso (~MXN21.1180-MXN21.5150).  So far today, it has been confined to the pre-weekend range.   Initial support is seen near MXN21.16.  The cap around MXN21.50 looks solid.  Meanwhile, the US dollar closed above BRL5.60 for six consecutive sessions coming into today.   Disclaimer
Crypto market shaken as market cap approaches drops below $2.2T

Crypto market shaken as market cap approaches drops below $2.2T

Walid Koudmani Walid Koudmani 06.12.2021 12:19
While the cryptocurrency market is known for its volatility and potential price spikes, the correction experienced this weekend appeared to shake confidence in the market as a whole. Prices were under increasing pressure following news of the new Omicron variant and the reaction seen in stock markets as many of them retreated below previous support levels, and over the weekend we saw a 20-30% drop in most major coins, including Bitcoin. Today the situation appears quite uncertain as BTC trades around $47,000 and as investors focus on headlines to ascertain the severity of the matter. One thing to note is that although prices dropped across the board, a look at the ETH/BTC chart indicates that a significant part of the money flowed into Ethereum rather than into the main crypto and we actually saw BTC dominance drop to the lowest level in several months. While this could point to the beginning of a new cycle in the crypto market, it remains unclear how investors will react to future price swings in this already puzzling environment. UK Construction PMI and Car sales point to improving conditions Today's IHS construction data showed the fastest increase in construction output for four months, driven partly by robust and accelerated rise in commercial work along with a drop in the number of firms reporting supplier delays and as input cost inflation dips to seven-month low. While these are all positive signs for the economy, pressure remains on the BoE to keep monetary and fiscal policy under control and to facilitate the continuation of the post pandemic recovery despite potential unexpected events. Today’s car registration figures paint a slightly different picture of the current situation in the UK economy with figures showing an increase of around 1.7% on a monthly basis and a return to the level seen last november. However, as inflation pressures continue and as uncertainty related to the new variant increases, we could be seeing an impact on multiple sectors of the economy, including car sales and registrations as consumers worry about rising costs.    
China turns from stick to carrot

China turns from stick to carrot

Alex Kuptsikevich Alex Kuptsikevich 06.12.2021 13:00
Last Friday was marked by strong pressure on Chinese shares, which lost 10-20% each in New York trading due to the announcement that DiDi, the Chinese counterpart to Uber, will delist in the US and float in China by the middle of next year. This is a significant concession to the Chinese authorities, and investors took it as a signal that we will be hearing more announcements like this soon. This is probably Politburo’s policy turn from a stick to a carrot. Chinese equity indices have been falling since February due to three negative factors: regulatory restrictions on the technology sector, tight monetary policy and waning economic growth. However, the risks of an economic slowdown seem to have come to the forefront, pushing back fears of inflation and turning to monetary stimulus to stabilise financial markets. On Monday, the People’s Bank of China lowered the reserve requirement for banks, freeing up about $188bn of liquidity. The measures are designed to support small businesses by easing access to finance. The bank took the step because of early signs that inflationary pressures are stabilising and the need to get the economy back on growth. The policy easing is moderately negative for the renminbi and should weaken the yuan, taking it away from the 2.5-year highs against the dollar. Furthermore, the Chinese Politburo promises “healthy development” for the real estate sector. It is unlikely that this wording will allow the asset holders of distressed property developers Evergrande or Kaisa to breathe a sigh of relief. But for the market, such top-level attention raises hopes that the peak of pressure is over. Since the global financial crisis, China has largely ensured a growth recovery thanks to the massive stimulus to the economy. This year, the Politburo avoided such sweeping actions for fear of adding fuel to the inflation fire. However, it seems that they are not prepared to stay on the sidelines any further. Friday’s sell-off in the Chinese giants is reminiscent of a final blow to a trend, which is often followed by a reversal. We saw a similar thing with oil in April 2020. Today the H-Shares Index is taking out Friday’s momentum on the US markets, losing 2% and trading at 5.5-year lows, near the bottom of the long-term trading range, down more than 30% from the peaks. Reaching these levels has caused the authorities to move to support the economy and the financial system. We could then see increased buying on the realisation that the sell-off in Chinese companies has gone too far, pushing them back to multi-year lows.
Topping Process Roadmap

Topping Process Roadmap

Monica Kingsley Monica Kingsley 06.12.2021 15:43
S&P 500 bulls missed a good opportunity to take prices higher in spite of the sharp medim-term deterioration essentially since the taper announcement. It‘s the Fed and not Omicron as I told you on Wednesday, but the corona uncertainty is reflected in more downgrades of real economy growth. There are however conflicting indicators that make me think we‘re still midway in the S&P 500 topping process and in for a rough Dec (no Santa Claus rally) at the same time, and these indicators feature still robust manufacturing and APT (hazmat manufacturer) turning noticeably down.Still, it‘s all eyes on the Fed, and its accelerated tapering intentions (to be discussed at their next meeting) as they finally admitted to seeing the light of inflation not being transitory. The ever more compressing yield curve is arguably the biggest watchout and danger to inflation and commodity trades – one that would put question mark to the point of answering in the negative whether we are really midway in the topping process. Another indicator I would prefer turning up, would be the advance-decline line of broader indices such as Russell 3000. And of course, HYG erasing a good deal of its prior sharp decline, which I had been talking often last week – until that happens, we‘re in danger of things turning ugly and fast, and not only for stocks should 4530s decisively give.In spite of decreasing yields, the dollar continues acting on the bullish argument introduced 2 weeks ago. Seeing antidollar plays struggle (part of which is the function of inflation expectations drifting lower on the Fed‘s turn – let‘s see when the central bank breaks something, which is a story for another day), is truly a warning of downside risks having sharply increased since Thanksgiving. Not only for stocks, where we might not be making THE correction‘s low, but also for commodities, cryptos and precious metals. In a series of two tweets yesterday, the warning is in regardless of a smooth Monday ahead.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 bears are looking a bit tired here, and the room for an upswing is getting evident. The surge late on Friday concerned both tech and value, thankfully – overall, the market breadth isn‘t though much encouraging.Credit MarketsHYG did successfully defend gained ground, and strength appears very slowly returning – the gains have to continue to sound the all clear, for considerably longer. As said on Friday, the sharpest rallies happen in bear markets, so all eyes on HYG proving us either way.Gold, Silver and MinersPrecious metals are looking fairly stable at the moment – not ready to decline, and still taking time to rebound. The accelerated taper idea didn‘t take them to the cleaners – the real fireworks though still have to wait till the Fed gets really close to choking off growth.Crude OilCrude oil could keep the intraday gains, but appears base building here – similarly to natgas, this is a medium-term buying opportunity as prices would inevitably recover.CopperCopper prices reflect the combined Fed and (to a lesser degree) Omicron uncertainty – it‘s casting a verdict about upcoming real economy growth, and the red metal is still looking undecided, and merely gently leaning towards the bulls.Bitcoin and EthereumThe bearish ambush of Bitcoin and Ethereum was reserved for the weekend, and the bleeding hasn‘t stopped so far.SummaryS&P 500 looks to have reached the low, but the jury remains out as to whether that‘s THE low. I highly recommend reading today‘s analysis for it lays out the key metrics to watch in its opening part. The nearest days and weeks will be of crucial importance in determining whether the worst in the stock market and commodities correction is behind us, or whether we still have some more to go.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Animal Spirits Roar Back

Animal Spirits Roar Back

Marc Chandler Marc Chandler 07.12.2021 16:47
December 07, 2021  $USD, Canada, China, Currency Movement, Germany, Hungary, Japan, Mexico, RBA, Russia, US Overview:  A return of risk appetites can be seen through the capital markets today, arguably encouraged by ideas that Omicron is manageable and China's stimulus.  Led by Hong Kong and Japan, the MSCI Asia Pacific rose by the most in three months, while Europe's Stoxx 600 gapped higher, leaving a potentially bullish island bottom in its wake.  US futures point to a gap higher opening when the local session begins.  The bond market is taking it in stride.  The US 10-year Treasury is slightly firmer at 1.44%, while European yields are 1-3 bp higher.  The dollar-bloc currencies and Norway are leading the move higher among most major currencies.  The yen and euro are softer.  Sterling struggles to sustain upticks. Among emerging markets currencies, the Turkish lira is bouncing, while most central European currencies are being dragged lower by the weaker euros.  The JP Morgan Emerging Market Currency Index is slightly higher after four consecutive losses.  Gold is trading within yesterday's narrow range.  Oil continues to recover, and the January WTI contract is up around 2.5% (after yesterday's 4.9% advance) and is above $71.50 a barrel.  US natgas prices dropped 11.5% yesterday and have come back firmer today, while the European benchmark (Dutch) is up 7% today (~+0.5% yesterday) to near last week's highs.  Iron ore prices jumped 7.7% today after 2.5% yesterday, perhaps encouraged by strong Chinese import figures.  Copper prices are also firm.    Asia Pacific The Reserve Bank of Australia stuck to its stance. It may take two years to reach the 2-3% inflation target, and the uncertainties surrounding the Omicron variant also favor a cautious approach. This was in line with expectations.  The swaps market still has about 75 bp of higher rates discounted next year.   The Australian dollar's gains reflect the risk-on mood.   Japan's economy is on the mend.  Household spending rose 3.4% month-over-month in October.  Paradoxically, outlays on medical care actually fell (-5.7%) year-over-year in October.  Meanwhile, Labor cash earnings rose by 0.2% year-over-year, the same as in September, but less than expected.  Households headed by a worker rose 0.5% year-over-year.   China's trade surplus fell to $71.7 bln in November from $84.5 bln in October.  The US accounted for a little more than 50% of the surplus (~$37 bln).  Exports rose by 22% year-over-year, less than the 27.1% increase in October.  But, what really stood out were China's imports.  They surged, jumping 31.7% from a year ago after a 20.6% increase in October.  Commodity imports were robust.  The 35 mln tons of coal imported was the most this year. Oil imports were at three-month highs.  Iron ore imports reached a 13-month high,  Gas purchases were the highest since January.  Copper imports appear to be a record.  Separately, China reported that the value of its foreign exchange reserves rose by a minor $4.7 bln to $3.222 trillion.  Economists (Bloomberg survey median) had expected around an $11 bln decline.   The dollar has forged what appears to be a solid base now around JPY112.55.  So far, today is the first session since November 26 that the greenback has held above JPY113.00.  It has been confined to a narrow range between JPY113.40 and JPY113.75.  The dollar looks poised to move higher but may stall around JPY114.00, where an option for around $865 mln expires today.  The Australian dollar rose about half of a cent yesterday and is up around another half-cent today to test $0.7100.  An option for A$1.04 bln expires today there ($0.7100).  It is also the (61.8%) retracement objective of last week's drop.  A move above there would target the $0.7130 area and possibly $0.7200.  The reduction in Chinese banks' reserve requirements and the divergence with the direction the Fed appears headed did not deter the yuan from strengthening.  The dollar held CNY6.38 yesterday and is near CNY6.3660 now.  The low for the year was set at the end of May near CNY6.3570.  The dollar's reference rate was set at CNY6.3738, a touch higher than the models (Bloomberg survey) projected of CNY6.3734.   Europe According to the proverb, for want of a nail, a kingdom was lost.  US intelligence warns that Russia is poised to invade Ukraine.  Beijing continues to act as a bully in the South China Sea.  US President Biden is hosting a "Summit for Democracy" December 9-10.   Reportedly 110 countries will be represented, even Taiwan, which the US officially does not recognize as a country.  All of the EU members have been invited but Hungary.  Hungary, like Poland, is in a serious fight with the EC over the rule of law.  It is being fined for failing to comply with the European Court of Justice over its harsh treatment of asylum seekers.  Poland, which is invited to the summit, is also being fined a record 1 mln euros a day for deviations from the EU standards of the rule of law.   Yet Hungary's exclusion is needlessly antagonistic.  Hungary will hold parliamentary elections in April (though possibly May), and the opposition is united behind the center-right Marki-Zay.  Most polls show him ahead of Orban.   It is an insult to the EU, and Orban used his veto to block the EU from formally participating and prevented it from submitting a position paper.  It is a vulnerable position for the US to be the judge and jury about democracy and the rule of law.   Laura Thorton, director of the Alliance for Securing Democracy of the German Marshall Fund of the United States, expressed shock and dismay in a recent Washington Post op-ed over developments in Wisconsin. She wrote, "If this [where the GOP is seeking to replace the bipartisan oversight of elections with just its party's control] occurred in any of the countries where the US provides aid, it would immediately be called out as a threat to democracy.  US diplomats would be writing furious cables, and decision-makers would be threatening to cut off the flow of assistance."  Separately, the US embassy in Tokyo warned Japan about "racially profiling incidents" following the closure of its borders to new foreign entries into the country.   The US response to the Russian aggression in Georgia in 2008 and the annexation of Crimea in 2014 was soft.  Despite bringing NATO to Russia's door in the Baltics, the US recognized by its actions that it is difficult to defend what Russia calls its near-abroad. Ukraine is different.  When Ukraine gave up its nuclear weapons, the Budapest Memorandum  (1994), Russia, the US, and the UK committed to respecting its independence and territorial integrity.  Russia clearly violated the agreement, but the US says it is not legally binding.  Nevertheless, reports indicate that the Biden administration is contemplating new sanctions against Russia and Putin's inner circle.  Reportedly under consideration is removing Russia from the SWIFT payment system and new sanctions of Russia's energy companies, banks, and sovereign debt.  In late April, the European Parliament approved a non-binding resolution to exclude Russia from the SWIFT if it attacked Ukraine.  Russia is a heavy user of SWIFT, as few foreign banks, including the Chinese, are willing to use Russia's own payment system.  After a dismal factory orders report, the market had been prepared for a poor industrial output report today.  Instead, Germany surprised with its strongest gain for the year.  Industrial output surged 2.8% in October.   It is only the third monthly gain this year.  Moreover, September's decline of 1.1% was halved to 0.5%.  It appears auto production (capital goods) may be behind the improvement in activity.  Separately, the ZEW survey was mixed.  The expectations component was stronger than expected, but still, at 29.9, lower than November's 31.7 reading.  The assessment of the current situation deteriorated sharply to -7.4 from 12.5.  It has been declining since September, but this is the lowest since June.  On November 30, the euro spiked higher and has subsequently worked its way lower.  Today, it reached almost $1.1250, its lowest level since November 30, low near $1.1235. The 20-day moving average (~$1.1320) continues to block the upside.  It has not closed above it for a little more than a month.  The low for the year so far was recorded on November 24 near $1.1185.  For its part, sterling remains in its trough. The low for the year was set on November 30, slightly below $1.32.  Before the weekend, it was in a roughly $1.3210-$1.3310 range and remains well within that range yesterday and today.  It has been blocked ahead of $1.3300.  There is an option for about GBP450 mln at $1.3250 that expires today.   America The US is expected to report that productivity fell in Q3 by 4.9% rather than the 5% that was initially reported.  Productivity increased by 2.4% in Q2 and 4.3% in Q1.  It averaged 2.6% last year and 2.3% in 2019.  Unit labor costs are the most holistic measure, including wages, benefits, and output.  Looking at a four-quarter moving average, unit labor costs rose 1.6% in 2018 and 1.45% in 2019.  They jumped to 6.25% last year and fell by an average of 0.85% in H1 21.  The initial estimate for Q3 was an 8.3% surge.   The US also reports the October trade balance.  The preliminary goods balance signaled a likely improvement from the $80.9 bln deficit in September.  The median forecast (Bloomberg) sees a deficit of slightly less than $67 bln.  Through September, the monthly average was nearly $71 bln, up from $53.3 bln in the same period last year and less than a $50 bln average in the first nine months of 2019. Late in the session, the US reports October consumer credit, and another substantial increase is expected.  It jumped almost $30 bln in September.  It has averaged $20.275 bln a month through September.  Last year was too distorted, but in the first three quarters of 2019, consumer credit rose by an average of $15.3 bln a month.    Canada reports its October merchandise trade figures today, ahead of the Bank of Canada meeting tomorrow  The median forecast in Bloomberg's survey call for a C$2.08 bln surplus, which, if accurate, would the be third largest surplus since 2008.  The June surplus was larger at C$2.26, as was the December 2011 surplus of C$2.12 bln.   Canada's goods trade balance through September swung into surplus with an average of C$703 mln.  In the same period in 2020, the monthly deficit averaged C$3.1 bln and  C$1.4 bln in 2019.  The merchandise surplus may be sufficient to lift the current account too.  Canada has been running a current account deficit since 2009.   The OECD forecasts a surplus this year of 0.3% of GDP and projects it to be in balance next year.  Canada and Mexico have expressed concerns about the credits for electric vehicles in the Build Back Better US initiative.  They claim it violates the USMCA.  Europe has expressed similar problems, and the EU Trade Commissioner Dombrovskis has reportedly sent a formal letter warning that the Biden administration's efforts may also violate WTO rules.  Meanwhile, there is talk that the initiative may be blocked this year.  If this is the case, the odds of passage next year seem even slimmer.  On a different front, Mexico's controversial energy reforms, which expand the state sector, over some objections by US energy companies, look to be delayed due to lack of support.  The US dollar posted an outside up day against the Canadian dollar before the weekend, despite Canada's strong employment report.  There was no follow-through yesterday, and the greenback recorded an inside day and settled on its lows.  The US dollar has been sold to around CAD1.2700 today.  Initial support is around CAD1.2675, but the more significant test is near CAD1.2640.  A break would strengthen the conviction that a high is in place.  Meanwhile, the greenback continues to consolidate against the Mexican peso.  It remains within the range set last Wednesday (~MXN21.1180-MXN21.5150).  Thus far today, it is holding above yesterday's low (~MXN21.1720), which was- above the pre-weekend low (~MXN21.1625).            Disclaimer
Turning the Corner in Style

Turning the Corner in Style

Monica Kingsley Monica Kingsley 07.12.2021 16:05
S&P 500 bulls delivered, and the revival in risk-on is increasingly getting legs as HYG rebounded sharply. The sharply increasing participation is counterbalanced by still compressing yield curve, but yields finally rose yesterday. Finally, we saw a truly risk-on positioning in the credit markets – and that won‘t be without (positive) consequences. Still, it pays to be ready for the adverse scenario that I‘ve described in yesterday‘s key analysis, in connection with which I have received an interesting question. It‘s essentially a request to dig in some more so that my thinking can‘t be interpreted as being on the verge of immediately flipping bearish: Q: Your analysis of today: "Downside risks having sharply increased since Thanksgiving. Not only for stocks, where we might not be making THE correction's low, but also for commodities, cryptos and precious metals". I am not sure if I am interpreting this right (English is not my native language). Are you saying that the market might turn down spectacular, even for precious metals? A: it's specifically the market breadth for larger than 500 stock indices that tells me we possibly aren't out of the woods yet - no matter the technical improvements that I looked for us to get yesterday, and that are likely to continue thanks not only to solid HYG performance. What I'm saying is that unless there is broader participation in the unfolding S&P 500 rally (and in the rally of other indices), we're in danger of a more significant move to the downside than we saw already (those few percents down). You can also watch for the sensitivity to Fed pronouncements - on one hand, we have the taper, even accelerated one on the table, yet through Nov, total assets grew by practically $100bn, and it was only the 7-day period preceding Dec 01 that marked balance sheet contraction. This sensitivity to hawkish statements would show in downside hits to risk-on assets (cyclicals), and also in VIX spikes. There, my mid-session Friday call made on Twitter for VIX to better reverse from its highs for Friday's close, came true. So, should a sharper decline happen (as said, the risks thereof haven't disappeared), it would (at least initially) influence precious metals too, and not remain limited to stocks and commodities. Having answered, let‘s move on. I like the strength returning to energy – both oil and natural gas as I tweeted yesterday. While financials are taking their time, and consumer discretionaries lagged hugely on a daily basis behind staples, I look for more strength to return to cyclicals at expense of interest rate sensitive sectors (that includes utilities also). Rising yields (however slowly) would underpin commodities, and it‘s showing already. Precious metals continue needing the newfound Fed hawkishness image to start fracturing, or causing inordinate level of trouble in the real economy. The latter would take time as manufacturing is pretty much firing on all cylinders, which is why I‘m not looking for overly sharp gold and silver gains very soon. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bears were more than a bit tired, and Friday‘s candle being unable to break below preceding day‘s lows while not too much stood in the way, was telling. What can‘t go down, would sooner or later go up. Credit Markets HYG upswing is a pleasant sight for the bulls – half of the prior decline has already been erased. Quite some more still needs to happen, and the lack of volume yesterday is a sign that patience could very well be required (let‘s temper our expectations while still being positioned bullishly). Gold, Silver and Miners Precious metals are still looking stable, and are waiting for the Fed perceptions to fade a little. CPI inflation hasn‘t peaked neither in the U.S. nor around the world (hello, Europe), neither have energy prices or yields – so, get ready for the upswing to continue at its own pace. Crude Oil Crude oil confirmed the bullish turn, and the modest volume isn‘t an issue for it indicates lack of sellers willing to step in. Plenty of positioning anticipating the upswing happened in the days before, I think. Copper Copper prices are taking the turn alongside the CRB Index – it‘s starting to lean as much as APT in the direction of no economy choking response to Omicron that would necessitate further GDP downgrades. I‘m looking for the red metal to continue gradually favoring the bulls even more. Bitcoin and Ethereum Bitcoin and Ethereum attempt base building, but both cryptos (Bitcoin somewhat more) remain vulnerable. There are a few good explanations for that, and the most credible ones in my view revolve around stablecoins backing. Summary S&P 500 reversal higher is looking increasingly promising, and the signs range from sharply broadening market breadth to encouraging HYG performance. Commodities aren‘t being left in the cold, and I‘m looking for their own reversal to gradually spill over into precious metals – depending upon the evolving Fed perceptions, of course. The odds of us having seen the worst in this correction have considerably improved, and while positioned appropriately, I‘m not yet sounding the analytical all clear of blue skies ahead. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Weak November Payrolls Won’t Help Gold

Weak November Payrolls Won’t Help Gold

Arkadiusz Sieron Arkadiusz Sieron 07.12.2021 17:14
  November employment report was mixed. Unfortunately for gold, however, it won’t stop the Fed’s hawkish agenda. Nonfarm payrolls disappointed in November. As the chart below shows, the US labor market added only 210,000 jobs last month. This number is much lower than both October’s figure (546,000 gains) and the market expectations (MarketWatch’s analysts forecasted 573,000 added jobs). So, it’s a huge blow to those optimistic about the US economy. However, this is a huge blow that nobody will care about because the disappointing payrolls were accompanied by a big decline in unemployment. As the chart above shows, the unemployment rate decreased by 0.4 percentage points, from 4.6% in October to 4.2% in November. What’s more, the unemployment rate declined simultaneously with the increases in both the labor-force participation rate (from 61.6% to 61.8%) and the employment-to-population ratio (from 58.8% to 59.2%). This means that the reduction in unemployment was genuine and rather not a result of dropping out from the labor market. Additionally, wage inflation has slowed down from 4.84% in October to 4.8% in November, remaining below expectations, which could slightly ease inflationary concerns. Last but not least, after revisions, employment in September and October combined was reported to be 82,000 higher than previously indicated, and the monthly job growth has averaged 555,000 so far this year. Therefore, even a weak November doesn’t change the fact that 2021 marked a great improvement in the US labor market.   Implications for Gold What does the November employment report imply for the gold market? The nonfarm payrolls disappointed, but it’s not enough to stop the Fed from accelerating the pace of tapering its quantitative easing, especially given the significant reduction in the unemployment rate. So, the hawkish revolution won’t be stopped. It may even be strengthened, as a big decline in unemployment brings us closer to “full employment” and meeting the criteria for hiking interest rates. This is, of course, not good news for the gold bulls. After hearing worries about inflation a few weeks ago, the Fed managed to calm investors. They’ve believed that Powell and his colleagues would take the inflationary threat seriously. Markets now expect a speed-up in the pace of tapering in December and as much as three interest rates hikes in 2022 (there are even investors who bet on seven hikes by the end of the next year!). However, there is a silver lining here. With the unemployment rate at 4.2%, the potential for further improvement is rather limited. And when a new upward trend begins, we will have rising unemployment rate and high inflation at the same time. Such conditions create stagflation, which would take gold higher. This is still a song of the future, though. Let’s focus on the recent past: gold prices increased slightly on Friday (December 3, 2021). Although the London P.M. Fix hardly changed (see the chart below), the New York price rebounded to about $1,783 on Friday from $1,769 the day before. However, it doesn’t change the fact that gold remains stuck in a sideways trend below $1,800, as concerns about inflation exist along with expectations of a more aggressive Fed tightening cycle. Luckily for gold, despite its hawkish rhetoric, the US central bank will remain behind the inflation curve. The cautious, dovish policy is simply too tempting, as hitting the brakes too hard could trigger a financial crisis and a recession. With the CPI annual rate above 6%, the Fed should have already hiked the federal funds rate instead of waiting until Q2 2022. And even with three 25-basis point hikes, real interest rates will remain deeply in negative territory, which should be supportive of gold prices. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - December 3, 2021

Saxo Bank Saxo Bank 03.12.2021 09:02
Macro 2021-12-03 08:45 6 minutes to read Summary:  Risk sentiment rebounded yesterday in the US session, erasing the rather steep losses of the prior day. Sentiment in Asia is also on the mend, while oil prices recovered all of the lost ground from an intraday plunge in the wake of the OPEC+ meeting yesterday. Today, focus swings to the US November jobs report, with extra focus likely on average hourly earnings data as investors watch for signs of a wage-price spiral developing. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities bounced back yesterday after finding a new low for the current short-term cycle lower with Nasdaq 100 futures trading around the 15,975 level this morning in European trading. Long-term US interest rates are not moving much so we expect a quiet session unless the Nonfarm Payrolls for November throws a curveball at the market. In the medium-term risk in equities will be determined by pricing of interest rates hikes next year and updated information on the new Omicron variant of Covid. Stoxx 50 (EU50.I) - Stoxx 50 futures are stuck in a stabilisation zone between 4,100 and 4,160 with the 100-day moving average at 4,157 which is obviously the key resistance level to watch today should we get risk-on. European equities remain pulled by two opposite forces with the first being that higher expected interest rates are positive for this value market, while the continent has the most to lose short-term from the Omicron variant. If the latter fades over the coming weeks, we expect investors to move back into European equities. USDJPY and JPY crosses – With every day that passes and no follow-through lower unfolds after the recent omicron-variant inspired tumble from the 115.00+ level, the odds of a reversal back higher grow, though as we have mentioned often in this space, this would likely require that US yields lift all along the curve, not just near the front of the curve where Fed expectations operate the most forcefully. A fresh wave of weak global risk sentiment, on the other hand, could bring another wave of JPY strength, particularly in the crosses like AUDJPY and CADJPY, some of which saw their largest single-day moves since the pandemic outbreak early last year. For USDJPY, the downside pivot is now near 112.50. USDCAD – USDCAD has rallied as the market has been adjusting to the more hawkish shift from the Fed, especially after this week’s testimony from Fed Chair Powell. As well, uncertainties and the real threat of a reduction in travel due to the new omicron variant of covid have taken down crude oil prices nearly twenty dollars from their late October peak, around the time USDCAD was bottoming out near 1.2300. Now it trades near 1.2800 and the top of the range (only intraday price spikes from August and September rose above this level) as oil has staged a significant rebound yesterday. If risk sentiment can stabilize and oil prices recover, this important 1.2800+ area resistance could hold. Crude oil (OILUKFEB22 & OILUSJAN21) trades up 8% from yesterday’s low point after the OPEC+ group of producers adopted a flexible approach on supply while at the same time agreeing to maintain the current rate of production increases. The market gripped with omicron angst this past week rallied on the news due to several reasons 1) the market had already priced in a significant and not yet realised reduction in demand, and 2) it the meeting was left “in session” meaning changes can be made before January 4. 3) the move eased political tensions with large consumers, 4) some of the SPR barrels on offer may not leave storage due to lack of demand from refineries, and 5) members with spare capacity wanted to increase production, as the group has not delivered the promised increases due to some struggling to reach their quotas. The next upside level to watch being the 200-day moving average at $72.85. Gold (XAUUSD) slumped to a one-month low at $1762 yesterday, as the dollar strengthened in response to robust economic data, before finding a small bid from recovering crude oil prices. Otherwise, it has been another troubled week, the third in a row, with the yellow metal struggling to put up a defense against the Fed’s changed focus from employment to combatting inflation. In addition, the spreading of the omicron variant and its potential threat to the economic recovery has so far failed to support prices despite driving bond yields sharply lower and the VIX higher. Silver (XAGUSD) has struggled even more given its industrious link with XAUXAG ratio trading near a two-month high. Focus today being the US job report with the first major upside level of interest in gold being $1792 with support at $1760. US Treasuries (IEF, TLT). Today the focus is on the nonfarm payrolls numbers, as a better-than-expected report would confirm the intention of the Federal Reserve to taper at this month's FOMC meeting. The US yield curve continued to bear-flatten yesterday as Fed’s speakers including Bostic, Daly, Quarles, and Barkin commented on the possibility of a faster tapering to open for rate hikes next year. Two-year yields rose by 8 bps, while five-year yields cheapened by 5bps. Long-term yields dropped contributing to an increased flattening of the yield curve in the 2s10s and 5s30s areas. In the meanwhile, Eurodollar futures have started to price rates cut in 2025. We expect the flattening of the yield curve to continue until Covid distortions are eased. Afterward, the long part of the yield curve will need to shift much higher adjusting to interest rate hikes expectations. US junk bonds (HYG, JNK). According to Bloomberg Barclays indexes, junk bonds’ OAS widened by 30bps to 330bps amid last Friday’s selloff reflecting the lack of liquidity in markets. Despite negative real rates continuing to support corporate bond valuations, it’s safe to expect junk bond spreads to widen throughout the end of the year amid poor liquidity. If the volatility in rates remains sustained, the widening of spreads could accelerate, posing a threat also for stocks. German Bunds (IS0L). Rate hikes expectations for the eurozone were pushed to 2023 yesterday amid a slump in tech stocks. German and Italian government bonds more than reversed Wednesday’s losses. In Europe, Covid distortions are keeping bond yields in check. However, when Covid fears ease we can expect yields in the euro area to adjust higher given the inflationary backdrop and the new German government. What is going on? Omicron covid variant cases rise, reinfection risk judged high in one study. South African officials note that the omicron variant of covid is spreading faster than the delta- or any other variant of the virus despite estimates by some that a majority of the South African population was infected with covid in prior waves. National cases were at 11.5k yesterday versus 8.6k on Wednesday and 4.4k on Tuesday. A study there of the reinfection risk suggests that it is some three times higher than prior variants. Omicron variant cases have now been discovered worldwide, including Italy, the US and South Korea. DocuSign shares plunge 30% in extended trading. The company guided Q4 revenue of $557-563mn vs est. $574mn which is a small revenue miss, but enough to spark a massive selloff in extended trading. Investors took clearly little comfort in the fact that the company is consistently improving operating margin hitting 3.1% in Q3 and expected to climb significantly in the coming quarters. China moves to delist Didi from US exchanges. US SEC set to move against Chinese listing. The Chinese ride-sharing and transportation platform company will delist in the US and move to a Hong Kong listing, perhaps in the March time frame. Meanwhile, the US SEC is set to move against a number of Chinese companies listed on US exchanges on charges that their accounting disclosures are not in compliance with US regulations. Another strong US weekly jobless claims number was out yesterday at 222k, lower than expected and near the levels during the strong labor market before the early 2020 pandemic outbreak. The prior week’s number was one of the lowest ever and was revised even lower to 194k, suggesting a very tight labor market. What are we watching next? Study of omicron variant and its virulence. Scientists will work with the provincial government of Gauteng in South Africa, which has the most measured cases of the new omicron variant, to complete a study of the new variant’s virulence as soon as next Tuesday, though results will be released to the public later. A local official there said that hospitalizations and mortality are lower than expected thus far. US November Nonfarm Payrolls Change and Average Hourly Earnings today. With the US economy operating at full capacity according to estimates from CBO, continued strong job gains will add fuel to the “inflation fire”. Wednesday's 534k increase in the November ADP private payroll number suggests that the job market growth remains healthy in the US as we await the official nonfarm payrolls numbers today (expected to show 500k+ jobs added), where strong upward revisions to prior months’ data has been a notable trend this year due to data collection issues. As well, Average Hourly earnings numbers will be closely watched for any budding signs of a wage-price spiral, as a constrained supply of labor could see companies bidding up wages and October showed a strong rise in earnings at a faster pace than at any time from the start of the survey in 2007 to the outbreak of the covid pandemic. The October Average Hourly Earnings number rose to 4.9% year-on-year, and 5.0% is expected for today’s November number. Earnings Watch – today is a quiet day on earnings with only Bank of Montreal reporting earnings. We have also put in next week’s earnings releases. Friday: Bank of Montreal Next week’s earnings: Monday: Sino Pharmaceutical, Acciona Energias, MongoDB, Coupa Software, Gitlab Tuesday: SentinelOne, AutoZone, Ashtead Group Wednesday: Huali Industrial Group, GalaxyCore, Kabel Deutschland, Dollarama, Brown-Forman, UiPath, GameStop, RH, Campbell Soup Thursday: Sekisui House, Hormel Foods, Costco Wholesale, Oracle, Broadcom, Lululemon Athletica, Chewy, Vail Resorts Friday: Carl Zeiss Meditec Economic calendar highlights for today (times GMT) 0815-0900 – Euro Zone final Nov. Services PMI 0900 – Norway Nov. Unemployment Rate 0930 – UK Nov. Final Services PMI 1100 – UK Bank of England’s Saunders to speak 1300 – ECB Chief Economist Philip Lane to speak 1330 – US Nov. Change in Nonfarm Payrolls 1330 – US Nov. Average Hourly Earnings 1330 – US Nov. Unemployment Rate 1330 – Canada Nov. Net Change in Employment 1330 – Canada Nov. Unemployment Rate 1415 – US Fed’s Bullard (voter in 2022) to speak 1500 – US Nov. ISM Services 1500 – US Nov. Factory Orders   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Markets Calmer, Awaiting Fresh Incentives

Markets Calmer, Awaiting Fresh Incentives

Marc Chandler Marc Chandler 08.12.2021 13:51
December 08, 2021  $USD, Bank of Canada, Currency Movement, Germany, India, Japan, Poland, Russia Overview:  The capital markets are calmer today, and the fear that was evident at the end of last week remains mostly scar tissue. Led by gains in Japan, China, Australia, New Zealand, and India, the MSCI Asia Pacific Index extended yesterday's gains.  Europe's Stoxx and US futures are firm.  The US 10-year yield is softer, around 1.43%, while European yields are mostly 1-2 bp lower.  The Norwegian krone and euro lead major currencies higher against the greenback, but the New Zealand dollar and sterling are underperforming. Most of the emerging market currencies are enjoying an upside bias. The Turkish lira is giving back a little more than half of yesterday's 2.25% bounce.  Gold is edging higher and is near the 200-day moving average (~$1792).  January WTI is off $1 around  $71 after rallying around 8% in the past two sessions.  API reported a three million barrel drawdown in inventories but a big jump in Cushing.   US natural gas is consolidating and paring Monday's 11.5% drop.  Europe (Dutch) natural gas prices are rising for the third consecutive session and around 10% this week.  Iron ore has extended this week's rally and is at the highs since October.  Copper is flat.   Asia Pacific Australia has joined the US in the diplomat boycott of the winter Olympics in Beijing.  South Korea and Japan have not formally decided yet.  China's quarantine policies made it difficult for many diplomats to attend in any event, and many apparently will not attend.  Beijing threatens unspecified retaliation.   Japan reported an increase in its October current account, rising to JPY1.18 trillion from JPY1.03 trillion in September.  The swing in the trade balance from a JPY230 bln deficit to a JPY167 bln surplus more than accounted for it.  Japan also revised Q3 GDP to a 0.9% contraction (from -0.8%).  The composition changed.  Consumption was a greater drag (-1.3% quarter-over-quarter rather than -1.1%), and inventories contributed less (0.1% vs. 0.3%) and net exports were flat (rather than contribute 0.1 percentage points).  Business investment was less a drag (-2.3% vs. -3.8%).  Still, there is reason to be more optimistic about the outlook for the world's third-largest economy.  Social restrictions have eased, the vaccination rate is among the best, and the government is providing fresh stimulus.  The Kishida government is expected to finalize its fiscal efforts toward the end of the week. A key issue is the tax incentive (subsidy) for companies that boost wages by 3%, which has not happened since 1997.   India left its key rate corridor on hold today.  The repo rate is 4%, and the reverse repo rate is 3.35%.  Some observers saw the possibility of a hike in the reverse repo rate.  The monetary policy committee voted unanimously to keep the repo rate steady.  The reverse repo rate is a broader issue decided by the central bank, not the MPC.  The emergence of Omicron may have encouraged the central bank to maintain a steady hand, while the cut in the excise duty and VAT for petrol and diesel may help ease price pressures.  It made some technical changes in its liquidity management, which some see as a prelude to a hike in February 2022, when the central bank meets again.   The dollar is consolidating in a narrow 30-point range above JPY113.35 against the Japanese yen.  Yesterday's high was just below JPY113.80.  An option for about $550 mln will roll off today at JPY114.25, while there is a nearly $1.5 bln option at JPY114.00 that expires tomorrow.  The JPY114 area also holds the 20-day moving average, which the dollar has not closed above since November 25. The Australian dollar began the week flirting with the $0.7000 area.  It is rising for its third consecutive session and has reached almost $0.7145 today.  Last week's highs were set a little above $0.7170.  Despite words of caution by Chinese officials and the cut in reserve requirements, the yuan continues to march higher.  It is at new three-year highs today.  The dollar has been sold down to almost CNY6.3455.  Local dollar bonds and bonds below investment grade have rallied as officials signal a focus on supporting the economy.  Today the rate for re-lending to rural and small businesses was cut by 25 bp.  The PBOC has also been generous with its liquidity provisions.  The reference rate for the dollar was set at CNY6.3677, a little firmer than expected (CNY6.3665, Bloomberg survey).    Europe An era is formally over today as Germany's new government takes office.  The challenges it faces are profound.  The virus was surging even before the Omicron variant was detected.  The economy has been hobbled.  Inflation is high (6% on the harmonized measure in November) and without the fiscal stimulus seen in the US, where CPI is up 6.2% from a year ago (October).  This year, the German deficit is estimated to be about 5.8% and seen falling to 2.5% next year.  The US deficit is around 12.5% this year and is expected to fall to around 6.5% in 2022. Russia is amassing troops, and fears that it will invade Ukraine early next year are running high.  Germany reportedly will nix the controversial Nord Stream II pipeline if Russia carries through with its threat as part of the economic sanctions being considered.  Italy's Draghi has had a bit of a honeymoon, but that will change.  Two of the three largest unions will strike on December 16 to protest Draghi's budget, which must be passed by the end of the month.   Moreover, the selection of a new Italian president in January may mark the beginning of the political process that will lead to a new parliamentary election by the middle of 2023.  The president of Itlay is chosen by the Italian Parliament and regional representatives.  The current president, Mattarella, has declined to run for a second term.  Draghi does lead any political party, but the latest surveys show the center-left Democratic Party is in first place, polling a couple percentage points higher than it got in the last election at 21.4% support.  The Brothers of Italy on the right are in second place with slightly less than 20% support.  The Five Star Movement has seen its fortunes slip to about 15%.  Poland's central bank is set to hike its base rate today.  It will be the third consecutive increase.  The base rate was slashed from 1.50% last year to 10 bp.  It was hiked by 40 bp in October and 75 bp last month to stand at 1.25%. The headline CPI surged from 2.4% at the end of last year to 7.7% in November. Czech and Hungary have been more aggressive in raising rates.  Last month, Czech's central bank delivered a 125 bp increase to lift its key two-week repo rate to 2.75%.   It was at 25 bp to start the year.  Its CPI is near 6%.  Hungary has raised its base rate every month since June and taken it from 60 bp to 2.10%.  It has also taken its one-week deposit rate from 75 bp to 3.10%, with 130 bp delivered in the past three weeks. Earlier today, it reported that CPI rose to 7.4% last month from 6.5%.  Most look for a 50 bp increase from Poland's central bank today.   The euro briefly dipped below $1.1230 yesterday but recovered in the North American afternoon.  It is extending the recovery today and traded $1.1300 in the European morning.  The $1.1310-$1.1320 offers nearby resistance.  The UK government is being embarrassed by reports about its holiday party a year ago in violation of the social restrictions in place at the time.  It adds to the sleaze factor that has weakened it.  The latest polls show that the Labour Party is extending its lead.  Also, ideas that the BOE could raise rates next week have diminished and been pushed into next February.  Sterling is heavy, near $1.3200.  We have warned of near-term risk toward $1.3165, the (38.2%) retracement objective of the rally from the March 2020 low near $1.14.   America A deal appears in the works to lift the US debt ceiling.  The maneuver requires 60 votes to allow the debt ceiling to pass with a simple majority.  The Republican leadership appears willing to go along with this.  It will likely set a new precedent that will be used and possibly expanded when control of Congress changes.  PredictIt.Org shows that the Republicans are favored to win control of both houses in next year's mid-term election.   The US calendar today features the JOLTS report on job openings.  The week's highlight, the November CPI, is out on Friday, and both the headline and core rates are expected to accelerate.  Fed officials are in the blackout period ahead of next week's FOMC meeting.  Today's North American feature is the Bank of Canada meeting.  No one expects a change in rates.  It is more about the rhetoric.  Despite the uncertainty surrounding the Omicron variant, Bank of Canada officials are likely to be more confident about the strength of the recovery.  Last week's jobs data adds to the positive impulses.  Moreover, the government is providing more fiscal support.  The biggest challenge is that the market has discounted five hikes over the next 12 months.  This is aggressive and difficult for the central bank to get ahead of market expectations. Even after the strong Canadian jobs data at the end of last week, the US dollar closed firmly above CAD1.28, showing the Loonie's vulnerability to the risk-off wave.  However, as cooler heads have prevailed, the Canadian dollar has bounced back.  The US dollar closed below the 20-day moving average yesterday (~CAD1.2670) for the first time in a month and was sold to about CAD1.2620 today. The (38.2%) retracement of the greenback's rally since the October 21 low (below CAD1.23) is found near CAD1.2640. The next retracement (50%) is around CAD1.2570.  Initial resistance now is likely by CAD1.2680.  The greenback also closed below its 20-day moving average against the Mexican peso yesterday for the first time since November 9.  It has slipped below MN21.00 today for the first time in about two-and-a-half weeks.  With today's loss, the US dollar has retraced (61.8%) of its rally from November 9 low (~MXN20.2750). The move seems exaggerated, and consolidation is likely.  Nearby resistance is seen in the MXN20.05-MXN20.10 area.  Disclaimer
The anatomy of Fed tapering is different this time

The anatomy of Fed tapering is different this time

Peter Garnry Peter Garnry 08.12.2021 14:20
Equities 2021-12-08 14:00 8 minutes to read Summary:  Growth and bubble stocks celebrated its best day in nine months yesterday on good news about the Omicron variant, but the true underlying risk in the form of higher interest rates has not gone away. The Fed has acknowledged inflation which will give it less flexibility should tapering cause some wave splash in equities. Interest rate sensitivity will be a key theme in 2022 for equities and especially growth and bubble stocks. For those growth companies that can lift expectations for operating margin trajectory can mitigate the negative impact from higher interest rates, but those growth companies that fail to lift profitability will likely experience a tough 2022. Bubble stocks are back on positive Omicron news It was a blockbuster equity session like we have not seen in nine months with our NextGen Medicine, E-commerce, and Bubble Stocks baskets gaining between 5% and 6.6%. The culprit was of course the continued positive news flow suggesting that the new Covid-19 variant Omicron is less virulent than feared and today Pfizer announced that three shots with their vaccine protect against Omicron. Does that change the overall concern for growth and especially bubble stocks? In our recent equity note Interest rate sensitivity is back in town haunting technology stocks we show quantitatively how the Nasdaq 100 Index (US technology stocks) is significantly more interest rate sensitive than the S&P 500 Index and STOXX 600 Index (see chart below). This interest rate sensitivity is key to understand the underlying risk in growth and especially bubble stocks, and the risk of higher interest rates has gone away. The Fed will have less flexibility this time In fact the Fed has acknowledged that inflationary pressures are more rooted and broad based, and of concern for US households seeing their purchasing power declining. The Fed has three times since early 2013 tried to taper its bond purchases all with negative impact on financial assets. Every time markets hit a big enough pain point, the Fed reversed and restarted quantitative easing. This could be done because inflation expectations were low and well anchored. But fast forward and today’s inflationary outlook is very different and the Fed might not be in a position where it can go back to expanding the balance sheet. Tapering will be accelerated in the coming months and then rate hikes are coming and if the economy or financial markets are deteriorating the Fed might have to remain tight to control inflation. As we have said many times the past couple of months investors must balance their portfolios before the tighter monetary policy cycle kicks properly into gear. Investors should reduce exposure to growth and bubble stocks, while increasing exposure to themes that can provide some cover during inflationary pressures. The themes we think will do well during inflationary periods are mega caps (Microsoft’s recent price hike shows why), semiconductors, logistics, financial trading firms (bet on volatility), cyber security (business necessity), and the commodity sector. The fact that mega caps have reached unimaginable market power and are hugely profitable is bad for the overall economy, but it is likely going act as a cushion for the equity market when interest rates start rising. The chart below shows another important aspect of markets that we need to be aware of. The decade of the 2010s was the best decade in terms of earnings growth adjusted for inflation in the S&P 500 since WWII. It explains the multiple expansion under lower interest rates, but it also explains the rise of passive investing as the rapid earnings growth has lifted all boats. The 2010s is unlikely be repeated in the current decade and a higher inflationary outlook will likely give rise to a different investing climate in equities and active strategies might stage a big comeback. Higher operating margin will differentiate growth stocks in 2022 We recently modeled a growth stock which had a price implied expectation of four years into the future, meaning that the market value was derived by extrapolating consensus expectations of growth and operating margin until 2025. The interesting part of this analysis is to find out which parameter gives rise to the biggest change in market value. In this case it was not revenue growth unless it went down a lot, which would only happen under a recession scenario. An upside change to operating margin expectations drives a rather large change in value; in other words, growth companies that can raise operating margin faster than expected will get rewarded. But the most sensitive parameter to the market value was the interest rate. By moving up the 10-year interest rate by 100 basis point the company’s value fell 26% because the higher interest rate impact financing costs on debt and the cost of equity. The example above provide a glimpse into the important battleground in equities in 2022. Higher interest rates because of higher inflation combined with the fiscal drag will create an environment with higher discount rate on cash flows while likely lower overall growth. This will penalize a lot of growth and bubble stocks, these companies can only mitigate this impact by raising operating margin beyond current expectations. If they do not manage to do that, then we could see great losses in 2022 in these pockets of the equity market.
Oil influences FTSE 100 as it reaches 7611 GBP, USDJPY chasing 115.00

Oil extends recovery ahead of DoE inventory report

Walid Koudmani Walid Koudmani 08.12.2021 12:18
Oil prices are attempting to extend the recent upward move after dropping to multi month lows following news of the most recent covid variant. The market was initially shaken by this as it brought the potential for further travel restrictions, which along with several other factors, could have had a disastrous effect on the demand for oil as we already saw during previous lockdowns. Recent optimism has helped drive oil higher but as the price has now found itself in a short term consolidation range, today’s DoE inventory reports could shed some light on the ongoing supply and demand situation within the world's largest economy. If the report were to point to an unexpected increase, we could be seeing some pressure ease off while a bigger than expected drop in stocks could once again lead to supply concerns and influence sentiment in the short term. TUI report shows sustained growth despite global uncertainty Today’s TUI report showed encouraging results as the company was able to significantly improve its financial performance while it also attempted to recover from the impact of the pandemic. Investors could also be reassured by the company’s plans moving forward and by it’s mid to long term vision in which it will prioritize cash management, drive operating effectiveness and reduce debt to improve its balance sheet. While it remains to be seen if the company will manage to execute its plan fully, some steps taken this far could inspire optimism in some as general sentiment continues to improve.
New Year Resolutions: what to watch in 2022? | MarketTalk: What’s up today? | Swissquote

Fireworks to Go On?

Monica Kingsley Monica Kingsley 08.12.2021 16:01
S&P 500 sharply extended gains, and credit markets indicate some continuation even if by pure inertia. A trend in place, stays in place until reversed – and yesterday‘s upswing was sufficiently supported by the credit markets. The late day retreat in HYG is an obvious warning of a pause possibly coming next, but not of a reversal – the improvements in market breadth speak for themselves. So, I‘m looking for a lean day today, and I‘m keenly watching bonds and cyclicals such as financials for further short-term direction clues. While yesterday‘s upswing was driven by tech, the daily rise in yields and inflation expectations (however modest) was balanced out by still more yield curve compression. The risk-on turn in credit markets isn‘t over, and the key question is whether HYG can extend gains or at least go only sideways for a while. Today‘s key premarket news propelling risk assets up, was about Pfizer extolling its three-dose alleged efficiency against Omicron – even though the news was sold into shortly thereafter, it has the power to buy more time and provide fuel for stocks and commodities. The copper weakness remains the only watchout in the short term, and silver sluggishness reflects lack of imminent inflation fears. As if the current prices accurately reflected above ground stockpiles and yearly mining output minus consumption. It‘s the same story in the red metal, by the way. Patience in the precious metals – it‘s about Fed either relenting, or placing inordinate amount of stress on the real economy, which would take time. Spring 2022 most probably would bring greater PMs gains than 2021 with its fits and starts – aka when inflation starts to bite the mainstream narratives and stocks, some more. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 gapped higher, and is once again approaching ATHs. Hold your horses though for it would take some time to get there. I would prefer to see broader participation within value, which isn‘t totally there at the moment. It‘s improving, but still. Credit Markets HYG upswing was considerably sold into, and that spells some consolidation ahead. The degree to which it spills over into stocks, remains to be seen. Gold, Silver and Miners Precious metals are still looking stable, and ever so slowly improving after the Fed hawkish turn hit. The central bank and real yields projections hold the key, but the countdown to higher prices is firmly on. Crude Oil Crude oil upswing indeed continued, and black gold looks set to consolidate gains unless value stocks spring some more to life later today. Anyway, the medium-term chart remains bullish. Copper Copper is another reason why I‘m not overly bullish for today – the red metal‘s base building looks to need a bit more time to play out. Bitcoin and Ethereum Bitcoin and Ethereum are still base building, and looking vulnerable. While a downswing isn‘t guaranteed, it can come and turn out to be sharp. Summary S&P 500 is likely to consolidate recent strong gain, not accelerating the surge today. The bulls within risk-on assets look to be slowly gaining the upper hand, and the opening part of today‘s analysis describes it‘s not a one-way street to fresh highs as the Fed has turned from a tailwind to a headwind. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Markets Turn Cautious Ahead of Tomorrow's US CPI

Markets Turn Cautious Ahead of Tomorrow's US CPI

Marc Chandler Marc Chandler 09.12.2021 12:34
December 09, 2021  $USD, Brazil, Canada, China, Currency Movement, Germany, Japan, Portfolio flows, UK Overview: The euro has come back offered after its seemingly inexplicable advance yesterday.  The dollar is firmer against most major currencies today, with the yen an exception after JPY114.00 held on yesterday's advance.  Most emerging market currencies are also softer, with a handful of smaller Asian currencies proving a bit resilient.  Most large bourses advance in the Asia Pacific region, except Japan and Australia.  Europe's Stoxx 600 is steady after retreating late yesterday while US futures are pointing to a softer opening.  After rising for the past three sessions (~18 bp), the yield of the 10-year US Treasury is consolidating by hovering a little below 1.5%.  European yields are 3-5 bp softer.   Gold is little change.  This week's quiet tone contrasts with the sharp moves in Bitcoin and Ethereum.  Oil is consolidating after the three-day advance that lifted January WTI by around 8.5%.  US and European natural gas is also softer after the rally over the last few days.  Iron ore, which rallied over 10% in the first two sessions this week, edged lower yesterday and is off 3% today.  Copper's three-day rally is in jeopardy.   Asia Pacific The number of countries participating in a diplomatic boycott of the Beijing Winter Olympics is growing.  In addition to the US, Lithuania, Australia, New Zealand, Canada, and the UK have joined.  While it may annoy Chinese officials, it is symbolic.  Given Chinese quarantine protocols, many diplomats were not going to attend in the first place.  Also, the impact on China's human rights will likely be negligible.  The moral righteousness is signaling to domestic constituencies.  Yet, treatment of the Peng Shuai and the jailing of reporters needless antagonized the already precarious situation.  China's consumer inflation rose less than expected while producer prices rose more.  Owing to a jump in vegetable prices (30.6%), November CPI rose 2.3% from a year ago. The median forecast (Bloomberg survey) was for a 2.5% increase.  It is the fastest pace since August 2020. The decline in pork prices (-32.7% year-over-year) is slowing.  Excluding pork, the CPI would have risen by 3%.  Service prices remain soft.  Excluding food and energy, the core CPI is up 1.2% over the past year (1.3% previously).  Producer price inflation slowed from 13.5% in October to 12.9% in November.  Economists had forecast a 12.1% pace.  Recall officials moved to boost supplies, including coal, helping to ease the strong upside pressures.   Officials have moved to a more pro-growth stance, which means that inflation will not stand in the way of further easing monetary policy (via reserve requirements even if not interest rates) next year. Meanwhile, Evergrande and the Kaisa Group have formally missed debt-servicing payments on dollar obligations. Still, unlike the end of the property bubble in the US and Europe, China is forcing banks to continue to lend. This keeps the proverbial treadmill going.   The lending figures for November, released today, illustrate it.  New yuan loans, which track bank lending, rose by 50%+ to CNY1.27 trillion from CNY826 bln in October.  Aggregate financing, which adds shadow banking activity to bank lending, rose to CNY2.61 trillion from CNY1.59 trillion.  Note that just before publishing this report, the PBOC announced a two percentage point hike in the reserve requirement for foreign currency deposits.  This will likely weigh on the yuan, initially.    Japanese weekly portfolio flows were unusually large last week.  Data from the Ministry of Finance showed that Japanese investors were large sellers of foreign bonds for the second consecutive week.  The JPY1.18 trillion in sales followed the divestment of JPY1.34 trillion the previous week. It was the most selling in a two-week period since February.  From a high level, most of the selling last week did not require net yen buying as Japanese investors essentially shifted into foreign equities, snapping up JPY1.2 trillion.  This is the most since the time series began in 2005.  Separately, foreign investors bought JPY2.0 trillion of Japanese bonds, which appears to be the second-highest on record (after the JPY2.57 trillion bought in early July).   For the third consecutive week, foreign investors were small sellers of Japanese shares.  The dollar approached JPY114.00 yesterday and was turned back, falling to JPY113.35 today.  The JPY114 area is "defended" by a $2.2 bln option at JPY114.10 that expires today and a $1.15 bln option at JPY114.25 that expires tomorrow.  A break of JPY113.25-JPY113.35 could signal a test on JPY113.00, but the market will likely be cautious ahead of tomorrow's US CPI report.  The Australian dollar's recovery faltered earlier today slightly above $0.7185, the 20-day moving average, which it has not traded above since November 4.  The first retracement (38.2%) of this week's bounce is near $0.7115, but initial support is seen in the $0.7140 area.  The greenback edged slightly lower against the Chinese yuan (~CNY6.3430) before steadying and turning marginally higher.  It is caught between two large options expiring today.  One set is for around $2.5 bln at CNY6.34, and another set is for about $950 mln at CNY6.35.  The PBOC's reference rate for the dollar today (CNY6.3498) was the largest gap with the median projection (Bloomberg, CNY6.3467) since the middle of October.   Europe Germany's October trade figures are maybe too dated to have much market impact, but the growth of imports and exports is a constructive development.  The 4.1% rise in exports, the most since July 2020, were well above expectations, as was the 5% jump in imports (most since August 2020).  For Germany, it translates into a smaller than expected trade surplus (12.8 bln euros).  The monthly average surplus this year through October is 15.5 bln euros, which is a little above the average for the same period last year (14.4 bln euros), but off average in 2019 (through October) of 19 bln euros.   On the heels of "party-gate," UK Prime Minister Johnson has announced Plan B in the face of the new infection surge that calls for people to work from home again.  It has created much furor. Businesses have called for more government support, and unions want the furlough program to be re-instituted.  Any lingering ideas of a rate hike next week by the Bank of England have faded.  The short-sterling interest rate futures contract expiring shortly is implying the lowest yield (11 bp) in three months.   Short-covering appeared to lift the euro to $1.1355 yesterday, and it settled above its 20-day moving average for the first time since November 3.  However, this was not a harbinger of a breakout, and the euro's gains are being pared today. Initial support is seen around $1.13 and then $1.1275 area.  Sterling recorded new lows for the year yesterday slightly below $1.3165, the (38.2%) retracement of the rally since March 2020 low.  Today, it is in less than a quarter-cent range capped near $1.3215.  It is consolidating weakly.  There are options at $1.32 that expire today (~GBP370 mln) and tomorrow (GBP600 mln) that are likely neutralized.   America The US reports weekly initial jobless claims, wholesale trade and inventories, and Q3 household net worth. These are not market movers, especially today. Instead, investors' focus will likely be on equities as it waits for tomorrow's CPI.  US inflation is still accelerating, and the headline CPI is likely to move closer to 7%, setting the stage for a hawkish FOMC meeting next week.  An acceleration in tapering and more officials will likely see the need for more hikes.  Recall that in September, the last time officials updated their forecasts, half did not see a need to hike rates next year.  The market has done much of the heavy lifting for the Federal Reserve.  The implied yield of the December 2022 Fed funds futures contract has risen around 50 bp since the September FOMC meeting.  The Bank of Canada left policy on hold yesterday, as widely expected.  However, the market was disappointed that it did not upgrade its forward guidance to reflect the strong data.  The swaps market is pricing in five hikes over the next 12 months, and the central bank said nothing to encourage such an aggressive stance.  This leaves the Canadian dollar somewhat vulnerable, we think.   Brazil did not disappoint.  The central bank hiked the Selic rate by 150 bp for the second consecutive month and signaled another hike of the same magnitude in February when it meets again.  It has lifted the Selic rate by 750 bp this year.  It is being driven by rising inflation, and the economy contracted in Q2 and Q3.  The Selic rate stands at 9.25%.  The IPCA inflation measure is due tomorrow, and it is expected to have risen to 10.9% (Bloomberg survey) from 10.67% in October.   Peru is expected to hike its reference rate by 50 bp to 2.5%. It would be the third 50 bp in a row.   Its November CPI, reported at the start of the month, is slightly above 5.6%.   Mexico reports its November CPI figures today.  It is expected to rise from about 6.25% to 7.25% and set the stage for another 25 bp rate hike next week in the overnight rate to 5.25%.   The US dollar is trading firmly against the Canadian dollar, and the heavier equities may be helping it.  While initial resistance is seen near CAD1.2700, we suspect there is scope toward CAD1.2730-CAD1.2750.  The greenback fell to almost MXN20.8860 yesterday, its lowest level since November 23, and the five-day moving average crossed below the 20-day moving average for the first time since early last month.  The move appears to have exhausted itself, but the dollar needs to resurface above the MXN21.05 area to boost confidence that a low is in place.  Disclaimer
Frontrunning CPI

Frontrunning CPI

Monica Kingsley Monica Kingsley 09.12.2021 15:50
S&P 500 rose as VIX retraced over half of its recent spike, but tech and value have a short-term tired look. Cyclicals turning down while utilities with staples barely budge in spite of a surge in yields? That looks really risk-off to me, and together with commodities and precious metals going nowhere, represents your usual setup before tomorrow‘s CPI announcement. So, count on some headwinds today.A reasonably hot inflation figure is expected tomorrow – inflation expectations have risen already yesterday. The fears are that a higher than what used to be called transitory figure, would cut into profit margins and send value lower. Even if inflation (which certainly hasn‘t peaked yet as I‘m on the record for having said already) isn‘t yet strong enough to sink stocks, the Fed‘s reaction to it is. The dynamic of tapering response messing up with the economy would take months to play out – so, the bumpy ride ahead can continue. If only the yield curve stopped from getting ever more inverted...Markets keep chugging along for the time being, and the warning signs to watch for talked in Monday‘s extensive analysis, aren‘t flashing red. While I would prefer to see more copper strength for confirmation (almost as much as no question marks creeping into the crypto land), this is what we have – and it indicates that the path higher won‘t be steep. Neither in stocks, commodities or precious metals – as I wrote yesterday:(…) The copper weakness remains the only watchout in the short term, and silver sluggishness reflects lack of imminent inflation fears. As if the current prices accurately reflected above ground stockpiles and yearly mining output minus consumption. It‘s the same story in the red metal, by the way.Patience in the precious metals – it‘s about Fed either relenting, or placing inordinate amount of stress on the real economy, which would take time. Spring 2022 most probably would bring greater PMs gains than 2021 with its fits and starts – aka when inflation starts to bite the mainstream narratives and stocks, some more.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 upswing looks ripe for a brief breather – the volume is drying up, and consolidation in the vicinity of ATHs shouldn‘t be unexpected.Credit MarketsHYG held up quite well on the day, but the stock market mood it translated into, was risk-off one as rising yields couldn‘t help cyclicals.Gold, Silver and MinersPrecious metals are still basing, positioned for the coming brief decline that has pretty good chances of being reversed right next. The countdown to higher prices and Fed mistake is firmly on, and the risks of being out of the market outweigh the patience now required.Crude OilCrude oil upswing is running into predictable headwinds, which I look to be resolved to the upside perhaps as early as tomorrow‘s regular session (I‘m not looking for CPI to send real assets down).CopperCopper is still quite lukewarm, and doesn‘t indicate a commodities surge right ahead. Some consolidation wouldn‘t be surprising now that half of the CRB Index downswing has been erased. Bitcoin and EthereumBitcoin and Ethereum keep looking vulnerable – the yesterday discussed downswing possibility looks to be progressing, unfortunately for the bulls.SummaryS&P 500 is still likely to consolidate recent strong gain, and at the same time not to tank on tomorrow‘s inflation data. The (almost classical, cynics might say) anticipation is playing out in commodities and precious metals today, but I‘m looking for the downside to be reversed tomorrow as the yields vs. inflation expectations duo hint at. Fed fears this early in the tapering cycle will likely look to be a blip on the screen in the topping process hindsight.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Market Digest Friday 10 Dec; hold your breath, big elements to watch inflation, volatility and iron ore

Market Digest Friday 10 Dec; hold your breath, big elements to watch inflation, volatility and iron ore

Jessica Amir Jessica Amir 10.12.2021 10:34
Equities 2021-12-10 00:00 4 minutes to read Summary:  Markets are facing speed bumps again as investors await key inflationary numbers and the Feds meeting outcome, key catalyst that will ultimately change market dynamics, with fiscal stimulus being taking away. The US benchmark the top 500 stocks fell from record high territory, falling for the first time in 4 days, while the ASX200 fell for the second day, dipping below its 50 day moving average. Growth names are being sold down and safe haven assets, bonds, the USD, the JPY, are gaining appeal. It is for three important reasons. Here is what you need to know and consider, plus the five elements to watch today. Firstly, investors are holding their breath ahead of key events: Friday’s US inflation data (tipped to show inflation rose 6.8% YOY in November), plus we are also seeing investors pre-empt that the Federal Reserve next week, will map out tapering and interest rate hikes for 2022. A poll by Reuters showed that 30 of the 36 economists expect the Fed to hike rates sooner than thought, rising rates four times from the third quarter of the year 2022 to the second quarter of 2023 (expecting rates to be 1.25-1.50%). This explains why investors took profits from nine of the major 11 US sectors overnight. So growth stocks and sectors that thrive in low interest rates; consumer discretionary, real estate and information technology, saw the most selling as a result. From a stock perspective Tesla fell 6%, Semiconductor giant Advanced Micro Devices, and Etsy-the e-commerce vintage store, both fell 5%, and chip maker Nvidia fell 4%. If you look at Saxo Markets themes that we track, you can also see the most money on a month-on-month basis, has come out of semiconductors, while the other themes we track are posting monthly gains. Secondly, it’s critical to be aware, the UK Prime Minister announced restrictions to curb Omicron’s spread -  so the UK entered new work-from-home guidance, that could cost the UK economy $2.6 billion a month (according to Bloomberg). Meanwhile, a study by a Japanese scientist found the new variant to be 4.2 times more transmissible in its early stage than delta. As such some companies are responding like Lyft saying their workforce can work remotely in 2022, while Jefferies asked staffers to WFH. This means, travel and tourism stocks could see short term pressure, Australian and US stocks that are exposed to the UK could also see pressure, while oil could see demand weakness here. Plus, it could be time to again rethink exposure to the office property sector, as it’s a likely to remain squeezed, while industrial and logistics real estate remain supported given the likely new shift to WFH. Thirdly – be aware of volatility. A measure of this, VIX CBOE Volatility Index rose for the first time in four days, rising back above the 50 day average. Volatility has fallen from its 12-month high and remains contained right now as Pfizer said its vaccine can neutralize the new COVID strain Omicron after three doses (two doses offer protection again severe disease). However, keep your ears to the ground. If tomorrow’s inflation data from the US is worse than expected, expect volatility to spike, and growth stocks to see further selling and expect safe haven assets (USD, bonds, USDJPY) to gain more attraction. Aside from the above – here’s 5 things to watch today; Firstly - let's go over Fortescue Metals (FMG) 1.FMG’s CEO, Elizabeth Gains just announced she is standing down, right in the thick of iron ore having a murky outlook. It’s not been an easy 12 month for FMG holders. FMG trades 7% lower this year, but it’s a far cry from its all-time high, down 30% from its peak as iron ore price remains in a bear market (down 40% from May). 2. FMG’s trading range has been restricted for two weeks as the world holds its breath to learn more about China’s property sector. FMG shares have broken out above their 50 day moving average but its trading has been even more so restricted over the last three days as its stock hit a key resistance level awaiting news from China. If good news comes, FMG could break out higher. But it looks murky. Majority of FMG revenue (94%) comes from iron ore, and its majority sold to China (90%) (unlike BHP that now diversifies its sales to other countries). And now… we are getting mixed signals from China, making iron ore’s outlook look hazy. 3. On the positive side; week-on-week Australian iron ore exports are up. China has increased its monthly imports of Australian iron ore in November, more than expected. This has supported the iron ore price rising 8.9% this week. 3. But on the negative side - Evergrande, one of China’s biggest property developers was just officially downgraded -labelled a defaulter by Fitch Ratings after failing to meet two coupon payments after a grace period expired Monday. This may now trigger cross defaults on Evergrande’s $19.2 billion of dollar debt. Also at the same time JP Morgan downgraded its outlook for iron ore expecting the iron ore to fall 7% to $92, while Citi expects seaborne iron ore prices to fall 60-$80/t in 2022 on Chinese policy changes. 4. However, Fortescue has been in the news this week, for its shift to a green future. Was this a tactic? A smoke Bomb? Yesterday FMG announced its Future Industries department signed a pact with the Indonesia to explore hydrogen projects. The day before Fortescue Future Industries (FFI) and AGL Energy (AGL) teamed up to explore repurposing NSW coal-fired power plants and turning them into green hydrogen production facilities – to hopefully create renewable electricity production, 250 megawatts (which will generate 30,000 tonnes of green hydrogen per year). AGL and FMG will undertake a feasibility study to repurpose AGL’s Liddell and Bayswater power stations, that both accounted for 40% of NSW’s carbon dioxide emissions. Sheesh. Secondly  – Australian analyst rating changes to consider ANZ AU: Reiterated as a Bell Potter BUY, PT $30.00, RRL AU: Regis Resources Raised to Outperform at RBC; PT A$2.50 EBO NZ: EBOS Raised to Outperform at Credit Suisse; PT NZ$43.14 FMG AU: JPMorgan downgrades FMG from Overweight to Neutral, dropping its PT from $22 to $20. RIO AU: JPMorgan downgrades RIO from Overweight to Neutral, dropping its PT from 113.00 to 102. MIN AU:  Reiterated as JPMorgan hold/neutral, dropping its PT from $47 to $40 Thirdly  - what else to watch today Annual General Meetings: HMC AU, PDL AU, PH2 AU, SOL AU Other Shareholder Events: AOF AU, HMC AU THL NZ: Tourism Holdings Halted in NZ Pending Proposed Transaction ADPZ NA: APG Buys 16.8% Stake in Ausgrid from AustralianSuper EBO NZ: Ebos Successfully Raises A$642m From Share Placement Fourthly - Economic news out 8:30am: (NZ) Nov. Business NZ Manufacturing PMI, prior 54.3 8:45am: (NZ) Nov. Card Spending Total MoM, prior 9.5% 8:45am: (NZ) Nov. Card Spending Retail MoM, prior 10.1% Fifthly - Other news to keep in mind: Australia Seen Facing Steeper Borrowing Costs If Slow on Climate RBA Likely to Stick With QE Until Election Over, BofA Says      ---   Markets - the numbersUS Major indices fell: S&P 500 -0.7% Nasdaq -1.7% Europe indices closed lower: Euro Stoxx 50 lost 0.6%,London’s FTSE 100 lost 0.2% flat, Germany’s DAX fell 0.3%Asian markets closed mixed: Japan’s Nikkei fell 0.5%, Hong Kong’s Hang Seng rose 1.1%, China’s CSI 300 rose 1.7%. Yesterday Australia’s ASX200 fell 0.3% Futures: ASX200 hints of a 0.14% fall today Commodities: Iron ore rose 1.3% to $110.50. Gold fell 0.4%, WTI crude fell 2% to  $70.94 per barrel. Copper fell 1.4% Currencies: Aussie dollar trades 0.4% lower at 0.7146 US. Kiwi down 0.3% to 0.6788 per US$ Bonds: U.S. 10-year yield fell 3.5bps to 1.4871%,Australia 3-year bond yield fell 0.8bps to 0.95%, Australia 10-year bond yield rose 6bps to 1.68%
Eyes on US consumer data and CPI inflation

Eyes on US consumer data and CPI inflation

Walid Koudmani Walid Koudmani 10.12.2021 12:17
While stock markets started the day trading lower, with several indices down between 1-2%, many traders will be awaiting today’s key data releases from the US which include preliminary university of michigan consumer confidence as well as CPI inflation. Both these reports could have a noticeable impact on stocks, particularly in the US, as fears of rising inflation have pushed the FED to announce it’s tapering recently and could lead to further action taken by the US central bank while consumer sentiment has been on a steady decline for several months. A better than expected outcome from today’s data could reassure markets that despite growing fears related to the new variant the economy continues to recover which in turn could encourage the FED to change its approach in the near term. On the other hand, worse than expected reports could further incentivize the central bank to take action, something which may be closely followed by its peers around the world. UK GDP report leaves investors concerned Today’s GDP report showed an estimated growth of 0.1% in October 2021 and a return to 0.5% below its pre-pandemic levels. Services seem to be outperforming with an increase of 0.4% and a return to pre-covid levels while production output decreased by 0.6% in October 2021 and construction contracted output dropped by 1.8%, the largest fall since April 2020, partly due to rising costs and supply concerns. Overall today’s report could be considered positive by some, while on the other hand it may raise some concerns regarding the state of the economic recovery as we await the upcoming Bank of England decision.
Catching More Than a Decent Bid

Catching More Than a Decent Bid

Monica Kingsley Monica Kingsley 10.12.2021 15:48
S&P 500 predictably relented, but the resilience of value provides a glimmer of hope. Quite a solid one as the HYG spurt to the downside didn‘t inspire a broader selloff, including in tech. Yesterday was your regular wait-and-see session of prepositioning to today‘s CPI data. This not exactly a leading indicator of inflation clearly hasn‘t peaked, and inflation around the world either. The difference between the U.S. with eurozone, and the rest of the world, is that many other central banks are already on a tightening path.I count on such a CPI reading that wouldn‘t cause a rush to the exit door and liquidation in fears of Fed going even more hawkish (in rhetoric, it must be said). My series of pre-CPI release tweets have worked out to the letter – and now, it‘s back to the inflation trades.I already told you in yesterday‘s report:(…) A reasonably hot inflation figure is expected tomorrow – inflation expectations have risen already yesterday. The fears are that a higher than what used to be called transitory figure, would cut into profit margins and send value lower. Even if inflation (which certainly hasn‘t peaked yet as I‘m on the record for having said already) isn‘t yet strong enough to sink stocks, the Fed‘s reaction to it is. The dynamic of tapering response messing up with the economy would take months to play out – so, the bumpy ride ahead can continue. If only the yield curve stopped from getting ever more inverted...Markets keep chugging along for the time being, and the warning signs to watch for talked in Monday‘s extensive analysis, aren‘t flashing red.The pieces of the stock market and commodities rally continuation are in place, and the same goes for precious metals reversing the prior cautious stance. Even cryptos are warming up to the data release.Looking further ahead in time to 2022, I can‘t understate the bright prospects of agrifoods (DBA) – and it‘s in no way just about the turmoil in fertilizer land.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 downswing looks ready to be reversed soon – in spite of the drying up volume which often accompanies bull markets. The daily indicators remain positioned favorably to the bulls.Credit MarketsHYG weakness looks somewhat overdone to me – the prior upswing is still getting the benefit of my doubt. The coming sessions just shouldn‘t bring a steep HYG decline in my view.Gold, Silver and MinersPrecious metals are still basing, and I‘m looking for the hesitation to be reversed to the upside. Just see the tough headwinds in comparing silver being almost at its Sep lows while gold is trading much higher. Once the inflation narratives get a renewed boost, silver would play catch up.Crude OilCrude oil upswing is running into predictable headwinds, but I‘m looking at the next attempt at $72 to succeed, and for $74 to be broken to the upside later on.CopperCopper is still lukewarm, and waiting for the broader commodity fires to reignite. The red metal isn‘t in an anticipatory, frontrunning mood – its prolonged consolidation means though it‘s prefectly prepared to rise decisively again.Bitcoin and EthereumBitcoin and Ethereum are finding buying interest, but the Ethereum underperformance has me still cautious after taking sizable ETH profits off the table yesterday.SummaryS&P 500 rally is likely to continue today, and the same goes for risk-on and real assets. The Fed evidently won‘t be forced into a more hawkish position in Dec, and the markets are starting to celebrate. Silently celebrate as it‘s not about fireworks, but a reasonable and well bid advance across the board. I hope you‘re likewise positioned!Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Market Quick Take - December 14, 2021

Market Quick Take - December 14, 2021

Saxo Strategy Team Saxo Strategy Team 14.12.2021 11:57
Macro 2021-12-14 08:35 6 minutes to read Summary:  Risk sentiment soured yesterday, with some attributing the market nervousness to uncertainty on how hawkish a pivot the Fed is set to make at the FOMC tomorrow, although Fed rate expectations for next year as expressed in the most liquid futures have eased from recent highs. That meeting is the most significant major macro event risk for the 2021 calendar year, although important ECB and BoE meetings are set for Thursday. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - yesterday was a very disappointing session for US technology stocks with Nasdaq 100 futures looking to push higher early during the session but ended on the lowest close in four trading sessions. Nasdaq 100 futures are trading around the 16,110 level this morning with the 50-day average around the 15,810 level as the key support level to watch on the downside should risk-off continue. EURUSD – the EURUSD supermajor continues to coil in a tight range ahead of the FOMC meeting tomorrow and ECB meeting on Thursday, both of which are set to bring refreshed forecasts for the economy and policy. The FOMC meeting is likely to carry more weight in terms of the market reaction, especially if the Fed waxes more hawkish than expected (more below) and takes Fed rate expectations for next year to new highs for the cycle. The lines in the sand on the chart include the 1.1186 lows of November, while the recent pivot highs of 1.1355 and 1.1384 bar the upside, with 1.1500 a more structural resistance/pivot zone. AUDUSD – watching the US dollar closely over the next couple of sessions, particularly in the wake of tomorrow’s FOMC meeting and what it brings in the way of a crystallization of the Fed’s hawkish shift (more below) and in the market reaction. If the meeting brings a spike in market volatility, traditionally risk-correlated currencies like the Aussie could show high beta to swings in the US dollar in either direction (I.e., if the Fed waxes more hawkish than expected and this triggers risk-off and a stronger USD). AUDUSD recently broke down through the prior 2021 lows near 0.7100 and tested the huge 0.7000 level before staging a sharp bounce. That 0.7000 level could serve as a kind of “bull-bear” line from here. Crude oil (OILUKFEB22 & OILUSJAN22) has settled into a relatively narrow range with Brent finding resistance at $76, the 21-day moving average while support remains the 200-day moving average at $73.15. OPEC in its monthly oil market report maintained their 4.2 million barrels per day demand growth outlook for 2022 with current omicron-related weakness being offset by a strong recovery during Q1. The Saudi energy minister said the energy transition will cause an oil-price spike later this decade while also warning traders against shorting the market at a time where large speculators have reduced their Brent crude oil long to a 13-month low. On tap today we have IEA’s Monthly Oil Market Report. Gold (XAUUSD) remains stuck just below its 200-day moving average at $1794 with focus on what 20 central bank meetings this week will deliver in terms of inflation fighting measures at a time where the omicron variant continues to cloud the economic outlook. With US inflation rising at the fastest pace since the 1980’s, Wednesday’s FOMC meeting remains the top event. The market is currently pricing in three rate hikes next year with the first one due around June. The other semi-investment metals of silver (XAGUSD) and platinum (XPTUSD) both struggling with the latter’s 850-dollar discount to gold, near a one year high, potentially deserving some attention. US Treasuries (TLH, TLT). The US yield curve bulled flatten yesterday with 10-year yields falling by 7bps to test support at 1.41%. To contribute to this move was news of the first omicron death in the UK, and the winding done of short US Treasury positions before the end of the year. Price action will remain volatile ahead of the Federal Reserve meeting, where Powell is expected to announce an acceleration of the pace of tapering. The focus is going to be also on the Dot plot, where longer term projections might be moved higher, pushing up the long part of the yield curve. However, long-term yields can move higher only that much, as omicron distortions will continue to keep them compressed. It looks likely that 10-year yields will continue to trade rangebound between 1.40% and 1.70% until the end of the year. European sovereign bonds (IS0L, BTP10). The Bund yield curve bull flattened yesterday led by safe-haven buying amid concerns over omicron. Italian BTPS gained the most as the market pushes back on interest rate hikes in 2022. The focus, however, continues to be on the ECB meeting on Thursday. An announcement of the end of the PEPP program in March 2022 is widely anticipated. What’s not clear is whether it will be announced that bond purchases will be compensated by another scheme, such as the APP. It is likely that the ECB will stall as members are torn between inflation and a new wave of Covid infections. If investors feel the support of the central bank is fading, European yields might resume their rise with the periphery and Italian BTPS leading the way. Yet, the move will be contained as yields will remain compressed by covid concerns. UK Gilts (IGLT, IGLS). The BOE might not deliver on a 10bps interest rate hike this week as members are divided concerning Covid restrictions. Michael Saunders, one of the most hawkish MPC members, said that he will need to think about it twice before voting for a rate hike. As expectations for interest rate hikes in the UK are the most aggressive among developed economies. It is possible that if the central bank does not hike, the Gilt yield curve will be steeping with short-term Gilts gaining the most as the market pushes back on next year’s rate expectations. What is going on? China reports first omicron variant case of covid - bringing fears of supply chain disruptions due to the country’s zero tolerance policy on virus cases that can mean profound shutdowns in response to outbreaks. Chinese property developers under new pressure, with the focus this time on Shimao Group Holdings, whose Hong-Kong listing is down over 75% this year and down over 30% over the last week on concerns that a deal between the company’s business units is a sign of financial stress for the company. The company’s 2030 USD-denominated bonds lost almost 13% overnight as the yield rose above 10%. Other Chinese property developer shares were also under pressure overnight. Tesla shares down 5% as growth stocks are under pressure. Tesla shares pushed below $1,000 yesterday adding further pressure to related assets in the Ark Innovation ETF and Bitcoin is also seen lower this morning. Elon Musk sold $907mn worth of shares yesterday according to a filing overnight in order to pay taxes on another round stock options that were exercised. Toyota finally pushes into EV. Japan’s largest carmaker wants to compete with Tesla and Volkswagen announcing $35bn of investments into battery electric vehicles showing the first sign that Toyota is acknowledging that this is the future of the industry. Toyota has so far pursued hybrids on the ground of being more economical, but this push into BEV with 30 new models validates BEVs once and for all, even though Toyota is still saying that it does not know which technology will win. US Harley-Davidson set to spin-off EV motorcycle unit – the plan to spin off Harley’s EV business via a SPAC saw Harley-Davidson shares spike 19% before surrendering most of the gains. Harley’s LiveWire EV business unit will combine with SPAC AEA-Bridges Impact to form a new publicly traded company. The move is meant to take advantage of the premium the market is willing to pay for pure-play EV companies. EU diplomats suggest time running out on Iran nuclear deal - as Iran is progressing rapidly toward enriching uranium for potential use in nuclear weapons. The diplomats worry that without a breakthrough soon, the original 2015 agreement “will very soon become an empty shell.” What are we watching next? The Wednesday FOMC as the year’s final major macro event risk. The FOMC meeting tomorrow is set to bring a very different monetary policy statement from the prior statement after the Fed’s clear pivot to inflation fighting mode. As well, the meeting will see an update of economic forecasts and interest rate policy forecasts (the “dot plot” in which 19 Fed members forecast where the Fed funds rate will likely be in 2022-24 and in the longer term). Most interesting will be the degree to which Fed members have raised their policy rate forecasts relative to what the market is predicting, which is for just under three rate hikes through the end of next year. Prior forecasts have generally come in lower than market expectations. The baseline expectation for the pace of QE “tapering”, or slowing of purchases, is that the Fed will double the pace of tapering, which would mean the Fed’s balance sheet is set to stop growing by the end of March. Anything that suggests a faster pace of tapering than this doubling (for example, a promise to wind down before March) and that hints that a hike at the March FOMC meeting is possible would be a hawkish surprise. The European Council meets on Thursday, and apart from having to deal with Covid-19 and the Russian threat on its eastern borders, the council is also set to decide whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter. Earnings Watch – the earnings calendar is getting very thin this week and no major earnings expected today. Wednesday: Inditex, Toro, Lennar, Heico, Trip.com, Nordson Thursday: FedEx, Adobe, Accenture Economic calendar highlights for today (times GMT) 0830 – Sweden Nov. CPI 1000 – Euro Zone Oct. Industrial Production 1100 – US Nov. NFIB Small Business Optimism 1300 – Hungary Central Bank Rate Decision 1330 – US Nov. PPI 1900 – New Zealand RBNZ Governor Orr before parliament committee 2130 – API Weekly Report on US Oil and Fuel Inventories 2330 – Australia Dec. Westpac Consumer Confidence 0200 – China Nov. Retail Sales 0200 – China Nov. Industrial Production During the day: IEA’s Monthly Oil Market Report   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Another Inflation Twist

Another Inflation Twist

Monica Kingsley Monica Kingsley 14.12.2021 15:45
S&P 500 gave up premarket gains, and closed on a weak note – driven by tech while value pared the intraday downswing somewhat. Market breadth still deteriorated, though – but credit markets didn‘t crater. Stocks look more cautious than bonds awaiting tomorrow‘s Fed, which is a good sign for the bulls across the paper and real assets. Sure, the ride is increasingly getting bumpy (and will get so even more over the coming weeks), but we haven‘t topped in spite of the negative shifts mentioned yesterday. The signs appear to be in place, pointing to a limited downside in the pre-FOMC positioning, but when the dust settles, more than a few markets are likely to shake off the Fed blues. I continue doubting the Fed would be able to keep delivering on its own hyped inflation fighting projections – be it in faster taper or rate raising. Crude oil is likewise just hanging in there and ready – the Fed must be aware of real economy‘s fragility, which is what Treasuries are in my view signalling with their relative serenity. We‘ve travelled a long journey from the Fed risk of letting inflation run unattented, to the Fed making a policy mistake in tightening the screws too much. For now, there‘s no evidence of the latter, of serious intentions to force that outcome. Lip service (intention to act and keep reassessing along the way) would paid to the inflation threat tomorrow, harsh words delivered, and the question is when would the markets see through that, and through the necessity to bring the punch bowl back a few short months down the road. As stated yesterday: (…) Global economic activity might be peaking here, and liquidity around the world is shrinking already – copper isn‘t too fond of that. The Fed might attempt to double the monthly pace of tapering to $30bn next, but I doubt how far they would be able to get at such a pace. Inflation and contraction in economic growth are going to be midterms‘ hot potatoes, and monetary policy change might be attempted. Tough choices for the Fed missed the boat in tapering by more than a few months. 2022 is going to be tough as we‘ll see more tapering, market-forced rate hikes (perhaps as many as 2-3 – how much closer would yield curve control get then?), higher taxes and higher oil prices. Stocks are still likely to deliver more gains in spite of all the negative divergences to bonds or other indices (hello, Russell 2000). Copper would be my indicator as to how far further we have to go before GDP growth around the world peaks. Oil is ready for strong medium-term gains, and I‘m not looking for precious metals to yield much ground. Silver though is more vulnerable unless inflation returns to the spotlight. Cryptos do likewise have issues extending gains sharply. All in all, volatility is making a return, and it isn‘t a good news for the bulls. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 ran into headwinds, and fresh ATHs will really take a while to happen, but we‘re likely to get there still. Credit Markets HYG didn‘t have a really bad day – just a cautious one. Interestingly, lower yields didn‘t help tech, and that means a sectoral rebalancing in favor of value is coming, and that the current bond market strength will be sold into. Gold, Silver and Miners Precious metals held up fine yesterday, but some weakness into tomorrow shouldn‘t be surprising. I look for it to turn out only temporary, and not as a start of a serious downswing. Crude Oil Crude oil continues struggling at $72, but the downside looks limited – I‘m not looking for a flush into the low or mid $60s. Copper In spite of the red candle(s), copper looks to be stopping hesitating, and is readying an upswing. I look for broader participation in it, and that includes commodities and silver. The run up to tomorrow‘s announcement would be telling. Bitcoin and Ethereum Bitcoin and Ethereum bottom searching goes on, yesterday‘s downside target was hit, and the bulls are meekly responding today. I don‘t think the bottom is in at $46K BTC or $3700s ETH. Summary Risk-off mood is prevailing in going for tomorrow‘s FOMC – the expectations seem leaning towards making a tapering / tightening mistake. While headwinds are stiffening, we haven‘t topped yet in stocks or commodities, but the road would be getting bumpier as stated yesterday. Select commodities and precious metals are already feeling the pinch late in today‘s premarket trading, but there is no sending them to bear markets. Get ready for the twin scourge of persistent inflation and slowdown in growth to start biting increasingly more – just-in producer price index (9.6% YoY, largest ever) confirms much more inflation is in the pipeline, and the Fed would still remain behind the curve in its actions. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US PPI hits forecasts, feeding an appetite for the USD ahead of FOMC

US PPI hits forecasts, feeding an appetite for the USD ahead of FOMC

Alex Kuptsikevich Alex Kuptsikevich 14.12.2021 16:01
The start of the Fed’s two-day meeting gave new signs of the strength of inflationary pressures in the market, adding to speculation about a tightening of the monetary policy tone. In November, the PPI index was 9.6% y/y, markedly higher than the expected 9.2% and 8.6% a month earlier. The PPI ex-energy and food accelerated to 7.7% y/y last month from 6.8% in October. The latest data shows that inflationary pressures are no longer a problem of Oil and agriculture price spikes. It has spread across the economy, forcing the Fed to step up. This bad news increased pressure on the US stock market before the opening of the regular session. However, it is positive news for the dollar, which managed to retreat from intraday lows against the euro, yen and franc. The dollar index has been consolidating in a converging triangle since late November. The latest inflation data has a high chance of pushing it beyond consolidation without waiting for the official comments from the Fed tomorrow evening.
How Supply Constraints Stole Christmas

How Supply Constraints Stole Christmas

Saxo Bank Saxo Bank 15.12.2021 13:00
Equities 2021-12-15 10:30 Summary:  If you have tried to buy, well, basically anything, you've probably noticed that the shelves in the stores aren't as full as they used to be. With the Christmas shopping season approaching fast, there is a very real chance that Santa will have a hard time getting everyone what they want. In this article, we will look at how supply constraints will be this year's Grinch, how they will steal Christmas and how you can counteract them. It’s not news that the global supply chains are challenged, but how did it get here and what will it mean for your Christmas presents? In this article, we will look into how supply constraints came about and how they will impact Christmas shopping. “We’ve all become accustomed to the fact that when you order something online, you get it delivered within a few days. That system is broken down and we have to be much more patient now,” says Ole Hansen, Head of Commodity Strategies at Saxo Group. Exceptional demand challenges the physical limits of the worldOne of the main drivers behind the supply constraints is a sudden imbalance between supply and demand, which is an effect of the COVID-19 breakout in the early 2020s. On one hand, a collapse of the global economy was expected, and on the other, governments across the globe started supporting both businesses and people by handing out money. The global economic collapse in large part didn’t happen and the world went into a lockdown, which meant that people suddenly had money on their hands but couldn’t travel or go to restaurants, so instead they started buying goods and commodities.“I normally tend to tell the Danish media that it all began when we got our holiday check paid out from the government, because then we all went on a spending spree. Restaurants and cinemas were closed, so we went online and went shopping for consumer goods. So, from having cancelled lots of orders, expecting a sharp decline in economic activity due to the pandemic, companies suddenly had to put in massive new amounts of orders and the system couldn't cope,” says Hansen.In a world where global activity was already historically high, an increase in demand like this puts a lot of strain on the physical parts of being able to supply people with what they want. “When you have such a big shift on the demand side, then when we talk about supply, it's about the physical world - ports, container ships, available containers - and its generally about infrastructure, which takes time to build out and thus can’t make as big a leap as the demand side, because we are talking about building big physical things,” says Peter Garnry, Head of Equity Strategies at Saxo Group. The system, which Hansen is referring to is the logistics sector, where the physical limits of the world are challenged by rapid technological development. “I think what this whole supply chain issue has shown is that everything we're talking about is basically constraints we observe in the physical world, and if there's something we have seen during this pandemic, it’s a phenomenal rally in technology stocks and companies that operate in the online world. When I travel around and talk to clients, I show this chart where you can see that since the great financial crisis, technology companies’ revenue and profits have just taken off like a rocket relative to the physical world, the normal world, the one we are in, and these supply constraints are once again teaching us that a lot of the investment opportunities will be in the online world,” says Garnry. In essence, this means that because governments feared an economic collapse, they handed out money to people and companies who then used the money to buy more goods than usual, like e.g. technological devices and gadgets, which pushed the limits of the physical ships, ports, trucks and roads. In such a situation, the last thing you would want is to clog up the system, so the pressure on the physical limits will be even tougher. Enter Ever Given.The bottleneckWinding the clock back to March this year, one of the largest container ships in the world, Ever Given, was passing through the Suez Canal, one of the world’s most important supply routes. Here it was hit by strong winds that forced the ship to turn, which resulted in the ship getting stuck across the canal. Some 400 container ships were queued up for six days, creating not only shipping delays but also further bottlenecks when the ships arrived at ports at the same time, increasing the pressure on the physical world. So now you had governments handing out money, a global population eager to buy goods, ports that are already overworked and a global trading route which is closed down, halting the usual flow of goods from East to West. A shortage of peopleIt’s probably fair to think that such bottlenecks shouldn’t take long to fix as long as everything is operating as it should. But here it’s necessary to understand two things. The first thing is that on the sea, transportation of cargo is constantly becoming bigger, but on land, this isn’t the case. “Containers ships are getting bigger and bigger, but you still need one truck to move the container to and from the harbour. So, it’s an increasing challenge that these ships roll in and need to be offloaded and loaded in a relatively short time. This has become a major obstacle, like we have seen in Felixstowe in the UK, in Los Angeles and even in Rotterdam,” Hansen says.At the same time, there’s a historic shortage of truck drivers around the globe. In the US alone, it’s estimated that 80,000 additional truck drivers are needed to handle the number of containers that could be delivered at the country’s ports. The reasons for this are many, but it’s an important factor in the supply constraints, and one that isn’t easily fixed.Generally, truck drivers have been in short supply since the mid-2000s. In addition, many economies around the world work at close to full capacity, which usually allows people with lower-paying jobs – like truckers – to move up to higher-paying and more attractive jobs, due to increased demand for workers. Also, governmental support during COVID may have provided some drivers with money they’ve been able to use to get better jobs. “You need a lot of truck drivers, which has been another issue, as there’s a shortage of truck drivers. This is mainly because some of them have found other jobs during the lockdown, where wages are rising in other industries as well, so it's difficult to find all the truck drivers needed to move all these containers. That means that you suddenly end up with a harbour full of empty containers stacking up, which takes space away from the filled ones that need to come in,” says Hansen. So, along with increased demand putting the physical world under pressure, and the blockage of an important trading route, there are also not enough people and trucks to handle the containers when ships do roll in, all adding to the delays and difficulties of moving things around the world.COVID closuresWhen trying to explain how we ended up with supply constraints, it’s impossible not to mention the COVID-19 virus, because it has had a significant impact. As previously mentioned, one reaction to the pandemic has been governmental stimulus, which has created a number of ripple effects. More concretely, COVID-19 has affected operations at ports around the globe – especially in China, one of the world’s key production hubs. “The Chinese zero-case policy on COVID-19 is making it difficult to keep supply chains efficient, because when there’s a new series of cases in China, they tend to close down pretty large parts of the particular region where the cases are happening,” says Garnry.The shortage to rule them allStruggling to ship goods around the world is a major challenge. But struggling to supply the most crucial component in today’s technology goods is arguably a much bigger issue. Semiconductors – also called integrated circuits or microchips – are used in a wide range of goods and products, including electronics. The semiconductor shortage – like the others we’ve described – has been caused by a variety of snowball effects, including bad weather in Texas, trade disputes between China and the US, and especially the COVID-19 pandemic. But this shortage is more significant, constraining sales of some of our most in-demand goods. In that sense, the semiconductor shortage is the real Grinch, which will steal the most popular Christmas presents even before they’re produced. “The semiconductor shortage is impacting everything from Nintendo to car production and PlayStations. iPhone production has also been cut by as many as 10 million units due to these constraints. So, even if you wish for it, and you want it and it's cool, you can't get it,” says Garnry.And if you’re wishing for a new car, semiconductors can also spoil the day. Car manufacturers, who buy lower margin semiconductors, were late in ordering chips after the economy didn’t collapse due to the pandemic. The semiconductor industry had already found willing buyers thanks to high demand for graphics cards for gaming and crypto, as well as chips used in data centres and computers. Car manufacturers were therefore put at the back of the line and have ever since scrambled to get priority, causing car production to be reduced due to lack of semiconductors, meaning that there are a lot of cars that are almost ready to be shipped, but can’t be because they are missing this one component,” says Garnry. Product centralisationLooking at the different reasons why supply chains have ended up in the pickle they’re in, one of them also points to a potential solution, which would be a massive shift in the production strategy that companies have pursued for a number of years. “If you're a large consumer goods company today and your main markets are the US and Europe, you must be contemplating whether you should have production closer to your end markets,” says Garnry. He adds:“Not too long ago, we had a very engaging conversation with Jens Bjørn Andersen, CEO of DSV, and we talked about this situation. In the financial industry, we always suggest that investors should make sure to  diversify their portfolio. But for whatever reason, this concept seems to have escaped the manufacturing industry when you look at their portfolio of production. Said in another way – production companies have sent huge amounts of their global production to China and that really hurts when you have disruptions like these. This could lead us to see more fragmented production and that manufacturing companies begin to diversify their supply chains. My bet is that in the future, we will see some production come back to main consumer markets in the western world.” How to un-steal Christmas from the supply GrinchWhile Garnry’s point about production closer to main markets is relevant, it’s a long-term solution that won’t help this year’s Christmas shopping. For now, we’ll just have to get used to it being more difficult to get what we want.“We need to get the balance back in terms of supply and demand. Until then, we're going to have to live with some disruptions for a number of years and that will create these temporary obstructions in various places in the world,” says Hansen. Garnry adds that the bottlenecks will solve themselves: “We will get there, but it will take some time,” he says.So, what do we do this Christmas? While the Grinch may steal your car, iPhone and PlayStation, Hansen thinks we should look at our wish list and wish for something the Grinch can’t steal – and where we can do good. “Regarding Christmas, think a bit alternatively. The global economy came back very strongly, but there was a whole area which was left in the dark and that was the service sector. So, spare a thought for them if you can't get the goods you are looking for. Wish for a gift card to the cinema or to a restaurant or to some local experience. They're not going to run out of supplies and could use it,” he says.If you want to read more about how to invest in the logistics sector during these challenges, take a look at this article. If you want to get inspiration for more investments in the logistics sector, take a look at Garnry’s theme basket here.
Technical Breakdown of the Stock Market by PR

Markets await key FED announcement

Walid Koudmani Walid Koudmani 15.12.2021 14:08
Many investors believe that the record or near record asset valuations we have seen are in a large part a result of unprecedented monetary policy and by central banks response to the Covid-19 pandemic, which included zero or negative interest rates and massive money printing. However, a lot has changed since early 2020, especially in the US since the economy recovered quickly and became overheated as a result of record stimulus. The majority of the data appears to be inflationary – demand is strong, business confidence is at the highest level in 2 decades, inflation in nearly 4 decades and unemployment claims lowest on record. All these factors combined have raised expectations for a significant change from the US central bank which is also due to discuss it's forward outlook and projections and could have a significant impact on market sentiment as well as other central bank decisions. A below expected QE reduction and no mention of a rate cut could potentially boost riskier assets as investors may continue to benefit from the ongoing central bank support. On the other hand, if the FED were to be more hawkish, we could see a readjusting of the market as capital flows are managed and investments are reassessed.  
Tough Choices Ahead

Tough Choices Ahead

Monica Kingsley Monica Kingsley 15.12.2021 15:51
S&P 500 declined on poor PPI data, with financials virtually the only sector closing in the black. Rising yields and risk-off credit markets, that‘s the answer – markets are afraid of a more hawkish Fed than what they expect already. While the central bank will strive to project a decisive image, I‘m looking for enough leeway to be left in, and packaged in incoming data flexibility and overall uncertainty. Good for them that the fresh spending initiative hasn‘t yet passed. Still, I‘m looking for the Fed to be forced during 2022 to abruptly reverse course, and bring back the punch bowl. Treasuries look serene, and aren‘t anticipating sharply higher rates in the near term – not even inflation expectations interpreted higher PPI as a sign that inflation probably hasn‘t peaked yet. This isn‘t the first time inflation is being underestimated – and beaten down commodities (with copper bearing the brunt in today‘s premarket) reflect that likewise. Only cryptos are bucking the cautious entry to the Fed policy decision, and decreasing liquidity, in what can still turn out as a lull before another selling attempt. I think that the overly hawkish Fed expectations are misplaced, and that the risk-on assets would reverse the prior weakness – both today and in the days immediately following, which is when the real post-Fed move emerges. Odds are that it would still be up across the board. Yes, I‘m looking for the Fed speak to be interpreted as soothing – as one that would still result in market perceptions that the real bite isn‘t here yet, or doesn‘t look too real yet. Big picture is that public finances need inflation to make the debt load manageable, and that ample room to flex hawkish muscles isn‘t there (as retail data illustrate). As I wrote in yesterday‘s summary: (…) Risk-off mood is prevailing in going for tomorrow‘s FOMC – the expectations seem leaning towards making a tapering / tightening mistake. While headwinds are stiffening, we haven‘t topped yet in stocks or commodities, but the road would be getting bumpier as stated yesterday. Select commodities and precious metals are already feeling the pinch late in today‘s premarket trading, but there is no sending them to bear markets. Get ready for the twin scourge of persistent inflation and slowdown in growth to start biting increasingly more – just-in producer price index (9.6% YoY, largest ever) confirms much more inflation is in the pipeline, and the Fed would still remain behind the curve in its actions. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 had a weak day, but the dip was being bought – there is fledgling accumulation regardless of deteriorating internals, and tech selloff continuing. Credit Markets HYG even staged a late day rally – bonds are in a less panicky mood, not anticipating overly hawkish Fed message. And that‘s good for the markets that sold off a bit too much. Gold, Silver and Miners Precious metals downside appears limited here, and today‘s premarket downswing has been largely erased already. Much catching up to do on the upside, just waiting for the catalyst. Crude Oil Crude oil is on the defensive now – the weak session yesterday didn‘t convince me. I‘m though still looking for higher prices even as today‘s premarket took black gold below $70. Still not looking for a flush into the low or mid $60s. Copper Copper upswing didn‘t materialize, and worries about the economic outlook keep growing. The sideways trend keeps holding for now though, still. Bitcoin and Ethereum Bitcoin and Ethereum bottom searching goes on, yesterday‘s downside target was hit, but the bottom (at $46K BTC or $3700s ETH) might not be in just yet. Cryptos remain in wait and see mode. Summary Bears aren‘t piling in before today‘s FOMC – the Fed‘s moves will though likely be interpreted as not overly hawkish. Given more incoming signs of slowing economy, the window of opportunity to tighten, is pretty narrow anyway. Why take too serious a chance? Yes, I‘m looking for the weakness in real assets to turn out temporary, and for stocks not to be broken by inflation just yet – as argued for in the opening part of today‘s analysis. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
BoE Preview: No rate hike to keep Santa happy?

BoE Preview: No rate hike to keep Santa happy?

Luke Suddards Luke Suddards 16.12.2021 12:57
GBP USD EUR 15 Dec 2021 Take a read below of all the essential details to know for this event. The Bank of England are back to deliver their interest rate policy decision tomorrow at 12pm GMT. No surprises like which unfolded at the November meeting are expected to be thrown the market’s way as the consensus clearly now expects a delay to the 15bps hike. The BoE have gone from one uncertainty to the next – labour data to now omicron. The announcement of Plan B restrictions was the nail in the coffin for any moves by the BoE come Thursday. If even one of the most hawkish members of the MPC (Saunders) stated there could be advantages to waiting for more data on how the omicron variant will impact the U.K. economy before raising rates then we can expect the more dovish/neutral members to be hesitant on the rate hike front. This is quite clearly a patient committee which sees “value in waiting for additional information”. It costs them less to wait and fall temporarily behind the curve as opposed to jumping the gun too early (remember monetary policy has a lag between implementation and visible effects). At the last meeting the interest rate vote was 7-2, with Saunders and Ramsden leading the hawkish charge, however, with the latest commentary by Saunders could we see this meeting’s vote at 8-1 instead? This combined with any softening in the policy statement tone could have dovish implications for money market expectations around February’s meeting, potentially applying some pressure on GBP. Some other historical precedents provide further support for a hold at this meeting – since gaining independence the BoE has never hiked at a December meeting with Christmas round the corner as well as preferring to take policy action at meetings that coincide with monetary policy reports and press conferences. Traders focus will be shifting to February’s meeting as they try to assess whether the BoE will hike by 15bps vs 25bps or hold again. This really does depend on the damage caused by omicron over the next 2 months. The UK with their higher natural immunity and the rapid ramp up in booster jabs (41% of population 12+ and 86% of over 60 population triple jabbed) should be able to avoid harsher lockdowns like we’ve seen previously, limiting the economic impact. This is very much dependent on the number of hospitalizations and deaths (busiest time of year for the NHS in Winter as it is). Case data should have peaked by the time of the next meeting (if it follows previous trends), with the BoE having more information at their fingertips to evaluate whether economic risks (how does the labour market hold up) from omicron will be on a downward trajectory. Continuing with the medium-term outlook, the SONIA curve indicates a bank rate of around 1% by end 2022. This is quite aggressive and creates the risk of a dovish repricing in those expectations if there are any speedbumps throughout next year. This would be a headwind for sterling. Labour, Inflation & GDP data: We received the first official employment report with the distortionary effects of furlough removed. It went fairly smoothly and I think bar omicron this would have been enough for the BoE to move. Average earnings (excluding bonuses) which feeds through to wage pressures was above consensus at 4.3% vs 4% exp, the employment gains of 149k was below the 225k anticipated, however, the claimant count showed a good decrease and the unemployment rate was lower than the 4.3% expected as well as tracking below the BoE’s forecast of 4.5%. Taking into account record vacancies and these figures the labour market looks healthy and is heading in the right direction. Moving onto the price stability side of the equation. Headline and core inflation both substantially beat the market’s expectations and with core (strips out volatile items) at 4% it is now the highest reading since 1992. The surge above 5% at a headline level has arrived earlier than many economist and the Bank themselves expected. Upon closer inspection, services inflation remains weak and price pressures are still largely being driven on the energy and goods components. The concern for the BoE of higher inflation is an unanchoring of expectations and second round effects such as wages rising – this would create more persistent inflation and could prove difficult lowering it back to the 2% target within the Bank’s ideal timeframe. Looking at OIS pricing post this inflation drop it seems rate markets have got a tad ahead of themselves with pricing for a hike tomorrow now at 74%. This could actually see sterling weaken if a hold is announced. GDP data out Friday almost was flat from a MoM perspective as it creeped up by a paltry 0.1%, this is quite significantly down from the 0.6% seen in September as well as the consensus of 0.4%. This leaves the UK economy 0.5% smaller than pre-covid levels. It remains to be seen how the economy will fare going forward as restrictions could be increased as key personnel involved in these decisions produce ominous warnings - CMO Whitty warned that UK hospitals could be overwhelmed in four weeks. Given the UK’s economy is heavily skewed towards services, tighter restrictions are a definite risk to the recovery. GBPUSD: GBPUSD found a pre-meeting bid after the inflation numbers and saw price move above both the mini descending channel and back into the main descending channel. I think a good upside target is the round number 1.33 around the 21-day EMA. Above that 1.335 (white horizontal line) would be the next go to. On the downside, a break of 1.32 would be key bringing the 8 December lows of 1.316 into play. The RSI flirted with oversold and has risen 10 points to around 40. Preview (Source: TradingView - Past performance is not indicative of future performance.) EURGBP: EURGBP has failed again to show proper follow through as it breached its upper trend line and the 200-day SMA. The RSI resistance line at 65 proved again to be a useful tool in guiding the sustainability of the move. Price is now hovering just above its 50-day SMA and right on top of its 21-day EMA. Targets wise on the upside again moves into the 200-day SMA and trend line would be important (around 0.855) and then on the downside the 50-day SMA will prove important with moves below there bringing 0.845 into play. Preview (Source: TradingView - Past performance is not indicative of future performance.)
Fed Accelerates Tapering, but Gold Shows Resilience

Fed Accelerates Tapering, but Gold Shows Resilience

Finance Press Release Finance Press Release 16.12.2021 15:33
The Fed begins to get up steam and has finally turned its hawkish mode on. Was it something the gold bulls wanted to hear?The Fed’s full capitulation and unconditional surrender of the doves! Yesterday (December 15, 2021), the FOMC issued) the newest statement on monetary policy in which it erased any description of inflation as “transitory.” It took them only half a year to figure it out, but better late than never. Additionally, the Fed practically rejected its new monetary framework called “Flexible Average Inflation Targeting”, which allowed inflation to run hot for some time. In November, we could read:The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.In the last statement, however, this mammoth paragraph was substantially altered.The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment.What is missing is the reference to the Fed’s tolerance of inflation above its target. This means that the US central bank has turned the hawkish mode on. Indeed, in line with expectations, the Fed has accelerated the pace of tapering of its quantitative easing. The Committee announced a doubling of the monthly reduction in the purchased assets from $10 billion for Treasuries and $5 billion for MBS to, respectively, $20 and $10 billion. It means that the Fed will end its asset purchase program by March rather than by mid-year.In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.Dot-Plot and GoldThese are not all December monetary fireworks we got, though. The statement was accompanied by fresh economic projections conducted by FOMC members. How do they look at the economy right now? As the table below shows, central bankers expect faster economic growth and a lower unemployment rate next year compared to the September projections. This is not something the gold bulls would like to hear.More importantly, however, FOMC participants see inflation as more persistent at the moment because they expect 2.6% PCE inflation at the end of 2022 instead of 2.2%. In other words: inflation is currently believed to reach this level only a year from now! Interestingly (at least for economic nerds like me), Committee members expect that core PCE inflation will be higher than the overall index in 2022, and will amount to 2.7%. It is an indication that the Fed considers inflation more broad-based now than just driven by rising energy prices.Last but definitely not least, more interest rate hikes are coming. According to the latest dot plot, FOMC members see three increases in the federal funds rate next year as appropriate. That’s a huge hawkish turn compared to September, when they perceived only one interest rate hike as desired. Central bankers expect another three hikes in 2023 (the same as in September) and additional two in 2024 (one less than in September). Hence, the whole forecasted path of the interest rates becomes steeper and the Fed is now anticipating eight 25-basis point rate hikes from 2022 to 2024, one more than they saw in September.Implications for GoldGiven the hawkish FOMC statement and economic projections, gold is doomed, right? Well, in theory, a more aggressive Fed’s tightening cycle should boost bond yields and strengthen the greenback, pushing gold prices down. However, what does gold say to the God of Bears? Not today!Indeed, the chart below shows that theory and practice are not the same. Initially, the price of gold declined from around $1,765 to around $1,755, but it quickly rebounded and even increased to $1,780.So, what happened and what does it imply for gold’s future? Well, gold didn’t panic, as hawkish statements and dot-plot were widely anticipated. They were probably a little more hawkish than expected, but, on the other hand, Powell’s press conference was deemed as more dovish than predicted. Since Powell’s earlier transparency and dovish heart rescued gold from falling down, gold bulls may breathe a sigh of relief.However, we believe that this wasn’t the Fed’s last word. Inflation is likely to increase further next year; so, the US central bank, which is terribly behind the curve, could be forced to tighten its monetary policy even more. Thus, although my worries about this FOMC meeting turned out to be unnecessary, they could materialize later.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Great Santa Rally

Great Santa Rally

Monica Kingsley Monica Kingsley 16.12.2021 15:40
S&P 500 with pretty much everything else surged as the Fed didn‘t turn too hawkish. Predictably. The day of reckoning is again postponed as the central bank effectively kicked the can down the road by not getting ahead of inflation. Taper done by Mar 2022, and three rate hikes then, doesn‘t cut it. This illustrates my doubts about serious inflation figures to still keep hitting (hello latest PPI), and above all, their ability to execute this 1-year plan. If you look under the hood, they don‘t even expect GDP to materially slow down – 4.0% growth in 2022 with three hikes against 3.8% actual in Q3 2021 on no hikes. Something doesn‘t add up, and just as the Bank of England raising rates to 0.25% now, the Fed would be forced to hastily retreat from the just projected course.Yesterday‘s expectations panned out to the letter:(…) Still, I‘m looking for the Fed to be forced during 2022 to abruptly reverse course, and bring back the punch bowl. Treasuries look serene, and aren‘t anticipating sharply higher rates in the near term – not even inflation expectations interpreted higher PPI as a sign that inflation probably hasn‘t peaked yet. This isn‘t the first time inflation is being underestimated – and beaten down commodities (with copper bearing the brunt in today‘s premarket) reflect that likewise. Only cryptos are bucking the cautious entry to the Fed policy decision, and decreasing liquidity, in what can still turn out as a lull before another selling attempt.I think that the overly hawkish Fed expectations are misplaced, and that the risk-on assets would reverse the prior weakness – both today and in the days immediately following, which is when the real post-Fed move emerges. Odds are that it would still be up across the board. Yes, I‘m looking for the Fed speak to be interpreted as soothing – as one that would still result in market perceptions that the real bite isn‘t here yet, or doesn‘t look too real yet. Big picture is that public finances need inflation to make the debt load manageable, and that ample room to flex hawkish muscles isn‘t there (as retail data illustrate).Markets are interpreting yesterday as the punch bowl effectively remaining in place, and crucially, copper is participating after the preceding weakness. The metal with PhD in economics has been hesitating due to the darkening real economy prospects even though manufacturing data aren‘t a disaster. Consumer sentiment isn‘t though positive, and inflation expectations among the people aren‘t retreating as much as bond spreads would show. The red metals is balancing out the economic prospects in favor of participating in the renewed rush into commodities – the super (let alone secular) bull run isn‘t over by a long shot. Stockpiles are tight, and whatever the odds of the infrastructure bill being passed any time soon, copper isn‘t budging. That‘s great for real assets across the board.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 reversal is to be trusted, and the advance was very solidly taken part in. With not too much willing sellers, the advance will likely moderate today, but still continue. The bull hasn‘t topped, has been my thesis for weeks.Credit MarketsHYG celebrations are ushering in the next risk-on phase – credit markets are confirming. The too hawkish Fed worry is in the rear view mirror, and many assets can run once again, the time is still right.Gold, Silver and MinersPrecious metals downside was indeed limited, and the solid upswing I called for, materialized. Now, let‘s wait for the reaction of this catalyst with more inflation, for the juiciest results...Crude OilCrude oil is once again readying the upswing – the conditions are in place for $72 to give in shortly. Similarly, oil stocks haven‘t peaked, and are merely consolidating.CopperKey vote of confidence is coming today from copper – the red metal would very willingly participate in a fresh commodities upswing. It‘s been ushered in already, actually.Bitcoin and EthereumBitcoin and Ethereum look to have found the bottom as well – what kind of corrective pullback would we get? I‘m not looking for one overly deep and testing yesterday‘s lows.SummaryBears have thrown in the towel, and rightfully so – another instance of the Fed crushing the puts. Being between a rock and a hard place, with midterms approaching, infrastructure bill birthing troubles, the central bank‘s room to act isn‘t really too large. FOMC has met market expectations, and still remained behind the curve on inflation. On top, I‘m looking for them to have to reverse course during 2022 – I‘ve argued the case macroeconomically in the opening part of today‘s report. Back to the inflation trades – long live real assets and the not yet having topped S&P 500 (don‘t look at me, Russell 2000)!Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US Fed Actions 1999 to Present – What's Next? - Part II - 15.12.2021

US Fed Actions 1999 to Present – What's Next? - Part II - 15.12.2021

Chris Vermeulen Chris Vermeulen 16.12.2021 08:53
Part II Let's continue to explore the past 20 years of US Fed actions. I believe the US Fed has created a global expansion of both economies and debts/liabilities that may become somewhat painful for foreign nations – and possibly the US. Reading The Data & What To Expect in 2022 And Beyond In the first part of this research article, I highlighted the past 25 years of US Fed actions related to the DOT COM bubble, the 9/11 terrorist attack, the 2008-09 US Housing/Credit crisis, and the recent COVID-19 virus event. Each time, the US Federal reserve had attempted to raise interest rates before these crisis events – only to be forced to lower interest rates as the US economy contracted with each unique disruption. The US Fed was taking what it believed were necessary steps to protect the US economy and support the global economy into a recovery period. Sign up for my free trading newsletter so you don’t miss the next opportunity! The following few charts highlight the results of the US Fed's actions to keep interest rates extremely low for most of the past 20 years. I want to highlight what I believe is an excessive credit/debt growth process that has taken place throughout most of the developing world (China, Asia, Africa, Europe, South America, and other nations). At the same time, the US has struggled to regain a functioning growth-based economy absent of US Federal Reserve ZERO interest policies and stimulus. Extreme Growth Of World Debt (excluding the US) This Rest Of The World; Debt Securities & Loans; Liabilities chart highlights the extreme, almost parabolic, growth in debt and liabilities that have accumulated since 2005-06. If you look closely at this chart, the real increase in debt and leverage related to global growth started to trend higher in 2004-05. During this time, the US housing market was on fire, which likely pushed foreign investors and foreign housing markets to take advantage of this growing trend in US and foreign real estate. This rally in speculative investments, infrastructure, and personal/corporate debt created a huge liability issue throughout many developing nations. Personal and Corporate debt levels are at their highest levels in decades. A recent Reuters article suggests global debt levels have risen in tandem with real estate price levels and is closing in on $300 Trillion in total debt. (Source: fred.stlouisfed.org) GDP Implicit Price Deflator Rallies To Levels Not Seen Since 1982~83 The rally in the US markets and the incredible rise of inflation over the past 24 months have moved the consumer price levels higher faster than anything we've seen over the past 50+ years. We've only seen price levels rise at this pace in the 1970s and the early 1980s. These periods reflected a stagflation-like economic period, shortly after the US Fed ended the Gold Standard. This was also a time when the US Federal Reserve moved the Fed Funds Rate up into the 12% to 16% range to combat inflationary trends. If the GDP Implicit Price Deflator moves above 5.5% over the next few months, the US Fed may be forced to take stronger action to combat these pricing issues and inflationary trends. They have to be cautious not to burst the growth phase of the markets in the process – which could lead to a very large deflationary/deleveraging price trend. (Source: fred.stlouisfed.org) We need to focus on how the markets are reacting to these extreme debt/liability trends and extreme price trends. The markets have a natural way of addressing imbalances in supply/demand/pricing functions. The COVID-19 virus event certainly amplified many of these issues throughout the globe by disrupting labor, supply, shipping, and manufacturing for a little more than 12+ months. The future decisions of the US Federal Reserve will either lead to a much more orderly deleveraging/devaluation process for the US and global markets – supporting the natural economic functions that help to process and remove these excesses. Or, the US Federal Reserve will push interest rates too high, too fast, and topple the fragile balance that is struggling to process the excesses throughout the global markets. What does this mean? I believe this data, and all the charts I've shared with you in this research article, suggest the US Fed is trapped in a very strenuous position right now. I'll share more information with you regarding my predictions for December 2021 and 2022 in the third part of this article. I will also share my proprietary Fed Rate Modeling System's results in Part III of this article and tell you what I expect from the US Federal Reserve and US stock markets. WANT TO LEARN MORE ABOUT HOW I TRADE AND INVEST IN THE MARKETS? Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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. If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio. Have a great day! Chris VermeulenChief Market Strategist
Fading the Rally

Fading the Rally

Monica Kingsley Monica Kingsley 17.12.2021 15:44
S&P 500 made intraday ATHs, but the upswing was sold into heavily – pre-FOMC positioning raising its head? Bonds didn‘t crater, and the risk-off move wasn‘t all too pronounced. Tech weakness was the key culprit, with value barely hanging onto opening gains. Russell 2000 breaking below its Wednesday‘s open nicely illustrates how late in the topping process we are. What is needed for the upswing to go on, is tech leading the daily charge once again – and it remains to be seen for how long and to what degree would value be able to participate. I‘m taking today‘s S&P 500 weakness as squaring the prior quick long gains, which felt practically as a short squeeze. Now, we‘re working through the faster taper impact, not having shaken the news off yet. We‘re though getting there, if precious metals seeing through the fresh policy move inadequacy, and commodities likewise, are any clue. As I wrote yesterday: (…) pretty much everything else surged as the Fed didn‘t turn too hawkish. Predictably. The day of reckoning is again postponed as the central bank effectively kicked the can down the road by not getting ahead of inflation. Taper done by Mar 2022, and three rate hikes then, doesn‘t cut it. This illustrates my doubts about serious inflation figures to still keep hitting (hello latest PPI), and above all, their ability to execute this 1-year plan. If you look under the hood, they don‘t even expect GDP to materially slow down – 4.0% growth in 2022 with three hikes against 3.8% actual in Q3 2021 on no hikes. Something doesn‘t add up, and just as the Bank of England raising rates to 0.25% now, the Fed would be forced to hastily retreat from the just projected course. Markets are interpreting yesterday as the punch bowl effectively remaining in place, and crucially, copper is participating after the preceding weakness. The metal with PhD in economics has been hesitating due to the darkening real economy prospects even though manufacturing data aren‘t a disaster. Consumer sentiment isn‘t though positive, and inflation expectations among the people aren‘t retreating as much as bond spreads would show. The red metals is balancing out the economic prospects in favor of participating in the renewed rush into commodities – the super (let alone secular) bull run isn‘t over by a long shot. Stockpiles are tight, and whatever the odds of the infrastructure bill being passed any time soon, copper isn‘t budging. That‘s great for real assets across the board. The reason I quoted the above copper part, is the importance of its yesterday‘s move – not too hot, not too cold in pursuing the broader commodities. Keeping above $4.28 with ease today, would be an important signal that the bears aren‘t able to step in convincingly, including in stocks. Oil would sort itself out above $71 while gold and silver would extend their preceding gains today. All in all, stocks would join early next week, and apart from bonds not going more risk-off, Ethereum outperformance would be another confirmation of a broader risk-on upswing to happen. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 downside reversal isn‘t to be trusted on a medium-term basis – but the downswing hasn‘t run its course, looking at volume. Good Nasdaq showing is sorely missing. Credit Markets HYG retreat while the quality debt instruments stayed more or less flat, is concerning for today – and for Monday, should we get follow through in bonds later on. Given the volume comparison, it‘s not certain in the least, which would set up conditions for a broader rally early next week. Gold, Silver and Miners Precious metals downside is clearly over, and a fresh upswing well underway. Correction in equities is marginally helping, and the reaction of Fed‘s underwhelming move with more inflation news, would be the juiciest catalyst. Crude Oil Crude oil is building up the springboard once again – the current consolidation including in oil stocks, would be resolved to the upside next week. We haven‘t seen a genuine trend change in Nov. Copper Key vote of confidence has come from copper – more willing participation from the red metal is called for next (as a minimum, not losing momentum vs. CRB Index). Bitcoin and Ethereum Bitcoin and Ethereum haven‘t kept Wednesday‘s gains, and could very well provide an early sign of buying appetite more broadly returning. Summary Bonds remain in wait and see mode, and aren‘t as bearishly positioned as stocks at the moment. Neither are precious metals or commodities, raising the odds of a bullish resolution to the S&P 500 rally that‘s been faded. The usual constellation is what‘s required – recovering bonds taking the pressure off tech, mainly. Ideally accompanied by solid HYG outperformance, value rising, copper extending gains, and Ethereum doing better than Bitcoin. Tall order, especially for today – but nothing unsurmountable for say Monday-Tuesday as argued for in detail in today‘s report. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Gold and Silver Takeoffff... uh, No..

Gold and Silver Takeoffff... uh, No..

Mark Mead Baillie Mark Mead Baillie 20.12.2021 08:40
The Gold Update by Mark Mead Baillie --- 631st Edition --- Monte-Carlo --- 18 December 2021 (published each Saturday) --- www.deMeadville.com 'Twas a week of hope for the precious metals, Gold therein rising low-to-high from 1753 to 1816 (+3.6%) and Silver per same from 21.41 to 22.69 (+6.0%). But given Gold is never really supposed to stray too far from the 1780s, let alone Silver be allowed to do anything material but decline, both precious metals eked out immaterial weekly gains. Gold settled yesterday (Friday) at 1799, +0.9% net for the week, and Silver at 22.36, +0.7% net. Indeed a net snoozer of a week: â–  Even as the Swiss Franc saw its linear regression trend (21-day basis) rotate further to positive... â–  Even as the Bond's price moved to a two-week high... â–  Even as the S&P's MoneyFlow for the week values the Index 120 points lower than 'tis... â–  Even (more broadly) as the U.S. money supply since March 2020 has averaged an increase of $1 trillion every 93 trading days... â–  Even as the Federal Reserve again alerted the world that 'tis preparing to raise rates; (they can't be outdone by the Bank of England having just so done, even as the European Central Bank remains hand-wringing): we're actually thinking the Fed terminates the tapering and pulls the trigger in its 26 January Policy Statement... "Sorry folks, but we had to do it, else your stick of butter is gonna cost ten bucks." BOOM! And with respect to the latter, as you regular readers well know, the increasing of FedFunds rates was very precious metals-positive during 2004-to-2006 and on balance Gold-positive from 2015-to-2018. Yes even as we've all these historically very Gold-positive events in play, 'tis low that the precious metals continue to lay. "Well mmb, the dollar refuses to die..." Duly noted there, Squire. As we've been saying, market dislocations are the "in thing" these days. Fundamentals have been flushed down the loo, but at least we've quantitative and technical analysis to see us through. For again we quip -- even as goofball-wacko as market correlations have become -- prices are never wrong, their ebbing and flowing still in play, which for the trader we hope leads the correct way: "Don't dare think, else you'll sink!" (That of course courtesy of "The Trend is Your Friend Dept."). Either way, these are extraordinarily challenging trading days! Did you know that the EDTR ("expected daily trading range") of the S&P 500 right now is 67 points? The average annual trading range of the S&P from 1993-1995 was 47 points per year with an average annual percentage tracing of 11%: this year the S&P is tracing a range that averages better than 5% per month! Again analogous to a snake in its death throes. And yet the precious metals remain a disappointment, (save to "The M Word" crowd). Recall "Gold Forecast High Goes Bye-Bye" penned back on 02 October per nixing our 2401 price forecast high for this year: "...The more likely scenario shall well be Gold just sloshing around into year-end, trading during Q4 between 1668-1849..." We'd hoped to have been wrong about that, but with just two weeks to run in 2021, 'tis exactly what's happened. Indeed you can see it "happening" (or better stated "not happening") here across Gold's weekly bars from a year ago-to-date. A snoozer indeed, be it this past week or past year, the current parabolic Long trend (blue dots) completely bereft of price actually rising: And as an added holiday treat (hardly), here is our like (rarely posted) graphic for Silver, unable to maintain her short-lived parabolic Long trend, indeed now Short (red dots). Rather, a truly tarnished treat, one has to say, her appearing none too festive: But as crooned Neil Young back in '70 "Don't let it bring you down..."as we've a ray of technical hope for Gold into year-end; ('course, fundamental hope for Gold springs eternal). This next chart displays Gold by the day from mid-year-to-date. In the graphic's lower panel is a favoured technical study of the trading community, the mouthful MACD ("moving average convergence divergence"). Of interest is the MACD having just confirmed a crossing to positive. And whilst hindsight isn't future-perfect, it is a useful predictor in forming a reasonable near-term target for Gold, as follows. This is Gold's 13th positive MACD crossover since 26 March 2020. The "average maximum" price follow-through of the prior 12 positive crossovers is +87 points within an average signal duration of 27 trading days, (essentially within five weeks). Thus from the confirmation price of 1799, an average 87-point rise would put Gold at 1886; (more conservatively, the "median maximum" price follow-through across those 12 prior occurrences is +57 points, which if met on this run would find Gold at 1856). So with no formidably recent structural overhead resistance -- plus Gold's penchant to have put in positive Decembers in four of the past five years -- a run up to test the denoted 16 November high of 1880 makes some sense, prudent cash management, as always, taking precedence: 'Course, the biggest "positive" (if you will) of the week was the aforementioned Old Lady of Threadneedle Street raising her benchmark interest rate by 150% from 0.10% to 0.25%. (Dare the 1st Earl of Halifax -- one Charles Montagu, who in 1694 devised establishing William Paterson's 1691 proposal for creating the BOE -- flip his wig). Meanwhile across the channel, the ECB looks to curtail its "emergency" asset purchases, but nonetheless is assessing other stimulus measures. No rate hike there. Certainly neither in China as economic consumption and the property market continue to weaken. "Got Dollars?" For indeed as you already well know lest you've been in a hole, the StateSide FedFolks look to bring their Bank's Funds rate up into the 0.75%-to-1.00% target range by the end of next year. And as noted, we think they'll initially move on 26 January, barring an excessive bout of "Oh my! Omicron!" Oh, and from the "Oh By The Way Dept." President "Jumpin' Joe" Biden just signed the $2.5 Trillion Dollar Debasement Declaration so that TreaSec Janet "Old Yeller" Yellen can keep paying the nation's debt obligations and bills through most of next year. For some perspective: the U.S. money supply from 02 January 1998 to 09 September 2005 grew by $2.5 trillion, (a pace of $1 trillion per 802 trading days) during which time the price of Gold increased by 55%. Today (as previously noted), the money supply is increasing at a an average rate of $1 trillion per just 93 trading days, but terrifically under-owned Gold basically "ain't done squat" (technical term). Just in case yer scorin' at home. Speaking of scoring, the Economic Barometer's strength through November has run out of puff thus far in December as we see here: Notable Baro improvements from last week's set of 15 incoming metrics include November's Capacity Utilization and Building Permits amongst other higher housing measures; but the month's growth in Industrial Production slowed significantly, as did Retail Sales. And whilst December's New York State Empire Index marginally gained ground, the Philly Fed Index more than halved what November's had found. And oh yes, there was also wholesale inflation for November, the Producer Price Index recording an annualized pace of +9.6%: which makes the old riddle about "How many zeros can fit on a Zimbabwean banknote?" not as funny as once 'twas. But 'tis not to worry, the FOMC having just stated that "...Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation..." As to how many rising Baby Blue dots does a consistent trend make, let's turn to our two-panel graphic for Gold's daily bars from three months ago-to-date on the left and those for Silver on the right. The respective rightmost up turns from the -80% axes are generally harbingers of higher prices, (and to wit the MACD study for Gold earlier shown). But Friday's rejective price action does initially breed some cause for concern: "The M Word" crowd? The quadruple-witch? Both? We display, you assay: Next we've the 10-day Market Profiles for Gold (below left) and Silver (below right). To be sure, by this view Gold's infinite 1780s appear supportive, whereas poor ole Sister Silver's array is a congested display: Let's close with three mentions of inflation: â–  Dow Jones Newswires "reported" this past week that a factor in determining the duration of inflation is how we feel about it, which in turn shall guide the Fed's interest rate decisions; (folks are well-paid to write this stuff). Here's what we feel: be it cost-push or demand-pull or both, when the money supply increases 33% in less than two years, 'tis game over; â–  From the same creative bunch also came the notion that because increasing inflation effectively makes for negative real rates of interest, the FOMC by not (yet) voting to raise rates is therefore actually stimulating the economy. Yeah, we get that, but such rationale may be the biggest infatuative policy-wonk hot-air crush ever; â–  Speaking of which, here's an inflation-induced blast: we read that the rather wealthy Speaker of the U.S. House of Representatives is not supportive of a proposed ban on Congressional members from owning individual equities, her stating that "We’re a free-market economy": how's that for a 180° turn? (Maggie Thatcher, you don't know what you're missing). But don't you miss out in getting some Gold and Silver on the cheap before inevitably they leap. True, they had a rather feeble takeoff attempt this past week. But once they really get airborne, that'll be our kind of inflation, right there! Cheers! ...m... www.deMeadville.com www.TheGoldUpdate.com
Not Only Gold Lacks Energy – We All Do Now

Not Only Gold Lacks Energy – We All Do Now

Arkadiusz Sieron Arkadiusz Sieron 17.12.2021 15:19
  First a pandemic, then inflation, and now an energy crisis. Should you buy gold when preparing for the winter? Brace yourselves, winter is coming! And this time I’m deadly serious, as there is a global energy crisis. Not only does gold lack energy to fuel its rally right now, but people from all over the world lack it to fuel their operations and to heat their houses. Apparently, the coronavirus pandemic wasn’t enough, so we also have to deal with inflation, supply bottlenecks, and the energy crisis. I guess there is nothing else to do now but wait for the frogs to start falling from the sky. But let’s not give the gods ideas and focus on the energy crisis today. What is it about? A picture is worth a thousand words, so please take a look at the chart below, which presents the Dutch Title Transfer Facility, Europe’s leading benchmark for natural gas prices. As you can see, future prices for European natural gas have skyrocketed to a record level in October 2021, surging several times from their low in May 2020. The persistence and global dimension of these price spikes are unprecedented, as natural gas prices have also surged in Asia and America (although to a lesser degree). What caused such a spike? Well, as a trained economist, I cannot resist answering that it’s a matter of demand and supply! Yeah, thank you, Captain Obvious, but could you be a little more specific? Sure, so on the demand side, we have to mention a fast recovery from the epidemic and cold fall that increased the use of energy. Oh, and don’t forget about the ultra-low interest rates and the increase in the money supply that boosted spending on practically everything. The increased demand for energy is hardly surprising in such conditions. On the supply side, there were unpredictable breakdowns of gas infrastructure in Russia and Norway that decreased deliveries. The former country reduced its exports due to political reasons. What’s more, the reduction in the supply of CO2 emission rights and unfavorable weather didn’t help. The windless conditions in Europe generated little wind energy, while drought in Brazil reduced hydropower energy. More fundamentally, the decline in energy prices in response to the economic crisis of 2020 prompted many producers to stop drilling and later supply simply didn’t catch up with surging demand. You can also add here the political decisions to move away from nuclear and carbon energy in some countries. Last but not least, the butterfly’s wings flapped in China. Coal production in that country plunged this year amid a campaign against corruption and floods that deluged some mines. Middle Kingdom therefore began to buy significant amounts of natural gas, sharply increasing its prices. China’s ban on importing coal from Australia, of course, didn’t help here. Great, but what does the energy crisis imply for the global economy and the gold market? First, shortages of energy could be a drag on global GDP. The slowdown in economic growth should be positive for gold, as it would bring us closer to stagflation. Second, the energy crisis could cause discontent among citizens and strengthen the populists. People are already fed up with pandemics and high inflation, and now they have to pay much higher energy bills. Just imagine how they will cheer when blackouts occur. Third, the surge in natural gas prices could support high producer and consumer inflation. We are already observing some ripple effects in the coal and oil markets that could also translate into elevated CPI numbers. Another inflationary factor is power shortages in China, as they will add to the supply disruptions we are currently facing. All this implies more persistent high inflation, which should provide support for the yellow metal as an inflation hedge, although it also increases the odds of a more hawkish Fed, which is rather negative for gold. It’s true that a replay of the 1970s-like energy crisis is remote, as today’s economies are much less energy-consuming and dependent on fossil fuels. However, the worst is possibly yet to come. After all, winter hasn’t arrived yet – and it could be another harsh one, especially given that La Niña is expected to be present for the second year in a row. Meanwhile, gas stocks are unusually low. You can connect the dots. So far, gold has rather ignored the unfolding energy crisis, but we’ve already seen that market narratives can change quickly. It’s therefore possible that prolonged supply disruption and high inflation could change investors’ attitude toward the yellow metal at some point. The weak gold’s reaction stems from the limited energy crisis in the US and from the focus on the Fed’s tightening cycle. But investors’ attention can shift, especially when the Fed starts hiking federal funds rate. Brace yourselves! Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Dollar‘s Warning Signal

Dollar‘s Warning Signal

Monica Kingsley Monica Kingsley 20.12.2021 15:57
S&P 500 fading the FOMC rally went a bit too far – credit markets aren‘t panicking, so I doubt a fresh lasting downtrend is starting here. Chop, yes – the 4,720 area is proving a tough nut to crack, but it would be overcome. If there are two arguments in favor, it‘s the financials and HYG – the likely rebound in the former, and Friday‘s resilience in the latter. Given that Thursday‘s spurt to 4,750 evaporated so fast, I‘m not looking for a stellar year end. Positive given where we‘re trading currently, sure. Markets are now grappling with faster Fed tapering (which has opened the way to a rate hike in Q2 2022), getting slowly more afraid of fresh corona restrictions, and dealing with inflation that‘s not going anywhere. Outpacing wage growth, with real yields being deeply negative (no, 10-year Treasury yield at even 2% doesn‘t cut it – that‘s my 2022 target, by the way), the administration would be hard pressed in the year of midterms to counter the corrosive inflation effects on poll numbers. And the Fed expects to keep tightening when the real economy is already suffering from contracting liquidity as seen also in strengthening dollar? The central bank will have a hard time taming inflation, and in my view won‘t succeed – the persistently high inflation rates are going to be with us for years to come, and outpacing wages. Corona response is another uncertainty, and given the APT performance, the odds of seeing economic activity (just at a time when supply chains would need to keep working off prior setbacks) restricted, have increased. Similar to the recent high PPI reading, this is one more argument for why inflation isn‘t receding in the short run – not when demand isn‘t likewise being destroyed. As if consumer sentiment weren‘t struggling already... Still, equities are poised to extend gains in 2022, and I‘m looking for a volatile but positive year. 5,200 in Dec 2022 isn‘t out of the question – with large cap tech, financials and energy doing particularly fine. Real rates would remain negative, and precious metals would love the Fed slamming on the tightening breaks, and bringing back the punch bowl somewhat. If you look at the flattening yield curve, it‘s clear evidence of market fears (I call that certainty as that‘s what they excel at – the 1995 soft landing was a notable exception) of the Fed overdoing the tapering & rate hikes. Given all the inflation still ahead, and the expected fiscal-monetary policies working against each other (yes, more handouts), commodities would have another great year. So much for the big picture 2022 predictions. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 on the defensive, but the bullish case isn‘t lost. Some sideways trading of today‘s volatility is likely to preceed the upswing – we aren‘t rolling over to a 5-10% correction now. Credit Markets HYG retreat could have been a lot worse, and it‘s a good sign bonds aren‘t panicking. Just the junk ones would need to outperform the quality ones to drive a good stock market day. For now, bonds remains on guard. Gold, Silver and Miners Precious metals decided to make a measured upswing – this isn‘t a real reversal. Pressure to go higher is building up, and rates rising a little before the Fed moves, won‘t cut it. When liquidity conditions and corona fears ease a little, look for a much steeper upswing. Crude Oil Crude oil is trapped in the omicron uncertainty – quite resilient, which is a testament to the overwhelming pressure for prices to keep rising. Waiting for some fears to be removed before the fundamentals sink in again. Copper Copper is leaning to the bullish side of the spectrum – it certainly isn‘t disappointing. The low volume hints at little willingness to sell – an attempt to spike shouldn‘t be surprising next. Bitcoin and Ethereum Bitcoin and Ethereum weakness today is there, mirroring commodities – but the decline isn‘t in the disastrous category. Wait and see with a whiff of preliminary caution – that‘s all. Summary S&P 500 and oil are feeling the omicron response pinch – the worries boosted by Netherlands lockdown Sunday. Corona remains the wildcard, and markets are ignoring its relatively mild symptoms while focusing on case count. Tech is likely to do better than most of value while yields aren‘t pressured to rise fast. For a moment, inflation is receding from the spotlight, but I‘m looking for it to come back. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Powell Sent Gold Above $1,800 – But Only for a Short While

Powell Sent Gold Above $1,800 – But Only for a Short While

Arkadiusz Sieron Arkadiusz Sieron 21.12.2021 13:34
Finally, Powell admitted higher inflation risks and gold jumped above $1,800. Before anyone noticed, however, it plummeted below the key level again. Who are you, Mr. Powell: a reptilian or a human? A dove or a hawk? Since we all know the answer to the first question, let’s focus on the second one. Markets decided that Powell’s last press conference was rather dovish, but a careful reading doesn’t support this view. The main dovish signal was Powell’s emphasis that quantitative easing tapering and interest rate hikes are separate issues, as the tightening cycle criteria are stricter. So, the first rate hike may not come immediately after the end of tapering, which is scheduled for mid-March. Even if they are separate, we shouldn’t expect a long break between the end of quantitative easing and the first rate hike. This gap will definitely be shorter than in 2014-2015. In the last tightening cycle, the Fed ended asset purchases in October 2014, while the first increase in the federal funds rate occurred in December 2015. Powell himself, however, pointed out that the economy is much stronger, while inflation is much higher, so a long separation before interest rate hikes is not likely: I don't foresee that there would be that kind of very extended wait at this time. The economy is so much stronger. I was here at the Fed when we lifted it off last time and the economy is so much stronger now, so much closer to full employment. Inflation is running well above target and growth as well above potential. There wouldn't be the need for that kind of long delay (…) The last cycle that was quite a long separation before interest rates, I don't think that's at all likely in this cycle. We're in a very, very different place with high inflation, strong growth, a really strong economy (…) So this is a strong economy, one in which it's appropriate for interest rate hikes. In fact, this delay may be very short. On Friday, Fed Governor Chris Waller said that the interest rate increase will likely be warranted “shortly after” the end of asset purchases, possibly even at the FOMC meeting in March 2022. Another hawkish message sent by Powell was his acknowledgment of stronger inflation risks, i.e., that inflation may turn out to be more lasting than expected now: There’s a real risk now, we believe, I believe, that inflation may be more persistent and that may be putting inflation expectations under pressure. And that the risk of higher inflation becoming entrenched has increased, it’s certainly increased. I don’t think it’s high at this moment, but I think it’s increased. And I think that’s part of the reason behind our move today, is to put ourselves in a position to be able to deal with that risk. Thus, the Fed has become more concerned about high inflation and has timidly started reacting to it. The acceleration in the pace of tapering was, except for the more hawkish rhetoric, the first step – but not the last one.   Implications for Gold The yellow metal responded surprisingly well to the last FOMC meeting, at which the Fed announced a more aggressive pace of tapering and rate hikes next year. As the chart below shows, gold rose almost $40, or more than 2%, from Wednesday to Friday last week, jumping again above the key level of $1,800. Perhaps investors expected even more forceful actions. After all, despite all the hawkish reaction, the Fed remains behind the curve and shows no hurry to become really proactive. Such a passive attitude is really risky, as history teaches us that high inflation doesn’t just go away on its own, but its stabilization requires a decisive tightening of monetary policy. The longer the Fed waits, the more severe reaction would be needed, which increases the odds of putting the economy into recession. All this seems bullish for gold prices. However, gold was unable to retain its position above $1,800 and declined on Monday (December 20, 2021), so gold bulls can only hope that the yellow metal will the find strength to rally next year. It’s possible if inflation wreaks more havoc in 2022, but a hawkish Fed’s rhetoric remains an important headwind for the gold market. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Santa Rally Time

Santa Rally Time

Monica Kingsley Monica Kingsley 21.12.2021 16:05
S&P 500 made a first step towards the turnaround higher in the opening part of this week. Fading the rally is being countered, and yesterday‘s omicron policy response fears are being duly reversed. For the time being, Fed‘s liquidity is still being added – the real wildcard moving the markets, is corona these days. Credit markets are in the early stages of heralding risk-on appetite as returning. As stated yesterday when mentioning my 2022 outlook: (…) Fading the FOMC rally went a bit too far – credit markets aren‘t panicking, so I doubt a fresh lasting downtrend is starting here. Chop, yes – the 4,720 area is proving a tough nut to crack, but it would be overcome. If there are two arguments in favor, it‘s the financials and HYG – the likely rebound in the former, and Friday‘s resilience in the latter. Given that Thursday‘s spurt to 4,750 evaporated so fast, I‘m not looking for a stellar year end. Positive given where we‘re trading currently, sure. Markets are now grappling with faster Fed tapering (which has opened the way to a rate hike in Q2 2022), getting slowly more afraid of fresh corona restrictions, and dealing with inflation that‘s not going anywhere. Outpacing wage growth, with real yields being deeply negative (no, 10-year Treasury yield at even 2% doesn‘t cut it – that‘s my 2022 target, by the way), the administration would be hard pressed in the year of midterms to counter the corrosive inflation effects on poll numbers. And the Fed expects to keep tightening when the real economy is already suffering from contracting liquidity as seen also in strengthening dollar? The central bank will have a hard time taming inflation, and in my view won‘t succeed – the persistently high inflation rates are going to be with us for years to come, and outpacing wages. … Similar to the recent high PPI reading, this is one more argument for why inflation isn‘t receding in the short run – not when demand isn‘t likewise being destroyed. As if consumer sentiment weren‘t struggling already... For now, the year end squaring the books trading can go on, and positive Santa Claus seasonality can make itself heard still. The crypto turn that I had been looking for on the weekend, is happening with strength today. Likewise the oil and copper recovery spilling over into silver, and the reasonably good performance returning to many value stocks too. Very constructive action. In short, the bulls have a good rebound opportunity into Christmas. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 is waking up, and odds are the move would bring it back above the 50-day moving average. Looking at the volume, it‘s as if fresh sellers were nowhere to be found. Credit Markets HYG made an attempt to come back, and comparing it to the quality end of the bond spectrum results in a good impression – one of risk-on return approaching. Gold, Silver and Miners Precious metals downswing isn‘t to be taken too seriously – odds are strong that gold and silver would ride the risk-on return with gains added. It‘s about liquidity not being withdrawn by the market players. Crude Oil Crude oil recoved from the omicron uncertainty – to a good degree, which is a testament to the overwhelming pressure for prices to keep rising. The $72 area setback could be coming back into play still this week, if nothing too surprising happens. Copper Copper is leaning to the bullish side of the spectrum, driven not only by positive fundamentals and Chile elections. The low volume indeed hinted at little willingness to sell – so, let‘s look for a good attempt to rise next. Bitcoin and Ethereum Bitcoin and Ethereum weakness is being decisively rejected, mirroring commodities – the decline indeed hasn‘t been in the disastrous category. The bulls clearly want to move. Summary S&P 500 and oil are rebounding from the omicron response pinch – and it‘s good we see cryptos doing the same. Corona wildcard has calmed down a little, and market breadth is making baby steps to improve. In this environment, high beta assets look poised to erase prior setbacks a little faster today, and can keep those gains unless a fresh bad headline strikes. One more tailwind – at least when it comes to real assets, for sure – is inflation coming back to the spotlight, which is what we‘ll have to wait for some more time still. But it‘ll happen. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
When All Is Said and Done

When All Is Said and Done

Monica Kingsley Monica Kingsley 22.12.2021 15:56
S&P 500 duly rallied on broad strength, and credit markets performance bodes well for all risk-on assets. Now a little consolidation after yesterday‘s steep gains is ahead, but I don‘t see it as derailing future gains. The stock bull run isn‘t over, and doesn‘t need the infrastructure bill for its further advance, price action shows. The VIX is calming down, now around 21 with further room to decline still – at least as far as the remainder of 2021 is concerned. Commodities remain in rally mode after the recent correction, and crude oil sending a bullish message (and not one of fear) is a welcome sign. The same goes for copper moving in sync with the rest of the commodities – and that has positive implications for silver too. Precious metals though still remain a patience trade, where the risks of being out of the markets outweight those of being in – it‘s a bet on the Fed making a wrong tapering / tightening move – with the market figuring out so beforehand. It sure would come as the compressing yield spreads reveal that is the greatest fear, but we aren‘t there yet. Finally, cryptos cautious mood today illustrates the certainly less exciting session just ahead than was the case yesterday. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 has woken up, and indeed surpassed the 50-day moving average. The lower volume isn‘t an issue, but a little consolidation is ahead today – not a steep rally continuation. Credit Markets HYG jumped higher in a giant risk-on nod that is further confirmed by the quality bonds performance. Again, I‘m looking for a little consolidation here today as well. Gold, Silver and Miners Gold downswing isn‘t to be taken at all seriously – I‘m looking for more gains in both the yellow and white metals, at their own and relatively slow pace. The countdown to Fed policy mistake and inflation returning to the limelight, is on. Crude Oil Crude oil scored a nice upswing, oil stocks confirmed as well the return of strength into the stock market, and both black gold and S&P 500 can keep rising together over the next days. Chances are the $72 area setback could be coming back into play still this week. Copper Copper keeps agreeing with the risk-on turn, and is certainly primed to go much higher over the nearest weeks and months. Similarly to uranium, I remain bullish on the sector, especially since copper, silver, nickel and lithium are all green economy preconditions. Bitcoin and Ethereum Bitcoin and Ethereum time to consolidate yesterday‘s gains, is here – and I‘m not looking for a bullish picture based on Ethereum performance. Sideways to a little down, that‘s the most likely outcome before the bulls move again. Summary Consolidation of yesterday‘s steep S&P 500 and commodity gains is ahead for today, but the Santa Claus rally is by no means over. Even if oil and cryptos hesitate a little, the constructive message from bonds and copper is overpowering that in my view. As explained in detail within the opening part of today‘s analysis, the bulls have to odds to keep moving – and will likely take advantage thereof before the year is over. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Gold Price Forecast: XAU/USD struggles at $1795 amid a mixed-market mood

Gold Price Forecast: XAU/USD struggles at $1795 amid a mixed-market mood

FXStreet News FXStreet News 22.12.2021 16:07
Gold advances during the New York session, some 0.19%. A mixed market mood and broad US dollar weakness keep investors using gold to hedge higher inflation as US PCE data looms. XAU/USD Technical Outlook: Neutral-bearish, unless gold bulls reclaim $1,793. Gold (XAU/USD) edged higher during the New York session, trading at $1,791.63 at the time of writing. The market sentiment is upbeat, though US equity indices fluctuate between gainers and losers. Additionally, the US dollar weakened across the board, while US T-bond yields, with the 10-year benchmark note, retreats after testing the 1.50% threshold in the overnight session. Factors like investors assessing the economic impact of the Omicron variant and the delay of the US President Joe Biden Build Back Better agenda dented market participants’ mood. That said, the US Dollar Index, which measures the greenback’s value against a basket of six currencies, edges lower 0.27%, down to 96.25. Furthermore, as previously mentioned, the 10-year Treasury yield is down some three basis points, at 1.457%, from 1.487% reached on Tuesday’s session. Before Wall Street opened, the US economic docket featured one of the last waves of data of 2021. The US Bureau of Economic Analysis reported that the US economy in the third-quarters grew at an annualized pace of 2.3%, higher than the 2.1% estimated. Moreover, the Personal Consumption Expenditures Prices rose by 5.3%, according to expectations. In the overnight session, gold remained subdued in a narrow range, between $1,785-$1,795. In the mid-European session, the non-yielding metal trended up, though faced strong resistance at the 100-hour simple moving average (SMA), retreating at press time to current levels. That said, unless XAU/USD decisively breaks above $1,793, the precious metal would remain bearish biased. XAU/USD Price Forecast: Technical outlook The XAU/USD daily chart depicts indecision, as shown by the daily moving averages (DMAs) almost “horizontally” contained in the $1,787-$1,800 range. From a market structure perspective, unless gold bulls reclaim $1,792.95, the bias is bearish, though to resume the trend, USD bulls would need a daily close below the December 16 pivot low at $1,775.40. On the way south, the first support would be the December 16 low at $1,775.40. A break beneath that level would exert downward pressure on the precious metal, exposing crucial support areas. The next one would be the December 2 low at $1,761.72, followed by the December 15 cycle low at $1,752.44 To the upside, the first resistance would be the December 8 cycle high at $1,792.95. A clear break of that level would immediately expose $1,800, followed by the September 3 swing high at $1,834.
Why I Like the Debt Ceiling

Why I Like the Debt Ceiling

David Merkel David Merkel 07.10.2021 05:22
Picture Credit: WyldKyss || The greatest mistake of economics is thinking we can influence the economy to make it do more over the long haul than it otherwise would do. I am not a liberal; I am not a conservative. I wish the Balanced Budget Amendment had been passed in the1970s, such that we would not be making such grandiose as a result of legislative/bureaucratic tinkering. I think the government should not try to solve economic issues, and should focus on Issues of justice. The US government has never done well managing the economy. Set some basic boundaries to define fraud, and then let the economy run. But in the present environment, i like anything that hinders the US Government from borrowing more. Most government spending reduces real GDP. You want infrastructure? Build it locally. Tax the area needing it, and see if they really want to pay the price. Don’t do it at the Federal level, where no one understands what is in any omnibus spending bill. It is all a waste, where those in Congress engage in a form of fraud telling their constituents what they got for them. If they really needed it, their state, county, or city should have done it. Projects should be done at the lowest level of government possible. Think of the situation regarding ports. We have spent 10x+ more money on ports on the east of the US rather than the west, and far more freight comes to the west. If these decisions were not federalized, we would not make such stupid choices. Bring back the sequester. Bring back anything that restrains the idiocy of the Congress and the last four Presidents. The high level of debt makes the economy unstable. You want more and more crises? Keep adding to the debt. The US and the World grew faster in real terms when the rule was balanced budgets and restrictive monetary policy. As such, I appreciate any measure that restrains the ability of the US government to borrow more.
Unforced Errors

Unforced Errors

David Merkel David Merkel 09.11.2021 04:40
Photo Credit: Paul Kagame || Hail Emperor Xi, the greatest since Qin Shi Huang! Ready for a cold winter? Much of the world is not. Many places have discouraged using hydrocarbons to produce power, ostensibly for environmental goals, whether those are valid or not. Whether by the fiat of the Chinese Communist Party, or because some Eurocrats push a green agenda, many people are facing a winter where power/heat may be limited. And even if there may not be absolute shortages everywhere, higher prices for all forms of energy, will pinch the budgets of many in the lower middle class and below this winter in the Northern Hemisphere. Part of this stems from central planning. China is the easiest example. Xi Jinping has arrogated to himself more and more power over time, changing the dynamics of the Communist Party, which once at least had some factions, to a unitary party that has only one leader, Emperor President Xi. Some of it came about by eliminating corrupt rivals, but the rest from instilling fear within the Party. Almost every evening, my wife and I read the Bible together. Recently we have been going through the post-exilic portions of the Old Testament where the Jews live under the rule of the Babylonian and Medo-Persian Empires. Those rulers were typically absolute monarchs: do what I say or die! In going through Esther, my wife commented that it was stupid to have laws that cannot be altered. (The same thing is stated in the Book of Daniel.) My comment back to her was if you were an absolute monarch in that era, you were God walking on earth, and could never be wrong. Thus no decree of an Emperor could be wrong. And so it is for President Xi: everything he says is right. He may be an atheist, but to the Chinese in Red China, he is “God walking on Earth” in at least the Hegelian sense. As such, he makes a decree, and those serving him are scared to do anything more or less than he wants. But with vague directives, what does he want? Unilateral authority is particularly vulnerable to making mistakes. In the intermediate-term, China is likely to get weaker because of the increasing concentration of power of President Xi. That’s not to say that capitalist democracies can’t run off the rails, but typically with enough dissenting voices, the worst outcomes don’t usually take place. There are exceptions though. The first exception is regulators with too much discretionary authority. By pursuing one limited goal in the short-run, such as long-term environmental objectives, they may harm the interests of ordinary people in developed markets by making it hard to get food, fuel/energy, and other necessities. And applying the same rules in foreign policy, they may well condemn the developing world to permanent poverty. The developing world thinks the developed world doesn’t care. They are right, and they will ignore what their current leaders have promised in order to curry temporary favor with the developed world. Now where there is the ability to self-correct, eventually societies will remove regulators, politicians, etc. That said, some things are more entrenched than others. I speak of the cult of stimulus. What is more untouchable than the central banks? It’s hard to think of anything more unaccountable. They may technically be beholden to the local parliament, but practically, no one ever messes with them aside from despots pursuing hyperinflation (Venezuela, Turkey, Lebanon, etc.). What gores me is that the unaccountable central banks never ‘fess up to errors. Listen to this: “Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,” the Fed said in its twice-yearly Financial Stability Report released Monday.Fed Warns of Peril in Run-Up of Risky Asset Prices, Stablecoins That serial blower of bubbles, the Fed, warns us about the height of risky asset prices. Fed policy works via encouraging economic actors to borrow less or more. They have been running a more aggressive monetary policy than they ever needed to, and in the process have inflated housing prices, stocks, bonds of all sorts, private equity, etc. This is not just true of the Fed in the US, but in most developed country central banks. This was an unforced error. Monetary policy could have been tightened in mid-2020, and I mean raising the Fed funds rate, not just stopping QE. When the equity markets race to new highs so rapidly, why should any stimulus exist at all? We don’t need stimulus from Congress either. When demand is so strong that supply chains creak, buckle, and seize up, it is not time to stimulate more, rather, it is time to balance the budget. I would like to think that supply-chain troubles, inflation, and growth are all transitory. But if in an effort to force growth higher than it should be in the short-run, the growth will still be transitory, but the supply-chain troubles and inflation will persist. Beware the experts that say they run things for your good; they likely don’t know what they are doing. ============= Ending note: one more thing, beware the inflation numbers, particularly on items in short supply. If the economists reduce the weights on those things in short supply, it will artificially understate inflation.
Breaking up is hard to do

Breaking up is hard to do

David Merkel David Merkel 10.11.2021 04:04
Photo Credit: Chris Blakeley || Always optimistic when things are growing, and in the dumps when it falls apart Over the years, I have suggested that two firms should break up on a number of occasions: AIG & GE. Both are now in the process of completing their breakups. The news on GE dropped today, and I was surprised that the media did not pick up on one significant question on the GE breakup. Who gets the insurance liabilities that have been a real pain to GE even after selling off Genworth. As I tweeted: General Electric to Split Into Three Public Companies – WSJ https://t.co/BR8uXhhDVJ Notably missing from all the $GE press coverage is who has to pay off the insurance liabilities: Aviation, probably the weakest of the three. Could gore those relying on the guarantee… pic.twitter.com/qhT0y4gfXL— David Merkel (@AlephBlog) November 9, 2021 How could they miss this? I think I first suggested that GE should break up in a comment in RealMoney’s Columnist Conversation sometime back in 2005, but that is lost in the pre-2008 RealMoney file system, and exists no more. In terms of what I can show I will quote from this old post from 2008: 5) File this under Sick Sigma, or Six Stigma — GE is finally getting closer to breaking up the enterprise.� It has always been my opinion that conglomerates don’t work because of diseconomies of scale.� As I wrote at RealMoney: David MerkelGE — Geriatric Elephant4/27/2007 1:16 PM EDT First, my personal bias. Almost every firm with a market cap greater than $100 billion should be broken up. I don’t care how clever the management team is, the diseconomies of scale become crushing in the megacaps. Regarding GE in specific, it is likely a better buy here than it was in early 1999, when the stock first breached this price level. That said, it doesn’t own Genworth, the insurance company that it had to jettison in order to keep its undeserved AAA rating. Which company did better since the IPO of Genworth? Genworth did so much better that it is not funny. 87% total return (w/divs reinvested) for GNW vs. 28% for GE. A pity that GE IPO’ed it rather than spinning it off to shareholders… But here’s a problem with breaking GE up. GE Capital, which still provides a lot of the profits could not be AAA as a standalone entity and have an acceptable ROE. It would be single-A rated, which would push up funding costs enough to cut into profit margins. (Note: GE capital could not be A-/A3 rated, or their commercial paper would no longer be A1/P1 which is a necessary condition for investment grade finance companies to be profitable.) Would GE do as well without a captive finance arm (GE Capital)? It would take some adjustment, but I would think so. So, would I break up GE by selling off GE Capital? Yes, and I would give GE Capital enough excess capital to allow it to stay AAA, even if it means losing the AAA at the industrial company, and then let the new GE Capital management figure out what to do with all of the excess capital, and at what rating to operate. Splitting up that way would force the industrial arm to become more efficient with its proportionately larger debt load, and would highlight the next round of breakups, which would have the industrial divisions go their own separate ways. Position: none, and I have never understood the attraction to GE as a stock Over the years, I continued to write about GE and Genworth (I grew bearish over LTC after analyzing Penn Treaty. I was always bearish on mortgage insurance). I never thought either would do well, but I never expected them to do as badly as they did. Optimistic accounting ploys from the Welch years bit into profits of Immelt, as he was forced to reset accruals higher again and again. Overly aggressive financial and insurance underwriting similarly had to be reversed, and losses realized. After today, all but the successor firm for GE (Aviation) has a chance to do something significant, freed from the distractions of being in a conglomerate. They can focus, and maybe win. As for GE Aviation, because of the insurance liabilities they will probably receive a valuation discount. Maybe they will sacrifice and pay up, selling the liabilities to Buffett with significant overcollateralization. American International Group I first suggested that AIG break up back in 2008. Only M. R. Greenberg had the capability of managing the behemoth, and once he was gone, lower level managers began making decisions that Greenberg would have quashed, which led to short-term gains, and larger long-term losses. After AIG was taken over by the Fed, bit-by-bit they began selling off the pieces — Hartford Steam Boiler, ILFC, AIA, Alico (to MetLife), and more. They were left with a portion of the international P&C business, and the domestic life and P&C businesses. They are now planning on spinning off the domestic life companies, which will leave AIG as a P&C insurer with relatively clean liabilities (They reinsured Asbestos and Environmental with Berkshire Hathaway). Where do we go from here? Is there a lesson here? Avoid complexity. Avoid mixing mixing industrial and financial. Avoid mixing life and P&C. (Allstate is finally splitting that.) That said, there may be another lesson for the future. What of the extremely large companies that are monopolies? Some of them aren’t complex; they just dominate a large area of the economy as monopolies. Governments want to do one of two things with monopolies. They either want to break them up, or turn them into regulated utilities. Why? The government doesn’t like entities that get almost as powerful as them, so they limit their size, scope, and subject them to regulation. So be aware if you hold some of the largest companies in the US or the world, because governments have their eyes on them, and want them to be subject to the government(s). Full disclosure: long MET
An Estimate of the Future

An Estimate of the Future

David Merkel David Merkel 19.11.2021 07:49
Photo Credit: eflon || All in all, you’re just another brick in the wall… In some ways, the Federal Reserve is the whipping boy of Congress. Congress can’t decide on anything significant, so the Fed fills in the blanks, and keeps things moving, even if it creates humongous asset bubbles in the process. That is what we are facing today. Overvalued stocks, housing, corporate bonds, private equity, and more. Inflation in goods and services may be transitory, but asset inflation is a constant. Whether by QE or rate policy, the Fed tries to end the possibility of recessions by making financing cheap, and blowing asset bubbles in the process. What of the future? The Fed will be dragged kicking and screaming to tightening. It will follow the stupid Alan Greenspan highway of 25 basis points per meeting. It will be all too predictable, which has little to no impact until it is too late, creating pro-cyclical economic policy, something the Fed specializes in. The Fed will be surprised (again) to see that the long end of the yield curve does not respond to their efforts. Are they stupid? Yes. the yield curve hasn’t worked in the classical way for over 20 years. In an overindebted economy, long rates are sluggish. Can the Fed abandon the dead orthodoxy of neoclassical economics to embrace the reality of overindebted economics? I doubt it. I asked two Fed governors three years ago when the Fed would abandon the failed Neoclassical economics. They looked like dead sheep for a moment, before they gave some lame defenses of the theory that can’t account for financial markets or marketing. What I expect is that the Fed will tighten the Fed funds rate to 1.5% or so, the long end sinking, and then something blows up, and they return to the prior policy of 0% rates, and QE… failed policies that inflate asset bubbles and increase inequality. We’re in a “doom loop” where there is no way to purge this system of its errors. We would be better off under a gold standard, with stricter regulation of banks. Would we have a recession? Yes, but eventually the economy would grow again organically, without the pollution of stimulus. That said, the Federal Reserve is not the main problem. The main problem is American culture that will not tolerate severe recessions. We need recessions to liquidate bad debts that hinder the economy from growing rapidly in the future. We need to accept the boom-bust cycle, and not look to the government or central bank to moderate matters. Bank regulation is another matter, as loose regulation of banks led to extreme booms and busts, particularly between 1870-1913, and 2004-2008. Conclusion The Fed will tighten and fail, returning us to the same morass that we are in now. Financial repression via the Fed will continue to create inequality with no smoking gun. Stupid people will finger other causes, when the real cause is the Federal Reserve. We need to eliminate the Federal Reserve, and cause Congress and the Executive Branch to take responsibility for their failed policies. PS — there could be a currency panic, but I doubt it. Too many countries want to export to the US.
Estimating Future Stock Returns, September 2021 Update

Estimating Future Stock Returns, September 2021 Update

David Merkel David Merkel 16.12.2021 04:35
Image credit: All images belong to Aleph Blog This should be a brief post. At the end of the third quarter, the S&P 500 was poised to nominally return -0.64%/year over the next 10 years. As of the close today, that figure was -1.83%/year, slightly more than the -1.84%/year at the record high last Friday. The only period compares with this valuation-wise is the dot-com bubble. We are above dot-com level valuations. And if you view the 10-year returns from the worst time of the dot-com bubble to now, you can see that the results they obtained are milder than what I forecast here. Of course, a lot of what will happen in nominal terms will rely on the actions of the Fed. Will the Fed: Allow a real recession to clear away dud assets that are on life support from low rates? (Collapsing the current asset bubble)Change the terms of monetary policy, and start directly monetizing US Treasury debt? (Risking high inflation)Continue to dither with financial repression, leaving rates low, not caring about moderate inflation, with real growth zero-like. (Zombie economy — this is the most likely outcome for now) In some ways the markets are playing around with something I call “the last arbitrage.” Bonds versus Stocks. The concept of TINA (There is no alternative [to stocks]) relies on the idea that the Fed will be the lapdog of the equity markets. If stocks are high, the Fed is happy. Phrased another way, if the Fed maximizes wealth inequality, it is happy. And the Fed will be happy. They live to employ thousands of macroeconomists who would have a hard time finding real employment. These economists live to corrupt our understanding f the macroeconomy, justifying the actions of the Fed. The Fed just wants to scrape enough seigniorage to pay the staff, and keep Congress and the Administration mollified. All taken out of the hides of those who save. So with the last arbitrage… interest rates have to stay low to keep the stock market high, even if it means slow growth, and moderate and growing inflation. The likely change promulgated by the Fed today, raising the short rate by 0.75% in 2022 will likely flatten the yield curve, leading to a crisis of some sort, and push them back into QE and near-zero short rates. The stock market will have a pullback and a rally, but what of inflation? How will people act when there is no way to save for the short-run, without inflation eating away value? Brave new world. The Fed is stuck, and we are stuck with them. Gold does nothing, and would be a kinder mistress than the Fed. Better to live within strict limits, than the folly of an elastic currency. But as is true with all things in America, we are going to have to learn this the hard way. PS — As for me, I am living with value stocks, small stocks, and international stocks. Very little in the S&P 500 here.
GBPUSD arouses interest, EURUSD is consolidating near June 2020's lows

GBPUSD arouses interest, EURUSD is consolidating near June 2020's lows

John Benjamin John Benjamin 23.12.2021 08:53
EURUSD tests resistance The US dollar stalled over improved risk appetite. The pair is consolidating near June 2020’s lows. A bearish breakout would further extend the downtrend. The euro so far has found buyers at 1.1235. The bulls need to lift offers around 1.1360, the upper band of the recent consolidation range, before they could hope for a reversal. An extended rally may send the price to 1.1460. In the meantime, the RSI’s overbought situation could briefly limit the bullish push as intraday traders take profit near the resistance. GBPUSD makes a bullish attempt The sterling surged after Britain’s economy showed solid growth in Q3. A previous rebound to the supply zone near 1.3370 has put pressure on the short side. Then the pound found bids at 1.3170. Four attempts at this key support suggest a strong interest in keeping the price steady. 1.3370 is a major hurdle as it coincides with the 30-day moving average. A breakout could initiate a bullish reversal and propel the pound to 1.3500. An overbought RSI may cause a short pullback with 1.3240 as the closest support. USOIL awaits breakout WTI crude found support from a larger-than-expected decline in US inventories. Price action saw active buying above 66.00, keeping the early December rally valid in the process. The latest rebound is testing the supply zone around 73.30, which sits along the 30-day moving average. A close above this area of interest would force the bears to cover, paving the way for a rally towards 78.00. On the downside, 71.00 is the immediate support. And 68.50 is a second line of defense in case of a deeper correction.
Is the End of Transitory Inflation the End of Gold Bulls?

Is the End of Transitory Inflation the End of Gold Bulls?

Arkadiusz Sieron Arkadiusz Sieron 24.12.2021 11:18
The debate about the nature of inflation is over. Now the question is what the end of transitory inflation implies for gold. I offer two perspectives. Welcome, my son. Welcome to the inflationary machine. Welcome to the new economic regime of elevated inflation. That’s official because even central bankers have finally admitted what I’ve been saying for a long time: the current high inflation is not merely a transitory one-off price shock. In a testimony before Congress, Jerome Powell agreed that “it’s probably a good time to retire” the word “transitory” in relation to inflation. Bravo, Jay! It took you only several months longer than my freshmen students to figure it out, but better late than never. Actually, even a moderately intelligent chimpanzee would notice that inflation is not merely temporary just by looking at the graph below. To be clear, I’m not predicting hyperinflation or even galloping inflation. Nor do I claim that at least some of the current inflationary pressures won’t subside next year. No, some supply-side factors behind recent price surges are likely to abate in 2022. However, other drivers will persist, or even intensify (think about housing inflation or energy crisis). Let’s be honest: we are facing a global inflation shock right now. In many countries, inflation has reached its highest rate in decades. In the United States, the annual CPI rate is 6.2%, while it reached 5.2% in Germany, 4.9% in the Eurozone, and 3.8% in the United Kingdom. The shameful secret is that central banks and governments played a key role in fueling this inflation. As the famous Austrian economist Ludwig von Mises noticed once, The most important thing to remember is that inflation is not an act of God; inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy — a deliberate policy of people who resort to inflation because they consider it to be a lesser evil than unemployment. But the fact is that, in the not very long run, inflation does not cure unemployment. Indeed, the Fed and the banking system injected a lot of money into the economy and also created room for the government to boost its spending and send checks to Americans. The resulting consumer spending boom clogged the supply chains and caused a jump in inflation. Obviously, the policymakers don’t want to admit their guilt and that they have anything to do with inflation. At the beginning, they claim that there is no inflation at all. Next, they say that inflation may exist after all, but is only caused by the “base effect”, so it will be a short-lived phenomenon that results solely from the nature of the yearly comparison. Lastly, they admit that there is something beyond the “base effect” but inflation will be transitory because it’s caused only by a few exceptional components of the overall index, the outliers like used cars this year. Nothing to worry about, then. Higher prices are a result of bottlenecks that will abate very soon on their own. Later, inflation is admitted to be more broad-based and persistent, but it is said to be caused by greedy businesses and speculators who raise prices maliciously. Finally, the policymakers present themselves as the salvation from the inflation problem(that was caused by them in the first place). Such brilliant “solutions” as subsidies to consumers and price controls are introduced and further disrupt the economy. The Fed has recently admitted that inflation is not merely transitory, so if the abovementioned scheme is adequate, we should expect to look for scapegoats and possibly also interventions in the economy to heroically fight inflation. Gold could benefit from such rhetoric, as it could increase demand for safe-haven assets and inflation hedges. However, the Fed’s capitulation also implies a hawkish shift. If inflation is more persistent, the US central bank will have to act in a more decisive way, as inflation won’t subside on its own. The faster pace of quantitative easing tapering and the sooner interest rate hikes imply higher bond yields and a stronger greenback, so they are clearly negative for gold prices. Having said that, the Fed stays and is likely to stay woefully behind the curve. The real federal funds rate (i.e., adjusted by the CPI annual rate) is currently at -6.1%, which is the deepest level in history, as the chart below shows. It is much deeper than it was at the lows of stagflation in the 1970s, which may create certain problems in the future. What is important here is that even when the Fed raises the federal funds rate by one percentage point next year, and even when inflation declines by another two percentage points, the real federal funds rate will increase to only -3%, so it will stay deeply in negative territory. Surely, the upward direction should be negative for gold prices, and the bottom in real interest rates would be a strong bearish signal for gold. However, rates remaining well below zero should provide some support or at least a decent floor for gold prices (i.e., higher than the levels touched by gold in the mid-2010s). Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Will Santa Give Us Interest Rate Hikes for 2022?

Will Santa Give Us Interest Rate Hikes for 2022?

Przemysław Radomski Przemysław Radomski 23.12.2021 17:28
If the Fed normalizes its balance sheet and markets freak-out, it will be a bridge too far. But interest rate hikes won’t crash a strong US economy. With Fed officials increasingly hawked up, the narrative shifted from a tapering of asset purchases to potential interest rate hikes. And now, with whispers of the Fed plotting to normalize its balance sheet, questions have arisen over the potential impact on the PMs. To explain, I wrote on Dec. 20: After admitting that inflation “is alarmingly high, persistent, and has broadened to affect more categories of goods and services,” Waller implored the Fed to sell some of its bond holdings. For context, tapering means that bonds are purchased at a slower pace or not at all. However, even zero purchases result in the Fed’s nearly $8.76 trillion in bond holdings remaining constant. Conversely, if the Fed reduces its balance sheet by selling bonds to private investors, it’s akin to a taper on steroids. Waller said: “If we start doing some balance sheet runoff by summer, that’ll take some pressure off, you don’t have to raise rates quite as much. My view is we should start doing that by summer.” Source: Bloomberg However, is this a plausible path for the Fed over the medium term? In a word: no. While the prospect is profoundly bullish for the USD Index and profoundly bearish for the PMs, Chairman Jerome Powell will likely avoid quantitative tightening.   For one, if the Fed tries to reduce its balance sheet from 35% to 20% of GDP, the financial markets will freak out. Currently, the Fed has such a large stockpile of bonds that private investors can’t absorb that kind of supply. Thus, another taper tantrum will likely unfold if the Fed tries to ‘normalize’ its balance sheet through the open market. Second, the Fed’s only hawkish goal is to calm inflation. To explain, when inflation was running hot and most Americans bought into the “transitory” narrative, Fed officials exuded confidence. However, when consumer confidence sunk to a 10-year low and inflation became political, the Fed changed its tune. As a result, Powell wants to reduce inflation while tightening as little as possible (3% to 4% inflation may be considered acceptable in 2022). Thus, normalizing the balance sheet is likely a bridge too far.  However, please remember that if quantitative tightening is a ten on the hawkish scale, hitting a seven or an eight is still profoundly bearish for the PMs. To explain, I highlighted on Dec. 20 how San Francisco Fed President Mary Daly had a come-to-Jesus moment. I wrote: Daly – a major dove that urged patience in November – admitted on Dec. 17 that “I have adjusted my stance.” And conducting another interview with The New York Times on Dec. 21, Daly said: “My community members are telling me they’re worried about inflation. What influenced me quite a lot was recognizing that the very communities we’re trying to serve when we talk about people sidelined” from the labor market “are the very communities that are paying the largest toll of rising food prices, transportation prices and housing prices…. “I’m comfortable with saying that I expect us to need to raise rates next year. But exactly how many will it be – two or three – and when will that be – March, June, or in the fall? For me it’s just too early to know, and I don’t see the advantage of a declaration.” However, with her slip of “two or three” rate hikes offering a window into her thought process, it’s clear that more hawkish policy will materialize over the medium term. Please see below: Source: The New York Times To that point, many short and medium-term gold bulls support the narrative that “the Fed is trapped.” For context, we’re bullish on the PMs over the long term. However, we expect sharp medium-term corrections before their uptrends resume.  Moreover, the narrative implies that the Fed can’t tighten monetary policy without crashing the U.S. economy. Thus, Fed officials are “trapped,” and the PMs should soar as inflation runs wild. However, this hyper-inflationist theory is much more semblance than substance.    To explain, adopters assumed that the Fed couldn’t taper its asset purchases without crashing the U.S. economy. However, the Fed tapered, then accelerated the taper, and the U.S. economy remained resilient. Now, the new narrative is that the Fed can’t raise interest rates without crashing the U.S. economy. However, it’s simply misleading.  As evidence, anxiety has increased with U.S. monetary and fiscal spending stuck in reverse/neutral. For example, the Fed is tightening monetary policy and Americans are no longer receiving stimulus checks and enhanced unemployment benefits. Moreover, U.S. President Joe Biden’s $1.75 trillion stimulus package was torpedoed by Senator Joe Manchin. As a result, who knows if it will pass in 2022?  However, while “the Fed is trapped” crew cites these issues as reasons for an economic calamity, they often miss the forest through the trees. For example, while the fiscal spending spree may end, U.S. households are still flush with cash. Please see below: To explain, the green line above tracks U.S. households’ checkable deposits (data released on Dec. 9). In a nutshell: it’s the amount of money that U.S. households have in their checking accounts and/or demand deposit accounts. If you analyze the vertical ascent on the right side of the chart, you can see that U.S. households have nearly $3.54 trillion in their checking accounts. For context, this is 253% more than Q4 2019 (pre-COVID-19). Likewise, even though U.S. stimulus has disproportionately flowed to the top, the bottom 50% of American households (based on wealth percentiles) still have plenty of money to spend. Please see below: To explain, the green line above tracks the checkable deposits held by the bottom 50% of U.S. households (again, data released on Dec. 9). And with these individuals sitting on nearly $243 billion in cash, it's 142% more than Q4 2019. Finally, it's important to remember that more than 75% of Canada's exports are sent to the United States. And with the former's exports to the latter hitting an all-time high in October (data released on Dec. 7), it's another indicator that U.S. consumer demand remains resilient. Source: Statistics Canada The bottom line? While some investors expect a dovish 180 from the Fed, they shouldn’t hold their breath. With U.S. economic growth still resilient and the U.S. consumer in much better shape than some portray, the Fed can raise interest rates without crashing the U.S. economy. As a result, Powell will likely stick to his hawkish script and forge ahead with rate hikes in 2022. Conversely, the only wild card is the Omicron variant. If the latest strain severely disrupts economic activity, the Fed could slow its roll. However, this is extremely unlikely. For one, the strain’s spread has been violent, but so far, the data shows it’s much milder than Delta. Second, the Fed needs to solve its inflation problem. And with the FOMC’s dot plot and officials’ rhetoric nodding in agreement, they likely realize that a continuation of 6%+ inflation will do more harm to the U.S. economy than raising interest rates. Also, please note that when the Fed called inflation “transitory,” I wrote for months that officials were misreading the data. As a result, I don’t have a horse in this race. However, now they likely have it right. Thus, if investors assume that the Fed won’t tighten, their bets will likely go bust in 2022.   In conclusion, the PMs rallied on Dec. 22, as an FDA approval of Pfizer’s coronavirus treatment pill helped uplift sentiment. However, the next several months will likely test their mettle. With the Fed hawked up and little stopping interest rate hikes in 2022, the pace of the current liquidity drain should surpass the precedent set in 2013/2014. As a result, more downside likely confronts the PMs over the medium term. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
USDJPY - an interesting pair, a few words about US 100

USDJPY - an interesting pair, a few words about US 100

John Benjamin John Benjamin 27.12.2021 10:59
USDJPY breaks higher The US dollar inched higher after November’s core PCE jumped to 4.7%. A break above the supply area near 114.20 indicates that the bulls have gained the upper hand. As sellers rush to the exit, the pair may enjoy solid support above the former resistance at 114.05. An overbought RSI has temporarily limited the initial breakout range. After a short accumulation phase, the bulls may have an unobstructed path towards the psychological level of 115.00. That is a major hurdle right under the previous peak. USDCAD retreats to daily support The Canadian dollar bounces back as GDP growth gained traction in October. The US dollar is struggling for support after its tentative break above the August high at 1.2950. A retreat below 1.2900 has led traders to dump leveraged positions. The pair is testing the daily support at 1.2760 which lies along the 30-day moving average. And this makes it an area of interest for the bulls to attempt a rebound. 1.2920 is a fresh resistance ahead. A deeper correction may send the greenback to 1.2650 near December’s lows. US 100 completes V-shaped recovery The Nasdaq 100 continues to recover as improved economic data outweigh covid concerns. The index has met solid buying interest near 15600. This used to be a supply zone from last September. Since then it has recouped losses from the recent liquidation. The RSI’s overbought situation may cause a brief pullback while short-term traders take profit. 16170 is the closest support and 15850 is another layer of defense. On the upside, a break above 16460 could extend the rally to the all-time high at 16770 and beyond.
S&P 500, Nasdaq and more...

S&P 500, Nasdaq and more...

Monica Kingsley Monica Kingsley 27.12.2021 15:56
S&P 500 and risk-on assets continued rallying, pausing only before the close. Santa Claus delivered, and the final trading week of 2021 is here. With the dollar pausing and VIX at 18 again, we‘re certainly enjoying better days while clouds gather on the horizon – Thursday‘s inability of financials to keep intraday gains while yields rose, is but one albeit short-term sign. The Fed is still accomodative (just see the balance sheet expansion for Dec – this is really tapering), didn‘t get into the headlines with fresh hawkish statements, and inflation expectations keep rising from subdued levels. Importantly, bonds prices aren‘t taking it on the chin, and the dollar hasn‘t made much progress since late Nov. Both tech and value are challenging their recent highs, and the ratio of stocks trading above their 200-day moving average, is improving. The same for new highs new lows – the market breadth indicators are picking up. We haven‘t seen the stock market top yet – the rickety ride higher isn‘t over, Santa Claus rally goes on, and my 2022 outlook with targets discussed that a week ago. Precious metals are extending gains, and aren‘t yet raging ahead – the picture is one of welcome strength returning across the board. The same goes for crude oil finally rising solidly above $72 as the omicron fears are receding in light of fresh incoming data including South African policies. It‘s only copper that‘s now reflecting the prospects of real economy slowdown. At the same time, the crypto rebound last week served as a confirmation of broad risk-on advance. Still more to come, as per Thursday‘s article title. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 is within spitting distance of ATHs, and the bulls haven‘t said the last word in spite of the approaching need to take a rest. It‘s rally on, for now. Credit Markets HYG has finally overcome the Sep highs, but its vulnerability at current levels is best viewed from the point of view of LQD underperformance. Investment grade corporate bonds could have been trading higher compared to the progress made by TLT. Gold, Silver and Miners Gold and silver are looking up, and so are miners – the upswing isn‘t overheated one bit, and can go on as we keep consolidating with an increasingly bullish bias. Crude Oil Crude oil once again extended gains, and even if oil stocks are a little lagging, the medium-term bullish bias in black gold remains. The path of least resistance is once again up. Copper Copper at least closed unchanged – the fresh steep rally indeed seems more than quite a few weeks ahead. But the table for further gains is set. Bitcoin and Ethereum Bitcoin and Ethereum are entering the final trading week of 2021 in good shape. The rising tide of liquidity is still lifting all boats in a rather orderly way. Summary Thursday brought a proper finish to the Christmas week, and we‘re not staring at a disastrous finish to 2021 across the board. Short-term extended, but overall very positive bond market performance is aligned, and we can look for positive entry to 2022 in stocks, precious metals, oil, copper and cryptos alike. Shrinking global liquidity, no infrastructure bill, and consolidating dollar complete the backdrop of challenges that would make themselves heard well before Q2 2022 arrives. I hope you had Merry Christmas once again, and will also enjoy the relatively smooth ride while it lasts – 2022 will be still a good year, but with its fair share of corrections. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
AUDUSD, USDCHF and EURJPY status explained

AUDUSD, USDCHF and EURJPY status explained

John Benjamin John Benjamin 28.12.2021 08:43
AUDUSD falls back for support The Australian dollar pulls back as risk assets tread water amid low liquidity. A break above the previous high at 0.7220 reveals a strong bullish bias. However, the RSI’s repeatedly overbought situation may have prompted short-term buyers to take some chips off the table. In turn, this left price action vulnerable to retracement. 0.7200 is the closest support. Its breach would trigger a deeper correction towards 0.7120. A close above 0.7250 may resume the reversal and carry the Aussie to the daily resistance at 0.7360. USDCHF tests consolidation range The US dollar softens over weaker Treasury yields. The pair’s latest rebound has met aggressive selling at the upper bound of the consolidation range near 0.9250. That is a sign of lingering bearish pressure. The greenback is testing the lower bound near 0.9160. Range traders were eager to buy the dip as the RSI ventured into the oversold zone. 0.9210 is an intermediate hurdle leading to the upper limit where a breakout could trigger a bullish reversal towards 0.9350. Otherwise, a drop below 0.9160 may send the pair to 0.9100. EURJPY breaks higher The Japanese yen weakened after Japan’s jobless rate rose to 2.8% in November. The long side has gained the upper hand after they pushed above 129.60. A bullish MA cross following a brief consolidation indicates an acceleration in the upward momentum. A break above the psychological level of 130.00 would set 130.60 as the next target, clearing the path for a rally to 131.30. An overbought RSI may cause a temporary pullback. 129.20 from the previous supply zone has become a fresh support.
Article by Decrypt Media

S&P 500 rally, comodities and precious metals

Monica Kingsley Monica Kingsley 28.12.2021 15:49
Broad S&P 500 rally is spilling over to precious metals and commodities – Santa Claus leaves no stone unturned, apparently. Not that yields or the dollar would move much yesterday – it‘s the omicron response relief (thus far. yet APT has risen sharply to counter the bullish and wildly profitable oil message) coupled with the yesterday mentioned market friendly Fed: (…) The Fed is still accomodative (just see the balance sheet expansion for Dec – this is really tapering), didn‘t get into the headlines with fresh hawkish statements, and inflation expectations keep rising from subdued levels. Even though junk bonds retreated from intraday highs, the rally isn‘t over yet – VIX remaining around 18 is the best that the stock bulls can hope for today (i.e. a sluggish day still retaining bullish bias). Financials and industrials had a good day, but consumer discretionaries to staples ratio leaves more than a bit to be desired. The same goes for the financials to utilities ratio. Yes, the horizon is darkening, but further gains for weeks to months to come, still lie ahead. Remember, the topping process is about fewer and fewer sectors pulling their weight, about the market generals not being followed by the troops in the coming advance. We‘re not quite there yet. The Fed didn‘t really taper much in Dec, thus the jubilant close to 2021 across the board. The compressed yield curve would eventually invert – regardless of the current levels of inflation, the GDP growth can still support higher stock prices. Precious metals and commodities would though become an increasingly appealing proposition as I‘m not looking for the Fed to be able to break inflation. The tightening risks are clearly seen in market bets via compressed yields, so they‘ll attempt to not only talk a good game – they will act, and the risks of breaking something (real economy) would grow. That‘s the message from Treasuries – hawkish monetary policy mistake is feared and increasingly expected. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 market breadth again improved – the increasing participation shows that the bull run isn‘t clearly over. And it also reveals that this isn‘t yet the time to expect a new correction. Credit Markets HYG stalled a little, but doesn‘t look to have definitely peaked. One look at LQD reveals the nuanced risk-off turn yesterday, which might not interfere with further stock market gains today though). Gold, Silver and Miners Gold and silver paused, but I‘m treating it as a daily pause in an otherwise developing uptrend. Once the inflation expectations stop being as steady as they had been yesterday, the metals will like that. Crude Oil Crude oil is strongly up, and oil stocks confirm. The $78 zone comes next, and could take a few days to be reached. Copper Copper still hasn‘t arrived at true fireworks – but the long consolidation is being resolved in a bullish way (of course). Broader commodities are showing that the path of least resistance is higher in the red metal as well. Bitcoin and Ethereum Bitcoin and Ethereum are foretelling stiffer headwinds than had been the case recently. I don‘t think this is a start of a genuine downtrend. Summary Santa Claus rally naturally goes on, and yesterday‘s steep gains are likely to be followed with deceleration today – at least in stocks. Precious metals and commodities are catching up, and we‘re looking at a very positive close to 2021 across the board. The same goes for optimistic entry to 2022 in stocks, precious metals, oil, copper and cryptos alike – in Bitcoin though, I would like to see today‘s lows hold, and Ethereum to spring higher faster than Bitcoin. On a very short-term basis, S&P 500 and oil are extended today, and some trepidation shouldn‘t be surprising. The medium-term trends remain unchanged, and lead higher. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Do you really need to understand economics to trade Forex successfully?

Do you really need to understand economics to trade Forex successfully?

Finance Press Release Finance Press Release 29.12.2021 10:14
The biggest financial market in the world is the forex market. To begin trading Forex, you must have a working grasp of the current state of the global economy. You need to be aware of the significance of this news and happenings in the forex market and how they will affect your transactions. If you want to be at the top of the list, you may invest some time studying what this economic news and activities truly imply in simple words.   Understanding the fundamentals of global economics may aid in your Forex trading success. A wide range of economic variables affects the exchange rates of different currencies all around the globe. The following are some of the factors:   Interest rate changes by a country's central bank Spending by both the government and the general public There is both public and private debt. GDP and CPI are two measures of the economy. a currency's supply of money and demand   The movement of currencies throughout the globe is affected by any change in money flows. Understanding the rules of trading is more important than being an expert in economics. But, having a fundamental comprehension of the economic principles that regulate the movement of money throughout the globe and a high-level understanding of Forex trading as well, would be ideal.   In order to build a strategy that fits your personality it is crucial to be familiar with the market structure, order flow and algorithmic movement. Those people who are new in this industry need to get more information about how to learn forex trading, to avoid losing money and being a victim of financial frauds. For forex traders, there is always a piece of economic data due for publication from at least eight major currencies that may be used to make smart bets. However, It is also worth noting that in reality, the eight most closely watched nations provide statistics on an average of seven days a week (excluding vacations). There are several prospects for people who trade news.   It's more difficult to trade the news than it seems. Both official and unofficial estimates (whispers) and adjustments to earlier reports are critical to determining a consensus figure. According to both the relevance of the nation providing the data and the importance of this release in comparison to other data releases, certain releases are more relevant than others. How To Start Forex Trading - Basic Guide If the value of one currency rises or falls relative to the other, then forex trading is successful.   Even if the price may rise tomorrow, a trader may decide to acquire a currency now and sell it for a profit at a later date. We call this "going long."   Another option is to sell a currency and then purchase it back later at a lower price if they believe its value will fall. Going short is a term for this.   Inflation, interest rates, and political events may all have an impact on the value of a currency. Find a forex broker first to obtain access to the market.   You may establish a forex trading account online after you've chosen a broker and are ready to begin trading.   Before making an investment, it is essential to verify that a broker is regulated by the Financial Conduct Authority (FCA).   The Financial Conduct Authority (FCA) maintains an online database of all regulated brokers traders could trust. So, there is a risk that a broker that isn't listed is a fake company that is willing to defraud you for money. That’s the reason why you should always be vigilant and informed while making a choice.   Depending on whether you are buying or selling, the same currency pair will have somewhat different pricing.   There is a bit of a learning curve, but it's worth remembering that prices are always given in terms of the forex broker's viewpoint, rather than yours.   From the viewpoint of a broker, prospective purchasers must make an offer if you are selling currency. Consequently, When you purchase a currency, you'll have to pay the seller's asking price.   Using leverage, traders are able to borrow money from a broker so that they may trade higher quantities of money.   The broker will cover the remainder of your investment once you make a modest initial deposit known as a margin.   Depending on the broker, the amount of leverage available varies. If the investment is successful, leverage may help you enhance your profit, but it's crucial to keep in mind that trading higher quantities of currency can also raise your chance of loss.   Before employing leverage, make sure you understand all of the dangers and potential losses. This is because, unlike conventional investments, where you can only lose your original investment, leverage leaves you exposed to an almost limitless amount of risk.   As currencies fluctuate in value, it's difficult to maintain track of your transactions 24 hours a day in the forex market.   To minimize the danger of losing money if the market does not move in your favor, there are certain automatic methods that you may set up in your forex account   Stop-loss orders restrict the amount of money a trader loses if a currency's value rises over a specified threshold. An investor may select a minimum or maximum price at which they want to purchase or sell a currency pair. When you use limit orders, you don't have to keep an eye on currency rates and automatically purchase or sell a currency when the price reaches your target.   You need to exchange big amounts of money in order to see a profit on the forex market. However, even while leverage raises the amount of currency you trade, it substantially increases the chance of you losing money, so much so that you stand to lose more than your starting capital. So, before you start trading forex, make sure you do your homework and figure out whether you can afford to lose your money.
Awaiting US CPI And Speaking Of Disney and Uber. SEK And PLN As Central Banks Moves

US Fed Actions 1999 to Present – What's Next?

Chris Vermeulen Chris Vermeulen 15.12.2021 09:48
I find it interesting that so much speculation related to the US Federal Reserve drives investor concern and trends. In my opinion, the US Federal Reserve has been much more accommodating for the global economy after the 2008-09 US Housing Market crash. The new US Bank Stress Tests and Capital Requirements have allowed the US to move away from risk factors that may currently plague the global markets. What do I mean by this statement? US Fed Continues To Maintain Extremely Accommodative Monetary Policy Over the past 12+ years, after the 2008-09 US Housing Market collapse, the US Federal Reserve has acted to support the US and global economy while the US Congress and US Federal Reserve have acted to build a stronger foundation for US banking and financial institutions. The most important aspect of this is the Capital Requirements that require an operating US bank to hold a minimum amount of reserve capital (Source: Federal Reserve). The US Federal Reserve installed this program to prevent US banks from over-leveraging their liabilities based on the 2008-09 Housing Market Crisis lessons. Sign up for my free trading newsletter so you don’t miss the next opportunity! There are still risks associated with a complete global economic collapse – where consumers, banking institutions, and economic activity grinds to a halt because of some external or unknown factor. Yet, the risks of a US-based collapse based on excessive Banking or other financial institution liabilities are somewhat limited in today's US Economy. Although, globally, the risks have accelerated over the past 12+ years while the US Federal Reserve maintained a very accommodative monetary policy. Historical US Federal Reserve Actions Let's review some of the most significant US Federal Reserve actions over the past 25 years. Early/Mid-1990s: The Fed raised the FFR from 3.0% to 6.5% to 7.0% as the DOT COM Rally continued to build strength. 1998/1999: The Fed dropped the FFR to 4.0% as the DOT COM bubble became frothy and started to fracture/burst. Early 2000: The Fed raised the FFR from 4.0% to 6.86% over just five months, pushing the cost of borrowing above 7.5%~8.5% in the open market. Late 2000/Early 2001: The September 2001 Terrorist Attack on the US pushed the Fed to lower the FFR to 1.0% by December 2002. Before the 9/11 attack, the Fed lowered the FFR after the DOT COM bubble burst rattled the US economy and output. 2004/2006: The Fed raised the FFR from 1.0% to 5.5% (more than 550%) while the US Housing Market boom cycle pushed the US economy into overdrive. This was the biggest FFR rate increase since the 1958-1960 rate increase (from 0.25% to 4.0% - more than 1600%) or the 1961-1969 rate increase (from 0.50% to 9.75% - more than 1950%). 2007/2008: The Fed decreased the FFR from 5.5% to 0.05 (Dec 2009), effectively setting up a 0% interest rate while the US attempted to recover from the 2008-09 Housing Market Crisis. 2015/2020: the Fed attempted to raise the FFR from 0.08% to 2.40% as the US economy transitioned into a strong bullish breakout trend. When the US markets collapsed in early 2020 because of the COVID-19 virus, the Fed moved interest rates back to near 0% and have kept them there ever since. The deep FFR discounts/rates that started after the 1999/2000 DOT COM/9-11 events pushed foreign markets to borrow cheap US Dollars as a disconnect of capital costs and a growing foreign market economy allowed certain economic functions to continue. Borrowing cheap US Dollars while deploying that capital in foreign economies returning 4x to 10x profits allowed many foreign companies, individuals, and governments to build extremely dangerous debt levels – very quickly. (Source: ST Louis FED) Now, let's get down to the core differences between pre-1990 and post-1990 US Fed actions and global economy functions. US Fed Added Rocket Fuel To An Already Accelerating Global Economy Before 1985, foreign markets were struggling to gain their footing in the global economy. Larger global economies, like the US, Japan, Europe, and Canada, could outsource manufacturing, supplies, and labor into foreign nations that provided a strategic cost advantage. After 1994 or so, after the Asian Currency Crisis settled, the growth of manufacturing and labor in China/Asia started booming at an exponential rate. This prompted a 2x to 5x growth factor in many Asian nations over 10+ years. The 9-11 terrorist attacks briefly disrupted this trend, but it restarted quickly after 1994~1995. This high-speed growth phase in China/Asia after 1999 created a massive demand for credit and expansion as Asian consumers and economies grew at exponential rates from 1997 to now. The US Fed inadvertently promoted a global growth phase that resulted in the fastest global economic increase in history. Multiple foreign nations were able to take advantage of cheap US Dollars. At the same time, the US Fed acted to support the recovery of the US economy after 9-11 and the 2008-09 Housing/Credit crisis. Those cheap US Dollars continued after the COVID-19 turmoil in early 2020 and likely pushed already at-risk debtors over the edge as bond rates have started to price extensive risk factors. The result of these crisis events and the US Federal Reserve's continued easy monetary policy has been the fastest growth of assets the planet has seen in over 80 years. Not only have global economies grown in a parabolic phase, but the US stock market has also moved higher and higher after the 2010 bottom and the 2015-2016 shift towards higher US corporation earnings/revenues. Once the COVID-19 virus event hit in early 2020, the US Fed moved rates back to near 0% - supplying a nearly unlimited amount of rocket fuel for the global markets (again). The problem this time was the global COVID shutdowns essentially took the spark away from the fuel (capital). Now, we are waiting for the US Fed statements to close out 2021. I'll offer this simple hint to help you prepare for what's next – more volatility, more big trends, and more deleveraging throughout the global markets. In Part II of this research article, I'll share my thoughts on what I expect from the US Fed and what I hope for in 2022 and beyond. Want to learn more about how I trade and invest in the markets? Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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. If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP - Total ETF Portfolio. Have a great day! Chris VermeulenChief Market Strategist
AM Market Digest: December 1, 2021

AM Market Digest: December 1, 2021

Jessica Amir Jessica Amir 01.12.2021 08:33
Equities 2021-12-01 00:00 7 minutes to read Summary:  Hello December...Traditionally the second most bullish month for equites with the ASX200 rising 1.7% on average in December (since 1993/inception), while the S&P500 index has risen 1.5% on average (since 1950). Now the question is, will this December be different? Probably yes, as there is much uncertainty; markets are weary of Omicron (awaiting vaccine makers to develop a new vaccine), while retail sales are growing slower than expected (going against the grain as sales generally ramp up this time of year). So what’s next? We cover what to watch today and potential trading considerations. So volatility is indeed picking up right? And add in the fact that US Fed Chair said overnight, that the bond-buying taper process could wrap up “few months sooner than expected”…which opens the door to interest rates hikes thereafter. Powell also said “it’s probably a good time to retire” the world “transitory” to describe inflation. While global equities remain on tender hooks, keep an eye on volatility, and consider possible hedges. Iron ore breaks above its 30-DMA for the first time since 26 October. Watch the Aussie dollar with GPD data ahead. Markets and what you need to know    Equites: In the US: The Dow Jones fell 1.8%, the S&P500 lost 1.9%. Apple rose 3.1%. Pfizer rose 2.5% Salesfore.com fell 4%. Travellers fell 3.6% In Europe: the Euro Stoxx 50 fell 1.1%, the FTSE 100 down 0.7%. Yesterday most Asian markets fell, with the Australian market being the exception, rising 0.2% Commodities: Gold spot down 0.5% to $1,775.45, erasing gains after Powell’s comments on Taper, Inflation Keep an eye on Newcrest (NCM AU), Northern Star (NST AU), Evolution (EVN AU), Regis Resources (RRL AU), Resolute Mining (RSG AU), OZ Minerals (OZL AU):  WTI crude down 5.4% Oil Falls Below $65 With Powell signaling faster end to tapering Keep an eye on Woodside (WPL AU), WorleyParsons (WOR AU), Oil Search (OSH AU), Beach Energy (BPT AU), Karoon (KAR AU), Origin Energy (ORG AU), Santos (STO AU):  Copper down 1.4% Iron ore fell 0.4% after rising 6.8% the prior day Keep an eye on BHP (BHP AU), Rio Tinto (RIO AU) and Fortescue (FMG AU) Currencies: Aussie down 0.4% to 0.7118 per US dollar (Australia, NZ dollars record biggest monthly drops since pandemic) Kiwi down 0.1% to 0.6817 per US dollar Bonds: U.S. 10-year yield fell 6.2bps to 1.4375% Company News: Volvo Cars shares rose 13.6%; The company released first quarterly property since listing on the stock market a year ago and confirm a dip in revenue and profit. Volvo also flagged the sector-wide semiconductor shortage would continue into next year Apple shares +3.1% after reported Best Apple Cyber Monday. The tech giant is also working on a charger that powers multiple devices, an iPhone, AirPods, and Watch simultaneously. Orocobre shares rose 6% to a record high. Trading volume quadruped. The company expects lithium demand to grow materially through to 2040 due to electric vehicle adoption amid the global transition to carbon neutrality. This is expected to lead to a widening deficit over the next two decades, with demand predicted to be more than twice as great as supply by 2040. Major news, in case you missed it; Australian borders won’t reopen today (1 December), they’ll reopen 15 December Moderna CEO says current vaccines are less effective against new variant and it may take months before a new variant-specific jab is at scale. The World Health Organization said Omicron presents as ‘very high global risk’. Latest economic news: In Australia: The Australian economy is slowing: Private credit grew less than expected; showing Aussies are businesses borrowing less (credit grew 0.5% in October, vs 0.6% expected). Consumer confidence fell on a weekly basis In Asia – China’s manufacturing unexpected grew in November. First rise in activity since Aug. Japan industrial output rose for first time in four months, auto production rebounds on an easing of supply constraints Considerations for today and what to watch Volatility: New information is driving the markets short term direction, so keep an eye out. We’re in an illiquid part of the season, so volatility is high at the moment with news dictating the market moves. Some fund managers are taking money off the table and increasing their hedging To minimise volatility you could consider hedging for the next couple of weeks; perhaps consider currency options which is what we are seeing some clients trade at the moment, they are Buying dollar yen. Iron ore:  The Iron ore price to surged to a one month high, rising back above $100. Also of note, we are seeing clients increasing buy iron ore stocks (Fortescue, BHP and Rio Tinto). What’s new: Brazilian iron ore giant, Vale lowered its production outlook for year, while Rio Tinto announced it sees demand stabilizing is 2022 and underlying demand remaining robust expecting, China to take action to avoid a property hard land. Basically it seems iron ore supply will be coming out of market (from Vale), and demand is picking up in China. From a technical perspective, the iron ore price has held above its 15 and 30 day average, while the MACD technical indicator suggest that buying could pick up again in iron ore. This is definitely something to watch. It appears the 15 day moving average could also cross above the 30 day moving average, which would trigger a gold cross event, a technical event that often results in a bull run forming/continuing as quant traders/investors typically buy into positions when such an event occurs.   Source: TradingView, Saxo Markets Events to watch today: Local: Australian GPD data out 11:30am - expected to show Australian GPD slowed YoY, est. 3.0%, prior 9.6%. QoQ, est. -2.7%, prior 0.7%. So keep an eye on the Australian dollar. If the data is weaker than expected the Aussie dollar would likely fall US tonight: November ADP employment, November MBA purchase index, November ISM manufacturing PMI, crude oil inventories, Federal Chair Jerome Powell testimony What else? OPEC meets on Thursday - we could see production cuts, which could cause a rally in oil   Australian analyst rating changes to consider: CKF: Collins Foods Cut to Neutral at Jarden Securities; PT A$14.16 FMG: Fortescue Cut to Neutral at Citi GNC: GrainCorp Cut to Sell at Bell Potter; PT A$6.15 HPG: Hipages Group Rated New Overweight at Barrenjoey; PT A$4.65 JHX: James Hardie GDRs Rated New Overweight at Barrenjoey; PT A$63 TPG: TPG Telecom Rated New Overweight at Barrenjoey; PT A$7.50 TSI: Top Shelf International Rated New Speculative Buy at Canaccord   Ex-Dividends today on ASX:  Incitec Pivot, United Malt, Aristocrat Leisure
Financial Sector May Rally 11% - 15% Higher Before End Of January 2022

Financial Sector May Rally 11% - 15% Higher Before End Of January 2022

Chris Vermeulen Chris Vermeulen 11.12.2021 10:25
The financial sector is poised for a very strong rally into the end of 2021, and early 2022 as revenues and earnings for Q4:2021 should continue to drive an upward price trend. The US Federal Reserve is keeping interest rates low. At the same time, the US consumer continues to drive home purchases and holiday shopping. Strong economic data should drive Q4 results for the financial sector close to levels we saw in Q3:2021. If that happens, we may see a robust rally in the US Financial sector over the next 45 to 60+ days. The strength of the recent rally in the US major indexes shows just how powerful the bullish trend bias is right now. Some traders focus on the downside risks associated with the US Federal Reserve actions and/or the concerns related to inflation and global markets. I, however, continue to focus on the strength in the US major indexes and various sector trends that show real opportunities for profits. Comparing Sector Strength The following two US market sector charts highlight the performance over the last 12 vs. 24 months. I want readers to pay attention to how flat the Financial Sector has stayed since just before the 2020 COVID event and how the Financial Sector has started to trend higher over the past 12 months. This is because the shock of COVID briefly disrupted consumer activity. Yet, consumers are coming back strong, driving retail sales, home sales, and the continued strong US economic data. Therefore, it makes sense that the Financial sector should continue to show firm revenue and earnings growth while the US consumer is active and spending. Sign up for my free trading newsletter so you don’t miss the next opportunity! Over the past two years, Discretionary, Technology, and Materials drove market growth compared to other sectors. Remember, the initial COVID virus event disrupted market sector trends over the last 24+ months. (Source: StockChart.com) Taking a look at this 1 Year US Market Sector chart shows how various sectors have rebounded and how the Discretionary and Materials sectors have flattened/weakened. Pay attention to how the Energy and Real Estate sectors have been over the past 12 months. Also, pay attention to how the Financial sector is strengthening. I believe that the continued deflation/deleveraging that is taking place throughout most of the world will continue to drive global central banks to stay relatively neutral regarding rising interest rates. This will likely prompt an easy money policy throughout most of 2022 and drive continued revenues/earnings for sectors associated with consumers' engagement with the economy. If inflation weakens into 2022 while wage and jobs data stays strong, we may see more moderate strength in the Financial, Healthcare, Discretionary, and Technology sectors over the next 6 to 12+ months. Read more about Global Deleveraging Here: Delivering Covid Bubble Possible Volatility Risks In Foreign Markets (Source: StockChart.com) Financials May Pop 11% Or More Over The Next 6+ Months This Weekly IYG, IShares US Financial Service ETF, highlights the recent sideways price trend in the Financial sector and the potential for a 9% to 13% rally that may take place as the markets shift into focus for the Q4:2021 earnings. Yes, inflation is still a concern, but as long as the US consumer continues spending and engaging in the economy, the Financial Services and US Banks should show strong returns. If the US markets rally into the end of 2021, possibly reaching new all-time highs again, this trend may carry well into 2022 and drive Q4:2021 and Q1:2022 revenues and earnings for the Financial sector even higher. This Weekly XLF chart shows a very similar setup to IYG. I firmly believe the recent fear in the markets related to the US Federal Reserve, the new COVID variants, and the global markets deleveraging process is missing one critical component – the strength of the US markets and the strength of the US Dollar. As the rest of the world struggles to find support and economic strength, the US markets continue to rebound on the strength of the US consumer, the recovering economy, and the growth of these sectors. As long as the US Federal Reserve does not disrupt this trend, I believe Q1:2022 could be much more robust than many people consider. I also think the deflation/deleveraging process will work to take the pressures away from recent inflation trends. What could this mean for 2022? Early 2022 may well work as a "rebalancing" process for the global markets – possibly taking the pressures away from the strength in energy, commodities, and staple products/materials. This means pricing pressures will decrease while consumers are still earning and spending. The Financial sector should benefit from these trends over the next 6+ months. Watch for the Financials to start to increase throughout the end of 2021 and into early 2022. There are many ways to consider trading this move, but ideally, I think the rally will take place before the end of February 2022. Q1 is usually relatively strong, so that this trend may last well into April/May 2022. It all depends on what happens that could disrupt the current market sector trends. If nothing happens to disrupt the strength of the US Dollar and the strength of the US markets, then I believe the Financial Sector has a very strong opportunity for at least 10% to 11% growth. Want to learn more about the potential for a financial sector rally? Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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. If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP - Total ETF Portfolio. Have a great day! Chris VermeulenChief Market Strategist
Rallying, singing "Jingle Bells", S&P 500 feels like hanging by the fingernails

Rallying, singing "Jingle Bells", S&P 500 feels like hanging by the fingernails

Monica Kingsley Monica Kingsley 29.12.2021 16:25
S&P 500 feels like hanging by the fingernails – tech down and value retreating intraday. Correction of prior steep upswing is here – the bears will try some more, but I‘m not looking for them to get too far. The signs are there to knock the bulls somewhat down, and fresh ATHs look to really have to wait till next week. Checking up on the VIX, financials and consumer discretionaries confirms the odds of the bears stepping in today, and perhaps also tomorrow (depending upon today‘s close). The repelled HYG downswing likewise doesn‘t represent a significant risk-off turn (yet) – instead, we appear to be on the doorstep of another rotation, and its depth would be determined by how well tech is able to hold near current levels. Looking at precious metals, commodities and cryptos, the sellers of this risk-on rally have good odds of closing in the black for today. Earliest signs of stabilization would come from bonds, tech and cryptos – that‘s where I‘m mostly looking today. Keeping in mind the big picture – all eyes on upcoming Fed balance sheet data: (…) The Fed didn‘t really taper much in Dec, thus the jubilant close to 2021 across the board. The compressed yield curve would eventually invert – regardless of the current levels of inflation, the GDP growth can still support higher stock prices. Precious metals and commodities would though become an increasingly appealing proposition as I‘m not looking for the Fed to be able to break inflation. The tightening risks are clearly seen in market bets via compressed yields, so they‘ll attempt to not only talk a good game – they will act, and the risks of breaking something (real economy) would grow. That‘s the message from Treasuries – hawkish monetary policy mistake is feared and increasingly expected. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 saw a shot across the bow, and it remains to be seen whether the bears take advantage of a promising position to strike later today. Odds are they would at least try. Credit Markets HYG‘s hammer-style candle on rising volume doesn‘t bode well for today. Stabilization in junk bonds would be a most welcome sign once it arrives. Gold, Silver and Miners Gold and silver aren‘t at all well positioned in the short-term – higher yields perhaps accompanied by consolidating inflation expectations, provide the bears with an opportunity. Crude Oil Crude oil is likewise stalling, but not too vulnerable unless fresh omicron fears return to the headlines. The $78 zone indeed looks to take a few days to be reached – I‘m still not looking at this week really. Copper Copper is taking a cautious stance – cautious, not panicky. Building a base not too far from yesterday‘s lows, would be most constructive now. Bitcoin and Ethereum Bitcoin and Ethereum are feeling the pinch, and the Ethereum underperformance has foretold stiffer headwinds than had been the case recently. Genuine downtrend hasn‘t yet developed – the bulls are being tested as we speak. Summary Santa Claus rally is getting the announced reprieve – the day of decision how far it reaches, is today. Unless bonds (I‘m looking at the junk spectrum mainly), tech and cryptos weaken inordinately much, today‘s move would come in the sideways consolidation category. Odds for that are slightly better than a coin toss, but regardless, I‘m looking for a positive first day of 2022 trading to help make up for end of this week‘s headwinds. It‘s also positive that oil remains well bid above $75.50, and copper above $4.40. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
S&P 500 - ATH?

S&P 500 - ATH?

Chris Vermeulen Chris Vermeulen 30.12.2021 22:59
A very late Santa Rally appears to have been set up in the US markets as we close in on the end of 2021. The US markets have already started a melt-up trend – which is what I expected to happen prior to the bout of volatility over the past 30+ days. A Very Late Santa Rally Could Prompt A Powerful Move Upward A very late positive shift in the US major indexes may prompt a powerful upward price trend in early 2022. I expect that Q4:2021 earnings and revenues will continue to impress traders while the US Dollar strengthens above 95. This combination of a strong US economy with a stronger US Dollar will continue to attract foreign capital investment in US equities in early 2022. Traders won't want to miss the potential for a Q1 and Q2 rally phase in the US markets IF the US Fed stays moderately inactive throughout the first half of 2022. Sign up for my free trading newsletter so you don’t miss the next opportunity! Traders were concerned that the US Fed and Inflation would prompt a sudden shift by the US Fed. Still, I believe the new Omicron COVID virus and the shift away from hyper-inflationary trends may alter how the Fed sees the global economy in 2022. The US markets may be strengthening simply because of the additional stimulus and strong US consumer activity from the recovery/reflation trade momentum (late 2020 and almost all o 2021). The early 2022 trends may carry momentum into the first two Quarters of 2022 with slowly diminishing strength overall. Please take a minute to review our ADL Price Predictions for 2022 in this research article: The Technical Traders S&P 500 Rallying To New All-Time Highs To Close Out 2021 The S&P 500 recently rallied to new all-time highs just days before the end of 2021. This move suggests traders are shifting away from broader market concerns and starting to pay attention to the pending Q4:2021 earnings and revenue data and the 2021 Annual Data that will hit over the next 30 to 60+ days. Even though the markets are looking for any reason to spike the VIX (volatility), I believe the momentum behind this rally phase is going to continue to drive the S&P 500 up towards 5000 – or higher. My expectations are that we will see a fairly strong 5% to 8% rally in early 2022 from the 2021 end-of-year price levels. I believe the US market is attracting lots of foreign market capital as long as the US Fed does not do anything to topple the current market dynamics. NASDAQ Is Struggling To Reach New All-Time Highs, But Could Explode Higher In Early 2022 Even though the NASDAQ appears to be more volatile than the S&P500 and Dow Jones, it stands a very good chance of exploding higher in early 2022 as Q4:2021 earnings are announced, and end-of-year revenues and US economic data are presented in January/February. I expect that technology will continue to dominate trends related to how US consumers spend their time/money in 2022 – especially if we continue to go through more COVID virus waves. The sectors I'm watching in 2022 are Housing, Technology, Healthcare, Consumer Staples/Discretionary, Metals/Mining, and Retail. If there are any signs of concern in the US/Global markets, I expect to see these concerns appear in the strongest sectors right now (Consumer, Retail, Metals, Housing, and Technology). The US Fed will probably not take any severe actions in Q1:2022 and maybe talk about raising rates in Q2:2022. This means the US markets will continue to attract foreign capital, and traders need to prepare for a potentially explosive upside price trend in the NASDAQ before March 2022.
Sector Themes In Play In The Markets For 2022

Sector Themes In Play In The Markets For 2022

Chris Vermeulen Chris Vermeulen 31.12.2021 16:45
As 2021 closes, it’s time to consider how sector themes in the markets are likely to perform in 2022. Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine. Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:Fed actions.International conflicts (i.e., Russia and China).Pandemic developments that are not currently known.There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!sector theme DRIVERS FOR 2022Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.Sign up for my free trading newsletter so you don’t miss the next opportunity! Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.Let’s look at some sector themes and individual names to keep an eye on in 2022.ECONOMIC NORMALIZATIONA long-anticipated return to a “normal” economy will continue to be a theme -- we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.5G INTERNETThe much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.ARTIFICIAL INTELLIGENCEIn all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM. EVs and AUTONOMOUS VEHICLESElectric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.MATERIALS and MININGGold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential. Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.SEMICONDUCTORSThe market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.REAL ESTATEReal Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.SUMMARYMany sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.Let’s remain vigilant for possible market corrections and may the wind be at our backs!Want to learn more about our Options Trading Service?Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.Enjoy your day!
Bitcoin and Ethereum are staging a daily comeback

Bitcoin and Ethereum are staging a daily comeback

Monica Kingsley Monica Kingsley 30.12.2021 15:49
S&P 500 bulls stood their ground nicely, and the key sectors confirmed little willingness to turn the very short-term outlook more bearish than fits the little flag we‘re trading in currently – it‘s a bullish flag. Given the continued risk-off turn in bonds, the stock market setback could have been more than a tad deeper – that would be the conclusion at first glance. However, high yield corporate bonds held up much better than quality debt instruments, and that means the superficial look would have been misleading. Likewise as regards my other 2 signs out of the 3 yesterday presented ones – tech held up fine, and cryptos have practically erased yesterday‘s hesitation during today‘s premarket. The Santa Claus rally indeed hasn‘t yet run its course, and the slighly better than a coin toss odds of us not facing more than a very shallow correction, look to be materializing. As I wrote 2 days ago – What‘s Not to Love Here – we‘re entering 2022 with great open profits in both S&P 500 (entered aggressively at 4,672) and crude oil (entered with full force at $67.60). Both rides aren‘t yet over, copper is primed to catch up in the short run to the other commodities, gold is well bid at current levels, and together with silver waiting for a Fed misstep (market risk reappreciation) and inflation to start biting still some more while the real economy undergoes a soft patch (note however the very solid manufacturing data) with global liquidity remaining constrained even though the Fed didn‘t exactly taper much in Dec, and nominal yields taking a cautious and slow path towards my 2022 year end target of 1.80-2.00% on the 10-year Treasury. As I wrote prior Monday, we‘re looking at still positive 2022 returns in stocks – of course joined by commodities and precious metals. The path would be though probably a more turbulent one than was the case in 2021. We had a good year of strong gains, and I hope you have benefited. Thank you for all your appreciation and best wishes sent my way throughout all of 2021 and now by email or via Twitter – I would love to wish you a very Happy New Year – may 2022 keep bringing you happiness, success and good health. Enjoy the New Year‘s Eve celebrations, and see you again on Jan 03, 2022! Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 consolidation is still shaping up finely – and does so on solid internals. Particularly the tech resilience is a good omen. Credit Markets HYG could have indeed declined some more, but didn‘t. While I‘m not reading all too much into this signal individually, it fits the (still bullish) mozaic completed by other markets on my watch. That‘s the strength of intermarket analysis. Gold, Silver and Miners Gold and silver got on the defensive, but the bears didn‘t get too far – and the chance they could have, wasn‘t too bad. Rising yields were though countered by the declining dollar. Crude Oil Crude oil is likely to pause today, and will rally again once risk-on returns broadly, including into credit markets. For now, backing and filling above $76 is my leading very short-term scenario – Monday though will be a fresh day. Copper Copper is pausing, but the downswing didn‘t reach far, and was bought relatively fast. More consolidation above $4.40 looks likely, and it would come with a generally bullish bias that‘s apt to surprise on the upside. Similarly to precious metals though, patience. Bitcoin and Ethereum Bitcoin and Ethereum are staging a daily comeback, and as long as mid-Dec lows don‘t come in sight again, crypto prices can muddle through with a gently bullish bias. Summary Santa Claus isn‘t willing to give much ground, and the table is set for this nice rally to modestly continue today – somewhere more pronouncedly (S&P 500, cryptos) than elsewhere (commodities and precious metals). I‘m still looking for a positive first day of 2022 trading to help make up for end of this week‘s headwinds – it has been great that the bears couldn‘t find more strength yesterday. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
"Gold is in the 1960s"

"Gold is in the 1960s"

Arkadiusz Sieron Arkadiusz Sieron 31.12.2021 14:05
  Although your calendar may say otherwise, gold is in the 1960s. The question is whether we will move into the 1970s or speed-run to the mid-2010s. Did you go overboard with your time travel and lose track of time? Probably not, but just in case, I assure you that the current year is 2021. To be 100% sure, I fact-checked it on a dedicated webpage for time-travelers. However, the authority of science is being questioned, and there are people who say that, from a macroeconomic point of view, we are approaching the 1970s, or at least the 1960s. There are also voices saying that the gold market is replaying 2012-2013. Although appearances point to 2021, let’s investigate what year we really live in. The similarities with the 1970s are obvious. Just like then, we have high inflation, large fiscal deficits (see the chart below), and easy, erroneous monetary policy. Fifty years ago, the Fed blamed inflation on exogenous shocks and considered inflation to be transitory too. The new monetary regime adopted by the US central bank in 2020 also takes us back to the 70s and the mistaken belief that the economy cannot overheat, so the Fed can let inflation run above the target for a while in order to boost employment. The parallels extend beyond price pressure. The withdrawal of US troops from Afghanistan reminded many of the fall of Saigon. The world is facing an energy crisis right now, another feature of the 1970s. If we really repeat those years, gold bulls should be happy, as the yellow metal rallied from $35 to $850, surging more than 2300% back in that decade (see the chart below). However, there is one problem with this narrative. In the 1970s, we experienced stagflation, i.e., a simultaneous occurrence of high inflation and economic stagnation with a rising unemployment rate. Currently, although we face strong upward price pressure, we enjoy economic expansion and declining unemployment, as the chart below shows. Indeed, the monthly unemployment rate decreased from 14.8% in April 2020 to 4.2% in November 2021. The current macroeconomic situation, characterized by inflation without stagnation part, is reminiscent of the 1960s, a decade marked by rising inflation and rapid GDP growth. As the chart below shows, the CPI annual rate reached a local maximum of 6.4% in February 1970, similar to the current inflation level. Apparently, we are replaying the 1960s right now rather than the 1970s. So far, growth is slowing down, but we are far from stagnation territory. There is no discussion on this. My point was always that the Fed’s actions could bring us to the 1970s, or that complacency about inflation is increasing the risk of de-anchoring inflation expectations and the materialization of a stagflationary scenario. In the 1960s, the price of gold was still fixed, so historical analysis is impossible. However, it seems that gold won’t start to rally until we see some signs of stagnation or an economic crisis, and markets begin to worry about recession. Given that the current economic expansion looks intact, the yellow metal is likely to struggle at least by mid-2022 (unless supply disruptions and energy crisis intensify significantly, wreaking havoc). Do we have to go back that far in time, though? Maybe the 2020 peak in gold prices was like the 2011 peak and we are now somewhere in 2012-2013, on the eve of a great downward move in the gold market? Some similarities cannot be denied: the economy is recovering from a recession, while the Fed is tightening its monetary policy, and gold shows weakness with its inability to surpass $1,800. So, some concerns are warranted. I pointed out a long time ago the threat of an upward move in the real interest rates (as they are at record low levels), which could sink the precious metals market. However, there are two key differences compared to the 2012-2013 period. First, inflation is much higher and it’s still accelerating, while ten years ago there was disinflation. This distinction should support gold prices. The peak in the inflation rate could be a dangerous time for gold, as the disinflationary era would raise interest rates, putting downward pressure on the yellow metal. Second, the prospects of the Fed’s tightening cycle are probably already priced in. In other words, the next “taper tantrum” is not likely to happen. It implies that a sudden spike in the interest rates similar to that of 2013 (see the chart below) shouldn’t repeat now. Hence, the answer to the question “what year is it?” should be that we are somewhere in the 1960s and we can move later into the 1970s if high inflation stays with us and stagnation sets in or if the next crisis hits. However, we can leap right into the 2010s if inflation peaks soon and the hawkish Fed triggers a jump in bond yields. It’s also possible that we will see a temporary disinflation before the second wave of elevated inflation. So, gold could continue its struggle for a while before we see another rally. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Quiet Start to New Year

Quiet Start to New Year

Marc Chandler Marc Chandler 03.01.2022 14:10
January 03, 2022  $USD, autos, Canada, China, Currency Movement, Inflation, jobs, Mexico, PMI, Trade Overview:  The New Year begins slowly.  Japan, mainland China, Australia, New Zealand, and the UK markets remain closed.  While Hong Kong shares traded heavily, Taiwan, South Korea, and India moved higher.  Led by consumer discretionary and staple sectors, Europe's Stoxx 600 is up about 0.6%.  US futures are 0.4%-0.6% higher.  European yields have drifted lower, with the periphery doing bettter than the core.   The US 10-year yield will begin the local session at 1.51%.  The dollar is mostly firmer, after weakening broadly at the end of last year.   The Norwegian krone and New Zealand dollar are the most resilient,  while the Canadian dollar is off nearly 0.3% to pare the year-end gains, followed by the euro, which is in the middle of its $1.1335-$1.1380 range.  The greenback is holding above JPY115.00.  Emerging market currencies are mixed but mostly softer.  Higher than expected inflation is weighing on the Turkish lira. The South Korean won leads the other softer EM currencies. It is off about 0.25%.  The South African rand (~0.7%) and Russian ruble (0.5%) lead the advancers.  The JP Morgan Emerging Market Currency Index rose by about 2.5% in the last two weeks of 2021 and is slightly firmer today (~0.2%).  Iron ore is higher for the third consecutive session and rallied more than 45% from the middle of November through Xmas, before falling 5.3% last week.  Copper has a four-week 4.6% rally in tow but is slightly softer today.  Gold is stalling near $1830, the (61.8%) retracement of its sell-off from $1880 mid-November high.  Oil rallied for the last two weeks, with February WTI gaining about 6.2%.  OPEC+ meets tomorrow and WTI is up a nearly 1.5% to push above $76.  US natural gas gained slightly more than 1% in the past two weeks and is hovering around little changed level.  Recall that diverted shipments from the US and Asia to Europe saw natural gas prices collapse from above 180 euros on December 21 to 65.5 euros at the end of last week.   Asia Pacific China's property developers remain in the spotlight. Bloomberg estimates that the sector's debt servicing costs, including deferred wages, and maturing obligations are at $197 bln this month.  Evergrande shares were suspended in Hong Kong.  When the problems, bubbling below the surface for some time, emerged last September, global risk appetites were shaken, and many observers made comparisons to the Great Financial Crisis.  However, so far, the problems seem localized and unlike the US and Europe, new lending has not frozen.   The macro data highlights include China's Caixin PMI after the official one surprised on the upside. The preliminary PMIs for Australia and Japan steal the thunder from the final report. Japan's weekly MOF report on portfolio flows may be noteworthy. Foreign investors have been on a buying spree, buying the most Japanese bonds over the first three weeks of December in at least 20 years.   The dollar has risen for the past four weeks against the Japanese yen.  It closed the last two sessions slightly above JPY115.00 and remains above it today.  Recall, last year's high, set in late November, was near JPY115.50.  Today's high thus far is about JPY115.35.  The market may be reluctant to push the dollar much higher before Tokyo returns.  The Australian dollar advanced almost 2% in the second half of December.  It is stalling near the (50%) retracement of its decline from around $0.7555 in late October, found close to $0.7275.  Support is ahead of $0.7200.  Thin trading on New Year's Eve saw the dollar plunge to its low for the year near CNY6.34 before settling slightly above CNY6.3560.  Chinese officials have signaled their desire to avoid further yuan appreciation. If the divergence of monetary policy and higher fx reserve requirements are not sufficient, investors must be wary that other tools can be deployed.   Europe The uptick in Germany's December manufacturing PMI was revised away, leaving it unchanged from November at 57.4.  The flash estimate put it at 57.9.  In contrast, the French reading was revised up to 55.6 from 54.9.  This pared the decline from 55.9 in November.   Italy's manufacturing PMI held in better than expected, slipping to 62.0 from 62.8, the post-Covid high.  Spain, on the other hand, disappointed, with its manufacturing PMI falling to 56.2 from 57.1, its lowest since last February.  The net result was the flash aggregate estimate of 58.0 was sustained (58.4 in November).   The final Eurozone aggregate PMI is of passing interest. The main takeaway from the preliminary estimate continues to resonate:  the economic activity was slowing. The flash estimate put the composite at 53.4 (down from 55.4), the lowest since March. It has risen once in the last five months. More notable for the market will be the preliminary estimate of December inflation. Consumer prices are expected to have stabilized after reaching 4.9% year-over-year in November (2.6% core).   The Turkish government has tried to absorb the currency-risk that it has unleashed by forcing the central bank to cut key interest rates by 500 bp since mid-September.  It managed to spur a powerful short-covering squeeze in the lira, which saw the dollar fall from around TRY18.36 on December 20 to nearly TRY10.25 on December 23.  The greenback recovered to nearly TRY14.00 today, its sixth consecutive advance.  Today's CPI report blew away expectations.  Just in the month of December, Turkish consumer prices jumped nearly 13.6%.  This sent the year-over-year rate to almost 36.1%.  The core rate rose about 31.9% year-over-year.  Short covering helped lifted the euro a little more than 1.1% over the past two weeks.  It reached about $1.1385 on New Year's Eve.  It has not traded above $1.14 since mid-February.  Ahead of this week's two key economic reports (EMU CPI and US employment), the market may not have the conviction necessary to extend its year-end gains.  Sterling gained about 2.1% in the last two weeks.  It reached $1.3550 at the end of last week, its best level since mid-November.  It is little changed today.  The $1.3575 area corresponds to the (50%) retracement of its sell-off from $1.3835 area in late October.  Initial support is seen in the $1.3455-$1.3465 area.   America The US economic diary is jammed packed to begin the New Year. The highlight is the jobs report at the end of the week. The median forecast (Bloomberg survey) calls for a 400k increase after being disappointed with the 210k increase in November. The unemployment rate is expected to ease to 4.1% from 4.2%, and average earnings growth likely moderated. At the end of last year, an article in the Financial Times made two important observations. First, the uniqueness of the covid-impact renders seasonal adjustments suspect. The response rate was less than two-thirds, the lowest for the month of November in more than a decade. In November, the raw establishment survey showed a 778k gain in nonfarm payrolls, but the BLS adjustment cut a record 568k. Second, also complicating the data is the participation by businesses. The response rate was less than two-thirds, the lowest for the month of November in more than a decade.   The monthly auto sales report seems under-appreciated as a broad economic indicator. The supply chain disruptions depressed auto production and, in turn, auto consumption (not just in the US). However, late in the year, there seemed to be some improvement. The median forecast (Bloomberg survey) December US auto sales (seasonally adjusted annual rate) at 13.1 mln, which would then be the most since July. Elsewhere, the preliminary goods trade balance, like the flash PMI, is the real new news. The final reading tends not to be very meaningful. In any event, the trade deficit will widen considerably. The goods deficit widened to a record $97.8 bln from $83.2 bln.   Lastly, the FOMC minutes will be looked at especially for clues about the timing of the first hike. March? It is unreasonable to expect Canada to match the nearly 154k job increase reported for November. The median forecast is 25k. Canada also reports November trade figures. Canada's trade balance has steadily improved since March 2020, and the 12-month moving average through October was the highest in around six years. The swaps market has a little more than half of the first hike (25 bp) priced in at the January 26 Bank of Canada meeting.   Mexico's data highlights include worker remittances, which could be the most important source of private capital inflows. Without meaningful fiscal support and in the face of tightening monetary policy, the economy lacks much momentum. The December CPI is expected to have edged higher toward 7.5%. Monetary policy is where the drama will be as the new central bank governor takes the reins (Rodriguez). The 50 bp hike in December lifted the overnight target to 5.5%. If the market is concerned about a policy mistake or possible erosion of its independence, you would not know it from looking at the peso. It was the strongest currency in the world in December, rising almost 4.5% against the dollar.   The Canadian dollar rallied about 2% over the past two weeks.  This saw the US dollar retrace half of its rally from the mid-October low below CAD1.23 that peaked on December 20 by CAD1.2965.  That retracement came it near CAD1.2625.  The momentum indicators are still headed down, but the greenback is recovering today.  Initial resistance is seen around CAD1.2700.  A move above CAD1.2750 warns that a low may be in place.  The Mexican peso has rallied for the past five weeks, and despite the poor close at the end of the year, it is bid today.  The US dollar was sold from near MXN20.55 to MXN20.45 in the European morning but has found a bid near midday.  The low from New Year's Eve was set around MXN20.3070 and the 200-day moving average is closer to MXN20.27.    Disclaimer
A Look At Markets Around The World: US CPI, Sweden Riksbank EU Yields And More

Taxes, UK Equities, Global Shipping and Pandemic in "Charts of 2021: Honorable Mentions" by Callum Thomas

Callum Thomas Callum Thomas 03.01.2022 14:13
Last week I shared with you some of my Best Charts of 2021 (as well as my Worst Charts of 2021 and then also my favorites!) -- so this week I wanted to follow up with what I would say are the "honorable mention" charts of 2021...       These charts were worthy of mention but didn’t quite fit into any of the previous categories -- but were definitely worth including and highlighting both due to how they proved useful in the past year or so, but also in terms of the outlook into 2022.       These charts were featured in my just-released 2021 End of Year Special Report -- check it out (free download as a holiday treat!).       Enjoy, feel free to share, and be sure to let me know what you think in the comments...           1. Expect Higher Taxes: This chart arguably points to higher tax rates ahead given that government debt as a % of GDP has doubled over the past decade while effectively economy-wide tax-take has gone sideways.       chart of developed economy fiscal outlook - higher taxes forecast           2. Global Food Crisis? Stagnant capex by food producers contributed to a perfect storm for food prices (along with actual storms, pandemic disruption, rising costs).                 3. UK Equities: In the wake of Brexit & pandemic woes, UK equities moved to decade-low valuations vs their European peers. From crisis to opportunity?                     >>> These charts were featured in our 2021 End of Year Special Report.               4. Global Shipping Capex: Shipping sector investment stagnated for a decade – contributing to the global supply chain chaos. Ironically it likely rebounds after banking windfall profits from the surge in freight rates.                 5. Global vs US Earnings Cycles: A key driver of the long-term cycles of relative price performance of global vs US equities has been the cycles in relative earnings. That cycle will need to change for the price cycle to change.                 6. Pandemic Progress: the global rollout of vaccines, rising immunity, societal adaptations, and therapeutics have helped result in a series of lower highs in deaths – I like the look of that trend. The light at the end of the tunnel, though flickering at times, does seem a little brighter now…                     Thanks for reading!           This is an excerpt from my 2021 End of Year Special report - click through to download a free copy of the report.       Best regards       Callum Thomas   Head of Research and Founder of Topdown Charts           Follow us on:   Substack https://topdowncharts.substack.com/   LinkedIn https://www.linkedin.com/company/topdown-charts   Twitter http://www.twitter.com/topdowncharts
How Omicron affects American dollar (USD)? What about monetary policy and FED?

How Omicron affects American dollar (USD)? What about monetary policy and FED?

FXStreet News FXStreet News 03.01.2022 16:07
Markets remain optimistic about Omicron, weighing on the dollar, but that may change. Speculation about the Fed's hike timing is set to increase with the bank's minutes and the NFP. All other factors are only a distraction from these themes. New year, same factors moving the greenback – the impact of Omicron and Fed speculation. The most important market-mover is Omicron – the highly contagious COVID-19 variant. After roughly six weeks, we know that it is extremely contagious but causes less severe disease than previous strains such as Delta. Markets currently see the glass half-full, hoping that this wave would subside as quickly as it rises, and even help people become more protected against other variants of the virus. Optimism is good for stocks and weighs on the safe-haven dollar. On the other hand, we have already seen how infections among aircrew caused a massive cancellation of flights over the holiday season. Moreover, while a lower percentage of infected people become sick, the sheer number of cases means hospitals could still come under pressure and that could trigger governments to impose restrictions. Now that the holidays are over, it would be politically easier to impose new curbs. When worries take over, stocks fall and the dollar rises. The dollar's second market-mover is the long-term one of monetary policy. The Federal Reserve is set to raise interest rates sometime in 2022, but the timing of the first move is still unknown. The hawkish twist from Fed Chair Jerome Powell – who accelerated the tapering process in December – already boosted the greenback in 2021. The main worry for the Fed is that inflation is rising more than anticipated – it is no longer transitory. Will the Fed raise rates as soon as March, wait until May as markets price, or leave it til June? Hints could come with the Fed's meeting minutes published on Wednesday and also Nonfarm Payrolls on Friday. A strong jobs report – especially one accompanied by a robust increase in wages – could send the dollar higher on expectations for an early move from the Fed. Disappointing data would do the opposite. Beyond Omicron and Fed speculation, other factors are minor – these include worries about China's Evergrande, tensions between Russia and Ukraine, and commentary by market analysts about the prospects of the global economy. These factors come into play only in the absence of virus or inflation fears.
Let's have a look at S&P 500, Crude Oil, Nasdaq and Credit Markets. Cryptos are still bullish above mid-Dec lows.

Let's have a look at S&P 500, Crude Oil, Nasdaq and Credit Markets. Cryptos are still bullish above mid-Dec lows.

Monica Kingsley Monica Kingsley 03.01.2022 15:57
S&P 500 pared prior steep gains, but thanks to the credit markets message, I‘m not reading into Friday‘s weakness much. There is still more in this rally – value held better than tech, and high yield corporate bonds didn‘t really slide. The year end rebalancing will likely give way to solid Monday‘s performance. While VIX appears to want to move up from the 17 level, it would probably take more than one day to play out. As the Santa Claus rally draws to its close, the nearest data point worth looking forward for, is Tuesday‘s ISM Manufacturing PMI. It‘ll likely show still expanding manufacturing (however challenged GDP growth is on a quarterly basis), and that would help commodities deal with the preceding downswing driven by energy and agrifoods. Both of these sectors are likely to return to gains, and especially oil is. As stated on Thursday, the open profits would still keep rising. Precious metals were the key winners Friday, paying attention to the dollar and nominal yields retreat the most. The red metal‘s upswing certainly helped – such were my latest words: (…) copper is primed to catch up in the short run to the other commodities, gold is well bid at current levels, and together with silver waiting for a Fed misstep (market risk reappreciation) and inflation to start biting still some more while the real economy undergoes a soft patch (note however the very solid manufacturing data) with global liquidity remaining constrained even though the Fed didn‘t exactly taper much in Dec, and nominal yields taking a cautious and slow path towards my 2022 year end target of 1.80-2.00% on the 10-year Treasury. As I wrote prior Monday, we‘re looking at still positive 2022 returns in stocks – of course joined by commodities and precious metals. The path would be though probably a more turbulent one than was the case in 2021. Finally, cryptos look to be in agreement with not reading too much to Friday‘s downswings – both Bitcoin and Ethereum are turning up as $46K in BTC held up once again. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Nasdaq got a little oversold relative to S&P 500 – this is not the start of a fresh downtrend. Once financials and consumer discretionaries turn up, the rally will be on better footing again. Credit Markets HYG could have declined some more, but tellingly didn‘t. Bonds aren‘t ready to turn to risk-off just yet. Upswing attempt next shouldn‘t be surprising in the least. Gold, Silver and Miners Gold and silver are looking at a much better year than was 2021. Stock market volatility, GDP growth challenges and persistent inflation would help the metals and commodities rise. Crude Oil Crude oil is about to move up again as gains were taken off the table on Friday. With the omicron response and related pronouncements coming in lately from the U.S., what else to expect – a great deal of destroyed demand doesn‘t look to be ahead. Copper Copper undid the prior pause, and looks ready to keep defending the $4.43 area. The long consolidation that started in May, would be eventually broken to the upside. Bitcoin and Ethereum Bitcoin and Ethereum may be short-term undecided, but don‘t look willing to decline. Cryptos are still bullish above mid-Dec lows. Summary First trading day of 2022 is likely to extend prior gains, resolving the prior sideways move. As risk-on faltered on Friday, S&P 500 and cryptos are likely to catch up, and oil would probably outperform copper today while precious metals digest very solid New Year‘s Eve gains. We‘re nowhere near the good days ending just yet – turbulence would come once Fed tapering gets really noticeable (post Olympics), with VIX trending higher well before that already. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Can't skip S&P 500 (SPX) and Nasdaq

Can't skip S&P 500 (SPX) and Nasdaq

Monica Kingsley Monica Kingsley 04.01.2022 15:53
Very good S&P 500 entry to 2022, and the HYG intraday reversal is the sight to rejoice. In the sea of rising yields, both tech and value managed to do well – the market breadth keeps improving as not only the ratio of stocks trading above their 200-day moving averages shows. Likewise VIX refused to reach even 19, and instead is attacking 16.50. This is not complacency – the bulls were thoroughly shaken at the entry to the session yesterday – but a buying interest that convincingly turned the tide during the day. As I wrote yesterday: (…) thanks to the credit markets message, I‘m not reading into Friday‘s weakness much. There is still more in this rally – value held better than tech, and high yield corporate bonds didn‘t really slide. The year end rebalancing will likely give way to solid Monday‘s performance. While VIX appears to want to move up from the 17 level, it would probably take more than one day to play out. As the Santa Claus rally draws to its close, the nearest data point worth looking forward for, is Tuesday‘s ISM Manufacturing PMI. It‘ll likely show still expanding manufacturing (however challenged GDP growth is on a quarterly basis), and that would help commodities deal with the preceding downswing driven by energy and agrifoods. Both of these sectors are likely to return to gains, and especially oil is. The only sector taking a beating yesterday, were precious metals. While inflation expectations were little changed (don‘t look for inflation to go away any time soon as I‘ve been making the case repeatedly), the daily rise in yields propelled the dollar to reverse Friday‘s decline, and that knocked both gold and silver off the high perch they closed at last week. Still, none of the fundamental or monetary with fiscal policy originating reasoning has been invalidated – not even the charts were damaged badly by Monday‘s weakness. As economic growth gets questioned while fiscal policy remains expansive unlike the monetary one, volatily in the stock market together with persistent inflation would be putting a nice floor beneath the metals. Even cryptos are refusing to yield much ground, the Ethereum to Bitcoin ratio keeps trading positively, and I‘m not even talking the rubber band that commodities (crude oil and copper) are. Very good for our open positions there, as much as in the S&P 500 – let them keep bringing profits. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Really bullish price action in both S&P 500 and Nasdaq – that was the entry to 2022 I was looking for. Embellished with prior downswing that lends more credibility to the intraday reversal. Credit Markets HYG refusing to decline more, is the most bullish sign for today imaginable – let it hold, for junk bonds now hold the key, especially if quality debt instruments keep declining steeply. Gold, Silver and Miners Gold and silver look to have reversed, but reaching such a conclusion would be premature. The long basing pattern goes on, and breakout higher would follow once the Fed‘s attempting to take the punch bowl away inflicts damage on the real economy (and markets), which is what the yield curve compression depicts. Crude Oil Crude oil is about to launch higher – and it‘s not a matter of solid oil stocks performance only. Just look at the volume – it didn‘t disappoint, and in the risk-on revival that I expect for today, black gold would benefit. Copper Copper swooned, but regained composure – the stop run is over, and we‘re back to base building for the coming upswing. Broader commodities certainly agree. Bitcoin and Ethereum Bitcoin and Ethereum are very gently leaning bullish, but I‘m not sounding the all clear there yet thanks to how long Bitcoin is dillydallying. Cryptos aren‘t yet out of the woods, but their posture has improved thus far noticeably. Summary First trading day of 2022 extended prior S&P 500 gains, and the risk-on appetite is improving as we speak. Commodities are reaping the rewards, and we‘re looking at another good day ahead, including in precious metals taking a bite at yesterday‘s inordinately large downswing. Nothing of the big factors ahead for Q1 2022 as described in today‘s analysis (I wholeheartedly recommend reading it in full for the greatest benefits – there is only so much / little that I can fit into a one paragraph summary), and that means we‘re looking at further stock market gains as the bull runs (including in commodities and precious metals, yes precious metals), aren‘t over in the least. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Bitcoin (BTC), Fed, US Jobs Data, OPEC and EURUSD. What they all have in common? They’re mentioned in Swissquote’s video!

Bitcoin (BTC), Fed, US Jobs Data, OPEC and EURUSD. What they all have in common? They’re mentioned in Swissquote’s video!

Swissquote Bank Swissquote Bank 05.01.2022 14:25
Market mood turned sour in the US trading yesterday, and the latest data showed that 4.5 million Americans quit their jobs in November. 4.5 million is a lot of job departures, but there is nothing the Federal Reserve (Fed) could do about it, as the root cause of the problem is not the lack of job openings. Today’s ADP data is expected to reveal that the US economy added 400’000 private jobs in December. That would be less than a tenth of what has been lost in November. So the question is, does the jobs data even matter anymore? US equity indices retreated yesterday, and yesterday’s price action is mostly driven by higher interest rate expectations. In the forex, the US dollar remains strong, and that strength is pushing the EURUSD below the 1.13 mark. The sterling bulls, however, defend well their territory against a broadly stronger US dollar and a push above the 100-DMA, near the 1.3560 mark, should throw a basis to a medium term bullish reversal in Cable. In cryptocurrencies, appetite in Bitcoin remains contained near the 200-dma and the coin is testing the low end of the December horizontal channel base, which is near $45K level. One explanation for the lack of appetite is the rising US yields, which are applying a visible downside pressure on the pricing of cryptocurrencies. And gold is now trading above both its 50, 100 and 200-DMA, but the positive attempt to the $1830 level remained short-lived. It will be interesting to see how the rising US yields, which increases the opportunity cost of holding the non-interest-bearing gold, will play out in the coming months for gold investors. Watch the full episode to find out more!
Will 2022~23 Require Different Strategies For TradersInvestors Part II

Will 2022~23 Require Different Strategies For TradersInvestors Part II

Chris Vermeulen Chris Vermeulen 06.01.2022 00:19
Is The Lazy-Bull Strategy Worth Considering? Part III started this article by highlighting how difficult some 2021 strategies seemed for many Hedge Funds and Professional Traders. It appears the extreme market volatility throughout 2021 took a toll on many systems and strategies. I wouldn't be surprised to see various sector ETFs and Sector Mutual Funds up 15% to 20% or more for 2021 while various Hedge Funds struggle with annual returns between 7% and -5% for 2021.After many years in this industry and having built many of my own strategies over the past decade, I've learned one very important facet of trading strategy development – expect the unexpected. A friend always told me to "focus on failure" when we developed strategies together. His approach to strategy design was "you develop it do too well in certain types of market trends and volatility. By focusing on where it fails, you'll learn more about the potential draw-downs and risks of a strategy than ignoring these points of failure". I tend to agree with him.In the first part of this research article, the other concept I started discussing was how traders/investors might consider moving away from strategies that struggled in 2022. What if the markets continue trending with extreme volatility throughout 2022 and into 2023? Suppose your system or strategy has taken some losses in 2022, and you have not stopped to consider volatility or other system boundaries as a potential issue. In that case, you may be looking forward to a very difficult 12 to 14+ months of trading in 2022 and 2023.Volatility Explodes After 2017Current market volatility/ATR levels are 300% to 500% above those of 2014/2015. These are the highest volatility levels the US markets have ever experienced in the past 20+ years. The current ATR level is above 23.20 – more than 35% higher than the DOT COM Peak volatility of 17.15.As long as the Volatility/ATR levels stay near these elevated levels, traders and investors will likely find the markets very difficult to trade with strategies that cannot properly adapt to the increased risks and price rotations in trends. Simply put, these huge increases in price volatility may chew up profits by getting stopped out on pullbacks or by risking too much in terms of price range/volatility.Sign up for my free trading newsletter so you don’t miss the next opportunity!The increased volatility over the past 5+ years directly reflects global monetary policies and the COVID-19 global response to the crisis. Not only have we attempted to keep easy money policies for far too long in the US and foreign markets, but we've also been pushed into a hyperbolic price trend that started after 2017/18, which has increased global debt consumption/levels to the extreme.2022 and 2023 will likely reflect a very strong revaluation trend which I continue to call a longer-term "transition" within the global markets. This transition will probably take many forms over the next 24+ months – but mostly, it will be about deleveraging debt levels and the destruction of excess risk in the markets. In my opinion, that means the strongest global economies may see some strength over the next 24+ months – but may also see extreme price volatility and extreme price rotation as this transition takes place.Expect The Unexpected in 2022 & 2023The US major indexes had an incredible 2021 – rallying across all fears and COVID variants. The NASDAQ and S&P500 saw the biggest gains in 2021 – which may continue into early 2022. Yet I feel the US markets will continue to transition as the global markets continue to navigate the process of unwinding excess debt levels and potentially deleveraging at a more severe rate than many people expect.Because of this, I feel the US markets may continue to strengthen as global traders pile into the US Dollar based assets in early 2022. Until global pressures of deleveraging and transitioning away from excesses put enough pressure on the US stock market, the perceived safety of US assets and the US Dollar will continue as it is now.(Source: www.StockCharts.com)Watch For Sector Strength In Early 2022 As Price-Pressure & Supply-Side Issues Create A Unique Opportunity For Extended Revenues/ProfitsI believe the US markets will see a continued rally phase in early 2022 as Q4:2021 revenues, earnings, and economic data pour in. I can't see how any global economic concerns will disrupt the US markets if Q4:2021 data stays stronger than expected for US stocks and the US economy.That being said, I do believe certain sectors will be high-fliers in Q1:2022 and Q2:2022 – at least until the supply-side issues across the globe settle down and return to more normal delivery expectations. This means sectors like Automakers, Healthcare, Real Estate, Consumer Staples & Discretionary, Technology, Chip manufacturers, and some Retail segments (Construction, Raw Materials, certain consumer products sellers, and specialty sellers) will drive a new bullish trend in 2022.The US major indexes may continue to move higher in 2022. They may also be hampered by sectors struggling to find support or over-weighted in symbols that were over-hyped through the end of 2020 and in early 2021.I have been concerned about this type of transition throughout most of 2021 (particularly after the MEME/Reddit rally phase in early 2021). That type of extreme trending usually leads to an unwinding process. I still don't believe the US and global markets have completed the unwinding process after the post-COVID extreme rally phase.(Source: www.StockCharts.com)Will The Lazy-Bull Strategy Continue To Outperform In 2022 & 2023?This is a tricky question to answer simply because I can't predict the future any better than you can. But I do believe moving towards a higher-level analysis of global market trends when the proposed "transitioning" is starting to take place allows traders to move away from "chasing price spikes." It also allows them to position for momentum strength in various broader market sectors and indexes.I suspect we'll start to see annual reports from some of the biggest institutional trading firms on the planet that show feeble performance in 2021. This recent article caught my attention related to Quant Funds in China.I believe we will see 2022 and 2023 stay equally distressing for certain styles of trading strategies while price volatility and an extreme deleveraging/transitioning trend occur. Trying to navigate this type of choppy global market trending on a short-term basis can be very dangerous. I believe it is better to move above all this global market chop and trade the bigger momentum trends in various sectors and indexes.Part III of this research article will focus on Q1 through Q4 expectations for 2022 and 2023. I will highlight broader sector/index trends that may play out well for investors and traders who can move above the low-level choppiness in the US and global markets.WANT TO LEARN MORE ABOUT THE TECHNICAL INVESTOR AND THE TECHNICAL INDEX & BOND TRADING STRATEGIES?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 the markets are starting to transition away from the continued central bank support rally phase and may begin 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.I invite you to take a few minutes to visit the Technical Traders website to learn about our Technical Investor and Technical Index and Bond Trading strategies and how they can help you protect and grow your wealth.Have a great day!
Gold Price Forecast: XAU/USD spikes and retreats, drops to fresh multi-week low post-NFP

Gold Price Forecast: XAU/USD spikes and retreats, drops to fresh multi-week low post-NFP

FXStreet News FXStreet News 07.01.2022 15:56
Gold languished near a two-week low amid a goodish rebound in the equity markets.Subdued USD price action extended some support to the dollar-denominated metal.Investors also seemed reluctant to place aggressive bets ahead of the US NFP report.Update: Gold faded an early North American bullish spike and dropped to a fresh three-week low, around the $1.785 region in reaction to mixed US jobs report. The headline NFP showed that the economy added 199K new jobs in December, missing estimates for a reading of 400K. The disappointment, however, was offset by an upward revision of the previous month’s reading to 249K from 210K. Adding to this, the unemployment rate fell to 3.9%, beating expectations for a modest downtick to 4.1% from 4.2% previous, reaffirming expectations for an eventual Fed lift-off in March.This was evident from elevated US Treasury bond yields, which, in turn, continued acting as a headwind for the non-yielding yellow metal. That said, modest US dollar weakness continued lending some support to the dollar-denominated gold. This, along with the cautious mood around the equity markets, helped limit the downside for the safe-haven XAU/USD. Nevertheless, spot prices remain on track to post the biggest weekly decline since late November.Previous update: Gold remained depressed for the third successive day on Friday and was last seen hovering near a two-week low, just below the $1,790 level during the early European session. A slight improvement in global risk sentiment – as depicted by a generally positive tone around the equity markets – acted as a headwind for the safe-haven XAU/USD. Apart from this, the Fed's hawkish outlook was seen as another factor that undermined the non-yielding yellow metal. It is worth recalling that the minutes of the December FOMC meeting released on Wednesday showed that some policymakers want to tighten monetary policy faster to combat stubbornly high inflation.The markets were quick to react and are now anticipating a roughly 80% chance for an eventual lift-off in March, which was further reinforced by the overnight comments by Fed officials. St. Louis Fed President James Bullard said that the Fed could raise rates as soon as March and is now in a good position to take more aggressive steps to control inflation. Separately, San Francisco Fed President Mary Daly too supported the prospects for an early rate hike. This comes on the back of a shift from Minneapolis Fed President Neel Kashkari, expecting two rate hikes this year as against his long-held view that the Fed should hold off on rate hikes until 2024.This, in turn, pushed the US 2-year notes, which are sensitive to rate hike expectations along with 5-year notes, to a near two-year high. Moreover, the yield on the benchmark 10-year US government bond shot to levels not seen since March 2021. Investors, however, preferred to wait and see if the US jobs data (NFP), due later during the early North American session, would reinforce the need for higher interest rates. This, in turn, kept US dollar bulls on the defensive and extended some support to the dollar-denominated gold. Nevertheless, the commodity, at current levels, remains on track to post the biggest weekly decline since late November.Technical outlookFrom a technical perspective, this week’s rejection near the $1,830-32 supply zone and the subsequent downfall might have already shifted the bias in favour of bearish traders. Some follow-through selling below the $1,785 horizontal support will reaffirm the negative outlook and set the stage for a further near-term depreciating move. Gold might then accelerate the downward trajectory towards the $1,770-69 intermediate support en-route to the December 2021 swing low, around the $1,753 region.On the flip side, the $1,800 mark, coinciding with a technically significant 200-day SMA, now seems to act as immediate strong resistance. Sustained strength beyond might trigger a short-covering move and push gold prices towards the $1,815 hurdle. Some follow-through buying should allow bulls to aim back to challenge a strong barrier near the $1,830-32 region.Gold daily chartTechnical levels to watchXAU/USDOVERVIEWToday last price1787.89Today Daily Change-0.29Today Daily Change %-0.02Today daily open1788.18 TRENDSDaily SMA201799.96Daily SMA501804.8Daily SMA1001792.88Daily SMA2001800.52 LEVELSPrevious Daily High1811.62Previous Daily Low1786.47Previous Weekly High1830.39Previous Weekly Low1789.51Previous Monthly High1830.39Previous Monthly Low1753.01Daily Fibonacci 38.2%1796.08Daily Fibonacci 61.8%1802.01Daily Pivot Point S11779.23Daily Pivot Point S21770.27Daily Pivot Point S31754.08Daily Pivot Point R11804.38Daily Pivot Point R21820.57Daily Pivot Point R31829.53
Honeymoon Is Over?

Honeymoon Is Over?

Monica Kingsley Monica Kingsley 07.01.2022 16:03
S&P 500 didn‘t shake off the post-FOMC minutes selloff in the least – and credit markets don‘t offer much short-term clarity either. Probably the brightest sign comes from the intraday reversal in financials higher – but tech still isn‘t catching breadth, which is key to the 500-strong index recovery. Bonds remained in the count down mode, as in not yet having regained composure and risk-on posture.The bottom might not be in, taking more time to play out – if we see a really strong non-farm payrolls figure, the odds of Fed tapering and rate hiking seriously drawing nearer, would be bolstered – to the detriment of most assets. So, we could be looking at a weak entry to today‘s S&P 500 session. But as the data came in at measly 199K, more uncertainty is introduced – will they or won‘t they (taper this fast and hike) – which works to drive chop and volatility.We‘re looking at another risk-off day today – and a reflexive but relatively tame rally in quality debt instruments. Crude oil is likely to be least affected, followed by copper as the red metals takes a second look at its recent weakness going at odds with broader commodities strength. Precious metals look to be a better bet in weathering the tightening into a weak economy storm than cryptos.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookNeither tech nor value offered clues for today‘s session – the downswing overall feels as having some more to go still, and that‘s based on the charts only. Add in the fundamentals, and it could get tougher still.Credit MarketsHYG upswing solidly rejected, and not even high volume helped the bulls – the dust doesn‘t look to be settled here either.Gold, Silver and MinersGold and silver feel the heat, and it might not be yet over in the short run, miners say. Still, note the big picture – we‘re still in a long sideways consolidation where the bears are unable to make lasting progress.Crude OilCrude oil bulls are enjoying the advantage here – firmly in the driver‘s seat. Pullback are being bought, and will likely continue being bought – the upcoming maximum downside will be very indicative of bulls‘ strength to overcome $80 lastingly.CopperCopper‘s misleading weakness continues, and similarly to precious metals, it‘s bidding its time as no heavy chart damage is being inflicted through this dillydallying.Bitcoin and EthereumBitcoin and Ethereum are in a weaker spot, and the bearish pressure may easily increase here even more. This doesn‘t look to be the time to buy yet.SummaryS&P 500 still remains on edge and under pressure until convincing signs of turnaround develop – yesterday‘s session didn‘t qualify. With further proof of challenged real economy, a fresh uncertainty (how‘s that going to weather the hawkish Fed, and are they to listen and attenuate, or not?) is being introduced – short-term chop would give way to an increase in volatility. In the non-farm payrolls aftermath, markets haven‘t yet made up their minds – it‘s the riskier end of the asset classes to take the heat the most here (starting with cryptos). Don‘t look though for a tremendous rush into Treasuries – tech decoupling from the rising yields would be a first welcome sign of a local bottom.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Financial Sector Starts To Rally Towards The $43.60 Upside Target

Financial Sector Starts To Rally Towards The $43.60 Upside Target

Chris Vermeulen Chris Vermeulen 07.01.2022 22:13
Near November 24, 2021, I published a research article suggesting the Financial Sector, XLF in particular, may bottom and start to move higher, targeting the $43.60 level. After watching XLF rotate lower and form multiple bottoms near $37.50, it appears to finally be starting a new breakout rally phase ahead of Q4:2021 earnings. Will it rally up to my $43.60 target level before the end of January 2022? And how far could it rally beyond my $43.60 target?Using a simple Fibonacci Price Extension allowed me to target the $43.60 level. Duplicating that range and applying it to the top of the $43.60 target level will enable me to see a higher target range of $49.55. This upper target level would result from a 200% Fibonacci price rally from the original price range I identified back in late November 2021.Could it happen? Sure, it could happen. Financials are uniquely positioned to benefit from higher consumer engagement in almost all levels of the economy. Housing, consumer spending, credit/loan origination, fees and services, trading, and other services – they all combine into Banking and Financial Services. I expect Q4:2021 to show robust consumer engagement and housing data, likely prompting many financial firms' strong revenues/earnings results.My original financial sector (xlf) research article included (below) for you to review:The recent downward price rotation in the Financial Sector (XLF) may have frightened some traders, but my research suggests this move is setting up a future bullish price target near $43.60 – a more than +11% move. The end of the year Christmas Rally phase of the markets should drive spending and Q4:2021 expectations strongly into the first quarter of 2022. Unless something big breaks this market trend, traders should continue to expect a “melt-up” bullish price trend through at least early January 2022.Sign up for my free trading newsletter so you don’t miss the next opportunity!The Financial Sector continues to deliver strong earnings and revenue data each quarter. The way consumers and assets prices have reacted after the COVID market collapse says quite a bit about the ability of financial firms to generate future profits. Financial firms actively engage in financial services, traditional banking, real estate, and other investments, and corporate financing. The rising inflation trends and consumer spending activities suggest the US economy is still rallying after the COVID stimulus and recovery.Financials May Rally 10% to 15%, or more, by January 2022My analysis of XLF suggests this recent pullback in price may stall and start a new bullish price rally targeting the $43.60 level – a full 100% Fibonacci Price Extension of the last rally in XLF.This Daily XLF chart shows the extended rally in early 2021 and the brief pause in the price rally between June 2021 and early September 2021. Now that we've entered Q4:2021 and the US economy appears to be strengthening in the post-COVID recovery, my expectations are that most sectors, and the US major indexes, will rally throughout the end of 2021 and into early 2022.This recent pullback in XLF sets up a solid buying opportunity for traders targeting a +10% rally that may last well into January/February 2022 – or longer.Longer-term Financial Trends Suggest Another Rally Above $44 May Start SoonOver the past 6+ months, moderate rally phases in XLF have shown a range of about $4.00 to $4.50. I've highlighted two recent rally phases in XLF on this longer-term XLF Daily chart below with gold rectangles. I believe the next rally from the recent pullback will be similar in size and prompt a moderate upward price move targeting the $43.60 level – or higher.Although there are some concerns related to the continuing recovery in the US markets, I believe the momentum of the US recovery and the strength in the US Dollar will push many US sectors higher over the next 60+ days. Closing out Q4:2021 and starting Q1:2022 with a fairly strong rally that may surprise many traders.The Financial sector is likely to present very strong Q4:2021 revenues and earnings data as long as the global markets don't push some crisis event or other issue that could detract from the US economic recovery. Right now, the biggest issues seem to be China and Europe.Concluding thoughtsMy opinion is that any moderate price weakness in the Financial sector will be short-lived and will resolve into a bullish price rally, or "melt-upward" type of trend, as we move into early December 2021. Once the US Debt Ceiling issue is resolved, I believe the Financial sector will begin a very strong rally pushing prices above $44 or $45 as Q4:2021 earnings expectations drive investors' focus into Technology, Consumer Retail, Financials, and Real Estate.The strength of the US Dollar is driving large amounts of capital into US assets and stocks right now. Based on my research, it is very likely that the US major indexes and certain sectors will continue to rally into early January 2022. If my analysis proves accurate, we may see a +11% to +18% rally in XLF before the end of January.If you are interested in learning more about how my strategies can help you protect and grow your wealth in any type of market condition, I invite you to visit www.TheTechnicalTraders.com 
Will 2022~23 Require A Different Strategy For Traders/Investors? Part III

Will 2022~23 Require A Different Strategy For Traders/Investors? Part III

Chris Vermeulen Chris Vermeulen 08.01.2022 13:50
Is The Lazy-Bull Strategy Worth Considering? - Part IIIThis last part of our multi-part article compares trading styles amidst the increasing price volatility and extended hyperbolic trending. We'll explore what we've witnessed in the US markets over the past 5+ years and highlight what to expect throughout 2022. Additionally, we'll highlight and feature the strategic advantages of our advanced Lazy-Bull strategies.Lazy-Bull Rides Big Trends & Avoids Excessive RisksMany people are inherently opposed to the Lazy-Bull strategy because they've been conditioned to think trading requires actively seeking various opportunities every week. We don't quite see it that way. Instead, we see the opportunity for growth and consistency existing in taking 4 to 12+ strategic trades per year while the markets set up broad momentum moves/trends. Our objective is not to trade excessively just for the sake of trading. Instead, we want to take advantage of when the markets enter opportunistic periods of trending and ride those trends as far as they go.Sign up for my free trading newsletter so you don’t miss the next opportunity!This example Weekly SPY chart showing our TTI trading strategy highlights the growth phases in various trend stages. Notice the GREEN and RED sections on this chart where our system has identified directional changes in the major price trends. Over the past 11+ years, there have been numerous bullish price trend phases resulting in 12 months to 36+ months bullish price trend trends. These major price cycles make up part of the advantage of the Lazy-Bull strategy.We are not actively seeking the strongest stock symbols throughout these trends. Instead, we are simply relying on the strength of the US major indexes to carry our trades further into profits as the market's trend. The TTI strategy is a "set it – and forget it" type of strategy until the strategy generates a new entry or exit trigger.Volatility & Price Rotation Make 2022 More Dangerous Than 2021 – What Next?Our research shows 2022 will likely continue to exhibit increased price volatility and bigger price rotation. Meaning 2022 could be very dangerous for shorter-term strategy traders as volatility levels may disrupt traditional stop boundaries or other aspects of their defined strategies.It is important to understand how and when these issues creep into a strategy and attempt to move above these issues.Looking at the Q1 through Q4 data using our proprietary Data mining utility, I'll give you my insight related to the data and what I believe is likely to happen in 2022. Remember, this data consolidated the past 28-29 years of trends in the SPY to present these results – going back to 1993. That means that this data is compiled through several various price trends, major market peaks, major market bottoms, and various volatility levels along the way.Q:2022 AnalysisQ1 data suggests an overall positive/upward price trend is likely in 2022, with the Total Monthly Sum across 29 years totaling 37.94. Broken into annual gains, that translates into an expected $1.30 gain in the SPY in Q1:2022.The Total Monthly NEG (negative) range appears to be more than double the Total Monthly POS (positive) range. However, we may see some price volatility in Q1:2022 that surprises the markets. For example, maybe the US Fed makes surprise rate increases? Perhaps it relates to some other foreign market event disrupting the US markets? I don't know what it will be, but I feel some market event in Q1 is likely, and this event may prompt a fairly large downward price rotation in the SPY.Overall, I believe Q1:2022 will end slightly higher than the end of Q4:2021 levels and may see the SPY attempt to break above $490~500 on stronger earnings and continue the market's bullish price phase.Q2:2022 AnalysisThe second quarter seems a bit more stable in overall price appreciation trends. The data shows a shallow NEG value compared to a moderately strong POS value for Q2. Because of this, I believe the second quarter of 2022 will slide into a relatively strong upward Melt-Up type of trend after a potentially volatile Q1:2022.The Total Monthly Sum value is higher in Q2 than in Q1, suggesting Q2 may exhibit a stronger upward momentum as a more apparent trend direction sets up after the Q1 volatility.The US Fed will likely attempt to aggressively reduce its balance sheet throughout Q2 and into Q3:2022 if my expectations are accurate. This may create some additional market volatility in Q2 and Q3:2022 – but I suspect the US Fed will attempt to conduct a lot of this activity relatively quietly – almost behind the market strength/trends.Q3:2022 AnalysisQ3 shows data that is somewhat similar to Q1 overall. I interpret this data as showing moderate bullish trend strength within the typical mid-Summer US market stagnation in trend. Mid-Summer trends tend to be a bit more sideways in nature. Many traders are vacationing, enjoying the Summer weather, and/or not paying attention to market trends and dynamics. Because of this, I expect the July through September months of 2022 to be relatively quiet and mundane.Additionally, we have the mid-term US elections set up in November 2022. The July through September months will be packed with political posturing, campaigning, and various events filled with antics to distract the markets from focusing on real issues. As a result, election years tend to be somewhat quiet – especially in the 2 to 5 months leading up to the actual election date.The end of Q3:2022 and the start of Q4:2022 could see some bigger, more aggressive price trending. The elections, ramping up of the early holiday/Christmas seasons, and the end of Summer may prompt traders to move into undervalued assets or other opportunist trades seeking to ride out an end-of-year trend. Right now may be a great time to identify strong swing/position trades to close out 2022 with some nice profits.Q4:2022 AnalysisQ4:2022 shows a very strong bullish trend potential, with the POS results greatly surpassing the NEG results. Historically, this is because of the traditional Santa Rally phase of the US markets and may play a big role in 2022 if the US economy stays strong throughout 2022.Overall, I expect the US Fed to act in a manner that supports the "transitioning" of the global markets away from excessive risks while attempting to nudge inflationary trends lower. There is talk that the US Fed may take aggressive action to combat inflation, but I see the Fed's actions are more subtle than brutal at this stage.I believe the US Federal Reserve is keenly aware of the fragility of the global markets after many years of excessive easy-money policies. In my opinion, the current market environment is more similar to the late 1960s and 1970s than the 1990s and early 2000 time frame. We've seen a massive influx of capital in the global markets – push all traditional economic metrics "off the charts" after the COVID event. That capital will work itself throughout the global economy, disrupting more at-risk companies and nations' capabilities, but still prompt a moderate growth component for many years to come.Volatility, Trading, And Profiting From Bigger TrendsThe entire point was to discuss the opportunities of moving above the current excessive price volatility and adopting a trading strategy that is more suited to bigger, broader market price trends. In 2019, I warned that 2020 was likely to be very volatile.In February 2021, I warned that 2021 was likely to be very volatile for certain market sectors: WILL 2021 PROMPT A BIG ROTATION IN SECTOR TRENDS? – PART IIIn early January 2020, I warned the US markets may be set up for a "Waterfall Selloff": ARE WE SETTING UP FOR A WATERFALL SELLOFF?Today, I'm suggesting that price volatility will likely peak sometime in 2022 or 2023 and begin to subside as the excesses of the past 8+ years continue to process through what I'm calling the "transitioning phase" of the markets. This market phase is more of a deleveraging and revaluation phase which started in February 2020 – in various sectors. It has now extended into many global economies where excess risk factors are being addressed and revalued (think China, Asia, and other areas).This transitioning process will likely continue in 2022 and 2023, meaning traders need to be prepared for the increased price volatility and adopt a style of trading that will allow them to profit from these bigger trends. This is why I'm suggesting taking a higher-level approach to trade over the next 24 to 36+ months.Certain market trends will still allow traders to pick up some fantastic profits as sectors and various undervalued symbols gain momentum. Overall, though, I feel that 2022 and 2023 will be moderately difficult for shorter-term trading strategies and that a higher-level, longer-term approach may be a much more beneficial approach.Want To Learn More About My Long-Term Investing Strategy?My Technical Investor strategy is uniquely suited toward this type of trading style. It is simple, longer-term, and rises above the moderate price volatility that disrupts many shorter-term trading strategies.Get ready; 2022 will be an excellent year for traders with big trends and bigger volatility. We have to stay ahead of these trends to protect our capital and allow it to grow more efficiently. The risks of more traditionally moderate volatility systems getting chewed up in this extreme environment will continue. So be prepared to move towards a more protective trading style to survive the next 12 to 24 months.If you are interested in learning more about how my Technical Investor (and other trading strategies) can help you protect and grow your wealth in any type of market condition, I invite you to visit  www.TheTechnicalTraders.com 
Fed Hawks Grow Stronger. Will Gold Stand Its Ground?

Fed Hawks Grow Stronger. Will Gold Stand Its Ground?

Arkadiusz Sieron Arkadiusz Sieron 06.01.2022 16:43
  2022 may be the year of Fed hawks. After tapering, they may hike rates and then start quantitative tightening. Will they tear gold apart? During the Battle of the Black Gate in the War of the Ring, Pippin : “The eagles are coming!”. It was a sign of hope for all those fighting with Sauron. Now, I could exclaim that hawks are coming, but that wouldn’t necessarily give hope to anyone fighting the bearish trends in the gold market. Yesterday (January 5, 2022), the FOMC published the minutes from its last meeting, held in mid-December. Although the publication doesn’t reveal any revolutions in US monetary policy, it strengthens the hawkish rhetoric of the Fed. Why? First, the FOMC participants acknowledged that inflation readings had been higher, more persistent, and widespread than previously anticipated. For instance, they pointed to the fact that the trimmed mean PCE inflation rate, which trims the most extreme readings and is calculated by the Dallas Fed, had reached 2.81% in November 2021, the highest level since mid-1992, as the chart below shows. It indicates that inflation is not limited to a few categories but has a broad-based character. The Committee members also noted several factors that could support strong inflationary pressure this year. They mentioned rising housing costs and rents, more widespread wage growth driven by labor shortages, and more prolonged global supply-side frictions, which could be exacerbated by the emergence of the Omicron variant; as well as easier passing on higher costs of labor and material to customers. In particular, supply chain bottlenecks and labor shortages could likely last longer and be more widespread than previously thought, which could limit businesses’ ability to address strong demand. Second, the FOMC admitted that the US labor market could be tighter than previously thought. They judged that it could reach maximum employment very soon, or that it had largely achieved it, as indicated by near-record rates of quits and job vacancies, labor shortages, and an acceleration in wage growth: Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment. Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment. The consequence of higher inflation and a tighter labor market would be, of course, a more hawkish monetary policy. Although the central bankers didn’t discuss the appropriate number of interest rate hikes, they agreed that they should raise the federal funds rate sooner or faster: Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Additionally, Fed officials also discussed quantitative tightening. They generally agreed that – given fast economic growth, a strong labor market, high inflation, and bigger Fed assets – the balance sheet runoff should start closer to the policy rate liftoff and be faster than in the previous normalization episode: Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate. However, participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the Committee's previous experience. They noted that current conditions included a stronger economic outlook, higher inflation, and a larger balance sheet and thus could warrant a potentially faster pace of policy rate normalization.   Implications for Gold What do the recent FOMC minutes imply for the gold market? Well, referring once more to the Lord of the Rings, they are more like the Nazgûl that wreak despair rather than the Eagles offering hope. They were hawkish – and, thus, negative for gold prices. The minutes revealed that after tapering of quantitative easing, the Fed could also reduce its overall asset holdings to curb high inflation. In December, the US central bank accelerated the pace of tapering and signaled three interest rate increases in 2022. The minutes went even further, signaling a possibility of an earlier and faster rate hike and outright reduction in the Fed’s balance sheet: Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures. Hence, the price of gold responded accordingly to the FOMC minutes and declined from about $1,825 to $1,810, as the chart below shows. Luckily, there is a silver lining: the drop hasn’t been too big, at least so far. It may indicate that a lot of hawkish news has already been priced into gold, and that sentiment is rather bullish. However, the hawks haven’t probably said the last word yet. Please remember that the composition of the Committee will be more hawkish this year, but also that the mindset is changing among the members. For example, Minneapolis Fed President Neel Kashkari, one of the Committee’s most dovish members, said this week that the U.S. central bank would have to need to raise interest rates two times this year. Previously, he believed that the federal funds rate could stay at zero until at least 2024. Thus, although inflationary risk may provide support for gold, the yellow metal may find itself under hawkish fire in the upcoming weeks. We will see whether it will stand its ground, like the soldiers of Gondor. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
EUR/USD as predicted affected by the Fed policy, NFP release brings inflation up

EUR/USD as predicted affected by the Fed policy, NFP release brings inflation up

Alex Kuptsikevich Alex Kuptsikevich 10.01.2022 10:05
The Fed continued to surprise markets at the start of the year with hawkish rhetoric by unexpectedly raising discussions on balance sheet shrinking. Investors are noticing that the issue has been on the table much earlier than it was before. In the last episode of QE, it took almost two years from the start of tapering and allowing it to shrink. The pauses between regime switches gave time for the markets and the economy to adjust, and for the Central Bank to evaluate the results of the policy, because the lag between the change in policy and the peak of its impact on the economy often exceeds six months. In our view, there is a real risk that the markets and the Fed are being too hawkish in their forecasts, moving abruptly from denial of inflation to a willingness to use their entire arsenal at once to beat it. But such activity to rein in inflation could easily prove excessive. As Friday's labor market data showed, job growth in the U.S. continues to slow, at only 199K, an 11-month low and half of what was expected. The drop in the unemployment rate to 3.9%, the lowest since the pandemic began, reflects a decline in the number of people looking for work. But it hardly allows us to expect consumer spending to rise, depriving the economy of a crucial pro-inflationary factor. In addition, fertilizer prices fell at a multi-year record pace last week, container prices have retreated from their peaks, and logistical problems are slowly fading from the agenda. Rate futures are laying down a 70% chance of a Fed rate hike as early as March. Several forecasters also suggest that the rate will rise at each subsequent meeting. But this could come as an excessive shock to the economy, risking causing a recession without putting it firmly on the growth track. Interestingly, unlike the futures market, the currency market remains in a period of narrow sideways movement of just over 100 pips around 1.1300. It is unlikely that the ECB will act as quickly and decisively as the Fed. If projections for a rate hike by the latter as early as March and an accelerated move into a balance sheet reduction phase will form a strong upside potential for the dollar. However, after Friday's weak data we have a growing belief that the market has jumped ahead in expectations and a reversal of such will start soon, which will play against the dollar and relieve pressure on stocks.
Gold - Fed moves are likely to reveal the shape of the future

Gold - Fed moves are likely to reveal the shape of the future

Arkadiusz Sieron Arkadiusz Sieron 11.01.2022 15:10
  Job creation disappointed in December. However, it could not be enough to counterweight rising real interest rates and save gold. On Thursday (January 6, 2022), I wrote that “the metal may find itself under hawk fire in the upcoming weeks”. Indeed, gold dropped sharply in the aftermath of the publication of the FOMC minutes. As the chart below shows, the hawkish Fed’s signal sent the price of the yellow metal from $1,826 to $1,789. This is because the minutes revealed that the Fed would be ready to cut its mammoth holdings of assets later this year. Previously, the US central bank was talking only about interest rate hikes and the ending of new asset purchases, i.e., quantitative easing. Now, the reverse process, i.e., quantitative tightening, is also on the table. What is surprising here is not the mere idea of shrinking the Fed’s assets – after all, they have risen to $8.7 trillion (see the chart above) – but its timing. Last time, the central bank started the normalization of its balance sheet only in 2018, nine years after the end of the Great Recession and four years after the completion of tapering. This time, QT may start within a few months after the end of tapering and the first interest rate hikes. It looks like 2022 will be a hot year for US monetary policy – and the gold market. Consequently, markets have been increasingly pricing in a more decisive Fed, which boosted bond yields. As the chart below shows, the long-term real interest rates (10-year TIPS) jumped from -1.06% at the end of 2021 to -0.73 at the end of last week. The upward move in the interest rates is fundamentally negative for gold prices.   Implications for Gold Luckily for the yellow metal, nonfarm payrolls disappointed in December. Last month, the US labor market rose, adding just 199,000 jobs (see the chart below), well short of consensus estimates of 400,000. This negative surprise lifted gold prices slightly on Friday (January 7, 2021). The latest employment report suggests that labor shortages and the spread of the Omicron variant of coronavirus are holding back job creation and the overall economy. However, gold bulls shouldn’t count on weak job gains to trigger a sustainable rally in the precious metals. This is because the American economy is still approaching full employment. The unemployment rate declined further to 3.9% from 4.2% in November, as the chart below shows. The drop confirms that the US labor market is very tight, so weak job creation won’t discourage the Fed from hiking the federal funds rate. As a reminder, in December, FOMC members forecasted the unemployment rate to be 4.3% at the end of 2021. What is crucial here is that disappointing job gains reflect labor shortages rather than weak demand. Additionally, wage growth remains pretty fast, despite the decline in the annual rate from 5.1% in November to 4.7% in December. The key takeaway is that, despite disappointing job creation, the US economy is moving quickly towards full employment. The unemployment rate is at 3.9%, very close to the pre-pandemic low of 3.7%. Hence, the latest employment situation report may only reinforce arguments for the Fed’s tightening cycle. This is fundamentally bad news for gold, as strengthened expectations of the interest rate hikes may boost real interest rates further and put the yellow metal under downward pressure. Some analysts believe that hawkish sentiment might be at its peak. I’m not so sure about that. I believe that monetary hawks haven’t said the last word yet, and that the normalization of the interest rates is still ahead of us. Anyway, Powell will appear in the Senate today, so we should get more clues about the prospects for monetary policy and gold this year. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
We might say interest rates became Topic #1

We might say interest rates became Topic #1

Przemysław Radomski Przemysław Radomski 11.01.2022 14:10
  The imminent interest rate hike by the Fed is almost certain. Are investors' concerns justified and will it mean trouble for the precious metals?  While the S&P 500 and the NASDAQ Composite recovered from sharp intraday losses on Jan. 10, investors’ mood swings signaled heightened anxiety. With the PMs whipsawing alongside the general stock market, more volatility should materialize in the weeks and months to come. To explain, with the Fed on a hawkish warpath to fight rampant inflation, JPMorgan CEO Jamie Dimon told CNBC on Jan. 10 that a resilient U.S. economy could prove problematic for the financial markets in 2022. “The consumer balance sheet has never been in better shape; they’re spending 25% more today than pre-COVID,” said Dimon. “Their debt-service ratio is better than it’s been since we’ve been keeping records for 50 years.” As for inflation and the Fed: “It’s possible that inflation is worse than they think and they raise rates more than people think. I personally would be surprised if it’s just four [interest rate] increases [in 2022],” he added. How would the financial markets react? Source: CNBC Singing a similar tune, the International Monetary Fund (IMF) warned on Jan. 10 that the Fed’s rate hike cycle could slaughter emerging markets. Its report revealed: “For most of last year, investors priced in a temporary rise in inflation in the United States given the unsteady economic recovery and a slow unravelling of supply bottlenecks. Now sentiment has shifted. Prices are rising at the fastest pace in almost four decades and the tight labor market has started to feed into wage increases.”   Volatile Days Ahead While I warned for all of 2021 that inflationary pressures were bullish for the U.S. dollar and U.S. Treasury yields and bearish for the PMs, the IMF stated: “Faster Fed rate increases in response could rattle financial markets and tighten financial conditions globally. These developments could come with a slowing of US demand and trade and may lead to capital outflows and currency depreciation in emerging markets.” As a result, even the IMF is anxiously bullish on the USD Index: For a good reason. With September, July, June, and May all gone by the wayside, now, the market-implied probability of a Fed rate hike in March has risen to nearly 83%. For context, the probability of a March liftoff was less than 10% in early November. Please see below: Likewise, the market-implied probability of four rate hikes by the Fed in 2022 has risen to nearly 87%. Again, the probability was less than 50% in early November. Please see below: Why the material shift? Well, while I’ve been warning for months that rampant inflation would elicit a hawkish about-face from the Fed, investors are finally coming around to this reality. With inflation still running hot, market participants understand that pricing pressures won’t subside without policy responses from the Fed. As a result, the “transitory” narrative is dead, and investors have lost one of their staunchest allies. This means that predicting silver and gold at higher levels in the medium term might not be the best idea. To that point, Bank of America’s dove-hawk spectrum shows that the dovish brigade has lost several soldiers. With the hawks now on the offensive, the officials preaching monetary patience are few and far between.  Please see below: For context, Bank of America still places San Francisco Fed President Mary Daly in the dovish bucket. However, I noted on Dec. 23 that she has materially shifted her stance in recent weeks: Source: The New York Times Furthermore, with inflationary pressures still bubbling, the Manheim Used Vehicle Value Index hit another all-time high of 236.2 in December, as “wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 1.6% month-over-month.” Please see below: On top of that, the cost of shipping from Shanghai, China, is still increasing. With the U.S. importing more goods from China than any other nation, the inflationary impact on the U.S. economy is material. Please see below: Finally, while the GDXJ ETF benefited from the NASDAQ Composite’s intraday reversal on Jan. 10, I warned on Oct. 26 that monetary policy tightening would eventually upend the junior miners. I wrote: To explain, the green line above tracks the GDXJ ETF from the beginning of 2013 to the end of 2015. If you analyze the left side of the chart, you can see that when Fed Chairman Ben Bernanke hinted at tapering on May 22, 2013, the GDXJ ETF declined by 32% from May 22 until the taper began on Dec. 18. Moreover, the onslaught didn’t end there. Once the taper officially began, the GDXJ ETF enjoyed a relief rally (similar to what we’re witnessing now), as long-term interest rates declined and the PMs assumed that the worst was in the rearview. However, as the liquidity drain caught up to the junior miners over the medium term, the GDXJ ETF declined by another 36% from when the taper was announced on Dec. 18, 2013 until the end of 2015. To that point, with part one already on the books, the second act will likely unfold once the Fed formally begins its taper in “either mid-November or mid-December.” Thus, history implies that the GDXJ ETF still has plenty of downside left. While the junior miners' ETF has declined by more than 11% since Oct. 26, Goldman Sachs has come around to our way of thinking. Please see below: To explain, Goldman Sachs told its clients last week that the yellow metal has been following its ominous path since 2013/2014 (as you may recall, I’ve been writing about the 2013-now analogy for months). For context, the red line above tracks gold’s price action from July 2010 until December 2014, while the blue line above tracks gold’s price action from July 2019 until now. If you analyze the symmetrical overlay, you can see that the pair have been in sync for some time. Moreover, if you focus your attention on the red line’s plight as time passes, it’s clear why Goldman Sachs is warning its clients about “further downside risk”. To that point, with the investment bank forecasting a real (inflation-adjusted) interest rate regime change in 2022, gold is poised to suffer along the way. To explain, the various bars above track gold’s monthly returns when the real U.S. Federal Funds Rate (dark blue), the real U.S. 5-Year Treasury yield (green), and the real U.S. 10-Year Treasury yield (light blue) begin with positive/negative values and then increase/decrease. If you focus your attention on the bars furthest to the right, you can see that when the real U.S. 5-Year Treasury yield and the real U.S. 10-Year Treasury yield are negative and then rise, gold suffers its worst monthly performances. Moreover, with the current fundamental environment presenting us with precisely that, similar results will likely materialize over the medium term. The bottom line? While investors desperately bought the dip on Jan. 10, the more than 2% intraday swing in the NASDAQ Composite screamed of monetary policy anxiety. With another hot inflation print poised to hit the wire on Jan. 12, the reprieve will likely be short-lived. Furthermore, with the PMs suffering from a similar fundamental affliction – as both the PMs and technology stocks are extremely allergic to rising interest rates – volatility is likely here to stay. As a result, the Fed should continue to break investors’ hearts over the medium term. In conclusion, the PMs rallied on Jan. 10, though their fundamental outlooks remain profoundly bearish. With interest rates poised to rise and the USD Index still undervalued, more headwinds should confront gold, silver, and mining stocks in the coming months. As a result, long-term buying opportunities are likely still a ways away. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Gold Market in 2022: Fall and Revival?

Gold Market in 2022: Fall and Revival?

Arkadiusz Sieron Arkadiusz Sieron 07.01.2022 16:46
  2021 will be remembered as the year of inflation’s comeback and gold’s dissatisfying reaction to it. Will gold improve its behavior in 2022? You thought that 2020 was a terrible year, but we would be back to normal in 2021? Well, we haven’t quite returned to normal. After all, the epidemic is not over, as new strains of coronavirus emerged and spread last year. Actually, in some aspects, 2021 was even worse than 2020. Two years ago, the pandemic was wreaking havoc. Last year, both the pandemic and inflation were raging. To the great surprise of mainstream economists fixated on aggregate demand, 2021 would be recorded in chronicles as the year of the supply factors revenge and the great return of inflation. For years, the pundits have talked about the death of inflation and mocked anyone who pointed to its risk. Well, he who laughs last, laughs best. However, it’s laughter through inflationary tears. Given the highest inflation rate since the Great Stagflation, gold prices must have grown a lot, right? Well, not exactly. As the chart below shows, 2021 wasn’t the best year for the yellow metal. Gold lost almost 5% over the last twelve months. Although I correctly predicted that “gold’s performance in 2021 could be worse than last year”, I expected less bearish behavior. What exactly happened? From a macroeconomic perspective, the economy recovered last year. As vaccination progressed, sanitary restrictions were lifted, and risk appetite returned to the market, which hit safe-haven assets such as gold. What’s more, a rebound in economic activity and rising inflation prompted the Fed to taper its quantitative easing and introduce more hawkish rhetoric, which pushed gold prices down. As always, there were both ups and downs in the gold market last year. Gold started 2021 with a bang, but began plunging quickly amid Democrats’ success in elections, the Fed more optimistic about the economy, and rising interest rates. The slide lasted until late March, when gold found its bottom of $1,684. This is because inflation started to accelerate at that point, while the Fed was downplaying rising price pressures, gibbering about “transitory inflation”. The rising worries about high inflation and the perspective of the US central bank staying behind the curve helped gold reach $1,900 once again in early June. However, the hawkish FOMC meeting and dot-plot that came later that month created another powerful bearish wave in the gold market that lasted until the end of September. Renewed inflationary worries and rising inflation expectations pushed gold to $1,865 in mid-November. However, the Fed announced a tapering of its asset purchases, calming markets once again and regaining investors’ trust in its ability to control inflation. As consequence, gold declined below $1,800 once again and stayed there by the end of the year. What can we learn from gold’s performance in 2021? First of all, gold is not a perfect inflation hedge, as the chart below shows. I mean here that, yes, gold is sensitive to rising inflation, but a hawkish Fed beats inflation in the gold market. Thus, inflation is positive for gold only if the US central bank stays behind the curve. However, when investors believe that either inflation is temporary or that the Fed will turn more hawkish in response to upward price pressure, gold runs away into the corner. Royal metal, huh? Second, never underestimate the power of the dark… I mean, the hawkish side of the Fed – or simply, don’t fight the Fed. It turned out that the prospects of a very gradual asset tapering and tightening cycle were enough to intimidate gold. Third, real interest rates remain the key driver for gold prices. As one can see in the chart below, gold plunged each time bond yields rallied, in particular in February 2021, but also in June or November. Hence, gold positively reacts to inflation as long as inflation translates into lower real interest rates. However, if other factors – such as expectations of a more hawkish Fed – come into play and outweigh inflation, gold suffers. Great, we already know that 2021 sucked and why. However, will 2022 be better for the gold market? Although I have great sympathy for the gold bulls, I don’t have good news for them. It seems that gold’s struggle will continue this year, at least in the first months of 2022, as the Fed’s hiking cycle and rising bond yields would create downward pressure on gold. However, when the US central bank starts raising the federal funds rate, gold may find its bottom, as it did in December 2015, and begin to rally again. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Fed and OPEC possibly affects Oil - WTI and Brent. Holidays in 2022 in times of COVID-19

Fed and OPEC possibly affects Oil - WTI and Brent. Holidays in 2022 in times of COVID-19

Alex Kuptsikevich Alex Kuptsikevich 12.01.2022 09:26
WTI crude oil surpassed the $80 mark in Tuesday's trading, near two-month highs and solidly above the 2018-2021 pivot levels near $75. Oil's fall in November-December by more than a quarter from a peak in late October probably served as a reset for oil. Interestingly, oil rose yesterday against plainly bearish news. The WHO warned of a sharp rise in omicron cases in coming weeks, and Oman's oil minister said OPEC+ did not want to see oil at $100 and overheat the market. However, traders were reading between the lines. The rapid spread of omicron is coming closer to the point of reaching collective immunity, raising the chances that summer travel and the holiday season will this time be much more pre-pandemic like. While initially causing some pressure on quotations, Oman's comments on oil did not present anything new in substance. As before, the cartel intends to stick to its plan to raise production by 400K per day every month. This is more than enough to shift the balance in the market towards surplus at the start of the year, but not enough to avoid causing excessive overheating of oil and provoking a new shale boom in the US and elsewhere. Producers in developed countries complain that banks are reluctant to finance new crude projects, requiring companies to become 'greener'. This raises the breakeven price of production projects, giving OPEC+ a head start. In addition, oil was probably positively impacted by Powell's confidence in the economic recovery, which is not threatened by either omicron or several rate hikes this year. Locally, investors interpreted this as confidence in a surge in oil demand in the coming months, which boosted the price. It will not be surprising if oil goes off to retest October highs near $85/bbl WTI and $87/bbl Brent in the next couple of weeks. If the demand for risky assets remains in place by then, we would expect a start of a rally towards $100 and an entrenchment in the $80-100 range through 2022. However, we cannot rule out that the speculative optimism in oil will fade as the Fed's tough stance on the economy is realised.
Oil influences FTSE 100 as it reaches 7611 GBP, USDJPY chasing 115.00

WTI is so near and yet so far. Fed and Oil, Oil and Fed.

FXStreet News FXStreet News 11.01.2022 16:04
WTI has pulled back from session highs above $80.00 as US equities come under selling pressure at the open. But oil may continue to fair better than equities, which are suffering from Fed hawkishness, if the demand outlook remains strong. Amid US equities coming under some selling pressure at the Tuesday equity open, front-month WTI futures have pulled back from earlier session highs to the north of the $80 per barrel level and are now trading back in the $79.00 area. That still leaves WTI prices up more than 50 cents on the day and the oil bulls will still be eyeing a test of last week’s highs in the $80.50 area. Indeed, oil strategists continue to view the spread of the Omicron variant as not likely to leave a meaningful dent in near-term oil demand. Meanwhile, despite the recent hawkish shift in market expectations for Fed tightening that has weighed on US and global equities, with four hikes now seen in 2022 coupled with quantitative tightening, the outlook for global growth in 2022 remains strong. This is what matters most for demand rather than financial condition-focused crude oil markets. The implication might be that, in the coming weeks/months, as long as Fed tightening isn’t seen as a “policy mistake” (i.e. that slows the economy unnecessarily), oil may remain a relatively safe risk asset even if Fed tightening expectations continue to weigh on equities. OPEC supply woes remain in the headline and could also be offering some support to the price action. Libya has faced further setbacks in its efforts to bring production back to 2021 peak output levels of roughly 1.3M barrel per day (BDP). The country’s National Oil Corporation (NOC) said on Tuesday that it would be suspending oil exports from its Es Sider terminal due to bad weather and lack of storage. As a result, it's Waha Oil Co. (which exports oil through the Es Sider terminal) would be reducing production by 50K BPD and this could rise to as much as as 105K BPD. Despite this, the NOC said that output was back to 896K BPD from the 729K BPD reported last week. Ahead, private US oil inventory data is scheduled for release at 2130GMT ahead of Wednesday official EIA US inventory report which is seen showing a seventh consecutive week of draws, with a further 2M barrel drop in stocks expected.
US Inflation Quick Analysis: Strong figures on all fronts cement Fed action, dollar set to bounce

US Inflation Quick Analysis: Strong figures on all fronts cement Fed action, dollar set to bounce

FXStreet News FXStreet News 12.01.2022 15:58
The US reported a 7% in prices in 2021, as expected, triggering a dollar sell-off. Higher Core CPI at 5.5% supports a March rate hike from the Fed.The dollar could move higher once Fed officials respond to the data.The 40-year wait is over – inflation has hit 7%, the highest since 1982. That figure is what economists had expected, triggering a "buy the rumor, sell the fact" response. However, this headline inflation is set to cause a headache for President Joe Biden and Federal Reserve Chair Jerome Powell who has been recently renominated by the President. This political pressure will likely result in statements from Fed officials, about their determination to act. Several hawks have already come out in support of raising rates in March and also of an aggressive reduction to the Fed's balance sheet. It currently stands at nearly $8.8 trillion. However, Powell seemed calmer, focusing on a strong economy and refraining from promising imminent action. Can he stay silent after such a figure? His calm mood sent the dollar down on Tuesday and Wednesday's response to CPI is an extension of that move. Will the dollar continue lower? Powell will find himself under pressure to, at least, offer a tougher tone. Moreover, it is not only political pressure stemming from the headline, but also underlying prices that undermine the bank's calm.The Core Consumer Price Index (Core CPI) hit 5.5%, above 5.4% expected. On a monthly basis, this figure that excludes volatile food and energy costs rose by 0.6%, exceeding estimates as well. The Fed focuses on core prices, and would have to respond to curb inflation. Overall, while the "buy the rumor, sell the fact" response makes sense in the short term, the accumulation of inflationary data such as this report and strong wage growth – 4.7% in 2021 – point to more aggressive Fed action. That would turn the dollar back up, potentially reversing recent gains.
US dollar under pressure on inflation data

US dollar under pressure on inflation data

Alex Kuptsikevich Alex Kuptsikevich 12.01.2022 16:21
US consumer prices rose 0.5% in December, accelerating to 7.0% y/y. The core index added 0.6% on the month and 5.5% y/y. Prices excluding food and energy added more than 1.7% in the last three months, noting that inflation is creeping into the core of the economy.However, fears of this trend may be exaggerated. Inflation data published earlier today in China showed a faster-than-expected slowdown. China could start exporting deflation again or at least stop pushing up prices around the world.Noteworthy is the market reaction where the release put pressure on the dollar and spurred demand for risky assets: EURUSD is up 0.5% after the release, above 1.1400, Nasdaq100 is again testing the 16000 level (+0.9% so far today).The dollar has been consolidating for a long time without much direction, so a breakout of the 1.1250-1.1350 range could start a strong momentum or even set a trend for a few months.
US Fed Playing With Fire - Bubbles May Burst While Bond Yields & Metals Rally

US Fed Playing With Fire - Bubbles May Burst While Bond Yields & Metals Rally

Chris Vermeulen Chris Vermeulen 12.01.2022 16:59
The US Federal Reserve's tightening monetary policy from a historically low-interest rate has slowed the US stock markets. As a result, traders quickly attempt to adjust their capital allocation levels as risk assets, technology, and US major indexes roll lower because of expected Fed Rate Hikes and other Hawkish activities.We will explore how the US Fed's comments and potential future actions may prompt significant market trends in 2022 and beyond. We'll also attempt to identify how and when the US Fed may disrupt the US markets. We know the actions of the US Fed will prompt some significant trends over the next 12 to 24 months. We know certain assets will likely rise in value as fear settles into the markets because of rising interest rates and deflating asset bubbles. It is just a matter of understanding how the speculative asset bubble of the past 8+ years and how the US Fed may move to pop these speculative bubbles soon.Asset Bubbles Everywhere, The Global Markets Continue To FrothAsset bubbles, such as those created in Cryptos, the US stock market, US Real Estate, and the art/collectible market over the past 5+ years, have visualized the US Fed's easy money results in terms of bubbles.Take a look at this chart showing the growth in certain asset classes since the start of 2019. It is incredible to think that these asset classes have rallied so far and so fast in just over 35 months: The Grayscale Bitcoin ETF rallied more than 1200%. The Technology sector rallied more than 200%. Real Estate rallied more than 85%. The S&P 500 rallied more than 94%. The US Federal Reserve's move to lower interest rates after the 2018 market collapse, which resulted in a December 24, 2018, Christmas Bottom, prompted an incredible rally phase where traders followed the US Fed in piling into assets. As long as the US Fed continued buying assets and kept interest rates near zero, global traders had no reason to fight the US Fed.(Source: StockCharts.com)Is The US Fed About To Pop The Bubble From The Stratosphere?Our research suggests the US Federal Reserve is changing its policy a little late into the game. However, it appears the US and global markets have already "rolled over" in terms of growth trends and expectations. This SPY to QQQ ratio chart highlights that the US markets entered a peaking phase in late July/August 2020 and reached an ultimate peak in February 2021.(Source: TradingView.com)S&P 500 PE Ratio Suggests Investors Are ALL-IN For The Next 90+ YearsIn other words, it appears traders have reached their ceiling in terms of what they believe the US Fed is capable of doing at this stage in the rally. For example, the PE Ratio of the US Stock market ending in 2021 ended just below 30, with a historical high for 2021 near 37. The historical mean is 15.96 – which is still relatively high for the US stock market.Remember, a PE level of 15.96 means any investor buying in at those levels would need a minimum of 15.96 years of a company handing over "every penny of revenue" to the investor (excluding all costs, payrolls, taxes, fees, and other operating expenses) to cover the PE multiple of the investment. So a PE level of 30, as we see at the end of 2021, suggests that stock price valuation levels are at least 60 to 90+ years ahead of real returns.The only thing that can change this historic level of speculation in the markets is a deleveraging/revaluation event.(Source: multpl.com)From the US Fed's Actions To How Traders Should Prepare For Shifting MarketsThis first part of our ongoing research into the US Fed's actions and where they are telegraphing their intents will continue. Part II of this article will investigate how traders should read into these shifting markets and where we're attempting to highlight what has taken place over the past 3 to 5+ years.We've managed to live through an incredible event in history. I can only think of one other time when a global superpower extended this type of credit and support for the worldwide economy. That was the Roman Empire many thousands of years ago.What we experience over the next 20 to 40+ years could be the biggest and most incredible opportunity of your lifetime. The process of deleveraging all this debt and working all this capital through the global markets over the next few decades may present one of the most incredible investment/trading opportunities anyone has ever seen in over 1500 years.Look for my Part II to this article, and we'll continue exploring the current shifts in the US and global stock and asset markets.Finding The Right Strategies That Will Help You Navigate Through Bulls & BearsIf you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio - Triple-Strategy Trading Plan to help you profit from these big market transitions.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 the markets are starting to transition away from the continued central bank support rally phase and may start 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.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 the following link:   www.TheTechnicalTraders.com 
Boris Johnson influences markets. Tesco's doing great. Government's and Bank of England's (BoE) intention is to hold back inflation

Boris Johnson influences markets. Tesco's doing great. Government's and Bank of England's (BoE) intention is to hold back inflation

Walid Koudmani Walid Koudmani 13.01.2022 12:09
Recent news surrounding the PM Boris Johnson has led to some additional uncertainty in markets as they try to evaluate the potential impact of such revelations. While a major change in parliament remains unlikely, any serious concern for the stability of the government could have far reaching effects on the economy since it could potentially bring many policy changes. However, it is important to note that the major objectives of the government and the Bank of England are to contain inflation while facilitating the post pandemic recovery, and recent developments are unlikely to shift focus from those tasks in a major way despite them potentially leading to a short term increase in volatility. Furthermore, while in the long term this volatility may be mitigated, it could lead to significant risk aversion by investors in the short term as they try to assess the circumstances and predict potential outcomes. Tesco continues to show strong performance with Q3 update Tesco's Q3 and Christmas Trading Statement continues to show strong momentum from the company, with further growth even after the excellent performance seen last year and with the highest share in 4 years thanks to a positive performance both in stores and online. While this has allowed the company to forecast a retail operating profit slightly above the top-end of the previous guidance range, there are several encouraging signs across the economy that could benefit Tesco and which could help justify this optimism if it is able to continue implementing its strategy.
Dandelion's Journey Is Now Live In GWENT! Love Event Starting Soon!

GameStop Stock Price and Forecast: Is this game over for GME stock?

FXStreet News FXStreet News 13.01.2022 15:56
GameStop stock continues to edge lower with little momentum. GME shares slide to $128, nearly 2% lower on Wednesday. GME stock is down 30% over the last three months and 13% this year. GameStop (GME) is reaching a key juncture. Now that the Fed has seemingly performed its magic act of raising rates and keeping markets happy, it is time to see if meme stocks can benefit from a more risk-on tone in equities. Meme stocks are all about momentum, not valuation, and there have been worrying signs for the last quarter. Small lot trades have been decreasing, and these are often used as an indicator of retail activity. Call option volumes have also decreased, another meme stock feature used widely by retail traders. Finally, the economy is nearly fully open, and the Omicron variant is milder. Will meme stocks ever recapture their preeminence of this time last year when they ruled the airwaves? GameStop (GME) was the number one topic on CNBC, and every other major financial news outlet. This year, so far, it barely warrants a mention. Momentum is worrying, and that is all meme stocks have to support them. GameStop (GME) stock news Today, January 13, marks the exact one-year anniversary of the first huge pop in the GME stock price. On January 13, 2021, GME stock spiked 57%, having been near 100% intraday, and set in motion the saga as we know it. That took GME shares from $20 to nearly $40 before closing back at $31.40. Many of us, myself included, thought this was madness when we took a close look at the company. Now if you got the chance to buy stock in GME at $40, you would jump at it. This is an example of how price alters the perception of value and why retailers have constant sales. Technically, the double top has been the problem here. GME put in a double top on November and December last year that has played out perfectly. The slide though has continued past the target. $118 is now key, and breaking below sees volume dry up and a likely move to $70. Breaking $160 to $167 is needed to change the view to a more bullish stance in our opinion. GameStop (GME) chart, daily
Next Rate Hikes In The USA Ahead. Update on Dollar Index (DXY)

Next Rate Hikes In The USA Ahead. Update on Dollar Index (DXY)

Alex Kuptsikevich Alex Kuptsikevich 13.01.2022 09:55
Fundamental and technical factors on the dollar locally give opposite signals. However, after a long period of strengthening the American currency, a corrective DXY pullback looks like a logical short-term prospect. On Wednesday, the US dollar came under pressure, the sharpest loss since last May and coming out of a prolonged consolidation. The dollar index retreated below 95 for the first time in two months. EURUSD surpassed 1.1400, trading at 1.1440 at the time of writing, having consolidated beyond the narrow range where the pair had spent the previous almost two months. Often such a decisive move out of the range is followed by a further breakout move, which we may well see in the coming days. The Dollar Index closed below the 50-day moving average on Tuesday and made a further move lower on Wednesday. The fall out of the range gave an informal start to the correction after the rally from May through most of November and the sideways movement in December. A potential target for such a pullback is seen in the 93.50-94.00 area. Near 94 is the 61.8% Fibonacci retracement of the dollar's move amplitude in 2021 and the starting point of the last rally in November. Near 93.50, the peak area of the index last year could be equally strong support. It hardly makes sense to say now that we are seeing the start of a big wave of dollar decline, as solid fundamentals support its growth. It looks like Fed members started a competition on whose expectations and comments are the most hawkish, and consumer inflation has given little reason to change the rhetoric. Among the latest comments is Powell's reassurance that the economy can cope with rate hikes. Fighting inflation is a top priority for the US central bank. Mary Daly, president of the Federal Reserve Bank of San Francisco, predicts a first rate hike as early as March. This practically rules out a pause between the end of balance buying and the first policy tightening. Furthermore, there are increasing signs that rate increases can continue to occur more frequently than once a quarter, as was the case in the previous tightening cycle. Many other central banks in developed countries are not yet prepared to tighten their policies as vigorously, which generally creates a sustained pull towards the USD on the interest rate differential in its favour.
Awaiting US CPI And Speaking Of Disney and Uber. SEK And PLN As Central Banks Moves

US Retail Sales Analysis: Downfall? Not so fast, 2018 tells a different story, dollar to shrug it off

FXStreet News FXStreet News 14.01.2022 15:58
US Retail Sales have tumbled by 2.3% in December, far worse than expected. Worries about Omicron and rising inflation do not tell the full story. Back in 2018, sales collapsed by 2.8%, in what seems like a shift in behavior. The Fed and the dollar will likely move on, focusing on inflation and employment. The 1970s and stagflation are back in a bad way – that is how some may have reacted to the fall in US Retail Sales in December. Consumption tumbled by 2.3%, far worse than expected, while the Control Group – the core of the core – suffered a deeper plunge of 3.1%. Stagflation is a portmanteau word combining inflation and stagnation. In the 1970s, higher prices caused people to buy less, dragging the economy into stagnation. As prices rose by 7% YoY in December, that narrative may now emerge. Another explanation is that the Omicron variant caused people to refrain from the activity. After all, thousands of flights were canceled due to staff shortages, and other economic activities may have ground to a halt as well. Both theories are logical explanations, but only tell part of the story. Between the pandemic and inflation lie supply-chain issues, which were magnified by warnings of empty shelves or delays to shipments. Consumers rushed to the shops – online and offline – earlier in the autumn, and gobbled up un gifts. That means an early Christmas party and a hangover when trees were put in their place. A look into the not-so-distance history reveals another picture. Back in December 2018 – without any pandemic or other disruptions – retail sales crashed by 2.8%. That is worse than the current fall. While such slides did not happen in 2019, there seems to be a shift in consumer behavior that is not fully captured by the models. Black Friday comes early and is accompanied by China's "Singles' Day" sales on November 11. Seasonal adjustments have yet to catch up with changing consumer preferences. Market implications The devastating news from an area which represents 70% of the economy is weighing on stocks, but they were in the red beforehand as well. The dollar is benefiting from safe-haven flows, but only just. For the Federal Reserve, it is just one data point that does not represent a struggling economy, at least not yet. Trends in inflation and unemployment, the bank's mandates, are far more important. For stocks, company earnings are now in focus, and for the dollar, inflation and speculation on the Fed's reduction of its balance sheet matter more. These factors cold be dollar positive – alongside profit-taking on dollar shorts.
US Federal Reserve - Playing With Fire Part II

US Federal Reserve - Playing With Fire Part II

Chris Vermeulen Chris Vermeulen 14.01.2022 22:49
The US Federal Reserve has recently taken steps to communicate a change in future policy – suggesting raising interest rates and acting more aggressively to combat inflation. Throughout the last few weeks of 2021 and early 2022, these comments and posturing by the US Fed have created some very big downside price moves in the US major indexes. As a result, the US markets' volatility levels (VIX) have moved to a recent average between 17~21 – nearly 3x historical normal levels.US Fed Likely To Move Very Slowly On RatesOne thing that I believe has become evident to many people is that we have moved past the COVID stimulus conversations of the past 24+ months. Inflation, rising prices, constricted supply-chains, and an excess of capital throughout many global markets appear to have shifted how the US Fed interprets future risks. The Fed is telegraphing these concerns to investors very clearly right now, which means traders/investors are shifting their focus away from high-flying Growth stocks.Even though traders are attempting to shift capital away from certain risky sectors in the US and global markets, I still believe we have about 60 to 120+ days before the bigger market shift takes place.The US Federal Reserve will likely start addressing inflationary concerns by reducing their balance sheet assets – not by aggressively raising interest rates. I feel the US Fed will navigate Q1:2022 and Q2:2022 by reducing balance sheet assets while allowing the global supply-chain issues to attempt to resolve themselves. By June/July 2022, or later, I believe the Fed may start to consider rate increases as a means to slow inflation.Fed Comments Shift Investor Sentiment – Metals In Focus For Later 2022This move away from Dovish/easy-money policies will push traders to consider more traditional hedge investments – like Gold and Silver. I'm sure you've read some comments over the past 24+ months about Gold being an extremely undervalued asset as the US Fed poured trillions of stimulus dollars into the economy? These comments were made concerning the fact that Gold rallied from $1450 in 2019 to almost $2100 in 2020 – over 12 months (over +43%). Could a big move in Gold/Silver happen again in 2022 or 2023?My research suggests a Double Pennant/Flag formation in Gold suggests the $1675 support level becomes critical soon. It also indicates a Breakout/Breakdown move may start to happen before March or April 2022 – near the APEX of the current Pennant/Flag formation.Sign up for my free trading newsletter so you don’t miss the next opportunity! The key APEX range is currently between $1785 and $1830. This represents a very tight price range where Gold may attempt to consolidate as we move towards the March/April Apex. My research suggests a move to levels near $1740 to $1750 may happen just before the Apex Breakout/Breakdown initiates. So, watch for a bit of downside price volatility in Gold before the end of February 2022.Junior Gold Miners May Rally +45%, Or More, On A Gold Price RallyThe Junior Gold Miners (GDXJ) Weekly Chart shows a firm support level near $37.35 that should act as a floor for price. My research suggests the next 45+ days will see GDXJ prices stay below $44 to $45 – trading in a reasonably tight range before starting to rally higher near the end of February 2022.I believe Metals and Miners are aligning for a late February 2022 or Q2:2022 rally. The reason is that I believe the positioning by the US Fed, and expectations related to later 2022 (a mid-term election year), may prompt quite a bit of concern for the US and global equities. This will likely push investors and traders into “old-school” hedge instruments – like Gold and Silver.That means Junior Gold and Silver Miners maybe about 55+ days away from an explosive upside price trend.SILJ May Rally +70% to +100%, Or More, On Fed ActionsNear the end of 2022, I published a research article highlighting the incredible opportunity in Silver – focusing on how the Gold/Silver ratio had recently reached another peak level and had started to decline: Fear May Drive Silver More Than 60% Higher In 2022. This move suggests the disparity between the price of Gold to the price of Silver shows Gold is appreciated (and holding greater value) than Silver over the past few years.The COVID virus event, and the subsequent Fed/Government stimulus, shifted investors/traders focus away from precious metals and into the equities market speculative rally. Now that the US Fed is starting to warn of more aggressive rate increases and other actions, precious metals are suddenly much more important as a hedge against future risks.This SILJ Weekly Chart highlights the incredible base level, near $12, that continues to offer traders a fantastic hedge against a sudden Fed move. Using a simple Fibonacci Price Extension, we can see a $20 target level (+61%) and a $25.64 target level (100%). If the $12 level holds as a base/support, SILJ may be one of the easiest and best hedges against a sudden Fed move right now.The US Federal Reserve is, in my opinion, playing with fireThe COVID Virus Event pushed global debt levels higher by more than $19.5 Trillion Dollars (Source: Bloomberg ). The rush to attempt to save the global economy has created a massive surge in global debt levels – pushing the global debt to GDP level to well above 356% (Source: Axios).Why is this so important right now? Because the US Federal Reserve is talking about an attempt to move interest rates and Fed decision-making back to near-normal levels. In my opinion, this was the one fault of Alan Greenspan in 2006-07. The thought that we can raise rates to “near normal level” at any time when we have grown debt levels excessively throughout the world is failed thinking and ignorant, in my opinion.The US Federal Reserve is trapped and almost backed into a corner. I believe the US Fed will find any rate increases above 1.00 before the end of 2023 will significantly disrupt the global speculative bubble. Any attempt to move rates to levels near or above 2.00 would represent a nearly +2000% rate increase in less than 12 to 24 months. If you want to see a shock to the global markets where global debt to GDP is closing in on 400%, try raising the FFR by more than 2000% over a short period of time. That is what I call “playing with FIRE.”.(Source: Axios)2022 and 2023 will be filled with significant market trends and increased volatility. Right now, traders and investors need to understand the global markets are attempting to quickly transition away from a speculative/growth phase as the US Federal Reserve attempts to telegraph future rate increases. So it's time to start thinking about how to prepare for unknowns and how to protect your capital more efficiently.Growth sectors and US major indexes may continue to move higher for the next 30 to 60+ days, but my research suggests Q2:2022 may represent a "change in thinking" related to a late-2022 Fed shift. We are starting to see the markets move away from the speculative bubble-type trending we saw in 2020 and early 2021. Keep your eyes open and learn how to prepare for the big trends over the next 3+ years. The Fed is playing with fire right now. One wrong move and the markets could start a drastic price correction/reversion.Finding The Right Trading StrategiesIf you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio – Triple-Strategy Trading Plan to help you profit from these big market transitions.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 the markets are starting to transition away from the continued central bank support rally phase and may start 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.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 the following link:   www.TheTechnicalTraders.com 
Gold Wars: Revenge of Supply and Inflation

Gold Wars: Revenge of Supply and Inflation

Arkadiusz Sieron Arkadiusz Sieron 14.01.2022 16:53
  Inflation! The Republic is crumbling under attacks by the ruthless Supply Lord, Count Shortage. Dearness is everywhere. Will gold save the galaxy? If George Lucas were to make a movie about 2021 instead of Jedi knights, he would probably call it Revenge of the Supply. After all, last year will be remembered as the period of semiconductor shortages, production bottlenecks, disrupted value chains, delayed deliveries, surging job vacancies, rising inflation, and skyrocketing energy prices. It could be a shocking discovery for Keynesian economists, who focus on aggregate demand and believe that there is always slack in the economy, but it turned out that supply matters too! As a reminder, state governments couldn’t deal with the pandemic more smartly and introduced lockdowns. Then, it turned out – what a surprise! – that the shutdown of the economy, well, shut down the economy, so the Fed and the banking system boosted the money supply, while Congress passed a mammoth fiscal stimulus, including sending checks to just about every American. In other words, 2021 showed us that one cannot close and reopen the economy without any negative consequences, as the economy doesn’t simply return to the status quo. After the reopening of the economy, people started to spend all the money that was “printed” and given to them. Hence, demand increased sharply, and supply couldn’t keep up with the boosted spending. It turned out that economic problems are not always related to the demand side that has to be “stimulated”. We’ve also learned that there are supply constraints and that production and delivery don’t always go smoothly. The contemporary economy is truly global, complex, and interconnected – and the proper working of this mechanism depends on the adequate functioning of its zillion elements. Thus, shit happens from time to time. This is why it’s smart to have some gold as a portfolio insurance against tail risks. Evergiven, the ship that blocked the Suez Canal, disrupting international trade, was the perfect illustration. However, the importance of supply factors goes beyond logistics and is related to regulations, taxes, incentives, etc. Instead of calls for injecting liquidity during each crisis, efficiency, reducing the disincentives to work and invest, and unlocking the supply shackles imposed by the government should become the top economic priority. Another negative surprise for mainstream economists in 2021 was the revenge of inflation. For years, central bankers and analysts have dismissed the threat of inflation, considering it a phenomenon of the past. In the 1970s, the Fed was still learning how to conduct monetary policy. It made a few mistakes, but is much smarter today, so stagflation won’t repeat. Additionally, we live in a globalized economy with strong product competition and weak labor unions, so inflation won’t get out of control. Indeed, inflation was stubbornly low for years, despite all the easy monetary policy, and didn’t want to reach the Fed’s target of 2%, so the US central bank changed its regime to be more flexible and tolerant of inflation. It was in 2020, just one year before the outbreak of inflation. The Fed completely didn’t expect that – which shows the intellectual poverty of this institution – and called it “transitory”. Initially, inflation was supposed to be short-lived because of the “base effects”, then because of the “supply bottlenecks”. Only in November, the Fed admitted that inflation was more broad-based and would be more persistent than it previously thought. Well, better late than never! What does the revenge of supply and inflation imply for the gold market? One could expect that gold would perform better last year amid all the supply problems and a surge in inflation. We’ve learned that gold doesn’t always shine during inflationary times. The reason was that supply shortages didn’t translate into a full-blown economic crisis. On the contrary, they were caused by a strong rebound in demand; and they contributed mainly to higher inflation, which strengthened the Fed’s hawkish rhetoric and expectations of higher interest rates, creating downward pressure on gold prices. On the other hand, we could say as well that gold prices were supported by elevated inflation and didn’t drop more thanks to all the supply disruptions and inflationary threats. After all, during the economic expansion of 2011-2015 that followed the Great Recession, gold plunged about 45%, while between the 2020 peak and the end of 2021, the yellow metal lost only about 13%, as the chart below shows. Hence, the worst might be yet to come. I don’t expect a similarly deep decline as in the past, especially given that the Fed’s tightening cycle seems to be mostly priced in, but the real interest rates could normalize somewhat. Thus, I have bad news for the gold bulls. The supply crunch is expected to moderate in the second half of 2022, which would also ease inflationary pressure. To be clear, inflation won’t disappear, but it may reach a peak this year. The combination of improvement on the supply side of the economy, with inflation reaching its peak, and with a more hawkish Fed doesn’t bode well for gold. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Powell Sends a Smile to Gold

Powell Sends a Smile to Gold

Arkadiusz Sieron Arkadiusz Sieron 14.01.2022 16:27
  Powell testified before the Senate. He didn’t say anything new, but gold rallied a bit. “We have totally screwed up inflation and now we are in deep trouble,” admitted Jerome Powell during his appearance before the Senate. OK, he didn’t formulate it exactly that way, but it was the message of his testimony. Powell admitted that the Fed wrongly expected a faster easing of supply disruptions and thought that price pressures would be much lower by now. As a consequence, inflation was believed to be only ‘transitory’. Unfortunately, that’s not what happened. “The supply-side constraints have been very durable. We are not seeing the kind of progress that all forecasters thought we’d be seeing by now. We did foresee a strong spike in demand. We didn’t know it would be so focused on goods,” saidPowell. As a result of the Fed’s inaction, inflation has risen 7% in 2021, the fastest pace since February 1982, as the chart below shows. After conducting very complicated calculations, Powell admitted that “inflation is running very far above target.” Bold deduction, Sherlock! Such high inflation is indeed a troublesome and even central bankers realize that. This is why Powell stated that “the economy no longer needs or wants the very accommodative policies we have had in place,” and that “we will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.” However, there is a problem here. The main tool the Fed has to fight inflation is raising the federal funds rate, but hiking interest rates may hamper economic expansion and even trigger the next financial crisis. As Powell admitted, “if inflation does become too persistent, that will lead to much tighter monetary policy and that could lead to a recession.” Thus, the central bank is between a rock and a hard place, between high inflation and the risk of slowing economic expansion or even of an economic crisis.   Implications for Gold What does Powell’s testimony imply for the gold market? Well, theoretically not much, as it didn’t include any major surprises. However, Powell sounded quite hawkish. For example, he downplayed the economic consequences of the current surge in coronavirus cases, and said that it’s likely not changing the Fed’s plans to tighten its monetary policy this year. These plans are relatively bold for this year: “We are going to end asset purchases in March. We will raise rates. And at some point this year will let the balance sheet runoff,” Powell said. However, it seems that Powell sounded less hawkish than investors were afraid of. Given such worries, the lack of any surprises could be dovish. This is at least what gold’s performance suggests. As the chart below shows, Powell’s testimony triggered a small rally and revived optimism in the gold market. That’s for sure encouraging. After all, gold jumped above a key level of $1,800, catching some breath, but it’s too early to call a major reversal in the gold market. The yellow metal would have to sustain itself above $1,820 and then surpass $1,850, or even higher levels, to trumpet a bullish breakout. There are still several headwinds for gold. First of all, the monetary hawks haven’t struck yet. They are growing in strength, as several regional bank presidents have recently called for a rate hike as soon as in March. Such calls may strengthen the expectations of rate increases, boosting bond yields, and creating downward pressure for gold prices. We’ll find out soon whether it will happen or not, as the January FOMC meeting is in two weeks, and it could be a groundbreaking event in the gold market. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
How will markets react to the news surrounding Boris Johnson?

How will markets react to the news surrounding Boris Johnson?

Walid Koudmani Walid Koudmani 17.01.2022 13:35
Recent news surrounding tChinese data paints optimistic picture The latest Chinese economic data came in mostly above expectation with GDP increasisgn compared to the expected as it continued to highlight the strong pace of the post pandemic economic recovery. Meanwhile, retail sales increased 1.7% YoY in December (exp. 3.7% YoY), industrial production was 4.3% YoY higher (exp. 3.6% YoY) while urban investments were 4.9% YoY higher (exp. 4.8% YoY). Furthermore, the PBOC announcend it intends to lower 1-year medium term lending facility and 7-day reverse repo rate by 10 bps in order to provide additional assistance. While this data could be promising, signs of rising infections in China just 3 weeks before the winter Olympics could lead to widespread economic uncertainty, particularly if the situation is not handled effectively in the short term. Oil retreats at the start of the weekWhile Oil prices managed to have a positive performance towards the end of last week, with WTI breaking above the $83 resistance area, this week started with a slight pullback for both Brent and WTI. Rising demand uncertainty and the potential increase in global supply continue to pressure oil prices as they manage to remain in the upper limit of the recent trading range. While OPEC is expected to decide on potential production increases soon, markets remain focused on the delicate balance between supply and demand which has appeared to impact price fluctuations quite significantly throughout most of the post pandemic economic recovery. he PM Boris Johnson has led to some additional uncertainty in markets as they try to evaluate the potential impact of such revelations. While a major change in parliament remains unlikely, any serious concern for the stability of the government could have far reaching effects on the economy since it could potentially bring many policy changes. However, it is important to note that the major objectives of the government and the Bank of England are to contain inflation while facilitating the post pandemic recovery, and recent developments are unlikely to shift focus from those tasks in a major way despite them potentially leading to a short term increase in volatility. Furthermore, while in the long term this volatility may be mitigated, it could lead to significant risk aversion by investors in the short term as they try to assess the circumstances and predict potential outcomes. Tesco continues to show strong performance with Q3 updateTesco's Q3 and Christmas Trading Statement continues to show strong momentum from the company, with further growth even after the excellent performance seen last year and with the highest share in 4 years thanks to a positive performance both in stores and online. While this has allowed the company to forecast a retail operating profit slightly above the top-end of the previous guidance range, there are several encouraging signs across the economy that could benefit Tesco and which could help justify this optimism if it is able to continue implementing its strategy.
YUAN feels good even after not so optimistic stats

YUAN feels good even after not so optimistic stats

Alex Kuptsikevich Alex Kuptsikevich 17.01.2022 12:33
China published mixed economic data noting a slowdown in a year-over-year comparison, but some of the data exceeded expectations. The Chinese renminbi has been on the offensive against the US dollar for the past week, bringing USDCNH back to test the lows of the past six months. The economy grew by 1.6% last quarter after 0.2% previously. However, the GDP growth was 4.0% y/y - the lowest since the second quarter of 2020. Industrial production added 4.3%, markedly better than the expected 3.7%. December retail sales data disappointed with growth slowing to just 1.7% y/y, the lowest since August 2020. Weakness in domestic demand data has not stopped the demand for the Chinese renminbi, which is testing the 6.35 mark for the second month. Since the beginning of December, the pair has bounced out of this area. Earlier in May 2021, we also witnessed a prolonged reversal near this level. The USDCNH traded steadily lower from January to May 2018 but turned to the upside at the start of the trade wars. The yuan has settled well, consolidating in a narrow range since late October, which has created the potential for a resumption of the trend. A firm consolidation below 6.35 at the end of the week or the month would be an essential signal for starting a new downward wave. However, we cannot rule out the possibility of another bounce from these levels for the time being.
Gold: Technical Analysis, Fundamental Analysis, Macro Influences - The Latest "As Good As Gold" Is Here!

Russian Bear and Inflationary Hydra Sent Gold to $1,840

Arkadiusz Sieron Arkadiusz Sieron 20.01.2022 17:24
  Gold soared as investors got scared by reports of an allegedly impending military conflict. Was it worth reacting sharply to geopolitical factors? Gold has been performing quite nicely in January. As the chart below shows, its price increased from $1,806 at the end of December to around $1,820 this week, strengthening its position above $1,800. Yesterday (January 19, 2022), gold prices went sharply higher, jumping above $1,840, as one can see in the chart below. What happened? Investors got scared of the Russian bear and inflationary hydra. President Biden predicted that Russia would move into Ukraine. The threat of invasion and renewal of a conflict weakened risk appetite among investors. To complete the geopolitical picture, this week, North Korea fired missiles again (on Monday, the country conducted its fourth missile test of the year), while terrorists attacked the United Arab Emirates with drones. The heightened risk aversion could spur some demand for safe-haven assets such as gold. The yellow metal tends to benefit from greater uncertainty. However, investors should remember that geopolitical risks usually cause only a short-lived reaction. Investors also recalled the ongoing global inflationary crisis. Some news helped them wake up. In the U.K., inflation surged 5.4% in December, the highest since March 1992. Meanwhile, in Canada, inflation jumped 4.8%, also the fastest pace in 30 years. Additionally, crude oil prices have jumped to around $86.5 per barrel, the highest value since 2014, as the chart below shows. The timing couldn’t be worse, as inflation is already elevated, while higher oil implies higher CPI in the future. Gold should, therefore, welcome the rise in oil prices. On the other hand, it could prompt the Fed to react more forcefully and aggressively to tighten its monetary policy.   Implications for Gold What does the recent mini-rally imply for the gold market? Well, it’s never a good idea to draw far-reaching conclusions from short-term moves, especially those caused by geopolitical factors. Risk-offs and risk-on sentiments come and go. However, let’s do justice to gold. It hit a two-months high, more and more boldly settling in above $1,800. All this happened despite rising bond yields. As the chart below shows, the long-term real interest rates have increased from about -1.0% at the end of 2021 to about -0.6%. Gold’s resilience in the face of rising interest rates is praiseworthy. Having said that, investors shouldn’t forget that 2022 will be a year of the Fed’s tightening cycle, rising interest rates, and also a certain moderation in inflation. All these factors could be important headwinds for gold this year. However, investors may underestimate how the Fed’s monetary policy will impact market conditions. After all, the Fed’s hawkish stance also entails some risks for the financial markets and the overall economy. Practically, each tightening cycle in the past has led to an economic crisis. As a reminder, after four hikes in 2018, the Fed had to reverse its stance and cut them in 2019. The Fed signaled not only a few hikes this year, but also a reduction of its balance sheet. Given the enormous indebtedness of the economy and Wall Street’s addiction to easy money, it might be too much to swallow. Importantly, when the Fed is focused on fighting inflation, its ability to help the markets will be limited. I thought that such worries would arise later this year, supporting gold, but maybe the gold market has already started to price in the possibility of economic turbulence triggered by the Fed’s tightening cycle. Anyway, next week, the FOMC will gather for the first time in 2022, and it could be an important, insightful event for the gold market. Stay tuned! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Financial Sector ETF XLF $37.50 Continues To Present Opportunities

Financial Sector ETF XLF $37.50 Continues To Present Opportunities

Chris Vermeulen Chris Vermeulen 26.01.2022 23:16
Recent volatility in the US markets ahead of the Fed comments/actions have prompted a relatively big pullback in almost every sector. Many traders are concerned the Fed may take immediate action to raise rates. Yet, a small portion of traders believes the Fed may be trapped in a position to act more conservatively in addressing inflation going forward. I think the Fed will continue to talk firmly about potentially raising rates. The Fed is more interested in decreasing the assets on their balance sheet before they risk doing anything to disrupt support for the global markets.Suppose my analysis of the Fed predicament is correct. In that case, the recent collapse of the US markets represents a fear-based emotional selloff of many sectors that may still represent a strong opportunity for a recovery rally in 2022. One of those sectors is the Financial sector – particularly XLF.I wrote about this on January 7, 2022, in this article: FINANCIAL SECTOR STARTS TO RALLY TOWARDS THE $43.60 UPSIDE TARGETI also wrote how the US Fed might be playing with fire regarding their stern positioning and statements recently in this article on January 14, 2022: US FEDERAL RESERVE - PLAYING WITH FIRE PART 2Critical Components Of Recent Inflationary TrendsIf you attempt to follow my logic as I read into the Fed's intentions. There are three critical components to navigating the rise of inflationary trends recently.The COVID-19 virus event created several disparities in the global markets. First, the disruption to the labor and supply-side markets began an almost immediate inflationary aspect for the global economy. Secondly, the US's stimulus and easy money policies have stimulated demand for products, technology, houses, autos, and other real assets. These two factors combined have increased inflationary pressures on the global markets.Rising consumer demand for real and virtual assets such as Cryptos, NFTs, and others has pushed the speculative investing cycle into a hyper-active rally phase. This was clearly witnessed in early 2021, with the Reddit/Meme rallies became the hottest trades, then quickly dissipated after July 2021. This speculative rally has pushed the post-COVID rally well beyond reasonable expectations over the past 16+ months.Excessive debt levels push a deflationary process to the forefront. Consumers are now starting to pull away from the excesses of the past 16+ months. The Fed's tough talk and recent deeper declines in various sectors over the past 12+ months show that inflationary trends are subsiding. Despite the supply-side issues being resolved, consumers continue to pull away from hyper-speculative activities. The markets will naturally revalue to support more realistic price levels, deflating excessive P/E ratios and recent extreme price peaks in assets.Possible Next Steps for the US FedMy interpretation of the global markets is that excess speculative trending and rising commodity prices, combined with excess debt levels and consumers who have suddenly become very aware of global market risks, are already acting as a deflationary process. Because of these underlying factors, which I believe are currently in play throughout the globe, the US Federal Reserve may be forced to wait things out a bit. The Fed may have to navigate these natural deflationary processes while attempting to provide monetary support for what I believe will be a downside/deflationary trend over the next 3+ years.Sign up for my free trading newsletter so you don’t miss the next opportunity! The US Federal Reserve may not have to take any aggressive action right now. Instead, it may decide to watch how the global markets contract as consumers pull away from inflated price levels and higher risks and attempt to navigate these natural deflationary price trends. If the Fed were to act aggressively right now and raise rates, they could push the global markets into a steeper collapse. This process would likely burst numerous asset bubbles very quickly and push many foreign nations into some type of debt default.This presents a new problem for the US Fed – going from inflationary concerns to global economic collapse concerns very quickly. So when I suggested the Fed is playing with fire – maybe I should have said “playing with the nuclear economic football”?Financial Sector ResilienceStill, I believe the US Financial sector is showing tremendous resilience near $37.50. I think it has a powerful opportunity to rally back above $42 to $44 if the Fed takes a more measured approach to let the global markets deflate a bit before taking any aggressive actions.The US Financial sector will likely continue to benefit from price volatility and consumer demand as these deflationary trends prompt consumers to engage in more normal economic activities. The Financial sector also has continued to stay under moderate pricing pressure since the 2008 highs. XLF is only 25.46% higher than the 2008 highs, whereas the NASDAQ is more than 575% above the 2008 market highs.The Financial Sector may be one of the strongest market sectors over the next few years. Deflationary trends push consumers and global markets away from excess debt levels and towards more traditional economic activities/trends.Want To Learn More About Financial Sector ETFs?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 the markets are starting to transition away from the continued central bank support rally phase and may start 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.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 the following link:   www.TheTechnicalTraders.com 
Wednesday (26.01.2022): BTC -0.6%, ETH +0.2%, LUNA decreases -6.6%

Wednesday (26.01.2022): BTC -0.6%, ETH +0.2%, LUNA decreases -6.6%

Alex Kuptsikevich Alex Kuptsikevich 27.01.2022 09:46
Bitcoin decreased by 0.6% on Wednesday, ending the day at around $36,400. Ethereum added 0.2%, while other top-ten altcoins mostly saw declines from 3.1% (Binance Coin) to 6.6% (Terra, an outsider of the day). According to CoinGecko, the total capitalization of the crypto market sank by 0.5%, to $1.73 trillion. Bitcoin showed positive dynamics all day against the backdrop of growing stock indices. Up until the Fed meeting, the first cryptocurrency was gaining over 6%, hitting 5-day highs above $38,800. However, BTC began to fall almost immediately after the announcement of the results of the Fed's two-day meeting. The regulator announced a curtailment of bond purchases in early March, as well as an imminent rate hike, followed by a reduction in the Fed's balance sheet. The fall of bitcoin accelerated along with stock indices in half an hour when the head of the Fed, Jerome Powell, started his press conference. He noted that rising inflation could force the regulator to raise interest rates more aggressively. The first cryptocurrency may finally complete its upward correction if risky assets resume and intensify the fall after the Fed meeting. In Russia, buyers are now engaged in the withdrawal of capital and deprive the country's economy of financing, as announced by the Bank of Russia. Last week, the regulator proposed to ban the circulation and mining of cryptocurrencies in the territory of the Russian Federation. The State Duma and the Ministry of Finance, on the contrary, are in favour of regulation, not a ban on the industry. Russian President Vladimir Putin on Wednesday urged the government and the Central Bank to come to a consensus on the regulation of cryptocurrencies. Meanwhile, Turkish President Erdogan instructed the ruling party to study the impact of cryptocurrencies on the economy. At the same time, the US Internal Revenue Service said that non-fungible tokens (NFTs) are used for illegal activities, and celebrities are spreading this by promoting NFTs.
Gold Plunged but Didn’t Knuckle Under to the Hawkish Fed

Gold Plunged but Didn’t Knuckle Under to the Hawkish Fed

Finance Press Release Finance Press Release 27.01.2022 14:17
The FOMC set the stage for a March interest rate hike, which was an aggressive signal. Gold got it and fell – but hasn't capitulated yet.The Battlecruiser Hawk is moving full steam ahead! The FOMC issued yesterday (January 26, 2022) its newest statement on monetary policy in which it strengthened its hawkish stance. First of all, the Fed admitted that it would start hiking interest rates “soon”:With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.Previously, the US central bank conditioned its tightening cycle on the situation in the labor market. The relevant part of the statement was as follows in December:With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment.The alteration implies that, in the Fed’s view, the US economy has reached maximum employment and is ready to lift the federal funds rate. Indeed, Powell reaffirmed it, saying:There’s quite a bit of room to raise interests without threatening the labor market. This is by so many measures a historically tight labor market — record levels of job openings, quits, wages are moving up at the highest pace they have in decades.Powell also clarified the timing, stating that “the Committee is of the mind to raise the federal funds rate at the March meeting.” This is not completely unexpected, but does mark a significant hawkish change in the Fed’s communication, which is negative for gold.Second, the FOMC reaffirmed its plan, announced in December, to end quantitative easing in early March. It means that in February, the Fed will buy only $20 billion of Treasuries and $10 billion of agency mortgage-backed securities, instead of the $40 and $20 purchased in January:The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month.Third, the FOMC is preparing for quantitative tightening. Together with the statement on monetary policy, it published “Principles for Reducing the Size of the Federal Reserve's Balance Sheet”. The Fed hasn’t yet determined the timing and pace of reducing the size of its mammoth balance sheet. However, we know that it will happen after the first hike in interest rates, so probably as soon as May or June. After all, as Powell admitted during his press conference, “the balance sheet is substantially larger than it needs to be (...). There’s a substantial amount of shrinkage in the balance sheet to be done.”Implications for GoldWhat does the recent FOMC statement imply for the gold market? The end of QE, the start of the hiking cycle, and then of QT – all packed within just a few months – is a big hawkish wave that could sink the gold bulls. The Fed hasn’t been so aggressive for years.Of course, maybe it’s just a great bluff, and the Fed will retreat to its traditional dovish stance soon when tightening monetary and financial conditions hit Wall Street and the real economy. However, with CPI inflation above 7%, mounting political pressure, and public outrage at costs of living, the US central bank has no choice but to tighten monetary policy, at least for the time being.It seems that gold got the message. The price of the yellow metal plunged more than $30 yesterday, as the chart below shows. Interestingly, gold started its decline before the statement was published, which may indicate more structural weakness. What is also disturbing is that gold was hit even though the FOMC statement came largely as expected.On the other hand, gold didn’t collapse, but it dropped only by thirty-some dollars, or about 1.6%. Given the importance and hawkishness of the FOMC meeting, it could have been worse. Yes, the hawkish message was expected, and some analysts even forecasted more aggressive actions, but gold clearly didn’t capitulate. Thus, there is hope (and turbulence in the stock market can also help here), although the upcoming weeks may be challenging for gold, which would have to deal with rising bond yields.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
One More Time

One More Time

Monica Kingsley Monica Kingsley 27.01.2022 15:53
Wild FOMC day is over, and markets are repricing the perceived fresh hawkishness when there was none really. It‘s nice to start counting with 5 rate hikes this year when taper hasn‘t truly progressed much since it was announced last year. The accelerated taper would though happen, and the following questions are as to hikes‘ number and frequency. I‘m not looking the current perceived hawkishness to be able to go all the way, and I question Mar 50bp rate hike fears. Not that it would even make a dent in inflation – as the Fed just stood pat, open oil profits are rising.But stocks took a dive before recovering, carving out a fourth in a row lower knot – the bulls are invited to participate, and open stock market profits are moving up again. Also note the divergence between HYG trading at its recent lows while S&P 500 clearly isn‘t. The immediate pressure would be to go higher, and that concerns also copper, and to a smaller degree cryptos. All that‘s needed, is for bonds to turn up, acknowledging a too hawkish interpretation of yesterday‘s FOMC – key factor that sent metals down and dollar up. While rates would continue rising, as the Fed overplays its tightening hand, we would see them retreat again – now with 1.85% in the 10-year Treasury, we would overshoot very well above 2% only to close the year in its (2%) vicinity.That just illustrates how much tolerance for rate hikes both the real economy and the markets have, and the degree to which the Fed can accomplish its overly ambitious yet behind the curve plans. Still time to be betting on commodities and precious metals in the coming stagflation.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookSetback and reversal of prior gains - S&P 500 is though still carving out a tradable bottom. I‘m looking for the index to return above 4,400 and then take on the 4,500 point of control next.Credit MarketsHYG reversed, the panic is there – higher yields across the board without a clear risk-on turn holding. Today is a time for reprieve.Gold, Silver and MinersGold and silver declined as yields moved sharply up and so did the dollar – but inflation or inflation expectations didn‘t really budge. The metals are anticipating the upcoming liquidity squeeze, which won‘t be pretty until the Fed changes course. Not that it truly started, for that matter.Crude OilCrude oil bulls have confirmed they were back, and are ready for more – clearly not daunted by the Fed messaging, and that has implications for inflation ahead. It would really be more persistent than generally appreciated, I‘m telling you.CopperCopper is still in the catching breath phase – not yielding, and that‘s still saying something about inflation and real economy.Bitcoin and EthereumBitcoin and Ethereum are on guard, and ready to move somewhat higher next – for now, lacking conviction, there is no Ethereum outperformance either.SummaryS&P 500 bulls are ready to come back, and prove that the first FOMC move, is the fake one – no, I don‘t mean the moonshot to 4,450 in the first moments. That would be the move I‘m looking for still, and it would be led by the coming tech upswing. Check the commodities resilience to the rising rates prospects – gold and silver need a reprieve in bonds badly to catch breath again, and it would come at the expense of the dollar. For now, markets are afraid of the looming liquidity crunch and Fed policy mistake as the yield curve continues compressing.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
US GDP Analysis: America is stocking up, how that boosts the Dollar and equities in tandem

US GDP Analysis: America is stocking up, how that boosts the Dollar and equities in tandem

FXStreet News FXStreet News 27.01.2022 15:59
The US economy grew at an annualized rate of 6.9% in the last quarter, beating estimates. Inflation eroded another 7% of growth, indicating the Fed's hawkish stance and boosting the dollar. Fast growth in inventories is a sign of easing supply-chain issues, supporting stocks.Finally, some straightforward responses – the dollar and US stocks rise together in response to strong US data. Good news for the economy is also positive for traders, who now have an easier path to trade. The safe-haven dollar trade is gone, or at least suspended.Gross Domestic Product figures help shape this new correlation, but it builds on top of the Federal Reserve's decision. Starting from the data release, Washington reported an annualized growth rate of 6.9%, far above 5.5% expected, and an encouraging figure in absolute terms. That came despite higher inflation, 7% annualized in the fourth quarter. In nominal terms, the economy expanded at a whopping rate of 14.3%, or 10% for the entire year – far above 5.7% in real terms. Fast growth and strong inflation justify the Fed's decision to tighten its policy, kicking off with a rate hike in March – one of many. It also vindicates the words from Chair Jerome Powell, who said that the labor market can handle higher borrowing costs. The strong economic figures point to employment growth.While tighter policy supports the dollar, shouldn't stocks suffer? Apart from the easy explanation – economic growth means higher company profits – one detail in the report also provides hope. Inventories added no fewer than 4.9 percentage points to GDP growth. What does inventory data mean? In normal times, when companies replenish inventories during one quarter, they tend to deplete them in the next one. However, these are times when supply-chain issues dog the US and global economies. This leap in inventories is a sign that supplies are moving along. When there is merchandise in storage, it is easier to fulfill consumer demand. Moreover, it should help ease inflationary pressures as well. That is a win for stocks.At the moment, price increases remain rapid and the labor market is tight – meaning higher rates and a stronger dollar. This tandem increase in the dollar and stocks is set to continue, assuming no geopolitical shock.
Many Factors to Affect XAU This Year. What About The Past?

Many Factors to Affect XAU This Year. What About The Past?

Arkadiusz Sieron Arkadiusz Sieron 28.01.2022 10:38
  Gold’s fate in 2021 will be determined mainly by inflation and the Fed’s reaction to it. In the epic struggle between chaos and order, chaos has an easier task, as there is usually only one proper method to do a job – the job that you can screw up in many ways. Thus, although economists see a strong economic expansion with cooling prices and normalization in monetary policies in 2022, many things could go wrong. The Omicron strain of coronavirus or its new variants could become more contagious and deadly, pushing the world into the Great Lockdown again. The real estate crisis in China could lead the country into recession, with serious economic consequences for the global economy. Oh, by the way, we could see an escalation between China and Taiwan, or between China and the US, especially after the recent test of hypersonic missiles by the former country. Having said that, I believe that the major forces affecting the gold market in 2022 will be – similarly to last year’s – inflation and the Fed’s response to it. Considering things in isolation, high inflation should be supportive of gold prices. The problem here is that gold prefers high and rising inflation. Although the inflation rate should continue its upward move for a while, it’s likely to peak this year. Indeed, based on very simple monetarist reasoning, I expect the peak to be somewhere in the first quarter of 2022. This is because the lag between the acceleration in money supply growth (March 2020) and CPI growth (March 2021) was a year. The peak in the former occurred in February 2021, as the chart below shows. You can do the math (by the way, this is the exercise that turned out to be too difficult for Jerome Powell and his “smart” colleagues from the Fed). This is – as I’ve said – very uncomplicated thinking that assumes the stability of the lag between monetary impulses and price reactions. However, given the Fed’s passive reaction to inflation and the fact that the pace of money supply growth didn’t return to the pre-pandemic level, but stayed at twice as high, the peak in inflation may occur later. In other words, more persistent inflation is the major risk for the economy that many economists still downplay. The consensus expectation is that inflation returns to a level close to the Fed’s target by the end of the year. For 2021, the forecasts were similar. Instead, inflation has risen to about 7%. Thus, never underestimate the power of the inflation dragon, especially if the beast is left unchecked! As everyone knows, dragons love gold – and this feeling is mutual. The Saxo Bank, in its annual “Outrageous Predictions”, sees the potential for US consumer prices to rise 15% in 2022, as “companies bid up wages in an effort to find willing and qualified workers, triggering a wage-price spiral unlike anything seen since the 1970’s”. Actually, given the fact that millions of Americans left the labor market – which the Fed doesn’t understand and still expects that they will come back – this prediction is not as extreme as one could expect. I still hope that inflationary pressure will moderate this year, but I’m afraid that the fall may not be substantial. On the other hand, we have the Fed with its hawkish rhetoric and tapering of quantitative easing. The US central bank is expected to start a tightening cycle, hiking the federal funds rate at least twice this year. It doesn’t sound good for gold, does it? A hawkish Fed implies a stronger greenback and rising real interest rates, which is negative for the yellow metal. As the chart below shows, the normalization of monetary policy after the Great Recession, with the infamous “taper tantrum”, was very supportive of the US dollar but lethal for gold. However, the price of gold bottomed in December 2015, exactly when the Fed hiked the interest rates for the first time after the global financial crisis. Markets are always future-oriented, so they often react more to expected rather than actual events. Another thing is that the Fed’s tightening cycle of 2015-2018 was dovish and the federal funds rate (and the Fed’s balance sheet) never returned to pre-crisis levels. The same applies to the current situation: despite all the hawkish reactions, the Fed is terribly behind the curve. Last but not least, history teaches us that a tightening Fed spells trouble for markets. As a reminder, the last tightening cycle led to the reversal of the yield curve in 2019 and the repo crisis, which forced the US central bank to cut interest rates, even before anyone has heard of covid-19. Hence, the Fed is in a very difficult situation. It either stays behind the curve, which risks letting inflation get out of control, or tightens its monetary policy in a decisive manner, just like Paul Volcker did in the 1980s, which risks a correction of already-elevated asset prices and the next economic crisis. Such expectations have boosted gold prices since December 2015, and they could support the yellow metal today as well. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
If It Had Been Basketball, We Might Say S&P 500 Had Been Blocked!

If It Had Been Basketball, We Might Say S&P 500 Had Been Blocked!

Monica Kingsley Monica Kingsley 28.01.2022 16:01
S&P 500 upswing attempt rejected, again – and credit markets didn‘t pause, with the dollar rush being truly ominous. Sign of both the Fed being taken seriously, and of being afraid (positioned for) the adverse tightening consequences. Bonds are bleeding, the yield curve flattening, and VIX having trouble declining. As stated yesterday: (...) It‘s nice to start counting with 5 rate hikes this year when taper hasn‘t truly progressed much since it was announced last year. The accelerated taper would though happen, and the following questions are as to hikes‘ number and frequency. I‘m not looking the current perceived hawkishness to be able to go all the way, and I question Mar 50bp rate hike fears. Not that it would even make a dent in inflation. Not even the shock and awe 50bp hike in Mar would make a dent as crude oil prices virtually guarantee inflation persistence beyond 2022. The red hot Treasury and dollar markets are major headwinds as the S&P 500 is cooling off (in a very volatile way) for a major move. As we keep chopping between 4,330s and 4,270s, the bulls haven‘t been yet overpowered. I keep looking to bonds and USD for direction across all markets. I also wrote yesterday: (...) All that‘s needed, is for bonds to turn up, acknowledging a too hawkish interpretation of yesterday‘s FOMC – key factor that sent metals down and dollar up. While rates would continue rising, as the Fed overplays its tightening hand, we would see them retreat again – now with 1.85% in the 10-year Treasury, we would overshoot very well above 2% only to close the year in its (2%) vicinity. That just illustrates how much tolerance for rate hikes both the real economy and the markets have, and the degree to which the Fed can accomplish its overly ambitious yet behind the curve plans. Still time to be betting on commodities and precious metals in the coming stagflation. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Another setback with reversal of prior gains - S&P 500 is chopping in preparation for the upcoming move. Concerningly, the bears are overpowering the bulls on a daily basis increasingly more while Bollinger Bands cool down to accommodate the next move. Direction will be decided in bonds. Credit Markets HYG keeps collapsing but the volume is drying up, which means we could see a reprieve – happening though at lower levels than earlier this week. Quality debt instruments are pausing already, indicatively. Gold, Silver and Miners Gold and silver declined as yields moved sharply up and so did the dollar – but inflation or inflation expectations didn‘t really budge, and TLT looks ready to pause. The metals keep chopping sideways in the early tightening phase, which is actually quite a feat. Crude Oil Crude oil isn‘t broken by the Fed, and its upswing looks ready to go on unimpeded, and that has implications for inflation ahead. Persistent breed, let me tell you. Copper Copper is in danger of losing some breath – the GDP growth downgrades aren‘t helping. The red metal though remains range bound, patiently waiting to break out. Will take time. Bitcoin and Ethereum Bitcoin and Ethereum are pointing lower again, losing altitude – not yet a buying proposition. Summary S&P 500 bulls wasted another opportunity to come back – the FOMC consequences keep biting as fears of a hawkish Fed are growing. Tech still can‘t get its act together, and neither can bonds – these are the decisive factors for equities. As liquidity is getting scarce while the Fed hadn‘t really moved yet, risk-on assets are under pressure thanks to frontrunning the Fed. The room for a surprising rebound in stocks is however still there, given how well the 4,270s are holding in spite of the HYG plunge. And given the recent quality debt instruments pause, it looks approaching. Look for a dollar decline next to confirm the upcoming risk-on upswing. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Unforced Errors - 31.01.2022

Unforced Errors - 31.01.2022

David Merkel David Merkel 09.11.2021 04:40
Photo Credit: Paul Kagame || Hail Emperor Xi, the greatest since Qin Shi Huang! Ready for a cold winter? Much of the world is not. Many places have discouraged using hydrocarbons to produce power, ostensibly for environmental goals, whether those are valid or not. Whether by the fiat of the Chinese Communist Party, or because some Eurocrats push a green agenda, many people are facing a winter where power/heat may be limited. And even if there may not be absolute shortages everywhere, higher prices for all forms of energy, will pinch the budgets of many in the lower middle class and below this winter in the Northern Hemisphere. Part of this stems from central planning. China is the easiest example. Xi Jinping has arrogated to himself more and more power over time, changing the dynamics of the Communist Party, which once at least had some factions, to a unitary party that has only one leader, Emperor President Xi. Some of it came about by eliminating corrupt rivals, but the rest from instilling fear within the Party. Almost every evening, my wife and I read the Bible together. Recently we have been going through the post-exilic portions of the Old Testament where the Jews live under the rule of the Babylonian and Medo-Persian Empires. Those rulers were typically absolute monarchs: do what I say or die! In going through Esther, my wife commented that it was stupid to have laws that cannot be altered. (The same thing is stated in the Book of Daniel.) My comment back to her was if you were an absolute monarch in that era, you were God walking on earth, and could never be wrong. Thus no decree of an Emperor could be wrong. And so it is for President Xi: everything he says is right. He may be an atheist, but to the Chinese in Red China, he is “God walking on Earth” in at least the Hegelian sense. As such, he makes a decree, and those serving him are scared to do anything more or less than he wants. But with vague directives, what does he want? Unilateral authority is particularly vulnerable to making mistakes. In the intermediate-term, China is likely to get weaker because of the increasing concentration of power of President Xi. That’s not to say that capitalist democracies can’t run off the rails, but typically with enough dissenting voices, the worst outcomes don’t usually take place. There are exceptions though. The first exception is regulators with too much discretionary authority. By pursuing one limited goal in the short-run, such as long-term environmental objectives, they may harm the interests of ordinary people in developed markets by making it hard to get food, fuel/energy, and other necessities. And applying the same rules in foreign policy, they may well condemn the developing world to permanent poverty. The developing world thinks the developed world doesn’t care. They are right, and they will ignore what their current leaders have promised in order to curry temporary favor with the developed world. Now where there is the ability to self-correct, eventually societies will remove regulators, politicians, etc. That said, some things are more entrenched than others. I speak of the cult of stimulus. What is more untouchable than the central banks? It’s hard to think of anything more unaccountable. They may technically be beholden to the local parliament, but practically, no one ever messes with them aside from despots pursuing hyperinflation (Venezuela, Turkey, Lebanon, etc.). What gores me is that the unaccountable central banks never ‘fess up to errors. Listen to this: “Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,” the Fed said in its twice-yearly Financial Stability Report released Monday.Fed Warns of Peril in Run-Up of Risky Asset Prices, Stablecoins That serial blower of bubbles, the Fed, warns us about the height of risky asset prices. Fed policy works via encouraging economic actors to borrow less or more. They have been running a more aggressive monetary policy than they ever needed to, and in the process have inflated housing prices, stocks, bonds of all sorts, private equity, etc. This is not just true of the Fed in the US, but in most developed country central banks. This was an unforced error. Monetary policy could have been tightened in mid-2020, and I mean raising the Fed funds rate, not just stopping QE. When the equity markets race to new highs so rapidly, why should any stimulus exist at all? We don’t need stimulus from Congress either. When demand is so strong that supply chains creak, buckle, and seize up, it is not time to stimulate more, rather, it is time to balance the budget. I would like to think that supply-chain troubles, inflation, and growth are all transitory. But if in an effort to force growth higher than it should be in the short-run, the growth will still be transitory, but the supply-chain troubles and inflation will persist. Beware the experts that say they run things for your good; they likely don’t know what they are doing. ============= Ending note: one more thing, beware the inflation numbers, particularly on items in short supply. If the economists reduce the weights on those things in short supply, it will artificially understate inflation.
Breaking up is hard to do - 31.01.2022

Breaking up is hard to do - 31.01.2022

David Merkel David Merkel 10.11.2021 04:04
Photo Credit: Chris Blakeley || Always optimistic when things are growing, and in the dumps when it falls apart Over the years, I have suggested that two firms should break up on a number of occasions: AIG & GE. Both are now in the process of completing their breakups. The news on GE dropped today, and I was surprised that the media did not pick up on one significant question on the GE breakup. Who gets the insurance liabilities that have been a real pain to GE even after selling off Genworth. As I tweeted: General Electric to Split Into Three Public Companies – WSJ https://t.co/BR8uXhhDVJ Notably missing from all the $GE press coverage is who has to pay off the insurance liabilities: Aviation, probably the weakest of the three. Could gore those relying on the guarantee… pic.twitter.com/qhT0y4gfXL— David Merkel (@AlephBlog) November 9, 2021 How could they miss this? I think I first suggested that GE should break up in a comment in RealMoney’s Columnist Conversation sometime back in 2005, but that is lost in the pre-2008 RealMoney file system, and exists no more. In terms of what I can show I will quote from this old post from 2008: 5) File this under Sick Sigma, or Six Stigma — GE is finally getting closer to breaking up the enterprise.� It has always been my opinion that conglomerates don’t work because of diseconomies of scale.� As I wrote at RealMoney: David MerkelGE — Geriatric Elephant4/27/2007 1:16 PM EDT First, my personal bias. Almost every firm with a market cap greater than $100 billion should be broken up. I don’t care how clever the management team is, the diseconomies of scale become crushing in the megacaps. Regarding GE in specific, it is likely a better buy here than it was in early 1999, when the stock first breached this price level. That said, it doesn’t own Genworth, the insurance company that it had to jettison in order to keep its undeserved AAA rating. Which company did better since the IPO of Genworth? Genworth did so much better that it is not funny. 87% total return (w/divs reinvested) for GNW vs. 28% for GE. A pity that GE IPO’ed it rather than spinning it off to shareholders… But here’s a problem with breaking GE up. GE Capital, which still provides a lot of the profits could not be AAA as a standalone entity and have an acceptable ROE. It would be single-A rated, which would push up funding costs enough to cut into profit margins. (Note: GE capital could not be A-/A3 rated, or their commercial paper would no longer be A1/P1 which is a necessary condition for investment grade finance companies to be profitable.) Would GE do as well without a captive finance arm (GE Capital)? It would take some adjustment, but I would think so. So, would I break up GE by selling off GE Capital? Yes, and I would give GE Capital enough excess capital to allow it to stay AAA, even if it means losing the AAA at the industrial company, and then let the new GE Capital management figure out what to do with all of the excess capital, and at what rating to operate. Splitting up that way would force the industrial arm to become more efficient with its proportionately larger debt load, and would highlight the next round of breakups, which would have the industrial divisions go their own separate ways. Position: none, and I have never understood the attraction to GE as a stock Over the years, I continued to write about GE and Genworth (I grew bearish over LTC after analyzing Penn Treaty. I was always bearish on mortgage insurance). I never thought either would do well, but I never expected them to do as badly as they did. Optimistic accounting ploys from the Welch years bit into profits of Immelt, as he was forced to reset accruals higher again and again. Overly aggressive financial and insurance underwriting similarly had to be reversed, and losses realized. After today, all but the successor firm for GE (Aviation) has a chance to do something significant, freed from the distractions of being in a conglomerate. They can focus, and maybe win. As for GE Aviation, because of the insurance liabilities they will probably receive a valuation discount. Maybe they will sacrifice and pay up, selling the liabilities to Buffett with significant overcollateralization. American International Group I first suggested that AIG break up back in 2008. Only M. R. Greenberg had the capability of managing the behemoth, and once he was gone, lower level managers began making decisions that Greenberg would have quashed, which led to short-term gains, and larger long-term losses. After AIG was taken over by the Fed, bit-by-bit they began selling off the pieces — Hartford Steam Boiler, ILFC, AIA, Alico (to MetLife), and more. They were left with a portion of the international P&C business, and the domestic life and P&C businesses. They are now planning on spinning off the domestic life companies, which will leave AIG as a P&C insurer with relatively clean liabilities (They reinsured Asbestos and Environmental with Berkshire Hathaway). Where do we go from here? Is there a lesson here? Avoid complexity. Avoid mixing mixing industrial and financial. Avoid mixing life and P&C. (Allstate is finally splitting that.) That said, there may be another lesson for the future. What of the extremely large companies that are monopolies? Some of them aren’t complex; they just dominate a large area of the economy as monopolies. Governments want to do one of two things with monopolies. They either want to break them up, or turn them into regulated utilities. Why? The government doesn’t like entities that get almost as powerful as them, so they limit their size, scope, and subject them to regulation. So be aware if you hold some of the largest companies in the US or the world, because governments have their eyes on them, and want them to be subject to the government(s). Full disclosure: long MET
An Estimate of the Future - 31.01.2022

An Estimate of the Future - 31.01.2022

David Merkel David Merkel 19.11.2021 07:49
Photo Credit: eflon || All in all, you’re just another brick in the wall… In some ways, the Federal Reserve is the whipping boy of Congress. Congress can’t decide on anything significant, so the Fed fills in the blanks, and keeps things moving, even if it creates humongous asset bubbles in the process. That is what we are facing today. Overvalued stocks, housing, corporate bonds, private equity, and more. Inflation in goods and services may be transitory, but asset inflation is a constant. Whether by QE or rate policy, the Fed tries to end the possibility of recessions by making financing cheap, and blowing asset bubbles in the process. What of the future? The Fed will be dragged kicking and screaming to tightening. It will follow the stupid Alan Greenspan highway of 25 basis points per meeting. It will be all too predictable, which has little to no impact until it is too late, creating pro-cyclical economic policy, something the Fed specializes in. The Fed will be surprised (again) to see that the long end of the yield curve does not respond to their efforts. Are they stupid? Yes. the yield curve hasn’t worked in the classical way for over 20 years. In an overindebted economy, long rates are sluggish. Can the Fed abandon the dead orthodoxy of neoclassical economics to embrace the reality of overindebted economics? I doubt it. I asked two Fed governors three years ago when the Fed would abandon the failed Neoclassical economics. They looked like dead sheep for a moment, before they gave some lame defenses of the theory that can’t account for financial markets or marketing. What I expect is that the Fed will tighten the Fed funds rate to 1.5% or so, the long end sinking, and then something blows up, and they return to the prior policy of 0% rates, and QE… failed policies that inflate asset bubbles and increase inequality. We’re in a “doom loop” where there is no way to purge this system of its errors. We would be better off under a gold standard, with stricter regulation of banks. Would we have a recession? Yes, but eventually the economy would grow again organically, without the pollution of stimulus. That said, the Federal Reserve is not the main problem. The main problem is American culture that will not tolerate severe recessions. We need recessions to liquidate bad debts that hinder the economy from growing rapidly in the future. We need to accept the boom-bust cycle, and not look to the government or central bank to moderate matters. Bank regulation is another matter, as loose regulation of banks led to extreme booms and busts, particularly between 1870-1913, and 2004-2008. Conclusion The Fed will tighten and fail, returning us to the same morass that we are in now. Financial repression via the Fed will continue to create inequality with no smoking gun. Stupid people will finger other causes, when the real cause is the Federal Reserve. We need to eliminate the Federal Reserve, and cause Congress and the Executive Branch to take responsibility for their failed policies. PS — there could be a currency panic, but I doubt it. Too many countries want to export to the US.
Estimating Future Stock Returns, September 2021 Update - 31.01.2022

Estimating Future Stock Returns, September 2021 Update - 31.01.2022

David Merkel David Merkel 16.12.2021 04:35
Image credit: All images belong to Aleph Blog This should be a brief post. At the end of the third quarter, the S&P 500 was poised to nominally return -0.64%/year over the next 10 years. As of the close today, that figure was -1.83%/year, slightly more than the -1.84%/year at the record high last Friday. The only period compares with this valuation-wise is the dot-com bubble. We are above dot-com level valuations. And if you view the 10-year returns from the worst time of the dot-com bubble to now, you can see that the results they obtained are milder than what I forecast here. Of course, a lot of what will happen in nominal terms will rely on the actions of the Fed. Will the Fed: Allow a real recession to clear away dud assets that are on life support from low rates? (Collapsing the current asset bubble)Change the terms of monetary policy, and start directly monetizing US Treasury debt? (Risking high inflation)Continue to dither with financial repression, leaving rates low, not caring about moderate inflation, with real growth zero-like. (Zombie economy — this is the most likely outcome for now) In some ways the markets are playing around with something I call “the last arbitrage.” Bonds versus Stocks. The concept of TINA (There is no alternative [to stocks]) relies on the idea that the Fed will be the lapdog of the equity markets. If stocks are high, the Fed is happy. Phrased another way, if the Fed maximizes wealth inequality, it is happy. And the Fed will be happy. They live to employ thousands of macroeconomists who would have a hard time finding real employment. These economists live to corrupt our understanding f the macroeconomy, justifying the actions of the Fed. The Fed just wants to scrape enough seigniorage to pay the staff, and keep Congress and the Administration mollified. All taken out of the hides of those who save. So with the last arbitrage… interest rates have to stay low to keep the stock market high, even if it means slow growth, and moderate and growing inflation. The likely change promulgated by the Fed today, raising the short rate by 0.75% in 2022 will likely flatten the yield curve, leading to a crisis of some sort, and push them back into QE and near-zero short rates. The stock market will have a pullback and a rally, but what of inflation? How will people act when there is no way to save for the short-run, without inflation eating away value? Brave new world. The Fed is stuck, and we are stuck with them. Gold does nothing, and would be a kinder mistress than the Fed. Better to live within strict limits, than the folly of an elastic currency. But as is true with all things in America, we are going to have to learn this the hard way. PS — As for me, I am living with value stocks, small stocks, and international stocks. Very little in the S&P 500 here.
Separate Processes

Separate Processes

David Merkel David Merkel 18.12.2021 06:16
Photo Credit: atramos || Inflation isn’t the most organized phenomenon, and investors often all want to be on the same side of the boat… I have a very irregular series called, “Problems with Constant Compound Interest.” Part of the idea of that series is that it is difficult to assure growth in capital in any sort of constant way. The simple models of the CFPs, and even actuaries that assume constant or near constant growth are ultimately doomed to fail if they try to exceed growth in nominal GDP by more than 2%/year. Because of the oddities in the current market environment, current interest rates and inflation have decoupled. They are separate processes. We all want to build value in real (inflation-adjusted) terms, but how do you do that in an environment where price to free cash flow multiples are sky high, nominal interest rates are low, and the prices of most commodities are high as well (leaving aside gold as an oddity). Mindless stock bulls talk of TINA [There Is No Alternative (to buying stocks)], as if there is no limit to how high stock prices can go when interest rates are low. I want to tell you about TIN. There Is Nothing (worth buying). This is the nature of financial repression. If you invest in short bonds, you get gouged by current inflation. If you buy long bonds, you run the risk that the Fed might start monetizing Treasury debt directly, and inflation really runs. With stocks you run the risk of any hiccup in the global economy (when is the omega variant coming so that we can move on to Hebrew letters?) can derail the market, particularly if it leads to higher interest rates. The Fed has gotten its wish and is forcing an asset bubble on the US to aid growth, however fitfully. All of the relationships of the present to the future are out of whack, because interest rates are too low. But if intermediate interest rates rose to the level of nominal GDP growth, we would see deficits grow even more rapidly as the US government would refinance at higher rates. The Fed is stuck in a doom loop of its own design ever since Alan Greenspan got the great idea to cut short recessions too soon. That has led us into a liquidity trap designed by the Fed. As I said to one of my clients this week (a bright man), “If you are not bewildered, you are not thinking.” About the only idea I can think of for investing at present is the intersection of high quality and low-ish valuations. As it says in Ecclesiastes 11:2 “Give a serving to seven, and also to eight, For you do not know what evil will be on the earth.” Diversify among safe-ish investments, with a few cyclicals that will do well if things run hot, and stable businesses, if things do not. That’s all.
CPI in Germany increased by 0.4%. ECB Decision Seems To Be Obvious...

CPI in Germany increased by 0.4%. ECB Decision Seems To Be Obvious...

Alex Kuptsikevich Alex Kuptsikevich 31.01.2022 15:25
Today we have seen the first slowdown in annual inflation in seven months, but the data is better than expected. In January, consumer prices rose 0.4%, up 4.9% on the same month a year earlier. Analysts, on average, were expecting prices to fall by 0.2% and slow inflation to 4.3% YoY. The harmonized price index (adjusted for tax changes) shows an even more significant gap between expectations and reality. The index rose by 0.9% (a fall of 0.4% was expected). The figures clearly show that inflation has penetrated deeper into the economy and is increasingly taking on the features of permanent price increases. Sustained inflation raises the expectation that the ECB will also tighten its rhetoric and proceed with policy tightening more quickly than previously promised. The markets have priced in one rate hike of 0.25% by December. But with the Fed as an example, we can see how quickly things can change. These changes should be positive for the euro.
S&P 500 (SPX) A Very Tight Sequence of The Latest Candles In The Chart

S&P 500 (SPX) A Very Tight Sequence of The Latest Candles In The Chart

Monica Kingsley Monica Kingsley 31.01.2022 15:53
S&P 500 left the 4,270s - 4,330s range with an upside breakout – after bonds finally caught some bid. While in risk-on posture, divergencies to stocks abound – any stock market advance would leave S&P 500 in a more precarious position than when the break above 4,800 ATHs fizzled out. But a stock market advance we would have, targeting 4,500 followed by possibly 4,600. The sizable open long profits can keep growing. Only the market internals would be poor, so better don‘t look at the percentage of stocks trading above their 200-day moving averages, and similar metrics. Enough to say that Friday‘s advance was sparked by the Apple news. When it‘s only the generals that are advancing while much of the rest remains in shambles, Houston has a problem – we aren‘t there yet. Fed‘s Kashkari also helped mightily on Friday – that implicit rates backpedalling was more than helpful. Pity that precious metals haven‘t noticed (I would say yet) – but remember the big picture and don‘t despair, we‘re just going sideways before the inevitable breakout higher. Back to rates and the Fed, there is a key difference between the tightening of 2018 and now – the economy was quite robust with blood freely flowing, crucially without raging inflation. With the Fed sorely behind the curve by at least a year, it‘ll have to move faster and have lower sensibility to market selloffs caused. Stiff headwinds ahead as liquidity gets tighter. Couple that with resilient oil – more profits taken off the table Friday at $88.30 – and you‘ve got a pretty resilient inflation. Not that inflation expectations would be shaking in their boots, not that commodities would be cratering. It‘s only copper (influencing silver) that has to figure out just how overdone its Friday‘s move had been. Not that other base metals would be that pessimistic. Similarly to precious metals and the early tightening phase, commodities would be under temporary pressure as well, but outperforming as we officially enter stagflation. Not too tough to imagine given the GDP growth downgrades. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Great finish to the week, but S&P 500 bulls have quite a job ahead – it continues being choppy out there. I‘m still looking at bonds with tech for direction. Credit Markets HYG finally turned around, and Friday was a risk-on day. The question remains how far can the retracement (yes, it‘s retracement only) reach – can the pre-FOMC highs be approached? Could be, could be. Gold, Silver and Miners Gold and silver retreated, but no chart damage was done – things are still going sideways as the countdown is on for the Fed to either tighten too much and send markets crashing, or reverse course (again). Crude Oil Crude oil isn‘t broken by the Fed, and why should it be given that it can‘t be printed. Some backing and filling is ahead before the uptrend reasserts itself. Copper Copper is the only red flag, and seeing it rebound would call off the amber light. This is the greatest non-confirmation of the commodities direction in quite a while, and that‘s why I‘m taking it with more than a pinch of salt. Bitcoin and Ethereum Crypto bulls are putting up a little fight as the narrow range trading continues – I‘m not looking at the Bitcoin and Ethereum buyers to succeed convincingly. Summary S&P 500 bulls finally moved in an otherwise volatile and choppy week. For the days ahead, volatility is likely to calm down somewhat, but chop is likely to be with us still – only that I expect it to be of the bullish flavor. 10-year Treasury yield has calmed down, and that would be constructive for stocks – watch next for the 2-year to take notice likewise. The 2-year Treasury is quite sensitive to the anticipated Fed moves, and illustrates well the rate hike fears – coupled with the compressed 10-year to 2-year ratio, we‘re looking at rising expectation of the Fed policy mistake (in tightening too much, too fast). For now though, stocks can recover somewhat, and most of the commodities can keep on appreciating. Precious metals keep being in the waiting game, very resilient, and will turn out one of the great bullish surprises of 2022. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Crude Oil Consquently Goes Higher, S&P 500 Gains and Bitcoin Slowly Recovers

Crude Oil Consquently Goes Higher, S&P 500 Gains and Bitcoin Slowly Recovers

Monica Kingsley Monica Kingsley 01.02.2022 16:01
S&P 500 pushed sharply higher, squeezing not only tech bears even if yields didn‘t move much – bonds actually ran into headwinds before the closing bell. With my 4,500 target reached, the door has opened to consolidation of prior steep gains, and that would be accompanied by lower volatility days till before the positioning for Friday‘s non-farm payrolls is complete as talked on Sunday. So, we have an S&P 500 rally boosting our open profits while the credit market‘s risk-on posture is getting challenged, and divergencies to stocks abound – as I wrote yesterday: (…) any stock market advance would leave S&P 500 in a more precarious position than when the break above 4,800 ATHs fizzled out. But a stock market advance we would have, targeting 4,500 followed by possibly 4,600. We‘re getting there, the bulls haven‘t yet run out of steam, but it‘s time to move closer to the exit door while still dancing. But the key focus remains the Fed dynamic: (…) Fed‘s Kashkari ... helped mightily on Friday – that implicit rates backpedalling was more than helpful. Pity that precious metals haven‘t noticed (I would say yet) – but remember the big picture and don‘t despair, we‘re just going sideways before the inevitable breakout higher. Back to rates and the Fed, there is a key difference between the tightening of 2018 and now – the economy was quite robust with blood freely flowing, crucially without raging inflation. With the Fed sorely behind the curve by at least a year, it‘ll have to move faster and have lower sensibility to market selloffs caused. Stiff headwinds ahead as liquidity gets tighter. Suffice to say that precious metals did notice yesterday, and copper looks ready to work off its prior odd downswing. Remember that commodities keep rising (hello the much lauded agrifoods) while oil enteredd temporary sideways consolidation. Look for other base metals to help the red one higher – the outlook isn‘t pessimistic in the least as the recognition we have entered stagflation, would grow while the still compressing yield curve highlights growing conviction of Fed policy mistake. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bulls proved their upper hand yesterday, and the question is where would the upswing stall – or at least pause. Ahead soon, still this week. Credit Markets HYG caught a bid yesterday too, but the sellers have awakened – it appears the risk-on trades would be tested soon again. Bonds are certainly less optimistic than stocks at this point, but the S&P 500 rickety ride can still continue, and diverge from bonds. Gold, Silver and Miners Gold and silver retreat was indeed shallow, did you back up the truck? The chart hasn‘t flipped bearish, and I stand by the earlier call that PMs would be one of the great bullish surprises of 2022. Crude Oil Crude oil bulls rejected more downside, but I‘m not looking for that to last – however shallow the upcoming pullback, it would present a buying opportunity, and more profits on top of those taken recently. Copper Expect copper‘s recent red flag to be dealt with decisively, and for higher prices to prevail. Other base metals have likewise room to join in as $4.60 would be taken on once again. At the same time, the silver to copper ratio would move in the white metal‘s favor after having based since the Aug 2020 PMs top called. Bitcoin and Ethereum As stated yesterday, crypto bulls are putting up a little fight as the narrow range trading continues – I‘m not looking at the Bitcoin and Ethereum buyers to succeed convincingly. Time for a downside reversal is approaching. Summary S&P 500 bulls made a great run yesterday, and short covering was to a good deal responsible. Given the credit market action, I‘m looking for the pace of gains to definitely decelerate, and for the 500-strong index to consolidate briefly. VIX is likely to keep calming down before rising again on Friday. Should credit markets agree, the upcoming chop would be of the bullish flavor, especially if oil prices keep trading guardedly. And that looks to be the case, and the rotation into tech can go on – $NYFANG doing well is one of the themes for the environment of slowing GDP growth rates, alongside precious metals and commodities embracing inflation with both arms. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
European markets retreat ahead of NFP report

European markets retreat ahead of NFP report

Walid Koudmani Walid Koudmani 03.12.2021 12:53
While markets have experienced a significant increase in volatility in recent weeks, we noticed an attempted recovery following the drop from the end of November which saw the German Dax break below 16000 points. However the situation has changed as investors await today’s main event which is the release of the NFP employment report from the US at 13:30 GMT. This report not only could give a comprehensive insight into the state of the job market in the world's largest economy, but it could also have a noticeable effect on the upcoming FED decision which will be carefully observed by market participants. A better than expected report could almost certainly pressure the central bank to speed up it’s QE tapering while a disappointment in the figures may see chairman Powell address those concerns in the upcoming meeting. While the new covid variant is a major factor of concern, markets are still unsure on how to react to the ongoing situation and any major obstacles to economic recovery could have impacts on monetary and fiscal policy in the near future. New business growth hits 5 month high despite rising inflation Today’s inflation figures continue to highlight the ongoing trend of rising prices and growing pressures on businesses and consumers as many costs continue to be transferred onto them. Despite this, new business growth has managed to hit a five-month high which could be considered an encouraging sign as we head into the end of 2021. Today’s figures also showed input costs and prices charged rising at record rates in November, a factor that could force the Bank of England to reconsider its approach if the situation were to escalate and start to cause significant issues in the economy.  
Challenges in the Philippines: Rising Rice and Energy Costs Threaten Inflation Stability

Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Marc Chandler Marc Chandler 22.11.2021 13:35
November 22, 2021  $CHF, $USD, BOE, China, Currency Movement, FOMC, Japan, Philippines, Russia Overview:  The US dollar has come back bid from the weekend against most currencies following the talk by a couple of Fed governors about the possibility of accelerating the tapering at next month's FOMC meeting.  The weekend also saw protests against the social restrictions being imposed by several European countries in the face of a surge in Covid cases.  The Swedish krona, yen, and sterling are the weakest, while the dollar-bloc currencies are resisting the greenback's tug. Most of the freely accessible and liquid currencies among emerging market currencies, including Russia, Hungary, South Africa, and Mexico, are heavy. At the same time, the Turkish lira recoups a little of the ground lost last week, and the Chinese yuan shrugged off apparently warnings from the PBOC to post its first gain in three sessions.  Equity markets in the Asia Pacific area mostly fell, though China and South Korea were notable exceptions.  Europe's Stoxx 600 snapped a six-week advance last week but has begun the news week with a small gain through the European morning.  US futures are trading higher.  The bond market is heavy, with the 10-year US Treasury up about three basis points to around 1.58%.  European benchmark yields are 2-3 bp higher.  Gold finished last week on a softer note and edged lower today to trade below $1840 for the first time since November 10.  Resistance is around $1850.  News that Japan may join the US to release oil from reserves saw January WTI slip below $75 but recover back above $76.  It met the (38.2%) retracement of the rally from the late August low near $60.75.  European natural gas (Netherlands) is lower for the fourth consecutive session, during which time it has fallen around 11%.   Iron ore extended the 5.6% gains before the weekend with another 4% gain today.  On the other hand, copper rose 3.3% in the past two sessions and has come back offered today.  Lastly, the CRB Index eased less than 1% last week and is off two of the past three weeks.  Its seven-month rally is at risk.   Asia Pacific Despite China's economic success, it remains clumsy and heavy-handed.   As the US and some other countries were considering a symbolic diplomatic boycott of the winter Olympics in Beijing, the tennis star Peng Shuai is being censored or worse for allegations against a former Politburo member.  Meanwhile, at the end of last week, three Chinese coast guard vessels launched water cannons against two Filipino boats sent to resupply a garrison on the Second Thomas Shoal (Ayungin Shoal), which is within the Philippines' Kalayanan Island Group.  The aggressive harassment brought a rebuke by the US, which reminded Beijing of its mutual defense agreement with Manila.   The Philippines will attempt to bring provision again this week.  Separately, note that after being notified by the US of the military nature of the Chinese construction project in the UAE, the project has been halted.   With the yuan at six-year highs against a trade-weighted basket, Chinese officials have begun expressing more concern about the one-way market.  The FX Committee, composed of industry participants, wants members to do a better job monitoring prop trading, and it follows the PBOC works of caution about risk management at the end of last week.  In its quarterly monetary review, the PBOC made a few tweaks that suggest it could ease policy.   Japan's Prime Minister Kishida acknowledged that releasing oil from its strategic reserve was under discussion.  China indicated it would tap its reserves last week for the second time since September, while it is still under review in the US.  Currently, Japan keeps reserves that are intended to last 90 days, while the private sector must hold reserves to last 70 days, according to reports.  Japan is considering selling oil and using the funds to subsidize the rising gasoline prices.  It may also reduce the duration of the reserves.   The dollar is straddling the JPY114.00 level as its hugs the pre-weekend range (~JPY113.60-JPY114.55).  The JPY114.30 area offers initial resistance, while the focus in early North America may be on the downside.  Still, it appears to be going nowhere quickly.   The Australian dollar finished last week at its lowest level since early October.  That low, just below $0.7230, held, and momentum traders covered shorts, helping lift the Aussie back to session highs near $0.7260.  A move above here allows gains into the $0.7270-$0.7290 area.  The PBOC set the dollar's reference rate at CNY6.3952 today.  The market (Bloomberg survey median) had projected a CNY6.3931 fix.  Although the dollar is softer today, it held above last week's lows as consolidation is evident.  It remains within the range set last Tuesday (~CNY6.3670-CNY6.3965).   Europe With the Swiss franc appreciating to six-year highs against the euro, it would not be surprising to see the SNB intervene.  The first place to look for it is in the weekly domestic sight deposits.  They rose by CHF2.58 bln, the second-most in the past three months.  Recall the mechanics.  The SNB buys euros but just sitting on them distorts the allocation strategy.  So it needs to either sell some euros for dollars or Swiss francs for dollars.  If it does the latter, its overall level of reserve growth accelerates.  Many suspect it will do the former, i.e., sell some euros for dollars.   The US continues to warn that Russia's troop and equipment movement is consistent with a rapid large-scale push into Ukraine from multiple spots simultaneously.  The suggestion, according to reports, is that the operation could take place early next year.  Both Ukraine and Georgia are seeking more US assistance.  Recall Russia invaded Crimea in February 2014.   Bank of England Governor Bailey has toned down his rhetoric, though he blames the market for misconstruing his remarks last month.  He warns now that next month's decision is finely balanced and that the price pressures are emanating primarily from supply-side disruptions for which monetary policy is less directly effective.   The implied yield of the December 2021 short-sterling interest rate futures contract is slipping for the fourth consecutive session.  Today's yield of about 21 bp is the lowest since early October.  The yield peaked in mid-October near 62 bp.  Lastly, while progress on the UK-EU talks has been reported, the two sides are still far apart.  Talks between Frost and Sefcovic will resume at the end of this week.   The prospect that a new German government could be announced this week has not helped the euro very much.  The single currency, which was sold through $1.14 and $1.13 last week, is struggling to find a base.  It has held above the pre-weekend low near $1.12560 but only barely (~$1.1260), and the attempt to resurface above $1.1300 was rebuffed. A move above $1.1320 may suggest some near-term consolidation, perhaps ahead of Wednesday's US PCE deflator report.  That said, tomorrow's flash PMI composite reading for the eurozone is expected to have weakened for the fourth consecutive month.  Sterling could not rise 15 ticks from its pre-weekend close (~$1.3450).  The downside was also limited (~$1.3420).  It caught a bid in the European morning that could extend into the US morning.  Still, the $1.3460-$1.3480 band may be a sufficient cap.  The market does not appear inclined to see trigger the $1.3395 option that expires today for about GBP425 mln.   America President Biden's announcement on the Fed's leadership could come as early as tomorrow, as he is set to deliver a speech on the economy tomorrow.  But it probably would be a separate announcement.  Given the expiration of the terms of the two vice-chairs, changes among a few of the regional presidents, and the challenging situation, President Biden is likely to follow Treasury Secretary Yellen's recommendation to re-appoint Powell.  Moreover, a tradition goes back to Volcker of one party making the initial nomination and the other party approving of another term.  This helped "depoliticize" monetary policy.  Trump broke with that tradition, and as Biden has done in a number of other areas, is restoring some traditions.  Lastly, we suspect that if Bernanke or Yellen, or Brainard were at the helm of the Fed, there would not be substantive monetary policy differences.   Vice-Chair Clarida and Governor Waller joined regional Fed President Bullard to suggest that Fed may consider accelerating the pace of tapering at next month's FOMC meeting.  We suspect others will be sympathetic after this week's October PCE and deflator news.  The economy is rebounding in Q4 from the disappointing 2% annualized pace in Q3 (which is likely to be revised higher on Wednesday), and a critical part is consumption.  Personal consumption expenditures are expected to rise by 1% after a 0.6% increase in September.  The headline PCE deflator, which the Fed targets 2% on average, which Governor Brainard reportedly helped devise, is expected to jump above 5% from 4.4% in September.  The core rate is expected to exceed 4%.  No Fed officials are slated to speak this week, but the minutes from the November 3 FOMC meeting will be released on November 24.   El Salvador caught the crypto world's attention again.  It is the first country to make Bitcoin legal tender.  It announced plans to issue a $1 bln bond, and half the proceeds will be used to buy Bitcoin (~2000 coins).  The other half will be used to fund infrastructure projects to build the infrastructure of more Bitcoins.  It will offer a 6.5% coupon, which is lower than current dollar issues.  It looks like one pays a lot for BTC exposures.  El Salvador is rated BB+ of the equivalent by the top three rating agencies.  This makes El Salvador bonds risky, to begin with, and adding Bitcoin on top of that would seem to preclude most retail and institutional investors.  It seems like a desperate act that only an impoverished country can try.  The idea that other countries will quickly follow seems to be a stretch.  There is a good reason why Tesla had few corporate followers to buy Bitcoins with reserve funds.  The same principle would seem to apply to countries.   The economic calendar for North America begins off slowly this week.  Today's main feature is the US existing home sales report.  A pullback after September's heady 7% gain is expected, the strongest in a year.  After a weak start to the year, existing home sales have recovered.  They averaged 5.66 mln (seasonally adjusted annual rate) last year and have averaged more than 6.0 mln for the past three months.  The Canadian dollar has weakened for the past four weeks.  It briefly poked above CAD1.2660 ahead of the weekend to reach its best level since early October.  The greenback is in about a 15-tick range on either side of CAD1.2645 today.  Support is seen in the CAD1.2600-CAD1.2620 area, but it may take a break of CAD1.2585 to boost confidence that a high is in place.  The US dollar rose 1.5% against the Mexican peso last week.  It was the third weekly gain in the past four weeks.  The greenback is trading above last week's high (~MXN20.89) and looks set to test the high set earlier this month near MXN20.98.  Lastly, the Chilean presidential election will go to a run-off next month, as widely expected between the far-right and far-left candidates.   The dollar snapped a five-week pullback against the Chilean peso last week, rising 3.6%, the most in three months.  Year-to-date, the peso is off nearly 14.25%.   Disclaimer
Awaiting Non Farm Payrolls, Brent Increased And Hits Ca. $92

Awaiting Non Farm Payrolls, Brent Increased And Hits Ca. $92

Walid Koudmani Walid Koudmani 04.02.2022 11:36
As usual for the first Friday of the month, investors will be focusing on the highly anticipated Non Farm Payroll report from the US which will give an overview of the job market situation for January and which is expected to show an increase of only 150,000. However, this report will be even more highly focused on since Wednesday's ADP report surprised markets with a significantly below expectation reading of -301,000 and pointed to increasing difficulties in the world's largest economy caused in part by the Omicron variant. While rising costs and supply concerns continue to impact the economic recovery, the FED maintains its position that full employment has been reached and that it will adjust it’s policies when it deems necessary in order to stimulate further growth. A better than expected result could encourage the Fed to continue its approach, while a disappointing reading could cause further concerns and may shift focus slightly on wage figures and their relation to record level inflation in the world's largest economy. Either way, today could see a noticeable increase in volatility as investors assess the situation and as stock markets attempt to stabilize after several weeks of significant moves. UK Construction PMI sparks slight optimism The UK construction sector continued to gain momentum after a difficult end to 2021 thanks to an improvement in commercial activity which helped offset a weak rise in house building. Improvements were also helped by a drop in cost inflation which fell to a 10-month low thanks to an easing of supply issues, which have been affecting the sector for months. As a result, commercial work helped construction growth reach a six-month high but with supplier lead times continuing to lengthen in January as staff shortages and a lack of haulage availability hindered deliveries, the situation continues to be uncertain. Oil prices reach multi year high as global tensions rise As the situation on the Ukraine-Russia border continues to escalate with several countries sending military personnel in an attempt to mitigate the issue, we are seeing another record increase in the price of oil with Brent reaching the highest level since October 2014 and breaking above $92. While OPEC announced it will increase its production by 400,000 barrels per day in March, the market remains concerned for a potential undersupply and general destabilization which could have consequences for the vast majority of sectors in economies as they are tied to oil prices for transport, shipping and energy. We have already noticed increasing energy costs across the world and further tensions could see these increase even more as uncertainty may lead to stockpiling and difficulties in general trade. Despite this, an easing of tensions with a continued global recovery could see the price retreat as long as a balance is maintained with suppliers in the short and medium term.  
Smelling Blood

Smelling Blood

Monica Kingsley Monica Kingsley 04.02.2022 15:58
S&P 500 is grinding lower, and bonds concur. Risk-off posture and rising yields aren‘t tech‘s friend really, and the VIX is back to moving up. The odd thing is that the dollar wasn‘t well bid yesterday as could have been expected on rising rates – the sentiment called for a bad non-farm payrolls number today. Understandably so given Wednesday‘s preview, and the figure would just highlight how desperately behind the inflation curve the Fed is, what kind of economy it would be tightening into, and shine more light on its manouevering room for Mar FOMC.Fun times ahead for the bears, and the S&P 500 short profits can go on growing – the ride isn‘t over: If tech – in spite of the great earnings Amazon move – gets clobbered this way again on the rising yields, then we could very well see even energy stocks feel the initial selling wave. Not that value stocks would be unaffected, to put it more than mildly – just check yesterday‘s poor showing of financials. Something is going to give, and soon.Precious metals are holding up relatively well, regardless of the miners‘ weakness. Commodities can go on enjoying their time in the limelight – crude oil is not even momentarily dipping, and copper stands ready to keep probing higher values within its still sideways range. Even cryptos are benefiting from what could almost be described as a daily flight to safety.As I wrote in extensive Monday‘s analysis and repeated since, stiff winds are still ahead in spite of the soothing verbal pause in tightening. As the 467K figure just in beats expectations, the Fed gets its justification to withdraw liquidity any way it pleases.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 bulls are getting slaughtered, and the downhill path is likely to continue, thanks to tech. Brace for a volatile day today.Credit MarketsHYG selling pressure made a strong return, predictably. Credit markets are leading stocks to the downside, certainly.Gold, Silver and MinersAs written yesterday, all this risk-off already in and still to come, is failing to press gold and silver really down – and that tells you the true direction is up. The downswings are being bought.Crude OilCrude oil bulls in the end didn‘t waver, and are pushing higher already – the upside breakout can really stick.CopperCopper is back to the middle of its recent range, still positioned for an upside breakout. It would take time, and precede the precious metals one. Rising commodities are sending a clear message as to which way the wind is blowing.Bitcoin and EthereumThe crypto bears didn‘t get far, and it looks like we‘re back to some chop ahead. SummaryS&P 500 bulls are getting rightfully challenged again – the Fed hikes are approaching. See though how little are commodities and precious metals affected. Meanwhile the S&P 500 internals keep deteriorating. Today‘s analytical introduction is special in talking the non-farm payrolls and Fed tightening dynamic, and explains why the pressure in stocks to probe lower values, is still building up, and that 4,450 may not be enough to stop it. For all the pause in Fed hawkish jawboning, the tightening cycle is merely getting started, and today‘s surprisingly strong data gives the Fed as much justification as the quickening wage inflation. I hope you enjoyed today‘s extensive analysis and yesterday‘s risk exposure observations. Have a great day ahead!Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
ECB's hard choice: economy or inflation? 

ECB's hard choice: economy or inflation? 

Alex Kuptsikevich Alex Kuptsikevich 07.02.2022 14:30
Industrial production in Germany fell by 0.3% for December and by 4.1% on the same month a year earlier. A deeper fall compared to the previous month, while surveyed analysts on average expected production to rise by 0.4% over the same period.The new data underscores the difficult choices the ECB will have to make in the coming months as record price growth rates go hand in hand with falling economic activity.The ECB will have to make choices as record inflation in decades requires tightening monetary policy and supporting the euro. On the other hand, industrial activity has been in a downtrend for almost four years.A rise in interest rates is likely to increase pressure on manufacturing activity and increase borrowing costs, negatively affecting consumer credit.The market reaction since last week suggests that the ECB will switch to fighting inflation, but the fading momentum in the economy calls this scenario into question
WTI choppy in $91.00-$92.00 area as traders weigh US/Iran talks, geopolitics, supply disruptions

WTI choppy in $91.00-$92.00 area as traders weigh US/Iran talks, geopolitics, supply disruptions

FXStreet News FXStreet News 07.02.2022 16:06
WTI has erased most of an earlier session dip under $91.00 but has been choppy in $91.00-$92.00 rangesSome attributed earlier session profit-taking to positive signs in US/Iran nuclear talks. Traders are also mulling developments regarding geopolitical, near-term supply concerns and ongoing strong demand.WTI was hit by profit-taking in early European trade, dipping at one point underneath the $91.00s. However, trade has since been choppier in both directions, with WTI prices more recently swinging between the $91.00-$92.00 area. At current levels around $91.50, front-month WTI futures trade with losses of about 50 cents on the day and remain only a few bucks below recent seven-year highs above $93.00, as the market mood for the most part remains bullish. Market commentators had cited positive signs on the US/Iran nuclear negotiations front as one trigger for profit-taking earlier in the day; the US restored sanction waivers to Iran that will allow international nuclear cooperation projects. Although the waivers hardly do anything to help the Iranian economy, market commentators said it was a sign of goodwill from the US that showed the country is intent on finding a deal.Iranian crude oil (https://www.fxstreet.com/markets/commodities/energy/oil) exports, hobbled by strict US sanctions, currently stand at about 700K barrels per day (BPD) versus pre-US sanction levels of well over 2M BPD. If the US and Iran can agree on a deal to return to the 2015 nuclear pact, this jump in oil exports could help ease upward pressure on crude oil markets in the near term. However, analysts at Fujitomi Securities cautioned that “investors expect more twists and turns in the U.S.-Iranian talks and no agreement to be reached anytime soon.”WTI’s impressive intra-day recovery speaks to the ongoing bullishness of the mood prevailing in crude oil markets. As the US continues to warn that a Russian military incursion into Ukraine could be imminent, the amount of geopolitical risk premia priced into global oil markets remains high. Oil markets will focus on a meeting in Moscow between French President Emmanuel Macron and Russian President Vladimir Putin later in the day, with no progress towards dialing down tensions expected.In the meantime, recent cold weather in the US has hampered near-term output, with Reuters reporting that two major refineries with a combined more than 800K BPD in output were knocked offline. That contributes to the narrative of near-term tightness in global oil markets, just as the Saudis were reported (by Bloomberg) to have raised official oil selling prices for Asian, North American and European customers. Many analysts will remain comfortable in the calls for WTI to hit $100.
Payrolls Release: Gold Reacted Quickly And Decreased... And Got Back In The Game A Moment Later!

Payrolls Release: Gold Reacted Quickly And Decreased... And Got Back In The Game A Moment Later!

Arkadiusz Sieron Arkadiusz Sieron 08.02.2022 16:42
  The latest employment report strongly supports the Fed’s hawkish narrative. Surprisingly, gold has shown remarkable resilience against it so far. What a surprise! The US labor market added 467,000 jobs last month. As the chart below shows, the number is below December’s figure (+510,000) but much above market expectations – MarketWatch’s analysts forecasted only 150,000 added jobs. Thus, the report reinforces the optimistic view of the US economy’s strength, especially given that the surprisingly good nonfarm payrolls came despite the disruption to consumer-facing businesses from the spread of the Omicron variant of the coronavirus. The unemployment rate increased slightly from 3.9% in December to 4% in January, as the chart above shows. However, it was accompanied by a rise in both the labor force participation rate (from 61.9% to 62.2%) and the employment-population ratio (from 59.5% to 59.7%). Last but not least, average hourly earnings have jumped 5.7% over the last 12 months, as you can see in the next chart. It indicates that wage inflation has intensified recently, despite the surge in COVID-19 cases that was expected by some analysts to dent demand for workers. Hence, the January employment report will cement the hawkish case for the Fed. Rising wages will add to the argument for decisive hiking of interest rates, while the surprisingly strong payrolls will strengthen the Fed’s confidence in the US economy.   Implications for Gold What does the latest employment report imply for the gold market? The unexpectedly high payrolls should be negative for the yellow metal. However, while gold prices initially plunged below $1,800, they rebounded quickly, returning above its key level, as the chart below shows. Gold’s resilience in the face of a strong jobs report is noteworthy and quite encouraging. After all, the report strengthened the US dollar and boosted market expectations of a 50-basis point hike in the federal funds rate in March (from 2.6% one month ago to more than 14% now). Such a big move is unlikely, but the point is that financial conditions are tightening without waiting for the Fed’s actual actions. In the past, gold disliked strong economic reports and rising bond yields and showed a negative correlation with nonfarm payrolls, but not this time. More generally, although long-term fundamentals have turned more bearish in recent months, gold has remained stuck at $1,800. However, last week, two factors could have supported gold prices. The first was rising volatility in the equity market. The S&P 500 Index dropped almost 500 points, or 10%, in January, as the chart below shows. Although it has recovered somewhat, it still remains substantially below the top, with the tech sector experiencing weakness. On Thursday, the shares of Meta, Facebook’s parent company, plunged more than 20%. The second potentially bullish driver was last Thursday’s meeting of the ECB’s Governing Council. The central bank of the Eurozone was more hawkish than expected. Christine Lagarde acknowledged inflationary risks and said that she had become more concerned with the recent surge in inflation. According to initial estimates, the annual inflation rate in the euro area amounted to 5.1% in January 2022, the highest since the common currency was created. Lagarde also backed off her previous guidance that the interest rate hike was “very unlikely” in 2022. The ECB’s pivot – the central bank opening the door for the first rate increase since 2011 – boosted the euro against the greenback. The bottom line is that gold has made itself comfortable around $1,800 and simply doesn’t want – or is not ready – to go away in either direction, at least not yet. The battle between bulls and bears is still on. I’m afraid that, given the relatively aggressive monetary and financial tightening, the sellers will win this clash and gold will drop before the bulls can regain control over the market. However, recent gold’s resilience indicates that there is an underlying bid in the markets and bulls are not giving up. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
What Will US CPI Trigger And How Will Fed Deal With It?

What Will US CPI Trigger And How Will Fed Deal With It?

Walid Koudmani Walid Koudmani 10.02.2022 12:32
Inflation has been a key topic in the markets in recent times with several readings reaching the highest levels in decades and central banks trying to find a balance between adjusting their monetary and fiscal policy while stimulating the post pandemic economic recovery. One of the consequences of these policies has been a staggering increase in prices of most goods, which has become a serious issue of concern for central bankers as well as regular consumers who have seen their everyday expenses increase noticeably. Today’s CPI and Core CPI readings from the US could be highly impactful as they may dictate whether the Federal reserve will decide to take action in the upcoming meeting since as of now, five rate hikes are expected and several other central banks have already taken measures to contrast general inflation. Clearly there is a fine balance between sustaining the economy and exacerbating widespread inflation which may ultimately hinder stability across markets and today’s report could play a crucial role in that process of analysis. The US Dollar may react favorably to a higher than expected reading as it could almost seal the deal on an upcoming rate hike, while stocks could be impacted by prospects of less liquidity.   Watches of Switzerland report paints optimistic picture Watches of Switzerland's report showed a continued growth of its revenue and return on capital with significant gain in market share as the company plans to continue investing for growth and to enhance its leading position in the UK and as it attempts to become a clear leader in the US. The easing of restrictions and improving economic conditions have certainly helped but with potential supply issues and record inflation levels, we could be seeing a slowdown in the short-mid term if these issues are not approached carefully. Astrazeneca posts strong results but remains cautious Astrazeneca's results showed a total revenue increase of 41% to $37,417m including COVID-19 vaccine revenues. The company managed to achieve 14 positive Phase 3 readouts across nine medicines in 2021, and 22 regulatory approvals and authorisations in major markets which further boosted its market dominance in the field. Furthermore, the company expects CER of a high-teens percentage increase in total revenue and a mid-to-high twenties percentage increase in Core EPS for 2022. Despite this, while it will certainly benefit from a variety of innovations it provides, it may see a decline in its profits as revenue from vaccines potentially declines throughout the mid to long term.  
Considering Portfolios In Times Of, Among Others, Inflation...

The Indicators Hit Higher Levels Than Expected In The US

FXStreet News FXStreet News 10.02.2022 15:44
US inflation have exceeded expectations on all measures. Alongside a jump in jobs, America's economy is on fire and the Fed is set to act. The dollar has further room to rise, at least until Fed officials open their mouths. A 6% handle on annual price rises – another milestone has been reached, this time on core inflation. Data for the first month of 2022 is hot out of the oven – and it is steaming hot. While prices of used cars and shelter seemed to have slowed down, there are few silver linings to find. On a monthly basis, both headline and Core CPI is up 0.6%, while overall annual price rises is at 7.5%, above expectations – and even implying an 8% handle next month. It is essential to note that this is no longer limited to energy or supply-chain issues, but rather broad price rises. It is accompanied by a job market that is on fire, as jobless claims for the week ending On February 4 show – a drop from 238,000 to 223,000. That comes on top of January's jobs report. Only six days ago, the Nonfarm Payrolls report came out with an increase of 467,000 positions, accompanied by upward revisions. Wages also jumped according to that NFP, adding to price pressures. Both figures are critical to the Federal Reserve, which has a dual mandate of full employment and price stability. The data more than cement a March rate hike and perhaps at a scale of 0.50% instead of 0.25%, which is the standard measure. Moreover, the Fed could raise interest rates four times by July – contrary to its projections of hiking only three times throughout the whole of 2022. That means more pressure on the dollar. The greenback has benefited from a knee-jerk reaction to the figures, but it has even more room to rise as analysts pore over the data. What could halt the greenback? Only Fed officials can cool things down, by playing down the option of raising rates by 50bp in March. That is what happened last week when hawks such as Atlanta Fed President Raphael Bostic and others calmed markets. On a relative basis, some currencies could do better than others, if central bankers talk about action to mitigate inflation. The European Central Bank's hawkish twist helped the euro recover against the dollar. After these figures, ECB hawks face an uphill battle. Overall, King Dollar reigns supreme.
Next Rate Increases In UK? Economy With A Small Up In Q4

Next Rate Increases In UK? Economy With A Small Up In Q4

Alex Kuptsikevich Alex Kuptsikevich 11.02.2022 09:48
The UK economy added 1% in the fourth quarter last year and is 6.5% higher than a year ago. The annual growth rate is declining as the low base effect fades away. In December, industrial production added 0.3% and moved into growth territory compared to the same month a year earlier. These are signs that the Bank of England's interest rate hike cycle has met the UK economy in pretty good shape. The British pound has been gaining support in the last two days on the declines in the area of 1.35 GBPUSD despite the impressive upward thrust of the dollar. This dynamic is explained by the fact that the Bank of England has as much potential to tighten policy. Locally the pound looks like a decent competitor to the dollar. The markets are pricing in that the Bank of England may raise the rate by 50 points at one of the following meetings, keeping the policy tightening gap with the Fed. And this is good news for the pound, which could also help reduce inflationary pressures.
The Swing Overview - Week 6 2022

The Swing Overview - Week 6 2022

Purple Trading Purple Trading 13.02.2022 23:00
The Swing Overview - Week 6 The record inflation rate in the US over the past 40 years sparked another wave of volatility in the markets on fears of more aggressive Fed action against an overheated economy. Unexpectedly strong US labour market data also came as a shock to markets. As a consequence, yields in the US 10-year bonds rose and broke the 2% mark. Equity indices, on the other hand, weakened towards the end of the week and we will see whether strong supports will be tested again under the influence of these fundamentals. Rising bond yields are not good news for gold either, which has so far responded to the strengthening dollar and rising yields by weakening. The macroeconomic data from the US Inflation and labour market data were clearly among the most anticipated macroeconomic events last week. Year-on-year inflation in the US rose to 7.5% in January 2022. This is the highest reading since February 1982 and is also higher than analysts' estimates, that had expected inflation to be around 7.3%. The reasons for the higher inflation are rising energy costs, a tight labor market and disruptions in supply chains, which are multiplied by strong demand in a recovering economy. The biggest contributors to rising inflation were energy prices, which rose by 27%, and fuel prices, which rose by 40%. Figure 1: The inflation in the US In terms of the labour market, the US economy created 467,000 new jobs in January. This was much more than the analysts' forecast, who estimated that, given the spread of the Omicron variant, only 150 thousand new jobs would be created in the US in January. Figure 2: The US jobs growth (NFP) This very strong data means one thing. The Fed will tighten the economy and probably at a much faster pace than the market expects. And this is also the reason for the further rise in the US 10-year bond yields, which have surpassed the 2% mark and reached their highest level since August 2019. Along with this, the dollar index, which had made a correction last week, has also started to strengthen.   Figure 3: 10-year government bond yield on the 4H chart and the USD index on the daily chart A strong dollar, rising yields and the economy tightening at a faster pace than the market expects are clearly negative news for equity indices and also gold.   The NASDAQ and the SP500 Earnings season continues in the US. Of the well-known companies, Pfizer (NYSE:PFE) reported results last week. While the company's earnings were higher than expectations, the pharmaceutical giant also reported that it expects revenue for 2022 to be USD 32 billion, below analysts' expectations, who were hoping for growth of around USD 33.8 billion.  Facebook continues to lose ground after last week's washout, causing the share price to drop from USD 320 to USD 220 in one week.   Figure 4: The NASDAQ index on H4 and D1 chart The NASDAQ started last week with a rise and the price approached the resistance according to the H4 chart. The information about record inflation had a strong negative impact on technology stocks and the price was moving near the support at the end of the week, which is in the range near 14,392 - 14,530 according to the H4 chart. Significant support is in the area at 13,750-13,950 according to the daily chart. The nearest resistance according to the H4 chart is at 15,050 - 15,080.   Figure 5: The SP 500 on H4 and D1 chart   There has been a very similar pattern on the SP 500 index to the NASDAQ. The price got to the resistance which is defined by the horizontal resistance area at 4,580 - 4,600. At the same time, there is a confluence with the broken trend line of the rising channel below which the index is moving. Support according to the H4 chart is at 4440 - 4454. According to the daily chart, significant support is at 4,225 - 4,300.   German DAX index Figure 6: The DAX on H4 and daily chart There is no clear direction on this index recently. We can probably say that the index is moving in a sideways trend which according to the daily chart is defined by the strong resistance at 16,300 (all-time high) and the support which has already been tested several times in the area between 14,850 - 15,000. The current move shows that the rising channel has been broken to the downside and also that the moving averages on the H4 chart EMA 50 and SMA 100 are in a bearish constellation. This together with the higher inflation data and also the recently announced hawkish ECB policy would suggest more of a move down to the aforementioned support. The nearest horizontal resistance according to the H4 chart is at 15,532 - 15,620. The next resistance according to the H4 chart is at 15,727 - 15,757.   The EUR/USD near strong resistance The EURUSD approached the strong 1.15 level but after the US inflation data was announced, the pair started to fall strongly. Thus, according to the H4 chart, a false break of the resistance arose, which is in the band around 1.1480 which tends to be a strong signal for further weakening. Figure 7: EURUSD on H4 and daily chart The possibility of a weakening is also indicated by the development of the interest rate differential that is present in the yields between the 10-year bonds of Germany and the US. This has recently been very strongly correlated with developments on the EURUSD. Figure 8: Correlation of the interest rate differential between German and US 10-year bonds with the EURUSD currency pair on H4   The interest rate differential is starting to decline and this should suggest that the EURUSD might weaken. The nearest resistance is at the 1.1460 - 1.1480 band. The nearest support according to the H4 chart is at 1.1360 - 1.1370. The next one is at 1.1270 - 1.1280.   Gold Gold is taken by many investors as a hedge against inflation. But lately, gold seems to be losing in the battle for inflation protection to US Treasuries, which carry some yield, while gold does not deliver any yield. Gold is most responsive to the value of the US dollar. If the dollar rises, gold tends to depreciate and vice versa. Recent developments in the USD index suggest that the dollar could strengthen again this week, which should mean a test of support for gold. Figure 9: Gold on H4 and D1 charts   The nearest resistance according to the H4 chart is in the area of 1,835 - 1,841. Then the next resistance according to the daily chart is at 1,847 - 1,852. The nearest support is at 1 788 - 1 795 and then 1 780 - 1 784 USD per troy ounce of gold.  
Alphabet (GOOGL) To Split Its Stocks (20:1) The Simplest Question Is... Why?

Alphabet (GOOGL) To Split Its Stocks (20:1) The Simplest Question Is... Why?

Dividend Power Dividend Power 14.02.2022 15:34
Recently, Google (GOOGL) announced that it would conduct a stock split. Inspired by an excellent 4th quarter earnings report and a high share price, Google has decided to split the stock to help more new investors acquire shares. The split would be a 20-for-1 stock split. How Has Google Grown Over the Years? In 2015, Google rebranded itself into the Tech giant Alphabet. Larry Page sought to make Google something more than a search engine. The company had ambitions of working on healthcare, hardware, and drones, which was a bit different from having a search engine-focused business. It would help create something more than the internet. So, Google changed its name and vision to the holding company Alphabet, allowing them to create, experiment, and invest in new opportunities. People continue to see the growth in a stock like Alphabet. After the 4th quarter, Alphabet announced their earnings, which grew over 32%. This revenue growth sent the stock soaring another 7.5% in after-hours trading. Due to the continued growth of Alphabet, their stock has become too pricey for everyday retail investors. A split can solve the problem. For instance, both Apple (AAPL) and Telsa (TSLA) split their stock allowing more investors to buy at lower prices. In addition, splitting their stock to lower the cost enables new investors to jump on board and become owners of the company. Alphabet has three classes of stock, class A, B, and C. Class A gives each shareholder one vote. Class B is for some of the founders and early investors into the company, and they have ten votes per share. Lastly, Class C has no votes. Each of these classes will conduct a stock split. One of the great things about Alphabet is that it continues to grow. Since May of 2020, Alphabet's value has doubled. Earlier this year, Alphabet posted a 62% revenue growth for the 2nd quarter. Right now, the company is worth just shy of $2 trillion, making it one of the world's largest companies by market cap. So naturally, investors want to be a part of a growing company. A stock split allows more people to be invested for the long term with Alphabet. What Exactly is a Stock Split? A stock split is when a company splits a stock dividing it up and giving the shareholder additional shares. For instance, if a share of stock was worth $1,000, a company could do a 10-for-1 split. This split would give each shareholder ten shares for every share they currently own. Each share would now be worth $100 apiece. However, the total market capitalization does not change before or after the split. Companies may split the stock when the share price rises too quickly, making it unattainable for new customers to hold that share. The price gets too high. Why is Alphabet Splitting Its Stock? Alphabet is the most expensive stock on a per share basis in Silicon Valley, and there are other opportunities to explore as an investor. Alphabet's stock is nearly $3,000 per share. At this stock price, many new investors cannot own a part of Alphabet unless they go the route of fractional shares or do index investing. Other authors have speculated that Alphabet is seeking to join the Dow Jones Industrial Average. The Dow Jones is a price-weighted index, and with the high price of Alphabet stock, the Index would not want to bring them on board. In August of 2020, Apple did a 4-for-1 split of their stock, and it lowered their weight by about 3% in the Dow 30. Companies like Alphabet and Amazon are too large to be added into the Dow. Their stock prices would have an uneven weight due to the high cost. If those companies split their stock to lower prices, it gives them more advantages, and they can join the Dow 30. As Alphabet wants to continue to grow, it will want to add new investors and reach broader audiences. By potentially joining the Dow 30, Alphabet can make this happen by going through the various index funds and mutual funds that track the Dow Jones. Will the Split Affect the Value of the Stock? What happens when a split is announced? The total value of the shares will not drop. Instead, the new stock price will fall by 1/20th of the old stock price. Typically, shares increase in aftermarket trading like we saw the day after Alphabet announced the split. The total value will not be reduced in any way after the stock split. Each Class A and Class B shareholder will now have more votes but in the same proportion as before the split, and the Class C shares will continue to be the cheapest avenue to owning a piece of Google. When Will This Stock Split Take Place? Alphabet has announced that everyone that owns sarees on July 1st will receive their new shares on Friday, July 15th. That price should be around $150 per share, which is 1/20th of the cost of $3,000. The trading at the new stock price will take place on July 18th. What Does This Mean for the Regular Investor? Typically, a stock split is neither good nor bad. The stock will usually rise with the new interest from investors, and eventually, the buzz will fade away. However, if this is a worry for you as an individual shareowner, then maybe owning an index fund or ETF is the way to go for you to improve diversification. As Alphabet grows, it will continue to grow its revenue streams and bring more value to the shareholder. Growth is an excellent thing for an investor. We see many companies declining, like GE (GE) or even AT&T (T). For instance, AT&T (T) cut its dividend due to continued weakness and a change in strategy. As companies like Apple, Microsoft, and Alphabet continue to innovate and create, investors will want to be a part of the journey as shareholders. Should you worry about Google's stock split? Again, there is nothing to worry about; just keep to your investing strategy and keep investing. Author Bio: Dividend Power is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, Entrepreneur, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.5% (126 out of over 8,212) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha. Disclaimer: Dividend Power is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money. 
Technical Analysis: Moving Averages - Did You Know This Tool?

S&P 500 Chart - There's A Big Red Candle On The Right Hand Side

Monica Kingsley Monica Kingsley 14.02.2022 16:24
S&P 500 opening range gave way to heavy selling as 4,470s didn‘t hold. Risk-on was overpowered, and the flight to Treasuries didn‘t support tech. And that‘s most medium-term worrying – stocks don‘t look to have found a floor, and gave up the opportunity for a tight range trading on Friday all too easily. The prospects of war were that formidable opponent, against which the S&P 500 didn‘t really stand a chance. So, the downtrend has reasserted itself, and HYG doesn‘t look to have found a floor – junk bonds are leading to the downside, with energy, materials and financials standing out, which isn‘t exactly a bullish constellation. The other key beneficiaries of the safe haven bid were gold, miners and oil. Silver lagged as copper retreated all too easily, but I‘m looking for that to change. As for Monday‘s session in stocks, the odds of a countertrend move to the upside, at least intraday, are good. Just a quick glance at the dollar, gold, oil and Bitcoin would reveal the extent of possible stabilization. Stabilization, not a reversal, because HYG is unlikely to turn up, and I‘m not looking for stocks to start moving up again. Thursday marked a high point in the countertrend rally, which was cut short after some 5 days only. Sideways to a little up is the best the bulls can hope for on Monday. Funny though how with all eyes on Eastern Europe, the inflation and steep rate hike bets receded? What a Super Bowl! Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Whatever backing and filling there could have been, the S&P 500 didn‘t hesitate, and is pointing to the downside. The bears are back, and aren‘t yielding. Credit Markets Credit markets went decidedly risk-off, and a little sideways reprieve wouldn‘t be surprising. But it would change nothing as the bets on rising rates, are on, and the 2-year Treasury is forcing the Fed‘s hand. Gold, Silver and Miners Miners and gold came alive on the tensions escalation news – the uptrend is alive and well indeed, even without these geopolitical developments. The upswing wasn‘t really sold into. Crude Oil Crude oil correction came to an abrupt close, and it‘s unlikely black gold would dip in the current environment. The upcoming corrections would be bought as much as the previous one, and given the oil stocks performance, wouldn‘t likely reach far to the downside. Copper Copper is under pressure, and not holding up as well as other commodities. Base metals though are breaking higher, which is why I‘m looking at Friday‘s red metal trading as a temporary setback only. Bitcoin and Ethereum The floor in cryptos is heralding a tight range day – it‘s good for risk-on that Friday‘s downswing isn‘t immediately continuing, it‘s buying some time. Summary S&P 500 bears are back in the driver‘s seat, and the rush to Treasuries took the spotlight off rate hikes – to a small degree. Not that the Fed would be changing course on geopolitics, we aren‘t there yet. To the contrary, credit markets are pressuring the central bank to move – as decisively as possible in the overleveraged system – and Powell would find it hard not to deliver. Come autumn latest, the strain on the real economy would be hard to ignore – real estate is feeling the pinch already. Stock bulls can‘t expect higher prices unless tech recovers, and we look to be still far from that moment. Real assets with safe haven appeal are likely to do best, and the same goes for the dollar temporarily too. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Will Oil (BRENT) Call For A Oxygen Cylinder? It Climbed Really High...

Will Oil (BRENT) Call For A Oxygen Cylinder? It Climbed Really High...

Alex Kuptsikevich Alex Kuptsikevich 15.02.2022 15:22
Events in recent weeks have brought back interest in assets that have benefited from tensions in previous decades, with gold rising as insurance against currency destabilisation and oil rising on fears of surging demand and shortages of supply if sanctions constrain supplies from Russia. Interestingly, the West is trying to balance sanctions restrictions on oil as more encouraging comments come out of the talks with Iran. In our view, oil is very expensive, climbing to current heights faster than the economy can afford it. This rise is caused by geopolitical tensions around Russia, which acts as the world's largest energy exporter by a wide margin. Fears about the stability of future supply have so far outweighed any negatives, but it is still prudent to zero in on geopolitical influences over the medium to long term. And with that in mind, the oil price looks unsustainably high, vulnerable to a corrective pullback once the dust of military hardware settles. About 12 years ago, we saw a similar picture when oil prices recovered quickly. And then, the result was another round of global economic weakness, which also knocked down demand for commodities and forced regulators to postpone policy normalisation steps. Will it be like that now? Quite possibly, and then in the second half of the year, oil could turn sharply to correction and cause another shock for the economy. In recent weeks, significant factors are potentially capping price rises with increased drilling activity. Also, Russia will ramp up production as most of the wells are in areas with a harsh climate. Looking locally, we can see how quickly any declines in oil over the last three months are being bought out. In such an environment, oil could soon find itself in short squeeze territory, with short positions being forced to close due to rising prices. This mirrors what we saw in April 2020. It is difficult to predict the peak price level in such an environment. It would be an ideal market picture if the short squeeze occurred at the end of April on another major expiry, paying homage to events two years earlier. And ideally, if we saw a price return to the $112 area where the bear market in oil started in July 2014. But this is an idealised picture. The reality is likely to be less mathematically accurate, as so much is now tied to the actions and comments of policymakers.
Should Someone Tell The Price Of Gold It's Time To Review Its Incoming "Oponents"?

Should Someone Tell The Price Of Gold It's Time To Review Its Incoming "Oponents"?

Przemysław Radomski Przemysław Radomski 15.02.2022 16:00
  Gold continues to benefit from the market turmoil and has apparently forgotten about medium-term problems. Meanwhile, the rising USD and a hawkish Fed await confrontation. With financial markets whipsawing after every Russia-Ukraine headline, volatility has risen materially in recent days. With whispers of a Russian invasion on Feb. 16 (which I doubt will be realized), the game of hot potato has uplifted the precious metals market. However, as I noted on Feb. 14, while the developments are short-term bullish, the PMs’ medium-term fundamentals continue to decelerate. For example, while the general stock market remains concerned about a Russian invasion, U.S. Treasury yields rallied on Feb. 14. With risk-off sentiment often born in the bond market, the safety trade benefiting the PMs didn’t materialize in U.S. Treasuries. As a result, bond traders aren’t demonstrating the same level of fear. Please see below: Source: Investing.com Furthermore, while the potential conflict garners all of the attention, the fundamental issues that upended the PMs in 2021 remain unresolved. For example, with inflation surging, St. Louis Fed President James Bullard said on Feb. 14 that “the last four [Consumer Price Index] reports taken in tandem have indicated that inflation is broadening and possibly accelerating in the U.S. economy.” “The inflation that we’re seeing is very bad for low- and moderate-income households,” he said. “People are unhappy, consumer confidence is declining. This is not a good situation. We have to reassure people that we’re going to defend our inflation target and we’re going to get back to 2%.” As a result, Bullard wants a 50 basis point rate hike in March, and four rate hikes by July. Please see below: Source: CNBC Likewise, while San Francisco Fed President Mary Daly is much less hawkish than Bullard, she also supports a rate hike in March. Source: CNBC As a result, while the PMs can hide behind the Russia-Ukraine conflict in the short term, their medium-term fundamental outlooks are profoundly bearish. As mentioned, Bullard highlighted inflation’s impact on consumer confidence, and for a good reason. With the University of Michigan releasing its Consumer Sentiment Index on Feb. 11, the report revealed that Americans’ optimism sank to “its worst level in a decade, falling a stunning 8.2% from last month and 19.7% from last February.” Chief Economist, Richard Curtin said: “The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government's economic policies, and the least favorable long term economic outlook in a decade.” “The impact of higher inflation on personal finances was spontaneously cited by one-third of all consumers, with nearly half of all consumers expecting declines in their inflation adjusted incomes during the year ahead.” Please see below: To that point, I’ve highlighted on numerous occasions that U.S. President Joe Biden’s re-election prospects often move inversely to inflation. With the dynamic still on full display, immediate action is needed to maintain his political survival. Please see below: To explain, the light blue line above tracks the year-over-year (YoY) percentage change in inflation, while the dark blue line above tracks Biden’s approval rating. If you analyze the right side of the chart, you can see that the U.S. President remains in a highly perilous position. Moreover, with U.S. midterm elections scheduled for Nov. 8, the Democrats can’t wait nine to 12 months for inflation to calm down. As a result, there is a lot at stake politically in the coming months. As further evidence, as inflation reduces real incomes and depresses consumer confidence, the Misery Index also hovers near crisis levels. Please see below: To explain, the blue line above tracks the Misery Index. For context, the index is calculated by subtracting the unemployment rate from the YoY percentage change in the headline CPI. In a nutshell, when inflation outperforms the unemployment rate (the blue line rises), it creates a stagflationary environment in America. To that point, if you analyze the right side of the chart, you can see that the Misery Index is approaching a level that coincided with the global financial crisis (GFC). As a result, reversing the trend is essential to avoid a U.S. recession. As such, with inflation still problematic and the writing largely on the wall, the market-implied probability of seven rate hikes by the Fed in 2022 is nearly 93% (as of Feb. 10). Please see below: Ironically, while consumers and the bond market fret over inflation, U.S. economic growth remains resilient. While I’ve been warning for months that a bullish U.S. economy is bearish for the PMs, continued strength should turn hawkish expectations into hawkish realities. To that point, the chart above shows that futures traders expect the U.S. Federal Funds Rate to hit 1.75% in 2022 (versus 0.08% now). However, Michael Darda, Chief Economist at MKM Partners, expects the Fed’s overnight lending rate to hit 3.5% before it’s all said and done. “We have this booming economy with high inflation and a rapid recovery in the labor market – much different relative to the last cycle,” he said. “The Fed is behind the curve this time. They are going to have to do more.”  Singing a similar tune, John Thorndike, co-head of asset allocation at GMO, told clients that “inflation is now here, [but] the narrative is that inflation goes away and markets tend to struggle with change. It is more likely than not that real yields and policy rates need to move above inflation during this cycle.” The bottom line? While the Russia-Ukraine drama distracts the PMs from the fundamental realities that confront them over the medium term, their outlooks remain profoundly bearish. Moreover, while I’ve noted on numerous occasions that the algorithms will enhance momentum in either direction, their influence wanes materially as time passes. As such, while headline risk is material in the short-term, history shows that technicals and fundamentals reign supreme over longer time horizons. Thus, while the recent flare-up is an unfortunate event that hurts our short position, the medium-term developments that led to our bearish outlook continue to strengthen. In conclusion, the PMs rallied on Feb. 14, as the Russia-Ukraine conflict is the primary driver moving the financial markets. However, while the PMs will ride the wave as far as it takes them, they ignored that the USD Index and U.S. Treasury yields also rallied. Moreover, with Fed officials ramping up the hawkish rhetoric, the PMs' fundamental outlook is more bearish now than it was in 2021 (if we exclude the Russia-Ukraine implications). As a result, while the timeline may have been delayed, lower lows should confront gold, silver, and mining stocks in the coming months. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
COT Currency Speculator Sentiment rising for Euro & British Pound Sterling

Mean Reversion

Monica Kingsley Monica Kingsley 15.02.2022 16:32
S&P 500 refused further downside yesterday, and while credit markets didn‘t move much, rebound looks approaching as stocks might lead bonds in the risk appetite. When the East European tensions get dialed down, S&P 500 can be counted on to lead, probably more so when it comes to value than tech. That‘s why the tech participation is key as it would make up for the evaporating risk premium in energy. Or precious metals – these are likely to rise once again when the spotlight shifts to the inadequacy of Fed‘s tightening in the inflation fight. For now, the war drums took the limelight away, but don‘t count on gold, silver or oil correcting significantly and lastingly. Cryptos are supporting the return of risk-on as the touted war just isn‘t happening either today or tomorrow, and market participants are dialing back the panicky bets. That‘s why Treasuries and tech movements are so key these days – copper trading shows that we‘re in for paring back of the fire sales. I can‘t call it a full fledged stock market reversal, not yet. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Pause but more likely a rebound, is what comes next for S&P 500. Closing above the 200-day moving average is possible, but more is needed for a trend reversal in this correction. Credit Markets Credit markets moderated their pace of decline, and there‘s no risk-on posture apparent yet. We may be though nearing the point of credit market reprieve – as much as that‘s compatible with rate raising cycle. Gold, Silver and Miners Miners and gold are benefiting from the tensions, but they‘ll just as easily give up some of these gains next. What‘s important though, is the continued trend of making higher highs and higher lows. Crude Oil Crude oil looks also likely to lose some of the prior safe haven bid, but similarly to precious metals, the trend is higher, and corrections are more or less eagerly bought. Only should the Fed‘s actions harm the real economy, would oil prices meaningfully decline. Copper Copper is rebounding, but still remains trading in a not too hot fashion – the red metal is still trailing behind other commodities significantly. Bitcoin and Ethereum Cryptos deciding to go higher, is a positive sign for stocks as well – the volume looks to be noticeable enough at the close later today to lend the upswing credibility. Summary S&P 500 bulls have the opportunity today, but the market remains as headline sensitive as everything else. Treasuries stabilizing or even moving higher while funds flow out of the dollar, that would be a bullish confirmation – and the same goes for precious metals not getting hammered, but finding a decent floor. The point is that war jitters calming down when Russia doesn‘t take the bait, makes assets to continue with their prior trends and focus, which is Fed and tightening. The bets on 50bp rate hike in Mar went down recently, and when they start rising again, it would make sense to deploy more capital – including into oil above $90, give or take a buck. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Fat or Flat: Gold Price in 2022

Fat or Flat: Gold Price in 2022

Arkadiusz Sieron Arkadiusz Sieron 15.02.2022 17:10
  Analysts' 2022 forecasts for the gold market are not overwhelmingly enthusiastic – they see it flat. However, maybe the opposite should be expected. The LBMA has recently published its annual precious metals forecast survey. In general, the report is neutral about gold in 2022. On average, the analysts forecast gold prices to be broadly flat this year compared to the year. The average gold price in 2021 was $1,799, and it is expected to rise merely $3 to $1,802. How boring! However, as the table below shows, the forecasts for other precious metals are much more bearish, especially for palladium. The headline numbers are the averages of 34 analysts’ forecasts. The greatest bears see the average price of gold as low as $1.630, while the lowest low – at $1,500. Meanwhile, the biggest bulls expect the average price of gold to be $1,965, while the highest high is expected to be $2.280. The three most important drivers of precious metals prices’ performance this year are the Fed’s monetary policy, inflation, and equity market performance. This is a huge change compared to last year, when analysts considered geopolitical factors, the impact of the COVID-19 pandemic, and the pace of economic recovery to be much more important. I agree this time, of course, as I always believed that macroeconomic factors are more relevant to the long-term trend in the gold market than geopolitical drivers. Generally, the pick-up in inflation, which will keep real interest rates in negative territory, is seen as a tailwind for gold. Some analysts also expect the greenback to depreciate as the global economic recovery gathers steam, which would also be supportive of gold prices. Meanwhile, normalization of monetary policy is considered the greatest headwind for the yellow metal, as the Fed’s tightening cycle will raise the opportunity cost of holding gold. However, the markets have probably already priced the interest rate hikes in, so gold doesn’t have to suffer during the tightening cycle. Last time, the price of gold began to rise after the liftoff of the federal funds rate. The analysts surveyed by the LBMA also doubt the central banks’ ability to raise interest rates as high as needed to crush inflation. Instead, they are expected to stay behind the inflation curve. This is because the forecasted tightening cycle could be too difficult for the asset market and indebted economy to stomach, so it will be moderate and short-lived, just like last time.   Implications for Gold What does the LBMA annual forecast survey predicts for the yellow metal? The report is neutral, probably because gold remains under the influence of opposite forces, which makes forecasting really challenging this year. Gold has been recently in a sideways trend, so it’s somewhat natural to expect simply more of the same, i.e., the flat market. Actually, the pundits always forecast more of the same. For example, the previous edition of the survey was bullish, as 2020 was a great year for gold. Thus, the analysts’ 2021 average forecast for the price of gold was $1,973.8, almost $200 above the actual level. Hence, please take the survey with a pinch of salt. OK, the analysts don’t predict a literally flat market. The forecasts concerned averages, but some experts see the first half of the year as more bullish than the second, while others, vice versa. I’d rather include myself in the latter group, as my view is that the expectations of Fed tightening will continue to exert downward pressure on gold prices in the coming weeks. However, the hawkish expectations have probably gone a little too far. At some point this year, they will be adjusted, as it becomes clear that the Fed will be forced to reduce the pace of its tightening or even reverse its stance in order to calm the market and avoid the next economic crisis. Such an adjustment will be positive for gold prices, especially since it might occur amid still high inflation, but gold bulls should remember that there is still a long way to go before that happens. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Focusing On US CPI, Fed, Commodities and Bank Of Japan - Saxo Market Call

We Might Say Next FED Moves Are Not Obvious As Some Factors Differentiate Circumstances

Althea Spinozzi Althea Spinozzi 17.02.2022 12:45
Bonds 2022-02-17 12:15 Summary:  We believe that it will be nearly impossible for the Federal Reserve to avoid a tantrum in credit markets. If the central bank doesn’t do enough to fight inflation, markets will face the possibility of an inflation tantrum. However, we might face a taper tantrum if it is too aggressive in tightening the economy. The recent acceleration in real yields, the spike in the MOVE index, and the widening of the HY-IG spread indicate we might not be far from a widespread selloff in credit markets. We recommend investors remain cautious as we approach the March FOMC meeting. It has arrived the time to consider the possibility of an upcoming tantrum in credit markets. Since the beginning of the year, junk has overperformed quality as interest rate risk eroded value faster than credit risk. Bonds with higher duration, hence better-rated credits, have dropped in value faster than bonds with lesser duration. Triple C credits lost only -3.29% year-to-date, while investment-grade bonds fell nearly double. However, credit risk perception might change as monetary policies become more aggressive, and financing conditions tighten fast.Source: Bloomberg and Saxo Group. The Fed’s posture is clear: inflation needs fighting. According to markets, that will be possible only through an aggressive interest rate hiking schedule, possibly combined with a balance sheet runoff. It means that interest rates will continue to rise, contributing to a capital loss in older bonds as prices fall below par. At the same time, we’ll see the issuance of new bonds with bigger coupons in the primary market. The faster that happens, the bigger the tantrum. High inflation makes a key difference compared to the macroeconomic backdrop during the 2013 taper tantrum. Inflation is a threat to the bond market as it erodes the present value of fixed coupon and redemption payments. Therefore, the central bank needs to hike rates to avoid an inflation tantrum. However, suppose the central bank does too little to fight inflation. In that case, bonds will lack protection against it, and markets will need to raise their future rate hike bets, creating the conditions for a selloff. Yet, if the Fed is too aggressive in tightening the economy, it might result in a taper tantrum anyway. Thus, the Federal Reserve is walking a fine line, and a tantrum is nearly inevitable as monetary policy can be too much or too little aggressive at markets’ discretion. Real yields are one of the best tools to forecast a tantrum. As the central banks prepare for a tightening cycle, nominal yields will inevitably surge, while breakeven rates will adjust lower, accelerating the rise of real yields.  One can argue that real yields remain in deeply negative territory, leaving financing conditions still highly loose. However, that was also the case in 2013, but things started to go south as real yields accelerated their rise to 0%. We could say that the 2013 taper tantrum was all due to an acceleration in real yields.Source: Bloomberg and Saxo Group. Now that real yields rose above -0.5% and the probability of a 50bps rate hike in March is growing, it’s inevitable not to forecast an acceleration in real yields around the Fed’s March meeting. Such a rate hike is likely to tighten financing conditions quickly and it might provoke a tantrum within risky assets as it happened in 2013. Other elements suggest we might not be too far off from a tantrum. On Tuesday, the MOVE Index rose to the second-highest level since the 2013 taper tantrum and the highest since the beginning of the Covid pandemic. The move index is the “fear index” for the bond market, like the VIX index is for equities. During the 2013 Taper Tantrum, it peaked at 117, while now it's shy of 100.Source: Bloomberg and Saxo Group. Another helpful metric to look at is the spread between high-yield and investment-grade corporate bonds. Despite the spread between the two remains low compared to pre-pandemic levels, it has widened substantially since the beginning of the year. If the spread continues to widen, it would be an indication that investors start to reconsider credit risk, as they would sell junk to buy high-grade corporates.Source: Bloomberg and Saxo Group.
Bearish Turn Coming

Bearish Turn Coming

Monica Kingsley Monica Kingsley 17.02.2022 15:57
Thanks to Fed minutes, the S&P 500 closed modestly up, but could have taken the stronger credit markets cue. Instead, the upswing was sold into – the selling pressure is there, and neither value nor tech took the opportunity to rise, even against the backdrop of a weakening dollar. That‘s quite telling – the stock market correction hasn‘t run its course yet, and whatever progress the bulls make, is being countered convincingly. Precious metals adored the combo of yields and dollar turning down – and reacted with the miners‘ outperformance. The silver to copper ratio is basing, and the white metal looks to have better short-term prospects than the red one. Still in the headline sensitive environment we‘re in, gold would be stronger than silver until inflation is recognized for what it is. If there‘s one thing that the aftermath of Fed minutes showed, it‘s that the commodities superbull is alive and well, and that precious metals likewise are acting very positively in this tightening cycle. Suffice to say that gold has a track record of turning up once the rate hikes finally start… Excellent, the portfolio is positioned accordingly. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 rebound is getting suspect, and should stocks close on a weak note today, it‘s clear that today‘s wobbling Philly Fed Manufacturing Index won‘t be balanced out by the succession of Fed speakers – the signs of real economy headwinds are here. Credit Markets HYG upswing could have had broader repercussions, and it‘s quite telling it didn‘t. The risk-on turn would likely be sold into, with consequences. Gold, Silver and Miners Precious metals suffered a temporary setback only indeed – I‘m looking for the gains to continue as the miners outperformance just can‘t be overlooked. Crude Oil Crude oil dipped some more, and the dip was again bought. Given the late session wavering, I‘m looking for some more sideways and volatile trading ahead before the upswing reasserts itself. Copper Copper continues trading sideways, but with bullish undertones. More consolidation before another upswing attempt is probable. Bitcoin and Ethereum Cryptos are turning down, but still haven‘t broken either way out of the current range. Both Bitcoin and Ethereum are sending a message of caution. Summary S&P 500 bulls‘ opportunity seems increasingly slipping away given that the buyers couldn‘t defend gains after Fed minutes release. The upturn in credit markets is likely to prove of fleeting shelf life, and would exert downward pressure upon stocks. As I wrote yesterday (and talked extensively within today‘s article chart captions), the commodities bull is likely to carry on with little interference – and so would the precious metals bull as the yield curve keeps compressing, and the beginning of rate hikes would mark further headwinds for the real economy at a time of persistent inflation that could be perhaps brought down to 4-5% official rate late this year (which would leave the mainstream wondering why it just isn‘t transitory somewhat more – what an irony). The Fed‘s tools to be employed are simply insufficient to break the inflation‘s back, that‘s it. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Is It Worth Adding Gold to Your Portfolio in 2022?

Is It Worth Adding Gold to Your Portfolio in 2022?

Arkadiusz Sieron Arkadiusz Sieron 17.02.2022 16:29
  Gold prices declined in 2021 and the prospects for 2022 are not impressive as well. However, the yellow metal’s strategic relevance remains high. Last month, the World Gold Council published two interesting reports about gold. The first one is the latest edition of Gold Demand Trends, which summarizes the entire last year. Gold supply decreased 1%, while gold demand rose 10% in 2021. Despite these trends, the price of gold declined by around 4%, which – for me – undermines the validity of the data presented by the WGC. I mean here that the relevance of some categories of gold demand (jewelry demand, technological demand, the central bank’s purchases) for the price formation is somewhat limited. The most important driver for gold prices is investment demand. Unsurprisingly, this category plunged 43% in 2021, driven by large ETF outlfows. According to the report, “gold drew direction chiefly from inflation and interest rate expectations in 2021,” although it seems that rising rates outweighed inflationary concerns. As the chart below shows, the interest rates increased significantly last year. For example, 10-year Treasury yields rose 60 basis points. As a result, the opportunity costs for holding gold moved up, triggering an outflow of gold holdings from the ETF. As the rise in interest rates is likely to continue in 2022 because of the hawkish stance of the Fed, gold investment may struggle this year as well. The end of quantitative easing and the start of quantitative tightening may add to the downward pressure on gold prices. However, there are some bullish caveats here. First, gold has remained resilient in January, despite the hawkish FOMC meeting. Second, the Fed’s tightening cycle could be detrimental to the US stock market and the overall, highly indebted economy, which could be supportive of gold prices. Third, as the report points out, “gold has historically outperformed in the months following the onset of a US Fed tightening cycle”. The second publication released by the WGC last month was “The Relevance of Gold as a Strategic Asset 2022”. The main thesis of the report is that gold is a strategic asset, complementary to equities and bonds, that enhances investment portfolios’ performance. This is because gold is “a store of wealth and a hedge against systemic risk, currency depreciation, and inflation.” It is also “highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.” Gold is believed to be a great source of return, as its price has increased by an average of nearly 11% per year since 1971, according to the WGC. Gold can also provide liquidity, as the gold market is highly liquid. As the report points out, “physical gold holdings by investors and central banks are worth approximately $4.9 trillion, with an additional $1.2 trillion in open interest through derivatives traded on exchanges or the over-the-counter (OTC) market.” Last but not least, gold is an excellent portfolio diversifier, as it is negatively correlated with risk assets, and – importantly – this negative correlation increases as these assets sell off. Hence, adding gold to a portfolio could diversify it, improving its risk-adjusted return, and also provide liquidity to meet liabilities in times of market stress. The WGC’s analysis suggests that investors should consider adding between 4% and 15% of gold to the portfolio, but personally, I would cap this share at 10%.   Implications for Gold What do the recent WGC reports imply for the gold market? Well, one thing is that adding some gold to the investment portfolio would probably be a smart move. After all, gold serves the role of both a safe-haven asset and an insurance against tail risks. It’s nice to be insured. However, investing in gold is something different, as gold may be either in a bullish or bearish trend. You should never confuse these two motives behind owning gold! Sometimes it’s good to own gold for both insurance and investment reasons, but not always. When it comes to 2022, investment demand for gold may continue to be under downward pressure amid rising interest rates. However, there are also some bullish forces at work, which could intensify later this year. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Still Taking The Conflict Into Consideration, What's Not A Big Surprise

Still Taking The Conflict Into Consideration, What's Not A Big Surprise

Walid Koudmani Walid Koudmani 18.02.2022 12:48
While US indices plunged yesterday as the situation near the Ukraine-Russia border remained tense with the S & P 500 dropping 2.12%, Nasdaq falling 2.88% and Dow Jones pulling back 1.78%, reports of shelling in Luhansk and Donetsk Oblasts in eastern Ukraine continue. However, the US President will host a meeting with leaders of Canada, France, Germany, Poland, Italy, Romania, UK, EU and NATO today which along with an announced meeting between US secretary Blinken and Russia's Lavrov next week has helped moods stabilize slightly. Oil prices pulled back noticeably with Brent dropping below $90 and gold gave up some gains after benefiting from the significant risk-off moods seen this week which saw it reach the highest level since mid 2021. With a lack of data releases and with a long weekend ahead in the US, we could be seeing significant volatility across markets as investors and traders adjust their positions to limit risk exposure and in anticipation of a potential escalation of the conflict. On the other hand, any sign of easing of tensions has been received positively from markets and further indication could lead to a return of risk appetite across asset classes, which could favor stocks as well as the cryptocurrency market, which have struggled to maintain gains lately. UK retail sales point to continued post pandemic recovery Today's retail sales figures continue to provide encouraging signs as the economy recovers from the pandemic and as businesses as well as consumers begin to adjust to rising inflation. While these figures indicated a rise of retail sales volumes by 1.9% in January 2022 following a fall of 4.0% in December 2021, an interesting thing to note is that the proportion of retail sales online fell to 25.3% in January 2022, its lowest level since March 2020 (22.7%). Ultimately, it remains to be seen how the Bank of England's policy will facilitate this trend moving forward in order to avoid a stagnation situation and as rising prices across sectors continue to add pressure.
Thaw Incoming? GBP Could Be Ahead Of An Uptrend As Retails Sales Indicator Hits Fine Value

Thaw Incoming? GBP Could Be Ahead Of An Uptrend As Retails Sales Indicator Hits Fine Value

Alex Kuptsikevich Alex Kuptsikevich 18.02.2022 09:30
UK retail sales added 1.9% in January, following a dip of 4.0% a month earlier. By the same month a year earlier, the increase was 9.1%, as January 2021 saw a sharp tightening of the lockdown and the vaccination campaign had only just started. The data came out slightly better than expected, supporting purchases of British currency against the dollar, but remains very volatile due to restrictions in previous months. Sales generally remained above multi-year trend levels, which is a good signal of the economy’s health. After the financial crisis from 2009 to 2016, there was a long period when sales were below the long-term trend line and were one of the obstacles why the Bank of England could not go ahead with a rate hike. These days, the need to suppress inflation is combined with the ability to do so thanks to strong consumer demand and the labour market. Sales were also boosted by pent-up demand for services and goods that were in restricted supply during the pandemic. This process may gain momentum in the coming months, painting a more colourful picture of consumer activity, but could lead to disappointment in the second half of the year. The Bank of England should keep a close eye on the coming economic releases to avoid repeating the mistakes of the ECB, which rushed through a rate hike in May 2009, undermining the economic recovery. On Friday morning, the British pound is testing the highs of February, rising to 1.3630. A rise to 1.3680 may be a development in the current momentum. However, a jump even higher would reflect a break of the downtrend since last June, anchoring GBPUSD above the 200-day average and setting the pair up to test previous highs.
Fed And BoE Ahead Of Interest Rates Decisions. Having A Look At Nasdaq, S&P 500 and Dow Jones Charts

Mid & Small Cap Indexes May Surge Higher

Chris Vermeulen Chris Vermeulen 16.02.2022 21:32
As the global markets move away from recent concerns of war and Fed rate hikes, I believe both Small and Mid Cap indexes are uniquely positioned to potentially surge 7% to 11%, or more, from recent lows. My analysis suggests both the Small and Mid Cap Indexes may have moved excessively lower over the past 30+ trading days. They may be poised for a unique opportunity and a substantial price rally if the global markets continue to move away from extreme risk events. As the US Fed and global central banks position to combat inflation while war tensions build near Ukraine, I believe the US Small and Mid Cap Indexes are uniquely undervalued and ready for a potential move higher. The recent recovery in the US major indexes may be evidence of strong bullish price momentum underlying the US Major Indexes. I believe that foreign capital is moving into various US assets to avoid foreign market/currency risks. The US Small and Mid Cap Indexes seem like perfect opportunities for this capital deployment. IWM May Rally 12 to 14% - Targeting $238 to $240 This Weekly IWM chart highlights a support level near $191.00 and a recent Three River Morning Star bottom reversal pattern near $194.40. It also highlights the previous range-based trading and dual Pennant/Flag setups using shaded BLUE and YELLOW Rectangles. I believe IWM has a solid potential to rally back to near the $220 level before finding resistance (+7.25%). If this bullish price momentum continues, IWM may rally to levels above $238 to $240. The global markets may have recently focused too much on the US Fed and Global Central Banks while missing the underlying strength of the US economy. Consumers are still spending, and the US Fed has yet to make any substantial adjustments to rates or balance sheets. These recent lows may provide an excellent opportunity for traders to capitalize on a “reversion price move” soon. The only way to navigate and capitalize on these price swings is to stay focused on Technical Analysis and strategic opportunities for trades when they occur. WHAT TRADING STRATEGIES WILL HELP YOU TO NAVIGATE CURRENT MARKET TRENDS? Learn how I use specific tools to help me understand price cycles, setups, 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 the markets are starting to transition away from the continued central bank support rally phase. This may start a revaluation phase as global traders identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern drive traders/investors into Metals. 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 the following link:   www.TheTechnicalTraders.com 
Our Attention Should Be Drawn To Fed As Well, An Increase Of Interest Rate Is Likely To Come

Our Attention Should Be Drawn To Fed As Well, An Increase Of Interest Rate Is Likely To Come

Chris Vermeulen Chris Vermeulen 15.02.2022 15:31
The FED has made it very clear that it will raise its benchmark interest rate, the federal funds rate. This could have severe consequences and even lead to a financial crisis. They are too far behind the curve and will be labeled a major policy error in the future, most likely. They have put themselves in a situation where they are now their own hostage. They need more leadership to describe what a soft landing is going to look like. They have been too slow to act, and now they are going too fast. The “Powell Put” has now been put out to pasture. We believe that the FED will make more rate hikes than they have announced. Goldman Sachs thinks there will be four 25-basis-point increases in the federal funds rate in 2022. Jamie Dimon, CEO of JPMorgan Chase, said, “he wouldn’t be surprised if there were even more interest rate hikes than that in 2022. There’s a pretty good chance there will be more than four. There could be six or seven. I grew up in a world where Paul Volcker raised his rates 200 basis points on a Saturday night.” Mr. James Bullard of the St. Louis FED spoke out in an arrogant tone that aggressive action is now required. The markets translated this to mean that the FED was going to call an emergency meeting as soon as this coming week to hike interest rates by no less than 50 basis points. This sent interest rates soaring and stock prices plummeting. WARNING: More Downside To Come Uncertainty abounds regarding the path of inflation and new FED policy. This has created a landscape of continued strong periods of distribution in the equity markets. If there are any bounces, they should be used to sell ‘risk assets’. This has been one of the worst starts to a calendar year in the history of the stock and bond markets. Chart Source: Zero Hedge Last Thursday, the reported inflation rate increased by 7.7 percent, the highest in forty years. Stocks tumble as red-hot inflation print pressures technology shares. Markets didn’t like this, which immediately moved them down. Bears are in control of the market, which can be observed from Friday’s trading session. The U.S. 10-year yield rose above 2% for the first time since August 2019 amid a broad Treasury-market selloff. It was driven by expectations for quicker FED interest-rate hikes to contain faster than predicted inflation. It takes at least two to three years to have any material impact on the economy. One sector is currently doing well, which is the oil sector. Cycle's analysis is applied to find the best stocks to invest in and the best sectors. The next sector we are monitoring is Gold/Silver. Crude oil prices are staying strong. There are a lot of geopolitical factors in play here. I think there's a risk premium on oil right now because of Russia. What The Heck is CPI? The Consumer Price Index, CPI, is the measure of changes in the price level of a basket of consumer goods and services. This is one of the most frequently used statistics for identifying periods of inflation in households. Consumer Price Index Summary. Last Thursday, the inflation figures were released, confirming that everything is getting more expensive. It is up 7.5 percent versus last year. Mortgage rates are starting to rise. If you plan to buy a new home, this is the time to do it. These historically low interest rates will not last long. Should I Invest In Gold Today? Owning gold acts as a hedge against inflation as well as a good portfolio diversifier as it is a great store of value. Gold also provides financial cover during geopolitical and macroeconomic uncertainty. Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost-of-living increases. Conclusion: It seems the stock market may be on its last leg here. Big money flow has been coming out of the large-cap stocks while commodities have been rising. Commodities are typically one of the last assets to rally before the stock market top and start a bear market. I see all the signs, but we must wait for the price to confirm before taking action. We have seen this setup before in 2015/2016, also in 2018, and the market recovered and rallied dramatically from those levels.  What Trading Strategies Will Help You To 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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. 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 the following link:   www.TheTechnicalTraders.com 
Bonds Not Reflecting Risks Like They Usually Do – Where's The Beef?

Bonds Not Reflecting Risks Like They Usually Do – Where's The Beef?

Chris Vermeulen Chris Vermeulen 11.02.2022 21:46
I've been paying close attention to Bonds as the global markets react to rising inflation and global central bank moves recently. The US Federal Reserve has yet to take any actions to raise rates, but we all know it will come at some point. Longer-term bonds are acting as if these risks are much more subdued than many traders/investors believe – which has me questioning if global central banks have overplayed the stimulus game? Why would traditional safe-haven assets fail to act in a manner that reflects current market risks like they would typically do? Why have precious metals failed to reflect these risks also properly? Is there something brewing in traders' minds that are muting or mitigating these traditional safe-haven assets? Bonds Continue To Slide After COVID Rally This table, reflecting the recent downward trend in Bonds, highlights the weakened safe-haven tendencies. These assets would generally present with rampant inflation and the possibility of multiple Fed rate increases. (Source: SeekingAlpha.com) Increasing uncertainty throughout the globe, and as inflation climbs to the highest levels since the mid-1970s and 1980s, – “where's the beef?” (to reference a 1980s Wendy's commercial phrase). This TLT Weekly chart shows how risks climbed when COVID hit in February 2020. Yet, take a look at how price has consolidated below $156 and has continued to trend lower over the past six months. After a brief move higher, to levels near the $147 to $155 level, TLT has moved decidedly lower over the past 6+ months. This downward price trend illustrates the diminishing fear levels as traders piled into the post-COVID rally phase. This move suggests traders believe inflation may be temporary or that the US Federal Reserve has room to raise rates without disrupting the global economy. I think the current premise and price trend in TLT vastly underestimates the amount of disruption a series of Fed rate hikes would cause the international markets. The US Federal Reserve will likely consider all options before taking an aggressive move to raise rates. Additionally, the US Fed may decide to allow foreign central banks to move more aggressively to raise rates while it decides to take a more measured approach to inflation. The key to future rate increases is how supply chains open up and how consumers continue to engage in economic activities. Any sudden shift by consumers, or further disruptions in supply for manufacturing and consumer staples/discretionary items, could prompt the Fed into taking aggressive actions. From where the Fed Funds Rates currently are, a move above 0.50% would reflect a +500% rate increase. This may prompt some type of “pop” in certain asset bubbles. (Source: St. Louis Fed) Traders should stay keenly focused on market risks and Bond levels throughout 2022 into 2023 as any sudden shift away from current trends could spell trouble. Right now, Bonds are pricing in minimal risks – which may be a mistake. The market dynamics and trends are changing from what we have experienced over the past 40 years for stocks and bonds. The 60/40 portfolio is costing you money now, and bonds can’t keep up with inflation and are more or less yield-less. The only way to navigate the financial markets safely, no matter the direction, is through technical analysis. By following assets and money flows, we identify trend changes and move our capital into whatever index, sector, industry, bond, commodity, country, and even currency ETF. By following the money, you become part of new emerging trends and can profit during weak stock or bond conditions. What Trading Strategies Will Help You To 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 the markets are starting to transition away from the continued central bank support rally phase. This may start 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. 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 the following link:   www.TheTechnicalTraders.com 
Technical Analysis: Moving Averages - Did You Know This Tool?

S&P 500 Chart And Credit Markets Candles Nears Quite Low Levels

Monica Kingsley Monica Kingsley 21.02.2022 13:33
S&P 500 opening upswing gave way to more selling, but credit markets didn‘t lead to the downside on a daily basis. This tells me the plunge would likely be challenged shortly. As in facing a reversal attempt – it‘s that junk bonds for all the recent (and still to come) deterioration, will probably rebound a little next. Value already retraced part of Friday‘s decline – it‘s just tech that didn‘t yet react to the Treasuries reprieve. Good to have taken short profits off the table. The table is set for S&P 500 to rise, and for bonds to rally somewhat. And that wouldn‘t be the result of war tensions lifting up Treasuries, gold and oil. Red hot inflation, decelerating growth and compressing yield curve are a challenging environment, and the odds of a 50bp Mar rate hike are overwhelming, but the Fed‘s balance sheet is still rising – now within spitting distance of $9T. Sure they will take on inflation, but I continue to think that by autumn they would be forced to reverse course, and start easing. Fresh stimulus after markets protest during 1H 2022? Would be helpful for the midterms... The consumer isn‘t in a great shape as the confidence data reveal – and that‘s also reflected in the direction of discretionaries vs. staples. Inflation is pinching, and the pressure on the Fed to act, is on – its credibility is being challenged. Food inflation is high, and seeing food at home prices rising this much, is as surefire marker of coming recession as yield curve inversion is. And yield differentials are flattening around the world – quite a few central banks are more ahead in the tightening path than the Fed. Economy slowing down, stock market correction far from over (yes, in spite of the coming rebound, I‘m looking for lower lows still), and precious metals upleg underway – yes, underway, and especially our gold profits can keep rising - as I wrote on Friday: (…) With gold at $1,900 again and silver approaching $24, copper‘s fate is also brightening – the miners‘ continued outperformance is a very good sign. With crude oil taking a breather, the inflationary pressures aren‘t at least increasing, but don‘t look for the Bullard or other statements to defeat inflation – I‘m standing by the 4-5% official rate CPI data for 2022 (discussed in yesterday‘s summary). CPI might turn out even a full percentage point higher – depends upon the hedonics and substitution massaging. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 caught a little buying interest going into the long weekend – better days though look to be coming. Not a monstrous rally, but still an upswing. Credit Markets HYG is indeed basing, and will help stocks move higher next. LQD and TLT are already rising, and there is still somewhat more to come. Bonds have simply deteriorated too fast in 2022, and need a breather. Gold, Silver and Miners Precious metals fireworks continue – we‘re getting started, and $1,920 is the next stop. Kiss of life from the bond market reprieve comes next, on top of all the other factors I‘ve talked about recently. Crude Oil Crude oil is fairly well bid, but the war jitters are helping it out (as in staving off a bit deeper correction). As both oil and base metals are rising, inflation isn‘t likely to slow down (perhaps later in summer?) - black gold‘s uptrend isn‘t over really. Copper Copper keeps going sideways in a volatile fashion, and can be counted on to break higher – inflationary pressures aren‘t abating, and outweigh the slowing economy. Bitcoin and Ethereum Cryptos did break down over the weekend, but the anticipated risk-on rebound fizzled out a bit too fast – as said on Friday, the bears have the upper hand now. Summary S&P 500 appears on the verge of trying to swing higher, and credit markets would be leading the charge as tech finally turns. Value had trouble declining some more on Friday already. Stock market upswing though wouldn‘t throw the precious metals bulls off balance – not too many weeks have passed since I was at the turn of the year predicting that gold (and silver with miners implied) would be the bullish surprise of 2022 – and for all the talk and preemtive tightening in the credit markets, we haven‘t yet seen the Fed move. Anyway, such a lag in moving the Fed funds rate higher, is normal these decades – we are a long way from the early 1980s when the delay between say 2-year Treasury and Fed funds rate move was some 2 months. Crude oil is likewise going to keep rising, and the same goes naturally for copper following in the footsteps. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Markets News: Crude Oil, Gold, EuroStoxx 600, Copper

Analysing Macro, The Conflict In Eastern Europe, Standard And Poor 500 And US100

Purple Trading Purple Trading 21.02.2022 12:53
The Swing Overview – Week 7 Macroeconomic events last week had a secondary impact on market volatility. The "big story" that is currently moving the markets is the situation in Ukraine. Equity indices weakened and retested their strong supports. Last week's winner, on the other hand, is the gold, which, due to these geopolitical uncertainties, surprisingly strengthened to USD 1,900 per ounce, where it last traded in June 2021.   Macroeconomic data from the US  US industrial inflation on an annual basis came in at 9.7%, up from 9.8% in the previous month. This is the first decline in industrial inflation since April 2020. Retail sales reported very strong data, rising 3.8% in January (previous month was down 2.5%).  In the labor market, there was an unexpected increase in initial jobless claims of 248k (expectations were for a 219k increase). FOMC meeting minutes released on Wednesday did not indicate that the Fed was seriously considering a 0.50% rate hike in March. This gave the markets and risk currencies a temporary boost, but the main driver of the markets last week was the situation in Ukraine. Geopolitical tensions in Ukraine Last week Friday, when Jake Sullivan, the White House national security adviser, warned that Russia could attack Ukraine "any day now", sent stock indices into the red and investors focused on so-called "save havens" such as the US bonds and the gold, which rallied strongly. In contrast, commodity currencies, stock indices and cryptocurrencies, which are seen as risky assets, weakened. This suggests what might happen if an invasion actually took place. At the moment, however, both sides seem to be open to diplomatic solution of the crisis. This brings some relief and cautious optimism even though further developments are unclear.  Let’s have a look at how the US bond yields are reacting to the situation: Figure 1: 10 year government bond yield on the 4H chart and the USD index on the daily chart Demand for these bonds has been rising as investors view the US government bonds as a "save haven" in times of uncertainty. This increases the price of these bonds. Since there is an inverse relationship between the price of bonds and their interest yield, a rise in the price of bonds then pushes down their yields. This explains why the yield on these bonds fell on Friday last week as a result of the news of a possible Russian attack.   Overall, however, yields on these bonds continue to rise as investors anticipate a rise in the US interest rates. This in turn has had a negative effect on the technology stocks in the NASDAQ index in particular.   NASDAQ a SP500 Figure 2: The US NASDAQ index on H4 and D1 chart The NASDAQ started last week on Friday with a significant decline as the other indices.  Then there was a correction of this decline as news emerged that Russia was withdrawing some of its troops from the Ukrainian border and that military exercises were over. However, the next report was that the US was not seeing any change at the border with Ukraine and the NASDAQ index fell again. The current situation is that both sides have agreed to further negotiations.  It can be seen from this how sensitive the indices are to such news. We therefore recommend that our clients keep an eye on any breaking news that emerges in relation to the situation in Ukraine.  The nearest resistance according to the H4 chart is at 14,606 - 14,673. The next resistance is then 15050 - 15100.  Support according to the H4 chart is at 14,050 - 14,100.  Significant support according to the daily chart is at 13,750-13,950.  As for the US SP 500 index, the situation is similar here.   Figure 3: SP 500 on H4 and D1 chart The nearest resistance is at 4,471 – 4,491. The next strong resistance is in the area at 4,580 - 4,600.  Support according to the H4 chart is at 4,357 – 4,367. According to the daily chart, significant support is at 4,225 - 4,300.   German DAX index Germany reported ZEW economic sentiment, which came in at 54.3 (previous month 51.7). This indicates an improving outlook for the German economy over the next six months. However, this index was under pressure last week as were the US indices.  Figure 4: The DAX on H4 and daily chart  On February 14, the index fell to 14,841, where the previous support is. The zone of this strong support according to the daily chart is quite wide: 14,800 - 15,000. The nearest resistance according to the H4 chart is 15,440 - 15,530. The next resistance then immediately follows this zone and is in the 15 534 - 15 617 range.   The EUR/USD under pressure The EURUSD has shown that in times of political uncertainty, this pair tends to weaken. The decline was justified in terms of technical analysis by the false break of the resistance, which is in the area of 1.1465 - 1.1480. Figure 5: EURUSD on H4 and daily chart The nearest resistance according to the H4 chart is in the area of 1.1380 - 1.1400. Support according to the H4 chart is at 1.1280 - 1.1300. Very strong support according to the daily chart is then at 1.1120 - 1.1140.   The Gold The gold surprised last week with unexpected strength based on the situation around Ukraine. News that Russia may attack Ukraine any day has caused the gold price to rise. It eventually reached $1,900 per troy ounce, where it last traded in June 2021.  Figure 6: The gold on the H4 and D1 chart The nearest resistance according to the daily chart is USD 1,900 - 1,916 per troy ounce of gold.  The nearest support is 1,872 - 1,878. The most significant support is then at 1 845 - 1 852 USD per troy ounce. Once geopolitical tensions calm down and US government bond yields continue to rise, this should be negative news for gold. 
What Are The Effects Of Russian Political Moves? Raise Of The Oil Price Is Not The Only One

What Are The Effects Of Russian Political Moves? Raise Of The Oil Price Is Not The Only One

Alex Kuptsikevich Alex Kuptsikevich 22.02.2022 10:06
The beginning of Monday in Russia was quite positive: the ruble strengthened, reacting to the announcement of the summit of the leaders of Russia and the United States, mediated by France. The situation deteriorated sharply after the heads of the DPR and LPR turned to Putin with a request to recognize the independence of the republics. Over the weekend, the situation in the LDNR deteriorated sharply: on Friday, the evacuation of citizens to the Russian Federation was announced. Towards the evening, President Putin held an extraordinary extended meeting of the Security Council of the Russian Federation on the recognition of the LPR and DPR. Oil quotes rose noticeably on Monday, reacting to the likely imposition of sanctions against Russia, the world's leading oil producer. Restrictions may lead to interruptions in the supply of raw materials, further exacerbating its market shortage. Prices for Brent oil updated the highs of 2014, adding three dollars, and by the end of the day rose above $97 per barrel. Low-liquid trades aggravated the situation due to the holiday in the USA. While Europe admits that it cannot do without energy and resources from Russia, the banking sector is under attack. Trading volumes on Monday were record-breaking, which indicates the withdrawal of large players from the market. It is also worth paying attention to retailers and technology companies, which may find it difficult to work abroad or import goods and technologies. These sectors will show the most volatility depending on how events unfold. The current situation is tightening financial conditions for Russian companies, destabilizing markets and reducing business predictability. The volatility of the ruble and the closure of the Russian market for global capital will hurt the economy, probably sending it into decline in the coming quarters. In the long term, this threatens to reduce growth potential, which is already lower than that of many developed countries. Such conditions translate for the population into a drop in living standards through a decrease in real incomes or (at best) a dramatic slowdown in their growth.
Credit Markets Trades Really Low, Oil Price Reaches High Levels At The Same Time

Credit Markets Trades Really Low, Oil Price Reaches High Levels At The Same Time

Monica Kingsley Monica Kingsley 22.02.2022 15:36
S&P 500 is waking up to fresh European news, and holds up well. There is no panic upswing in gold and silver, but crude oil and natural gas are up the most. As the U.S. markets are to open following yesterday‘s Washington‘s Birthday holiday, let‘s bring up the key details of yesterday‘s analysis: (…) S&P 500 opening upswing gave way to more selling, but credit markets didn‘t lead to the downside on a daily basis. This tells me the plunge would likely be challenged shortly. As in facing a reversal attempt – it‘s that junk bonds for all the recent (and still to come) deterioration, will probably rebound a little next. Value already retraced part of Friday‘s decline – it‘s just tech that didn‘t yet react to the Treasuries reprieve. Good to have taken short profits off the table. The table is set for S&P 500 to rise, and for bonds to rally somewhat. And that wouldn‘t be the result of war tensions lifting up Treasuries, gold and oil. Red hot inflation, decelerating growth and compressing yield curve are a challenging environment, and the odds of a 50bp Mar rate hike are overwhelming, but the Fed‘s balance sheet is still rising – now within spitting distance of $9T. Sure they will take on inflation, but I continue to think that by autumn they would be forced to reverse course, and start easing. Fresh stimulus after markets protest during 1H 2022? Would be helpful for the midterms... The consumer isn‘t in a great shape as the confidence data reveal – and that‘s also reflected in the direction of discretionaries vs. staples. Inflation is pinching, and the pressure on the Fed to act, is on – its credibility is being challenged. Food inflation is high, and seeing food at home prices rising this much, is as surefire marker of coming recession as yield curve inversion is. And yield differentials are flattening around the world – quite a few central banks are more ahead in the tightening path than the Fed. Economy slowing down, stock market correction far from over (yes, in spite of the coming rebound, I‘m looking for lower lows still), and precious metals upleg underway – yes, underway, and especially our gold profits can keep rising - as I wrote on Friday: (…) With gold at $1,900 again and silver approaching $24, copper‘s fate is also brightening – the miners‘ continued outperformance is a very good sign. With crude oil taking a breather, the inflationary pressures aren‘t at least increasing, but don‘t look for the Bullard or other statements to defeat inflation – I‘m standing by the 4-5% official rate CPI data for 2022 (discussed in yesterday‘s summary). CPI might turn out even a full percentage point higher – depends upon the hedonics and substitution massaging. What a long quote – let‘s update it with the premarket action. S&P 500 is still waiting with its potential upsing, dollar has gone nowhere really, and precious metals look like having a bright day today. The crude oil upswing shows that markets don‘t like the geopolitical news, and are likely to behave in a risk-off way of late (Treasuries, gold and oil up benefiting most). The internals of today‘s stock market action would be telling – I recently got an interesting question touching also upon rates and real estate: Q: I read your most recent newsletter with great interest: 1. You think the Fed would start to ease this fall? In your opinion, how long would that last?  Midterm would be done soon there after so would it be a quick few months then revert back to higher rates? 2. I’m asking question #1 as it would impact real estate. 3. You anticipate a “temporary” rise in the S&P this week? Are you thinking just a few days? I noticed 10 yr is going down. A: Thank you for asking. I'll take 1 & 2 in one go - I think they would change course latest autumn. So, now hawkish and raising, then turning to easing before midterms. Let's see first the damage this tightening does, and the degree to which they then turn dovish. As regards real estate, it's slowing down, homebuilders, XLRE... Headwinds would be stiffening, rates are eating into mortgages, but those ZIP codes where immigration into is high, would do best - but the overall, total real estate isn't an appealing proposition. When markets open, there is likely to be a little SPX rally off oversold readings. Sure, they can get more oversold - that's the way it goes during bearish episodes, which is why I'm not long. The trend for now is to the downside, so I would keep predominantly looking and taking opportunities to short. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 caught a little buying interest going into the long weekend – better days though look to be coming. Not a monstrous rally, but still an upswing. Credit Markets HYG is indeed basing, and will help stocks move higher next. LQD and TLT are already rising, and there is still somewhat more to come. Bonds have simply deteriorated too fast in 2022, and need a breather. Gold, Silver and Miners Precious metals fireworks continue – we‘re getting started, and $1,920 is the next stop. Kiss of life from the bond market reprieve comes next, on top of all the other factors I‘ve talked about recently. Crude Oil Crude oil is fairly well bid, but the war jitters are helping it out (as in staving off a bit deeper correction). As both oil and base metals are rising, inflation isn‘t likely to slow down (perhaps later in summer?) - black gold‘s uptrend isn‘t over really. Copper Copper keeps going sideways in a volatile fashion, and can be counted on to break higher – inflationary pressures aren‘t abating, and outweigh the slowing economy. Bitcoin and Ethereum Cryptos stopped breaking down today, and the price action smacks of joining in the modest risk-on upswing, as unbelievable as it sounds. Summary Yesterday‘s summary is valid also today – S&P 500 appears on the verge of trying to swing higher, and credit markets would be leading the charge as tech finally turns. Value had trouble declining some more on Friday already. Stock market upswing though wouldn‘t throw the precious metals bulls off balance – not too many weeks have passed since I was at the turn of the year predicting that gold (and silver with miners implied) would be the bullish surprise of 2022 – and for all the talk and preemtive tightening in the credit markets, we haven‘t yet seen the Fed move. Anyway, such a lag in moving the Fed funds rate higher, is normal these decades – we are a long way from the early 1980s when the delay between say 2-year Treasury and Fed funds rate move was some 2 months. Crude oil is likewise going to keep rising, and the same goes naturally for copper following in the footsteps. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Is It Like XAUUSD Is Supported By Everything? How Long Will The Strengthening Last?

Is It Like XAUUSD Is Supported By Everything? How Long Will The Strengthening Last?

Arkadiusz Sieron Arkadiusz Sieron 22.02.2022 16:01
  The current military tensions and the Fed’s sluggishness favor gold bulls, but not all events are positive for the yellow metal. What should we be aware of? It may be quiet on the Western Front, but quite the opposite on the Eastern Front. Russia has accumulated well over 100,000 soldiers on the border with Ukraine and makes provocations practically every day, striving for war more and more clearly. Last week, shelling was reported on Ukraine’s front line and Russia carried out several false flag operations. According to Linda Thomas-Greenfield, the U.S. Ambassador to the United Nations, “the evidence on the ground is that Russia is moving toward an imminent invasion.” Meanwhile, President Biden said: “We have reason to believe they are engaged in a false flag operation to have an excuse to go in. Every indication we have is they're prepared to go into Ukraine and attack Ukraine.” Of course, what politicians say should always be taken with a pinch of salt, but it seems that the situation has gotten serious and the risk of Russian invasion has increased over recent days.   Implications for Gold What does the intensifying conflict between Russia and Ukraine imply for the gold market? Well, the last week was definitely bullish for the yellow metal. As the chart below shows, the price of gold (London P.M. Fix) rallied over the past few days from $1,849 to $,1894, the highest level since June 2021; And he gold futures have even jumped above $1,900 for a while! Part of that upward move was certainly driven by geopolitical risks related to the assumed conflict between Russia and Ukraine. This is because gold is a safe-haven asset in which investors tend to park their money in times of distress. It’s worth remembering that not all geopolitical events are positive for gold, and when they are, their impact is often short-lived. Hence, if Russia invades Ukraine, the yellow metal should gain further, but if uncertainty eases, gold prices may correct somewhat. To be clear, the timing of the current military tensions is favorable for gold bulls. First of all, we live in an environment of already high inflation. Wars tend to intensify price pressure as governments print more fiat money to finance the war effort and reorient their economies from producing consumer goods toward military stuff. Not to mention the possible impact of the conflict on oil prices, which would contribute to rising energy costs and CPI inflation. According to Morgan Stanley’s analysts, further increases in energy prices could sink several economies into an outright recession. Second, the pace of economic growth is slowing down. The Fed has been waiting so long to tighten its monetary policy that it will start hiking interest rates in a weakening economic environment, adding to the problems. There is a growing risk aversion right now, with equities and cryptocurrencies being sold off. Such an environment is supportive of gold prices. Third, the current US administration has become more engaged around the world than the previous one. My point is that the current conflict is not merely between Russia and Ukraine, but also between Russia and the United States. This is one of the reasons why gold has been reacting recently to the geopolitical news. However, a Russian invasion of Ukraine wouldn’t pose a threat to America, and the US won’t directly engage in military operations on Ukrainian land, so the rally in gold could still be short-lived. If history is any guide, geopolitical events usually trigger only temporary reactions in the precious metals markets, especially if they don’t threaten the United States and its economy directly. This is because all tensions eventually ease, and after a storm comes calm. Hence, although the media would focus on the conflict, don’t get scared and – when investing in the long run – remember gold fundamentals. Some of them are favorable, but we shouldn’t forget about the Fed’s tightening cycle and the possibility that disinflation will start soon, which could raise the real interest rates, creating downward pressure on gold prices. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
How the Russia-Ukraine crisis has reflected on the financial market so far

How the Russia-Ukraine crisis has reflected on the financial market so far

8 eightcap 8 eightcap 23.02.2022 12:11
Over the last several weeks, traders would have heard of and watched the unfolding Ukraine crisis. Russia built up a mass of troops and military hardware on the border, which started sending shockwaves through the markets that an invasion and new European conflict could be developing. This is not the first time we have seen Russian aggression towards Ukraine. In 2014 we all watched as Russia annexed Crimea after Moscow said it supported the liberty and backing the people’s free will as they wanted to rejoin Russia and break away from Ukraine. During this round, the situation felt and looked different due to the sheer build-up of the Russian military. Ukraine requesting to join NATO and the possibility of U.S./NАТО bases being built in Ukraine look like a flashpoint for the Russian side. Despite talks and negotiations, Russia continued to amass military close to the border, feeding invasion fears. Reasons continued to put out by the Kremlin, scheduled military exercises with Belarus. These failed to settle nerves as Western leaders continued to put forward prosed crippling sanctions that would be imposed if Russia invaded. The worst seemed possible late last week, and reports emerged of explosions and fighting in the two eastern parts of Ukraine. Russian tank numbers also increased, and we all thought it was just a matter of when we would see a Russian invasion. Biden offered Putin a summit only if he hadn’t invaded at the final hour. This is off the table now that Russia has once again pulled off another Crimea to a degree. Yesterday we heard that the two Eastern areas of Ukraine had voiced their right to become independent. The Kremlin supported them immediately and advised it had crossed the border to support a peaceful transition with a peacekeeping mission. In other words, a proxy invasion. President Biden has called this an invasion of Ukraine and announced sweeping sanctions on the Russian bank VEB and its military bank and cuts them out of any USD transactions. Individual sanctions, Biden said the adult children and members of Putin’s inner circle “share the corrupt gains of the Kremlin’s policies, and so they ought to share in the pain as well.” The sanctions on Russia’s sovereign debt expand upon Biden’s existing restrictions set in 2021 and prohibit American banks from trading shares in and or lending to several significant Russian sovereign debt funds. Prime Minister Johnson also made good on his threat of sanctions. The first tranche of sanctions would target Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank. The new sanctions also include three “very high net worth” individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg. Germany has halted approval of the Nord Stream 2 pipeline due to Russia’s actions, and the EU has agreed on sanctions to hurt Russia. The crisis had a significant impact on the markets. As you would expect, we have seen plenty of movement away from risk markets, but it hasn’t been totally black and white. Energy, oil has been driven higher during the crisis, and we’ve watched USOUSD (WTI) jump by 28% in the last three months. Price trading at $96 this week. Spot gas surged this week, hitting 6.70 but has pulled back to 4.31. Russia is a major energy supplier to Europe. This is a major card they hold. Traders will be watching oil and gas as any new aggression could cause oil to spike. We could even see $100 or higher reached again. The markets are a funny beast, and if they see the situation as calm, don’t be surprised if we continue to see price pullback. Sky-high oil prices could impact the FED. Crude prices can drive up inflation and slow down the global economy. A surge in oil could cause the Fed to rethink its pace of hiking due to growth concerns. FX, the USD and JPY have seen phases of demand during the crisis, but they have been far from dominant. Looking at this month’s trade so far, we can see that mainly the EUR has been most affected with falls to the two safe-havens. The GBP has been flat, and the AUD has been stronger. The AUD rallied yesterday as the situation developed and so far looks to be ignoring the situation. If we had seen an all-out invasion and this could still be a possibility, we would expect a traditional reaction on FX with the USD and JPY rallying on safe-haven demand. Gold has seen strong demand during the crisis. Traders jumping back into the metal as it moves back to a safe haven. This is not strange. Gold has always had multiple functions in the market, and in times of war or crisis, traders can look to it over fiat. Looking at the current month on the monthly chart, we can see this clearly in action as price has jumped by over 5%. The weekly shows a triangle breakout, but we will need to watch ongoing developments to see if buyer momentum remains. The Ukrainian crisis has hit stock indexes that could have been seen as overvalued. The Dax, in particular, has been hit hard. U.S. and Asian indexes haven’t been spared with heavy selling over the last two weeks. Markets fought back yesterday after the SP500 touched correction territory, and as mentioned above, traders will be focusing on the escalation of the crisis. If the situation intensifies, we would be looking for further lows, and if things continue to calm down, we could see counter-rallies and ranges set up. Cryptocurrencies have traded mainly lower during the crisis. Clearly, we can see at this point that they’re viewed as risk assets and are acting accordingly. It hasn’t been all one-way traffic, Kyber has added 38% YTD and so far has resisted the falls we have seen on the top 10 and top 25 indexes. Coins have been firmer since Tuesday’s updates, following other risk markets higher. Polkadot, Cardando were two top ten coins that hit new lows for 2022 before value buying returned this week. Again, we see the fortunes of most coins tied to risk demand. If things escalate, we will be looking for further declines across the top 10 and 25. The post How the Russia-Ukraine crisis has reflected on the financial market so far appeared first on Eightcap.
Let‘s Try Again

Let‘s Try Again

Monica Kingsley Monica Kingsley 23.02.2022 15:53
S&P 500 had a wild swings day, and didn‘t rise convincingly – credit markets didn‘t move correspondingly either. The upswing looks postponed unless fresh signs of broad weakness arrive. Yesterday‘s session didn‘t tell much either way – the countdown to the upswing materializing, is on even though tech didn‘t take advantage of higher bond prices. That can still come.VIX though reversed to the downside, and the relatively calmer session we‘re likely going to experience today, would be consistent with a modest attempt for stocks to move higher. I‘m though not looking for a monstrous rally, even though we‘re trading closer to the lower end of the wide S&P 500 range for this year than to its upper border. The 4,280s are so far holding but as the Mar FOMC approaches, we‘re likely to see a fresh turn south in the 500-strong index. For now, the talk of raising rates is on the back burner – Europe is in the spotlight.Note that the flight to safety on rising tensions (Treasuries, gold and oil up) didn‘t benefit the dollar. Coupled with the yields reprieve, that makes for further precious metals gains – the bull run won‘t be toppled if soothing news arrives. Likewise crude oil isn‘t going to tank below $90, and remain there. Commodities can be counted on to keep running – led by energy and agrifoods, with base metals (offering a helping hand to silver) in tow. As I wrote weeks ago, this is where the real gains are to be found.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 volume moved a little up, meaning the buying interest is still there – convincing signs of a trend change are though yet not apparent. Should prices prove to have trouble breaking lower over the next 1-2 days, this could still turn out a good place for a little long positon.Credit MarketsHYG continues basing, and keeps trading in a risk-off fashion, which is why I can‘t be wildly bullish stocks for now. Stock market gains are likely to remain subdued, noticeably subdued – as a bare minimum for today.Gold, Silver and MinersPrecious metals fireworks continue, but a little reprieve is developing – nothing though that would break the bull. The run is only starting, and would continue through the rate raising cycle.Crude OilCrude oil is fairly well bid, and doesn‘t appear to be really dipping any time soon. Oil stocks are preparing for an upswing, and would remain one of the best performing S&P 500 sectors. Tripple digit oil is a question of time.CopperCopper‘s moment in the spotlight is approaching as commodities keeps pushing higher, and base metals are breaking up. All of these factors are inflationary.Bitcoin and EthereumCryptos are attempting to move up today, and further gains are likely. I‘m though looking for the 50-day moving average in Bitcoin (corresponding roughly to the mid Feb lows in Ethereum) to prove an obstacle.SummaryS&P 500 didn‘t break to new lows overnight, and appears to be picking up somewhat today. The anticipated rebound might materialize later today, and would require bond participation to be credible. I‘m not looking for sharp gains within this upswing though – the correction looks very much to have further to run. It‘s commodities and precious metals where the largest gains are to be made, with the European tensions taking the focus off inflation (momentarily). The pressure on the Fed to act decisively, is though still on as various credit spreads tell – and the same goes for the compressed yield curve speaking volumes about the (precarious) state of the real economy.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Miners for Breakfast, Gold for Dessert: Bearish Fundamentals Will Hurt

Miners for Breakfast, Gold for Dessert: Bearish Fundamentals Will Hurt

Przemysław Radomski Przemysław Radomski 23.02.2022 15:59
  To the disappointment of gold bulls, the yellow metal’s upward trend will not last long. Fundamentals have already taken their toll on gold miners.  While gold remains uplifted due to the Russia-Ukraine drama, the GDXJ ETF declined for the second-straight day on Feb. 22. Moreover, I warned on numerous occasions that the junior miners are more correlated with the general stock market than their precious metals peers. As a result, when the S&P 500 slides, the GDXJ ETF often follows suit. To that point, with shades of 2018 unfolding beneath the surface, the Russia-Ukraine headlines have covered up the implications of the current correction. However, the similarities should gain more traction in the coming weeks. For context, I wrote on Feb. 22: When the Fed’s rate hike cycle roiled the NASDAQ 100 in 2017-2018, the GDXJ ETF suffered too. Thus, while the Russia-Ukraine drama has provided a distraction, the fundamentals that impacted both asset classes back then are present now. Please see below: To explain, the green line above tracks the GDXJ ETF in 2018, while the black line above tracks the NASDAQ 100. If you analyze the performance, you can see that the Fed’s rate hike cycle initially rattled the former and the latter rolled over soon after. However, the negativity persisted until Fed Chairman Jerome Powell performed a dovish pivot and both assets rallied. As a result, with the Fed Chair unlikely to perform a dovish pivot this time around, the junior miners have some catching up to do. Furthermore, while the S&P 500 also reacts to the geopolitical risks, the Fed’s looming rate hike cycle is a much bigger story. With the U.S. equity benchmark also following its price path from 2018, a drawdown to new 2022 lows should help sink the GDXJ ETF. Please see below: Source: Morgan Stanley To explain, the yellow line above tracks the S&P 500 from March 2018 until February 2019, while the blue line above tracks the index's current movement. If you analyze the performance, it's a near-splitting image. Moreover, while Morgan Stanley Chief Equity Strategist Michael Wilson thinks a relief rally to ~4,600 is plausible, he told clients that "this correction looks incomplete." "Rarely have we witnessed such weak breadth and havoc under the surface when the S&P 500 is down less than 10%. In our experience, when such a divergence like this happens, it typically ends with the primary index catching down to the average stock," he added. As a result, while a short-term bounce off of oversold conditions may materialize, the S&P 500's downtrend should resume with accelerated fervor. In the process, the GDXJ ETF should suffer materially as the medium-term drama unfolds.  To that point, the Fed released the minutes from its discount rate meetings on Jan. 18 and Jan. 26. While the committee left interest rates unchanged, the report revealed: “Given ongoing inflation pressures and strong labor market conditions, a number of directors noted that it might soon become appropriate to begin a process of removing policy accommodation. The directors of three Reserve Banks favored increasing the primary credit rate to 0.50 percent, in response to elevated inflation or to help manage economic and financial stability risks over the longer term.” For context, the hawkish pleas came from the Cleveland, St. Louis, and Kansas City Feds. Moreover, the last time Fed officials couldn’t reach a unanimous decision was October 2019. As a result, the lack of agreement highlights the monetary policy uncertainty that should help upend financial assets in the coming months. As evidence, the report also revealed: Source: U.S. Fed Thus, while I’ve highlighted on numerous occasions that a bullish U.S. economy is bearish for the PMs, the Russia-Ukraine drama has been a short-term distraction. However, with Fed officials highlighting that growth and inflation meet their thresholds for tightening monetary policy, higher real interest rates and a stronger USD Index will have much more influence over the medium term. To that point, IHS Markit released its U.S. Composite PMI on Feb. 22. With the headline index increasing from 51.1 in January to 56.0 in February, an excerpt from the report read: “February data highlighted a sharp and accelerated increase in new business among private sector companies that was the fastest in seven months. Firms mentioned that sales were boosted by the retreat of the pandemic, improved underlying demand, expanded client bases, aggressive marketing campaigns and new partnerships. Customers reportedly made additional purchases to avoid future price hikes. Quicker increases in sales (trades) were evident among both manufacturers and service providers.” More importantly, though: Source: IHS Markit In addition, since the Fed’s dual mandate includes inflation and employment, the report revealed: Source: IHS Markit Likewise, Chris Williamson, Chief Business Economist at IHS Markit, added: “With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture.” If that wasn't enough, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on Feb. 22. While the headline index wasn't so optimistic, the report revealed that "the third component in the composite index, employment, increased to 20 from 4 in January" and that "firms continued to report increasing wages." For context, the dashed light blue line below tracks the month-over-month (MoM) change, while the dark blue line below tracks the three-month moving average. If you analyze the former's material increase, it's another data point supporting the Fed's hawkish crusade. Source: Richmond Fed Finally, the Richmond Fed also released its Fifth District Survey of Service Sector Activity on Feb. 22. For context, the U.S. service sector suffers the brunt of COVID-19 waves. However, the recent decline in cases has increased consumers’ appetite for in-person activities. The report revealed: “Fifth District service sector activity showed improvement in February, according to the most recent survey by the Federal Reserve Bank of Richmond. The revenues index increased from 4 in January to 11 in February. The demand index remained in expansionary territory at 23. Firms also reported increases in spending, as the index for capital expenditures, services expenditures, and equipment and software spending all increased.” Furthermore, with the employment index increasing from 12 to 14, the wages index increasing from 41 to 46, and the average workweek index increasing from 9 to 10, the labor market strengthened in February. Likewise, the index that tracks businesses’ ability to find skilled workers increased from -21 to -19. As a result, inflation, employment and economic growth create the perfect cocktail for the Fed to materially tighten monetary policy in the coming months.  Source: Richmond Fed The bottom line? While the Russia-Ukraine saga may dominate the headlines for some time, the bearish fundamentals that hurt gold and silver in 2021 remain intact: the U.S. economy is on solid footing, and demand is still fueling inflation. Moreover, with information technology and communication services’ stocks – which account for roughly 39% of the S&P 500 – highly allergic to higher interest rates, the volatility should continue to weigh on the GDXJ ETF. As such, while gold may have extended its shelf life, mining stocks may not be so lucky. In conclusion, the PMs were mixed on Feb. 22, as the news cycle continues to swing financial assets in either direction. However, while headlines may have a short-term impact, technicals and fundamentals often reign supreme over the medium term. As a result, lower lows should confront gold, silver, and mining stocks in the coming months. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Having A Look At The Markets Considering Tensions, COVID-19 And National Banks Decisions

How Did Markets Reacted To The Latest Events In The Eastern Europe?

Walid Koudmani Walid Koudmani 24.02.2022 14:22
The worst case scenario - Russian invasion of Ukraine - is materializing. We try to analyze its consequences for the economy and financial markets Oil price increases past $100 per barrel Russia is a key player on the energy commodities market, especially important for Europe. Situation on the oil market proves it - oil prices jumped above $100 per barrel for the first time since 2014. Russia is exporting around 5 million barrels of oil each day, around 5% of global demand. Around a half of that is exported to the European Union. If the West decides to cut Russia off the SWIFT settlements system, Russian exports to the European Union could be halted. In such a scenario oil prices could jump $20-30 per barrel. In our opinion, the war risk premium included in current oil barrel prices amounts to $15-20. Europe is the main recipient of Russian oil. Source: Bloomberg, XTB Research Gold and palladium rally Conflict is the main driver of moves on the gold market. It is not the first time when gold proves to be a good store of value at times of geopolitical conflicts. Ounce of gold trades over 3% higher today, near $1,970, and just slightly over $100 below its all-time highs. Russia is an important producer of palladium, an important metal for the automotive sector. Source: Bloomberg, XTB Research Russia is a significant producer of palladium, which is a key metal in production of catalytic converters for the automotive sector. Palladium prices rallied almost 8% today. Fear means sell-off on the market Global stock markets are taking a hit not seen since 2020. However, panic is not as big as it was in early-2020. Uncertainty is the most important driver for global stock markets now as investors do not know what will come next. Correction on Nasdaq-100 futures deepened past 20% today. A big part of this drop, however, was caused by expectations of Fed tightening. DAX futures dropped around 15% since mid-January and trade near pre-pandemic highs. DE30 trades to halt decline at pre-pandemic high. Source: xStation5 Business in Ukraine is in danger It should not come as a surprise that Russian companies and companies with big exposure to Russia are the ones taking the biggest hit. Russian RTS dropped over 60% off the October 2021 high and briefly traded below 2020 lows! Polymetal International is a company worth mentioning - stock is plunging over 30% on London Stock Exchange as market fears sanctions will hit Anglo-Russian companies. Renault is also taking a hit as Russia is the second biggest market for the company. Banks with large exposure to Russia - UniCredit and Societe Generale - are also dropping hard. Even higher inflation From an economic point of view the situation is clear - military conflict will generate a new inflationary impulse. Prices of almost all commodities are trading higher, especially energy commodities. However, in case of commodity markets, a lot will depend on how conflict impacts logistics. Keep in mind that global logistics have not recovered from Covid-19 hit yet and now another negative factor is surfacing. According to the New York Fed index, global supply chains are the most tight on record. Central bankers' headache Covid-19 panic has been very short-lived, thanks to an enormous support offered by central banks. However, such an action is unlikely now. As conflict is inflationary and has a bigger impact on supply and logistics rather than demand, inflation becomes an even bigger problem for major central banks. On the other hand, quick tightening monetary policy would only magnify market turmoil. In our opinion, major central banks will continue with announced policy tightening. Risk of a 50 basis point rate hike by the Fed in March dropped but a 25 bp rate hike looks like a done deal. What's next? A key question for global markets now is - how much will the conflict escalate? An answer to this question will be a key to calming the markets. Once it is answered, calculations of impact on sanctions and speculations over changes in economic policy will begin.
It Begins

It Begins

Monica Kingsley Monica Kingsley 24.02.2022 16:00
S&P 500 reprieve that wasn‘t – the buyers didn‘t arrive, and the overnight military action sparking serious asset moves, shows that buying the dip would have been a bad idea. And it still is. Risk-on assets are likely to suffer, and I‘m not looking for a sharp, V-shaped rebound. The partial retracement seen in cryptos wouldn‘t translate to much upside in paper assets – it will likely be sold into as the bottom would take time to form. The safe haven premium seen in precious metals, crude oil and other real assets would ebb and flow, but a higher base has been established. The world has changed overnight, and recognition thereof is still pending.I think it‘s clear why I had been derisking as much as possible, wary of volatility both ways in paper assets, and betting instead on a mix of real assets. This has been hugely paying off to subscribers and readers likewise favoring gold and crude oil with some copper added for good measure.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookThis isn‘t how an S&P 500 bottom looks like – downswing continues with more volatility ahead.Credit MarketsHYG is going down again, and credit markets are turning risk-off – look for Treasuries to do relatively better next, with little impact upon stocks.Gold, Silver and MinersPrecious metals fireworks continue, and the upswing got a poweful ally. Whatever retracement seen next, would be marginal in light of the developments.Crude OilCrude oil upswing can be counted on to continue, and oil stocks would remain among the best performing S&P 500 pockets. Black gold is though notorious for its wild volatility, and the coming days won‘t be an exception.CopperCopper upswing would take time to develop, especially now – but the breakout in base metals is on, the inflationary messaging is still there and thriving.Bitcoin and EthereumCryptos aren‘t in a rally mode, but are attempting to put in a low. I don‘t think it would hold, the dust hasn‘t settled yet.SummaryS&P 500 is plunging, and attempting to base, but more selling would inevitably hit. The overnight dust hasn‘t settled yet, but the panic lows would not happen today. Even if it weren‘t for geopolitics, stocks were in rough waters for weeks already, in a serious, yields and liquidity driven correction, with a slowing real economy on top. For all the short-term focus, the buying opportunity would materialize only once the Fed turns – by autumn 2022. The best places to be in right now, are those presented below – precious metals and commodities – as inflation fires continue to rage on.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Will War Change How We Spend Or Invest Our Money?

Will War Change How We Spend Or Invest Our Money?

Chris Vermeulen Chris Vermeulen 24.02.2022 22:23
I discussed the potential for the invasion into Ukraine with a friend over the past few days and how this new war may change the global economy. We ended up discussing the Invasion of Kuwait that took place in August 1990. At that time, as soon as the Invasion of Kuwait started, consumers almost immediately changed their spending and financial habits.Suddenly, people stopped going out to dinner after work. They stopped going out for drinks. They also stopped playing computer games and spending money on most outside entertainment (movies and movie rentals – back in the Blockbuster days). In short, consumers became fascinated by the televised war and lost focus on almost everything else.Sign up for my free trading newsletter so you don’t miss the next opportunity! As the conversation progressed, we started talking about how the US Federal Reserve may suddenly find that consumers have begun pulling away from traditional spending habits and how quickly these consumer trends can alter the economic landscape. For example, nearly 60 days into the Invasion of Kuwait, my friend remembered the US economy shifted into a much slower gear, and consumers continued to stay away from more normal spending habits.If this happens in today's super-inflated world, we may see a sudden shift in inflation, retail, housing, and general consumer demand very quickly. Recently, I started receiving messages from friends and clients worldwide who are focused on the Invasion of Ukraine – a whole new generation of people who may become entranced in the televised war (again).Consumer Retail May Suffer A -60% CollapseThis XRT Weekly Chart highlights the pre-COVID support levels that may become future targets if consumer spending habits suddenly shift. XRT has already fallen nearly -32% from the recent highs. If consumers continue to move away from outside economic activities, or more common post-COVID economic activities, we may see the Retail sector continue to move lower.Housing May Contract Faster Than ExpectedReal Estate may contract to near the COVID lows if consumers shy away from chasing speculative price trends in housing. Flipping houses has become a very hot industry over the past 5+ years. Yet, suddenly larger firms like Zillow and OpenDoor started offloading their Real Estate inventory because consumer demand shifted ahead of the US Fed's proposed rate hikes in 2022. The double-whammy of rising rates and war may be similar to what happened in the US between 1993 and 1994 – a very stagnant housing market.IYR has already fallen -16.5% from the highs and may decline to levels closer to -30% (or more) before finding a bottom. Wars tend to shift economies and spending habits very quickly.What To Stay Focused On Amid All The NoiseTraders should stay keenly focused on market risks and weaknesses. I expected the conflict in Ukraine to have been priced into the US markets over the past 7+ days. However, I believe the markets were unprepared for this scale or invasion and will attempt to settle fair stock price valuation levels as the conflict continues. This is not the same US/Global market Bullish trend we've become used to trading over the past 5+ years. The market dynamics and trends are changing from what we have experienced over the past 40 years for stocks and bonds. The 60/40 portfolio is costing you money now. Traders need an edge to stay ahead of these markets trends and to protect and profit from big trends.The only way to navigate the financial markets safely, no matter the direction, is through technical analysis. By following assets and money flows, we identify trend changes and move our capital into whatever index, sector, industry, bond, commodity, country, and even currency ETF. By following the money, you become part of new emerging trends and can profit during weak stock or bond conditions.What Trading Strategies Will Help You To 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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.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 the following link:   www.TheTechnicalTraders.com 
Food prices are breaking multi-year highs, and the CBs are helpless

Food prices are breaking multi-year highs, and the CBs are helpless

Alex Kuptsikevich Alex Kuptsikevich 25.02.2022 10:40
Wheat futures on the CBOE are up 16% since the start of the week, the biggest rally since the poor harvest in 2012. At one point yesterday, the weekly rise was close to 20%. The price level was the highest since April 2008, as traders anxiously assessed the impact of the conflict between two of the world’s biggest exporters of wheat, corn, and other agricultural products. The FAO’s Food Price Index in January was near its 2011 peak (in nominal terms) and one step below its 1974 peak - a time of stagflation and the aftermath of the oil crisis. And the latest spike in grains prices suggests that these highs will already be surpassed in February. It means that people will spend more on food and less on durable goods and services, worsening living standards. Such price hikes are an additional headache for central banks around the world. They may find themselves forced to turn a blind eye to inflation so as not to put the economy and consumer demand under additional stress. But this is terrible news for currencies. Forced inflation tolerance by the Central Bank will depreciate the value of money and suppress the exchange rate. This promises to be a problem for the euro and the British pound. High inflation may no longer be a reason to buy the euro and the pound against the dollar on the forex market, as it would not increase the chances of a tightening of the central bank policy in the coming months. There could also be a reverse reaction when currencies come under pressure as investors sell off local bonds amid falling real yields.
BRENT Nears $95, SWIFT Had Been Blocked, XAU And USD Are Likely To Stand Strong Amid Tensions

BRENT Nears $95, SWIFT Had Been Blocked, XAU And USD Are Likely To Stand Strong Amid Tensions

Walid Koudmani Walid Koudmani 28.02.2022 13:53
While stocks saw some signs of recovery towards the end of last week with Asian, European and US markets recovering some of their losses following the invasion of Ukraine from Russia, stock prices could have a very difficult week ahead as tensions escalate and more sanctions continue to be announced. Over the weekend, the European union announced a variety of sanctions on Russia including limiting it’s access to EU airspace and prohibiting certain banks from utilizing the SWIFT banking system, a move which could have catastrophic effects on the russian economy and was by some considered to be on the most potentially effective deterrents. Investors are taking that into consideration and while the war for Ukraine rages on, this week is set to be one of the most volatile across markets with the prices of stocks and commodities being extremely susceptible to any kind of sanction and geopolitical instability. If the situation continues to escalate, risky assets like stocks and crypto currencies could be seeing another week of losses while investors continue to rush to safe havens like gold and the USD which benefited greatly last week from the shocking turn of events. Oil prices remain under pressure after Brent retreats from $100 While oil prices managed to decline as recent news emerged of potential talks between Russia and Ukraine to deescalate the situation after markets panicked following the invasion, the situation remains extremely uncertain. Brent is trading around the $95 area after pulling back from the multi-year high reached as supply concerns reached critical levels following the invasion of Ukraine which sparked a series of sanctions from western countries. Due to the fact that the Russian economy is so heavily reliant on its energy exports, much of which goes to Europe, those fears could persist throughout the week as a lack of resolution could only serve to further destabilize the situation. While there are potential alternatives available to European economies, many of them are costly and impractical for the time being and as it appears that at this point almost nothing is off the table, it could lead oil prices to retest those highs from 2014 and potentially even break past them.  
S&P 500 (SPX) And Credit Markets With Moves Up Finally, Bitcoin (BTC) Seems To Be Vigilant

S&P 500 (SPX) And Credit Markets With Moves Up Finally, Bitcoin (BTC) Seems To Be Vigilant

Monica Kingsley Monica Kingsley 28.02.2022 16:00
S&P 500 didn‘t correct much intraday, and the risk-on turn has continued unabated with value pulling ahead sharply – unlike the day before when the revesal came about because of tech. The dust is settling in the market‘s mind, VIX has indeed moved and the dollar weakened noticeably. That was the subject of Friday‘s analysis – the disappearing safe haven premium over many assets such as gold, crude oil and Treasuries (Treasuries though kept their cool the most, not losing the focus on Fed‘s tightening). Risk-on appetite returned to stocks with a vengeance, and market breadth has significantly improved – within the context of the ongoing correction, must be said. While we made local lows on Thursday after all, the upside momentum is likely to slow down next – this week would bring a consolidation within a very headline sensitive environment. It‘s looking good for the bulls at the moment – till the dynamic of events beyond markets changes. Inflation isn‘t wavering, and I‘m not looking for its meaningful deceleration given the events since Thursday, no. Friday is likely to mark a buying opportunity beyond oil and copper – these longs have very good prospects. Another part of the S&P 500 upswing explanation were the still fine fresh orders data – while the real economy has noticeably decelerated (and Q1 GDP growth would be underwhelming), solid figures would return in the latter quarters of 2022. That‘s also behind the gold downswing on Friday, which hadn‘t been confirmed by the miners – the very bright future ahead for precious metals is undisputable. And the same goes for crude oil as oil stocks foretell – the fresh long crude trade together with long S&P 500 one, are both solidly in the black already.. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook Sharp S&P 500 upswing on solid volume – the gains can continue but their pace would slow down. Negative sentiment is departing stocks as the existing bad news has been priced in. The pendulum is swinging the other way now. Credit Markets HYG is confirming the stock market upswing, but bonds are remaining more cautious overall – it‘s that the focus would shift over the coming 2 weeks again to the Fed. The yield spread keeps compressing and the 2-year bond didn‘t stop pressuring the Fed. Gold, Silver and Miners Precious metals have corrected a little but the upswing goes on – GDX performance is a good omen. The decline in prices wasn‘t sold heavily into anyway – we‘re still moving higher next as the rate raising cycle start is soon here. Crude Oil Crude oil bears are totally unconvincing, proving that the prior price upswing was about way more than geopolitical uncertainty – the chart remains strongly bullish, and we have higher to run still. Copper Copper upswing is indeed taking time to develop, but commodities strength remains in spite of the daily setback, which just illustrates the risk-on euphoria in stocks. The commodities upleg hasn‘t run its course, and the red metal would join in. Bitcoin and Ethereum Cryptos are refusing to extend Sunday‘s decline – while the worst appears to be over, the short-term direction can turn out in both directions. I‘m though slightlly favoring the bulls. Summary S&P 500 turnaround continues, and price gains are frontrunning the events on the ground. The upswing is vulnerable – to a consolidation at most as a full reversal would require fresh setbacks, including in Asia. Risk-on trades have the momentum, and credit markets agree. It certainly looks like a good time to take advantage of the precious metals and commodities discounts as momentary optimism in the markets that has nothing to do with the progress on inflation. Further, we‘re still in the real economy slowdown phase, and the Fed hasn‘t even started hiking yet. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Told You, Risk On

Told You, Risk On

Monica Kingsley Monica Kingsley 01.03.2022 15:45
S&P 500 erased opening downside, not unexpectedly. Markets say we‘ve turned the corner, and while the medium-term correction isn‘t over, we‘re going higher for now. The tired performance in credit markets suggests that the pace of the upswing would indeed likely slow, but the dips are being bought – even the 4,300 overnight level held unchallenged.VIX is slowly calming down, and it wouldn‘t be a one-way ride. I hate to say it, but we‘re trading closer to the more complacent end of the volatility spectrum – that‘s though in line with my assumption of toned down price appreciation expectations that I discussed on Sunday and yesterday:(…) While we made local lows on Thursday after all, the upside momentum is likely to slow down next – this week would bring a consolidation within a very headline sensitive environment. It‘s looking good for the bulls at the moment – till the dynamic of events beyond markets changes.Inflation isn‘t wavering, and I‘m not looking for its meaningful deceleration given the events since Thursday, no. Friday is likely to mark a buying opportunity beyond oil and copper – these longs have very good prospects. Another part of the S&P 500 upswing explanation were the still fine fresh orders data – while the real economy has noticeably decelerated (and Q1 GDP growth would be underwhelming), solid figures would return in the latter quarters of 2022. That‘s also behind the gold downswing on Friday, which hadn‘t been confirmed by the miners – the very bright future ahead for precious metals is undisputable. And the same goes for crude oil as oil stocks foretell – the fresh long crude trade together with long S&P 500 one, are both solidly in the black already.Precious metals have found a floor, and aren‘t selling off either. In fact, they are looking at a great week ahead, and the same goes for crude oil followed to a lesser degree by copper. Weekend developments on the financial front triggered a rush into cryptos, and the bullish prospects I presented yesterday, are coming to fruition.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookDaily S&P 500 consolidation as the bulls did shake off the opening setback rather easily – and the same goes for the late session trip approaching 4,310s. Expecting more volatility of the current flavor, and higher prices then.Credit MarketsHYG managed to close above Friday‘s values, and the overall bond market strength bodes well for risk appetite ahead. Let‘s consolidate first, and march higher later.Gold, Silver and MinersPrecious metals are consolidating the high ground gained, miners aren‘t yielding, and silver weakness yesterday actually bodes well for the very short term. Launching pad before the next upleg.Crude OilCrude oil bears have a hard time from keeping black gold below $100. The table is clearly set for further gains – the chart can be hardly more bullish.CopperCopper is a laggard, but will still participate in the upswing. Its current underperformance as highlighten by yesterday‘s downswing, is a bit too odd, i.e. bound to be reversed.Bitcoin and EthereumCrypto bulls were indeed the stronger party, and similarly to gold, it‘s hard to imagine a deep dive coming to frution. I‘m looking for the safety trade to be be ebbing and flowing, now with some crypto participation sprinkled on top.SummaryS&P 500 turnaround goes on, and we‘re undergoing a consolidation that‘s as calm as can be given the recent volatility. Credit markets and the dollar though continue favoring the paper asset bulls now, but their gains would pale in comparison with select commodities such as oil and gold‘s newfound floor. Even agrifoods look to be sold down a bit too hard, and I‘m not looking for them to be languishing next as much as they have been over the last two trading days. Cryptos upswing highlights the present global uncertainties faced – as I have written on Thursday that the world has changed, the same applies for weekend banking events being reflected in the markets yesterday.Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Will Price Of Gold (XAUUSD) Be Affected By Russian Economics?

Will Price Of Gold (XAUUSD) Be Affected By Russian Economics?

Przemysław Radomski Przemysław Radomski 01.03.2022 15:52
  Sanctions, terminated contracts, and a plummeting currency – Russia is facing the financial crisis specter. Can gold also be affected? In the medium term, even painfully.  While gold continues to ride the bullish wave of geopolitical tensions, confusion has arisen over whether Russia’s financial woes will support or hurt the yellow metal. For context, I wrote on Feb. 28: Even if the recent escalation uplifts gold in the short term, the fundamental implications of Russia’s financial plight support lower gold prices over the medium term.  Please see below: To explain, with Russia essentially blacklisted from many influential FX counterparties, the Russian ruble relative to the U.S. dollar was exchanged for a roughly 50% discount on Feb. 27. As a result, Russian's purchasing power is nearly half of what it was before Sunday's developments. Furthermore, if you analyze the chart above, you can see that euros and U.S. dollars made up a large portion of Russia's monetary base in 2013 (the green bars on the left). Conversely, those holdings dropped dramatically in 2021 (the blue bars on the left).  In addition, if you focus your attention on the column labeled "Gold," you can see that FX has been swapped for gold, and the yellow metal accounts for roughly 23% of Russia's monetary base. Now, with the impaired state of the ruble offering little financial reprieve, Russia may have to sell its gold reserves to alleviate the pressure from NATO's economic sanctions.  As a result, while war is often bullish for gold, the fundamental implications of currency devaluation mean that gold is Russia's only worthwhile asset outside of oil. Thus, with bank runs already unfolding in the region, the yellow metal could be collateral damage. To that point, the USD/RUB closed at roughly 105 on Feb. 28. As a result, it costs 105 Russian rubles to obtain one U.S. dollar. With the spot gold price at around $1,900 per ounce, it costs roughly 199,500 Russian rubles to purchase an ounce of gold. In stark contrast, the USD/RUB closed at approximately 75 on Feb. 16, which means that less than two weeks ago, it cost 142,500 Russian rubles to purchase an ounce of gold at the current price. As such, in currency-adjusted terms, the cost of an ounce of gold in Russia has increased by roughly 40% in recent days. However, after Bloomberg posted an article on Feb. 27 titled “Bank of Russia Resumes Gold Buying After Two-Year Pause,” the revelation may have caused some anxiety about our short position (as a reminder, it’s not in gold, but in junior mining stocks). For context, an excerpt from the article read: “The central bank will begin buying gold again on the domestic precious metals market, it said in a statement. The move comes after the monetary authority and several of the country’s commercial banks were sanctioned in response to Russia’s invasion of Ukraine.” As a result, if Russia goes on a shopping spree for bullion, could the price skyrocket? Well, the reality is that the fundamentals don’t support the sentiment. As mentioned, the USD/RUB has surged in recent days, and the sharp decline in the value of the Russian currency is extremely bearish for the Russian economy. Please see below: Furthermore, while Russia may want to increase its gold reserves, it’s essential to focus on what Russia does and not what it says. For example, the Russian central bank increased its overnight lending rate from 9.5% to 20% on Feb. 28. While U.S. investors fret over a 25 basis point hike from the Fed (which, as mentioned previously, should occur in March), Russia had to increase interest rates by 10.5% to help stop the ruble’s bleeding.  Please see below: Source: Reuters For context, higher interest rates encourage capital flows, and with the ruble in free-fall, Russia is hoping that investors will buy the currency, invest in Russian bonds, and potentially earn a 20% return. Moreover, if the currency rallies during the holding period, the carry trade would be highly lucrative for an institution willing to incur the risk. However, the story is only sanguine in theory. In reality, though, crippling sanctions from NATO and private companies divesting their Russian assets mean that buying the ruble and other Russian securities requires a gambler’s mentality. For example, Viraj Patel, FX and Macro Strategist at Vanda Research, summed up the dynamic in a few simple words on Feb. 28: Source: Viraj Patel Twitter Thus, while Russia may claim it's buying gold, and who knows, maybe it will, the financial destruction plaguing the region will likely make Russia a net-seller over the medium term. To that point, if we circle back to the Bloomberg article referenced above, Nicky Shiels, head of metals strategy at MKS PAMP SA, said in the same piece that investors would interpret the actions as short-term bullish.  However, aligning with our expectations, she noted that investors have misjudged the medium-term impact of Russia's currency crisis.  Please see below: Source: Bloomberg As a result, that’s why I wrote on Feb. 28 that while volatility may be the name of the game this week as investors struggle to digest the implications, the geopolitical risk premium that often supports gold may prove counterintuitive this time around. Furthermore, we shouldn't ignore the potential impact on the USD Index. For example, while the dollar basket defied expectations and rose materially in 2021, the momentum continued in 2022. However, after a sharp rally in January, investors repositioned their bets, and euro longs were in style once again. However, with the risk-on trade now disrupted by the Russia-Ukraine conflict, more downside for the euro implies more upside for the USD Index. Please see below: Source: Institute of International Finance (IIF)/Robin Brooks To explain, the color blocks above track the non-commercial (speculative) futures positioning for various currencies versus the U.S. dollar, while the black line above tracks the consolidated total. If you analyze the right side of the chart, you can see that the black line has moved higher recently, which signals fewer U.S. dollar long positions.   More importantly, though, if you focus your attention on the light blue blocks on the right side of the chart, you can see that speculative euro longs have increased and remain in positive territory. However, with the economic impact of the Russia-Ukraine conflict much more troublesome for the Eurozone than the U.S., speculative EUR/USD positioning still has plenty of room to move lower. To that point, Mark Sobel, Senior Advisor at the Center for Strategic and International Studies (CSIS), wrote on Feb. 28 that “the overall impact of Russia’s actions on the U.S. economy may not be significant, assuming oil prices don’t soar, though that remains a significant risk.” “The challenges for the ECB will be much greater in its debates over balancing the stagflationary consequences of the Russian invasion. Europe is a large net energy importer and remains dependent on Russia for oil and natural gas.” As a result: “European Central Bank President Christine Lagarde will feel the strain more than Federal Reserve Chair Jerome Powell. Higher oil prices will boost inflation, weaken growth prospects and stoke stagflation fears.” Furthermore, if you analyze the right side of the chart below, you can see that Russia’s monetary base includes more euros (the light blue line) than U.S. dollars (the dark blue line). As a result, if Russia swaps its other FX holdings for rubles (to help stop the decline), the euro has more downside risk than the greenback. The bottom line? While Russia may put on a brave face and claim that gold purchases are on the horizon, the reality is that its materially weak financial position requires more attention to more pressing matters. With bank runs and a currency crisis already unfolding, combined with NATO sanctions and private companies divesting their Russian assets, the country’s leaders need to stem the tide before a depression unfolds. As a result, Russia’s oil revenues and the securities it can monetize are more likely to be used to support the Russian economy, rather than to buy gold. Thus, while the yellow metal has enjoyed short-term sentiment high (and so did the silver price), the fundamentals imply a much different outcome over the medium term. In conclusion, the PMs were mixed on Feb. 28, as the GDX ETF ended the session roughly flat. However, the recent rallies are far from troublesome. For example, I noted previously how gold rallied following the 2001 terrorist attacks and after Russia annexed Crimea in 2014. However, those gains were short-lived, and the latter resulted in lower lows in the months that followed. As a result, while the recent volatility will likely continue, it doesn’t change the bearish medium-term thesis. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
S&P 500 At Tipping Point To Start A Bear Market And What You Need To See

S&P 500 At Tipping Point To Start A Bear Market And What You Need To See

Chris Vermeulen Chris Vermeulen 03.03.2022 21:38
Is a bear market on the way? My research suggests the downward sloping trend line (LIGHT ORANGE in the Daily/Weekly SPY chart below) may continue to act as solid resistance – possibly prompting a further breakdown in the markets for US major indexes.As we've seen recently, news and other unexpected events prompt very large price volatility events in the US major indexes. For example, the VIX recently rose above 30 again, which shows volatility levels are currently 3x higher than normal levels.Increased Volatility & The Start Of An Excess Phase Peak Should Be A Clear WarningThis increased volatility in the markets, coupled with the increased fear of the US Fed and the global unknowns (Ukraine, China, Debt Levels, and others), may be just enough pressure to crush any upside price trends over the next few months. Technically, my research suggests the $445 to $450 level is critical resistance. The SPY must climb above these levels to have any chance of moving higher.Sign up for my free trading newsletter so you don’t miss the next opportunity! Unless the US markets find some new support and attempt to rally back towards recent highs, an “Excess Phase Peak” pattern will likely continue to unfold throughout 2022. This unique price pattern appears to have already reached a Phase 2 or Phase 3 setup. Please take a look at this Weekly GE example of an Excess Phase Peak pattern and how it transitions through Phase 1 through Phase 4 before entering an extended Bearish price trend.Read this research article about Excess Phase Peaks: HOW TO SPOT THEN END OF AN EXCESS PHASE - PART 2SPY May Already Be In A Phase 4 Excess Peak PhaseThis Daily SPY chart highlights my analysis, showing the major downward sloping trend line, the Middle Resistance Zone, and the lower Support Zone. Combined, these are acting as a “Wedge” for price over the past few weeks – tightening into an Apex near $435~440.If the US major indexes attempt to break this downward price trend, then the price must attempt to move solidly above this downward sloping price channel and try to rally back into the Resistance Zone (near $445~$450). Unless that happens, the price will likely transition into a deeper downward price move, attempting to break below recent lows, near $410, and possibly quickly moving down to the $360 level.SPY Weekly Chart Shows Consolidation Near $435 – Possibly Starting A Phase 4 Excess PeakTraders should stay keenly aware of the risks associated with the broad US and global market decline as the Ukraine war, and other unknowns continue to elevate fear and concerns related to the global economy. In my opinion, with the current excess global debt levels, extended speculative market bubbles, and the continued commodity price rally, we may be starting to transition away from an extended growth phase and into a deeper depreciation cycle phase.My research suggests we entered a new Depreciation cycle phase in late 2019 and are already more than 25 months into a potential 9.5-year global Depreciation cycle. What comes next should not surprise anyone.Read this article about Depreciation Cycle Phases: HOW TO INTERPRET & PROFIT FROM THE RISKS OF A DEPRECIATION CYCLE Traders should stay keenly focused on market risks and weaknesses. I expected the conflict in Ukraine to have been priced into the US markets over the past 7+ days. However, I believe the markets were unprepared for this scale or invasion and will attempt to settle fair stock price valuation levels as the conflict continues. This is not the same US/Global market Bullish trend we've become used to trading over the past 5+ years. Looking Forward - preparing for a possible Bear marketMarket dynamics and trends are changing from what we have experienced over the past 40 years for stocks and bonds. The 60/40 portfolio is costing you money now. Traders need an edge to stay ahead of these markets trends and to protect and profit from big trends.The only way to navigate the financial markets safely, no matter the direction, is through technical analysis. By following assets and money flows, we identify trend changes and move our capital into whatever index, sector, industry, bond, commodity, country, and even currency ETF. By following the money, you become part of new emerging trends and can profit during weak stock or bond conditions.Want Trading Strategies that Will Help You To 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 the markets are starting to transition away from the continued central bank support rally phase and may start 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.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 the following link:   www.TheTechnicalTraders.com 
Fighting Continues: Good for Ukraine... And Gold

Fighting Continues: Good for Ukraine... And Gold

Arkadiusz Sieron Arkadiusz Sieron 03.03.2022 16:10
  Kherson fell, but Ukrainians are still fighting fiercely. In the face of war, gold also shows courage – to move steadily up. The battle of Ukraine is still going on. Russian troops took control of Kherson, a city of about 300,000 in the south of Ukraine, but other main cities haven’t been captured yet. Ukrainian soldiers even managed to conduct some counter-offensive actions near the country’s capital. There is a large Russian column advancing on Kyiv, but its progress has been very slow over the last few days due to the staunch Ukrainian resistance and Russian forces’ problems with equipment, tactics, and supplies, including fuel and food. David is still bravely fighting Goliath! Of course, Russian forces still have an advantage and are progressing. However, the pace of the invasion is much slower than Vladimir Putin and his generals expected. The Ukrainians’ defense is much fiercer, while Russia’s losses are more severe. The Russian defense ministry admitted that 498 Russian soldiers have already been killed and 1,597 wounded, but the real number is probably much higher. Even if Russia takes control of other cities, it’s unclear whether it will be able to hold them. What’s more, although the West didn’t engage directly in the war, the response of the West was much stronger than Putin could probably have expected. The US and its allies supplied Ukraine with weapons and imposed severe sanctions against Putin and the Russian governing elite, as well as on Russia’s economy and financial system. For instance, the West decided to exclude several Russian banks from SWIFT and also to freeze most of Russian central bank’s foreign currency reserve assets. Additionally, many international companies are moving out of Russia or exporting their products to this country, adding to the economic pressure. The ruble plummeted, as the chart below shows.   Implications for Gold What does the ongoing war in Ukraine mean for the precious metals market? Well, the continuous heroic stance of President Volodymyr Zelenskyy and Ukrainian defenders is not only heating up the hearts of all freedom-lovers, but also gold prices. As the chart below shows, the price of the yellow metal has soared to about $1,930, the highest level since January 2021. As a reminder, until recently, gold was unable to surpass $1,800. Thus, the recent rally is noteworthy. The war is clearly boosting the safe-haven demand for gold. Another bullish driver is rising inflation. According to early estimates, euro area annual inflation soared from 5.1% in January to 5.8%, and the war is likely to add to the inflationary pressure due to rising energy prices. Both Brent and WTI oil prices have surged above $110 per barrel. Last but not least, I have to mention Powell’s appearance before Congress. In the prepared testimony, he said that the Fed would hike the federal funds rate this month, despite the war in Ukraine: Our monetary policy has been adapting to the evolving economic environment, and it will continue to do so. We have phased out our net asset purchases. With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month. This sounds rather hawkish and, thus, bearish for gold. However, Powell acknowledged that the implications of Russia’s invasion of Ukraine for the U.S. economy are highly uncertain. The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook. Hence, the war in Eastern Europe could make the Fed more dovish than expected at a time when inflation could be higher than forecasted before the war outbreak. Such an environment should be bullish for the gold market. However, there is one important caveat. The detailed analysis of gold prices shows that they declined around the first and second rounds of negotiations between Russian and Ukrainian diplomats in anticipation of the end of the conflict. However, when it became apparent that the talks ended in a stalemate, gold resumed its upward move. The implication should be clear: as long as the war continues, the yellow metal may shine, but when the ceasefire or truce is agreed, we could see a correction in the gold market. It doesn’t have to be a great plunge, but a large part of the geopolitical premium will disappear. Having said that, the war may take a while. I pray that I’m wrong, but the slow progress of the Russian invasion could prompt Vladimir Putin to adopt a “whatever it takes” stance. According to some experts, he is already more emotional than usual, and when faced with the prospects of failure, he could become even more brutal or irrational. We already see that Russian troops, unable to break the Ukrainian defense in open combat, siege the cities and bomb civilians. Hence, the continuation or escalation of Russia’s military actions could provide support for gold prices. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Strong jobs growth refreshed Dollar's boost 

Strong jobs growth refreshed Dollar's boost 

Alex Kuptsikevich Alex Kuptsikevich 04.03.2022 15:20
The US labour market added 678K jobs outside the agricultural sector in February. This is higher than the expected 400K. In addition, last month's estimates were improved, which also adds strength to the fresh data.Hourly earnings were virtually flat over the month, with year-on-year growth slowing to 5.1% vs. +0.6% and 5.5%, respectively.The slowdown in wages while hiring accelerates seems due to the economy re-opening on the easing of coronavirus restrictions, which is bringing more low-paid workers back into the market.The FxPro analyst team, mentioned, that the publication of the employment data accelerated the dollar's gains, bringing it to 1.15% today and 2.4% so far this week. The EURUSD, which started the day near 1.1060, has slipped below 1.0900 at the time of writing, hitting lows since May 2020 and almost erasing the gains from the sharp pandemic phase.Next, Europe, as after the global financial crisis, could face a severe recession, which would increase the interest rate differential in the eurozone and the USA and encourage a flow of investors to the US dollar in addition to capital flows on the back of military action. 
NFP Quick Analysis: Jobs jump again, adding fuel to the war-related dollar fire

NFP Quick Analysis: Jobs jump again, adding fuel to the war-related dollar fire

FXStreet News FXStreet News 04.03.2022 16:07
The US has gained a whopping 678,000 jobs in February. Slower wage growth is due to the return of lower-paying jobs, and markets are set to ignore it.Russia's invasion of Ukraine is already boosting the dollar and it now gets another push.As if the dollar needs another boost – February's Nonfarm Payrolls have confirmed that the US labor market is on fire. The economy is benefiting from the retreat of the Omicron COVID-19 variant, which further cements the first pandemic-era rate hike from the Federal Reserve. The war will not stop the central bank.The US gained no fewer than 678,000 jobs in February, on top of an upward-revised and strong 481,000 increase in January. Moreover, the unemployment rate slipped to 3.8% – an excellent number in absolute terms, and even better when coming amid an increase in the participation rate to 62.3%. All these figures beat estimates. The disappointing data comes from wages, which remained flat in February and only 5.1% up YoY compared with 5.7% recorded in January. However, that is due to the much-needed return of leisure and hospitality workers who are paid lower wages. Broader employment outweighs a drop in wages. The greenback has been benefiting from Russia's invasion of Ukraine, which is now on its ninth day. The latest scare comes from Europe's largest nuclear power station, which was hit by Russian fire and later taken over by invading soldiers. With every day that passes without a resolution, the global economic damage intensifies. For the Fed, a 5.1% increase in wages as seen in Average Hourly Earnings continues supportingthe need to raise rates. Substantial job gains go hand in hand with employers competing for employees, pushing their salaries higher – and in turn adding to price pressures. Higher energy prices had already shown that such shocks tend to propagate into the broader economy, lifting core prices and salaries. The war has sent oil and gas surging, threatening to further boost inflation. While this NFP report is unlikely to push the Fed to a double-dose rate hike, it could convince officials to forecast a steeper path of increases to borrowing costs. That would further underpin the greenback. In the shorter term, the mix of a strong jobs report, the ongoing war and the closing of trading for the weekend could encourage investors to take further risks off the table – and send them to the safety of the US dollar.
(BRENT/WTI) Crude Oil Price - A Rocketship Keeps Accelerating

(BRENT/WTI) Crude Oil Price - A Rocketship Keeps Accelerating

Walid Koudmani Walid Koudmani 07.03.2022 11:47
The Russian economy continues to be hit by increasing global sanctions as the conflict escalates between Russia and Ukraine and after recent news regarding a potential ban of russian imports from Europe and America has severely impacted the situation as the country continues to be more economically isolated and may have to search for alternative export destinations. While this news has led oil prices to reach the highest level since 2008 with brent spot approaching $140 per barrel, the russian economy continues to suffer from sanctions and with no end to the conflict in sight, we could see a continuation of this trend despite the talks of a nearing agreement on the Iran nuclear deal as well as potential for the US to revoke sanctions on Venezuela in an attempt to stabilize the energy market. While there seems to be a way to compensate for the Russian oil supply down the line, the situation remains dire for the time being and could lead to prices testing even higher levels as uncertainty across markets continues to grow. Halifax HPI shows fastest increase since 2007 House prices rose at the fastest annual pace since 2007 and reached a new record high according to today’s Halifax HPI report with monthly house price growth rising to +0.5% following a slower start to the year. While the annual rate of growth increased by +10.8% and reached the strongest level since June 2007, the impact on household finances is still expected to weigh on the market this year as rising inflation and increased costs could undermine the post pandemic economic recovery and slow down the housing market significantly as demand becomes severely impacted.
The Swing Overview - Week 9

The Swing Overview - Week 9

Purple Trading Purple Trading 07.03.2022 20:22
The Swing Overview - Week 9 The war in Ukraine continues, and although we all want this tragic event to be ended immediately, but unfortunately, according to last statements of Russian officials, it looks like the war will drag on for a longer period of time. Investors have reacted to this development by selling risk assets, including the Czech koruna. Stock indices are losing ground and the DAX in particular has been under heavy pressure. On the other hand, commodities such as oil, gold, and coal are strengthening strongly. Somewhat surprising is the development in the Australian dollar, which usually weakens in the events of geopolitical uncertainties. However, there is a reason for its current rise. More on this in our article. Conflict in Ukraine   Vladimir Putin probably did not expect to encounter such a brave resistance from Ukraine and that  almost the whole world would send Russia into isolation through significant sanctions. The list of companies and actions that have cut ties with Russia is growing day by the day and Western companies are leaving Russia. Thus, for Russians, foreign goods (food, clothing, furniture, electronics, cars) will gradually become very rare. Probably the strongest sanction that Russia has felt so far, was the freeze of the Russian Central Bank's foreign exchange reserves. In response, the Russian ruble began to depreciate significantly on February 28, 2022, and has already lost more than 30% of its pre-invasion value. In response, the Russian Central Bank intervened by raising the interest rate to 20%, which temporarily halted the ruble's fall.    Figure 1: The Russian ruble paired with the USD and the euro Meanwhile, Western countries have not exhausted all options to stop Russia in this war through economic sanctions in case of further escalation of the conflict yet. The fact that European countries might stop taking Russian gas is also at stake. This would, of course, have a very significant impact on the entire European economy. However, these are still just some economic losses, which can not be   compared at all with the losses of lives experienced by the unprecedentedly attacked Ukraine. In any case, this crisis seems to have the potential to surpass in its consequences the crisis that occurred in Russia in 1998, which led to inflation exceeding 80% and central bank interest rates reaching 150%.   Data from the US economy The ISM manufacturing sentiment indicator for February came in at 58.6 which is better than expected and points to an optimistic development of the US economy. In the labour market sector, the ADP (non-farm job change) indicator was reported, which showed that 475 thousand jobs were created in America in February (compared to 509 thousand in January). The number of unemployment claims reached 215 thousand last week, which was less than expected 226 thousand. Thus, the data show that the US economy is doing well so far and the US Fed is going to raise interest rates at its next meeting on March 16, 2022. Jerome Powell said that he would support a 0.25% rate hike. Powell also said that the war in Ukraine means significant uncertainty for monetary policy.   The US dollar and bond yields The US dollar continues to strengthen, as the USD index shows. In addition to the expected US interest rate hike, the US dollar bullishness is explained by demand for US government bonds in times of uncertainty. Demand for these bonds then pushes down their yields, which continue to fall. Figure 2: 10-year government bond yield on the 4H chart and USD index on the daily chart Index SP500 The US SP 500 index moved in a consolidation range last week. This shows that investors have so far viewed the conflict in Ukraine as an event that is more or less a regional event and therefore saw cheap stocks as a buying opportunity.  However, the sanctions adopted by Western countries will of course also have an impact on the global economy, especially if the conflict deepens further. This concern was then reflected at the end of the week when the index started to weaken. Figure 3: The SP 500 on H4 and D1 chart   Resistance according to the H4 chart is in the region of around 4,410 - 4,420. The nearest support according to the H4 chart is at 4255 - 4284. Significant support is at 4,100 - 4,113. German DAX index In contrast to the SP 500 index, there was a big sell-off in the DAX, showing that investors are worried, among other things, that a further escalation of the conflict could lead to a disruption in the supply of Russian gas, on which Germany is heavily dependent.  According to the daily chart, it looks like the DAX index is now in free fall and is breaking through support barriers as if they did not exist. It looks like the market is starting to show signs of panic selling by inexperienced investors.  If you are speculating in the short term, then bear in mind that short term speculation against such a strong downtrend is very disadvantageous and risky.   Figure 4: DAX on H4 and daily chart     Current resistance is in the area of 13,655 - 13,756. The price is now at support at 13,400, which is already slightly broken, but the closing of the whole session will be crucial. The next support is then at 13 000 - 13 100.   The Czech koruna is losing significantly The Czech koruna has long benefited from the interest rate differential, which has been very favourable for the koruna against the euro and has been the reason why the koruna has appreciated strongly since November 2021. But the Czech koruna, along with other Central European currencies, is a currency that is losing ground heavily in the current conflict.   Figure 5: The EURCZK on the daily chart   Firstly, there is the concern that the Czech Republic is geographically quite close to Ukraine, even though the Czech Republic does not have very significant exports directly with Ukraine nor Russia (in total, around 3% of total Czech exports). At the same time, there is concern about the Czech Republic's dependence on Russian gas. If the taps are closed, then the koruna could shoot above  CZK 27 per euro. Currently, the EURCZK pair is trading at the resistance level of 25. 80 - 25.90.   The Australian dollar The Australian dollar is a currency that tends to weaken during major global crises. In particular, the AUDJPY pair is correlated with the SP 500 index in the short term. Currently, however, the Australian dollar is strengthening.  This is because the Australian economy is export-oriented and exports commodities such as gold, iron ore, coal and gas.  All these commodities are now in high demand. Europe, for example, is realising that dependence on Russian gas is not paying off and is looking for alternatives. A temporary solution will be to rebuild coal-fired power stations. Germany and Italy have already started to buy coal stocks, which are therefore appreciating strongly. As a result, the price of coal has sky-rocketed, with one tonne reaching a record price of the USD 400. Figure 6: The coal price   The gold, traditionally seen as a safe haven in times of uncertainty, is also strengthening. The gold has also been helped by a fall in US bond yields.   Figure 7: The gold on H4 and D1 charts   In terms of technical analysis, the gold stopped at the resistance of $1,973 per ounce. The nearest support according to the daily chart is  $1,870 - 1,878 per ounce. The rise in commodity prices then resulted in the strengthening of the Australian dollar.     Figure 8: The AUDJPY currency pair on D1 chart   The AUDJPY broke the resistance in the range of 0.8400 - 0.8420, which became the new support. The next resistance is then at the level of 85.90 - 86.20.  
GBPUSD (Pound To US Dollar) Reaches Quite Old Levels

GBPUSD (Pound To US Dollar) Reaches Quite Old Levels

Alex Kuptsikevich Alex Kuptsikevich 08.03.2022 14:49
The British pound was down to a 16-month low at 1.3080 in the morning, having lost 2% last Thursday. The pressure on the British currency looks to be developing capital outflows from Europe on speculation that reduced energy and materials supplies from Russia will prove to be a shock to the region's economy in the near term. In addition, the British pound was probably influenced by technical factors yesterday and today. The single currency has been sharply oversold in recent days and the EURGBP approach of 0.8200 on Monday morning triggered a strong wave of buying, bringing the pair back above 0.8310. On Monday, the euro got visible support against a wide range of other currencies, from the Swiss franc to the New Zealand dollar. Interest in the euro was also supported on Tuesday by a rally in equities on EU plans to issue joint bonds. But these are also good fundamentals for the British currency, which often directly correlates to the stock market. Short-term, relatively strong oversold conditions in the British currency creates the potential for a technical bounce in the coming days and in the area of 1.30-1.31 to stop its decline, gaining strong buy support until the end of the week and further heading to 1.3350 by the end of the month.
Stocks rebound slightly as hopes of a Russia-Ukraine deal increase

Stocks rebound slightly as hopes of a Russia-Ukraine deal increase

Walid Koudmani Walid Koudmani 09.03.2022 11:54
European stock markets started the day trading higher following a mixed Asian session which saw Nikkei drop 0.3% while S&P/ASX 200 gained 1% and as indices from China plunged and finished 1.7-5.0% lower. Meanwhile, the United States announced a total ban on Russian oil, natural gas and coal with the United Kingdom announcing that it will phase out Russian oil in the coming months. In response, Putin signed a decree banning exports of certain commodities from Russia and investors await the announcement within days to determine the potential impact on markets. Furthemore, a growing number of companies have announced their withdrawal from or suspension of services in Russia with McDonald's, Starbucks and Coca-Cola being the latest to make such announcements and isolating the country economically even more. While this rebound may encourage investors and increase confidence in the market, it is essential to keep in mind that any major news related to the ongoing conflict could have wide repercussions and may shake the extremely fragile market sentiment. Crypto markets rebound as sentiment improves ahead of Biden executive orderCryptocurrencies appeared to show signs of strength in the Asian session which have continued at the start of the European trading session with Bitcoin gaining over 8% and trading around $42,000, the highest level in a week. The crypto market cap is up over 6% today and has returned to around $1.85 Trillion after several days of uncertainty which followed the surge in demand seen at the beginning of the Russia-Ukraine conflict that was sparked by significant interest from people of that region as they attempted to seek refuge from the collapsing economy and currency. As has been the case in the past, Bitcoin and Ethereum appear to be dragging the rest of the market with the majority of alt-coins also adding to their gains despite generally lagging slightly behind the majors. Furthermore, US president Biden is expected to make an announcement today regarding an executive order on cryptocurrencies that may pave the way for a broader adoption of digital assets and boost investor confidence in the relatively new asset class. While details of this announcement remain unclear, any sign of regulation or mainstream adoption could prove to be a catalyst for a major move across the crypto markets thanks to the influx of new money of both retail and institutional investors.
How Will The Next Events Around Russia-Ukraine Conflict Affect Markets?

How Will The Next Events Around Russia-Ukraine Conflict Affect Markets?

FXStreet News FXStreet News 09.03.2022 16:19
Russia's denial of wanting to overthrow Ukraine's government has boosted the market mood. Ongoing bombing, accusations of using biological weapons may come to haunt markets. The safe-haven dollar and gold have room to recover after the recent slide. All markets are saying, is give peace a chance – paraphrasing John Lennon's song, that is what is going on, with stocks and risk currencies rising while safe-haven assets are tumbling down. However, it may become worse before it becomes better. The latest bout of optimism stems from Russia's statement that it does not seek to overthrow Ukraine's government and its preference to resolve differences via discussions. The Kremlin added that it has never threatened and does not threaten NATO. These olive branches join Tuesday's news that Ukrainian President Volodymyr Zelenskyy signaled he is willing to give up NATO membership and the upcoming meeting of the two countries foreign ministers planned for Thursday in Turkey. On the ground, a humanitarian ceasefire is in effect in several Ukrainian cities on Wednesday, and civilians are begin evacuated, so far safely. Markets have reacted positively to these developments, with S&P futures jumping by 2%, EUR/USD jumping by some 80 pips, and safe havens such as gold and the dollar suffering significant falls. Is the war nearing its end? Not so fast. Reasons to worry First, Russia continues bombing Kyiv and is likely using this day of relative calm to regroup and resupply its troops, which have suffered massive logistical failures. Several of the previous ceasefires were not respected and this may happen again. Secondly, Russia's statements are also one that the US has declared economic war on it. Such comments contradict the better vibes that have previously boosted the market mood. Russia also accuses its enemy of developing biological weapons, in what seems like an excuse to intensify attacks. Third, Ukrainian President Zelensky called on Russian troops to "surrender while you still can" and that "we will answer in full for all our killed people" – militant statements are not exclusive to one side. The war will eventually end, hopefully, sooner rather than later. However, it seems overoptimistic to circle Wednesday as the beginning of the end, and that everything improves from here. Another escalation may come shortly, souring the market mood and boosting the safe-haven gold and dollar. Moreover, with every day that passes, the damage to the global economy increases. While shortages of energy have yet to be seen – prices are rising without any stop in the flow of oil or gas – food issues may become a burden for the global economy. Russia and Ukraine produce a vast amount of wheat and barley, which are now blocked. That is already raising food prices. And while the war continues, so do new Western sanctions. The EU has approved a new list of restrictions on Russian leaders and oligarchs, and also disconnect several Belarusian banks from the SWIFT payments system. All in all, it will likely get worse before it becomes better and that means another rush to the dollar and gold.
The War Is on for Two Weeks. How Does It Affect Gold?

The War Is on for Two Weeks. How Does It Affect Gold?

Arkadiusz Sieron Arkadiusz Sieron 10.03.2022 17:21
  With each day of the Russian invasion, gold confirms its status as the safe-haven asset. Its long-term outlook has become more bullish than before the war. Two weeks have passed since the Russian attack on Ukraine. Two weeks of the first full-scale war in Europe in the 21th century, something I still can’t believe is happening. Two weeks of completely senseless conflict between close Slavic nations, unleashed without any reasonable justification and only for the sake of Putin’s imperial dreams and his vision of Soviet Reunion. Two weeks of destruction, terror, and death that captured the souls of thousands of soldiers and hundreds of civilians, including dozens of children. Just yesterday, Russian forces bombed a maternity hospital in southern Ukraine. I used to be a fan of Russian literature and classic music (who doesn’t like Tolstoy or Tchaikovsky?), but the systematic bombing of civilian areas (and the use of thermobaric missiles) makes me doubt whether the Russians really belong to the family of civilized nations. Now, for the warzone report. The country’s capital and largest cities remain in the hands of the Ukrainians. Russian forces are drawing reserves, deploying conscript troops to Ukraine to replace great losses. They are still trying to encircle Kyiv. They are also strengthening their presence around the city of Mykolaiv in southern Ukraine. However, the Ukrainian army heroically holds back enemy attacks in all directions. The defense is so effective that the large Russian column north-west of Kyiv has made little progress in over a week, while Russian air activity has significantly decreased in recent days.   Implications for Gold How has the war, that has been going on for already two weeks, affected the gold market so far? Well, as the chart below shows, the military conflict was generally positive for the yellow metal, boosting its price from $1,905 to $1989, or about 4.4%. Please note that initially the price of gold jumped, only to decline after a while, and only then rallied, reaching almost $2,040 on Tuesday (March 8, 2022). However, the price has retreated since then, below the key level of $2,000. This is partially a normal correction after an impressive upward move. It’s also possible that the markets are starting to smell the end of the war. You see, Russian forces can’t break through the Ukrainian defense. They can continue besieging cities, but the continuation of the invasion entails significant costs, and Russia’s economy is already sinking. Hence, they can either escalate the conflict in a desperate attempt to conquer Kyiv – according to the White House, Russia could conduct a chemical or biological weapon attack in Ukraine – or try to negotiate the ceasefire. In recent days, the President of Ukraine, Volodymyr Zelensky, said he was open to a compromise with Russia. Today, the Russian and Ukrainian foreign ministers met in Turkey for the first time since the horror started (unfortunately, without any agreement). However, although gold prices may consolidate for a while or even fall if the prospects of the de-escalation increase, the long-term fundamentals have turned more bullish. As you can see in the chart below, the real interest rates decreased amid the prospects of higher inflation and slower economic growth. Russia and Ukraine are key exporters of many commodities, including oil, which would increase the production costs and bring us closer to stagflation. What’s next, risk aversion increased significantly, which is supportive of safe-haven assets such as gold. After all, Putin’s decision to invade Ukraine is a turning point in modern history, which ends a period of civilized relations with Russia and relative safety in the world. Although Russia’s army discredited itself in Ukraine, the country still has nuclear weapons able to destroy the globe. As you can see in the chart below, both the credit spreads (represented here by the ICE BofA US High Yield Index Option-Adjusted Spread) and the CBOE volatility index (also called “the fear index”) rose considerably in the last two weeks. Hence, the long-term outlook for gold is more bullish than before the invasion. The short-term future is more uncertain, as there might be periods of consolidation and even corrections if the conflict de-escalates or ends. However, given the lack of any decisions during today’s talks between Ukrainian and Russian foreign ministers and the continuation of the military actions, gold may rally further. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Economic Indicators Of Great Britain Released

Economic Indicators Of Great Britain Released

Alex Kuptsikevich Alex Kuptsikevich 11.03.2022 09:11
The new monthly package of UK statistics highlighted the fine shape of the economy in January. For the month, GDP rose by 0.8%, against an expected strengthening of 0.2% and the three-month growth rate accelerated from 1.0% to 1.1%. Industrial production strengthened by 0.7% for the month and 2.3% for January 2021, also beating economists' expectations. The UK economy started the year in good shape, responding positively to the easing of the coronavirus restrictions. This is short-term positive news for the British pound, which has managed to find support after touching another low since November 2020 at 1.3080 per dollar. A strong base in the economy will allow the Bank of England to strengthen its fight against inflation by raising rates. However, price shocks across many commodities and foodstuffs dramatically increase the chances of short-term stagflation in the UK as consumers will save more by cutting back on purchases of non-essential goods and services due to rising energy and food prices. The Ukrainian war crisis, now in its third week, has seen the GBPUSD fall 3.8%, taking more than 1/3 of the pair's rise from the lows at the start of the pandemic. A move below 1.3160 was a signal to a move into a deeper correction phase, and the pair could plunge to 1.2880 at the beginning of next week.
Crypto Update: Bitcoin Price Has Decreased By 1%, ETH Hasn't Fluctuate Much. XRP Has Gone Up By 1.6%

Crypto Update: Bitcoin Price Has Decreased By 1%, ETH Hasn't Fluctuate Much. XRP Has Gone Up By 1.6%

Alex Kuptsikevich Alex Kuptsikevich 11.03.2022 08:37
Bitcoin fell 5.4% on Thursday, ending the day near $39.6K, and further to $38.9K on Friday morning, down 1% in 24 hours. Ethereum has remained almost unchanged over the same time (-0.3%), while other leading altcoins from the first are changing in different directions, from a 1.6% increase (XRP) to a 1% decrease (BNB). According to CoinMarketCap, the total capitalization of the crypto market sank by 0.2% over the day to $1.74 trillion. The bitcoin dominance index continues to decline, falling from 42.7% yesterday to 42.4% due to the greater stability of altcoins. The crypto-currency index of fear and greed lost 6 points in a day to 22, again entering the territory of "extreme fear". Bitcoin fully returned the growth of Wednesday, which was caused by the adoption in the United States of the first document on the regulation of cryptocurrencies. The decline in stock indices and the growth of the dollar also did not favour the purchases of the first cryptocurrency, which often moves in unison with the general demand for risks. The first decree on cryptocurrencies signed the day before can become the basis for future US legislation on regulating relations in the crypto sphere. Against this background, the shares of companies associated with cryptocurrencies have noticeably risen in price. One of the largest investment banks, Goldman Sachs, is going to expand its offering for trading digital assets. The bank is exploring the possibility of launching bilateral crypto-currency options. World-famous investor and writer Robert Kiyosaki has warned that the world economy is now on the verge of hyperinflation and advised to "stay away" from the stock market. Against the backdrop of a severe crisis in the financial system of the Russian Federation and restrictions imposed on the circulation of the dollar and the euro, the demand of the population for cryptocurrency has increased sharply. Now it is primarily used for the transfer of capital abroad or for parking in "hard" currency. Analysts believe that regulators are unlikely to be able to effectively prevent such transactions. But the state is helped by crypto-exchanges, which block the Russians on their own initiative. There remain the possibilities of p2p platforms, that is, transfers between individuals. However, there are significant risks of fraud associated with such transactions.
Why lira is experiencing pressure now

Why lira is experiencing pressure now

Alex Kuptsikevich Alex Kuptsikevich 11.03.2022 10:33
The Turkish lira has fallen back-to-back on each working day in March, having weakened against the US Dollar by 8.2% over this time and coming close to 15.0, where it was last seen in mid-December. The current development of the lira is reminiscent of the early October-November situation when we have seen a similar sustained decline, but the volatility (by the standards of the Turkish lira) has remained subdued. The pressure on the lira is due to the country's heavy reliance on imports of oil, gas, and agricultural commodities, mainly wheat. Turkey's Current Account deficit rose to 7.1bn in January from 3.8bn a month earlier. In February and early March, we see a gloomier picture in commodity prices, promising to put even more pressure on the balance of payments. The jump in the price of basic commodities has caused a decline in industrial production, and the situation could worsen in the coming months. The exchange rate, in this case, is a natural damping mechanism unless it is maintained artificially through currency interventions or severe capital controls. In Turkey, the second variant is now the case, but these controls merely stretch out the natural self-adjustment of the economy over time.
Gold Likes Recessions - Could High Interest Rates Lead to One?

Gold Likes Recessions - Could High Interest Rates Lead to One?

Finance Press Release Finance Press Release 11.03.2022 16:52
We live in uncertain times, but one thing is (almost) certain: the Fed’s tightening cycle will be followed by an economic slowdown – if not worse.There are many regularities in nature. After winter comes spring. After night comes day. After the Fed’s tightening cycle comes a recession. This month, the Fed will probably end quantitative easing and lift the federal funds rate. Will it trigger the next economic crisis?It’s, of course, more nuanced, but the basic mechanism remains quite simple. Cuts in interest rates, maintaining them at very low levels for a prolonged time, and asset purchases – in other words, easy monetary policy and cheap money – lead to excessive risk-taking, investors’ complacency, periods of booms, and price bubbles. On the contrary, interest rate hikes and withdrawal of liquidity from the markets – i.e., tightening of monetary policy – tend to trigger economic busts, bursts of asset bubbles, and recessions. This happens because the amount of risk, debt, and bad investments becomes simply too high.Historians lie, but history – never does. The chart below clearly confirms the relationship between the Fed’s tightening cycle and the state of the US economy. As one can see, generally, all recessions were preceded by interest rate hikes. For instance, in 1999-2000, the Fed lifted the interest rates by 175 basis points, causing the burst of the dot-com bubble. Another example: in the period between 2004 and 2006, the US central bank raised rates by 425 basis points, which led to the burst of the housing bubble and the Great Recession.One could argue that the 2020 economic plunge was caused not by US monetary policy but by the pandemic. However, the yield curve inverted in 2019 and the repo crisis forced the Fed to cut interest rates. Thus, the recession would probably have occurred anyway, although without the Great Lockdown, it wouldn’t be so deep.However, not all tightening cycles lead to recessions. For example, interest rate hikes in the first half of the 1960s, 1983-1984, or 1994-1995 didn’t cause economic slumps. Hence, a soft landing is theoretically possible, although it has previously proved hard to achieve. The last three cases of monetary policy tightening did lead to economic havoc.It goes without saying that high inflation won’t help the Fed engineer a soft landing. The key problem here is that the US central bank is between an inflationary rock and a hard landing. The Fed has to fight inflation, but it would require aggressive hikes that could slow down the economy or even trigger a recession. Another issue is that high inflation wreaks havoc on its own. Thus, even if untamed, it would lead to a recession anyway, putting the economy into stagflation. Please take a look at the chart below, which shows the history of US inflation.As one can see, each time the CPI annul rate peaked above 5%, it was either accompanied by or followed by a recession. The last such case was in 2008 during the global financial crisis, but the same happened in 1990, 1980, 1974, and 1970. It doesn’t bode well for the upcoming years.Some analysts argue that we are not experiencing a normal business cycle right now. In this view, the recovery from a pandemic crisis is rather similar to the postwar demobilization, so high inflation doesn’t necessarily imply overheating of the economy and could subsidy without an immediate recession. Of course, supply shortages and pent-up demand contributed to the current inflationary episode, but we shouldn’t forget about the role of the money supply. Given its surge, the Fed has to tighten monetary policy to curb inflation. However, this is exactly what can trigger a recession, given the high indebtedness and Wall Street’s addiction to cheap liquidity.What does it mean for the gold market? Well, the possibility that the Fed’s tightening cycle will lead to a recession is good news for the yellow metal, which shines the most during economic crises. Actually, recent gold’s resilience to rising bond yields may be explained by demand for gold as a hedge against the Fed’s mistake or failure to engineer a soft landing.Another bullish implication is that the Fed will have to ease its stance at some point in time when the hikes in interest rates bring an economic slowdown or stock market turbulence. If history teaches us anything, it is that the Fed always chickens out and ends up less hawkish than it promised. In other words, the US central bank cares much more about Wall Street than it’s ready to admit and probably much more than it cares about inflation.Having said that, the recession won’t start the next day after the rate liftoff. Economic indicators don’t signal an economic slump. The yield curve has been flattening, but it’s comfortably above negative territory. I know that the pandemic has condensed the last recession and economic rebound, but I don’t expect it anytime soon (at least rather not in 2022). It implies that gold will have to live this year without the support of the recession or strong expectations of it.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
These Releases Can Affect Dollar Index - Fed Releases Interest Rate Decision And EIA Presents Crude Oil Inventories

These Releases Can Affect Dollar Index - Fed Releases Interest Rate Decision And EIA Presents Crude Oil Inventories

Mikołaj Marcinowski Mikołaj Marcinowski 11.03.2022 16:37
In the following week: Great Britain, Germany, USA, Canada, Australia, Japan, Russia… - these countries have their economic indicators presented. What’s mostly interesting? Tuesday Australia and China At 0.30 a.m. RBA Release Meeting Minutes, At 2 a.m. Chinese Industrial Production (YoY) goes public. Great Britain In the morning, five hours later, British Average Earnings Index +Bonus is presented. Previously it amounted to 4.3%. At the same time (7 a.m.) Claimant Count Change is released. Would it increase? Germany Germans will sleep a bit longer – ZEW Economic Sentiment is released at 10 a.m. and previously amounted to 54.3 USA The awaited release of the day is US PPI (MoM), which previously hit 1.0% Wednesday USA Wednesday is a kind of continuation of the Tuesday’s afternoon as the whole day is full of US releases. We begin with Core Retail Sales (MoM) (3.3%) followed by Retail Sales (MoM) (3.8%) and Crude Oil Inventories. In the evening Fed will finally publish Interest Rate Decision, which previously hit 0.25%. Canada and New Zealand Canadian Core CPI is released at 12:30 p.m. New Zealand’s GDP goes public late in the afternoon. Thursday Australia and Great Britain At 0:30 a.m. Australians get to know Employment Change (12.9K). In the midday BoE releases its Interest Rate Decision – previous one amounted to 0.50% The EU and the USA On Thursday European Markets investors should follow ECB President Lagarde testimony and release of EU CPI (YoY) (prev. 5.8%) What to follow in the USA? Building Permits, Initial Jobless Claims And Philadelphia Fed Manufacturing Index Friday Japan As monetary policy are released around the world in the following week, BoJ presents its Statement as well. Russia It’s interesting what will be the Interest Rate of Russian Central Bank as it remains conflicted with Ukraine and sanctions affect the country’s economy Canada Core Retail Sales (MoM) and US Existing Home Sales are latter indicators to be showed the following week. Source: Investing.com Time: GMT
Credit Markets Keeps Downward Move, S&P 500 (SPX) Trades Lower Than Usual, Bitcoin (BTC) Price Is... Quite Stable (Sic!)

Credit Markets Keeps Downward Move, S&P 500 (SPX) Trades Lower Than Usual, Bitcoin (BTC) Price Is... Quite Stable (Sic!)

Monica Kingsley Monica Kingsley 14.03.2022 13:09
S&P 500 bulls again missed the opportunity, and credit markets likewise. Not even the virtual certainty of only 25bp hike in Mar is providing much relief to the credit markets. Given that the real economy is considerably slowing down and that recession looks arriving before Q2 ends, the markets continue forcing higher rates (reflecting inflation). In a risk-on environment, value and cyclicals such as financials would be reacting positively, but that‘s not the case right now. At the same time, equal weighted S&P 500 (that‘s RSP) hasn‘t yet broken below its horizontal support above $145, meaning its posture isn‘t as bad as in the S&P 500. Should it however give, we‘re going considerably below 4,000. That‘s why today‘s article is titled hanging by a thread. Precious metals and commodities continue consolidating, and the least volatile appreciation opportunity presents the red metal. And it‘s not only about copper – crude oil market is going through supply realignment, and demand is not yet being destroyed on a massive scale. Coupled with the long-term underinvestment in exploration and drilling (US is no longer such a key producer as was the case in 2019), crude oil prices would continue rising on fundamentals, meaning the appreciation pace of Feb-Mar would slow down. Precious metals would have it easy next as the Fed is bound to be forced to make a U-turn in this very short tightening cycle (they didn‘t get far at all, and inflation expectations have in my view become unanchored already). Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bears won the day, and Nasdaq remains in a sorry state. 4,160s are the line in the sand, breaking which would accelerate the downswing. Inflation is cutting into the earnings, and stocks aren‘t going to like the coming Fed‘s message. Credit Markets HYG didn‘t keep at least stable – the pressure in the credit markets is ongoing, and the stock market bulls don‘t have much to rejoice over here. Gold, Silver and Miners Precious metals downswings are being bought, and are shallow. The sellers are running out of steam, and the opportunity to go somewhat higher next, is approaching. Crude Oil Crude oil is stabilizing, but it may take some time before the upswing continues with renewed vigor. As for modest extension of gains, we won‘t be disappointed. Copper Copper had one more day of fake weakness, but the lost gains of Friday would be made up for next – and given no speculative fever here to speak of, it would have as good lasting power as precious metals. Bitcoin and Ethereum Cryptos remain undecided, but indicate a little breathing room, at least for today. Still, I wouldn‘t call it as risk-on constellation throughout the markets. Summary S&P 500 is getting in a precarious position, but the internals aren‘t (yet) a screaming sell. Credit markets continue leading lower, and the risk-off positioning is impossible to miss. Not even financials are able to take the cue, and rise. It‘s that the rise in yields mirrors the ingrained inflation, and just how entrenched it‘s becoming. No surprise if you were listening to me one year ago – the Fed‘s manouevering room got progressively smaller, and the table is set for the 2H 2022 inflation respite (think 5-6% year end on account of recessionary undercurrents) to be superseded with even higher inflation in 2023, because the Fed would be forced later this year to turn back to easing. Long live the precious metals and commodities super bulls! Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
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
The Swing Overview – Week 10 2022

The Swing Overview – Week 10 2022

Purple Trading Purple Trading 14.03.2022 15:05
The Swing Overview – Week 10 The war in Ukraine has been going on for more than two weeks and there is no end in sight. However, the markets seem to have started to adapt to the new situation and the decline in the indices has stopped. Meanwhile, inflation in the Czech Republic rose to 11.1% and the ECB left rates unchanged as expected. There is extreme volatility in oil. After reaching 2008 price levels there has been a larger correction. The conflict in Ukraine   The high-profile meeting between Russian Foreign Minister Lavrov and his Ukrainian counterpart Kuleba did not bring a solution to end the war.  Russia continues to expect Ukraine to recognise Crimea as part of Russia, to recognise the independence of republics declared by pro-Russian separatists in eastern Ukraine, and not to join NATO. Kuleba commented that Ukraine will not surrender. So, unfortunately, the war continues.   The sanctions, which have caused the Russian economy a shock and which are being extended, should help to end the war. The US announced that it stopped taking Russian oil. However, European leaders have not agreed to stop taking Russian energy because of their current dependence on it. As a lesson from this war, the EU is preparing a plan to stop taking Russian gas by 2027.   Meanwhile, the markets have calmed down a bit and although a resolution to the conflict is nowhere in sight, the markets seem to have come to accept the war as a regional issue that will have a negative but limited impact on global economic growth. This can be seen in US 10-year bond rates, which have started to rise again.   Figure 1: 10-year government bond yield on the 4H chart and USD index on the daily chart   The US inflation at highest levels in 40 years Annual inflation in the US for February was 7.9%, the highest since January 1982. The biggest contributor to inflation is energy, which saw inflation reaching 25.6%, while gasoline prices were up 38%. These figures do not include recent developments in Europe. Continued supply-side logistics problems and strong demand, together with a tight labour market mean that higher inflation will last for a longer period. Figure 2: The inflation in the US   Next week, the US Fed will meet to respond to rising inflation. Interest rates are generally expected to rise by at least 0.25%.    The SP500 index Long-term investors in the SP 500 index track an indicator of the number of companies whose stock prices are above the 50-day average. Figure 3: The SP 500 Index and an indicator of the number of companies in the SP 500 Index above the 50-day moving average   This indicator has recently fallen to a value of 20. In the past, as the figure shows, reaching a value of 20 was mostly followed by an increase in the index. It is therefore likely that investors will now start buying the shares. Amazon shares gained significantly after the company announced a 20:1 stock split. The stock can thus be afforded by more retail investors. As for the current trend in the SP 500 index, it has been moving down recently. This may be a correction to the overall uptrend shown in Figure 3. In Figure 4 we have a short-term view.     Figure 4: SP 500 on H4 and D1 chart   From a technical analysis perspective, the moving averages suggest that the index is moving down. Investor interest in buying a dip has slowed this decline, which can be seen on the H4 chart where a higher low has formed.  Support is at 4,140 - 4,152. Resistance is at 4,288 - 4,300. The next resistance is at 4,385 - 4,415. The moving averages also serve as resistance.   The inflation in the Czech Republic has surpassed 11% Annual inflation in the Czech Republic for February 2022 was 11.1% (9.9% in January), higher than market expectations (10.3% was expected). This is the highest inflation in the Czech Republic since 1998. The largest contributors to inflation are housing (16%), electricity (22.6%) and gas (28.3%). This figure is likely to force the CNB to raise rates further. The Czech koruna has stalled against the euro at resistance around 25.80 - 25.90. The reason for the weakening of the koruna was geopolitical uncertainty regarding the war in Ukraine. Now it seems that the markets have absorbed this situation and this may be the reason for the appreciation of the koruna that occurred last week. If the war in Ukraine does not escalate further into new unexpected dimensions (such as the disruption of gas supplies to Europe from Russia), then the interest rate differential could again be an important factor, which, due to higher interest rates on the koruna, could lead to the koruna appreciation towards January levels.   Figure 5: EURCZK on the daily chart   Resistance: 25.80 - 25.90.  Support: 24.50 - 24.60 and then around 24.10   ECB and the euro The ECB left interest rates unchanged at 0%. At the same time, it surprised the market by ending its bond buying program in Q3, earlier than previous forecasts. The reaction to the news was a strong appreciation of the euro and it jumped to 1.1120 against the dollar. Eventually, however, the euro ended the session at around 1.10. The reason for this reversal is that tightening at a time when the economy is slowing could lead to stagflation. Strong US inflation data also contributed to the euro sell-off. The US is also much less vulnerable to sanctions against Russia than Europe.   Figure 6: EURUSD on the H4 and daily charts   From a technical point of view, we can see that the EURUSD has stalled right at the resistance band, which is at the 1.11-1.1130 level. The nearest support is 1.08-1.0850.   Crude Oil Brent crude oil reached $136 earlier this week, the highest level since July 2008. This was due to fears of a shortage of black liquid due to the conflict in Ukraine. However, Russia , which produces 7% of global demand, has announced that it will meet its contractual obligations. At the same time, Chevron said there was no shortage of oil and some other producers were ready to increase production if necessary. The EU has also announced that it will not impose an embargo on Russian oil imports, which would otherwise shock the market at a time when oil stocks are reaching multi-year lows, and will not join the US and the UK. Following this, oil began to retreat from its highs.   Figure 7: Brent crude oil on monthly and daily charts Resistance is in the 132-135 range. The nearest support is 103 - 105 USD per barrel. The next support is then in the band around USD 85 - 87 per barrel.  
So... Will The Bank Of England (BoE) Raise The Interest Rate?

So... Will The Bank Of England (BoE) Raise The Interest Rate?

Alex Kuptsikevich Alex Kuptsikevich 15.03.2022 09:07
The UK economy continues to show strength in the January-February economic reports. A fresh batch of data noted a fall in the number of people receiving unemployment benefits of 48.1k last month. The January statistics have improved and now show a fall in those receiving benefits from -31.9k to -67.3k. Wage growth continues to gain momentum to 4.8% against 4.6%. This data reinforces the view of the UK finance minister. Rishi Sunak expressed confidence that the labour market is in good shape and that the economy will cope with the challenges ahead. The confidence of UK officials should also be taken as a signal that the Bank of England might decide to accelerate its tightening. Market participants, on average, expect the third hike of 25 points on the coming Thursday. However, in light of the strong labour market and wage growth figures, combined with actual and expected price rises, the Bank of England could decide on a move of 50 points at once. The central bank had previously warned that it might take such a step. If the Bank of England hikes the rate from 0.5% to 1.0%, it could support the Pound markedly. Its appreciation would further reduce inflationary pressures from import prices and stabilise the economy as quickly as possible.
Buying Gold: ugly short-term deal, promising for long-term

Buying Gold: ugly short-term deal, promising for long-term

Alex Kuptsikevich Alex Kuptsikevich 15.03.2022 11:09
Gold is losing another 1% on Tuesday, pulling back to $1933. Exactly one week ago, quotes were soaring towards $2070, but they have been in a steady downward trend since then. The short-term charts clearly show the even pressure crystallising since March 10th. It may seem illogical that the gold price is down, pending reliable signs of military de-escalation. Rampant inflation should also contribute to the demand for Gold as protection against capital depreciation. The answer to this question seems to be sought in the altered gold supply balance. Likely, the Bank of Russia is now actively selling Gold from its reserves, both domestically and using the remaining means to do so abroad. In the short term, this creates an impressive market overhang, despite data confirming that exchange-traded funds have built up their holdings in the metal to a record. If the current trend develops, the price of Gold could deflate into the $1850-1870 area, where it was before Russian troops entered Ukraine. That said, buying Gold remains a prudent long-term strategy. Geopolitical instability forms the risks of a slowdown in the economy, which will deter the Fed and other major central banks from tightening policy. A 25-point rate hike is expected from the Fed this week, although the markets gave more than a 60% chance of a 50-point hike in the first weeks of the year. In the meantime, the current and expected price situation has only worsened, accelerating the actual depreciation of assets. Looking ahead to the next few months, a very supportive environment remains for gold prices up to around $2,500. The marginal forecasts of a new round of gold growth are also becoming more evident, echoing the dynamic of the 1970s, as the energy and food markets are now in a very similar position. If this holds true, the price could soar several times in the next several years.
S&P 500, Crude Oil And Credit Markets Decrease... Only Bitcoin Price Remains "The Same"

S&P 500, Crude Oil And Credit Markets Decrease... Only Bitcoin Price Remains "The Same"

Monica Kingsley Monica Kingsley 15.03.2022 16:03
S&P 500 decline was led by tech, and made possible by credit markets‘ plunge. The 4,160s held on a closing basis, and unless the bulls clear this area pretty fast today, this key support would come under pressure once again over the nearest days. Interestingly, the dollar barely moved, but looking at the daily sea of red across commodities, the greenback would follow these to the downside. Not that real assets including precious metals would be reversing on a lasting basis here – the markets are content that especially black gold keeps flowing at whatever price, to whatever buyer(s) willing to clinch the deal. Sure, it‘s exerting downward pressure on the commodity, but I‘m looking for the extraordinary weakness to be reversed, regardless of: (…) not even the virtual certainty of only 25bp hike in Mar is providing much relief to the credit markets. Given that the real economy is considerably slowing down and that recession looks arriving before Q2 ends, the markets continue forcing higher rates (reflecting inflation). The rising tide of fundamentals constellation favoring higher real asset prices, would continue kicking in, especially when the markets sense a more profound Fed turn than we saw lately with the 50bp into 25bp for Mar FOMC. Make no mistake, the inflation horse has left the barn well over a year ago, and doesn‘t intend to come back or be tamed. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bears won the day, and are likely to regroup next – yes, that doesn‘t rule out a modest upswing that would then fizzle out. Credit Markets HYG woes continue, and credit markets keep raising rates for the Fed. The bears continue having the upper hand. Gold, Silver and Miners Precious metals haven‘t found the short-term bottom, but it pays to remember that they are often trading subdued before the Fed days. This is no exception, and I‘m fully looking for gold and silver to regain initiative following the cautious Fed tone. Crude Oil Crude oil didn‘t keep above $105, but would revert there in spite of the stagflationary environment (already devouring Europe). With more clarity in the various oil benchmarks, black gold would continue rising over the coming weeks. Copper Copper weakness is another short-term oddity, which I am looking for to be reversed in the FOMC‘s wake. Volume had encouragingly risen yesterday, so I‘m looking for a solid close to the week. Bitcoin and Ethereum Cryptos are very modestly turning higher, but I‘m not expecting too much of a run next. As stated yesterday, I wouldn‘t call it as risk-on constellation throughout the markets. Summary S&P 500 got into that precarious position (4,160s) yesterday, but managed to hold above. Given the usual Fed days trading pattern, stocks are likely to bounce a little before the pronouncements are made – only to continue drifting lower in their wake. That‘s valid for the central bank not making the U-turn towards easing again, which is what I‘m expecting to happen in the latter half of this year. Inflation would continue biting, and that means stocks are mired in a giant trading range a la the 1970s. Commodities and precious metals would continue building a base here, only to launch higher in response to (surprise, surprise) stubborn inflation. After all, where else to hide in during stagflations? Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
The release of Chinese GDP, Bank of Canada interest rate decision and more - InstaForex talks the following week (part I)

Hang Seng Climbs And Adds 6%, China A50 Gains Ca. 6.5%

Alex Kuptsikevich Alex Kuptsikevich 16.03.2022 10:01
Chinese indices are experiencing their sharpest rally yet on Wednesday amid reassurances from officials that the stock market is going to be supported. Hong Kong’s Hang Seng is up 6%, China’s China A50 is gaining more than 6.5%, while China H-shar is soaring by 12%. These indices have been under increased pressure in recent weeks, getting maximum pressure this week.  On Tuesday, major Chinese indices fell fastest since March 2020, rewriting multi-year lows. Market support from officials came a day after the release of upbeat macro data, indicating a jump in retail sales and industrial production. At the same time, stock market dynamics fundamentally diverged from the economy, and there was a near point where stock volatility was already causing material disruption to the economy.  The China H-shar gained support today after sinking to the lows of late 2008, losing more than half of its price in just over a year of steady decline. The Hans Seng index touched lows since 2016 and areas of market support in 2012 at the peak of Tuesday’s decline. However, Chinese policymakers have worked hard to prevent the sell-off from turning into a self-sustaining spiral over the past two days. Yesterday’s China-US talks saw a positive reaction from the sides, forming a more than 4.5% bounce for the HangSeng during the European trading session.  This momentum was boosted on Wednesday morning after Vice Premier Liu He indicated that China is considering a package of measures to support the economy and financial markets. Soon the People’s Bank of China stated that it would help the stock market with other agencies.  Such words send a message to the market that the levels reached yesterday are a pain point for the Chinese authorities, from where they are ready to step up efforts to support the markets. Yesterday we likely saw the bottom of the Chinese indices for many months to come, despite potentially negative for stock prices rate hikes by the Fed and other major central banks for the equity market. There seems to be too much pessimism and wariness embedded in Chinese valuations after more than a year of declines.
Snowball‘s Chance in Hell

Snowball‘s Chance in Hell

Monica Kingsley Monica Kingsley 16.03.2022 15:40
S&P 500 is turning around, and odds are that would be so till the FOMC later today. The pressure on Powell to be really dovish, is on. I‘m looking for a lot of uncerrtainty and flexibility introduction, and much less concrete rate hikes talk that wasn‘t sufficient to crush inflation when the going was relatively good, by the way.As stated yesterday:(…) The rising tide of fundamentals constellation favoring higher real asset prices, would continue kicking in, especially when the markets sense a more profound Fed turn than we saw lately with the 50bp into 25bp for Mar FOMC. Make no mistake, the inflation horse has left the barn well over a year ago, and doesn‘t intend to come back or be tamed.Not that real assets including precious metals would be reversing on a lasting basis here – the markets are content that especially black gold keeps flowing at whatever price, to whatever buyer(s) willing to clinch the deal. Sure, it‘s exerting downward pressure on the commodity, but I‘m looking for the extraordinary weakness to be reversed.We‘re seeing such a reversal in commodities already, and precious metals have a „habit“ of joining around the press conference. Yesterday‘s performance of miners and copper, provides good enough a hint.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 upswing looks like it can go on for a while. Interestingly, it was accompanied by oil stocks declining – have we seen THE risk-on turn? This looks to be a temporary reprieve unless the Fed really overdelivers in dovishness.Credit MarketsHYG is catching some bid, and credit markets are somewhat supporting the risk-on turn. Yields though don‘t look to have put in a top just yet, which means the stock market bears would return over the coming days.Gold, Silver and MinersPrecious metals are looking very attractive, and the short-term bottom appears at hand – this is the way they often trade before the Fed. I‘m fully looking for gold and silver to regain initiative following the cautious and dovish Fed tone.Crude OilCrude oil didn‘t test the 50-day moving average, and I would expect the bulls to step in here – after all, the Fed can‘t print oil, and when they go dovish, the economy just doesn‘t crash immediately...CopperCopper is refusing to decline, and the odd short-term weakness would be reversed – and the same goes for broader commodities, which have been the subject of my recent tweet.Bitcoin and EthereumCryptos aren‘t fully risk-on, but cautiously giving the bulls benefit of the doubt. Not without a pinch of salt, though.SummaryS&P 500 bulls are on the (short-term) run, and definitely need more fuel from the Fed. Significant dovish turn – they would get some, but it wouldn‘t be probably enough to carry risk-on trades through the weekend. The upswing is likely to stall before that, and commodities with precious metals would catch a fresh bid already today. This would be coupled with the dollar not making any kind of upside progress to speak of. The true Fed turn towards easing is though far away still (more than a few months away) – the real asset trades are about patience and tide working in the buyers favor. The yield curve remains flat as a pancake, and more stagflation talk isn‘t too far...Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
UK: Interest Rate Is 25bps Higher, The GBPUSD Chart Shows A Big Decline

UK: Interest Rate Is 25bps Higher, The GBPUSD Chart Shows A Big Decline

Alex Kuptsikevich Alex Kuptsikevich 17.03.2022 15:02
The Bank of England raised the rate by 25 points to 0.75%. Such a move was, on average, predicted by market analysts. However, reports that one member of the Bank of England voted to maintain the rate was seen as less confidence in further hikes. The Bank’s deputy governor Jon Cunliffe voted against a rate hike, noting the risks of falling demand due to a jump in commodity prices. This vote against caused GBPUSD to immediately fall more than 120 pips, briefly sending GBPUSD below 1.3090. However, the weakening pound supported the stock market, bringing the FTSE100 back to its opening levels, in contrast to the declines in most foreign indices. Earlier, the FOMC made less harsh comments on interest rates than the market expected to see. The Bank of England, like the Fed yesterday, raised its inflation forecasts considerably and pushed back the forecast peak further, given the latest price hike. Like after the 2008 financial crisis, the Fed and the Bank of England are leaving the economy at the forefront in an attempt to tighten policy. The currency market was ready to see more determination in raising rates. The current measured approach forms a more favourable environment for financial markets than expected at the start of March.
Dogecoin Could Start The Next Impulsive Rally

Dogecoin price could tank as India’s central bank closes the doors to cryptos

FXStreet News FXStreet News 17.03.2022 16:34
The Indian Central Bank came out this morning with firm rejection against adopting cryptocurrencies in the country. Dogecoin price action undergoes firm rejection against a double technical barrier. DOGE set to tank by 8% as bears see opportunity fit to pair back gains from Wednesday yet again. Dogecoin (DOGE) price action saw bulls being hit by ice-cold water this morning as two headlines made the sky drop on their heads. These were the Kremlin coming out saying that talks are nowhere near as positive as markets are frontrunning, and the Indian Central Bank (RBI) giving a firm rejection to the adoption of cryptocurrencies. The RBI branded cryptocurrencies as a tool that will wreck the currency system, monetary authority and government's ability to control the economy. This is a significant blow and setback for cryptocurrencies that saw bulls coming up yesterday for a catch of fresh air but are now again submerged underwater with negative prints today. Dogecoin price gains short-lived Dogecoin price action is not currently in a sweet spot as in just 5 minutes, two separate comments unrelated to each other trashed bulls’ game plan to target $0.1357 next week. Instead, DOGE price action fell back to its opening price and took a step back as bulls reassessed the situation – due to some unforeseen tail risks that caused headwinds overpowering the tailwinds that emerged the day before. Expect to possibly see DOGE price action tumble again to the downside, in a similar scenario to last week. DOGE price action got a firm rejection from negative headlines at $0.1197 with the green ascending trend line and that intermediary top-line proving too big for bulls to take on. Instead, price action collapsed back to the entry-level and looked heavy and dangling, as if poised to drop at any moment to the downside. A possible downside target is set at $0.1137 and $0.1100 with the last one making a triple bottom – although there is also the risk of a break even further to the downside if more tail-risk materialises. DOGE/USD daily chart Once the US session takes over, it could well be that investors look beyond these very short-term headlines, considering them as partial hiccups before moving on. That would mean a pickup in buying interest which could lead to a punch through $0.1197 to the upside. This would open the door towards $0.1242 intraday and possibly again on track for $0.1357.
Despite Ultra-Hawkish Fed’s Meeting, Gold Jumps

Despite Ultra-Hawkish Fed’s Meeting, Gold Jumps

Arkadiusz Sieron Arkadiusz Sieron 17.03.2022 17:29
  The FOMC finally raised interest rates and signaled six more hikes this year. Despite the very hawkish dot plot, gold went up in initial reaction. There has been no breakthrough in Ukraine. Russian invasion has largely stalled on almost all fronts, so the troops are focusing on attacking civilian infrastructure. However, according to some reports, there is a slow but gradual advance in the south. Hence, although Russia is not likely to conquer Kyiv, not saying anything about Western Ukraine, it may take some southern territory under control, connecting Crimea with Donbas. The negotiations are ongoing, but it will be a long time before any agreement is reached. Let’s move to yesterday’s FOMC meeting. As widely expected, the Fed raised the federal funds rate. Finally! Although one Committee member (James Bullard) opted for a bolder move, the US central bank lifted the target range for its key policy rate only by 25 basis points, from 0-0.25% to 0.25-0.50%. It was the first hike since the end of 2018. The move also marks the start of the Fed’s tightening cycle after two years of ultra-easy monetary policy implemented in a response to the pandemic-related recession. In support of these goals, the Committee decided to raise the target range for the federal funds rate from 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. It was, of course, the most important part of the FOMC statement. However, the central bankers also announced the beginning of quantitative tightening, i.e., the reduction of the enormous Fed’s balance sheet, at the next monetary policy meeting in May. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. It’s also worth mentioning that the Fed deleted all references to the pandemic from the statement. Instead, it added a paragraph related to the war in Ukraine, pointing out that its exact implications for the U.S. economy are not yet known, except for the general upward pressure on inflation and downward pressure on GDP growth: The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity. These changes in the statement were widely expected, so their impact on the gold market should be limited.   Dot Plot and Gold The statement was accompanied by the latest economic projections conducted by the FOMC members. So, how do they look at the economy right now? As the table below shows, the central bankers expect the same unemployment rate and much slower economic growth this year compared to last December. This is a bit strange, as slower GDP growth should be accompanied by higher unemployment, but it’s a positive change for the gold market. What’s more, the FOMC participants see inflation now as even more persistent because they expect 4.3% PCE inflation at the end of 2022 instead of 2.6%. Inflation is forecasted to decline in the following years, but only to 2.7% in 2023 and 2.3% in 2024, instead of the 2.3% and 2.1% seen in December. Slower economic growth accompanied by more stubborn inflation makes the economy look more like stagflation, which should be positive for gold prices. Last but not least, a more aggressive tightening cycle is coming. Brace yourselves! According to the fresh dot plot, the FOMC members see seven hikes in interest rates this year as appropriate. That’s a huge hawkish turn compared to December, when they perceived only three interest rate hikes as desired. The central bankers expect another four hikes in 2024 instead of just the three painted in the previous dot plot. Hence, the whole forecasted path of the federal fund rate has become steeper as it’s expected to reach 1.9% this year and 2.8% next year, compared to the 0.9% and 1.6% seen earlier. Wow, that’s a huge change that is very bearish for gold prices! The Fed signaled the fastest tightening since 2004-2006, which indicates that it has become really worried about inflation. It’s also possible that the war in Ukraine helped the US central bank adopt a more hawkish stance, as if monetary tightening leads to recession, there is an easy scapegoat to blame.   Implications for Gold What does the recent FOMC meeting mean for the gold market? Well, the Fed hiked interest rates and announced quantitative tightening. These hawkish actions are theoretically negative for the yellow metal, but they were probably already priced in. The new dot plot is certainly more surprising. It shows higher inflation and slower economic growth this year, which should be bullish for gold. However, the newest economic projections also forecast a much steeper path of interest rates, which should, theoretically, prove to be negative for the price of gold. How did gold perform? Well, it has been sliding recently in anticipation of the FOMC meeting. As the chart below shows, the price of the yellow metal plunged from $2,039 last week to $1,913 yesterday. However, the immediate reaction of gold to the FOMC meeting was positive. As the chart below shows, the price of the yellow metal rebounded, jumping above $1,940. Of course, we shouldn’t draw too many conclusions from the short-term moves, but gold’s resilience in the face of the ultra-hawkish FOMC statement is a bullish sign. Although it remains to be seen whether the upward move will prove to be sustainable, I wouldn’t be surprised if it will. This is what history actually suggests: when the Fed started its previous tightening cycle in December 2015, the price of gold bottomed out. Of course, history never repeats itself to the letter, but there is another important factor. The newest FOMC statement was very hawkish – probably too hawkish. I don’t believe that the Fed will hike interest rates to 1.9% this year. And you? It means that we have probably reached the peak of the Fed’s hawkishness and that it will rather soften its stance from then on. If I’m right, a lot of the downward pressure that constrained gold should be gone now. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Bank of England survey highlights easing price pressures

BOE Quick Analysis: GBP/USD buying opportunity? Three reasons see upside from here

FXStreet News FXStreet News 17.03.2022 16:34
The BOE has raised rates by 0.25% as widely but not unanimously expected. GBP/USD has tumbled on a dovish dissent, also reverting a rise beforehand. Further rate hikes, hopes for a deal on Ukraine, could help GBP/USD recover. A dovish hike – the Bank of England has delivered a cautious increase of interest rates, similar to what investors had expected from the Federal Reserve. One dovish dissenter – Jon Cunliffe who preferred to leave rates unchanged – and a subtle change in tone are genuine reasons to sell sterling. The bank previously said that further modest tightening is likely to be appropriate, and now it says it may be appropriate. One dovish dissenter out of nine and that single word do not go the full length to explain the 100-pip downfall of GBP/USD. A quick look at the chart reveals the main reason – a classic "buy the rumor, sell the fact" response. Cable has reverted to levels seen early in the day. Investors bet on a 50 bps rate hike that – 40% chance according to bond markets, and that wager totally failed. What's next? GBP/USD has room to recover from these lows, for several reasons. First, the BOE forecasts inflation to hit 8%, an alarming level and a substantial upgrade from previous projections. It would have to act to curb it, especially as long as Britain's labor market looks strong. Second, the bank's mood may swing back to a hawkish mood next time – Governor Andrew Bailey shocked markets by refraining from lift-off in November but then provided a surprising hike in December – without a press conference to explain it. The pendulum swing to the hawkish side may follow. Third, there is room for short-term recovery on hopes for a Ukraine-Russia deal, or at least a truce. Investors remain optimistic, and that could weigh on the safe-haven dollar. China's pledge to support the economy and the stock market also underpins sentiment, another greenback-adverse development. All in all, a buying opportunity seems to be on the cards after a "buy the rumor, sell the fact" response.
Gold Is Showing A Good Sign For Further Drop

Can Disinflation Support A Decline Of Price Of Gold?

Arkadiusz Sieron Arkadiusz Sieron 18.03.2022 15:13
  Inflation continues to rise but may soon reach its peak. After that, its fate will be sealed: a gradual decline. Does the same await gold?If you like inviting people over, you’ve probably figured out that some guests just don’t want to leave, even when you’re showing subtle signs of fatigue. They don’t seem to care and keep telling you the same not-so-funny jokes. Even in the hall, they talk lively and tell stories for long minutes because they remembered something very important. Inflation is like that kind of guest – still sitting in your living room, even after you turned off the music and went to wash the dishes, yawning loudly. Indeed, high inflation simply does not want to leave. Actually, it’s gaining momentum. As the chart below shows, core inflation, which excludes food and energy, rose 6.0% over the past 12 months, speeding up from 5.5% in the previous month. Meanwhile, the overall CPI annual rate accelerated from 7.1% in December to 7.5% in January. It’s been the largest 12-month increase since the period ending February 1982. However, at the time, Paul Volcker raised interest rates to double digits and inflation was easing. Today, inflation continues to rise, but the Fed is only starting its tightening cycle. The Fed’s strategy to deal with inflation is presented in the meme below. What is important here is that the recent surge in inflation is broad-based, with virtually all index components showing increases over the past 12 months. The share of items with price rises of over 2% increased from less than 60% before the pandemic to just under 90% in January 2022. As the chart below shows, the index for shelter is constantly rising and – given the recent spike in “asking rents” – is likely to continue its upward move for some time, adding to the overall CPI. What’s more, the Producer Price Index is still red-hot, which suggests that more inflation is in the pipeline, as companies will likely pass on the increased costs to consumers. So, will inflation peak anytime soon or will it become embedded? There are voices that – given the huge monetary expansion conducted in response to the epidemic – high inflation will be with us for the next two or three years, especially when inflationary expectations have risen noticeably. I totally agree that high inflation won’t go away this year. Please just take a look at the chart below, which shows that the pandemic brought huge jumps in the ratio of broad money to GDP. This ratio has increased by 23%, from Q1 2020 to Q4 2021, while the CPI has risen only 7.7% in the same period. It suggests that the CPI has room for a further increase. What’s more, the pace of growth in money supply is still far above the pre-pandemic level, as the chart below shows. To curb inflation, the Fed would have to more decisively turn off the tap with liquidity and hike the federal funds rate more aggressively. However, as shown in the chart above, money supply growth peaked in February 2021. Thus, after a certain lag, the inflation rate should also reach a certain height. It usually takes about a year or a year and a half for any excess money to show up as inflation, so the peak could arrive within a few months, especially since some of the supply disruptions should start to ease in the near future. What does this intrusive inflation imply for the precious metals market? Well, the elevated inflationary pressure should be supportive of gold prices. However, I’m afraid that when disinflation starts, the yellow metal could suffer. The decline in inflation rates implies weaker demand for gold as an inflation hedge and also higher real interest rates. The key question is, of course, what exactly will be the path of inflation. Will it normalize quickly or gradually, or even stay at a high plateau after reaching a peak? I don’t expect a sharp disinflation, so gold may not enter a 1980-like bear market. Another question of the hour is whether inflation will turn into stagflation. So far, the economy is growing, so there is no stagnation. However, growth is likely to slow down, and I wouldn’t be surprised by seeing some recessionary trends in 2023-2024. Inflation should still be elevated then, creating a perfect environment for the yellow metal. Hence, the inflationary genie is out of the bottle and it could be difficult to push it back, even if inflation peaks in the near future. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
What Is Going On Financial Markets Today? Russia Will Not Resume Deliveries Of Gas

"Boring" Bitcoin (BTC) And Gaining S&P 500 (SPX). Crude Oil Price Chart Shows A Green Candle At The Right Hand Side,

Monica Kingsley Monica Kingsley 18.03.2022 15:50
S&P 500 extended gains, and the risk appetite in bonds carried over into value rising faster than tech. Given the TLT downswing though, it‘s all but rainbows and unicorns ahead today. Not only that quad witching would bring high volume and chop, VIX itself doesn‘t look to slide smoothly below 25 today. Friday‘s ride would be thus rocky, and affected by momentum stalling in both tech and value. Real assets though can and will enjoy the deserved return into the spotlight. With much of the preceding downswing being based on deescalation hopes (that aren‘t materializing, still), the unfolding upswing in copper, oil and precious metals (no, they aren‘t to be spooked by the tough Fed tightening talk) would happen at a more measured pace than had been the case recently. Pay attention to the biting inflation, surrounding blame games hinting at no genuine respite – read through the rich captions of today‘s chart analyses, and think about reliable stores of real value. And of course, enjoy the open profits. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 looks likely to consolidate as the 4,400 – 4,450 zone would be tough to overcome, and such a position relative to both the moving averages shown, has historically stopped quite a few steep recoveries off very negative sentiment readings. Credit Markets HYG is likely to slow down here, as in really stall and face headwinds. The run had been respectable, and much of the easy gains happened already yesterday. Gold, Silver and Miners Precious metals upswing did indeed return – and the miners performance doesn‘t hint at a swift return of the bears, to put it mildly. The path to $1950s is open. Crude Oil Crude oil bottom was indeed in, and the price can keep recovering towards $110s and beyond. No, the economy isn‘t crashing yet, monetary policy isn‘t forcing that outcome, and the drawing of petroleum reserves is a telltale sign of upside price pressures mounting. It‘ll be an interesting April, mark my words. Copper Copper is duly rebounding, and not at all overheated. The move is also in line with other base metals. My yesterday‘s target of $4.70 has already been reached – I‘m looking for a measured pace of gains to continue. Bitcoin and Ethereum Cryptos are taking a small break, highlighting the perils of today. The boat won‘t be rocked too much. Summary S&P 500 bulls made the easy gains already yesterday, and today‘s session is going to be volatile, even treacherous in establishing a clear and lasting direction (i.e. choppy), and the headwinds would be out there in the plain open. These would come from bonds not continuing in the risk-on turn convincingly rather than commodities and metals surging head over heels. Both tech and value would feel the heat as VIX would show signs of waking up (to some degree). Today‘s session won‘t change the big picture dynamics of late, and I invite you to read more in-depth commentary within the individual market sections of today‘s full analysis. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Sanctions On Russia Can Help MXNUSD As Mexican Crude Oil Might Be Imported By The USA

Sanctions On Russia Can Help MXNUSD As Mexican Crude Oil Might Be Imported By The USA

Alex Kuptsikevich Alex Kuptsikevich 18.03.2022 15:55
The Mexican dollar has added more than 4% over the last nine days against the US dollar. The upward momentum in this rally is followed by a brief correction but without any noticeable pullback. At first glance, this rally does not seem logical, as oil is cheap for most of this time, hurting oil-exporting Mexico. Nevertheless, in the short term, the MXN has been steadily gaining the following signs of a recovery in demand for risky assets in global markets. Mexico, like the US, finds itself far away from the military conflict in eastern Europe, so the impact on its economy will be much more indirect. Moreover, in the medium term, Mexico will also benefit from the US' rejection of oil from Russia. The states need heavier oil than their own WTI. The cocktail needed for refineries used to be made from Venezuelan oil, which was then replaced by Russian crude. Now the replacements will be Canadian and Mexican, which should benefit production levels and support MXN's strength through higher export revenues. In the coming days, the USDMXN will head for another test of 20.0. Below this level, the pair could not sustainably consolidate in 2021. If this situation proves sustainable, the Bank of Mexico will have more room to fight inflation through policy tightening without fear of strangling the economy too much. If so, the USDMXN may only be in the middle of its strengthening against the dollar, which could last for several quarters.
Commodities: EU Members Manage To Agree On Price Caps For Russian Oil

Even If Crude Oil Price (WTI) Pauses On The Levels Over $100, The Further Increase May Come As A Non-Stable Geopolitical Situation Persists

FXStreet News FXStreet News 18.03.2022 16:02
WTI has stabilised in a thin $102-$106ish range and at current levels in the $103.00s trades broadly flat. WTI has found a decent floor above $100 again after a rollercoaster week as traders mull Russia supply risk. More evidence of OPEC+ undershooting its output quotas (in February) are contributing to fears of a near-term shortage. Front-month WTI futures have stabilised in a $102-$106ish per barrel range on Friday amid a comparatively quiet end to what has been a rollercoaster week. Prices were sent crashing as low as the $93.00s from near $110 amid China lockdown fears as the country’s zero-Covid approach struggles to contain Omicron, but has since regained a solid footing back above $100 amid continued worries about crude oil shortages as a result of Western sanctions on the Russian economy. Momentum towards a new nuclear deal between major Western powers and Iran also seems to have waned somewhat. At current levels in the $103.00s, WTI is trading flat on the day but remains on course to post an on-the-week drop of more than $5.0, which would mark a second successive weekly loss. While prices do remain substantially lower versus last week’s highs in the $130 area, WTI currently still trades with a gain of more than $11.00 since Russia’s invasion of Ukraine. In the absence of an announcement of a Russo-Ukrainian peace deal, which still appears to be some way off, analysts suspect risks remain tilted to the upside for oil. According to a Reuters report on Friday, OPEC+ continued to undershoot its output quota in February and by an even larger margin than in January. Meanwhile, the major OPEC nations with space capacity (Saudi Arabia and the UAE) haven’t shown signs this week of caving to pressure from major oil importers (like the US) to increase output at a faster rate, despite the fact that, according to the International Energy Agency, oil markets could lose as much as 3M barrels per day in supply from Russia from April. All signs point to WTI continuing to trade at elevated levels for the foreseeable future as supply adjusts higher from non-Russian sources, which will take time.
US 20-City house prices decreased by 1.3% month-on-month

SAVILLS: STRONG Q1 EXPECTED FOR EUROPEAN REAL ESTATE INVESTMENT DESPITE GEOPOLITICAL EVENTS

Finance Press Release Finance Press Release 21.03.2022 11:27
  Preliminary figures compiled by Savills suggest that the total real estate investment volume in Europe for the first quarter of the year will reach approximately €70bn, a 19.5% increase year-on-year. Despite geopolitical events, the real estate advisor expects solid European investment activity for the remainder of the year, notably fuelled by large portfolio and entity deals. Savills anticipates total European real estate investment volumes for 2022 to reach between €300bn and €330bn, which would be 5-10% above the five-year average, as long as the Russia/Ukraine crisis doesn’t last too long and doesn’t have a long-term impact on the European economy. Lydia Brissy, Director, European Research at Savills, says: “Given the current context, we expect most of the investment activity this year will focus on Western Europe and particularly, the core countries of UK, Germany and France. Our preliminary Q1 figures suggest that those three countries have received 66.6% of the total European investment volume this quarter, up from 61.4% last year.” Tomasz Buras, CEO, Savills Poland, says: “The hostilities in Ukraine are having a stronger impact on the Polish real estate market than on Western European markets. Developers are facing severe disruptions to supplies of building materials and reduced availability of construction workers. Tenants have already suffered from rising inflation and energy charges, further fuelled by the weakening Polish zÅ‚oty relative to the euro, a currency in which rents are denominated. We are, however, seeing a surge in demand on the residential rental market and more enquiries for office and warehouse space from companies wanting or forced to relocate operations to Poland. Cross-border investors are likely to remain more cautious in the coming weeks, leading to a short-term dip in real estate investment volumes, albeit with a potential for a strong rebound if the armed conflict is quickly resolved peacefully.” James Burke, Director, Regional Investment Advisory EMEA at Savills, says: “For perhaps the first time since the Covid-19 pandemic, prime offices are looking like an increasingly attractive defensive investment as they are relatively protected from higher inflation due to the indexation of rents across core European cities. Based on our preliminary figures, prime office yields compressed further by an average of 17 bps year on year to 3.40% in Q1 2022. Office yield spreads to risk-free rates continue to illustrate the sector’s attractiveness despite some more recent increases in bond yields. Given this, we believe the potential for further yield compression is less likely, and we forecast a stable outlook on pricing throughout 2022.”
Price Of Crude Oil And Price Of Gold Crosses Each Other

Price Of Crude Oil And Price Of Gold Crosses Each Other

Alex Kuptsikevich Alex Kuptsikevich 21.03.2022 12:14
Gold has remained in a one-and-a-half per cent range since last Thursday. The correction from a peak of $2070 to values below $1900 caused a brief aftershock, but it was not sustained. Gold has now stabilised above the peaks of May and June last year and is currently searching for further meaningful momentum. For short-term traders, gold has taken a back seat as markets try to assess the impact of disrupted supply chains and the amount of supply shortfall in raw materials and food. At the same time, medium-term traders should not lose sight of the fact that the current situation will not allow central banks to act adequately. As a result, the supply of fiat money will increase faster than the supply of commodities. In other words, we should expect greater tolerance for higher inflation from the CBs. In addition, governments should also be expected to provide financial support to the economy. In practice, that means more money supply and a higher level of public debt to GDP. And that is another disincentive for monetary policy, which is negative for the currency. It is also favourable for gold, which is used as protection against capital depreciation. Oil is gradually becoming the opposite of gold. After bouncing back to the trend support level of the last four months, Brent got back above $100 reasonably quickly and is adding 4% on Monday, trading at $109. Speculative demand for oil is picking up again amid discussions of a Russian energy divestment, which could be the agenda for the EU leaders and Biden meeting later this week. In addition, the US oil supply has been slow to rise, with data on Friday showing that the number of working oil drilling rigs declined a week earlier. Oil producers appear to be cautious about demand prospects with record fuel prices and are in no hurry to flood the market. This will fuel prices in the short term but is becoming an increasing drag on the economy in the medium term. Locally, we also risk suggesting that Europe will once again make it clear that it cannot substitute Russian energy, preferring to focus on sanctions against other sectors. And that could prove to be a dampening factor for oil later in the week. Oil prices above 110 still look unsustainably high, and a range with support at $85 looks more adequate for the coming months.
S&P 500 (SPX) Up, Crude Oil Up, Credit Markets Up, Bitcoin Price Oops...

S&P 500 (SPX) Up, Crude Oil Up, Credit Markets Up, Bitcoin Price Oops...

Monica Kingsley Monica Kingsley 21.03.2022 15:37
S&P 500 did really well through quad witching, and the same goes for credit markets. 4-day streak of non-stop gains – very fast ones. Short squeeze characteristics in the short run, makes me think this rally fizzles out before the month ends – 4,600 would hold. We‘re likely to make a higher low next, and that would be followed by 4-6 weeks of rally continuation before the bears come back with real force again. July would present a great buying opportunity in this wild year of a giant trading range. As I wrote yesterday: (…) The paper asset made it through quad witching in style - both stocks and bonds. The risk-on sentiment however didn't sink commodities or precious metals. Wednesday's FOMC brought worries over the Fed sinking real economy growth but Powell's conference calmed down fears through allegedly no recession risks this year, ascribing everything to geopolitics. Very convenient, but the grain of truth is that the Fed wouldn't indeed jeopardize GDP growth this year - that's the context of how to read the allegedly 7 rate hikes and balance sheet shrinking this year still. Not gonna happen as I stated on Thursday already. Such are my short- and medium-term thoughts on stocks. Copper remains best positioned to continue rising with relatively little volatility while crude oil isn‘t yet settled (its good times would continue regardless of the weak volume rally of last two days, which is making me a little worried). Precious metals are still basing, and would continue moving higher best on the Fed underperforming in its hawkish pronouncements. No way they‘re hiking 7 times this year and shrinking balance sheet at the same time as I wrote on Thursday – Treasury yields say they‘ll take on inflation more in 2023. 2022 is a mere warm-up. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 is now past the 4,400 – 4,450 zone, and hasn‘t yet consolidated. This week would definitely though not be as bullish as the one just gone by – the bulls will be challenged a little. Credit Markets HYG eked out more gains, but the air is slowly becoming thinner. As the sentiment turns more bullish through no deep decline over the coming few days, that‘s when junk bonds would start wavering. Gold, Silver and Miners Precious metals aren‘t turning down for good here – I think they‘re deciphering the Fed story of hiking slower than intended, which in effect gives inflation a new lease on life. Not that it was wavering, though. More upside in gold and silver to come. Crude Oil Crude oil is rising again, but look for a measured upswing that‘s not free from headwinds. While I think we would climb above $110 still, I‘m sounding a more cautious note given the decreasing volume – I would like to see more conviction next. Copper Copper is behaving, and would continue rising reliably alongside other commodities. It‘s also the best play considering downside protection at the moment. Bitcoin and Ethereum Bitcoin isn‘t recovering Sunday‘s setback – but the Ethereum upswing bodes well for risk taking today, even that doesn‘t concern cryptos all too much. Summary S&P 500 has a bit more to run before running into headwinds, which would happen still this week. Credit markets are a tad too optimistic, and rising yields would leave a mark especially on tech. Value, energy and materials are likely to do much better. Crude oil is bound to be volatile over the coming weeks, but still rising and spiking – not yet settled. Copper and precious metals present better appreciation opportunities when looking at their upcoming volatility. Within today‘s key analysis, I‘ve covered the path of stocks, so do have a good look at the opening part. Finally, cryptos likewise paint the picture of risk-on trades not being over just yet. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
EM currencies: growing polarisation

EM currencies: growing polarisation

Alex Kuptsikevich Alex Kuptsikevich 22.03.2022 13:04
Since the start of the year, the performance of emerging market currencies mirrors what we saw in 2021, but with more polarisation. The Brazilian real has been the growth leader against the dollar since the start of the year, gaining around 13%. It is followed by the South African rand and Colombian peso, gaining just over 7%. Among the hardest hit is the Russian Rouble (-33%), but also the Egyptian Pound (-14%) and the Turkish Lira (-10%). In our view, this polarisation only promises to increase in the coming months.Commodity-exporting countries have benefited amid a global jump in energy and agricultural commodity prices. Brazil gets a chance to seriously boost its oil sales to the US amid a supply embargo from Russia. Though net oil exporters, the states must buy significant amounts of heavy crude to run their refineries. Until 2019, oil from Venezuela was used for the right blend, subsequently replaced by Russian crude. Now it is being replaced by oil from Brazil, which promises a significant increase in exports and supports the exchange rate of the Brazilian real.The South African rand is in demand, receiving dividends from last year's monetary tightening and a surge in metal prices since the start of the year. As most global markets look for alternatives to the Russian metal, the ZAR is enjoying demand from speculators in anticipation of increased exports from South Africa for political reasons.We may well be seeing a global reversal in the attitude towards commodity exporters' currencies, as even in the event of a military settlement, there is no expectation of a quick recovery of previous economic ties.At the other end of the spectrum are countries' currencies that depend on imports of oil and agricultural products. Egypt buys most of its wheat consumption from Russia and Ukraine, and rising prices severely damage the balance of payments. Egypt's central bank has responded by tightening monetary policy to suppress inflation. But such steps tend to hurt economic growth. Turkey imported almost all its gas from Russia and Azerbaijan and bought its wheat from Ukraine and Russia. Price jumps and supply-chain disruptions will be costly for the economy and cause increased pressure on the Turkish lira.In addition to the prospect of inflated import volumes, Turkey and Egypt face a severe drop in revenues from the tourism industry, as Russia and Ukraine have provided a significant flow of tourists.
Hawkish Fed „Surprise“

Hawkish Fed „Surprise“

Monica Kingsley Monica Kingsley 22.03.2022 15:55
S&P 500 wavered but is bound to get its act together in the medium term. Powell‘s statements shouldn‘t have stunned the bulls, but they did – the mere reiteration of the tightening plans coupled with remarks on the need to stamp out aggressive inflation before it‘s too late (anchored inflation expectations, anyone? I talked that in the run up to the Sep 2021 P&G price hikes and how the competition would be following in a nod to high input costs, with heating job market on top of the commodities pressure pinching back then already), sent stocks and bonds down.Add the recession fears that were assuaged during the Wednesday‘s conference, and you get the S&P 500 bulls having to dust off after Monday‘s setback. Given how early we‘re in the tightening cycle, and that the real economy isn‘t yet breaking down no matter what‘s in the pipeline geopolitically as regards various consequences to commodities, goods, services and money flows, the stock market bulls are still likely to take on the 4,600 as discussed already.Only this time, the upswing would be accompanied by a more measured and balanced commodities upswing, joined in by precious metals. Great profits ahead and already in the making.Let‘s move right into the charts (all courtesy of www.stockcharts.com).S&P 500 and Nasdaq OutlookS&P 500 is consolidating above 4,400, and the relative strength in value as opposed to tech, is boding well – the bulls are pushing their luck a bit too hard as a further TLT decline would pressure growth stocks.Credit MarketsHYG is getting under pressure again, but its decline would be uneven in the short run – as in I‘m looking for quite some back and forth action. First, higher in taking on yesterday‘s selling.Gold, Silver and MinersPrecious metals aren‘t turning lower in earnest – the miners‘ leadership bodes well for further gains, and is actually a very good performance given the hawkish Fed „surprise“ (surprise that wasn‘t, shouldn‘t have been).Crude OilCrude oil strength returning is a very good omen for commodities bulls broadly, and the rising volume hints at return of bullish spirits. The upswing is far from over – look how far black gold got on relatively little conviction, and where oil stocks trade at the moment.CopperCopper is acting strongly, and the downswing didn‘t entice the bears much. The path of least resistance remains higher, and the red metal isn‘t yet outperforming the CRB Index. Great pick for portfolio gains with as little volatility as can be.Bitcoin and EthereumBitcoin went on to recover the weekend setback – Ethereum upswing presaged that. They‘re both a little stalling now, but entering today‘s regular session on a constructive note. I‘m looking for modest gains extension.SummaryS&P 500 is bound to recover from yesterday‘s intraday setback – the animal spirits and positive seasonality are there to overcome the brief realization that the Fed talks seriously about tightening and entrenched inflation. While not even the implied readiness to hike by 50bp here and there won‘t cut it and send inflation to the woodshed, let alone inflation expectations, the recession fears would be the next powerful ally of stock market bears. For now though, we‘re muddling through generally higher (I‘m still looking for a tradable consolidation of last week‘s sharp gains), and will do so over the coming several weeks. The real profits are to be had in commodities and precious metals, as I had been saying quite often lately… Enjoy!Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

FXStreet News FXStreet News 22.03.2022 16:18
Calm in talks, lack of fresh pressure on China implies potential progress. Ukraine's proposed referendum and Russia's struggles also provide hope. The dollar would fall on any deal, but a comprehensive accord is needed for a lasting effect.It might be darkest before dawn – the Russia-Ukraine war seems stuck in the mud after a month of fighting, but this stalemate could be a prelude to a deal.1) Quiet talks: there has been no news from the negotiating table for a few days. When diplomats talk to the press, it is usually a sign that there is no progress and that they are trying to accuse the other side of failing to compromise. The current calm is a source of optimism – no news is good news.2) UA Referendum: Ukraine's President Volodymyr Zelenskyy said that any deal would require a referendum. He seems to be preparing the public for some compromise – perhaps not only on NATO membership but also other matters. If he concedes territory to Russia, public support is needed for him not to be seen as a traitor. Laying the groundwork for a deal implies one has a higher chance to occur.3) RU stuck in the mud: Russia continues failing to make any progress on the battlefield. Ukraine's soldiers and civilian fighters refuse to surrender in Mariupol, a strategic city in the south, despite lacking sufficient water and food. Moscow seems to have thought that the fact that most citizens there speak Russian would help. Local motivation with Western arms is turning Mariupol into Stalingrad, while the battle for Kyiv is not getting any closer. 4) Is Russia thinking beyond the war? The use of a hypersonic missile – unnecessary against Ukrainian defenses – can also be seen as a sign that Russia wants to sell such weaponry to other countries. It seems to be thinking about the post-war deals rather than trying to achieve any military goal. In the meantime, oil, gas and bond payments continue flowing to the West, a sign Russia does not want further escalation. 5) Quiet on the Chinese front: international pressure is growing to stop the war. From the Pope to mediators such as Turkey and Israel, via European countries which are mulling moving sanctions to the next level – on energy. The strongest country that can impact the situation in China, the world's second-largest economy. Beijing is politically aligned with Moscow but economically tied to the West. The fact that the US has stopped criticizing China is another positive sign.Dollar implicationsIn case a deal is struck, there is a stark difference between a ceasefire leading to a frozen conflict, and a comprehensive accord that would remove sanctions. In the former scenario, oil prices would remain elevated. The global economy would continue struggling in a transition period. The dollar would recover from an initial fall, benefiting from Fed hawkishness.In case of a full deal, the greenback would suffer from diminishing demand for safe-havens and would tumble instantly. Re-integrating Russia in the global economy is better for risk assets than having Putin rule over a "big North Korea" – a large economy isolated from the world.
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

Inflation Rises In Great Britain, GBP May Weaken, What Is Bank Of England Going To Do

Alex Kuptsikevich Alex Kuptsikevich 23.03.2022 09:37
After the traditional January reset, UK consumer prices continued their flight. Morning data showed that CPI rose by 0.8% last month and 6.2% year-over-year. This data is 0.2 percentage points above market expectations, indicating that prices rise faster than initially forecast. Last week the Bank of England indicated that inflation could peak near 8% but failed to vote unanimously to raise rates. In contrast, it would be much more logical to speed up rate hikes with inflation accelerating. The Central Bank's more dovish stance than circumstances requires turns the market reaction to solid inflation figures upside down. The British currency is under pressure to release stronger-than-expected figures as investors overestimate real bond yields. This currency reaction to inflation is mainly a characteristic of emerging markets, where confidence that the situation is under the control of the Central Bank is not too strong. So far, we are only witnessing a cautious distrust of the Bank of England by Forex traders. However, the example of Japan, whose currency has lost over 6% in 3 weeks, clearly shows signs of a loss of confidence in central banks in developed countries which remain on the side of the economy and have not entirely switched over to fighting inflation.
Gold To Go Head To Head With Fed And Inflation

Gold To Go Head To Head With Fed And Inflation

Przemysław Radomski Przemysław Radomski 23.03.2022 15:17
  The Fed's hawkish alerts seem like a voice in the wilderness to gold investors. However, a carefree attitude can backfire on them – in just a few months. An epic battle is unfolding across the financial markets as the Fed warns investors about its looming rate hike cycle and the latter ignores the ramifications. However, with perpetually higher asset prices only exacerbating the Fed's inflationary conundrum, a profound shift in sentiment will likely occur over the next few months. To explain, I highlighted in recent days how the Fed has turned the hawkish dial up to 100. Moreover, I wrote on Mar. 22 that it's remarkable how much the PMs' domestic fundamental outlooks have deteriorated in recent weeks. Yet, prices remain elevated, investors remain sanguine, and the bullish bands continue to play.  However, with inflation still rising and the Fed done playing games, the next few months should elicit plenty of fireworks. For example, with another deputy sounding the hawkish alarm, San Francisco Fed President Mary Daly said on Mar. 22: "Inflation has persisted for long enough that people are starting to wonder how long it will persist. I'm already focused on letting make sure this doesn't get embedded and we see those longer-term inflation expectations drift up." As a result, Daly wants to ensure that the "main risk" to the U.S. economy doesn't end up causing a recession. Please see below: Source: Reuters Likewise, St. Louis Fed President James Bullard reiterated his position on Mar. 22, telling Bloomberg that “faster is better,” and that “the 1994 tightening cycle or removal of accommodation cycle is probably the best analogy here.” Please see below: Source: Bloomberg   Falling on Deaf Ears To that point, while investors seem to think that the Fed can vastly restrict monetary policy without disrupting a healthy U.S. economy, a major surprise could be on the horizon. For example, the futures market has now priced in nearly 10 rate hikes by the Fed in 2022. As a result, should we expect the hawkish developments to unfold without a hitch? Please see below: To explain, the light blue, dark blue, and pink lines above track the number of rate hikes expected by the Fed, BoE, and ECB. If you analyze the right side of the chart, you can see that the light blue line has risen sharply over the last several days and months. For your reference, if you focus your attention on the material underperformance of the pink line, you can see why I’ve been so bearish on the EUR/USD for so long. Also noteworthy, please have a look at the U.S. 2-Year Treasury yield minus the German 2-Year Bond yield spread. If you analyze the rapid rise on the right side of the chart below, you can see how much short-term U.S. yields have outperformed their European counterparts in 2021/2022. Source: Bloomberg/ Lisa Abramowicz More importantly, though, with Fed officials’ recent rhetoric encouraging more hawkish re-pricing instead of talking down expectations (like the ECB), they want investors to slow their roll. However, investors are now fighting the Fed, and the epic battle will likely lead to profound disappointment over the medium term. Case in point: when Fed officials dial up the hawkish rhetoric, their “messaging” is supposed to shift investors’ expectations. As such, the threat of raising interest rates is often as impactful as actually doing it. However, when investors don’t listen, the Fed has to turn the hawkish dial up even more. If history is any indication, a calamity will eventually unfold.  Please see below: To explain, the blue line above tracks the U.S. federal funds rate, while the various circles and notations above track the global crises that erupted during the Fed’s rate hike cycles. As a result, standard tightening periods often result in immense volatility.  However, with investors refusing to let asset prices fall, they’re forcing the Fed to accelerate its rate hikes to achieve its desired outcome (calm inflation). As such, the next several months could be a rate hike cycle on steroids.  To that point, with Fed Chairman Jerome Powell dropping the hawkish hammer on Mar. 21, I noted his response to a question about inflation calming in the second half of 2022. I wrote on Mar. 22: "That story has already fallen apart. To the extent it continues to fall apart, my colleagues and I may well reach the conclusion we'll need to move more quickly and, if so, we'll do so." To that point, Powell said that “there’s excess demand" and that "the economy is very strong and is well-positioned to handle tighter monetary policy." As a result, while investors seem to think that Powell’s bluffing, enlightenment will likely materialize over the next few months. Please see below: Source: Reuters Furthermore, with Goldman Sachs economists noting the shift in tone from “steadily” in January to “expeditiously” on Mar. 21, they also upped their hawkish expectations. They wrote: “We are now forecasting 50bp hikes at both the May and June meetings (vs. 25bp at each meeting previously). The level of the funds rate would still be low at 0.75-1% after a 50bp hike in May, and if the FOMC is open to moving in larger steps, then we think it would see a second 50bp hike in June as appropriate under our forecasted inflation path.” “After the two 50bp moves, we expect the FOMC to move back to 25bp rate hikes at the four remaining meetings in the back half of 2022, and to then further slow the pace next year by delivering three quarterly hikes in 2023Q1-Q3. We have left our forecast of the terminal rate unchanged at 3-3.25%, as shown in Exhibit 1.” Please see below: In addition, this doesn’t account for the Fed’s willingness to sell assets on its balance sheet. For context, Powell said on Mar. 16 that quantitative tightening (QT) should occur sometime in the summer and that shrinking the balance sheet “might be the equivalent of another rate increase.” As a result, investors’ lack of preparedness for what should unfold over the next few months has been something to behold. However, the reality check will likely elicit a major shift in sentiment.  In contrast, the bond market heard Powell’s message loud and clear, and with the U.S. 10-Year Treasury yield hitting another 2022 high of ~2.38% on Mar. 22, the entire U.S. yield curve is paying attention. Please see below: Source: Investing.com Finally, the Richmond Fed released its Fifth District Survey of Manufacturing Activity on Mar. 22. With the headline index increasing from 1 in February to 13 in March, the report cited “increases in all three of the component indexes – shipments, volume of new orders, and number of employees.” Moreover, the prices received index increased month-over-month (MoM) in March (the red box below), while future six-month expectations for prices paid and received also increased (the blue box below). As a result, inflation trends are not moving in the Fed’s desired direction. Please see below: Source: Richmond Fed Likewise, the Richmond Fed also released its Fifth District Survey of Service Sector Activity on Mar. 22, nd while the headline index decreased from 13 in February to -3 in March, current and future six-month inflationary pressures/expectations rose MoM. Source: Richmond Fed The bottom line? While the Fed is screaming at the financial markets to tone it down to help calm inflation, investors aren't listening. With higher prices resulting in more hawkish rhetoric and policy, the Fed should keep amplifying its message until investors finally take note. If not, inflation will continue its ascent until demand destruction unfolds and the U.S. slips into a recession. As such, if investors assume that several rate hikes will commence over the next several months with little or no volatility in between, they're likely in for a major surprise. In conclusion, the PMs declined on Mar. 22, as the sentiment seesaw continued. However, as I noted, it's remarkable how much the PMs' domestic fundamental outlooks have deteriorated in recent weeks. Thus, while the Russia-Ukraine conflict keeps them uplifted, for now, the Fed's inflation problem is nowhere near an acceptable level. As a result, when investors finally realize that a much tougher macroeconomic environment confronts them over the next few months, the shift in sentiment will likely culminate in sharp drawdowns. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
The Swing Overview - Week 11 2022

The Swing Overview - Week 11 2022

Purple Trading Purple Trading 23.03.2022 16:13
The Swing Overview - Week 11 The fall in the indices that we have seen in recent days has stopped. The indices strengthened on expectations of a diplomatic solution to the war in Ukraine, which has been going on for more than three weeks. However, these negotiations have not led to any significant breakthrough yet, so the upside potential for the indices could be limited. In addition, the Fed has started its own war against inflation and raised interest rates for the first time in three years, which is rather negative news for equity indices in the short term. However, the statistics say that in the long run it does not mean a trend reversal for the SP 500 index. The Bank of England also raised rates, but the pound surprisingly weakened. The reason for this is in our article. The war in Ukraine   The war in Ukraine has been going on for more than three weeks now and there is still no end in sight. Sentiment has started to improve after reports on negotiations for a diplomatic solution to the war. However, Russia continues to make unrealistic demands that Ukraine cannot agree to. Negotiations have therefore have not led to a solution yet.   Meanwhile, the economic situation in Russia continues to deteriorate rapidly as a result of the sanctions. The credit rating agency Standard & Poor's has downgraded Russia's credit rating from the current grade CCC- to CC. Russia has already announced that it is having difficulty repaying its bonds. However, Russia managed to pay the coupon payments that were due this week, averting the country's imminent bankruptcy for now.   The war in Ukraine will have a negative impact on the global economy. World economic growth for 2022 is expected to fall from 4% to 3.2%. Apart from Russia and Ukraine, Europe and the UK will be hardest hit, where there is a significant risk of recession.   The Fed has raised interest rates The US Fed has launched a war on inflation and raised interest rates for the first time since December 2018. The current rate is 0.50% and further increases will continue. The Fed disclosed that rates are expected to rise to 2.80% within a year.  Figure 1: The evolution of interest rates in the US   The evolution of interest rates, over the last 25 years, is shown in Figure 1.   Jerome Powell commented that the Fed's main goal is to achieve price stability and maximum employment. He expects inflation, which has now reached 7.9%, to reach the target of 2%, but this will take longer than originally expected.    The problem is a persistent labour shortage, which is putting upward pressure on wages. However, the situation is already starting to normalise in some sectors, suggesting that this should not be an uncontrollable spiral wage growth that would strongly support inflation.   According to Powell, the US economy is in good shape and ready for monetary policy normalisation. Therefore, the Fed will start in May to reduce the bonds in its balance sheet, which has grown considerably to almost $9 trillion thanks to the support of the economy during the covid pandemic.   The Index SP500 As far as the impact of interest rate hikes is concerned, this should not change the long-term bullish market. Statistics confirm that over the following 12 months from the date of the hike, the index has reached higher levels in every case since 1983. Figure 2: The impact of the first interest rate hike on the performance of the SP 500 index. Source: Bloomberg     However, the statistics also show that in the short term, there were declines in the index within 3 months and this cannot be ruled out now as well. As for the current developments on the SP 500 index, it has recently bounced off its supports. The reason for this was the hope for a diplomatic solution to the war in Ukraine. However, this has stalled. The Fed also gave optimism to the indices with its statement about the economy doing well. Figure 3: SP 500 on H4 and D1 chart   Overall, the index is currently in a downtrend. In terms of technical analysis, the price has reached the resistance level which is at 4,383 - 4,420. According to the daily chart, the price has reached the EMA 50 moving average, which also serves as resistance. Support according to the H4 chart is at 4,328 - 4,334.  Significant support according to the daily chart is at 4 105 - 4 152.  German DAX index Figure 4: The German DAX index on H4 and daily chart   There was a significant deterioration in economic sentiment in Germany in March, as shown by the ZEW index, which reached a negative reading of -39.3. However, the DAX index, which is much more affected by the war in Ukraine than the US indices, strengthened last week.  The reason for the index's rise was mainly due to signs of a diplomatic solution to the conflict. The price climbed up to the resistance level on the H4 chart last week, which is in the area near the 14,500 price. The strong resistance according to the daily chart is in the range between 14,800 - 15,000.  The closest support according to the H4 chart is at 14,030 - 14,100.   The euro strengthened after the Fed announcement The euro price retested the resistance area which is in the area near 1.1130 - 1.1150 according to the daily chart. However, the Euro remains under pressure and although the ECB was surprisingly hawkish at the last meeting, it is still lagging behind compared to the US Fed. Moreover, the war in Ukraine, and according to some, the looming recession in the Eurozone, does not give much room for the Euro to strengthen. Therefore, it would not be surprising if the EURUSD falls to levels around 1. 0890 - 1. 0900, where the nearest support level is.     Figure 5: The EURUSD on the H4 and daily charts.   From a technical point of view, we can see that EURUSD is still in a downtrend according to the daily chart, so the current pullback may be an opportunity for trades in the short direction.   The Bank of England also raised interest rates The Bank of England raised its key interest rate by 0.25%.  Therefore, the rate is currently at 0.75%. By raising interest rates, the central bank is responding to rising inflation, which is expected to hit 8% in June 2022. But the pound surprisingly weakened sharply after the rate announcement. This was because the central bank was much more cautious in its expectations for the future of the economy. There are already signs that the war in Ukraine is having a negative impact on consumer confidence and is also having a negative impact on household incomes. This would slow economic activity. That is why the central bank has moved away from its previous aggressive hawkish tone.   Figure 6: The British Pound on H4 and daily chart.   A resistance is in the area of 1.3170 - 1.3200, where the price has halted. A support is at 1.3000.  
Falling Japanese yen suggests a changing world order

Falling Japanese yen suggests a changing world order

Alex Kuptsikevich Alex Kuptsikevich 24.03.2022 15:23
The collapse of the Japanese yen continues, and so far, there are no signs of a trend reversal. The rise in the Yen is often linked to capital flight from risky assets, and the weakening is a sign of increased demand for risky assets. But that explanation hardly fits with what is happening now. We likely see the start of a significant reassessment by the markets of Japan's position in the financial system. In a worst-case scenario, this may turn into a debt crisis in the Land of the Rising Sun and be an even bigger disaster for financial markets than the eurozone debt crisis of a decade ago.The starting point for the weakening of the Yen was at the start of February. At that time, equities were in demand as a haven for capital to maintain the purchasing power of investments. The flow into equities was interrupted by the war in Ukraine but accelerated in the last couple of weeks on signs that these events have hyped up the processes that were taking place before. And these processes are now most visible in the dynamics of the Japanese yen against those currencies where the central bank can respond adequately to inflation.Since the start of February, the USDJPY has risen by 6.5%, and almost all of this increase has taken place since March 7th, taking the pair back to levels last seen at the end of 2015. A much more impressive rally is taking place in the Aussie and Kiwi against the Yen. Since the start of February, they have soared by more than 12%. So far this month, the strengthening is the largest in 11 years for AUDJPY and in more than 12 years for NZDJPY.The interest rate differential game, which was so beloved by traders in Japan before the global financial crisis, has found a second life. Australia and New Zealand have the economic potential to raise interest rates, as they are experiencing a surge in exports due to the boom in their export prices. However, the situation in Japan looks considerably more alarming, as Japan's debt-to-GDP ratio has risen by 77 percentage points to 170% since the financial crisis. Permanent QE from the Bank of Japan has kept government debt costs down but doesn't solve the problem.In the last decade, Japan has turned into a net commodity importer due to its growing dependence on energy and metals and increasing competition from China and Korea. The exchange rate should act as a natural mechanism to stabilise trade in this situation.But this adjustment is difficult for debt-laden Japan because selling currency would de facto mean selling bonds denominated in that currency. Under these circumstances, the Bank of Japan will either have to openly accept that it will finance the government (i.e. increase purchases despite inflation) or soften QE. The first option risks triggering a historic revaluation of the Yen. The second option would deal a blow to the economy and finances by raising questions about whether Japan can service its debt.
The US Jobless claims: 53 years' low

The US Jobless claims: 53 years' low

Alex Kuptsikevich Alex Kuptsikevich 24.03.2022 16:19
The number of initial jobless claims in the US collapsed to 187K last week, the lowest since 1969. Before the pandemic, the number was hovering around 220K, and we saw a complete recovery to these levels in the previous four weeks. The fresh data has marked a move into uncharted territory, indicating a further tightening in the labour market.Such data further reinforces the need for the Fed to tighten policy as labour market further screws the inflationary spiral amid the initial jump in energy and commodity prices. A strong labour market is positive news for both stocks and the dollar as the central bank will have more room to tighten policy without fear of sending the economy into recession.Right now, the market is banking on seeing six more rate hikes before the end of the year and the start of active selling off the balance sheet as early as in May-July.
Your Crypto Focus: 26th March-1st April

Your Crypto Focus: 26th March-1st April

8 eightcap 8 eightcap 25.03.2022 09:47
This week, we’ve seen another mainly firmer week on the crypto boards, with the top 10 adding over 5% and the top 25 gaining over 5.5%. It wasn’t all smooth sailing as sellers tried to get things going lower early in the week before buyers returned and set the direction for the remainder of the week. Looking at the top 100, Qtum was one of the leaders this week, adding 45% and Looping had a fantastic week, climbing over 58% in the last seven days. ApeCoin failed to catch weekly buyer momentum, dropping over 18% during the week. One of the week’s stories to watch is reports Russia is looking at bitcoin as a payment form to settle energy transactions. Western sanctions continue to hit the Russian economy hard and effectively locked out of the USD FX market. The Kremlin is looking at other payment options, including Bitcoin. Putin has changed his tune on bitcoin. In 2021, the Russian leader told CNBC’s Hadley Gamble that while he believed bitcoin had value, he wasn’t convinced it could replace the U.S. dollar in settling oil trades. Now, the Kremlin’s top brass is weighing it as a form of payment for major exports. It’s unclear, however, whether bitcoin’s relative lack of liquidity could support international trade transactions of that magnitude. – CNBC This week we are focusing on a favorite that has, like many, seen a rough run over the last few months. Cardano started the year with two months of sharp declines that saw the price drop back to 0.7440. Since then, we’ve seen a fightback that’s produced two higher weekly bars, the first time since November 2021. This week’s price broke out of its long term downtrend, another firm sign that demand is back on track, which is what we want to see from here. If buyers can break 1.206 resistance, that would be another win, but we would like to see a new reaction in lower form. A new higher low that sets up a break and closes above that resistance point could send a firmer signal that this new run higher might actually turn into something more. The post Your Crypto Focus: 26th March-1st April appeared first on Eightcap.
WTI falls back to $110 area amid pre-weekend profit-taking

WTI falls back to $110 area amid pre-weekend profit-taking

FXStreet News FXStreet News 26.03.2022 05:15
WTI has stabilised in the $110 area, down another $1 on the day after Thursday’s $3 drop.An easing of CPC pipeline disruption concerns plus the EU’s failure to agree on a Russian oil embargo triggered profit-taking.Front-month WTI futures have stabilised in the $110 area on Friday, with Thursday’s modest bearish momentum continuing for a second day and prices currently down about $1.0 after the slightly more than $3 drop a day earlier. Supply concerns have eased somewhat in the latter half of the week after news broke of a partial resumption of oil flows through to Kazakhstan’s CPC pipeline. Earlier in the week, authorities had announced that oil flows through the 1.3M barrel per day pipeline had been halted due to the need to repair storm damages.The supply disruption comes as global oil markets face massive uncertainty owing to Russia’s invasion of Ukraine and subsequent harsh sanctions placed on the Russian economy by Western nations. Speculation at the start of the week had been that the EU would on Thursday, following extraordinary NATO/EU leaders meetings, announce an embargo on all Russian oil imports. But this was not the case, with heavily Russia-energy-import-dependant countries like Germany pushing back against this policy out of fear of causing economic self-harm.The EU’s failure to implement a wider Russian oil import ban has likely contributed to the further bout of profit-taking in the latter stages of the week. But it seems that traders remain keen to add to long positions in the $110 area. Commodity strategists think that as the impact of the Russo-Ukraine war on Russian oil exports becomes more evident in the coming month, there remains plenty of room for further upside in WTI. The latest remarks from Russian negotiators suggest that a Russo-Ukraine peace deal, which could potentially precede an easing of Western sanctions, is not likely to be forthcoming any time soon.
Euro (EUR), Japanese Yen And Dollar (USD) Interactions. Dollar Index (DXY) Looks Quite Fine. A Year Full Of Fed Decisions...

Euro (EUR), Japanese Yen And Dollar (USD) Interactions. Dollar Index (DXY) Looks Quite Fine. A Year Full Of Fed Decisions...

Alex Kuptsikevich Alex Kuptsikevich 28.03.2022 12:44
There has been a lot of talk lately about the decline of the US dollar's reserve status. However, investors and traders should separate long-term trends from short-term market impulses. Reserve fund managers often prefer to refrain from active selling so as not to cause unnecessary market turbulence, so all reserve trends are stretched out over decades. As long as there is no real threat to the existence of the dollar and the solvency of the US government, managers will avoid making active moves to sell dollar assets. And all the revolutionary changes, such as switching to national currencies, will only result in CBs buying fewer new dollars. But it has little effect on the exchange rate. Right now, we are seeing the opposite picture, as the main competitors are under pressure. Investors are getting rid of the Japanese yen as the Bank of Japan accelerates its currency printing to buy bonds out of the market to stem rising yields. The local government is overburdened with debt, and the economy is still stalling. The only market solution is a devaluation of the yen, which would make exports from Japan more competitive and boost domestic spending. The single currency is suffering from a spike in energy prices and economic problems related to the war in Ukraine. Trading below 1.1000, the EURUSD pair is now where it was heading for the last six months before the pandemic. The medium-term outlook for the dollar is largely influenced by the extent to which the Fed will be able to implement policy tightening. More accurately, how Fed policy compares with the policy of the Bank of Japan, the ECB, or another major central bank. The Fed is clearly acting with greater amplitude, setting itself up for 7 rate hikes this year, which is far more than one would expect from Japan or the eurozone. Moreover, the US remains much further away from the war in Ukraine in business and trade terms than its biggest competitors, which means it can continue to benefit from capital inflows as a haven.
Who Benefits Most From the Russia-Ukraine War?

Who Benefits Most From the Russia-Ukraine War?

Finance Press Release Finance Press Release 28.03.2022 17:25
With the unrest in the Black Sea basin, it appears that there are two more cross-trade wars in the world. These are about energy and currency.Crude oil prices, down most of Friday, finally ended the week higher after a huge fire broke out at oil facilities in Jeddah, Saudi Arabia, following attacks by Yemeni rebels.The great winner of the Russian-Ukrainian conflict is undoubtedly the United States, which now seems to be taking advantage of Europe’s moment of weakness.The latter is indeed currently switching its energy supplies from Russian natural gas (pipeline-transported) to the much more polluting and much more expensive US shale gas. The reasons are much higher extraction (fracking) and transportation costs since it requires additional processes such as liquefaction/degasification and the deployment of more port terminals that are able to provide such steps – also much more energy-consuming – linked to Liquefied Natural Gas (LNG) supplies.(Source: ResearchGate.net)By doing so, the European Union is going to increase its dependence on the US whilst a new and stronger block (including Asia) emerges on the east side.As a result, we have already started to witness dedollarisation in international trade, with the petroyuan set to dethrone the heavily-printed petrodollar.No wonder that the US dollar supply surge has ended up triggering uncontrollable and probably still underestimated inflation. As a result, this monetary virus is spreading through the global economy at a faster pace than any other variant! WTI Crude Oil (CLK22) Futures (May contract, daily chart) Henry Hub Natural Gas (NGK22) Futures (May contract, daily chart)“Inflation is like toothpaste. Once it's out, you can hardly get it back in again. So, the best thing is not to squeeze too hard on the tube.” – Dr Karl Otto PöhlThat’s all folks for today. Happy trading!Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Sebastien BischeriOil & Gas Trading Strategist* * * * *The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
US ADP Employment March Preview: Private job creation slows while yield curve flattens

US ADP Employment March Preview: Private job creation slows while yield curve flattens

FXStreet News FXStreet News 29.03.2022 16:43
US ADP payrolls are foreseen at 438K in March, NFP at 475K.US yield curve is flattening, rings recession alarm amid 50-bps May Fed rate hike bets.Fed Chair Powell believes the labor market is strong enough, recession unlikely.The US private sector hiring is seen slowing in March after the American companies added more jobs than expected in February. The US ADP private employment report, due on Wednesday at 12.15 GMT, usually provides a good hint at Friday’s full jobs report, so investors will be looking for clues on any potential labor market slowdown.Pace of jobs creation slows in the USThe Automatic Data Processing (ADP) is forecast to show that US companies have created 438,00 new jobs in March, less than the previous month’s addition of 475,000. In February, business payrolls rose more than the expected 375,000 figure. ADP’s payroll data represent firms employing nearly 26 million workers in the US and its monthly release shows the employment change in the economy.Source: FXStreetOn Friday, the US Labor Department will release the Nonfarm Payrolls, which is expected to show that the economy has likely added 475,000 new jobs in March after a surprise increase of 678,000 reported in February.The Automatic Data Processing ADP jobs report is usually considered a proxy to the official Nonfarm Payrolls figures, which will be released on Friday, April 1.The disparity between the two indicators in recent months, however, makes the ADP result unreliable to gauge the NFP trend and, therefore, could have a limited market impact.US yield curve flattens, Fed remains hawkishHeading into the monthly payrolls data, the Russia-Ukraine conflict rages on while the odds of a 50-basis points (bps) Fed rate hike in May almost appears a done deal.Against this backdrop, the yields on the US Treasuries have rallied to three-year highs, although the increase in the longer-dated yields has failed to match the pace of the advance in the shorter ones. The spread between the two- and 10-year yields narrowed to its lowest since early 2020 on Tuesday. The flattening of the yield curve is usually indicative of a likely recession, as investors remain worried that the aggressive Fed’s tightening would damage the US economy over the longer term.At the March FOMC meeting, Fed Chair Jerome Powell said that the labor market is strong enough that a recession is unlikely. Although Powell remains optimistic about the economy and labor market, he said in his speech last week, “this is a labor market that is out of balance," adding "we need the labor market to be sustainably tight."To concludeMarkets are pricing in a roughly 60% chance of a 50-bps rate hike at the Fed’s May meeting.A slowdown in the hiring pace in the world’s biggest economy could likely feed the risks of a recession, especially in the face of soaring inflation. This could pour cold water on the recent Fed’s hawkishness.The ADP report, however, is unlikely to have any major impact on the US dollar and other related markets. Friday’s NFP release will hold the key to gauging the Fed’s policy action going forward.
The Swing Overview - Week 14 2022

The Swing Overview - Week 14 2022

Purple Trading Purple Trading 11.04.2022 06:41
The Swing Overview - Week 14 Equity indices weakened last week on news of rising interest rates and a tightening of the US economy. The euro is also weakening not only because it is under pressure from the ongoing war in Ukraine and sanctions against Russia, but also from the uncertainty of the upcoming French presidential election. The outbreak of the coronavirus in China has fuelled negative sentiment in oil, where the market fears an excess of supply over demand. The US dollar was the clear winner in this environment.  The USD index strengthens along with US bond yields According to the US Fed meeting minutes released on Wednesday, the Fed is prepared to reduce its balance sheet by the USD 95 billion per month from May this year.  In addition, the Fed is ready to raise interest rates at a pace of 0.50%. Thus, at the next meeting, which will take place in May, we can expect a rate increase from the current 0.50% to 1.00%. This option is already included in asset prices.     As a result of this the yields on US 10-year bonds continued to rise and has already reached 2.64%. The US dollar in particular is benefiting from this development and is approaching the level 100. Figure 1: US 10-year bond yields and USD index on the daily chart   Equity indices under pressure from high interest rates The prospect of aggressive interest rate hikes is having a negative impact on investor sentiment, particularly for growth stocks. However, it is positive for financial sector stocks. High yields on the US bonds are attractive to investors, who will thus prefer this yield to, for example, investments in gold, which does not yield any interest. Figure 2: SP 500 on H4 and D1 chart   The US SP 500 index is currently moving in a downward correction, which is shown on the H4 chart. Prices could move in a downward channel that is formed by a lower high and a lower low. The SP 500 according to the H4 chart is below the SMA 100 moving average, which also indicates bearish tendencies.   The nearest resistance according to the H4 chart is in the range of 4,513 - 4,520. The next resistance is around 4,583 - 4,600. A support is at 4 450 - 4 455.   German DAX index A declining channel has also formed for the DAX index. The price is below the SMA 100 moving average on the H4 chart, where at the same time the SMA 100 got below the EMA 50, which is a strong bearish signal. Figure 3: German DAX index on H4 and daily chart According to the H4 chart, the nearest resistance is in the range between 14,340 - 14,370. There is also a confluence with the moving average EMA 50 here. The next resistance is at 14,590 - 14,630. A support is at 14,030 - 14,100.   The DAX is influenced by the upcoming French presidential election, the outcome of which could have a major impact on the European economy.    The euro remains in a downtrend The Euro is negatively affected by the sanctions against Russia, which will also have a negative impact on the European economy. In addition, uncertainty has arisen regarding the French presidential election. Although the victory of the far-right candidate Marine Le Pen over the defending President Emmanuel Macron is still unlikely, the polls suggest that it is within the statistical margin of error. And this makes markets nervous.   A Le Pen victory would be bad for the economy and France's overall international image. It would weaken the European Union. That's why this news sent the euro below 1.09. The first round of elections will be held on Sunday April 10 and the second round on April 24, 2022.    Figure 4: EURUSD on H4 and daily chart. The nearest resistance according to the H4 chart is at 1.0930 - 1.0950. The significant resistance according to the daily chart is 1.1160 - 1.1190.  A support is at 1.080 - 1.0850.   According to the technical analysis, the euro is in a downtrend, but as it is currently at significant support levels, any short speculation could be considered only after the current support is broken and retested to validate the break.   The crude oil continues to descend The oil prices fell for a third straight day after the Paris-based International Energy Agency (IEA) announced it would release 60 million barrels of its members' reserves to the open market, adding to an earlier reserve release of 180 million barrels announced by the United States. In total, 240 million barrels would be delivered to the market over six months, resulting in a net inflow of 1.33 million barrels a day.   That would be more than triple the monthly production additions of 400,000 barrels per day by the world's oil producers under the OPEC+ alliance led by Saudi Arabia and controlled by Russia.   Adding to the negative sentiment on oil was a coronavirus outbreak in Shanghai, the largest in two years, which forced a more than week-long closure of China's second-largest city. This raises concerns about demand among oil consumers in the Chinese economy, which has a significant impact on prices. Figure 5: Brent crude oil on the H4 and daily charts. Brent crude oil is thus approaching support, which according to the H4 chart is at around USD 97-99 per barrel. The nearest resistance according to the H4 chart is at the price of USD 106 per barrel. The more significant resistance is at USD 111-112 per barrel of the Brent crude.   
The Swing Overview - Week 13 2022

The Swing Overview - Week 13 2022

Purple Trading Purple Trading 11.04.2022 06:41
The Swing Overview - Week 13 Equity indices closed the first quarter of 2022 in a loss under the influence of geopolitical tensions. The Czech koruna strengthened as a result of the CNB raising interest rates to 5%, the highest since 2001. The US supports the oil market by releasing 180 million barrels from its strategic reserves. War in Ukraine   The war in Ukraine has been going on for more than a month and there is still no end in sight. Ongoing diplomatic negotiations have not led to a result yet. Meanwhile, Russian President Putin has decided that European countries will pay for Russian gas in rubles. This has been described as blackmailing from Europe's point of view and is not in line with the gas supply contracts that have been concluded. A way around this is to open an account with Gazprombank where the gas can be paid for in euros. Geopolitical tensions are therefore still ongoing and are having a negative effect on stock markets.   Equity indices have had their worst quarter since 2020 US and European equities posted their biggest quarterly loss since the beginning of 2020, when the COVID-19 pandemic broke out and the global economy was in crisis. Portfolio rebalancing at the end of the quarter boosted demand for bonds and kept yields lower.   On Tuesday, the yield curve briefly inverted, meaning that short-term bonds yields were higher than  long-term bonds. An inverted yield curve is a signal of a recession according to many economists. It means that future corporate profits should be rather behind expectations and stock prices might reflect it.    On Thursday, the S&P 500 index fell 1.6%. The Dow Jones industrial index also fell by 1.6% and the Nasdaq Composite index fell by 1.5%. The European STOXX 600 index closed down by 0.94%. Even after last week's rally, as investors celebrated signs of progress in peace talks between Russia and Ukraine, the S&P 500 index is still down 5% for the first three months, its worst quarterly performance in two years.  Figure 1: SP 500 on H4 and D1 chart   The SP 500 index reached the resistance level at 4,600, which it broke, but then closed below it. This indicates a false break. The new nearest resistance is in the range of 4,625 - 4,635. Support is at 4,453 and then significant support is at 4,386 - 4,422.   German DAX index The DAX index has rallied since March 8 and has reached the resistance level which is in the 14,800 - 15,000 range.  However, the index started to weaken in the second half of the week. The news that Russia will demand payments for gas in rubles, which Western countries refuse, contributed to the index's weakening. The fear of gas supply disruption then caused a sell-off.    Figure 2: German DAX index on H4 and daily chart Resistance is between 14,800 - 15,000 according to the daily chart. The nearest support according to the H4 chart is at 14,100 - 14,200.   The euro remains in a downtrend The euro was supported at the beginning of the week by hopes for peace in Ukraine. However, by the end of the week, the Ukrainian President warned that Russia was preparing for more attacks and the Euro started to weaken. News of Russia's demand to pay for gas in rubles had a negative effect on the euro as well. Figure 3: The EURUSD on the H4 and daily charts. From a technical point of view, we can see that the EURUSD according to the daily chart has reached the resistance formed by EMA 50 (yellow line). The new horizontal resistance is in the area of 1.1160 - 1.1180. Support is at 1.0950 - 1.0980. The euro still remains in a downtrend.   CNB raised the interest rate In the fight against the inflation, the CNB decided to further raise the interest rate by 0.50%. Currently, the base rate is at 5%, where it was last in 2001. The interest rate hike is aimed at slowing inflation by slowing demand through higher borrowing costs.   Figure 4: Interest rate developments in the Czech Republic In addition, a strong koruna should support the slowdown in inflation. The koruna could appreciate especially against the euro due to higher interest rates. However, the strengthening of the koruna is conditional on the war in Ukraine not escalating further.  We can see that the koruna against the euro is approaching a support around 24.30. The low of this year was 24.10 korunas for one euro. Figure 5: USD/CZK and EUR/CZK on the daily chart. The koruna is also strengthening against the US dollar. Here, however, the situation is slightly different in that the US Fed is also raising rates and is expected to continue raising rates until the end of the year. Therefore, the interest rate differential between the koruna and the dollar is less favourable than between the koruna and the euro. The appreciation of the koruna against the dollar is therefore slower.   Currently, the koruna is at the support of 22 koruna per dollar. The next support is at 21.70 and then 21.10 koruna per dollar, where this year's low is.   Oil has weakened Oil prices saw the deep losses after the news that the United States will release up to 180 million barrels from its strategic petroleum reserves as part of measures to reduce fuel prices. US crude oil fell 5.4% and Brent crude oil fell 6.6% on Thursday after the news. Figure 6: Brent crude oil on a monthly and daily chart We can see that a strong bearish pinbar was formed on a  monthly chart. The nearest support is in the zone 103 – 106 USD per barel. A strong support is around 100 USD per barel which will be closely watched.  
The Swing Overview - Week 16 2022

The Swing Overview - Week 16 2022

Purple Trading Purple Trading 22.04.2022 15:00
The Swing Overview - Week 16 Jerome Powell confirmed that the Fed will be aggressive in fighting the inflation and confirmed tighter interest rate hikes starting in May. Equity indices fell strongly after this news. Inflation in the euro area reached a record high of 7.4% in March. Despite this news, the euro continued to weaken. The sell-off also continued in the Japanese yen, which is the weakest against the US dollar in last 20 years.  The USD index strengthens along with US bond yields Fed chief Jerome Powell said on Thursday that the Fed could raise interest rates by 0.50% in May. The Fed could continue its aggressive pace of rate hikes in the coming months of this year. US 10-year bond yields have responded to this news by strengthening further and have already reached 2.94%. The US dollar has also benefited from this development and has already surpassed the value 100 and continues to move in an uptrend. Figure 1: US 10-year bond yields and USD index on the daily chart Earnings season is underway in equities Rising interest rates continue to weigh on equity indices, which gave back gains from the first half of the last week and weakened significantly on Thursday following the Fed’s information on the aggressive pace of interest rate hikes.   In addition, the earnings season, which is in full swing, is weighing on index movements. For example, Netflix and Tesla reported results last week.   While Netflix unpleasantly surprised by reducing the number of subscribers by 200,000 in 1Q 2022 and the company's shares fell by 35% in the wake of the news, Tesla, on the other hand, exceeded analysts' expectations and the stock gained more than 10% after the results were announced. Tesla has thus shown that it has been able to cope with the supply chain problems and higher subcontracting prices that are plaguing the entire automotive sector much better than its competitors.   The decline in Netflix subscribers can be explained by people starting to save more in an environment of rising prices. Figure 2: The SP 500 on H4 and D1 chart The SP 500 index continues to undergo a downward correction, which is shown on the H4 chart. The price has reached the resistance level at 4,514-4,520. The price continues to move below the SMA 100 moving average (blue line) on the daily chart which indicates bearish sentiment.  The nearest resistance according to the H4 chart is at 4,514 - 4,520. The next resistance is around 4,583 - 4,600. The support is at 4,360 - 4,365.   The German DAX index The DAX is also undergoing a correction and the last candlestick on the daily chart is a bearish pin bar which suggests that the index could fall further. Figure 3: The German DAX index on H4 and daily chart This index is also below the SMA 100 on the daily chart, confirming the bearish sentiment. The price has reached a support according to the H4 chart, which is at 14,340 - 14,370. However, this is very likely to be overcome quickly. The next support is 13 910 - 14 000. The nearest resistance is 14 592 - 14 632.   The DAX is affected by the French presidential election that is going to happen on Sunday April 24, 2022. According to the latest polls, Macron is leading over Le Pen and if the election turns out like this, it should not have a significant impact on the markets. However, if Marine Le Pen wins in a surprise victory, it can be very negative news for the French economy and would weigh on the DAX index as well.   The euro remains in a downtrend The Fed's hawkish policy and the ECB's dovish rhetoric at its meeting on Thursday April 14, 2022, which showed that the ECB is not planning to raise rates in the short term, put further pressure on the European currency. The French presidential election and, of course, the ongoing war in Ukraine are also causing uncertainty.  Figure 4: The EURUSD on the H4 and daily charts. The inflation data was reported last week, which came in at 7.4% on year-on-year basis. The previous month inflation was 5.9%. This rise in inflation caused the euro to strengthen briefly to the resistance level at 1.0930 - 1.0950. However, there was then a rapid decline from this level following the Fed's reports of a quick tightening in the economy. A support is at 1.0760 - 1.0780.   The sell-off in the Japanese yen is not over The Japanese yen is also under pressure. The US dollar has already reached 20-year highs against the Japanese yen (USD/JPY) and it looks like the yen's weakening against the US dollar could continue. This is because the Bank of Japan has the most accommodative monetary policy of any major central bank and continues to support the economy while the Fed will aggressively tighten the economy. Thus, this fundamental suggests that a reversal in the USD/JPY pair should not happen anytime soon. Figure 5: The USDJPY on the monthly chart In terms of technical analysis, the USD/JPY price broke through the strong resistance band around the price of 126.00 seen on the monthly chart. The currency pair thus has room to grow further up to the resistance, which is in the area near 135 yens per dollar.  
Currency Speculators raise their bullish bets for Canadian Dollar to 40-week high

Currency Speculators raise their bullish bets for Canadian Dollar to 40-week high

Invest Macro Invest Macro 23.04.2022 20:49
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday April 19th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. Highlighting the COT currency data is the rising of bullish bets in the Canadian ‘Loonie’ dollar currency futures contracts. CAD speculators raised their bullish bets for a fourth straight week this week and for the fifth time in the past six weeks. Over the past four-week time-frame, CAD bets have improved by a total of +26,166 contracts, going from -4,940 net positions on March 22nd to +21,226 net positions this week. These gains have brought this week’s speculator level to the most bullish position since July 13th of 2021, a span of forty weeks. This recent improvement in Loonie sentiment has been helped out by the hike in interest rates by the Bank of Canada (BOC). The BOC recently pushed its key interest rate higher by 50 basis points on April 13th and has in the past few days hinted that more interest rate rises were to come. The recent inflation numbers out of Canada were above expectations (6.7 percent) and according to Bloomberg, market participants have pushed their odds to 100 percent for another 50 basis point hike in June. Overall, the currencies with higher speculator bets this week were the US Dollar Index (2,943 contracts), Japanese yen (4,640 contracts), Swiss franc (2,492 contracts), New Zealand dollar (654 contracts), Canadian dollar (9,068 contracts)and the Mexican peso (6,704 contracts). The currencies with declining bets were the Euro (-7,759 contracts), Brazil real (-1,557 contracts), Australian dollar (-122 contracts), Bitcoin (-361 contracts) and the British pound sterling (-5,860 contracts). Speculator strength standings for each Commodity where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme Data Snapshot of Forex Market Traders | Columns Legend Apr-19-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index USD Index 54,524 77 32,580 82 -35,893 15 3,313 53 EUR 675,939 72 31,301 45 -49,726 62 18,425 5 GBP 249,529 70 -58,914 32 72,889 73 -13,975 27 JPY 251,291 90 -107,187 3 129,842 99 -22,655 7 CHF 44,269 20 -11,450 50 23,051 57 -11,601 29 CAD 153,302 32 21,226 68 -39,338 31 18,112 66 AUD 147,309 43 -28,837 58 20,800 34 8,037 72 NZD 41,098 26 365 72 503 31 -868 42 MXN 165,403 33 21,664 37 -26,214 62 4,550 62 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 70,553 68 44,572 94 -47,063 5 2,491 94 Bitcoin 11,276 61 -194 90 -175 0 369 21   US Dollar Index Futures: The US Dollar Index large speculator standing this week reached a net position of 32,580 contracts in the data reported through Tuesday. This was a weekly lift of 2,943 contracts from the previous week which had a total of 29,637 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 82.0 percent. The commercials are Bearish-Extreme with a score of 15.0 percent and the small traders (not shown in chart) are Bullish with a score of 52.8 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 85.6 3.3 9.5 – Percent of Open Interest Shorts: 25.9 69.1 3.5 – Net Position: 32,580 -35,893 3,313 – Gross Longs: 46,685 1,778 5,198 – Gross Shorts: 14,105 37,671 1,885 – Long to Short Ratio: 3.3 to 1 0.0 to 1 2.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 82.0 15.0 52.8 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -2.5 3.3 -5.8   Euro Currency Futures: The Euro Currency large speculator standing this week reached a net position of 31,301 contracts in the data reported through Tuesday. This was a weekly lowering of -7,759 contracts from the previous week which had a total of 39,060 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 44.6 percent. The commercials are Bullish with a score of 61.9 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 4.9 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.7 53.7 11.4 – Percent of Open Interest Shorts: 28.1 61.0 8.7 – Net Position: 31,301 -49,726 18,425 – Gross Longs: 221,003 362,930 76,939 – Gross Shorts: 189,702 412,656 58,514 – Long to Short Ratio: 1.2 to 1 0.9 to 1 1.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 44.6 61.9 4.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.5 9.7 -10.9   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week reached a net position of -58,914 contracts in the data reported through Tuesday. This was a weekly decrease of -5,860 contracts from the previous week which had a total of -53,054 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.6 percent. The commercials are Bullish with a score of 72.8 percent and the small traders (not shown in chart) are Bearish with a score of 26.7 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 14.8 74.6 8.8 – Percent of Open Interest Shorts: 38.4 45.4 14.4 – Net Position: -58,914 72,889 -13,975 – Gross Longs: 36,811 186,134 21,987 – Gross Shorts: 95,725 113,245 35,962 – Long to Short Ratio: 0.4 to 1 1.6 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 31.6 72.8 26.7 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -33.4 28.1 -2.2   Japanese Yen Futures: The Japanese Yen large speculator standing this week reached a net position of -107,187 contracts in the data reported through Tuesday. This was a weekly lift of 4,640 contracts from the previous week which had a total of -111,827 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 2.9 percent. The commercials are Bullish-Extreme with a score of 99.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 7.4 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 5.1 86.0 8.3 – Percent of Open Interest Shorts: 47.7 34.3 17.3 – Net Position: -107,187 129,842 -22,655 – Gross Longs: 12,723 216,101 20,761 – Gross Shorts: 119,910 86,259 43,416 – Long to Short Ratio: 0.1 to 1 2.5 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 2.9 99.0 7.4 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -31.6 25.9 -3.8   Swiss Franc Futures: The Swiss Franc large speculator standing this week reached a net position of -11,450 contracts in the data reported through Tuesday. This was a weekly increase of 2,492 contracts from the previous week which had a total of -13,942 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 50.0 percent. The commercials are Bullish with a score of 56.8 percent and the small traders (not shown in chart) are Bearish with a score of 29.2 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 6.6 71.7 21.7 – Percent of Open Interest Shorts: 32.4 19.6 47.9 – Net Position: -11,450 23,051 -11,601 – Gross Longs: 2,900 31,735 9,599 – Gross Shorts: 14,350 8,684 21,200 – Long to Short Ratio: 0.2 to 1 3.7 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 50.0 56.8 29.2 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -3.0 1.3 1.8   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week reached a net position of 21,226 contracts in the data reported through Tuesday. This was a weekly advance of 9,068 contracts from the previous week which had a total of 12,158 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 67.7 percent. The commercials are Bearish with a score of 31.1 percent and the small traders (not shown in chart) are Bullish with a score of 65.8 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 28.7 45.0 24.6 – Percent of Open Interest Shorts: 14.9 70.7 12.8 – Net Position: 21,226 -39,338 18,112 – Gross Longs: 44,063 68,989 37,784 – Gross Shorts: 22,837 108,327 19,672 – Long to Short Ratio: 1.9 to 1 0.6 to 1 1.9 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 67.7 31.1 65.8 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 13.4 -17.2 20.4   Australian Dollar Futures: The Australian Dollar large speculator standing this week reached a net position of -28,837 contracts in the data reported through Tuesday. This was a weekly decline of -122 contracts from the previous week which had a total of -28,715 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 58.1 percent. The commercials are Bearish with a score of 34.4 percent and the small traders (not shown in chart) are Bullish with a score of 72.0 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 26.6 53.8 19.2 – Percent of Open Interest Shorts: 46.2 39.6 13.7 – Net Position: -28,837 20,800 8,037 – Gross Longs: 39,201 79,208 28,257 – Gross Shorts: 68,038 58,408 20,220 – Long to Short Ratio: 0.6 to 1 1.4 to 1 1.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 58.1 34.4 72.0 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 45.8 -42.8 19.6   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week reached a net position of 365 contracts in the data reported through Tuesday. This was a weekly boost of 654 contracts from the previous week which had a total of -289 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 71.9 percent. The commercials are Bearish with a score of 31.2 percent and the small traders (not shown in chart) are Bearish with a score of 41.9 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 46.4 45.9 6.8 – Percent of Open Interest Shorts: 45.5 44.6 8.9 – Net Position: 365 503 -868 – Gross Longs: 19,081 18,853 2,797 – Gross Shorts: 18,716 18,350 3,665 – Long to Short Ratio: 1.0 to 1 1.0 to 1 0.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 71.9 31.2 41.9 – Strength Index Reading (3 Year Range): Bullish Bearish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 21.4 -20.2 4.0   Mexican Peso Futures: The Mexican Peso large speculator standing this week reached a net position of 21,664 contracts in the data reported through Tuesday. This was a weekly advance of 6,704 contracts from the previous week which had a total of 14,960 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 36.6 percent. The commercials are Bullish with a score of 61.9 percent and the small traders (not shown in chart) are Bullish with a score of 62.3 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 44.6 50.0 4.7 – Percent of Open Interest Shorts: 31.5 65.8 1.9 – Net Position: 21,664 -26,214 4,550 – Gross Longs: 73,710 82,643 7,701 – Gross Shorts: 52,046 108,857 3,151 – Long to Short Ratio: 1.4 to 1 0.8 to 1 2.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 36.6 61.9 62.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -13.4 12.1 10.1   Brazilian Real Futures: The Brazilian Real large speculator standing this week reached a net position of 44,572 contracts in the data reported through Tuesday. This was a weekly fall of -1,557 contracts from the previous week which had a total of 46,129 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 94.2 percent. The commercials are Bearish-Extreme with a score of 5.4 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 94.0 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 76.2 17.6 6.1 – Percent of Open Interest Shorts: 13.1 84.3 2.5 – Net Position: 44,572 -47,063 2,491 – Gross Longs: 53,790 12,399 4,272 – Gross Shorts: 9,218 59,462 1,781 – Long to Short Ratio: 5.8 to 1 0.2 to 1 2.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 94.2 5.4 94.0 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -5.8 5.4 5.0   Bitcoin Futures: The Bitcoin large speculator standing this week reached a net position of -194 contracts in the data reported through Tuesday. This was a weekly decline of -361 contracts from the previous week which had a total of 167 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 90.2 percent. The commercials are Bearish with a score of 27.4 percent and the small traders (not shown in chart) are Bearish with a score of 21.3 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 73.3 3.6 10.2 – Percent of Open Interest Shorts: 75.0 5.2 7.0 – Net Position: -194 -175 369 – Gross Longs: 8,263 408 1,155 – Gross Shorts: 8,457 583 786 – Long to Short Ratio: 1.0 to 1 0.7 to 1 1.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 90.2 27.4 21.3 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -9.8 19.8 4.8   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Scale Versus the Casino

The Scale Versus the Casino

David Merkel David Merkel 28.04.2022 07:55
Photo Credits: Jen and www.david baxendale.com with help from pinetools || The casino is exciting. The scale is honest and unrelenting. I want to give an update to one of the major concepts of Ben Graham, in order to make it fit the modern era better. Ben Graham said: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”https://www.goodreads.com/quotes/831517-in-the-short-run-the-market-is-a-voting-machine quoted from The Intelligent Investor So let me modify it: In the short run, the market is a casino, but in the long run, it is a scale. Is this an improvement? Probably not, but speculation has become so rampant that it may be a necessary modification to change voting machine to casino. The voting machine makes sense, but typically we think of voting as being democratic. We only get one vote per person. Markets are different. Someone who brings a little money to the market will not have the same influence as the one who brings a lot of money to the market. Thus my analogy of the casino, though typically casinos will place limits on how much the casino will wager. They want to avoid random large losses so that they can live to extract money from rubes for many years to come. The winner can brag that he “broke the bank,” but the casino survived to play on. Bill Hwang and his CFO were formally charged with fraud today. What did they do? They synthetically borrowed a lot of money from investment banks to own huge amounts of a few companies. Their buying pushed the prices of the stocks higher, allowing them to borrow more against the positions. But eventually as the stocks they owned had some bad results, the margin calls on his positions wiped him out as the stock prices fell. The scale trumped the casino. The same is true of crypto and meme stocks. Cryptocurrencies require a continuing inflow of real cash (admittedly fiat money) in order to appreciate. If people stop buying crypto on net, and that may be happening now, cryptocurrencies will decline. The scale says crypto is a zero — no intrinsic value. The casino begs for more people to bring real money to buy fake money. That applies to meme stocks as well. You can throw a lot of money at a stock and it will rise. But for it to stay there or rise further, it will need increasing free cash flows to validate the value of the firm. Going back to crypto, it lacks any link to the real economy. Crypto will only become legitimate when you can buy groceries and gasoline at a fixed amount of bitcoin that varies less than the same price in US dollars. As a final note on the Scale versus the Casino, I give you Elon Musk. He borrows against his shares of Tesla to buy Twitter. He either did not realize or ignored the fact that he could lose his stake in Tesla if the price of Tesla falls enough. Do you really want the margin desk to control your fate? This may not totally impoverish Musk, but it is not impossible that he could the entirety of his holdings of Tesla in order to keep his holdings of the unprofitable Twitter. All it would take is for short sellers to push Tesla below $740, and then the margin desk starts selling his shares into a falling market. Momentum, aided by an agreement leading to forced selling. The market abhors a vacuum. So it is for those who assume that things will continue to go right for them.
The Swing Overview – Week 17 2022

The Swing Overview – Week 17 2022

Purple Trading Purple Trading 03.05.2022 11:04
The Swing Overview – Week 17 Major stock indices continued in their correction and tested strong support levels. In contrast, the US dollar strengthened strongly and is at its highest level since January 2017. The strengthening of the dollar had a negative impact on the value of the euro and commodities such as gold, which fell below the $1,900 per ounce. The Bank of Japan kept interest rates low and the yen broke the magic level 130 per dollar. The USD index strengthened again but the US GDP declined The US consumer confidence in the month of April came in at 107.3, a slight decline from the previous month when consumer confidence was 107.6.   The US GDP data was surprising. The US economy decreased by 1.4% in 1Q 2022 (in the previous quarter the economy grew by 6.4%). This sharp decline surprised even analysts who expected the economy to grow by 1.1%. This result is influenced by the Omicron, which caused the economy to shut down for a longer period than expected earlier this year.    The Fed meeting scheduled for the next week on May 4 will be hot. In fact, even the most dovish Fed officials are already leaning towards a 0.5% rate hike. At the end of the year, we can expect a rate around 2.5%.   The US 10-year bond yields continue to strengthen on the back of these expectations. The US dollar is also strengthening and is already at its highest level since January 2017, surpassing 103 level.  Figure 1: US 10-year bond yields and the USD index on the daily chart   Earnings season is underway in equities Earnings season is in full swing. Amazon's results were disappointing. While revenue was up 7% reaching $116.4 billion in the first quarter (revenue was $108.5 billion in the same period last year), the company posted an total loss of $8.1 billion, which translated to a loss of $7.56 per share. This loss, however, is not due to operating activities, but it is the result of the revaluation of the equity investment in Rivian Automotive.   Facebook, on the other hand, surprised in a positive way posting unexpectedly strong user growth, a sign that its Instagram app is capable of competing with Tik Tok. However, the revenue growth of 6.6% was the lowest in the company's history.    Apple was also a positive surprise, reporting earnings per share of $1.52 (analysts' forecast was $1.43) and revenue growth of $97.3 billion, up 8.6% from the same period last year. However, the company warned that the closed operations in Russia, the lockdown in China due to the coronavirus and supply disruptions will negatively impact earnings in the next quarter.   Figure 2: The SP 500 on H4 and D1 chart In terms of technical analysis, the US SP 500 index is in a downtrend and has reached a major support level on the daily chart last week, which is at 4,150. It has bounced upwards from this support to the resistance according to the 4 H chart which is 4,308 - 4,313. The next resistance according to the H4 chart is 4,360 - 4,365.  The strong resistance is at 4,500.   German DAX index German businessmen are optimistic about the development of the German economy in the next 6 months, as indicated by the Ifo Business Climate Index, which reached 91.8 for April (the expectation was 89.1). However, this did not have a significant effect on the movement of the index and it continued in its downward correction. Figure 3: German DAX index on H4 and daily chart The index is below the SMA 100 on both the daily chart and the H4 chart, confirming the bearish sentiment. The nearest support according to the H4 is 13,600 - 13,650. The resistance is 14,180 - 14,200. The next resistance is 14,592 - 14,632.   The euro has fallen below 1.05 The euro lost significantly last week. While the French election brought relief to the markets as Emmanuel Macron defended the presidency, geopolitical tensions in Ukraine continue to weigh heavily on the European currency. The strong dollar is also having an impact on the EUR/USD pair, pushing the pair down. The price has fallen below 1.05, the lowest level since January 2017.    Figure 4: EURUSD on H4 and daily chart The euro broke through the important support at 1.0650 - 1.071, which has now become the new resistance. The new support was formed in January 2017 and is around the level 1.0350 - 1.040.   Japan's central bank continues to support the fragile economy The Bank of Japan on Thursday reinforced its commitment to keep interest rates at very low levels by pledging to buy unlimited amounts of 10-year government bonds daily, sparking a fresh sell-off in the yen and reviving government bonds. With this commitment, the BOJ is trying to support a fragile economy, even as a surge in commodity prices is pushing the inflation up.   The decision puts Japan in the opposite position to other major economies, which are moving towards tighter monetary policy to combat soaring prices. Figure 5: The USD/JPY on the monthly and daily chart In fresh quarterly forecasts, the central bank has projected core consumer inflation to reach 1.9% in the current fiscal year and then ease to 1.1% in fiscal years 2023 and 2024, an indication that it views the current cost-push price increases as transitory.   In the wake of this decision, the Japanese yen has continued to weaken and has already surpassed the magical level 130 per dollar.   Strong dollar beats also gold Anticipation of aggressive Fed action against inflation, which is supporting the US dollar, is having a negative impact on gold. The rising US government bond yields are also a problem for the yellow metal. This has put gold under pressure, which peaked on Thursday when the price reached USD 1,872 per ounce of gold. But then the gold started to strengthen. Indeed, the decline in the US GDP may have been something of a warning to the Fed and prevent them from tightening the economy too quickly, which helped gold, in the short term, bounce off a strong support. Figure 6: The gold on H4 and daily chart Strong support for the gold is at $1,869 - $1,878 per ounce. There is a confluence of horizontal resistance and the SMA 100 moving average on the daily chart. The nearest resistance according to the H4 chart is 1 907 - 1 910 USD per ounce. The strong resistance according to the daily chart is then 1 977 - 2 000 USD per ounce of gold. Moving averages on the H4 chart can also be used as a resistance. The orange line is the EMA 50 and the blue line is the SMA 100.  
Forex News: GBPUSD beats its range. Can buyers start a new leg higher?

Forex News: GBPUSD beats its range. Can buyers start a new leg higher?

8 eightcap 8 eightcap 05.05.2022 10:01
Today’s focus is on GBPUSD after its solid rally yesterday after markets surged to the USD after the FOMC statement suggested the Fed might not be as aggressive in its policy to combat inflation. The message also confirmed that the policy would do its best to help the US economy achieve a softish landing, and Powell did comment that inflation remains much too high. Let’s look at the GBPUSD. Price remains in a long-term downtrend. The last key leg we saw was a sharp down leg as the USD continued to fly higher over the previous week. Since the last low was put in on the 28th of April, we have seen a range develop, and that pattern was in place until yesterday, before buyers broke through it to the upside after the FMOC. This break has us thinking, can we see a new leg higher set up after this break? Price so far has been weaker today will sellers retracing over 50% of yesterday’s move. Buyers have been fighting back into today’s European session, and expectations are that the BOE may raise rates again today. Could this continue to give the Cable a boost and send price back up to yesterday’s high? A break and close above yesterday’s high could confirm a new up leg. A close back below the HL is a worry and could suggest that buyer momentum might now be that firm. If we do see a new close above yesterday’s highs and buyers can continue to hold momentum, we would be looking at the closest trend line as a possible higher target. Today’s BOE rates decision is at 9:00 pm AEST. Rates are expected to increase to 1%. GBPUSD D1 Chart The post Forex News: GBPUSD beats its range. Can buyers start a new leg higher? appeared first on Eightcap.
Welcome Back to 1994! [Redux]

Welcome Back to 1994! [Redux]

David Merkel David Merkel 10.05.2022 03:17
Image Credit: Aleph Blog with help from FRED || Look at the mortgage rates fly! Okay, you might or might not remember the last piece. But since that time, 30-year mortgage rates have risen more than 1%. Is the Fed dawdling? Maybe, but the greater threat is that they become too aggressive, and blow up the financial economy, leading us into another decade-long bout of financial repression. As it stands right now, mortgage rates are in a self-reinforcing rising cycle, and it will not end until the Fed raises the Fed funds rate until it inverts the Treasury yield curve. But if I were on the FOMC, I would ignore inflation and the labor markets, and I would watch the financial economy to avoid blowing things up. The FOMC won’t do this. They are wedded to ideas that no longer work, or may never have worked, like the Phillips Curve. They imagine that the macroeconomic models work, when they never do. They forget what Milton Friedman taught — that monetary policy works with long and variable lags. Instead, in tightening cycles, the FOMC acts as if there are no lags. And, in one sense, they are correct. The financial economy reacts immediately to FOMC actions. The real economy, with inflation and unemployment, may take one or two years to see the effects. And because the FOMC forgets about the lags, they overshoot. The FOMC, far from stabilizing the economy, tends to destabilize it. We would be better off running a gold standard, and regulating the banks tightly for solvency. Remember, gold was never the problem — bad bank regulation was the problem. ======================= One more thing — the Fed needs to be quiet. The chatter of Fed governors upsets the markets, as do Fed press conferences and the dot-plot. The Fed was most effective under Volcker and Martin. They said little, and let their actions be known through the Fed’s Open Markets Desk. That allowed the Fed to surprise and lead the markets. The current Fed (since Greenspan) made the mistake of following the markets. Following the markets exacerbates volatility, and promotes oversupplying liquidity. ======================= At present I am pretty sure 30-year mortgage rates will rise to 6%, and maybe 7%. No one is panicking enough on this, so it will likely go higher. MBS hedging is a powerful force, and will continue until people no longer want to buy houses at such high interest rates.
UK Budget: Short-term positives to be met with medium-term caution

COT Currency Speculators raised British Pound Sterling bearish bets for 10th week

Invest Macro Invest Macro 15.05.2022 14:26
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for this week’s Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 10th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. Highlighting the COT currency data this week was the rise in bearish bets for the British pound sterling currency futures contracts. Pound speculators have raised their bearish bets for a tenth consecutive week this week and for the eleventh time out of the past twelve weeks. Over the past ten-week time-frame, pound bets have dropped by a total of -79,261 contracts, going from -337 net positions on March 1st to a total of -79,598 net positions this week. The deterioration in speculator sentiment has now pushed the pound net position to the most bearish standing of the past one hundred and thirty-seven weeks, dating back to September 24th of 2019. Pound sterling sentiment has been hit by a recent slowing economy as the UK GDP declined by 0.1 percent in March after flat growth in February. Also, weighing on the UK economy is the war in Ukraine that has sharply raised inflation in the country (and elsewhere) and which could see the UK economy with the lowest growth rate among G7 countries in 2023, according to the IMF. Overall, the currencies with higher speculator bets this week were the Euro (22,907 contracts), US Dollar Index (1,705 contracts), Bitcoin (315 contracts) and the Mexican peso (2,102 contracts). The currencies with declining bets were the Japanese yen (-9,660 contracts), Australian dollar (-13,198 contracts), Brazil real (-1,010 contracts), Swiss franc (-1,856 contracts), British pound sterling (-5,785 contracts), New Zealand dollar (-6,386 contracts), Canadian dollar (-14,436 contracts), Russian ruble (-263 contracts) and the Mexican peso (2,102 contracts). Speculator strength standings for each Commodity where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme OI Strength = Current Open Interest level compared to last 3 years range Spec Strength = Current Net Speculator level compared to last 3 years range Strength Move = Six week change of Spec Strength Data Snapshot of Forex Market Traders | Columns Legend May-10-2022OIOI-IndexSpec-NetSpec-IndexCom-NetCOM-IndexSmalls-NetSmalls-Index USD Index 57,556 84 34,776 86 -37,174 13 2,398 43 EUR 705,046 84 16,529 40 -43,026 64 26,497 18 GBP 264,594 80 -79,598 17 95,245 86 -15,647 23 JPY 247,278 87 -110,454 1 124,927 97 -14,473 24 CHF 51,282 37 -15,763 40 29,819 69 -14,056 16 CAD 151,009 31 -5,407 38 2,939 67 2,468 35 AUD 153,209 47 -41,714 46 47,126 54 -5,412 39 NZD 56,235 56 -12,996 49 16,874 56 -3,878 7 MXN 153,858 28 16,725 34 -20,866 64 4,141 61 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 61,450 55 40,778 90 -42,031 10 1,253 79 Bitcoin 10,841 57 703 100 -789 0 86 15 Open Interest is the amount of contracts that were live in the marketplace at time of data. US Dollar Index Futures: The US Dollar Index large speculator standing this week came in at a net position of 34,776 contracts in the data reported through Tuesday. This was a weekly lift of 1,705 contracts from the previous week which had a total of 33,071 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 85.8 percent. The commercials are Bearish-Extreme with a score of 12.8 percent and the small traders (not shown in chart) are Bearish with a score of 42.8 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 86.6 3.2 8.6 – Percent of Open Interest Shorts: 26.2 67.8 4.5 – Net Position: 34,776 -37,174 2,398 – Gross Longs: 49,864 1,837 4,970 – Gross Shorts: 15,088 39,011 2,572 – Long to Short Ratio: 3.3 to 1 0.0 to 1 1.9 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 85.8 12.8 42.8 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 6.6 -3.4 -19.3   Euro Currency Futures: The Euro Currency large speculator standing this week came in at a net position of 16,529 contracts in the data reported through Tuesday. This was a weekly increase of 22,907 contracts from the previous week which had a total of -6,378 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.1 percent. The commercials are Bullish with a score of 63.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.3 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.4 53.3 12.0 – Percent of Open Interest Shorts: 30.0 59.4 8.3 – Net Position: 16,529 -43,026 26,497 – Gross Longs: 228,230 376,043 84,921 – Gross Shorts: 211,701 419,069 58,424 – Long to Short Ratio: 1.1 to 1 0.9 to 1 1.5 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 40.1 63.8 18.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -1.5 1.2 0.9   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week came in at a net position of -79,598 contracts in the data reported through Tuesday. This was a weekly fall of -5,785 contracts from the previous week which had a total of -73,813 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 16.6 percent. The commercials are Bullish-Extreme with a score of 86.0 percent and the small traders (not shown in chart) are Bearish with a score of 23.2 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 11.1 79.6 7.6 – Percent of Open Interest Shorts: 41.2 43.6 13.5 – Net Position: -79,598 95,245 -15,647 – Gross Longs: 29,469 210,627 20,157 – Gross Shorts: 109,067 115,382 35,804 – Long to Short Ratio: 0.3 to 1 1.8 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 16.6 86.0 23.2 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -28.5 25.6 -7.7   Japanese Yen Futures: The Japanese Yen large speculator standing this week came in at a net position of -110,454 contracts in the data reported through Tuesday. This was a weekly decline of -9,660 contracts from the previous week which had a total of -100,794 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.8 percent. The commercials are Bullish-Extreme with a score of 96.6 percent and the small traders (not shown in chart) are Bearish with a score of 24.0 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 4.5 86.2 8.0 – Percent of Open Interest Shorts: 49.2 35.7 13.9 – Net Position: -110,454 124,927 -14,473 – Gross Longs: 11,196 213,084 19,811 – Gross Shorts: 121,650 88,157 34,284 – Long to Short Ratio: 0.1 to 1 2.4 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 0.8 96.6 24.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -5.1 0.0 16.7   Swiss Franc Futures: The Swiss Franc large speculator standing this week came in at a net position of -15,763 contracts in the data reported through Tuesday. This was a weekly fall of -1,856 contracts from the previous week which had a total of -13,907 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 39.8 percent. The commercials are Bullish with a score of 69.2 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 15.5 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.2 74.6 16.1 – Percent of Open Interest Shorts: 40.0 16.5 43.5 – Net Position: -15,763 29,819 -14,056 – Gross Longs: 4,727 38,258 8,271 – Gross Shorts: 20,490 8,439 22,327 – Long to Short Ratio: 0.2 to 1 4.5 to 1 0.4 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 39.8 69.2 15.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -7.7 8.0 -7.6   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week came in at a net position of -5,407 contracts in the data reported through Tuesday. This was a weekly fall of -14,436 contracts from the previous week which had a total of 9,029 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.3 percent. The commercials are Bullish with a score of 66.9 percent and the small traders (not shown in chart) are Bearish with a score of 34.7 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 25.6 49.8 21.8 – Percent of Open Interest Shorts: 29.2 47.9 20.1 – Net Position: -5,407 2,939 2,468 – Gross Longs: 38,679 75,215 32,880 – Gross Shorts: 44,086 72,276 30,412 – Long to Short Ratio: 0.9 to 1 1.0 to 1 1.1 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 38.3 66.9 34.7 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -4.0 14.5 -29.0   Australian Dollar Futures: The Australian Dollar large speculator standing this week came in at a net position of -41,714 contracts in the data reported through Tuesday. This was a weekly decrease of -13,198 contracts from the previous week which had a total of -28,516 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 46.2 percent. The commercials are Bullish with a score of 54.0 percent and the small traders (not shown in chart) are Bearish with a score of 39.2 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 24.1 59.9 13.1 – Percent of Open Interest Shorts: 51.3 29.1 16.7 – Net Position: -41,714 47,126 -5,412 – Gross Longs: 36,869 91,731 20,131 – Gross Shorts: 78,583 44,605 25,543 – Long to Short Ratio: 0.5 to 1 2.1 to 1 0.8 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 46.2 54.0 39.2 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 7.3 4.7 -34.4   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week came in at a net position of -12,996 contracts in the data reported through Tuesday. This was a weekly fall of -6,386 contracts from the previous week which had a total of -6,610 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 49.5 percent. The commercials are Bullish with a score of 56.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 7.4 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 27.0 68.5 3.9 – Percent of Open Interest Shorts: 50.1 38.5 10.8 – Net Position: -12,996 16,874 -3,878 – Gross Longs: 15,203 38,541 2,216 – Gross Shorts: 28,199 21,667 6,094 – Long to Short Ratio: 0.5 to 1 1.8 to 1 0.4 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 49.5 56.4 7.4 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -20.4 26.0 -54.4   Mexican Peso Futures: The Mexican Peso large speculator standing this week came in at a net position of 16,725 contracts in the data reported through Tuesday. This was a weekly advance of 2,102 contracts from the previous week which had a total of 14,623 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 34.5 percent. The commercials are Bullish with a score of 64.1 percent and the small traders (not shown in chart) are Bullish with a score of 60.6 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 41.5 53.1 4.2 – Percent of Open Interest Shorts: 30.7 66.7 1.5 – Net Position: 16,725 -20,866 4,141 – Gross Longs: 63,921 81,735 6,467 – Gross Shorts: 47,196 102,601 2,326 – Long to Short Ratio: 1.4 to 1 0.8 to 1 2.8 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 34.5 64.1 60.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 10.6 -10.1 -3.5   Brazilian Real Futures: The Brazilian Real large speculator standing this week came in at a net position of 40,778 contracts in the data reported through Tuesday. This was a weekly lowering of -1,010 contracts from the previous week which had a total of 41,788 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 90.5 percent. The commercials are Bearish-Extreme with a score of 10.3 percent and the small traders (not shown in chart) are Bullish with a score of 79.4 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 79.5 15.4 5.0 – Percent of Open Interest Shorts: 13.1 83.8 3.0 – Net Position: 40,778 -42,031 1,253 – Gross Longs: 48,835 9,454 3,070 – Gross Shorts: 8,057 51,485 1,817 – Long to Short Ratio: 6.1 to 1 0.2 to 1 1.7 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 90.5 10.3 79.4 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -1.8 3.5 -20.6   Russian Ruble Futures: The Russian Ruble large speculator standing this week came in at a net position of 7,543 contracts in the data reported through Tuesday. This was a weekly fall of -263 contracts from the previous week which had a total of 7,806 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.2 percent. The commercials are Bullish with a score of 69.1 percent and the small traders (not shown in chart) are Bearish with a score of 23.9 percent. RUSSIAN RUBLE Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 36.6 60.6 2.8 – Percent of Open Interest Shorts: 0.5 94.7 4.7 – Net Position: 7,543 -7,150 -393 – Gross Longs: 7,658 12,679 593 – Gross Shorts: 115 19,829 986 – Long to Short Ratio: 66.6 to 1 0.6 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 31.2 69.1 23.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -15.6 16.7 -18.8   Bitcoin Futures: The Bitcoin large speculator standing this week came in at a net position of 703 contracts in the data reported through Tuesday. This was a weekly gain of 315 contracts from the previous week which had a total of 388 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 100.0 percent. The commercials are Bearish-Extreme with a score of 0.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 14.9 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.1 2.1 9.1 – Percent of Open Interest Shorts: 74.6 9.4 8.3 – Net Position: 703 -789 86 – Gross Longs: 8,789 227 989 – Gross Shorts: 8,086 1,016 903 – Long to Short Ratio: 1.1 to 1 0.2 to 1 1.1 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 100.0 0.0 14.9 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 19.0 -24.9 -13.6   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Swing Overview - Week 18 2022

The Swing Overview - Week 18 2022

Purple Trading Purple Trading 16.05.2022 10:51
The Swing Overview - Week 18 In the war against rising inflation, central banks in the US, the UK and Australia raised interest rates this week. Britain, meanwhile, warned of the risk of a recession. The CNB also raised rates. They have thus reached their highest levels since 1999. The key interest rate in the Czech Republic is now 5.75%.   The main stock indices have weakened strongly in response to the monetary tightening policies of the major economies and are at significant support levels. The negative sentiment on the indices is confirmed by the VIX fear indicator, which is above 30. The US dollar, on the other hand, continues to ride on the winning wave. The Fed raised interest rates by 0.5% The Fed raised rates by 0.5% points on Wednesday as expected, the highest jump in 22 years. This took the interest rate to 1%. The Fed chief announced that further half a percentage point rate hikes will continue at the next meetings in June and July. Powell also stated that the US economy is doing well and that it can withstand interest rate hikes without the risk of a recession and a significant increase in unemployment.   In addition to the rate hike, the Fed announced that in June it would begin reducing the assets on the bank's balance sheet that the central bank had accumulated during the pandemic. In June, July and August, the Fed will sell $45 billion of assets a month, and starting in September it will sell $95 billion a month.   Although Powell ruled out a 0.75% rate hike at the next meetings, interest rate futures markets continue to expect that possibility with about an 80% probability. Figure 1: The CME Fed Watch tool projections of the target interest rate for the next Fed meeting on June 15, 2022 Based on these expectations, US 10-year Treasury yields continue to strengthen and have surpassed the 3% mark. The US dollar is also strengthening and it is at the highest level since January 2017 and approaching 104.  Figure 2: The US 10-year bond yields and the USD index on the daily chart   Equity indices remain under pressure The SP 500 index initially rallied strongly following the announcement of the rate hike, after Powell ruled out a 0.75% rate hike in subsequent meetings. However, markets gave back all the gains the following day as interest rate futures continue to estimate an 80% probability that the next rate hike, which will take place in June 2022, will be 0.75%.   Figure 3: SP 500 on H4 and D1 chart Thus, in terms of technical analysis, the US SP 500 index continues to move in a downtrend below both the SMA 100 and EMA 50 moving averages with resistance, according to the 4 H chart, at 4,308 - 4,313. The next resistance, according to the H4 chart, is 4,360 - 4,365.  Strong resistance is at 4,500. The current support is 4 070 - 4 100.   German DAX index German industrial orders fell by 4.7% in March, which is more than expected. A major contributor to this negative result was a reduction in orders from abroad as the war in Ukraine hit demand in the manufacturing sector. The outlook is negative and some analysts suggest that the German economy is heading into recession. The reasons are the war in Ukraine, problems in supply chains and high inflation. The Dax index confirms these negative outlooks with a downward trend. Figure 4: German DAX index on H4 and daily chart The index continues to move below the SMA 100 on the daily chart and on the H4 chart, confirming the bearish sentiment. The nearest support according to the H4 is 13,600 - 13,650. Resistance is 14,300 - 14,330. The next resistance is 14,592 - 14,632.   The outlook for the euro remains negative HSBC bank on Thursday significantly cut its forecast for the euro, saying it expects the euro to weaken to parity against the US dollar this year, the first major investment bank to make such a prediction.   The post-pandemic economic environment, which has been damaged by the ongoing war in Ukraine, looks challenging for the European economy, potentially forcing the European Central Bank to tighten policy slowly compared to the U.S. Federal Reserve, which has begun an aggressive rate-hiking cycle.  This has raised the prospect of the single currency falling to levels not seen in two decades. HSBC said it expects the move to happen by the fourth quarter of 2022.   ECB board member Isabel Schnabel said this week that rates may need to be raised as early as July. The precursor to any rate hike must be an end to bond purchases and that could come in late June. Markets are pricing in a 90 basis point tightening in rates this year.   Figure 5: The EURUSD on H4 and daily chart The EUR/USD pair is in a clear downtrend with resistance at 1.0650 - 1.071. The important support is 1.05, but it has already been tested several times and could be broken soon. The next support is from January 2017 at around 1.0350 - 1.040.   The Czech koruna got another injection in the form of an interest rate hike The CNB raised the interest rate by 0.75%, which exceeded analysts' expectations who projected a 0.50% rise. The current rate now stands at 5.75%, the highest since 1999. Consumer price growth continues to rise and by raising the interest rate the central bank is trying to dampen this growth by raising the interest rate. Inflation is expected to reach 15% by mid-year. The CNB has an inflation target of 2% and inflation is expected to reach these levels in 2024.   The problem is economic growth, which is slowing significantly.  But maintaining price stability is clearly more important than the negative effects of higher rates on the real economy.  Figure 6: The USD/CZK and the EUR/CZK on the daily chart The Czech koruna has so far done best on the pair with the euro, as interest rates are zero on the euro. The koruna has been weakening significantly on the USD pair in recent days. The current significant resistance on the USD/CZK is CZK 23.50 per dollar and on the EUR/CZK it is 24.70.    Bank of England warned of recession and more than 10% inflation The Bank of England sent out a strong warning that Britain faces the twin dangers of recession and inflation above 10% when it raised interest rates by a quarter percentage point to 1% on Thursday. The pound fell more than a cent against the US dollar and hit its lowest level since mid-2020, below $1.24, as the gloominess of the BoE's new forecasts for the world's fifth-largest economy caught investors off guard.    The BoE also said it was also concerned about the impact of renewed COVID-19 lockdowns in China, which threaten to hit supply chains again and increase inflationary pressures.    The BoE's rate hike was the fourth since December, the fastest pace of policy tightening in 25 years. The central bank also revised up its price growth forecasts, which suggest it will peak above 10% in the final three months of this year. Previously, it had expected it to peak at around 8% in April. Markets expect interest rates to reach 2-2.25% by the end of 2022.  Figure 7: The GBP/USD on weekly and daily charts In terms of technical analysis, the GBP/USD is in a downtrend. The pound is trading at levels below 1.24 pounds per dollar and has reached to the support of 1.225-1.2330. The nearest resistance according to the weekly chart is at 1.2700-1.2750.   
COT Metals Speculators have cooled off their Gold and Copper bets

COT Metals Speculators have cooled off their Gold and Copper bets

Invest Macro Invest Macro 22.05.2022 11:40
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 17th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Highlighting the COT metals data is the recent decrease in the Gold and Copper speculative positions. Gold speculator bets fell this week for the fifth straight week and for the eighth time in the past ten weeks as sentiment for the shiny metal has dulled over the past few months. This latest 5-week decline has amounted to a total reduction of -78,927 contracts from the speculator position. The current speculator standing for Gold remains in bullish position but has descended to lowest level of the past fifteen weeks (at +175,360 contracts), dating back to early February. Despite the speculator decline, the gold price rebounded by over 1 percent this week (close near $1,842 per ounce) following four straight weeks of decline that brought the Gold futures price down from a high of over $2,000 per ounce in mid-April to roughly $1,800 per ounce to close out last week. Copper speculator bets have also cooled over the past couple months and fell this week for the sixth consecutive week. This decline has taken a whopping -60,550 contracts off the speculator position and has dropped the spec level from +36,142 contracts on April 5th to -24,408 contracts this week. This week’s total marks the lowest level for Copper bets in the past 109 weeks, dating back to April 14th of 2020. The slowdown in the Chinese economy and the Covid shutdowns in China have put a dent in the Copper sentiment as China is one of the largest world producers of Copper and is the largest consumer of Copper in the world. Overall, the markets with higher speculator bets this week were just Platinum (840 contracts) and Palladium (30 contracts). The markets with declining speculator bets this week were Gold (-17,955 contracts), Silver (-2,968 contracts) and Copper (-1,782 contracts). Data Snapshot of Commodity Market Traders | Columns Legend May-17-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index WTI Crude 1,730,665 0 325,637 7 -363,869 95 38,232 69 Gold 555,756 30 175,360 33 -206,879 65 31,519 48 Silver 144,534 11 16,114 38 -24,841 75 8,727 0 Copper 189,483 19 -24,408 25 23,059 75 1,349 33 Palladium 9,114 13 -3,215 3 3,621 97 -406 20 Platinum 65,926 32 2,203 7 -6,697 96 4,494 25 Natural Gas 1,118,417 8 -115,012 44 64,340 51 50,672 100 Brent 176,861 21 -34,867 53 32,127 47 2,740 46 Heating Oil 349,618 31 6,455 52 -32,434 37 25,979 88 Soybeans 709,144 24 183,647 73 -156,937 33 -26,710 26 Corn 1,548,438 29 473,743 91 -424,756 11 -48,987 15 Coffee 206,106 0 38,487 72 -40,949 32 2,462 13 Sugar 825,281 6 196,630 77 -245,374 22 48,744 68 Wheat 326,651 8 28,806 57 -26,020 23 -2,786 98   Gold Comex Futures: The Gold Comex Futures large speculator standing this week came in at a net position of 175,360 contracts in the data reported through Tuesday. This was a weekly reduction of -17,955 contracts from the previous week which had a total of 193,315 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.2 percent. The commercials are Bullish with a score of 64.8 percent and the small traders (not shown in chart) are Bearish with a score of 48.0 percent. Gold Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 50.9 24.8 9.1 – Percent of Open Interest Shorts: 19.4 62.0 3.4 – Net Position: 175,360 -206,879 31,519 – Gross Longs: 283,011 137,687 50,588 – Gross Shorts: 107,651 344,566 19,069 – Long to Short Ratio: 2.6 to 1 0.4 to 1 2.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 33.2 64.8 48.0 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -26.3 26.1 -5.4   Silver Comex Futures: The Silver Comex Futures large speculator standing this week came in at a net position of 16,114 contracts in the data reported through Tuesday. This was a weekly decline of -2,968 contracts from the previous week which had a total of 19,082 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.4 percent. The commercials are Bullish with a score of 74.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 0.0 percent. Silver Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 41.4 37.6 16.0 – Percent of Open Interest Shorts: 30.3 54.7 10.0 – Net Position: 16,114 -24,841 8,727 – Gross Longs: 59,857 54,287 23,121 – Gross Shorts: 43,743 79,128 14,394 – Long to Short Ratio: 1.4 to 1 0.7 to 1 1.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 38.4 74.5 0.0 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -28.8 34.5 -34.4   Copper Grade #1 Futures: The Copper Grade #1 Futures large speculator standing this week came in at a net position of -24,408 contracts in the data reported through Tuesday. This was a weekly decrease of -1,782 contracts from the previous week which had a total of -22,626 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 24.8 percent. The commercials are Bullish with a score of 75.3 percent and the small traders (not shown in chart) are Bearish with a score of 33.1 percent. Copper Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 28.1 53.6 8.3 – Percent of Open Interest Shorts: 40.9 41.4 7.6 – Net Position: -24,408 23,059 1,349 – Gross Longs: 53,159 101,533 15,747 – Gross Shorts: 77,567 78,474 14,398 – Long to Short Ratio: 0.7 to 1 1.3 to 1 1.1 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 24.8 75.3 33.1 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -43.6 45.4 -32.1   Platinum Futures: The Platinum Futures large speculator standing this week came in at a net position of 2,203 contracts in the data reported through Tuesday. This was a weekly advance of 840 contracts from the previous week which had a total of 1,363 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 6.5 percent. The commercials are Bullish-Extreme with a score of 95.8 percent and the small traders (not shown in chart) are Bearish with a score of 24.7 percent. Platinum Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 42.9 39.4 12.2 – Percent of Open Interest Shorts: 39.5 49.6 5.4 – Net Position: 2,203 -6,697 4,494 – Gross Longs: 28,253 26,002 8,051 – Gross Shorts: 26,050 32,699 3,557 – Long to Short Ratio: 1.1 to 1 0.8 to 1 2.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 6.5 95.8 24.7 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -13.0 15.5 -29.7   Palladium Futures: The Palladium Futures large speculator standing this week came in at a net position of -3,215 contracts in the data reported through Tuesday. This was a weekly rise of 30 contracts from the previous week which had a total of -3,245 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 3.2 percent. The commercials are Bullish-Extreme with a score of 97.1 percent and the small traders (not shown in chart) are Bearish with a score of 20.4 percent. Palladium Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 10.9 62.7 11.2 – Percent of Open Interest Shorts: 46.2 22.9 15.7 – Net Position: -3,215 3,621 -406 – Gross Longs: 996 5,712 1,021 – Gross Shorts: 4,211 2,091 1,427 – Long to Short Ratio: 0.2 to 1 2.7 to 1 0.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 3.2 97.1 20.4 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -6.7 12.4 -58.1   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
Copper prices hit lowest level this year. Crude oil decreased second day in a row. BoE went for a 25bp hike

COT Metals Speculators have cooled off their Gold and Copper bets - 22.05.2022

Invest Macro Invest Macro 22.05.2022 12:33
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 17th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Highlighting the COT metals data is the recent decrease in the Gold and Copper speculative positions. Gold speculator bets fell this week for the fifth straight week and for the eighth time in the past ten weeks as sentiment for the shiny metal has dulled over the past few months. This latest 5-week decline has amounted to a total reduction of -78,927 contracts from the speculator position. The current speculator standing for Gold remains in bullish position but has descended to lowest level of the past fifteen weeks (at +175,360 contracts), dating back to early February. Despite the speculator decline, the gold price rebounded by over 1 percent this week (close near $1,842 per ounce) following four straight weeks of decline that brought the Gold futures price down from a high of over $2,000 per ounce in mid-April to roughly $1,800 per ounce to close out last week. Copper speculator bets have also cooled over the past couple months and fell this week for the sixth consecutive week. This decline has taken a whopping -60,550 contracts off the speculator position and has dropped the spec level from +36,142 contracts on April 5th to -24,408 contracts this week. This week’s total marks the lowest level for Copper bets in the past 109 weeks, dating back to April 14th of 2020. The slowdown in the Chinese economy and the Covid shutdowns in China have put a dent in the Copper sentiment as China is one of the largest world producers of Copper and is the largest consumer of Copper in the world. Overall, the markets with higher speculator bets this week were just Platinum (840 contracts) and Palladium (30 contracts). The markets with declining speculator bets this week were Gold (-17,955 contracts), Silver (-2,968 contracts) and Copper (-1,782 contracts). Data Snapshot of Commodity Market Traders | Columns Legend May-17-2022OIOI-IndexSpec-NetSpec-IndexCom-NetCOM-IndexSmalls-NetSmalls-Index WTI Crude 1,730,665 0 325,637 7 -363,869 95 38,232 69 Gold 555,756 30 175,360 33 -206,879 65 31,519 48 Silver 144,534 11 16,114 38 -24,841 75 8,727 0 Copper 189,483 19 -24,408 25 23,059 75 1,349 33 Palladium 9,114 13 -3,215 3 3,621 97 -406 20 Platinum 65,926 32 2,203 7 -6,697 96 4,494 25 Natural Gas 1,118,417 8 -115,012 44 64,340 51 50,672 100 Brent 176,861 21 -34,867 53 32,127 47 2,740 46 Heating Oil 349,618 31 6,455 52 -32,434 37 25,979 88 Soybeans 709,144 24 183,647 73 -156,937 33 -26,710 26 Corn 1,548,438 29 473,743 91 -424,756 11 -48,987 15 Coffee 206,106 0 38,487 72 -40,949 32 2,462 13 Sugar 825,281 6 196,630 77 -245,374 22 48,744 68 Wheat 326,651 8 28,806 57 -26,020 23 -2,786 98   Gold Comex Futures: The Gold Comex Futures large speculator standing this week came in at a net position of 175,360 contracts in the data reported through Tuesday. This was a weekly reduction of -17,955 contracts from the previous week which had a total of 193,315 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.2 percent. The commercials are Bullish with a score of 64.8 percent and the small traders (not shown in chart) are Bearish with a score of 48.0 percent. Gold Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 50.9 24.8 9.1 – Percent of Open Interest Shorts: 19.4 62.0 3.4 – Net Position: 175,360 -206,879 31,519 – Gross Longs: 283,011 137,687 50,588 – Gross Shorts: 107,651 344,566 19,069 – Long to Short Ratio: 2.6 to 1 0.4 to 1 2.7 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 33.2 64.8 48.0 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -26.3 26.1 -5.4   Silver Comex Futures: The Silver Comex Futures large speculator standing this week came in at a net position of 16,114 contracts in the data reported through Tuesday. This was a weekly decline of -2,968 contracts from the previous week which had a total of 19,082 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.4 percent. The commercials are Bullish with a score of 74.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 0.0 percent. Silver Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 41.4 37.6 16.0 – Percent of Open Interest Shorts: 30.3 54.7 10.0 – Net Position: 16,114 -24,841 8,727 – Gross Longs: 59,857 54,287 23,121 – Gross Shorts: 43,743 79,128 14,394 – Long to Short Ratio: 1.4 to 1 0.7 to 1 1.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 38.4 74.5 0.0 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -28.8 34.5 -34.4   Copper Grade #1 Futures: The Copper Grade #1 Futures large speculator standing this week came in at a net position of -24,408 contracts in the data reported through Tuesday. This was a weekly decrease of -1,782 contracts from the previous week which had a total of -22,626 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 24.8 percent. The commercials are Bullish with a score of 75.3 percent and the small traders (not shown in chart) are Bearish with a score of 33.1 percent. Copper Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 28.1 53.6 8.3 – Percent of Open Interest Shorts: 40.9 41.4 7.6 – Net Position: -24,408 23,059 1,349 – Gross Longs: 53,159 101,533 15,747 – Gross Shorts: 77,567 78,474 14,398 – Long to Short Ratio: 0.7 to 1 1.3 to 1 1.1 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 24.8 75.3 33.1 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -43.6 45.4 -32.1   Platinum Futures: The Platinum Futures large speculator standing this week came in at a net position of 2,203 contracts in the data reported through Tuesday. This was a weekly advance of 840 contracts from the previous week which had a total of 1,363 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 6.5 percent. The commercials are Bullish-Extreme with a score of 95.8 percent and the small traders (not shown in chart) are Bearish with a score of 24.7 percent. Platinum Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 42.9 39.4 12.2 – Percent of Open Interest Shorts: 39.5 49.6 5.4 – Net Position: 2,203 -6,697 4,494 – Gross Longs: 28,253 26,002 8,051 – Gross Shorts: 26,050 32,699 3,557 – Long to Short Ratio: 1.1 to 1 0.8 to 1 2.3 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 6.5 95.8 24.7 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -13.0 15.5 -29.7   Palladium Futures: The Palladium Futures large speculator standing this week came in at a net position of -3,215 contracts in the data reported through Tuesday. This was a weekly rise of 30 contracts from the previous week which had a total of -3,245 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 3.2 percent. The commercials are Bullish-Extreme with a score of 97.1 percent and the small traders (not shown in chart) are Bearish with a score of 20.4 percent. Palladium Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 10.9 62.7 11.2 – Percent of Open Interest Shorts: 46.2 22.9 15.7 – Net Position: -3,215 3,621 -406 – Gross Longs: 996 5,712 1,021 – Gross Shorts: 4,211 2,091 1,427 – Long to Short Ratio: 0.2 to 1 2.7 to 1 0.7 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 3.2 97.1 20.4 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -6.7 12.4 -58.1   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
COT Metals Speculators raise bets for Copper and Gold after multi-week slides

COT Metals Speculators raise bets for Copper and Gold after multi-week slides

Invest Macro Invest Macro 28.05.2022 21:00
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 24th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Highlighting the COT metals data is the bounce-back in Gold and Copper speculator bets after multiple down weeks for both of these metals. Copper positions saw a small turnaround with a +4,775 contract gain this week after falling for six consecutive weeks which amounted to a total drop by -60,550 net positions from April 12th to May 17th. Copper has been particularly hard hit by the lockdowns in China and the effect that it has had on the industrial and manufacturing economy there. Copper speculator bets have now been oscillating at the lowest levels in approximately two years. Gold positions, meanwhile, rose by +8,453 contracts this week after declining in the previous five weeks and by a total of -78,927 contracts in that period. Gold bullish bets are under the +200,000 net contract level for a fourth straight week after spending the previous ten weeks above that threshold. Currently in 2022, Gold positions are averaging +221,416 weekly contracts so far compared to an average of +204,623 weekly contracts over 2021 and an average of +262,052 weekly contracts over 2020. Overall, the markets with higher speculator bets this week were Gold (8,453 contracts) and Copper (4,775 contracts) while the markets with declining speculator bets this week were Silver (-2,011 contracts), Platinum (-718 contracts) and Palladium (-257 contracts). Speculator strength standings for each market where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme OI Strength = Current Open Interest level compared to last 3 years range Spec Strength = Current Net Speculator level compared to last 3 years range Strength Move = Six week change of Spec Strength Data Snapshot of Commodity Market Traders | Columns Legend May-24-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index WTI Crude 1,711,863 0 334,761 11 -374,627 91 39,866 71 Gold 530,098 22 183,813 14 -211,947 82 28,134 37 Silver 146,456 13 14,103 26 -23,297 88 9,194 3 Copper 186,433 17 -19,633 28 19,288 73 345 27 Palladium 7,919 7 -3,472 2 3,800 98 -328 25 Platinum 65,824 32 1,485 5 -6,683 96 5,198 34 Natural Gas 1,107,496 6 -111,570 45 63,847 51 47,723 93 Brent 183,629 27 -39,289 45 37,488 56 1,801 34 Heating Oil 349,618 31 6,455 52 -32,434 37 25,979 88 Soybeans 729,900 28 188,368 72 -159,047 34 -29,321 21 Corn 1,544,885 29 427,848 85 -372,522 19 -55,326 11 Coffee 211,266 5 37,072 71 -38,484 34 1,412 4 Sugar 847,420 11 209,487 80 -255,450 20 45,963 65 Wheat 326,607 8 26,344 53 -24,339 25 -2,005 100   Gold Comex Futures: The Gold Comex Futures large speculator standing this week was a net position of 183,813 contracts in the data reported through Tuesday. This was a weekly boost of 8,453 contracts from the previous week which had a total of 175,360 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 14.0 percent. The commercials are Bullish-Extreme with a score of 81.5 percent and the small traders (not shown in chart) are Bearish with a score of 37.2 percent. Gold Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 53.2 24.6 8.9 – Percent of Open Interest Shorts: 18.6 64.6 3.6 – Net Position: 183,813 -211,947 28,134 – Gross Longs: 282,202 130,364 47,411 – Gross Shorts: 98,389 342,311 19,277 – Long to Short Ratio: 2.9 to 1 0.4 to 1 2.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 14.0 81.5 37.2 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -35.7 35.7 -18.1   Silver Comex Futures: The Silver Comex Futures large speculator standing this week was a net position of 14,103 contracts in the data reported through Tuesday. This was a weekly reduction of -2,011 contracts from the previous week which had a total of 16,114 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 26.1 percent. The commercials are Bullish-Extreme with a score of 87.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 2.6 percent. Silver Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 40.1 38.9 15.7 – Percent of Open Interest Shorts: 30.5 54.8 9.5 – Net Position: 14,103 -23,297 9,194 – Gross Longs: 58,748 56,910 23,064 – Gross Shorts: 44,645 80,207 13,870 – Long to Short Ratio: 1.3 to 1 0.7 to 1 1.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 26.1 87.6 2.6 – Strength Index Reading (3 Year Range): Bearish Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -36.9 45.6 -46.6   Copper Grade #1 Futures: The Copper Grade #1 Futures large speculator standing this week was a net position of -19,633 contracts in the data reported through Tuesday. This was a weekly gain of 4,775 contracts from the previous week which had a total of -24,408 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 28.2 percent. The commercials are Bullish with a score of 72.7 percent and the small traders (not shown in chart) are Bearish with a score of 27.3 percent. Copper Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 29.0 53.3 8.0 – Percent of Open Interest Shorts: 39.6 42.9 7.9 – Net Position: -19,633 19,288 345 – Gross Longs: 54,130 99,318 14,993 – Gross Shorts: 73,763 80,030 14,648 – Long to Short Ratio: 0.7 to 1 1.2 to 1 1.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 28.2 72.7 27.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -30.9 33.4 -32.1   Platinum Futures: The Platinum Futures large speculator standing this week was a net position of 1,485 contracts in the data reported through Tuesday. This was a weekly reduction of -718 contracts from the previous week which had a total of 2,203 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 5.5 percent. The commercials are Bullish-Extreme with a score of 95.8 percent and the small traders (not shown in chart) are Bearish with a score of 34.5 percent. Platinum Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 39.6 41.0 13.0 – Percent of Open Interest Shorts: 37.3 51.2 5.1 – Net Position: 1,485 -6,683 5,198 – Gross Longs: 26,052 27,002 8,533 – Gross Shorts: 24,567 33,685 3,335 – Long to Short Ratio: 1.1 to 1 0.8 to 1 2.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 5.5 95.8 34.5 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -7.0 9.0 -22.7   Palladium Futures: The Palladium Futures large speculator standing this week was a net position of -3,472 contracts in the data reported through Tuesday. This was a weekly decline of -257 contracts from the previous week which had a total of -3,215 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 1.7 percent. The commercials are Bullish-Extreme with a score of 98.1 percent and the small traders (not shown in chart) are Bearish with a score of 24.9 percent. Palladium Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.2 70.1 12.3 – Percent of Open Interest Shorts: 53.0 22.2 16.4 – Net Position: -3,472 3,800 -328 – Gross Longs: 729 5,555 974 – Gross Shorts: 4,201 1,755 1,302 – Long to Short Ratio: 0.2 to 1 3.2 to 1 0.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 1.7 98.1 24.9 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.2 13.7 -55.5   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Swing Overview – Week 20 2022

The Swing Overview – Week 20 2022

Purple Trading Purple Trading 02.06.2022 16:36
The Swing Overview – Week 20 The markets remain volatile and fragile, as shown by the VIX fear index, which has again surpassed the level 30 points. However, equity indices are at interesting supports and there could be some short-term recovery. The euro has bounced off its support in anticipation of tighter monetary policy and the gold is holding its price tag above $1,800 per troy ounce. Is the gold back in investors' favor again? Macroeconomic data The week started with a set of worse data from the Chinese economy, which showed that industrial production contracted by 2.9% year-on-year basis and the retail sales fell by 11.1%. The data shows the latest measures for the country's current COVID-19 outbreak are taking a toll on the economy. To support the slowing economy, China cut its benchmark interest rate by 0.15% on Friday morning, more than analysts expected. While this will not be enough to stave off current downside risks, markets may respond to expectation of more easing in the future. On a positive note, data from the US showed retail sales rose by 0.9% in April and industrial production rose by 1.1% in April. Inflation data in Europe was important. It showed that inflation in the euro area slowed down a little, reaching 7.4% in April compared to 7.5% in March. In Canada, on the other hand, the inflation continued to rise, reaching 6.8% (6.7% in March) and in the UK inflation was 9% in April (7% in the previous month). Several factors are contributing to the higher inflation figures: the ongoing war in Ukraine, problems in logistics chains and the effects of the lockdown in China. Concerns about the impact of higher inflation are showing up in the bond market. The benchmark 10-year US Treasury yield has come down from the 3.2% it reached on 9 May and is currently at 2.8%. This means that demand for bonds is rising and they are once again becoming an asset for times of uncertainty.  Figure 1: US 10-year bond yields and USD index on a daily chart   Equity indices on supports Global equities fell significantly in the past week, reaching significant price supports. Thus, there could be some form of short-term bounce. Although a cautious rally began on Thursday, which was then boosted by China's decision to cut interest rates in the early hours of Friday, there is still plenty of fear among investors and according to Louis Dudley of Federated Hermes, cash holdings have reached its highest level since September 2001, suggesting strong bearish sentiment. Supply chain problems have been highlighted by companies such as Cisco Systems, which has warned of persistent parts shortages. That knocked its shares down by 13.7%. The drop made it the latest big-stock company to post its biggest decline in more than a decade last week. The main risks that continue to cause volatility and great uncertainty are thus leading investors to buy "safe" assets such as the US bonds and the Swiss franc. Figure 2: The SP 500 on H4 and D1 chart From a technical analysis perspective, the US SP 500 index continues to move in a downtrend as the market has formed a lower low while being below both the SMA 100 and EMA 50 moving averages on the H4 and daily charts. The nearest resistance is 4,080 - 4,100. The next resistance is at 4,140 and especially 4,293 - 4,300. Support is at 3,860 - 3,900 level. German DAX index The index continues to move in a downtrend along with the major world indices. The price has reached the support which is at 13,680 – 13,700 and the moving average EMA 50 on the H4 chart is above the SMA 100. This could indicate a short-term signal for some upward correction. However, the main trend according to the daily chart is still downwards. The nearest resistance is at 14,260 - 14,330 level. Figure 3: German DAX index on H4 and daily chart The euro has bounced off its support The EUR/USD currency pair benefited last week from the US dollar moving away from its 20-year highs while on the euro, investors are expecting a tightening economy and a rise in interest rates, which the ECB has not risen yet as one of the few banks. Figure 4: The EURUSD on H4 and daily chart   Significant support is at the price around 1.0350 - 1.040. Current resistance is at 1.650 - 1.700.   The Gold in investors' attention again The gold has underperformed over the past month, falling by 10% since April when the price reached USD 2,000 per ounce. But there is now strong risk aversion in the markets, as indicated by the stock markets, which have fallen. The gold, on the other hand, has started to rise. Inflation fears are a possible reason, and investors have begun to accumulate the gold for protection against rising prices. The second reason is that the gold is inversely correlated with the US dollar. The dollar has come down from its 20-year highs, which has allowed the gold to bounce off its support.  Figure 5: The gold on H4 and daily chart The first resistance is at $1,860 per ounce. The support is at $1,830 - $1,840 per ounce. The next support is then at $1,805 - $1,807 and especially at $1,800 per ounce.
The Swing Overview - Week 22 2022

The Swing Overview - Week 22 2022

Purple Trading Purple Trading 07.06.2022 13:59
The Swing Overview - Week 22 Equity indices continued to rise for a second week despite rising inflation and sanctions against Russia. Economic data indicate optimistic consumer expectations and the easing of the Covid-19 measures in China also brought some relief to the markets. The Bank of Canada raised its policy rate to 1.5%. The Eurozone inflation hit a new record of 8.1%, giving further fuel to the ECB to raise interest rates, which is supporting the euro to strengthen.   Macroeconomic data The US consumer confidence in economic growth for May came in at 106.4. The market was expecting 103.9. This optimism points to an expected increase in consumer spendings, which is a positive development. The optimism was also confirmed by data from the manufacturing sector. The ISM PMI index in manufacturing rose by 56.1 in May, an improvement on the April reading of 55.4. The manufacturing sector is therefore expecting further expansion.   On the other hand, data from the labour market were disappointing. The ADP Non Farm Employment indicator (private sector job growth) was well below expectations as the economy created only 128k new jobs in May (the market was expecting 300k new jobs). The unemployment claims data held at the standard 200k level. However, the crucial indicator from the labour market will be Friday's NFP data.   Quarterly wage growth for 1Q 2022 was 12.6% (previous quarter was 3.9%). This figure is a leading indicator on inflation. Faster inflation growth could lead to a higher-than-expected 0.50% rate hike at the Fed's June meeting.   The US 10-year Treasury yields have rebounded from 2.6% and have started to rise again. They are currently around 2.9%. However, the US Dollar Index has not yet reacted to the rise in yields. The reason is that the euro, which has appreciated significantly in recent days, has the largest weight in the USD index. Figure 1: US 10-year bond yields and USD index on the daily chart   The SP 500 Index The SP 500 index has continued to strengthen in recent days. The market seems to be accepting the expected 0.50% rate hike and while economic data points to some slowdown, forward looking consumers‘ and managers’ expectations are optimistic.  Figure 2: The SP 500 on H4 and D1 chart   The US SP 500 index is approaching a significant resistance level, which is in the 4,197-4,204 range. The next one is at 4,293 - 4,306. The nearest support is at 4 075 - 4 086.    German DAX index Figure 3: German DAX index on H4 and daily chart Germany's manufacturing PMI for May came in at 54.8. The previous month it was 54, 6. Thus, managers expect expansion in the manufacturing sector. Surprisingly, German exports rose in April despite the disruption of trade relations with Russia. Exports in Germany grew by 4.4% even though exports to Russia fell by 10%.  The positive data has an impact on the DAX index. However, the bulls in DAX may be discouraged by the expected ECB interest rate hike.   The DAX has reached resistance in the 14,600 - 14,640 area. The nearest significant support is at 14,300 - 14,330, where the horizontal resistance is coincident with the moving average EMA 50 on the H4 chart.   The euro continues to rise Bulls on the euro were supported by inflation data, which reached a record high of 8.1% in the eurozone for the month of May. Inflation increased by 0.8% on a monthly basis compared to April. Information from the manufacturing sector exceeded expectations, with the manufacturing PMI for May coming in at 54.6, indicating optimism in the economy. The ECB will meet on Thursday 9/6/2022 and it might be surprising. While analysts do not expect a rate hike at this meeting, rising inflation may prompt the ECB to act faster.  Figure 4: The EUR/USD on H4 and daily chart The EUR/USD currency pair is reacting to the rate hike expectations by gradual strengthening. A resistance is at 1.0780 The nearest support is now at 1.0629 - 1.0640 and then at 1.0540 - 1.0550.   The Bank of Canada raised the interest rate The GDP in Canada for Q1 2022 grew by 2.89% year-on-year (3.23% in the previous period). On a month-on-month basis, the GDP grew by 0.7% (0.9% in February). This points to slowing economic growth.  Canada's manufacturing PMI for May came in at 56.8 (56.2 in April ), an upbeat development. The Bank of Canada raised its policy rate by 0.50% to 1.5% as expected by analysts. In addition to the rate hike, the Canadian dollar is positively affected by the rise in oil prices as Canada is a major exporter. Figure 5: The USD/CAD on H4 and daily chart The USD/CAD currency pair is currently in a downward movement. The nearest resistance according to the daily chart is 1.2710-1.2730. Support according to the daily chart is in the range of 1.2400-1.2470.  
COT Week 23 Charts: Forex Speculators Positions mostly higher led by Canadian dollar & Swiss franc

COT Week 23 Charts: Forex Speculators Positions mostly higher led by Canadian dollar & Swiss franc

Invest Macro Invest Macro 12.06.2022 17:16
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday June 7th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. COT Currencies market speculator bets were mostly higher this week as eight out of the eleven currency markets we cover had higher positioning this week while three markets had lower contracts. Leading the gains for currency markets was the Canadian dollar (5,945 contracts) and the Swiss franc (4,326 contracts) with the British pound sterling (3,295 contracts), Japanese yen (2,793 contracts), Brazil real (1,389 contracts), Australian dollar (786 contracts), US Dollar Index (400 contracts) and Bitcoin (87 contracts) also showing a positive week. Meanwhile, leading the declines in speculator bets this week were Mexican peso (-2,723 contracts) and Euro (-1,729 contracts) with New Zealand dollar (-1,047 contracts) also registering lower bets on the week. Currency Speculators Notes: US Dollar Index speculator bets have continued their upward climb in four out of the past five weeks as well as nine out of the past twelve weeks. USD Index remains in an extreme-bullish strength level and is very close (currently +37,938 contracts) to the highest net speculator position (+39,078 contracts on January 4th) of this recent bullish cycle, emphasizing the strong speculator bias. The Euro speculator position saw a pullback this week (-1,729 contracts) after huge gains in the previous three weeks (+58,650 contracts). Speculator sentiment is still pretty strong currently (+50,543 contracts) despite a very weak exchange rate (EURUSD at 1.0524 to close the week) and weak outlook for the Eurozone economy with rising inflation. British pound sterling speculator sentiment has crumbled in the past few months. The net speculator position managed to poke its head above its negative bias on February 15th with a total of +2,237 net contracts but sentiment has deteriorated since. From February 22nd to this week, speculator bets have dropped by a total of -73,047 contracts and recently hit a 139-week low on May 24th, the lowest level of speculator sentiment dating back to September of 2019. Japanese yen speculator positions are the most bearish of the major currencies just under -100,000 contracts. The USDJPY exchange rate is at a 20-year high and there has been no sign that the BOJ is interest in raising interest rates while other central banks commit to higher rates. These factors seem to say that the rout of the yen will continue ahead for some time (but how far can it go?). Commodity currency speculator bets are on the defensive lately. Australian dollar spec bets have fallen in five out of the past six weeks. Canadian dollar bets are now in bearish territory for a 5th straight week. New Zealand dollar speculator positions have declined in six out of the past seven weeks and the net position has now fallen to the lowest level since March of 2020 Strength scores (3-Year range of Speculator positions, from 0 to 100 where above 80 is extreme bullish and below 20 is extreme bearish) show that the Brazilian Real, US Dollar Index and Bitcoin are all in extreme-bullish levels at the current moment. On the opposite end of the extreme spectrum, the Japanese yen and the Swiss franc are very weak in relative speculator sentiment and sit in the extreme-bearish levels. Strength score trends (or move index, that calculate 6-week changes in strength scores) shows that the commodity currencies have been losing sentiment over the last six weeks. The Australian dollar, Canadian dollar and the New Zealand dollar have all had changes of at least -18.8 percent in their strength scores with the New Zealand dollar leading the decline with a -33.3 percent drop in six weeks. The US Dollar Index, Euro and Mexican Peso have had small but rising scores over the past six weeks. Data Snapshot of Forex Market Traders | Columns Legend Jun-07-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index USD Index 65,163 100 37,938 91 -41,863 5 3,925 59 EUR 730,667 95 50,543 51 -88,189 51 37,646 37 GBP 258,623 76 -70,810 23 80,465 77 -9,655 36 JPY 266,054 100 -91,646 12 109,109 89 -17,463 18 CHF 49,794 41 -16,132 16 27,216 87 -11,084 20 CAD 167,373 42 -1,062 40 -13,401 58 14,463 59 AUD 166,422 57 -47,896 40 47,413 54 483 54 NZD 63,540 70 -19,771 38 22,681 65 -2,910 19 MXN 248,184 72 32,726 41 -38,117 57 5,391 66 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 72,371 70 46,705 96 -48,954 4 2,249 91 Bitcoin 10,990 58 490 93 -529 0 39 14   US Dollar Index Futures: The US Dollar Index large speculator standing this week recorded a net position of 37,938 contracts in the data reported through Tuesday. This was a weekly lift of 400 contracts from the previous week which had a total of 37,538 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 91.2 percent. The commercials are Bearish-Extreme with a score of 5.0 percent and the small traders (not shown in chart) are Bullish with a score of 59.5 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 85.1 3.2 8.9 – Percent of Open Interest Shorts: 26.9 67.5 2.8 – Net Position: 37,938 -41,863 3,925 – Gross Longs: 55,460 2,090 5,780 – Gross Shorts: 17,522 43,953 1,855 – Long to Short Ratio: 3.2 to 1 0.0 to 1 3.1 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 91.2 5.0 59.5 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 7.0 -8.8 13.4   Euro Currency Futures: The Euro Currency large speculator standing this week recorded a net position of 50,543 contracts in the data reported through Tuesday. This was a weekly reduction of -1,729 contracts from the previous week which had a total of 52,272 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 50.5 percent. The commercials are Bullish with a score of 51.0 percent and the small traders (not shown in chart) are Bearish with a score of 36.7 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 31.5 50.0 12.5 – Percent of Open Interest Shorts: 24.6 62.1 7.3 – Net Position: 50,543 -88,189 37,646 – Gross Longs: 230,248 365,628 90,978 – Gross Shorts: 179,705 453,817 53,332 – Long to Short Ratio: 1.3 to 1 0.8 to 1 1.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 50.5 51.0 36.7 – Strength Index Reading (3 Year Range): Bullish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 8.7 -11.9 22.7   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week recorded a net position of -70,810 contracts in the data reported through Tuesday. This was a weekly increase of 3,295 contracts from the previous week which had a total of -74,105 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 23.0 percent. The commercials are Bullish with a score of 77.3 percent and the small traders (not shown in chart) are Bearish with a score of 35.6 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 13.4 74.1 8.4 – Percent of Open Interest Shorts: 40.8 43.0 12.1 – Net Position: -70,810 80,465 -9,655 – Gross Longs: 34,618 191,742 21,602 – Gross Shorts: 105,428 111,277 31,257 – Long to Short Ratio: 0.3 to 1 1.7 to 1 0.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 23.0 77.3 35.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -0.9 -4.4 17.9   Japanese Yen Futures: The Japanese Yen large speculator standing this week recorded a net position of -91,646 contracts in the data reported through Tuesday. This was a weekly boost of 2,793 contracts from the previous week which had a total of -94,439 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 12.4 percent. The commercials are Bullish-Extreme with a score of 88.9 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.0 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 6.9 79.3 8.7 – Percent of Open Interest Shorts: 41.4 38.3 15.3 – Net Position: -91,646 109,109 -17,463 – Gross Longs: 18,466 210,889 23,226 – Gross Shorts: 110,112 101,780 40,689 – Long to Short Ratio: 0.2 to 1 2.1 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 12.4 88.9 18.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 2.4 -2.8 3.9   Swiss Franc Futures: The Swiss Franc large speculator standing this week recorded a net position of -16,132 contracts in the data reported through Tuesday. This was a weekly advance of 4,326 contracts from the previous week which had a total of -20,458 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 15.6 percent. The commercials are Bullish-Extreme with a score of 86.9 percent and the small traders (not shown in chart) are Bearish with a score of 20.0 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 5.2 69.3 18.8 – Percent of Open Interest Shorts: 37.6 14.6 41.1 – Net Position: -16,132 27,216 -11,084 – Gross Longs: 2,609 34,494 9,378 – Gross Shorts: 18,741 7,278 20,462 – Long to Short Ratio: 0.1 to 1 4.7 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 15.6 86.9 20.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.3 2.4 6.0   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week recorded a net position of -1,062 contracts in the data reported through Tuesday. This was a weekly boost of 5,945 contracts from the previous week which had a total of -7,007 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.2 percent. The commercials are Bullish with a score of 57.6 percent and the small traders (not shown in chart) are Bullish with a score of 58.6 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 23.5 44.2 22.4 – Percent of Open Interest Shorts: 24.1 52.2 13.7 – Net Position: -1,062 -13,401 14,463 – Gross Longs: 39,288 74,044 37,463 – Gross Shorts: 40,350 87,445 23,000 – Long to Short Ratio: 1.0 to 1 0.8 to 1 1.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 40.2 57.6 58.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -23.8 14.2 9.7   Australian Dollar Futures: The Australian Dollar large speculator standing this week recorded a net position of -47,896 contracts in the data reported through Tuesday. This was a weekly increase of 786 contracts from the previous week which had a total of -48,682 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.4 percent. The commercials are Bullish with a score of 54.3 percent and the small traders (not shown in chart) are Bullish with a score of 53.6 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 19.1 59.9 14.5 – Percent of Open Interest Shorts: 47.8 31.4 14.2 – Net Position: -47,896 47,413 483 – Gross Longs: 31,720 99,747 24,197 – Gross Shorts: 79,616 52,334 23,714 – Long to Short Ratio: 0.4 to 1 1.9 to 1 1.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 40.4 54.3 53.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -18.8 13.8 4.3   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week recorded a net position of -19,771 contracts in the data reported through Tuesday. This was a weekly decline of -1,047 contracts from the previous week which had a total of -18,724 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.1 percent. The commercials are Bullish with a score of 65.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.5 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 19.4 69.1 4.0 – Percent of Open Interest Shorts: 50.5 33.4 8.6 – Net Position: -19,771 22,681 -2,910 – Gross Longs: 12,310 43,890 2,538 – Gross Shorts: 32,081 21,209 5,448 – Long to Short Ratio: 0.4 to 1 2.1 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 38.1 65.4 18.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -33.3 31.2 -4.3   Mexican Peso Futures: The Mexican Peso large speculator standing this week recorded a net position of 32,726 contracts in the data reported through Tuesday. This was a weekly decline of -2,723 contracts from the previous week which had a total of 35,449 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 41.3 percent. The commercials are Bullish with a score of 56.9 percent and the small traders (not shown in chart) are Bullish with a score of 65.9 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 48.0 35.4 3.4 – Percent of Open Interest Shorts: 34.8 50.8 1.2 – Net Position: 32,726 -38,117 5,391 – Gross Longs: 119,162 87,884 8,441 – Gross Shorts: 86,436 126,001 3,050 – Long to Short Ratio: 1.4 to 1 0.7 to 1 2.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 41.3 56.9 65.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 5.4 -6.1 8.3   Brazilian Real Futures: The Brazilian Real large speculator standing this week recorded a net position of 46,705 contracts in the data reported through Tuesday. This was a weekly boost of 1,389 contracts from the previous week which had a total of 45,316 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 96.3 percent. The commercials are Bearish-Extreme with a score of 3.5 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 91.1 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.1 13.5 5.4 – Percent of Open Interest Shorts: 16.5 81.2 2.3 – Net Position: 46,705 -48,954 2,249 – Gross Longs: 58,657 9,780 3,931 – Gross Shorts: 11,952 58,734 1,682 – Long to Short Ratio: 4.9 to 1 0.2 to 1 2.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 96.3 3.5 91.1 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -0.2 -0.2 4.4   Bitcoin Futures: The Bitcoin large speculator standing this week recorded a net position of 490 contracts in the data reported through Tuesday. This was a weekly lift of 87 contracts from the previous week which had a total of 403 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 93.2 percent. The commercials are Bearish with a score of 21.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 13.8 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.5 1.5 9.7 – Percent of Open Interest Shorts: 77.1 6.4 9.3 – Net Position: 490 -529 39 – Gross Longs: 8,959 169 1,063 – Gross Shorts: 8,469 698 1,024 – Long to Short Ratio: 1.1 to 1 0.2 to 1 1.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 93.2 21.6 13.8 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 1.5 -6.4 0.6   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
Estimating Future Stock Returns, March 2022 Update

Estimating Future Stock Returns, March 2022 Update

David Merkel David Merkel 14.06.2022 05:51
Image credit: All images belong to Aleph Blog Well, finally the bear market… at 3/31/2002 the S&P 500 was priced to return a trice less than zero in nominal terms. After the pasting the market received today, that figure is 3.57%/year nominal (not adjusted for inflation). You would likely be better off in an ETF of 10-year single-A rated bonds yielding 4.7% — both for safety and return. I will admit that my recent experiment buying TLT has been a flop. I added to the position today. My view is that the long end of the curve is getting resistant to the belly of the curve, and thus the curve is turning into the “cap” formation, where the middle of the curve is higher than the short and long ends. This is a rare situation. Usually, the long end rallies in situations like this. The only situation more rare than this is the “cup” formation where the middle of the curve is lower than the short and long ends. I will have to update my my old post of “Goes Down Double-Speed.” We’ve been through three cycles since then — bear, bull, and now bear again. People get surprised by the ferocity of bear markets, but they shouldn’t be. People get shocked at losing money on paper, and thus the selloffs happen more rapidly. Bull markets face skepticism, and so they are slow. What are the possibilities given where the market is now? When the market is expecting 3.57% nominal, give or take one percent, what tends to happen? Most of the time, growth at these levels for the S&P 500 is pretty poor. That said, market expectations of inflation over the next ten years are well below the 4.7% you can earn on an average 10-year single-A rated corporate bond. Those expectations may be wrong — they usually are, but you can’t tell which way they will be wrong. I am still a believer in deflation, so I think current estimates of inflation are too high. There is too much debt and so monetary policy will have more punch than previously. The FOMC will panic, tighten too much, and crater some area in the financial economy that they care about, and then they will give up again, regardless of how high inflation is. They care more about avoiding a depression than inflation. They will even resume QE with inflation running hot if they are worried about the financial sector. The Fed cares about things in this order: Preserve their own necksPreserve the banks, and things like themFight inflationFund the US GovernmentPromote nominal GDP growth, though they will call it reducing labor unemployment. The Fed really doesn’t care about labor unemployment, or inequality. They are a bourgeois institution that cares about themselves and their patrons — those who are rich. I know this post is “all over the map.” My apologies. That said, we in a very unusual situation featuring high debt, high current inflation (that won’t last), war, plague, and supply-chain issues. How this exactly works out is a mystery, especially to me — but I am giving you my best guess here, for whatever it is worth. It’s worth than double what you paid for it! Full disclosure: long TLT for clients and me
The Swing Overview – Week 23 2022

The Swing Overview – Week 23 2022

Purple Trading Purple Trading 17.06.2022 08:53
The Swing Overview - Week 23 Major global stock indices broke through their support levels after several days of range movement in response to the tightening economy, the ongoing war in Ukraine, slowing economic growth and high inflation. The Reserve Bank of Australia raised its interest rate by 0.50%. The ECB decided to start raising interest rates by 0.25% from July 2022. The winner of last week is the US dollar, which continues to strengthen. Macroeconomic data Data from the US labour market was highly anticipated. The job creation indicator, the so-called NFP, surprised the markets positively. Analysts expected that 325,000 new jobs had been created in May. In fact, 390 thousand jobs were created in the US. Unemployment is at 3.6%. The information on the growth of hourly wages, which is a leading indicator of inflation, was important. Average hourly earnings rose 0.3% in May, less than analysts who expected 0.4%.   Unemployment claims reached 229,000 this week. This is the highest levels since 3/3/2022. However, this is not an extreme increase. The number of claims is still in the pre-pandemic average area. Nevertheless, it can be seen that since 7/4/2022, when the number of applications reached 166 thousand, the number of applications is slowly increasing and this indicator will be closely monitored.  The ISM index of purchasing managers in the US service sector reached 55.9 in May. This is lower than the previous month's reading of 57.1. A value above 50 still points to expansion in the sector although the decline in the reading indicates  economy.   The yield on the US 10-year bond is close to its peak and is currently around 3%. The rise in yields has been followed by a rise in the US dollar. The dollar index has surpassed 103. The reason for the strengthening of the dollar is the aggressive tightening of the economy by the US Fed, which began reducing the central bank's balance sheet on June 1, 2022. In practice, this means that the Fed will let expire the government bonds it previously bought as part of QE and will not reinvest them further. The first tranche of bonds will expire on June 15, so the effect of this operation remains to be seen. Figure 1: The US 10-year bond yields and USD index on the daily chart   The SP 500 Index The SP 500 index has been moving in a narrow range for the past few days between 4,200, where resistance is and 4,080, where support has been tested several times. This support was broken and has become the new resistance as we can see on the H4 chart.   Figure 2: The SP 500 on H4 and D1 chart   The catalyst for this strong initiation move is the strong US dollar and rising bond yields. Therefore, the current resistance is in the 4,075 - 4,085 range.  The nearest support is 3,965 - 3,970 according to the H4 chart. The next support is 3,879 - 3,907.   German DAX index Macroeconomic data that affected the DAX was manufacturing orders for April, which fell 2.7% month-on-month, while analysts were expecting a 0.3% rise. Industrial production in Germany rose by 0.7% in April (expectations were for 1.0%). The war in Ukraine has a strong impact on the weaker figures. The catalyst for breaking support was the ECB's decision to raise interest rates, which the bank will start implementing from July 2022. Figure 3: German DAX index on H4 and daily chart The DAX is below the SMA 100 moving average according to the daily and H4 chart. This shows a bearish sentiment. The nearest resistance is 14,300 - 14,335. Support is at 13,870 - 13,900 according to the H4 chart.   The ECB left the interest rate unchanged  The ECB left interest rates unchanged on June 9, 2022, so the key rate is still at 0.0%. However, the bank said that it will proceed with a rate hike from July, when the rate is expected to rise by 0.25%. The next hike will then be in September, probably again by 0.25%. The bank pointed to the high inflation rate, which is expected to reach 6.8% for 2022. Inflation is expected to fall to 3.4% in 2023 and 2.1% in 2024.  Figure 4: The EUR/USD on H4 and daily chart According to the bank, a significant risk is Russia's unjustified aggression against Ukraine, which is causing problems in supply chains and pushing energy and some commodity prices up. The result is a slowdown in the growth of the European economy. The bank also announced that it will end its asset purchase program as of July 1, 2022. This is the soft end of this program, as the money that will flow from matured assets will continue to be reinvested by the bank. In practice, this means that the ECB's balance sheet will not be further inflated, but for now, unlike the Fed’s balance sheet, the bank has no plans to reduce its balance sheet. This, coupled with the more moderate rate hike plans and the existence of the above risks, has supported the dollar and the euro has begun to weaken sharply in response to the ECB announcement. The resistance is 1.0760-1.0770. Current support at 1.063-1.064 is broken and it will become new resistance if the break is confirmed. The next support according to the H4 chart is 1.0530 - 1.0550.   Australian central bank surprises with aggressive approach In Australia, the central bank raised its policy rate by 0.50%. Analysts had expected the bank to raise the rate by 0.25%. Thus, the current rate on the Australian dollar is 0.80%. However, this aggressive increase did not strengthen the Australian dollar, which surprisingly weakened. The reason for this is the strong US dollar and also the risk off sentiment that is taking place in the equity indices.  Also impacting the Aussie is the situation in China, where there is zero tolerance of COVID-19. This will impact the country's economic growth, which is very likely to fall short of the 5.5% that was originally projected.  Figure 5: The AUD/USD on H4 and daily chart According to the H4 chart, the AUD/USD currency pair has broken below the SMA 100 moving average, which is a bearish signal. The nearest resistance is 0.7140 - 0.7150. The support is in the zone 0.7030 - 0.7040. 
Positions of large speculators according to the COT report as at 7/6/2022

Positions of large speculators according to the COT report as at 7/6/2022

Purple Trading Purple Trading 17.06.2022 10:30
Positions of large speculators according to the COT report as at 7/6/2022 Total net speculator positions on the USD index rose by 400 contracts last week to 37,938 contracts. This change is the result of a 600-contract increase in long positions and a 200-contract increase in short positions. On the euro, there was a decrease in total net positions after a significant previous increase. A reduction in total net positions also occurred on the New Zealand dollar last week. Increases in total net positions occurred last week on the British pound, the Australian dollar, the Japanese yen, the Canadian dollar, and the Swiss franc. The markets experienced high volatility last week, triggered by concerns that the economy was tightening more rapidly on the back of rising inflation. As a result, equity indices have continued to fall and this risk-off sentiment has led to a strengthening of the US dollar and a weakening of more or less all currencies tracked. The positions of speculators in individual currencies The total net positions of large speculators are shown in Table 1: If the value is positive then the large speculators are net long. If the value is negative, the large speculators are net short. Table 1: Total net positions of large speculators DatE USD Index EUR GBP AUD NZD JPY CAD CHF Jun 7, 2022    37938 50543 -70810 -47896 -19771 -91646 -1062 -16132 May 31, 2022 37538 52272 -74105 -48682 -18724 -94439 -7007 -20458 May 24, 2022 38039 38930 -80372 -45446 -19321 -99444 -12687 -19673 May 17, 2022 36213 20339 -79241 -44642 -17767 -102309 -14496 -16592 May 10, 2022 34776 16529 -79598 -41714 -12996 -110454 -5407 -15763 May 03, 2022 33071 -6378 -73813 -28516 -6610 -100794 9029 -13907   Note: The explanation of COT methodolody is at the the end of the report.   Notes: Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. ​The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.   Detailed analysis of selected currencies   Explanations:   Purple line and histogram: this is information on the total net position of large speculators. This information shows the strength and sentiment of an ongoing trend. It is the indicator r_COT Large Speculators (by Kramsken) in www.tradingview.com. Information on the positions of so-called hedgers is not shown in the chart, due to the fact that their main goal is not speculation, but hedging. Therefore, this group usually takes the opposite positions than the large speculators. For this reason, the positions of hedgers are inversely correlated with the movement of the price of the underlying asset. However, this inverse correlation shows the ongoing trend less clearly than the position of large speculators.​ We show moving average SMA 100 (blue line) and EMA 50 (orange line) on daily charts. ​Charts are made with the use of www.tradingview.com. The source of numerical data is www.myfxbook.com   The Euro   DatE Open Interest Specs Long Specs Short Specs Net positions Change Open Interest Change Long Change Short Change Net Positions Sentiment Jun 07, 2022 730667 230248 179705 50543 24350 -6305 -4576 -1729 Weak bullish May 31, 2022 706317 236553 184281 52272 -2621 -519 -13861 13342 Bullish May 24, 2022 708938 237072 198142 38930 2226 6302 -12289 18591 Bullish May 17, 2022 706712 230770 210431 20339 1666 2540 -1270 3810 Bullish May 10, 2022 705046 228230 211701 16529 10120 19781 -3126 22907 Bullish May 03, 2022 694926 208449 214827 -6378 6477 -14544 14035 -28579 Bearish         Total Change 42218 7255 -21087 28342     Figure 1: The euro and COT positions of large speculators on a weekly chart and the EUR/USD on D1 The total net positions of speculators reached 50 543 contracts last week, down by 1 729 contracts compared to the previous week. This change is due to a decrease in long positions by 6,305 contracts and a decrease in short positions by 4,576 contracts. This data suggests weak bullish sentiment as total net positions are positive but at the same time there has been a decline. Open interest rose by 24,350 contracts in the last week. This shows that the downward movement that occurred in the euro last week was supported by volume and it was therefore a strong price action. The price bounced off resistance at the EMA 50 moving average and is approaching horizontal support which is in the band at 1.0400. The weakening euro is a result of the ECB's approach to inflation. The ECB announced to raise the rate by 0.25% from July, which is significantly less than the interest rate increase implemented by the US Fed.  Long-term resistance: 1.0620 – 1.0650. The next resistance is at 1.0770-1.0780. Support: 1.0340 – 1.0420 The British pound DatE Open Interest Specs Long Specs Short Specs Net positions Change Open Interest Change Long change Short change Net Positions Sentiment Jun 7, 2022 258623 34618 105428 -70810 5742 3830 535 3295 Weak bullish May 31, 2022 252881 30788 104893 -74105 -983 4852 -1415 6267 Weak bearish May 24, 2022 253864 25936 106308 -80372 53 -677 454 -1131 Bearish May 17, 2022 253811 26613 105854 -79241 -10783 -2856 -3213 357 Weak bearish May 10 2022 264594 29469 109067 -79598 -3902 -4067 1718 -5785 Bearish May 03, 2022 268496 33536 107349 -73813 -4296 -6900 -2708 -4192 Bearish         Total Change -14169 -5818 -4629 -1189     Figure 2: The GBP and COT positions of large speculators on a weekly chart and the GBP/USD on D1 The total net positions of speculators last week reached - 70,810 contracts, having increased by 3,295 contracts compared to the previous week. This change is due to the growth in long positions by 3,830 contracts and the growth in short positions by 535 contracts. This suggests weak bearish sentiment as the total net positions of large speculators are negative, but at the same time there has been an increase in them. Open interest rose by 5742 contracts last week, indicating that the downward movement in the pound that occurred last week was supported by volume and it was therefore a strong price action. The pound is weakening strongly in the current risk off sentiment and has reached its long term support. Long-term resistance: 1.2440 – 1.2476.    Support: 1.2160 – 1.2200   The Australian dollar   DatE Open Interest Specs Long Specs Short Specs Net positions Change Open Interest Change Long Change Short Change Net Positions Sentiment Jun 7, 2022 166422 31720 79616 -47896 12761 -1177 -1963 786 Weak bearish May 31, 2022 153661 32897 81579 -48682 -4954 -3682 -446 -3236 Bearish May 24, 2022 158615 36579 82025 -45446 -5194 -4894 -4090 -804 Bearish May 17, 2022 163809 41473 86115 -44642 10600 4604 7532 -2928 Bearish May 10, 2022 153209 36869 78583 -41714 952 -10126 3072 13198 Bearish May 03, 2022 152257 46995 75511 -28516 5167 -110 755 -865 Bearish         Total Change 19332 -15385 4860 -20245     Figure 3: The AUD and COT positions of large speculators on a weekly chart and the AUD/USD on D1 The total net positions of speculators reached 47,896 contracts last week, up by 786 contracts compared to the previous week. This change is due to a decrease in long positions by 1,177 contracts and a decrease in short positions by 1,963 contracts. This data suggests weak bearish sentiment on the Australian dollar, as the total net positions of large speculators are negative, but at the same time there was an increase in them in the previous week. There was an increase in open interest of 12,761 contracts last week. This means that the downward movement that occurred last week on the AUD was supported by volume and it was therefore a strong price action. The Australian dollar is weakening sharply even though the Reserve Bank of Australia raised interest rates by 0.50% last week. The reason for this bearish decline is the current risk-off sentiment which is particularly threatening commodity currencies, which includes the Australian dollar. Long-term resistance: 0.7250-0.7260                                                                                                              Long-term support: 0.6830-0.6850  (the support zone begins at 0.6930 according to a weekly chart).   The New Zealand dollar   DatE Open Interest Specs Long Specs Short Specs Net positions Change Open Interest Change Long Change Short Change Net Positions Sentiment Jun 7, 2022 63540 12310 32081 -19771 8406 3131 4178 -1047 Bearish May 31, 2022 55134 9179 27903 -18724 -4145 -1570 -2167 597 Weak bearish May 24, 2022 59279 10749 30070 -19321 -1525 -4249 -2695 -1554 Bearish May 17, 2022 60804 14998 32765 -17767 4569 -205 4566 -4771 Bearish May 10, 2022 56235 15203 28199 -12996 5391 -2224 4162 -6386 Bearish May 03, 2022 50844 17427 24037 -6610 4334 -4658 2018 -6676 Bearish         Total Change 17030 -9775 10062 -19837     Figure 4: The NZD and the position of large speculators on a weekly chart and the NZD/USD on D1 The total net positions of speculators last week amounted to -19,771 contracts, down by 1,047 contracts compared to the previous week. This change is due to an increase in long positions by 3,131 contracts and an increase in short positions by 4,178 contracts. This data suggests that there has been bearish sentiment on the New Zealand Dollar over the past week as the total net positions of large speculators have been negative and there was further decline in them as well. Open interest rose by 8,406 contracts last week. The downward move in NZD/USD that occurred last week was supported by volume and therefore the move was strong. The NZD/USD bounced off the resistance band at 0.6570 and approached significant support. The decline in the New Zealand Dollar is mainly due to risk off sentiment in equity markets. Long-term resistance: 0.6540 – 0.6570 Long-term support: 0.6220 – 0.6280   Explanation to the COT report The COT report shows the positions of major participants in the futures markets. Futures contracts are derivatives and are essentially agreements between two parties to exchange an underlying asset for a predetermined price on a predetermined date. They are standardised, specifying the quality and quantity of the underlying asset. They are traded on an exchange so that the total volume of these contracts traded is known.   Open interest: open interest is the sum of all open futures contracts (i.e. the sum of short and long contracts) that exist on a given asset. OI increases when a new futures contract is created by pairing a buyer with a seller. The OI decreases when an existing futures contract expires at a given expiry time or by settlement. Low or no open interest means that there is no interest in the market. High open interest indicates high activity and traders pay attention to this market. A rising open interest indicates that there is demand for the currency. That is, a rising OI indicates a strong current trend. Conversely, a weakening open interest indicates that the current trend is not strong. Open Interest Price action Interpretation Notes Rising Rising Strong bullish market New money flow in the particular asset, more bulls entered the market which pushes the price up. The trend is strong. Rising Falling Strong bearish market Price falls, more bearish traders entered the market which pushes the price down. The trend is strong. Falling Rising Weak bullish market Price is going up but new money do not flow into the market. Existing futures contracts expire or are closed. The trend is weak. Falling Falling Weak bearish market Price is going down, but new money do not flow into the market. Existing futures expire or are closed, the trend is weak.   Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. Traders should try to trade in the direction of these large speculators. The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. The COT data are usually reported every Friday and they show the status on Tuesday of the week. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.
The Swing Overview – Week 24 2022

The Swing Overview – Week 24 2022

Purple Trading Purple Trading 17.06.2022 16:54
The Swing Overview - Week 24 We've had a week in which the world's major stock indices took a bloodbath in response to rising inflation, which is advancing faster than expected. Central banks have played a major part in this drama. As expected, the US, the UK and, surprisingly, Switzerland raised interest rates. Japan, on the other hand, is still one of the few countries that decided to keep interest rates at their original level of - 0.10%. Macroeconomic data The 0.75% interest rate hike to 1.75%, which was 0.25% higher than the Fed announced at the last meeting, might not have come as a surprise to the markets given that inflation for May was 8.6% on year-on-year basis (8.3% for April). The market reacted strongly in response to the inflation data, and a sell-off in equity indices and a strengthening US dollar followed.   The 0.75% rate hike is the highest since 1994 and the next Fed meeting is expected to see another rate hike again in the range of 0.50% to 0.75%. The Fed is trying to stop rising inflation with this aggressive approach. The problem is that economic projections point to slowing economic growth. Retail data for May fell by 0.3%, which was a surprise to the markets. This is the first drop in consumer spending in 2022. The Fed also lowered GDP growth projections and unemployment is expected to rise as well. All of this points to the risk of stagflation.     But the labour market data is still good. The number of initial claims in unemployment reached 229k last week, down from 232k the previous week. The US dollar hit a new high for the year at 105.86 in response to high inflation and a faster tightening economy. The US 10-year bond yields also rose, reaching 3.479%. Figure 1: The US 10-year bond yields and the USD index on the daily chart   The SP 500 Index The SP 500 index, like other global indices, was in a bloodbath last week as data on rising US inflation in particular surprised. Major supports according to the H4 chart were very quickly broken and the market is showing that it is still in a bearish mood. According to the daily chart, another lower low has formed which together with the lower highs confirms this bearish trend.   Figure 2: The SP 500 on H4 and D1 chart   A support according to the H4 chart is in the 3,645 - 3,675 range. The nearest resistance is at 3,820 - 3,835. A broken support in the 3,710 - 3,732 area can also be considered as resistance. The most important news is behind us and the market could take a breath for a while. The low levels could also be noticed by long-term investors who will be buying dip. But for speculators, it is very risky to speculate on a market reversal in a downtrend.   German DAX index The German DAX index offers a very similar picture to the SP 500. The ZEW economic sentiment indicator in Germany for the month of June showed a deterioration in sentiment among institutional investors and analysts, with the index reading coming in at -28.0. The ongoing war in Ukraine is undoubtedly influencing this pessimism. The end of this tragic event is still not in sight. What is clear, however, is that the longer the conflict continues, the stronger the impact on the European economy will be.    Figure 3: German DAX index on H4 and daily chart The DAX is in a clear downtrend and broke through significant support at 13,300 last week. The nearest resistance according to the H4 chart is 13,250 - 13,300. Significant resistance is at 13,650 - 13,700. A new support according to the H4 chart is at 12,950 - 12,980.   The euro has rejected lower readings  Information about higher inflation in the US and a rate hike sent the EUR/USD pair to support levels at 1.0370. However, the level was not broken and the euro then took a strong move from this area. Investors seem to assume that the ECB will have to respond with a higher than 0.25% rate hike announced at the last meeting. Figure 4: The EUR/USD on H4 and daily chart According to the H4 chart, the nearest resistance is at 1.0560 - 1.0600. The next resistance is then at 1.0760-1.0770. Current support is at 1.0340 - 1.0370 according to the daily chart.   The Bank of England raised rates as expected Rising inflation did not leave the Bank of England in dovish mood as it raised its key rate by 0.25% as expected. The current rate is 1.25%. Inflation may be approaching double digits, but the bank could not afford to be more aggressive. In Britain, economic activity has already fallen and the GDP is falling at its fastest pace in a year. On a month-on-month basis, the GDP in Britain fell by 0.3%.  Manufacturing production fell by 1% in April. Figure 5: The GBP/USD on H4 and daily chart The GBP/USD currency pair had a very dramatic week, first breaking below 1.20, only to stage an unprecedented rally later. Anyway, according to the H4 chart and also the daily chart, the pound is below the SMA 100 moving average, which indicates a bearish sentiment. There are also clear lower lows and lower highs on the daily chart, confirming the downtrend.   The UK interest rate hike did send the GBP/USD currency pair to 1.24, but the price did not stay there for long time as the pound descended from higher values, underlining the overall downtrend. The nearest resistance is at 1.24. A support is then at 1.1930 - 1.2000.   Central Bank of Japan still dovish   In the early hours of Friday morning, the Bank of Japan was also deciding on rates. There, as expected, everything remains as it was, i.e. the rate remains negative at - 0.10%. This situation means a favourable interest rate differential between the US dollar and the Japanese yen in favour of the dollar. It is therefore no surprise that the USD/JPY pair has reached its highest level since 2002. However, the weak yen is a big problem for the Japanese economy, as it makes imports of basic manufacturing raw materials more expensive and thus contributes to inflation. Figure 6: The USD/JPY on H4 and monthly charts The USD/JPY pair has reached the resistance level at 134.5 - 135.0, the highest level since 2002. A support according to the H4 chart is at 131.50 - 131.80.  
The Swing Overview - Week 26 2022

The Swing Overview - Week 26 2022

Purple Trading Purple Trading 04.07.2022 10:50
The Swing Overview - Week 26 2022 After ashort-term upward correction, the indices resumed their bearish trend and closed the week in the red. Along with this risk-off sentiment, commodity currencies weakened, as did the British pound and the euro. Gold is losing ground as a means of inflation protection and has fallen back below the USD 1,800 per ounce. The US dollar, on the other hand, is still the strongest currency amid the looming recession. Macroeconomic data The number of new home sales in the US for May reached 696,000, beating expectations of 588,000. This is positive news.   On the other hand, the negative news is the drop in consumer confidence, which reached 98.7 for May (103.2 the previous month). The drop in consumer confidence is expected to affect consumer spendings. It is evident that American consumers are reluctant to spend in times of rising prices and are accumulating savings for the future. This is of course contributing to the economic slowdown and the risk of a recession in the US is thus becoming stronger. This was confirmed by the GDP data, which fell for the third month in a row.   The fall in GDP last month was 1.6%. GDP was therefore negative in 1Q 2022. If it is also negative in 2Q2022, it will be an official confirmation of the recession defined by two negative quarters in a row. Jerome Powell suggested this week that the risk of the economy being damaged by higher rates is less important than restoring price stability. This heightens fears that a slowdown in the US economy will take the whole world down with it. So in times when central banks are tackling inflation, this risk will set the tone for some time.    This situation is positive for the US dollar, which is seen by investors as a safe haven asset in times of uncertainty. The dollar therefore remains close to this year's highs.  Although the yield on 10-year US Treasuries has fallen below 3%, the overall trend in bond yields is still upwards. Figure 1: US 10-year bond yields and USD index on the daily chart   The SP 500 Index The strengthening on the SP 500 Index that we have seen in the week of June 20 was really just a short-term correction to the overall downtrend, as we have previously suggested. Last week saw another sell-off and so the overall downtrend on the index continues.   Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the range of 3,810 - 3,820. The next resistance is 3,930 - 3,950. A support is 3 640 - 3 670.    German DAX index  The German Ifo Business Climate Index which measures the expectations of manufacturers, builders and sellers for the next 6 months continued to show a value of 92.3, which is worse than the previous month when the index value was 93.0. The fall in the reading suggests some pessimism, accentuated by current market uncertainties, which include the impact of the war in Ukraine and high inflation, which in Germany for the month of June was 7.6% year-on-year. However, inflation fell by 0.1% month-on-month.   The labour market has also indicated problems. The number of unemployed in Germany rose by 133 000, while the market had expected a fall of 6 000. This was very negative news, which triggered a strong sell-off on the Dax on Thursday. On the other hand, retail sales were positive, rising by 0.6% in May, while a 5.4% decline was recorded in April. Figure 3: German DAX index on H4 and daily chart The DAX has broken support according to the H4 chart at 12,850, which has now become the new resistance, which is in the 12,820 - 12,850 range. The next resistance according to the H4 chart is then at 13,280 - 13,375. The strong support according to the daily chart is 12,443 - 12,620, which price is currently approaching.    Eurozone inflation at a new record Eurozone consumer inflation reached another record high in June, rising by 8.6% year-on-year. This is higher than analysts' expectations, who predicted a rise of 8.4%. Inflation is therefore continuing to rise, so the expectation that the ECB could raise rates by more than 0.25% in July is on target and this could support the euro's growth. On the other hand, there is a strong dollar which could continue to slow down bulls on the euro.   Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.048 - 1.0500. The next resistance is at 1.0600 - 1.0610. Support is at 1.0360 - 1.0380.   Gold broke the $1,800 price tag The development in gold has once again confirmed that investors prefer US bonds instead of gold, which, in addition to being considered a "safe haven" along with the US dollar, also brings a small but still certain return. The strong dollar is not good news for gold, which has fallen below the key support of USD 1,800 per ounce.  Figure 5: Gold on H4 and daily chart The nearest resistance according to the H4 chart is therefore in the zone of USD 1,800 - 1,807 per ounce. Below this resistance we have several supports. The closest one is 1 780 - 1 787 USD per ounce.  
The Swing Overview - Week 26 2022 - 08.07.2022

The Swing Overview - Week 26 2022 - 08.07.2022

Purple Trading Purple Trading 08.07.2022 09:47
The Swing Overview - Week 26 2022 After ashort-term upward correction, the indices resumed their bearish trend and closed the week in the red. Along with this risk-off sentiment, commodity currencies weakened, as did the British pound and the euro. Gold is losing ground as a means of inflation protection and has fallen back below the USD 1,800 per ounce. The US dollar, on the other hand, is still the strongest currency amid the looming recession. Macroeconomic data The number of new home sales in the US for May reached 696,000, beating expectations of 588,000. This is positive news.   On the other hand, the negative news is the drop in consumer confidence, which reached 98.7 for May (103.2 the previous month). The drop in consumer confidence is expected to affect consumer spendings. It is evident that American consumers are reluctant to spend in times of rising prices and are accumulating savings for the future. This is of course contributing to the economic slowdown and the risk of a recession in the US is thus becoming stronger. This was confirmed by the GDP data, which fell for the third month in a row.   The fall in GDP last month was 1.6%. GDP was therefore negative in 1Q 2022. If it is also negative in 2Q2022, it will be an official confirmation of the recession defined by two negative quarters in a row. Jerome Powell suggested this week that the risk of the economy being damaged by higher rates is less important than restoring price stability. This heightens fears that a slowdown in the US economy will take the whole world down with it. So in times when central banks are tackling inflation, this risk will set the tone for some time.    This situation is positive for the US dollar, which is seen by investors as a safe haven asset in times of uncertainty. The dollar therefore remains close to this year's highs.  Although the yield on 10-year US Treasuries has fallen below 3%, the overall trend in bond yields is still upwards. Figure 1: US 10-year bond yields and USD index on the daily chart   The SP 500 Index The strengthening on the SP 500 Index that we have seen in the week of June 20 was really just a short-term correction to the overall downtrend, as we have previously suggested. Last week saw another sell-off and so the overall downtrend on the index continues.   Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the range of 3,810 - 3,820. The next resistance is 3,930 - 3,950. A support is 3 640 - 3 670.    German DAX index  The German Ifo Business Climate Index which measures the expectations of manufacturers, builders and sellers for the next 6 months continued to show a value of 92.3, which is worse than the previous month when the index value was 93.0. The fall in the reading suggests some pessimism, accentuated by current market uncertainties, which include the impact of the war in Ukraine and high inflation, which in Germany for the month of June was 7.6% year-on-year. However, inflation fell by 0.1% month-on-month.   The labour market has also indicated problems. The number of unemployed in Germany rose by 133 000, while the market had expected a fall of 6 000. This was very negative news, which triggered a strong sell-off on the Dax on Thursday. On the other hand, retail sales were positive, rising by 0.6% in May, while a 5.4% decline was recorded in April. Figure 3: German DAX index on H4 and daily chart The DAX has broken support according to the H4 chart at 12,850, which has now become the new resistance, which is in the 12,820 - 12,850 range. The next resistance according to the H4 chart is then at 13,280 - 13,375. The strong support according to the daily chart is 12,443 - 12,620, which price is currently approaching.    Eurozone inflation at a new record Eurozone consumer inflation reached another record high in June, rising by 8.6% year-on-year. This is higher than analysts' expectations, who predicted a rise of 8.4%. Inflation is therefore continuing to rise, so the expectation that the ECB could raise rates by more than 0.25% in July is on target and this could support the euro's growth. On the other hand, there is a strong dollar which could continue to slow down bulls on the euro.   Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.048 - 1.0500. The next resistance is at 1.0600 - 1.0610. Support is at 1.0360 - 1.0380.   Gold broke the $1,800 price tag The development in gold has once again confirmed that investors prefer US bonds instead of gold, which, in addition to being considered a "safe haven" along with the US dollar, also brings a small but still certain return. The strong dollar is not good news for gold, which has fallen below the key support of USD 1,800 per ounce.  Figure 5: Gold on H4 and daily chart The nearest resistance according to the H4 chart is therefore in the zone of USD 1,800 - 1,807 per ounce. Below this resistance we have several supports. The closest one is 1 780 - 1 787 USD per ounce.  
The Swing Overview - Week 27 2022

The Swing Overview - Week 27 2022

Purple Trading Purple Trading 08.07.2022 10:27
The Swing Overview - Week 27 2022 The fall in US bond yields, the rise in the US dollar and the sharp weakening in the euro, which is heading towards parity with the dollar. This is how the last week, in which stock indices cautiously strengthened and made a correction in the downward trend, could be characterised. It is worth noting that Germany has a negative trade balance for the first time since May 1991. Is the country losing its reputation as an economic powerhouse of Europe? Macroeconomic data The ISM in manufacturing, which shows purchasing managers' expectations of economic developments in the short term, came in at 53.0 for June.  While a value above 50 still indicates an expected expansion in the sector, the trend since the beginning of the year has been declining, indicating worsening of optimism.   Unemployment claims reached 231,000 last week. This is still a level that is fairly normal. However, we note that this is the 6th week in a row that the number of claims has been rising. The crucial news on the labour market will then be shown in Friday's NFP data.   On Wednesday, the minutes of the last FOMC meeting were presented, which confirmed that another 50-75 point rate hike is likely in July. The minutes also stated that the Fed could tighten further its hawkish policy if inflationary pressures persist. The Fed's target is to push inflation down to around 2%.   The Fed's hawkish tone has led to a strengthening of the dollar, which has reached a level over 107, its highest level since October 2002. Following the presentation of the FOMC minutes, the US Treasury yields started to rise again. Figure 1: The US 10-year bond yields and the USD index on the daily chart   The SP 500 Index The temporary decline in US Treasury yields was the reason for the correction in the bearish trend in equity indices. However, the bear market still continues to be supported fundamentally by fears of an impending recession.  Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the 3,930 - 3,950 range. A support is at 3,740 - 3,750 and then 3,640 - 3,670.    German DAX index The German manufacturing PMI for June came in at 52.0 (previous month 54.8). The downward trend shows a deterioration in optimism.    It is worth noting that Germany's trade balance is negative for the first time since May 1991, i.e. imports are higher than exports. The current trade balance is - EUR 1 billion. The market was expecting a surplus of 2.7 billion. Rising prices of imported energy and a reduction in exports to Russia have contributed to the negative balance. Figure 3: German DAX index on H4 and daily chart The DAX is in a downtrend. On the H4 chart, it has reached the moving average EMA 50. The resistance is in the range of 12,900 - 12,960. Strong support on the daily chart is 12,443 - 12,500, which was tested again last week.    Euro is near parity with the USD Even high inflation, which is already at 8.6%, has not stopped the euro from falling. It seems that parity with the dollar could be reached very soon. The negative trade balance in Germany has contributed very significantly to the euro's decline.  Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.020 - 1.021. Support according to the daily chart would be only at parity with the dollar at 1.00. Reaching this value would represent a unique situation that has not occurred on the EUR/USD pair since 2002.   Australia raised interest rates The Reserve Bank of Australia raised the interest rate by 0.50% as expected. The current interest rate now stands at 1.35%. According to the central bank, the Australian economy has been solid so far thanks to commodity exports, the prices of which have been rising. Unemployment is 3.9%, the lowest level in 50 years.   One uncertainty is the behaviour of consumers, who are cutting back on spending in times of high inflation. A significant risk is global development, which is influenced by the war in Ukraine and its impact on energy and agricultural commodity prices.   Figure 5: The AUD/USD on H4 and daily chart The AUD/USD is in a downtrend and even the rate hike did not help the Australian dollar to strengthen. However, there has been some correction in the downtrend. The resistance according to the H4 chart is 0.6880 - 0.6900. The support is at 0.6760 - 0.6770.  
What Does Inflation Rates We Got To Know Mean To Central Banks?

What Does Inflation Rates We Got To Know Mean To Central Banks?

Purple Trading Purple Trading 15.07.2022 13:36
The Swing Overview – Week 28 2022 This week's new record inflation readings sent a clear message to central bankers. Further interest rate hikes must be faster than before. The first of the big banks to take this challenge seriously was the Bank of Canada, which literally shocked the markets with an unprecedented rate hike of a full 1%. This is obviously not good for stocks, which weakened again in the past week. The euro also stumbled and has already fallen below parity with the usd. Uncertainty, on the other hand, favours the US dollar, which has reached new record highs.   Macroeconomic data The data from the US labour market, the so-called NFP, beat expectations, as the US economy created 372 thousand new jobs in June (the expectation was 268 thousand) and the unemployment rate remained at 3.6%. But on the other hand, unemployment claims continued to rise, reaching 244k last week, the 7th week in a row of increase.   But the crucial news was the inflation data for June. It exceeded expectations and reached a new record of 9.1% on year-on-year basis, the highest value since 1981. Inflation rose by 1.3% on month-on-month basis. Energy prices, which rose by 41.6%, had a major impact on inflation. Declines in commodity prices, such as oil, have not yet influenced June inflation, which may be some positive news. Core inflation excluding food and energy prices rose by 5.9%, down from 6% in May.   The value of inflation was a shock to the markets and the dollar strengthened sharply. We can see this in the dollar index, which has already surpassed 109. We will see how the Fed, which will be deciding on interest rates in less than two weeks, will react to this development. A rate hike of 0.75% is very likely and the question is whether even such an increase will be enough for the markets. Meanwhile, there has been an inversion on the yield curve on US bonds. This means that yields on 2-year bonds are higher than those on 10-year bonds. This is one of the signals of a recession. Figure 1: The US Treasury yield curve on the monthly chart and the USD index on the daily chart   The SP 500 Index Apart from macroeconomic indicators, the ongoing earnings season will also influence the performance of the indices this month. Among the major banks, JP Morgan and Morgan Stanley reported results this week. Both banks reported earnings, but they were below investor expectations. The impact of more expensive funding sources that banks need to finance their activities is probably starting to show.   We must also be interested in the data in China, which, due to the size of the Chinese economy, has an impact on the movement of global indices. 2Q GDP in China was 0.4% on year-on-year basis, a significant drop from the previous quarter (4.8%). Strict lockdowns against new COVID-19 outbreaks had an impact on economic situation in the country. Figure 2: SP 500 on H4 and D1 chart The threat of a recession is seeping into the SP 500 index with another decline, which stalled last week at the support level, which according to the H4 is in the 3,740-3,750 range. The next support is 3,640 - 3,670.  The nearest resistance is 3,930 - 3,950. German DAX index The German ZEW sentiment, which shows expectations for the next 6 months, reached - 53.8. This is the lowest reading since 2011. Inflation in Germany reached 7.6% in June. This is lower than the previous month when inflation was 7.9%. Concerns about the global recession continue to affect the DAX index, which has tested significant supports. Figure 3: German DAX index on H4 and daily chart Strong support according to the daily chart is 12,443 - 12,500, which was tested again last week. We can take the moving averages EMA 50 and SMA 100 as a resistance. The nearest horizontal resistance is 12,950 - 13,000.   The euro broke parity with the dollar The euro fell below 1.00 on the pair with the dollar for the first time in 20 years, reaching a low of 0.9950 last week. Although the euro eventually closed above parity, so from a technical perspective it is not a valid break yet, the euro's weakening points to the headwinds the eurozone is facing: high inflation, weak growth, the threat in energy commodity supplies, the war in Ukraine. Figure 4: EUR/USD on H4 and daily chart Next week the ECB will be deciding on interest rates and it is obvious that there will be some rate hike. A modest increase of 0.25% has been announced. Taking into account the issues mentioned above, the motivation for the ECB to raise rates by a more significant step will not be very strong. The euro therefore remains under pressure and it is not impossible that a fall below parity will occur again in the near future.   The nearest resistance according to the H4 chart is at 1.008 - 1.012. A support is the last low, which is at 0.9950 - 0.9960.   Bank of Canada has pulled out the anti-inflation bazooka Analysts had expected the Bank of Canada to raise rates by 0.75%. Instead, the central bank shocked markets with an unprecedented increase by a full 1%, the highest rate hike in 24 years. The central bank did so in response to inflation, which is the highest in Canada in 40 years. With this jump in rates, the bank is trying to prevent uncontrolled price increases.   The reaction of the Canadian dollar has been interesting. It strengthened significantly immediately after the announcement. However, then it began to weaken sharply. This may be because investors now expect the US Fed to resort to a similarly sharp rate hike. Figure 5: USD/CAD on H4 and daily chart Another reason may be the decline in oil prices, which the Canadian dollar is correlated with, as Canada is a major oil producer. The oil is weakening due to fears of a drop in demand that would accompany an economic recession. Figure 6: Oil on the H4 and daily charts Oil is currently in a downtrend. However, it has reached a support value, which is in the area near $94 per barrel. The support has already been broken, but on the daily chart oil closed above this value. Therefore, it is not a valid break yet.  
A Bright Spot Amidst Economic Challenges

Coinbase's Plan. Is SIlver Better Than Gold? Latest Market News

Saxo Strategy Team Saxo Strategy Team 10.08.2022 12:00
Summary:  US equities were not impressed by the lower inflation expectations in the New York Fed’s consumer survey, and Micron’s revenue warning added to the fears with broad losses seen across the semiconductor space. Equity losses broadened as earnings continued to disappoint, and the yield curve inverted further. The US CPI wait game is unlikely to be much more than just noise, but upside risks to USD are seen on stronger underlying dynamics. On the radar today will also be China’s inflation data will be parsed for hints on demand recovery and Fed speakers who may continue to bring up market expectations of Fed’s rate hike path. Markets latest news     Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  US. Equities traded lower in a quiet session, awaiting today’s CPI data.  Nasdaq 100 fell 1.2% after Micron Technology (MU:xnas), added to investors’ concern over weakening demand for microchips when the company issued a negative revenue warning, just a day after another leading chip maker, Nvidia (NVDA:xnas) similarly announced.  The company said that the current quarter revenue could come in at or below the low end of prior guidance. Share price of Micron fell 3.7%. S&P 500 fell 0.4%. After the close, Coinbase Global, Roblox, and Wynn Resorts reported weaker-than-expected results and declined in after-hours trades. U.S. yield curve inverts further Front-end U.S. treasury yields rose 6bps and caused the 2-10-year yield spread further inverted to -49.5bps. The 10-year treasury note yield edged up by 2bps to 2.78% after the Q2 unit labor costs in the U.S. came in at 10.8%, higher than expected.  The 3-year action showed decent demand from investors after yields had risen ahead of the auction.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Shares of leading Hong Kong property developers surged as much as 5% at one point in the morning session, following newswires, citing Executive Council convener Regina Ip, suggested that Hong Kong is considering to remove the punitive double stamp duty imposed on residential property buyers from the mainland.  The Hang Seng Index rose as much as 1% in the morning but both the Hang Seng Index and Hong Kong developers pared gains after the office of the Financial Secretary refuting the speculation after midday.  Hung Kai Properties (00016:xhkg) and CK Assets (01113:xhkg) finished the day 2% higher and Henderson Land (00012:xhkg) +0.7%. The Hang Seng Index reversed and closed 0.2% lower.  Shares of coal miners surged 2% to 5% across the board following reports that a large Shanxi coal mine had an incident and caused temporary suspension of production.  Chinese EV names traded lower on concerns spurred by a 64% MoM fall of Tesla sales in July despite that the China Passenger Car Association raised EV sales estimate to 6 million, 9% higher from its previous estimate. In A-shares, CSI300 was modestly higher, with coal mining, auto parts, wind and solar power storage, and chiplet concept shares outperformed.   EURUSD and USDJPY stucked The US inflation will be relevant beyond the headline print. Key focus is likely to be on the core measure, as it is evident that lower commodity prices may have helped to cool the headline measure. The US dollar rallied sharply on Friday after a solid jobs print, but has since steadied. The next leg higher could depend on the stickiness of the inflation print, which may raise further the expectations of a 75bps rate hike at the September Fed meeting. EURUSD took another look above 1.0240 overnight but reversed back towards 1.0200 in early Asia. USDJPY is also stuck in the middle of the 130-140 range, awaiting triggers for a breakout one way or another. Oil prices (CLU2 & LCOV2) Oil prices steadied in the Asian morning on Wednesday amid renewed concerns on Russian flows to Europe. WTI futures were seen around the key $90 level, while Brent futures touched $96/barrel. API report also showed another week of strong inventory build, coming in at 2.2 million for week ended August 5 as compared to expectations of 73k. The official government inventory report is due today, and China’s inflation data will also be on watch. Grains eye the USDA report US grain futures led by corn traded higher on Tuesday in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Silver against Gold. Gold (XAUUSD) looking to test $1800 Gold’s focus remains on the geopolitical tensions, despite the recent rise in US Treasury yields. The US CPI and the $1800 resistance area are now the key tests for Gold ahead, and any pickup in rate hike expectations from the Fed could bring bears of the yellow metal back in force. Silver (XAGUSD) has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.   What to consider?     US CPI due today will be just noise The highly-watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month, but it will be more important to think about how fast inflation can decelerate from here, and how low it can go. The core print will gather greater attention to assess stickiness and breadth of price pressures. However, any surprise will still just be a noise given that we have another print for August due ahead of the next FOMC meeting. Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. US New York Fed survey of inflation expectations show sharp decline Median 1-year ahead and 3-year ahead inflation expectations declined sharply in July, from 6.8%/3.6% in June to 6.2%/3.2% in July. Lower income households showed the greatest shift lower in expectations, possibly linked to the sharp drop in petrol prices (the peak in June in one national measure was over $5.00/gallon, a level that fell to below $4.25/gallon by the end of July. China’s PPI inflation is set to ease while CPI is expected to pick up in July The median forecasts from economists being surveyed by Bloomberg are 4.9% (vs June: 6.1%) for PPI and 2.9% (vs 2.5% for June). The higher CPI forecast is mainly a result of a surge in pork prices by 35% in July from June. On the other hand, PPI is expected to continue its recent trend of deceleration due to a low base and a fall in material prices. The convergence of the gap between PPI and CPI is likely to benefit downstream manufacturing industries. Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Coinbase is still losing but is going to give a fight Coinbase (COIN:xnas) reported la loss of USD1.1 billion in Q2, larger-than-expected. Revenues dropped to USD808 million, sharply lower from last year’s USD2.2 billion. Monthly transaction users fell to 9 million, 2% lower from prior quarter. The company sees average monthly transaction users 7 millions to 9 millions in the current quarter. Coinbase Global is worth watching given the fallout in cryptocurrency trading and the recent partnership with BlackRock to ease access for institutional investors. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron (MU) has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6 billion in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory buildup with their customers.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/apac-daily-digest-10-aug-2022-10082022
Eurozone Bank Lending Under Strain as Higher Rates Bite

USD Stucked! Russia Blocks The Oil For Europe Over The Payment Issues. Market Newsfeed

Saxo Strategy Team Saxo Strategy Team 10.08.2022 13:00
Summary:  Market sentiment weakened again yesterday, with the US Nasdaq 100 index interacting with the pivotal 13,000 area that was so pivotal on the way up ahead of today’s US July CPI release, which could prove important in either confirming or rejecting the complacent market’s expectations that a slowing economy and peaking inflation will allow the Fed to moderate its rate hike path after the September meeting. A surprisingly strong core CPI reading would likely unsettle the market today.   Our trading focus   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US interest rates are moving higher again and US equities lower with the S&P 500 at 4,124 yesterday with today’s price action testing the 100-day moving average around the 4,110 level. The past week has delivered more negative earnings surprises and weak outlooks impacting sentiment and the geopolitical risk picture is not helping either. In the event of a worse than expected US CPI release today we could take out the recent trading range in S&P 500 futures to the downside and begin the journey back to 4,000. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Tech Index (HSTECH.I) fell 3%. China internet stocks declined across the aboard, losing 2-4%. Shares of EV manufacturers plunged 4-8% despite the China Passenger Car Association raised its 2022 EV sales estimate yesterday to 6mn, 9% higher from its previous estimate. Hang Seng Index plunged 2.4% and CSI300 fell 1.1%. USD decision time The USD remains largely stuck in neutral and may remain so unless or until some incoming input jolts the US treasury market and the complacent view that the US is set to peak its policy rate in December, with the potential to ease by perhaps mid-next year. Technical signs of a broad USD recovery, whether on yields pulling higher or due to a sudden cratering in market sentiment on concerns for the economic outlook or worsening liquidity as the Fed QT schedule is set to continue for now regardless of incoming data, would include USDJPY pulling above 136.00, EURUSD dropping down through 1.0100 and AUDUSD back down below 0.6900. Today’s July US CPI could prove a catalyst for a directional move in the greenback in either direction. Gold (XAUUSD) briefly tested a key area of resistance above $1800 on Tuesday ... before retracing lower as the recent support from rising silver and copper prices faded. With the dollar and yields seeing small gains ahead of today’s US CPI print, and with key resistance levels in all three metals looming, traders decided to book some profit. The market is looking for US inflation to ease from 9.1% to 8.8% and the outcome will have an impact on rate hike expectations from the Fed with a a higher-than-expected number potentially adding some downward pressure on metal prices. Silver (XAGUSD), as highlighted in recent updates, has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.  Crude oil Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent which trades above $96. The API reported a 2.2-million-barrel increase in US stockpiles last week with stocks at Cushing, the key storage hub, also rising. The official government inventory report is due today, with surveys pointing to a much smaller build at just 250k barrels. In addition, the market will be paying close attention to implied gasoline demand with recent data showing a slowdown. Also focus on China as lockdowns return, US CPI and Thursday’s Oil Market Reports from OPEC and the IEA. Grains eye Friday’s WASDE report US grain futures led by soybeans and corn trade higher on the week in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday and given the current conditions a smaller yield could tighten the ending stock situation. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Last week the rating for corn dropped by 3% to 58% versus 64% a year ago. US Treasuries (IEF, TLT) US 10-year yields are poised in an important area ahead of the pivotal 3.00% level that would suggest a more determined attempt for yields to try toward the cycle top at 3.50%. Of late, the yield curve inversion has been the primary focus as long yields remain subdued relative to the front end of the curve, a development that could deepen if inflation remains higher than expected while economic activity slows. The three-year T-note auction yesterday saw solid demand, while today sees an auction of 10-year Treasuries.   Newsfeed   Taiwan officials want Foxconn to withdraw investment in Chinese chip company Foxconn announced a $800 million investment in mainland China’s Tsinghua Unigroup last month, but national security officials want the company to drop the investment, likely in connection with recent US-China confrontation in the wake of the visit to Taiwan from US House Speaker Pelosi and the ensuing Chinese military exercises around Taiwan. US Q2 Unit Labor costs remain high at 10.8%, while productivity weak at –4.6% These number suggest a very tight labor market as companies are beset with rising costs for work and less output per unit of worker effort. This number was down from the Q1 levels, but in many past cycles, rising labor costs and falling productivity often precede a powerful deceleration in the labor market as companies slow hiring (and once the recession hits begin firing employees which registers as lower unit costs and rising productivity). Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6bn in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory build-up with their customers. Vestas Q2 result miss estimates The world’s largest wind turbine maker has posted Q2 revenue of €3.3bn vs est. €3.5bn and EBIT of €-182mn vs est. €-119mn. The company is issuing a fiscal year revenue outlook of €14.5-16bn vs est. €15.2bn. Coinbase misses in revenue issues weak guidance Q2 revenue missed by 5% against estimates and the user metric MTU was lowered to 7-9mn from previously 5-15mn against estimates of 8.7mn. The crypto exchange is saying that retail investors are getting more inactive on cryptocurrencies due to the recent violent selloff. China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% y/y in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% y/y in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% y/y while the rise in prices of non-food items moderated to 1.9%, core CPI, which excludes food and energy, rose 0.8% y/y in July, down from June’s 1.0%. China issues white paper on its stance on Taiwan Despite extending the military drills near Taiwan beyond the originally schedule, in a less confrontational white paper released today, the Taiwan Affairs office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.    What are we watching next?   US CPI due today: the core in focus The highly watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month. The core print will gather greater attention to assess stickiness and breadth of price pressures. Will any surprise just be noise given that we have another print for August due ahead of the next FOMC meeting, os is this market looking for an excuse to be surprised as it has maintained a rather persistent view that US inflation data will soon roll over and see a Fed set to stop tightening after the December FOMC meeting? Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. Earnings to watch Today’s US earnings in focus are marked in bold with the most important earnings release being Walt Disney and Coupang. Disney is expected to deliver revenue growth of 23% y/y with operating margins lower q/q as the company is still facing input cost headwinds. Coupang, which is the largest e-commerce platform in South Korea, is expected to deliver revenue growth of 13% y/y and another operating loss as e-commerce platforms are facing slowing demand and still significant input cost pressures. Today: Commonwealth Bank of Australia, Vestas Wind Systems, Genmab, E.ON, Honda Motor, Prudential, Aviva, Walt Disney, Coupang, Illumina Thursday: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0700 – Czech Jul. CPI 1230 – US Jul. CPI 1430 – US Weekly DoE Crude Oil and Product Inventories 1500 – US Fed’s Evans (non-voter) to speak 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-aug-10-2022-10082022
China: Caixin manufacturing PMI reaches 49.4, a bit more than in October. ING talks possible reduced impact of COVID on the country's economy

Worldwide News. The Highest CPI Level In Two Years In The Asia Country! The US Dollar Is Making Concessions

Marc Chandler Marc Chandler 10.08.2022 15:00
August 10, 2022  $USD, China, CPI, Currency Movement, Inflation, Italy, UK Overview: The US dollar is trading with a heavier bias ahead of the July CPI report. The intraday momentum indicators are overextended, and this could set the stage for the dollar to recover in North America. Outside of a handful of emerging market currencies, which include the Mexican peso and Hong Kong dollar, most are trading lower. Losses in US equities yesterday and poor news from another chip maker (Micron) weighed on Asia Pacific equities. Europe’s Stoxx 600 is steady and US futures are a little higher. The US 10-year yield is going into the CPI report softly around 2.76%. The US Treasury sells 10-year notes today as the second leg of the quarterly refunding. European benchmark yields are 2-3 bp lower. Gold continues to press against the $1800 cap. It has not closed above it for over a month. September WTI is hovering around $90. It appears stuck for the time being in an $87-$93 range. US natgas is about 1.1% higher after rising 3.2% yesterday. Europe’s benchmark is up 3%. It rose 1.5% yesterday. Iron ore is flat, while September copper is about 0.5% stronger after a small loss yesterday snapped a three-day advance. September wheat is up 1%, as it extends this week’s rise. If sustained, it would be the third consecutive gain, which matches the longest rally since March.   Asia Pacific China's July inflation readings underscore scope for easier monetary policy, but officials have shown a reluctance to use this policy lever. The key one-year medium term lending rate will be set in the coming days, but it is unlikely to be reduced from the 2.85% rate since January. July CPI rose to 2.7% from 2.5%, its highest level in two years, but shy of the 2.9% median forecast in Bloomberg's survey. Food prices were up 6.3% from a year ago, driven by a 20.2% jump in pork prices, the first rise since September 2020. Fresh food prices rose 16.9% and vegetable prices rose almost 13%. However, this seems to be a function of supply, while demand still seems soft. Service prices pressures slowed to 0.7% from June's 1.0% increase. The core rate eased to 0.8%. Meanwhile, producer price increases slowed to 4.2% from 6.1%. The median forecast (Bloomberg's survey) was for a 4.9% increase. Chinese producer prices have slowed for nine consecutive months. It peaked at 13.5% last October. Japan's well-telegraphed cabinet reshuffle was not about policy. Key ministers kept their posts, including the finance minister and chief cabinet secretary. Former Prime Minister Abe's brother, Defense Minister Kishi was replaced by Hamada, but he will stay on as a national security adviser. Trade Minister Hagiuda, an Abe acolyte was replaced by Nishimura, also for the Abe faction, but will become party policy chief. Prime Minister Kishida named his one-time rival Takaichi as minister of economic security. The reshuffle seemed to be about re-balancing power among the key factions and solidifying the government whose support has waned. The next economic policy focus may be on the drafting of a supplemental budget. In terms of monetary policy, BOJ Kuroda's term ends next April, while the term of his two deputies ends in March. The dollar is in narrow range of less than half a yen today, hovering around JPY135.00. It did edge above yesterday's JPY135.20 high but held below Monday's high slightly below JPY135.60. The exchange rate will likely take its cues from the reaction of the US Treasury market to today's CPI report. The US 10-year yield remains within the range set at the end of last week with the stronger than expected employment report (~2.67%-2.87%). The Australian dollar held support near $0.6945 but has stalled near $0.6975 in the European morning, where this week's hourly trendline is found. Intraday momentum indicators are stretched, suggesting that even if there is some penetration, follow-through buying may be capped. There are options for A$400 mln at $0.6985 that expire today. The greenback edged a little higher against the Chinese yuan, but it remains subdued. It is well within recent ranges. The dollar's reference rate was set at CNY6.7612, slightly above expectations (median in Bloomberg's survey) for CNY6.7606. Europe The more potent risk is not that the center-right wins next month's Italian election. That is increasing looking like a foregone conclusion. It is hard difficult to tell how much this reflects the judgment of voters and how much reflects the ineptitude of the center-left parties. The risk is that the center-right secures a two-thirds majority in both chambers, which would make constitutional changes possible. A poll published yesterday by Istituto Cattaneo shows the center-right drawing 46% of the vote and securing 61% of the deputies and 64% of the Senators. Analysis by Istituto Cattaneo suggested that even if the center-right saw its share of the votes go up, it might not be able to increase the number of deputies or senators. Italy's 10-year premium over German has fallen in eight of the past ten sessions, including today. It is around 2.10% today, slightly more than 25 bp off its recent peak, and a little below its 20-day moving average. Italy's 2-year premium fell to 0.73% yesterday, the lowest since mid-July. It peaked above 1.30% in late July.  Ironically as it may sound, but it is not Italy's center-right that is attacking the Bank of Italy or the European Central Bank. It is Truss who is leading Sunak to become the next leader of the Conservatives and Prime Minister. BOE Governor Bailey warned that UK was about to go into a five-quarter contraction (that does not even count the 0.2% contraction that economists expect the UK will announce for Q2 ahead of the weekend). Truss quickly responded that her GBP39 bln tax cuts (~$$7 bln) could avert that scenario. Sunak hiked the payroll tax this past April. She would unwind it. Truss would suspend the green levy on household energy bills and nix Sunak's corporate tax increase that was to be implemented next year. The swaps market is 85% confident of a 50 bp hike at the mid-September MPC meeting, less than a fortnight after the new Tory leaders is chosen. In the last two meetings of the year, the swaps market is pricing another 75 bp in hikes.  The euro is first firm holding above $1.02 so far today, the first time since August 1. However, it remains within last Friday's range (~$1.0140-$1.0250). The 1.2 bln euro options at $1.0210 that expire today likely have been neutralized ahead of today's US CPI report. The session high, slightly above $1.0225 was set in the European morning. This stretched the intraday momentum indicator, and we suspect it will probe lower now. Initial support below $1.02 is seen in the $1.0170-80 area. Sterling is in the same boat. It too is consolidating within the range seen before the weekend (~$1.2000-$1.2170). The push to session highs, a little above $1.21, in Europe has stretched the intraday momentum indicators. The risk is for a return to the $1.2050-60 area. America Today's CPI report is interesting but at the risk of exaggerating, it does not mean much. First, the strength of the employment data, even if flattered by seasonal adjustments or is incongruous with other labor market readings, suggests the labor market slowdown that the Fed wants to see is still in the very early stages. Second, as we have noted, financial conditions have eased recently, and the Fed has pushed back against this. Third, before the FOMC meets again, it will have the August CPI in hand. Fourth, no matter what the data shows today, it will not and cannot meet the Fed's definition of a sustained move toward the 2% target. The median in Bloomberg's survey has converged with the Cleveland Fed's Inflation Nowcast. The median in the survey is for an 8.7% headline rate (down from 9.1%) and a 6.1% core rate (up from 5.9%). The Cleveland's Fed Nowcast has it at 8.8% and 6.1%, respectively. The Fed funds futures market has about an 80% chance of a 75 bp hike next month discounted. It may not change very much after the CPI report.  The US Treasury sold $34 bln 1-year bills yesterday at 3.20%. That represents a 24 bp increase in yield. The bid-cover dipped but was still three-times oversubscribed and the indirect bidders took down almost 63%, a sharp rise from a little less than 51% last time. The US also sold $42 bln 3-year notes, also at 3.20%. This was an 11-bp increase in yield. The bid-cover edged up to 2.5% and the indirect participants took 63.1% of the issue, up from 60.4% previously. Today, Treasury goes back to the well with $30 bln 119-day cash management bill and $35 bln 10-year notes. At the last auction, the 10-year was sold at 2.96%. In the when-issued market, the 10-year yield is about 2.79%. The US dollar traded between around CAD1.2845 and CAD1.2900 yesterday and remains in that range today. There are options for almost 1.15 bln at CAD1.29 that expire today. The greenback slipped to session lows in Europe but as in the other pairs, we look it to recover. A move above the CAD1.2910 area could spur a move toward CAD1.2950. Mexico reported slightly higher than expected inflation yesterday. It underscored expectations for a 75 bp hike by Banxico tomorrow. The US dollar is offered against the peso today and it is pressed near yesterday's low around MXN20.20. The top side is blocked around MXN20.27-MXN20.30. Options for around $765 mln at MXN20.30 expire today. A convincing break of the MXN20.20 area could target the MXN20.05 area    Disclaimer
The US Dollar Weakens as Chinese and Japanese Intervention Threats Rise, While US CPI and UK Jobs Data Await: A Preview

Podcast: Walt Disney, Electric Vehicles, US CPI And More In The Latest Saxo Market Call

Saxo Bank Saxo Bank 10.08.2022 13:20
Summary:  Today we discuss the possible reactivity to today's US July CPI data point, especially if a hotter than expected core reading challenges the market's determined bet that inflation is set to roll over and normalize over the next couple of years. We also look at an equity market that is technically rolling over, a US dollar that needs to choose a direction, and compelling commodity stories and chart points in gold, crude oil and coffee. A semiconductor, EV, deglobalization, and Walt Disney focus on the equity coverage today. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via this link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-aug-10-2022-10082022
Tokyo Core CPI Falls Short at 2.8%, Powell and Ueda Address Jackson Hole Symposium, USD/JPY Sees Modest Gains

Inflation In US Is Rising. Can It Get Worse? YES! FED Answers

Kenny Fisher Kenny Fisher 10.08.2022 21:00
USD/JPY continues to show little movement this week, in sharp contrast to Friday, when the pair jumped a massive 1.55%. In the European session, USD/JPY is trading at 135.02 down 0.09%. The yen had shown some strength against the dollar recently, but took a tumble after the stunning US nonfarm payroll report on Friday. The gain of 528 thousand more was more than double the estimate of 250 thousand, and the dollar responded with sharp gains against the majors. All eyes on US inflation Inflation has been rising in the US and hit 9.1% in June. The July inflation report will be released later today, and the release could have a strong impact on the direction of the US dollar. Headline CPI is expected to fall to 8.7%, down from 9.1%. If the reading does drop to around 8.7%, the markets may start thinking “peak” when it comes to inflation, and the dollar could lose ground. Conversely, if inflation stays around 9% or moves higher, it should be a catalyst for the dollar, as the Fed will have to consider a 75 or even a 100 basis point increase in September. After the inflation release, we’ll hear from Fed members Evans and Kashkari, and it will be interesting to hear their remarks on the heels of today’s inflation release. Last week, the Fed sent out the message that its rate-tightening cycle is not about to end, as the inflation fight is far from over. The spectacular nonfarm payrolls release pointed to continued strong wage growth and the participation rate dropping a notch, from 62.2% to 61.1%. These numbers point to a tighter labour market and stronger inflationary pressures. If today’s inflation report confirms that inflation is still accelerating, I would expect to hear hawkish remarks from Fed officials, which would likely give the US dollar a boost. . USD/JPY Technical USD/JPY is putting pressure on resistance at 134.40, which was tested on Wednesday. 136.30 is the next resistance line There is support at 133.65 and 131.80 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: https://www.marketpulse.com/20220810/yen-drifting-as-us-inflation-looms/
Coffee: Brazil And Columbia Are Reducing The Production

Coffee: Brazil And Columbia Are Reducing The Production

Ole Hansen Ole Hansen 11.08.2022 09:07
Summary:  Arabica coffee, in a downtrend since February, continues to see a tug of war between traders focusing on demand worries and those looking for higher prices in response to increasingly supportive supply fundamentals. In this update we take a closer look at some those supportive fundamentals while deciphering the potential signals being presented by the current price action. Arabica coffee has spent the past six months drifting lower after reaching an 11-year high back in February. In the months leading up to the peak at $2.60 per pound, the price had more than doubled with adverse weather in Brazil raising concerns about production. In the months that followed, however, the focus switched to the risk of a global economic slowdown, and with that the prospect of softer demand for the more expensive high quality bean.  After finding support at a key level below $2/lb the December futures has risen steadily in recent days with the situation in Brazil once again attracting some attention. This recent article from Bloomberg, titled “World’s Top Coffee Crop Shrinks in a Market Thirsty for Supply” confirms months of worries about supply with Brazil’s Conab now expecting the current on-season crop to be the lowest since 2014. Even their estimate of 35.7 million 60 kilogram bags, may end up being too optimistic according to commentators.  As Bloomberg reports: “Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer”. In addition, Columbia another top producer has seen its crop being reduced by too much rainfall.               Source: Saxo Group While an economic downturn may negatively impact demand for the more expensive bean, compared with Robusta, key fundamentals paint an overriding bullish picture for Arabica. The futures curve is currently pricing in the highest level of tightness since 2010 with the one-year backwardation, or roll yield achieved by holding a long position for one year, having risen despite recent attempts to sell it down. In addition, stock levels at warehouses monitored by the ICE futures exchange has declined to a 23-year low while speculators have cut their net long by 70% since February.  All developments that may underpin the price over the coming months, but first as per the chart below the price action needs to become more assertive. The first month contract has been trading within a wide declining channel since February, however, after finding support at $1.96/lb the important 38.2% retracement of the 2020 to 2022 rally, the potential for a test of the upper falling trendline, currently at $2.30/lb has risen. First though it needs to break above the 50-day moving average, currently at $2.21/lb. If rejected the medium term downtrend would likely resume with focus on a downward extension towards $1.75/lb. Source: Saxo Group Robusta, the cheaper coffee variety traded in dollars per metric tons may potentially show the way. After also finding support at the 38.2% retracement of the 2020 to 2022 rally it has done better than Arabica by breaking higher through its falling wedge like pattern. A daily close above $2160/tons is needed for confirmation of a bullish reversal that could send prices higher towards the previous peak around $2450/tons.  Source: Saxo Group Source: Supply pinch tilts risk higher for coffee  
Coffee Is On The Ropes? Dissapointing Prediction

Coffee Is On The Ropes? Dissapointing Prediction

Kim Cramer Larsson Kim Cramer Larsson 11.08.2022 08:42
Coffee is in a medium-term (corrective?) downtrend in a wide falling channel. Bounced from the 0.382 retracement at around 196 Coffee could be headed for at test of the upper falling trendline. First indication could be RSI breaking above its upper falling trendline and coffee to close above its 55 weekly SMA. Source: Saxo Group The short-term the bounce could have potential to reverse the medium-term downtrend. Daily RSI needs to close above 60 to confirm and indicate further upside. An upside that needs to take out the upper falling trendline. If rejected the medium-term down is likely to resume   Source: Saxo Group   Maybe the Robusta Coffee is an indication of what is coming in Coffee. Robusta coffee has rebounded from its 0.382 retracement of the entire 2020-2021 uptrend and has broken bullish out of its falling wedge like pattern which could be the Forth corrective vawe.If Robusta closes above 2.16 it has confirmed reversal of the downtrend and is likely to trade higher towards previous peak around 2.45. Strong resistance at around 2.30.RSI has broken above its falling trendline supporting the rebound picture. A close above 60 will further confirm an uptrend. Source: Saxo Group Short-term Robust is fast approaching 200 daily SMA. RSI above 60 and no divergence which indicates higher levels are likely. Resistance at around 2.185 and the 200 daily SMA. A minor correction should be expected around that level before uptrend is likely to resume.   Source: Saxo Group Source: Technical Update - Robusta Coffee reversing corrective downtrend. Will Coffee follow same pattern?  
Central Bank Policies: Hawkish Fed vs. Dovish Others"

US Income Is Rising But The Dollar Is Still Falling. What To Do?

John Hardy John Hardy 11.08.2022 09:30
Summary:  The market was happy to adjust US yields higher recently on stronger than expected US data points, but failed to take the USD lower, which in perfect hindsight suggests that the USD was set for a sharp drop on a soft CPI print today. And that’s what we got, with the headline CPI figure flat on month-on-month comparisons and the core rising less than expected. But how far can the market run on a single data print as data reactions have been fickle and fleeting of late. FX Trading focus: USD bears celebrate weak CPI print, but… The US CPI print came in weaker than expected for both the headline and for the ex Food and Energy figure. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. Risk sentiment is off to the races as this fits the market’s Goldilocks soft-landing scenario, particularly given recent stronger-than-expected activity data. It’s hard to tell how far the market can take the reaction function to a data point like this when we are trading in an illiquid month and some very volatile categories are behind the surprise inflation number today, and recent data reactions have failed to hold beyond the end of the day. But for now, the USD has triggered lower and taken out some important local support. We suspect it is far too early in the cycle to call the aggressive shift from the Fed that the market has been pricing, as this July CPI data point has seen the market marking the September FOMC decision down close to 50 basis points now and taking more of the tightening out of the meetings beyond. The market’s interpretation of a profound shift in the Fed, the Fed’s own protestations notwithstanding, has driven a strong easing of financial conditions since mid-June. Could this result in the economy showing a heating up in the coming months, also as the shock of higher gasoline price in particular may have eased the pressure on consumer sentiment? The preliminary Aug. University of Michigan Sentiment survey could be an interesting test on that front. For now, USDJPY posted the biggest reaction to the data point today as one would expect on the big move in treasury yields – more on USDJPY below. EURUSD has broken above the local resistance just below 1.0300, but faces a more significant resistance level in the 1.0350 area – one that could lead to a return to 1.0500+ if this move sticks through the Friday close. Again, as mentioned recently, it is too early to call an end of the EURUSD bear – the market’s view will have to play out as currently priced, with all of the Goldilocks implications, etc., for the USD to shift to a sustained and broad bear market here. Elsewhere, AUDUSD has vaulted above 0.7000, the tactical bull/bear line, with a huge zone up into 0.7150-0.7250 the more structural area of note for direction. Gold not holding above 1,800 in reaction to this data point as of this writing is already a weak performance, and I am watching much of the treasury market kneejerk reaction higher seeping out of the US treasury market as well – so some of the reaction is already fading fast – stay tuned! A US treasury auction is up today at 1700 GMT – the longer end of the US yield curve may be the most important coincident indicator for all markets here – if yields pull back higher, for example the US 10-year benchmark moving back above 2.87% and especially toward 3.00%, today’s reaction in the USD and the JPY, etc.. should quickly reverse. Chart: USDJPYThe bottom dropped out of USDJPY on the softer than expected US July CPI data this afternoon, just as it vaulted higher on Friday on the stronger than expected US July jobs report – with US yields the key coincident indicator. On that note, the US Treasury market reaction fading fast in the wake of today’s data point suggests USDJPY bears should be cautious here – if the US 10-year benchmark closes back above 2.75% and especially above 2.87% in coming days, this move may be quickly neutralized, although if we do close down here well south of 133.50, the candlestick looks rather bearish for a test lower. If the pair closes back well above 134.00, the next step would be a move above 136.00 to suggest the bull market is back on (likely as US 10-year treasury yields pull to 3.00% or higher). Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strength.Let’s have a look at how the market behaves after the knee-jerk reaction to the US data point today before drawing conclusions. As noted above, some important coincident indicators for the US dollar are suggesting caution for USD bears here. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.Today’s USD moves important if they stick into the close today and the close to the week – data reactions have been fickle and fleeting of late – so some patience may be required. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Source: FX Update: : Soft US CPI sparks significant kneejerk USD selling, but...    
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

Walt Disney Results Are Beyond All Expectations. Large Chinese Company Fires More Than 9K Employees!!! Market Newsfeed - 11.08.2022

Saxo Strategy Team Saxo Strategy Team 11.08.2022 10:40
Summary:  Risk on mode activated with a softer US CPI print, both on the headline and core measures. Equities rallied but the Treasury market reaction faded amid the hawkish Fedspeak. The market pricing of Fed expectations also tilted more in favor of a 50 basis points rate hike for September immediately after the CPI release, but this will remain volatile with more data and Fed speakers on tap ahead of the next meeting. Commodities, including oil and base metals, surged higher as the dollar weakened and demand outlook brightened but the gains appeared to be fragile. Gold unable to hold gains above the $1800 level. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities surged after the CPI prints that came in at more moderate level than market expectations. Nasdaq 100 jumped 2.9% and S&P500 gained 2.1%. Technology and consumer discretionary stocks led the market higher. Helped by the fall in treasury yields and better-than-feared corporate earnings in the past weeks, the Nasdaq 100 has risen 21% from its intraday low on June 16 this year and may technically be considered in a new bull market. The U.S. IPO market has reportedly become active again this week and more activities in the pipeline. Tesla (TSLA:xnas) climbed nearly 4% on news that Elon Musk sold USD6.9 billion of Tesla shares to avoid fire sale if having to pay for Twitter. Walt Disney (DIS:xnys) jumped 7% in after-hours trading on better-than-expected results. U.S. yields plunged immediately post CPI but recouped most of the decline during the US session The yields of the front-end of the U.S. treasury curve collapsed initially after the weaker-than-expected CPI data, almost immediately after the CPI release, 2-year yields tumbled as much as 20bps to 3.07% and 10-year yield fell as much as 11bps to 2.67%. Treasury yields then spent the day gradually climbing higher. At the close, 2-year yields were only 6bps at 3.21% and the 10-year ended the day at 2.78% unchanged from its previous close. The 2-10 yield curve steepened by 6bps to -44bps. Hawkish Fedspeak contributed to some of the reversal in the front-end from the post-CPI lows. At the close, the market is pricing in 60bps (i.e. 100% chance of at least a 50bps hike and about 40% chance of a 75bps rate hike) for the September FOMC after having come down to pricing in just about 50bps during the initial post-CPI plunge in yields. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Sang Index declined nearly 2% and CSI300 was down 1.1% on Wednesday. Shares of Chinese property developers plunged.  Longfor (00960) collapsed 16.4% as there was a story widely circulated in market speculating that the company had commercial paper being overdue. In addition, UBS downgraded the Longor together with Country Garden, citing negative free cash flows in the first half of 2022.  Country Garden (02007) fell 7.2%.  After market close, the management held a meeting with investors and said that all commercial papers matured had been duly repaid. China High Speed Transmission Equipment (00658) tumbled 19% after releasing negative profit warnings.  The company expects a loss of up to RMB80 million for first half of 2022. Guangzhou Baiyunshan Pharmaceutical (00874) declined 4.1% after the company filed to the Stock Exchange of Hong Kong that the National Healthcare Security Administration was investigating the three subsidiaries of the company for allegedly “obtaining funds by ways of increasing the prices of pharmaceutical products falsely”. Wuxi Biologics (02269) dropped 9.3% as investors worrying its removal from the U.S. unverified list may be delayed in the midst of deterioration of relationship between China and the U.S. Oversized USD reaction on US CPI The US dollar suffered a heavy blow from the softer US CPI print, with the market pricing for September FOMC getting back closer to 50 basis points just after the release. As we noted yesterday, the July CPI print is merely noise with another batch of US job and inflation numbers due ahead of the September meeting. USD took out some key support levels nonetheless, with USDJPY breaking below the 133.50 support to lows of 132.10. Next key support at 131.50 but there possibly needs to be stronger evidence of an economic slowdown to get there. EURUSD broke above 1.0300 to its highest levels since July 5 but remains at risk of reversal given the frothy equity strength. Crude oil prices (CLU2 & LCOV2) Oil prices were relieved amid the risk on tone in the markets as softer US CPI and subsequent weakness in the dollar underpinned. WTI futures rose towards $91.50/barrel while Brent futures were at $97.40. EIA data also suggested improvement in demand. US gasoline inventories fell 4,978kbbl last week, which helped push gasoline supplied (a proxy for demand) up 582kb/d to 9.12mb/d. This was slightly tempered by a strong gain in US crude oil inventories, which rose 5,457kbbl last week. Supply concerns eased after Transneft resumed gas supplies to three central European countries which were earlier cut off due to payment issues. European Dutch TTF natural gas futures (TTFMQ2) European natural gas rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments. Dutch front month futures rose 6.9% to EUR 205.47/MWh as a drought amid extreme temperatures has left the river almost impassable. European countries have been filling up their gas storage, largely by factories cutting back on their usage. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. Gold (XAUUSD) and Copper (HGc1) Gold saw a run higher to $1800+ levels immediately after the US inflation report as Treasury yields plunged. However, the precious metal gave up much of these gains after Fed governors warned that it doesn’t change the US central bank’s path toward higher rates this year and next. With China also ceasing military drills around Taiwan, geopolitical risks remain capped for now easing the upside pressure on Gold. Copper was more buoyant as it extended gains on hopes of a stronger demand amid a fall in price pressures.   What to consider? Softer US CPI alters Fed expectations at the margin The US CPI print came in weaker than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure – again primarily a result of lower energy prices. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers continued to be hawkish Fed speaker Evans and Kashkari were both on the hawkish side despite being some of the most dovish members on the Fed panel. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. He suggested Fed funds rate will reach 3.9% in 2022 (vs. market pricing of 3.5%) and 4.4% in end 2023 (vs. market pricing of 3.1%). China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% YoY in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% YoY in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% YoY while the rise in prices of non-food items moderated to 1.9%. Core CPI, which excludes food and energy, rose 0.8% YoY in July, down from June’s 1.0%. In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China expects the CPI to be at around 3% for the full year of 2022 and the recent downtrend of the PPI to continue. China issues white paper on its stance on Taiwan China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. In a less confrontational white paper released, the Taiwan Affairs Office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.  Walt Disney results beat estimates Disney reported solid Q2 results with stronger than expected 152.1 million Disney+ subscribers, up 31% YoY and beating market expectations (148.4 million).  Revenues climbed 26% YoY to USD21.5 billion and adjusted EPS came in at USD1.09 versus consensus estimates (USD0.96). Singapore Q2 GDP revised lower The final print of Singapore’s Q2 GDP was revised lower to 4.4% YoY from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q earlier. The forecast for annual 2022 growth was also narrowed to 3-4% from 3-5% earlier amid rising global slowdown risks. Another quarter of negative GDP growth print could now bring a technical recession in Singapore, but the officials have, for now, ruled that out and suggest a mild positive growth in Q3 and Q4. Softbank settled presold Alibaba shares early and Alibaba let go of a large number of employees The news that Softbank expects to post a gain of over USD34 billion from early physical settlement of prepaid forward contracts to unload its stake in Alibaba (09988:xhkg/BABA:xnas) and Alibaba laid off more than 9,000 staff between April and June this year added to the pressures over the share price of Alibaba.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 11, 2022  
Elon Musk Sells 8 Millions Tesla Stocks? Here Is Why!

Why Elon Musk Sells His Tesla Shares? Here Is The Answer!

Conotoxia Comments Conotoxia Comments 11.08.2022 11:10
What is happening? The CEO of the world's largest electric car company has sold about $8.4 billion worth of Tesla shares over the past week. According to documents provided to regulators, the series of transactions took place between August 5 and 9, 2022, shortly after the August 4 shareholder meeting in Austin. As recently as April of this year, the Tesla and SpaceX CEO wrote that he "has no plans for another stock sale," after divesting a stake worth $8.5 billion to buy Twitter. This is not the first time Elon Musk has confused his public. The businessman seems to frequently abuse his influence, throwing around bold statements and increasing the expectations of his followers. When asked recently if he had stopped selling Tesla, for the time being, he replied "yes. In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock." However, it's hard not to get the impression that the CEO is simply taking advantage of the recent rebound in the share price. It is possible that his goal is not just to finance the deal, but to try to protect his private fortune. Such a major sale of an important shareholder had a significant impact on both Twitter and Tesla's stock price. Elon Musk failure or a smart plan? Twitter rose at the opening by almost 4%, thanks to the increasing likelihood of the deal being finalized, which may have been due to Musk's recent tweet. Most of the news coming out of the courtroom also reinforces analysts' belief that the Tesla CEO will be forced to buy the company. The platform's stock price has gained more than 35% over the past month, with a price target. Tesla, influenced by the news of the sale of a large stake by the most important person in the company, has lost around 7% over the past four sessions. The company itself gained more than 44% from its July 16 bottom to its August 4 peak at the shareholder meeting. Tesla, like many technology companies, has gained significantly from the recent bear market rally. This growth can also be attributed to Tesla's results, in which it beat expectations for earnings per share (EPS) by more than 26%. However, the macroeconomic analysis is rather pessimistic for the electromobility market in the short and midterm. During recessions, companies are usually unable to achieve high expected growth rates by falling consumer demand. More often than not, revenues fall, profits decline, and as a result, stock prices fall as well.   RafaÅ‚ Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Elon Musk sells nearly 8 million Tesla shares, justifying it by the Twitter lawsuit
Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Saxo Strategy Team Saxo Strategy Team 11.08.2022 13:39
Summary:  Equity markets are ebullient in the wake of the softer than expected US July CPI data print yesterday, as a sharp drop in energy prices helped drag the CPI lower than expected for the month. The knee-jerk reaction held well in equities overnight, if to a lesser degree in the weaker US dollar. But US yields are nearly unchanged from the levels prior to the inflation release, creating an interesting tension across markets, also as some Fed members are explicitly pushing back against market anticipation of the Fed easing next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) The July CPI report showing core inflation rose only 0.3% m/m compared to 0.5% m/m expected was just what the market was hoping for and had priced into the forward curve for next year’s Fed Funds rate. Long duration assets reacted the most with Nasdaq 100 futures climbing 2.9%. However, investors should be careful not to be too optimistic as we had a similar decline in the CPI core back in March before inflation roared back. As Mester recently stated that the Fed is looking for a sustained reduction in the CPI core m/m, which is likely a 6-month average getting back to around 0.2% m/m. Given the current data points it is not realistic to be comfortable with inflation before late Q1 next year. In Nasdaq 100 future the next natural resistance level is around 13,536 and if the index futures can take out this then the next level be around 14,000 where the 200-day average is coming down to. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities climbed, Hang Seng Index +1.8%, CSI300 Index +1.6%. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +16%, Sunny Optical (02382:xhkg) +7%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. Semiconductors gained, SMIC (00981:xhkg) +3%, Hua Hong (01347:xhkg) +4%. After collapsing 16% in share price yesterday, Longfor (00960) only managed to recover around 3% after the company denied market speculation that it failed to repay commercial papers due. UBS’ downgraded Longfor and Country Garden (02007:xhkkg) yesterday citing negative free cash flows for the first half of 2022 highlighted the tight spots even the leading Chinese private enterprise property developers are in. Chinese internet stocks rallied, Alibaba (09988:xhkg) +3%, Tencent (0700:xhkg) +1%, Meituan (03690:xhkkg) +2.7%. China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. USD: Treasuries don’t point to further weakness here The US dollar knee-jerked lower on the softer-than-expected July CPI data, although US yields ended the day unchanged, creating an interesting tension in a pair like USDJPY, which normally takes its lead from longer US yields (unchanged yesterday after a significant dip intraday after the US CPI release). USDJPY dipped almost all the way to 132.00 after trading above 135.00 earlier in the day. What are traders to do – follow the coincident US yield indicator or the negative momentum created by yesterday’s move? Either way, a return above 135.00 would for USDJPY would likely require an extension higher in the US 10-year yield back near 3.00%. EURUSD is another interesting pair technically after local resistance just below 1.0300 gave way, only to see the pair hitting a brick wall in the 1.0350 area (major prior range low from May-June). Was this a break higher or a misleading knee-jerk reaction to the US data? A close below 1.0250 would be needed there to suggest that EURUSD is focusing back lower again. A similar setup can be seen in AUDUSD and the 0.7000 area, with a bit more sensitivity to risk sentiment there. Gold (XAUUSD) did not have a good day on Wednesday Gold was trading lower on the day after failing to build on the break above resistance at $1803 as the dollar weakened following the lower-than-expected CPI print, thereby reducing demand for gold as an inflation hedge. Instead, the prospect for a potential shallower pace of future rate hikes supported a major risk on rally in stocks and another daily reduction in bullion-backed ETF holdings. Yet comments by two Fed officials saying it doesn’t change the central bank’s path toward even higher rates – and with that the risk of a gold supportive economic weakness - did not receive much attention. Gold now needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver, which initially received a boost from higher copper prices before following gold lower needs to hold above its 50-day SMA at $20.26. Crude oil Crude oil futures (CLU2 & LCOV2) traded higher on Wednesday supported by a weaker dollar after the lower US inflation print gave markets a major risk on boost. Also, the weekly EIA report showed a jump in gasoline demand reversing the prior week’s sharp drop. Gasoline inventories dropped 5 million barrels to their lowest seasonal level since 2015 on a combination of strong exports and improved domestic demand while crude oil stocks rose 5.4m barrels primarily supported by a 5.3 million barrels release from SPR. Focus today on monthly Oil Market Reports from OPEC and the IEA. Dutch natural gas The Dutch TTF natural gas benchmark futures (TTFMQ2) rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments of fuel and coal, thereby forcing utilities and industries to consumer more pipelined gas. Dutch front month futures rose 6.9% to EUR 205.47/MWh while the October to March winter contract closed at a fresh cycle high above €200/MWH. European countries have been filling up their gas storage, largely by factories cutting back on their usage and through LNG imports, the flow of the latter likely to be challenged by increased demand from Asia into the autumn. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. US Treasuries (IEF, TLT) shrug off soft July CPI data US yields at first reacted strongly to the softer-than-expected July CPI release (details below), but ended the day mostly unchanged at all points along the curve, suggesting that the market is unwilling to extend its already aggressive view that the Fed is set to reach peak policy by the end of this year and begin cutting rates. Some Fed members are pushing back strongly against that notion as noted below (particularly Kashkari). A stronger sign that yields are headed back higher for the US 10-year benchmark would be on a close above 2.87% and especially 3.00%. Yesterday’s 10-year auction saw strong demand. What is going on? US July CPI lower than expected The US CPI print came in lower than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category marked -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers maintain hawkish message Fed speaker Evans and Kashkari were both on the hawkish side in rhetoric yesterday. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. Long thought of previously as the pre-eminent dove among Fed members, he has waxed far more hawkish of late and said yesterday that nothing has changed his view that the Fed funds rate should be at 3.9% at the end of this year (vs. market pricing of 3.5%) and 4.4% by the end 2023 (vs. market pricing of 3.1%). Siemens cuts outlook Germany’s largest industrial company is cutting its profit outlook on impairment charges related to its energy division. FY22 Q3 results (ending 30 June) show revenue of €17.9bn vs est. €17.4bn and orders are strong at €22bn vs est. €19.5bn. Orsted lifts expectations The largest renewable energy utility company in Europe reports Q2 revenue of DKK 26.3bn vs est. 21.7bn, but EBITDA misses estimates and the fiscal year guidance on EBITDA at DKK 20-22bn is significantly lower than estimates of DKK 30.4bn. However, the new EBITDA guidance range is DKK 1bn above the recently stated guidance, so Orsted is doing better than expected but the market had just become too optimistic. Disney beats on subscribers Disney reported FY22 Q3 (ending 2 July) results showing Disney+ subscribers at 152.1mn vs est. 148.4mn surprising the market as several surveys have recently indicated that Amazon Prime and Netflix are losing subscribers. The entertainment company also reported revenue for the quarter of $21.5bn vs est. $21bn with Parks & Experiences deliver the most to the upside surprise. EPS for the quarter was $1.09 vs est. $0.96. If subscribers for ESPN and Hulu are added, then Disney has surpassed Netflix on streaming subscribers. Shares were up 6% in extended trading. Despite the positive result the company lowered its 2024 target for Disney+ subscriber to 135-165mn range. Coupang lifts fiscal year EBITDA outlook The South Korean e-commerce company missed slightly on revenue in Q2 but lifted its fiscal year adjusted EBITDA from a loss of $400mn to positive which lifted shares 6% in extended trading. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. What are we watching next? Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch Today’s US earnings in focus are NIO and Rivian with market running hot again on EV-makers despite challenging environment on input costs and increased competition. NIO is expected to grow revenue by 15% y/y in Q2 before seeing growth jumping to 72% y/y in Q3 as pent-up demand is released following Covid restrictions in China in the first half. Rivian, which partly owned by Amazon and makes EV trucks, is expected to deliver its first quarter with meaningful activity with revenue expected at $336mn but free cash flow is expected at $-1.8bn. Today: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0800 – IEA's Monthly Oil Market Report 1230 – US Weekly Initial Jobless Claims 1230 – US Jul. PPI 1430 – US Weekly Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-Bonds 2330 – US Fed’s Daly (Non-voter) to speak During the day: OPEC’s Monthly Oil Market Report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 11, 2022  
The US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

Is Fed Ready For It's Counter-Attack? Commodities, Earnings And More

Saxo Bank Saxo Bank 11.08.2022 13:52
Summary:  Today we look at the sharp correction in energy prices driving a softer than expected CPI print for the US in July, which saw sentiment responding by piling on to the recent rally and taking equities to new highs for the local cycle since June. Interestingly, the reaction to the CPI data has generated some tension as US treasury yields are trading sideways after erasing the knee-jerk drop in yields in the wake of yesterday's data. With financial conditions easing aggressively, the Fed faces quite a task if it wants to counter this development, with recent protests from individual Fed members failing to make an impression. Perhaps the Jackson Hole Fed forum at the end of this month is shaping up as a key event risk? Crude oil, the USD, metals, earnings and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: Soft CPI revives risk rally, but treasury reaction creates dissonance    
Oz Minerals’ Quarterly Copper Output Hit A Record High, Brent Futures Rose

Copper Is Smashing For The Second Time This Summer! WTI Is Back From The Dead

Marc Chandler Marc Chandler 11.08.2022 14:12
Overview: The US dollar is consolidating yesterday’s losses but is still trading with a heavier bias against the major currencies and most emerging market currencies. The US 10-year yield is soft below 2.77%, while European yields are mostly 2-4 bp higher. The peripheral premium over the core is a little narrower today. Equity markets, following the US lead, are higher today. The Hang Seng and China’s CSI 300 rose by more than 2% today. Among the large bourses, only Japan struggled, pressured by the rebound in the yen. Europe’s Stoxx 600 gained almost 0.9% yesterday and is edging higher today, while US futures are also firmer. Gold popped above $1800 yesterday but could not sustain it and its in a $5 range on both sides of $1788 today. September WTI rebounded yesterday from a low near $87.65 to close near $92.00. It is firmer today near $93.00. US natgas is 1.4%, its third successive advance and is near a two-week high. Europe’s benchmark is also rising for the third session. It is up nearly 8% this week. Iron ore rose 2% today and it is the fourth gain in five sessions. September copper is also edging higher. If sustained, it would be the fifth gain in six sessions. It is at its highest level since late June. September wheat is 1.1% higher. It has risen every session this week for a cumulative gain of around 4.25%.  Asia Pacific In its quarterly report, the People's Bank of China seemed to downplay the likelihood of dramatic rate cuts or reductions in reserve requirements. It warned that CPI could exceed 3% and ruled out massive stimulus, while promising "high-quality" support, which sounds like a targeted measure. It is not tightening policy but signaled little scope to ease. Note that the 10-year Chinese yield is at the lower end of its six-month range near 2.74%. Its two-year yield is a little above 2.15%, slightly below the middle of its six-month range. Separately, Yiwa, a city of two million people, south of Shanghai has been locked down for three days starting today due to Covid. It is a manufacturing export hub. South Korea reported its first drop (0.7%) in technology exports in two years last month. While some read this to a statement about world demand, and there is likely something there given the earnings reports from the chip sector. However, there seems to be something else at work too. South Korea figures show semiconductor equipment exports to China have been more than halved this year (-51.9%) through July. China had accounted for around 60% of South Korea's semiconductor equipment. Reports suggest the main drivers are the US-China rivalry. Semiconductor investment in China has fallen and South Korea has indicated it intensions to join the US Chip 4 semiconductor alliance. Singapore's economy unexpectedly contracted in Q2. Initially, the government estimated the economy stagnated. Instead, it contracted by 0.2%. Given Singapore's role as an entrepot, its economic performance is often seen as a microcosm of the world economy. There was a nearly a 7% decline in retail trade services, while information and communication services output also fell. After the data, the Ministry of Trade and Industry narrowed this year's GDP forecast to 3%-4% from 3%-5%. While the drop in the US 10-year yield saw the dollar tumble against the yen yesterday, the recovery in yields has not fueled a recovery in the greenback. The dollar began yesterday above JPY135- and fell to nearly JPY132.00. Today, it has been confined to a little less than around half a yen on either side of JPY132.85. The cap seen at the end of last week and early this week in the JPY135.50-60 area, and the 20-day moving average (~JPY135.30) now looks like formidable resistance. Recall that the low seen earlier this month was near JPY130.40. The Australian dollar is also consolidating near yesterday's high set slightly below $0.7110. It was the best level in two months. The $0.7050 area may now offer initial support. The next upside target is seen in the $0.7150-70 band, which houses the (50%) retracement objective of the Aussie's slide from the April high (~$0.7660) and the July low (~$0.6680), and the 200-day moving average. The broad greenback sell-off yesterday saw it ease to about CNY6.7235, its lowest level in nearly a month. Despite the less-than-dovish message from the PBOC, it seemed to signal it did not want yuan strength. It set the dollar's reference rate at CNY6.7324, a bit above the median (Bloomberg's survey) of CNY6.7308. Europe Germany's coalition government has begun debating over the contours of the next relief package. The center-left government has implemented two support programs to ease the cost-of-living squeeze for around 30 bln euros. A third package is under construction now. The FDP Finance Minister Linder suggested as one of the components a 10 bln euro program to offset the "bracket creep" of higher inflation putting households into a higher tax bracket. The Greens want a more targeted effort to help lower income families. More work needs to be done, but a package is expected to be ready next month. The International Energy Agency estimates that Russian oil output will fall by around a fifth early next year as the EU import ban is implemented. The IEA warns that Russian output may begin declining as early as this month and estimates 2 mln barrels a day will be shut by early 2023. The EU's ban on most Russian oil will begin in early December, and in early February, oil products shipments will also stop. Now the EU buys around 1 mln barrels a day of oil products and 1.3 mln barrels of crude. Russia boosted output in recent months, to around 10.8 mln barrels a day. The IEA estimates that in June, the PRC overtook the EU to become the top market for Russia's seaborne crude (2.1 mln bpd vs. 1.8 mln bpd). Separately, the IEA lifted its estimate of world consumption by about 380k barrels a day from its previous forecast, concentrated in the Middle East and Europe. The unusually hot weather in the Middle East, where oil is burned for electricity, has seen stronger demand. In Europe, there has been more switched from gas to oil. The euro surged to almost $1.0370 yesterday on the back of the softer than expected US CPI. It settled near $1.03. It is trading firmly in the upper end of that range today. It held above $1.0275, just below the previous high for the month (~$1.0295). Today's high, was set in the European morning, near $1.0340. There is a trendline from the February, March, and June highs found near $1.04 today. It is falling by a little less than half a cent a week. Sterling's rally yesterday stalled in front of this month's high set on August 1 slightly shy of $1.2295. It is straddling the area where it settled yesterday (~$1.2220). We suspect the market may test the lows near $1.2180, and a break could see another half-cent loss ahead of tomorrow's Q2 GDP. The median forecast in Bloomberg's survey is for a 0.2% contraction after a 0.8% expansion in Q1.  America What the jobs data did for expectations for the Fed at next month's meeting were largely reversed by slower the expected CPI readings. On the eve of the employment data, the market was discounting a little better than a 35% chance of another 75 bp hike. It jumped to over a 75% chance after employment report but settled yesterday around a 45% chance. It is still in its early days, and the Fed will see another employment and CPI report before it has to decide. Although the market has downgraded the chances of a 75 bp hike at next month's meeting, it still has the Fed lifting rates 115 bp between now and the end of year. The market recognizes that that Fed is not done tightening no matter what trope is dragged out to use as a strawman. The truth is the market is pushing against some Fed views. Chicago Fed's Evans, who many regard as a dove from earlier cycles, said that Fed funds could finish next year in the 3.75%-4.00% area, which opined would be the terminal rate. The swaps market says that the Fed funds terminal rate is closer to 3.50% and in the next six months. More than that, the Fed funds futures are pricing in a cut late next year. At least a 25 bp cut has been discounted since the end of June. It was the Minneapolis Fed President Kashkari that surprised many with his hawkishness. Many see him as a dove because five years ago, he dissented against rate increases in 2017. However, he has been sounding more hawkish in this context and revealed yesterday that it was his "dot" in June at 3.90% this year and 4.4% next year. These were the most extreme forecasts. Perhaps it is not that he is more dovish or hawkish, labels that seemingly take a life on of their own but more activity. While neither Evans nor Kashkari vote on the FOMC this year, they do next year. San Francisco Fed President Daly seemed more willing to consider moderating the pace of tightening but still sees more work to be done. She does not vote this year or next.  Headline CPI was unchanged last month and the 0.3% rise in the core rate was less than expected. At 8.5%, the headline is rate is still too high for comfort, and the unchanged 5.9% core rate warns significant progress may be slow. Shelter is about a third of the CPI basket and it is rising about 0.5% a month. It is up 5.7% year-over-year. If everything else was unchanged, this would lift CPI to 2%. The US reports July Producer Prices. Both the core and headline readings are expected to have slowed. The headline peaked in March, 11.6% above year ago levels. It was 11.3% in June and is expected to have fallen to 10.4%. The core rate is likely to post its fourth consecutive decline. It peaked at 9.6% in March and fell to 8.2% in June. The median forecast (Bloomberg's survey) is for a 7.7% year-over-year pace, which would be the lowest since last October.  Late in the North American session, Mexico's central bank is expected to deliver its second consecutive 75 bp rate hike. It will lift the overnight target rate to 8.5%. The July CPI reported Tuesday stood at 8.15% and the core 7.65%. The swaps market has a terminal rate near 9.5% in the next six months. The subdued US CPI reading, helped spur a 0.85% rally in the JP Morgan Emerging Market Currency Index yesterday, its largest gain in almost four weeks. The peso, often a liquid and accessible proxy, rose around 1.1%. The greenback briefly traded below MXN20.00 for the first time since late June. The move was so sharp that closed below its lower Bollinger Band (~MXN20.08) for the first time in six months. The US dollar slumped to almost CAD1.2750 yesterday to hold above the 200-day moving average (~CAD1.2745). It is the lowest level in nearly two months, and it has not traded below the 200-day moving average since June 9. Like the other pairs, it is consolidating today near the lower end of yesterday's greenback range. The swaps market downgraded the likelihood that the Bank of Canada follows last month's 100 bp hike with a 75 bp move when it meets on September 7. It is now seen as a 30% chance, less than half of what was projected at the end of last week. We suspect that the US dollar can recover into the CAD1.2800-20 area today.     Disclaimer   Source: US Dollar Soft while Consolidating Yesterday's Drop
Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Craig Erlam Craig Erlam 11.08.2022 14:32
Oil treading water after volatile 24 hours Needless to say, it was quite a volatile session in oil markets on Wednesday. A positive surprise on inflation was followed by a huge inventory build reported by EIA and then the highest US output since April 2020. Meanwhile, oil transit via the Druzhba pipeline resumed after a brief pause that jolted the markets. That’s a lot of information to process in the space of a couple of hours and you can see that reflected in the price action. And it keeps coming this morning, with the IEA monthly oil report forecasting stronger oil demand growth as a result of price incentivised gas to oil switching in some countries. It now sees oil demand growth of 2.1 million barrels per day this year, up 380,000. It also reported that Russian exports declined 115,000 bpd last month to 7.4 million from around 8 million at the start of the year. The net effect of all of this is that oil prices rebounded strongly on Wednesday but are pretty flat today. WTI is back above $90 but that could change if we see progress on the Iran nuclear deal. It’s seen plenty of support around $87-88 over the last month though as the tight market continues to keep the price very elevated. Gold performs handbrake turn after breakout It was really interesting to see gold’s reaction to the inflation report on Wednesday. The initial response was very positive but as it turned out, also very brief. Having broken above $1,800, it performed a swift u-turn before ending the day slightly lower. It can be difficult to gauge market reactions at the moment, in part because certain markets seem to portray far too much economic optimism considering the circumstances. With gold, the initial response looked reasonable. Less inflation means potentially less tightening. Perhaps we then saw some profit-taking or maybe some of that economic optimism crept in and rather than safe havens, traders had the appetite for something a little riskier. Either way, gold is off a little again today but I’m not convinced it’s peaked. From a technical perspective, $1,800 represents a reasonable rotation point. Fundamentally, I’m just not convinced the market is currently representative of the true outlook. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Oil stablizes, gold pares gains
Bitcoin Is Showing The Potential For The Further Downside Rotation

Bitcoin Like Phoenix!? Crypto Community Can Breathe A Sigh Of Relief

Craig Erlam Craig Erlam 11.08.2022 14:48
Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets. Positive surprises have been hard to come by on the inflation front this year and yesterday’s report was very much welcomed with open arms. While we shouldn’t get too carried away by the data, with headline inflation still running at 8.5% and core 5.9%, it’s certainly a start and one we’ve waited a long time for. Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy u-turn early next year is highly unlikely. Once again, the markets are at odds with the Fed’s assessment on the outlook for interest rates but this time in such a way that could undermine its efforts so you can understand their concerns. I expect we’ll continue to see policymakers unsuccessfully push back against market expectations in the coming weeks while further driving home the message that data dependency works both ways. That said, the inflation report has further fueled the optimism already apparent in the markets and could set the tone for the rest of the summer. PBOC signals no further easing Unlike many other central banks, the PBOC has the scope to tread more carefully and continue to support the economy as it contends with lockdowns amid spikes in Covid cases. The country’s zero-Covid policy is a huge economic headwind and proving to be a drain on domestic demand. The PBOC has made clear in its quarterly monetary policy report though that it doesn’t want to find itself in the same position as many other countries right now. With inflation close to 3%, further easing via RRR or interest rates looks unlikely for the foreseeable future. Cautious targeted support looks the likely path forward as the central bank guards against inflation risks, despite the data yesterday surprising to the downside. Singapore trims growth forecasts A surprise contraction in the second quarter has forced Singapore to trim its full-year growth forecast range from 3-5% to 3-4% as the economy contends with a global slowdown, to which the country is particularly exposed, and Covid-related uncertainty in China. While the MAS has indicated monetary policy is appropriate after tightenings this year, inflation remains high so further pressures on this front may add to the headwinds for the economy. Where’s the momentum? Bitcoin took the inflation news very well and it continues to do so. Slower tightening needs and improved risk appetite is music to the ears of the crypto community who will be more confident that the worst is behind it than they’ve been at any point this year. Whether that means stellar gains lie ahead is another thing. The price hit a new two-month high today but I’m still not seeing the momentum I would expect and want. That may change of course and a break of $25,000 could bring that but we still appear to be seeing some apprehension that may hold it back in the near term. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Welcome relief
UK Budget: Short-term positives to be met with medium-term caution

Boris Johnson Resignation Cause Further Difficulties For Pound Sterling (GBP)!? MarketTalk

Swissquote Bank Swissquote Bank 11.08.2022 12:20
US consumer prices eased in July, and they eased more than expected. US yields pulled lower after the CPI print, the US 10-year yield retreated, the US dollar slipped, gold gained, and the US stock markets rallied. Forex The EURUSD jumped to 1.0370 mark, as Cable made another attempt to 1.2272 but failed to extend gains into the 1.23 mark. And It will likely be hard for the pound sterling to post a meaningful recovery even if the dollar softens more, as there are too much political uncertainties in Britain following Boris Johnson’s resignation.   The sterling is under pressure, but the FTSE100 does just fine, and I will focus on why the British blue-chip companies are in a position to extend gains in this episode. Disney Elsewhere, Disney jumped on strong quarterly results, Tesla rallied despite news that Elon Musk dumped more stocks to prepare for an eventual Twitter purchase. Twitter shares gained.   Watch the full episode to find out more!   0:00 Intro 0:27 Softer-than-expected US CPI boosts appetite… 2:03 … but FOMC members warn that inflation war is far over! 3:39 FX update: USD softens, gold, euro, sterling advance 5:55 Why FTSE 100 is still interesting? 8:06 Disney jumps on strong results, Tesla, Twitter gain Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #US #inflation #data #Gold #XAU #USD #EUR #GBP #FTSE #Disney #earnings #Tesla #Twitter #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq   Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH Source: Stocks up on soft US CPI, but inflation war is not over! | MarketTalk: What’s up today? | Swissquote
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

US Jobless Claims: Even More Than The Previous Year. PBOC Hopes CPI To Stay At 3%

Saxo Strategy Team Saxo Strategy Team 12.08.2022 09:03
Summary:  Another downside surprise in US inflation in the wake of lower energy prices lifted the equity markets initially overnight. However, sustained hawkishness from Fed speakers brought the yields higher, weighing on equities which closed nearly flat in the US. Crude oil prices made a strong recovery with the IEA boosting the global growth forecast for this year. EURUSD stayed above 1.0300 and will be eying the University of Michigan report today along with UK’s Q2 GDP. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  After rising well over 1% in early trading amid the weaker-than-expected PPI prints, U.S. equities wiped out gains and closed lower, S&P 500 -0.07%, Nasdaq 100 -0.65%. Energy stocks were biggest gainers, benefiting from a 2.6% rally in the price of WTI crude, Devon Energy (DVN:xnys) +7.3%, Marathon Oil (MRO:xnys) +7%, Schlumberger (SLB:xnys) +5.7%.  Consumer discretionary and technology were the biggest decliners on Thursday. Chinese ADRs gained, Nasdaq Golden Dragon Index climbed 2.6%.  U.S. treasuries bear steepened In spite of weaker-than-expected PPI data, U.S. long-end treasury yields soared, 10-year yields +10bps to 2.99%, 30-year yields +14bps to 3.17%. The rise in long-end yields were initially driven by large blocks of selling in the T-bond and Ultra-long contracts and exacerbated in the afternoon after a poor 30-year auction. The yield of 2-year treasury notes was unchanged and the 2-10-year yield curve steepened 10bps to minus 23bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities surged, Hang Seng Index +2.4%, CSI300 Index +2.0%. Northbound inflows into A shares jumped to a 2-month high of USD1.9 billion. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +17.7%, Sunny Optical (02382:xhkg) +9%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. China internet names rebounded, Alibaba (09988:xhkg) +4.3%, Tencent (00700:xhkg) +2.7%, Meituan (03690:xhkkg) +4.0%, Baidu (09888:xhkg) +5.2%. Power tool and floor care manufacturer, Techtronic Industries (00669:xhkg) soared nearly 11% after reporting  a 10% year-on-year growth in both revenues and net profits in 1H22. The company rolled out a new generation of drill drivers that have embedded with machine learning algorithm. After collapsing 16% in share price yesterday, Longfor (00960) managed to stabilize and recover 5.7% following the company’s refutation of market speculation that it had failed to repay commercial papers due. EURUSD re-tested resistance levels EURUSD reclaimed the key 1.0300 on Thursday amid a softer dollar, and printed highs of 1.0364. While weaker-than-expected inflation prints in the US this week have curtailed dollar strength, it is hard for EURUSD to sustain gains amid the energy crisis and European recession concerns. A break below 1.0250 would be needed for EURUSD to reverse the trend, however. AUDUSD, likewise, trades above 0.7100 amid the risk on tone, but a turn lower in equities could reverse the trend. GBPUSD has been more range-bound around 1.2200 ahead of the Q2 GDP data scheduled to be released today, and EURGBP may be ready to break above 0.8470 resistance if the numbers come out weaker-than-expected. Crude oil prices (CLU2 & LCOV2) Crude oil prices gained further on Thursday amid signs of softer inflation, weaker dollar and improving demand. The International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch to oil. This could be aided by lower gasoline prices, which have dented demand during the US driving season. Prices fell below USD4/gallon for the first time since March. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures rose towards the 100-mark.   What to consider? Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. The PBOC reiterates that it will avoid excessive money printing to spur growth so as to safeguard against inflation.  China’s President Xi is said to be visiting Saudi Arabia next week The Guardian reports that President Xi Jinping is expected to visit Saudi Arabia on an invitation extended from Riyadh in March.  China has been eager to secure its oil supply and explore the possibility of getting its sellers to accept the renminbi to settle oil trade.   While relying on the United States for security in a volatile region and supplies of weapons, Saudi Arabia with Prince Mohammed being in charge is looking for leverage in the kingdom’s relationship with the United States.  UK Q2 GDP likely to show a contraction The Q2 GDP in the UK is likely to show a contraction after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 12, 2022
Global Markets Shaken as Yields Soar: Dollar Surges, Stocks Slump, and Gold Holds Ground Amid Debt Concerns and Rate Hike Expectations

Boom! Ethereum Blows Up The Market!? Bitcoin Speeds Up! Crypto News

Conotoxia Comments Conotoxia Comments 12.08.2022 09:50
US Inflation Yesterday, the US inflation report was released, which came in at 8.5% in July. The market did not expect such a large drop, estimating a level of 8.7% before the data was released. The stock markets reacted positively and the major equity indexes rose significantly. The S&P 500 gained more than 2.1% during yesterday's session and the Nasdaq almost 2.9%. Crypto Cryptocurrencies, however, reacted most noticeably - on the Conotoxia MT5 platform, Bitcoin gained around 3.3% yesterday. And today, it continues its rise, breaking through the local peak of $2,485 on 30 August 2022. At 11.30 am GMT+3, the price of BTC is $24,471. The ETH price has risen even more strongly after a surprisingly low inflation reading. Ethereum gained more than 8.5% yesterday, and at 11.30 GMT+3, it is already up more than 2.3%. The token already costs $1,887 - its highest recorded level since 6 June this year.    What to expect? The market's reaction has a lot to do with expectations of interest rate hikes, which fell after the US inflation reading. However, it is still a long way from calling it a permanent decline. Inflation is still at its highest level in decades and the economy is operating in an environment of negative real interest rates.   According to CME Group data, the Federal Reserve (Fed) is likely to push rates even higher. Currently, the Fed Funds Rate is at just 2.5 pp, the level before the Covid pandemic. The CME Group estimates that we will still reach the 3.25 pp level this year, and peak in 2023 at 3.5 pp. However, as for the 2023 projections. The Federal Open Market Committee (FOMC), which decides them, is already much less unanimous and a lot may still depend on the information coming out of the economy.   Information on its state in the US is not pleasing. Most metrics - such as the yield curve, consumer sentiment, and economic growth - point to a recession. The labour market, which is surprisingly strong at the moment, is reacting last and is likely to become further evidence of a crisis soon.   The cryptocurrency market has never been in such a severe recession, so it is hard to determine exactly how it will behave. For now, the data shows a relatively high level of correlation between it and the stock market. This is not good news, as the latter almost always loses in a crash.   Polygon (MATIC) is an Ethereum token that powers the Polygon network, which is a protocol for building Ethereum-compatible blockchains and decentralised applications (DApps). Polygon is also referred to as a 2nd level (2nd level) solution to help Ethereum to scale faster, by increasing the efficiency of the network.    On Wednesday, Polygon shared data on user growth. Their total number in July was 11,800, gaining 47.5% since March and up 400% year-to-date. Interestingly, according to the project, "74% of teams integrated exclusively on Polygon, while 26% deployed on both Polygon and Ethereum,". This shows a very high level of confidence in the new technology, which can be the new foundation for the development of DApps. Since the local low on 19 July this year. MATIC has risen almost 172%.  Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)   Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Crypto soars after the low inflation reading. Polygon grows rapidly, gaining 400% users
Gold Has A Chance For The Rejection Of The Support

Metals Recovery Process: Gold Survival Series. Copper Age

Saxo Strategy Team Saxo Strategy Team 12.08.2022 10:24
Summary:  US treasury yields at the long end of the curve surged over 15 basis points at one point yesterday in the wake of heavy treasury futures selling and a somewhat soft T-bond auction, which helped to turn sentiment lower in the equity market after the major averages had advanced to new local highs. The jump in US yields checked the US dollar’s descent as traders mull whether a break higher in US treasury yields will offer the currency fresh support after its break lower this week in many USD pairs.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures attempted to run higher above the key 4,200 level but was rejected forcefully, closing a bit lower for the session and just above the 4,200 level. This morning the index futures are again trying to push higher trading around the 4,222 level with yesterday’s high at 4,260 being the natural resistance level in the short-term. Today’s earnings and macro calendar are light except for the Michigan surveys at 1400 GMT on consumer sentiment and expectations for the economy and inflation which could move the market on a surprise print. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities treaded water, fluctuating between small gains and losses. Sportswear and EV names gained. Li Ning (02332:xhkg) climbed more than 4% after reporting better than expected 1H results with sales growth of 22% and net profit growth of 12% from last year. The solid sales growth was led by online sales and wholesale business. China’s EV sales volumes grew 124% YoY (wholesale) and 117% YoY (retail) in July, much faster than the growth of the overall passenger vehicle market and had a penetration rate of 26.7%. XPeng (09868:xhkg) led the charge higher, gaining 4.2%, NIO (09866:xhkg) +3.6%, Li Auto (02015:xhkg) +1.7%. Leading semiconductor names, SMIC (00981:xhkg) and Hua Hong (01347:xhkg) reported inline and better-than expected results respectively. In its earnings call, the management of SMIC noted orders from some of its customers could fall meaningfully in near-term due to high inventories and suggested that recovery could come at around end of 2022 or early 2023. Share prices of SMIC declined 1.8%. USD: jump in long treasury yields checks the greenback’s descent After USDJPY traded to new local lows yesterday below 132.00, the pair snapped back well north of 133.00 in the wake of a surge in long US treasury yields (more below) and the USD sell-off was likewise checked elsewhere as risk sentiment also rolled over by late in the US equity trading session. The USD resilience is not yet technically significant and won’t be on a broad basis until/unless USDJPY surges back above perhaps 136.00, the EURUSD surge above 1.0300 is pushed back below 1.0250, and the aggressive AUDUSD move is pummeled back below 0.7000. The get a broader USD resurgence might require higher US yields and a deepening turn to the negative in risk sentiment, until then. Gold (XAUUSD) is heading for a fourth weekly gain ... supported by a weaker dollar after lower-than-expected CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week, have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. Gold needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver is looking for support at $20.23, its 50-day SMA. Copper and industrial metals in general have seen a strong recovery with COPPERSEP22 now eying resistance at $3.7150, its 50-day SMA. Crude oil (CLU2 & LCOV2) traded higher on Thursday ... before some light profit emerged overnight in Asia. Prices have been supported by signs of softer inflation improving the growth outlook, weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March. In addition, the International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel based products. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures returned to the 100-mark, thereby supporting our view that oil prices have reached a potential through in this correction phase.   US Treasuries (IEF, TLT) see long-end yields surging US yields at the long end of the curve ripped higher with the move aggravated by a somewhat soft 30-year T-bond auction, though the bulk of the move higher in yields unfolded earlier in the day on heavy selling of treasury futures. The 30-year yield rose a chunky 15.5 basis points at one point yesterday and traded to the highest levels in weeks, with the 10-year likewise poking above local highs in the 2.87% yield area. The jump in yields is technically significant if it holds and proceeds to 3.00%, suggesting that the consolidation phase is over. As well, the rise at the long end of the curve has significantly steepened the yield curve from a recent extreme in the 2-10 inversion of –49 basis points to –34 basis points.   What is going on?   US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. The grains sector trades at a five-week high ahead of today’s supply and demand report The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat (WHEATDEC22) and corn (CORNDEC22) in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon to be harvested crop has given today’s World Agricultural Supply and Demand Estimates report some additional attention with surveys looking for lower yields and with that lower ending stocks. San Francisco Fed President Mary Daly sees 50 basis point hike at September FOMC meeting Daly is not an FOMC voter this year. Unlike her colleague (also a non-voter this year) Neel Kashkari at the Minneapolis Fed, she is satisfied with the median forecast of a 3.4% policy rate by year-end, which would be achieved with a 50 basis point move in September, followed by two 25 basis point hikes in November and December. Kashkari thinks 3.9% is more appropriate for a year-end target policy rate. Daly noted that she is happy to see inflation coming down, but is still open for a larger rate increase in September if necessary. “It really behooves us to stay data dependent and not call it”. The market is currently priced for 60 basis points of hiking at the September 21 FOMC meeting. Illumina shares down 23% on massive earnings miss The DNA-sequencing company slashed its fiscal year outlook last night due to potential penalties in Europe from its acquisition of another company. Its FY EPS forecast is now $2.75-2.90 down from previously $4-4.20.   What are we watching next?   UK Q2 GDP likely to show a contraction ... after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy. Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch There are no important earnings today except for Flutter Entertainment which has already reported ahead of the trading start in London. Flutter reports first-half revenue of £3.4bn vs est. £3.2bn. Today: Flutter Entertainment Economic calendar highlights for today (times GMT) 0900 – Eurozone Jun. Industrial Production 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment 1600 – USDA's World Agriculture Supply and Demand report (WASDE) Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 12, 2022
FX Market Update: Calm Before the Central Bank Storm

AUDUSD Is Sliding Down. AUDJPY Aims High!? GBPAUD Finally Have A Chance!

Kim Cramer Larsson Kim Cramer Larsson 12.08.2022 08:47
AUDUSD AUDUSD confirmed short-term uptrend yesterday breaking above 0.7069. RSI back above 60 indicating AUDUSD is likely to move higher towards resistance at 0.7283. AUDUSD could move higher from there after a likely correction. If closing above 0.76 AUDUSD could move toward peak at around 0.7660.To neutralise that scenario AUDUSD must move back below 0.7069. To reverse it AUDUSD must collapse to below 0.6865. Source: Saxo Group Weekly chart shows AUDUSD trading in a wide falling channel. A test of upper falling trendline is not unlikely, given that the above bullish scenario plays out. Source: Saxo Group AUDJPY AUDJPY is slowly crawling higher after the spike down below key support last week. AUDJPY is back above all Simple Moving averages and RSI is still showing positive sentiment indicating a test of the slightly falling upper trendline is likely. If AUDJPY breaks above the trendline and above resistance at 95.75 the pairs is likely to take out the peak in June at around 96.90. Source: Saxo Group GBPAUD GBPAUD is testing support at 1.7173 and seems likely to break bearish out of the range it has been trading in past 6 months. If AUDGBP closes below 1.7173 the pair is set for lower levels Source: Saxo Group Weekly chart shows that 01.7173 is a key support level rejecting GBPAUD several times. If GBPAUD finally breaks below the support a medium- to long-term move towards 1.60 area is in the cards.IF it fails to close below 1.7173 GBPAUD could resume its rangebound behaviour Source: Saxo Group Source: Technical Update - AUD pairs on the move testing or breaking resistance levels. AUDUSD , AUDJPY & GBPAUD
Commodities Update: Strong Russian Oil Flows to China and Volatility in European Gas Market

Natural Gas Report After Weekly US Storage - Obnoxious Results

Saxo Bank Saxo Bank 12.08.2022 11:34
Summary:  Today we note that the big surge in yields at the long end of the US yield curve were likely the critical factor in capping and reversing the extension of the rally in equities yesterday. The US dollar found a bit of resilience on the development as well, if only half-hearted. Elsewhere, we zoom in on global natural gas supply concerns after the latest weekly US storage yesterday, discuss the grains outlook with a key report up late today and look ahead at the fairly busy macro calendar next week, while wondering how the Fed deals with re-establishing its hawkish credibility. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please!   We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: US yields jump, capping complacency
Singapore's non-oil domestic exports shrank 20.6% year-on-year

Singapore Is Still Strong Despite All The Predictions. Inflation Remains High

Saxo Bank Saxo Bank 12.08.2022 12:35
Summary:  While the growth outlook for Singapore is deteriorating on the back of weaker external demand, we believe exposure to the Singapore market remains a key portfolio diversifier given its safe-haven status. Rising interest rates continue to position banking stocks favourably, while the reopening of the regional and global economies brings likely benefits to retail and hospitality REITs as well as other travel related stocks and sectors. There are also some stocks to consider in-line with our preferred global equity themes of commodities and defence. Macro conditions are deteriorating The final print of Singapore’s Q2 GDP was revised lower to 4.4% y/y from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q suggested by the advance estimate or the 0.8% q/q growth seen in the first quarter. The Ministry of Trade and Industry (MTI) has also narrowed the forecast for annual 2022 growth to 3-4% from 3-5% earlier amid rising global slowdown risks. Given Singapore is an export-driven economy, it remains prone to the volatile external environment. Meanwhile, China’s Zero-covid strategy has hampered global supply chains as well as export demand from Singapore. These risks keep the threat of a technical recession – which is defined as two or more consecutive quarters of negative GDP growth – alive. The officials have, however, ruled that out for now and suggest a mild positive growth for Q3 and Q4. Is more monetary policy tightening on the cards? Singapore’s inflation remains high, but with core at 4.4%, it is still below the global inflation levels. We can certainly feel the price pressures biting, especially in rents and transportation. That is likely to remain a key concern for the Monetary Authority of Singapore (MAS), while the gloomier growth picture will only add some caution. Headwinds from external demand will be somewhat offset by a service sector growth picking up as the local and regional economies continue to broaden their reopening measures. This is boosting retail sales and tourism-led spending, while the labor market is also still tight. What could possibly be ruled out is an off-cycle move, or possibly a re-centering of the S$NEER policy band, unless core inflation surprises significantly to the upside. Singapore’s monetary policy has entered a restrictive mode with four tightening moves since October 2021, and further steepening of the S$NEER slope cannot be ruled out. What to consider in the markets? Singapore’s safe-haven status makes it an important stabilizer in the portfolios, especially in the choppy global markets. Singapore equities are riding on services demand recovery and sustained export momentum. The banking stocks such as DBS (D05:xses), UOB (U11:xses) and OCBC (O39:xses) remain well positioned to benefit from the rising interest rates, even as the wealth management income takes a haircut due to the weak market sentiment. Meanwhile, REITs offer a good dividend yield, and therefore inflation protection. Travel related stocks and sectors, such as retail REITs, hospitality REITs, Singapore Airlines (C6L:xses) or SATS (S58:xses) could also benefit from a sustained reopening momentum. Out global equity baskets have shown an outperformance from the Commodities and Defence baskets so far this year. Defence stocks could remain in focus with the increasing geopolitical tensions, and that means Singapore Technologies Engineering (S63:xses) may be worth a look. Green transformation also necessitates a look at Sembcorp Industries (U96:xses), while Singtel (Z77:xses) remains in a position to ride through the economic crisis with its rapid 5G adoption. Wilmar (F34:xses), an agribusiness firm with market cap greater than Singapore Airlines, has gained tremendous attention due to the tight edible oil markets since the Ukraine invasion, and its exposure to consumption in some of the largest emerging markets also makes it a key inflation play. Some of the sectors to remain cautious about would be the technology or manufacturing with exposure to China. REITs with exposure to China’s property market also face further threat. Key risk factors to watch While the external demand outlook remains fragile and dampens the growth prospects of Singapore economy and companies, there are also risks from a global tightening wave which could result in capital outflows. Meanwhile, rising geopolitical tensions in the region could also result in cautious investor sentiment. There remains a risk of US-China trade tensions coming back, and that could be a headwind for Singapore. Lastly, a resurgence of Covid remains a key risk to watch in Singapore and Asia, as the response will likely remain stricter than Europe despite a high level of vaccination.   Source: Singapore Market Pulse: Weaker macro conditions, but safe-haven reputation supports
RBA Pauses Rates as Australian Dollar Slides; ISM Manufacturing PMI in Focus

Dollar (USD) Became Stronger, Not Enough Yet. Fed Better Meet Expectations!

John Hardy John Hardy 12.08.2022 14:23
Summary:  US treasury yields at the long end of the yield curve jumped higher yesterday to multi-week highs, a challenge to widespread complacency across global markets. The USD found a modicum of support on the development, though this was insufficient to reverse the recent weakening trend. It will likely take a more determined rise in US yields and a tightening of financial conditions, possibly on further Fed pushback against market policy expectations, to spark a more significant USD comeback. FX Trading focus: US yields jump, not yet enough to reverse recent USD dip A very interesting shift in the US yield curve yesterday as long yields jumped aggressively higher, with the 30-year yield getting the most focus on a heavy block sale of US “ultra” futures and a softer than expected 30-year T-bond auction from the US treasury. The 30-year benchmark yield jumped as much as 15 basis points from the prior close, with the 10-year move a few basis points smaller. We shouldn’t over-interpret a single day’s action, but it is a technical significant development and if it extends, could be a sign of tightening liquidity as the Fed ups its sales of treasuries and even a sign that market concern is growing that the Fed will fail to get ahead of inflation. As for the market reaction, the USD found some support, but it was modest stuff – somewhat surprisingly in the case of the normally very long-US-yield-sensitive USDJPY. Overnight, a minor shuffle in Japanese PMI Kishida’s cabinet has observers figuring that there is no real determined pushback yet against the Kuroda BoJ’s YCC policy, with focus more on bringing relief to lower income households struggling with price rises for essentials. Indeed, BoJ policy is only likely to come under significant pressure again if global yields pull to new cycle highs and the JPY finds itself under siege again. As for USDJPY, it has likely only peaked if long US yields have also peaked for the cycle. Chart: EURUSD EURUSD caught in limbo here, having pulled up through the resistance in the 1.0275+ area after a long bought of tight range trading, but not yet challenging through the next key layer of resistance into 1.0350+. It wouldn’t take much of a further reversal here to freshen up the bearish interest – perhaps a dip and close below 1.0250 today, together with a bit of follow through higher in US yields and a further correction in risk sentiment. Eventually, we look for the pair to challenge down well through parity if USD yields retest their highs and beyond. Source: Saxo Group Elsewhere – watching sterling here as broader sentiment may be at risk of rolling over and as we wind our way to the conclusion of the battle to replace outgoing Boris Johnson, with Liz Truss all but crowned. Her looser stance on fiscal prudence looks a sterling negative given the risks from UK external deficits. Her instincts seem pro-supply side on taxation, but the populist drag of cost-of-living issues has shown her to be quick to change her stripes – as she has often been, having reversed her position on many issues, including Brexit (was a former remainer). Today’s reminder of the yawning trade deficit (a current run rate of around 10% of GDP) and the energy/power situation together with dire supply side restraints on the UK economy have us looking for sterling weakness – a start would be a dip below 1.2100 in GBPUSD, which would reverse the reaction earlier this week to the US July CPI release. The week ahead features an RBNZ on Wednesday (market nearly fully priced for another two meetings of 50 basis points each). NZDUSD has looked too ambitious off the lows – there is no strong external surplus angle for the kiwi like there is for the Aussie – might be a place to get contrarian to the recent price action if global risk sentiment is set to roll over again finally now that the VIX has pushed all the way to 20 (!).  A Norges Bank meeting on Thursday may see the bank hiking another 50 basis points as it continues to catch up to inflationary outcomes. The US FOMC minutes are up next Wednesday and may be a bit of a fizzle, given that the bulk of the easing financial conditions that the Fed would like to push back against came after the meeting. Table: FX Board of G10 and CNH trend evolution and strength. The US dollar hasn’t gotten much from the latest development in yields – watching the next couple of sessions closely for direction there, while also watching for the risk of more sterling downside, while NZD looks overambitious on the upside. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. The EURGBP turn higher could follow through here – on the lookout for that development while also watching GBPUSD status in coming sessions and whether the EURUSD move higher also follows through as per comments on the chart above. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment Share Source: FX Update: US yield jump brings USD resilience if not a reversal.
Canadian Dollar Falters as USD/CAD Tests Key Support Amidst Rising Oil Prices and Economic Data

Zantac: $40bn Scandal Meets The Market! S&P 500 Has Troubles?

Peter Garnry Peter Garnry 12.08.2022 14:52
Summary:  The easing inflation narrative has been building strength for six weeks now and the short-term vindication in the US CPI release on Wednesday has bolstered the bulls. However, the structural issues in the supply-side of the economy have been resolved and wages combined with rents will add more pressure on inflation going forward. We also highlight the unfolding scandal around the heartburn drug Zantac as it has erased $40bn in market value from Sanofi and GSK. Finally, we take a look at next week's earnings. It is too early to call inflation is tamed The US July CPI release on Wednesday has bolstered the soft-landing and easing inflation trade catapulting high duration assets higher. S&P 500 futures are attempting to push higher and the 200-day moving average sitting around the 4,325 level is suddenly not an outrageous gravitational point for US equities in the near-term. While the equity market is buying the all good scenario on inflation we would emphasise that it is too early to call. The Fed will like to see the 6-month average on the US CPI core m/m to go back to 0.2% before easing policy and that is simply not possible until at least the end of Q1 next year. Many of the structural issues except maybe for logistics, and this pain could come back again this winter if China gets another big Covid outbreak, are still not solved as capital expenditures in real terms are still not coming up in the global mining and energy industry. Labour markets remain tight with especially the US being the worst hit having lost around 1.5%-point of its labour force due to the pandemic and these people are likely never coming back. Rent dynamics are also heating up in both the US and Europe, and this winter will test the strength of the European population as the energy crisis could get much worse. We encourage investors to watch the US 10-year yield as a break above 3% again should cause a negative reaction in global equities. S&P 500 continuous futures | Source: Saxo Group US CPI core m/m | Source: Bloomberg Potential gigantic Zantac liabilities hit Sanofi, GSK, and Pfizer Health care is typically associated with stability, high valuations, and high predictability in the underlying cash flows, but the industry is being rocked by increasing concerns over the heartburn drug Zantac. Sanofi, GSK, and Pfizer have lost combined market value of $40bn and analysts are estimating that damage liabilities could reach $10-45bn. Zantac was removed from the market in 2019 by the FDA as the drug appears to be producing unacceptably high levels of a cancer-causing chemical. There is case coming up in Illinois on 22 August which will give the first indications of where this is going. There will continue to be short-term headwinds for both Sanofi and GSK where Pfizer seems to have been selling the drug for a much more reduced period than the two others. Weekly share prices of Sanofi, GSK, and Pfizer | Source: Bloomberg Earnings to watch next week The Q2 earnings season is slowly coming to end and what a quarter it has been with earnings jumping to a new all-time high (see chart) driven by a significant increase in profits in the energy sector. The technology sector measure by the Nasdaq 100 had another bad quarter with earnings declining reinforcing the need to cut costs of many of these previously fast growing technology companies. Next week’s most important earnings are highlighted below with the names in bold being those that can move market or industry sentiment. Meituan on Monday is important for gauging consumer spending and behaviour in China. BHP Group is must watch on Monday as the Australian miner is tapped into China’s growth and demand for iron ore. On Tuesday, earnings from Walmart and Home Depot can provide an updated picture on global supply chains and price pressures across a wide range of consumer products. Tencent reports on Wednesday and is an important earnings release for investors watching Chinese technology stocks as the recent amendment to China’s anti-monopoly laws is adding more pressure on the big technology platform companies. In the payments industry, Adyen’s result on Thursday will be highly watched as Adyen is really challenging PayPal on growth and dominance in the industry. Monday: China Construction Bank, Agricultural Bank of China, Meituan, China Life Insurance, China Shenhua Energy, China Petroleum & Chemical, BHP Group, COSCO Shipping, Li Auto, Trip.com Group, DiDi Global Tuesday: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Source: The soft-landing and inflation easing narrative is thriving
Chile's Lithium Nationalization and the Global Trend of Resource Nationalism: Implications for EV Supply Chains and Efforts to Strengthen Battery Metal Supply

Commodities: Prices Are Rising, Heatwaves In US And China Affect The Production Of Cotton

Ole Hansen Ole Hansen 12.08.2022 16:00
Summary:  The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing, driven by recent economic data strength, dollar weakness and signs inflation may have peaked. With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support, especially across the sectors of energy and key agriculture commodities. The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing. According to the Bloomberg commodity sector indices, the correction period triggered peak to bottom moves of 41% in industrial metals, 31% in grains and 27% in energy. The main reason for the dramatic correction following a record run of strong gains was the change in focus from tight supply to worries about demand. Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver has been the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing but recent economic data strength, dollar weakness and signs inflation may have peaked have all helped support markets that have gone through weeks and in some cases months of sharp price declines, and with that an aggressive amount of long liquidation from financial traders as well as selling from macro-focused funds looking for a hedge against an economic downturn.With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support and problems for those who have been selling markets looking for even lower prices in anticipation of recession and lower demand. Backwardation remains elevated despite growth worries The behaviour of spot commodity prices, as seen through first month futures contracts, rarely gives us the full fundamental picture with the price action often being dictated by technical price-driven speculators and funds focusing on macroeconomic developments, as opposed to the individual fundamental situation. The result of this has been a period of aggressive selling on a combination of bullish bets being scaled back but also increased selling from funds looking to hedge an economic slowdown.An economic slowdown, or in a worst-case scenario a recession, would normally trigger a surplus of raw materials as demand falters and production is slow to respond to a downturn in demand. However, during the past three months of selling, the cost of commodities for immediate delivery has maintained a healthy premium above prices for later deliveries. The chart below shows the spread measured in percent between the first futures and the 12-month forward futures contract, and while the tightness has eased a bit, we are still seeing tightness across a majority, especially within energy and agriculture. A sign that the market has sold off on expectations more than reality, and it raises the prospect of a strong recovery once the growth outlook stabilises. Crude oil The downward trending price action in WTI and Brent for the past couple of months is showing signs of reversing on a combination of the market reassessing the demand outlook amid continued worries about supply and who will and can meet demand going forward. The recovery from below $95 in Brent and $90 in WTI this week was supported by signs of softer US inflation reducing the potential peak in the Fed fund rates, thereby improving the growth outlook. In addition, the weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March.In addition, the International Energy Agency (IEA) lifted its global consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel-based products. Meanwhile, OPEC may struggle to raise output in the coming months due to limited spare capacity. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold (XAUUSD) The recently under siege yellow metal was heading for a fourth weekly gain, supported by a weaker dollar after the lower-than-expected US CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. We believe the markets newfound optimism about the extent to which inflation can successfully be brought under control remains too optimistic and together with several geopolitical worries, we see no reason to exit our long-held bullish view on gold as a hedge and diversifier. Gold has found some support at the 50-day moving average line at $1783, and needs to hold $1760 in order to avoid a fresh round of long liquidation the short-term. While some resistance is located just above $1800 gold needs a decisive break above $1829 in order to trigger the momentum needed to attract fresh buying in ETFs and managed money accounts in futures. Source: Saxo Group Industrial metals (Copper)   Copper has rebounded around 18% since hitting a 20-month low last month, thereby supporting a general recovery across industrial metals, the hardest hit sector during the recent correction. Supported by a softer dollar, data showing the US economy remains robust, easing concerns about the demand outlook in China and not least disruptions to producers in Asia, Europe as well as South America potentially curtailing supply at a time when exchange-monitored inventories remain at a decade low. All developments that have forced speculators to cut back recently established short positions.The potential for an improved demand outlook in China and BHP's recent announcement that it has made an offer for OZ Minerals and its nickel and copper-focused assets, is the latest in a series of global acquisitions aimed at shoring up supplies of essential metals for the energy transition. With its high electrical conductivity, copper supports all the electronics we use, from smartphones to medical equipment. It already underpins our existing electricity systems, and it is crucial to the electrification process needed over the coming years in order to reduce demand for energy derived from fossil fuels.Following a temporary recovery in the price of copper around the beginning of June when China began easing lockdown restrictions, the rally quickly ran out of steam and copper went on to tumble below key support before eventually stabilizing after finding support at $3.14/lb., the 61.8% retracement of the 2020 to 2022 rally. Since then, the price has recovered strongly but may temporarily pause after reaching finding resistance in the $3.70/lb area. We maintain a long-term bullish view on copper and prefer buying weakness instead of selling into strength. Source: Saxo Group The grains sector traded at a five-week high ahead of Friday’s supply and demand report from the US Department of Agriculture. The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat and corn in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon-to-be-harvested crop has given the World Agricultural Supply and Demand Estimates report some additional attention with surveys pointing to price support with the prospect of lower yields lowering expectations for the level of available stocks ahead of the coming winter. Cotton, up 8% this month has seen the focus switch from growth and demand worries, especially in China, to deepening global supply concerns as heatwaves in the US and China hurt production prospects. Friday’s monthly supply and demand report (WASDE) from the US Department of Agriculture was expected to show lower US production driving down ending stocks by around 10% to 2.2 m bales, an 11-year low. Arabica coffee, in a downtrend since February, has also seen a steady rise since bouncing from key support below $2/lb last month. A persistent and underlying support from South American production worries has reasserted itself during the past few weeks as the current on-season crop potentially being the lowest since 2014. Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer. In addition, Columbia another top producer, has seen its crop being reduced by too much rainfall. Source: WCU: Commodity correction may have exhausted itself
Bond Markets Feeling Weighted: US 10-Year Yield Still Pressured

EUR/USD, GBP/USD. Is It Worth To Invest Today?

InstaForex Analysis InstaForex Analysis 11.08.2022 15:40
Relevance up to 11:00 2022-08-12 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. EUR/USD   Higher timeframes Bulls yesterday attempted to go beyond the nearest limit—the weekly short-term trend (1.0285). Their task now is to stay above the level and fix the achievement at the close of the week. In this case, the chances that the weekly upward correction will have development prospects will increase. On the daily timeframe, the nearest reference point for the continuation of the rise is now the Ichimoku cloud, the breakdown of which will form an additional upward reference point—the target for the breakout of the cloud. Among the supports today, we can note the levels of the daily golden cross (1.0246 – 1.0210 – 1.0160 – 1.0111). H4 – H1 The main advantage now belongs to the bulls, as the work is carried out above the key levels, but the pair is in the correction zone. The interests of bulls within the day today are the resistance of the classic pivot points (1.0378 – 1.0457 – 1.0545). The key levels now at 1.0290 (central pivot of the day) and 1.0226 (weekly long-term trend) separate the pair from a reprioritization in favor of a more bearish sentiment. Targets for decline today can be noted at 1.0211 – 1.0123 – 1.0044 (classic pivot points). *** GBP/USD Higher timeframes Bulls yesterday managed to push off the supports, around which the last few days have been consolidating (the main level 1.2082 is a weekly short-term trend), and enter the daily Ichimoku cloud. The breakdown of the cloud (1.2323) and consolidation in the bullish zone are the main tasks for bulls in the near term. When the mood changes, the relevance will return to supports. The support zone is now quite wide and includes 1.2174 (lower boundary of the daily cloud) – 1.2148 – 1.2089 – 1.2026 – 1.1963 (levels of the daily Ichimoku cross), as well as 1.2082 (weekly short-term trend) and 1.2000 (an important psychological level). H4 – H1 In the lower timeframes, the main advantage now belongs to the bulls. Among the bullish reference points during the day today, we can note 1.2303 – 1.2396 – 1.2515 (classic pivot points resistance) and 1.2301–34 (target for the breakdown of the H4 cloud). The balance of power will change if bears consolidate below key levels 1.2184 (central pivot point of the day) – 1.2120 (weekly long-term trend). After that, the reference points will be the support of the classic pivot points (1.2091 – 1.1972 – 1.1879). *** In the technical analysis of the situation, the following are used: higher timeframes – Ichimoku Kinko Hyo (9.26.52) + Fibo Kijun levels H1 - Pivot Points (classic) + Moving Average 120 (weekly long-term trend) Source: Forex Analysis & Reviews: Technical analysis recommendations on EUR/USD and GBP/USD for August 11, 2022
The Pound (GBP) Will Probably Continue To Move Sideways

GBP/USD Today. Pay Attention! Sell Or Be Sold?

InstaForex Analysis InstaForex Analysis 11.08.2022 16:01
Relevance up to 13:00 2022-08-12 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Technical analysis: GBP/UISD has been trading flat today at the price of 1.2204 but I see potential for the second downside swing. Trading recommendation: Due to the strong growth yesterday and extreme condition, I see potential for the downside movement. Watch for potential selling opportunities with the downside objective at the price of 1.2135. Stochastic oscillator is showing overbought condition and bear cross, which is sign that sellers are taking control. Key resistance is set at the price of 1.2270 Source: Forex Analysis & Reviews: GBP/USD update for August 11, 2022 - Potential for the second downside swing to develop
Forex: XAU/USD Is Rising For The 3rd Day In A Row!

Gold Trading. Gold Is Spreading It's Wings!?

InstaForex Analysis InstaForex Analysis 11.08.2022 15:20
Relevance up to 12:00 2022-08-12 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results.The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Technical analysis: Gold has been trading downside today and I see the breakout of the rising channel, which is sign that sellers are in control. Trading recommendation: Due to the breakout of the rising channel in the background, I see potential for further downside movement. Watch for potential selling opportunities with the downside objectives at the price of $1.783 and $1.770. Stochastic oscillator is showing overbought condition and bear cross, which is sign that sellers are taking control. Key resistance is set at the price of $1.805 Source: Forex Analysis & Reviews: Analysis of Gold for August 11,.2022 - Breakout of the rising channel in the backgorund
The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

WTI Astonishing Streak! Japan Jumps. China, Australia And South Korea Are In Trouble?

Marc Chandler Marc Chandler 12.08.2022 15:15
Overview: The markets are putting the finishing touches on this week’s activity. Japan, returning from yesterday’s holiday bought equities, and its major indices jumped more than 2%. China, South Korea, and Australia struggled. Europe’s Stoxx 600 is firmer for the third consecutive session. It is up about 1.3% this week. US futures are also firmer after reversing earlier gains yesterday to close lower on the day. The US 10-year yield is flat near 2.88%, while European benchmarks are 4-6 bp higher. The greenback is mixed. The dollar-bloc currencies and Norwegian krone are slightly firmer, while the Swedish krona, sterling, and the yen are off around 0.3%-0.6%. Emerging market currencies are also mixed, though the freely accessible currencies are mostly firmer. The JP Morgan Emerging Market Currency Index is up about 1.15% this week, ahead of the Latam session, which if sustained would be the strongest performance in three months. Gold is consolidating at lower levels having been turned back from $1800 in the middle of the week. Near $1787.50, it is up less than 0.7% for the week. September WTI is edging higher for the third consecutive session, which would match the longest streak since January. US natgas surged 8.2% yesterday but has come back offered today. It is off 2.3%. Europe’s natgas benchmark is snapping a three-day advance of nearly 8% and is off 1.8% today. Iron ore rose 2.2% yesterday and it gave most of its back today, sliding almost 1.7%. September copper is unchanged after rallying more than 3.3% over the past two sessions. September wheat has a four-day rally in tow but is softer ahead of the Department of Agriculture report (World Agricultural Supply and Demand Estimates). Asia Pacific   Japan and China will drop some market sensitive high-frequency economic data as trading begins in the new week.  Japan will release its first estimate of Q2 GDP. The median in Bloomberg's survey and the average of a dozen Japanese think tanks (cited by Jiji Press) project around a 2.7% expansion of the world's third-largest economy, after a 0.5% contraction in Q1. Consumption and business investment likely improved. Some of the demand was probably filled through inventories. They added 0.5% to Q1 growth but may have trimmed Q2 growth. Net exports were a drag on Q1 (-04%) and may be flat. The GDP deflator was -0.5% in Q1 and may have deteriorated further in Q2. Some observers see the cabinet reshuffle that was announced this week strengthening the commitment to ease monetary policy. The deflation in the deflator shows what Governor Kuroda's successor next April must address as well. China reports July consumption (retail sales), industrial output, employment (surveyed jobless rate), and investment (fixed assets and property).  The expected takeaway is that the world's second-largest economy is recovering but slowly. Industrial output and retail sales are expected to have edged up. Of note, the year-to-date retail sales compared with a year ago was negative each month in Q2 but is expected to have turned positive in July. The year-over-year pace of industrial production is expected to rise toward 4.5%, which would be the best since January. The housing market, which acted as a critical engine of growth is in reverse. New home prices (newly build commercial residential building prices in 70 cities) have been falling on a year-over-year basis starting last September, and likely continued to do so in July. Property investment (completed investment in real estate) likely fell for the fourth consecutive month. It has slowed every month beginning March 2021. The pace may have accelerated to -5.6% year-over-year after a 5.4% slide in the 12-months through June. The surveyed unemployed rate was at 4.9% last September and October. It rose to 6.1% in April and has slipped back to 5.5% in June. The median forecast in Bloomberg's survey expects it to have remained there in July. Lastly, there are no fixed dates for the lending figures and the announcement of the one-year medium-term lending facility rate. Lending is expected to have slowed sharply from the surge in June, while the MLF rate is expected to be steady at 2.85%. Over the several weeks, foreign investors have bought a record amount of Japanese bonds.  Over the past six weeks, foreigners snapped up JPY6.44 trillion (~$48 bln). It may partly reflect short-covering after the run-in with the Bank of Japan who bought a record amount to defend the yield-curve control cap of 0.25% on the 10-year bond. There is another consideration. For dollar-based investors, hedging the currency risk, which one is paid to do, a return of more than 4% can be secured. At the same time, for yen-based investors, hedging the currency risk is expensive, which encourages the institutional investors to return to the domestic market. Japanese investors have mostly been selling foreign bonds this year. However, the latest Ministry of Finance data shows that they were net buyers for the third consecutive week, matching the longest streak of the year. Still, the size is small. suggesting it may not be a broad or large force yet. Although the US 10-year yield jumped 10 bp yesterday, extending its recovery from Monday's low near 2.75% for a third session, the dollar barely recovered against the yen.  After falling 1.6% on Wednesday, after the softer than expected US CPI, the greenback rose 0.1% yesterday and is edging a little higher today. Partly what has happened is that the exchange rate correlation with the 10-year yield has slackened while the correlation with the two-year has increased. In fact, the correlation of the change in the two-year and the exchange rate is a little over 0.60 and is the highest since March. The dollar appears to be trading comfortably now between two large set of options that expire today. One set is at JPY132 for $860 mln and the other at JPY134 for $1.3 bln. Around $0.7120, the Australian dollar is up about 3% this week and is near two-month highs. It reached almost $0.7140 yesterday. The next technical target is in the $0.7150-$0.7170 area. Support is seen ahead of $0.7050. Next week's data highlight is the employment data (August 18). The greenback traded in a CNY6.7235-CNY6.7600 on Wednesday and remained in that range yesterday and today. For the second consecutive week, the dollar has alternated daily between up and down sessions for a net change of a little more than 0.1%. The PBOC set the dollar's reference rate at CNY6.7413, tight to expectations (Bloomberg's survey) of CNY6.7415. Europe   The UK's economy shrank by 0.6% in June, ensuring a contraction in Q2.  The 0.1% shrinkage was a bit smaller than expected but the weakness was widespread. Consumption fell by 0.2% in the quarter, worse than expected, while government spending collapsed by 2.9% after a 1.3% pullback in Q1. A decline in Covid testing and slower retail sales were notable drags. The one bright spot was business investment was stronger than expected. The June data itself was miserable, though there was an extra holiday (Queen's jubilee). All three sectors, industrial output, services, and construction, all fell in June and the trade balance deteriorated. The market's expectation for next month's BOE meeting was unaffected by the data. The swaps market has about an 85% chance of another 50 bp hike discounted.  Industrial output in the eurozone rose by 0.7%, well above the 0.2% median forecast in Bloomberg's survey and follows a 2.1% increase in May.  The manufacturing PMI warned that an outright contraction is possible. Of the big four members, only Italy disappointed. The median forecast in Bloomberg's survey anticipated a decline in German, France, and Spain. Instead, they reported gains of 0.4%, 1.4%, and 1.1% respectively. Industrial output was expected to have contracted by 0.1% in Italy and instead it reported a 2.1% drop. In aggregate, the strength of capital goods (2.6% month-over-month) and energy (0.6%) more than offset the declines in consumer goods and intermediate goods. The year-over-year rise of 2.4% is the strongest since last September. The disruption caused by Russia's invasion of Ukraine and the uneven Covid outbreaks and responses are as Rumsfeld might have said known unknowns.  But the disruptive force that may not be fully appreciated is about to get worse. The German Federal Waterways and Shipping Administration is warning that water in the Rhine River will fall below a critical threshold this weekend. At an important waypoint, the level may fall to about 13 inches (33 centimeters). Less than around 16 inches (40 centimeters) and barges cannot navigate. An estimated 400k barrels a day of oil products are sent from the Amsterdam-Rotterdam-Antwerp region to Germany and Switzerland. The International Energy Agency warns that the effects could last until late this year, and hits landlocked countries who rely on the Rhine the hardest. Bloomberg reported that Barge rates from Rotterdam to Basel have risen to around 267 euros a ton, a ten-fold increase in a few months. The strong surge in the euro to almost $1.0370 on Wednesday has stalled.  The euro is consolidating inside yesterday's relatively narrow range (~$1.0275-$1.0365). The momentum traders may be frustrated by the lack of follow-through. We suspect a break of $1.0265 would push more to the sidelines. The downtrend line from the February, March, and June highs comes in slightly above $1.0385 today. The broad dollar selloff in response to the July CPI saw sterling reach above $1.2275, shy of the month's high closer to $1.2295. Similar to the euro, sterling stalled. It has slipped through yesterday's low (~$1.2180). A break of the $1.2140 area could see $1.2100. That said, the $1.20 area could be the neckline of a double top and a convincing break would signal the risk of a return to the lows set a month ago near $1.1760. America   Think about the recent big US economic news.  It began last Friday with a strong employment report, more than twice what economists expected (median, Bloomberg survey) and a new cyclical low in unemployment. The job gains were broadly distributed. That was followed by a softer than expected CPI and PPI. Some observers placed emphasis on the slump in productivity and jump in unit labor costs. Those are derived from GDP figures and are not measured separately, though they are important economic concepts. Typically, when GDP is contracting, productivity contracts and by definition, unit labor costs rise. In effect, the market for goods and services adjusts quicker the labor market, and the market for money, even quicker. If the economy expands as the Atlanta Fed GDPNow tracker or the median in Bloomberg's survey project (2.5% and 2.0%, respectively), productivity will improve, and unit labor costs will fall. Barring a precipitous fall today, the S&P 500 and NASDAQ will advance for the fourth consecutive week.  The 10-year yield fell by almost 45 bp on the last three week of July and has recovered around half here in August. That includes five basis points this week despite the softer inflation readings. The two-year note yield fell almost 25 bp in the last two weeks of July and jumped 34 bp last week. It is virtually flat this week around 3.22%. The odds of a 75 bp rate hike at next month's FOMC meeting fell from about 75% to about 47%. The year-end rate expectation fell to 3.52% from 3.56%. Some pundits claim the market is pricing in a March 2023 cut, but the implied yield of the March 2023 Fed funds futures contract is 18 bp above the December 2022 contract. It matches the most since the end of June. Still, while the Federal Reserve is trying to tighten financial conditions the market is pushing back. The Bloomberg Financial Conditions Index is at least tight reading since late April. The Goldman Sachs Financial Condition index is the least tight in nearly two months.  US import and export prices are the stuff that captures the market's imagination.  However, the preliminary University of Michigan's consumer survey, and especially the inflation expectations can move the markets, especially given that Fed Chair Powell cited it as a factor encouraging the 75 bp hike in June. The Bloomberg survey shows the median expectation is for a tick lower in inflation expectations, with the one-year slipping to 5.1% from 5.2%. The 5-10-year expectation is seen easing to 2.8% from 2.9%. If accurate, it would match the lowest since April 2021. The two-year breakeven (difference between the conventional yield and the inflation-protected security) peaked in March near 5% and this week reached 2.70%, its lowest since last October. It is near 2.80% now. Mexico delivered the widely anticipated 75 bp hike yesterday.  The overnight rate target is now 8.50%. The decision was unanimous. It is the 10th consecutive hike and concerns that AMLO's appointments would be doves has proven groundless. The central bank meets again on September 29. Like other central banks, it did not pre-commit to the size of the next move, preserving some tactical flexibility. If the Fed hikes by 75 bp, it will likely match it. Peru's central bank hiked its reference rate by 50 bp, the 10th consecutive hike of that magnitude after starting the cycle last August with a 25 bp move. It is not done. Lima inflation was near 8.75% last month and the reference rate is at 6.50%. The Peruvian sol is up about 1.2% this month, coming into today. It has appreciated by around 3.25% year-to-date, making it the second-best performer in the region after Brazil's 8.1% rise. Argentina hiked its benchmark Leliq rate by 950 bp yesterday to 69.5%. It had delivered an 800 bp hike two weeks again. Argentina's inflation reached 71% last month. The Argentine peso is off nearly 23.5% so far this year, second only to the Turkish lira (~-26%). The US dollar fell slightly below CAD1.2730 yesterday, its lowest level since mid-June. The slippage in the S&P 500 and NASDAQ helped it recover to around CAD1.2775. It has not risen above that today, encouraged perhaps by the firmer US futures. Although the 200-day moving average (~CAD1.2745) is a good mile marker, the next important chart is CAD1.2700-CAD1.2720. A convincing break would target CAD1.2650 initially and then CAD1.2600. While the Canadian dollar has gained almost 1.4% against the US dollar this week (around CAD1.2755), the Mexican peso is up nearly 2.4%. The greenback is pressing against support in the MXN19.90 area. A break targets the late June lows near MXN19.82. The MXN20.00 area provides the nearby cap.       Disclaimer   Source: Heading into the Weekend, Dollar's Downside Momentum Stalls
Central Banks' Rates Outlook: Fed Treads Cautiously, ECB Prepares for Hike

Large Chinese Gas Companies Delisting Their American Stocks! What Is Going To Happen?

Saxo Bank Saxo Bank 16.08.2022 08:50
Summary:  PetroChina, Sinopec, Sinopec Shanghai Petrochemical, Chalco and China Life Insurance notified the New York Stock Exchange on 12 Aug 2022 of their intended application for voluntary delisting of their American depository shares and terminating the relevant ADR programs. The question now is if this is an example set for mega-cap Chinese internet and platform companies to follow. Five Chinese Central State-Owned Enterprises (“Central SOEs”) apply for delisting from the New York Stock Exchange   On August 12, 2022, after the close of the regular session of the Stock Exchange of Hong Kong, PetroChina (00857:xhkg/PTR:xnys), China Petroleum & Chemical Corporation, also known as Sinopec (00386:xhkg/SNP:xnys), Sinopec Shanghai Petrochemical (00338:xhkg/SHI:xnys), Aluminum Corporation of China, also known as Chalco (02600:xhkg/ACH:xnys), and China Life Insurance (02628:xhkg/LFC:xnys) announced that they had notified the New York Stock Exchange (“NYSE”) that they are will apply for delisting of their American depository shares (“ADSs”) from the NYSE. It is expected that the American Depository Receipt (“ADR”) programs will be terminated between September 1 and October 16, 2022, and the ADSs issued under these ADR programs can be surrendered for their underlying H shares, which will continue to trade in the Stock Exchange of Hong Kong (“SEHK”). PetroChina, Sinopec, Sinopec Shanghai Petrochemical and Chalco are Central SOEs that are owned (80.4%, 68.8%, 32.2%, and 50.4% respectively) and controlled by the State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”).  These, together with 93 others that are also owned and controlled by the SASAC are known as Central SOEs or “Yang Qi” in Chinese.  China Life Insurance, not one of those under the SASAC, is not a Central SOE in the strict sense but it is usually considered a Central SOE due to the fact that it is 62.4% owned and controlled by the Ministry of Finance.  All five companies are on the U.S. Securities and Exchange Commission’s (“SEC”) conclusive list of identified entities under the HFCAA    In the U.S., the Sarbanes-Oxley Act enacted in 2002 requires publicly traded companies to give the U.S. Public Company Accounting Oversight Board (“PCAOB”) access to audit work papers. In 2009, the China Securities Regulatory Commission (“CSRC”) issued a rule that forbids overseas regulatory authorities from inspecting Chinese auditing firms without CSRC’s prior approval and audit work papers containing state secretes from being taken outside China.  The PCAOB’s attempt to inspect the China-based affiliates of the “Big”-4” accounting firms in 2010 was rejected by the CSRC.  The SEC subsequently prosecuted these China affiliates of the Big-4 and the cases were subsequently settled. In order to tighten the enforcement of the audit work papers requirement provided in the Sarbanes-Oxley Act, the U.S. enacted the Holding Foreign Companies Accountable Act (“HFCAA”) in 2020 which provides that companies failing to make available audit work papers for inspection by the PCAOB cannot be traded in a U.S. exchange.  Since March 2022, the SEC has put 162 Chinese companies listed in a U.S. bourse first on a provisional list and then 155 of them subsequently on a conclusive list of issuers identified under the HFCAA. After rounds of negotiations, the U.S. and China have so far not been able to come to some resolutions.  While the Chinese authorities have sounded optimistic, especially earlier in April and May, about eventually reaching an agreement with the U.S., SEC Chairman Gary Gensler has expressed doubts about any eventual agreement.PetroChina, Sinopec, Sinopec Shanghai Petrochemical, Chalco, and China Life Insurance are among those on the conclusive list and facing the plausibility of being delisted by the U.S. regulators from the NYSE.  The deadline for delisting is in 2024 but the U.S. Congress is considering passing a bill to bring the deadline forward to 2023.  Actions were seemingly in concert  Each of the five companies notified the NYSE on the same day, August 12, and provided similar reasons for their decisions in their filing with the SEHK, namely relatively small capitalization of H shares being represented by ADSs, small ADS trading volume compared to the turnover of H shares and administrative burden for performing reporting and disclosure. The China Securities Regulatory Commission (“CSRC”) said on Friday that the delisting decision had been made out of these companies’ own business decisions. Nonetheless, given the identical timing, similar reasons provided and status of Central SOEs, one has to wonder if they were acting in concert with coordination from the Chinese authorities.  The other two Central SOEs controlled by the SACAC and on the SEC conclusive list, China Eastern Airlines (00670:xhkg/CEA:xnys) and China Southern Airlines (01055:xhkg/ZNH:xnys) will probably apply for ADS delisting soon as well.  Chinese internet and platform companies are the focus in the coming weeks  While these Central SOEs are thinly traded on the NYSE, the shares of Chinese internet and platform private enterprises, including Alibaba (09988:xhkg/BABA:xnys), Baidu (09888:xhkg/BIDU:xnas), Bilibili (09626:xhkg/BILI:xnas), JD.COM (09618:xhkg/JD:xnas), Pinduoduo (PDD:xnas), Sohu (SOHU:xnas), iQiyi (IQ:xnas), KE Holdings (BEKE:xnys), Weibo (09898:xhkg/WB:xnas), Tencent Music Entertainment (TME:xnys) are widely held and actively traded on the NYSE or Nasdaq.  For examples, Bilibili and Weibo have larger average daily turnover in Nasdaq than in the SEHK and Pinduoduo, iQiyi, KE Holdings, Sohu and are listed only on Nasdaq and Tencent Music on the NYSE.  Alibaba is on the provisional list and the other names above are on the conclusive list of issuers identified under the HFCAA. All of them will be subject to mandatory delisting from the NYSE or Nasdaq if the Chinese and U.S. regulators cannot reach an agreement to resolve the audit work paper inspection issue in the coming months.  Given these internet and platform companies hold a huge amount of potentially sensitive data of hundreds of millions of Chinese individuals as well as numerous private as well as public enterprises and institutions, the plausibility of the Chinese government being willing to make a concession to the SEC and PCAOB regarding the latter’s unfiltered access to audit work papers of these companies is getting increasingly slim in the midst of pervasive Sino-American strategic competition.  Through the voluntary delisting of nstitutional money which is restricted by their investment mandates and retail investors who tend to have a home bias will unload their holdings instead of exchanging their ADSs for H shares.  In the case of those companies that do not yet have a listing in the SEHK, the uncertainty and disruption will be even more significant.  The southbound stock connect flows of money from mainland investors may mitigate somewhat the impact but some turbulence initially can probably be expected.   Source: China Update: State-owned giants seek to delist from the New York Stock Exchange
The Commodity Sector Has Dropped Significantly

People Are Buying Gold. SIlver And Copper Stopped? Crude Oil Weakness

Ole Hansen Ole Hansen 16.08.2022 09:23
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 9. A relatively quiet week where a continued improvement in risk appetite drove stocks higher while softening the dollar. Some commodity positions, with crude oil the major exceptions, showed signs of having reached a trough following weeks of heavy selling Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 9. A relatively quiet summer holiday impacted week where stocks traded higher ahead of last week’s CPI and PPI print after better than expected economic data helped reduce US recession fears while the market was looking for inflation to roll over. The dollar traded a tad softer, bond yields firmed up while commodities showed signs of having reached a trough following weeks of heavy selling.    Commodities Hedge funds were net buyers for a second week with demand concentrated in metals and agriculture while the energy sector saw continued selling. Overall the net long across 24 major commodity futures rose for a second week after recently hitting a two-year low. Buying was concentrated in gold, platinum, corn and livestock with crude oil and wheat being to most notable contracts seeing net selling. Energy: Speculators responded to continued crude oil weakness by cutting bullish bets in WTI and Brent crude by a combined 14% to a pre-Covid low at 304.5k lots. The reductions were primarily driven by long liquidation in both contracts following a demand fear driven breakdown in prices. Gas oil and gasoline longs were also reduced. Metals: Buying of metals extended to a second week led by gold which saw a 90% jump in the net long to 58.2k lots. Overall, net short positions were maintained in silver, platinum and copper with the latter seing a small amount of fresh selling due to profit taking on recently established longs. Agriculture: Grains were mixed with corn and soybeans seeing continued buying ahead of Friday's WASDE  report while the CBOT corn net short jumped 36% to 20k lotsand the Kansas net long was cut to a two-year low. The total grain long rose for second week having stabilised around 300k lots having collapse from a near record 800k lot on April 22.Soft commodities saw elevated short positions in sugar and cocoa being maintained with price gains in coffee and not least cotton supporting a small increase in their respective net longs. This before Friday's surge in cotton which left it up 13% on the week after the US Department of Agriculture slashed the US crop forecast by 19% to a 12-year low. Driven by a high level of abandonment of fields in the drought-stricken Southwest.      Forex In the week to August 9 when the dollar traded close to unchanged against a basket of major currencies, speculators increased to three the number of weeks of continued dollar selling. The pace of selling even accelerated to the highest since January after the gross long against ten IMM futures and the Dollar Index was slashed by 20% to $17.4 billion, a nine week low. Most notable selling of the greenback was seen against GBP and JPY followed by EUR and CHF. The Japanese yen, under pressure for months as yield differentials to the dollar widened saw its net short being cut by 22% to a 17-month low.     What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming  Source: COT: Speculators cut oil long to pre-covid low
China: PMI positively surprises the market

Hurtful News For Chinese Economy... Is China Able To Get Up? US Use The Situation

Saxo Strategy Team Saxo Strategy Team 16.08.2022 09:40
Summary:  The weaker-than-expected economic data from China caught much of the attention and dragged U.S. bond yields and commodities lower. U.S. equities have been in a 4-week rally. Investors are weighing if the U.S. economy is heading into a soft-landing or a recession and if the Chinese economy can recover in the coming months. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities opened lower on weak economic data prints from China as well as a weaker-than-expected Empire State manufacturing survey but climbed towards midday and finished higher. S&P 500 rose 0.4%. Nine of its 11 sectors gained, with shares of consumer staples and utilities outperforming. Nasdaq 100 rose 0.75%, led by a 3% jump in Tesla (TSLA:xnas).  U.S. treasury yields fell Treasury yields fell across the front end to the belly of the curve after a bunch of weak economic data from China and the Empire State manufacturing survey came in at -31.3, much weaker than 5.0 expected. Two-year yields fell by 7bps to 3.17% and 10-year yields declined 5bps to 2.78%.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities tried to move higher in early trading but soon reversed and turned south, Hang Seng -0.7%, CSI300 -0.1%.   The People’s Bank of China cut its policy on Monday but the unexpected move did not stir up much market excitement. The visit of another delegation of US lawmakers to Taiwan within 12 days of Speaker Pelosi’s visit stirred up concerns about the tension in the Sino-American relationship.   Container liner, Orient Overseas (00316:xhkg) plunged nearly 15%.   Stocks that have a dual listing of ADRs, in general, declined on Monday’s trading in Hong Kong following Friday’s decisions for five central SOEs to apply for delisting from the New York Stock Exchange, PetroChina (00857:xhkg/PTR:xnys) -3.4%, Sinopec (00386:xhkg/SNP:xnys) -2.9%, Alibaba (09988:xhkg/BABA:xnys) -1.2, Baidu (09888:xhkg/BIDU:xnas) -1%, Bilibili (09626:xhkg/BILI:xnas) -1%. SMIC (00981:xhkg) dropped more than 6% on analyst downgrades.  Chinese property names dropped as home prices continued to fall in China.  USD broadly firmer against G10 FX, expect JPY The US dollar started the week on the front foot, amid a weaker risk sentiment following a miss in China’s activity data and the disappointing US manufacturing and housing sentiments. The only outlier was the JPY, with USDJPY sliding to lows of 132.56 at one point before reversing the drop. The 131.50 level remains a key area of support for USDJPY and a bigger move in the US yields remains necessary to pierce through that level. The commodity currencies were the hardest hit, with AUDUSD getting in close sight of 0.7000 ahead of the RBA minutes due this morning. NZDUSD also plunged from 0.6450 to 0.6356. The Chinese yuan weakened and bond yields fell after disappointing economic data and surprising rate cuts USDCNH jumped more than 1% from 6.7380 to as high as 6.8200 on Monday following the weak credit data from last Friday, disappointing industrial production, retail sales, and fixed assets investment data released on Monday morning, and unexpected rate cuts by the People’s Bank of China. The 10-year Chinese government bond yield fell 8bps to 2.67%, the lowest level since April 2020, and about 20bps below the yield of 10-year U.S. treasury notes. Crude oil prices (CLU2 & LCOV2) Crude oil prices had a variety of headwinds to deal with both on the demand and the supply side. While demand concerns were aggravated due to the weak China data, and the drop in US Empire State manufacturing – both signaling a global economic slowdown may be in the cards – supply was also seen as being possibly ramped up. There were signs of a potential breakthrough in talks with Iran as Tehran said it sent a reply to the EU's draft nuclear deal and expects a response within two days. Meanwhile, Aramco is also reportedly ramping up production. WTI futures dropped back below $90 while Brent touched $95/barrel. Metals face the biggest brunt of China data weakness Copper led the metals pack lower after China’s domestic activity weakened in July, which has raised the fears of a global economic slowdown as the zero-Covid policy is maintained. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. This could see further cuts to capacity over the coming months. Iron ore futures were also down. What to consider? Weak Empire State manufacturing survey and NAHB Index Although a niche measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. European power price soared to record high European power prices continue to surge to fresh record highs amid gas flow vagaries, threatening a deeper plunge into recession. Next-year electricity rates in Germany advanced as much as 3.7% to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That’s almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. European Dutch TTF natural gas futures were up over 6%, suggesting more pain ahead for European utility companies. China’s activity data China’s July industrial production (3.8% YoY vs consensus 4.3% & June 3.9%), retail sales (2.7% YoY vs consensus 4.9% & June 3.1%), and fixed asset investments (5.7% YTD vs consensus 6.2% & June 6.1%) released this more were weak across the board.  Property investment growth dropped to -6.4% YTD or -12.3% YoY in July, well below market expectations of -5.7% YTD.  Surprising rate cuts from the PBOC met with muted market reactions The People’s Bank of China cut its policy 1-year Medium-term Lending Facility Rate by 10bps to 2.75% from 2.85% and the 7-day reverse repo rate by 10bps to 2.0% from 2.1%.  Market reactions to the surprising move were muted as credit demand, as reflected in the aggregate financing and loan growth data was weak in China. BHP ‘s FY22 results better than expected The Australian mining giant reported FY22 results beating analyst estimates with strong EBITDA and EBITDA margin. Coal segment performance was ahead of expectations while results from the copper and iron ore segments were slightly below expectations.  The company announced a larger-than-expected dividend payout and a higher capex plan for 2023. RBA minutes due to be released this morning Earlier in the month, the Reserve Bank of Australia (RBA) raised the cash rate by 50bps to 1.85% and the accompanying Statement on Monetary Policy emphasized an uncertain and data-dependent outlook. The RBA releases its minutes from the July meeting today, and the market focus will be on the range of options discussed for the August hike and any hint of future interest rate path.  US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 16, 2022
Saxo Bank Podcast: The Upcoming Bank Of Japan Meeting, A Look At Crude Oil, Copper And More

Japanese Yen (JPY) Rise. Energy Prices Are Finally Falling!?

John Hardy John Hardy 16.08.2022 10:05
Summary:  Weak data out of China overnight, together with a surprise rate cut from the PBOC and collapsing energy prices later on Monday saw the Japanese yen surging higher across the board. Indeed, the two key factors behind its descent to multi-decade lows earlier this year, rising yields and surging energy prices, have eased considerably since mid-June with only modest reaction from the yen thus far. Is that about to change? FX Trading focus: JPY finding sudden support on new disinflation narrative Weaker than expected Chinese data overnight brought a surprise rate cut from the Chinese central bank and seems to have sparked a broadening sell-off in commodities, which was boosted later by a crude oil drop of some five dollars per barrel on the news that Iran will decide by midnight tonight on whether to accept a new draft on the nuclear deal forward by the Euro zone. In response, the Chinese yuan has weakened toward the highs for the cycle in USDCNH, trading 6.78+ as of this writing and  (there was a spike high to 6.381 back in May but the exchange rate has been capped by 6.80 since then), but the Japanese yen is stealing the volatility and strength crown, surging sharply across the board and following up on the move lower inspired by the soft US CPI data point. US long yields easing considerably lower after an odd spike last Thursday are a further wind at the JPY’s back here. In the bigger picture, it has been rather remarkable that the firm retreat in global long-date yields since the mid-June peak and the oil price backing down a full 25% and more from the cycle highs didn’t do more to support the yen from the yield-spread angle (Bank of Japan’s YCC policy less toxic as yields fall) and from the current account angle for Japan. Interestingly, while the JPY has surged and taken USDJPY down several notches, the US dollar is rather firm elsewhere, with the focus more on selling pro-cyclical and commodity currencies on the possible implication that China may be content to export deflation by weakening its currency now that commodity prices have come down rather than on selling the US dollar due to any marking down of Fed expectations. Still, while the USD may remain a safe haven should JPY volatility be set to run amok across markets, the focus is far more on the latter as long as USDJPY is falling Chart: EURJPY As the JPY surges here, EURJPY is falling sharply again, largely tracking the trajectory of longer European sovereign yields, which never really rose much from their recent lows from a couple of weeks back, making it tough to understand the solid rally back above 138.00 of late. After peaking above 1.90% briefly in June, the German 10-year Bund, for example, is trading about 100 basis points lower and is not far from the cycle low daily close at 77 basis points. The EURJPY chart features a rather significant pivot area at 133.50, a prior major high back in late 2021 and the recent low and 200-day moving average back at the beginning of the month. After a brief JPY volatility scare in late July and into early August that faded, are we set for a second and bigger round here that takes USDJPY down through 130.00 and EURJPY likewise? A more significant rally in long US treasuries might be required to bring about a real JPY rampage. Source: Saxo Group The focus on weak Chinese data and key commodity prices like copper suddenly losing altitude after their recent rally has the Aussie shifting to the defensive just after it was showing strength late last week in sympathy with strong risk sentiment and those higher commodity prices. Is the AUDUSD break above 0.7000-25 set for a high octane reversal here? AUDJPY is worth a look as well after it managed to surge all the way back toward the top of the range before. The idea that a weak Chine might export deflation from here might be unsettling for Aussie bulls. The US macro data focus for the week is on today’s NAHB homebuilder’s survey, which plunged to a low since 2015 in June (not including the chaotic early 2020 pandemic breakout months), the July Housing Starts and Building Permits and then the July Retail Sales and FOMC minutes on Wednesday. With a massive relief in gasoline prices from the July spike high, it will be interesting to see whether the August US data picks up again on the services side. The preliminary August University of Michigan sentiment survey release on Friday showed expectations rising sharply by over 7 points from the lowest since-1980 lows of June, while the Present Situation measure dropped a few points back toward the cycle (and record) lows from May. Table: FX Board of G10 and CNH trend evolution and strength. The JPY is the real story today, but as our trending measures employ some averaging/smoothing, the move will need to stick what it has achieved today to show more. Watch out for a big shift in the commodity currencies in coming days as well if today’s move is the start of something. Elsewhere, the JPY comeback is merely taking CHF from strength to strength, although even the might franc has dropped against the JPY today. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. Big momentum shift afoot today and watching whether this holds and the JPY pairs and pairs like AUDUSD and USDCAD to see if we are witnessing a major momentum shift in themes here. Also note NOK pairs like USDNOK and EURNOK here. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Aug. NAHB Housing Market Index 0130 – Australia RBA Meeting Minutes Source: FX Update: JPY jumps on deflating energy prices, fresh retreat in yields.
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

US Giving More Manufacturing Jobs This Year But The Production Disappoints

Marc Chandler Marc Chandler 16.08.2022 10:30
After two-quarters of contraction, many still do not accept that the US economy is in a recession  Federal Reserve officials have pushed against it, as has Treasury Secretary Yellen. The nearly 530k rise in July nonfarm rolls, more than twice the median forecast in Bloomberg's survey, and a new cyclical low in unemployment (3.5%) lent credibility to their arguments. If Q3 data point to a growing economy, additional support will likely be found.   While the interest rate-sensitive housing sector may still feel the squeeze, we note that activity is at historically strong levels  Housing starts are expected to have fallen for the third consecutive month in July. That would be the longest decline since the last four months of 2018. However, around 1.5 mln annualized pace, starts are still elevated. Permits, which are leading indicators, are holding up even better. They peaked at the end of last year a little below 1.9 mln and may have fallen to around 1.65 mln in July. Since the Great Financial Crisis, they were above 1.5 mln only once (October 2019). before the surge began in mid-2020. Existing home sales have come off a bit more  They are expected to have fallen for the sixth consecutive month in July. It is the worst streak since 2013. Indeed, they are likely to fall below the 5 mln annualized mark for the first time since January 2019. Elevated mortgage rates are the highest since 2008 and have squeezed buyers while rising inventories have sparked some anecdotes about price cuts. The number of houses for sale rose for the first time in three years, around three months at the current pace of sales. Below five months of inventory is regarded as tight by realtors. Of interest, first-time buyers accounted for almost a third of the sales in June. Cash sales accounted for a quarter of all transactions in June. Houses were on the market for an average of two weeks last month, the shortest for more than a decade. Recall that new home sales are recorded on contract signings, while the existing home sales are counted on closes.   While the housing market is softening, consumption and output appear to have begun Q3 on solid footing  Retail sales, which account for around 40% of consumption, are expected to have edged by 0.1%-0.2% after a 1.0% rise in June. The drop in gasoline prices will likely be seen here and weigh on the retail sales, which are reported in nominal terms. Core retail sales, which excludes auto, gasoline, building materials, and food services, are expected to have risen 0.6% after 0.8% in June. More people working and earning a little bit more (on average), i.e., the income effect should help underpin consumption.   Manufacturers added 30k people to their payrolls in July, the most in three months and matching last year's average pace  The US has added more manufacturing jobs through July than it did in the same period a year ago (273k vs. 161k). Manufacturing output has disappointed. It fell by 0.5% in both May and June. The decline in vehicle and parts output may have been partially reversed in July amid a recovery in auto sales. Higher commodity prices encouraged mining output in May and June (1.2% and 1.7%, respectively). It may have slowed as commodity prices fell in July. The scorching summer and demand for air conditioning likely boosted utility output, which had fallen in June (-1.4%).  On a year-over-year basis, industrial output often contracts into a recession but not always before the start of the recession  Through June, it has risen by almost 4.2%. The capacity utilization rate is expected to have above 80.0% for the fourth consecutive month. That would match the last cyclical peak in 2018, the longest since the Great Financial Crisis. Utilization rates fall sharply during a recession. In two of the last three recessions, capacity usage fell before the downturn was dated. In the Financial Crisis, the peak coincided with the start of the recession. The US also reports the capital flow data for June (TIC on August 15) While a favorite of reporters and analysts, it is not a market mover. Through May, net long-term foreign capital inflows have been a little more than $465 bln., which is about an 8.5% increase from a year ago. Finally, the Empire State Survey August 15) and the Philadelphia Fed surveys (August 18), the first look into August aside for the weekly jobs claims and mortgage applications. The market appears to put more weight on some components of the Philly survey.   Three economic releases from Japan will draw attention  Japan reports its first estimate of Q2 GDP to kick off the week. The world's third-largest economy contracted at an annualized rate of  0.5% in Q1 but is expected to have rebounded to 2.7% in Q2. That translates into a 0.7% quarterly expansion (seasonally adjusted) after shrinking by 0.1% in Q1. Consumption and business investment rebounded. Inventories were likely unwound. After rising 0.5% in Q1, the median forecast in Bloomberg's survey looks for a 0.3% decline. The GDP deflator has been negative for the past five quarters. It was at -0.5% in Q1, but economists (Bloomberg survey) project a decline to -0.8%.  Despite the GDP deflator still showing deflation's grip, the July CPI (August 19) is likely to show inflation continues to rise above the BOJ's target  It targets the CPI, excluding fresh food, at 2.0%. It stood at 2.2% in June and is likely to have ticked up a little in July. The Tokyo CPI has already been reported. The core measure rose to 2.3% from 2.1%. Tokyo's headline rate increased to 2.5% from 2.3%, and the measure excluding food and energy crept up to 1.2% from 1.0%.  July trade figures will be reported on August 17 Japan is experiencing a  massive terms-of-trade shock. In the first half of this year, Japan reported a JPY7.94 trillion (~$59 bln) deficit. In H1 21,  it had a trade surplus of about JPY810 bln (~$6 bln). The problem is not with merchandise exports. In June, they were up almost a fifth from last year, when they were by nearly 50% over 2020. Imports have surged with food and energy prices. Merchandise imports had risen 46% above the year-ago level in June, and that is after an increase by a third from June 2020.   The UK and Canada report July retail sales and CPI  The UK also publishes its latest employment report, while Canada updates housing starts and portfolio flows. The data poses headline risk, but the macroeconomic backdrop is unlikely to change significantly. The Bank of England warns that the economy will enter a protracted recession that will carry into 2024. The Bloomberg survey found that the median forecast assessed a 45% probability of a recession over the next 12 months.   UK's labor market is fairly strong, and the unemployment rate is at 3.8%, having bottomed at 3.7% in March, the lowest level since 1974. Inflation is rising, and the base effect underscores the upside risk. Last July, CPI was unchanged on the month.   While wage growth may be strong, it is insufficient to cover the rising cost of living and this squeezing consumption June was the first month since October 2021 that retail sales, excluding gasoline, rose. However, UK retail sales, reported in volume terms, have fallen an average of 0.5% a month over the past 12 months. If there is going to be relief for the UK household, it will have to come from the new government. The Bank of England has one objective. Bring down inflation. The swaps market has discounted almost an 85% chance of another 50 bp increase to 2.25% at the September 15 meeting. It sees a year-end rate of around 2.80%, implying nearly 75 bp hikes in Q4.   Canada's labor market improvement is stalling, and it looks like the economy is too The monthly GDP downshifted from 0.7-0.8% in February and March to 0.3% in April and flat in May. Retail sales have been strong, flattered by rising prices. Through May, they have increased by an average of 1.5% a month. The average in the first five months of 2021 was 0.6. Canadian inflation accelerated to 8.1% in June and may have slowed in July for the first time since June 2021. Underlying core measures are expected to have stayed firm. Last month, the Bank of Canada surprised the market with a 100 bp hike in the overnight lending rate to 2.50%. The swaps market briefly took the possibility of a 75 bp hike at the September 7 meeting very seriously but now has slightly better than a 40% chance.  In Australia, the labor market is in focus  It added 60k full-time positions on average a month in Q2 after a 50.5k average in Q1. The pace is likely to moderate. The participation rate of 66.8% set in June was a record high. The unemployment rate of 3.5% was also a record low. There are some signs that the overall economy may be losing some momentum. Still, with CPI accelerating from 5.1% in Q1 to 6.1% in Q2, the Reserve Bank of Australia is tightening policy. After delivering the first hike in May of 25 bp, it lifted the cash target rate in 50 bp clips in June through August. Speculation of another 50 bp hike at the September 6 meeting is seen as slightly better than even money.  The Reserve Bank of New Zealand meets on August 17  It will most likely deliver the seventh hike in the cycle that began last October. After three quarter-point moves, it delivered three 50 bp hikes. The cash target rate now stands at 2.50%. With Q2 inflation rising faster than expected (7.3% year-over-year), unemployment low (3.3% in Q2; record low set last December at 3.2%), more forceful action is possible. However, the swaps market judges it unlikely and has about a 90% chance of a 50 bp hike reflected in current prices. The New Zealand dollar is strong, at its best level in two months, but maybe too strong. Although it closed firmly ahead for the weekend, it looks stretched from a technical perspective, perhaps signaling a "buy the rumor, sell the fact" type of activity.  Norway's central bank, Norges Bank, meets on August 18  A few hours after Norway reports Q2 GDP, Norges Bank makes its rate announcement. Typically, it prefers to adjust policy when it updates its economic assessment, similar in this regard to the European Central Bank. However, last week's CPI shock heightens the risk it breaks from the pattern. Headline CPI jumped 1.3% in July, lifting the year-over-year rate to 6.8%. The median forecast (Bloomberg's survey) was for an unchanged 6.3% pace. The underlying rate, which excludes energy and adjusts for tax changes, surged by 1.5%, nearly twice as much as expected. As a result, the year-over-year change was boosted to 4.5% from 3.6%.   The deposit rate stands at 1.25%  Norges Bank began the tightening cycle last September but has raised it by a cumulative 125 bp. However, among the high-income countries in Europe, only the UK's policy rate is higher. Sweden's inflation is higher at 8.5% (July from 8.7% in June), and its policy rate is 50 bp less than Norway. Since June 16, the day after the FOMC meeting that results in the first 75 bp rate hike, the Norwegian krone has been the strongest major currency, gaining 3.9% against the US dollar and 6.8% against the euro. Look for the dollar to correct higher, even if a 50 bp hike is delivered.    Disclaimer   Source: Week Ahead: More Evidence US Consumption and Output are Expanding, and RBNZ and Norges Bank to Hike
China's Deflationary Descent: Implications for Global Markets

Dollar (USD) Comes Back? Latin America's Currencies Perfomance

Marc Chandler Marc Chandler 16.08.2022 10:58
The bullish dollar narrative was fairly straightforward  Yes, the US main challengers, China and Russia, have been hobbled in different ways by self-inflicted injuries. Still, the driver of the dollar was the expected aggressive tightening by the Federal Reserve. The market accepted that after being a bit slower than ideal (though faster and before many other large central banks), the Fed would move forcefully against inflation, even if it diminished the chances of an economic soft-landing.   However, now the market seems to have a different reaction function  The euro was impressively resilient after the job growth of more than twice expectations. However, the softer than expected US CPI sent the dollar broadly lower, inflicting some apparent technical damage to the charts.  We are reluctant to chase the dollar lower and impressed in a week that the US reported a decline in CPI and PPI that the 10-year bond yield closed a few basis points higher and the first back-to-back weekly increase in two months Technically, it seems that the dollar's pullback, nearly a month-old, move is getting maybe getting stretched. We will try to identify levels that could confirm another leg lower and what would suggest the US dollar may snap back.   Dollar Index:   After reaching almost 107.00 after the stronger than expected jobs data, the Dollar Index fell to almost 104.65 in response to the softer than expected CPI. It was the lowest level since the end of June. The MACD is still falling but oversold. The Slow Stochastic looks poised to turn lower from the middle of the range. Nevertheless, we like it higher in the coming days. We target 106.30 and then 107.00. A move above 107.50 could signal a return to the highs near 109.30 from mid-July. That said, a close below 105.00 would boost the risk of another leg lower.  Euro:  The euro rallied strongly after the softer US CPI, but a key trendline drawn off the February, March, and June highs begins the new week near $1.0375 remains unchallenged. Although the momentum indicators allow for additional gains, we look for the euro to push lower in the coming days. Only a move above the trendline would give it new life. We think the greater likelihood is for the single currency to initially ease toward $1.0180-$1.0200. It may take a break of $1.01 to signal a return to the 20-year low set in mid-July near $0.9950. The US two-year premium over Germany narrowed every day last week for a cumulative 11 bp to near 2.66%. Italy's premium over Germany was trimmed by six basis points. It was the third week of convergence, but at 0.75%, it is still nearly twice what it was in June. Japanese Yen:  The greenback was pushed away from JPY135 by the decline in US rates after the CPI figures. It was sold to about JPY131.75, holding above the month's low set on August 2 near JPY130.40. However, US rates closed firmer on the week despite three softer-than-expected price reports (CPI, PPI, and import/export prices). As a result, the greenback looks poised to test the JPY135.00-50 ceiling. A move above JPY136 would target the JPY137.50 area. We have emphasized the strong correlation between changes in the exchange rate and the US 10-year yield. That correlation is off its highs though still above 0.50, while the correlation with the US two-year yield has risen toward 0.65, the highest in five months.  British Pound:   Sterling rose to $1.2275 in the broad US dollar sell-off in the middle of last week. It stalled in front of the high set on August 2, a little shy of $1.23. This sets up a potential double top formation with a neckline at $1.20. A break would re-target the two-year low set in July near $1.1760. The MACD is set to turn down. The Slow Stochastic is going sideways in the middle of the range after pulling back earlier this month. Sentiment seems poor, and in the week ahead, the UK is expected to report some easing in the labor market, accelerating consumer prices, and another decline in retail sales. Canadian Dollar:   The US dollar fell to near a two-month low last week slightly below CAD1.2730, and slipped through the 200-day moving average on an intraday basis for the first time since June 9. The test of the (61.8%) retracement of this year's rally (early April low ~CAD1.2400 and the mid-July high ~CAD1.3225) found near CAD1.2715 was successful. The US dollar recovered ahead of the weekend back to the CAD1.2800 area. Although the momentum indicators give room for further US dollar losses, we suspect a near-term low is in place and look for an upside correction toward CAD1.2850-CAD1.2900. The Canadian dollar remains sensitive to the immediate risk environment reflected in the change in the S&P 500. The correlation over the past 30 sessions is a little better than 0.60. The correlation reached a two-year high in June near 0.80. The exchange rate's correlation (30 sessions) with oil prices (WTI) set this year's high in early August near 0.60. It is now slightly below 0.50.  Australian Dollar:   Although our bias is for the US dollar to correct higher, the Aussie does not line up quite as well. It broke above the high set at the start of the month near $0.7050 and has held above it. However, its surge stalled slightly above $0.7135, and it consolidated in a narrow range around $0.7100 ahead of the weekend. The momentum indicators are constructive. The main hurdle is the 200-day moving average near $0.7150 and the (50%) retracement of this year's decline (~$0.7660 in early April and ~$6680 in mid-July) found near $0.7170. A break of this area could see a return to the June high by $0.7285.   Mexican Peso:   Latin American currencies had a good week, except for the Argentine peso, which fell by more than 1%, for the dubious honor of being the poorest performer in the emerging markets. Led by Chile (+3.9%) and the Colombian peso (3.8%), Latam currencies accounted for half of the top five performers last week. The peso's 2.7% gain was its best in five months, and the dollar was sold a little through MXN19.85, its lowest level since late June when it reached almost MXN19.82.There seems little to prevent a move toward MXN19.50. Any worries that AMLO's appointments to the central bank would block aggressive tightening of monetary policy must have evaporated as Banxico demonstrated a resolve to hike rates and shadow the US.  Chinese Yuan:   The yuan took a step lower from mid-April until mid-May. Since then, it has been trading within the range more or less seen in the second half of May. That dollar range is roughly CNY6.650 to CNY6.77. For the past month, the dollar has traded between CNY6.72 and CNY6.78, fraying the upper end of the broader range after the greenback surged broadly after the US employment data. Policymakers have signaled concern about inflation and its reluctance to ease monetary policy. It would seem the domestic policy efforts might favor a firm yuan.     Disclaimer   Source: Is the Dollar's Month-Long Pullback Over?
Crypto: How To Estimate A Risk And Take A Profit?

Crypto: How To Estimate A Risk And Take A Profit?

Binance Academy Binance Academy 12.08.2022 09:20
TL;DR Stop-loss and take-profit levels are two fundamental concepts that many traders rely on to determine their trade exit strategies depending on how much risk they are willing to take. These thresholds are used in both traditional and crypto markets, and are especially popular among traders whose preferred approach is technical analysis. Introduction Timing the market is a strategy where investors and traders try to predict future market prices and find an optimal price level to buy or sell assets. Under this approach, figuring out when to exit the market is vital. That’s where stop-loss and take-profit levels come into play.  Stop-loss and take-profit levels are price targets that traders set for themselves in advance. Often used as part of a disciplined trader’s exit strategy, these predetermined levels are designed to keep emotional trading to a minimum and are essential to risk management.   Stop-loss and take-profit levels A stop-loss (SL) level is the predetermined price of an asset, set below the current price, at which the position gets closed in order to limit an investor’s loss on this position. Conversely, a take-profit (TP) level is a preset price at which traders close a profitable position. Instead of using market orders in real-time, traders can set these levels to trigger automatic selling without having to monitor the markets 24/7. Binance Futures, for example, has a Stop Order function that combines stop-loss and take-profit orders. The system decides if an order is stop-loss or take-profit based on trigger price levels and last price or mark price when the order is placed.  Why use stop-loss and take-profit levels? Exercise risk management SL and TP levels reflect the market’s current dynamics, and those who know how to properly identify their optimal values are essentially identifying favorable trading opportunities and acceptable levels of risk. Evaluating risk using SL and TP levels can play a crucial role in preserving and growing your portfolio. Not only are you systematically protecting your holdings by prioritizing less risky trades, but you are also preventing your portfolio from being wiped out completely. Therefore, many traders use SL and TP levels in their risk management strategies. Prevent emotional trading One’s emotional state at any given moment can heavily affect decision-making, and this is why some traders rely on a preset strategy to avoid trading under stress, fear, greed, or other powerful emotions. Learning to identify when to close a position can help you avoid trading on impulse, allowing you to manage your trades strategically rather than whimsically.   Calculate risk-to-reward ratio Stop-loss and take-profit levels are used to calculate a trade’s risk-to-reward ratio. Risk-to-reward is the measure of risk taken in exchange for potential rewards. Generally, it is better to enter trades that have a lower risk-to-reward ratio as it means that your potential profits outweigh potential risks.  You can calculate risk-to-reward ratio with this formula: Risk-to-reward ratio = (Entry price - Stop-loss price) / (Take-profit price - entry price) How to calculate stop-loss and take-profit levels There are various methods that traders can utilize to determine optimal stop-loss and take-profit levels. These approaches may be used independently or in combination with other methods, but the end goal is still the same: to use existing data to make more informed decisions about when to close a position. Support and resistance levels Support and resistance are core concepts familiar to any technical trader in both traditional and crypto markets.  Support and resistance levels are areas on a price chart that are more likely to experience increased trading activity, be it buying or selling. At support levels, downtrends are expected to pause due to increased levels of buying activity. At resistance levels, uptrends are expected to pause due to increased levels of selling activity. Traders who use this method typically set their take-profit level just above the support level and stop-loss level right below the resistance level they have identified. Here’s a detailed explanation of The Basics of Support and Resistance. Moving Averages This technical indicator filters market noise and smooths price action data out to present the direction of a trend.  Moving averages (MA) can be calculated over a shorter or longer period, depending on individual traders’ preferences. Traders monitor moving averages closely, looking out for opportunities to sell or buy presented in crossover signals, where two different MAs cross on a chart. You can read about Moving Averages in detail. Typically, traders using MA identify stop-loss levels below a longer-term moving average.  Percentage method Instead of a pre-specified level calculated using technical indicators, some traders use a fixed percentage to determine SL and TP levels. For instance, they may choose to close their position once an asset’s price is 5% above or below the price they entered. This is a straightforward approach that works well  for traders who are not very familiar with technical indicators. Other indicators We’ve mentioned a few common TA tools used to establish SL and TP levels, but traders use many other indicators. This includes Relative Strength Index (RSI), which is a momentum indicator that signals if an asset is overbought or oversold, Bollinger Bands (BB), which measures market volatility, and Moving Average Convergence Divergence (MACD), which uses exponential moving averages as data points.   Closing thoughts Many traders and investors use one or a combination of the approaches above to calculate stop-loss and take-profit levels. These levels serve as technical motivations for them to exit a trade, be it to abandon a losing position or realize potential profits. Note that these levels are unique to each trader and do not guarantee successful performance.  Instead, they guide decision-making, making it more systematic and robust. Thus, evaluating risk by identifying stop-loss and take-profit levels or using other risk management strategies is a good trading habit.   Source: What Are Stop-Loss and Take-Profit Levels and How to Calculate Them?
The Greeks Help Options Traders Make More Informed Decisions About Their Positions

Lisk (LSK): Introduction And Potential. How Does Lisk Work?

Binance Academy Binance Academy 16.08.2022 15:30
TL;DR Lisk is an open-source blockchain application platform that improves Web3 accessibility for developers and users. It offers a simple-to-use software development kit (SDK) that enables developers to build blockchain applications using JavaScript, one of the most widely used programming languages. Lisk is designed to eventually allow developers to deploy sidechains onto their network, so that their blockchain applications can scale while staying connected to the wider Lisk ecosystem.   Introduction One of the major challenges blockchain technology faces in the Web3 era is the lack of accessibility. Different blockchains use a variety of programming languages, which makes it difficult for developers to build applications that can be flexibly used across multiple platforms. What is Lisk? Lisk is an open-source, layer-1 blockchain application platform that aims to help projects onboard users into the crypto and Web3 space. Through its easy-to-use SDK, developers can build scalable blockchain applications easily. The metaverse projects, DAOs, NFT marketplaces, and many other applications they create can also offer faster transaction speed at lower fees for users.   How does Lisk work? Lisk was founded in 2016 by Max Kordek and Oliver Beddows. It focuses on improving Web3 accessibility for developers and users. Some of Lisk’s main features include:  Delegated Proof of Stake (DPoS) Lisk uses the Delegated Proof of Stake (DPoS) consensus algorithm to secure the blockchain. DPoS is considered a more efficient and democratic version of the popular Proof of Stake (PoS) mechanism. It allows validators to outsource the block validation through a voting system. On the Lisk blockchain, voters can use their LSK tokens to vote for a maximum of 10 delegators to secure the network on their behalf and share the LSK rewards among them. Generally, a delegator with more votes is more likely to be selected to generate the subsequent blocks. Since the process is distributed among 100+ delegated validators, Lisk can operate in a fairly decentralized manner. It also enables the network to achieve scalability and increase its transactions per second (TPS) rate.  The Lisk SDK A unique feature of Lisk is its software development kit based on JavaScript, one of the world’s most widely-used programming languages. Popular blockchain networks often rely on different languages. For example, Bitcoin (BTC) uses C++, while Ethereum is built on Solidity. Unless they have a strong command of several languages, it can be challenging for developers to interact with different blockchains.  Lisk’s solution to this is an open-source and modular SDK on JavaScript to make blockchain and Web3 universally accessible to a broader range of developers. Using a very common programming language removes the hurdle for those new to building blockchain applications. Newcomers can start building using JavaScript and TypeScript immediately, without having to invest time and effort in learning blockchain-specific languages.  Furthermore, after the launch of the prospective Lisk Platform, developers will be able to leverage the Lisk SDK to implement their applications on sidechains instead of smart contracts. The sidechains’ interoperability will enhance scaling and keep transaction fees minimal. The Lisk SDK is also expected to support the development of NFTs, P2P, and Proof-of-Authority (PoA) modules. Scalable sidechains To facilitate interoperability between all application-specific blockchains in the network, Lisk is building the Lisk Platform, which is designed to allow developers to build scalable applications with greater autonomy and flexibility on sidechains. Sidechains are separate blockchains that connect to the main chain. On Lisk, developers will be able to deploy their own sidechains to scale their blockchain applications and offer lower transaction fees and greater TPS. Sidechains will communicate with one another directly through cross-chain messages. This interoperability is expected to ensure smooth asset exchange between sidechains and the main Lisk blockchain.  The Lisk team is working on expanding its ecosystem by facilitating interoperability with other layer-1 blockchains and protocols, such as Ethereum (ETH), Polkadot (DOT), and Cosmos (ATOM). The vision is for users to benefit from a growing ecosystem of apps interconnected through Lisk bridges.   What is LSK? Lisk (LSK) is the native cryptocurrency and utility token of Lisk. It is used to pay transaction fees and reward delegators on the network. LSK holders can also use the token to secure the Lisk network through DPoS. They can stake their LSK tokens in the Lisk Desktop wallet to vote or delegate, and the tokens will be locked for as long as the user is performing either of these roles.  LSK’s utility is expected to grow, with more use cases emerging as the Lisk network achieves interoperability with other blockchains. For example, LSK could be used for registering blockchain applications or transferring messages between different applications.    How to buy LSK on Binance? You can buy the Lisk token (LSK) on cryptocurrency exchanges like Binance.  1. Log in to your Binance account and click [Trade] - [Spot]. 2. Search “LSK” to see the available trading pairs. We’ll use LSK/BUSD as an example. 3. Go to the [Spot] box and enter the amount of LSK to buy. In this example, we will use a Market Order. Click [Buy LSK] and the purchased tokens will be credited to your Spot Wallet. Closing thoughts Many believe that one of the key components to achieving the mass adoption of Web3 is to make blockchain technology more widely accessible. With projects like Lisk, more developers can build blockchain applications easily using coding languages they’re already familiar with. At the same time, users can benefit from a growing ecosystem of interconnected applications with faster transactions at lower fees. Source: What Is Lisk (LSK)?
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

Natgas Fought Back And Now Have A Solid Position! Iron And Copper Are Out Of Fashion!?

Marc Chandler Marc Chandler 16.08.2022 14:19
Overview: After retreating most of last week, the US dollar has extended yesterday’s gains today. The Canadian dollar is the most resilient, while the New Zealand dollar is leading the decline with a nearly 0.75% drop ahead of the central bank decision first thing tomorrow. The RBNZ is expected to deliver its fourth consecutive 50 bp hike. Most emerging market currencies are lower as well, led by central Europe. Equities in Asia Pacific and Europe are mostly higher today. Japan and Hong Kong were exceptions, and China was mixed with small gains in Shanghai and Shenzhen composites, but the CSI 300 slipped. Europe’s Stoxx 600 is stretching its advance for the fifth consecutive session. It is at two-month highs. US futures are softer. The US 10-year yield is slightly firmer near 2.80%, while European benchmark yields are mostly 2-4 bp higher, but Italian bonds are under more pressure and the yield is back above the 3% threshold. Gold is softer after being repulsed from the $1800 area to test $1773-$1775. A break could signal a test on the 20-day moving average near $1761. October WTI tested last week’s lows yesterday near $86 a barrel on the back of the poor Chinese data. It is straddling the 200-day moving average (~$87.95). The market is also watching what seems like the final negotiations with Iran, where a deal could also boost supply. US natgas prices are more than recouping the past two days of losses and looks set to challenge the $9 level. Europe’s benchmark leapt 11.7% yesterday and is up another 0.5% today. Iron ore has yet to a base after falling more than 5.5% in the past two sessions. It fell almost 0.65% today. September copper has fallen by almost 2.5% over the past two sessions and is steady today. Lastly, September wheat is slipping back below $8 a bushel and is trading heavily for the third consecutive session. Asia Pacific Japan's 2.2% annualized growth in Q2 does not stand in the way of a new government support package  Prime Minister Kishida has been reportedly planning new measures and has instructed the cabinet to pull it together by early next month. He wants to cushion the blow of higher energy and food prices. An extension of the subsidy to wholesalers to keep down the gasoline and kerosene prices looks likely. Kishida wants to head off a surge in wheat prices. Without a commitment to maintain current import prices of wheat that is sold to millers, the price could jump 20% in October, according to reports. Separately, and more controversially, Kishida is pushing for the re-opening of nine nuclear plants that have passed their safety protocols, which have been shut since the 2011 Fukushima accident.  The minutes from the Reserve Bank of Australia's meeting earlier this month signaled additional rate hikes will be forthcoming  After three half--point hikes, it says that the pace going forward will be determined by inflation expectations and the evolving economic conditions. The minutes noted that consumer spending is an element of uncertainty given the higher inflation and interest rates. Earlier today, the CBA's household spending report shows a 1.1% jump month-over-month in July and a 0.6% increase in June. The RBA wants to bring the cash target rate to neutral (~2.50%). The target rate is currently at 1.85% and the cash rate futures is pricing in about a 40% chance of a 50 bp hike at the next RBA meeting on September 6. It peaked near 60% last week. On Thursday, Australia reports July employment. Australia grew 88.4k jobs in June, of which almost 53k were full-time positions. The median forecast in Bloomberg's survey envisions a 25k increase of jobs in July.  The offshore yuan slumped 1.15% yesterday  It was the biggest drop since August 2019 and was sparked by the unexpected cut in rates after a series of disappointing economic data. The US dollar reached almost CNH6.82 yesterday, its highest level in three months. It has steadied today but remains firm in the CNH6.7925-CNH6.8190 range. China's 10-year yield is still under pressure. It finished last week quietly near 2.74% and yesterday fell to 2.66% and today 2.63%. It is the lowest since May 2020. As we have noted, the dollar-yen exchange rate seems to be more sensitive to the US 2-year yield (more anchored to Fed policy) than the 10-year yield (more about growth and inflation)  The dollar is trading near four-day highs against the yen as the two-year yield trades firmer near 3.20%. Initial resistance has been encountered in Europe near JPY134.00. Above there, the JPY134.60 may offer the next cap. Support now is seen around JPY133.20-40. The Australian dollar extended yesterday's decline and slipped through the $0.7000-level where A$440 mln in options expire today. It also corresponds with a (50%) retracement of the run-up form the mid-July low (~$0.6680). The next area of support is seen in the $0.6970-80 area. The greenback rose 0.45% against the onshore yuan yesterday after gapping higher. Today it gapped higher again and rose to almost CNY6.7975, its highest level since mid-May. It reached a high then near CNY6.8125. The PBOC set the dollar's reference rate at CNY6.7730, slightly less than the median in Bloomberg's survey (CNY6.7736). The takeaway is the central bank did not seem to protest the weakness of the yuan. Europe The euro has been sold to a new seven-year low against the euro near CHF0.9600 The euro has been sold in eight of the nine weeks since the Swiss National Bank hiked its policy rate by 50 bp on June 16. Half of those weekly decline were 1% or larger. The euro has fallen around 7.4% against the franc since the hike. Swiss domestic sight deposit fell for 10 of 11 weeks through the end of July as the SNB did not appear to be intervening. However, in the last two weeks, as the franc continued to strengthen, the Swiss sight deposits have risen, and recorded their first back-to-back increase in four months. This is consistent with modest intervention. The UK added 160k jobs in Q2, almost half of the jobs gain in the three months through May, illustrating the fading momentum  Still, some 73k were added to the payrolls in July, well above expectations. In the three months through July, job vacancies in the UK fell (~19.8k) for the first time in nearly two years. Average weekly earnings, including bonuses, rose 5.1% in Q2. The median forecast was for a 4.5% increase. Yet, real pay, excluding bonuses and adjusted for inflation slid 3% in the April-June period, the most since at least 2001. The ILO measure of unemployment in Q2 was unchanged at 3.8%. The Bank of England warns it will rise to over 6%. The market still favors a 50 bp hike next month. The swaps market has it at a little better than an 80% probability. The euro is extending its retreat  It peaked last week, near $1.0365 and tested this month's low near $1.0125 in the European morning. The intraday momentum indicators are stretched, and that market does not appear to have the drive to challenge the 1.2 bln euros in options struck at $1.0075 that expire today. With yesterday's loss, the euro met the (50%) retracement objective of the bounce off the mid-July 22-year low (~$0.9950). The next retracement objective (61.8%) is near $1.0110. Nearby resistance may be met near $1.0160-70. Sterling has been sold for the fourth consecutive session. It approached the $1.20-level, which may be the neckline of a double top. If violated it could signal a return to the low seen in mid-July around $1.1760. Sterling is holding in better than the euro now. The cross peaked before the weekend in front of GBP0.8500 and is approaching GBP0.8400 today. A break would look ominous and could spur a return to the GBP0.8340 area. America The Empire State manufacturing survey and the manufacturing PMI line up well  Both bottomed in April 2020 and peaked in July 2021. The outsized decline in the August Empire State survey points to the downside risks of next week's preliminary August manufacturing PMI. Recall that the July manufacturing PMI fell to 52.2, its third consecutive decline and the lowest reading since July 2020. There was little good in the Empire survey. Orders and shipments fell dramatically. Employment was also soft. Prices paid softened to the lowest this year, but prices received edged higher. The US reports housing start and permits and industrial output today The housing market continues to slow from elevated levels. Housing starts are expected to have fallen 2% in July, matching the June decline. It would be the third consecutive decline, and the longest declining streak since 2018. Still, in terms of the absolute level of activity, anything above 1.5 mln units must still be regarded as strong. They stood at almost 1.56 mln in June. Permits fell by 10% in April-May before stabilizing in June. The median forecast in Bloomberg's survey projects a 3.3% decline. Permits were running at 1.685 mln in June. From April 2007 through September 2019, permits held below 1.5 mln. The industrial production report may attract more attention Output fell in June (-0.2%) for the first time this year, and even with it, industrial product has risen on average by 0.4% a month in H1 22, slightly above the pace seen in H1 21. Helped by manufacturing and utility output, industrial production is expected to rise by around 0.3%. In the last cycle, capacity use spent four months (August-November 2018) above 80%. It had not been above 80% since the run-up to the Great Financial Crisis when it spent December 2006 through March 2008 above the threshold and peaked slightly above 81.0%. Last month was likely the fourth month in this cycle above the 80% capacity use rate. Note that the Atlanta Fed's GDPNow tracker will be updated later today. The update from August 10 put Q3 GDP at 2.5%. Housing starts in Canada likely slow last month, which would be the first back-to-back decline this year  The median forecast (Bloomberg's survey) calls for a 3.6% decline after an 8.4% fall in June. Still, the expected pace of 264k is still 10% higher since the end of last year. On Monday, Canada reported that July existing home sales fell by 5.3%, the fifth consecutive decline. They have fallen by more than a third since February. Canada also reports its monthly portfolios. Through May, Canada has experienced C$98.5 bln net portfolio inflows, almost double the pace seen in the first five months last year. However, the most important report today is the July CPI. A 0.1% increase, which is the median forecast in Bloomberg's survey would be the smallest of the year and the year-over-year pace to eased to 7.6% from 8.1%. If so, it is the first decline since June 2021. Similar with what the US reported, the core measures are likely to prove sticky. After the employment data on August 5, the swaps market was still leaning in favor a 75 bp hike at the September 7 meeting (64%). However, since the US CPI report, it has been hovering around a 40% chance. While the US S&P 500 rose reached almost four-month highs yesterday, the Canadian dollar found little consolation  It held in better than the other dollar-bloc currencies and Scandis, but it still suffered its biggest decline in about a month yesterday. The greenback reached almost CAD1.2935 yesterday and is consolidating in a narrow range today above CAD1.2890. The next important chart point is near CAD1.2975-85 and the CAD1.3050. After testing the MXN20.00 level yesterday, the US dollar was sold marginally through last week's low (~MXN19.8150). It is consolidating today and has not been above MXN19.8850. It has come a long way from the month's high set on August 3 near MXN20.8335. The greenback's downside momentum seems to have eased as it stalls in front of MXN19.81 for the third consecutive session.     Disclaimer   Source: Greenback Remains Firm
USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

Saxo Strategy Team Saxo Strategy Team 16.08.2022 14:00
Summary:  Equities traded higher still yesterday as treasury yields fell further back into the recent range and on hopes that an Iran nuclear deal will cement yesterday’s steep drop in oil prices. The latest data out of the US was certainly nothing to celebrate as the July US Homebuilder survey showed a further sharp drop in new housing interest and a collapse in the first regional US manufacturing survey for August, the New York Fed’s Empire Manufacturing.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their gains yesterday getting closer to the 200-day moving average sitting around the 4,322 level. The US 10-year yield seems well anchored below 3% and financial conditions indicate that S&P 500 futures could in theory trade around 4,350. The news flow is light but earnings from Walmart later today could impact US equities should the largest US retailer lower their outlook for the US consumer. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities were mixed. CSI300 was flat, with electric equipment, wind power, solar and auto names gained. Hang Seng Index declined 0.5%. Energy stocks fell on lower oil price. Technology names were weak overall, Hang Seng TECH Index (HSTECH.I) declined 0.9%. Sunny Optical (02382:xhkg) reported worse than expected 1H22 results, revenues -14.4% YoY, net profits -49.5%, citing weakening component demand from the smartphone industry globally. The company’s gross margin plunged to 20.8% from 24.9%. Li Auto’s (02015:xhkg/LI:xnas) Q2 results were in line with expectations but Q3 guidance disappointed. The launch L9 seems cannibalizing Li ONE sales. USD: strength despite weak US data and falling treasury yields and strong risk sentiment Yesterday, the JPY tried to make hay on China cutting rates and as global yields eased back lower, with crude oil marked several dollars lower on hopes for an Iran nuclear deal. But the move didn’t stick well in USDJPY, which shrugged off these developments as the USD firmed further across the board, despite treasury yields easing lower, weak data and still strong risk sentiment/easy financial conditions. A strong US dollar is in and of itself is a tightening of financial conditions, however, and yesterday’s action has cemented a bullish reversal in some pairs, especially EURUSD and GBPUSD, where the next important levels pointing to a test of the cycle lows are 1.0100 and 1.2000, respectively. Elsewhere, USDJPY remains in limbo (strong surge above 135.00 needed to suggest upside threat), USDCAD has posted a bullish reversal but needs 1.3000 for confirmation, and AUDUSD is teetering, but needs a close back below 0.7000 to suggest a resurgent US dollar and perhaps widening concerns that a Chinese recession will temper interest in the Aussie. Crude oil Crude oil (CLU2 & LCOV2) trades lower following Monday’s sharp drop that was driven by a combination softer economic data from China and the US, the world’s top consumers of oil, and after Iran signaled a nuclear deal could be reached soon, raising the prospect of more Iranian crude reaching the market. The latest developments potentially reducing demand while adding supply forced recently established longs to bail and short sellers are once again in control. Brent needs to hold support at $93 in order to avoid further weakness towards $90. Focus on Iran news. Copper Copper (COPPERUSSEP22) led the metals pack lower, without breaking any key technical levels to the downside, after China’s domestic activity weakened in July. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. HG copper jumped 19% during the past month and yesterday’s setback did not challenge any key support level with the first being around $3.50/lb. BHP, the world’s top miner meanwhile hit record profits while saying that China is likely to offer a “tail wind” to global growth (see below). EU power prices hit record high on continued surge in gas prices ... threatening a deeper plunge into recession. The latest surge being driven by low water levels on Europe’s rivers obstructing the normal passage for diesel, coal, and other fuel products, thereby forcing utilities to use more gas European Dutch TTF benchmark gas futures (TTFMU2) has opened 5% higher at €231/MWh, around 15 times higher than the long-term average, suggesting more pain ahead for European utility companies. Next-year electricity rates in Germany (DEBYF3) closed 3.7% higher to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That is almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. US Treasuries (IEF, TLT) see long-end yields surging. Yields dipped back lower on weak US economic data, including a very weak Empire Manufacturing Survey (more below) and another sharp plunge in the NAHB survey of US home builders, suggesting a rapid slowdown in the housing market. The survey has historically proven a leading indicator on prices as well. The 10-year benchmark dipped back further into the range after threatening to break up higher last week. The choppy range extends down to 2.50% before a drop in yields becomes a more notable development, but tomorrow’s US Retail Sales and FOMC minutes offer the next test of sentiment. What is going on? Weak Empire State manufacturing survey and NAHB Index Although a niche and volatile measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. China's CATL plans to build its second battery factory in Europe CATL unveiled plans to build a renewable energy-powered factory for car battery cells and modules in Hungary. It will invest EUR 7.34 billion (USD 7.5bn) on the 100-GWh facility, which will be its second one in Europe. To power the facility CATL will use electricity from renewable energy source, such as solar power. At present, CATL is in the process of commissioning its German battery production plant, which is expected to roll out its first cells and modules by the end of 2022. Disney (DIS) shares rise on activist investor interest Daniel Loeb of Third Point announced a significant new stake in Disney yesterday, helping to send the shares some 2.2% higher in yesterday’s session. The activist investor recommended that the company spin off its ESPN business to reduce debt and take full ownership of the Hulu streaming service, among other moves. Elliott exits SoftBank Group The US activist fund sold its stake in SoftBank earlier this year in a sign that large investors are scaling back on their investments in technology growth companies with long time to break-even. In a recent comment, SoftBank’s founder Masayoshi Son used more cautious words regarding the investment company’s future investments in growth companies. BHP reports its highest ever profit, bolstered by coal BHP posted a record profit of $21.3bn supported by considerable gains in coal, nickel and copper prices during the fiscal year ending 30 June 2022. Profits jumped 26% compared to last year’s result. The biggest driver was a 271% jump in the thermal coal price, and a 43% spike in the nickel price. The world’s biggest miner sees commodity demand improving in 2023, while it also sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. According to the company iron ore will likely remain in surplus through 2023. In an interview Chief Executive Officer Mike Henry said: Long-term outlook for copper, nickel and potash is really strong because of “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living,” What are we watching next? Australia Q2 Wage Index tonight to determine future RBA rate hike size? The RBA Minutes out overnight showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, tonight sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35 bps move. RBNZ set to decelerate its guidance after another 50 basis point move tonight? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 44 bps for the October meeting after tonight’s 50 bps hike and another 36 bps for the November meeting. US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.   Earnings to watch Today’s US earnings focus is Walmart and Home Depot with analysts expecting Walmart to report 7% revenue growth y/y and 8% decline y/y in EPS as the US retailer is facing difficulties passing on rising input costs. Home Depot is expected to report 6% growth y/y in revenue and 10% growth y/y in EPS as the US housing market is still robust driving demand for home improvement products. Sea Ltd, the fast-growing e-commerce and gaming company, is expected to report revenue growth of 30% y/y in Q2 but worsening EBITDA margin at -16.2%. The previous winning company is facing headwinds in its gaming division and cash flow from operations have gone from positive $318mn in Q1 2021 to negative $724mn in Q1 2022. Today: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Germany Aug. ZEW Survey 0900 – Eurozone Jun. Trade Balance 1200 – Poland Jul. Core CPI 1215 – Canada Jul. Housing Starts 1230 – US Jul. Housing Starts and Building Permits 1230 – Canada Jul. CPI 2030 – API Weekly Report on US Oil Inventories 2350 – Japan Jul. Trade Balance 0130 – Australia Q2 Wage Index 0200 – New Zealand RBNZ Official Cash Rate announcement 0300 – New Zealand RBNZ Governor Orr Press Conference  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 16, 2022
Russia's Weekend Mutiny and Gold's Bounce off Support Raise Concerns; Verbal Intervention in USD/JPY and US Banking Stocks Tumble Ahead of Fed's Stress Test Results

Why Is Dollar (USD) So Important To Follow? S&P 500 Index Stumbling Block?

Saxo Bank Saxo Bank 16.08.2022 13:30
Summary:  Today we look at a confusing market backdrop as the US dollar rose across the board despite weak US data and US treasury yields easing lower again. While measures of risk sentiment and financial conditions look very strong here, we need to remember that the US dollar is a financial condition unto itself and one of the most import exchange rates, the USDCNH rate should be on every trader's radar. As well, the US S&P 500 index is pushing up against a major resistance level. Crude oil, copper, earnings reports ahead and more on today pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast  Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: The US dollar is a financial condition, too
Volume Of Crude Oil Rose For The Second Session In A Row

The Cheapest Oil In Six Months!!! How Will It Affect The Global Economics?

Conotoxia Comments Conotoxia Comments 16.08.2022 11:55
The price of WTI crude oil remained below $90 per barrel at the beginning of the week, the level before Russia's attack on Ukraine. Oil today is the cheapest in six months. It seems that the topic of a global economic slowdown or recession and how long it may last may be important for the oil market. Chinese and U.S. economic data seem to show a weaker condition in both economies and thus could affect the decline in oil demand. This, in turn, could put downward pressure on prices. According to published data, factory activity in China declined enough in July to force the central bank to cut lending rates to keep demand from collapsing. In the United States, on the other hand, the market may have been taken by surprise by the second-largest drop in the history of the New York Empire State Manufacturing Index. The above indicators may affect the market from the demand side, but this is only one part of the puzzle. On the supply side, long-awaited changes may be brewing. Once the embargo is lifted, oil from Iran may start flowing into the market again. Iran has responded to the European Union's proposal. It may seek to re-implement the 2015 nuclear agreement. The EU is also calling on the US to show more flexibility in implementing the agreement. Saudi Arabia may also be preparing to increase its oil supply. The chairman of Saudi Aramco, the state-owned oil giant, stated over the weekend that his company is ready to increase production to 12 million barrels per day, the company's current production capacity limit. Only a decision by the Saudi Arabian government is needed to increase production. According to the EIA agency's forecast, the United States can also increase its production. US oil production in the August forecast averages 11.9 million barrels per day (b/d) in 2022. It could rise to 12.7 million b/d in 2023. If this forecast comes true, the US could set a production record next year. The current one is 12.3 million b/d and was set in 2019.   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Oil near six-month lows
Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Marc Chandler Marc Chandler 16.08.2022 11:44
Overview: Equities were mostly higher in the Asia Pacific region, though Chinese and Hong Kong markets eased, and South Korea and India were closed for national holidays. Despite new Chinese exercises off the coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session, while US futures are paring the pre-weekend rally. Following disappointing data and a surprise cut in the one-year medium-term lending facility, China’s 10-year yield fell to 2.66%, its lowest in two years. The US 10-year is soft near 2.83%, while European yields are mostly 2-4 bp lower. Italian bonds are bucking the trend and the 10-year yield is a little higher. The Antipodeans and Norwegian krone are off more than 1%, but all the major currencies are weaker against the greenback, but the Japanese yen, which is practically flat. Most emerging market currencies are lower too. The Hong Kong Dollar, which has been supported by the HKMA, strengthened before the weekend, and is consolidating those gains today. Gold tested the $1800 level again but has been sold in the wake of the stronger dollar and is at a five-day low near $1778. The poor data from China raises questions about demand, and September WTI is off 3.6% after falling 2.4% before the weekend. It is near $88.60, while last week’s five-month lows were set near $87.00. US natgas is almost 2% lower, while Europe’s benchmark is up 2.7% to easily recoup the slippage of the past two sessions. China’s disappointment is weighing on industrial metal prices. Iron ore tumbled 4% and September copper is off nearly 3%. September wheat snapped a four-day advance before the weekend and is off 2.3% today.  Asia Pacific With a set of disappointing of data, China surprised with a 10-bp reduction in the benchmark one-year lending facility rate to 2.75%  It is the first cut since January. It also cut the yield on the seven-day repo rate to 2.0% from 2.1%. The string of poor news began before the weekend with a larger-than-expect in July lending figures. However, those lending figures probably need to be put in the context of the surge seen in June as lenders scramble to meet quota. Today's July data was simply weak. Industrial output and retail sales slowed sequentially year-over-year, whereas economists had projected modest increases. New home prices eased by 0.11%, and residential property sales fell 31.4% year-over-year after 31.8% decline in June. Property investment fell 6.4% year-over-year, year-to-date measures following a 5.4% drop in June. Fix asset investment also slowed. The one exception to the string of disappointment was small slippage in the surveyed unemployment rate to 5.4% from 5.5%. Incongruous, though on the other hand, the jobless rate for 16–24-year-olds rose to a record 19.9%. Japan reported a Q2 GDP that missed estimates, but the revisions lifted Q1 GDP out of contraction  The world's second-largest economy grew by 2.2% at an annualized pace in Q2. While this was a bit disappointing, Q1 was revised from a 0.5% fall in output to a 0.1% expansion. Consumption (1.1%) rebounded (Q1 revised to 0.3% from 0.1%) as did business spending (1.4% vs. -0.3% in Q1, which was originally reported as -0.7%). Net exports were flat after taking 0.5% off Q1 GDP. Inventories, as expected, were unwound. After contributing 0.5% to Q1 GDP, they took 0.4% off Q2 growth. Deflationary forces were ironically still evident. The GDP deflator fell 0.4% year-over-year, almost the same as in Q1 (-0.5%). Separately, Japan reported industrial surged by 9.2% in June, up from the preliminary estimate of 8.9%. It follows a two-month slide (-7.5% in May and -1.5% in April) that seemed to reflect the delayed impact of the lockdowns in China. The US dollar is little changed against the Japanese yen and is trading within the pre-weekend range (~JPY132.90-JPY133.90). It finished last week slightly above JPY133.40 and a higher closer today would be the third gain in a row, the longest advance in over a month. The weakness of Chinese data seemed to take a toll on the Australian dollar, which has been sold to three-day lows in the European morning near $0.7045. It stalled last week near $0.7140 and in front of the 200-day moving average (~$0.7150). A break of $0.7035 could signal a return to $0.7000, and possibly $0.6970. The greenback gapped higher against the Chinese yuan and reached almost CNY6.7690, nearly a two-week high. The pre-weekend high was about CNY6.7465 and today's low is around CNY6.7495. The PBOC set the dollar's reference rate at CNY6.7410, a little above the Bloomberg survey median of CNY6.7399. Note that a new US congressional delegation is visiting Taiwan and China has renewed drills around the island. The Taiwan dollar softened a little and traded at a three-day low. Europe Turkey's sovereign debt rating was cut a notch by Moody's to B3 from B2  That is equivalent to B-, a step below Fitch (B) and two below S&P (B+). Moody's did change its outlook to stable from negative. The rating agency cited the deterioration of the current account, which it now sees around 6% of GDP, three times larger than projected before Russia invaded Ukraine. The Turkish lira is the worst performing currency this year, with a 27.5% decline after last year's 45% depreciation. Turkey's two-year yield fell below 20% today for the first time in nine months, helped ostensibly by Russia's recent cash transfer. The dollar is firm against the lira, bumping against TRY17.97. The water level at an important junction on the Rhine River has fallen below the key 30-centimeter threshold (~12 inches) and could remain low through most of the week, according to reports of the latest German government estimate  Separately, Germany announced that its gas storage facility is 75% full, two weeks ahead of plan. The next target is 85% by October 1 and 95% on November 1. Reports from France show its nuclear reactors were operating at 48% of capacity, down from 50% before the weekend. A couple of reactors were shut down for scheduled maintenance on Saturday.  Ahead of Norway' rate decision on Thursday, the government reported a record trade surplus last month  The NOK229 bln (~$23.8 bln). The volume of natural gas exports surged more than four-times from a year earlier. Mainland exports, led by fish and electricity, rose by more than 20%. The value of Norway's electricity exports increased three-fold from a year ago. With rising price pressures (headline CPI rose to 6.8% in July and the underlying rate stands at 4.5%) and strong demand, the central bank is expected to hike the deposit rate by 50 bp to 1.75%. The euro stalled near $1.0370 last week after the softer than expected US CPI  It was pushed through the lows set that day in the European morning to trade below $1.02 for the first time since last Tuesday. There appears to be little support ahead of $1.0160. However, the retreat has extended the intraday momentum indicators. The $1.0220 area may now offer initial resistance. Sterling peaked last week near $1.2275 and eased for the past two sessions before breaking down to $1.2050 today. The intraday momentum indicators are stretched here too. The $1.2100 area may offer a sufficient cap on a bounce. A break of $1.20 could confirm a double top that would project back to the lows. America The Congressional Budget Office estimates that the Inflation Reduction Act reduces the budget deficit but will have a negligible effect on inflation  Yet, starting with the ISM gauge of prices paid for services, followed by the CPI, PPI, and import/export prices, the last string of data points came in consistently softer than expected. In addition, anecdotal reports suggest the Big Box stores are cutting prices to reduce inventories. Energy is important for the medium-term trajectory of measured inflation, but the core rate will prove sticky unless shelter cost increases begin to slow. While the Democrats scored two legislative victories with the approval of the Chips and Science Act and the Inflation Reduction Act, the impact on the poll ahead of the November midterm election seems minor at best. Even before the search-and-seizure of documents still in former President Trump's residence, PredictIt.Org "wagers" had turned to favor the Democratic Party holding the Senate but losing the House of Representatives. In terms of the Republican nomination for 2024, it has been back-and-forth over the last few months, and recently Florida Governor DeSantis narrowly pulled ahead of Trump. The two new laws may face international pushback aside from the domestic impact  The EU warned last week that the domestic content requirement to earn subsidies for electric vehicles appears to discriminate against European producers. The Inflation Reduction Act offers $7500 for the purchases of electric cars if the battery is built in North America or if the minerals are mined or recycled there. The EU electric vehicle subsidies are available for domestic and foreign producers alike. On the other hand, the Chips and Science Act offers billions of dollars to attract chip production and design to the US. However, it requires that companies drawing the subsidies could help upgrade China's capacity for a decade. Japan and Taiwan will likely go along. It fits into their domestic political agenda. However, South Korea may be a different kettle of fish. Hong Kong and China together accounted for around 60% of South Korea's chip exports last year. Samsung has one overseas memory chip facility. It is in China and produces about 40% of the Galaxy phones' NAND flash output. Pelosi's apparent farewell trip to Asia, including Taiwan, was not well received in South Korea. President Yoon Suk Yeol did not interrupt his staycation in Seoul to meet the US Speaker. Nor was the foreign minister sent. This is not to cast aspersions on South Korea's commitment to regional security, simply that it is not without limits. Today's economic calendar features the August Empire State manufacturing survey  A small decline is expected. The June TIC data is out as the markets close today. Today is also the anniversary of the US ending Bretton Woods by severing the last links between gold and the dollar in 1971. Canada reports manufacturing sales and wholesale trade, but the most market-sensitive data point may be the existing home sales, which are expected to have declined for the fifth consecutive month. Canada reports July CPI tomorrow (Bloomberg survey median forecast sees headline CPI slowing to 7.6% from 8.1% in June).  The Canadian dollar is under pressure  The US dollar has jumped above CAD1.2900 in Europe after finishing last week near CAD1.2780. Last week's high was set near CAD1.2950, where a $655 mln option is set to expire today. A move above CAD1.2920 could target CAD1.2975-CAD1.3000 over the next day or day. A combination of weaker equities, thin markets, and a short-term market leaning the wrong way after the likely drivers today. The greenback posted its lowest close in two months against the Mexican peso before the weekend near MXN19.85. However, it is rebounding today and testing the MXN20.00 area Initial resistance may be encountered around MXN20.05, but we are looking for a move toward MXN20.20 in the coming days. Mexico's economic calendar is light this week, and the highlight is the June retail sales report at the end of the week.    Disclaimer Source: China Disappoints and Surprises with Rate Cut
Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Saxo Strategy Team Saxo Strategy Team 17.08.2022 08:35
Summary:  S&P500 index broke above the key 4,300 resistance level while the NASDAQ pushed lower amid mixed economic data and better-than-feared earnings from Walmart and Home Depot. US housing data continues to worsen, but the focus now turns to FOMC minutes due later today, as well as the US retail sales which will be next test of the strength of the US consumer. Asia session may have trouble finding a clear direction, but Australia’s wage price index and RBNZ’s rate hike may help to provide some bounce. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities were mixed. Tech names had an initial pullback, followed by short-coverings that narrowed the loss of the Nasdaq 100 to 0.23% at the close. S&P500 edged up 0.19% to 4,305 on better-than-feared results from retailers, moving towards its 200-day moving average (4,326). Walmart (WMT:xnys) and Home Depot (HD:xnys) reported Q2 results beating analyst estimates. Walmart gained 5% on strong same-store sales growth and a deceleration in inventory growth. Home Depot climbed 4% after reporting better than expected EPS and same-store sales but with an acceleration in inventory buildup. The declines in housing starts and building permits released on Monday and the downbeat comments about the U.S. housing market from the management of Compass (COMP:xnys), an online real estate brokerage, highlighted the challenges faced in the housing sector.  Short-end U.S. treasury yields rose as the long-end little changed The bigger than expected increases in July industrial production (+0.6% MoM), manufacturing production (+0.7% MoM), and business equipment production (+0.6%) triggered some selling in the short-end of U.S. treasury curve, pushing the 2-year yield 8 bps higher to 3.25% as 10-year yield edged up 1bp.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks were sold off on Tuesday afternoon after Reuters ran a story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan (03690:xhkg).  The shares of Meituan collapsed 9% while Tencent gained 0.9%.  After the close of the Hong Kong market, Chinese media, citing sources “close to the matter” suggested that the divesture story is not true. However, the ADRs of Meituan managed to recover only 1.7% in New York trading. The newswire story also triggered selling on Kuaishou (01024:xhkg), -4.4%, which has Tencent as a major investor. The decline in internet stocks dragged the Hang Seng Index 1% lower. On the other hand, Chinese developers soared on another newswire report that state-owned China Bond Insurance is going to provide guarantees to new onshore debts issued by several “high quality” developers, including Country Garden (02007:xhkg) +9%, Longfor (00960:xhkg) +12%, CIFI (00884:xhkg) +12.9%, and Seazen (01030:xhkg) +7.6%.  Shares of Chinese property management services also surged higher.  GBPUSD bounced off the 1.2000 support, NZD eyeing RBNZ A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than what was expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable got lower to remain in close sight of the 1.2000 big figure, but rose above 1.2100 subsequently. UK CPI report due today may confirm the need for further BOE action after labor data showed wage pressures. NZDUSD remains near lows of 0.6320 but may see a knee-jerk higher if RBNZ surprises on the hawkish side. Crude oil prices (CLU2 & LCOV2) Crude oil prices remain under pressure due to the prospect of Iran nuclear deal, and printed fresh lows since the Ukraine invasion. Some respite was seen in early Asian session, and WTI futures were last seen at $87/barrel and Brent is below $93. The EU submitted a final proposal to salvage the Iran nuclear deal, and prospects of more energy supply are dampening the price momentum. It has been reported that Iran’s response was constructive, and they are now consulting with the US on a way ahead for the protracted talks. The API reported crude inventories fell by 448,000 barrels last week, while gasoline stockpiles increased by more than 4 million barrels. Government data is due later Wednesday. European Dutch TTF benchmark gas futures (TTFMU2) touched €250/MWh, but has cooled off slightly recently, but still signals the heavy price that Europe is paying for the dependence on Russian gas. Copper holding up well despite China slowdown concerns Despite reports of weaker financing and activity data from China earlier this week, Copper remains well supported and registered only modest declines. BHP’s results provided some offset, as did the supply side issues in Europe. Only a break below the key 350 support will turn the focus lower. Meanwhile, zinc rallied amid concerns of smelter closures in Europe. What to consider? US housing scare broadens, industrial production upbeat Housing starts fell 9.6% in July to 1.446 mn, well beneath the prior 1.599 mn and the expected 1.537 mn. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1.674 mn from 1.696 mn, but printed above the expected 1.65 mn. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. US retailer earnings come in better than feared Walmart (WMT:xnys) and Home Depot (HD:xnys) reported better-than-feared results on Tuesday. Walmart’s Q2 revenues came in at USD152.9 billion (+8.4% YoY, consensus USD150.5bn). Same-store sales increased 8.4% YoY (vs consensus +6.0% YoY).  EPS of USD1.77, down 0.8% from a year ago quarter but better than the consensus estimate of USD1.63. While inventories increased 25.5% in Q2, the rate of increase has moderated from the prior quarter’s +32.0%. The company cited falls in gas prices, market share gain in grocery, and back-to-school shopping key reasons behind the strength in sales.  Home Depot reported Q2 revenues of USD43.9 billion (vs consensus USD43.4bn), +6.5% YoY.  Same-store sales grew 5.8%, beating analyst estimates (+4.9%).  EPS rose 11.5% to $5.05, ahead of analyst estimates (USD4.95). However, inventories grew 38% YoY in Q2, which was an acceleration from the prior quarter. The management cited inflation and pulling forward inventory purchases given supply chain challenges as reasons for the larger inventory build-up. Target (TGT:xnys) is scheduled to report on Wednesday. Eyes on US retail sales US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. A cooling labor market in the UK UK labor market showed signs of cooling as job vacancies fell for the first time since August 2020 and real wages dropped at the fastest pace in history. Unemployment rate was steady at 3.8%, and the number of people in employment grew by 160,000 in the April-June period as against 256,000 expected. There was also a sprinkle of good news, with the number of employees on payrolls rising 73,000 in July, almost triple the pace expected. Also, wage growth was strong at 4.7% in the June quarter from 4.4% in the three months to May, which may be key for the BOE amid persistent wage pressures. Australia Q2 Wage Index to determine future RBA rate hike size? The RBA Minutes out on Tuesday showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, today sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35bps move. RBNZ set to decelerate its guidance after another 50 basis point move today? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 45bps for the October meeting after today’s 50bps hike and another 37bps for the November meeting. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 17, 2022
Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Conotoxia Comments Conotoxia Comments 17.08.2022 09:15
Home Depot (HD) and Walmart (WMT) are among the largest US retailers whose results seem to show the attitude of the average American consumer towards spending money. HD is a chain of large-format home improvement shops, very similar to Europe's Leroy Merlin. WMT, on the other hand, is the largest US retail chain. Last month, Walmart spooked markets by lowering its profit forecasts and warned of a rapid decline in demand. However, the results announced today said sales were up more than 8% year-on-year to $152.9 billion against expectations of $150.8 billion. Online sales alone rose by as much as 12%. The company is struggling with a gigantic inventory problem (worth $61 billion at the end of Q1), prominent among the backlog of products is apparel, for example. To deal with this, discounts have been introduced on many products, thereby boosting sales by stimulating demand. At present, the value of stock amounts to USD 59.9 billion. However, the increased sales do not translate directly into profits. "The actions we’ve taken to improve inventory levels in the US, along with a heavier mix of sales in grocery, put pressure on the profit margin for Q2 and our outlook for the year," - CEO Doug McMillon said. Walmart's second-quarter net income rose to $5.15bn, or $1.77 per share (EPS) against Wall Street analysts' estimates of $1.62. In the same period a year ago, net income was $4.28bn, or $1.52 per share (EPS). Walmart maintained its forecast for the second half of the year. It expects US shop sales to grow by about 3% (excluding fuel), in the second half of the year, or about 4 per cent for the full year. It expects adjusted earnings per share to decline 9% for the year. Home Depot also announced a 5.8% increase in sales, to 43.8 billion against expectations of $43.36 billion. Net sales were up 6.5% year-over-year, marking the highest quarterly sales in the company's history. "Our team has done a fantastic job serving our customers while continuing to navigate a challenging and dynamic environment," - CEO Ted Decker said, commenting on the company's results. Net income increased to $5.17 billion, up 7.6% year-over-year. EPS was $5.05 against analysts' forecasts of $4.94. Walmart and Home Depot gain 4.7% and 1.9%, respectively, on the market open. The retailers' results show that, despite the looming recession, consumers are spending money and the situation could be not that bad in the short term. However, at the same time, the figures for financing this spending are alarming. A large proportion of Americans are covering higher prices with credit cards, which must eventually be repaid, according to data published by Bloomberg. The worsening outlook for economic health, alarming PMI levels and the bond yield curve all translate into possible future deterioration in consumer health.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.  Source: Retailers announce strong results - shares rise
China’s Caixin Manufacturing PMI Data Might Support The New Zealand Dollar (NZD)

The Reserve Bank Of New Zealand Has The Best Main Interest Rate In 7 Years!!! RBNZ Will Be A Savior From Inflation!?

Conotoxia Comments Conotoxia Comments 17.08.2022 11:45
The Reserve Bank of New Zealand today raised its main interest rate by 0.5 percentage points, to 3 percent, a level last seen seven years ago. It was the fourth 50-basis point hike in the current cycle, which may make the RBNZ one of the stronger monetary tightening central banks to bring down inflation.   Today's hike was in line with market expectations. Some policymakers believe that inflation may soon begin to stabilize or even start to decline through lower fuel prices and transportation prices. However, inflation may not return to the New Zealand central bank's target until mid-2024. Thus, further monetary tightening may be required, with its end expected in the first quarter of 2023 - according to a statement issued to today's decision. As a result, the RBNZ may raise the main interest rate by about 3.75 percentage points throughout the cycle, to 4 percent, from the record low of 0.25 percent that occurred in 2021. Inflation in New Zealand rose to 7.3 percent y/y in the second quarter of 2022, up from 6.9 percent in the previous period. This was the highest figure since the second quarter of 1990.   The NZD/USD exchange rate seemed to react relatively calmly to the above decision, as it was in line with the market consensus. At 07:30 GMT+3 on the Conotoxia MT5 platform, the NZD/USD exchange rate rose by 0.25 percent, to 0.6360. As a result, at this hour, of the major currencies against the US dollar, it is the NZD that seems to have gained the most. Since the beginning of the month, the NZD has gained 1.10 percent to the USD, which may make New Zealand's currency the strongest of the world's major currencies.   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Bank of New Zealand with another rate hike
Apple May Surprise Investors. Analysts Advise Caution

Apple Supplier In China Closing Its Factories! Big European Aluminium Plant Stops Its Production Due To Unfavorable Conditions

Saxo Strategy Team Saxo Strategy Team 17.08.2022 12:53
  Summary:  The US equity market rally extended modestly yesterday, but turned tail upon the cash S&P 500 Index touching the key 200-day moving average at 4,325. Market today will eye the latest US Retail Sales report from July, which saw peak gasoline prices in the US mid-month, while the FOMC Minutes may prove a bit stale, given they were created before three weeks of the market rallying sharply and financial conditions easing aggressively, likely not the Fed’s intention.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures broke above the 200-day moving average yesterday and then got rejected. Momentum in US equities got a bit more fuel from two good earnings releases from Home Depot and Walmart rising 4% and 5% respectively. S&P 500 futures are pushing higher again this morning and will likely attempt once more to break above the 200-day moving average. Long-term US interest rates are still well-behaved trading around the 2.8% level and the VIX Index has stabilised just below the 20 level. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index rallied 1% today, reversing yesterday’s loss. Meituan (03690:xhkg) bounced nearly 5% after its 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan.  Tencent denied such a divesture plan last night.  Power drills and floor care equipment maker and a supplier to Home Depot (HD:xnys), Techtronic Industries (00669:xhkg) jumped more than 7% after better-than-expected results from Home Depot overnight.  On Tuesday, China’s Premier Li Keqiang held a video conference with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy.  CSI300 gained 0.6%. USD pairs, including GBPUSD, which bounced strongly off 1.2000 support  A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable teased key psychological support at 1.2000 yesterday before rising later in the day above 1.2100 ahead of today’s UK CPI report, which may confirm the need for further BOE action after labor data showed wage pressures. EURUSD bounced from session lows at 1.0123 but has posted a recent bearish reversal that keeps the focus lower, particularly on any breakdown through 1.0100, the multi-week range low. USD traders will focus on today’s US Retail Sales and FOMC minutes. USDCNH – there was a brief spike higher in USDCNH earlier this week as China moved to stimulate with a small 10-basis point rate cut of the key lending rate – no drama yet, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.80, as Chines exchange rate policy shifts can provoke significant moves across markets. Crude oil (CLU2 & LCOV2) touched a fresh six-month low on Tuesday with Brent trading lower, in anticipation of the Iran nuclear deal being revived, before bouncing in response to the API reporting a draw in crude oil and especially gasoline stocks. While a deal with Iran could see it raise production by around one million barrels per day, Goldmans talks about a mutually beneficial stalemate for both sides with Iran wanting to avoid sanctions while the US wants to avoid higher oil prices but also the political backlash from a potential deal. EIA’s weekly crude and fuel stocks report on tap later with the market also focusing on gasoline demand and the levels of exports. Over in Europe meanwhile the Dutch TTF benchmark gas trades near an eye-popping $400 per barrel crude oil equivalent, a level that will continue to attract demand for oil-based products due to switching. Copper (COPPERUSSEP22) continues to trade within its established upward trending range after China’s Premier Li Keqiang asked local officials from six provinces to bolster pro-growth measures after weaker financing and activity data were reported earlier this week. In addition, copper is also enjoying some tailwind from rising zinc and aluminum prices after Europe's largest smelters said it would halt production and after producers in China were told to curb production in order to preserve electricity supply during the current heatwave. HG copper’s trading range has narrowed to between $3.585, the uptrend from the July low and $3.663 the 50-day moving average.   What is going on?   US housing scare broadens, industrial production upbeat US Housing starts fell 9.6% in July to an annualized 1,446k, well beneath the prior 1,599 and the expected 1,537k. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1,674k from 1,696, but printed above the expected 1,650k. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) in July, possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. UK headline inflation hits 10.1% The highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieveing 4.00%. 2-year NZ rates were unchanged later in the session after a brife poke higher. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Walmart shares rally on improved outlook The largest US retailer surprised on both revenue and earnings in its Q2 report with most of the revenue growth coming from higher prices and not volume. The retailer now sees an EPS decline of 9-11% this fiscal year compared to previously 11-13% suggesting input cost pressures are easing somewhat. Walmart is seeing more middle and high-income customers and the retailer has also cancelled orders for billions of dollars to lower inventory levels suggesting global supply chains are improving. Walmart shares were up 5%. Home Depot still sees robust market The largest US home improvement retailer beat on revenue and earnings yesterday in its Q2 results with Q2 comparative sales up 5.8% vs est. 4.6% highlighting that volumes are falling as revenue growth is below inflation rates. The US housing market figures on housing starts and permits cemented that the US housing market is slowing down due to the recent rally in mortgage rates. Home Depot is taking a conservative approach to guidance, but the market nevertheless pushed shares 4% higher. Apple supplier Foxconn suspends its factory in Chengdu due to a power crunch Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple. The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists. The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents. At the same time, Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., there have been speculations that Taiwanese and Korean chipmakers and their customers may be accelerating the building up of production capacity away from China. Big European aluminium plant to halt production Norsk Hydro’s aluminium plant in Slovakia is halting primary production by end of September due adverse conditions such as elevated electricity prices. The aluminium company would incur significant financial losses should it continue its operations.   What are we watching next?   Eyes on US retail sales today  US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps at the late July meeting to bring the Fed Funds rate to a level they have previously considered neutral, but stayed away from providing any forward guidance. The minutes of that July meeting are to be released later today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot July US jobs report and the cooling July inflation number, as well as a blistering three week rally in equity markets have further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts as soon as ‘early’ 2023. The next chief focus for Fed guidance will remain on the Fed’s Jackson Hole, Wyoming symposium next week. Earnings to watch Today’s European earnings focus is Carlsberg and Coloplast with the former reporting strong first-half organic growth of 20.7% vs est. 15.5% suggesting breweries are seeing healthy volume and price gains. Tencent is the key focus in Asia and especially given the recent developments in China on anti-monopoly laws and its decision to divest its $24bn stake in Meituan. In the US the focus will be on Cisco which saw its growth grinding to a halt in the previous quarter. Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Eurozone Q2 GDP Estimate 1230 – US Jul. Retail Sales 1430 – US Weekly Crude Oil and Product Inventories 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Has The Best Main Interest Rate In 7 Years
The USD/CNH Pair Remains On The Bear’s Trend

China Is Planning The Devaluation? If So, CNHUSD May Become A Strong Value

Saxo Bank Saxo Bank 17.08.2022 13:20
Summary:  Today we look at the US equity market rolling over a bit after hitting a key resistance point in the form of the S&P 500's 200-day moving average. We continue to note the resilient US dollar and the risk of USDCNH suddenly commanding the market's attention again if China moves to devalue its currency. We also zero in on weak Antipodean currencies as AUDUSD struggles and NZD can't get a boost from the RBNZ overnight. Crude oil, industrial metals, the latest on the dire power emergency in the EU, danger of meme stocks, earnings ahead and more on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Watching for signs of altitude sickness
Increase In Interest Of Nuclear Energy Around The World

Decision On Closing Three German Nuclear Plants Is Not Made Yet. In France Wind Generation And Hydropower Stations Results Are Below Norms

Marc Chandler Marc Chandler 17.08.2022 15:00
Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities are lower as are US futures.  The Stoxx 600 is struggled to extend a five-day rally.  The Antipodeans are the weakest of the majors, but most of the major currencies are softer. The euro and sterling are straddling unchanged levels near midday in Europe.  Gold is soft in yesterday’s range, near its lowest level since August 5.  While $1750 offers support, ahead of it there may be bids around $1765. October WTI is pinned near its lows around $85.50-$86.00.  The drop in Chinese demand is a major weight, while the market is closely monitoring developments with the Iranian negotiations.  US natgas is edging higher after yesterday 6.9% surge to approach last month’s peak.  Europe’s benchmark is 4.5% stronger today after yesterday’s 2.7% pullback.  Iron ore fell (3.9%) for the fourth consecutive decline. The September contract that trades in Singapore is at its lowest level since July 22.  September copper is a little heavier but is still inside Monday’s range.  September wheat is extending its pullback for the fourth consecutive session.  It had risen in the first four sessions last week. It is moving sideways in the trough carved over the past month.    Asia Pacific   The Reserve Bank of New Zealand delivered the anticipated 50 bp rate hike and signaled it would continue to tighten policy    It did not help the New Zealand dollar, which is posting an outside day by trading on both sides of yesterday's range.  The close is the key and below yesterday's low (~$0.6315) would be a bearish technical development that could spur another cent decline.  It is the RBNZ's fourth consecutive half-point hike, which followed three quarter-point moves.  The cash target rate is at 3.0%.  Inflation (Q2) was stronger than expected rising 7.3% year-over-year.  The central bank does not meet again until October 5, and the swaps market has a little more than a 90% chance of another 50 bp discounted.    Japan's July trade balance deteriorated more than expected    The shortfall of JPY1.44 trillion (~$10.7 bln) form JPY1.40 trillion in June.  Exports slowed to a still impressive 19% year-over-year from 19.3% previously, while imports rose 47.2% from 46.1% in June.  The terms-of-trade shock is significant in both Japan and Europe.  Japan's ran an average monthly trade deficit of about JPY1.32 trillion in H1 22 compared with an average monthly surplus of JPY130 bln in H1 21.  The eurozone reported an average shortfall of 23.4 bln euros in H1 22 compared with a 16.8 bln average monthly surplus in H1 21.  The two US rivals, China, and Russia, have been hobbled by their own actions, while the two main US economic competitors, the eurozone and Japan are experiencing a dramatic deterioration of their external balance,     The 11 bp rise in the US two-year yield between yesterday and today has helped lift the US dollar to almost JPY135.00, a five-day high   It has met the (50%) retracement target of the downtrend since the multiyear peak in mid-July near JPY139.40.  The next target is the high from earlier this month around JPY135.60.  and then JPY136.00.  Initial support now is seen near JPY134.40.  After recovering a bit in the North American session yesterday, the Australian dollar has come under renewed selling pressure and is trading at five-day lows below the 20-day moving average (~$0.6990).  It has broken support in the $0.6970-80 area to test the trendline off the mid-July low found near $0.6965.  A break could signal a move toward $0.6900-10.  The gap created by yesterday's high US dollar opening against the Chinese yuan was closed today as yuan recovered for the first day in three sessions.  Monday's high was CNY6.775 and yesterday's low was CNY6.7825.  Today's low is about CNY6.7690.  For the second consecutive session, the PBOC set the dollar's reference rate a little lower than the market (median in Bloomberg's survey) expected (CNY6.7863 vs. CNY6.7877).  The dollar has risen to almost CNH6.82 in the past two sessions and still trading a little above CNH6.80 today but was sold to nearly CNH6.7755 where is has found new bids.      Europe   The UK's headline CPI accelerated to 10.1% last month from 9.4% in June    It was above market expectations and the Bank of England's forecast for a 9.9% increase.  Although the rise in food prices (2.3% on the month and 12.7% year-over-year) lifted the headline, the core rate, which excludes food, energy, alcohol, and tobacco rose to 6.2% from 5.8% and was also above expectations (median forecast in Bloomberg's survey was for 5.9%).  Producer input prices slowed, posting a 0.1% gain last month for a 22.6% year-over-year pace (24.1% in June).  However, output prices jumped 1.6% after a 1.4% gain in June.  This puts the year-over-year pace at 17.1%, up from 16.4% previously.  The bottom line is that although the UK economy contracted in Q2 and the BOE sees a sustained contraction beginning soon, the market recognize that the monetary policy will continue to tighten.  The market swaps market is fully pricing in a 50 bp hike at the mid-September meeting and is toying with the idea of a larger move (53 bp of tightening is discounted).    What a year of reversals for Germany    After years of pressure from the United States and some allies in Europe, Germany finally nixed the Nord Stream 2 pipeline with Russia.  Putin also got Germany to do something that several American presidents failed to achieve and that is boost is defense sending in line with NATO commitments. The energy crunch manufactured by Russia is forcing Germany to abandon is previous strategy of reducing coal and closing down its nuclear plants.  Ironically, the Greens ae in the coalition government and recognize little choice.  A formal decision on three nuclear plants that were to be shuttered before the end of the year has yet to be made, but reports confirm it is being discussed at the highest levels.     Germany's one-year forward electricity rose by 11% to 530.50 euros a megawatt-hour in the futures market years, a gain of more than 500%     France, whose nuclear plants are key to the regional power grid, is set to be the lowest in decades, according to reports.  France has become a net importer of electricity, while the extreme weather has cut hydropower output and wind generation is below seasonal norms.  The low level of the Rhine also disrupts this important conduit for barges of coal and oil. Starting in October, German households will have a new gas tax (2.4-euro cents per kilowatt hour for natural gas) until 1 April 2024. Economic Minister Habeck estimated that for the average single household the gas tax could be almost 100 euros a month, while a couple would pay around 195 euros.  Also, starting in October, utilities will be able to through to consumers the higher costs associated with the reduction of gas supply from Russia.  This poses upside risk to German inflation.     The euro held technical support near $1.0110 yesterday and is trading quietly today in a narrow (~$1.0150-$1.0185) range today    Yesterday was the first session since July 15 that the euro did not trade above $1.02.  The decline since peaking last week a little shy of $1.0370 has seen the five- and 20-day moving averages converge and could cross today or tomorrow for the first time since late July. We note that the US 2-year premium over German is testing the 2.60% area.  It has not closed below there since July 22.  Sterling held key support at $1.20 yesterday and traded to almost $1.2145 today, which met the (50%) retracement objective of the fall from last week's $1.2275 high.  The next retracement (61.8%) is closer to $1.2175.  The UK reported employment yesterday, CPI today, and retail sales ahead of the weekend.  Retail sales, excluding gasoline have fallen consistently since last July with the exception of October 2021 and June 2022.  Retail sales are expected to have slipped by around 0.3% last month.     America   The Empire State manufacturing August survey on Monday and yesterday's July housing starts pick up a thread first picked up in the July composite PMI, which fell from 52.3 to 47.7 of some abrupt slowing of economic activity  The Empire State survey imploded from 11.1 to -31.3.  Housing starts fell 9.6%, more than four-times the pace expected (median Bloomberg survey -2.1%).  It was small comfort that the June series was revised up 2.4% from initially a 2.0% decline.  The 1.45 mln unit pace is the weakest since February 2021 and is about 9% lower than July 2021.  However, offsetting this has been the strong July jobs report and yesterday' industrial production figures.  The 0.6% was twice the median forecast (Bloomberg's survey) and the June decline (-0.2%) was revised away. The auto sector continues to recover from supply chain disruptions, and this may be distorting typically seasonal patterns.  Sales are rose in June and July, the first back-to-back gain in over a year. To some extent, supply is limiting sales, which would seem to encourage production.  Outside of autos, output slowed (year-over-year) for the third consecutive month in July.     Today's highlights include July retail sales and the FOMC minutes     Retail sales are reported in nominal terms, which means that the 13% drop in the average retail price of gasoline will weigh on the broadest of measures.  However, excluding auto, gasoline, building materials, and food services, the core retail sales will likely rise by around 0.6% after a 0.8% gain in June.  The most important thing than many want to know from the FOMC minutes is where the is bar to another 75 bp rate hike.  The Fed funds futures market has it nearly 50/50.     Canada's July CPI was spot on forecasts for a 0.1% month-over-month increase and a 7.6% year-over-year pace (down from 8.1%)     However, the core rates were firm than average increased.  The market quickly concluded that this increases the likelihood that the central bank that surprised the market with a 100 bp hike last month will lift the target rate by another 75 bp when it meets on September 7.  In fact, the swaps market sees it as a an almost 65% probability, the most since July 20.  Canada reports June retail sales at the end of the week.  The median forecast in Bloomberg's survey is for a 0.4% gain, but even if it is weaker, it is unlikely to offset the firm core inflation readings.     The dollar-bloc currencies are under pressure today, but the Canadian dollar is faring best, off about 0.25% in late morning trading in Europe     The Aussie is off closer to 0.75% and the Kiwi is down around 0.5%.  US equities are softer. The greenback found support near CAD1.2830 and is near CAD1.2880.  Monday and Tuesday's highs were in the CAD1.2930-5 area and a break above there would target CAD1.2985-CAD1.3000.  However, the intraday momentum indicators are overextended, and initial support is seen in the CAD1.2840-60 area. The greenback has forged a shelf near MXN19.81 in recent days.  It has been sold from the MXN20.83 area seen earlier this month.  It has not been above MXN20.05 for the past five sessions.  A move above there, initially targets around MXN20.20.  The JP Morgan Emerging Market Currency Index is off for the third consecutive session. If sustained, it would be the longest losing streak since July 20-22.     Disclaimer   Source: Markets Look for Direction
Saxo Bank Podcast: US Equities Continue To Trade Up, Natural Gas In Europe, Bank of Japan Meeting Ahead And More

Natural Gas Is More Valuable Than Crude Oil!? Carbon Emission Is Almost The Highest In History!!!

Kim Cramer Larsson Kim Cramer Larsson 17.08.2022 16:02
Dutch TTF Gas is resuming uptrend taking out July peak testing the 0.618 Fibonacci retracement at around €242.75.RSI has broken its falling trend and is likely to trade out/cancel the divergence since mid-July. If Dutch gas closes above the 0.618 retracement the 0.764 retracement at around 281.82 is next level likely to be reached. The upper rising trend line is likely to be reached and possibly broken in a gas price that seems to accelerate.To reverse the uptrend a close below 187.50 is needed.However, a correction over the next couple of days is not unlikely given the Spinning Top Candle formed yesterday. IT is often a top and reversal indicator but needs to be confirmed by a bearish candle the following day. IF Dutch Gas closes above its peak the potential top and reversal is demolished. Source: Saxo Group Henry Hub Gas has taken out resistance at the 0.618 retracement at around $8.90 and now also 0.764 retracement indicating previous highs at $9.66-9.75 are likely to be tested. If Henry Hub Gas closes above previous highs new price targets Source: Saxo Group Brent Crude oil continue its downtrend closing in on support at around $90. RSI is testing previous lows. There is divergence indicating a weakening of the downtrend but if RSI makes a new low the $90 support could be broken. Next support would be at around the 0.764 retracement at 85.76To set the downtrend on pause a close above 100.38. That will most likely not reverse the trend but merely just put it on pause. Source: Saxo Group WTI Crude oil was rejected at the short-term falling trendline and is now back below the 0.618 retracement. Next support at 81.90. There is divergence on RSI indication the downtrend is weakening. However, if RSI closes below If WTI closes back above the 200 SMA i.e. above $95 thereby also breaking above the short-term falling trendline, a larger correction to around 105-110 is likely. Source: Saxo Group Carbon Emissions broke its falling trendline last week and has now also broken above resistance at 92.75 closing in on its all-time high just below €100. RSI is entering over-bought territory but there is no divergence indicating higher levels (above 100) is likely. However, do expect a correction from just below previous highs.            Source: Saxo Group   Source: Technical Update - Natural Gas powers higher. Oil downtrend weakening, close to and end? Carbon Emission close to all-time highs
Nuclear Power Emerges as Top Theme for 2023, Bubble Stocks Under Pressure

We Need To Build Our Green Energy Future. Here Is Why

Peter Garnry Peter Garnry 17.08.2022 16:26
Summary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future. The energy crisis keeps getting worse Electricity prices in Europe are nine times higher than the historical average since 2007 as lack of investments and cutting the ties to Russia’s energy supplies are severely constraining available energy in society. Since before the pandemic we have written many equity notes on the green transformation which involves building out renewable energy sources and electrifying everything in the economy to reduce the carbon emissions involved with our current living standard. Switching a large part of the transportation sector to electricity or green fuels, switching the heating source from natural gas to renewable energy through electrification (air-to-water heat pumps) etc. is very difficult as our rising wealth (measured by GDP) is finely mapped to carbon emissions over the past 300 years. We described this in our note The inconvenient truth on energy and GDP. Decoupling our wealth generating function from that of carbon emissions is probably the greatest task humans has ever set out to do. German baseload electricity 1 year forward | Source: Bloomberg There is not ‘one solution’ that fixes our energy crisis As BP’s 2022 Statistical Review of World Energy pictures primary energy demand in 2021 eclipsed 2019 suggesting the world’s demand for energy is now higher than before the pandemic and the usage of fossil fuels (82%) is only slightly down compared to five years ago (85%). We very much still live in a fossil fuel based economy. Things will change over time and the share of fossil fuels will likely decline, but the idea that the world can do the green transformation by electrifying everything based on renewable energy sources is naïve. Investors should also remember that the change in primary energy demand is mostly driven by the non-OECD countries. Renewable energy does not scale fast enough for a complete transition due to the speed on electrification and recently the CEOs of Orsted and Vestas complained about bureaucracy related to get new offshore wind power projects approved. The recent Climate & Tax Bill is acknowledging that we will need oil and gas for longer than expected just three years ago and thus our current energy crisis will allow both renewable energy and fossil fuel energy to be good investments in parallel. Renewable energy is the third best theme basket this year while the commodities basket (which includes oil & gas and mining companies) is the best performer. Our view of the future of energy is that there is no ‘one solution’ to our energy problem. We must move to a mindset of energy diversification. We will need many different sources of energy and never rely too much on one source. Germany’s reliance on natural gas for its economic model has proved fragile. Even France’s concentrated bet on nuclear power has proved to be fragile due to corrosion and now too hot rivers. The world must invest in all types of energy and thus our view is that investors mut get broad exposure to energy going forward. The non-renewable energy sector at a glance In this equity note we will focus on the non-renewable energy because this is the part of the energy sector which has changed the most relative to market pricing and expectations and where there is more room for valuations changing. Despite high oil and gas prices the energy sector is still relatively cheap as we described already back in May in our note Global energy stocks are the cheapest in 27 years where we measured valuation on the free cash flow yield. The high oil and gas prices have also led to record profits for refiners and recently the highest quarterly profit ever recorded in the global energy sector which we described in our note Earnings hit new all-time high as inflation lifts all boats. The global energy sector (defined by GICS and being the non-renewable energy sector) is still cheap relative to the global equity market with the 12-month EV/EBITDA being two standard deviations below the average valuation spread since 2005. In terms of total return the global energy sector has delivered a higher return than the global equity market since 1995 (see chart). It is also worth noting that measured on the 12-month forward EV/EBITDA the renewable energy sector has twice the valuation level compared to the non-renewable energy sector reflecting the different in expectations for the future priced in the market. As we described in our Q1 Outlook the current dividend yield and expected dividend growth suggest that the global energy sector has an expected long-term return of 10% annualised subject of course to a large degree of uncertainty related to equity valuation compression in the industry or lower dividend growth in the future than expected today. Global energy vs global equities | Source: Bloomberg The easiest way to invest in the energy sector is through ETFs tracking the sector and most investors should do that. A different approach is investing in specific parts of the non-renewable energy sector. The tables below show the top five company on market value in each of the GICS industries in the GICS energy sector. As the five-year total returns in USD column show, the industries related only to drilling and providing equipment for drilling activities have done the worst because the decline in capital expenditures since 2015 has dried up activity for this industry. The integrated oil and gas majors have done better due to refining and trading businesses. Over the past five years, the best performing industries in the energy sector have been refining and marketing due to the crack spreads (the difference between crude oil and refined products) have expanded during the pandemic. The global coal industry has also done very well which in terms of climate change and reducing carbon emissions is a sad observation but we should be aware of that the primary fuel source for power generation globally is still coal. GICS industries in the energy sector | Source: Bloomberg and Saxo Group Source: How to invest in energy and the unfolding energy crisis?
Liquidity at Stake: Exploring the Risks and Challenges for Non-Bank Financial Intermediaries

Sterling (GBP) And Dollar (USD) Are At The Top Of The World!!! What To Consider Next?

John Hardy John Hardy 17.08.2022 17:04
Summary:  The stronger US dollar is beginning to dominate across FX, and we haven’t even seen risk sentiment roll over badly yet, although this time it could be the US dollar itself that defines and drives financial conditions across markets. Elsewhere, we have seen an interesting fundamental test of sterling over the last couple of sessions, as sterling has begun rolling over today, even as a ripping increase in rate tightening bets in the wake of another hot CPI print out of the UK this morning. FX Trading focus: USD dominating again, GBP rate spike impact fading fast and indicating danger ahead for sterling. RBNZ hawkishness fails to impress the kiwi. The US dollar rally is broadening and intensifying, and US long yields are threatening back higher, which is finally pushing back against the recent melt-up in financial conditions/risk sentiment. The US July Retail Sales report looks solid, given the +0.7% advance in “ex Autos and Gas” sales after the June spike in average nationwide gasoline price to the unprecedented 5 dollar/gallon level. Yes, July gasoline prices were lower than June’s, but there wasn’t a huge delta on the average price for the month, and the impact of lower gas prices will likely be more in the August full month of vastly lower prices – presumably averaging closer to 4/gallon, together with the psychological relief that the spike seems in the rear view mirror, even if we can’t know whether a fresh spike awaits in the fall, after the draw on strategic reserves is halted. A strong US dollar, higher US yields and a fresh unease in risk sentiment are a potential triple whammy in which the US dollar itself is the lead character, as USDJPY has reversed back above 135.00 even before the US data, suggesting a threat back toward the cycle highs. AUDUSD has entirely reversed its upside sprint above 0.7000, refreshing its bearish trend after a squeeze nearly to the 200-day moving average there. Elsewhere, EURUSD and GBPUSD are a bit stuck in the mud, watching 1.0100 and 1.2000 respectively. The most important additional aggravator of this USD volatility in coming sessions would be a significant break higher in USDCNH if China decides it is tiring again of allowing the CNH to track USD direction at these levels. The pressure has to be building there after the PBOC’s rate cut at the start of the week. The UK July CPI release this morning raised eyebrows with another beat of expectations across the board, the day after strong earnings data. The 10.1% headline figure represents a new cycle and the month-on-month figure failed to moderate much, showing +0.6% vs. +0.4% expected. Core inflation also rose more than expected, posting a gain of 6.2% YoY and thus matching the cycle high from  April. The Retail Price Index rose 12.3% vs. 12.1% expected. The market reaction was easily the most interesting, as we have seek UK yields flying higher but failing to impress sterling much after a bit of a surge yesterday and into this morning. Now, sterling is rolling over despite a 40 basis point advance(!) in the 2-year swap rate from yesterday’ open, much of that unfolding in the wake of the CPI release today. Chart: GBPUSD Not that much drama at the moment in the GBPUSD chart, but that is remarkable in and of itself, as the soaring UK yields of yesterday and particularly today in the wake of a higher than expected CPI release are not doing much to support sterling. When rate moves don’t support a currency, it is starting to behave somewhat like an emerging market currency, a dangerous signal for the sterling, where we watch for a break of 1.2000 to usher in a test of the cycle lows below 1.1800, but possibly even the pandemic panic lows closer to 1.1500. The Bank of England hikes will only a accelerate the erosion of demand and slowdown in the UK economy that will lead to a harsh recession that the Bank of England itself knows is coming, but may have to prove slow to react to due to still elevated inflation levels, in part on a weak currency. Source: Saxo Group The RBNZ hiked fifty basis points as expected overnight and raised forward guidance for the Official Cash Rate path to indicate the expectation that the OCR will peak near 4%, a raising and bringing forward of the expected rate peak for the cycle. In the press conference, RBNZ Governor Orr spelled out the specific guidance that he would like to get the rate to 4% and take a significant pause to see if that is enough. “Our view is that sitting around that 4% official cash rate level buys the monetary policy committee right now significant comfort that we would have done enough to see inflation back to our remit.” NZ short rates were volatile, but hardly changed by the end of the day, meaning that NZD direction defaulted to risk sentiment, with a fresh dip in AUDNZD erased despite a weak AUD, and NZDUSD confirming a bearish reversal. Table: FX Board of G10 and CNH trend evolution and strength. Note the big shift in USD momentum, the most notable on the chart, although the absolute value of the SEK negative shift has been even larger over the last few days as EU woes and the growth outlook weigh even more heavily on SEK, which is often leveraged to the EU outlook, also as EURSEK has now failed to progress lower after a notable break below the 200-day moving average. Note the AUD negative shift as well, with sluggish wage growth data overnight for Q2 offering no helping hand. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. USDJPY looks to flip back to a positive trend on a higher close today or tomorrow, the recent flip negative in GBPUSD looks confirmed on a hold below 1.2000, and AUDUSD looks a matter of time before flipping negative as well, while USDCAD has beaten it to the punch – although a more forceful upside trend signal there would be a close above 1.3000 again. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Source: FX Update: GBP in danger as rate spike fails to support. USD dominating.
US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

Saxo Strategy Team Saxo Strategy Team 18.08.2022 10:50
Summary:  US equities traded a bit lower yesterday after the S&P 500 challenged the 200-day moving average from below the prior day for the first time since April in the steep comeback from the June lows. Sentiment was not buoyed by the FOMC minutes of the July meeting suggesting the Fed would like to slow the pace of tightening at some point. Crude oil rose from a six-month low on bullish news from the US and OPEC.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rolled over yesterday wiping out the gains from the two previous sessions and the index futures are continuing lower this morning trading around the 4,270 level. US retail sales for July were weak and added to worries of the economic slowdown in real terms in the US. The 10-year yield is slowing crawling back towards the 3% level sitting at 2.87% this morning. A move to 3% and potentially beyond would be negative for equities. The next levels to watch on the downside in S&P 500 futures are 4,249 and then 4,200 Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Shares in the Hong Kong and mainland China markets declined. China internet stocks were weak across the board with Tencent (00700:xhkg) +2.7% and Meituan (03690:xhkg) +1%, being the positive outliers. Tencent reported a revenue decline of 3% y/y in Q2, weak, but in line with market expectations. Non-GAAP operating profit was down 14% y/y to RMB 36.7bn, and EPS fell 17% y/y to RMB 2.90 but beating analyst estimates. Revenues from advertising at -18% y/y were better than expected. In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Beer makers outperformed China Resources Beer (00291:xhkg) +3.8%, Tsingtao Brewery (00168:xhkg) +1.7%. COSCO Shipping Energy Transportation (01138:xhkg) made a new high at the open on strong crude oil tanker freight rates before giving back some gains. USD pairs as the USD rally intensifies The US dollar rally broadened out yesterday, as USDJPY retook the 135.00 area, but needs to follow through above 135.50-136.00 to take the momentum back higher. Elsewhere, AUDUSD has broken down again on the move down through 0.7000 and USDCAD has posted a bullish reversal, needing 1.3000 for more upside confirmation. The GBPUSD pair looks heavy despite a massive reset higher in UK rates in the wake of recent UK inflation data, with a close below 1.2000 indicating a possible run on the sub-1.1800 lows, while EURUSD is rather stuck tactically, as price has remained bottled up above the 1.0100 range low. USDCNH, as discussed below, may be a key pair for whether the USD rally broadens out even more aggressively, and long US treasury yields and risk sentiment are other factors in the mix that could support the greenback, should the 10-year US treasury benchmark move higher toward 3.00% again or sentiment roll over for whatever reason. Certainly, tightening USD liquidity could prove a concern for sentiment as the Fed turns up the pace of quantitative tightening – something it seems behind schedule in doing if we look at the latest weekly Fed balance sheet data.  USDCNH The exchange rate edged higher again to above 6.80 overnight after a brief spike higher earlier this week as China’s PBOC moved to stimulate with a small 10-basis point rate cut of the key lending rate. There is no real drama in the exchange rate yet after the significant rally this spring from below 6.40 to 6.80+, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.83, as China’s exchange rate policy shifts can provoke significant volatility across markets. Crude oil Crude oil (CLU2 & LCOV2) bounced from a six-month low on Wednesday in response to a bullish US inventory report that saw big declines in gasoline and crude oil stocks as demand from US motorist climbed to the highest this year while crude exports reached a record $5 million barrels per day. The prospect for an Iran nuclear deal continues to weigh while OPEC’s new Secretary-General said spare capacity was becoming scarce. US strategic reserves are now at the lowest level since 1985 and the government has by now sold around 90% of what was initially offered in order to bring down prices. While demand concerns remain a key driver for macroeconomic focused funds selling crude oil as a hedge we notice a renewed surge in refinery margins, especially diesel, supported by increased demand from gas-to-fuel switching Gold and silver Gold has so far managed to find support at $1759, the 38.2% retracement of the July to August bounce, after trading weaker in response to a stronger dollar and rising yields. Silver (XAGUSD) meanwhile has almost retraced half of its recent strong gains with focus now on support at $19.50. The latest driver being the FOMC minutes which signaled ongoing interest-rate hikes and eventually at a slower pace than the current. The short-term direction has been driven by speculators reducing bullish bets following a two-week buying spree in the weeks to August 9 which lifted the net by 63k lots, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication investor, for now, trusts the FOMC’s ability to bring down inflation within a relatively short timeframe   What is going on? Financial conditions are tightening, if modestly. Recent days have brough a rise in short US treasury yields, but more importantly it looks as though some of the risk indicators like corporate credit spreads may have bottomed out here after a sharp retreat from early July highs – one Bloomberg high yield credit spreads to US treasuries peaked out above 5.75% and was as low as 4.08% earlier this week before rising to 4.19% yesterday, with high yield bond ETFs like HYG and JNK suffering a sharp mark-down yesterday of over a percent. Factors that could further aggravate financial conditions include a significant CNH weakening, higher US long treasury yields (10-year yield moving back toward 3.00%, for example) or further USD strength. Adyen sees margin squeeze. One of Europe’s largest payment companies reports first-half revenue of €609mn vs est. €615mn despite processed volume came significantly above estimates at €346bn suggesting the payments industry is experiencing pricing pressures. Cisco outlook surprises. The US manufacturer of networking equipment surprised to the upside on both revenue and earnings in its fiscal Q4 (ending 30 July), but more importantly, the company is guiding revenue growth in the current fiscal quarter of 2-4% vs est. -0.2% and revenue growth for the current fiscal year of 4-6% vs est. 3.3%. Cisco said that supply constraints are beginning to ease and that customer cancellations are running below pre-pandemic levels, and that the company’s growth will be a function of availability. Stale FOMC minutes hint at sustained restrictive policy, but caution on pace of tightening. Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag. July US retail sales were a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. The iron ore miners are resilient despite price pressures Despite China planning more fiscal stimulus to fund infrastructure investment, the iron ore (SCOA, SCOU2) price paired back 8% this week, retreating to its lowest equal level in five weeks at $101.65, a level the iron ore price was last at in December 2021. Since March, the iron ore price has retreated 37%, with the most recent pull back being fueled by concerns China’s Covid cases are surging again with cases at a three-month high, as the outbreak worsens in the tropical Hainan province. Despite iron ore pulling back, shares in iron ore majors like BHP, remain elevated, up off their lows, with BHP’s shares trading 14% up of its July low, and moving further above its 200-day moving average, on hopes of commodity demand picking up. What are we watching next? Norway’s central bank guidance on further tightening. The Norges Bank is expected to hike 50 basis points today to take the policy rate to 1.75% despite an indication from the bank in June that the bank would prefer to shift back to hiking rates by 25 basis points, as a tight labour market and soaring inflation weigh. The path of tightening for the central bank has been an odd one, as it was the first G10 bank to actually hike rates in 2021, but finds itself with a far lower policy rate than the US, for example, which started much later with a faster pace of hikes. But NOK may react more to the direction in risk sentiment rather than guidance from the Norges Bank from here, assuming no major surprises. The EURNOK downtrend has slowed of late – focusing on 10.00 if the price action continues to back up. Japan’s inflation will surge further. Japan’s nationwide CPI for July is due on Friday. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are grappling with high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while signs of any Bank of Japan pivot away from its low rates and yield-curve-control policy are lacking. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.   Earnings to watch In Europe this morning, the key earnings focus is Adyen which has already reported (see review above) and Estee Lauder which is deliver a significant slowdown in figures and increased margin pressure due to rising input costs. Today’s US earnings to watch are Applied Materials and NetEase, with the former potentially delivering an upside surprise like Cisco yesterday on improved supply chains. NetEase, one of China’s largest gaming companies, is expected to deliver Q2 revenue growth of 12% y/y as growth continues to slow down for companies in China. Today: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0800 – Norway Deposit Rates 0900 – Eurozone Final Jul. CPI 1100 – Turkey Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – Canada Jul. Teranet/National Bank Home Price Index 1230 – US Philadelphia Fed Survey 1400 – US Jul. Existing Home Sales 1430 – EIAs Weekly Natural Gas Storage Change 1720 – US Fed’s George (Voter) to speak 1745 – US Fed’s Kashkari (Non-voter) to speak 2301 – UK Aug. GfK Consumer Confidence 2330 – Japan Jul. National CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 18, 2022
China's Property Debt Crisis, Economic Momentum, and Upcoming Meetings: A Market Analysis

A Pick Up In Yields May Come, The Question Is Open As US Treasury Yields Remain Rangebound

Saxo Bank Saxo Bank 18.08.2022 11:38
Summary:  Today we note a further softening in sentiment, in part on a pick up in yields, but that story has yet to really trigger as long US treasury yields remain rangebound, if teasing important levels. We note important supports for the crude oil outlook, the crack spread picture in the energy complex, the still very low valuation of energy stocks relative to the broader market, stocks and earnings on our radar, FX developments as we keep the USDCNH chart front and center as a potential aggravator of weakening risk sentiment and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: As risk sentiment rolls over, is crude oil set to rally?
The US PCE Data Is Expected To Confirm Another Modest Slowdown

Fed Reptesentatives Are Committed To Holding Back Price Growing And Control The Inflation According To Expectations

Conotoxia Comments Conotoxia Comments 18.08.2022 13:17
Last night's publication of the minutes of the last Fed meeting, which took place at the end of July, may have affected the US dollar's trading. The policymakers touched on the regulation of the digital asset market for the first time at such a meeting. According to the published minutes, Fed officials remain very attentive to inflation risks and are committed to lowering price growth and keeping inflation expectations under control. A commitment to tightening monetary policy can take place, even if it comes at the expense of economic growth, the FOMC minutes show. The July discussion touched on the possible risks of too many and too large interest rate hikes. There was also talk that the Fed may be pursuing too much restrictive monetary policy than is necessary to restore price stability in the economy. The Fed, for the moment, seems unconcerned about GDP data and the risk of a sustained slowdown or official recession, as officials said the economy is stable for now, pointing to strong job growth, a low unemployment rate and elevated wage growth. Moreover, there was also discussion of the possibility of a later upward revision of earlier GDP readings, which are revised over time. There was also a statement regarding possible further action by the Federal Reserve. Policymakers discussed the possibility of slowing the pace of interest rate hikes at some point, but this will require data readings that can be considered satisfactory in terms of the impact of current hikes on slowing inflation. Meanwhile, for the moment, it may be crucial to maintain a restrictive stance to avoid a loosening of inflation expectations. Initially, after the release of the minutes, the EUR/USD exchange rate rose to 1.0200, before retreating to the region of 1.0150 this morning. The reaction thus appears to be mixed, without leading to a major impulse, and the exchange rate of the main currency pair has remained in consolidation since the morning of August 16. On Wall Street, on the other hand, indexes were down after the publication. The S&P500 fell 0.3 percent and the Nasdaq 100 fell 0.6 percent. The committee also turned its attention to the world of digital assets. Participants recognized the growing importance of digital assets and their increasing interconnectedness with other segments of the financial system, underscoring the need to establish a robust supervisory and regulatory framework for the sector to adequately mitigate potential systemic risks. Several participants mentioned the need to strengthen supervision and regulation of certain types of non-bank financial institutions, according to published minutes. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Highlights from the Fed minutes
The Commodities Feed: China's 2023 growth target underwhelms markets

Apple Concentrated On Vietnam Productions As China Having Problems With Energy Supply

Marc Chandler Marc Chandler 18.08.2022 14:03
Overview: The sell-off in European bonds continues today. The 10-year German Bund yield is around four basis points higher to bring three-day increase to about 22 bp. The Italian premium over Germany has risen by almost 18 bp over these three sessions. Its two-year premium is widening for the fifth consecutive session and is above 90 bp for the first time in almost three weeks. The 10-year US Treasury yield is a little softer near 2.88%. Most of the large Asia Pacific equity markets fell, with India a notable exception. Europe’s Stoxx 600 snapped a five-day rally yesterday with a 0.9% loss. It is slightly firmer today, while US futures are hovering around yesterday’s closing levels. The greenback is firm against most of the major currencies. The Australian and Canadian dollars  and Norwegian krone and sterling are the most resilient today. The Philippines, like Norway hiked 50 bp but unlike Norway, the currency has not been bought. Most emerging market currencies are softer today. Gold is trying to break a three-day slide after approaching $1760. It settled last week at $1802. October WTI found a base a little below $85.50 and is around $88.50 near midday in Europe. The week’s high was set Monday by $91.50. US natgas is up 1.1% to recoup yesterday’s loss in full. Europe’s benchmark is extended this week’s run. It finished last week near 205.85 and now is around 232.00, a 12.7% gain after 6% last week. Iron ore ended a four-day 8% slide. September copper is recovering from the early drop to near two-week lows ($354.20) and is now near 362.00. A move above yesterday’s high (~$365) would be constructive. The sell-ff in September wheat has accelerated. It is off for the fifth consecutive session and is at its lowest level since January. After falling around 3% in three days from last Friday, it is off more than 5% between yesterday and today. Asia Pacific For good reasons, Beijing and Washington suspect the other of trying to change that status quo over Taiwan  The visits by US legislators may be only the initial efforts by Congress to force a more aggressive US position. It could come to a head in the fall when a bill that wants to recognize Taiwan as a major non-NATO ally and to foster Taiwan's membership in international forums will draw more attention. Meanwhile, US-Taiwan trade talks will begin later this year that was first aired a couple of months ago. At the same time, the Biden administration has been considering lifting some of the tariffs levied by the previous administration, but China's militaristic response to the visits makes it more difficult. Biden wants to lift the tariffs not to reward Beijing but to ease the costs to Americans. The Consumer Technology Association, an industry group, estimated that the tariffs have boosted the bill for American consumer technology companies by around $32 bln. The tariffs are paid to the US government. It seems that in lieu of lifting the tariffs, a broad exclusion process is possible. Related but separately, the Nikkei Asia reported that Apple is in talks to produce its watches and computers in Vietnam for the first time  Two suppliers have been producing Apple Watches in northern Vietnam. A couple of months ago, reports indicated that Apple would more some production of its tablets to Vietnam. Apple's ecosystem is establishing a presence in Vietnam, with nearly two dozen suppliers have factories now, almost doubling since 2018. As a result of these forces and the movement of capacity outside of China, Vietnam's trade surplus with the US is exploding. The $33 bln surplus in 2016 ballooned to $91 bln last year and was nearly $58 bln in the first half. For the past five years, the dollar has traded in a roughly 2% band around VND23000. The greenback is near the upper end of the range. Australia's July jobs report was disappointing  It lost almost 87k full-time positions after gaining nearly 53k in June. Part-time positions increased (46k), leading to a 40.9k loss of overall jobs. The median forecast (Bloomberg survey) was for a gain of 25k jobs. The unemployment rate slipped to a new record low of 3.4% (from 3.5%) but this was due to a sharp drop in the participation rate (66.4% from 66.8%). Ostensibly, this could give the central bank space to be more flexible at its September 6 meeting. However, the futures market as taken it in stride that has left the odds of a 50 bp hike next month essentially unchanged around 57%. This is essentially where it was at the end of last week and the week before. Many are now familiar with China's rolling lockdowns to combat Covid and the implosion of property market, a key engine of growth and accumulation  A new threat has emerged. The extreme weather has seen water levels in Sichuan's hydropower reserves as much as 50% this month, according to report, prompting the shuttering of factories (hub for solar panels, cement, and urea). Dazhou, a city of nearly 3.5 mln people, imposed a 2 1/2-hour power cuts this week that were expanded to three hours yesterday. Office buildings in Chengdu, the provincial capital, were barred from using air conditioning. Many areas in central and northern China imposed emergency measures to ensure the availability of drinking water. The heat and drought threaten summer crops and risk greater food-driven inflation. At the same time, Shanxi, which provides about a quarter of China's coal is worried about floods, it has suspended the operation of more than 100 mines since June. The government-imposed measures to boost output and Shanxi coal output rose by around 16% in H1.  The dollar is confined to a narrow range, straddling the JPY135 area  It has held `below last week's high around JPY135.60 and above the JPY134.55, where options for $700 mln expire today. The Australian dollar has been sold aggressively this week. It began near $0.7115 and tested $0.6900 today, meeting the (50%) retracement objective of the rally from the mid-July low (~$0.6880). It was only able to make a marginal new low today, suggesting that the selling pressure has abated. The next retracement (61.8%) is closer to $0.6855. Initial resistance is seen around $0.6950. After slipping a little yesterday, the greenback returned to its recent highs against the Chinese yuan around CNY6.7960. This year's high was set in May near CNY6.8125. Between Covid lockdowns, the weather disruptions, and the continued unwinding of the property bubble, a weaker yuan may the path of least resistance. The PBOC set the dollar's reference rate at CNY6.7802 compared with expectations from Bloomberg's survey of CNY6.7806. The yuan is falling for the sixth consecutive month against the dollar. Europe The eurozone may not have completed its banking and monetary union, but the ECB said that it would harmonize how banks offer crypto assets and have sufficient capital and expertise  Crypto companies have negotiated with national authorities in several EMU member countries, but common EU licensing rules are unlikely any time soon. There is a patchwork of differing national rules, and in some countries, some types of crypto activity may require a banking license, for example. Norway's central bank hiked its deposit rate by 50 bp and indicated it would "most likely" lift rates again next month What makes today's move somewhat more aggressive that it may appear is that the hike took place at a meeting that did not include an economic update and projections for the future path of policy. Norges Bank acknowledged that the policy rate trajectory would be faster than projected in June and the inflation risks being higher for longer. The deposit rate now sits at 1.75%. Another 50 bp hike next month (September 22) seems likely followed by a 25 bp move in November, the last meeting of the year. The euro briefly popped a little above $1.02 on what was initially seen as dovish FOMC minutes in the North American afternoon yesterday  However, it returned to yesterday's lows low near $1.0145 before finding a bid. The week's low was set Tuesday slightly below $1.0125, which is ahead of the retracement objective we identified near $1.0110. The euro is consolidating as the US two-year premium over Germany falls to its lowest level in a nearly a month (2.54%), and almost 25 bp below the peak seen after the US jobs data on August 5. Labor disputes are crippling UK trains, buses, subways, and a key container port today. Sterling slipped to $1.1995, its lowest level since July 26. The nicking of the neckline of a possible double top was not a convincing violation and sterling has recovered to the $1.2060 area in the London morning. If this is not the peak in sterling, it seems close. Tomorrow, the UK is expected to report a decline in July retail sales, excluding gasoline. This measure of retail sales rose by 0.4% in June, the first increase since last October. The median forecast (Bloomberg survey) is for a 0.3% fall. The swaps market is pricing in a 50 bp hike at the mid-September BOE meeting and about a 1-in-5 chance of a 75 bp move. America US interest rates softened and dragged the dollar lower following the release of the FOMC minutes  The market seems to have focused on the concern of "many" members that it could over-tighten but there was no sign that this was going to prevent them for raising rates further. Indeed, it suggest that the risk of inflation expectations becoming embedded was greater. More hikes were appropriate, the minutes said, and a restrictive stance may be required for "some time". The minutes also played the recent pullback in commodity prices as an indicator of lower inflation, which it still says the evidence is lacking. When everything was said and done the September Fed funds futures were unchanged for the fourth consecutive session. Autos and gasoline held by retail sales in July, but excluding them, retail sales rose by 0.7%, matching the June increase  The core measure, which also excludes building materials and food services rose a solid 0.8%. Retail sales account for around 40% of personal consumption expenditures. The July PCE is due next week (August 26) and picks up service consumption too. The early call is for it to rise by 0.5%. However, it too is a nominal report, and in real terms, a 0.3%-0.4% gain would be a strong showing. The retail sales report lent credence to anecdotal stories about department stores discounting prices to move inventory. Amazon's Prime Day (July 12-13) was claimed to be the biggest so far. Online sales overall surged 2.7%. Today's data includes weekly jobless claims, the Philadelphia Fed survey, existing home sale, and the index of Leading Economic Indicators  Th four-week average of weekly jobless claims rose to 252k in the week ending August 5. Recall the four-week moving average, used to smooth out some of the noise bottomed in the week ending April 1 at 170.5k. They averaged around 238k in December 2019, which was the highest since the first half of January 2018. Continuing claims have edged higher in recent weeks, but at 1.428 mln, they are roughly 20% below the peak at the start of this year. The Philadelphia Fed survey is particularly interesting today because of the disastrous Empire State survey. The median forecast in Bloomberg's survey is for a -5 reading after -12.3 in July. Meanwhile, existing home sales have fallen for five months through June. In fact, new home sales have been fallen every quarter since the end of 2020, with the exception of Q3 21. They fell by an average of 1.7% in Q1 22 and 3.8% in Q2 22. The median forecast is for a nearly 5% decline in July. The market tends not to get excited about the leading economic index series. Economists expected the fifth consecutive decline. The only month it rose this year was February. The US dollar extended its recovery against the Canadian dollar to reach almost CAD1.2950, its highest level since August 8 today  It was pressed lower by new offers in the European morning that drove it back to almost CAD1.2900. The market may take its cues from the S&P 500 and the general risk appetites in the North American session. With the intraday momentum indicators stretched, yesterday's post-FOMC minutes low near CAD1.2880 may offer sufficient support. The greenback rose to a five-day high against the Mexican peso yesterday around MXN20.09. It is consolidating and straddling the MXN20.00 area. Our reading of the technical condition favors the dollar's upside, and the first important target is near MXN20.20. The US dollar gapped higher against the Brazilian real yesterday and approached the BRL5.22 area, where the 20-day and 200-day moving averages converge. The opening gap was closed late on the pullback spurred by the reading of FOMC minute headlines. The price action is similar to the peso, where the dollar has traded heavily since last month but appears to have found a bottom. A break above BRL5.22 would target the month's high near BRL5.3150.       Disclaimer   Source: Fed Minutes were Not as Dovish as Initially Read
West Texas Intermediate (WTI) Price Analysis: The Oil Price Has Corrected And Dropped

Crude Oil Price Probably Not Reach 100$(USD) Shortly

Swissquote Bank Swissquote Bank 18.08.2022 15:56
The equity rally in the US didn’t pick up momentum after the Federal Reserve (Fed) released its latest meeting minutes, which sounded more hawkish-than-expected, or more hawkish-than-what-was-needed-to-give-another-boost to the US stock markets. The biggest take was that the Fed will continue tightening its policy until it sees that inflation is ‘firmly on path back to 2%’. The S&P500 fell 0.72% as Nasdaq gave back 1.20%, although the jump in the US 2-year yield was relatively soft, and the Fed funds futures scaled back the expectation of a 75 bp hike in the next meeting. Crude price completed an ABCD pattern, and it is more likely than not we see the price rebound to the $100 level in the medium run. In China, Tencent announced its first ever revenue drop as government crackdown continued taking a toll on its sales, and the pound couldn’t gain even after the above 10% inflation data boosted the Bank of England (BoE) hawks and the call fall steeper rate hikes to tame inflation in the UK. Watch the full episode to find out more! 0:00 Intro 0:28 As expected, Fed minutes were more hawkish-than-expected 3:39 Crude oil has more chance to rebound than to fall 6:02 Tencent posts first-ever revenue drop 7:14 Apple extends gains, but technicals warn of correction 8:38 Pound unable to extend gains despite rising Fed hawks’ voices Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Fed #FOMC #minutes #USD #GBP #inflation #Tencent #Alibaba #earnings #crude #oil #natural #gas #coal #futures #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH
Oil Is An Indicator Of The Health Of The Global Economy

Crude Oil Has A Selling Weariness? Europe Prefers Oil Over Gas!?

Ole Hansen Ole Hansen 18.08.2022 16:14
Summary:  Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being an increased gas-to-fuel switching supporting the demand outlook for crude oil. Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driving by China’s troubled handling of Covid outbreaks, and its property sector problems as well as rapidly rising interest rates, were the main drivers behind the selling seen across commodities in recent months. Crude oil with its strong underlying fundamentals, with tight supply driven by Russia sanctions and OPEC struggling to lift production, was the last shoe to drop and since the mid-June peak, speculators and macroeconomic focused funds have been net sellers of both WTI and Brent crude oil futures. With most of these market participants using the front of the futures curve, the selling has seen the forward curve flatten, a development that is normally viewed as price negative as it signals reduced tightness in the market. However, for that to ring true we should see inventory levels of crude oil and fuel products rise while refinery margins should ease. None of these developments have occurred and it strengthens our belief that the weakness sign has more to do with position adjustments and short positions being implemented by traders focusing on macro instead of micro.  In the week to August 9, the combined net long in Brent and WTI slumped to 304k lots a level last seen in April 2020, and 209k lots below the mid-June peak.  While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being surging gas prices as utilities are forced to buy more gas to keep the turbines running. This week the cost of Dutch TTF benchmark gas reached $400 per barrel of crude oil equivalent. Such a wide gap between oil and gas has and will continue to attract increased demand for fuel-based product at the expense of gas and this switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, adding more upward pressure on refinery margins, so called crack spreads (EU diesel crack shown below as an example) As mentioned, the recent selling pressure together with a deteriorating macro-economic backdrop have been the main drivers behind crude oils near 40-dollar slump since mid-June. The WTI chart below points to support at $85.50, a level almost reached on Tuesday. The price action is currently confined within a declining wedge and a break to the upside could trigger a strong buying response. For that to happen the price first needs to go back above $92 and the 21-day simple moving average, currently at $92.85. Source: Saxo Bank   How to invest in energy and the unfolding energy crisis? By Peter Garnry, Head of Equity StrategySummary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future.   Source: Refinery margin jump lends fresh support to crude
Norges Bank Takes Bold Steps: Signals Strong Tightening to Strengthen Weaker Krone

Is Cashing Out Worth It? Should You Take Risk Or Not?

Saxo Bank Saxo Bank 19.08.2022 09:51
Summary:  The simplest way to reduce your market risk is by being less invested in the market. Going all out, this means that you sell all your holdings for cash. But there are important nuances that you need to be aware of if you consider 'going cash'. Exposure possibilities When you buy stocks, bonds or any other financial instrument, you have exposed yourself to market risk. You have probably done this with the goal of being rewarded for this exposure in the form of a return. Below you see a visual representation of different types of exposure you can have to the market. If you are fully invested (all your capital is on the table), you have created maximum exposure. High rewards are possible but there is also significant risk. In the middle of the graph you will see a blue mark, where your portfolio only consists of cash. Here you have no market risk but needless to say, you won’t have any chance to make money in the markets either. You can read more about the third position, short, here     Reasons to go cash Over time, markets tend to go up. But there might be times where you feel uncomfortable with how the markets are moving. You might for example feel that the valuations are too high given the economic outlook. This could be a reason to reduce your exposure by selling all or parts of your portfolio. Another reason to go cash is flexibility. Having cash at hand means that you can act on opportunities that arise along the way. Thirdly, a cash position will enable you to absorb rising margin requirements if you invest in more complex products such as options. Lastly, a decent cash position will increase your level of comfort and confidence generally speaking. Put another way: the stronger you believe markets will go up, the more you tend to be invested. Following that line of thinking you should decrease your exposure if your conviction declines.  How to go cash If you are at a point in time where you think going cash will be the right thing for you to do for a while, let’s look at how you actually do it. The easiest answer is that you can close all your positions, i.e., sell all your financial instruments. That is the most radical solution that would leave you with a cash only position. But there are other means to reach that result. One way to remove your market risk could be to use the account value shield protection mechanism. Using this you will close all your positions if the value of your account reaches a certain (lower) level. For instance, if you have a portfolio currently worth EUR 44.307 and you want the trigger to sell everything to be EUR 42.500. This means that if your portfolio falls to EUR 42.500 the system will automatically close out and sell your positions. If you have a lower threshold you want to protect your portfolio from falling, this leaves room for a further rise of the markets, which you wouldn’t get if you sold everything. See it as a kind of stop loss under your whole portfolio. Cut your position in half. This approach leans on the saying: “If you are not sure, halve your positions”. This results in a few things. Firstly, you reduced your exposure to 50%. So, if the markets go down, your loss will also be half. Secondly, if the market goes up, you can still generate a return. Whether you reduce your current positions with 50% or 90% (or 15%), totally depends on your conviction, or worries, about the current market. Apply tight (trailing) stops to your positions. This leaves the upside intact, but it will protect you from a sharp fall in the markets. A stop loss sell order will be triggered if a lower price level is reached. In case of a trailing stop, the stop level will increase if the market goes up. As you can see, there are several ways to reduce your market risk – going all cash isn’t the only opportunity. The method you choose depends entirely on your view of the markets. If you are completely convinced that everything will fall, you might opt to sell everything. But if you are not so sure that we are on the edge of very strong market decline, other approaches might suit you better. Cash in your account One way or the other, the amount of cash has increased on your account. And that leaves the question of what to do with it. Of course, you can just leave it there. Then you will have no market exposure and you can start investing again once you are convinced that 'the only way is up'. But be aware that inflation is eating away the purchasing power of your cash! Another possibility is to invest your cash in a money market fund that gives (some) return on your investment, although these can also face negative returns depending on the financial outlook and the currency it is denoted in. Wrap up Going cash is one of the easiest ways to reduce your market risk. And although that simple, this method of reducing market risk is often overlooked. There are several ways to reduce market risk which don’t necessarily involve going all cash. Still, the most radical solution is to sell everything now. But other options exist depending on your viewpoint of the current market environment. Once you have a (maybe even 100%) cash position, it is clever to weigh the possibilities that exist to put that cash position to work in the lowest risk environment possible via e.g., a money market fund.   Source: Cashing out - the ultimate risk-off move?
German Business Confidence Dips, ECB's Lagarde Hosts Central Banking Conference in Portugal, EUR/USD Drifts Higher

Fed's Plan Is To Push For More Rate Hikes To Boost Dollar (USD)!?

Saxo Strategy Team Saxo Strategy Team 19.08.2022 10:37
Summary:  Better than expected economic data continued to support sentiment in US in contrast to Europe, where ECB’s Schnabel's warning on the growth/inflation picture aggravated concerns. Fed speakers meanwhile continued to push for more rate hikes this year, aiding dollar strength despite lack of a clear direction in long end yields. EUR and GBP broke below key support levels, but oil prices climbed higher amid improving demand outlook but sustained supply issues. Focus now on Jackson Hole next week. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  In its second lightest volume session of the year, U.S. equities edged modestly higher, S&P 500 +0.23%, Nasdaq 100 +0.26%. As WTI crude climbed 2.7%, rebounding back above $90, the energy space was a top gainer aside from technology. Exxon Mobil (XOM:xnys) gained 2.4%.  Cisco (CSCO:xnas) surged 5.8% after reporting better-than-expected revenues. Nvidia (NVDA:xnas), +2.4% was another top contributor to the gain of the S&P 500 on Wednesday.  95% of S&P 500 companies have reported Q2 results, with about three-quarters of them managing to beat analyst estimates. On Friday there is a large number of options set to expire.  The U.S. treasury yield curve bull steepened on goldilocks hope The U.S. 2-10-year curve steepened 7bps to -32bps, driven by a 9bp decline in the 2-year yield.  In spite of hawkish Fed official comments and the August Philadelphia Fed Index bouncing back to positive territory, the market took note of the falls in the prices paid diffusion index and the prices received index from the survey and sent the short-end yields lower.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Both Hang Seng Index and CSI300 declined about 0.8%.  Tencent (00700:xhkg) rose 3.1% after reporting results that beat estimates as a result of better cost control and adverting revenues. Other China internet stocks traded lower, Bilibili (09626:xhkg) -4.2%, Baidu (09888:xhkg) -4.5%, Alibaba (09988:xhkg) -2.1%, JD.COM (09618:xhkg) -2.5%. The surge of Covid cases in China to a three-month high and the Hainan outbreak unabated after a 2-week lockdown, pressured consumer stocks.  Great Wall Motor (02333:xhkg) led the charge lower in autos, plunging near 6%.  Other automakers fell 2% to 4%.  Geely (00175:xhkg) fell 3.1% after reporting 1H earnings missing estimates.  A share Chinese liquor names declined, Kweichow Moutai (600519:xssc) -1.2%, Wuliangye Yibin (000858:xsec) -1.6%. Chinese brewers were outliner gainers in the consumer space, China Resources Beer (00291:xhkg) +4.8%, Tsingtao Brewery (00168:xhkg) +1.9%. Chinese property developers traded lower with Country Garden (02007:xhkg) losing the most, -5.2% , after warning that 1H earnings may have been down as much as 70%. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios at some financial institutions.  EURUSD and GBPUSD break through key support levels Dollar strength prevailed into the end of the week with upbeat US economic data and a continued hawkish Fedspeak which continued to suggest more Fed rate hikes remain in the pipeline compared to what the market is currently pricing in. EUR and GBP were the biggest loser, with both of them breaking below key support levels. EURUSD slid below 1.0100 handle while GBPUSD broke below 1.2000 despite a selling in EGBs and Gilts. USDJPY also broke above 136 in early Asian trading hours despite lack of a clear direction in US 10-year yields and a slide in 2-year yields. AUDUSD testing a break below 0.6900 as NZDUSD drops below 0.6240. Crude oil prices (CLU2 & LCOV2) Oil prices reversed their drop with WTI futures back above $90/barrel and Brent futures above $96. Upbeat US economic data has supported the demand side sentiment in recent days. Moreover, President Xi’s comment that China will continue to open up the domestic economy also aided the demand equation. Supply concerns, meanwhile, were aggravated by geopolitical tension around a potential incident at the Zaporizhzhia nuclear plant in Ukraine. Meanwhile, Shell hinted at reducing the capacity of Rhineland oil refinery due to the lower water level on the Rhine river and said the situation regarding supply is challenging but carefully managed. Gold (XAUUSD) still facing mixed signals The fate of gold has been turned lower again this week with the yellow metal facing decline of 2.5% so far in the week and breaking below the $1759 support, the 38.2% retracement of the July to August bounce. Stronger dollar, along with Fed’s continued hawkish rhetoric, weighed. Silver (XAGUSD) is also below the key support at $19.50, retracing half of its recent gains. The short-term direction has been driven by speculators reducing bullish bets, but with inflation remaining higher-for-longer, the precious metals can continue to see upside in the long run. What to consider? Existing home sales flags another red for the US housing market US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. US economic data continues to be upbeat The Philly Fed survey outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). new orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously. While this may be a good signal, survey data tends to be volatile and a long-term trend is key to make any reasonable conclusions. Jobless claims also slid to 250k still suggesting that the labor market remains tight. Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard flagged another 75 basis point rate hike at the September meeting and hinted at 3.75-4% Fed funds rate by the end of the year with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kahskari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 25. Japan’s inflation came in as-expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside. Cisco’s revenues came in flat, beating a previously feared decline Cisco Systems reports July 2022 quarter revenues of USD13.1 billion, down 0.2% YoY but better than the consensus of a 3% decline.  Net income came in at USD3.4 billion, -3.2% YoY but more than 1 percentage point above consensus.  The fall in product order was also smaller than feared.  The company guided the fiscal year 2023 revenue growth of +4% to +6%, ahead of the 3% expected and FY23 EPS of USD3.49 to USD3.56, in line with expectations as gross margin pressures are expected to offset the impact of higher sales.  NetEase’s Q2 results beat NetEase (09999:xhkg/NTES:xnas) reported above-consensus Q2 revenues, +13% YoY, and net profit from continuing operations, +28%.  PC online game revenues were above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version.  Mobile game segment performance was in line.  Geely Automobile 1H earnings missed estimates on higher costs Chinese automaker Geely reported higher-than-expected revenue growth of 29%YoY in 1H22 but a 35% YoY decline in net profit which was worse than analyst estimates.  The weakness in profit was mainly a result of a 2.6 percentage point compression of gross margin to 14.6% due to higher material costs and production disruption, higher research and development costs, and the initial ramping-up of production of the Zeekr model.  The company maintains its sales volume target of 1.65 million units, an growth of 24% YoY, for the full year of 2022.    For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 19, 2022
Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Saxo Strategy Team Saxo Strategy Team 19.08.2022 11:33
Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022
Tokyo Issues Warning as Yen Depreciates, USD/JPY in Positive Territory

Dollar (USD) Rules!!! Natural Gas Prices Collapse

Saxo Bank Saxo Bank 19.08.2022 13:00
Summary:  Today we note the strengthening headwinds against the melt-up in financial conditions as the US dollar continues to rise, having now broken higher against the Euro, sterling and yen, and as a new surge in US 10-year yields threatens. Elsewhere, US Natural Gas prices ease despite a weak storage build yesterday and wheat prices are retreating rapidly. In equities, focus on Applied Materials after their earning report, Canadian Solar and a look ahead at Deere. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: USD and treasury yields pushing back against the melt-up
USD/JPY Eyes Psychological Level of 150.00 Amidst BoJ's Monetary Policy and Fed's Rate Hike Expectations

The Bank Of England (BoE) Chasing The Inflation. Forex: GBPUSD, CNHJPY, EURUSD And Others

John Hardy John Hardy 19.08.2022 13:41
Summary:  The USD is breaking higher still, with important levels falling versus the Euro and yen yesterday. But the pain in sterling is most intense as presaged by the lack of a response to surging UK rates. Can the Bank of England do anything but continue to chase inflation from behind, caught between the Scylla of inflation and the Charybdis of a vicious recession? Also, USDCNH lurks at the top of the range ahead of another PBOC rate announcement on Monday. FX Trading focus: USD wrecking ball swinging again. UK faced with classic ugly choice between taking the pain via inflation or a severe recession The US dollar strength has picked up further after yesterday saw the breakdown in EURUSD below 1.0100 and a shot through 135.50 in USDJPY as longer US yields pushed to local highs. GBPUSD has been a bigger move on sterling weakness as discussed below.  A bit of resilient US data (especially the lower jobless claims than expected and a sharp revision lower of the prior week’s data taking the momentum out of the rising trend) has helped support the USD higher as longer US yields rose a bit further, taking the 10-year US treasury yield benchmark to new local highs, although we really need to see 3.00% achieved there after a few recent teases higher with no follow through higher. Looking forward to next week, the market will have to mull whether it has been too aggressive in pricing the Fed to pivot policy next year on disinflation and an easy-landing for the economy. The steady drumbeat of Fed pushback against the market’s complacency, together with a few of the recent data points (ISM Services, nonfarm payrolls, yesterday’s claims, etc.) has seen some of the conviction easing. But the key test will come next Friday, when Fed Chair Powell is set to speak on the same day we get the July PCE inflation data. Keep USDCNH on the radar through the end of today on the risk of an upside break above the range and Monday as the PBOC is set for a rate announcement (consensus expectations or another 10 bps of easing).   Chart: GBPUSD Lots at stake for sterling as discussed below, as it is a bit scary to see a currency weaken sharply despite a massive ratcheting higher in rate expectations from the central bank. The fall of 1.2000 has set in motion a focus on the 1.1760 cycle low, with an aggravated USD rise here and tightening of global financial conditions possibly quickly bringing the spike low toward 1.1500 from the early 2020 pandemic outbreak panic into focus. It is worth noting that the lowest monthly closing level for GBPUSD since the mid-1980’s is 1.2156. Without something dramatic to push back against USD strength next week from Jackson Hole, it is hard to see how this month may set the new low water mark for monthly closes. Source: Saxo Group GBPUSD slipped below 1.1900 this morning after breaking below the psychologically important 1.2000 level yesterday. As noted in the prior update, it’s remarkable to see the marked weakness in sterling despite the marking taking UK short rates sharply higher – with 2-year UK swaps over 100 basis points higher from the lows early this month. The Bank of England has expressed a determination to get ahead of the inflation spike and the market has priced in a bit more than a 50-basis-points-per-meeting pace for the three remaining BoE meetings of 2022. But is that sufficient given the UK’s structural short-comings and external deficits? Currency weakness risks adding further to spike in inflation this year. The BoE can take a couple of approaches in response: continue with the 50 bps hikes while bemoaning the backdrop and trotting out the expectation that eventually, economic weakness and easing commodity prices will feed through to drop inflation back into the range. Or, the BoE can actually get serious and super-size hikes even beyond the acceleration the market has priced, at the risk of bringing forward and increasing the severity of the coming recession. Until this week, the BoE’s anticipated tightening trajectory had prevented an aggravated weakness in sterling in broader terms, but the currency’s weakness despite a massive mark-up of BoE expectations has ratcheted the pressure on sterling and the BoE’s response to an entirely new level. Turkey shocked with a fresh rate cut yesterday of 100 basis points to take the policy rate to 13.00%. This with year-on-year inflation in Turkey at 79.6% and PPI at 144.6%, and housing measured at 160.6%. The move took USDTRY above 18.00, though it was a modest move relative to the size of the surprise. Turkish central bank chief Kavcioglu said that the bank would also look to “further strengthen macroprudential policy” by addressing the yawning difference between the policy rate and the rate commercial banks are charging for loans (more than double the official policy rate), as the push is to continue a credit-stimulated approach, inflation-be-darned.   Table: FX Board of G10 and CNH trend evolution and strength Note: a new color scheme for the FX Board! Besides changing the green for positive readings to a more pleasant blue, I have altered the settings such that trend readings don’t receive a more intense red or blue coloring until they have reached more significant levels – starting at an absolute value of 4 or higher. So far, most of the drama in sterling is the lack of a response to shifts in the UK yield curve, the broad negative momentum has only shifted a bit here, but watching for the risk of more. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs AUDNZD is crossing back higher, AUDCAD back lower, so NZDCAD….yep. Note the CNHJPY – if CNH is to make more waves, need to see more CNH weakness in an isolated sense, not just v. a strong USD. And speaking of a strong USD, the last holdouts in reversing, USDNOK and USDCHF, are on the cusp of a reversal. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak   Source: FX Update: USD surging again, GBP spinning into abyss
Latam FX Outlook 2023: Brazil's Local Currency Bonds Can Be Very Attractive

Mexican Gold - Peso Is Climbing High. Russia Is Building Nuclear Plant In Turkey!?

Marc Chandler Marc Chandler 19.08.2022 14:26
Overview:  The dollar is on fire. It is rising against all the major currencies and cutting through key technical levels like a hot knife in butter. The Canadian dollar is the strongest of the majors this week, which often outperforms on the crosses in a strong US dollar environment. It is off 1.5% this week. The New Zealand dollar, where the RBNZ hiked rates this week by 50 bp, is off the most with a 3.5% drop. Emerging market currencies are mostly lower on the day and week as well. The JP Morgan Emerging Market Currency Index is off for the fifth consecutive session, and ahead of the Latam open, it is off 2.1% this week. Asia Pacific equities were mostly lower, and Europe’s is off around 0.4%. It was flat for the week coming into today. US futures are lower, and the S&P and NASDAQ look poised to snap its four-week advance. Gold, which began the week near $1800 is testing support near $1750 now. Next support is seen around $1744.50. October WTI is consolidating in the upper end of yesterday’s range, which briefly poked above $91. Initial support is pegged near $88. US natgas is softer for the third successive session, but near $9.04 is up about 3.2% for the week. Europe’s benchmark is up 1.7% and brings this week’s gain to almost 20%. Demand concerns weigh on iron ore. It was off marginally today, its fifth loss in six sessions. It tumbled 8.8% this week after a 1.15% gain last week. Copper is up fractionally after rising 1.3% yesterday. September wheat is trying to stabilize. It fell more than 4% yesterday, its fifth loss in a row. It is off around 8.5% this week. Asia Pacific Japan's July CPI continued to rise  Th headline now stands at 2.6%, up from 2.4% in June, up from 0.8% at the start of the year and -0.3% a year ago. The core measure that excludes fresh food accelerated from 2.2% to 2.4%. It is the fourth consecutive month above the 2% target. Excluding both fresh food and energy, Japan's inflation is less than half the headline rate at 1.2%. It was at -0.7% at the end of last year and did not turn positive until April. The BOJ's next meeting is September 22, and despite the uptick in inflation, Governor Kuroda is unlikely to be impressed. Without wage growth, he argues, inflation will prove transitory. With global bond yields rising again, the 10-year, the market may be gearing up to re-challenge the BOJ's 0.25% cap. The yield is finishing the week near 0.20%, its highest since late July. Separately, we note that after divesting foreign bonds in recent months, Japanese investors have returned to the buy side. They have bought foreign bonds for the past four weeks, according to Ministry of Finance data. Last week's JPY1.15 trillion purchases (~$8.5 bln) were the most since last September.  China surprised the markets to begin the week with a 10 bp reduction in the benchmark 1-year medium-term lending facility rate  It now stands at 2.75%. It was the first cut since January, which itself was the first reduction since April 2020. Before markets open Monday, China is expected to announce a 10 bp decline in the 1- and 5-year loan prime rates. That would bring them to 3.60% and 4.35%, respectively. These rates are seen closer to market rates, but the large banks that contribute the quotes are state-owned. There is some speculation that a larger cut in the 5-year rate. The one-year rate was cut in January, but the 5-year rate was cut by 15 bp in May. The dollar is rising against the yen for the fourth consecutive session  It has now surpassed the JPY137.00 area that marks the (61.8%) retracement of the decline from the 24-year high set-in mid-July near JPY139.40. There may be some resistance in the JPY137.00-25 area, but a retest on the previous high looks likely in the period ahead. The Australian dollar is off for the fifth consecutive session and this week's loss of 3% offset last week's gain of as similar magnitude and, if sustained, would be the largest weekly decline since September 2020. The Aussie began the week near $0.7125 and recorded a low today slightly below $0.6890. The $0.6855-70 area is seen as the next that may offer technical support. The PBOC set the dollar's reference rate at CNY6.8065 (median in Bloomberg's survey was CNY6.9856). The fix was the lowest for the yuan (strongest for the dollar) since September 2020. Yesterday's high was almost CNY6.7960 and today's low was a little above CNY6.8030. To put the price action in perspective, note that the dollar is approaching the (61.8%) retracement of the yuan's rise from mid-2020 (~CNY7.1780) to this year's low set in March (~CNY6.3065). The retracement is found around CNY6.8250. Europe UK retail sales surprised to the upside but are offering sterling little support  Retail sales including gasoline rose by 0.3% in July. It is the second gain of the year and the most since last October. Excluding auto fuel, retail sales rose by 0.4%, following a 0.2% gain in June. It is the first back-to-back gain since March and April 2021. Sales online surged 4.8% as discounts and promotions drew demand, and internet retailers accounted for 26.3% of all retail sales. Separately, consumer confidence, measured by GfK, slipped lower (-44 from -41), a new record low. Sterling is lower for the third consecutive session and six of the past seven sessions. The swaps market continues to price in a 50 bp rate hike next month and about a 1-in-5 chance of a 75 bp move. Nearly every press report discussing next month's Italian elections cited the fascist roots of the Brothers of Italy, which looks likely to lead the next government  Meloni, who heads up the Brothers of Italy and has outmaneuvered many of her rivals, and may be Italy's next prime minister, plays the roots down. She compares the Brothers of Italy to the Tory Party in the UK, the Likud in Israel, and the Republican Party in the US. The party has evolved, and the center-right alliance she leads no longer wants to leave the EU, it is pro-NATO, and condemns Russia's invasion of Ukraine. The center-right alliance may come close to having a sufficient majority in both chambers to make possible constitutional reform. High on that agenda appears to transform the presidency into a directly elected office. The Italian presidency has limited power under the current configuration, but it has been an important stabilizing factor in crisis. Ironically, the president, picked by parliament, stepped in during the European debt crisis and gave Monti the opportunity to form a technocrat government after Berlusconi was forced to resign in 2011. Fast-forward a decade, a government led by the Conte and the Five Star Movement collapsed and a different Italian president gave Draghi a chance to put together a government. It almost last a year-and-half. Its collapse set the stage for next month's election. The center-left is in disarray and its inability to forge a broad coalition greases the path for Meloni and Co. Italy's 10-year premium over German is at 2.25%, a new high for the month. Last month, it peaked near 2.40%. The two-year premium is wider for the sixth consecutive session. It is near 0.93%, more than twice what it was before the Draghi government collapsed. Some critics argue against the social sciences being science because of the difficulty in conducting experiments  Still an experiment is unfolding front of us. What happens when a central bank completely loses its independence and follows dubious economic logic?  With inflation at more than two decades highs and the currency near record lows, Turkey's central bank surprised everyone by cutting its benchmark rate 100 bp to 13% yesterday. Governor Kavcioglu hinted this was a one-off as it was preempting a possible slowdown in manufacturing. Even though President Erdogan promised in June rates would fall, some observers link the rate cut to the increase in reserves (~$15 bln) recently from Russia, who is building a nuclear plant in Turkey. The decline in oil prices may also help ease pressure on Turkey's inflation and trade deficit. The lira fell to new record-lows against the dollar. The lira is off about 7.5% this quarter and about 26.4% year-to-date. Significant technical damage has been inflicted on the euro and sterling  The euro was sold through the (61.8%) retracement objective of the runup since the mid-July two-decade low near $0.9950. That retracement area (~$1.0110) now offers resistance, and the single currency has not been above $1.01 today. We had suspected the upside correction was over, but the pace of the euro's retreat surprises. There is little from a technical perspective preventing a test on the previous lows. Yesterday, sterling took out the neckline of a potential double top we have been monitoring at $1.20. It is being sold in the European morning and has clipped the $1.1870 area. The low set-in mid-July was near $1.1760, and this is the next obvious target and roughly corresponds to the measuring objective of the double top.  America With no dissents at the Fed to last month's 75 bp hike, one might be forgiven for thinking that there are no more doves  Yet, as we argued even before Minneapolis Fed President Kashkari, once regarded as a leading dove, admitted that his dot in June was the most aggressive at 3.90% for year-end, hawk and dove are more meaningful within a context. Kashkari may be more an activist that either a hawk or dove. Daly, the San Francisco Fed President does not vote this year, suggested that a Fed funds target "a little" over 3% this year would be appropriate. She said she favored a 50 bp or a 75 bp move. The current target range is 2.25%-2.50%. and the median dot in June saw a 3.25%-3.50% year-end target. St. Louis Fed President Bullard says he favors another 75 bp hike next month. No surprise there. George, the Kansas, Fed President, dissented against the 75 bp hike in June seemingly because of the messaging around it, but it's tough to call her vote for a 50 bp hike dovish. She voted for the 75 bp move in July. She recognizes the need for additional hikes, and the issue is about the pace. George did not rule out a 75 bp hike while cautioning that policy operates on a lag. Barkin, the Richmond Fed President, also does not vote this year. He is the only scheduled Fed speaker today.  The odds of a 75 bp in September is virtually unchanged from the end of last week around a 50/50 proposition.  The October Fed funds implies a 2.945% average effective Fed funds rate. The actual effective rate has been rocksteady this month at 2.33%. So, the October contract is pricing in 61 bp, which is the 50 bp (done deal) and 11 of the next 25 bp or 44% chance of a 75 hike instead of a half-point move. Next week's Jackson Hole conference will give Fed officials, and especially Chair Powell an opportunity to push back against the premature easing of financial conditions  The better-than-expected Philadelphia Fed survey helps neutralize the dismal Empire State manufacturing survey. The median from Bloomberg's survey looked for improvement to -5 from -12.3. Instead, it was reported at 6.2. Orders jumped almost 20 points to -5.1 and the improvement in delivery times points to the continued normalization of supply chains. Disappointingly, however, the measure of six-month expectations remained negative for the third consecutive month. Still, the plans for hiring and capex improved and the news on prices were encouraging. Prices paid fell to their lowest since the end of 2020 (energy?) and prices received were the lowest since February 2021. The Fed also asked about the CPI outlook. The median sees it at 6% next year down from 6.5% in May. The projected rate over the next 10-years slipped to 3%. Canada and Mexico report June retail sales today  Lift by rising prices, Canada's retail sales have posted an average monthly gain this year of 1.5%. However, after a dramatic 2.2% increase in May, Canadian retail sales are expected (median in Bloomberg' survey) to rise by a modest 0.4%. Excluding autos, retail sales may have held up better. Economists look for a 0.9% increase after a 1.9% rise in May. Through the first five months of the year, Mexico's retail sales have risen by a little more than 0.5% a month. They have risen by a 5.2% year-over-year. Economists expected retail sales to have slowed to a crawl in June and see the year-over-year pace easing to 5.0%. The greenback rose the CAD1.2935 area that had capped it in the first half of the week. It settled near CAD1.2950 yesterday and is pushing closer to CAD 1.2980 now. Above here, immediate potential extends toward CAD1.3035. The US dollar is gaining for the third consecutive session against the Canadian dollar, the longest advancing streak in a couple of months. Support is seen in the CAD1.2940-50 area. The Mexican peso is on its backfoot, and is falling for the fourth session, which ended a six-day rally. The dollar has met out first target near MXN20.20 and is approaching the 20-day moving average (~MXN20.2375). Above there, the next technical target is MXN20.32. The broader dollar gains suggest it may rise above the 200-day moving average against the Brazilian real (~BRL5.2040) and the (38.2%) of the slide since the late July high (~BRL5.5140) that is found near BRL5.2185.    Disclaimer   Source: The Dollar is on Fire
Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Ole Hansen Ole Hansen 19.08.2022 15:50
Summary:  Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. Overall, however, we do not alter our long-term views about commodities and their ability to move higher over time, with some of the main reasons being underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. The dollar found renewed strength and bond yields rose while the month-long bear-market bounce across US stocks showed signs of running out of steam.The trigger being comments from Federal Reserve officials reiterating their resolve to continue hiking rates until inflation eases back to their yet-to-be revised higher long-term target of around 2%. Those comments put to rest expectations that a string of recent weak economic data would encourage the Fed to reduce the projected pace of future rate hikes.The result of these developments being an elevated risk of a global economic slowdown gathering pace as the battle against inflation remains far from won, not least considering the risk of persistent high energy prices, from gasoline and diesel to coal and especially gas. A clear sign that the battle between macro and micro developments continues, the result of which is likely to be a prolonged period of uncertainty with regards to the short- and medium-term outlook.Overall, however, these developments do not alter our long-term views about commodities and their ability to move higher over time. In my quarterly webinar, held earlier this week, I highlighted some of the reasons why we see the so-called old economy, or tangible assets, performing well over the coming years, driven by underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Returning to this past week’s performance, we find the 2.3% drop in the Bloomberg Commodity Index, seen above, being in line with the rise in the dollar where gains were recorded against all the ten currencies, including the Chinese renminbi, represented in the index. It is worth noting that EU TTF gas and power prices, which jumped around 23% and 20% respectively, and Paris Milling wheat, which slumped, are not members of the mentioned commodity index.Overall gains in energy led by the refined products of diesel and US natural gas were more than offset by losses across the other sectors, most notably grains led by the slump in global wheat prices and precious metals which took a hit from the mentioned dollar and yield rise. Combating inflation and its impact on growth remains top of mind Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver for commodities recently has been the macro-economic outlook currently being dictated by the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing and the longer the process takes to succeed, the bigger the risk of an economic fallout. US inflation expectations in a year have already seen a dramatic slump but despite this the medium- and long-term expectations remain anchored around 3%, still well above the Fed’s 2% target.Even reaching the 3% level at this point looks challenging, not least considering elevated input costs from energy. Failure to achieve the target remains the biggest short-term risk to commodity prices with higher rates killing growth, while eroding risk appetite as stock markets resume their decline. These developments, however, remain one of the reasons why we find gold and eventually also silver attractive as hedges against a so-called policy mistake. Global wheat prices tumble The prospect for a record Russian crop and continued flows of Ukrainian grain together with the stronger dollar helped push prices lower in Paris and Chicago. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace, it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat futures contract touched a January low after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. With most of the uncertainties driving panic buying back in March now removed, calmer conditions should return with the biggest unknown still the war in Ukraine and with that the country’s ability to produce and export key food commodities from corn and wheat to sunflower oil. EU gas reaches $73/MMBtu or $415 per barrel of oil equivalent Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, while at the same time increasingly threatening to push economies across the region into recession. The recent jump on top of already elevated prices of gas and power, due to low supplies from Russia, has been driven by an August heatwave raising demand while lowering water levels on the river Rhine. This development has increasingly prevented the safe passage of barges transporting coal, diesel and other essentials, while refineries such as Shell’s Rhineland oil refinery in Germany have been forced to cut production. In addition, half of Europe’s zinc and aluminum smelting capacity has been shut, thereby adding support to these metals at a time the market is worried about the demand outlook.An abundance of rain and lower temperatures may in the short term remove some of the recent price strength but overall, the coming winter months remain a major worry from a supply perspective. Not least considering the risk of increased competition from Asia for LNG shipments. Refinery margin jump lends fresh support to crude oil Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driven by China’s troubled handling of Covid outbreaks and its property sector problems as well as rapidly rising interest rates were the main drivers behind the selling since March across other commodity sectors before eventually also catching up with crude oil around the middle of June. Since then, the price of Brent has gone through a $28 dollar top to bottom correction. While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive. This gas-to-fuel switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published, the incentive to switch has increased even more, adding more upward pressure on refinery margins. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. In addition, the previously mentioned increased demand for fuel-based products to replace expensive gas. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold and silver struggle amid rising dollar and yields Both metals, especially silver, were heading for a weekly loss after hawkish sounding comments from several FOMC members helped boost the dollar while sending US ten-year bond yields higher towards 3%. It was the lull in both that helped trigger the recovery in recent weeks, and with stock markets having rallied as well during the same time, the demand for gold has mostly been driven by momentum following speculators in the futures market. The turnaround this past week has, as a result of speculators' positioning, been driven by the need to reduce bullish bets following a two-week buying spree which lifted the net futures long by 63k lots or 6.3 million ounces, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication that investors, for now, trust the FOMC’s ability to bring down inflation within a relatively short timeframe. An investor having doubts about this should maintain a long position as a hedge against a policy mistake. Some investors may feel hard done by gold’s negative year-to-date performance in dollars, but taking into account it had to deal with the biggest jump in real yields since 2013 and a surging dollar, its performance, especially for non-dollar investors relative to the losses in bonds and stocks, remains acceptable. In other words, a hedge in gold against a policy mistake or other unforeseen geopolitical events has so far been almost cost free.   Source: WCU: Bearish macro, bullish micro regime persists
Bed Bath & Beyond (BBBY) Shares Gained +300% But Can Lose It All!

Bed Bath & Beyond (BBBY) Shares Gained +300% But Can Lose It All!

Conotoxia Comments Conotoxia Comments 19.08.2022 16:55
Bed Bath & Beyond (BBBY) shares have gained 300% since the beginning of August after many previously opened short positions were closed. According to Seeking Alpha data, the short interest on BBBY currently stands at a whopping 41.9% (nearly half of the shares available for trading are sold short). At its peak, BBBY shares reached a price of $30. Today, however, they appear to be down almost 45% ahead of the market opening at 14:00 GMT+3 - this could be the company's worst day since its IPO in 1992. BBBY shares were already down almost 20% yesterday, as investors began to realise potential gains. One of those investors is celebrity billionaire investor Ryan Cohen. He sold his shares, earning $68.1 million (56% on invested capital). According to a report filed with the SEC, Cohen's RC Ventures sold millions of shares on Tuesday and Wednesday in a price range of $18.68 to $29.21. Since then, according to Bloomberg data, the activist investor has asked the company to consider selling the business, reached an agreement to add three independent directors to the board and pushed for the departure of CEO Mark Tritton. Shares also peaked in March 2022, when Cohen first disclosed a 9.8% stake in the company. "The ailing retailer’s share price rise of late has defied logic," - said Danni Hewson, an analyst at AJ Bell. The company has hired the law firm, Kirkland & Ellis, to help it deal with its hard-to-manage debt, media reports said yesterday. Kirkland & Ellis is a well-known advisory firm that plans to help its client by raising new funds and refinancing debt. Other so-called 'meme stocks' also fell on Friday before the open. GameStop (GME) lost 6.5% and AMC Entertainment Holdings (AMC) 4.7% at 14:00 GMT+3. Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Bed Bath & Beyond loses more than 45% before the open - the end of the short squeeze?
Credit squeezing into central banks – what next?

Everyone Is Dissapointed In Euro (EUR). Japanese Officials Have To Face Discontests From Yields Rise

Marc Chandler Marc Chandler 21.08.2022 23:14
For many, this will be the last week of the summer. However, in an unusual twist of the calendar, the US August employment report will be released on September 2, the end of the following week, rather than after the US Labor Day holiday (September 5).   The main economic report of the week ahead will be the preliminary estimate of the August PMI  The policy implications are not as obvious as they may seem. For example, in July, the eurozone composite PMI slipped below the 50 boom/bust level for the first time since February 2021. It was the third consecutive decline. Bloomberg's monthly survey of economists picked up a cut in Q3 GDP forecasts to 0.1% from 0.2% and a contraction of 0.2% in Q4 (previously 0.2% growth). Over the past week, the swaps market has moved from around 80% sure of a 50 bp hike next month to a nearly 20% chance it will lift the deposit rate by 75 bp.  The UK's composite PMI fell in three of the four months through July  However, at 52.1, it remains above the boom/bust level, though it is the weakest since February 2021. The Bank of England's latest forecasts are more pessimistic than the market. It projects the economy will contract by 1.5% next year and another 0.3% in 2024. It has CPI peaking later this year at around 13% before falling to 5.5% in 2023 and 1.5% in 2024. Market expectations have turned more hawkish for the BOE too. A week ago, the swap market was pricing in a nearly 90% chance of another 50 bp hike. After the CPI jump reported in the middle of last week, the market fully priced in the 50 bp move and a nearly 30% chance of a 75 bp hike.   Japanese officials have successfully turned back market pressure that had driven the benchmark three-month implied volatility to 14% in mid-June, more than twice as high as it was at the start of the year  It slipped below 10% in recent days. The BOJ was forced to vigorously defend its 0.25% cap on the 10-year bond. It has spent the better part of the past three weeks below 0.20%. The BOJ has not had to spend a single yen on its defense since the end of June. However, with the jump in global yields (US 10-year yield rose 20 bp last week, the German Bund 33 bp, and the 10-year UK Gilt nearly 40 bp) and the weakness of the yen, the BOJ is likely to be challenged again.   The economy remains challenging  The composite PMI fell to 50.2 in July from 53.2 in June. It is the weakest reading since February. It has averaged 50.4 through July this year. The average for the first seven months last year was 49.0. The government is working on some support measures aimed at extending the efforts to cushion the blow of higher energy and food prices. Japan's Q2 GDP deflator was minus 0.4%, which was half of the median forecast in Bloomberg's survey, but it shows the tough bind of policy. Consider that the July CPI rose to 2.6%, and the core measure, which the BOJ targets, excludes fresh food, rose to 2.4% from 2.2%. The target is 2%, and it was the third month above it. Tokyo will report its August CPI figures at the end of the week.   Australia's flash PMI may be more influential as the futures market is nearly evenly split between a 25 bp hike and a 50 bp move at the September 6 central bank meeting  The minutes from the RBA's meeting earlier this month underscored its data dependency. However, this is about the pace of the move. The target rate is currently at 1.85%, and the futures market is near 3.15% for the end of the year, well beyond the 2.5% that the central bank sees as neutral. The weakness of China's economy may dent the positive terms-of-trade shock. The Melbourne Institute measure of consumer inflation expectations fell in August for the second month but at 5.9%, is still too high.  Through the statistical quirkiness of GDP-math, the US economy contracted in the first two quarters of the year  A larger trade deficit did not help, but the real problem was inventories. In fairness, more of the nominal growth resulted from higher prices than economists expected rather than underlying activity. Still, it does appear that the US economy is expanding this quarter, and the high-frequency data will help investors and economists assess the magnitude. While surveys are helpful, the upcoming real sector data include durable goods orders (and shipments, which feed into GDP models), July personal income and consumption figures, the July goods trade balance, and wholesale and retail inventories.   Consumption still drives more than 2/3 of the economy, and like retail sales, personal consumption expenditures are reported in nominal terms, which means that they are inflated by rising prices  However, the PCE deflator is expected to slow dramatically. After jumping 1% in June, the headline deflator is expected to increase by 0.1%. This will allow the year-over-year rate to slow slightly (~6.5% from 6.8%). The core deflator is forecast (median, Bloomberg's survey) to rise by 0.4%, which given the base effect, could see the smallest of declines in the year-over-year rate that stood at 4.8% in June. Given the Fed's revealed preferences when it cited the CPI rise in the decision in June to hike by 75 bp instead of 50 bp, the CPI has stolen the PCE deflator's thunder, even though the Fed targets the PCE deflator. Real consumption was flat in Q2, and Q3 is likely to have begun on firmer footing.   The softer than expected CPI, PPI, and import/export prices spurred the market into downgrading the chances of a 75 bp hike by the Fed next month  After the stronger than expected jobs growth, the Fed funds futures priced in a little better than a 75% chance of a 75 bp hike. It has been mostly hovering in the 40%-45% range most of last week but finished near 55%. It is becoming a habit for the market to read the Fed dovishly even though it is engaged in a more aggressive course than the markets anticipated. This market bias warns of the risk of a market reversal after Powell speaks on August 26.   At the end of last year, the Fed funds futures anticipated a target rate of about 0.80% at the end of this year. Now it says 3.50%. The pace of quantitative tightening is more than expected and will double starting next month. There is also the tightening provided by the dollar's appreciation. For example, at the end of 2021, the median forecast in Bloomberg's survey saw the euro finishing this year at $1.15. Now the median sees the euro at $1.04 at the end of December. And even this may prove too high.    The FOMC minutes from last month's meeting recognized two risks. The first was that the Fed would tighten too much. Monetary policy impacts with a lag, which also acknowledges that soft-landing is difficult to achieve. The market initially focused on this risk as is its wont. However, the Fed also recognized the risk of inflation becoming entrenched and characterized this risk as "significant." The Jackson Hole confab (August 25-27) will allow the Fed to help steer investors and businesses between Scylla and Charybdis.  Critics jumped all over Fed Chair Powell's claim that the Fed funds target is now in the area the officials regard as neutral. This was not a forecast by the Chair, but merely a description of the long-term target rate understood as neither stimulating nor restricting the economy. In June, all but three Fed officials saw the long-term rate between 2.25% and 2.50%. To put that in perspective, recall that in December 2019, the median view of the long-term target was 2.50%. Eleven of the 18 Fed officials put their "dot" between 2.25% and 2.50%. The FOMC minutes were clear that a restrictive stance is necessary, and the Fed clearly signaled additional rate hikes are required. The discussions at Jackson Hole may clarify what the neutral rate means.  Barring a significant downside surprise, we expect the Fed will deliver its third consecutive 75 bp increase next month. The strength and breadth of the jobs growth while price pressures remain too high and financial conditions have eased encourages the Fed to move as fast as the market allows. However, before it meets, several important high-frequency data points will be revealed, including a few employment measures, the August nonfarm payroll report, and CPI.   The market is also having second thoughts about a rate cut next year  At the end of July, the implied yield of the December 2023 Fed funds futures was 50 bp below the implied yield of the December 2022 contract. It settled last week at near an 8 bp discount. This reflects a growing belief that the Fed will hike rates in Q1 23. The March 2023 contract's implied yield has risen from less than five basis points more than the December 2022 contract to more than  20 bp above it at the end of last week.   Let's turn to the individual currency pairs, put last week's price action into the larger context, and assess the dollar's technical condition  We correctly anticipated the end of the dollar's pullback that began in mid-July, but the power for the bounce surprises. Key technical levels have been surpassed, warning that the greenback will likely retest the July highs.   Dollar Index: DXY surged by more than 2.3% last week, its biggest weekly advance since March 2020. The momentum indicators are constructive and not over-extended. However, it closed well above the upper Bollinger Band (two standard deviations above the 20-day moving average), found near 107.70. Little stands in the way of a test on the mid-July high set around 109.30. Above there, the 110-111.30 area beckons. While the 107.50 area may offer some support now, a stronger floor may be found closer to 107.00.   Euro:  The euro was turned back from the $1.0365-70 area on August 10-11 and put in a low near $1.0030 ahead of the weekend. The five-day moving average slipped below the 20-day moving average for the first time in around 3.5 weeks. The MACD is trending lower, while the Slow Stochastic did not confirm the recent high, leaving a bearish divergence in its wake. The only caution comes from the euro's push through the lower Bollinger Band (~$1.0070). Initially, parity may hold, but the risk is a retest on the mid-July $0.9950 low. A convincing break could target the $0.96-$0.97 area. As the euro has retreated, the US two-year premium over Germany has trended lower. It has fallen more than 30 bp since peaking on August 5. We find that the rate differential often peaks before the dollar.   Japanese Yen: The dollar will begin the new week with a four-day advance against the yen in tow. It has surpassed the (61.8%) retracement objective of the pullback since the mid-July high (~JPY139.40) found near JPY136.00. The momentum indicators are constructive, and the five-day moving average has crossed above the 20-day for the first time since late July. It tested the lower band of the next resistance bans seen in the JPY137.25-50 area at the end of last week. But it appears poised to re-challenge the highs. As volatility increases and yields rise, Japanese officials return to their first line of defense: verbal intervention.  British Pound: Sterling took out the neckline of a possible double top we have been monitoring that came in at $1.20. It projects toward the two-year lows set in mid-July near $1.1760, dipping below $1.18 ahead of the weekend. As one would expect, the momentum indicators are headed lower, and the five-day moving average has fallen below the 20-day moving average for the first time in four weeks. It has closed below its lower Bollinger Band (~$1.1910) in the last two sessions. A convincing break of the $1.1760 low clears the way to the March 2020 low, about 3.5-cents lower. Initial resistance is now seen around $1.1860 and, if paid, could signal scope for another 3/4 to a full-cent squeeze.  Canadian Dollar:  The Canadian dollar was no match for the greenback, which moved above CAD1.30 ahead of the weekend for the first time in a month. The momentum indicators suggest the US dollar has more scope to advance, and the next target is the CAD1.3035 area. Above there, the CAD1.3100-35 band is next. The high since November 2020 was recorded in the middle of July around CAD1.3225. After whipsawing in Q1, the five- and 20-day moving averages have caught the big moves. The shorter average crossed above the longer moving average last week for the first time since July 21. Initial support will likely be encountered near CAD1.2935.   Australian Dollar:  The Aussie was sold every day last week. It is the first time in a year, and its 3.4% drop is the largest since September 2020.   The rally from the mid-July low (~$0.6680) to the recent high (~$0.7135) looks corrective in nature. Before the weekend, it tested the rally's (61.8%) retracement objective. The momentum indicators are falling, and the Slow Stochastic did not confirm this month's high, creating a bearish divergence. A break of the $0.6850-60 area may signal follow-through selling into the $0.6790-$0.6800 band, but a retest on the July low is looking increasingly likely. Initial resistance is now seen near $0.6920.   Mexican Peso:  The peso's four-day slide ended a six-day run. The peso lost about 1.6% last week, slightly better than the 2.25% slide of the JP Morgan Emerging Market Currency Index. This month, the US dollar peaked around MXN20.8335 and proceeded to fall and forged a base near MXN19.81. It has met the (38.2%) retracement objective around MXN20.20 before the weekend. The next (50%) retracement is near MXN20.3230. The 200-day moving average is closer to MXN20.41. The dollar is probing the 20-day moving average seen a little below MXN20.24. The momentum indicators have only just turned up for the greenback. We suspect there may be potential to around MXN20.50 in the coming days.   Chinese Yuan:  The yuan was tagged with more than a 1% loss against the dollar last week, its biggest decline in three months. A combination of poor Chinese data, its small rate cut, and a resurgent US dollar spurred the exchange rate adjustment. At the end of July, China's 10-year yield was about 11 bp on top of the US. However, it switched to a discount after the US jobs data (August 5), and the discount grew every day last week, reaching 35 bp, the most since late June. After gapping higher before the weekend, the greenback reached nearly CNY6.8190, its highest level since September 2020. The next target is around CNY6.85, but given the divergence of policy, a move back toward CNY7.00, last seen in July 2020, maybe a reasonable medium-term target. The PBOC's dollar fix ahead of the weekend showed no protest of the weaker exchange rate.     Disclaimer   Source: Flash PMI, Jackson Hole, and the Price Action
Dollar (USD) Waits For The Jackson Hole Symposium Results. Nvidia With Good Earnings

Dollar (USD) Waits For The Jackson Hole Symposium Results. Nvidia With Good Earnings

Saxo Strategy Team Saxo Strategy Team 22.08.2022 11:41
Summary:  The dollar story will face a fresh test this week as the central bankers gather for the Jackson Hole symposium from August 25 to 27. We can expect some more push back on the 2023 easing expectations, and this could also mean some upside in US Treasury yields. July PCE due at the end of the week will likely be side-lined by the event, and any gasoline-driven easing should have little relevance. In Europe, the gas situation remains on watch and the July PMIs will likely spell more caution. China’s LPR cuts this morning have signalled a stronger support to the property markets, but the Covid situation and the power curbs continue to cloud the outlook. Earnings pipeline remains robust, key ones being Palo Alto, Nvidia and Intuit, followed by a few discount retailers like Dollar General and Dollar Tree in the U.S., and China Internet companies, JD.COM, and Meituan.   US dollar awaiting its next signals from the Jackson Hole There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. This will have further implications for the US dollar, which is threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. More price pressures to come to Asia Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised. We also get Japan's Tokyo CPI for August, which is likely to suggest further gains above the Bank of Japan's 2% target. Consensus expectations point toward another higher print of 2.7% y/y for the headline measure and 2.5% y/y on the core measure, signalling inflationary pressures will continue to question the Bank of Japan's resolve on the ultra-easy policy stance. Malaysia’s July inflation is also due at the end of the week, and likely to go above the 4%-mark from 3.4% previously. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. Housing markets, Covid-19 cases, and power curbs are key things to watch in China this week The data calendar is light in China this week with only July industrial profits data scheduled to release on Saturday.  This morning, China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%.  The larger reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set, may signal stronger support from the PBoC to the housing market.  Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  As daily locally transmitted new cases of Covid-19 in China persistently surged and stayed above 2,000 since August 12, 2022, the market will watch the development closely and how it will affect the economy.   In addition to the pandemic, power shortage in the Sichuan province and some other areas in China due to unusually high temperature (higher power consumption for air-conditioning) and drought (which affects hydropower output), investors are assessing the impact of the government-imposed power rationing for industrial users on production, in particular the auto industry and consumer electronics industry in the affected areas. Key earnings this week On Monday, investors will scrutinize the results from Palo Alto Networks (PANW:xnas) in the U.S. to gauge the latest business development in the security software industry, which has drawn much attention this year as cybersecurity has become a focus. Intuit (INTU:xnas) is scheduled to report on Tuesday and its results may provide information about the small and medium-sized businesses that the company focuses in it business.  After a disappointing preannouncement earlier in the month, the bar for Nvidia (NVDA:xnas)’s earnings release this Wednesday may be low.  In HK/China, the results from the Postal Savings Bank of China may provide the market with some insights into the state of the Chinese banking system, especially situations outside the top-tier cities. JD.COM (09618:xhkg/JD:xnas) on Tuesday and Meituan (03690:xhkg) on Friday will be the focus of investors monitoring the business trend of eCommerce and delivery platforms in China.  Key economic releases & central bank meetings this week Monday, Aug 22 South Korea: Exports (Aug, first 20 days)Hong Kong: CPI (Jul)   Tuesday, Aug 23 United States: S&P Global US Manufacturing PMI (Aug, preliminary)United States: S&P Global US Services PMI (Aug, preliminary)Eurozone: PMI Manufacturing (Aug)Eurozone: Consumer Confidence (Aug)United Kingdom: PMI Manufacturing (Aug), PMI Services (Aug)Japan: PMI Manufacturing (Aug)Singapore: CPI (Jul) Wednesday, Aug 24 United States: Durable Goods Orders (Jul, preliminary)United States: Pending Home Sales (Jul) Thursday, Aug 25 United States: GDP (Q2, second)United States: Initial Jobless Claims (Aug)United States: Kansas City Fed Manufacturing Activity (Aug)United States: Jackson Hole Symposium (Aug 25 to 27)Germany: IFO Survey (Aug)France: Business Confidence (Aug)South Korea: Bank of Korea Policy Meeting Friday, Aug 26 United States: Personal Income, Personal Spending, PCE Deflator & PCE Core Deflator (Jul)United States: U of Michigan Sentiment Survey (Aug, final)United States: Fed Chair Powell’s speech at the Jackson Hole SymposiumFrance: Consumer Confidence (Aug)Eurozone: M3 (Jul)Italy: Consumer Confidence (Aug)Italy: Economic Sentiment (Aug)Tokyo: Tokyo-area CPI (Aug)Singapore: Industrial Production (Jul) Saturday, Aug 27 China: Industrial Profits (Jul) Key earnings releases this week Monday: Postal Savings Bank of China (01658:xhkg), Palo Alto Networks (PANW:xnas) Tuesday: Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618:xhkg/JD:xnas), JD Logistics (02615:xhkg), Kingsoft (03888:xhkg), Kuaishou (01024:xhkg) Wednesday: PetroChina (00857:xhkg), Ping An Insurance (02318:xhkg), Nongfu Spring (09633:xhkg), LONGi Green Energy Technology (601012:xssc), Pinduooduo (PDD:xnas), Nvidia (NVDA:xnas), Salesforce (CRM:xnys), JD Health (06618:xhkg) Thursday: AIA (01299:hkgs), Wulinagye Yibin (000858:xsec), China Life Insurance (02628:xhkg), CNOOC (00883:xhkg), Dollar General (DG:xnys), NIO (09866:xhkg/NIO:xnas) Friday: Meituan (03690:xhkg), China Shenhua (01088:xhkg), Sinopec (00386:xhkg)    Source: Saxo Spotlight: What’s on investors and traders radars this week?
China Rolled Out A Special Loan Program! Fed's News

China Rolled Out A Special Loan Program! Fed's News

Saxo Strategy Team Saxo Strategy Team 22.08.2022 12:33
Summary:  Equities closed last week on the defensive as a rising US dollar and especially US treasuries weighed. The US 10-year yield is threatening the 3.00% level for the first time in a month ahead of the important US July PCE inflation data and Fed Chair Powell’s speech on Friday. How forcefully will Powell push back against the virtual melt-up in financial conditions after the market felt the Fed pivoted to less tightening at the July meeting?   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures are still rolling over as the US 10-year yield zoomed to 3% on Friday with the index futures trading just above the 4,200 level this morning. The next levels on the downside sit around the 4,100 to 4,170 range, but in the longer term the 4,000 level is the big level to watch. Energy markets are still sending inflationary signals which is key to watch for sentiment this week. In terms of earnings, Palo Alto Networks and Zoom Video will report earnings. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were moderately higher, +0.2% and +0.8% respectively. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and last Friday’s report that the PBoC, jointly with the Housing Ministry and the Ministry of Finance to roll out a program to make special loans through policy banks to support the delivery of stalled residential housing projects. Great Wall Motor (02333:xhkg) soared 11%. In A-shares, auto names were among stocks that outperformed. Xiaomi (01810:xhkg) dropped 3% after reporting Q2 revenues -20% YoY and net profit -67% YoY, largely in line with expectations.  US dollar dominates focus in forex this week The US dollar rally picked up speed last week, with key levels falling in a number of USD pairs last week that now serve as resistance, including 1.0100 in EURUSD and 1.2000 in GBPUSD, both of which now serve as resistance/USD support. A significant break of EURUSD parity will likely add further psychological impact, and more practically, an upside break in yields at the longer end of the US yield curve is playing a supportive roll, one that will intensify its driving roll if the benchmark 10-year US Treasury yield follows through higher above the 3.00% level it touched in trading overnight. A complete sweep of USD strength also threatens on any significant follow through higher in USDCNH as it threatens an upside break here (more below). The next key event risk for the US dollar arrives with this Friday’s Jackson Hole symposium speech from Fed Chair Powell (preview below). USDCNH Broad USD strength is helping to drive a move to new cycle highs above 6.84 as the week gets underway, but CNH is not weak in other pairings with G10 currencies, quite the contrary. Still, a move in this critical exchange rate will remain a focus, and the contrast between an easing PBOC (moving once again overnight) and tightening central banks nearly everywhere else is stark. The USDCNH moving higher will receive considerable additional focus if the 7.00 level. Crude oil prices (CLU2 & LCOV2) Crude oil turned lower in the Asian overnight after modest gains last week as the focus continues to alter between demand destruction fears and persistent supply shortages. Fears of an economic slowdown reducing demand remains invisible in the physical market but it has nevertheless seen crude oil give up all the post Russia invasion gains while speculators or hedge funds have cut bullish bets on WTI and Brent to the lowest since April 2020. WTI futures trades back below $90/barrel while Brent futures dipped below $96. Still, the gas-to-fuel switch led by record gas prices in Europe has seen refinery margins strengthen again lately and it now adds to the fundamental price-supportive factors. Focus may turn back to Iranian supply early in the week though, with reports that a deal is ‘imminent’. Cryptocurrencies The crypto market took a major hit on Friday with the total crypto market cap diving by more than 9 %, but prices have stabilized over the weekend. The total market cap is now close to the psychological $1 trillion level. US Treasuries (TLT, IEF) Rising US Treasury yields are pushing back against the strong improvement in financial conditions of recent weeks after the US 10-year Treasury yield benchmark jumped to new highs on Friday, well clear of the prior range after a few teases higher earlier in the week and bumping up against the psychologically key 3.00% level. Any follow through higher toward the 3.50% area highs of the cycle would likely add further pressure to financial conditions and risk sentiment more broadly. What is going on? German PPI shocks on the upside Germany’s July PPI smashed expectations to come in at 5.3% MoM, the biggest single gain since the Federal Republic started compiling its data in 1949 and above the consensus estimate of 0.7%. The data suggests potentially a lot more room on the upside to Eurozone inflation, and a lot more pain for German industries. European PMIs due this week will gather attention, as will Germany’s IFO numbers. Berkshire Hathaway wins approval to acquire Occidental Petroleum Warren Buffett’s industrial conglomerate that recently increased its stake in Occidental Petroleum to over 20% following the US Climate & Tax bill which adds more runway for oil and gas companies has now won regulatory approval for acquiring more than 50% the oil and gas company. This means that Berkshire Hathaway is warming up to its biggest acquisition since its Burlington acquisition. The power shortage in China China is currently being hit by a heatwave with a large part of the country experiencing -degree Celsius temperatures since the beginning of August. The surge in air conditioning caused electricity consumption to soar. To make things worse, drought has reduced hydropower output.  Some provinces and municipalities, especially Sichuan, are curbing electricity supply to industrial users in order to ensure electricity supply for residential use. This has caused disruptions to manufacturing production and added to the headwinds faced by the Chinese economy. China cut its 5-year loan prime rate loan prime more than expected China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%. The larger-than-expected reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set at a spread, may signal stronger support from the PBoC to the housing market.  The Chinese authorities are coming to the developers’ aid in delivering pre-sold homes Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  The resurgence of Covid cases in China Daily locally transmitted new cases of Covid-19 in China persistently stated above 2,000 since August 12, 2022, with Hainan, Tibet, and Xinjiang being the regions most impacted. The constituent companies of the Hang Seng Index will increase to 73 from 69 Hang Seng Indexes Company announced last Friday to add China Shenhua Energy (01088:xhkg), Chow Tai Fook Jewellery (01929:xhkg), Hansoh Pharmaceutical (03693:xhkg), and Baidu (09888:xhkg) to the Hang Seng Index, bringing the latter’s number of constituent companies to 73 from 69. The changes will take effect on September 5, 2022. In addition, SenseTime (00020:xhkg) will replace China Pacific Insurance (02601:xhkg) as a constituent company of the Hang Seng China Enterprises Index.  Australian share market at a pivotal point After rising for five straight weeks including last week's 1.2% lift, many market participants hold their breath this rally will continue. However, standing in the way are profit results from a quarter of the ASX200 companies to be released this week. For the final week of profit results, we hear from Qantas (Australia's largest airline), Whitehaven Coal (Australia's largest coal company), as well as other stocks that are typically held in Australian superannuation funds; including Coles, Woolworths, Wesfarmers, Endeavour. And lastly about 20 companies trade ex-dividend this week, however they are not expected to move the market's needle. Money managers increased their commodity exposure for a third week to August 16 The Commitment of Traders (COT) Report covering positions and changes made by money managers in commodities to the week ending August 16 showed a third week of net buying with funds adding 123k lots to 988k lots, a seven-week high. The buying was broad led by natural gas, sugar, cattle and grains with most of the selling concentrated in crude oil and gold. More in our weekly update out later. Prior to the latest recovery in price and positions hedge funds had been net sellers for months after holding 2.6 million lots at the start of the year. What are we watching next? USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar strengthened sharply, with EURUSD challenging near parity, USDCNH breaking higher today after another PBOC rate cut, and USDJPY not far from cycle highs. US Treasury yields have supported the move with the entire curve lifting over the last couple of weeks and longer yields pulling to new local highs last week. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. This week, the key test for markets is up on Friday as the US reports the Fed’s preferred measure of inflation, the July PCE inflation data, while Fed Chair Powell will also speak on Friday, offering the most important guidance on how the Fed feels about how it feels the market understands its intentions.   Earnings to watch Plenty of important earnings releases this week with the largest ones listed below. Today’s key focus is Palo Alto Networks, Zoom Video, and XPeng. Cyber security stocks have done reasonably well over the past year despite valuations coming down as demand is still red hot, Analysts expect Palo Alto Networks to report revenue growth of 27% y/y. Zoom Video, which was the pandemic superstar, is also reporting today with estimates looking for 9% revenue growth, down considerably from 54% y/y growth just a year ago. Monday: Palo Alto Networks, Zoom Video, XPeng Tuesday: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0800 – Switzerland SNB weekly sight deposits 1230 – US Jul. Chicago Fed National Activity Index 2300 – Australia Aug. Flash Manufacturing/Services PMI 0030 – Japan Aug. Flash Manufacturing/Services PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 22, 2022
Oil Price Surges Above $91 as Double Bottom Support Holds

All Eyes On Fed Chair Powell's Speech. Latest Natural Gas Developments

Saxo Bank Saxo Bank 22.08.2022 12:52
Summary:  The US dollar wrecking ball is in full swing, taking even USDCNH to new highs for the cycle after another rate cut in China overnight. Longer US treasury yields are also pressuring financial conditions and risk sentiment as the 10-year benchmark yield threatens 3.00% again. The chief event risk for the week will be the Jackson Hole, Wyoming speech from Fed Chair Powell. We also discuss the latest natural gas developments in Europe, speculative positioning in the commodities markets, the long term perspective for tangible vs. intangible stock returns over the last couple of decades, upcoming earnings, & more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: USD and US yields brewing up trouble ahead of Jackson Hole
Gold Has A Chance For Further Downside Movement - 30.12.2022

Gold Is At Risk Of Being Liquidated!? Ukraine Shipment Accelerates

Ole Hansen Ole Hansen 22.08.2022 13:47
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks and where the dollar and treasury yields both traded calmly before pushing higher. Commodities meanwhile continued their recent recovery with funds being net buyers of most contracts, the major exceptions being gold and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks with the S&P 500 reversing lower after reaching a four-month high, and where the dollar and treasury yields both traded calm before pushing higher. Commodities meanwhile continued their recent recovery with all sectors, except precious metals and grains recording gains. Commodities Hedge funds were net buyers for a third week with the total net long across the 24 major commodity futures tracked in this update rising by 14% to reach a seven week high at 988k lots. Some 56% below the recent peak reached in late February before Russia’s attack on Ukraine drove an across-the-board volatility spike which forced funds to reduce their exposure. Since then and up until early July, worries about a global economic slowdown, caused by a succession of rapid rate hikes in order to kill inflation, was one of the key reasons for the slump in speculative length.Returning to last week, the 123k lot increase was split equally between new longs being added and short positions being scaled back, and overall the net increase was broad led by natural gas, sugar, cattle and grains with most of the selling being concentrated in crude oil and gold. Energy: Weeks of crude oil selling continued with the combined net long in WTI and Brent falling by 26k lots to 278k lots, the lowest belief in rising prices since April 2020. Back then the market had only just began recovering the Covid related energy shock which briefly sent prices spiraling lower. While funds continued to sell crude oil in anticipation of an economic slowdown the refined product market was sending another signal with refinery margins on the rise again, partly due surging gas prices making refined alternatives, such as diesel, look cheap. As a result, the net long in ICE gas oil was lifted by 24% to 62k lots while RBOB gasoline and to a lesser extent ULSD also saw net buying. The net short in Henry Hub natural gas futures was cut by 55% as the price jumped by 19%. Metals: Renewed weakness across investment metals triggered a mixed response from traders with gold seeing a small reduction in recently established longs while continued short covering reduced bearish bets in silver, platinum and palladium. With gold resuming its down move after failing to find support above $1800, the metal has been left exposed to long liquidation from funds which in the previous two weeks had bought 63.3k lots. Copper’s small 1% gain on the week supported some additional short covering, but overall the net short has stayed relatively stable around 16k lots for the past six weeks. Agriculture: Speculators were net buyers of grains despite continued price weakness following the latest supply and demand report from the US Department of Agriculture on August 12, and after shipments of grains from Ukraine continued to pick up speed. From a near record high above 800k lots on April 19, the net long across six major crop futures went on to slump by 64% before buyers began dipping their toes back in to the market some three weeks ago. Buying was concentrated in bean oil and corn while the wheat sector remained challenged with the net long in Kansas wheat falling to a 2-year low. The four major softs contract saw strong buying led by sugar after funds flipped their position back to a 13.4k lots net long. The cocoa short was reduced by 10% while the coffee long received a 25% boost. Cotton’s 18% surge during the week helped lift the long by 35% to 44.7k lots.     Forex A mixed week in forex left the speculative dollar long close to unchanged against ten IMM futures and the DXY. Selling of euro saw the net short reach a fresh 2-1/2-year high at 42.8k lots or €5.3 billion equivalent while renewed selling of JPY, despite trading higher during the reporting week, made up most of the increase in dollar length. Against these we saw short covering reduce CHF, GBP and MXN short while CAD net long reached a 14-month high.    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Gold and oil left out as funds return to commodities
Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Marc Chandler Marc Chandler 22.08.2022 16:28
Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors. The European currencies have suffered the most, except the Norwegian krone. The dollar-bloc and yen are also slightly firmer. The week has begun off with a risk-off bias. Nearly all the large Asia Pacific equity markets were sold. Chinese indices were a notable exception following a cut in the loan prime rates. Europe’s Stoxx 600 is off by around 1.20%, the most in a month. US futures are more than 1% lower. The Asia Pacific yield rose partly in catch-up to the pre-weekend advance in US yields, while today, US and European benchmark 10-year yields are slightly lower. The UK Gilt stands out with a small gain. Gold is being sold for the sixth consecutive session and has approached the (61.8%) retracement of the rally from last month’s low (~$1680) that is found near $1730. October WTI is soft below $90, but still inside the previous session’s range. US natgas is up 2.4% to build on the 1.6% gain seen before the weekend. It could set a new closing high for the year. Gazprom’s announcement of another shutdown of its Nord Stream 1 for maintenance sent the European benchmark up over 15% today. It rose almost 20.3% last week. Iron ore rose for the first time in six sessions, while September copper is giving back most of the gains scored over the past two sessions. September wheat rallied almost 3% before the weekend and is off almost 1% now.  Asia Pacific Following the 10 bp reduction in benchmark one-year Medium-Term Lending Facility Rate at the start of last week, most observers expected Chinese banks to follow-up with a cut in the loan prime rates today  They delivered but in a way that was still surprising. The one-year loan prime rate was shaved by five basis points to 3.65%, not even matching the MLF reduction. On the other hand, the five-year loan prime rate was cut 15 bp to 4.30%. This seems to signal the emphasis on the property market, as mortgages are tied to the five-year rate, while short-term corporate loans are linked to the shorter tenor. The five-year rate was last cut in May and also by 15 bp. Still, these are small moves, and given continued pressures on the property sector, further action is likely, even if not immediately. In addition to the challenges from the property market and the ongoing zero-Covid policy, the extreme weather is a new headwind to the economy. The focus is on Sichuan, one of the most populous provinces and a key hub for manufacturing, especially EV batteries and solar panels. It appears that the aluminum smelters (one million tons of capacity) have been completed halted. The drought is exacerbating a local power shortage. Rainfall along the Yangtze River is nearly half of what is normally expected. Hydropower accounts for a little more than 80% of Sichuan power generation and the output has been halved. Officials have extended the power cuts that were to have ended on August 20 to August 25. Factories in Jiangsu and Chongqing are also facing outages. According to reports, Shanghai's Bund District turned off its light along the waterfront. Japan's Prime Minister Kishida tested positive for Covid over the weekend  He will stay in quarantine until the end of the month. In addition to his physical health, Kishida's political health may become an issue. Support for his government has plunged around 16 percentage points from a month ago to slightly more than 35% according to a Mainchi newspaper poll conducted over the weekend. The drag appears not to be coming from the economy but from the LDP's ties with the Unification Church. Meanwhile, Covid cases remain near record-highs in Japan, with almost 24.8k case found in Tokyo alone yesterday. Others are also wrestling with a surge in Covid cases. Hong Kong's infections reached a new five-month high, for example. The dollar reached nearly JPY137.45 in Tokyo before pulling back to JPY136.70 in early European turnover  It is the fifth session of higher highs and lows for the greenback. The upper Bollinger Band (two standard deviations above the 20-day moving average) is near JPY137.55 today. We suspect the dollar can re-challenge the session high in North America today. The Australian dollar is proving resilient today after plunging 3.45% last week. It is inside the pre-weekend range (~$0.6860-$0.6920). Still, we like it lower. Initial support is now seen around $0.6880, and a break could spur another test on the lows. That pre-weekend low coincides with the (61.8%) retracement of the rally from last month's low (~$0.6680) to the high on August 11 (~$0.7135). The Chinese yuan slumped to new lows for the year today. For the second consecutive session, the dollar gapped higher and pushed through CNY6.84. The PBOC set the dollar's reference rate at CNY6.8198. While this was lower than the CNY6.8213, it is not seen as much as a protest as an at attempt to keep the adjustment orderly. Europe Gazprom gave notice at the end of last week that gas shipments through the Nord Stream 1 pipeline would be stopped for three days (August 31-September 2) for maintenance  The European benchmark rose nearly 20.3% last week and 27% this month. It rose 35.2% last month and 65.5% in June. The year-to-date surge has been almost 380%. The energy shock seems sure to drive Europe into a recession. The flash August PMI out tomorrow is expected to see the composite falling further below the 50 boom/bust level. Bundesbank President Nagel, who will be attending the Jackson Hole symposium at the end of this week recognized the risk of recession but still argued for the ECB rate increases to anchor inflation expectations. The record from last month's ECB meeting will be published on Thursday. There are two keys here. First, is the color than can be gleaned from the threshold for using the new Transmission Protection Instrument. Second, the ECB lifted its forward guidance, which we argue is itself a type of forward guidance. Is there any insight into how it is leaning? The swaps market prices in another 50 bp hike, but a slight chance of a 75 bp move. The German 10-year breakeven (difference between the yield of the inflation linked bond and the conventional security) has been rising since last July and approached 2.50% last week  It has peaked in early May near 3% before dropping to almost 2% by the end of June. It is notable that Italy's 10-year breakeven, which has begun rising again since the third week of July, is almost 25 bp less than Germany. Several European countries, including Germany and Italy, have offered subsidies or VAT tax cut on gasoline that have offset some of the inflation pressures. Nagel, like Fed Chair Powell, BOE Governor Bailey, and BOJ Governor Kuroda place much emphasis on lowering wages to bring inflation down. Yet wages are rising less than inflation, and the cost-of-living squeeze is serious. They take for granted that business are simply passing on rising input costs, including labor costs, but if that were true, corporate earnings would not be rising, which they have. Costs are being passed through. Later this week, the UK regulator will announce the new gas cap for three months starting in October  Some reports warn of as much as an 80% increase. It is behind the Bank of England's warning that CPI could hit 13% then. The UK's wholesale benchmark has soared 47.5% this month after an 83.7% surge last month. Gas prices in the UK have nearly tripled this year. The UK's 10-year breakeven rose by 38 bp last week to 4.29%, a new three-month high. Although the UK economy shrank slightly in Q2 (0.1%), the BOE warned earlier this month that a five-quarter recession will likely begin in the fourth quarter. Unlike the eurozone, the UK's composite PMI has held above the 50 boom/bust level. Still, it is expected to have slowed for the fourth month in the past five when the August preliminary figures are presented tomorrow. The euro and sterling extended their pre-weekend declines  The euro slipped below parity to $0.9990. The multiyear low set last month was near $0.9950. The break of parity came in the early European turnover. Only a recovery of the $1.0050-60 area helps stabilizes the tone. Speculators in the futures market extended their next short euro position in the week through August 16 to a new two-year extreme and this was before the euro's breakdown in the second half of last week. The eurozone's preliminary August composite PMI due tomorrow is expected to show the contraction in output deepened while the market is expecting the Fed's Powell to reinforce a hawkish message on US rates. After falling to almost $1.1790 before the weekend, sterling made a marginal new low today, closer to $1.1780. The two-year low set last month was near $1.1760. The $1.1850-60 area offers an initial cap. Strike activity that hobbled the trains and underground spread to the UK's largest container port, Felixstowe, which handles about half of the country's containers. An eight-day strike began yesterday. Industrial activity is poised to spread, and this is prompting Truss and Sunak who are locked in a leadership challenge, to toughen their rhetoric against labor. America This is a busy week for the US  First, there is supply. Today features $96 bln in bills. Tomorrow sees a $60 bln three-week cash management bill and $44 bln 2-year notes. On Wednesday, the government sell another $22 bln of an existing two-year floating rate note, and $45 bln five-year note. Thursdays sale includes four- and eight-week bills and $37 bln seven-year notes. There are no long maturities being sold until mid-September. The economic data highlights include the preliminary PMI, where the estimate for services is forecast (median in Bloomberg's survey) to recover from the drop below the 50 boom/bust level. In the middle of the week, the preliminary estimate of July durable goods is expected. Shipments, which feed into GDP models is expected to rise by 0.3%. The revision of Q2 GDP the following day tends not to be a `big market movers. Friday is the big day. July merchandise trade and personal income and consumption measures are featured. Like we saw with the CPI, the headline PCE deflator is likely to ease while the core measure proves a bit stickier. Shortly after they are released, Powell addresses the Jackson Hole gathering.  Canada has a light economic diary this week, but Mexico's a bit busier  The highlight for Mexico will be the biweekly CPI on Wednesday. Price pressures are likely to have increased and this will encourage views that Banxico will likely hike by another 75 bp when it meets late next month (September 29). The July trade balance is due at the end of the week. It has been deteriorating sharply since February and likely continued.    The US dollar rose more than 1% against the Canadian dollar over the past three sessions. It edged a little higher today but stopped shy of the CAD1.3035 retracement objective. Initial support is seen near CAD1.2975-80. With sharp opening losses expected for US equities, it may discourage buying of the Canadian dollar in the early North American activity. The greenback is rising against the Mexican peso for the fifth consecutive session. However, it has not taken out the pre-weekend high near MXN20.2670. Still, the next important upside technical target is closer to MXN20.3230, which corresponds to the middle of this month's range. Support is now seen near MXN20.12.    Disclaimer   Source: No Relief for the Euro or Sterling
Soybean and Wheat Markets React to USDA's Latest Crop Projections

Crypto: Bitcoin (BTC) And Ethereum (ETH) Are Losing In Value!?

Conotoxia Comments Conotoxia Comments 22.08.2022 17:20
The average bitcoin payment fee recently fell below $1 for the first time in years. Transaction fees are needed to enable crypto intermediaries to operate, but they are hampering the adoption of payment solutions, affecting small payments in particular. Because the network is expensive to maintain due to its energy-intensive nature, commissions have been able to shoot up many times, for example, Ethereum commissions during the NFT hype. This is even more painful for transfers of small sums. This is why new technological solutions are so important. Here comes ethereum's Merge and payment solutions for bitcoin (Lightning Network and Taproot overlays), which are already revolutionising the world of crypto payments. They allow settlements to be faster, less energy-intensive and less expensive. The current average transaction fee for BTC payments has fallen below $0.825 - the lowest since 13 June 2020, ETH below $0.64, and is likely to be even cheaper. Their decline is not only a reason for the ever-improving technology, but also the recent crash of tokens, NFTs and an increase in the ease of mining in the long term. However, current energy and cryptocurrency prices may cause a short-term decline in mining activity. Many have already suspended operations or exited the crypto world. This can be seen in particular through the massive sale of mining rigs and used computer hardware (especially graphics cards). ETH, BTC and most tokens seemed to continue their declines. ETH and BTC prices are below the price channel and in the absence of a return above its bottom line, we can probably already speak of a short-term trend reversal. ETH has found its support on the 50-day moving average for now, while BTC has already crossed it. Moreover, the technical indicators (RSI, MACD and ADX) do not indicate a reversal of the short-term trend either. Declines in the major stock market indexes, hawkish announcements from the FED and further pessimistic data from the economy seem to be putting a lot of pressure on crypto. RafaÅ‚ Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: BTC and ETH payments getting cheaper. Will Cryptocurrencies experience further declines?
Crypto: Bitcoin (BTC) And Ethereum (ETH) Situation. Is It Just An Run-Up?

Crypto: Bitcoin (BTC) And Ethereum (ETH) Situation. Is It Just An Run-Up?

Saxo Bank Saxo Bank 22.08.2022 19:15
Summary:  On Friday, crypto long positions worth north of $500mn were liquidated, as fatigue spread in the crypto market. Not helping was speculation that exchanges may be forced to censor certain transactions on Ethereum in the future. Speaking of transactions, the demand for them on Bitcoin and Ethereum has decreased significantly, weakening the fundamentals of particularly Ethereum. Traders standing in line to be liquidated The crypto market, notably Ethereum, recovered partially in July and August until last week. From a low of 17,600 (BTCUSD) and 880 (ETHUSD) in June, Bitcoin and Ethereum surged to a local high of 25,200 and 2,030 on the 15th and 14th of August, respectively. Following new local highs, the market was seemingly becoming exhausted last week. Since then, Bitcoin has plunged by 15.6% to 21,270, whereas the Ethereum price has declined by 23.3% to 1,565. On mainly Friday, crypto derivative exchanges saw red. On this day, long positions were liquidated worth a combined $562mn in 24 hours. This is almost as much as the day in June, when Celsius halted withdrawals, even though the market movement to the downside was larger in June. This means that the crypto market has been extremely leveraged to ride the uptrend the past month and that party came to a halt on Friday. It seems that traders have particularly leveraged Ethereum trades going into the merge. Can exchanges censor certain Ethereum transactions? Two weeks ago, the US sanctioned the most used mixer on the Ethereum network called Tornado Cash. The latter has often been linked to money laundering; however, it was frequently used by private individuals to engage with the Ethereum network privately. The Tornado Cash protocol cannot by default be shut down, since it is a smart contract, so the sanctions involve that no US person or entity is allowed to engage with transactions originating from Tornado Cash. Afterward, speculation arose about what could possibly be next in line to be sanctioned. The ultimate sanction could be to censor certain Ethereum transactions, thus possibly shutting down the Tornado Cash protocol for good. At the moment, it would not be possible for governments to directly censor such transactions, however, it might be possible for them, as soon as Ethereum adopts proof-of-stake instead of a proof-of-work framework in the middle of September, known as the merge. This is because the majority of the Ether staked, hence Ether used to verify transactions, is done through exchanges or other intermediaries by clients handing over their Ether to these companies for them to verify transactions on Ethereum. For instance, Coinbase handles close to 15% of the total amount of Ether staked. Governments can technically make Coinbase adhere to such sanctions by ensuring it does not verify transactions related to Tornado Cash on a network level. Without going into too many details, in our opinion, it is very unlikely that this will occur, both from a societal and technical point of view. Yet, if it in reality occurs, then everything in the industry is at risk since the main selling proposition is full decentralization without intermediaries. In case certain transactions are ruled out from the network, we need to look ourselves in the mirror and ask if this industry has then anything to offer at all. The speculation in this matter did arguably contribute negatively to the price development of Ethereum in the last week. Brian Armstrong, Coinbase’s co-founder and CEO, commented on this on Twitter last week. Here, he said that Coinbase would possibly exit its staking operations if governments came to enforce the sanction of transactions on-chain, as Armstrong stated, “to focus on the bigger picture” by keeping Ethereum decentralized. If all staking providers do this, then it will presumably not be a problem, as the network will be kept online by solo stakers. When prices drop, fees follow suit For the majority of the year, the crypto prices have been on a downward trajectory. Transaction fees paid on particularly Bitcoin and Ethereum have followed suit. In November last year, Bitcoin generated around $500,000 - $1mn in fees daily, while Ethereum set at around $50mn - $80mn in transaction fees daily. Now, Bitcoin averages around $150,000 - $300,000 daily, while Ethereum sits at around $2mn - $3mn daily. This emphasizes that most activity on Bitcoin but primarily Ethereum is highly speculative and strictly linked to the prices of cryptocurrencies. Source: Token Terminal For Bitcoin, there are no direct consequences of lower total transaction fees in the near term. However, it might have consequences in the next decades, since the network might not be able to sufficiently compensate miners. For Ethereum, the lower transaction fees result in less Ether burned, effectively meaning less is removed from the supply. This makes the fundamentals of Ethereum weaker. For instance, Ethereum has for the past year burned 4.71 Ether per minute from transaction fees, whereas it has only managed to burn 0.89 Ether per minute in the past 30 days. Bitcoin/USD - Source: Saxo Group Ethereum/USD - Source: Saxo Group   Source: Crypto Weekly: Leverage is the language of crypto
Rising Tensions in Japan Amid Currency Market Concerns and BOJ Insights

What's On Asian Market? Find Out Now! Samsung, Hyundai, Covid And More...

InstaForex Analysis InstaForex Analysis 22.08.2022 20:07
Company does not offer investment advice and the analysis performed does not guarantee results. Asian stock markets were mixed on Monday. The Shanghai Composite and the Shenzhen Composite gained 0.57% and 0.64% respectively, while the Hang Seng Index went up by 0.12%. The Nikkei 225 decreased by 0.55%, the S&P/ASX 200 fell by 0.96%, and the KOSPI lost 1.15%. Investors are awaiting new information from Fed chairman Jerome Powell regarding the further monetary policy course of the US central bank. Powell is set to give a speech this week. Furthermore, market players took note of the Chinese central bank decreasing two of its key interest rates. The People's Bank of China cut its one-year loan prime rate to 3.65% from 3.7%. The five-year rate was cut to 4.3% from 4.45%. The move was not unexpected – earlier, the PBoC decreased its medium-term lending facility loan rate by 10 basis points to 2.75%. The Chinese central bank's rate cuts are aimed at boosting the country's economic growth, which has slowed down due to rising energy prices, weak property market, and COVID-19 lockdowns. On the Hang Seng Index, the biggest movers were Agile Group Holdings, Ltd. (+6%), CIFI Holdings (Group), Co. (+7%), Country Garden Holdings, Co., Ltd. (+3%), and China Resources Land, Ltd. (+2%) Shares of Sinopec Engineering (Group), Co. gained 4% after the company reported that its net profit increased by 0.6% in the first half of 2022. In Japan, the worst-performing stocks on the Nikkei 225 were Hino Motors, Ltd. (-3.5%), CyberAgent, Inc. (-3.1%), and Nippon Sheet Glass Co., Ltd. (-2,9%). The share price of Ai Holdings, Corp. advanced by 5%, thanks to the company's net profit jumping by 32% in the previous fiscal year. In South Korea, Samsung Electronics, Co. and Hyundai Motor, Co. lost 1.6% and 0.5% respectively. In Australia, BHP shed 0.2%, while Rio Tinto declined by 0.53%. Shares of NIB, Ltd. gained 6.6% thanks to the company's operating profit exceeding market expectations. Source: Forex Analysis & Reviews: Asian markets close mixed on Monday
iPhones Banned in Chinese Offices: Tech Tensions Escalate

China's Plan For Dying Property Markets. Nasdaq 100 And S&P 500

Saxo Strategy Team Saxo Strategy Team 23.08.2022 08:37
Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider?   German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Friday, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022
What Should We Expect Before Winter? Will Energy Crisis Come?

What Should We Expect Before Winter? Will Energy Crisis Come?

Peter Garnry Peter Garnry 22.08.2022 18:44
Summary:  Financial conditions loosening over the past six weeks were a natural evolution of the US economy improving in July, but the Fed is poised to hike potentially 75 basis points at the September meeting to tighten financial conditions even more as the nominal economy is still running too hot to get inflation meaningfully lower. The most likely scenario is weaker equities as winter approaching as the energy crisis will hurt. Financial conditions will soon begin tightening again S&P 500 futures are trading 3.4% lower from their high last week touching the 200-day moving average before rolling over again. Sentiment has shifted as the market is slowly pricing less rate cuts for next year with Fed Funds futures curve on Friday (the blue line) has shifted lower compared to a week ago (the purple line) as inflationary pressures are expected to ease as much as betted on by the market over the past month. Fed member Bullard recently said that he was leaning towards 75 basis points rate cut at the September FOMC meeting to cool the economy further. If the Fed goes with 75 basis points while the real economy is seeing lower activity it will mean that financial conditions will begin tightening more relative to the economic backdrop. Financial conditions have been loosening since June but expectation is that we will see another leg of tightening to levels eclipsing the prior high and with that US equities will likely roll over. S&P 500 futures are now well below the 4,200 level and currently in the congestion zone from before the last leg higher. The next gravitational point to the downside is the 4,100 and below that just above 4,000. December put options on the S&P 500 are currently bid around $208 which roughly a 5% premium for getting three-month downside protection at-the-money. S&P 500 futures | Source: Saxo Group   Fed Funds futures forward curve | Source: Bloomberg   US financial conditions | Source: Bloomberg The US is headed for a recession, but when? US financial conditions eased in July lifting equities and with good reasons we can see. The Chicago Fed National Activity Index (the broadest measure of economic activity) rose to 0.27 in July from -0.25 in June suggesting a significant rebound in economic activity. The rebound was broad-based across all the four major sub categories in the index with the production index rising the most. The three-month average is still -0.09 with -0.7 being the statistical threshold for when this indicator suggests that the US economy is in a recession. The probability is therefore still elevated for a recession but the slowdown in the US economy has eased which is positive factor for US equity markets. Predicting the economy is difficult but our thesis going into the winter months on the Northern hemisphere is that it is very difficult to avoid a recession, at least in real terms, when the economy is facing an energy crisis. The most likely scenario is that the US economy will slide into a nominal recession but continue at a fast clip in nominal terms.          China is facing a 2008-style rescue of its real estate sector We have written earlier this year about the downfall of Evergrande and the other Chinese real estate developers. The stress in China’s real estate sector was a big theme earlier this year but has since faded, but recently the Chinese central bank has eased rates and today the government is planning a $29bn rescue package of special loans for troubled developers. Tensions in Chinese real estate are weighing down on the economy through lower consumer confidence and investors are increasingly reducing exposure to China has we have highlighted in our daily podcast. The PBoC (central bank) is urging banks to maintain steady growth of lending, but with the market value of banks relative to assets having declined for many years the market is no longer viewing the credit extension as driven by sound credit analysis, but more as an extended policy tool of the government with unknown but likely less good credit quality.   Source: Equities are rolling over as conditions are set to tighten
Switch Splatoon 3 Broke All Previous Sales Records, The Closer To Winter The More Visible Crisis

Tech Stocks Market: Nvidia May Release Its Growth Rate. People Are Not Interested In Playing Games Anymore?

Peter Garnry Peter Garnry 23.08.2022 14:17
Summary:  Nvidia, Salesforce, and Snowflake report earnings tomorrow providing more clarity on technology spending and the outlook for the overall technology sector. Nvidia is expected to report a big drop in its growth rate due to weakening demand in gaming and more importantly crypto mining. Salesforce is expected to show solid growth and here investors will focus on the Slack integration and what it means for growth ahead. Snowflake's growth rate is coming down and thus investors will demand improvements in the operating income. Nvidia: turbulence to continue Earlier this month Nvidia cut its outlook, which we covered in an equity update, driving by excess inventory of GPUs leading to price pressures in GPUs. Lower demand for GPUs, which we believe is mainly driven by less favourable dynamics for crypto mining, is forcing Nvidia to lower its sales outlook, cutting prices, and writing down its existing inventory. Nvidia has gone to great length explaining off the weakness as due to a slowdown in gaming, but the companies in gaming are not showing the decline in demand consistent with the slowdown Nvidia is experiencing. Because Nvidia does not know very well the end-use cases of their GPUs it is difficult for them to segment revenue, but in our view the economics of crypto mining tied to the Bitcoin price is the best explanation for the historical variance in revenue. Nvidia’s slowdown is tied to cryptocurrencies and thus higher interest rates is not only a key risk to Nvidia’s equity valuation, but it is also a risk to their demand as higher interest rates could lower cryptocurrency prices substantially from current levels. Nvidia is expected on Wednesday to report only 3% y/y revenue growth in FY23 Q2 (ending 31 July) down from 46% y/y in FY23 Q1 (ending 1 May) which is an abrupt slowdown in growth. It also highlights Nvidia’s biggest business risk. The chipmaker does not fully understand its demand function which can lead to a mismatch in supply and demand. The key question for investors is to what extent Nvidia expects growth to come back but more importantly whether they will change their outlook for operating margins. Nvidia financials | Source: Bloomberg Salesforce: can Slack sustain the growth? Salesforce is reporting FY23 Q2 (ending 31 July) results on Wednesday with analysts estimating revenue growth of 21% y/y which is in line with the long-term growth rate the company has enjoyed for 10 years. The Slack acquisition which has now been fully integrated is one of the key drivers for future growth and an acquisition that has expanded the company’s addressable market and market position in cloud business application software. Salesforce is competing against Microsoft, Oracle, and SAP, and has shown over the years that it gain market share plowing back a lot of its profits back into growth. With rising interest rates the pressure is on Salesforce to lift its operating margin and investors are likely demanding a surprise on operating margin rather than revenue in tomorrow’s earnings release. Salesforce financials | Source: Bloomberg Snowflake: consumption model vs economic uncertainty It is rare for Berkshire Hathaway to engage in technology companies let alone IPOs, but that is exactly what the investment firm did with Snowflake back in 2020. The company sits in the data analytics and cloud intersection providing a novel approach to data warehousing on the cloud at a low costs. The company has grown revenue from $97mn in 2018 to around $1.2bn in 2021 and revenue growth is expected at 72% y/y in FY23 Q2 (ending 31 July) but down from 104% y/y a year ago, but this should be expected as all high growth companies always see their growth rate coming down. The question is to what degree the growth rate is decaying over time. The company has recently disappointed analysts and there might be a downside risk to Snowflake’s results as the business model is centered around consumption which means that if technology spending is slowing down then it will hit Snowflake’s growth rate immediately. Secondly, the company’s high equity valuation relative to revenue means that investors will want to see a big improvement in operating income. Snowflake financials | Source: Bloomberg Source: Earnings preview: Nvidia, Salesforce, and Snowflake
Copper Spreads Widen as Demand Pressures Continue Amidst Industrial Slowdown

Covid Vaccine Caused The World Of Business To Come Back From The Dead, The History Repeats Itself

Peter Garnry Peter Garnry 19.08.2022 16:42
 Summary:  The world and the global equity market can be divided into two parts; the tangible and the intangible. Since 2008 the tangibles driven industry groups have severely underperformed the intangibles driven industry groups due falling interest rates and an explosion in profits by companies utilising a lot of intangibles in their business model. However, since the Covid vaccine was announced the world came roaring back causing demand to outstrip supply and thus fueling inflation. The lack of supply of physical goods in the world and deglobalisation will be a theme going forward and our bet is that the tangible world will stage a comeback against the intangible world. The Great Financial Crisis proved to be the end of the tangible world The SaxoStrats team has been talking a lot about how intangibles took over the world and now the time has come for the tangible world to win back some terrain as years of underinvestment has created enormous supply deficits in energy, food, metals, construction materials etc. We have finally created two indices capturing the market performance of intangibles and tangibles driven industry groups. These indices will make it easier to observe performance in these two parts of the economy and will enable us to quantify whether our “tangibles are coming back” thesis is correct. When we look at intangibles vs tangibles over the period 1998-2022 it is clear we two distinct periods. From 1998-2008 the tangible part of the economy delivered the best total return to investors driven by a booming financial sector, rising real estate prices, and a commodities super cycle. Since 2008, the separation of the two parts of the economy becomes very clear. Lower and lower interest rates are inflating equity valuations of growth assets and intangibles driven industry groups are seeing an unprecedented acceleration in profits due to software business models maturing and e-commerce penetrating all consumer markets fueling the outperformance. If we look at the relative performance the tangible world peaked in April 2008 and was more or less in a continuous decline relative to the intangible world until October 2020. In November 2020, the revelation of the Covid vaccine reopened the economy so fast that demand come roaring back to a degree in which the physical supply of goods could not keep up. Prices began to accelerate causing the current run-away inflation and headache for central banks. The tangible world has since done better relative to intangibles and if we are right in our main theme of an ongoing energy and food crisis combined a multi-decade long deglobalisation then tangibles should continue to do well. Intangibles are still ahead despite rising interest and the current energy crisis During the pandemic the intangibles driven industry groups did better than the physical world because the whole world went into lockdown. Intangibles driven industries were suddenly necessary for making the world go around when we could not operate in the physical world. Government stimulated the economy in extraordinary amounts across monetary and fiscal measures and the demand outcome from this stimulus has caused global demand to outstrip available supply and especially of things in the physical world. The outcome of this has been inflation and also a comeback to the tangible world, but the tangibles driven industry groups are still behind the intangibles measured from the starting point of December 2019. It is our expectations that as interest rates are lifted to cool demand and inflation in the short-term the tangible world will gain more relative to intangibles. What has been the best performing industry group since 1998? One thing is to look at the aggregated indices of the tangibles and intangibles driven industry group, but another interesting observation is to look at the best performing industry. There were three close industry groups, but by a small amount the performing industry group has actually been the retailing industry. The industry group was not creating a lot of shareholder value until after the Great Financial Crisis when the e-commerce, automation, and digitalization combined with expansion of manufacturing in China lifted profitability and market value of retailing companies. The largest retailing companies in the industry group today are Amazon.com, Home Depot, Alibaba, Lowe’s, Meituan, and JD.com. Our definition of tangible and intangible industry groups Tangible assets are loosely defined as physical assets one can touch and feel, and which can be collateralised for loans. This definition is too broad and not meaningful, because in the consumer services industry group, which we have defined as driven by intangibles, you find companies such as Starbucks and McDonald’s which both employ a lot of physical assets in their business. The way we have defined intangibles and tangibles driven industry groups was going back to 1998 and calculate the market value to assets for all the active companies at that point in time. We need calculated the average ratio for each of the 24 industry groups. All the industry groups with a ratio above the average of all groups we put into the intangibles. If the market value is substantially above the book value of assets on the balance sheet it must mean that the market is putting a value on something that is not there, or at least in accounting terms, and this is clearly the intangibles. So for McDonald’s they do employ a lot of physical assets but it is the branding, store network, product etc. that derives the meaningful value creation and thus the market is valuing the company way above the book value of its assets. One could argue that McDonald’s is a hybrid company but for our purposes we define it as being mostly intangibles driven. The full list is presented below. Banks are interesting because many think they are driven by intangibles because it employs a lot of people, but the thing is that banks are essentially deriving their profits from the spread between loans and deposits. The majority of bank loans are tied to physical assets and thus banks are tightly connected to the physical world. Tangibles driven industry groups Automobiles & Components Banks Capital Goods Commercial & Professional Services Consumer Durables & Apparel Diversified Financials Energy Food & Staples Retailing Insurance Materials Real Estate Telecommunication Services Transportation Utilities Intangibles driven industry groups Consumer Services Food, Beverage & Tobacco Health Care Equipment & Services Household & Personal Products Media & Entertainment Pharmaceuticals, Biotechnology & Life Sciences Retailing Semiconductors & Semiconductor Equipment Software & Services Technology Hardware & Equipment Source: The tangible world is fighting back
Shopes Are Forced To Cut Prices!!! Drop In Demand Showed Up

Shopes Are Forced To Cut Prices!!! Drop In Demand Showed Up

Conotoxia Comments Conotoxia Comments 23.08.2022 17:51
During the recent earnings season investors' were especially focused on consumer staples companies. Their sales figures are potentially a good indicator of the consumer situation - they can show how the average shopper is seeking savings and how much they are buying. How did the consumer staples companies perform? Thanks to the strong return of demand after lockdowns and the uncertainty of supply chains, stores have accumulated a lot of inventory, which, with the current drop in demand, could pose a significant problem. Most stores have been forced to cut prices or write off products.  Walmart (WMT), Costco (COST) and Target (TGT) are among the largest U.S. retailers. Unlike Whole Foods and Trader Joe's, they tend to have lower prices, especially Walmart. Walmart initially spooked markets by lowering its profit forecasts and warned of a rapid rate of decline in demand. However, announced second-quarter results show that WMT and COST sales rose 8.4% and 16.2%, respectively. For Walmart, they totalled $152.9 billion and Costco reported $52.6 billion in revenue. In addition, Walmart's online sales jumped as much as 12%. Despite the improved sales, the companies are struggling with the problem of giant inventories. Walmart alone had $61 billion worth of inventory at the end of Q1. Prominent among the inventory is apparel. Most likely, the introduction of a series of discounts has boosted sales levels by stimulating demand. The news reported inventory value for Walmart remains high, at $59.9 billion.  Walmart and Costco's second-quarter net income rose to $5.15 billion ($1.77 EPS) and $1.35 billion ($3.04 EPS), respectively, marginally exceeding Wall Street analysts forecasts.  The black sheep was Target (TGT), whose profits fell a staggering 51.9%, despite revenue growth. Net profit margin slipped 53.8% to 4.01%, driven by the write-down of gigantic amounts of inventory. "If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential," - said the Target chain's CFO. Executives noted that sales of lower-priced and low-margin products are on the rise, which may indicate a consumer search for savings. This was naturally reflected in a decline in net profit margins. In general, the performance of companies in the consumer staples sector proved to be good. Consumers, taking advantage of discounts and avoiding the more expensive stores (ex. Whole Foods and Trader Joe's), are contributing to the revenue growth of the cheaper ones, which include Walmart. Profits despite the losses from excess inventory in the case of Walmart and Costco appear to be strong. Target, adopted a more drastic strategy and preferred to write off much more merchandise and suffered gigantic losses.    Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Summary of consumer staples' earnings - What is the consumer's situation?
What Should Happened For Gold To Go Into Renaissance

What Should Happened For Gold To Go Into Renaissance

InstaForex Analysis InstaForex Analysis 23.08.2022 18:45
Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Red lines - bearish channel Black lines - Fibonacci retracements Gold price is bouncing towards $1,750. Gold price made a low right at the 61.8% Fibonacci retracement and is now bouncing. This is positive news for bulls. Respecting the 61.8% Fibonacci level is very important for bulls. At this retracement level we usually see trend reversals. Gold's decline from above $1,800 is now complete. Price has formed a higher low at $1,727. Price remains inside the bearish medium-term channel. Is Gold price starting a new upward move from current levels that will eventually push out of the medium-term bearish channel towards $1,850-$1,900? In order for this scenario to come true we need to see a) a new sequence of higher highs and higher lows b) bulls must defend $1,727 area and not let price fall below it c) break above $1,790 upper channel boundary. On the other hand bears would want to see price form a lower high and get rejected at the bounce towards $1,790. Bears want to see a lower high being formed and then price break below $1,727. Conclusion, as long as price remains inside the bearish medium-term channel, we favor the bearish scenario.   Source: Forex Analysis & Reviews: Technical analysis on Gold for August 23rd, 2022.  
In Germany, The Next-Year Prices For Energy Are Astonishing! Why?

In Germany The Next-Year Prices For Energy Are Astonishing! Why?

Saxo Strategy Team Saxo Strategy Team 24.08.2022 09:03
Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider? German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Frida, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022
Despite Lower Dependence On Russia, Asia Will Feel The Energy Crisis During The Higher Import Dependence

Despite Lower Dependence On Russia, Asia Will Feel The Energy Crisis During The Higher Import Dependence

Saxo Bank Saxo Bank 25.08.2022 10:43
Summary:  Asia has been vulnerable to rising energy prices, and will now face further headwinds in securing energy supplies as bidding wars with Europe heat up. Japan, China and South Korea are the biggest importers of LNG in the region, and Asia LNG prices have shot up to record highs, following the European gas prices higher. Power shortages in China and a re-embrace of nuclear in Japan are some of the early signals of what’s to come in the winter ahead. From energy prices to energy supply Despite lower dependence on Russian energy supplies, Asia won’t be spared from the winter energy crisis. Vulnerabilities stem from higher import dependence, which has been felt so far in higher fuel prices taking the headline inflation in the region to fresh highs. This has taken a heavy toll on the emerging and frontier markets, such as Sri Lanka, Bangladesh and Pakistan which have been pushed to the brink of a collapse. The next and the more severe risk is seen from shortage of energy supplies to Asia which raises the risk of blackouts, manufacturing halts, involuntary demand destruction, calculated energy rationing, depleting forex reserves and market volatility. The shortage of gas supplies in Europe from Russia is switching demand to LNG and dictating global spot LNG prices. Asia is losing LNG cargoes to Europe in a bidding war, and inflows to Asia are expected to drop for the rest of the year. The countries most exposed in Asia from the global shortage of energy supplies are Japan, China and South Korea. The International Energy Agency (IEA), which has forecast that Asian economies will account for almost half of global gas consumption to 2025, expects LNG to play a pivotal role in meeting rising gas demand in Asia. LNG bidding wars: Asia vs. Europe Asian spot LNG prices for the summer of 2022 are at their highest level on record, about 7x the average price in 2017-2021. India and China have posted some of the largest declines in LNG imports as the spot LNG inflows have largely evaporated. China's LNG imports in the first six months of 2022 are down more than 20% year on year, while India's spot LNG imports are down around 14% year on year. Japan and South Korea are also seeing declining LNG imports. Global exports have risen by just over 10 million tonnes to 234.83 million in the first seven months, even as LNG producers try to maximise output and minimise outages. Strategic shifts remain likely Much of the energy pain has been priced in for Europe, a lot may well be in store for EM assets. Meanwhile, there are reports that natural gas inventory levels in Europe are reaching near 80% capacity targets. LNG terminals in Poland may be coming online, and more countries like Germany itself may add LNG capacity as well. So even as Europe may survive the energy crisis, the same is hard to say for the weaker emerging markets. Demand destruction is possibly the only way forward in Europe and Asia. Several provinces and cities in China have issued plans for "orderly" electricity consumption in 2022 to prepare for the risk of insufficient power supply in peak summer, and Chinese Premier Li Keqiang has repeatedly called for maximizing domestic coal production and energy supply from all sources. In the medium-to-long term, the lack of fuel supply will pose a serious threat to EM fundamental factors as it may slow down urbanization and improvements in living standards. This suggests investments in LNG infrastructure will likely ramp up to counter that threat, especially in China which remains committed to LNG use. Meanwhile, Japan’s new strategic energy plan to 2030 envisions the share of LNG in the power mix to fall to 20% by 2030 from the current 37%. This means Asia will also diversify its energy sources and shift towards broader energy dependence on a variety of sources including the traditional coal and the renewable sources such as solar, hydro, wind, hydrogen etc. Japan’s re-embrace of nuclear is a first step towards more such measures to come in the region.   Source: Asia won’t be spared in the energy crisis
The US Dollar Index Is Producing A Reasonable Bullish Divergence

How Do Most Influential Banks In The World Perform? JPMorgan Chase (JPM), Bank of America (BAC) And Goldman Sachs (GS)

Conotoxia Comments Conotoxia Comments 25.08.2022 16:45
Leading investment and commercial banks are vital to the international financial system. They are responsible for money transfers, investments, currency exchange, hedging corporate exposures, etc. Banks may be exposed to potential risks in an environment of changing interest rates, or it may be a potential opportunity for them to improve their profits. Given the volume of lending activities, commercial banks' performance seems most sensitive to a change in interest rates. Investment banks, meanwhile, through their handling of investment projects and trading activities, have the potential to profit when interest rates change significantly. How did the banks perform? JPMorgan Chase (JPM), Bank of America (BAC) and Goldman Sachs (GS) are among the largest and most influential banks in the world. In the second quarter, they generated revenues of $31.6 bln, $22.8 bln and $11.9 bln, respectively. Out of them, only JPM failed to beat Wall Street analysts' expectations in terms of revenue. JPM and BAC expect some borrowers to default through the difficult economic situation in the US. As a result, the former has set aside reserves of  $428 million to cover non-performing loans. Figures from leading banks seem to indicate that, after a record 2021, the number of mergers and acquisitions (M&A) and IPOs is declining significantly. BAC reported a decline in investment banking deal volumes in Q2 after last year's historic highs of a whopping 47%. However, the impact on books was offset by a 22% growth in net interest income, most likely driven by rapidly rising interest rates.  Moreover, rising interest rates due to the popularity of fixed-rate lending in the US do not seem to translate as strongly as one would expect into corporate profits. Irresponsible credit policies seem to be hitting the sector's performance hard, as can be seen in the share prices of JPM and BAC. They have already fallen 28.4 and 25.3% respectively this year. However, the announcement of the suspension of buybacks is also not a good sign and may indicate that management might consider the current share price too high. Goldman Sachs, which shares have lost 13.5% this year and surprised positively relative to expectations on Wall Street, appears to be a peculiar exception. Historically, GS has been relatively immune to periods of crisis, in which the company has taken advantage of high volatility to boost earnings. Nonetheless, the current situation is probably unsuitable due to its high vulnerability to declining transaction revenues (M&A) and share issues.  In contrast to the mixed and less-than-ideal performance of JPMorgan Chase and Bank of America, Goldman surprised the market with a significant increase in high-margin sales of securities to companies (especially those looking to hedge in a challenging macro environment). Income from these rose by a staggering 55% to $3.61 bln against the $2.89 bln estimated by Wall Street. Income from the sale of shares also rose more than estimated to 2.86 bln against a forecast of $2.67 bln. Finally, JPM, BAC and GS profits were 8.6 bln (-28% year-on-year), 6.25 bln (-32% year-on-year) and $2.79 bln (-48% year-on-year) respectively. This significant decline may shatter the stereotype that a high-interest rate environment can only be beneficial for banks.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Banks' earnings summary - do rising interest rates benefit financial institutions?
USD/JPY Technical Analysis: Awaiting Breakout from Consolidation Range

Europe's Stoxx 600 First Back-to-back Weekly Loss In Two Months!

Marc Chandler Marc Chandler 26.08.2022 12:58
Overview: Ahead of the much-anticipated speech by Federal Reserve Chair Powell, the Fed funds futures are pricing in about a 70% chance of a 75 bp hike next month.  The US 10-year yield is up nearly five basis points today to 3.07% and the two-year yield is firm at 3.38%.  Asia Pacific equities were mostly higher, with China the main exception among the large markets, after US equities rallied yesterday.  Europe’s Stoxx 600 is off about 0.3% to bring this week’s loss to a little over 1%.  It would be the first back-to-back weekly loss in two months.  US futures seeing yesterday’s gains pared.  Europe’s benchmark 10-year yields are mostly 4-8 bp higher.  The greenback is mixed with the European currencies mostly higher, led by the euro, pushing above parity where options for 1.5 bln euros expire today.  The dollar bloc and yen are nursing losses.  The firmer euro tone appears to be lending support to the central European currencies, while the South African rand and Thai baht are off a little more than 0.5% to pace the declines.  Gold set the high for the week yesterday near $1765 and is struggling to stay above $1750 today. October WTI is up 1% today and 3.4% for the week.  It posted an outside down day yesterday to fell 2.5% but is consolidating quietly today. Europe’s natgas benchmark is off 0.5% to pare this week’s gain to around 25.2% after rallying 20.3% last week.  The US natgas is gaining for a third day, up 2.2%.  It was nearly flat on the week coming into today. Iron ore rose almost 3% to bring this week’s gain to 5.2%, the strongest weekly advance this month.  September copper is up 1.4% after yesterday’s 1.5% advance. December wheat is firm after a four-day rally was snapped yesterday. Poor weather is seen behind the week’s 3% gain.   Asia Pacific Tokyo's August CPI, which does a good job of reflecting national forces, rose more than expected.  The headline rate rose to 2.9% from 2.5%, its highest in 30 years.  The core measure, which excludes fresh food, stands at 2.6%, up from 2.3%.  Several banks are now warning it could surpass 3% in Q4.  A little more than half of Japan's inflation stems from fresh food and energy, with which CPI rose 1.4% from a year ago, up from 1.2%.  The Bank of Japan meets on September 22 and is expected to remain the outlier among the high-income countries and maintain the current policy setting, with the target rate at -0.10%.   There are three developments in China to note.  First, after several initiatives, which individually have been played down by observers as not going far enough, China's high-yield bond market, dominated by the property sector, have shown some new domestic interest.  The back-to-back gains are the first in four months. Second, there appears to be some progress in US-China talks about US regulators access to the accounting records of Chinese companies that list on American exchanges.  These Chinese companies have been instructed to prepare audit working papers to bring to Hong Kong to be reviewed by US officials.  Although mainland equities have languished this week (CSI 300 is off 1%), Hong Kong stocks have rallied.  The Hang Seng gained 2% this week, half of which came earlier today.  The HK China Enterprise Index (mainland companies that trade in HK) rose 3% this week.  Third, dubbed teapot, the independent oil refiners in the Shandong province have cut their run-rates to 61.3% this week, the lowest since May.  This seems to reflect the poor state of the economy, hampered by the extreme weather and shortage of electricity.   The dollar rose 2.65% against the yen last week but has gone nowhere in recent day. It continues to chop in Tuesday's range (~JPY135.80-JPY137.70). The ranges have gotten steadily narrower. Today's range has been roughly JPY136.40 to JPY137.15.  Two images come to mind, a spring coiling (dollar bullish) or a sideways affair.  Momentum indicators are mixed.  The exchange rate still seems sensitive to US interest rate developments.  The Australian dollar reached a six-day high yesterday near $0.6990, and although it closed firmly, there has been no follow-through buying.  It has consolidated down to $0.6950.  A convincing move through $0.6940 may refocus attention on the downside.  The PBOC again set the dollar's reference rate lower than the market (Bloomberg survey) expected at CNY6.8468 vs. CNY6.8542.  The gap was half of yesterday's, which was the most since February 2020.  Nevertheless, the market still extended the greenback's gains.  Around CNY6.8620, the dollar is up about 0.2% today and 0.65% for the week.  If sustained, it will be highest weekly close since August 2020.    Europe The record of last month's ECB meeting, where it delivered its first rate hike with a half-point move did not tell us anything we did not already know.  First, the rise in inflation to near 9% was the catalyst for the rate hike. That there were some who wanted a quarter-point move is not surprising.  The preliminary estimate of this month’s CPI will be released on August 31.  The month-over-month pace is expected to rise by 0.3% after a 0.1% gain in July.  However, the base effect will translate this in a slightly slower year-over-year rate (8.8%). The core rate is expected to be steady at 4.0%, though the risk is on the upside. The market has fully priced in a 50 bp hike at the September 8 meeting, the swaps market is consistent with around a chance of 75 bp move, which seems a bit exaggerated.  While there is some debate in the US whether inflation has peaked, in the eurozone this may be a brief respite.   Like the FOMC minutes, the ECB's record of its meeting should not be understood as an objective report of the meeting, but another channel by which officials communicate to the market.  In its record, the ECB insists that the 50 bp rate hike should be seen accelerating removal of accommodation, what it calls front-loading, rather than raise the terminal rate.  While many press accounts repeated it, the market seems less sanguine.  Consider that on July 1, the swap market had the policy rate at 1.23% in mid-June 2023.  Now it is 1.77%.  ECB officials were cognizant that the economies were slowing, and a recession may be near.  However, in what seems to be an innocuous comment observed that governments may be better positioned to address it.  What is striking is that this goes against ordoliberalism, which Draghi and others said its part of the ECB's DNA.  Ordoliberalism reject Keynesian demand management through fiscal policy.   We had thought there was a quid pro quo at the July ECB meeting, which allowed for the larger rate hike in exchange for the new Transmission Protection Instrument.  However, if this was case, the hawks have the advantage.  There appear to be so many hurdles to its use that, like the Outright Market Transactions (announced with Draghi's "whatever it takes") it may never be used.  The ECB's record indicated that the Governing Council would take into account analysis by the EC, the European Stability Mechanism, the IMF, "and other institutions", alongside the ECB's own analysis, with no ranking provided.  Unlike the OMT, which was to be triggered at a country's request, the TPI is done at the ECB's discretion.   The euro slipped through yesterday's low by a couple hundredths of a cent in Asia but has come back bid in Europe, and pushed above $1.00, where options for 1.5 bln euros expire at the same time today that Fed Chair Powell is scheduled to begin presenting in Jackson Hole.  The single currency has not closed above parity this week and set a new 20-year low on Tuesday slightly ahead of $0.9900.  It seems like the recent price action is more about market positioning than new developments.   Sterling set a range on Tuesday between $1.1720, a new 2-year low, and $1.1880.  It has not traded out of that range in subsequent action.  Near $1.1825, sterling is virtually flat this week against the dollar and about 0.35% first against the euro. Press reports suggest that Truss, who looks set to become the new Prime Minister in a couple of weeks could trigger Article 16 that would allow the suspension of some parts of the Northern Ireland protocol as early as September 15, when the existing arrangements that allowed for easier checks expire.  Between this, Italy's election on September 25, and the ongoing energy and extreme weather challenges cast a pall over the outlook.  America Fed Chair Powell's long-awaited speech at Jackson Hole is a few hours away, and the market is pricing in about a 70% chance that the Fed hikes 75 bp next month.  Of course, there is important data due before the FOMC meeting concludes on September 21 including the jobs report next Friday and CPI on September 13.  Still, it is unlikely that either report changes that overall assessment that the labor market remains strong, even if job growth slows a bit from the unexpectedly sharp 528k jump in July nonfarm payrolls, and that price pressures are far too high, even if the pace eases a little.  Those who insist on reading Powell dovishly seem to be focusing on the line in the recent FOMC minutes, which noted that many members recognized the risk that the Fed could overdo it.  However, what these observers seem to under-appreciate is that the observation was in the context of a general assessment of the risks and the minutes recognized an even greater risk that inflation expectations get embedded.  Indeed, in recent weeks there have been numerous essays claiming that the era of low inflation is over, due to various structural factors, including the re-shoring and pullback from globalization, the integration of large populations in central Europe and Asia, and the costs of sustainable development.   We do not think Powell is as dovish as the many pundits argue, and despite this era for forward guidance, we think it best to focus on what the Fed does rather than what it says in this context.  Among the high-income countries, no central bank has been as aggressive as the Federal Reserve, even if some like the Bank of England began normalizing policy earlier.  In addition, starting in a few days, the pace that the Fed will shrink its balance sheet will double to $95 bln a month. If dovish and hawkish are to signify anything of importance, they cannot be understood in the abstract, but placed in a context.  By the Fed's own history, and in comparison, to other high income central banks, several of whom have higher inflation than the US, it has acted expeditiously this year and knows that it is not done.  Many of those who criticize the Fed for not being even more aggressive are also among those that have the most pessimistic economic outlooks.  It is an easy space to occupy if one is not held accountable. For whom do they speak? Even the hawks at the Bundesbank are not hawkish enough for many of these critics.   Play the player or play the game?  What Powell actually says may not means as much in the short run as to how the market responds.  Consider the FOMC minutes again.  When they were initially reported, the pundits said it was dovish and the December Fed funds futures made new session highs on August 17 and follow-through buying the next day.  We insisted that a dovish reading was a mistake, and although the subsequent economic data have mostly been weaker than expected, the December Fed fund futures have sold off and the implied yield rose to new highs for the month (~3.54%) yesterday. Similarly, since those "dovish minutes" were released, the implied yield of the October Fed funds futures contract (no FOMC meeting in October, so arguably a cleaner read than the September contract) has risen by 5.5 bp, reflecting perceptions of heightened Rather than focusing on Powell's exact words, we suspect it may be more fruitful to focus on the market's penchant for reacting as if the Fed were dovish.   Ahead of Powell, the US reports a bevy of data, which include the advanced estimate of US merchandise July trade figures, and inventory, and personal income and consumption data.  Given the importance attributed to Powell's speech, the data is likely to be more important for economists as they work on their Q3 GDP forecasts than market participants.  The PCE headline deflator, which the Fed official targets are expected to slip toward 6.4% from 6.8%. The core deflator is projected to tick lower to 4.7% from 4.8%.  The CPI, which comes out first, and is based on different methodology, has stolen the deflators thunder and was cited by Powell in explaining the larger-than-signaled hike in June.  Mexico also reports July trade figures today.  Mexico's trade balance is deteriorating sharply.  The Q2 monthly average deficit was $2.69 bln.  In Q2 21, it was in surplus by $927 mln.  This has been blunted a little by surging worker remittances, and the July report is next week.  Worker remittances averaged $5.01 bln in a month in Q2 22 (vs. $4.3 bln in Q2 21). The US dollar set a five-day low yesterday, slightly below CAD1.2900.  It was probing the CAD1.3060 area in the first two sessions this week.  It is near CAD1.2935 in the Europe, and it needs to resurface above CAD1.2960-80 to open the upside again.  If the yen takes is cues from US yields, the Canadian dollar takes its from the general risk appetite reflected in the US S&P 500. Initial support is seen now near CAD1.2920.  The US dollar slipped to seven-day lows against the Mexican peso yesterday (~MXN19.85) and recovered through the North American session to MXN19.98.  It is trading sideways today above MXN19.92.  The intraday momentum readings seem to favor the dollar's upside today provided that the MXN19.90 area holds.      Disclaimer   Source: Jackson Hole and More
Chinese Earnings After Covid-19 Were In Hell And Back

Chinese Earnings After Covid-19 Were In Hell And Back

Peter Garnry Peter Garnry 26.08.2022 13:29
Summary:  Chinese earnings were less impacted than the rest of the world in the initial phase of the pandemic, but since then China has moved into crisis mode due to a housing crisis and energy constraints lately being intensified due to severe drought. We also take a look at Lululemon earnings next Thursday where expectations are high for revenue growth and a significant margin rebound. Underweight Chinese equities as growth has stalled China came through the early phase of the pandemic with less scars on the economy due to the country’s effective lockdown. The impact on corporate earnings were less than that in the rest of the world (see chart), but the subsequent phase during the reopening has been much more challenging. China is currently facing a real estate crisis, rising unemployment, energy shortages that have recently been worsened by severe droughts, and general slowdown of the economy. In many ways it looks like the Chinese economy will go through some painful years of readjustment away from being heavily dependent on heavy investments in housing and exports. Earnings in Q2 have been better than expected but Chinese earnings growth since Q3 2019 has lacked behind the rest of the world. A lot of new regulation in the private sector has lowered profit growth and investor flows into China has slowed down as well. Following the war in Ukraine investors have further cut exposure to China and our take is still underweight Chinese equities at this point. Is Lululemon still attracting the consumer amid worsening inflation outlook? While big Chinese earnings are scheduled for next week it will not have the market’s attention. From a macro perspective we are much more interested in Lululemon reporting Thursday because the company’s result will be a good barometer on consumer spending and also the outlook. We have recently seen in earnings releases from Dell and Salesforce that both companies are observing a significant change in business spending starting in July. Analysts expect Lululemon to grow revenue in FY23 Q2 (ending 31 July) by 22% y/y with operating margin expanding again from a low level in Q1. Freight rates and global supply chains have eased somewhat over the past three months and Lululemon has had great success with its introduction of footwear. The key downside risk to watch is revenue growth expectations for the current quarter ending in October as analysts expect 20% y/y which might be too optimistic given the current trajectory of the US economy. The list below shows the most important earnings releases next week. Monday: Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global, CITIC Securities Tuesday: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB, Brown-Forman, Veeva Systems Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis   Source: Chinese earnings are playing catch-up
Saxo Bank Members Talks About Commodities, Intervention From Japan And More

Commodities Can Weather Headwinds From An Economic Slowdown

Ole Hansen Ole Hansen 26.08.2022 15:07
Summary:  The commodity sector continues to recover with the Bloomberg Commodity Index clawing back more than half of what it lost during the June to July 20% correction. It supports our long-held view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. Gains this past week were seen across most sectors, led by agriculture and energy, the latter seeing rising demand diesel as the cost of gas continued its near vertical ascent. PLEASE NOTE: This update was written before Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell The commodity sector continues to recover as the Bloomberg Commodity Index claws back more than half of what it lost during the June to July 20% correction. Gains were seen across most sectors, led by agriculture as weather woes lifted the cost of coffee and the three major crops – especially corn. Industrial metals received a boost from China’s continued efforts to support its weakening economy by announcing more stimulus policies that would pump billions into infrastructure projects. The energy sector was supported by surging gas prices driving up demand for diesel and Saudi Arabia flagging the risk that OPEC+ may cut production to stabilise volatile markets.In financial markets, the dollar reached a fresh 20-year high against the euro as Europe’s energy crisis continued to pressure the economic outlook for the region. US stocks tumbled and bond yields rose ahead of Friday’s eagerly awaited speech by Federal Reserve Chair Jerome Powell. In which, he was expected to reiterate his determination to bring down inflation by continuing to hike interest rates. Inflation-fighting measures, such as hiking interest rates and removing stimulus into a post-pandemic economic slowdown, was the main driver behind the recent correction in commodities. Overall, however, we maintain the view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. In the long term, support for commodities will be driven by underinvestment, urbanisation, the green transformation and deglobalisation. In the short term, prices are likely to be supported by the unfolding energy crisis in Europe, Russia-sanctions related supply disruptions, adverse weather raising fresh concerns about food supplies, and China’s efforts to support its economy.    Crude oil sellers having second thoughts While the macro-economic outlook remains challenging due to the lower growth outlook and recent dollar strength, crude oil and the product markets have nevertheless managed a strong rebound this past week. The energy crisis in Europe continues to strengthen, with gas and power prices surging to levels that measured in dollars per barrel of crude oil equivalent equates to $530 and $1,400 per barrel, respectively. The latest surge was driven by recent low-water level disruptions on the river Rhine and Gazprom announcing a three-day closure of the Nord Stream 1 pipeline due to maintenance, starting on August 31.Should Gazprom (President Putin) decide to weaponize supplies further and keep the pipeline shut after maintenance ends, the risk of further spikes remains – thereby extending the already wide price gap between gas and crude oil. A development that will further support an already very visible increase in demand for fuel-based product, especially diesel and later on this autumn also heating oil, at the expense of gas. This gas-to-fuel switch has supported the recent recovery with the US last week shipping a record amount of diesel to energy-starved customers looking for alternatives to Russian supplies.However, the trigger which eventually sent crude oil higher this week were comments from the Saudi Energy Minister and other OPEC members. These comments flagged possible cuts to production following a recent and growing disconnect between falling futures markets and a physical market that has yet to show weakness. A discrepancy we have noticed as well in recent weeks with crude oil futures being sold as a hedge against an economic slowdown with little focus on the physical market and its current price supportive supply and demand fundamentals.Having found support after retracing 61.8% of the December to March 111% surge, the Brent crude oil futures contract has now returned to $100 per barrel with trendline resistance, currently $102.25 preventing a further upside push. A continued recovery at this point may force money managers to reassess their exposure in Brent and WTI with a potential short-squeeze brewing. During a three-week period to August 16, speculative traders reduced their net long to 278k lots, the lowest since April 2020. Source: Saxo Group Rising grain prices and strong dollar re-ignite food supply worries. U.S. corn reached a two-month high and, together with more muted gains across the other major US traded crop futures, the Bloomberg Commodity Grain Index has now risen by 12% following the May to July correction which at least temporarily helped reduced worries about a global food crisis. However, with bad weather continuing to impact production and with Ukraine exports still well below previous years, the mentioned worries have started to re-emerge – not least considering the recent run up in the dollar which has only made matters worse for buyers of grains in local currencies.The latest run up in US corn has been supported by concerns that hot and dry weather in the Midwest during the final crop development period may limit the production outcome. The US is the biggest producer and exporter of corn – which is used in everything from animal feed to biofuels and sweeteners – and a poor US harvest will likely rekindle recent worries about food security that was driven by war, drought and the overall impact of climate change. In addition to the above and the mentioned slow pace of shipments from Ukraine, we are currently seeing drought in China threatening the local harvest which could lead to higher imports. Dryness within the European Union this summer has continued to drive production forecast lower.   Coffee prices surge on Brazil and Vietnam supply worries Both Arabica and Robusta coffee futures returned to strength, both rallying strongly on signs of a deteriorating supply outlook. Stockpiles in Vietnam – the world’s top supplier of the Robusta variety – are expected to halve by the end of September from a year earlier while stocks of the Arabica bean monitored by the ICE exchange has slumped to a 23-year low. Freak weather in South America during the past year has decimated the production outlook for Brazil, Colombia and Central America, while recent dryness and a continued surge in the cost of fertilizer have already started to raise concerns about next year’s crop. The Arabica futures contract paused after reaching the June high at $2.42 per pound, but the risk remains that it may push towards the 11-year high at $2.605 reached in February Industrial metals find support in China Industrial metals, led by steel, aluminum and zinc responded positively to news that the Chinese government has stepped up its efforts to support an economy damaged by repeated Covid lockdowns and a property market slump. China’s State Council announced a 1 trillion yuan ($146 billion) stimulus package with 300 billion going towards infrastructure projects, thereby doubling the amount the government has pledged towards project that will boost demand for industrial metals.Following a period of range trading between $3.55 to $3.73, High Grade Copper broke higher on Friday and may now target $3.85/lb next, but it will likely require a rally above $4/lb before speculators, having traded the metal with a short bias since April, start to reverse back to a net long. The primary focus remains on China and whether the mentioned stimulus measures will be strong enough to shore up enough support for the upside push to continue. Source: Saxo Group Gold trades steady despite fresh dollar and yield strength Gold managed a small bounce but overall, it continued its recent struggle amid headwinds from a stronger dollar and rising bond yields. Not least ahead of Friday’s Jackson Hole speech from Fed chair Powell with gold traders worried that a hawkish statement would provide additional strength to the dollar and yields, thereby further delaying gold's return to strength by potentially sending it below support at $1729. In a year where inflation has been surging higher, some investors may feel hard done by gold’s negative year-to-date performance in dollars but taking into account it had to deal with the biggest jump in real yields in more than 25 years and the dollar rising 10% against a broad basket of major currencies, its performance, especially for non-dollar investors remains acceptable. We maintain the view that the market is overly optimistic with the assumption that central banks can successfully bring inflation down to the levels currently being projected. Such a scenario would create a challenging outlook for interest rate and growth sensitive stocks, thereby raising the need for tangible assets such as gold and commodities in general to weather a period of low growth and high inflation. Natural gas, now the biggest component in the Bloomberg Commodity index The BCOM index together with the S&P GSCI and DBIQ Optimum Yield Diversified Commodity Index belongs to the heavy weights within the global investment industry for commodities. It tracks the performance of 23 major commodity futures targeting a one-third exposure in the main sectors of energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will not occur until the following January. However, an astonishing 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17.2% from 8%, and made it the biggest component in the BCOM index for the first time ever – more than double that of WTI and Brent combined. From a sector perspective, it has helped lift the total energy exposure by 9.2% to 40.9%. All other sectors and sub-sectors have seen reductions with the biggest impacting industrial and precious metals by a combined reduction of 7.5%. These moves away from target weights will not be adjusted until next January. At which point, we may see some major activity as the rebalancing process would see selling of gainers, especially natural gas while the biggest losers will be bought.   Source: WCU: Weather woes and energy crisis lift commodities
The US Dollar To The Chinese Yuan Is Upside. The Potential Buying Opportunities

Forex: USD/CNY - The Road Is On Further Growth. What's Next?

InstaForex Analysis InstaForex Analysis 26.08.2022 15:43
Relevance up to 14:00 2022-08-27 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Technical analysis: USD/CNY has been trading upside as I expected. There is the breakout of the symmetrical triangle pattern in the background, which is good sign for further rally. Trading recommendation: Due to the breakout of the symmetrical triangle pattern and strong upside trend, I see further growth. Watch for potential buying opportunities on the intraday dips with the upside objectives at 6.909 and 1.079. MACD oscillator is showing strength and no bigger divergences. Key short-term support is set at the price of 6.835 Source: Forex Analysis & Reviews: USD/CNY analysis for August 26, 2022 - Upside breeakout of the triangle pattern
Britain's Energy Industry Regulator Has Raised The Cap On Annual Electricity Bills. For What?

Britain's Energy Industry Regulator Has Raised The Cap On Annual Electricity Bills. For What?

Conotoxia Comments Conotoxia Comments 26.08.2022 16:55
Britain's energy industry regulator has raised the cap on annual electricity bills to keep up with the constantly rising cost of procuring electricity. The yearly bill will be capped at £3549 from October 1. That's a whopping 178% increase since last winter and an 80% increase from the current level.  An increase in the UK's price cap may occur in future quarters if demand is not met with a sufficiently large supply of fuels, especially gas.    According to estimates by consulting firm Auxilione, the price cap on electricity in the UK could rise to a staggering £7272 by April 2023. At the same time, Cornwall Insight estimates that a year from now, in August, the level could reach £6616.    Natural gas is a popular source of energy in Western Europe. Despite its small share in energy mixes, it is an essential source of heat in winter for most EU countries and helps quickly supply the electric grid when power generation from other sources drops. These two reasons are most likely behind such significant increases in electricity prices following the cut in Russian gas supply.  More quarters of record profits for energy companies?   BP and Shell are the most prominent Western European petrochemical companies in the natural gas market in terms of revenue. They rank No. 2 and No. 3 globally, respectively, and are among the most important suppliers of blue fuel to Europe, especially after the reduction of its supply from the East.   In the last quarter, BP and Shell announced record results, reporting $67.9 billion (85.9% year-on-year growth) and $100.1 billion (65.3% year-on-year growth) in revenue, respectively. However, it wasn't the strong sales growth that came as the biggest surprise to investors but the net profits, which amounted to $9.3 billion and $11.5 billion, respectively, due to significantly expanded margins.   The current market situation may indicate that the excellent performance will continue in the coming months due to the record price of natural gas and the stabilization of oil prices after the recent decline. Even if the consulting firms' estimates were halfway correct, this could mean a record price for fuel supplies for power generation and household heating.   BP and Shell, which serve much of the European market, may continue to face high demand. Despite the expected drop in production in the EU market and thus industrial demand, European countries still need to stockpile plenty of gas to fill their reserves for the upcoming winter.   European energy index prices have had their strongest week of increases in 2 months. In Germany alone, electricity prices have risen by 860% over the year. Even in France (which bases 74% of its power generation on nuclear power plants), energy prices have reached an annual increase of more than 950% after it was announced that some nuclear reactors would be temporarily halted for maintenance work. Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)   Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Europe's energy crisis is getting worse every day - more record profits for the energy sector?
What Is BitTorrent (BTTC)? Speed, File System, Rewards. How Does BitTorrent Work?

What Is BitTorrent (BTTC)? Speed, File System, Rewards. How Does BitTorrent Work?

Binance Academy Binance Academy 29.08.2022 10:33
TL;DR BitTorrent is one of the largest decentralized peer-to-peer (P2P) file-sharing platforms. It’s powered by the Tron blockchain and BTTC, a TRC-10 utility token. BTTC is used to incentivize users on the network to provide their local computer resources for fast download speed and secure decentralized storage. The BitTorrent ecosystem also features a community-based live streaming platform, where content creators and viewers can earn and stake BTTC rewards.   Introduction In the 2000s, a common way to download music and movies over the Internet for free was using peer-to-peer (P2P) platforms like BitTorrent. Despite its popularity, one of the biggest challenges for users was the long hours it took to find and download their desired content, as most users weren’t incentivized to continue sharing files to the network once they received their content.    What is BitTorrent?  BitTorrent is one of the largest and longest-standing P2P platforms for data and file sharing. Initially released in 2001 when the Internet was just starting to catch on, BitTorrent revolutionized the way users download and obtain entertainment media and other large files and data.  Later in 2018, BitTorrent was acquired by the Tron Foundation. It relaunched as a decentralized P2P platform on the Tron blockchain, featuring various new tools and integrated a TRC-10 token, BitTorrent (BTTC), to incentivize its network participants.   How does BitTorrent work? The original BitTorrent platform was founded by Bram Cohen and David Harrison to facilitate the interchange of entertainment media, such as movies and music, among Internet users. BitTorrent does not store content on a single server. Instead, the files and data are distributed and hosted across their users’ computers. When a user downloads a file, they will receive pieces of that file (the torrent) from multiple providers within the network, after which they can remain connected to the BitTorrent network and “seed” the file to other users. Within the BitTorrent network, anyone with the complete file can become a seeder. The more seeders support a file, the quicker the download speed. However, there was little incentive for users to remain connected to the network after downloading a file. To enhance the file transferring speed, BitTorrent launched an upgraded version of the BitTorrent protocol that adopts the native cryptocurrency BTTC.   BitTorrent Speed Powered by blockchain technology, BitTorrent Speed enables faster download speed through an incentive system. To request a file, users (“service requestors”) need to submit a bid to specify how many BTTC tokens they are willing to offer to those seeding the file. Once the other parties (“service providers”) accept their bid, the service requestor needs to transfer the agreed-upon BTTC amount into escrow in a payment channel on the Tron blockchain. The BTTC will be credited to the providers after the file is transferred, and the transaction will be logged on the Tron blockchain. BitTorrent Speed uses BTTC to incentivize users to continue seeding files, which can significantly increase the file-sharing efficiency and accelerate the download speed. With more readily-available files on the P2P network, this could also benefit users that are still using the free BitTorrent client to download files from their peers.    BitTorrent File System (BTFS) Beyond file sharing, BitTorrent also features a decentralized P2P file storage system called the BitTorrent File System (BTFS). BTFS aims to offer a scalable, censorship-proof, and cost-effective alternative to the traditional centralized cloud storage.  The BTFS network consists of millions of BTFS nodes called renters and hosts. Renters are users who rent storage on the network and hosts are those that share their idle disk space for BTTC rewards. When renters use the BTFS service, their files will be sharded and distributed to multiple reputable hosts on the network. Through advanced encoding methods and file repairing technologies, BTFS can guarantee the confidentiality and security of the files, and users can access them conveniently without interruptions.   DLive In 2020, BitTorrent acquired DLive, a community-based blockchain live streaming platform, to offer more decentralized services in the BitTorrent ecosystem. In contrast to traditional platforms, both creators and viewers are rewarded for their contributions to the platform. Users who watch, chat, gift, and share content can also earn BTTC rewards. In addition, the BTTC can be staked to earn more rewards and to unlock premium services on DLive.   What is BTTC? BTTC is a TRC-10 utility token of the BitTorrent ecosystem, with a total supply of 990 billion. It was launched to build a token-based economy for networking, sharing bandwidth, and storage resources on the BitTorrent network.  BTTC can be used as payment for P2P services on the network, including paying for decentralized storage space, bidding for file downloading bandwidth, rewarding those who provide these services, and more. BitTorrent plans to utilize BTTC beyond the current use cases, such as crowdfunding the creation of new content, purchasing downloadable assets directly from creators, and tipping live streaming content creators with BTTC gifts on DLive.   How to buy BTTC on Binance? You can buy the BitTorrent Chain token (BTTC) on cryptocurrency exchanges like Binance.  1. Log in to your Binance account and click [Trade] - [Spot]. 2. Search “BTTC” to see the available trading pairs. We’ll use BTTC/BUSD as an example. 3. Go to the [Spot] box and enter the amount of BTTC to buy. In this example, we will use a Market Order. Click [Buy BTTC] and the purchased tokens will be credited to your Spot Wallet. Closing thoughts BitTorrent is a unique project that uses blockchain technology and cryptocurrency to revolutionize its existing peer-to-peer file sharing platform. It offers a more decentralized, efficient, and cost-saving alternative to the traditional P2P file-sharing platform. In the future, the BitTorrent team is looking to add more use cases to the BTTC token and support more DApp functionalities, which could be an enticing tool for developers looking to launch their own DApps with file sharing and storing capabilities.    Source: What Is BitTorrent (BTTC)?
Nikkei, Taiex And Kospi Are Falling. Situation Of Markets In Asia Pacific

Nikkei, Taiex And Kospi Are Falling. Situation Of Markets In Asia Pacific

Marc Chandler Marc Chandler 29.08.2022 12:37
Overview: The reverberations from last week continue to roil the capital markets today. Equities and bonds have been sold and the greenback bought. Most of the large markets in Asia Pacific fell by more 2%, including Japan’s Nikkei, Taiwan’s Taiex, and South Korea’s Kospi. Ironically, the Shanghai and Shenzhen Composites eked out minor gains, but the CSI 300 still eased. Europe’s Stoxx 600 is off 1% after falling nearly 1.7% before the weekend. US futures warn of another lower opening. Recall that the major indices gapped lower last Monday as well. The US 10-year yield is up 7 bp to 3.11%, probing last week’s highs, while the two-year yield reached new highs near 3.48% before steadying. European benchmark yields are 12-13 bp higher. The dollar is firmer against all the major currencies. Most of the European currencies but the Norwegian krone and British pound are off modestly, while the yen, the Australian dollar and sterling are off more than 0.5%. Emerging market currencies are under pressure, though the Hungarian forint and Czech koruna are steady to firm. Rising rates and a stronger dollar are no match for gold, which has been sold to a new low for the month (~$1720.45). There appears little support in front of $1700. October WTI is firm near $93.75. Talks with Iran will carry over into next month. US natgas slipped fractionally last week and is up nearly 2.5% today to about $9.55 after testing $10 last week. News that Germany is near its 85% tank capacity objective for next month has seen Europe’s benchmark soften a little (off ~1.8%). Iron ore is giving back most of last week’s 4.7% gain. December copper is off 3.4% after posting a minor gain last week (~0.7%). December wheat rallied 4.4% last week and is off almost 1% today.  Asia Pacific As China's Xi awaits the coronation for a third term, the challenges seem to be intensifying. Shijiazhuang, the provincial capital of the Hebei province that borders Beijing is in a partial lockdown for three days, which started yesterday, and includes the suspension of subways and non-essential business operations. It is a city of more than 11 mln people and follows lockdowns in other parts of Hebei last week. Power shortages are leading to rolling blackouts in different regions and compounding the challenge arising from the end of property boom. The economic toll spurred the government into action recently with rate cut and new lending/spending initiatives mostly concentrated on infrastructure. Over the weekend, China reported that industrial profits fell 1.1% in the Jan-July period. They had risen by 0.8% in the first half. The decline in profits dovetails with the deepening of the economic slump seen in a batch of data reported recently. While several central bankers used the Jackson Hole gathering to brandish their anti-inflation credentials, BOJ's Kuroda stuck fast to his commitment to easy monetary policy. He argued that nearly all of Japan's inflation is a function of higher commodity prices. He said that inflation would decelerate next year toward 1.5%. It was 2.6% in July, but 1.2% excluding fresh food and energy. Kuroda's inflation outlook is not much different than the market’s. A recent Bloomberg survey found a median forecast for Japan's 2023 CPI of 1.3% at the headline rate than 1.4% core. July retail sales in Australia surged 1.3%, the most in four months, and four-times more than the median forecast in Bloomberg's survey. It did nothing for the Australian dollar, which extended the pre-weekend sell-off. Still, the resilience of the Australian consumer was impressive despite the cost-of-living squeezes. Gains were recorded in five of the six retail categories., with only demand for household goods softening. The Reserve Bank of Australia meets on August 6 and the swaps market has a little more than a 70% chance of 50 bp hike discounted and about 150 bp priced between now and the end of the year. The jump in US rates helped lift the dollar to JPY139.00 in late Asia turnover. It is the highest since July 15, the day after the 24-year high was set near JPY139.40. Japan's Cabinet Secretary Matsuno noted that the government is closely was closely watching market movements. However, the price action can hardly be surprising given the divergent messages at Jackson Hole. The greenback's momentum stalled a bit. Initial support is seen near JPY138.50. Although there was not take-up at the BOJ's offer to buy bonds today, the 0.25% cap on the 10-year is being approached again. The Australian dollar recorded a bearish outside down session ahead of the weekend by trading on both sides of Thursday's range and settling below Thursday's lows. Follow-through selling today has seen it approach $0.6840, new lows for the month. Importantly from a technical perspective, it appears to have broken the neckline of a possible head and shoulders top that projects through the two-year lows set in mid-July near $0.6680. Nearby resistance is now seen around $0.6870. The dollar gapped sharply higher against the Chinese yuan. It reached a new two-year high of CNY6.9225 and did not trade below CNY6.90 today. The pre-weekend high was about CNY6.8730. Since August 10, the greenback has risen by roughly 2.50%. The CNY7.0 is an important psychological level, but it peaked in September 2019 near CNY7.1850 and revisited it in May 2020 (~CNY7.1780). For the fourth session, the PBOC set the dollar's reference rate weaker than the median in Bloomberg's forecast as it moderates the pace of the dollar's rise. Today's fix was at CNY6.8698 vs. expectations for CNY6.8794. Europe Europe is on the verge of a recession. Indeed, it may have already begun. It is not going to deter the European Central Bank or the Bank of England from continuing to aggressively tightening monetary policy. A few ECB members from creditor countries, like Austria and the Netherlands, want the central bank to consider raising rates by 75 bp at next month's meeting. They do not yet seem to represent a majority, but it is not like the members from the periphery are advocating a quarter point move.  The surge in natural gas and electricity prices promise to drive inflation higher and intensify the squeeze on the cost-of-living. Before the weekend, the UK regulator (Ofgem) confirmed what was suspected. The cap on gas and electricity will be lifted by 80% on October 1. This likely means that UK inflation will rise above the BOE's latest forecast of 13.2%, and the new UK government face strong pressure to help households and businesses. It had previously committed GBP30 bln to households but that was three months ago. To cover the same proportion now of the increase would require another GBP14 bln, according to some estimates. We had thought that increased military spending would replace some of the Covid-related spending, and while that may be true, it now seems that energy subsidies and the like will also generate wider deficits. It may also lead to increased nationalization of the parts of the energy sectors. Sweden holds legislative elections on September 11 and the law-and-order and anti-immigration party that has been shunned by the mainstream parties appears to be surging in the polls. The Swedish Democrats could be the second largest party after the ruling Social Democrats. Three different polls published last week give it 1/5-1/4 of the vote compared with 30% for the government. The Moderates have been pushed into third place with 16-18% support. The center-right bloc of the Moderates, Christian Democrats, and Liberals could ally with the Swedish Democrats. The polls show it is virtually tied with the center-left bloc of Social Democrats, Left, Centre, and Green parities. Separately, Sweden reported the economy expanded by 0.9% in Q2, missing 1.4% expectations, though Q1 was revised from a 0.8% contraction to a 0.2% expansion. Sweden's CPI was at 8.5% in July and the underlying measure, which uses fixed interest rates, and is the target measure was at 8.0%. The policy rate stands at 0.75%, following the 50 bp hike in June. The Riksbank meets on September 20 and the swaps market is pricing in a large hike (~100 bp). The euro retested last week's 20-year low near $0.9900, and when it held a small, short-covering bounce in early European activity lifted it to almost $0.9960. A combination of bearish sentiment and options for nearly 1.6 bln euro at $1.000 may deter a move above parity. The session high is a little shy of $0.9990. For its part, sterling slumped to a new two-year low near $1.1650. It posted a bearish outside down day ahead of the weekend. Sterling has met the double top objective near $1.17, we had monitored that had a $1.20 neckline. The spike low in March 2020 saw it trade to almost $1.1410. Sterling is finding some support in the European morning, and the $1.17 area now should offer resistance. America Fed Chair Powell terse speech at Jackson Hole before the weekend did not appear to change expectations for the trajectory of monetary policy. The implied yield of the March 2023 Fed funds futures contract continued to trade about 20 bp above the December 2022 contract as it had for a couple of weeks. This points to a strong expectation of a rate hike n Q1 23. The implied yield of the December 2023 Fed funds futures was about seven basis points below December 2022 contract. This implies a small chance of a cut late next year. These spreads were virtually unchanged in response to the Fed Chair's speech. Powell did succeed in doing was to drive down the two-year breakeven, which speaks to the much-maligned anti-inflation credibility of the Federal Reserve. The two-year breakeven dropped almost 16 bp before the weekend to 2.74%. Consider that it was near 4.5% as recently as mid-June. This speaks to the increase in the real rates, which in turn punished equities and risk assets more broadly. One common refrain against the Federal Reserve is that is does not have tools to address the supply shocks that have lifted prices. Another tact, illustrated by a paper presented at Jackson Hole, is that fiscal policy is responsible for around half of the recent increase in inflation and that when inflation is of a fiscal nature, monetary alone does is not effective. There are at least two answers to these criticisms. First, it underscores our claim that the extent of fiscal tightening has not been appreciated. The budget deficit is expected to fall to below 4.5% of GDP this year from 10.8% last year. Consider that after the Global Financial Crisis, the US deficit peaked around 10% of GDP (2009) and did not fall below 5% of GDP until 2013. Second, Powell address this in his Jackson Hole Speech in the first lesson of the 1970s inflation. Price stability, regardless of what threatens it, is the Fed's responsibility. He argued that the Fed needs to constrain demand to bring it in line with supply.    What will be a data-packed week, culminating with August nonfarm payrolls, will begin slowly, with only the Dallas Fed manufacturing survey and the sale of $96 bln in 3- and 6-month bills on tap for today. The risk-off mood has sent the greenback through last week's highs (~CAD1.3060-5) against the Canadian dollar. The next chart area is seen around CAD1.3100-35, and the two-year high set in mid-July (~CAD1.3225). The intraday momentum indicators are flagging and warning of the risk of some backing and filling before those highs are attacked. Initial support is seen in the CAD1.3030-50 band. Meanwhile, the greenback appears to have built a base around MXN19.82 and looks poised to challenge recent highs near MXN20.26. It reached MXN20.15 in Asia before pulling back to below MXN20.10. Further easing toward MXN20.05 may provide a lower risk entry.    Disclaimer   Source: Stocks and Bonds Sell Off, while the Dollar Rallies
The US Dollar To The Chinese Yuan Is Upside. The Potential Buying Opportunities

Forex: USD/CNY. Dynamic Growth And The Following

InstaForex Analysis InstaForex Analysis 29.08.2022 14:37
Relevance up to 13:00 2022-08-30 UTC+2 Technical analysis:   USD/CNY has been trading upside as I expected. The price reached my first upside objective at 6.910 and is heading towards second upside target. Trading recommendation: Due to the strong upside momentum and no sign for the reversal, I see further growth. Watch for potential buying opportunities on the intraday dips with the upside objective at 7.080. MACD oscillator is showing fresh new upside momentum, which is good sign for further growth. Key support is set at the price of 6.830 Source: Forex Analysis & Reviews: USD/CNY analysis for August 29, 2022 - First upside target has been reached, second target in the playt at 73080
Analysis Of The EUR/JPY Pair Movement

Forex: USD/JPY Is Up To 139! What Are The Possibilities?

Kenny Fisher Kenny Fisher 29.08.2022 14:57
The Japanese yen has started the week with sharp losses, with USD/JPY rising as high as 139.00 earlier today. In the European session, USD/JPY is trading at 138.52, up 0.75%. The month of August can’t end soon enough for the yen, as USD/JPY has climbed 4.0%. The yen fell 0.78% on Friday, as Fed Chair Powell delivered a clear, no-nonsense message to the markets from scenic Jackson Hole. Dollar soars after hawkish speech from Powell Powell’s speech essentially reiterated what the Fed has been saying for weeks, but the markets reacted sharply, with equities tumbling and the US dollar recording strong gains. Investors finally acknowledged that the Fed means business and will not U-turn on policy, even if inflation drops in one or two reports. Powell appeared determined to avoid any repeats of the market euphoria after inflation declined unexpectedly in July, which raised speculation that the Fed was set to make a dovish pivot. Powell reiterated that the Fed would continue to use all its tools to fight inflation, acknowledging that high interest rates would remain for some time, and the Fed would be careful not to ease policy prematurely. The highly-anticipated speech was unusually brief, which may have been an attempt to prevent investors from looking for some dovish remarks in the speech and ignoring the gist of the speech. Powell used strong language to get his message across – saying that Fed tightening would cause “some pain” to the economy, and avoiding soothing terminology, such as “soft landing”. The Fed plans to continue to raise rates until it’s convinced that inflation has peaked and is on the decline and judging by the market’s reaction, investors heard Powell’s message loud and clear. US Treasury yields have moved higher, with the 2-year yield rising to 3.445% today, up from 3.032% on Friday, prior to Powell’s speech. This upward movement is weighing on the yen, which is sensitive to the US/Japan rate differential. If the upward trend continues, we could see an assault on the symbolic 140 level. . USD/JPY Technical USD/JPY has broken above resistance at 1.3759 and 1.3822. Above, there is resistance at 1.3891. 1.3701 and 1.3632 are providing support This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.   Source: Yen slumps as Powell pledges tighter policy
Bayer Invented A New Drug For Type II Diabetes. Astonishing Revenue!

Bayer Invented A New Drug For Type II Diabetes. Astonishing Revenue!

Conotoxia Comments Conotoxia Comments 29.08.2022 15:16
The medical giant is after another phase of testing a new drug for type II diabetes and chronic kidney disease. The test results proved positive, and analysts have issued further favourable investment recommendations. Bayer is a German medical company that produces medical equipment, drugs and supplements. It operates globally and has about 100,000 employees, generating more than 44 billion euros in revenue last fiscal year.  In the last quarter, the company announced a whopping €12.8 billion in revenue (an 18.1% year-on-year increase) thanks to favourable currency movements and price increases. Despite a significant increase in net profit (up 87%), the company still posted a loss of €298 million. Despite a significant reduction in costs in the last quarter, the corporation is still struggling to optimize them. This applies especially to the high price of energy, materials and the war in Ukraine. Dealing with intense competition from companies such as Pfizer, Roche, and Novartis remains problematic.  Last year, the company spent as much as 5.4 billion euros on research and development. This enormous amount is used to develop more breakthrough devices and drugs. One of them is Kerendia (finerenone). It's a medicine to treat type II diabetes and chronic kidney disease. Today, the results of the third phase of clinical trials were released, showing that the use of the drug allows a significant decrease in the mortality rate of the mentioned diseases. Kerendia has thus been approved for distribution in the US, Europe and China and could become an essential source of revenue for the company in the coming years.  Bayer has also begun new clinical trials of a thrombosis drug (asundexian). The company said on Sunday that the next phase will test the effectiveness and safety of asundexian in patients with atrial fibrillation and those suffering from certain types of stroke. According to Bloomberg, this is the next step in the company's plan to refresh its drug portfolio, which is under threat from low-cost competitors.  JPMorgan and Barclays have issued a buy recommendation for the German giant, maintaining their previous target price of €75 and €90, respectively. According to MarketScreener data, the current average target price is 78.91 euros for all 24 recommendations. This implies a possible increase in the share price of more than 46%, while the lowest and highest target prices are 55 and 106 euros, respectively. At the close of trading on Friday, the company's share price was €53.70.    Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Bayer’s drug effective - a medical giant with new recommendations from investment banks
Copper Spreads Widen as Demand Pressures Continue Amidst Industrial Slowdown

Investors Are Exposing Themselves To Global Energy Crisis!

Peter Garnry Peter Garnry 30.08.2022 11:47
Summary:  Consumer discretionary stocks were part of the winners since the Great Financial Crisis, but with rising interest rates and soaring energy costs the consumer is getting taxed on credit and available income for discretionary consumption. These dynamics will intensify and worsen over the winter period in Europe and several sell-side firms are already cutting price targets on many consumer discretionary stocks. We identify the 10 largest global and European discretionary stocks so investors can understand their exposure to global energy crisis. Soaring energy costs are a massive tax on consumption In our recent equity note The tangible world is fighting back we highlighted how intangibles-driven industry groups had outperformed significantly since April 2008 until October 2020. Consumer discretionary stocks was part of this mega trend, but the global energy crisis and especially here in Europe is going be negative for consumer stocks going forward. Primary energy costs in percentage of global GDP has rising to 14% up from 6.5% in 2021 according to Thunder Said Energy. This is equivalent to 7.5%-points tax on GDP which must be offset by households by cutting down on other things. The most vulnerable parts of the economy are the activities that sits at the very top of the Maslow pyramid, so things such as media & entertainment and consumer discretionary. Global consumer discretionary stocks are down 13% after being down as much 20% in June this year relative to global equities since the peak in November 2021 when the Fed announced its pivot on monetary policy in the recognition that inflation was more sticky than initially thought. The initial underperformance was interest rate driven as the higher interest rates caused equity valuations to decline. Higher interest rates also impacts consumption through consumer loans etc., but the critical point to understand is that the energy crisis has not been fully priced into consumer discretionary stocks.  Consumer discretionary stocks have been one of the big winners since the Great Financial Crisis but with households under pressure we expect demand to cool dramatically and several sell-side firms have drastically cut their price targets on many European consumer discretionary companies. MSCI Consumer Discretionary / MSCI World | Source: Bloomberg Watch out for French luxury and the car industry When talk about which consumer discretionary companies that could be in trouble the European luxury industry is probably going to be the hardest hit industry. Next after is the global car industry where the big open question is whether the EV adoption is strong enough to shield Tesla from the demand destruction. The energy tax is bad for consumer stocks but good for global energy companies, so we have also highlighted the 10 largest energy companies in the lists below. The 10 largest global consumer discretionary stocks Amazon Tesla LVMH Home Depot Alibaba Toyota McDonald’s Nike Meituan Hermes International The 10 largest European consumer discretionary stocks LVMH Hermes International Christian Dior Volkswagen Inditex EssilorLuxottica Richemont Kering Mercedes-Benz BMW The 10 largest global energy stocks Exxon Mobil Chevron Reliance Industries Shell ConocoPhillips TotalEnergies PetroChina Equinor BP Petrobras   Source: Consumer stocks to be hit by historically high energy costs
The French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

Energy Crisis In France: Higher Prices Than Anywhere Else!

Christopher Dembik Christopher Dembik 29.08.2022 13:25
Summary:  France is well-known for his strong resilience on nuclear energy (about 69 % of electricity generation). But France’s forward energy prices are currently higher than those of any other major European economies (Germany, for instance). This is puzzling. In today’s ‘Macro Chartmania’, we explain the current state of France’s electricity crisis, why the worst is yet to come and why it may last for more than a single winter. We also discuss the monetary policy implications of elevated energy prices in France and in the rest of the eurozone, in light of European Central Bank (ECB) Board Member Isabel Schnabel’s speech at Jackson Hole last week. Click here to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments. All the data are collected from Macrobond and updated each week. France’s electricity prices are close to record highs. The baseload power price is above €900 per MWh – see below chart. Many other European countries face similar prices (Germany, Belgium, Italy, for instance). But tensions are higher in France. The French-1 year electricity forward is at the highest level among major developed European economies. Last Friday, it jumped to a historical record of €1,000 per MWh (versus €900 per MWh for Germany). This represents an increase of +1000 % compared with the long-term average of 2010-2020. This is also a clear signal that traders don’t expect prices to get back to normal anytime soon. Contrary to other European countries, France’s energy crisis has little to do with the Ukraine war and the European sanctions against Russian gas. This is mostly due to corrosion issues in nuclear reactors (this caused the shutdown of about half of France's fifty-six nuclear reactors.) and low water levels related to unusual heat during the summer (three nuclear reactors were shut down temporarily because of climate conditions this month). The country is highly dependent on nuclear energy. This represents about 69 % of electricity generation (this is a larger share than any other country). About 17 % of nuclear electricity is produced thanks to recycled materials. Summer heat will likely stop soon. But corrosion issues are partially structural and here to stay. In a statement a few months ago, the French nuclear energy regulator ASN mentioned that a restart of nuclear reactors closed due to corrosion could take up to several years. The risk of electricity shortage is therefore real this winter (no matter how the weather conditions are, actually). During the summer, electricity demand is around 45 GWh. During the winter, higher consumption will push electricity demand around 80-90 GWh on average. This will put under tension all France's electricity infrastructure, thus increasing the risk of a shortage. We think that France is certainly in a worse position than Germany when it comes to energy supply (at least, in the short-term). So far, the French government has mitigated the energy crisis by capping electricity and gas prices for households (gas prices were frozen at Autumn 2021’s levels and electricity price increase was capped at +4 % this year). This does not apply to corporations, however. This cannot last forever. The cap on energy prices will expire at the end of the year for gas and in February 2023 for electricity. The government is not planning to extend it further. It is too costly (about €20bn so far this year on a total of €44bn of various measures to support companies and households facing high inflation. This represents the total annual budget for education in France). From 2023, more targeted measures to help the low-income households to cope with higher energy prices is the most likely scenario. Will it be enough ? This is far from certain. A repeat of the 2018 Yellow Vest Movement (meaning massive demonstrations against the cost of living) is not out of the table, in our view. Eurozone monetary policy implications France is not the only European country in a very uncomfortable position, at the moment. The situation is worse than in its counterparts. But all the continent is facing the prospect of a difficult winter due to persistent high inflation. Contrary to the United States, we think the peak in eurozone inflation is ahead of us. The explosion of power prices is one of the three factors (along with a weak euro exchange rate and the easing of government measures to cap prices from 2023 onwards) which make us consider that inflation will remain elevated for a prolonged period in the eurozone. In terms of monetary policy, this means the ECB is likely to be more aggressive in the short term before potentially reviewing its policy stance if the recession materializes. The ECB Board Member Schnabel was very clear about it at last week’s Jackson Hole Symposium. In her speech, she argued that three arguments of why central banks should act with determination : 1) inflation uncertainty (there is no way to predict accurately the evolution of energy prices in such a volatile environment, for instance) ; 2) credibility ; and 3) the cost of acting too late (in some respect, the ECB certainly waited for too long between the February policy pivot and the July interest rate hike). In the short-term, this means there will be more weight on realized data (especially the preliminary release on Wednesday of the August eurozone CPI expected at a new record high of 9 % year-over-year). This increases the probability of a significant move of 75 basis points at the next Governing Council of 8 September.   Source: Chart of the Week : The energy crisis is hitting France
Crude Oil Price: A Crucial Event Takes Place In The Week Ahead

Brent Crude Oil, WTI, Dutch TTF Gas And Henry Hub Situation. Shortly Gains And Long-Time Situation

Kim Cramer Larsson Kim Cramer Larsson 30.08.2022 14:04
Brent Crude oil has broken above its short-term falling trendline and seems to start reversing the down trend trading around the 0.382 retracement level at USD104.38. Next key resistance is 110.67-112.32, the latter is the 0.618 retracement of the June-August Bearish move. A close above those levels 120-125 is in the cards.If Brent oil drops back below the falling trend line the uptrend is likely to be reversed. If closing below 98.14 it is reversed and 90 is likely to be tested. RSI is still below 60 and needs to close above to underline the uptrend. Source: Saxo Group On the weekly chart we can see that Brent Oil retraced 0.382 of the bullish trend since 2020. RSI is testing its falling trend line and a close above is an indication of Brent resuming its medium- to long-term uptrend Source: Saxo Group WTI Lights Sweet Crude oil that broke out of its falling trendline last week is now in a confirmed uptrend (higher highs and higher lows). However, RSI has not yet confirmed the trend by closing above 60. Resistance at around USD100.23. If buyers can lift WTI above that level the big test is can it move above 55 and 100 SMA’s. If that scenario plays out a move to 0.618 retracement at around 109.18 is likely.If WTI closes below 91.13 the downtrend is likely to resume Source: Saxo Group WTI only retraced around 0.236 of the 2020 extreme low (where WTI oil went to minus 40.32) till (so far) 2022 peak. RSI is still above i.e. in positive sentiment and could test its falling trend line with in a week or so.If WTI loses steam and closes below 85.41 a bearish move to 75.27 and even 65.25 could be seen. Source: Saxo Group Dutch TTF gas has peaked out a few Euros below previous peak at EUR345 – at least short-term - and has since retraced. A correction down to around 240 which is the 0.382 retracement level and a test of the short-term rising trendline is likely. However, a correction down to test the medium-term (black) rising trendline is not unlikely before uptrend quite possibly resumes.RSI is at the time of writing below its rising lower trend line but there is no divergence indicating we could see higher price levels in coming weeks. Source: Saxo Group Henry Hub Gas is having trouble closing above USD10 and could be set for a correction. If breaking the steep rising trendline and drops below 8.87 a correction down to 8.23 is likely but could spike down to around 7.68-7.55 key support.RSI is at the time of writing breaking below its rising trendline and if closing below it support the correction picture. However, there is no divergence on RSI indicating higher levels after a possible correction. Source: Saxo Group   Source: Technical Update - Oil breaking falling trendline, building uptrend. Gas rejected at previous peaks but higher prices are in the cards
Analysis Of The EUR/JPY Pair Movement

Yen Is Recording An Increase. All Thanks To Industrial Production And Retail Sales

Kenny Fisher Kenny Fisher 31.08.2022 15:14
After starting the week with sharp losses, the Japanese yen has settled down. In the European session, USD/JPY is showing limited movement, trading at 138.66. Japanese data improves Japan posted solid numbers today, as retail sales and industrial production both improved in July. Retail sales climbed 2.4% YoY in July, (vs 1.5% in June), above the forecast of 1.9%. Significantly, household spending stayed strong, despite high inflation due to rising energy and food prices. Industrial production surprised with a gain of 1.0% MoM (vs. -0.5% forecast), after a huge 9.2% gain in June. Two straight months of gains point to strong pent-up demand and an easing in supply line disruptions. As well, the consumer confidence index rose to 32.5 in August (vs. 31.0) up from 30.2 in July. Consumer confidence remains weak, but the index improving for the first time in three months is welcome news. The host of positive numbers is an indication that the Japanese economy, although fragile, continues to recover, in large part due to pent-up demand following the easing of Covid restrictions. Still, the economy has a long way to go before the Bank of Japan will join its counterparts and tighten policy. The BoJ is primarily focused on stimulating the economy, and inflation remains much, much lower than what we’re seeing elsewhere. With the BoJ vigilantly maintaining its yield control, the Japanese yen remains at the mercy of the US/Japan rate differential, and higher US yields of late have pushed USD/JPY close to the 139 level. We could see the yen fall to 140 in the short-term, with no indication that Japan’s Ministry of Finance has any appetite to intervene and support the yen. Later today, the US releases the ADP Employment report. The market consensus for August stands at 288 thousand, which would be a strong improvement from the July gain of 128 thousand. This event could cause some brief volatility in the dollar, but it is not a reliable indicator for Friday’s non-farm employment report. In fact, NFP is expected to fall to 300 thousand, down from July’s massive gain of 528 thousand. . USD/JPY Technical USD/JPY is testing support at 1.3822. The next support line is at 137.01 1.3891 and 1.4012 are resistance lines This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
The Market Expects Norges Bank To Keep Interest Rates Unchanged

Swiss Franc (CHF) And Norwegian Krone (NOK) Weakness

John Hardy John Hardy 31.08.2022 16:54
Summary:  The G3 currencies are chopping around aimlessly versus one another while the bigger story afoot across FX is weakness in the rest of the G10 currencies, particularly in the Swiss franc and Norwegian krone, the currencies that had formerly traded the strongest against the euro as a bit of ECB catchup on tightening guidance and easing energy prices. NOK is particularly weak today, perhaps on fears that the EU is set to cap energy and power prices and may twist Norway’s arm in the process? FX Trading focus: EUR relief and squeeze for now, but remember longer term picture. Is NOK suddenly worried about price caps for its energy exports? Yesterday I highlighted the squeeze risk in EURUSD If the 1.0100 area traded, but the US dollar has remained quite firm, while the real story is in the euro upside squeeze elsewhere, particularly against the Swiss franc as the ECB has gotten religion on the need to bring forward and raise its tightening plans, while the collapse in oil prices and natural gas prices to a lesser degree over the last couple of days has EURNOK shorts running for cover. Yesterday, another flurry of ECB speakers at a conference saw ECB rate expectations pulled back a bit higher as some, including Nagel, argued for a front-loading of rate hikes, which has the market leaning a big harder in favour of a 75-basis point move at next Thursday’s ECB meeting. Still, as the weeks wear on, it is important to realize that Germany being ahead of its schedule on refilling gas storage reserves doesn’t mean the country can meet anything approaching normal gas demand through the winter unless Russia turns up the gas flow rates or the gas can be sourced from elsewhere, as storage is only a fraction of the amount need for winter consumption rates as heating demand jumps. The EU has called an emergency meeting next Friday that will likely result in a cap on electricity and perhaps also natural gas prices for some end users, a  move that will prevent many consumers and especially small businesses from going cold over the winter or going broke or having too much of their budgets swallowed by energy costs. But such a move to cap prices will also have the typical result that demand will remain higher than it would otherwise, and that will have to mean rationing of power/gas, a dicey process to manage. Either way, real GDP will decline if less gas is available, even if Russia does turn back on the gas after turning it off today for a few days of purported maintenance and continues to deliver the trickle of flows that it has been delivering recently. The August US ADP payrolls data release today is the first using a “revamped” methodology that is meant to provide more time and higher frequency data on the labor market, as well as information on pay rises, given the ADP access to salary information. The headline release of +125k was disappointing, but it will take time for the market to trust this data point even if the new methodology eventually proved better for calling the eventual turn in the labor market. Yesterday’s Jul. JOLTS jobs openings survey was nearly a million jobs higher than expected after the prior month was revised solidly higher, suggesting a still very strong demand for labor. The USD picture is still choppy and uncertain, with today’s ADP number chopping long treasury yields back lower after they trade to new local highs. The Friday’s official jobs report will weigh more heavily, with earning surprises potentially the largest factor, while the September 13 CPI data point will weigh heaviest of all ahead of the Sep 21 FOMC meeting. As discussed in this morning’s Saxo Market Call podcast, an Atlanta Fed measure of “sticky inflation” is showing unprecedented relative strength to the BLS’s standard core CPI measure. Chart: EURNOKEURNOK has backed up aggressively higher on the huge haircut to crude oil prices over the last couple of sessions and as the ECB has delivered a far sterner message on its intent to bring forward and steepen rate tightening intentions. As well, if the EU emergency meeting sees the spotlight turned on Norway’s gargantuan profits it is earning on oil and gas profits from the reduction of Russian deliveries, the EURNOK rise could be aggravated well through the pivotal 10.00 area. Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strength.The US dollar remains strong, with Euro flashing hot in the momentum higher – although questions remain how long this can last. Sterling continues its ugly slide, while CHF has lost moment likely on EURCHF flows, and NOK is losing altitude very quickly as noted above. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.USDCAD and AUDUSD are looking at interesting levels, with the former having now more decisively broken the range, while AUDUSD is teetering. Note the EURCHF and EURNOK readings trying to flip to positive here, together with other EUR pairs. USDNOK has flipped positive in rapid fashion after yesterday’s flip higher. Source: Bloomberg and Saxo Group Source: FX Update: NOK, NOK, who’s there? Energy price caps?
EUR/USD Faces Ongoing Decline Amid Budget and Market Turbulence

Avalanche (AVAX) Lost 12% After Being Accused Of Paying For Slander Reputation!

Conotoxia Comments Conotoxia Comments 31.08.2022 17:08
Avalanche (AVAX) on 29 August, lost almost 12% on a day when a new whistleblower accused it of paying lawyers to attack its competitors' reputations. Since the bottom two days ago, the cryptocurrency's price now seems to have recovered some of its losses, rising by around 10 per cent, presumably after the accusations lost credibility in the eyes of investors. CryptoLeaks is a young news site that aspires to become WikiLeaks - known for shedding light on the crimes of governments. Two days ago, the site published an article accusing Ava Labs of paying lawyers from the Roche Freedman law firm to damage the reputation of its competitors.  The alleged evidence was a statement by one of the insiders. However, the claims made in the article appear to be exaggerated, and the evidence is too weak to support allegations of a deliberate and paid legal battle against competitors.  According to Santiment data, Avalanche became the most searched token (by keywords) shortly after the article's release.   How did the AVAX price react? Most likely, as a result of CryptoLeaks, the AVAX token fell by a whopping 12%, but shortly after scepticism about the article began to gain traction, the listing rebounded. At the end of the day, the cryptocurrency had lost just 3.1%, and the token recovered all of its losses the following day. Furthermore, the price declines of 29 August coincided with a correction in other currencies, making it reasonable to believe that the accusations' impact on sentiment was much smaller.  Today on the Conotoxia MT5 platform at 11:00 GMT+3, AVAX is trading at $19.35, losing 1.4%. The price is below the 10, 20, 50, and 100-day moving averages. The MACD indicator may point to a potential trend reversal after the histogram started to turn back from negative territory. Although not yet in the overbought zone (below 30 points), the RSI signal line seems to be relatively low (less than 35 points), which could indicate a possible trend reversal. On the other hand, looking at the chart from a broader perspective, it seems that it may still be in a downtrend. It seems that there are still storm clouds looming over the cryptocurrency market in the form of a hawkish Fed, an economic slowdown, an energy crisis and a big unknown in the form of inflation.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Avalanche recovers after accusations against the project are met with scepticism
Earnings, Soft PMIs, and Market Dynamics: Impact on Yields, Dollar, and Key Developments

Amazing Year For Disney! A 26% Increase In Revenue And A Whopping 53% Increase In Net Profits Year-on-year

Conotoxia Comments Conotoxia Comments 31.08.2022 17:23
August seemed to be a month of high volatility, most likely due to the turbulent economic environment and a relatively good quarterly earnings season. We seem to be in for a very interesting bear market rally, with a possible peak in the middle of last month. At that time, the S&P 500 and Nasdaq Composite indices fell 3.2% and 3.9%, respectively. They set a peak (in mid-August), gaining 17.4% and 23.3% (the average historical magnitude of a bear market rally) from their local low (mid-June).    Disney (DIS) The entertainment market giant posted a 1-month gain of 5.9%. The stock had been declining for a year and a half, most likely influenced by extreme pessimism about the company's ability to continue to grow. As a result, the recession and lower consumer spending may have posed an additional threat to revenue from theme parks and streaming platforms. Since its peak in early 2021, Disney shares have fallen by 52.2%.  A short-term trend reversal occurred when Disney announced solid Q3 results (the financial year starts earlier than the calendar year for Disney). There was a 26% increase in revenue and a whopping 53% increase in net profits year-on-year. Net earnings per share were 10 per cent higher than expected. Among the main reasons for such a phenomenal jump in results is the expansion of owned streaming services, namely Disney+, Hulu and ESPN+.   Charles Schwab (SCHW) SCHW is a leading financial company engaged in brokerage, market making, investment banking, consulting and investment advisory services. Its share price rose by 5.5% last month. As for the stock price of other companies, Q2 results proved to be crucial the previous month.  The company reported an increase of as much as 31 per cent in interest income, which is the company's primary source of revenue (more than 50 per cent). Thus, SCHW's revenue and net profit increased by 11.7% and 41.7%, respectively. EPS (earnings per share) turned out to be 6.6% higher than Wall Street analysts' expectations. As a result, expectations of further possible interest rate rises and rising volatility (from which the brokerage business may benefit) appear to push the stock even higher.   Disney and Charles Schwab may be among the more interesting companies of August due to their phenomenal earnings despite the deteriorating macroeconomic environment.    Source: Leaders among the giants — stocks of the month?
Mantra (OM). Introduction, OMniverse, OM Token, Mantra DAO And Mantra Chain

Mantra (OM). Introduction, OMniverse, OM Token, Mantra DAO And Mantra Chain

Binance Academy Binance Academy 31.08.2022 17:35
TL;DR MANTRA is a vertically-integrated blockchain ecosystem. The MANTRA OMniverse encompasses the DAO; MANTRA Nodes: a blockchain infrastructure-as-a-service business; MANTRA Chain: a protocol for various assets for the Cosmos ecosystem; and MANTRA Finance: a DeFi platform that brings the speed and transparency of DeFi to the world of TradFi.   Introduction Launched in 2020, MANTRA is a vertically-integrated blockchain ecosystem. Previously known as MANTRA DAO, the ecosystem carries a reputation for an open and honest approach to crypto trading, fund-building, and innovation, all part of its goal to make crypto-pioneering personal, safe and secure.   What is the OMniverse? With MANTRA’s rebrand also came the restructuring of MANTRA into the all-encompassing MANTRA ecosystem, otherwise known as the OMniverse. The OMniverse is made up of four stacks that comprise the wide variety of products and services MANTRA offers to both retail and institutional investors. The four stacks are MANTRA Nodes, MANTRA Chain, MANTRA Finance and MANTRA DAO, with each comprising a range of innovative products within MANTRA’s ecosystem.  MANTRA Nodes MANTRA Nodes is the cornerstone of the vertically integrated stack that is the foundation for the OMniverse. The primary function of the node operations is to generate revenue for the business and grow Sherpa community holdings by providing more yield-earning opportunities across multiple blockchains. Additionally, these validator nodes support MANTRA in building a presence on new and emerging blockchain networks and growing it into a larger institutional space as an ecosystem. It also opens up opportunities to expand MANTRA’s multi-chain DeFi ecosystem. MANTRA also offers Infrastructure as a Service (IaaS), meaning it can set up validator node operations for both institutions and individuals. The MANTRA Nodes service line also includes node management, retail staking (both on- and off-chain), institutional nodes, and cloud / white-label node development and deployment. MANTRA Chain MANTRA Chain is the protocol for the Cosmos ecosystem. It is interoperable with other blockchains in Cosmos with the IBC module, providing developer tools and an opportunity to build anything from games and web3 applications to secure and decentralized exchanges (DEXs). The network is also EVM-compatible, combining the flexibility and reliability of both the Cosmos and Ethereum ecosystems in a builder-friendly environment.  MANTRA Chain also utilizes a powerful decentralized identify (DID) module for all KYC & AML needs. The module facilitates the development of the products that utilize enhanced features and ecosystems. MANTRA Finance MANTRA Finance aims to be a platform that brings the speed and transparency of DeFi to the established yet opaque TradFi world. The platform will allow for users around the world to trade, issue, and earn from digital assets in a non-custodial and permissionless way. MANTRA DAO Since its inception, MANTRA has always focused on involving its community at every stage, and the transparent governance mechanism is the core that brings the people together. To reach a wider community outside of the OMniverse and Sherpas, M DAO strives to bring this narrative and structure to other projects and their many protocols. The stack offers DAO services that securely increase the efficiency of various DAOs’ business functions, from finance to HR management. For example, some DAO solutions include treasury management, DAO issuance and launchpads, and DAO governance and grants, as well as DAO staking and DeFi. Some successful DAO partnerships include HeliSwap, the first DEX & DAO on the Hedera network and ZENSTAR, the first substrate based money-market built on the Astar network on Polkadot. The OM Token $OM is the native token of the OMniverse and has various utility including:Governance: $OM stakers can issue proposals, participate in governance votes, and suggest developments in various products across the OMniverse.Staking: $OM can be staked directly on MANTRA’s web app or on Binance for passive yield earning.DAO Token Access/ Airdrop Incentives: $OM stakers get special access to new DAO token issuances as well as partnering DAO token airdrops. Now that you’re familiar with the essential stacks that make up MANTRA as an ecosystem, let’s look at how you can buy MANTRA’s tokens, $OM, on Binance.  How to buy $OM on Binance   1. Log in to your Binance account and go to [Trade] -> [Spot]. 2. Type “OM” in the search bar to view the available trading pairs. We will use OM/BUSD as an example. 3. Go to the [Spot] box and enter the amount of $OM you want to buy. In this example, we will use a market order. Click [Buy OM] to confirm your order, and the purchased $OM will be credited to your Spot Wallet. How to stake $OM on Binance? 1. Log in to your Binance account and go to [Earn] -> [Binance Earn]. 2. Type “OM” in the search bar to view the available staking period (30, 60 or 90 days) and click [Stake Now]. 4. Enter the amount of OM you would like to stake and click [confirm]. Closing thoughts While MANTRA aims to create a secure, safe, and personal ecosystem for its users, it’s always important to remember that the crypto industry is not free of risks. Familiarizing yourself with MANTRA’s infrastructure will help you understand the services provided within the OMniverse.   Source: What Is MANTRA (OM)?
Unraveling the Resilience: US Growth, Corporate Debt, and Market Surprises in 2023

Forex: XAU/USD - Bull And Bear Are Searching For Gold

InstaForex Analysis InstaForex Analysis 31.08.2022 17:51
Relevance up to 15:00 UTC+2 The dollar remains positive, while its DXY index remains near the resistance level of 109.00. Earlier this week, DXY broke last month's high at 109.14 and touched a new local high since October 2002 at 109.44. The tough rhetoric of Federal Reserve Chairman Jerome Powell regarding the prospects for monetary policy of the American central bank gave the dollar a new bullish momentum. During his speech at the Jackson Hole symposium last Friday, he reaffirmed that the Fed's priority goal is to fight high inflation, and "the Fed should continue like this until the job is done." At the same time, "restoring price stability will take some time and will require the decisive use of central bank instruments." In other words, the tight cycle of Fed monetary policy tightening will continue for now, perhaps even at the same pace. Thus, the trend of further strengthening of the dollar remains. Meanwhile, the price of gold continues to decline amid a strengthening dollar. Today, XAU/USD hit a new 6-week low at 1.1710, falling towards key support levels at 1700.00, 1690.00, 1682.00. As you know, gold quotes are extremely sensitive to changes in the monetary policy of the world's leading central banks and, especially, the Fed. However, the other major world central banks (BoE, RBA, RBNZ) are also on the path of tightening their monetary policies, and the ECB will soon join them. Despite the high risks of a recession in the economy, the fight against inflation remains a key issue for them. Gold does not bring investment income but is in active demand during geopolitical and economic uncertainty, and a protective asset in the face of rising inflation. Now is just such a moment. However, it seems that it is losing its role as a protective asset to the dollar, and in the event of a breakdown of the zone of long-term support levels of 1700.00, 1690.00, 1682.00, the long-term bullish trend of gold and the XAU/USD pair may be in jeopardy. It is hard to believe so far, but the fundamental and technical picture is still in favor of just such a scenario. On Friday, the publication of key macroeconomic statistics for the United States is expected. At 12:30 (GMT), data on the US labor market for August will be published. The positive momentum of recovery is expected to continue, which allows Fed officials to continue to fight inflation at an accelerated pace, which is bullish for the dollar and bearish for gold prices. Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Source: Forex Analysis & Reviews: XAU/USD: Bullish and bearish factors
Investors Selling Down Companies That Face Balance Sheet Tightening From Runaway Inflation

Investors Selling Down Companies That Face Balance Sheet Tightening From Runaway Inflation

Saxo Strategy Team Saxo Strategy Team 01.09.2022 08:54
Summary:  The S&P500 fell 4.2% in August, erasing half of July’s rally, with investors selling down companies that face balance sheet tightening from runaway inflation and higher for longer interest rates. Meanwhile, in August, investors bought into sectors contributing to inflation. At Saxo, we think these trends will probably continue. We cover everything you need to know about what is happening in markets today and what to consider next. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities declined for the fourth day in a row, with S&P 500 down 0.78%, the Nasdaq 100 falling 0.57%.The month of August ended with S&P 500 losing 4.24% and Nasdaq 100 down 5.22%.  The markets were in a risk-off mood with the focus being fixed on rising bond yields and the hawkish stance of the central bank in the U.S. and across the pond in Europe, and with an eye on the job report coming out of the U.S. tomorrow.  Chewy (CHWY:xnys) dropped 7.9%, as the pet retailer lowered guidance for 2022 revenues, citing customer pulling back on discretionary items. The consumer trade-down echoed the general trend found in other U.S. retailers.   Bed Bath & Beyond (BBBY:xnas) tumbled 21.3% after announcing a plan to close about 150 stores. Nvidia (NVDA:xnas) plunged 5% in extended hours after the company warned that the new U.S. rules restricting the export of artificial intelligence may substantially affect the company’s sales to China.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas)   Yields took a blip lower initially after the weaker-than-expected ADP Employment report but surged higher to finish the day at the high.  The benchmark 10-year note yield closed at 3.19%.  Cleveland Fed President Mester joined the recent chorus of hawkish fedspeaks vowed to get inflation down “even if the economy were to go into recession” and “it will be necessary” to raise the Fed fund rate to “above 4% by early next year and hold it there”.  The U.S. treasury yield curve bear steepened, with the 2-year yield +5bps as the belly to the long-end yields jumped 8bps to 9bps. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)   Hang Seng Index gapped down by nearly 2% at the open but managed to crawl back all the losses to finish the day flat.  China consumption stocks led the market higher in anticipation of incremental policy stimuli and recovery of consumer demand during the mid-autumn festival, Xiabuxiabu Catering (00520:xhkg) +9.4%, Haidilao (06862:xhkg) +6.5%, China Tourism Group Duty Free (01880:xhkg) +7.1%, Li Ning (02331:xhkg) +3.9%, Anta Sports (02020:xhkg) +1.5%.  In the auto space, BYD (01211:xhkg) tumbled nearly 8%, following news of Berkshire Hathaway reducing its stake in the company. On the other hand, Nio (09866:xhkg) and XPeng (09868:xhkg) rose more than 2%.  Hang Seng Tech Index (HSTECH.I) gained 1%, with performance divergence among stocks.  Tencent (00700:xhkg) gained 1.1% while Baidu (09888:xhkg) dropped by 3.3% on operating margin contraction. China banking shares traded in Hong Kong were mixed after ICBC (01398:xhkg), China Construction Bank (00939:xhkg), and Bank of China (03988:xhkg) reported growth in revenues and profits but higher non-performing loan ratios. Coal mining and oil stocks fell on the Hong Kong bourse as well as the mainland bourses on weaker energy prices.  CSI 300 bounced from the early sell-off and closed little changed.     Australia's ASX200 (ASX:XASX) closes higher for the 2nd month, but on the first day of September equities unwind the August rally and cut July’s rally  Australia’s market has rallied for two straight months. But the rally is likely to run out of steam iin September, with Aussie equites to face selling pressure. September is historically the worst month for equities, with the ASX200 losing 0.6% each month on average since the index was formed. The reason for this? Companies pay out their yearly dividends in September. Today, many major companies go ex-dividend, transferring the dividend right to shareholders. Companies going ex-dividend include BHP, Whitehaven Coal, AGL and Credit Corp. This month, the ASX faces a host of extra issues. The RBA is tipped to hike interest rates at its September meeting next Tuesday, front loading rate hikes for the next few months. This comes at a time when home prices marked their steepest decline in four decades and building approvals for private homes, fell to their lowest level since 2012. This means banks will face selling pressure. Crude oil prices (CLU2 & LCOV2)   EIA reported a decline in crude oil inventory of 3.3 million and gasoline inventory of 1.1 million with SPR slowing to 3 million barrels, so resulting in an overall draw of 6.4 mb/d, but the reaction in the oil market remained muted. Production was adjusted higher by 0.1 mb/d to 12.1 mb/d. No change in net trade with imports and exports both declining 0.2 mb/d. WTI futures still trading below $90/barrel in Asian morning as focus shifts back to demand concerns, and Brent futures were below $96. USDJPY heading to 140   The late move higher in US 10-year yields has come back to haunt the yen, with Bank of Japan still remaining committed to keeping its 10-year yields capped at 0.25%. USDJPY rose to fresh 24-year highs of 139.44 in early Asian trading hours, and heading straight to 140 unless we see some verbal intervention coming through from the Japanese officials today. Risk abound with US jobs data due on Friday, and dollar momentum remaining strong. EURUSD still above parity with ECB’s rate hike in focus for next week, beyond the vagaries of gas supplies. GBPUSD however made fresh 2022 lows at 1.1586 as economic weakness remains in focus.    What to consider?  Fed’s Mester calls for over 4% Fed funds rate Cleveland Fed President Loretta Mester backed rates to go above 4% early next year and holding it there, while also clearly calling for no rate cuts in 2023. On inflation, Mester noted it is too soon to say inflation has peaked and wage pressures show little sign of abating, while the fight against inflation will be a long one. This message should get stronger if jobs, and more importantly CPI, data continues to be strong. At the same time, we now have Quantitative Tightening going to its full pace and Mester said that balance sheet reduction could take three years or so. New US ADP jobs data disappointed, but wage data remain upbeat While it is hard to trust estimates on the US ADP report given that it is using a new methodology and market impact/trust is only likely to build over time, it was notable that the headline came in at less than the half of the median estimate. Employment change for August was 132k vs expectations of 300k – clearly putting Friday’s NFP release in focus. ADP said that the data suggests a shift toward a more conservative pace of hiring. ADP noted that the median change in annual pay (ADP matched person sample) was +7.6% YoY for Job-Stayers, and +16.1% YoY for Job-Changers, still suggesting a pretty tight labor market.    Eurozone August CPI continues to climb According to the preliminary estimate, it was out at 9.1% year-over-year versus prior 8.9% and expected 9.0%. Core CPI, which is highly watched by the European Central Bank (ECB), is still uncomfortably high at 4.3% year-over-year. This is likely that double-digit inflation in the eurozone will become a reality by year-end. The Bundesbank has already warned that German inflation could peak around 10% year-over-year in the coming months. Expect a lively debate among the ECB Governing Council about the pace of tightening on 8 September. Several governors are leaning towards an aggressive hike (meaning 75 basis points) while a minority of governors and the ECB chief economist Philip Lane would rather prefer a step-by-step increase in order to take into consideration the risk of recession. US stocks wipe out half of the July rally, what is behind this and what’s next? The S&P500 fell 4.2% in August, erasing half of July’s rally, with investors selling down companies that face balance sheet tightening from runaway inflation and higher for longer interest rates. Meanwhile, in August, investors bought into sectors contributing to inflation (The Oil & Gas sector rose 9%, Agricultural 6%, Fertilizers 5%, and Food Retailers 3%). Meanwhile, investors topped up exposure to stocks/sectors that benefit from higher rates, which is why Insurance rose 3%. Inversely, the most selling was in sectors that will likely suffer from slower growth, higher rates, and inflation (Home Furniture fell 14% in August, Semiconductors lost 10%, Office REITs slid 10%). Notably, the S&P500 closed under its 200-day moving average for the 100th day. The last time this occurred was in the GFC. And since then, this is also the only time the S&P500 and Nasdaq have not made a typical V-shape recovery. This is something Saxo’s strategists Peter Garnry and Jessica Amir warned of, and recently highlighted in the Quarterly Outlook. As uncertainty remains, and comments from Fed and ECB speakers are increasingly bearish; we think growth sectors (tech, consumer spending, and REITs) will face further pressure given their futures earnings will dimmish. Inversely we expect commodities to continue to outperform.     China’s official manufacturing PMI edged up but remained in contractionary territory  China’s official NBS manufacturing PMI edged up to 49.4 in August from 49.0 in July, above expectations but remaining in contractionary territory. The improvement was largely driven by the rise of the new orders sub-index to 49.8 in August from 48.5 in July and helped by strong activities in the food and beverage industries ahead of the mid-autumn festival.  Covid-related disruptions and energy rationing were negative factors pressuring manufacturing activities.  Heatwaves and drought-induced power curbs have caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The stepping up of pandemic controls in quite a number of cities affected the survey negatively. The non-manufacturing PMI decelerated to 52.6 in August from 53.8 in July.  Both the services sector and the construction sector weakened.     Caixin China Manufacturing PMI is expected to fall to 50.0 The median forecasts of economists surveyed by Bloomberg expect the Caixin manufacturing PMI to slide to 50.0 in August from 50.4 in July, right at the threshold between expansion and contraction.  The official NBS Manufacturing PMI released yesterday showed that improvements were found in large and medium-sized enterprises but the activities in small businesses decelerated t a 47.6 reading in August from 47.9 in July.  Moreover, during the survey month, a Covid-19 outbreak hit Yiwu, an export-focussed manufacturing hub in Zhejiang, and might drag on the Caixin manufacturing PMI, which has a higher weight for medium and small-sized businesses in the eastern coastal region.   Australian manufacturing data falls, pressured by higher rates, wages, and scarcity of staff  Manufacturing only contributes 30% to GDP, however, two key sets of weaker manufacturing data will be reflected on by professional investors today. Manufacturing data released by AI Group showed activity fell into contractionary territory, following six months of expansion. The drop in Australian PMI to 49.3 in August was triggered by slower growth in factory activity from higher interest rates and wages, and a lack of workers. The other set of manufacturing data released from S&P Global showed manufacturing fell to a reading of 53.8 in August, down from 55.7 in July. Significantly, the reading was revised lower from the flash (preview reading) and was the lowest read in a year. As such, investors may see selling pressures in key manufacturing stocks. ASX manufacturers and producers to watch include; Woodside, Caltex, Woodside, Whitehaven and Viva Energy, in energy, which may also see profit-taking after gaining a post as some of this year’s best ASX performers. Other companies to watch include Amcor, the global packaging giant. CSL, the global vaccine, and blood therapy business. As well as BHP, Rio Tinto, and Fortescue, global mining producers.  US ISM manufacturing data due today Lower prices at the pump has seemingly helped the US economy reverse from the slowdown concerns, with Chairman Powell also getting the confidence to say that the economic momentum is strong. ISM manufacturing, which is scheduled to be reported on Thursday, may reflect the weakness seen in the S&P survey, but will still be lifted by the backlog in auto vehicle production. Consensus estimates expect ISM manufacturing to cool slightly from July’s 52.8 and come in at 51.9 in August, still remaining in expansionary territory. ISM employment will also be key to watch ahead of the NFP data due on Friday.  Singapore’s first digital bank launch Grab and Singtel have entered an alliance to roll out a banking app next week in Singapore called GXS, that will be Singapore's first digital bank. This is mostly targeted to younger users and small businesses, tapping on Grab's food and ride-hailing customers, in order to improve the penetration of financial services in Singapore. A savings account is also in the offering, with no minimum balance requirement, in direct competition to the traditional banks.   For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets, what to consider – September 1, 2022
Industrial Metals Outlook: Assessing the Impact of China's Stimulus Measures

The US Economy Looks Good, Risk Aversion Runs Wild On Wall Street,

Kenny Fisher Kenny Fisher 02.09.2022 13:27
It seems most of Wall Street believes September will be a month we won’t want to remember. ​ We are less than two weeks away from a pivotal inflation report and three weeks from the FOMC meeting. ​ The repositioning of portfolios is just beginning as the Fed accelerates the balance sheet runoff, while we are barely seeing signs that real economy is starting to feel the impact of tightening. US stocks are declining after another round of strong labor and manufacturing data confirm the Fed’s hawkish stance that they can remain aggressive with the tightening of policy. If the economy remains resilient over the next few months, the fed-funds futures market might believe the Fed won’t be done tightening at the end of year. ​ Markets might start pricing in a February rate hike as well, if pricing pressures don’t show further signs of easing with the September 13th inflation report. ​US Data Key manufacturing data and jobless claims continue to push back the idea that the economy is headed towards a recession. ​ Many were expecting to start to see signs of weakness with the labor market and sluggishness with factory activity, but that apparently didn’t happen in August. ​ Initial jobless claims declined by 5,000 to 232,000, an improvement from the downwardly revised 237,000 prior weekly reading, and much better-than-expected 248,000 consensus estimate. The Challenger, Gray, & Christmas report showed layoffs are low and supports the idea the labor market is still clicking on all cylinders. ​ The ISM manufacturing report also impressed as factory activity attempts to stabilize. The headline ISM gauge of factory activity held steady at a two-year low and prices paid showed they are continuing to decline. ​ The ISM employment component also rebounded back to expansion territory. ​ The US economy is still looking good and that should allow the Fed to remain aggressive with tightening over the coming months. ​ The latest Atlanta Fed GDPNow reading for the third quarter posted a significant increase from 1.57% to 2.59%. It seems like a certainty that the economy will avoid a third consecutive negative GDP reading, which will completely end the debate that the economy is in a recession. ​ ​ ​ FX It comes as no surprise that the dollar hit a fresh record high on both safe-haven flows from global economic weakness and as a resilient US economy paves the way for the Fed to remain aggressive. ​ King dollar has awoken from a nap ​ and that could spell a lot more pain for the European currencies. Bitcoin dips below $20,000 Bitcoin is back below the $20,000 level as risk aversion runs wild on Wall Street. ​ Bitcoin’s slide however seems small considering the aggressive selling happening with risky assets. ​ The true test for Bitcoin is if it can stay close to the $20,000 level after the NFP release. A hot labor market report and Fed rate hike bets might surge and that could trigger downward pressure that eyes the summer lows. ​ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Asia Market: Optimistic Headlines From Regional Leaders China And Japan

Is Asian Export Weakening? China’s Macroeconomy Is Not In Great

ING Economics ING Economics 04.09.2022 09:41
Non-China Asian exports are still growing, but the pace of increase has slowed and will slow still further as key export destinations struggle with inflation, energy security, and rising recession risks In this article Asian exports going sideways Electronics production growth has also moderated China's lockdowns played their part, but they are now over Recession risks could further undermine Asia's exports Asian exports going sideways As economies worldwide re-opened after the lockdowns of the Covid pandemic, non-China Asian exports to the rest of the world surged. But that rate of growth looks like it's slowing. Distortions caused by the Lunar New Year always make interpretation of trade data trends at the beginning of the year tricky, and there was an expected jump in March. But since then, the numbers look to be struggling. In year-on-year terms, the rate of overall export growth is now skirting single-digits again. A slowdown in year-on-year terms was inevitable after the re-opening surge, but this slowdown has also become evident in USD terms in recent months.  Non-China Asia export growth slowing Japan, India, South Korea, Taiwan, Malaysia, Vietnam, Thailand, Singapore, Philippines Source: CEIC, ING Digging deeper into the Asian export numbers, one of the more surprising aspects is that the electronics sector did not have a stronger recovery in 2021/22. Globally, semiconductor sales grew robustly in 2021, but topped out in December 2021 and have gone only sideways since then. Given the dominance of this sector in Asia, the increase in non-China Asian electronics exports over this period has been disappointing, not matching the strength in global electronics sales. Explaining this isn’t easy. One interpretation is that given shortages in electronics globally, more of Asia’s output remained locally - less of it being shipped overseas. But that hypothesis doesn’t actually stack up against production figures, which show an equally lacklustre performance since January this year. Instead, this seems to point more firmly to capacity constraints in the industry as the main explanation.   Selected Asian electronics production (YoY%) Source: CEIC, ING China's lockdowns played their part, but they are now over Back in April and May this year, China was struggling with its zero-Covid policy, and the port of Shanghai had its operations disrupted by lockdowns. As the world's busiest port, this will have hurt the exports of firms across the region and beyond. Even though China’s Covid cases are still bubbling away in the background, the lockdowns are now much more focused, and the big citywide lockdowns of the second quarter that were so disruptive are not being repeated. Yet Asia’s export figures continue to look weak. As well as potential roles for capacity constraints and lingering supply disruptions, there does seem likely to be a demand element at play. Non-Asian exports to Mainland China have been weakening sharply in recent months. China’s macroeconomy is not in great shape currently (see our specific China section). Ongoing, albeit lower intensity Covid restrictions continue to weigh on the economy to some extent. But on top of this, the languishing property sector has also cut demand for building materials. And topping things off, heatwaves, drought and related power shortages have all taken a toll, which an ever-expanding list of government stimulus policies seems only partially able to offset. It’s worth also considering that this may not be an entirely China demand story. Asia’s complicated supply chains mean that China is only an intermediate destination for some of Asia’s exports, many of which may then be destined for Europe or the US after further processing. Asia's exports to China South Korea, Taiwan, India, Indonesia, Japan, Malaysia, Philippines, Singapore, Thailand, Vietnam Source:CEIC, ING Recession risks could further undermine Asia's exports There are some definitional changes to the Harmonized Commodity Description and Coding System (HS) data that can explain some of the declines in exports of some specific items, in particular, exports of smartphones. But these should not adversely impact the broader export figures for the region. And we doubt that China has, despite its best efforts, already managed to become self-reliant in all these areas of technology.  More time and more data will help shed light on the evolution of this sector for the Asia Pacific region over the rest of the year. But if it turns out that capacity issues are a factor, then these are unlikely to be solved before 2023. Likewise, China’s activity could pick up slightly over the second half of the year, though will probably still fall well short of the government’s 5.5% target for 2022 (about which we hear relatively little these days). The global slowdown outside the region in contrast is only likely to get worse. Europe may already be in recession (see also our European note). The US is technically already there, but the technical nature of its recession may give way to a more substantive recession as we move into 2023 and rate rises bite deeper. In short, whatever the full reality of the complicated situation we are trying to untangle, Asia’s trade sector is more likely to become a drag on economies in the region over the coming quarters. And on top of the drag from inflation on domestic spending power, we may need to reflect this with some more moderate growth forecasts for the second half of this year, and potentially for full-year 2023.      China's weak economy Asian export weakness Asian export strength Asian economies   Source: https://think.ing.com/articles/hold-for-monthly-asian-exports-softening/?utm_campaign=September-01_hold-for-monthly-asian-exports-softening&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bank of England survey highlights easing price pressures

New UK Prime Minister Versus Recession And Rising Bills

ING Economics ING Economics 04.09.2022 09:28
With inflation set to hit 16-17% in January, a UK recession looks inevitable. The depth depends heavily on how much support the new prime minister offers to households and small businesses when he or she takes office next week. In this article Energy bills set to increase six-fold based on latest price data Savings stockpile and tight jobs market could insulate economy if government support is ramped up     Energy bills set to increase six-fold based on latest price data The UK, like the eurozone, looks like it’s headed for a recession. The UK may benefit from greater security of gas supply and larger LNG regasification facilities. But a lack of gas storage means that Britain is vulnerable to price volatility across Europe this winter. Indeed if wholesale gas prices were to settle at their most recent peak, we could see the average household energy bill hit almost £7,000 on an annualised basis next April. That compares to roughly £1,100 in previous years, and our latest forecasts suggest that inflation could hit 16-17% in January next year – or perhaps even higher. Unmitigated, that would see most households paying more than 10% of their disposable income on energy, something that could amount to material cuts in non-essential spending. The government has announced £37bn worth of support so far, but that was when energy bills were expected to peak at around £3,000. Households will need to find an extra £65bn to pay for energy bills from October to the same period next year, to offset the further rise in gas prices we’ve seen since the last round of support was announced. Households in most income deciles set to pay more than 10% of disposable incomes on energy  Source: ING analysis of ONS Living Costs and Food Survey, Effects of Tax and Benefits, Ofgem, UK TreasuryGovernment support based on estimates produced by the UK Treasury as part of the 26 May Cost of Living package. For simplicity, we've used 2020/21 equivalised disposable income data, which in practice will have increased. Assumes energy prices increase by same percentage for all income deciles. Disposable income = after income tax/national insurance etc (but before accounting for housing and other costs This gives a sense of what the new prime minister, who will be announced on 5 September, will face. Foreign Secretary, Liz Truss, who is odds-on to succeed Boris Johnson, has stated a preference for using tax cuts to help households. However, the sheer scale of the energy bills that are likely to hit next year suggests that this will need to be coupled (or replaced) with additional direct payments to households across the income spectrum. The most obvious mechanism for that would be to dramatically increase the existing £400 discount on energy bills that households receive from October. Importantly that will probably need to be extended, in one form or another, to small businesses, which are unprotected by the regulator’s price cap and are already experiencing potentially-existential price hikes. Savings stockpile and tight jobs market could insulate economy if government support is ramped up The key message is that the UK is heading for a recession, though its magnitude depends heavily on the scale of government support. In our base case, we’re assuming that support is materially increased and the scale of the economic downturn can be kept relatively shallow, at least by recent historical standards. Remember that households still have ‘excess savings’ accrued during subsequent lockdowns, which amount to roughly 8% of GDP – albeit these are heavily skewed towards higher earners. For the time being, the jobs market is also very solid and remains characterised by ultra-low redundancy levels and staff shortages,  though higher energy bills for corporates could begin to change that picture. Vacancy levels have begun to decline. We’re pencilling in a hit to GDP of roughly 1%, though this is highly conditional on how much government support is offered. Markets are assuming that a large government support package would raise the chances of a forceful reaction from the Bank of England. We agree with this assessment even if current swap rates wildly overestimate the scale of tightening that’s likely. We expect at least one, if not two, further 50bp rate hikes. Source: https://think.ing.com/articles/monthly-uks-new-prime-minister-faces-immediate-test-as-recession-looms/?utm_campaign=September-01_monthly-uks-new-prime-minister-faces-immediate-test-as-recession-looms&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bitcoin Stagnates at $30,000 Level, Awaits US Bitcoin ETF Update and Fed Meeting

The Current Picture Of Economies In The Old Continent

Conotoxia Comments Conotoxia Comments 01.09.2022 14:45
Among economic data, PMI indexes can often be the fastest to show the current picture of the economy. Unlike GDP data, for which one has to wait a long time, preliminary PMIs are published the same month they refer to, with final readings appearing as early as the following month. The donwward of Europe's largest economy The data released today seem to indicate a deterioration in the economy, which could have an impact on stock indexes. For Europe, data from its largest economy, Germany, may be important. The S&P Global/BME Germany Manufacturing PMI for August was revised downward to 49.1 points from a preliminary reading of 49.8 points, indicating a second consecutive month of decline in factory activity. According to this report, there is a sustained decline in new orders, which seemed to affect production levels and slowed the pace of job creation in factories. On the positive side, companies may have been less pessimistic about the outlook than a month earlier, although concerns about high inflation, uncertainty in the energy market and the risk of an economic slowdown still seem to persist. PMI for the eurozone The index for the eurozone as a whole was also at a lower level. The S&P Global Eurozone Manufacturing PMI was revised down to 49.6 points in August from an initial estimate of 49.7 points. Manufacturing declined at a similar pace to July, when the deceleration was the strongest since May 2020. New orders once again fell sharply. Weak demand conditions were a major drag on manufacturers in August, reflecting deteriorating purchasing power across Europe with high inflation. In response to the deteriorating economic outlook, manufacturers further reduced their purchasing activity, the report said. The Lowest Poland Manufacturing PMI In Poland, the situation does not seem optimistic either. Poland Manufacturing PMI was the lowest since 2020. The S&P Global Poland Manufacturing PMI fell to 40.9 in August from 42.1 in July, below market forecasts of 41.8 points. The reading pointed to the fourth consecutive month of declining factory activity and was the worst since May 2020, as both production and new orders fell sharply. On the price front, costs and fees continued to rise at a slower pace, although high inflation continues to erode purchasing power, with sales from both domestic and international sources falling, a statement to the publication said. So it seems that economies still may not have reached their, which may also translate into a lack of bottoms in stock market indices. The following indicated their drop today, with Germany's DAX losing 1.7 percent from the start of the session until 10:55 GMT+3, France's CAC40 losing 1.68 percent and Italy's FTSE MIB losing 1.5 percent.
UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

Grantham: "My Bet Is That We're Going To Have A Fairly Tough Time Of It Economically And Financially"

InstaForex Analysis InstaForex Analysis 01.09.2022 14:36
Investor Jeremy Grantham who has been warning of a 'superbubble' says it is yet to pop despite turbulence in the stock market this year. The co-founder of Boston Asset manager GMO said on Wednesday in a research note that growth in the US stock market from mid-June to mid-August is in line with a rally in a bear market, which usually takes place after a sharp fall. The 83-year-old investor reckons that "the current superbubble features an unprecedentedly dangerous mix of cross-asset overvaluation [...], commodity shock, and Fed hawkishness." At the beginning of the year, Grantham predicted that underlying stocks would collapse by nearly 50%. The S&P 500 fell by 25% from its January peak in June. The index soared in the following two months. Nevertheless, US stocks have now been bearish for the fourth straight session. Well-known strategists, like Mike Wilson for Morgan Stanley, warn investors that the market is yet to bottom. "You had a typical bear market rally the other day and people were saying, 'Oh, it's a new bull market," Grantham said in the research note. "That is nonsense." "First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen—the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low." Grantham is known for having predicted Japan's asset price bubble in the 1980s, the dot-com bubble, and the US housing bubble that came before the 2008 financial crisis. Some of his other bearish warnings have been wrong, or at least premature. He mentioned some other short-term issues, such as the impact of the Russia-Ukraine conflict on food and energy crises in Europe, monetary tightening, and China's ongoing Covid woes. He also pinpointed how rising inflation was driving the stock market down in the first half of the year, and elaborated on how falling corporate profit margins would lead to new losses. "My bet is that we're going to have a fairly tough time of it economically and financially before this is washed through the system," Grantham said. "What I don't know is: Does that get out of hand like it did in the '30s, is it pretty well contained as it was in 2000, or is it somewhere in the middle?"       Relevance up to 10:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320553
Podcast: The Japanese Yen, US Dollar And Economic Outlook Under Scrutiny

Podcast: The Japanese Yen, US Dollar And Economic Outlook Under Scrutiny

Saxo Bank Saxo Bank 07.09.2022 12:36
Summary:  Today we look at markets trying to remain steady yesterday after a strong US August ISM Services survey took US treasury yields sharply higher again, but that rise in yields aggravated the decline in the Japanese yen, which accelerated lower overnight and hardly registered stern warnings from Japan's Ministry of Finance. We also discuss factors driving gold below $1700/ounce again and the commodities complex weighed down in general by the strong US dollar and economic outlook. Equity market focus on sluggish volatility relative to prior cycles and the ongoing US-China disengagement. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Podcast: Bank of Japan fiddling as yen burns | Saxo Group (home.saxo)
United Kingdom: Inflation Is Expected To Hit 11%

Eurozone: Industrial Production Declined By Over 2% And May Decrease Further

ING Economics ING Economics 14.09.2022 13:15
July industrial production fell by 2.3%, reversing gains made in May and June. While Irish volatility plays a large part in recent swings, we expect manufacturing weakness to continue over the second half of 2022 – mainly due to an environment of slowing new orders and continued supply-side problems For the months ahead, the outlook remains relatively bleak While we saw a decent end to the second quarter for manufacturing, data confirms that industrial production in July was flat at best, and is likely to decline. Looking at production categories, capital goods production saw a large drop which was mainly related to big Irish swings that relate to large multinational activity. Other goods saw more of a mixed bag in terms of production. Durable consumer goods production was down, which is also true for intermediate goods. Non-durable consumer goods production partially reversed a large decline seen in June. In terms of the larger countries, Germany, Spain and France all saw production decrease significantly in July. Italy and The Netherlands saw a modest improvement at the start of the third quarter. For the months ahead, the outlook remains relatively bleak. The energy crisis has started to result in production cuts across the eurozone for the most gas-intensive producers and other supply problems have faded but not disappeared. On top of that, demand for goods is also weakening. Businesses reported that new orders slowed again in August, which means that inventories are rising and backlogs of work are falling. Overall, this suggests modest production expectations for the second half of the year in manufacturing for now. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

What Can We Expect From Central Bank Of Turkey (CBT)? A Big Package Of Polish Economy Data Is Coming

ING Economics ING Economics 16.09.2022 15:00
Despite the Central Bank of Turkey implying in its forward guidance that further rate cuts are ahead, we believe it will keep the policy rate unchanged for now to assess the impact of recent moves. For Poland, we forecast that unemployment will remain at 4.9% whilst PPI inflation will decline to 24.5% In this article Turkey: Expecting the CBT to keep rates unchanged this month Poland: Key data for the week ahead Hungary: Further widening of the current account deficit Source: Shutterstock   Turkey: Expecting the CBT to keep rates unchanged this month While the Central Bank of Turkey (CBT) cut the policy rate last month in a surprise move, it did issue forward guidance implying further rate cuts were ahead, citing some loss in economic momentum. The CBT moves will likely be determined by FX developments, as the tourism season comes to end, as well as the growth outlook. We expect the CBT to keep the policy rate unchanged this month to see the impact of recent moves, though the risks are on the downside. Poland: Key data for the week ahead Industrial output: Annual growth of industrial production moderated to a single-digit pace in July (7.6%), but is projected to improve somewhat in August (9.8%) amid the less negative impact of the number of working days in year-on-year terms. The output should be supported by shorter summer production halts in the automotive industry and house appliances plants. Electricity production was also rather solid. Output was reduced in some energy-intensive industries due to the soaring price of natural gas. PPI inflation: We forecast that PPI inflation declined to 24.5%YoY in August from 24.9%YoY in July as prices in the manufacture of coke and refined petroleum products eased. Annual growth of metal products manufacture also declined. Unless we see yet another upswing in energy and industrial commodities, the producers’ prices should continue to decline. We believe that the peak is most likely behind us. Enterprise wages: In July, enterprise wages jumped up by 15.8%YoY boosted by one-off payments and compensations for high inflation in the mining, energy and foresting sectors. In August, growth is expected to be lower, albeit still at a double-digit level. Nevertheless, real wages in the enterprise sector are projected to turn negative again. The labour market remains tight, which is what drives wages upwards. Enterprise employment: Average paid employment went up by 2.3%YoY in July, with the number of posts increasing by 11,000 people versus the previous month. In August we expect a seasonal decline, but smaller than last year, which should drive annual employment growth up to 2.4%YoY. Despite signs of slowing activity, particularly in industry and construction, demand for labour remains solid, especially in services. Unemployment rate: The labour market is drained from skilled workers and even the inflow of refugees from Ukraine that have assimilated quite well and are active in the labour market is not putting upward pressure on the unemployment rate so far. Since January the number of unemployed people is on a downward path and the registered unemployment rate is projected to remain at 4.9% for the second month in a row in April. Hungary: Further widening of the current account deficit The National Bank of Hungary will release the second quarter current account balance and it is expected to be in the same ballpark that we saw during the first quarter. A roughly €2tr deficit is the result of the rising energy bill of the country, deteriorating the balance of goods in an extreme manner. An early estimation of the July balance suggests further widening of the current account deficit. When it comes to the labour market, we see wage growth accelerating further, as the price-wage spiral has started. More and more companies have announced extra compensation for employees (either one-off or mid-year salary hikes) in the last couple of months, which will be visible in the wage statistics as well. On the other hand, the news has also been about companies planning redundancies in the future (various surveys put the share of these corporates between 25-50%), thus we won’t be surprised if the unemployment rate reflects that development, moving a bit higher compared to the previous month. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland industrial production Hungary EMEA   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

ING Economics ING Economics 01.10.2022 09:03
Despite a lot of tightening priced into the swaps market, we believe it is unlikely that the Bank of England will hike rates before the scheduled November meeting. In the US, unemployment remains stable at 3.7% and with wage growth staying elevated, we see few signs that the pace of tightening will slow In this article US: Inflation is sticky as unemployment remains low and wage growth remains elevated UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil Canada: Hopeful for a stabilisation in the jobs market Eurozone: Expecting declining trend in retail sales Source: Shutterstock US: Inflation is sticky as unemployment remains low and wage growth remains elevated Financial markets are currently favouring the Federal Reserve implementing a fourth consecutive 75bp rate hike on 2 November and we agree. Inflation is sticky while the near-term growth story is looking OK and the economy continues to add jobs in significant numbers. That message should be reinforced by the upcoming labour report with unemployment staying at just 3.7%, payrolls increasing by around 200,000 and wage growth staying elevated. There are also plenty of Federal Reserve officials scheduled to speak and so far there is little sign of any inclination to slow the pace of policy tightening. The ISM business activity report should remain firmly in growth territory as well with the trade balance making further improvements. As such, we are expecting 3Q GDP to come in at close to 2%. UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil UK markets remain volatile, and sensitive to further headlines over the coming week. We remain sceptical that the Bank of England will hike rates before its scheduled November meeting, despite a lot of tightening priced into swaps markets. Instead, we’ll be watching for any update on the Bank’s bond strategy. The BoE was forced to start buying long-dated gilts amid concerns about the stability of UK pension funds, but this is for a limited period and the Bank has said it plans to plough on with gilt sales from the end of the month. We think that’s likely to get pushed back, however, given the strains in the gilt market. Markets will also remain hyper-sensitive to any headlines related to the government’s controversial growth plan. In the first instance, press reports suggest the focus will be on spending cuts to offset some of the planned tax cuts, though this could be both practically and politically challenging. The Office for Budget Responsibility is due to provide a first draft of its post-Budget forecasts to the Chancellor privately on Friday. Canada: Hopeful for a stabilisation in the jobs market In Canada, the jobs market has wobbled of late with employment falling for three consecutive months after some very vigorous increases earlier in the year. We are hopeful of stabilisation in Friday’s September report given the economy is still performing relatively well, but if we are wrong and we get a fourth consecutive fall then expectations for Bank of Canada tightening could be scaled back somewhat – especially after some softer than anticipated CPI prints. We are currently forecasting a 50bp rate hike at the October BoC policy meeting with a final 25bp hike in December. Eurozone: Expecting declining trend in retail sales For the eurozone, it’s a pretty light week in terms of data. Retail sales on Thursday catch the eye as we’ll get more information on consumer spending in the eurozone, as purchasing power remains under severe pressure. We’ve seen a declining trend in spending since last November and have little indication that August data will have shown a big turnaround. Continued declines would fuel our view that the eurozone economy could have already tipped into contraction in the third quarter. Key events in developed markets next week Source:  Refinitiv, ING TagsUnited States Eurozone Canada Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

It Is Still Premature To Expect A Fed Pivot

Saxo Bank Saxo Bank 05.10.2022 11:23
Summary:  A bunch of different factors are coming together, putting more weight on the argument of an early Fed pivot and a peak in global central bank hawkishness. These have included somewhat softer economic data out of the US this week, plus the financial instability risks, and the pivot from Reserve Bank of Australia to a slower pace of rate hikes lately. We put all this in perspective, and how it is still premature to expect a Fed pivot unless we see clear signs of disinflation. Why do we have increasing calls for a Fed pivot lately? A slight weakness in US economic data this week has been quite a turn from the upbeat data that we have been getting out for the economy until last week. US consumer confidence data rose to 108 in September, smashing expectations, with both present situation and expectations marching higher. Thereafter, we had the first sub-200k weekly jobless claims print since May, suggesting that the labor market remains tight. But this week, the tables turned with a weaker-than-expected ISM manufacturing print and a sluggish JOLTs job openings which hinted at the tightness of the labor market moderating. But these few data points do not confirm any change in trend, or the Fed policy. RBA pivot fueling calls for a peak in global central bank hawkishness When one of the G7 central banks pivot, shock waves are expected. But the case for the Reserve Bank of Australia is somewhat more unique. It’s signal to slow down the pace of rate hikes has stemmed from concerns about the impact on housing market and household budgets. Also, the market pricing for RBA was aggressive with a 4% peak priced in. The US economy is more domestic driven, especially with lower dependence on China’s activity levels, and therefore has significantly higher room to whether the central bank tightening. It is also worth keeping in mind that the RBA meets every month, so it can get a lot of tightening done even with 25bps rate hike every month, compared to some of the other central banks that meet less often. The Reserve Bank of New Zealand’s 50bps rate hike today has rather confirmed that we are still some way off from a pivot from the Fed or other global central banks. Some things are breaking Well, we have often heard the saying that Fed will hike until something breaks. And things are breaking, from a slow break of the Japanese yen to the quick crash of the UK Gilts market. Potentially, something breaking in the financial markets could make the Fed pivot faster than the domestic economy breaking, as it appears now. It will be important to monitor the broader measures of financial stress, such as the ECB Systemic Risk Indicator as highlighted by my colleague here. For now, we do not see any systemic risks, and a larger pool of money than say the UK pension fund industry, will have to be in trouble to really spell pivot for central banks. Fed is in the “Volcker” mindset Fed’s Chair Powell has invoked his inner Volcker with his message at Jackson Hole getting sharper about inflation. It is clear that persistently high inflation is damaging to central bank credibility and so they will want to know inflation is well and truly crushed before making any moves to pivot, thereby avoiding any mistakes of the past where an early Fed pivot made the fight against inflation that much harder. History has shown that pivoting too early can lead to resurgent inflation as was the case in the 1970s (see chart below). Unlike his predecessors, Fed Chair Volcker kept interest rates at elevated levels after inflation peaked, and only pivoted in 1982, having started raising rates in 1979. The Fed officials have been giving out a clear message lately on the goal of getting inflation under control, without being concerned about the domestic economy or the turmoil in the global financial markets. While the two key indicators, Friday’s monthly payroll report and the monthly CPI data on October 13, could still distort the market pricing of the Fed’s message, that would make the Fed’s job that much harder. Source: https://www.home.saxo/content/articles/macro/macro-insights-is-an-early-fed-pivot-likely-05102022
Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

Cold War Between USA And China Sentiment Is Set To Continue

TeleTrade Comments TeleTrade Comments 05.10.2022 11:37
Biden’s administration has taken an even more hawkish stance on China compared to what most expected. While economists at Danske Bank do not expect any disruptive measures to be taken by either side in the near-term, the gradual decoupling and Cold War sentiment is set to continue. Tensions to continue but no near-term disruptive measures “In the US the negative view of China is bi-partisan and shared by the population. And to some extent, Democrats and Republicans compete on who is the toughest on China.”  “On the Chinese side, it is unlikely that it will give in to US demands for changes. China believes its’ system is more effective in solving problems and meeting challenges and it comes from a collectivist origin that goes thousands of years back, which China is increasingly proud of.”  “While we don’t expect the Biden administration to take any disruptive measures, such as a new trade war, the path of gradual decoupling measures such as rising tech restrictions on China and self-sufficiency measures in new sectors (such as biotech) is set to continue. Human rights-related sanctions may also increase.” “China will work on decoupling by seeking more self-reliance and investing heavily in tech and increasing energy and food security.”  “Tensions are also likely to stay elevated around Taiwan where a new status quo with a very high level of tension is the new normal.” ◀
Eurozone: Spanish Gross Domestic Product jumped much less than in August

Eurozone: Spain - International Tourism Before The Pandamic Vs Now | Spanish GDP Expectations

ING Economics ING Economics 05.10.2022 12:04
The recovery in Spanish tourism seems to be slowing down. While the number of international visitors in July was still at 92% of its pre-pandemic levels, this dropped to 87% in August Tourists in Benidorm, Spain International tourism at 87% of pre-pandemic levels in August The gloomy economic outlook and the uncertain geopolitical situation now seem to be slowing down the recovery of the Spanish tourism sector. In August, Spain welcomed 8.8 million international tourists, equivalent to 87% of its pre-pandemic level. In July, 9.1 million international tourists visited Spain, which then corresponded to 92% of its pre-pandemic level. Also, total expenditures by international tourists, corrected for inflation, dropped to 85% of pre-pandemic levels in August, from 88% in July. These figures show that it will probably take another year for international tourism to return to pre-pandemic levels. The slowdown in domestic tourism was even greater than that of foreign tourism. The number of hotel stays booked by residents fell to 101% of pre-pandemic levels in August, from 107% in July. International tourists entering Spain, in % of pre-Covid levels Tourism will still support economic activity in 3Q but outlook is weaker As tourism is an important economic sector in Spain, contributing 14% to total GDP in 2019, according to the World Travel and Tourism Council, a sustained recovery is an important factor for economic growth. The tourism sector has held up much better than the rest of the economy so far. Although the recovery appears to be slowing, tourism will still continue to support Spanish economic activity in the third quarter of 2022. However, the new figures also show that the contribution of tourism to Spain's economic growth is likely to fall in the coming months as the eurozone heads towards recession. In the second quarter, Spain's economy still grew by 1.5% on a quarterly basis, thanks to strong growth in domestic demand and the revival of tourism. However, the third quarter looks set to be weaker than the second. The latest manufacturing PMI released last Friday showed that factory activity contracted in September due to high inflation and a falling number of new orders. The PMI index fell to 49.0 last month from 49.9 in August, staying below the 50.0 mark that separates growth from contraction. Also, consumer confidence fell again in September which does not bode well for consumption in the third quarter. For the third quarter, we expect a slowdown in the economy followed by a slight contraction in the fourth quarter. Year-on-year growth would then reach 4.3% over the full year. For 2023, we expect growth between 0 and 1% as the energy crisis will continue to weigh on the outlook. Read this article on THINK TagsTourism Spain GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Singapore's non-oil domestic exports shrank 20.6% year-on-year

Manufacturing PMI In Singapore Is Marking The First Contraction In Overall Activity

TeleTrade Comments TeleTrade Comments 05.10.2022 13:11
Senior Economist at UOB Group Alvin Liew assesses the recently published Manufacturing PMI in Singapore. Key Takeaways “Singapore’s manufacturing Purchasing Managers’ Index (PMI) edged slightly below 50.0, at 49.9 in Sep, marking the first contraction in overall activity for the manufacturing sector after 26 straight months of expansion in overall activity since Jun 2020 (48.0 in Jun 2020).” “More importantly, the electronics sector PMI slipped further into contraction territory, by another 0.2 point to 49.4, the second contraction in a row after two years of continuous expansion, and the lowest reading since Jul 2020 (at 49.2). The dismal electronics reading was due to a faster rate of contraction in many of the key metrics including the sub-indexes of new orders, new exports, output, finished goods and imports. In comparison to the overall employment index (which rose further to 50.3 from 50.2), the electronics employment index slipped below 50 (to 49.8) for the first time since Oct 2020.” “Manufacturing Outlook – The latest headline and electronics PMI number painted a consistent picture from what we saw in the latest non-oil domestic exports (NODX) and industrial production (IP) data. We are cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to drive overall manufacturing growth (which will provide some support to overall PMI) but we see a weaker electronics performance and slowing demand from North Asian economies that could increasingly weigh on NODX momentum and manufacturing activity. We maintain our Singapore manufacturing growth forecast at 4.5% in 2022 (from 13.2% in 2021) but we expect the sector to contract by 3.7% in 2023 due to the faltering outlook for electronics and weaker external demand. In the same vein, our full year 2022 GDP growth forecasts are unchanged at 3.5% but growth will likely slow significantly to 0.7% for 2023, as we now project the US and European economies (which are key end demand markets for Singapore) to enter into a recession in the next 6-12 months amidst aggressive monetary policy tightening stance among these advanced economies, while the electronics manufacturing outlook looks precarious as we head toward end2022/early 2023.”
France escapes recession, for now

Eurozone: France - Oh My! Check Out August Print Of French Industrial Production!

ING Economics ING Economics 05.10.2022 14:19
Industrial production rebounded more than expected in August, by 2.4% over the month, thanks to the easing of supply constraints. As a result, economic activity could narrowly avoid a contraction in the third quarter, but a recession remains more than likely for this winter A broad rebound After falling by 1.6% over a month in July, French industrial production rebounded in August, increasing by 2.4% over the month. Over a year, the increase was 0.4%. Manufacturing output rose by 2.7% (after -1.6% in July). All branches of industry saw their production increase over the month, except for construction. The rebound was particularly dynamic in automotive production, which increased by 15.6% over the month, thanks to the easing of supply constraints. The August rebound allows industrial production to erase the losses accumulated during 2022 and return to its pre-war level. Nevertheless, output remains 3.5% below its pre-pandemic level. August's strong performance gives hope that industrial production will make a positive contribution to economic growth in the third quarter, which could narrowly avoid a contraction in activity. Headwinds are too strong for the rebound to last Nevertheless, looking ahead, it is to be feared that the effect of reduced supply constraints will not be sufficient to allow the French industry to continue to rebound. In fact, further contractions in industrial activity can be expected. Indeed, the sharp decline in global growth, the contraction in order books since February, the high level of finished goods inventories, high uncertainty, high energy and raw material prices and potential disruptions in energy supply clearly point to a deterioration in the outlook for the French industrial sector in the coming months. The business climate indicator for the sector fell further in September. Since the beginning of the year, it has lost more than 10 points, falling back to the level of spring 2021, thus erasing all its post-lockdowns gains. Moreover, the outlook is not much better in the services sector, which is weighed down by worsening purchasing power, declining consumer confidence and the fading positive effects of the post-pandemic reopening. There is therefore little doubt that France, like its European neighbours, is heading straight for recession. Given the developments of the last few weeks, it is to be feared that French GDP growth will move into negative territory in the fourth quarter, after a probable stagnation in the third quarter. The recession is likely to last throughout the winter, and the prospects for a rebound in the spring of 2023 are fading by the day. We therefore expect growth of 2.4% for the whole of 2022 and -0.4% for the whole of 2023. Read this article on THINK  
AUD/USD Analysis: Identifying Opportunities for Long Positions

Retail Sales Are Projected To Increase In Singapore

TeleTrade Comments TeleTrade Comments 07.10.2022 12:15
Senior Economist at UOB Group Alvin Liew reviews the latest Retail Sales release in Singapore. Key Takeaways “Even as Singapore’s retail sales declined by -1.3% m/m in Aug (from 0.7% in Jul), that still translated to a 13.0% y/y expansion for Aug (from 13.9% in Jul), the fifth consecutive month of double-digit growth. Excluding motor vehicle sales, the m/m decrease was more pronounced at -1.8%, (from 0.6% in Jul), translating to a +16.2% y/y increase (from 18.4% y/y in Jul).” “While the growth fell short of forecast, Aug retail sales growth still added to a solid foundation for domestic demand in 3Q22. While we note that most of the main segments recorded m/m declines in Aug, that could likely be some element of normalisation after the strong post-reopening in Apr (2022) surge from pent-up demand. According to the Department of Statistics Singapore, the y/y increase was attributed to y/y increases recorded in most of the key segments of retail sales.” “Year-to-date, retail sales grew by 11.2% y/y. We believe domestic retailers will likely see continued domestic and external support, complemented by the return of major events such as the F1 night race, various concerts and BTMICE activities (Business Travel and Meetings, Incentive Travel, Conventions and Exhibitions) attracting tourist arrivals, while the tightening domestic labour market will also contribute to domestic consumption demand. The low base effect is likely to continue to uplift retail sales growth prints in the coming months. Barring the re-emergence of fresh COVID-19 or other health-related risks in Singapore and around the region (leading to re-imposition of social and travel restrictions, which is not our base case), we project retail sales to expand by 8.5% in 2022 (implying a more conservative forecast of around 4% growth in the remaining months of 2022).”
Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

Europe Remains In The Eye Of The Storm (War In Ukraine And High Energy Prices)

ING Economics ING Economics 09.10.2022 09:17
As the global economy slides into a winter recession, Europe is in the eye of the storm. High energy costs caused by the war in Ukraine and rising interest rates have sent a cold chill through the region, which is only set to get worse. And as ING's Carsten Brzeski explains, there is no easy way out More economic drama for Europe amid global shockwaves As energy prices skyrocket and central banks scramble, Europe currently finds itself at the epicentre of serious global economic shockwaves. With the entire region now sliding into recession and the risk of policy mistakes rising, ING's Carsten Brzeski questions just how severe the downturn could be. The rebound we're likely to see will no doubt be far from traditional, but we're certain of one thing: the current crisis will be a major game-changer for the eurozone. Share    Download article as PDF   The global economy has clearly not turned for the better in recent weeks. On the contrary, our earlier fears of a looming recession seem to have become a reality. All sentiment indicators point to a slowing of the global economy; the only question is how severe this slowdown will be. The deceleration in activity is being driven by high energy and commodity prices but increasingly also by higher interest rates. Let’s not forget that over the last 70 years, the most common trigger for a global recession has indeed been too aggressive monetary policy tightening. It is no surprise that Europe remains in the eye of the storm. The war in Ukraine continues to rage on and the risk of further escalation seems higher than a peace deal being reached any time soon. High energy prices have increasingly found their way into the real economy, denting private consumption, industrial production and shrinking profit margins. The silver lining of filled national gas reserves has recently become clouded again by the stoppage of the Nordstream 1 pipeline and the cold September weather. The risk of energy supply disruptions is back again. Even worse, there is an increasing awareness that high energy prices will not only be a problem for this winter but also for next. While everyone is still assessing the depth of a potential winter recession, another risk has not yet received sufficient attention; the eurozone may be witnessing the end of the business cycle as we knew it. Energy prices are very likely to remain high – very high – in the coming years. This will be a structural, not just cyclical burden on companies’ cost competitiveness and households’ purchasing power. It is a structural shift that could be compared with the deleveraging many eurozone countries saw after the financial crisis and which led to subdued growth for many years. Consequently, the risk is high that the eurozone economy will not experience a V-shaped or U-shaped recovery but rather, a J-shaped recovery. This distinction between a rather traditional cyclical recession and a recession at the start of a structural change is important as it has implications for the right policy answer. Currently, many governments have started to support the demand side of the economy with large fiscal stimulus packages. It is a recipe that worked well during the pandemic. However, the history of previous crises or downturns in the eurozone shows that such fiscal stimulus only works in the absence of structural issues. In the case of highly needed structural change and transition, fiscal stimulus aimed at the demand side of the economy rather runs the risk of delaying change at the cost of surging government debt. It is not easy to be a European policymaker these days. The potential economic fallout of the looming recession could be painful and in a worst-case scenario runs the risk of destroying production capacity for good. At the same time, the European economy is facing a structural energy shock which actually requires a policy answer aimed at the supply side of the economy. Currently, however, most efforts are aimed at the demand side, and monetary and fiscal policy are clearly not in sync. While the European Central Bank is hiking interest rates to fight inflation and inflation expectations, implicitly accepting a weakening of the demand side, governments are actually supporting the demand side. Delivering fiscal stimulus that is both aimed at the supply and demand side of the economy is possible in theory, but in practice, there are clear limits to such stimulus in the form of too high government debt, as the recent market reaction to the UK government’s fiscal stimulus plans showed. An uncomfortable truth is that the current crisis in Europe cannot be quickly and easily resolved. Indeed, it increasingly appears that it cannot be resolved without accepting economic damage. We are bracing for a tough winter.     Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
EUR: Stagflation Returns Amid Weaker Growth and Sticky Inflation

Scenarios For Each Of The Major Economies - 09.10.2022

InstaForex Analysis InstaForex Analysis 09.10.2022 09:23
It's no secret that the global economic outlook hinges on energy prices this winter, but every country faces a unique cocktail of challenges ranging from central bank tightening to Covid-19. Our team have built three new scenarios for each of the major economies we cover Three scenarios for the global economy and energy prices With the global economy in the grips of various crises and uncertainties, it once again makes sense to view the outlook through scenarios. But unlike during Covid – where most countries were up against a common set of challenges – each economy is facing a unique cocktail of several key issues. A one-size-fits-all approach to scenario planning no longer makes sense. This article outlines three scenarios for each of the major economies we cover, and delves into what they imply for growth, inflation and central bank policy. Every economy is facing a different cocktail of challenges Source: ING Three scenarios for energy prices Source: Macrobond, ING Three scenarios for the US economy Source: Macrobond, ING Three scenarios for the eurozone economy Source: Macrobond, ING Three scenarios for the UK economy Source: Macrobond, ING Three scenarios for China's economy Source: Macrobond, ING TagsEnergy crisis Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites - 14.02.2023

Difference Between Now And Then In Asian Economies

ING Economics ING Economics 09.10.2022 12:46
Despite some superficial similarities, there are really very few parallels between today's markets and the Asian financial crisis of 1997/98 In this article Things were very different (worse) in 1997 Asia Asian FX: A relative outperformer FX reserves much fatter buffers Current accounts good, but not as good as they were On balance, things still look OK Source: Shutterstock Things were very different (worse) in 1997 Asia Being old enough to have been covering the Asia-Pacific region during the financial crisis in 1997/98, I can speak with some authority in saying that it was nothing like what we are experiencing today. Indeed, the Asia region as a whole was in far worse shape then than it is now.  Let's break it down.   Asian FX: A relative outperformer Perhaps the most important difference between now and then is in the exchange rate regimes being run by Asian economies. For the most part, these were fixed exchange rates pegged to the USD. There is a concise description of the causes and effects of the Asian financial crisis from the IMF in 1998 here. In a nutshell, Asian economies back then combined high interest rates to attract capital inflows to finance investment and currencies pegged to the US dollar at favourable rates to achieve rapid export-led growth. Hot money was often channelled into unproductive property investments rather than raising the productive capital of these economies, which worsened the side effects when the bubble finally popped. About the only similarity between then and now is what ultimately broke the currency pegs: hot money outflows attracted back to the US as the Federal Reserve raised rates to curb inflation upon emerging from recession in the mid-1990s. This caused the USD to appreciate along with Asian currencies as they were pegged, losing competitiveness. The Thai baht collapsed first, and contagion then pulled down the Philippine peso, Indonesian rupiah, and eventually the Korean won. The foreign debt that had helped finance the earlier rapid growth then became a massive debt-service headache, requiring IMF assistance and bailouts to prevent default. So the first and rather glaring point to make is that across the region, exchange rates are not currently pegged to the USD. They may not all be the purest floats, and not all currencies are freely convertible, but they are not fixed. Nevertheless, as the chart below shows, their depreciation (year-to-date and quarter-to-date 3Q22) is for the most part not as severe as the benchmark EUR/USD, or many other G-10 currencies (British pound, Swedish krona, Norwegian krone). Put another way, Asian currencies aren't collapsing; the USD is strengthening. Relative Asian FX performance year and quarter-to-date (3Q22) Source: CEIC, ING FX reserves much fatter buffers One of the remedies prescribed by the IMF to fix the broken Asian economies in the late 90s was that they needed to bolster themselves by accruing much bigger FX reserves. The two charts below show the extent of these reserves with reference to 1) months of import cover and 2) gross external debt (really, net external debt is the relevant metric, but gross debt serves its purpose here).  In almost all cases, export-cover is considerably better today than in 1997 or is very high anyway if not. Six months of cover is generally considered a decent buffer, so anything over that should not result in market nervousness. Malaysia is the main exception to this, and even then, import cover is almost double what it was back in 1997. The ringgit took a different path to salvation from other Asian currencies during this period. But for the record, Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus ruled out a return to capital controls or currency pegs a little more than a week ago.  The second chart shows reserves as a ratio to gross external debt. Like import cover, reserves relative to external debt are now much more substantial. Where they remain low (Japan, Singapore), the gross debt position is negligible anyway, and the net position is a substantial surplus, so it is irrelevant.    The only caveat we would make to this discussion that hints that everything is fine is that although the levels look comfortable, they have been declining. Central banks across the region have recently started intervening to limit the amount of currency depreciation, or at least to smooth its volatility. Reserves have been dropping, and the value of imports is rising due to inflation, so this is definitely a space worth watching. It isn't all good.    Import cover (months)   Reserves to external debt ratio Source: World Bank, ING Current accounts good, but not as good as they were The other thing that isn't quite as good now as it was before Covid and before Russia invaded Ukraine is Asia's current account environment. Of course, this is the main way to replenish depleted FX reserves. China used to account for a large proportion of Asia's inbound tourism, but as its zero Covid policies effectively keep these flows close to zero, tourism centres like Thailand have been hit extremely hard. As a result, their current account surplus has been turned into a deficit. Secondly, most of Asia is a net importer of energy (exceptions are Malaysia and Indonesia, as well as Australia). So, with natural gas prices spiking on increased competition with Europe for available non-Russian LNG, much of Asia has seen long-standing trade surpluses turn into deficits. Fortunately, large net investment income inflows mean that current accounts have held up better than trade balances.  Current accounts in Asia still strong   Source: CEIC, ING On balance, things still look OK We wouldn't want to finish this note by hinting that everything is fine in Asia. It isn't. Growth is slowing as inflation bites on spending power, and increasing policy rates are beginning to raise debt service burdens. China's lacklustre activity and European demand weakness are weighing on regional export strength, and a US recession is likely before too long. On top of this, there is also a downturn in the important semiconductor sector.  However, while all of this probably implies further currency weakness ahead, this is the safety valve that means a more abrupt break should be avoided. Never say never, but we don't see this ending like in 1997. TagsAsian macroeconomics Asian financial crisis 1997 Asian debt crisis   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
The Bank Of England Will Be Under Pressure To Continue Hiking Aggressively

Great Britain Expects Positive Results For Its Economy

Kamila Szypuła Kamila Szypuła 09.10.2022 14:34
The coming week is full of important reports. There will be economic results from Great Britain. U.K. Average Earnings Index +Bonus At the beginning of the new week, the first important report will be the report on earnings, including bonuses. The Average Earnings figure gives us a good indication of personal income growth during the given month. The change from month to month is expected to be 0.4 times higher than the last reading. The last reading was also positive, rising from 5.1% to 5.5% This may mean that the earnings of the British have increased or they will receive more bonus. Claimant Count Change The jobless report will appear on the same day as your earnings report. The most recent reading was above 0 and this time this number is expected to drop from 6.3K to 4.2K. It is expected that with the reduction of unemployed persons, the salary increased in the last period. The first reports are expected to be positive for the British economy. Bank of England Governor Bailey Speaks October 11 is full of important events and the next is Governor's speech Andrew Bailey, Bank of England (BOE). As head of the BOE's Monetary Policy Committee (MPC) which controls short term interest rates, Bailey has more influence over sterling's value than any other person. He will wind twice this week. The next speech is on October 15th. Traders will be watching these two speeches as they can have a significant impact on the currency (GBP) position and outline future monetary policy action which also affects the pound. U.K. Gross Domestic Product (GDP) MoM The next day, ie October 12, we are awaiting the results of the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is the broadest measure of economic activity and the primary indicator of the economy's health. Over the last few months, the level of gross domestic product has been very diversified, once it was negative, and then it increased above zero. The current reading is projected to be 0.0%, down from the previous period (0.2%). This means a decline, but from an economic point of view, the monthly GDP reading suggests that the economy was not stagnating or growing. Source: investing.com There are no forecasts as to how the gross domestic product will change in a given month year on year. U.K. Manufacturing Production MoM The change in the total inflation-adjusted value of output produced by manufacturers report will published on October 12. Manufacturing accounts for approximately 80% of overall Industrial Production. The last reading was positive as the indicator rose to 0.4%. Although it did not meet the expectations of forecasts, it was read above zero, which is a good sign for this sector, as the reading for June was the lowest in the year, at -1.6%. The expectations for the current result are up, with an increase of 0.1% expected. If the result meets the expectations (0.2%) or is higher, it may mean that the production sector has once again improved and increased. Source: investing.com Summary 11.10.22 U.K. Average Earnings Index +Bonus 11.10.22 U.K. Claimant Count Change 11.10.22 Bank of England Governor Bailey Speaks 12.10.22 U.K. Gross Domestic Product (GDP) MoM 12.10.22 U.K. Manufacturing Production MoM 15.10.22 Bank of England Governor Bailey Speaks Source: investing.com
EUR: Stagflation Returns Amid Weaker Growth and Sticky Inflation

Eurozone Is Challenging With High Energy Price, US With Housing Concerns And China With Lockdown Effects

ING Economics ING Economics 09.10.2022 09:23
It's no secret that the global economic outlook hinges on energy prices this winter, but every country faces a unique cocktail of challenges ranging from central bank tightening to Covid-19. Our team have built three new scenarios for each of the major economies we cover Three scenarios for the global economy and energy prices With the global economy in the grips of various crises and uncertainties, it once again makes sense to view the outlook through scenarios. But unlike during Covid – where most countries were up against a common set of challenges – each economy is facing a unique cocktail of several key issues. A one-size-fits-all approach to scenario planning no longer makes sense. This article outlines three scenarios for each of the major economies we cover, and delves into what they imply for growth, inflation and central bank policy. Every economy is facing a different cocktail of challenges Source: ING Three scenarios for energy prices Source: Macrobond, ING Three scenarios for the US economy Source: Macrobond, ING Three scenarios for the eurozone economy Source: Macrobond, ING Three scenarios for the UK economy Source: Macrobond, ING Three scenarios for China's economy Source: Macrobond, ING TagsEnergy crisis Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bestway Might Have Larger Designs On The UK's Second Biggest Supermarket

UK Results Higher Than Expected And The Day Is Full Of Speeches

Kamila Szypuła Kamila Szypuła 11.10.2022 09:21
There will be few reports today, but they are important. We are also awaiting the speeches of many bank representatives. Reports form United Kingdom UK reports showed positive results and were higher than expected. The results for August with Average Earnings ex Bonus reached 5.4% and were 0.1% higher than expected, and increased compared to the previous reading. The unemployment rate also turned out to be positive and was lower than expected. The current reading of the unemployment rate was at 3.5% and it was expected to keep the previous level of 3.6%. Despite positive results, the change in the number of unemployed people in the U.K. during the reported month turned out to be much higher than expected. The current Claimant Count Change reading is 25.5K. The last reading was at the level of 1.1K, which means a significant increase in jobseekers. Read more: UK Results Higher Than Expected And The Day Is Full Of Speeches| FXMAG.COM The Brazilian Consumer Price Index (CPI) Today Brazil publishes inflation data for September. YoY's CPI is expected to hit 7.10%, a decline from the previous reading of 8.73%. If the forecast is correct, it means that the index has been falling since July. As for the MoM CPI, it is also expected to decline from -0.36% to -0.34%. And just like CPI YoY will decline from July. Speeches of the day In addition to UK earnings data and Brazilian inflation data, we expect a lot of speeches. We are waiting for two speeches from a German bank. The first at 14:00 CET, which also starts with all the speeches today. The speaker will be Burkhard Balz Member of the Executive Board of the Deutsche Bundesbank. The next speech will be German Buba Wuermeling Speaks which is set at 17:00 CET, traders may see the immediate global market impact. There will also be speeches by representatives of the European Central Bank (ECB) today. The first is scheduled for 14:45 CET. The speaker will be Philip R. Lane, member of the Executive Board of the European Central Bank. The next one will take place a quarter of an hour later, with a speech by Andrea Enria, Chair of Supervisory Board of the European Central Bank. The last speakers from the old continent will be representatives of a British bank. Bank of England (BOE) Monetary Policy Committee (MPC) Member Sir Jon Cunliffe will speak at 17:00 CET. Andrew Bailey, head of the BOE's Monetary Policy Committee will speak at 20:35 CET. This speech will be the most important of the day because it will have the greatest impact on the currency of the country (British Pound, GBP) and thus on the entire currency market. Today also FOMC members will take the floor. Federal Reserve Bank of Philadelphia President Patrick Harker is set to speak at 17:30 CET. His public engagements are often used to drop subtle clues regarding future monetary policy. Another speech will be made half an hour after this with Loretta J. Mester. Summary 8:00 CET UK Average Earnings Index +Bonus (Aug) 8:00 CET UK Claimant Count Change (Sep) 8:00 CET UK Unemployment Rate (Aug) 14:00 CET German Buba Balz Speaks 14: 00 CET Brazilian CPI (YoY) (Sep) 14:45 CET ECB's Lane Speaks 15:00 CET ECB's Enria Speaks 17:00 CET BoE MPC Member Cunliffe Speaks 17:00 CET German Buba Wuermeling Speaks 17:30 CET FOMC Member Harker Speaks 18:00 CET FOMC Member Mester Speaks 20:00 CET ECB's Lane Speaks 20:35 CET BoE Gov Bailey Speaks Source: https://www.investing.com/economic-calendar/
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

Asia: Chinese Economy Faces Headwinds, Government May Spend More

ING Economics ING Economics 11.10.2022 18:10
Loan growth in China rose rapidly in September, as did government bond issuance. This has set the trend for the remaining months of 2022 The People's Bank of China is the central bank of China China's New Yuan Loan China's new yuan loan increased by CNY2.47 trillion in September, almost double the amount in August. At the same time, total social financing jumped to CNY3.53 trillion in the month from CNY 2.43 trillion in August. This faster-than-expected loan growth in China is quite surprising as loan demand should have weakened, even though the economy has picked up slightly from more relaxed Covid measures. But there are very few details from the central bank on where the loans went.  One thing of note is that among all the items in total social financing, government bond net issuance jumped by more than CNY5 trillion in just one month. As reported by the central bank, the net increase in government bond issuance was only CNY 399.8 billion in July and CNY304.5 billion in August, and for the whole of the third quarter the net issuance of government bonds increased to CNY5.91 trillion. So, the net issuance of government bonds increased by CNY5.81 trillion alone in September.  This should help local governments experiencing financial pressures to push forward with completing unfinished residential projects, achieving the target of infrastructure investments this year. We also believe that some of these funds will continue to go toward Covid-19 testing. This also means that the fiscal deficit as percentage of GDP should have increased steeply to over 5.3% in September, and we project that the number could reach 6-7% by the end of this year. We expect the trend of faster credit and more government bond issuance to continue for the rest of the year. The economy is weak due to continuing Covid measures, the real estate crisis, and emerging weakness in external demand. That suggests government spending should continue to increase in order to provide enough job stability to ensure a soft landing. Read this article on THINK TagsPBoC Loan growth Fiscal stimulus China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
CHF/JPY Hits Fresh All-Time High in Strong Bullish Uptrend

Cheaper Netflix Is Here!| Jim Cramer Comments On The Shares

Kamila Szypuła Kamila Szypuła 14.10.2022 10:02
Today we take a look at real estate risk in UBS the 2022 Global Real Estate Bubble Index, the ecosystem situation and other news. We will also look at the expert commentary Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver.  In this article: Companies' stocks rising Biodiversity Situation 2022 Global Real Estate Bubble Index Thoughts by Jim Cramer New Netflix's plan Post-pandemic problems of companies Morgan Stanley tweets about companies' inventory rising. The discussion was attended by Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver.   As consumption of goods slows post COVID, companies are experiencing a build up in inventory that could have far reaching implications. Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver discuss. https://t.co/cYXO15cG0n pic.twitter.com/XZbanoplvX — Morgan Stanley (@MorganStanley) October 13, 2022 The pandemic situation negatively affected many industries, individuals and the entire economy. Also, the current post-pademic situation is not positive. Currently, the global problem is blowing inflation, which negatively affects the situation of companies. Another problem is the increase in inventories in warehouses. Product stored for a long time may lose its substance, and the inability to travel causes a reduction in production. Firms will begin to struggle with higher maintenance costs, which can result in job cuts and, in the worst case, even closings. Eyes on biodiversity Credit Suisse in its last tweet addresses the topic of the poor condition of the biosphere.   Biodiversity is being increasingly threatened, with up to one million species at risk of extinction. The reasons include climate change, pollution and deforestation. Read more about why climate change matters for biodiversity: https://t.co/C1UDMqGsap pic.twitter.com/2CNYsuypox — Credit Suisse (@CreditSuisse) October 13, 2022 Biodiversity is important to the entire ecosystem. This ensures that the float chain is in balance and that the ecosystem situation is also stable. We have been struggling with a significant climate change for several decades, many species are already extinct. Humanity that has caused this must take action to prevent an ecological catastrophe. Raising awareness about this is very important, because making individuals aware that action, even small, can save the ecosystem. Which cities may be at risk of a real estate bubble UBS in its tweet informs about the 2022 Global Real Estate Bubble Index.   Our 2022 Global Real Estate Bubble Index is out. Read the full report and find out if your city is at risk of a property bubble. https://t.co/b4s39M0nGz #GREBI #ShareUBS pic.twitter.com/g6hINxpLPI — UBS (@UBS) October 13, 2022 The economic situation in the world is tense. Inflation causes economies to lighten or fall into recession. The staggering state of economies affects individual industries, sectors including the real estate sector. Indeed, the property market has long been supported by central banks. Ultra-low financing conditions and demand outpacing construction have led to increasingly optimistic price expectations among buyers. Current rise of Interest rates—and in turn, financing costs—have climbed in recent months to combat elevated inflation. Consequently, the willingness to pay for owner-occupied homes is likely to take a hit. In its report, UBS makes it possible to get acquainted with the situation on the real estate market in individual cities. Expert opinion on several shares Mad Money On CNBC tweets Jim Cramer's thoughts on Tellurian, Zoetis, and more.   .@JimCramer also gave his thoughts on Tellurian, Zoetis and more. https://t.co/vpuGg6Y6vq — Mad Money On CNBC (@MadMoneyOnCNBC) October 13, 2022 The expert looks at the shares of several companies and expresses his opinions. Knowing an expert's opinion on share prices is important for investors in the current climate. This allows you to give a fresh perspective on these companies. Netflix's plan with ad FXMAG on its Twitter feed informs about CNBC's comment about the ad-powered Netflix's plan.   @CNBC has just commented on the “ad-powered” $6.99/mo @netflix’s plan #StockMarkets https://t.co/fMTV5tigCF — FXMAG.com (@FXMAG24) October 13, 2022 Netflix is very popular. It offers three possible plans. Recently, he announced that there will be a plan powered by advertisements. This plan may turn out to be cheaper. The question arises whether it will enjoy popularity, whether people will opt for the cheaper version of the ad, and whether they prefer to pay more to avoid advertising. Doing so can also be a trick for subscribers to decide to pay more for ad-free viewing comfort, but it can also be an option for people who prefer to save money and watch their favorite games on a platform.
EUR: Stagflation Returns Amid Weaker Growth and Sticky Inflation

Japanese Yen (JPY) Suffers The Most, Expectations For The Chinese Economy (CPI, Export)

Saxo Bank Saxo Bank 14.10.2022 10:48
Summary:  A choppy session in equity and bond markets despite a hot US CPI print for September pushing up Fed funds rate expectations by over 25bps on the terminal rate projections which limits the room for Fed officials to out-hawk the markets. Japanese yen suffers the biggest blow as intervention remains weak, while GBP and Gilts generally supported higher with another potential U-turn in UK fiscal plan. Further tightening from Monetary Authority from Singapore boosts the SGD, and China’s CPI will be on watch in the Asian session before Bank earnings take away the limelight later in the day. What’s happening in markets? The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) indices plunged after hot CPI data then whipsawed higher, moving in a ~5% range Core inflation (which excludes volatile food and energy items) rose to a 40-year high in September which gives the Federal Reserve reason to continue with its aggressive interest-rate hikes. The Nasdaq 100 fell over 3% and the S&P500 fell 2.35% before both major indices whipsawed higher with the Nasdaq ending up 2.3% and the S&P500 up 2.6%. Short covering and macro trading would have played a huge role in the reason markets whipsawed higher. ETF volume accounted for 39% of the turnover, just a touch lower than the record high of 40%. In terms of sectors, financials and energy led the benchmark index higher. Amid the energy crisis, there are the most rising-free cash flows in energy markets, which offer value. U.S. treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) made new highs before waning U.S. treasuries had a volatile after the hot CPI prints. Now the money market fully prices in a 75bps hike in the November FOMC and a terminal rate of 4.9% early next year. The front end of the treasury curve was hit most with 2-year yields rising to as much as 24bps to 4.53% before paring back some of the move to finish the day 17bps higher at 4.65%. 10-year yields made a new high, hitting 4.08% soon after the CPI but spent the rest of the session waning to up only 4bps to close at 3.94%, despite a weak 30-year auction in the afternoon. The sharp rally (yields falling by over 20bps across the curve) in U.K. gilts contributed to stabilising U.S treasuries. The Bank of England bought a record £4.68 billion of gilts in its emergency bond purchase programme which is set to end on Friday. Traders snapped up gilts on speculation that the Truss government will announce the reversal of some of the tax cuts in the mini-budget when the Chancellor of the Exchequer Kwasi Kwarteng returns from the IMF meeting in Washington.  Australia’s ASX200 (ASXSP200.1) may likely meet a similar fate to US equities and have a wild day of trade In Australia a similar situation is playing out with the futures market is now pricing in interest rates will peak at 3.9% next year.  We have seen the RBA express ‘peak hawkishness’, is behind it. But the market is still pricing in rate rises will continue, but at a steady pace. This means growth sectors remain pressured and value strengthens. Consider; amid the energy crisis, there are the most rising-free cash flows in energy markets, which offer value and support share price growth. This is worth perhaps reflecting on, especially given coal prices hit fresh highs and we are not at peak coal demand season (January) yet. As such energy prices seem supported higher. Hong Kong’s Hang Seng (HSIU2) China’s CSI300 (03188:xhkg) Hong Kong and mainland China equities retreated, Hang Seng Index down 1.9% and CSI300 lower by 0.8%. HSBC (00005:xhkg) outperformed and gained 0.7%. Country Garden Services (06098:xhkg), tumbling 14.1%, and Country Garden Holdings (02007:xhkg), falling 9.8% were the worst performers in the Hang Seng Index, as the China property space continued to sell off. Machinery stocks declined on weak excavator sales in China. Weaknesses in China Internet and EV stocks dragged the Hang Seng Tech Index (HSTECH.I) down by 3.4%. On the other hand, local Hong Kong developers, Sun Hung Kai Properties (00016:xhkg), up 2.7%, New World Development (00017:xhkg), up 2.2%, and CK Asset Holdings (01113:xhkg), climbing 1.2% were among the best performers in the benchmark index, following news reports saying the Hong Kong Government is considering to relax the 15% extra stamp duty that non-resident buyers need to pay when buying a property in Hong Kong. In addition, Hong Kong is considering allowing 12 people instead of the currently 4 to gather in public. Macao casino stocks dropped from 1.9% to more than 7% on the dim prospect of relaxation on zero-Covid policy in mainland China. The head of China’s Epidemic Response and Disposal Leading Group, Liang Wannian, said on TV that China had no timeline for an exit from its Covid strategy. Sands China (01928:xhkg) was also troubled by a lawsuit in the U.S. in which the claimant is seeking more than USD7.5 billion in compensation. Healthcare stocks gained at the Hong Kong and mainland bourses. In the A-share market, computing, software, and digital currency concept stocks gained, following China’s central bank’s pledge to promote the development of the digital renminbi. Weak verbal intervention in the Japanese yen USDJPY traded to a fresh record high of 147.67 overnight, and stayed above the 147 handle despite a reversal in US dollar strength later in the session. Only some weak comments were noted from Japanese authorities, with FinMin Suzuki saying that FX volatility was discussed at the G20 meeting. There was also some speculation of more Japanese intervention after some sudden price movements in the Yen yesterday as USDJPY hit a high of 147.47 before knee-jerking lower to 146.52, albeit if it was intervention it wasn't successful with USDJPY back above 147.00. That is perhaps a reason why Japanese MoF official has stayed away from confirming or denying Thursday’s intervention. BOJ Governor Kuroda kept easing bias saying not appropriate to raise rates in Japan now, and with US yields still seeing some more room on the upside, there could be more room for yen weakness. Our technical analyst highlights that if USDJPY breaks 147.65 resistance, 149.34 level is not unlikely. Crude oil (CLX2 & LCOZ2) followed the USD price action While there were enough drivers for the oil prices overnight, price action in crude oil generally followed the USD trend which initially rose after the hot US CPI report cementing expectations for another 75bps rate hike at the November meeting and a small chance of a 100bps rate hike, but it fell later as risk sentiment revived. The IEA's monthly oil market report saw its Q4 demand view lowered by 300k BPD, while its 2023 demand outlook was cut by 470k BPD (both are still expected to show growth). But supply concerns also remained with the weekly US inventory reporting tight market in distillates following a decline of 4.9mln barrels in domestic supply. Crude stocks build was significantly above expectations (9.88mln vs an expected 1.75mln), while stocks at Cushing drew down by 309k; and gasoline posted a surprise build (2.023mln vs an expected -1.825mln). US-Saudi tensions also continue to slide downhill as the White House accused Saudi Arabia of coercing other OPEC+ members into agreeing to a huge output cut, and said it had asked the kingdom for a pause.   What to consider? Hot US CPI pushing Fed tightening expectations higher – can Fed members continue to out-hawk the markets? Core US inflation jumped to a 40-year high of 6.6% y/y in September, making more jumbo Fed rate increases inevitable. Headline CPI also came in higher than expectations, at 8.2% y/y with shelter, food and medical care contributing to the biggest gains. Fed funds rate expectations have pushed higher, with a full 75bps rate hike priced in for November with increasing expectations of a 75bps rate hike in December as well. March 2023 terminal rate expectation pushed higher by about 30bps to 4.94% now. This is above the 4.6% depicted by the Fed’s dot plot, and may leave little room for the Fed members to continue to out-hawk the markets. Fed speakers George, Cook and particularly Waller will be on the wires today. Reports of another potential UK fiscal U-turn There’s no ending the drama in the UK markets, with reports of another potential U-turn in the fiscal plans of Liz Truss government. Now, there are talks that the government is mulling hiking corporation tax despite initial plans to scrap the corporation tax hike and keep it unchanged. Such reports, along with the BOE’s increased bond-buying thus week, could help put a floor on UK assets next week as the central bank halts its bond purchases today. Still, the credibility of UK authorities remains in question, and that would mean it remains hard to include Gilts in asset allocation. Treasury Secretary Yellen warned about the risk of a loss of liquidity in the U.S. treasury market U.S. Treasury Secretary Janet Yellen voiced concerns about a potential breakdown in treasuries trading when answering questions yesterday and said that the Treasury is “worried about a loss of adequate liquidity in the market”. The concern about the potential risk of a sudden loss of liquidity or even a breakdown of trading in the U.S. treasury market has recently risen among some traders as the treasury market loses the largest buyer, the Fed in quantitative tightening. After rounds of QE and large fiscal deficits, the outstanding amount of treasuries has grown to USD23.7 trillion. The daily turnover in treasuries was USD627 billion a day in September.  The turmoil across the pond in the U.K. gilts markets has also added to the worries among traders and probably policy makers in the U.S. U.S. Bank earnings, potential CET1 capital shortfalls to watch Several leading U.S. banks, including JPMorganChase (JPM:xnys), Morgan Stanley (MS:xnys), Citigroup (C:xnys), Wells Fargo (WFC:xnys), US Bancorp (USB:xnys), PNC Financial (PNC:xnys), First Republic Bank (FRC:xnyc) are reporting on Friday. The market focus will be on JPMorganChase, Morgan Stanley, and Citigroup. The key things to watch for are these banks’ net interest margins and their updates on the quality of their loan books, as well as the impact of mark-to-market losses incurred to their available-for-sale investment portfolio, which are largely treasuries and agency mortgage-backed securities, on their common equity tier-1 (CET1).  Some of the banks may be hit by falling bond prices and are facing CET1 capital shortfalls. Taiwan’s TSMC, South Korea’s SK Hynix, and Samsung Electronics secured U.S. approval for getting U.S. equipment for 1 year Taiwan Semiconductor Manufacturing Co said the company had secured a 1-year license from the U.S. government to continue to get U.S. chip-making equipment for its expansion in manufacturing capacity in China for the next 12 months.  Likewise, South Korean chip maker, SK Hynix said it had gotten a 1-year waiver from the U.S. government to import American equipment to its factories in China.  Reportedly, Samsung Electronics got a similar waiver.  On the other hand, China’s top semiconductor equipment maker Naura Technology was said to have told the company’s American engineers to stop working on research and development projects with immediate effect. The Chinese Communist Party convenes its 20th National Congress on Oct 16 General Secretary Xi Jinping will make a speech and presents the Work Report of the 19th Central Committee to the 20th National Congress of the Chinese Communist Party (CCP) on Oct 16. From Oct 16 to 22, around 2,300 delegates from all over the country will elect 205 full members and 171 alternate members of the 20th Central Committee and select the members for the 20th Central Commission for Discipline Inspection. On Oct 22, the 20th National Congress will vote to approve the Work Report of the 19th Central Committee and approve an amendment to the charter of the CCP. The 20th National Congress ends on Oct 22 and the newly elected 20th Central Committee will hold its 1st plenary session on Oct 23 and decide on the most important 25-member Politburo and its 7-member Standing Committee, as well as members of the Central Military Commission and Central Secretariat.  Nomination of Premier and Vice-premiers of the State Council are matters to be decided not this time but later in the 2nd plenary session which may be held in February 2023 and that nomination will need to be approved by the National People’s Congress in March 2023. ECB QT likely to begin in Q2 2023, lower ECB terminal rate ECB discussed possible timeline for balance sheet reduction at Cyprus meeting earlier this month. Consensus appeared to emerge for quantitative tightening to start sometime in Q2 2023. Reports suggested that the ECB could already tweak its language on reinvestments at its October meeting and then could provide a detailed plan possibly in December but more likely in February. Meanwhile, Reuters reported that an ECB staff model puts the terminal rate in Europe at 2.25%, beneath the 3% that markets are currently pricing in; however, the response from ECB policymakers was mixed, with some fearing the model contains errors. China’s CPI is expected to rise to 2.9% in September China is releasing CPI and PPI data on Friday. The median forecast in the Bloomberg survey is expecting the CPI to rise to 2.9% Y/Y in September from 2.5% Y/Y in August.  The rise is likely attributed to higher food prices, including pork prices during the month.  PPI is expected to fall to 1.0% Y/Y in September from 2.3% in August, helped by a high base last year.  China’s export growth is expected to decelerate in September The median forecast in Bloomberg’s survey of economists calls for a sharp deceleration of China’s export growth in USD terms to +4.0% Y/Y in September from +7.1% in August, citing tightened pandemic control measures and a high base of last year. China’s LNG imports are set to decline this winter Bloomberg analysts estimate that China’s LNG import in November and December will be 12.7 million metric tons, a decline of 17% from last year, citing Chinese LNG users canceling LNG import terminal access slots. Singapore avoids a technical recession, MAS re-centres currency band Solid Q3 GDP growth of 4.4% y/y in Singapore according to advance estimates, crushing estimates as construction and services industries outperformed. This reaffirmed that Singapore not only avoided a technical recession, but is on a solid recovery track after the pandemic restrictions were removed. Q/Q growth turned positive to come in strongly at 1.5% from -0.2% previously. This has given further room to the Monetary Authority of Singapore (MAS) to tighten the policy, and it announced re-centring of its currency policy band to the prevailing level. No changes to the width or slope of the band were announced, meaning the boost to the SGD could remain temporary as potentially more USD gains remain likely for now. What is the thinking about what will happen to interest rates in Australia? In Australia the futures market are now pricing in interest rates will peak at 3.9% next year. We have seen the RBA express ‘peak hawkishness’, is behind it. But the market is still pricing in rate rises will continue, but at a steady pace. This means growth sectors remain pressured and value strengthens. Consider; amid the energy crisis, there are the most rising-free cash flows in energy markets, which offer value and support share price growth. This is worth perhaps reflecting on, especially given coal prices hit fresh highs and we are not at peak coal demand season (December-January) yet. Also consider oil prices have moved off their lows. As such energy prices look supported higher for longer despite A. Most traded instruments at Saxo Australia this week The most traded stocks this week at Saxo in Australia are Tesla, Apple, Whitehaven Coal (hit new high), Coles, and Bank of Queensland results. What’s the takeaway here? We need to reflect on the trends. Trends are your friends when it comes to making profits in markets. In the banking sector; we heard from Bank of Queensland who is forecasting house prices to drop and loan growth to slow. Coal prices are moving up and continues to be supported. And in when it comes to the most transacted upon futures, in commodities; we've seen a pick-up in buying of Crude oil Futures; with the OPEC and EIA still predicting demand will outpace supply in 2023, meaning we could expect higher oil prices into next year.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.     Source: https://www.home.saxo/content/articles/equities/market-insights-today-14-oct-v2-14102022
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

The Economic Outlook In Euroland And Germany Is Getting Worse

Kamila Szypuła Kamila Szypuła 18.10.2022 10:21
Today the market will be calmer as I do not have very important data that could be confusing. Mainly, the eyes of traders will be focused on the results of the ZEW Economic Sentiment in Germany and in Euroland as well as the statements of bank criminals in these regions. From the American economy, we are only waiting for the report on Industrial Production. The Reserve Bank of Australia (RBA) events As the day started, events from Australia arrived. The first event took place at 2:05 CET, and it was a speech. The speaker was Michele Bullock, who is an Assistant Governor of the Reserve Bank of Australia. Her public engagements are often used to drop subtle clues regarding future monetary policy. The RBA minutes provide a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the Australian Dollar (AUD). ZEW Economic Sentiment German ZEW Economic Sentiment According to the report on the six-month economic outlook, the mood is currently pessimistic. Another decline is projected from -61.9 to -65.7. Since March, the indicator has been below 0, which means negative results. In June it looked like the situation could improve, but the next results quickly showed that it was a temporary change and that the downward trend has been consistently maintained since then. Source: investing.com Eurozone ZEW Economic Sentiment In the euro zone, the outlook is also negative. It is expected to drop from -60.7 to -61.2. Contrary to Germany, the situation in the euro zone deteriorated only in May. The downward trend has continued since then. The higher results than the German index are due to the fact that 19 Member States have an influence on the European one. Source: investing.com Speeches Also today, representatives of the central banks of Europe and Germany will take the floor. The speeches will be held in the evening. The first one at 18:00 CET and the speaker will be a member of the Executive Board of the European Central Bank, Isabel Schnabel. One hour later at 19:00 CET, Joachim Nagel, who is Deutsche Bundesbank President and voting member of the ECB Governing Council, will speak. Canada Housing Starts The annualized number of new residential buildings that began construction during the reported month will published today. It is expected to drop to 263K from 267.4K. At the beginning of the year, the trend was exemplary, with the highest level recorded in May (287.3K). After this reading, the trend changed to a downward trend. The positive fact is that since the April reading the result was higher than expected. Source: investing.com Canada Foreign Securities Purchases The overall value of domestic stocks, bonds, and money-market assets purchased by foreign investors in Canada is expected to increase compared to the previous month. Canada Foreign Securities Purchases is expected to reach 17.32B. Purchase by foreign investors will provide new money to the Canadian economy and will also demonstrate its attractiveness. During the year, the appearance of the indicator varied considerably. At the beginning of the year it was in a downward trend, then the readings for January and February were downward. After these negative results, the highest reading was recorded at 46.94B. This very positive result was followed by a shift to a downward trend. A rebound after a negative reading in June could mean an improvement. US Industrial Production There are no forecasts for the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. Observing the last result, the trend is downward, and the last reading was 0.13% lower than the previous reading (3.81%). We can only expect it to decline slightly. Summary 2:05 CET RBA Assist Gov Bullock Speaks 2:30 CET RBA Meeting Minutes 11:00 CET German ZEW Economic Sentiment (Oct) 11:00 CET ZEW Economic Sentiment (Oct) 14:15 CET Housing Starts (Sep) 14:30 CET Foreign Securities Purchases (Aug) 15:15 CET US Industrial Production 18:00 CET ECB's Schnabel Speaks 19:00 CET German Buba President Nagel Speaks Source: https://www.investing.com/economic-calendar/
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

Growth In China's Trade Balance. Significant Declines In Major Sectors Of Europe And Great Britain

Kamila Szypuła Kamila Szypuła 24.10.2022 12:20
China is making up for its situation with overdue reports. Today, the market is mainly focused on PMI results from various sectors and various countries. Positive results from China From 3:30 a.m. CET to 4:00 a.m. CET, China released a ton of reports. Most of them show positive results. The results for exports are positive, with Chinese esports falling from 18.0% in August to 7.1%. This was a drastic decline and it also fell to 5.7%, but was higher than expected (4.1%). The trading result was also high despite a 0.3% rise in Imports. The balance rose from 79.39B to 84.74B. Because imports continued and exports were higher than expected. Such significant growth is good for the Chinese economy. The growth of the economy confirms the positive result of GDP for the third quarter (Q3). The core GDP increased from 0.4% to 3.9%, and the quarterly (QoQ) from a negative level of -2.7% to 3.9%. The production sector has also grown significantly. The current reading of the unit is at the level of 6.3%. Which means that this sector has grown once again. One of the negative signals from the Chinese economy is the unemployment rate. It was expected to fall by 0.1% but increased from 5.3% to 5.5%. French PMI The readings from France were not that positive. The Purchasing Managers Index for the manufacturing sector turned out to be positive. The indicator recorded a slight increase by 0.3%. The current reading is at 47.4 against the forecast 47.1. There has been a decline in the serivices sector. True, the decline was expected, but the current result has not met expectations. Currently, the Services PMI for France is 51.3. It fell from 52.9 and the projected decline was at 51.5. European PMI’s For the European Union region, PMI indicators fell. Services PMI fell as expected to 48.2 against previous reading at 48.8. This is a slight decrease, but has an impact on the currency position. Meanwhile, the Manufacturing PMI index dropped significantly from the level of 48.4 to the level of 46.6. Given the current situation in the euro zone, declines were expected. German PMI For the same sectors as Europe and France, Germany published its PMI. Contrary to France, Services PMI was positive, ie higher than expected (44.7) and reached the level of 44.9. The Manufacturing Purchasing Managers Index for Germany dropped significantly from 47.8 to 45.7. In both cases, these were declines as expected. The difference is that at some point it was higher than expected. UK PMI The United Kingdom, like the rest of the old continent, has published reports on the Services and Manufacturing Purchasing Managers Index. Both readings were lower than expected. Similarly to the above-mentioned regions (Germany, France, EU), declines were forecast. In the UK, Services PMI dropped from 50.0 to 47.5 and manufacturing from 48.4 to 46.6. Today's readings show a significant deterioration in these sectors, which negatively affects the exchange rate of the British currency (GBP). USA PMI America, like countries on the old continent, will publish PMI reports in the afternoon (15:45 CET). The US also expects a decline, but less significant. For Services PMI it is expected to drop from 49.3 to 49.2. A drop of 0.1 will not significantly affect the appearance of the currency and the sector. In contrast, the manufacturing sector is expected to drop by 1.0. The last reading of the indicator was at 52.0. Speeches Two important speeches are scheduled for today. The first one will take place at 16:15 CET. David Ramsden, member of the Bank of England, will speak. In the present situation of the UK, his speech can give concrete indications on the way forward in the field of motor policy. The next and last speech of the dishes will be from the American overseas. Treasury Secretary Janet L. Yellen is set to speak at 17:00 CET. She speaks frequently on a broad range of subjects and her speeches are often used to signal administration policy shifts to the public and to foreign governments. Summary: From the above information, we can conclude that the situation is generally very unfavorable. And the European Union and the United Kingdom may face a severe recession. Other regions of the world, despite the deteriorating situation, are doing much better than the countries of the old continent. 3:51 CET Chinese Exports 3:52 CET Chinese Imports 3:53 CET Chinese Trade Balance 4:00 CET Chinese GDP 4:00 CET Chinese Unemployment Rate 9:15 CET France Services And Manufacturing Purchasing Managers Index 9:30 CET German Services and Manufacturing PMI 10:00 CET European Services and Manufacturing PMI 10:30 CET UK Services and Manufacturing PMI 15:45 CET U.S. Services And Manufacturing PMI 16:15 CET MPC Member Ramsden Speaks 17:00 CET U.S. Treasury Secretary Yellen Speaks Source: https://www.investing.com/economic-calendar/
Ed Moya Reviews The Latest Market News With Jonny Hart (OANDA Podcast)

Podcast: John J. Hardy Comments The FX Market, Ole Hansen Reviews The Commodities And More

Saxo Bank Saxo Bank 25.10.2022 12:24
Summary:  Today we round out our view on the growing Chinese equity market discount as the market takes a dim view of prospects for returns there, given the policy focus on "common prosperity", not to mention geopolitical concerns. The weakening yuan is also a key focus in Asia. Elsewhere, today we have the earnings season getting into full swing today with Microsoft, Alphabet and many others reporting. Crude oil platinum, FX and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting an on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-25-oct-2022-25102022
John Hardy to FXMAG: The UK economy faces significant head-winds from supply side limitations

We Know The Successor Of Liz Truss | Asia's Economy Is Plummeting Into Public Debt

Kamila Szypuła Kamila Szypuła 25.10.2022 11:12
UPS reports its positive results. Negative news is pouring in from Asia. And also we met the new UK prime minister. In this article: The next UK prime minister Summary of Q3 Electric-vehicle market Asia’s economic outlook FedEx problems Rishi Sunak to become the next UK prime minister CNBC Now tweets about the new prime minister of UK BREAKING: Rishi Sunak set to be Britain's new prime minister as rival Penny Mordaunt drops out https://t.co/sNXCUoAvtq — CNBC Now (@CNBCnow) October 24, 2022 Rishi Sunak is set to become Britain’s new prime minister, succeeding Liz Truss who resigned Thursday. Liz Truss was the shortest reigning prime minister in the UK, the current situation has surpassed her. After Liz Truss' resignation, there were voices that Boris Johnson would again take over the British government. But as we know, these were only false guesses. Current information that Sunak will take over this position. He will not become prime minister immediately because, according to the ritual, the outgoing prime minister, in this case Truss, must first resign in favor of King Charles. After that, the king will appoint another prime minister, Sunak, in the coming days. The question is whether the new prime minister will cope with the challenges that await him and restore stability to the British economy? UBS results UBS in its tweets shares the results for the third quarter. Particularly noteworthy is the tweet with the statement by CEO Ralph Hamers. Hear from our CEO Ralph Hamers on the progress we made over the third quarter as well as the trends we saw for client activity. pic.twitter.com/OjEAeb5WeV — UBS (@UBS) October 25, 2022 UBS Group AG, as an international investment bank and financial services company, enjoys popularity and high profits. Along with the end of a certain period, in this case of the third quarter, the company summed up its achievements. The situation on the markets is diversified, and the observation of new trends may prove very helpful for the functioning of the instance. In the author's post, you can find out about the situation of UBS, which can affect its prominence and positions in financial services. Toyota and electric-vehicle Reuters Business tweets about electric-vehicle. On @Breakingviews: Toyota is mulling its third electric-vehicle reboot in 13 months. Frequent rejigs can mean bigwigs are flailing for ideas. But its latest overhaul implies boss Akio Toyoda is addressing missteps with more speed, says @AntonyMCurrie https://t.co/ayxtHq1ZAC pic.twitter.com/OuHPhkGTLQ — Reuters Business (@ReutersBiz) October 25, 2022 There is no doubt that electronic vehicles have become something desirable. Many car manufacturing companies try to modernize their products. One of them is Toyota, which is trying to match the giant in the production of electronic cars, Tesla. Some people may take away from trying to look for new ideas, and for some it means growing their business. Public debt in Asia has increased The IMF in its post addresses the topic of economic problems in Asia. Amid Asia’s dimming economic outlook and rising inflation, public debt has risen substantially in Asia over the past 15 years—particularly in the advanced economies and China. https://t.co/gDWrrRU0uD pic.twitter.com/YvJDzyAM7c — IMF (@IMFNews) October 25, 2022 Economies around the world struggle with the problems of rising inflation and its negative impact on the functioning of economies. China as Asia's largest economy is also struggling. Despite yesterday's positive results (Read more : Growth In China's Trade Balance. Significant Declines In Major Sectors Of Europe And Great Britain| FXMAG.COM), there is a bigger problem of public debt. Public debt is growing rapidly, which means that the governments of Asian countries are indebted to power. Despite positive reports, such a situation may have negative consequences for the economy. This may mean that a financial crisis is approaching, and as we know from history, dealing with this problem can be laborious and very expensive. Companies face problems Bloomberg Terminal tweets about the market loses of the FedEx shipping company. FedEx lost $11 billion in market value last month, wiping out two years of stock gains, after it pulled its forecast, feeding into fears of a global demand slowdown.https://t.co/OthLH3tipw — Bloomberg Terminal (@TheTerminal) October 24, 2022 The economic slowdown and rising inflation affect the situation of shipping companies. The prognosis is not very good. FedEx and UPS expect to see dramatic drops in US and global shipments. Which will have a negative impact on the financial result of these companies, and thus may cause a reduction in employment.
Twitter And Elon Musk Faced A Growing List Of Claims

Twitter Belongs To Elon Musk! | Asia-Pacific Exposed To Losses | Some Advices About Financial Independence And Motivation

Kamila Szypuła Kamila Szypuła 28.10.2022 11:48
Today, a lot of information is contained in the word 'change'. Credit Suisse is planning a transformation and Twitter has changed hands. The change also affects developments, including cybersecurity. In this article: Cybersecurity Credit Suisse Motivating employees Financial Independence The Asia-Pacific situation The situation of Twitter Cybersecurity developments Morgan Stanley tweets about cybersecurity developments   The cybersecurity sector is rapidly growing and developing new ways to guard against sophisticated attacks. How can you take advantage of the long-term investment opportunity? Read here: https://t.co/14Auf7lio4 pic.twitter.com/BrqUjLz9v5 — Morgan Stanley (@MorganStanley) October 26, 2022 Currently, every user attaches great importance to online security. Strong passwords or anti-virus programs no longer excuse. As the world creates more data and accesses the web in more ways, cybercriminals find new vulnerabilities to exploit. For this reason, cybersecurity companies are constantly working on new methods of protection. Such a development is especially important for investors who spend their capital, usually quite large, on investments, and the protection of data and resources is the most important issue. For this reason, security in cyberspace is at the center of their attention. Transformation Credit Suisse in its tweet about its transformation.   Today, we unveiled our new strategy and transformation plan, which are based on a series of decisive actions to create a simpler, more focused and more stable Credit Suisse built around client needs. Find out more here: https://t.co/40CU4bUl6Q #CSresults pic.twitter.com/8xFjadtFsA — Credit Suisse (@CreditSuisse) October 27, 2022 Recently, the Swiss bank was full of negative news. Information about changes may evoke mixed emotions. But the company's efforts may prove helpful to its situation. How to motivate? In his tweet, Goldman Sachs promotes his podcast, which this time addresses the topic of motivating employees.   Chief CEO Carolyn Childers shares lessons on how founders motivate their teams on our latest #ExchangesGS podcast: https://t.co/s6hX5svc9c pic.twitter.com/JEDyvEw44n — Goldman Sachs (@GoldmanSachs) October 27, 2022 Motivating employees is a process and one of the management functions regulating the behavior of employed people, so that their actions contribute to the achievement of the company's goals. Thus, it is an important mechanism of every enterprise. new methods emerge with the development of the labor market and the environment of a given sector. Innovation in motivating employees is also important as well as in technology. Knowing what to motivate and what to avoid can bring positive results not only for the company but also for the individual employee. A sense of belonging and appreciation may turn out to be more important for such an entity than remuneration. How to become financially independent? Morningstar, Inc., in its tweet, informs about Kiersten and Julien Saunders’ the topic of the conversation.   ðŸÅ½™ï¸Â This week on The Long View: Kiersten and Julien Saunders, hosts of @richandregular, discuss their journey toward financial independence, the racial wealth gap, and getting off the social-media treadmill.Listen here: https://t.co/u1Z2TTxFlS — Morningstar, Inc. (@MorningstarInc) October 28, 2022 Recently, every young person is asking himself how to become financially independent and what to do to retire early. The life situation and finances are closely related in this type of conferences. Most people see obstacles to the achievement of such goals. Knowing the ways of people who have already achieved it can be information for others. Asia would be the biggest loser? CNBC tweets about the possible biggest loser in the markets - Asia.   Asia would be the biggest loser if the global economy splits up, IMF warns https://t.co/nPiXNEjOFY — CNBC (@CNBC) October 28, 2022 The IMF reports that Asia and the Pacific have more to lose than any other region. Growing geopolitical tensions (USA-China, Ukraine-Russia) mean that trade in Asia is significantly deteriorating. The fear of start-ups has increased not only in terms of GDP but also in the situation of individual companies. So can the IMF be right about the Asia-Pacific situation? Elon Musk is now responsible for Twitter CNBC Now informs about the situation of Twitter purchases by Elon Musk.   BREAKING: Twitter’s CEO and CFO are out as Elon Musk takes over the company, sources tell CNBC https://t.co/P8OaJAPMXg — CNBC Now (@CNBCnow) October 28, 2022 Recently, there is a lot of information about the takeover of twitter by Elon Musk. It turns out that there will be significant shortcomings of this. Twitter CEO Parag Agrawal and Finance Chief Ned Segal have both left the San Francisco headquarters and will not be back. Twitter is now in the hands of Elon Musk. The confirmation is added by the tweet of the CEO Of Tesla. Speaking of Elon Musk's purchases of Twitter, I mentioned it in an article in early October. the bird is freed — Elon Musk (@elonmusk) October 28, 2022 What could this mean for the plaform, will the acquisition be a benefit? Many questions arise about this. We can only know the answer when somethong heppen.
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Economic Indicators - ZEW, PPI And Central Banks' Minutes Explained By FXMAG.COM

Kamila Szypuła Kamila Szypuła 22.10.2022 11:54
The market is full of reports on various macroeconomic indicators and we can hear from experts how they affect the economic situation. But how exactly are they calculated and what do they represent? This article will help you understand ZEW Indicator of Economic Sentiment and Producer Price Index (PPI) better. In addition, we will find out what central bank's minutes are and why they are important to the markets.     Central bank’s minutes Decisions on monetary policy are taken by central banks. Recently, the decision on interest rates has been largely heard. Such decisions are made at meetings of bank members. The market, if you want to know the details, can use the central bank minutes. By definition, this is summarise the bank's current outlook on the economy and explain the reasoning behind its chosen actions. In the publication, we get acquainted with the course of the meeting. Consequently, with the topics discussed, the discussion and the decisions that were made. The decisions made there affect borrowing, spending, and savings rates. One of the practical advantages is that the publication of minutes helped markets to predict the monetary policy decisions of the bank.   ZEW Indicator of Economic Sentiment On Tuesday, we were able to see the current data on the ZEW economic sentiment in Germany and in Europe. ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which translates to the Center for European Economic Research. The indicator focuses on exploring the future of Germany. Economic sentiment indicators are a popular way to measure and forecast trends in an economy. This indicator examines the sentiment of 350 economists and analysts. These experts come from the banks, insurance companies and financial departments of selected corporations. They are asked about their expectations for the coming six months regarding the economy in general, inflation rates, interest rates, stock markets, exchange rates and oil prices.   How to calculate it? It is the difference between the percentage share of analysts that are optimistic and the share of analysts that are pessimistic for the German economy in six months. For example: If 45% of participants expect the economic situation in Germany to improve in the next six months, 20%expect no change, and 35% expect the economic situation to worsen, the index will be 10. A positive number means that the share of optimists outweighs involving pessimists and vice versa. The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. These two reports were discussed in a practical example in the my previous article: The Economic Outlook In Euroland And Germany Is Getting Worse| FXMAG.COM   What is Producer Price Index (PPI)? The PPI is somewhat similar to the CPI except that it looks at price increases from the producer's rather than the consumer perspective. The PPI determines the change in output prices faced by producers. Sometimes it is omitted when assessing the pace of price changes. As stated in the definition and practice the index can be measured on raw (iron ore, aluminum scrap, soybeans and wheat), intermediate (leather, paper and basic chemicals) and finished products. When calculating the base PPI, variable items such as energy and food prices are excluded from the base calculation. Calculating the PPI is done in the same way as the CPI, but from the producer's basket side i.e. Current price of basket/Base price of basket. Tracking the PPI is just as important as the CPI because it allows you to identify the cause of changes in the CPI. For example, if the CPI is rising much faster than the PPI, this may indicate that factors other than inflation may be causing retailers to increase prices. Read more about US PPI: Great Britain’s CPI Lower Than The Expected, Eyes On US PPI| FXMAG.COM Source: zew.de,investopedia.com
Kiwi Faces Depreciation Pressure: RBNZ Expected to Hold Rates Amidst Downward Momentum

Increase In German Trade Balance | Waiting For Fed’s Decision

Kamila Szypuła Kamila Szypuła 02.11.2022 10:51
Today, the most important reports for the markets will be from Germany and the USA. In the first half of the day, attention is focused on reports from Germany, but the markets are still awaiting the most important decision of the day - the Fed's decision. German Trade Balance (Sep) The trade result report for the biggest waterfall in the euro zone is positive. The current reading shows an increase from 1.2B to 3.7B. This is quite an optimistic result and could be the start of a trend reversal. Moreover, a trade surplus can create employment and economic growth, but may also lead to higher prices and interest rates within an economy. The reading was very high in April and then dropped drastically. The very low level was maintained for the next two months. After the increase in August, there was another downward trend. This trend was expected to continue this time, the expected level was 0.2B. Source: investing.com German Manufacturing PMI Expectations for Germany Manufacturing were lower than the previous reading, ie the expected level was at 45.7 against the latest reading of 47.8. The current reading of the gauge is 45.5. Another decline was clearly expected, but was 0.2% lower than the forecast level. As you can see, the approaches to this indicator and this sector are projected on a downward trend. German Unemployment Change The change in the number of unemployed fell in Germany from 15K to 8K. This is a positive reading in view of the sustained unemployment rate of 5.5%. As we can read from the data, this number has been decreasing month by month since the sudden increase in the unemployed in June. This is a positive signal for the labor market. Source: investing.com ADP Nonfarm Employment Change The first report that will be published in America will concern the labor market, namely the monthly change in non-farm, private employment. This number is expected to drop from 208K to 195K. These forecasts suggest that the recent rise was just a step back from the prevailing downtrend. Source: investing.com Crude Oil Inventories The next report will be the weekly report on the U.S. Crude Oil Inventories. The last reading was at 2.588M and this was a sharp increase. It is currently predicted to reach the level of 0.367M. What if? If the decline in crude is less than expected, it implies greater demand and is bullish for crude prices. The same can be said if a increase in inventories is more than expected. Fed Interest Rate Decision The most important event of the day, or even of the week, is the Fed's decision on interest rates. The Fed is not expected to follow other central bank decisions and will not soften its decisions. The Fed rarely deviates from expectations in its decisions, therefore the market is ready for another interest rate hike by 75bp. We have to wait for this decision until 19:00 CET Read more: What Can Bring The Fed's Next Decision And What It Means For Economy?| FXMAG.COM FOMC Press Conference U.S. Federal Open Market Committee (FOMC) Press Conference will take place a half an hour after decision. Valuable comments may appear at the press conference regarding the current decision, the situation of the farm and future activities. Summary 8:00 CET German Trade Balance (Sep) 9:55 CET German Manufacturing PMI (Oct) 9:55 CET German Unemployment Change (Oct) 13:15 CET ADP Nonfarm Employment Change (Oct) 15:30 CET Crude Oil Inventories 19:00 CET Fed Interest Rate Decision 19:30 CET FOMC Press Conference Source: Economic Calendar - Investing.com
Rates Spark: Italy's Retail Bonds and Their Impact on Government Funding

Learn what are retail sales and the Purchasing Managers Index (PMI)

Kamila Szypuła Kamila Szypuła 29.10.2022 09:55
At the beginning of each month there are reports on changes in individual sectors, e.g. Services PMI, Manufacturing PMI. When telling you what the individual sectors are, the question arises what PMI is? Retail sales also appear in reports, but why is it so important for a given economy?   Retail Sales Retail sales are a key macroeconomic indicator that tracks consumer demand for finished goods. Shows total sales, percentage change, and year-over-year sales change. Retail sales data is reported by all grocery and retail stores. They are divided into several different categories including (but not limited to):   Shops with clothing and clothing accessories Pharmacies and drugstores Grocery stores and drinks Electronics and household appliances stores Furniture stores Gas stations New car dealers   Seasonality affects retail sales. The fourth quarter - the months October to December - tends to have the highest level of sales, partly due to the holiday shopping season. The most seasonal retail sectors include electronics, sporting goods, e-commerce and apparel. Higher inflation causes the prices of most goods and services to rise sharply. As a result, consumers tend to limit overall spending or prioritize needs and choose inflation-proof purchases.   The exact measure of retail sales is extremely important in assessing the economic condition. This is due to the fact that consumer spending or personal consumption expenditures constitute a significant part of GDP.    Moreover, the Retail Sales Report helps analysts and investors to gauge the health of the economy and any possible inflation pressures. Higher sales are good news for retail shareholders as it means higher returns. Similar to GDP, this indicator is often broken out into various industries so more detailed analysis can provide information on the economy.   Check out how the retail sales looks like on an example: Inflation In Eurozone Higher Than Forecast | Retail Sales Reports| FXMAG.COM   The Purchasing Managers' Index (PMI) According to the Dictionary of Economics, the purchasing managers index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. The PMI is based on a monthly survey of supply chain managers across 19 industries, covering both upstream and downstream activity.   Speaking otherwise, it is a measure of economic activity based on how many of purchases in individual industries, claims that there has been an increase in activity in the last month.   The main advantage of the PMI is the forward indicator as it is published on the first day of the month after the survey was conducted. This helps to provide a more updated picture of the economic situation than the quarterly indices. The disadvantage is that PMI indices focus only on a given sector, which may not give a complete picture. While PMIs have their limitations as economic indicators, they are likely to continue to be closely watched.    Leading PMI is a number from 0 to 100. A PMI above 50 indicates an increase compared to the previous month. A PMI reading below 50 indicates a contraction and a reading of 50 indicates no change. The further from 50, the greater the level of change. The PMI index is calculated as:   PMI = (P1 * 1) + (P2 * 0.5) + (P3 * 0) Where: P1 = percentage of responses reporting improvement P2 = percentage of responses reporting no change P3 = percentage of responses reporting worsening   It is also considered a good indicator of economic activity. Economists consider output growth as measured by the PMI to be a good indicator of industrial production, for which official statistics are released later. Many countries' central banks also use the index to make decisions about interest rates.   The PMI index also points to corporate profits. Growth in the enterprise affects the attractiveness of the company on the market. The decline is analogous to the growth. As a result, it is closely watched by both investors and bond markets.   In sum, the PMI seems to be a good, although not perfect, indicator of a country's current economic condition.   This index was presented on a practical example: Forecasts To Decrease. Russia PMI index has already fallen| FXMAG.COM   Source: The Dictionary of Economics
Investors Are Worried That Elon Musk Is Losing His Focus | The Eurozone Recession Can Dampen Investors’ Hopes

Ferrari And Still High Demand | Tips For Money Managing

Kamila Szypuła Kamila Szypuła 03.11.2022 09:51
We can still hear about investments, how certain companies are doing, and about other economic developments in the markets. The most important point is sometimes overlooked, that is managing your own money. Today, a few tweets can help advance knowledge in this area. In addition, reading UBS's investor sentiment report could also be interesting. In this article: Some tips for retire Health savings accounts The Ferrari situation Managing finances The minds of investors How to secure yourself for retirement CNBC in its post addresses the topic of retire. Financial expert Chris Hogan gives some tips. How much money do you really need to retire? Financial expert Chris Hogan shares 5 key factors to consider. https://t.co/V1Q1NaO799 pic.twitter.com/7K8iv5nuO6 — CNBC (@CNBC) November 3, 2022 Not only people approaching retirement age are wondering how to protect themselves for this period of life. Along with the increase in education, the interest in methods of financial security for the old age is also growing. However, to take action, we need to know where to start and what to pay attention to. Short videos of Chris Hogan's statement can help you take that first step. How to manage an health savings accounts Morningstar Inc. in his tweet, he shares his advice on how to make the most of an health savings accounts. Health savings accounts can help you stretch your money further to cover medical expenses, but they're also powerful investment vehicles.Our guide covers how to make the most of an HSA — plus a list of the top HSA providers, for spending or investing. https://t.co/B2g51p0Q37 — Morningstar, Inc. (@MorningstarInc) November 3, 2022 Not only is your retirement security important, it's also your health insurance. And nowadays anything can be an investment, and so is the well-being aspect. Spending and investing money on health care expenses should be handled by everyone. You can find out how to wisely manage your Health Savings Accounts in the article next to the tweet. Luxury Italian sports car market Reuters Business tweets about the luxury sports car situation like Ferrari. WATCH: Luxury Italian sports car maker Ferrari said it isn’t troubled by any cost-of-living crunch, whereas British rival Aston Martin faces supply chain problems https://t.co/NvfNF9GUvo pic.twitter.com/0ndhyWC05I — Reuters Business (@ReutersBiz) November 3, 2022 The current difficult economic situation largely affects businesses and consumers. The car market may run into some problems like supply chain problems or cost-of-living crunch. The author's tweet shows that the Ferrari Luxury Italian sports car maker, despite economic difficulties, is still in high demand. For those interested in this sector, seeing which brand is doing better or worse can give a new picture of the situation and also affect the image of a given brand. Better manage your finances Charles Schwab Corp tweets about your investments. Want to show your investments some more love, but don't know how? Try these 7 things. https://t.co/LIaFCzcQSu — Charles Schwab Corp (@CharlesSchwab) November 2, 2022 Managing your finances is not easy. Everyone who tried to organize their finase made mistakes, which led to discouragement to take new, new actions in this direction. In order to better manage your finances, you need to be aware of certain issues. We all try to maintain a healthy relationship with our finances and break destructive habits. Some friendly advice is provided by this tweet. Surveys about how investors feel UBS tweets about UBS Investor Sentiment. How are investors responding to recession, inflation, and geopolitical concerns? We surveyed over 4,000 investors globally for our latest #UBSInvestorSentiment report and found that they have mixed responses to the current environment. #shareUBS — UBS (@UBS) November 2, 2022 UBS keeps reports on investor sentiment. In the current economic situation, they can turn out to be very valuable for the market. The impact of the environment has a significant impact on investment decisions. in very bad conditions, investors may not take risky actions, which may have an impact on the share price, and thus on the attractiveness of given companies. Reading this report can give you a fresh picture of the mood you are in and the future of the situation.
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

Positive PMI Results In Europe And Great Britain | Waiting For The Result Of US Nonfarm Payrolls

Kamila Szypuła Kamila Szypuła 04.11.2022 10:48
In the first half of the day, attention will be paid to PMI reports in Europe. In the second half of the day, attention will shift to the results of the North American labor market. Retail Sales The first important data for the market came from Australia at the beginning of the day. the published retail sales report for another consecutive reading remains unchanged at 0.6%. This means that the demand for manufactured goods in this country remains unchanged, which may be due to the economic situation. European Services PMI The largest economies of the euro zone today published their reports for Services PMI. The overall picture is positive. Spain was the first country in the European bloc to provide a positive report. Services PMI indices reached the level of 49.7 and it was an increase against the expected 48.3 and against the previous reading of 48.5. In France, the result was also higher than expected (51.3) and reached the level of 51.7. The current reading is much lower than the previous 52.9. In the largest economy of the European Union, i.e. Germany, this indicator also increased from the level of 45.0 to the level of 46.6. These three positive readings significantly influenced the European Services PMI score which reached 48.6 and was only 0.2 from the previous reading. Only in Italy did this indicator drop. The current reading in this country is at 46.4. UK Construction PMI For the UK, the most important event of today is the Construction PMI report. The reading turned out to be really positive. The result for this sector was higher not only than the forecasts but also higher than the previous result. Construction PMI increased from 52.3 to 53.2 ECB President’s speech At the end of the week, an important speech will be from the European Union. At 10:30 CET, the following spoke: European Central Bank (ECB) President Christine Lagarde. Her comments may determine a short-term positive or negative trend. As the most important person in a European bank, he can provide very valuable comments and guidelines regarding future actions within the framework of monetary policy. Nonfarm Payrolls The United States will publish data on the number of people employed outside the agricultural sector. This number is expected to reach 200K. This forecast shows that the downward trend continues. After March, the number dropped significantly and maintained this trend until it broke out in August which was a false sign of a change in the trend. After a positive August, the decline will begin again. It may be a positive fact that he achieved better results than expected. Source: investing.com US Unemployment Rate The unemployment rate is expected to reach 3.6%. If the results met the expectations, it would mean an increase of 0.1% and thus a return to the level obtained between April and July. Canada Employment Change Canada also share the results of its job market. The outlook for the Canadian labor market is not very good. Employment Change is expected will reach the level of 10K over the previous 21.1K. The latest reading was a positive reflection from the negative levels from previous periods, but it may turn out to be one-off. Although expectations are above zero, it is not a good picture of the Canadian economy. The unemployment rate can reflect this as well. The unemployment rate is expected to increase by 10 porcet points to 5.3%. Summary 1:30 CET Australia Retail Sales (MoM) 9:15 CET Spanish Services PMI 9:45 CET Italian Services PMI 9:50 CET French Services PMI 9:55 CET German Services PMI 10:00 CET EU Services PMI (Oct) 10:30 CET UK Construction PMI 10:30 CET ECB President Lagarde Speaks 13:30 CET US Nonfarm Payrolls (Oct) 13:30 CET US Unemployment Rate (Oct) 13:30 CET Canada Employment Change (Oct) Source: https://www.investing.com/economic-calendar/
Conflict Over Taiwan Would Trigger A Huge Global economic Shock

Inflation In Both China And Taiwan Is Expected To Slow

ING Economics ING Economics 05.11.2022 08:17
In the coming week, we'll get trade data from China and Taiwan which should indicate that global trade is slowing In this article China and Taiwan reports could highlight slowing global trade Third-quarter GDP from Indonesia and Philippines India’s industrial production China’s loan data Other important releases: Korea’s employment figures and price data from China and Taiwan Source: Shutterstock China and Taiwan reports could highlight slowing global trade China and Taiwan will release trade data next week. We expect both to report slower export growth with Taiwan possibly even posting a contraction. Import growth should however slow even faster than exports resulting in larger trade surpluses, which would help GDP growth. Third-quarter GDP from Indonesia and Philippines Indonesia and the Philippines report third-quarter GDP figures next week. Indonesia is expected to post a 5.5% year-on-year expansion, helped by strong exports and robust manufacturing activity.  In the Philippines, third-quarter GDP will likely settle at 5.2%YoY, a slowdown from the previous quarter after the boost from the May presidential election fades. Surging inflation likely capped household spending although the recent pickup in bank lending could offset the consumption slowdown.  India’s industrial production India’s September industrial production figure should show some improvement from the -0.8%YoY pace registered in August, as manufacturing PMI indices point to a modest improvement in output from the previous month, which should translate into about a 2%YoY increase. China’s loan data China will release loan data sometime next week. After the unexpectedly strong growth posted in September, overall lending could show a smaller monthly increase. This should still be strong compared to the previous years’ fourth-quarter loan growth as the Chinese government urges banks to support the economy. Other important releases: Korea’s employment figures and price data from China and Taiwan Korea will release the latest job numbers with expectations for the jobless rate to rise with health/social work jobs declining, coupled with potential job cuts stemming from sluggish manufacturing activity. Meanwhile, inflation in both China and Taiwan is expected to slow. The PPI inflation report from China could be a market mover as it could post a contraction, reflecting the weakness of the economy. Asia Economic Calendar Source: Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets Asia Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

Tentative Signs By Central Bankers On Both Sides Of The Atlantic Ocean

ING Economics ING Economics 05.11.2022 08:26
There are tentative signs that central bankers on both sides of the Atlantic are considering a pivot to more modest interest rate hikes. But this could be months away In this article A difficult road ahead Signs of a slowdown Central banks: A waiting game Share    Download article as PDF   As we approach the end of the year, many of us are waiting. Waiting for the end of the war, waiting for inflation to finally peak, waiting for the Christmas holiday season to begin. For financial markets, the wait is on central banks and whether they will pivot. “Pivot” is probably not the correct term to use as a pivot would imply a real turning point in central bank policies, while what markets - and we - are actually looking for are signs of a slowdown and an eventual end to the current rate hike cycles. A difficult road ahead Getting to this pivotal moment is easier said than done. Major central banks are still facing high and, in some cases, increasing inflation, while signs of economic slowdowns and recessions are growing. It will be too little too late for central banks to simply bet that weaker demand will break down inflation and inflation expectations, as long as inflation largely remains a supply-side issue. Admittedly, given the importance housing costs play in the US inflation measure, the Federal Reserve is in a better position to bring down inflation (via higher mortgage rates depressing the costs of shelter) than, for example, the European Central Bank. What complicates central bankers’ decisions is the fact that they have now rushed so much toward policy normalisation that they cannot see the full impact of their decisions yet. It typically takes at least six to nine months before monetary policy changes have found their full way into the real economy. This time lag increases the risk of overshooting. At the same time, however, the stickiness of inflation over the last two years has also increased the risk that a too-premature end to tighter monetary policy will be insufficient in returning the inflation genie to the bottle. It’s not easy being a central banker these days. Signs of a slowdown Still, we have seen tentative signs by central bankers on both sides of the Atlantic Ocean suggesting that a slowdown, or even an end to rate hikes, is being considered an option. It will not necessarily be an explicit end to hikes but rather conveyed as a "taking stock pause". As the looming economic slowdowns and recessions will be more visible in December, we expect major central banks to slow down their tightening efforts and eventually end them in the first quarter of next year. Don’t forget that balance sheet deleveraging can easily be a substitute to rate hikes in 2023. In Europe, in particular, the inflation shock will dominate next year’s headlines. While government price caps can limit inflationary pressure in the short run, they will push up headline inflation immediately when they are lifted again. Government subsidies which offset the negative effects of higher energy prices on households and consumers do actually extend inflationary pressures. Also, the energy crisis won't disappear after this winter but will last until the winter of 2023/24 as national gas reserves will start the next year at lower levels than in the spring of 2022, putting upward pressure on the demand for natural gas. Whether they like it or not, the worsening economic backdrop has brought many central bankers closer to the moment of slowing tightening efforts, and eventually even pausing rate hikes. Financial markets waiting for the pivot might not be like waiting for Godot, but for a real pivot, headline and core inflation will first need to come down significantly. This is a scenario we definitely do not foresee before next summer. TagsInflation Central banks
The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

The Bank Of Korea (BOK) Might Have To Take Smaller Steps

TeleTrade Comments TeleTrade Comments 07.11.2022 09:15
Economist at UOB Group Ho Woei Chen comments on the upcoming BoK meeting later this month. Key Takeaways “Both the headline and core (excluding agriculture and oil prices) inflation strengthened in Oct. The more worrying was core inflation which rose to a fresh high since Feb 2009.” “We expect headline inflation to stay above 5% until Feb 2023 before a high base effect sets in and estimate inflation to average 5.2% for 2022 and 3.5% for 2023.” “The stronger than expected advance GDP in 3Q22 has not changed our more pessimistic economic outlook for South Korea. High frequency data including the S&P Global South Korea manufacturing PMI and exports in Oct are in line with this outlook while there are also risks that the private consumption recovery could stall as domestic interest rates rise to a decade high.” “The monetary policy decision on 24 Nov will be the last for the year and the next meeting is scheduled on 13 Jan 2023. We continue to see the “terminal” base rate at “around 3.50%” given higher Oct inflation and Fed indicating in Nov FOMC that the ultimate level of interest rates in the US will be higher than previously expected.” “However, with a slowing economy and rising interest rate adding to strains in the credit market, the BOK might have to take smaller steps ahead. Thus, while we see another 50bps hike (similar to Oct) as imminent in Nov to bring the base rate to 3.50%, the BOK may decide to dial down the magnitude and hike in two steps instead, by 25bps each in Nov 2022 and Jan 2023.”  
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

Good Retail Sales Result In Europe | Household Spending In Japan Has Declined

Kamila Szypuła Kamila Szypuła 08.11.2022 11:14
There are no important reports scheduled for today that could significantly affect the markets. Today the attention is focused on the mid-term election in the USA and on the speeches of representatives of central banks on the old continents. Japan Household Spending Japan has published a report on household spending. The result of this report was not satisfactory. The current level of 2.3% was lower than expected. It was expected to drop from 5.1% to 2.7%. This year in Japan, spending is not looking very well. They reached the level below zero several times, and the last scare was a false signal. The monthly change in household spending is already more positive. The current score of 1.8% has increased from 1.7%. Which means that within a month there was an increase in expenses, but compared to last year, the result was negative. Household expenditure is an important factor in building the country's economy and has a significant impact on the GDP level. The less households spend, the smaller the turnover is, which affects the number of companies. The profits of companies in such a situation can sleep. This situation will significantly affect individuals. Observing this indicator, it can be concluded that households have started to save to a greater extent, and thus it gives a signal about the plunging situations of life in this country. BRC Retail Sales Monitor The value of same-store sales in BRC-member retail outlets in the U.K decreased from 1.8% to 1.2%. This is a negative result despite the fact that a decrease has been reported. this decline was 0.5% larger than expected. This year is not the best. After the record level in February, there were declines and sales were negative for several months. Speeches At 9:15 CET there were speeches from the old continent. Speakers were the German Buba President Nagel, member of German Buba Wuermeling and ECB's Enria. They probably spoke at 10:00 CET. Information provided in speeches that the focus is on closing inflation and thus on raising rates. At 10:30 CET, the SNB Gov Board Member Maechler also took the floor and thus gave instructions on Switzerland's moetary policy. At 11:00 CET a representative of the Bank of England also took the floor. The speaker was Huw Pill. His statement may turn out to be a signal for the motoring policy, and thus it may direct the pound's (GBP) situation in the present day. He is expected to speak again at 18:00 CET. Outside the European continent, a representative of the Reserve Bank of Australia (RBA) also spoke at 11:30 CET. The speaker was Governor Philip Lowe. As a key adviser to RBA board members, who decide short term interest rates, Lowe has considerable influence over the value of the Australian dollar. Traders scrutinize his public engagements for clues regarding future monetary policy. EU Retail Sales Retail sales figures from the European bloc were also published today. An improvement was expected in the monthly and in the annual shift. As a result of retail sales, y/y growth was expected from -2.0% to -1.3%. Also in the monthly change, the projected increase from -0.3% to 0.4%. The current readings are positive. The annual change in retail sales rose to 0.6%, and the monthly change met expectations. The current result in such a difficult economic situation is interpreted as a slight improvement, i.e. a positive report. Summary 1:30 CET Japan Household Spending 2:01 CET BRC Retail Sales Monitor 9:15 CET German Buba President Nagel Speaks 9:15 CET German Buba Wuermeling Speaks 9:15 CET ECB's Enria Speaks 10:30 CET SNB Gov Board Member Maechler Speaks 11:00 CET BoE MPC Member Pill Speaks 11:30 CET RBA Governor Lowe Speaks 12:30 CET EU Retail Sales (MoM) (Sep) 18:00 CET BoE MPC Member Pill Speaks Although there were no important reports today, one should watch the following days. Source: https://www.investing.com/economic-calendar/
Czech Republic: Tax Revenues Should Be Higher Than MinFin Expects

Core Inflation In Czech Republic Shows The Opposite Picture

ING Economics ING Economics 12.11.2022 11:08
October inflation showed the first price decline in almost two years thanks to government measures against high energy prices. The surprise of the market and the central bank stems from the unclear approach of the statistical office. Inflation should remain at only slightly higher levels until the end of the year, but January remains a question In this article Savings energy tariff pushed inflation down Clear outlook for the end of the year, but January brings back uncertainty 15.1% October inflation (YoY)    Lower Savings energy tariff pushed inflation down Consumer prices decreased by 1.4% month-on-month in October, the first MoM decrease since December 2020. This development primarily reflected the government savings tariff and waiver of fees for supported energy sources for electricity prices and on the other hand higher food prices. The year-on-year growth of consumer prices amounted to 15.1% in October, which was down 2.9 percentage points on September. The result is 2.3pp below the Czech National Bank's new forecast and 2.8pp below market expectations. On the other hand, core inflation shows the opposite picture with an acceleration from 0.3% to 1.2% MoM, translating to 14.6% YoY, which is basically the same level as in the last five months, surprising the CNB forecast on the upside by 0.3pp. The main topic here is government energy measures that are effective from October to December and from January the type of measures will change again from the savings tariff to price caps. Therefore, we can expect weaker CPI prints in November and December as well, but in January the uncertain approach of the statistical office comes into play again, just like in the case of today's number. According to the CNB's calculation, the impact of the government measures reduced inflation by 3.5pp, otherwise inflation would have been 18.6% YoY. Contributions to year-on-year inflation (pp)   Clear outlook for the end of the year, but January brings back uncertainty For the coming months, we can expect inflation to be only slightly higher in YoY numbers, but January remains the big question. On the one hand, based on energy supplier announcements and other anecdotal reports, it seems that a massive new year's repricing upwards can be expected. On the other hand, the government's price cap comes into play, which unevenly affects households depending on their contract. Moreover, here again it is unclear how the statistical office will approach this. At the moment we are leaning towards the view that we should see just slightly higher household energy prices from January compared with the October number under effect of the savings tariff, so January inflation will be driven mainly by new year repricing but still lead to a lower number due to base effects. Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
RBI's Strategic INR Support: Factors Behind India's Stable Currency Amidst Global Challenges

Warren Buffett's Investing Tips | New Clear Regulations For Crypto Market

Kamila Szypuła Kamila Szypuła 14.11.2022 12:12
Inflation, and thus economic growth, remains an unchanging topic. Thus, market reactions are monitored even more closely. With UBS Investor Sentiment you can find out about the situation from the perspective of investors. In addition, the cryptocurrency market is also becoming an important topic recently. The CEO of Binance’s call at the G20 meeting is a perfect example of this. In this article: Global growth Regulations in cryptocurrencies Warren Buffett's tips U.S. House Speaker statement Concern among investors Global economic is not doing well IMF tweets about slowdown in global growth, to helps to illustrate the situation, chart is added. High-frequency economic indicators show that the slowdown in global growth is increasingly evident. See our latest Chart of the Week blog for a snapshot of the data and factors at play. https://t.co/YGDi9m8MFB pic.twitter.com/F79l7zYq0M — IMF (@IMFNews) November 14, 2022 This year shows what difficulties the economy is facing. Global economic growth prospects are confronting a unique mix of headwinds, including from Russia’s invasion of Ukraine, interest rate increases to contain inflation, and lingering pandemic effects such as China’s lockdowns. Every economy tries its best to avoid a crisis, but the faces of a recession are more likely. In particular, if the world's major economies are struggling, smaller economies may feel the effects even more. They will be aware of the possibility of an even more difficult situation, you can start adventures, e.g. reduce expenses. Binance's chief executive called for new clear regulations Reuters Business in post addresses the topic of cryptocurrencies and highlights the call of Binance's chief executive Changpeng Zhao. Dominant cryptocurrency exchange Binance's chief executive Changpeng Zhao called for new but stable and clear regulations for the industry, in light of recent developments and participants ‘cutting corners’ https://t.co/2DVdiDFzmK — Reuters Business (@ReutersBiz) November 14, 2022 The cryptocurrency market is still young. Its unfolding is taking place before our eyes. Despite the great interest among investors and other market participants, there are uncertainties that must be regulated. Each state strives to meet the expectations of citizens and enable them to use new forms. Cryptocurrencies are still not limited by strict legal regulations, but as the current situation on this market shows, they may be more needed than previously thought. The CEO of Binance himself urges to define such regulations. His statements may initiate actions in this direction. How to achieve a investing success Morningstar, Inc. tweets about Warren Buffett's tips for investing success. Warren Buffett has a simple recipe for investing success. Here's what it boils down to. https://t.co/DTUm8j3BLD — Morningstar, Inc. (@MorningstarInc) November 14, 2022 Warren Buffett is undoubtedly one of the most respected investors of all time. Not only novice investors draw from his tips. His advice, or at least getting acquainted with it, becomes crucial in this market. Provided in a simple and accessible and understandable for everyone. Of course, what's simple in theory can be less so in execution. U.S. House Speaker wnats to current U.S President stay *Walter Bloomberg in his post U.S. House Speaker Nancy Pelosi quotes. U.S. HOUSE SPEAKER PELOSI: BIDEN SHOULD SEEK RE-ELECTION -ABC NEWS INTERVIEWU.S. HOUSE SPEAKER PELOSI: I DON'T HAVE ANY PLANS TO STEP AWAY FROM CONGRESS -ABC NEWS — *Walter Bloomberg (@DeItaone) November 13, 2022 From the statements we can learn about the opinion of an American politician. Her job is to see the current president running for re-election. Elections in the states will certainly attract attention, and the possible re-election of Joe Biden becomes more likely. The support he received in the speech may work to his advantage. Of course, there may be conflicting moods. There may be voices that someone so old wants an older person to seek reelection and that is time for over 75 years olds to retire and let a younger group of leaders take over. Impact of the economic situation on US investors UBS tweet about investors moods. Nearly two-thirds of US investors are highly concerned about politics and inflation. In fact, half of investors have already cut spending due to inflation. So which party do most investors favor on the economy? Check out the latest #UBSInvestorSentiment. #shareUBS pic.twitter.com/iLr4SY5tw1 — UBS (@UBS) November 13, 2022 The economic situation has a negative impact on investors. Everyone is trying to cut losses. And the economic picture is not satisfactory, so the spending cuts are not unexpected. Find out more about current investor sentiment at UBS Investor Sentiment.
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

In China, Covid Measures In October Affected Consumer Behaviour

ING Economics ING Economics 15.11.2022 11:28
Industrial production and fixed asset investment growth in October are in line with the consensus forecasts. But retail sales were weaker than expected and in contraction. The recent easing of Covid measures could be a critical factor for retail sales to return to positive growth Retail sales in contraction in October but should pick up with eased Covid measures Industrial production grew 5.0%YoY and fixed asset investment grew 5.8%YoY YTD. Both data are in line with consensus forecasts. But retail sales contracted by 0.5%YoY, which is surprising. Within the total for retail sales, sales that are related to moving into a new home, namely consumer electronic goods, decorations and furniture, contracted 14.1%YoY, 8.7% and 6.6%, respectively. It also looks as if consumers were reluctant to upgrade telecommunication devices. Sales of these contracted by 8.9%YoY. Catering in October contracted by 8.8%YoY. In contrast, medicines and fresh food grew 8.9%YoY and 8.3%, respectively. Spending on automobiles grew at 3.9%YoY benefiting from government subsidies. The picture shows that Covid measures in October affected consumer behaviour even though it was a month containing long holidays.  Covid measures were eased on 11 November, which should help retail sales to recover moderately.  Details in fixed assets investment shows advancing technology in progress Among all the components of fixed asset investment, electronic machinery and equipment increased the most, rising by 39.7%YoY YTD. This implies that the government's call for advancing technology is progressing.  But, infrastructure investments in railways declined by 1.3%YoY YTD, indicating that local governments continued to focus their efforts on helping uncompleted residential property projects rather than committing to transportation infrastructure projects.  We believe that local governments will continue to focus on uncompleted residential property projects until they have successfully turned around enough units that public anxiety about this sector eases. Semiconductor production shrank even though overall industrial production expanded Integrated circuits contracted 26.7%YoY, the biggest contraction among all items in industrial production. Integrated circuits represent the biggest share of exports in China. It is an indicator of global economic growth.  The big contraction in this item gives us an important signal that the external environment for China is slowing, and will affect exports and related manufacturing activity as well as the jobs market and wages in the manufacturing industry. With policies in place, exports should be the main concern The recent easing of Covid measures should be positive for retail sales and therefore some service sectors. Local governments should be able to finish some uncompleted home projects with preferential policies on bank lending to developers. As such, uncertainties for next year should be more on the export sector than the domestic market.  TagsSemiconductors Retail Real estate Infrastructure China   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Negative Economic Outlook Of Poland For Next Year

The Negative Economic Outlook Of Poland For Next Year

ING Economics ING Economics 15.11.2022 14:21
In line with our expectations, Poland’s economy expanded by 3.5% year-on-year in 3Q22 (consensus: 3.0% YoY) as activity bounced back by 0.9% quarter-on-quarter (seasonally adjusted) after falling by 2.3% QoQ in 2Q22. As such, Poland has avoided a technical recession but brace for some difficult months ahead Technical recession averted so far According to the flash estimate, GDP growth slowed to 3.5% YoY in 3Q22 from 5.8% YoY in 2Q22. The lower annual growth rate was a consequence of the high reference base from last year and the turnaround in the inventory cycle, which is no longer adding to GDP as it did in the first half of 2022. Seasonally-adjusted data shows that the outbreak of the war in Ukraine dampened economic activity in 2Q22 (GDP down 2.3% QoQ). However, 3Q22 saw a solid rebound (0.9% QoQ) and the economy avoided a technical recession. Solid rebound in 3Q22 after sharp decline in 2Q22 GDP, QoQ (SA) Source: GUS Industry and exports holding up well We do not yet know the composition of economic growth (to be released on 30 November) but the high-frequency data suggests that industry continued to perform well. This is a very bright spot for the Polish economy and the main point of outperformance vs regional peers since the beginning of the pandemic. In 3Q22, manufacturing was supported by improvements in supply chains (including the availability of semiconductors), which boosted production in Poland and among our trading partners. The foreign trade balance most likely contributed positively to annual GDP growth, while consumption and investment had a markedly smaller positive impact as they grew much slower than in the previous two quarters. We estimate that growth in 2022 as a whole will be closer to 5% than 4% (around 4.8%), compared to 6.8% growth in 2021 (after revision). Gloomy outlook for upcoming quarters The prospects for the future look grim due to deteriorating foreign markets (a possible recession in Germany) and tighter financial conditions both in Poland and abroad (rising interest rates). In addition, high inflation bites into households' real disposable income as wage growth fails to keep pace with price increases. This is accompanied by unfavourable consumer sentiment, which translates into reduced spending on durable goods. Weakening foreign demand and rising financing costs will also have a negative impact on investment activity. An additional source of uncertainly is the stalemate between Warsaw and Brussels on the Recovery Fund, which may hamper public investment. MPC refrains from further hikes amid fears of a sharp economic slowdown The high reference base from 1H22 means that we may witness a negative annual GDP reading in early 2023. In 2023, we forecast economic growth at 1.5% but the risks are clearly tilted to the downside. The negative economic outlook for next year is one of the main reasons why the MPC has decided to pause, and de facto end the interest rate hike cycle. The MPC is choosing this strategy despite the prolonged period of elevated inflation and the risk of it becoming entrenched at high levels in the coming quarters.    Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Monitoring Hungary: Glimmering light at the end of the tunnel

Hungary Expect A Positive Zero GDP Growth On Average In 2023

ING Economics ING Economics 15.11.2022 14:37
The Hungarian economy continued its slowdown during the third quarter of this year. We expect further weakness in the coming couple of quarters as negative impacts amplify the drag on growth -0.4% GDP growth in Q3 (QoQ) ING forecast -1.0% / Previous 0.8% Real GDP drops on a quarterly basis Quarterly-based GDP growth in the third quarter of 2022 came in negative, matching the widespread market expectation that economic activity would falter in the second half of the year. The -0.4% quarter-on-quarter growth was weaker than the market consensus but better than ING’s forecast of -1.0%. As this was a flash release by the Hungarian Central Statistical Office, we haven’t seen any detailed data yet, thus we won't be able to identify the source of the better-than-forecast figure. We will make this assessment when the detailed data is released on 1 December. However, the Statistical Office highlighted in its press release that industry (mostly car manufacturing and electronics) and services were among the most significant contributors to the 4% year-on-year GDP growth in the third quarter, while agriculture was a major drag. Hungarian GDP growth Source:HCSO, ING Hungary heads towards a technical recession The two biggest difficulties Hungary is facing – higher energy bills and increasing unemployment – didn't fully impact the economy in the third quarter. Nonetheless, the 0.4% quarter-on-quarter drop in real GDP means that we’ve already seen the first leg of the expected technical recession in Hungary. We expect the drop to continue in the fourth quarter mainly due to falling consumption and shrinking investment activity. Real wage growth reached negative territory in September, while new mortgages also dropped. Households have needed to cope with the loss of purchasing power due to rising energy bills since September. In the corporate sector – both in manufacturing and services – we see companies going out of business or reducing working hours due to skyrocketing energy costs. Big data also suggests the economy has been on a downtrend, which will show up in fourth quarter GDP data. In our view, GDP will fall around 1.0-1.5% on a quarterly basis in the last quarter of 2022. On the plus side, export activity was widely supported via car and electronics manufacturing and tourism as well. Despite monetary tightening, the slow transmission of higher interest rates translated into solid lending activity, on average, during the third quarter. This was probably a last-minute run from borrowers to secure (relatively) low interest rate funding before rates rise and the banking sector starts tightening non-rate related lending conditions significantly. Only minor tweaks to our GDP outlook With the slightly more positive third-quarter data than we expected, we have made a slight upward revision to 2022 GDP growth. We now see this year’s average performance being close to but below 5%. Our updated take on next year’s performance reflects the impact of the base effect and a slightly stronger negative carry-over effect. We expect a positive zero (0.1-0.2%) GDP growth on average in 2023. This forecast assumes that Hungary will be able to close the Rule of Law procedure and meet much-needed milestones to get EU transfers, which will start supporting the real economy during late 2023. TagsOutlook Hungary GDP growth GDP Economic activity   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Middle Distillates: Strong Market Support Expected

The G20 Leaders' Declaration : Central Bank Independence Is Crucial To Achieving Price Stability

TeleTrade Comments TeleTrade Comments 16.11.2022 09:16
The G20 leaders' declaration published on Wednesday, stated that “G20 central banks are strongly committed to achieving price stability, in line with their respective mandates.” Additional takeaways     Central banks will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner while limiting cross-country spill-overs. Central bank independence is crucial to achieving price stability, and buttressing monetary policy credibility. Countries must take temporary and targeted measures to help sustain purchasing power of most vulnerable, cushion the impact of commodity price increases.   Market reaction The US Dollar Index was last seen trading modestly flat at around 106.50.  
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

Germany: There Is Little Risk Of Blackouts This Winter

InstaForex Analysis InstaForex Analysis 16.11.2022 10:22
Germany is reportedly taking emergency measures in case of power outages this winter. One of them is the accumulation of billions of euros by the Bundesbank German Central Bank, which will be helpful if there is a bank run. Also among the options is the ability to set limits on withdrawals. Government officials said there was little risk of blackouts this winter, but earlier this year the head of the country's energy regulator warned that without significant reductions in gas consumption, the situation could become quite bleak. "We are unlikely to avoid a gas accident in winter without saving at least 20% in the private, commercial and industrial sectors," Klaus Muller said last month. "The situation could become very serious if we do not significantly reduce gas consumption." Reducing consumption is already difficult, but as winter approaches and heating demand increases, it will become even more difficult. This is why many citizens are now attending training courses on what to do in the event of a power outage. Authorities are worried that they will run into local banks, which is exactly what happened when the coronavirus pandemic began in 2020. Back then, they withdrew 20 billion euros more than they invested. Thus, banks are preparing for the possibility of a repeat of those days and are considering restrictions on cash withdrawals to prevent cash leakage. According to financial regulators, the country's banks are currently underprepared for major power outages. A recent survey in Germany showed that about 40% of people expect such a shutdown within the next six months.     Relevance up to 09:00 2022-11-21 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/327276
China's Position On The Russo-Ukrainian War Confirmed At The G20 Meeting

China's Position On The Russo-Ukrainian War Confirmed At The G20 Meeting

ING Economics ING Economics 16.11.2022 12:43
Diminishing pipeline price pressures in the US, but heightened geopolitical tensions in Europe after the Poland explosion. Australian 3Q22 wage price index comes in slightly stronger than expected In this article Macro outlook What to look out for: Fed speakers and geopolitical tension Source: Shutterstock Macro outlook Global Markets: US October PPI data provided another indication that inflation in the US has peaked (see more in Macro section below and also linked note here) and this mostly reverberated through markets as you’d expect, with stocks gaining , bond yields declining, and the dollar weakening. As of writing, the S&P500 is up 0.63% and the NASDAQ up 1.44%. The market reaction might have been even greater, but for reports of an explosion in Poland close to the Ukraine border which it is claimed was caused by a Russian missile. NATO allies are expressing their solidarity with Poland, but whether this will lead to any concrete change on the ground remains to be seen. Markets have tempered their enthusiasm accordingly. 2Y US Treasury yields are down 5.1bp and the 10Y yield is down more like 8bp to 3.77%. It’s all very well saying that the Fed doesn’t want to see financial conditions ease like this, but the Fed can’t fight the reality of the data, and no, that doesn’t mean it will have to tighten more to achieve its ends. It means it is on the right track.  In the end, EURUSD gave up some of its early gains and hasn’t moved far from where we were at this time yesterday, currently 1.0350. The AUD has pushed up to 0.6762, Cable is back to 1.1869, though was above 1.20 at one point. And the JPY is comfortably below 140 at 138.80. Of the other Asian currencies, the MYR has topped the billing ahead of this Saturday's General Election, with a 1.35% gain in the last trading session, though high-beta currencies like the THB and KRW have also made strong gains. The CNY has held firm at 7.0455, slightly stronger than the majority of the day before. G-7 Macro: As mentioned, the US October PPI release was the main market moving event yesterday, and although commentators will focus on the year-on-year rate falling to 8.0% from 8.4% (core fell from 7.1% to 6.7%) what encourages us more is the weak monthly increase. The final demand PPI rose only 0.2%MoM, consistent over a full year with a PPI inflation rate of only about 2.5%. The core index didn’t increase at all.  There were also revisions downward to the prior month’s data.  The Fed are unlikely to acknowledge the progress that is being made so quickly, and we don’t think they will change their tune much. But it is worth remembering, that forward guidance doesn’t tell you what the Fed is going to do, merely what they would like markets to believe. The two can be very different. Germany’s ZEW survey expectations component bounced strongly in November from -59.2 to -36.7. This takes it from “awful” to merely “very bad”. Europe also had experienced a slight improvement in their September trade balance, though it remains deep in deficit territory. More inflation data is due today, this time in the UK, where inflation has a direct fiscal cost to the government due to index-linking of pensions. Tomorrow, we get the UK government’s new tax and spending plans, and it is rumoured that the triple lock on pensions will be retained. US retail sales data is also due. A strong 1.0%MoM gain is predicted by the consensus of analysts, reversing the flat reading from the previous month, though the control group of spending is forecast to increase by much less. Australia: The 3Q22 wage price index rose by 1.0%QoQ, slightly more than the 0.9% QoQ expectation, and has lifted the annual rate of wage growth to 3.1% YoY (2.6% in 2Q22). We do not think this will have any material impact on the Reserve Bank of Australia's (RBA) rate setting plans. The RBA  appear to have swapped data-dependent monetary policy for "state-dependent" policy, and now that they believe rates are mildly restrictive, it will take a lot more than this to get them to revert back to 50bp rate hikes. The next few meetings should see rates raised by 25bp. We see the peak for the cash rate target at 3.6% early next year.    China: Positive outcomes like trade and investment are good not only for the Chinese economy to grow but also for their trade partners, e.g. Australia and Korea. But the potential economic benefits could be clouded by politics. It is still uncertain how the economic benefits will play out after the G20 meeting. We have seen China choosing to abstain from a vote condemning  Russia's aggression against Ukraine. This indicates the position of China on the Russia-Ukraine war and on its own geopolitics. What to look out for: Fed speakers and geopolitical tension Japan core machine orders (16 November) Australia Westpac leading index and wage price index (16 November) Fed's Barr and Williams speak (16 November) US retail sales (16 November) Japan trade balance (17 November) Australia labor data (17 November) Singapore NODX (17 November) Malaysia trade (17 November) Bank Indonesia policy meeting (17 November) Bangko Sentral ng Pilipinas policy meeting (17 November) US housing starts and initial jobless claims (17 November) Japan CPI inflation (18 November) US existing home sales (18 November) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more      
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Crucial Economic Indicators In The USA - What Are Non-Farm Payrolls And Initial Jobless Claims?

Kamila Szypuła Kamila Szypuła 30.10.2022 11:41
Each country shares monthly, weekly and quarterly macroeconomic reports. The USA, as the largest economy in the world, also has individual indicators that are monitored by investors around the world. The most popular because it is published every week is Initial Jobless Claims. We can hear that in a given week the rod has been decreasing or, on the contrary - it has increased, but what does it mean?   Non-farm payrolls (NFP) - an important economic health measure The nonfarm payroll, or simply the NFP, is always an important and influential event in the economic calendar.   The nonfarm payroll (NFP) report is a key economic indicator for the United States and represents the total number of paid workers in the U.S. excluding those employed by farms. The NFP data is normally released on the first Friday of every month.   Private and government entities throughout the United States are surveyed about their wages. BLS publishes non-farm payroll data on a monthly basis through a closely tracked employment report.   NFP releases generally cause large movements in the forex market. This is because traders always monitor the indicators to identify trends in economic growth A higher wage rate is generally good for the US economy as it indicates more jobs and faster economic growth. The expected change in wage data causes mixed reaction in the currency markets.When the nonfarm payroll differs significantly from the forecast, there is usually a reaction in the markets. But how does NFP affect the Forex market specifically? The effects of the NFP tend to be limited to currency pairs which involve the US dollar. If the results come in higher than expected, this tends to have a strengthening effect on the USD whereas, if the result comes in lower than expected, the USD will often weaken. Industrial production (IPI) indicator explained Industrial production refers to the output of industrial establishments and covers sectors such as mining, manufacturing, electricity, gas and steam and air-conditioning. It also measures production capacity, an estimate of production levels that can be sustainably maintained.   Industrial production and capacity levels are expressed as an index level compared to the base year. In other words, they do not express an absolute volume or value of production, but a percentage change in production compared to 2021.   Industry-level data is useful for managers and investors in specific industries. Fluctuations in the industrial sector are responsible for most of the change in overall economic growth.   The difference between GDP and IPI in the field that GDP measures the price paid by the end user, and thus includes the added value in the retail sector, which the IPI ignores.   Capacity utilization is a useful indicator of the strength of demand. Low capacity utilization or overcapacity signals weak demand. Politicians could read this as a signal that a fiscal or monetary stimulus is needed. On the other hand, high capacity utilization may act as a warning of an overheating of the economy, suggesting the risk of rising prices and asset bubbles.   Initial Jobless Claims - how investors use it? Jobless claims measure how many people are out of work at a given time. Initial jobless claims represent new claimants for unemployment benefits. The claim requests a determination of basic eligibility for the Unemployment Insurance program. This report is published weekly.   Domestic unemployment claims are an extremely important indicator of macroeconomic analysis. As such, it is a good indicator of the US labor market. For example, when more people apply for unemployment benefits, it generally means that fewer people have jobs, and vice versa.   Investors can use this report to form an opinion on the country's economic performance. But this is often very volatile data as it is reported weekly. Markets can react strongly to the mid-month unemployment benefit report, especially if it shows a difference to the cumulative data of other recent indicators.   During the economic downturn caused by the spread of the COVID-19 virus, the weekly numbers of unemployed in the US rose to historic levels. We could observe that such a situation significantly influenced investors' decisions and market reaction. Source: investopedia.com, investing.com 
China Continues to Increase Gold Reserves, While Base Metals Face Mixed Fortunes

Exports And Imports And Their Meaning For Economy And Trading

Kamila Szypuła Kamila Szypuła 29.10.2022 11:30
We can often come across terms about a country's trade surplus in, for example, foreign trade. We understand that a given product is exported and another is imported, but what exactly is export and import and what importance they have for the economy. Balance of trade (BOT) Balance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments. A country that imports more goods and services than it exports in terms of value has a trade deficit while a country that exports more goods and services than it imports has a trade surplus. The formula for calculating the BOT can be simplified as the total value of exports minus the total value of its imports. Balance of trade (BOT)=Exports−Imports Economists use the BOT to measure the relative strength of a country's economy. A positive balance of trade indicates that a country's producers have an active foreign market. A negative balance of trade means that currency flows outwards to pay for exports, indicating that the country may be overly reliant on foreign goods. A country with a large trade deficit borrows money to pay for its goods and services, while a country with a large trade surplus lends money to deficit countries. In some cases, the trade balance may correlate with a country's political and economic stability. A trade surplus or deficit is not always a real indicator of the health of an economy and must be viewed in the context of the business cycle and other economic indicators. Export Exports are incredibly important to modern economies because they offer people and firms many more markets for their goods. Exports are one of the oldest forms of economic transfer and occur on a large scale between nations. Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share. Exports lead to increased investment, technological advances, and the expansion of imports, all of which contribute to economic growth. For companies, it is of particular importance because it allows you to gain access to new markets through export, you can increase sales and profits, and even gain a large share of the global market. But there is also another side to this. Companies that export a lot tend to be more likely to fail financially. Import Import is a product or service that is manufactured abroad and purchased in your home country. Free trade agreements and tariffs often determine which goods and materials are cheaper to import. Countries most likely import goods or services that their domestic industries cannot produce as efficiently and cheaply as the exporting country. Countries can also import raw materials or goods that are not available within their borders. For example, many countries import oil because they cannot produce it domestically. Some critics argue that continued dependence on imports means a reduction in demand for domestically manufactured products and thus may inhibit entrepreneurship and the development of business ventures. Proponents argue that imports improve quality of life by giving consumers more choice and cheaper goods. The Commitment of Traders (COT) The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market. These are compiled and published by the CFTC in the U.S. COT reports detail how many long, short, and spread positions make up the open interest. Traders can use the report to help them determine whether they should take short or long positions in their trades.
Metals Update: SHFE Aluminium Inventories Hit 5-Year Low Amid Optimism in Steel Production and Gold's Bullish Sentiment Grows

What Is Public Debt And Can It Be Paid Off?

Kamila Szypuła Kamila Szypuła 05.11.2022 12:37
Everyone has heard of public debt. However, few associate it with a personal economic situation. Debts, which represent over a trillion, seem abstract and far removed from real life. Public Debt By definition of economic dictionaries, public debt covers nominal debt of public finance sector entities, determined after eliminating financial flows between entities belonging to this sector (consolidated gross debt), incurred for the following reasons: securities for cash benefits only (except for equity securities), loans (including securities whose marketability is limited), loans, deposits accepted, maturing liabilities (ie liabilities with expired maturities that have not been past due or redeemed). From a practical point of view, public debt is the total liabilities of the public finance sector - the government, local governments and extra-budgetary funds. The fastest growth in public debt is caused by wars and deep economic crises. In both cases, there is a sharp decline in economic activity (and with it a drop in income) and a simultaneous increase in expenditure. The effect may be a collapse of public finances. Indebtedness of the state and local governments allows to avoid cuts in expenses and raising taxes. However, you cannot cover the budget deficit indefinitely with credits or loans. The lack of real control of expenditure inevitably leads to a situation in which servicing the public debt becomes so expensive that it is necessary to take out new credits and loans for the settlement of liabilities from previous years. A negative consequence may be insolvency at the level of a local government unit or even the entire state. When an individual goes bankrupt, its debts are taken over by the state treasury. However, if a state goes bankrupt, there is no one to take over its obligations. In such situations, the government tries to find money to service the public debt. For this purpose, it may, inter alia, raise taxes, freeze wages in the public sector, lower social spending. Such actions influence the situation of the economy and thus the citizens. When the Public Finance Crisis occurs, this is the moment when every citizen realizes that public debt is directly related to his private finances. The quality of life and the level of social security are falling sharply. Most countries are in debt. Some of them could pay off public debts. To this end, they should cut expenses for many years, resign from issuing debt securities (e.g. treasury bonds) and allocate all surpluses to debt repayment. However, a consistently pursued policy of tightening the belt would in a short time lead to a slowdown in the pace of economic development and, as a result, to a reduction in the standard of living. Properly serviced public debt does not have to negatively affect the state of the economy. Its relation to GDP is of key importance. Budget deficit One of the factors of public debt is the budget deficit. By definition, it is current expenditure that exceeds the amount of income earned on standard operations. In order to correct its country's budget deficit, the government may reduce some spending or increase income-generating activities. Both the level of taxation and expenditure affect the government's budget deficit. The deficit can be the result of: low GDP, an increase in government subsidies, an increase in social spending or tax cuts. The government can work to reduce the budget deficit by using a fiscal policy toolkit to promote economic growth, for example by cutting government spending and raising taxes. Budget deficits affect individuals, businesses and the economy as a whole. As the government takes steps to reduce the deficit, spending on social programs may be cut. It may also affect infrastructure improvements. Source: Textbook On Macroeconomics, Dictionary Of Economic
Hungary: Budget deficit jumps above full-year cash flow target by ca. 10%

Hungary And Turkey Monetary Policy Decision Ahead

ING Economics ING Economics 18.11.2022 13:26
We do not expect any movement from the National Bank of Hungary at next week's meeting, as the latest data were in line with expectations. The labour market is expected to be a mixed picture, with the unemployment rate moving up and wage growth remaining strong. We also expect the Central bank of Turkey to conclude its easing cycle In this article Poland: Wage growth is no longer keeping up with rising prices Turkey: Easing cycle to be concluded with a 9% policy rate Hungary: Base rate set to remain unchanged Poland: Wage growth is no longer keeping up with rising prices Industrial output (October forecast: 8.8% year-on-year): Industrial production is benefiting from an improvement in supply chain functioning, which supports exports-oriented industries, including automotive and electric products. When the backlog of work is unloaded and re-stocking is finished, domestic manufacturing is expected to slow over the medium term.   Retail sales (October forecast: 3.8% YoY): Retail sales growth has slowed to low single-digit growth as wages are no longer keeping up with rising prices. We forecast growth of 3.8% YoY as high inflation is undermining consumers' purchasing power to such an extent that they are more cautious in their purchasing decisions. Household consumption growth is slowing. Unemployment rate (October forecast: 5.1%): A recent data revision lifted the registered unemployment rate toward a higher level, but the number of unemployed remains unchanged (lower denominator). Nevertheless, the trend remains positive and we forecast that in October the number of unemployed and the unemployment rate were broadly unchanged vs. in September. The Polish labour market remains resilient to softer economic conditions. Turkey: Easing cycle to be concluded with a 9% policy rate While inflationary pressures remained broad-based in October as all 12 main CPI categories contributed positively to the increase in inflation, the Central Bank of Turkey has signalled that it intends to conclude the easing cycle with another 150bp rate cut in November. This will bring the policy rate to 9.0%. Hungary: Base rate set to remain unchanged We do not expect any fireworks from the National Bank of Hungary at its November rate-setting meeting. The latest data regarding inflation and GDP were broadly in line with the central bank’s expectations and the next staff projection update is only due in December. Against this backdrop, we don't see any game-changing moves. When it comes to the risk environment, we haven’t seen a material improvement in domestic or external risk factors, which were flagged by the central bank as triggers to consider changes in its monetary stance. By the time the National Bank of Hungary's (NBH's) rate-setting meeting takes place, we might see some positive headlines coming from the European Commission regarding the Rule-of-Law procedure. With a green(ish) light, Hungary will be able to secure the Recovery and Resilience Facility (RRF) plan signature just in time to not lose €4.6bn of the €5.8bn RRF grant which is at stake should Hungary miss the year-end deadline to have an accepted plan. But no matter how green this light is, we don’t expect the central bank to make a policy change so quickly and we see the NBH underscoring its hawkish “whatever it takes” approach again. Though the EU fund story and the monetary policy decision will give plenty to talk about, we are going to see the latest labour market data as well. Here we expect wage growth to remain strong, reflecting the fact that companies made mid-year wage increases and one-off payments as inflation bit workers’ disposable income. Regarding the unemployment rate, we expect it to continue its gradual rise, as other employers are unable to remain in business without a reduction in their labour costs. In general, it will be quite a mixed picture of the state of the Hungarian labour market. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland wages Hungary EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German Export Weakness In The Fourth Quarter Suggests That Recession Fears Are Real

German Economy Can Avoid Recession? GDP Forecast

Kamila Szypuła Kamila Szypuła 19.11.2022 11:26
Europe is facing an energy crisis, rampant inflation and a clear economic slowdown. Germany as the main and largest economy in Europe and the European Union attracts the attention of not only tourists but also investors. General outlook A drop in energy imports from Russia after the invasion of Ukraine sent energy prices soaring in Germany, driving inflation to its highest level in more than 25 years, while fueling fears of a potential gas shortage this winter, even with storage facilities nearly full. All leading indicators point to a further weakening of the economy in the fourth quarter, with no improvement in sight. The prices of consumer goods and services are rising at a double-digit rate in Germany, according to the latest data from the local statistical office. CPI inflation rose to 10.4% in October, exceeding economists' forecasts. Inflationary pressures actually extend throughout the economy. The almost record high inflation in Germany, as in the whole of Europe, was to a large extent caused by a sharp increase in fuel and energy prices (by 43% y/y against 43.9% in September and 35.6% in August). Food prices also accelerated (to 20.3% against 18.7%). Prices of services increased even faster than in previous months (4.0% against 3.6%). In addition, the pressure on price increases was reduced by the reduction of the VAT rate on gas from 19% to 7%. October flash PMIs for Germany are worse than market expectations. Manufacturing PMI falls to 45.1 in October, lowest since May 2020. Manufacturers saw a deepening decline in new orders due to growing concerns about the economic outlook and high energy costs. Any result below 50 points (neutral level) suggests a recession of the economy. PMI indices show what GDP may look like soon. The economy continued to thrive despite challenging global economic conditions: broken supply chains, rising prices and war in Ukraine. GDP forecast The German economy can surprise GDP growth in the third quarter. However, this does not mean that the country will avoid a recession. Estimate of third-quarter German GDP growth came in at 0.3% quarter-on-quarter, from 0.1% QoQ in the second quarter. It is too early to be optimistic about the country's economic prospects next year, despite the expected GDP growth. The official results will be published on Friday, 25 November. Source: investing.com Recession? Despite not the best forecasts, Germany defends itself against a decline in GDP. This does not mean that the country will avoid recession in the future. Even though the weather has brought some relief to the German economy as rainfall has raised water levels and warm October weather has delayed the start of the heating season, a gradual recession continues. Businesses and households are increasingly suffering from higher energy bills and persistently high inflation adjusting consumption and investment. The war in Ukraine probably marked the end of a very successful German business model: importing cheap (Russian) energy and raw materials, while exporting high-quality products to the world, benefiting from globalization. The country is now forced to accelerate its green transition, restructure its supply chains and prepare for a less globalized world. Such a change can be time-consuming and moreover generate more costs. A sharp decline in German production will help drag the EU into recession this winter. Production across the EU is expected to fall in the current quarter and the first three months of 2023, with Germany experiencing one of the largest drops in activity. Production is important for the German economy and its decline has a significant impact on the economic situation. Source: investing.com
lower Corporate Supply Expected in H2 2023, Forecasting €85-100bn Total Supply

The Malaysian Ringgit (MYR) Is Currently Being Sold On Concerns About A Lack Of Stable Government

ING Economics ING Economics 21.11.2022 09:21
Malaysia to try to form a coalition government after the General Election results in a hung parliament  In this article Macro outlook: What to look out for: Chicago Fed national activity indicator and South Korea's trade balance Source: shutterstock Macro outlook: Global Markets: Friday did not mark a convincing spell for US equities, and although bourses opened up, they quickly lost ground, before staging a turnaround which left the S&P500 up by less than 0.5%, and the NASDAQ virtually unchanged. Equity futures are similarly lacking in a convincing directional steer today. US Treasury yields were more emphatic, with sizeable increases in yields across the curve, which may in time become the driver for a new down-leg in risk assets. 2Y Treasury yields gained 8.1bp while the 10Y rose 6.3bp to 3.829%. It’s not clear what if anything is driving this latest pick-up in yields. The main quoted Fed speaker over the latest period was Raphael Bostic, whose thoughts of a slower pace of tightening ahead and peak Fed funds rate of 4.75%-5% is hardly game-changing. G-10 currencies are a mixed bag. The EUR lost a little ground to the USD in the face of these higher bond yields and Fed rate hike expectations. EURUSD is now 1.0327, down from about 1.0360 this time Friday. The AUD is only slightly weaker, at 0.6679, while Cable has picked up slightly to 1.1886 though the JPY has weakened back above 140 and is now 140.31. Asian FX rates haven't done a lot. The CNY is a bit stronger against the USD following Friday’s moves which have brought it back down to 7.1198, and that has probably helped pull along the THB for the ride, which is now 35.814. G-7 Macro: It was a quiet end to the week for G-7 Macro, and the existing home sales figures for the US showed further declines, but were roughly in line with expectations, so didn't change the story much.  Today is equally devoid of macro interest, with a quick glance only merited for the Chicago Fed national activity index, which is likely to signal a slightly sub-trend growth reading. China: We expect banks in China to keep the 1Y and 5Y Loan Prime Rates (LPR) unchanged at 3.65% and 4.30%, respectively, given that the PBoC stayed put on the 1Y Medium-term Lending Facility (MLF) rate at 2.75% a week ago. Covid cases have climbed again. This increases the risk of more localised lockdowns even though Covid measures have been eased. This is because quarantine still depends on the number of positive Covid cases. With more relaxed Covid measures it is not surprising to see the number of cases increase. However, this should not trigger a reversal of the policy direction towards further easing of Covid policies in 2023. Taiwan: Export orders should remain in year-on-year contraction as demand for semiconductors reflects softer demand in the US and Europe and uncertainty in China. South Korea: Preliminary (first 20-day) export data has shown exports falling to their weakest since the April 2020 pandemic-induced slump. 20day November exports were 16.7% lower than a year ago, reflecting the weakness of demand in China, Europe, and to some extent the US, as well as the downturn in global semiconductor demand. Imports also fell by 5.5%YoY, which sends a downbeat message about the state of domestic demand, which could yet influence the BoK’s rate-setting intentions. Malaysia: The General Election has not resulted in a clear majority for any party, and today, we will see if talks between former Prime Minister Muhyiddin Yassin’s Perikatan Nasional (PN) Party, which came in second place, and a number of other smaller parties, will be enough to form a coalition government, or whether Anwar Ibrahim’s Pakatan Harapan (PH) coalition, which gained the most seats, can draw in enough support to form a government. Newswires expect a decision later today. The MYR is currently being sold on concerns about a lack of stable government.  What to look out for: Chicago Fed national activity indicator and South Korea's trade balance South Korea advance trade balance (21 November) China loan prime rate (21 November) Thailand GDP (21 November) Taiwan export orders (21 November) South Korea consumer confidence (22 November) Taiwan unemployment (22 November) US Richmond Fed manufacturing index (22 November) Singapore 3Q GDP final and core inflation (23 November) Thailand trade balance (23 November) US durables goods orders, new home sales, University of Michigan sentiment and initial jobless claims (23 November) Japan PMI (24 November) Korea BoK policy meeting (24 November) Japan Tokyo CPI inflation (25 November) Malaysia CPI inflation (25 November) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Market: Optimistic Headlines From Regional Leaders China And Japan

Singapore October Inflation Data And The RBNZ's Decision Will Arrive Today

ING Economics ING Economics 23.11.2022 08:41
Korean business sentiment slides further, Singapore 3Q22 GDP revised lower, Taiwan exports likely to contract  In this article Macro outlook What to look out for: Fed minutes and US data dump Source: shutterstock   Macro outlook Global Markets: Despite yet another barrage of Fed comments that fit into the “higher-for-longer” category, equity markets re-found their mojo on Tuesday. Both Esther George and Loretta Mester gave fairly mainstream speeches highlighting the Fed’s commitment to curbing inflation, with George noting that the relatively high level of US household savings meant that the Fed may have to raise rates more than otherwise. That didn’t stop the S&P500 and NASDAQ both gaining 1.36% on the day, though equity futures are suggesting that this might be enough for now, with small losses indicated at the opening. Some small declines in bond yields won’t have hurt risk-market sentiment. 2Y US Treasury yields edged down 1.7bp while the 10Y dropped 7.1bp taking it back down to 3.756%. Nor at all surprisingly given all the above, the USD has lost ground to the G-10 currencies. EURUSD is back above 1.03, the AUD is up to 0.6645, Cable is higher at 1.1884, and the JPY has pulled back to 141.22. Asian FX has mostly followed suit, led by the THB (36.1145) and CNY (back down to 7.1399). Catch-up for some of the laggards is probable this morning. G-7 Macro: Today we get a slew of purchasing manager data from Eurozone countries as well as the US, and also the University of Michigan consumer sentiment survey for November, complete with inflation expectations and then new home sales.  In the early hours of tomorrow morning Asia time, we get the minutes of the November FOMC meeting. Taiwan: Industrial production for October will probably contract on a year-on-year basis. This is due to weak demand for semiconductors, which these days are an early indicator of demand for goods in general. Our estimate is -8.5%YoY, vs the consensus of -2.75%YoY. Export orders have been in contraction for two consecutive months. Industrial production in the coming months should remain in contraction as we expect the US and Europe to slow further, while the Chinese economy still needs time to recover. South Korea: Business sentiment for manufacturers hit a two-year low in December, with the Bank of Korea’s (BoK) survey index falling to 69 (vs 73 for November), while sentiment for services also declined slightly, down by 1pt to 77 (vs 78 for November).  Small/medium-sized companies and exporters have a darker business outlook compared to large companies and domestic demand-focused companies. Recently-released data taken together (weak early November export data, weak consumer and business sentiment and slowing inflation expectations) support our call for only a 25bp hike by the BoK tomorrow and a contraction in GDP this quarter. Singapore:  October inflation data is set for release today.  The market consensus points to core inflation staying flat at 5.3%YoY although the headline number could soften to 7%YoY (from 7.5%) as base effects kick in.  Despite the dip in the year-over-year number, prices may have picked up by 0.2% from the previous month suggesting that price pressures remain persistent.  Elevated core inflation should keep the Monetary Authority of Singapore (MAS) hawkish while the MAS monitors the impact of its recent string of tightening.  Meanwhile, 3Q GDP was revised down to 4.1% from the initial estimate of 4.4%YoY.  The downward revision reflects softer global trade activity and the negative impact of high inflation. Australia: The Preliminary November PMI indices have all weakened. The manufacturing index is down from 52.7 to 51.5, but more importantly, the service sector PMI, which had just drifted below the threshold 50 mark to register 49.8 in October, has fallen further to a weak-looking 47.2. This results in a composite PMI for November of 47.7. It looks as if the Australian economy is finally slowing in response to the Reserve Bank of Australia’s (RBA) tightening.    New Zealand: The Reserve Bank of New Zealand (RBNZ) meeting due at 0900 SGT/HKT is widely expected to deliver a 75bp increase to the cash rate, taking the target rate to 4.25%. CPI inflation is currently 7.2%YoY (3Q22). What to look out for: Fed minutes and US data dump RBNZ cash rate (23 November) Singapore 3Q GDP final and core inflation (23 November) Thailand trade balance (23 November) US durables goods orders, new home sales, University of Michigan sentiment and initial jobless claims (23 November) Fed meeting minutes (24 November) Japan PMI (24 November) Korea BoK policy meeting (24 November) Japan Tokyo CPI inflation (25 November) Malaysia CPI inflation (25 November) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Poland: Civil Engineering Construction Was Unchanged

ING Economics ING Economics 23.11.2022 12:04
Construction output increased by 3.9% year-on-year in October, against a consensus of 0.9% and a 0.3% increase in September. The improvement was mainly due to better activity in industries related to infrastructure investment, likely benefiting from the relatively warm weather     Civil engineering construction was unchanged on an annual basis vs. a 2.3% YoY decline a month earlier while specialised works increased 5.1% YoY, following a 4.9% YoY decline in September. The main component, building construction, was almost unchanged in annual terms (8.9% in October vs. 8.7% in September). The rebound in production may be the result of a relatively warm October, which made it easier to carry out work. The good weather has so far continued into November as well. Thus, it can be assumed that works related to infrastructure projects will perform quite well this month. However, the lack of funds from the Recovery Fund, and the high cost of work, which make it difficult to put out tenders, suggest that when the positive weather effects end, infrastructure investment will slow down again. Construction output, however, will be determined mainly by activity in building construction. In October, growth in this category remained quite strong, though much slower than in the previous months of 2022 (around 27% YoY on average). Real estate developers are likely finishing previously started projects but are not beginning new ones. Companies are being hit by high costs while demand for real estate has collapsed due to rising borrowing costs and deteriorating household sentiment. Therefore, we continue to believe that construction output may turn out to be one of the weakest elements of the domestic economy, although the decline in its annual growth rate to negative levels may be delayed until early next year. TagsPoland construction Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

The US Wants To Maintain Dollar's Dominance In Order To Control World Trade

InstaForex Analysis InstaForex Analysis 23.11.2022 12:23
The US economy has to remain strong in order for dollar to maintain its dominance in markets. Although the USD index gained over 12% in a year, thanks to high US interest rates and being a safe haven asset, they are not enough to maintain hegemony. Most of the effort should be allotted to making the US economy even more vital because benefits, such as dollar becoming the world's reserve currency, will follow naturally. This is actually why some analysts believe that the US seeks to suppress alternative currencies, including Bitcoin. They believe that the US wants to maintain dollar's dominance in order to control world trade. However, the US should consider using multiple currencies rather than keeping dollar as the unit of account and means of savings because there is a high chance that many alternative currencies will emerge, which could challenge dollar's traditional role as a medium of exchange, unit of account and means of saving. Of course, it is not certain that central bank digital currencies (CBDC) could monopolize the monetary system, but Blockchain technology will play a prominent role in the definition of money in the future. It could lead to greater decentralization and individual control over money. CBDC will have to compete on its own merits with other alternative currencies.   Relevance up to 10:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/327914
The EUR/USD Pair Chance For The Further Downside Movement

The Economy And Inflation In The Eurozone Have Been Less Rate-Sensitive

Alex Kuptsikevich Alex Kuptsikevich 23.11.2022 14:48
Preliminary eurozone PMI estimates are better than expected, although they point to an economic contraction. Germany's manufacturing PMI rose from 45.1 to 46.7 in November, contrary to forecasts of a decline to 44.9. Values below 50 indicate an activity decrease, while higher-than-expected figures indicate its lesser intensity. The service sector PMI declined from 46.5 to 46.4, but above the expected 46.1. The composite PMI rose from 45.1 to 46.4 thanks to manufacturing. Earlier, a positive reversal, albeit from low levels, was also marked by the ZEW indices. Tomorrow will be the turn of the Ifo to confirm or deny this trend. Most likely, the Eurozone and the German economies will shrink in the current quarter and could also lose some money at the start of next year. However, so far, we only see signs of a relatively modest slowdown, and the labour market is displaying the highest employment rate in the history of the Euro-region. The ECB is expected to raise its rate by at least 50 points in December but might take a more drastic step with relatively strong economic data, as we saw in New Zealand earlier today. Until 2009, the eurozone economy grew strongly, even at higher rates than in the US, contributing to the euro's strength against the dollar. The economy and inflation in the Eurozone have been less rate-sensitive than expected and more so than in the USA. The euro, however, has been relatively well worked out the difference between the ECB and Fed rates. If so, the ECB could take rates above US levels, which would gradually restore the position of the single currency lost since the start of 2021.
Korea: Consumer inflation moderated more than expected in February

Asia Market: The Bank Of Korea Has Delivered A 25bp Hike

ING Economics ING Economics 24.11.2022 08:45
Markets react positively to Fed minutes - a bit of an overreaction? Covid cases and movement restrictions rise in China, Japan's PMI contracts and Bank of Korea hikes rates 25bp In this article Macro outlook What to look out for: Bank of Korea policy meeting   Source: shutterstock Macro outlook Global markets: The relevant sentence in the minutes of the Fed’s November 1-2 meeting, as far as financial markets need to be concerned is this, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”. Yes, there was lots of talk about how committed everyone was to achieving the 2% target (though none about whether that target was in fact appropriate), and for the hawks, there is this, “…with inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting, their assessment of the ultimate level of the federal funds rate that would be necessary to achieve the Committee’s goals was somewhat higher than they had previously expected”, which nods in the direction of James Bullard’s concerns that rates may have to rise considerably above the market’s peak Fed funds assumption of 5%. However, the balance of opinion seems to have been with the more dovish comments, and US equities staged a modest further rally - the S&P500 rising 0.59% and the NASDAQ rising 0.99%.  Equity futures are also indicating a slight further gain at today’s open. 2Y US Treasury yields dropped back 3.7bp and the 10Y yield declined 6.3bp to 3.693%. All of which left the way open for the USD to retreat considerably. EURUSD is now back to 1.0418 after a day of steady increases and is looking to continue those in early Asian trading. The AUD has risen about a full big figure to 0.6743, Cable has reattained the 1.20 level and is now 1.2072, while the JPY has fallen back below 140 again and is now 139.30. Asian FX was mixed yesterday, with the THB down 0.47% and CNY soft again (7.1605) but today will likely see currency pairs clawing back losses against the USD to keep track with moves in the G-10. A final thought: Are today’s moves excessive? To be honest, they do feel a bit much given the fairly even-handed nature of the Fed minutes -  there wasn’t all that much else going on, so it may be an idea to fade this move today. See also this from James Knightley on how the recent market moves will not be what the Fed wants to see. G-7 Macro: Besides the Fed minutes, yesterday’s releases centred on the November purchasing manager indices, which for Europe at least, remained solidly in contraction territory. The US indices were no better, and do indicate that the US economy is beginning to slow down. University of Michigan consumer sentiment showed a slight improvement, but the 1Y ahead inflation expectations figure dropped to 4.9% from 5.1%. October new home sales were surprisingly perky, rising at a 632,000 annual pace, up from 588,000. It’s Thanksgiving today in the US and so there is no data out of the US. In the rest of the non-Thanksgiving G-7, Germany’s Ifo survey marks the most interesting release. Trading will likely be light heading into the weekend. China: Covid cases continue to rise across much of the country, and mobility restrictions (lockdowns in all but name) are increasing. This is bound to have an impact on the fourth quarter GDP result, and as a result, could impact the outlook for 2023 GDP estimates which could be adversely affected by a year-end dip like this. Contemporaneous indicators for 4QGDP in China are looking quite bad right now. And it is probably with this in mind that the State Council was reported by CCTV yesterday as looking to get the PBoC to implement another RRR cut “in a timely and appropriate manner”. That suggests quite soon – maybe in the next few days. South Korea: The Bank of Korea has met for its policy decision meeting this morning and has delivered a 25bp hike (7-day repo rate now 3.25%) in line with market expectations. Recently released data suggest that the economy is headed for a contraction, while forward-looking price indicators suggest that inflation will slow further in the coming months. Today’s PPI inflation decelerated to 7.3% YoY in October (vs a revised 7.9% in September). The Bank of Korea is also due to release an updated forecast report, with GDP expected to be revised down to around 1.7% (from Aug forecast of 2.1%) and inflation to around 3.3% (from Aug forecast of 3.7%). What to look out for: Bank of Korea policy meeting Japan PMI (24 November) Korea BoK policy meeting (24 November) Japan Tokyo CPI inflation (25 November) Malaysia CPI inflation (25 November) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
French strikes will cause limited economic impact

France: The Economic Picture Is Deteriorating

ING Economics ING Economics 24.11.2022 11:59
In November, the French business climate remained stable and above its long-term average, depicting a very different situation than the PMI indicators. We continue to believe that the economic picture is deteriorating Business climate and PMI moving in opposite directions The business climate in France remained stable in November at 102, above its long-term average. The economic situation deteriorated somewhat in industry, construction and services, but improved in wholesale trade. Industrial order books and the expected demand in services are deteriorating, while inflationary pressures seem to be building up. The data is surprising as it contrasts sharply with the PMI indices for November, released yesterday. The composite PMI for France fell below the 50 threshold for the first time since February 2021, which is synonymous with a contraction in economic activity, standing at 48.8. While the index for the manufacturing sector continued the descent that began in June, reaching 49.1, it is the evolution in the services sector that is noteworthy: for the first time in 20 months, the index fell into contraction territory, to 49.4. The PMI thus indicates that high inflation and reduced purchasing power have put an end to the growth in the services sector that had been made possible by the lifting of Covid-19 restrictions. This marks the end of the support of services to French economic growth, which should lead to a contraction of GDP in the fourth quarter. In terms of inflation, the situation portrayed by the PMI indices is also fundamentally different from that which has emerged from the business climate indicator: according to the PMI indices, inflation in purchase prices and in prices paid has fallen to its lowest point in nine months, although still well above its long-term average. The decline is even more marked in the manufacturing sector. Although still very high, inflationary pressures seem to be reducing. Uncertain outlook With two indicators that are supposed to depict the same situation evolving in such different ways, it is difficult to draw clear conclusions in terms of forecasts for the French economy. While the more optimistic will probably prefer to believe in the business climate, the PMI indices seem to have been better at predicting French economic activity in recent months. We continue to believe that the French economic outlook is marked by weakening domestic and foreign demand, declining new businesses and uncertainty. The momentum in activity provided by the services sector seems to have ended and industry does not seem ready to become the new engine of growth. The labour market is beginning to show the first signs of weakness, which should result in slower employment growth. As a result, GDP growth is expected to be weaker in the fourth quarter than it was in the third. For 2023, we still fear a small GDP contraction for the year as a whole. TagsPMI GDP France Eurozone Business climate Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German Export Weakness In The Fourth Quarter Suggests That Recession Fears Are Real

Expectations That The German Economy To Return To Average Quarterly Growth Rates

ING Economics ING Economics 24.11.2022 12:01
The strong improvement of the Ifo index adds to recent glimmers of hope. However, this simply reflects a stabilisation at low levels and there is no reason to change the recession call, yet. The sheer fact that things are no longer getting worse doesn't mean that improvement is around the corner iStock     Germany’s most prominent leading indicator, the Ifo index, staged a strong rebound, increasing to 86.3 in November, from 84.5 in October. While the current assessment component continued to weaken, expectations improved significantly to 80.0, from 75.9 in October. This Ifo index reading shows that hope is back, even if the current situation is deteriorating further. Glimmer of hopes come too early Today's Ifo index adds to recent glimmers of hope that the German economy might avoid a winter recession. These hopes are built on the back of several government stimulus packages, filled national gas reserves, a better and faster adaption of businesses and households to reduce gas consumption, and hopes that consumers will simply spend away the energy crisis. However, the downsides still outweigh the upsides: new orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production. Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. High energy prices are gradually being passed through to consumers, therefore gradually weighing on private consumption.   The government’s fiscal stimulus, currently amounting to some 2% of GDP, will come too late to prevent the economy from contracting in the fourth quarter. However, it is substantial enough to cushion the contraction and to turn a severe winter recession into a shallow one. The next question will be whether the economy can actually avoid a double dip in the winter of 2023/24. Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023. We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip. For now, the winter of 2023/24 is still far away. This year’s winter has just started, and a few warm November weeks do not automatically make for a warm season. Today’s Ifo index gives hope for some stabilisation, nothing more, nothing less. Stabilisation is clearly not the same as a significant improvement. Returning to recent optimism, it is tempting to revive soccernomics: a 1-0 lead and a decent performance for 65 minutes can unfortunately still end in a 1-2 defeat. Not all optimism leads to success. At the current juncture and despite today's encouraging Ifo index reading, the question is what is more likely: the German economy avoiding recession or the German national football team still making it into the next round. We wouldn’t put much money on either of the two. TagsIfo index Germany Eurozone   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

Asia Market: Inflation Reports Will Be The Highlight

ING Economics ING Economics 24.11.2022 13:29
Regional PMI readings and inflation reports will be the highlight for the coming week In this article Regional PMIs Inflation from Australia, Indonesia and South Korea Growth numbers from India Other key data releases   Shutterstock   Regional PMIs Both official manufacturing and non-manufacturing PMIs for China should be in deeper contraction in October as the number of Covid cases increased, affecting both factory and retail activities. This should also be reflected in the Caixin manufacturing PMI numbers which could show a bigger contraction, as smaller factories are more adversely affected given the challenging logistical situation.  Meanwhile, PMI indices for both South Korea and Taiwan should edge lower due to stalling demand for semiconductors from the US, Europe and China. Inflation from Australia, Indonesia and South Korea Next week we have Australia's October CPI inflation. Inflation data has typically only been released quarterly so this provides us with much more insight into the evolution of prices and provides much more timely updates than we have been used to. We think the outcome will probably be close to the recent month-on-month rate of increase, which would keep it roughly in line with the same period last year and leave inflation at about 7.3%. That could be interpreted as the peak, so markets may respond positively to that. Inflation in Indonesia will likely pick up further, with core inflation likely accelerating to 3.5% year-on-year while headline inflation should settle at 5.9% YoY.  Elevated price pressures have kept Bank Indonesia busy lately with the central bank recently tightening by 50bp. We expect inflation to inch higher in the coming months which could ensure that BI will stay hawkish going into 2023.  Meanwhile, inflation in Korea is expected to decelerate quite sharply to 5.1% YoY, mainly due to base effects. Fresh food and gasoline prices stabilised during the month while pipeline prices suggest a further deceleration in the coming months. Growth numbers from India India releases 3Q22 GDP data next week. The 2Q figure was buoyed by base effects and came in at 13.51%, which although admittedly very high, was a disappointment, and led us to downgrade our GDP forecasts. We have 6.3% YoY pencilled in for the third quarter, as well as for the full calendar year 2023. Deficit data for October is also due, and will likely show that a modest improvement in India’s debt to GDP in 2022/23 remains on track. Something in the region of INR40,000 crore would be in line with recent deficit trends. Other key data releases In Korea, November exports will likely be disappointing as suggested by preliminary data reports. We expect a contraction of 10.5% YoY in November as semiconductor exports and exports to China remain sluggish. Slowing export activity should translate to industrial production contracting for a fourth straight month. Semiconductor and steel production will likely be a drag, but auto production should rebound. In Japan, the jobless rate may edge up to 2.7% (vs 2.6% in September), but overall labour market conditions remain healthy. However, given the disappointing 3Q GDP report, September industrial production is expected to drop 1.0% MoM, seasonally adjusted, with weak external demand pressuring manufacturing activity. TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

German GDP Showed Favorable Results | Switzerland Employment Level Keeps Its Trend

Kamila Szypuła Kamila Szypuła 25.11.2022 12:03
The end of the week is quiet due to America's lack of activity due to Thanksgiving. The market's attention will be focused mainly on the Asian and European markets. Today, an important report turns out to be the result of the German GDP. Tokyo CPI At the beginning of today, Japan, and more specifically Tokyo, published its inflation report. In this city, Core CPI increased from 3.4% to 3.6% and it was a higher than expected reading (3.5%). The upward trend of this indicator has been going on since the beginning of May, but since May Core CPI has been above 1.0%. Also CPI increased significantly from 3.5% to 3.8%. The consumer price index only in Tokyo excluding fresh food and energy prices held its previous level of 0.2%. In this city, the rate peaked this year in May (0.4%), and then fell twice. After that, from July to September it held the level of 0.3%. Singapore Industrial Production Singapore Industrial Production MoM increased significantly. Comparing October to September, the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities was 0.9%, which is a good result as another decline was expected. The same index comparing the result from October 22 to October 21 has fallen. The fall was expected. The current reading is -0.8%, it is the first result in a year that was below zero, but it was higher than the expected -0.9%. This means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has decreased significantly, but not as much as expected. Source: investing.com German GDP In Germany, both the quarterly and annual change in gross domestic product turned out to be a positive surprise. GDP Q3 YoY was 1.2%. Unfortunately, it was a decrease in comparison to the previous period, the reading of which was at the level of 1.8%. This time it was expected to score 0.1% lower. A very positive result for the German economy as well as for the euro zone turns out to be the reading of GDP Q3 q/q. The index increased by 0.3% compared to the previous period and reached the level of 0.4%. An increase to 0.3% was expected, but the result higher than expected may raise some optimism. German GDP figures show the country’s economy has grown slightly more in the third quarter than anticipated on the back of consumer spending. Switzerland Employment Level The Employment Level measures the number of people employed during the previous quarter. As the current reading shows, the exemplary trend is successively maintained. Employment increased this time to the level of 5,362M. The previous reading was about 46M than (5,316M). Such results show the good condition of the economy, because employment increases household income, and thus these households are able to spend more, which drives the economy because money remains in constant circulation. ECB’s speeches Markets expect only two speeches at the end of the week, and this time only from the European Central Bank (ECB). The first speeches took place at 9:50 CET. The European Central Bank Supervisory Board Member Kerstin af Jochnick spoke. The second and final speech of the day will take place at 18:00 CET, with Luis de Guindos, Vice-President of the European Central Bank The speeches of the ECB's officials often contain references to possible future monetary policy objectives, assessments and measures. What's more, statements can give strength to the euro (EUR), or set it in the opposite direction. Summary: 0:30 CET Tokyo CPI 0:30 CET CPI Tokyo Ex Food and Energy (MoM) (Nov) 6:00 CET Singapore Industrial Production MoM 8:00 CET German GDP (Q3) 8:30 CET Switzerland Employment Level 9:50 CET ECB's Supervisory Board Member Jochnick Speaks 18:00 CET ECB's De Guindos Speaks Source: https://www.investing.com/economic-calendar/
Italian headline inflation decelerates in January, courtesy of energy

In Italy Consumer Confidence Gained Eight Points

ING Economics ING Economics 25.11.2022 14:07
In Italy, business and consumer confidence rebounded in November. The scope of the rebound comes as a surprise, given the high inflation and geopolitical backdrop. This suggests that the GDP contraction, which we still pencil in for the fourth quarter, might be very small Giorgia Meloni, the new prime minister of Italy, has boosted consumer confidence by announcing continued energy support for households     November confidence data marks a widespread improvement both among consumers and businesses, interrupting a decline that started in July. We remain extremely cautious in interpreting the November reading as a sign of reversal, but it shows that the deceleration brought about mostly by the impact of higher inflation might turn out – for the time being – to be a soft one. Consumer confidence gained eight points in November, reaching back to August levels. Interestingly, the main driver of the rebound was a big improvement in the future climate component. Consumers seem to expect an improvement in Italy’s economic conditions, with a positive bearing on future unemployment. Looking at the current environment, with inflation still on the increase and subdued wage dynamics, it is not easy to justify such a reversal. A possible explanation could be post-election relief, as the new Meloni government has announced its continued support to households to compensate for the negative consequences of the energy shock on disposable income. In the business domain, the scope of the rebound in confidence has been widespread, with the exception of construction, where confidence continued its downward trend from historic highs. As with consumers, there seems to be a clear distinction between the present state of business and expectations about it. Taking manufacturers as an example, they see orders deteriorating and highlight an increase in stocks of finished goods, implicitly signalling soft current demand, but at the same time signalling a strong increase in expected production. When looking at services, what stands out is the driving role of tourism. After declining sharply in both September and October, confidence in the tourism sector has rebounded strongly, reaching back to August levels. Interestingly, the improvement is propelled by both current and expected orders, which both post similar substantial gains. On the back of previous confidence data we had anticipated the disappearance of tourism over the fourth quarter; November data seems to suggest that inertia in the sector is strong and that the expected drag on growth might consequently be smaller. All in all, notwithstanding today’s surprisingly strong confidence data, we do not believe an economic turnaround is in the making, as yet. The negative impact of inflation remains in place both for consumers and businesses and we suspect that the refinanced compensation measures will not be enough to prevent a GDP contraction in the fourth quarter of this year. But this will likely be a very small contraction, adding upside risks to our current forecast of a 3.6% GDP growth in 2022.    TagsItaly   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
A Better-Than-Expected US GDP Read, Nvidia Extends Rally

The Outlook For The US Economy | US GDP Ahead

Kamila Szypuła Kamila Szypuła 26.11.2022 18:26
Internationally, governments face a difficult challenge: supporting their citizens at a time when prices are rising dramatically, especially for necessities such as food and fuel, which have been deeply affected by the war in Ukraine. The Outlook The outlook for the global economy heading into 2023 has worsened, according to multiple recent analyses, as the ongoing war in Ukraine continues to hamper trade, especially in Europe, and as markets await a more complete reopening of the Chinese economy after months of destructive COVID-19 lockdowns. In the United States, signs of a tightening labor market and a slowdown in economic activity fueled fears of a recession. Globally, inflation picked up and business activity, particularly in the euro area and the UK, continued to decline. In June, inflation rose to a 40-year high of 9.1% and remained at 7.7% in October, well above the Fed's target of 2% a year. Fed Chairman Jerome Powell and his associates responded by raising interest rates from near zero in March to a range of 3.75% to 4%, with signaling indicators likely to exceed 5% for the first time since 2007. 2.6% in Q3 Gross domestic product in the US in the third quarter of 2022 increased by 2.6 percent. quarter-on-quarter (annualized), according to preliminary data from the Department of Commerce. This reading is higher than market expectations, as an increase of 2.4% was expected. This result was presented at the end of October (27.10.22) and this gave the Federal Reserve room to raise interest rates further. Forecast Expectations for the next reading are even more positive. GDP is expected to reach 2.7%. Source: investing.com How it is calcuated? The US uses a different way than European countries to compare GDP. They annualize their data, i.e. they convert short-term data as if they were to apply to the whole year, e.g. the monthly value is multiplied 12 times, and the quarterly value 4 times. For example, if GDP growth in a given quarter was 1%. compared to the previous quarter, the annualized growth rate was - to put it simply - slightly more than 4%. This means that we cannot directly compare data on GDP dynamics in the US to that recorded in European countries that publish data on economic growth dynamics without annualization. Recession? There is currently no recession in the US as it was not declared by the NBER, although the country entered a technical recession in the second quarter of 2022 with a second consistent quarter of negative GDP growth. However, there are several factors pointing to a growing likelihood of a recession in the coming months. Painful inflation can often persist without pushing the economy into recession. On the other hand, the actions of the US Federal Reserve (Fed), which sticks to a 2% price increase target, are increasingly likely to push the US into recession. Fed economists said it was a virtual coin toss as to whether the economy would grow or plunge into recession in 2023. Central bank staff cited rising pressure on consumer spending, trouble abroad and higher borrowing costs as short-term headwinds. Among the forecasts of a recession in the United States, there seems to be a growing consensus on its occurrence. However, there are some discrepancies as to how deep and how long it will be. Source: investing.com
Nuclear Power Emerges as Top Theme for 2023, Bubble Stocks Under Pressure

Alberto Gandolfi Statement About Renewables Energy Sources| What To Expect From 2024?

Kamila Szypuła Kamila Szypuła 30.11.2022 11:35
Markets are constantly changing, economic and political situations exert influence on them. Understanding them is very important, and getting acquainted with important events or statements about their team can help in making decisions. In this article: What can bring 2024? UBS Year Ahead 2023 Renewables in Europe The housing market The price of energy insecurity 2024 ahead and what else? Morgan Stanley tweets about the difficulties facing Europe next year. As we head into a new year, Europe faces multiple challenges across inflation, energy and financial conditions, meaning investors will want to keep an eye on recession risk, the ECB, and European equities. https://t.co/0Wtj18Dmbj pic.twitter.com/ImPUGRiuhd — Morgan Stanley (@MorganStanley) November 29, 2022 The new year is approaching. Everyone plans changes, makes resolutions. However, this does not change the fact that the economic situation or the economy will change so suddenly. Therefore, when making their plans, especially Europeans, they should take into account how the geopolitical and economic situation may affect them. And to make this possible, it is worth getting acquainted with the possible scenarios for the next year. We can expect that the fight against inflation will continue, and difficulties on the energy market will also be an important aspect of economic decisions of countries. Stocks and bonds UBS discusses stocks and bonds in their tweet. Is the worst over for stocks and bonds? Or will the years ahead remain challenging? Find out what we think will drive markets in the decade ahead in our UBS Year Ahead 2023: https://t.co/pro4XIuBiG#shareUBS pic.twitter.com/dzcbPOfp7f — UBS (@UBS) November 30, 2022 There is no doubt that the stock and bond markets have had a crazy year. Investors, analyzing the situation, wonder whether the stock and bond markets can expect an improvement or rather a deterioration of the situation. UBS analysts are also looking at this. Their opinion is presented in UBS Year Ahead 2023, and getting to know its results can help investors. Renewables in Europe Goldman Sachs tweets about renewables in Europe. Our head of European utilities research, Alberto Gandolfi, discusses Europe's headstart when it comes to renewables in the utility sector at our #Carbonomics Conference. Listen here: https://t.co/6r5Au9dZ70 #GSsustainability — Goldman Sachs (@GoldmanSachs) November 29, 2022 Alberto Gandolfi, head of utilities at Goldman Sachs, speaks to CNBC’s Steve Sedgwick at the Goldman Sachs Carbonomics event in London mostly about renewables in Europe. According to him, Europe has great potential in this area. The fight for a better tomorrow for future generations is still going on. Renewable energy sources are an important aspect of this. While all non-renewable energy sources: coal, gas or oil, will eventually run out and their further extraction will be impossible, energy obtained from renewable sources is a permanent and reliable source that will never run out. Thanks to this, we can count on safe and predictable energy supplies, without risk. Real estate market Morningstar, Inc. tweets about the real estate market. As the housing market moves into uncharted territory, advisors can help clients feel more comfortable making big financial decisions like buying their first home or refinancing their current one. Join us on December 8th: https://t.co/t5cDNyfB3G #AdvisorPracticeAccelerator pic.twitter.com/ZQ5daEeAJu — Morningstar, Inc. (@MorningstarInc) November 29, 2022 The housing market is important not only for the economy but also for potential buyers. Getting acquainted with it, better understanding it may help in making investment decisions. As the value of the property changes, opportunities arise and advisers can put this knowledge into practice. The price of energy insecurity IMF tweets about the price of energy insecurity. Europe is learning the hard way what happens to an economy tethered and dependent on fossil fuels, writes Bob Keefe. Read our latest Finance & Development for more on the price of energy insecurity: https://t.co/CqabcSqcQw pic.twitter.com/ZpfCi22opn — IMF (@IMFNews) November 29, 2022 Climate change is an environmental issue. This is also clearly an economic issue, and at the heart of the economics of climate change is energy security. The rippling impacts of climate change and the effects of energy security have been sweeping through the global economy throughout 2022, leaving few safe havens from the climate-related economic storm. especially when the supplies are controlled by the Russian dictator. Of course, energy insecurity – and the economic disasters it causes – is just one of the countless side effects of climate change hitting our wallets. How to fix it? Are renewable energy sources the answer? Find out from this tweet.
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Asia Marekt: Bank Indonesia Will Remain Hawkish Due To Rise In Core Inflation

ING Economics ING Economics 01.12.2022 09:28
Asian markets rally on China re-opening hopes and dovish Powell speech. Indian 3Q22 GDP better-than-expected, but Korean trade data was very weak and further weakness is expected from China's Caixin indices  In this article Macro outlook What to look out for: Fed speakers and US jobs report   shutterstock Macro outlook Global Markets: It looks as if Fed Chair Powell didn’t get the memo to push back against pivot hopes and keep financial conditions tight before he went to give his speech at the Brookings Institution yesterday. It was at best a neutral speech, acknowledging that rate hikes might be reduced in magnitude as early as the December meeting, but on the other hand, noting that there was still work to be done. But it also threw in a couple of what can only be described as dovish remarks  - namely that the Fed didn’t want to overtighten (no, but don’t tell the market that!). And also that he thought the economy could achieve a “soft landing”. Yes, that would be nice, but wouldn’t it have been better not to cloud the message with growth aspirations that possibly undermine the Fed’s single-mindedness to bring down inflation? It is going to be very hard now for the Fed to push back at market pivot hopes. So let’s hope that inflation does keep on falling, or this may look like a missed opportunity. Equities rallied hard following Powell’s speech. That’s not the direction we would have expected from the speech we think the market needed to hear. The S&P500 rose 3.09% and the NASDAQ rose 4.41%. Chinese stocks yesterday were also strong as re-opening hopes continue to provide support. The key to the “success” or otherwise of Powell’s speech yesterday, though, probably lies more in the US Treasury response. 2Y US Treasury yields fell 16.3bp to only 4.31%. 10Y US Treasury yields fell 13.9bp to 3.605%. The May 2023 implied rate from Fed funds futures has dropped all the way back to 4.925%. A couple of days ago, it was almost 5.0%. It’s no surprise, given all of this, to see the EURUSD exchange rate back above 1.04. The AUD has surged almost all the way back to 0.68, Cable is back up to 1.2069 and the JPY is looking stronger than for some time at 137.83. Asian FX was pretty strong yesterday, led from the front by the CNY which is still betting on re-opening, and by the high beta currencies, KRW and THB. More of the same seems likely today. US financial conditions look well and truly eased. G-7 Macro: For those who like backwards-looking employment data, yesterday’s October JOLTS survey showed a further small decline in job openings, though the measure did not fall as much as had been expected, not that we think the markets would have paid much heed even if it had. More importantly, the ADP survey came in much weaker at 127,000, down from last month’s 239,000.  If we got a figure like that for tomorrow’s US non-farm payrolls (expected 200,000), then that really would be grounds for further declines in bond yields, dollar weakness and equity gains. Though we would caution that payrolls rarely move in lock step with its monthly indicators, and nothing is certain until the data is printed. Today, the main market risk comes from the PCE deflator figures for October. A lot of attention has been placed on whether the core PCE rate will decline or not, given the differences in the scope of PCE compared to CPI and their different weightings. The market is betting on a very small decline in the core PCE inflation rate to 5.0%YoY from 5.1%. And while we don’t disagree, the risk is probably skewed to a higher figure, and perhaps no change in the inflation rate. Maybe after the big market swings yesterday, that would be a better way to be positioned. The US manufacturing ISM index completes the data for today. China: The Caixin manufacturing PMI should indicate that the activity of smaller manufacturers contracted further in November compared to a month ago. Rising Covid cases, together with shrinking exports, added pressure on exporters. Local government officials will likely exercise Covid measures with an intent to reduce their impact on the economy even if there are no further imminent changes in the overall Covid rules. South Korea: Preliminary GDP rose 0.3%QoQ sa in the third quarter, the same as the advanced estimate. However, the details have changed slightly. By expenditure, private consumption (1.7% vs 1.9% advanced) and construction (-0.2% vs 0.4% advanced) were lowered, while facility investment was revised up to 7.9% (vs 5.0% advanced) as machinery and transportation investment increased. Meanwhile, exports continued to fall -14.0% YoY in November (vs -5.7% in October, -11.2% market consensus) for the second straight month. Imports continued to rise, but at a slower pace, only 2.7% in November (vs 9.9% in October, 0.5% market consensus), resulting in the trade deficit widening to -7.0bn USD (vs -6.7bn in October). Semiconductor exports (-29.8%) and exports to China (-25.5%) were particularly weak.  The nationwide truckers’ strike is adding more burden on manufacturing and exports. Considering the sluggish October IP outcomes from yesterday and sluggish exports this morning, the downside risk for the current quarter’s GDP forecast (-0.1% QoQ) has increased. Japan: 3Q capital spending rose 9.8% YoY (vs 4.6% in 2Q, 6.4% market consensus), which is not in line with 3QGDP results. And based on today’s stronger-than-expected capital spending, Japan’s revised 3QGDP is likely to improve from the advance figure which showed a 0.3% QoQ sa contraction. Indonesia:  November inflation will be reported today.  Market consensus points to a softening in headline inflation to 5.5%YoY (from 5.7%) but core inflation may pick up to 3.4%.  The steady rise in core inflation should be enough to keep Bank Indonesia hawkish with Governor Warjiyo likely following through with a rate hike to close out the year.   India: Yesterday evening, India published 3Q22 GDP data. Please read our short snap for more detail. The short version is that at 6.3%YoY, growth exceeded expectations and apart from an outsize drag from imports, there was nothing in the 3Q data to set off alarm bells for the 4Q figure. As such, it will only take a very moderate further growth to ensure that at least a 6% GDP growth rate is achieved for the calendar year 2022.  If so, that would be one of the fastest growth rates in Asia. Fiscal deficit figures yesterday were a little less encouraging, with a big year-over-year jump which if repeated next month, could threaten the government’s fiscal deficit target for FY 2022/23 of 6.4%. What to look out for: Fed speakers and US jobs report South Korea 3Q GDP and trade (1 December) Regional PMI (1 December) China Caixin PMI (1 December) Indonesia CPI inflation (1 December) US personal spending, PCE core deflator, initial jobless claims and ISM manufacturing (1 December) Fed’s Cook, Bowman, Logan, Barr and Powell speak (1 December) South Korea CPI inflation (2 December) Fed’s Evans speaks (2 December) US non-farm payrolls (2 December) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
India: Reserve Bank hikes and keeps tightening stance

India’s Impending Economic Boom | Tim Moe Outlook For Global Markets In 2023

Kamila Szypuła Kamila Szypuła 02.12.2022 11:46
A lot of information also appeared on social networks of financial institutions and the press. In this article: Credit Suisse's situation The Inflation Reduction Act India can became one of the largest economies The outlook for global markets in 2023 Gifts for children Cost Cuts Reuters Business tweets about Credit Suisse's situation Exclusive: Credit Suisse looks to speed up cuts as revenue outlook worsens https://t.co/qY3I1lXy4a pic.twitter.com/k2CeNEPFni — Reuters Business (@ReutersBiz) December 2, 2022 The Swiss bank found itself in a difficult situation. Takes action to limit losses. The next step is to cut costs. So what should you expect? Can cost cuts mean cuts in the number of employees? There is a high probability of such a scenario. The most ambitious and comprehensive legislative action Credit Suisse tweets about The Inflation Reduction Act The Inflation Reduction Act is the most ambitious legislative action the US has ever taken on addressing climate change. Our latest report says it could have a profound effect across industries for the next decade and beyond. #inflationreductionact — Credit Suisse (@CreditSuisse) December 1, 2022 Funding for innovation and R&D could position the US as a leader in the low-carbon economy. As the United States is the world's largest producer of fossil fuels, the IRA adds to the strategic advantages the country already has - in terms of natural resources, infrastructure, geological storage, technical expertise and technological talent - and could enable the industry to become the dominant energy supplier in a low-carbon economy. The combined benefits of clean electricity and manufacturing tax credits would make US solar and wind the cheapest in the world. The Inflation Reduction Act 2022 (IRA) is the most ambitious and comprehensive legislative action the United States has ever taken on addressing climate change, according to Credit Suisse. India can became one of the largest economies Morgan Stanley tweets about India’s impending economic boom India is on track to become the world’s third largest economy by 2027 thanks to global trends and key investments the country is making in technology and energy. Find out more about India’s impending economic boom. https://t.co/7AfAV7IdgU — Morgan Stanley (@MorganStanley) December 2, 2022 India is already the fastest-growing economy in the world. The country is developing not only economically but also technologically. India is also poised to become the factory to the world, as corporate tax cuts, investment incentives and infrastructure spending help drive capital investments in manufacturing. Moreover, it is highly populated, and thus many modern scholars come from this country. Such prospects work in favor of India, which may become one of the largest economies. Bloomberg TV interview Goldman Sachs in its Bloomberg TV interview with its Chief APAC Equity Strategist Tim Moe. "We've upgraded our view on Korea and feel very enthusiastic about that call." Find out why in this Bloomberg TV interview with our Chief APAC Equity Strategist Tim Moe, who shares our regional market outlook for 2023: https://t.co/QpIR7eGmBR" — Goldman Sachs (@GoldmanSachs) December 2, 2022 Tim Moe, Goldman Sachs Chief APAC Equity Strategist, discusses his outlook for global markets in 2023. The coming new year will also be full of challenges, because the situation will not change suddenly. Specialists, on the basis of current data, try to predict, forecast what may happen. The emerging comments on this subject may be useful for investors or other market participants in early 2023. Stocks and funds as a Christmas gift? Morningstar, Inc. tweets about stocks and funds as a Christmas gift This holiday season, why not put the "stock" in "stocking stuffer"? 🎄 https://t.co/msMLlYDN08 — Morningstar, Inc. (@MorningstarInc) December 2, 2022 The Christmas period is associated with a family atmosphere, and especially with gifts for children. Therefore, it is worth considering a more practical gift. The author of the tweet suggests that stocks and bonds can become as valuable a gift as toys. In adulthood, they can even turn out to be the best gift of childhood.
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Poland: A Pause In Its Rate Hiking Is Officially Declared

ING Economics ING Economics 03.12.2022 12:15
Following a lower CPI reading, the Polish Monetary Policy Council officially declared a pause in its hiking cycle. So for next Wednesday, we are expecting the rate to remain at 6.75%. In Hungary, we see month-on-month headline inflation at around 1.8% and the core rate at 1.7%, due to a slowdown in both the industrial and service sectors In this article Poland: end of the cycle Turkey: risks are still on the upside Hungary: year-on-year indices of inflation rise further   Shutterstock Poland: end of the cycle NBP rate in December (6.75% - unchanged) The Polish Monetary Policy Council officially declared a pause in its rate hiking though in practice, this is the end of the cycle. With CPI inflation moderating from 17.9% year-on-year in October to 17.4% YoY in November (flash estimate) and GDP growth pointing to weak household spending and fixed investment, the Council is unlikely to tighten further anytime soon. Policymakers will wait for the impact of rate hikes delivered so far and hope that further tightening by central banks in core markets, along with a global economic slowdown, will bring Polish inflation down. However, the National Bank of Poland's target of 2.5% (+/- 1 perc. point.) is not in sight over the medium term. Turkey: risks are still on the upside In November, we expect annual inflation to change direction and drop to 84.4% (2.9% on monthly basis) from 85.5% a month ago, as base effects start to kick in. These will become more pronounced in December and early next year. Stability in the currency is another factor for some moderation in the pace of increase lately. However, the risks lie to the upside given the deterioration in pricing behaviour and still prevailing cost-push pressures. Hungary: year-on-year indices of inflation rise further October economic activity data is due next week in Hungary. We expect the retail sector to post a slowdown in sales volume, as household purchasing power is increasingly hit by rising inflation. Business survey indicators, including the PMI, suggest that we might also see a temporary slowdown in industrial production in October,  after a surprisingly strong September. The next big thing however is the November inflation print. We see food prices rising further as domestic producer prices are skyrocketing in the food industry (close to 50% YoY). Still, the strengthening of the forint may ease some pressure on imported inflation, and as aggregate demand retreats, inflation in services could also slow down. In all, we see the month-on-month headline inflation rate at around 1.8% and core inflation at 1.7%. But these rates are still higher than last year’s figures from the same month, thus the year-on-year indices are going to rise further, with the headline and core rates surpassing 22% and 23%, respectively. When it comes to the budgetary situation, unlike in the previous two months, we see a monthly deficit. This is fuelled by the extra pension adjustment by law due to high inflation. This payment triggered a significant outflow of cash in November, pushing the monthly budget balance into negative territory despite rising revenues from high inflation and windfall taxes, in our view. Key events in EMEA next week Refinitiv, ING TagsTurkey Poland MPC Hungary EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
US Dollar Plunges Despite Hawkish Fed Expectations, Inflation Data and Sentiment Indicators in Focus

Capitalism And Everything You Need To Know About It

Kamila Szypuła Kamila Szypuła 04.12.2022 11:12
Politics and economics are closely related. Many economic trends or schools of economics define in their theories the role of the state in building the economy, also in capitalism. Capitalism has become the dominant form of economic expansion, learning about its basis and variants can give rise to many discussions. Economic dualism Economic dualism - otherwise known as agrarian dualism or economic dualism, is a phenomenon of the divergence of development paths of the European feudal economy from the mid-15th century. In the countries of Eastern Europe (east of the Elbe River) the farm and serf economy dominated, while in Western Europe (in the countries west of the Elbe River) the seeds of a capitalist economy appeared. Capitalism Capitalism it is a socio-economic system based on the division into owners of means of production (land, natural resources, production plants, etc.) and workers. Profit-oriented production is based on combining the means of the capitalist class with the labor power of workers who do not own any means of production. In this mode of production, mercenaries are theoretically free to dispose of their goods, but in practice they are forced to sell them because it is the only way to ensure their livelihood. Capitalists monopolizing the means of production, on the other hand, created a separate social class which, using its advantage, appropriates the produced good and sells it at a price higher than the sum of the means of production and labor costs. As a result, the workers receive a wage for their work much lower than the value of what they produced, and any surplus stays in the hands of the capitalists. The conflict of interests of classes leads to a growing social conflict, and as a result - to class struggle. The capitalist class and the labor force Initially, the gap between the capitalist class and the working class was enormous. Workers; deprived of all rights; often they did not receive a living wage for their work. This has led to movements demanding a fair distribution. The result of these activities was the formation of many trade unions. Capitalism through the eyes of economists Adam Smith For Smith, the capitalist system was perfect, harmonious, man-oriented. He believed that such an economy enables the state to develop rapidly while ensuring freedom for its citizens. Karl Marx Unlike Adam Smith, he sees many internal contradictions in capitalism, he strongly criticized capitalism for its demoralizing influence on society. John Maynard Keynes John Maynard Keynes, hailed as the greatest economist of the 20th century, pointed out the weaknesses of the capitalist system. According to him, while at the beginning of the era of capitalism, saving was beneficial, as it was aimed at collecting funds for later investments, with the development of the system, saving and investing became separate issues. Nowadays, an entrepreneur invests other people's money, which in effect means that if people are cautious about spending money, it will directly affect the activity of investors, who will wait for a better time to invest. In the longer term, such a reduction in economic liquidity leads to depression and crisis. Keynes argues that the solution to the problem is to eliminate unemployment - public works, that is, to allow the government to manage the economy. Varieties of capitalism State capitalism It is a way of conducting economic policy in which the state intervenes in the basic areas of the economy and focuses on developing the state sector. Collective capitalism People's capitalism (in other words, collective capitalism) is a view that the totality of transformations of ownership relations in the economy, such as the creation of joint-stock companies, bonds, separation of power from ownership, and the development of technology, lead to the emergence of a branch of capitalism; one in which capital is dispersed, which deprives the capitalist of economic advantage and leads to the disappearance of the main cause of the capitalist-worker conflict. Source: Bartkowiak, R. (2010). WspóÅ‚czesne teorie ekonomiczne, Heywood A. (2007). Political ideologies. An Introduction
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Concepts Worth Knowing - Gross Investment And Depreciation

Kamila Szypuła Kamila Szypuła 04.12.2022 11:41
Investments in the vast majority of cases are implemented through the purchase of services and goods by enterprises. Of course, they will be implemented much less often by state institutions or households. Gross investment Gross investment - includes the production of new capital goods and the improvement of existing capital goods, e.g. construction of roads, bridges, buildings and structures, purchase of machinery, technical equipment and tools, means of transport, purchase of product manufacturing licenses. Investments are most often implemented through the purchase of goods and services by enterprises. Less often, however, they are implemented by households and state institutions. The ratio of depreciation to gross investment shows whether a given country has carried out investments at a level allowing for the replacement of the used part of the assets. Gross investments vs. net investments Gross Investments = Net Investments + Depreciation The term of gross investments is closely related to net investments, which are gross investments less the depreciation value of the existing capital stock. Depreciation is an economic reflection of the process of using up the existing stock of fixed capital, more precisely - it reflects the equivalent of using up the capital stock in a given period. The consumption of the stock of physical capital means that some of the goods produced in the economy (i.e. capital goods) should be used to replace the used capital. To sum up - a part of the total investments (ie gross investments) must be allocated to the replacement of the used capital stock in sizes corresponding to depreciation. The remainder of the investment (i.e. net investment) can be used to augment the existing capital stock. Gross investment and measures of production Gross Domestic Product and Gross National Product are measures of production that include gross investment. Due to the difficulties in estimating depreciation on a macroeconomic scale, GNP and GDP are more often used in economic analyses, despite the fact that Net National Product (national income) better reflects the income generated in the economy. Depreciation The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time. Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of an asset in year one, companies can use depreciation to spread out the cost and match depreciation expenses to related revenues in the same reporting period. This allows a company to write off an asset's value over a period of time, notably its useful life. Companies take depreciation regularly so they can move their assets' costs from their balance sheets to their income statements. There are many types of depreciation, including straight-line and various forms of accelerated depreciation. Using the straight-line method is the most basic way to record depreciation. It reports an equal depreciation expense each year throughout the entire useful life of the asset until the entire asset is depreciated to its salvage value. The declining balance method is an accelerated depreciation method. This method depreciates the machine at its straight-line depreciation percentage times its remaining depreciable amount each year. Because an asset's carrying value is higher in earlier years, the same percentage causes a larger depreciation expense amount in earlier years, declining each year. The double-declining balance (DDB) method is another accelerated depreciation method. After taking the reciprocal of the useful life of the asset and doubling it, this rate is applied to the depreciable base—its book value—for the remainder of the asset’s expected life. Thus, it is essentially twice as fast as the declining balance method. Source: Begg B., (2007) Macroeconomy
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How High May Be Rate Hike By Bank Of Canada? | Japan GDP Ahead

Kamila Szypuła Kamila Szypuła 04.12.2022 18:43
On Wednesday, two goposaraku may catch the attention of investors. The Bank of Canada will announce its monetary policy decisions and Japan will announce its GDP data. Bank Of Canada’s decision The Bank of Canada is expected to conclude a historic year marked by high inflation and aggressive monetary policy tightening with one more interest rate hike on Wednesday. In the wake of inflation soaring this year, the Bank of Canada has raised its key rate six times in a row since March in a race to curb inflation expectations before they are no longer anchored. After raising the main interest rate by a historical full percentage point in July, the Bank of Canada limited the scale of interest rate hikes. Forecasts call for the central bank to raise its key interest rate, which is currently 3.75 percent, by a quarter or a half of a percentage point. After raising its key rate by a historic full percentage point in July, the Bank of Canada has tapered the size of its rate hikes. In September, it announced a three-quarter percentage point rate hike, followed by half a percentage point in October. Now, the end of the rate hike cycle appears to be near. Canada’s economy grew more quickly than expected in the third quarter. Statistics Canada announced that Canada’s gross domestic product grew at an annualized rate of 2.9 per cent in the quarter. But preliminary October data released by Statistics Canada at the same time showed that the economy didn’t grow at all that month. That could give the Bank of Canada a reason to dial back its rate-raising campaign. That shows the Bank of Canada’s rate hikes are already having a significant impact on Canadian households ability to spend money. Japan GDP The world’s third biggest economy has struggled to motor on despite the recent lifting of Covid curbs, and has faced intensifying pressure from red-hot global inflation, sweeping interest rate increases worldwide and the Ukraine war. The unexpected decline reflects the impact of the Japanese currency on the economy and shows that the road to a sustainable post-pandemic recovery is long, with further risks clouding the outlook. Politicians will be hoping the government's latest economic stimulus package will help boost growth in the coming months. The reopening of Japan's borders also creates the prospect of a renewed increase in the spending of foreign tourists attracted by a country that has become much cheaper to travel around. The Bank of Japan maintains the view that the economy needs further support and that inflationary pressures require robust wage growth for price increases to be sustainable and beneficial to the economy. To ease the impact on households and businesses, Prime Minister Fumio Kishida last month proposed an economic stimulus package that includes help to cut energy costs and cash benefits for childcare. Japan's gross domestic product quarter-on-quarter in Q3 is expected to be the same as November's reading, i.e. it will stay at -0.3% Source: investing.com The economy fell in the third quarter for the first time in a year. GDP fell by 1.2% y/y. Typical suspects were the factors driving the decline in GDP - weak global growth and rising inflation, plus a weak yen. The GDP Y/Y result is now expected to reach a horizontal -1.1%. Source: investing.com, boc.com
UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

Chinese And European Services PMIs Fell

Kamila Szypuła Kamila Szypuła 05.12.2022 11:25
Today, the focus is on the Services PMI from multiple economies. ECB President Lagarde Speaks and Eurogroup Meetings This morning (2:45 CET) there was one and only speech of the day. the speaker was European Central Bank (ECB) President Christine Lagarde. As head of the ECB, which sets short term interest rates, she has a major influence over the value of the euro. Services PMI (Nov) At the beginning of the day data from Asia appeared, followed by data from Europe. The Japanese Services PMI rose slightly from 50.0 to 50.3. The Caixin China General Services PMI fell to 46.7 points in November 2022 from 48.4 in October, marking the third straight month of decline. It was also the biggest contraction in the services sector since May, due to Covid containment measures that could impact demand and service activity. Looking at the PMI results from the European Union, there was a decrease in the main economies of Reginau, and an increase in two others. Growth occurred in Spain and Italy. Spain's services PMI rose to 51.7, above the expected 50.5, and in Italy it rose significantly from 46.4 to 49.5. The German and French Services PMIs fell and were lower than expected. For Germany, the result was only 0.4 lower than the previous one and reached the level of 46.1, while in France there was a greater decrease from 51.7 to 49.3. Thus, there was a slight decrease in the euro area from 48.6 to 48.5. In the UK, the Services PMI (Nov) and Composite PMI (Nov) held their previous reading at 48.8 and 48.2 respectively. The United States will also release data on this indicator today. It is expected that the level will be the same as last time, i.e. 46.1. Eurogroup Meetings Today the Eurogroup brings together ministers from the euro area to discuss matters relating to their common currency. EU Retail Sales (MoM) (Oct) Retail sales in the European Union fell significantly. The current level of M/M retail sales is -1.8%, down from 0.8%. The level achieved is lower than expected. ISM Non-Manufacturing PMI (Nov) U.S. The ISM Non-Manufacturing Purchasing Managers Index (PMI) expects another decline. The last reading was at e54.4, also down from 56.7. The reading is expected to fall to 53.3 this time. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting. Currently, it remains above 50, but as the data shows, the downward trend continues, i.e. the sector is starting to contract. BCB Focus Market Readout and RBI MPC Meeting Minutes Brazil and India publish reports on the state of their economies or expectations. The Focus Market Report provides weekly mean market expectations for inflation over the following month, while The Monetary Policy Meeting Minutes are a detailed record of the Reserve Bank of India's policy setting meeting, containing in-depth insights into the economic conditions that influenced the decision on where to set interest rates. Canada Building Permits (MoM) (Oct) Canada awaits improvement in the change in the number of new building permits issued by the government. Canada Building Permits MoM is forecast to reach 3.9%, a large increase from the previous reading which was -17.5%. This may mean that the real estate market has improved in the analyzed term. Summary: 1:30 CET Japan Services PMI 2:45 CET ECB President Lagarde Speaks 2:45 CET Caixin Services PMI (Nov) 9:15 CET Spanish Services PMI (Nov) 9:45 CET Italian Services PMI (Nov) 9:50 CET French Services PMI (Nov) 9:55 CET German Services PMI (Nov) 10:00 CET EU Services PMI (Nov) 10:30 CET Services PMI (Nov) 11:00 CET Eurogroup Meetings 11:00 CET EU Retail Sales (MoM) (Oct) 12:25 CET BCB Focus Market Readout 12:30 CET RBI MPC Meeting Minutes 14:00 CET Canada Building Permits (MoM) (Oct) 15:45 CET Services PMI (Nov) 16:00 CET ISM Non-Manufacturing PMI (Nov) Source: Economic Calendar - Investing.com
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All EU Members Move To Establish The EU Armed Forces Before 2028

Saxo Bank Saxo Bank 06.12.2022 09:06
Summary:  "In 2023 it becomes clearer than ever that Europe needs to get the union’s defensive posture in order." - John Hardy & Christopher Dembik Any real economic and political union must rank national security as one of its highest priorities, particularly when war looms on that union’s very borders. Since the end of World War II, Western Europe found itself under the comforting umbrella of the US Armed Forces, both directly and via widespread participation in NATO. Since the end of the Cold War, national defence priorities faded further. They mostly only focused on the ‘war on terror’, a diffuse and immaterial threat in real terms even if it loomed large in the public’s imagination, while the active theatres of that war were far-flung, chiefly in Iraq and its environs, and in Afghanistan.  But Russia’s invasion of Ukraine brought the largest hot war to Europe since 1945, and the 2022 US midterm elections saw a strong surge in the right populist Republican representation in Congress, with former president Trump likely set to declare his candidacy for president for 2024. In 2023 it becomes clearer than ever that Europe needs to get the union’s defensive posture in order, being less able to rely on the increasingly fickle US political cycle and facing the risk that the US will entirely withdraw its old commitment to Europe, perhaps after a Ukrainian-Russian armistice.  In a dramatic move in 2023, all EU members move to establish the EU Armed Forces before 2028, with the aim of establishing a fully manned and deployable land, sea, air and space-based operational forces, to be funded with EUR 10 trillion in spending, backloaded over 20 years. An EU Rapid Deployment Capacity force is designated for readiness before 2025, with participation from over 20 EU member countries. To fund the new EU Armed Forces, EU bonds are issued, to be funded based on keys of each member country’s GDP. This drastically deepens the EU sovereign debt market, driving a strong recovery in the euro on the massive investment boost.  Market impact: Leading European defense companies outperform broader European market by 25%, and new popular European defense ETFs are formed and enjoy strong investor interest. Source: EU Army forces EU down path to full union - Saxo Outrageous Prediction | Saxo Group (home.saxo)
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UK Santander Bank Fined USD 132 Million, Idris Elba in Cyberpunk 2077:Phantom Liberty

Kamila Szypuła Kamila Szypuła 09.12.2022 10:44
In the UK, many sectors are controlled. Yesterday there was an impromptu that the CMA imposed a fine on BMW, and today the FCA on the consumer bank Santander. Moreover, the investment attractiveness of the US still remains the best. CNBC will consider the magnitude of the consequences of the pandemic in the United States. In this article: Foreign direct investment UK Santander bank fined Consequences of the pandemic Idris Elba in the story expansion for Cyberpunk 2077 Megatrend potential Read more: Amazon, Google, Microsoft And Oracle Received A Cloud Deal From The Pentagon| FXMAG.COM The US is the best region for foreign direct investment Foreign investments due to the fact that they affect the economic profile of the region of location, because due to their impact on the production potential, changes in the labor market and the level of technological development. The more such investments in a given region, it indicates its attractiveness and builds its potential. Foreign investments have a positive impact on loyal markets because they generate new jobs (increase in employment - decrease in unemployment) and increase the circulation of money. As data showed the US, the Netherlands and China are at the forefront of regions with the largest number of foreign direct investments. The United States recorded the largest increase of inward foreign direct investment of all economies in 2021. The share of global foreign direct investment for the largest economies such as the United States and China has increased recently, while that of offshore financial centers has fallen. Our latest blog looks at how and why this happened: https://t.co/eWevJBEsYE pic.twitter.com/SpDiuJ0KBK — IMF (@IMFNews) December 8, 2022 UK Santander bank fined $132 million From a tweet of Reuters Business learns that Santander Bank has been fined by the UK Financial Supervision Authority (FCA). According to the FCA, the British branch of this bank did not perform its functions properly in order to prevent money laundering. Santander accepted the punishment. But what does this mean for the bank? This will largely affect its market image. Along with this, it may cause that in the UK it will be less likely to be chosen by new kilets. So far, the most important task for the British branch will be to improve its systems. UK financial watchdog fines Santander bank $132 million https://t.co/dZby7GFtPm pic.twitter.com/oLSu3SZXv1 — Reuters Business (@ReutersBiz) December 9, 2022 Consequences of the pandemic for the US The effects of the coronavirus pandemic are still underestimated. Every economy around the world is grappling with its direct consequences. Even the world's largest economy will have to bear high costs. They are currently valued at $3.7 trillion. Given the current economic situation, this can be a serious problem. You can find out more on CNBC's "This week, your wallet." Long Covid has affected millions of Americans — and it may cost the U.S. economy $3.7 trillion, according to one estimate.Join the conversation on "This week, your wallet." https://t.co/jlJPGtyvst — CNBC (@CNBC) December 8, 2022 Idris Elba and CD Projekt RED CD Projekt RED continues to work with Hollywood stars. After cooperating with Keanu Reeves, the studio announced that Idris Elba will play one of the main characters in the story expansion for Cyberpunk 2077. This time he will play Solomon Reed, an FIA Agent for the NUSA in Phantom Liberty. Introducing Idris Elba as Solomon Reed, an FIA Agent for the NUSA. Team up and take on an impossible mission of espionage & survival in #PhantomLiberty, a spy-thriller expansion for #Cyberpunk2077 set in an all new district of Night City. Coming 2023 to PC, PS5 & Xbox Series X|S. pic.twitter.com/jjTuv5PDXA — Cyberpunk 2077 (@CyberpunkGame) December 9, 2022 Megatrend potential Morgan Stanley has a habit of posting tweets that give clues not only to investors, but also, or rather, to average citizens in particular. Unpredictable markets and changing economic conditions make it difficult to know how to invest for the future and how to manage your portfolio. Financial institutions such as Morgan Stanley are constantly researching and drawing new ideas with which they are happy to share. This time he looks at megatrends and how they can help. There is no doubt that the changed has a big impact on everything, especially the social ones. What makes a trend a megatrend? Learn how structural changes in the economy and society can power growth in your portfolio for years to come. https://t.co/L4FLdkgSAz — Morgan Stanley (@MorganStanley) December 9, 2022
Rates Spark: Discussing the Potential of 4.5% and its Impact on Markets

In Poland Lower Inflation In November Is Not Yet A Sign Of A Turnaround In The Inflation Trend, CPI In the Czech Republic Continue To Rise Rapidly

ING Economics ING Economics 10.12.2022 09:46
Inflation data is in focus next week. In the Czech Republic, surveys suggest food prices continue to rise, and we believe fuel will be the only item to show deflation in November. Thus, we expect inflation to accelerate to 0.9% month-on-month. In Poland, core CPI grew to 11.3% year-on-year, and we see it peaking above 20% in February 2023 In this article Poland: No turnaround in inflation yet Czech Republic: Inflation accelerates again   Shutterstock Poland: No turnaround in inflation yet Current account (€-263mn) We forecast that the current account deficit narrowed substantially in October even though the trade deficit in goods was at a similar level as in the previous month. The main improvement is projected to come from an improvement in the primary income balance. For 2022 as a whole, we project a current account deficit of about 4% of GDP, declining further to 3.2% in 2023 on the back of weak domestic demand and a moderate increase in foreign sales. CPI (17.4%YoY) According to the flash estimate, CPI declined to 17.4% year-on-year in November from 17.9%YoY in October, as an expected month-on-month drop in gasoline prices was accompanied by an unexpected fall in energy prices due to cheaper coal. Still, core CPI grew to 11.3%YoY from 11.0%YoY in the previous month. Lower inflation in November is not yet a sign of a turnaround in the inflation trend. We see consumer inflation peaking above 20%YoY in February 2023 before declining to around 10%YoY in the fourth quarter of next year. You can read more in our 2023 economic outlook here. Czech Republic: Inflation accelerates again Surveys suggest that food prices in the Czech Republic continue to rise rapidly. While they rose by 3.0% in October, we expect a 2.1% month-on-month jump for November, which is still significantly higher than in the months leading up to October. On the other hand, we expect fuel prices to have fallen (1.7%). However, we believe this is the only item in the consumer basket that shows deflation in November. The main issue, as always, is energy prices. In October, the statistics office surprised with its aggressive approach to including the energy-saving tariff in the CPI, which led to a massive drop in inflation. This effect will last until December and will be replaced in January by the price cap, which we believe will have a similar effect on inflation. Unlike the price cap, the savings tariff allows energy prices to rise further. Therefore, we expect a slight increase in energy prices in November, but again, this is the main CPI item that may surprise. Thus, overall, we expect inflation to accelerate from -1.4% to 0.9% month-on-month, which should translate into a headline number rising from 15.1% to 15.9% year-on-year. Key events in EMEA next week Refinitiv, ING Read the article on ING Economics TagsEMEA Czech Repulbic Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

Monetary Aggregates - Money Supply In The Economy

Kamila Szypuła Kamila Szypuła 10.12.2022 08:49
The central bank is responsible for issuing money, and also conducts the monetary policy of a given country and ensures price stability and the value of money. The monetary policy pursued by the central bank depends primarily on the money supply. Definition Monetary aggregates are a measure of the money supply in domestic currency. Depending on what assets we consider as money, we talk about different monetary aggregates. There are several commonly accepted categories of money, we denote them with the letter M from the English word money. The aggregates are ranked from the most liquid assets to the least liquid. Subsequent aggregates include an ever-wider range of financial assets classified as money. We distinguish several monetary aggregates. They depend on what assets we consider to be money. It is worth noting that the detailed range of assets included in the given monetary aggregates may differ slightly in individual countries. M0 The monetary base (or M0) is the total amount of a currency that is either in general circulation in the hands of the public or in the form of commercial bank deposits held in the central bank's reserves. In simpler terms, it is the total amount of money directly issued by the central bank - the value of notes and coins that are in non-bank circulation, as well as that held by the banking system. The monetary base consists mainly of cash money, which is held by various enterprises, households or institutions. In addition, it is also made up of the required reserve of commercial banks held on accounts with the central bank, as well as the excess reserve, which consists of voluntary contributions of commercial banks with the central bank. The monetary base is the basis for shaping the money supply. This is because it makes it possible to increase the circulation of money. M1 Another type of aggregate is M1, otherwise known as M1 money or transaction money. As you can guess, this aggregate has a broader measure than the monetary base, because in addition to the position of the M0 aggregate, it also includes slightly less liquid assets. It is, for example, the entire value of current deposits, i.e. demand deposits held in commercial banks by private individuals, business entities and financial institutions that are not banks. These contributions can be in n gold and in currencies. The M1 aggregate includes: the above-mentioned cash outside banks' vaults, as well as the value of current accounts of commercial banks with the central bank, the value of the required reserve on central bank accounts, and current deposits in gold and in currencies. M2 The next in line is the M2 aggregate. Its other name is M2 money. And here, as in the case of aggregate M1, it includes assets with even less liquidity than aggregate M1. Therefore, in addition to the M1 aggregate, it also includes all term deposits in commercial banks with an original maturity of up to 2 years, as well as deposits with a notice period of no more than 3 months. M3 The last monetary aggregate is the M3 aggregate, otherwise known as broad money or M3 money. It is the widest unit. Here, as in the previous cases, it includes all components of the M2 aggregate, and additionally also debt securities with an original maturity of up to 2 years, as well as liabilities of banks arising from repurchase agreements. The M3 aggregate contains the most assets, including those characterized by much lower liquidity. Thanks to the fact that it has the largest range of assets, it gives the best picture of how the money supply is shaped. Impact of monetary aggregates The study of monetary aggregates can generate important information on the financial stability and overall health of a country. For example, monetary aggregates that grow too fast can cause fear of high inflation rates. If there is more money in circulation than is needed to pay for the same amount of goods and services, prices are likely to rise. In the event of a high rate of inflation, groups of central banks may be forced to raise interest rates or stop the growth of the money supply. Source: investopedia.com, Begg D., Macroeconomy
India: Reserve Bank hikes and keeps tightening stance

Asia Market: In India November Inflation Dropped Far More Sharply Than Had Been Expected

ING Economics ING Economics 13.12.2022 08:48
Indian inflation comes in below policy rates...the pattern for others? US November inflation later Source: shutterstock Macro outlook Global markets: US stocks snapped their losing spell yesterday with some solid gains. The S&P500 rose 1.43% and the NASDAQ rose 1.26%. But with no macro releases to speak of and no Fed speakers during the blackout period before this week’s FOMC meeting, it is hard to see what drove yesterday’s moves higher. It certainly wasn’t falling bond yields, as US Treasury yields made further, albeit small gains. 2Y and 10Y UST yields both rose about 3bp. The 10Y yield now stands at about 3.61%. EURUSD looks almost unchanged from this time yesterday but has tested both ends of the 1.05 level, sitting at 1.0541 currently. Other G-10 pairs are a mixed bag, with the AUD and JPY looking soft, while GBP mirrored the EUR moves and ended roughly unchanged from a day ago. Most Asian FX sold off against the USD yesterday with the PHP at the bottom of the non-G-10 pile, followed by the KRW. The VND made small gains.  G-7 Macro: Today will be dominated by the US CPI release for November. The consensus expects the headline inflation rate to decline to 7.3% from 7.7%YoY, following a 0.3%MoM increase in the price level. And the core rate of inflation is expected to decline to 6.1%YoY from 6.3%, again on a 0.3%MoM gain in the core price level. The US NFIB survey is also released today, which provides a lot of price and wage-setting intentions for smaller firms, which have a strong track record predicting actual inflation, so well worth a look. Outside the US, Germany’s ZEW survey has registered small improvements recently, though from an extremely low base, and more of the same is anticipated for the latest data. India: November inflation dropped far more sharply than had been expected, with the headline inflation rate dropping to only 5.88%YoY (consensus 6.35%, ING f 6.20%).  The main culprit for the fall was a larger-than-expected fall in food prices, but the housing component was also weaker, as were the transport, and recreation sectors. With inflation now below the RBI’s policy rate (repo rate is 6.25%) there is a strong case to be made for at least easing back on further tightening, and possibly even considering a pause/peak in rates. That would certainly be welcome news for the economy, which registered a 4.0% decline in industrial production in October and could do with a boost. China: Aggregate finance increased CNY1990 bn in November from CNY908 bn a month ago, while new yuan loans rose CNY1210 bn, almost double the amount in October. The data is in line with expectations that loan growth increased in November after a quiet month in October. Over 70% of new yuan loans went to corporates. This should help the corporate sector to keep business running as the government eases Covid measures, and could keep employment stable. Household long-term loans, most of which will be mortgages, increased CNY210 bn in November from CNY33 bn the previous month. Though not comparable to pre-Covid level, this shows some home buyers started to find bargains in the home market. Government bond issuance increased by CNY652 bn, which should continue to increase in the coming months to finance infrastructure investment in 2023. Philippines:  The October trade report should show exports sliding back into contraction after posting a surprise expansion in the previous month.  The electronics subsector should revert to a contraction, dragging down the export sector for the rest of the year.  Meanwhile, imports should sustain their double-digit expansion, resulting in a still sizable trade deficit to keep some depreciation pressure on the PHP.   What to look out for: US inflation Australia Westpac consumer confidence (13 December) Philippines trade balance (13 December) US CPI inflation (13 December) South Korea unemployment rate (14 December) Japan Tankan survey and industrial production (14 December) US MBA mortgage applications and import price index (14 December) FOMC policy meeting (15 December) New Zealand GDP (15 December) Japan trade balance (15 December) Australia labor report (15 December) China industrial production and retail sales (15 December) Indonesia trade balance (15 December) BSP policy meeting (15 December) Taiwan CBC policy meeting (15 December) ECB policy meeting (15 December) US retail sales and initial jobless claims (15 December) Singapore NODX (16 December) Japan Jibun PMI (16 December) Eurozone CPI inflation (16 December) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Riksbank's Potential Rate Hike Amid Economic Challenges: Analysis and Outlook

Asia Market: In South Korea, The Unemployment Rate Rose Slightly

ING Economics ING Economics 14.12.2022 08:44
US inflation report provides support for "pivotists" - Asian FX to bounce today in line with G-10 peers. Source: shutterstock Macro outlook Global Markets: Faster-than-expected falls in November inflation in the US have given risk assets a nice lift, dragged bond yields back down and weakened the dollar. The S&P500 rose 0.73%, a modest rise all things considered, and maybe investors are being a little cautious ahead of the FOMC today. Chair Powell may well try to curb market enthusiasm with some more “…lots of work to do…” type commentary. The NASDAQ rose 1.01%. Chinese stocks made small losses yesterday as the practical consequences of the new re-opening policy are digested. The Hang Seng rose 0.68%. US Treasury yields fell sharply. Yields on the 2Y bond fell 15.7bp to 4.218%, while those on the 10Y bond fell 11bp to 3.501%. This undermined the USD, and EURUSD rose to 1.0627. The AUD has surged to 0.6845. Cable too has risen sharply to 1.2358 and the JPY is down at just over 135.50. Asian FX had a mixed day yesterday but should rally strongly today in line with their G-10 peers. G-7 Macro: Here is James Knightley’s note on the US inflation report and what it means for the FOMC tonight (and further down the track). In a nutshell, rates still need to get to 5%, but it is much harder to see them rising above 5.0%. And the case for rate cuts in 2H23 is building. This will probably not be the message the Fed will want to portray, so there will remain a tension between the actual macro data and the Fed rhetoric which should keep volatility alive. But to be 100% clear, this is NOT a “higher for longer” call, but rather a “higher, then lower” call which will be at odds with the message from the Fed. In terms of the actual numbers, the headline inflation rate in the US fell from 7.7% to 7.1% in November and core inflation fell from 6.3% to 6.0%. With big base year comparisons over the next four months, it would be quite realistic to assume that March inflation released in April next year will be much closer to 5% (maybe even below) than 7%, delivering a neutral or possibly positive real (rate minus actual inflation) policy rate. Today (3 am tomorrow SGT time) is all about the FOMC and an almost certain 50bp of hikes and then the Fed’s decreasingly credible message. We are looming towards ECB and BoE rate hikes of 50bp each tomorrow. South Korea: The unemployment rate rose slightly in November to 2.9% (vs 2.8% in October), matching market expectations. The labour participation rate edged down to 63.9% (vs 64% in October). By industry, manufacturing has now shed jobs for three months in a row, and the pace even picked up in November (-51K Nov, -21K Oct, -16K Sep).  Among services, accommodation/restaurants continued to add jobs (24K) in November since the lift of major mobility restrictions in April. But other major service sectors, such as whole/retail sales (-19K), transportation (-18K), and financial services (-8K) lost jobs. By status of workers, the number of self-employed increased (37K), mainly for single-person self-employed without any employees. Labour conditions remained generally good, but details show that the reopening effect is fading and that manufacturing and construction weakness is growing. We believe today’s labour report will not have a meaningful impact on BoK’s rate decision, but at least it flags that slowing growth is beginning to have a negative impact on employment. Japan: Today’s data were slightly mixed. Core machine orders beat the market expectation, but business surveys were weaker than expected. Core machine orders rebounded 5.4%MoM sa in October (vs -4.6% in Sept) for the first time in three months. Manufacturing orders continued to decline but non-manufacturing orders rebounded. The Tankan survey showed that large companies foresee the business outlook becoming gloomier. The manufacturing outlook index declined from 9 to 6 (in line with the market consensus) while the non-manufacturing outlook remained unchanged at 11 (vs 15 market consensus) What to look out for: Fed policy decision South Korea unemployment rate (14 December) Japan Tankan survey and industrial production (14 December) US MBA mortgage applications and import price index (14 December) FOMC policy meeting (15 December) New Zealand GDP (15 December) Japan trade balance (15 December) Australia labor report (15 December) China industrial production and retail sales (15 December) Indonesia trade balance (15 December) Philippines BSP policy meeting (15 December) Taiwan CBC policy meeting (15 December) ECB policy meeting (15 December) US retail sales and initial jobless claims (15 December) Singapore NODX (16 December) Japan Jibun PMI (16 December) Eurozone CPI inflation (16 December) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
UK GDP Revised Up, Boosting Economic Outlook

New Refugees Will Affect Economic Growth In The Coming Years | The English Royal Family Is Again In The Center Of Interest

Kamila Szypuła Kamila Szypuła 15.12.2022 13:23
This year is a challenge, a continuation of new challenges for economies. The war in Ukraine not only affected the European Union economically and politically, but most of all the townspeople of Ukraine, who had to leave their homeland to protect themselves, but that is to say, the economies that hosted them. What's more, Prince Harry and Meghan will again attract attention thanks to a new documentary series about them. In this article: Refugees and theirs affect on economy Airlines Netflix’s “Harry & Meghan” documentary, Refugees and theirs affect on economy Nearly 8 million refugees have fled Ukraine since Russia invaded in February, the largest wave of refugees in Europe since World War II, most of whom are now in the European Union. Studies conducted in Germany, Moldova and Poland show that the majority of arrivals are children and women under 40 years of age. These numbers will increase depending on the duration and severity of the war. The overarching goal is to create the conditions under which refugees can return home once the war is over and reconstruction begins. However, refugees may stay in their adopted homelands for some time. There are some short-term fiscal costs to supporting refugees. Countries with the highest numbers of refugees, including the Czech Republic, Estonia, Moldova and Poland, may face fiscal costs this year. Greater participation of women and children will result in increased spending on childcare, education and healthcare. However, in the medium term, refugees can boost economic growth and tax revenues, while helping to ease the current labor market pressures in parts of Europe. How new refugees will affect economic growth in the coming years will depend primarily on the speed and quality of their integration into the labor market Refugees fleeing Ukraine could boost Europe’s economic growth and tax revenue while helping some countries facing labor shortages, as we explain in #IMFBlog. https://t.co/jJKvchiH3L pic.twitter.com/f4fbllg0uy — IMF (@IMFNews) December 15, 2022 Read next: Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%| FXMAG.COM Airlines In the aviation sector, regardless of the geopolitical situation, there may also be various difficulties. Recent years have shown that there have been better and worse situations in the airline industry. The pandemic and the conflict in Ukraine will also start to affect this sector. Air travel has become popular again after the pandemic. The conflict in Ukraine has resulted in the freezing of air routes in this area and thus the reduction of flights. Airlines are trying to cope with difficult conditions, and the upcoming new year raises new hopes. Watch highlights from #RIAsia 2022 which brought investors together with #SustainableFinance industry experts and practitioners to discuss ESG trends in Asia Pacific. #RIAsia #ESG #ResponsibleInvesting pic.twitter.com/WDhbTnqXXx — Deutsche Bank (@DeutscheBank) December 15, 2022 Netflix’s “Harry & Meghan” documentary The English Royal family is the most popular royal family in the world and a symbol of Great Britain. Recently, especially after the death of Queen Elizabeth II, who was the longest-reigning monarch, interest in the members of this family has increased. Read next: From the fundamental point of view, these facts may become a game changer, sending the EUR/USD pair to the parity level | FXMAG.COM Just like every event that appears around this family, programs and series are also popular, for example the popular Netflix series The Crown. Now it has become loud again around the family for the couple of Prince Harry and his wife Meghan and their new documentary series broadcast on Netflix. The streaming platform on Tuesday said that the series had become its biggest documentary debut yet, attracting 81.55 million viewing hours globally within its first four days of release. Prince Harry says William screamed and shouted at him in new record-breaking Netflix documentary https://t.co/nuQlo2gFWQ — CNBC (@CNBC) December 15, 2022
Azerbaijan’s External Trade Benefited From 2022 Geopolitical Turmoil Through Higher Oil And Gas Prices

Azerbaijan’s External Trade Benefited From 2022 Geopolitical Turmoil Through Higher Oil And Gas Prices

ING Economics ING Economics 17.12.2022 08:05
Benefitting from geopolitical turmoil The momentum of post-Covid recovery is gradually fading for Azerbaijan, but the country has two tactical strengths: gas and fiscal reserves. With the EU headed to lose Russia as a supplier of 150bcm of gas annually, the vast Shakh-Deniz is a big asset. Also, the country has some fiscal space for providing more support to the household income. Azerbaijan’s strong external and fiscal position should make it easy to place Eurobonds at the end of 2023, which are needed to refinance existing debt anyway. The risks to the local markets are coming from locally driven stories, such as long-standing tensions with Armenia, high inflationary risks driven by import-dependency, as well as a small and highly dollarized local banking sector. Activity slowing, but gas and budget policy offer support GDP showed 5.6% YoY growth in 9M22 but has moderated since 3Q22 due to maturing oil fields and declining household income. On the bright side, the fuel sector should remain supported by growing gas production, as gas supply to the EU is set to double to 10-12bcm in 2022 vs 2021 and could increase to 20bcm by 2027 if the EU were to guarantee this demand, giving Azerbaijan confidence to commit to vast capex. Meanwhile, the non-fuel sector may get fiscal support as the current c.US$75/bbl breakeven leaves room for generosity. Support on Karabakh may increase from 2.3-2.4% to 2.8-3.0% of GDP in 2023, while direct support to low-income households may rise from the current 11-12% to 14% of GDP, leaving the non-oil deficit at a sizeable 26-28% of non-oil GDP but still well covered by oil revenues. Current account supported by geopolitics The geopolitical turmoil of 2022 has created favorable conditions for Azerbaijan’s external trade through higher oil and gas prices and additional demand for gas volumes from the EU, partially offsetting the supply that used to come from Russia. The current account is set expand from 15% to 21% of GDP in 2022 and may remain close to those levels in 2023 assuming a favorable house view on oil. A sizeable 30-40% of it will be used to gain sovereign FX assets. Meanwhile, a US$1.0-1.2bn Eurobond placement is planned for end2023 to refinance the debt maturing in early 2024. This is likely to be met with demand given the country’s solid financial position. On the other hand, the stable net FDI outflow of 2-4% of GDP remains a sign of the challenging investment climate. Inflation close to peaks, but local risks are still high Azerbaijan is no exception to the post-Covid global inflationary trend, with CPI accelerating from 3-5% in 2020 to 15%+ currently. The pass-through of global trends into local CPI could be amplified due to high import-dependency of local consumption. Around 25-30% of local retail trade is imported, and food self-sufficiency is low. As a result, even though current CPI feels like a peak, average CPI should remain in low double digits in 2023, and upward risks to year-end expectations are high. Downside to the key rate is limited as CPI is well above the target range of 2-6%. Monetary transmission is restrained by the small banking sector, pegged FX, and high dollarization of deposits of around 49-51% in 2021-22. Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Price Stability Criteria Is Obviously Not On Track For Bulgaria

The Price Stability Criteria Is Obviously Not On Track For Bulgaria

ING Economics ING Economics 17.12.2022 08:22
An almost wasted year Far from saying “we told you so”, our previous Directional Economics piece on Bulgaria pointed out that the “zero tolerance” to corruption policy promised by the Continuing the Change party would hit a wall rather quickly. The government coalition lasted for only six months. Another inconclusive snap election took place in October 2022, with the next one due to take place in March 2023. We expect the political uncertainty to persist over the medium term and believe that this will postpone by at least one year the 2024 self-imposed euro adoption target, but this would be the most benign outcome in our view. After four general elections in 18 months, an understandable ‘politics fatigue’ on the part of the electorate might validate more extremist parties. Meanwhile, the interim government(s) are likely to remain fiscally responsible, though the outlook starts to become somewhat foggier Not a bad year but slowdown follows Given the very robust growth in 1H22 when the economy advanced by over 4.0%, and the flash 3Q22 GDP showing a 3.2% expansion, it will be rather difficult for the Bulgarian economy to close 2022 with a real GDP growth below 3.0%. For 2023, however, the outlook turns rather grim as the contraction in disposable income due to high inflation will start to yield more pronounced negative results in consumption. Moreover, the anticipated eurozone contraction will mean more subdued export demand, which will hit the economy in 1H23. Increased absorption of EU funds will be one of the few opportunities to offset these developments, but without a stable government to deliver straight-through implementation, our 1.4% GDP growth estimate for 2023 looks quite reasonable. The peak is behind, but inflation will remain high While it could be subject to a degree of flexibility from the EU when assessing euro adoption, the price stability criteria is obviously not on track for Bulgaria. We believe that inflation has peaked (at 18.6% in September 2022) and a gradual slowdown is to follow. Single-digit inflation could be seen as early as late-2Q23, but the subsequent pace of the slowdown looks a lot less steep which means that inflation could still stabilise well above the three best performing EU member states. This assumes household protection measures remain fully in place in 2023 and partially in 2024. Phasing out the support measures earlier would lift the inflation profile by up to 4ppt, depending on the exact specifications of the support measures. Read the article on ING Economics K Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Monitoring Hungary: Glimmering light at the end of the tunnel

Hungary’s Trade Balance Of Goods Has Been On A Downtrend Because Of Energy Crisis

ING Economics ING Economics 17.12.2022 08:35
Bullish in every aspect Although Hungary is still facing a trifecta of challenges, the technical recession during late-2022 and early-2023 will provide a tailwind to tackle the issues. We expect inflation to gradually descend from its early-2023 peak, reaching single-digit territory by the end of the year if price caps are extended. At the same time, negative net real wage growth and tighter monetary and fiscal policies will keep domestic demand muted. The latter will be driven by postponed public investment spending and windfall taxes. Retreating consumption and lower investment activity reduces the country’s import need, which is also supported by a spreading awareness of energy usage. Improving external balance and diminishing net external financing need will boost the relative attractiveness of Hungarian assets, especially the forint. We are bullish in every aspect Macro digest After the post-Covid led rebound in 2021, this year started on a strong footing. GDP growth came in at 7.3% YoY during the first half of 2022. Despite all the challenges presented by the war and resultant energy crisis, Hungarian economic activity was boosted by rising domestic demand. A key source of this was the government’s pre-election spending spree during the first quarter. As this positive momentum of re-opening and fiscal easing starts to fade and the challenge of rising energy bills and extreme inflation starts to bite, the economy’s quarterly based performance is beginning to slump. The two biggest difficulties Hungary is facing – higher energy bills and increasing unemployment – didn't fully impact the economy in the third quarter. Nonetheless, the 0.4% quarter-on-quarter drop in real GDP means that we’ve already seen the first leg of the expected technical recession in Hungary. We expect the drop to continue in the fourth quarter mainly due to falling consumption and shrinking investment activity. Real wage growth reached negative territory in September, while lending activity also dropped. In the corporate sector, we see companies going out of business or reducing working hours due to skyrocketing energy costs. Big data also suggests the economy has been on a downtrend. But despite the weak second half, the strong first half will save the year: we see 2022 GDP growth at around 4.8%. When it comes to the 2023 outlook, the negative carry-over effect, the ongoing fiscal and monetary tightening and the shrinking purchasing power of households will take their toll. We expect 0.1% GDP growth on average in 2023, followed by a marked rebound in 2024 as Hungary will have access to EU funds, boosting investment activity. Headline inflation moved to 21.1% YoY in October, the highest reading since 1996. 58% of the price pressure is from the food, alcoholic beverages, and tobacco sectors. This is due to a combination of a weather-related supply-side shock in agriculture, the high costsensitivity to energy in the food industry and the transmitted tax changes affecting food products and retailers. In the short run, we expect further increases in CPI, though the peak might be near. Negative real wage growth, thus decreasing aggregate demand, is reducing the pricing power of corporates. Price expectations of retailers have also started to drift lower, pointing to an impending turnaround in inflation. The peak could be around 23% (if price caps are extended), followed by a gradual slowdown during the first half of 2023 and a more rapid normalisation in the second half of next year. However, the full-year average in 2023 could be higher – around 16.7% - than the average in 2022, which we forecast to come in at 14.4%. Fiscal consolidation is on the way During the first half of 2022, there was a major fiscal spending spree, not necessarily unrelated to the April general election. As the energy crisis deepened, the government introduced significant fiscal tightening during the second half of this year. Against this backdrop, we don’t see an issue with the 6.1% of GDP deficit target. Indeed, it might be even better due to the higher nominal GDP. Fiscal consolidation will continue in 2023 via limited investment spending and temporary windfall tax revenues. Shrinking nominal financing need and strong nominal GDP growth will help reach the Maastricht deficit criteria by 2024. Expected EU funds inflow will significantly help the budget, especially the sum of €5bn related to the 2014-2020 Cohesion Fund, which is due by mid-2024 Central bank keeps its hawkish “whatever it takes” stance The recent monetary policy setup lies on three pillars. The 13% base rate will remain unchanged for a long period, ensuring structural price stability. In the meantime, monetary tightening will continue with liquidity measures. Roughly half (c.HUF5bn) of the excess liquidity is tied up in long-term facilities like the 2-month deposit and the required reserve. The other half sits in the one-day quick deposit facility at 18% and one-day FX swap facility at 17%, as parts of the third pillar. These are to stabilise financial markets. We see the gradual convergence of the effective (18%) rate to the base rate in parallel with a permanent improvement in both external and internal risks. Timing wise, this means a reversal of the “whatever it takes” hawkish stance might start only in the first quarter of 2023. Labour market shows resilience under stress The unemployment rate has started to rise as companies are operating under severe stress. However, the move from a nearrecord low 3.2% to 3.6% in 3Q22 is nowhere near to a collapse. A high level of orders keeps manufacturers optimistic and in need of labour. By contrast, in the services sector, where energy and labour account for a greater part of costs, companies have reduced working hours, laid off employees or gone out of business. Due to this duality, we expect the unemployment rate to peak at only around 4.5% during mid-2023. With an above 20% inflation, we see tough negotiations between employers and employees about next year’s salaries. In our view, real wage growth – reaching practically zero in 3Q – will turn negative and remain so until the end of next year The worst in current account deficit might soon be over Due to the energy crisis, Hungary’s trade balance of goods has been on a downtrend. But we see light at the end of the tunnel. With the changes in the utility bill support scheme, households have started to be more aware of their energy usage. Companies have spent more on energy efficiency lately. Hungary has already secured its gas supply throughout the winter. This means less pressure on the external balance from an energy import view going forwards. With falling consumption and a reduction in investment activity by households and the public sector, import needs will retreat as well in the coming quarters. However, this improvement comes too late, so we see an 8.4% of GDP deficit in 2022 with a slight improvement in the balance to –6.8% of GDP next year. FX (with Frantisek Taborsky, EMEA FX & FI Strategist) When it comes to the Hungarian forint, we believe it is more likely to be moved by non-monetary events and shocks in the short run. The government's conflict with the EU over the rule of law has entirely dominated the market and will remain a major issue at least until the end of this year, in our view. We expect a positive outcome on the rule of law issue and an unlocking of the potential of the forint, which has lost by far the most in the CEE region this year. As some form of positive outcome of this story seems to be priced in already, and also market positioning seems to have flipped to a slightly longer view in recent weeks, in our view, the EU story has become asymmetric for the HUF. So instead of a jump in forint strength, we expect a gradual drift lower below 400 EUR/HUF next year. However, our strong conviction regarding a positive outcome for Hungary makes the forint our currency of choice in the CEE4 space. Moreover, in our view, Poland will take the baton of major market attention from Hungary next year with its ongoing conflict with the EU, looming elections, expansionary fiscal policy and a central bank trying in vain to end the hiking cycle. On the other hand, we believe that the period of emergency NBH meetings is over, that the EU story is coming to an end, fiscal policy is pointing to tangible consolidation and that the current account deficit should come under control. Fixed income (with Frantisek Taborsky, EMEA FX & FI Strategist If the forint remains under control, we see more room for normalisation of the short end of the IRS curve. On the other hand, the long end should decline to a lesser extent also due to the support of core rates, resulting in bull steepening. However, the timing of NBH policy normalisation remains a risk and low liquidity of the market may be painful. On the HGBs side, we see favourable supply conditions and ASW levels have finally returned to normal territories. The AKK's focus on the long end of the curve and basically zero issuance in the shortend maturity bucket supports our steepening bias. However, we see that the EU story is more about FX trades and the FI market is still struggling. Therefore, we see better value in other countries in the region for now but believe HGB's time will come soon, and we remain constructive in our views. On the back of a tough year for Hungary’s external bonds, we see current valuations as attractive given optimism of some improvement in the key areas of EU funds, fiscal policy, energy issues and the external balance. We think spread levels on the nation’s euro-denominated bonds in particular have room to compress versus regional and rating peers. This preference should be supported by expectations that near-term external issuance is likely to be in dollars rather than euros. Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

Trukish Lira (TRY) Will Remain On A Gradual Depreciation Path

ING Economics ING Economics 18.12.2022 09:12
Policy mix tilted to a more supportive stance Worsening global backdrop weighing on exports and higher FX volatility, coupled with macro-prudential measures to contain credit growth, is expected to impair private consumption and investment. We have seen signals with dropping PMI, weak industrial production and a decline in electricity consumption. In this environment, the policy mix has tilted to a more supportive stance with: (i) another Credit Guarantee Fund package that can reverse recent momentum loss in lending, but timing is not specified yet; (ii) signal of an expansionary stance on the fiscal side in the medium term plan (MTP); (iii) rate cuts by the CBT with an emphasis on importance of keeping financial conditions supportive that was finalised at 9% in November MPC meeting. Given tighter regulations on the asset side that selectively limit loan growth, cuts are not easing financial conditions as fast, while recent sentiment indicators show a recovery. Macro digest Third quarter GDP in Turkey turned out to be 3.9% YoY, close to market consensus. Breakdown of year-on-year growth reveals continuing strong support from private consumption as well as contributions from net exports and government spending, while investment activity has further moderated and fell into negative territory. 3Q GDP translates into a slightly negative quarter-onquarter growth rate at -0.1% after seasonal adjustments, showing significant deceleration over 2Q at 1.9%. This is the first negative reading since the breakout of Covid-19 pandemic in 2Q20. So, it is quite clear that economic activity slows from the third quarter onwards mainly on the back of a worsening global backdrop that is leading to an adverse impact on exports and macro-prudential measures containing credit growth. According to frequent indicators in 4Q so far that allow us to follow changes in economic activity more quickly and closely the slowdown in economic activity strengthened as there is a clear downward trend in electricity consumption and the annual percentage change has recently been negative. Stagnant external demand conditions further weighed on pace of exports in November while the PMI in October was at the lowest level since the start of the pandemic. Given this backdrop, we expect 5.0% growth for this year and a decline to 2.5% in 2023, while risks are on the upside given efforts of policy makers to ease financial conditions to support growth. After a long uptrend that has continued since May 2021, annual inflation dropped for the first time in November. This implies that the October inflation was likely the peak and we will see a further drop in the annual figure in the near term with large supportive base effects if stability in the Lira continues. However, inflationary pressures still remain broad-based as all CPI categories except clothing have contributed positively to the increase in November inflation. PPI inflation, on the other hand, recorded a sharp drop in the last month with the lowest monthly reading in more than two years and a large base from last year. The CBT started an easing cycle in August and continued rate cuts until November which is not compatible with the marked deterioration in inflation. Instead of controlling demand, the current policy stance focuses on managing disinflation by boosting supply. For this purpose, the CBT keeps interest rates low while focusing on selective credit policy and pursuing a ‘liraisation’ strategy. Given this backdrop, we think annual inflation will remain elevated, closing the year below 70% and declining to 40-45%Y in May mainly due to strong base effects and stability in the currency. However, risks to the outlook next year are on the upside given a deterioration in pricing behaviour, higher trend inflation and still elevated level of cost-push pressures. Rapid recovery in employment The labour market outlook has been improving as the seasonally adjusted unemployment rate in August was at the lowest since March 2014, though we saw a slight increase in September. Accordingly, both male and female employment has returned to pre-2018 volatility levels, while the informality rate is now close to the lowest in the current series, started in 2014. Alternative unemployment rates are also on the decline showing the extent of recovery in labour market conditions. Keeping the unemployment on this track would be a major objective for the government ahead of the 2023 elections. Additionally, erosion in purchasing power has been a concern, though policymakers are working to mitigate the effects with large salary hikes. The latest signals from the government imply another major adjustment in early 2023. External rebalancing is not currently in sight The current account deficit has been on a rapid expansionary path since early this year driven by commodity imports, particularly a higher energy bill. We expect the current account to remain under pressure in the near term given the marked deterioration in the terms of trade impacted by energy prices, an accommodative policy stance and the Eurozone as Turkey’s major trade partner facing significant growth pressure. On the capital account, net errors and omissions, which is not a stable source of funding, has been the major financing item, while the global backdrop turning less supportive also adds challenges. Official reserves, on the other hand, recorded an increase on a year-to-date basis. However, the CBT’s rate cuts against a backdrop of high external finance requirements and a global risk-off mode could weigh on FX reserves. Budget spending has accelerated lately While the budget bottom-line, according to IMF-defined metrics, is still better this year so far than in the same period last year, a significant deterioration was seen over the summer months with an acceleration in spending. Higher spending on a year-to-date basis is attributable to current transfers as the government targets to support households' real purchasing power against high inflation along with higher personnel expenditures and lending to SEEs, particularly state energy company, to finance increasing import costs. Revenues were impacted by a jump in tax collection from corporates. The government sees a more expansionary fiscal stance for the remainder of this year (3.4% of GDP) compared with the performance so far and looks for a steady improvement thereafter with the deficit narrowing to 1.5% of GDP by the end of 2025. CBT moves support decline in FX deposits With a series of banking sector regulations, corporate lending has slowed notably, while retail lending has also lost momentum. But, there have been signals of stabilisation in corporate lending momentum in recent weeks and state banks’ appetite, especially on non-SME corporate loans, seems to be a bit stronger. The CBT also relies on security maintenance requirements on banks’ FX liabilities to facilitate a higher share of TRY deposits. Accordingly, we have seen higher deposit rates in the sector so as to expand the TRY deposit base and minimise holdings for TRY government bonds. In recent weeks, locals’ USD and EUR deposits declined significantly, while a large portion of decline is attributable to corporates. However, the decline in the FX deposit base has not translated into a rise in FX-protected deposits, showing moderating demand lately. FX and external debt FX reserves that have been quite volatile this year have shown a rapid recovery since end-July despite rate cuts since August. Also, another boost to reserves in the near term is likely if Turkey and Saudi Arabia finalise the US$5bn deposit deal. On the other hand, net reserves excluding swaps, which were on a downward trend, recovered notably recently. In this environment, the real effective exchange rate increased by more than 15%, implying significant real appreciation since end-2021. On the inflation side, elevated headline, continuing external imbalances, and a less supportive global backdrop increasing pressure on an already challenging capital flow outlook will remain prevailing themes. We think TRY will remain on a gradual depreciation path on a nominal basis in the near term, assuming that additional credit and fiscal stimulus measures are kept limited. Regarding external debt, continued monetary easing has had limited impact on Turkey external bond spreads in recent months, despite headline inflation above 80%. Signs of further foreign support, such as the recent US$5bn deposit from Saudi Arabia, should help mitigate concerns over external financing needs, a key strength in comparison to some of the more vulnerable single-B credits. A strong local bid has also been a technical tailwind keeping short-end spreads anchored. However, spreads still look tight versus the single-B peer group, while Eurobond refinancing needs rise in the coming years, and geopolitical headline risks remain, including in relation to increased military action in Syria. Source: Bloomberg, ING estimates CBT funding Fixed income While expecting domestic debt rollover at 133.2%, above what was envisaged in the programme for this year, the Treasury plans to cut the ratio to 114% in 2023. The rise in debt redemptions next year - by c.0.4ppt of GDP - stems from domestic debt, given that external debt redemptions will decline slightly as a percentage of GDP. So, the domestic borrowing requirement seems to be markedly high, attributable to the supportive fiscal stance. It should also be noted that the CBT finalised its rate cut cycle and announced new policy guidance, signalling further macro-prudential measures in December to support the effectiveness of the monetary transmission mechanism. While the fiscal stance turned more supportive in recent months, another Credit Guarantee Fund package that could reverse recent momentum loss in lending also seems to be on the agenda. In this regard, content and direction of additional macro-prudential measures to be introduced by the CBT will be key for the macro and financial outlook. In this environment, both 2Y and 10Y yields have remained anchored so far given large security maintenance requirements (for banks exceeding the quantity and price restrictions on loans set by the CBT) and CBT purchases from primary dealers. Upwards revision in the securities maintenance ratios in October facilitated another bout of decline in bond yields. The rate outlook in the near term is likely to be determined by the CBT’s policy of strengthening demand for local government bonds via security maintenance requirements and direct purchases from the secondary market. Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Copper, Nickel, and Iron Ore: A Look at China's Demand Impact and Price Projections

Rise Of The Attractiveness Of Living In Cities – Urbanization

Kamila Szypuła Kamila Szypuła 18.12.2022 17:25
In recent years, more and more people are choosing to live in larger cities, resulting in urbanization. Global urbanization is going up every year. Currently, in several countries around the world, the percentage of the urban population is close to 100%. of the total population - these are Monaco, Singapore, Qatar and Malta. In countries where people prefer to live in larger cities, living conditions and wages are above average. What is urbanization? Urbanization is one of the most well-known phenomena of the 20th and early 21st centuries, although it appeared in antiquity with the emergence of the first cities. Urbanization is a process of economic, social and cultural changes leading to the development of urban infrastructure, and thus - increasing the population in urban areas. The creation and expansion of new metropolises leads to a situation where people increasingly choose to live in cities instead of less populated rural areas. However, the concept of urbanization is heterogeneous and complex. It has an economic, demographic, spatial, social, legal and ecological dimension. It can be a process and a state at the same time. It can occur through the creation of new cities, the expansion of existing ones or the transformation of villages into cities. This causes a change in the lifestyle of visitors. Due to the urbanization rate, countries can be divided into three categories: low (up to 40%), medium (40-60%) and high (above 60%). How to calculate the urbanization rate? The urbanization coefficient is expressed as a percentage, and the formula for its calculation is not complicated. To obtain it, the sum of all city residents (of a given region of the country or the entire country) should be divided by the total number of inhabitants in this area, and the result obtained should be multiplied by 100%. For example, if one of the regions is inhabited by 100,000 people, of whom 75,000 live in cities on a daily basis, the urbanization rate is 75%. Urbanization factors There are many reasons why people move to bigger cities. The influx of immigrants has been particularly noticeable recently. When such people decide to settle in a foreign place, they usually choose agglomerations. On the other hand, younger people are dominated by the desire to improve their qualifications by studying at the best universities. An extremely important aspect is more jobs - it is a factor independent of origin or age category. People are opening up and also relocating businesses to more developed areas because there are more opportunities waiting for them. In big cities, there is also a greater tolerance for people with different views. Advantages of urbanization The positive effects of urbanization include various economic, social and health aspects. The former include increasing the possibility of finding a job, which in turn leads to a reduction in unemployment. In addition, higher wages guarantee a better standard of living, which has a positive effect on mental comfort. In larger cities, there is also much better access to specialist medical assistance. Read next: The Bank Of Japan Will Remain Unchanged, Can Canada's Economy Face A Recession? | FXMAG.COM This makes it easier to maintain a healthy lifestyle thanks to the help of specialists in a given field, and in the case of disturbing ailments, it is not difficult to find an effective solution to the problem. The process of urbanization has many other advantages. They will certainly become another stimulus for the population of cities by society in the coming years. The dynamic influx of people to one point creates the need to adapt the space to the urban model. As the population grows, so does the development of industry, services, transport and infrastructure. Urbanization is followed by spatial development of cities and a change in lifestyle. Large markets are being created, there is an increase in technical and technological innovation, new diversified jobs are being created and the development of enterprises is consequential. Accelerating the rate of economic growth brings with it higher wages and an increase in the quality of life. Disadvantages of urbanization However, in economically underdeveloped countries and regions, people coming from overcrowded rural areas end up in shantytowns, usually located on the outskirts. The growth of the urban population is not kept up with the development of infrastructure, and cities are not able to provide all new residents with jobs or housing. This is a phenomenon called apparent urbanization. Such urbanization may result in the growth of "poverty districts". Source: Łękawa A. (2016)., Vademecum Maturzysty Geografia, Wydawnictwo "GREG", Kraków, Danielewicz J. (2013). "ZarzÄ…dzanie obszarami metropolitalnymi wobec globalnych procesów urbanizacji."  
Twitter And Elon Musk Faced A Growing List Of Claims

Elon Musk Has Reinstated The Twitter Accounts Of Several Journalists | According To Jim Cramer, Caterpillar Stocks, Illinois Tool Works And CSX Are Noteworthy

Kamila Szypuła Kamila Szypuła 18.12.2022 20:34
With the end of the year, I look at what may happen in 2023. JP Morgan looks at finance from the economic side and what affects it, and Jim Cramer traditionally focuses on the stock market. In this article: Outlook Of 2023 by JP Morgan Jim Cramer’s look at stock market Elon Musk And Twitter Outlook 2023 Most of the things that could go wrong for investors happened in 2022, driven by high inflation, an aggressive cycle of interest rate hikes around the world, and the war in Ukraine. Remarkably, both stocks and bonds suffered heavy losses in 2022 – one of the worst years in the history of a balanced portfolio. Lower stock valuations and higher bond yields offer investors the most attractive entry point into a traditional portfolio in more than a decade. All this will be reflected in the new year. JP Morgan takes into account key economic and market factors in this year's forecast - the consequences of monetary policy tightening, the weakening of the global economy, market prices and valuation resets Higher rates. Weaker growth. Valuation resets. Explore what these key economic and market forces may mean for investors. — J.P. Morgan (@jpmorgan) December 16, 2022 Read next: Rise Of The Attractiveness Of Living In Cities – Urbanization| FXMAG.COM Jim Cramer’s look at stock market Jim Cramer looks at market action, this time specifically industrial stocks. The specialist looks at the situations of individual companies and assesses their attractiveness. His tips can be helpful for investors, especially those who are starting their adventure with this market. Jim Cramer on Friday identified three industrial stocks that he believes are worth owning next year “CAT has much more exposure to infrastructure, and I think they’ve got a boost from the oil and gas industry coming,” Cramer said. According to a specialist, companies such as Caterpillar, Illinois Tool Works and rail operator CSX are noteworthy. Here is why @JimCramer sees more upside ahead for Caterpillar in 2023. https://t.co/CmEl3RctII — Mad Money On CNBC (@MadMoneyOnCNBC) December 17, 2022 Elon Musk And Twitter For the past two months, Elon Musk's attention has been focused on the development of Twitter, which he purchased in late October. Since then, his activities on this social networking site have been watched with special attention. Not only on Twitter, but also after it. One such action was blocking the accounts of journalists. The suspensions stemmed from disagreements over a Twitter account called ElonJet that tracked Musk's private jet using publicly available information. On Wednesday, Twitter suspended the account and others that tracked private jets, despite Musk's earlier tweet saying he would not suspend ElonJet in the name of free speech. Soon after, Twitter changed its privacy policy to prohibit the sharing of "live location information." Then on Thursday night, several journalists, including those from the New York Times, CNN and the Washington Post, were suspended from Twitter without notice. The episode, which one high-profile security researcher called a "Thursday night massacre," is regarded by critics as new evidence that Musk considers himself a "free speech absolutist," eliminating speech and users he personally dislikes. Now it has been reported that Elon Musk has reinstated the Twitter accounts of several journalists who had been suspended for a day in connection with the controversy over publishing public data about the billionaire's plane. The reinstatement came after unprecedented suspensions prompted heavy criticism on Friday from government officials, advocacy groups and journalistic organizations in several parts of the world, with some saying the microblogging platform threatened press freedom. Elon Musk reinstated the Twitter accounts of several journalists that were suspended in a controversy over publishing public data about the billionaire' s plane https://t.co/MPaQFmEp3Q pic.twitter.com/V6ipgraOpY — Reuters Business (@ReutersBiz) December 18, 2022
Philippines: 4Q GDP Growth Was Impressive, Hit 7.2% YoY

Asia Market: The Philippine Peso (PHP) Led The Non-G-10 Asia Gains

ING Economics ING Economics 19.12.2022 08:49
China's Work Conference spells out sectors to benefit from support in 2023 as G-7 quietens down for Christmas Source: shutterstock Macro Outlook Global Markets: US equities ended last week with a squelch, falling in each of the last three days of trading, though equity futures suggest that we may see some small gains today. The news flow out of the US over the back end of last week painted a fairly sombre picture, with falling retail sales and industrial production, and some very soft purchasing manager index figures. That dragged down 2Y US Treasury yields a little further. The 10Y yield rose slightly on Friday, though remains below 3.50% (3.482%). Friday also saw the USD edge back below 1.06 again, helped no doubt by the weaker sentiment on risk assets. Though considering that the US is now showing a broader slowdown in activity, there is arguably more room for cheer than recent price action suggests, as it means that the pivot story, which is still well priced in by bond markets, does indeed look on track, despite what Fed officials say. Apart from the JPY recovering some of the losses from earlier in the week, Friday was a fairly quiet day for Asian FX. The PHP led the non-G-10 Asia gains, while the bottom of the pack was held up by the KRW and VND. G-7 Macro:  US PMI data fell further into contractionary territory in the December preliminary readings. The manufacturing PMI fell to 46.2 from 47.7, while the services PMI fell to 44.4 from 46.2. Inflation data out of the Eurozone was disappointing. In contrast to the progress in the US, the headline rate of EU inflation rose to 10.1% from 10.0%YoY (Harmonised index rose to 12.6 from 12.5%YoY), while the core rate of inflation remained steady at 5.0%. Apart from Germany’s Ifo survey and UK CBI surveys, there isn’t much out of the G-7 today. China: The Central Economic Work Conference highlighted economic growth through domestic consumption as the top priority in 2023. New-energy cars, elderly services, technology platforms and real estate should benefit from policies to be announced at the Two Sessions in March. Please refer to the snap (China's Central Economic Work Conference outlines support priorities for 2023). What to look out for India Current account balance (19 December) Germany IFO surveys (19 December) China Loan Prime rate 1Y/5Y (20 December) Taiwan Export orders (20 December) EU Consumer confidence (21 December) Bank of Japan meeting (21 December) South Korea 20 Days exports and imports (21 December) US Mortgage applications and wholesale inventories (21 December)      Bank Indonesia meeting (22 December) Taiwan Unemployment rate (22 December) US Initial jobless claims and 3Q GDP Final (22 December) Japan CPI inflation (23 December) Taiwan Industrial output (23 December) Singapore CPI inflation (23 December) US Durable goods orders, personal Income, Core PCE price index, and new home sales (23 December) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Softer New Jobs Reading Would Likely Weigh On The Canadian Dollar

According To The Economist Intelligence Unit (EIU), Cities In Europe And Canada Are The Best To Live In

Kamila Szypuła Kamila Szypuła 23.12.2022 10:24
Cities are constantly developing, whether as a result of the actions of authorities, entrepreneurs, or as a result of economic effects, e.g. urbanization. There are cities that are very attractive in every respect and are assessed annually by The Economist Intelligence Unit (EIU). They will also sort out the cities that are the least attractive. Also, before the end of the year, it is worth taking a look at your finances, as well as familiarizing yourself with tax guidelines. In this article: IMF in Argentina The list of Most Liveable Cities Partnership agreement Tips for tax bill The activities of the IMF in Argentina are bearing fruit Argenty not only has a reason to be happy because of winning the World Cup in football, but also an economic one. The macroeconomic policy tightened since July is beginning to bear fruit – inflation is falling, the trade balance is improving, and reserve coverage is gradually strengthening. The Board of the International Monetary Fund today completed the third review of Argentina's 30-month EDF agreement. Argentina's agreement for a 30-month EFF, with access of SDR 31.914 billion (equivalent to USD 44 billion, or approximately 1,000 percent of the amount), was approved on March 25, 2022. The government's programme, supported by the IMF, provides Argentina with balance-of-payments and budget support assistance, which is linked to the implementation of policies to strengthen public finances, combat persistently high inflation, improve reserve coverage and lay the foundations for sustainable and inclusive growth social. The IMF Executive Board completed today the 3rd review of 🇦🇷 #Argentina’s Extended Fund Facility arrangement, which allows for an immediate disbursement of ~US$6 billion. https://t.co/vkQ4lS9vb5 — IMF (@IMFNews) December 22, 2022 Read next: The GBP/USD Pair Is Trading Just Above 1.20, The Australian Dollar Is The Strongest Today| FXMAG.COM The list of Most Liveable Cities The Economist Intelligence Unit (EIU) released their Global Liveability Index ranking of the top 10 best and 10 worst places to live in the world in 2022. The index scored 172 cities in five categories: culture, health care, education, infrastructure, and entertainment. Access to health care, safety, infrastructure, access to culture and entertainment, as well as the opportunities offered by the city are important. According to this ranking, European and Canadian cities dominate the list of Most Liveable Cities European and Canadian cities dominate the list of best places to live, according to the Global Liveability Index released by the Economist Intelligence Unit (EIU). https://t.co/uHmyOgVDNG (via @CNBCMakeIt) pic.twitter.com/ZpLXhtabvr — CNBC (@CNBC) December 23, 2022 Credit Agricole and partnership agreement with the Italian Banco BPM In order to become more articulating, the bank undertakes various cooperation. This year there was a lot of turbulence in various banks around the world, as well as a lot of collaborations. On Friday, the French bank Credit Agricole signed a long-term bancassurance partnership agreement with the Italian Banco BPM French bank Credit Agricole strikes bancassurance deal with Italy's Banco BPM https://t.co/4dFD2Ypmkr pic.twitter.com/02kIq8yKmy — Reuters Business (@ReutersBiz) December 23, 2022 Tips for tax bill Taxes are very complicated, so it is very important to manage this bill in order not to expose yourself to bigger and unnecessary losses. Tax Day may still be a few months away, but there are many actions you can take before that date to help manage your tax bill. In fact, some jobs shouldn't - or in some cases can't - wait until next year so as not to miss important tax opportunities. Charles Schwab Corp's tips can help you manage your tax bill. The end of the year is a great time for a portfolio review—and to evaluate your overall approach to saving and investing. Consider these five tax-smart steps now. https://t.co/FSoeEaJOHl — Charles Schwab Corp (@CharlesSchwab) December 22, 2022
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

ESG Bond Is Expected To Jump To 40% In 2023, Up From 35%

ING Economics ING Economics 24.12.2022 07:41
Capital expenditure continues to boost growth prospects Utilities are at the heart of the energy transition theme, and the path from fossil fuel pow er generation to clean electricity production requires large investment plans. This applies to both power generation assets and grids that need upgrades and extensions to support the growing power flows from renewables. While these large investments are an important growth driver for the sector, they are also a concern for utilities’ financial health. This is particularly true for pure network players whose funds generated by operations do not cover capital expenditure needs. While these large investments are an important growth driver for the sector, they are also a concern for utilities’ financial health. This is particularly true for pure n etwork 11 players whose funds generated by operations do not cover capital expenditure needs. Rising funding costs should stabilise With substantial capital expenditure programmes, and we'll look at that shortly, the European utilities' sector is an important debt issuer industry. We forecast European utilities to issue €50bn in new bonds in 2023 c orresponding to €30bn of bond refinancing and €20bn of new bonds to partly finance capital expenditure needs Market conditions have been very favourable for utilities and corporates in general, with average bond yields between 0.5% and 1.1% in the period 20192021. Utilities took advantage during this time to approach the credit market more often. High inflation al ong with the actions of the European Central Bank to deal with the new economic environment resulted in a sharp increase in yields. Yeartodate, the average € bond yield paid by utility issuers in 2022 is 2.64% with average yields towards 1.2% in the f few months of the year and 3.5% in the last three months of 2022. The European Central Bank announced another rate hike on 15 December with a deposit rate going from 1.5% to 2%. This should lead to higher yields paid by corporates to issue new debt. However, our ING rates strategists believe a recession over the winter still looks very likely. The challenged European global economic outlook should result in rates tightening again, allowing corporates and utilities to print new bonds at lower yields in 2023. 80% of bonds issued by utilities will be sustainable bonds in 2023 Issuers and investors alike are embracing Environmental, Social and Governance (ESG) notions into core financing or investment philosophies. As the pressure from societies, governments, activists and regulators accelerate, there is a bigger push for ESG bond issuance We forecast €100bn of the expected total corporate €270bn bond issuance in 2023 to be ESG issuance. The percentage of ESG bond supply relative to overall € corporate supply is growing year on year. We expect this to jump to 40% in 2023, up from 35% in 2022. For utilities, out of the €50bn of new bond issuance in 2023, we forecast €40bn will be made in sustainable bonds, representing 80% of utilities’ bond issuance. This ratio was 75% in 2022. Green bonds will remain the preferred format for the sector. Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Solid Wage Growth in Poland Signals Improving Labor Market Conditions

Saxo Bank And JP Morgan's Negative Views On The Outlook For British Economic Growth

InstaForex Analysis InstaForex Analysis 27.12.2022 08:03
Signs of a painful contraction in the British economy continue to accumulate, causing analysts to doubt whether the currency can extend or even maintain the recent rebound against the dollar. The options market is also showing paranoia, with traders still pessimistic over the long term. The pound sterling jumped from its lowest level ever in September, driven by the government changes that followed the ill-fated term of Liz Truss as the country's prime minister, in addition to the collapse of the dollar. Despite this, the pound sterling still recorded a decline rate of 11% in 2022, to achieve its worst year since the vote to leave Britain from the European Union "Brexit" in 2016. Opportunities for gains next year may be limited by diverging central bank policies, as the Bank of England looks increasingly pessimistic in comparison to other central banks. Moreover, the U.K. economy continues to falter, the budget deficit is skyrocketing, and double-digit inflation has led to the steepest drop in living standards on record, leading to curbs in spending and the worst economic turmoil in decades. The housing market also looks vulnerable to a sharp correction. "The UK is at the forefront of economies teetering on the verge of collapse," said John Hardy, Head of FX Strategy at Saxo Bank. He explained that the pound sterling "could witness further declines in light of the combination of the Bank of England's slowdown towards the increasing tightening of monetary policy and the austere financial situation." The pound bounced back from losses caused by efforts for a broadly funded tax cut in two weeks, but it took more than two months to reverse risks for a year to pre-budget levels. The slow recovery of this gauge, which tracks market sentiment broadly, shows that traders remain deeply pessimistic towards the long-term GBP and that the recovery in the spot market was more based on positioning than outright growth. The latest data from the Futures Trading Commission showed leveraged funds switching to short positions on the British pound in the week ending December 13, after being long positions previously, while asset managers held short positions. JPMorgan Chase & Co. analysts expect the pound to fall to $1.14 at the end of the first quarter, from around $1.21 now, citing their "particularly negative views" on the outlook for British economic growth. And the looming local elections in May could stir up more political uncertainty. Strategists polled by Bloomberg expect the pound to fall to $1.17 in the first quarter before recovering slightly to $1.21 by the end of 2023. Relevance up to 14:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/330788
FX Daily: Upbeat China PMIs lift the mood

The Chinese Government Is Working Hard To Open The Domestic Economy With An Easing Of Covid Measures

ING Economics ING Economics 28.12.2022 08:29
China will lift Covid measures for international arrivals. This will benefit foreigners visiting China as well as residents in China visiting foreign locations. The measures should initially benefit the travel and hospitality sectors as well as catering. Then gradually it will lead to an increase in the mobility of residents in the country China eases Covid measures for international arrivals China will ease border controls from 8 January 2023. This is a policy response to match the management of Covid in China that will be downgraded from class A to class B. The most important measures is that there will be no nucleic acid tests nor quarantine for international arrivals. International arrivals in China only need to take a PCR test within 48 hours before departure, and only those with negative results can enter China. There is no need to apply for a health code; travellers only need to declare their health status on the customs card. Likely impacts International travel flows will increase The removal of quarantine when entering Mainland China means business travels will resume very soon. It also means that residents who still have a valid visa visiting foreign countries can travel without the need of quarantine when they return to Mainland China. Both will bring increased activities to travel-related industries, like airlines, hotel accommodations and catering.  Even with the current spike in the number of Covid cases business travels should resume quickly as people in most locations outside China have gotten used to living with Covid. We believe that leisure travels into Mainland China will resume more likely from the Easter holiday. Domestic resident mobility should pick up as well The positive impact of these easing measures should go beyond international travellers. The easing could also reduce the level of worries of Covid among the general public, and gradually they would not perceive Covid as a big threat. This should increase mobility within the country from the first quarter of 2023, and therefore consumption as well. How long will it take for the Chinese economy to recover to pre-Covid levels? It is really about timing when it comes to the question of economic recovery to the pre-Covid level. The tricky part is that even though the Chinese government is working hard to open the domestic economy with an easing of Covid measures or even eliminating most of them, the timing is not perfect. Our house view is that the US and Europe could enter a mild recession in the first half of 2023. As such, there will be fall  in external demand, export-related activities, including manufacturing, should slow, which would derail the recovery of the Chinese economy. We therefore expect that the Chinese government will increase fiscal strength to support the domestic economy by continuing construction of uncompleted home projects and plans for more transport, energy and technology infrastructure.  Read this article on THINK TagsHospitality Covid-19 Consumption China Air travel   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Easing In Chinese Covid Measures | Crypto Distress Continues | Markets Trade Joyfully

The US Will Require PCR Testing For Travelers From China, BRF Agree To Pay $111 Million To The Government

Kamila Szypuła Kamila Szypuła 29.12.2022 10:12
There is good news for travelers who want to visit China, but people from China face PCR tests. Brazilian company BRF signs leniency agreement. In this article: The generational difference PCR Testing For Travelers From China BRF signs leniency agreement The generational difference Differences are everywhere. We differ in nationality, gender, language, skin color, group to which we belong. But the biggest difference regardless of place of residence or origin is the generational difference. Differences are also observed by employees and employers. The new look at what retirement will look like reflects these differences. Today's younger workers are starting their financial journey from a different place than the older generations did when they started Rising costs and market volatility continue to be a concern for all workers, but Gen Z and Millennial workers are more likely than older workers to cite unexpected expenses, education costs and family costs as obstacles to saving for retirement. Despite this, younger workers remain optimistic and intend to retire early to pursue an active lifestyle that includes enjoying life, traveling and spending time with family. Gen Z wants to retire at 60 and Millennials at 62, compared to Gen X and Boomers at 64 and 67. When it comes to a 401(k), Gen Zers and Millennials aren’t afraid to ask for advice, but they tend to prefer human over computer-generated advice. Interested in learning more? Take a look at the Schwab 401(k) Study results at https://t.co/GO3QY3O05v pic.twitter.com/x3s5BEX5hY — Charles Schwab Corp (@CharlesSchwab) December 28, 2022 PCR Testing For Travelers From China China continues to face the virus that is the coronavirus. Recently, the mood in the markets improved as a result of information that China will reopen its borders to travellers. Thus, citizens of China will be able to travel. This is good news for people who want to visit this country. In this way, China also wants to revive consumption in their country. However, it is worrying that there is insufficient data on the actual covid situation in China. Testing has declined in China and it is unclear what variants are circulating on the mainland as genomic surveillance data is also limited. The United States, in order to avoid an undesirable return to high numbers of infections, and thus to a lockdown, took steps to prevent it. All airline passengers aged 2 years and over coming from China, Hong Kong or Macau will be required to undergo a Covid test two days before flying to the US. The requirements, which apply regardless of nationality and vaccination status, go into effect on January 5. U.S. will require airline passengers traveling from China to test negative for Covid https://t.co/0deULyReZj — CNBC Now (@CNBCnow) December 28, 2022 Read next: The Optimism Around China Easing Of Covid Protocols Has Cool Down, The Aussie Pair Is Trading Near 0.68| FXMAG.COM BRF signs leniency agreement Brazilian food processor BRF SA, after being accused of corruption, held talks with local authorities in South America. Recently, information has emerged that the talks have ended and BRF SA signed an agreement with the local authorities on Wednesday regarding payments. The agreement with the Brazilian offices of the Attorney General (AGU) and Comptroller General (CGU) requires the BRF to pay approximately 584 million reais ($111 million) to the government. Brazil's BRF signs $111 million leniency deal after graft accusations https://t.co/RcbklqPGPh pic.twitter.com/AgXvzjKsYN — Reuters Business (@ReutersBiz) December 29, 2022
India’s Investing In Program For The Green Hydrogen Industry | Covid Situation In China Is Getting Serious

Main Problem There Was A Response To The Global Pandemic

XTB Team XTB Team 30.12.2022 12:26
Admission You could say that high inflation was the theme of the turbulent decade of the 1970s. It was a bitter lesson for investors - inflation meant the need to introduce higher rates interest rates, which led to a bear market in the markets. In turn, the period of decreasing inflation in subsequent ones two decades brought a great bull market. Since then, developed economies have not been witnessed such high levels of inflation - until recently. No wonder it's growing. The level of inflation around the world caused anxiety in the markets. In last year's report, we warned against the risk of inflation. Now that these risks come materialized, we analyze what this means for equities, commodities and currencies. Why is inflation so important? A low and stable level of inflation is a desirable phenomenon. It is a kind of lubricant for the mechanism economic growth that helps with business planning and management costs. Without inflation, the prices of some goods or services would fall, which would be a challenge enterprises affected by this phenomenon. However, as soon as the rate of inflation rises too much - problems arise in the economy. Rising inflation primarily introduces uncertainty. Enterprises cannot plan their budget effectively, meanwhile households do not know exactly how much their income is worth. Mortgages stop become expensive, currencies lose competitiveness and the stock market suffers from higher rates interest. The consequences of this state of affairs are many - simply too few investors remember them. The last episode of high inflation seems far away, but it may be closer than many think. How did we get to where we are? Before we delve into the parallels to the inflationary saga of the 1970s, let's examine how we arrived at the point where inflation is well above central bank targets. If you read any book on economics, you will learn that price is a function of supply and demand. It sounds simple in theory, but the interdependencies in the global economy are so complex as to be almost four decades of low inflation have sown seeds of doubt, resulting in an increasing number of policy makers began to claim that expansionary monetary policy would not increase inflation. Some of the factors that have helped keep inflation low over the years have begun disappear before the pandemic. Globalization processes have been slowed down and reversed in reaction to the Sino-American "trade wars". Climate policy, although often needed (and perceived as misguided by some), began to raise costs for companies. Main problem however, there was a response to the global pandemic. Net QE: Fed + ECB + BoJ (USD billion) Fed FUNK ECB While enterprises were paralyzed by restrictions and restrictions, the demand was there stimulated by money printing and generous fiscal spending in the form of benefits for the unemployed, checks for individuals and subsidies for businesses. High demand and limited supply had to translate into an increase in prices - there was simply no other way. Even worse, banks central governments ignored the first signs of rising inflation, calling them "transient." This it delayed the response to price increases and allowed price pressures to become more anchored. As in the 70s “There was a massive inflationary spiral in the mid-1970s that ended in the early 1980s.” The return of the terrible 70s? We associate the 70s with bell-bottom jeans, colorful shirts, disco music and american muscle cars. This is because, after a while, we often only remember things good and pleasant ones, and we eliminate the bad ones from memory. Perhaps that is why the 70s are associated with high inflation only to economists. The challenge in economic analysis is the fact that the processes taking place in the economy are ongoing very long. The effect of this is that in order to find a similar situation, you often have to look a lot back in time (not to mention the fact that any statistical test requires a large number of observations). This is the case with inflation around the world - to make For any reference to the past, we have to travel back in time almost 50 years! Nothing no wonder such comparisons are controversial. The current economy is completely different more technology and services, less agriculture and industry. Demographics have also changed labor market regulations. But at the same time, the number of similarities is striking. So anyway can we draw any conclusions from that situation?
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

Certain Companies And Industries Could Start To Feel Their Pricing Power Fade As Consumers Struggle With The Squeeze On Real Incomes

Franklin Templeton Franklin Templeton 31.12.2022 10:16
And what does this look like for corporate IG? Josh: The 10-year US Treasury yield spent most of the last decade between 0.50% and 2.50% and IG credit spreads traded in a tight range as well.7 Because of this incredibly low-yield environment, fixed income investors were pushed to look for additional yield in lower-quality asset classes to secure the income they required. Moreover, higher-quality, longer-duration assets had significant total return risk due to the potential for an eventual rise in interest rates. This is exactly what we have seen year-to-date in 2022. Though there was certainly some weakness in widening credit spreads, rising US Treasury yields drove most total return losses in fixed income year-to-date. We believe that this outcome created a path for longer-term tailwinds for IG credit going forward. First and foremost, even if there is a recession, the probability of default for IG issuers is very low. Balance sheets remain generally robust, providing most IG corporates with more financial flexibility to navigate a period of slowing economic growth. This is not to say that spreads won’t widen; they can widen significantly if we enter a recession. But we have reached a point in time where investors can play both offense and defense through their allocations to US IG corporate bonds. The defensive benefits of higher US Treasury yieldscan materially offset credit spread weakness going forward. Fixed income is finally delivering income! Overall, we believe that with higher yields in the asset class, the risk-reward balance of current valuations has improved materially compared to the start of the year. In our opinion, this makes IG corporates a more attractive place for investors seeking relatively safe income. However, due to ongoing market uncertainty, slowing growth and deteriorating fundamentals, we acknowledge spreads can go wider and are certainly up in quality today within our US IG allocations to preserve liquidity and take advantage of any potential volatility in markets. If the Fed keeps interest rates higher for longer next year, what near-term opportunities do you see across IG sectors? Josh: Given an uncertain environment based upon our view of the Fed’s future interest-rate hikes, which is higher than widely anticipated, it likely means volatility will remain elevated for the foreseeable future. Additionally, our belief is Fed Chair Jerome Powell appears more concerned with continued tightening and as such, we do believe a shallow recession is likely over the medium term. However, this doesn’t appear to be priced into earnings estimates. In times of increased volatility, higher-quality credits with strong fundamentals and less sensitive end-demand are likely to outperform. We are therefore pushing more of our portfolio risk into non-cyclical sectors and still believe the US financial sector has strong risk-adjusted return potential, given elevated spreads and very strong capital levels. And from an HY sector perspective? Glenn: Higher rates and inflationary pressures will not impact all companies equally, and while many companies are able to increase prices to offset cost increases, others are suffering pressure on their margins. Monetary policy is driving up the cost of borrowing, which will have a more severe impact on companies with unhedged exposure to floating-rate debt. Given the numerous challenges facing HY issuers, we expect to see increased dispersion of returns among indi- vidual HY bonds in the coming years. In our opinion, this environment highlights the importance of active management in the HY asset class, as individual credit selection will be key to driving future performance. We are currently seeing opportunities in select issuers in cyclical industries, like chemicals, where the market is focused on the potential for an economic slowdown to hurt top-line growth. However, we are focused on each company’s cash-generation profile and the ability of its capital structure to withstand economic headwinds. We also like classic defensive industries, like packaging and utilities, where demand is not tied to the level of economic growth and their bonds provide an attractive risk/reward profile. And we continue to like the energy sector, where we see ongoing fundamental tailwinds and the potential for elevated levels of ratings upgrades. Which HY sectors give you the most cause for concern looking into 2023? Glenn: As we enter 2023, we believe that certain companies and industries could start to feel their pricing power fade as consumers struggle with the squeeze on real incomes. At the same time, inflation seems to be stickier than expected and will continue to push up costs, as well as keep the Fed committed to its monetary policy tightening path. In such a scenario, there are several areas that are cause for concern. Companies with more elastic end-consumer demand and/or exposure to the lower-end consumer are likely to face ongoing pressure. This category includes many retailers and consumer products companies. Separately, companies with limited free cash flow—often due to high debt loads—or reliance on future cost savings to make their capital structures work, will be challenged as financial condi- tions tighten. Many leveraged buyouts (LBOs) of the pastseveral years fit this profile, and we are highly selective when evaluating such deals. We are also wary of industries facing secular decline, such as wireline telecom, or those under- going rapid changes to their competitive landscape, such as autos—given the rise of electric vehicles (EVs) and their uncertain impact on the industry—or the broadcasting/pay television ecosystem. While some of these changes will take years or decades to play out, we prefer to be positioned now ahead of any potential acceleration in the pace of change. And from an IG standpoint? Josh: Looking ahead, companies are going to face some challenges. Margins are likely to continue to feel the squeeze from elevated labor, financing and input costs. Corporates are already feeling the effects of significant wage increases, as evidenced by the first layoff announcements from various technology companies. While companies are still benefiting from interest costs that hovered near generational lows for more than a decade and frontloaded borrowing, rising rates will certainly bite into the broader economy, affecting both consumers and future corporate borrowing needs. Also, though we have seen improvements in supply chain issues, inflation will most likely stay higher, even if it stabilizes or retreats, and for longer than consumers or markets are accustomed to. This will continue to impact global growth. Considering our expectations for a potentially challenging market environment over the near to medium term, we believe that cyclical consumer-focused industries and companies with high levels of exposure and sales to weaker markets, such as Europe, will likely underperform. We are also less excited about commodity sectors. We believe that although fundamentals are decent and commodity prices may hold up, valuations are stretched. Weaker economic growth is likely to cause spread volatility in these sectors as aggregate demand slows.
FX Daily: Upbeat China PMIs lift the mood

China’s Huawei Technologies Faced US Sanctions For Allegedly Pirating US Intellectual Property

Franklin Templeton Franklin Templeton 31.12.2022 10:17
Semiconductors power our cloud-driven world, and are critical components of every electronic device, gadget or tool we use on a daily basis. Franklin Equity Group’s JP Scandalios, who has spent over 20 years researching the semiconductor space, offers an overview of the industry and explains why it’s not so simple to move production to local shores—even with government incentives to do so. Dina Ting, Head of Global Index Portfolio Management, Franklin Templeton Exchange- Traded Funds, explores opportunities via targeted exposure to Taiwan and South Korea—two important semiconductor hubs. A mission-critical industry JP Scandalios Portfolio Manager Franklin Equity Group Why are semiconductors getting so much attention recently? The semiconductor industry is mission-critical, infiltrating and influencing nearly every other segment of the global economy in some fashion. Several decades ago, semiconductor technology was primarily associated with computers, then cel phones. Today it has evolved toward machine learning and artificial intelligence. Semiconductor chips permeate everything from refrigerators to watches to cars—especially as everything becomes a smart and connected device (See Exhibit 1). That said, the semiconductor industry is still cyclical in nature. In 2019, the industry saw a downturn and many thought it would never grow by more than global gross domestic product again. But we’ve seen tremendous acceleration in recent years, partly due to COVID-19 but also partly due to new market opportunities—for example, electric vehicles. What are potential impacts of US President Joe Biden’s CHIPS and Science Act of 2022 on semiconductors? Many people may not realize that Taiwan—specifically Taiwan Semiconductor Manufacturing Company (TSMC)—manufactures about 90% of the world’s most advanced semiconductors. Additionally, 75% of key related materials—silicon wafers, photoresist and other specialty chemicals—originate in China and East Asia. Meanwhile, the United States holds the vast majority of intellectual property and know- how in terms of research, development and design in the Global Investment Outlook: Finding opportunities in 2023 after a (un)forgettable market year 13 semiconductor space, including the equipment and the computer-aided design (CAD) software required for fabrication and device operation. TSMC is a foundry or “mega fab”—it makes the actual chips. And, given how it dominates the market, that’s a risk, particularly given strained relations between Taiwan and China, and China and the United States. The United States has finally woken up to that risk, and part of the CHIPS Act provides incentives or subsidies to build a redundant or parallel supply chain domestically—with more than US$38 billion allotted in manufacturing incentives for companies to build US-based semiconductor production facilities. Why is the CHIPS Act so important? For a long time, China has also expressed its desire to be more self-sufficient, specifically within the realm of semiconductors, as it is among the highest global chip consumers. The Trump administration intentionally put in roadblocks to protect the intellectual property of US chip companies. China’s Huawei Technologies—the smartphones and consumer electronics manufacturer—faced US sanctions for allegedly pirating US intellectual property and handing itover to the China military complex. Fast forward to today, and the Biden administration continues to ratchet up restrictions, although not going as far as placing a complete embargo on equipment or software or even semiconductors. The CHIPS Act is an extension of US policy to maintain our lead and reduce our semiconductor manufacturing reliance upon a region where geopolitical tensions run hot. The Act is mainly about lessening our reliance upon Taiwan as a production source, but the administration also essentially said to US companies that if they want to ship goods to China, they must prove their end-users are not in any way associated with China’s military, and they can only ship lagging-edge equipment. The goal is to ensure China is always at least several generations behind. The CHIPS Act is a means to that end.
French Industrial Production Rebounds in July Amid Weak Demand and Gloomy Outlook

Walmart Has Ambitions To Become An E-Commerce Leader

Kamila Szypuła Kamila Szypuła 02.01.2023 10:01
Stores are increasingly expanding their activities by creating online stores. The increase in interest in online shopping has contributed to this. Amazon remains the top leader, but Walmart is hot on Amazon's heels. There are many arguments for the introduction of digital money, mainly environmental protection. Work on CBDC is constantly progressing, and developing the right washing conditions is a key issue. In this article: Digital money Walmart’s ambitious new plans Digital money is getting closer and closer to common use Digital money is getting closer and closer to common use. Many countries are testing their CBDC pilot programs. The main problem with this type of money is the issue of regulation. During the pandemic, there has been growth in this area, with governments accelerating the digital delivery of key government services. Tax authorities are increasingly using e-filing and e-payment systems and digital technologies to improve compliance management, helping to reduce tax evasion and increase revenue mobilisation. Digital technologies also improve the efficiency and effectiveness of public finance management systems and processes, including budget preparation and execution, cash and debt management, e-procurement, financial reporting and auditing, and social program administration. Digital forms of money are diverse and evolving rapidly. The opportunities are vast, but the challenges facing policy makers are also stark, complex and widespread. The most far-reaching implications concern the stability of the international monetary system. Digital money needs to be designed and regulated in such a way that countries reap its potential benefits, including greater financial integration and more efficient cross-border payments. As more countries adopt new forms of digital money, the IMF has designed its policy advice to help countries and create a more stable international monetary system. Read the 2022 #IMFAnnualReport https://t.co/1oApvPc1ek pic.twitter.com/HTGpYxEzw6 — IMF (@IMFNews) January 1, 2023 Read next: The First Inflation Data In The New Year From Europe May Show A Decline| FXMAG.COM Walmart’s ambitious new plans Online shopping has increased in recent years. Around the world, online shopping was mostly associated with Amazon. There is no doubt that Amazon is a leader in this industry. For retailers, it may be a major problem, but for Amazon's competitors, they are also constantly evolving. Mainly due to the pandemic, stores such as Walmart took advantage of the situation to develop their online business. The global health crisis has also fueled Walmart's sense of urgency to better compete with Amazon. Walmart is leveraging two key strengths to drive its e-commerce business: approximately 4,700 stores in the United States and its dominance in the grocery industry. Ninety percent of Americans live within 10 miles of a Walmart store. Walmart is using its stores as launch pads for delivery drones and drop-off points for direct deliveries to refrigerators, and will soon begin packing and shipping third-party retailers' goods from stores. Such actions can bring Walart many benefits and even make him a leader. When it comes to e-commerce, Amazon is the clear leader, but Walmart’s ambitious new plans and leadership are trying to catch up. Watch the video to learn more. https://t.co/0Y1nS89IOK pic.twitter.com/qLwFcrkB3U — CNBC (@CNBC) January 2, 2023
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

After The Easing In COVID Restrictions, Virus Cases Have Increased, Consumer Sentiment Also Declined

TeleTrade Comments TeleTrade Comments 02.01.2023 14:16
Previewing the upcoming data releases from China, analysts at TD Securities said that they think the trade underperformance may extend as external demand is likely to be soft in 2023. Continued pressure on activity in December and January "While in the very near-term, consumer caution will cap consumption spending and in turn imports." "Faltering goods demand may further hurt exports this month though imports may see a slight improvement from last month given the rapid easing in COVID restrictions." Read next: The First Trading Day Of 2023: GBP/USD Is Trading 1.2051, USD/JPY Pair Below 131, The Aussie Pair Is Around 0.68 And EUR/USD Above 1.0680| FXMAG.COM "After the easing in COVID restrictions, virus cases have increased and pressure on health facilities has intensified. Thus, mobility has worsened and consumer sentiment also declined as consumers become increasingly cautious. We expect continued pressure on activity in Dec and Jan before the economy starts to show signs of improvement."
Australian Employment Surges in August Amid Part-Time Gains, While US Retail Sales and PPI Beat Expectations

ESG - Business Management For The Common Good

Kamila Szypuła Kamila Szypuła 31.12.2022 16:23
Companies face a new obligation. Soon, first large, and later also small and medium-sized enterprises will have to report activities in the field of ESG. As ESG-centric business practices gain ground, investment firms are increasingly tracking their performance. Financial services firms like JPMorgan Chase and Goldman Sachs publish annual reports detailing their ESG approach and financial performance. What is ESG? ESG is an abbreviation of the English words: environmental, social, corporate governance. The new regulations impose an obligation on companies to report activities in this area. All this to encourage companies to take sustainable actions: mitigating and adapting to climate change, protecting water and marine resources, transitioning to a circular economy, preventing and controlling pollution, protecting and restoring biodiversity and ecosystems, and limiting the negative impact on local communities. But ESG reporting also has another dimension. It can increase competitiveness in increasingly demanding markets. Indicators related to activities in the field of the environment, social responsibility or corporate governance are increasingly important to investors. Before they decide to recapitalize a given business, they pay attention to what activities it undertakes in the field of ESG. Environmental criteria consider how the company protects the environment, including, for example, corporate policies on climate change. Social Criteria examines how it manages relationships with employees, suppliers, customers and the communities in which it operates. In recent years, investors have shown an interest in putting their money where its value is. As a result, brokerage houses and investment fund companies have started to offer exchange-traded funds (ETFs) and other financial products in line with ESG investment strategies. Read next: EUR/USD Pair Is Trading Above 1.0670, USD/JPY Pair Drop Below 132| FXMAG.COM Environment, society and management ESG investors strive to ensure that the companies they finance are responsible environmental stewards, good corporate citizens and led by responsible managers. Environmental Environmental issues may include corporate climate policy, energy use, waste, pollution, conservation of natural resources and treatment of animals. ESG considerations can also help you assess any environmental risks a company may face and how the company manages those risks. Social aspects Social aspects concern the company's relations with internal and external stakeholders. Does it require suppliers to adhere to their own ESG standards? Does the company donate part of its profits to the local community or encourage employees to volunteer there? Do workplace conditions reflect a high level of respect for workers' health and safety? Or maybe the company is unethically exploiting its customers? Socially Responsible Investing (SRI) is an investment strategy that emphasizes this one ESG aspect. SRI investors seek companies that promote ethical and socially conscious themes, including diversity, inclusion, community focus, social justice and corporate ethics, in addition to tackling racial, gender and sexual discrimination. Management ESG management standards ensure that the company uses accurate and transparent accounting methods, strives for fairness and diversity in the selection of its leadership, and is accountable to shareholders. ESG investors may require assurances that companies avoid conflicts of interest when selecting board members and senior executives, do not use political contributions to obtain preferential treatment, or engage in illegal activities. Main ESG criteria Environment Publishes a carbon emissions or sustainability report Reduces harmful pollutants and chemicals It strives to reduce greenhouse gas emissions and carbon footprint It uses renewable energy sources Reduces the amount of waste Social Runs ethical supply chains Avoids working abroad that may have questionable safety in the workplace or employing children Supports LGBTQ+ rights and encourages all forms of diversity It has rules to protect against sexual misconduct He pays a fair (fair) salary Management Includes diversity on the board of directors Includes corporate transparency Someone other than the CEO is the chairman of the board Pushes board elections Sum Up The ultimate value of ESG investments will depend on whether they encourage companies to make real change for the common good, or merely tick boxes and publish reports. Source:jpt.spe.org, investopedia.com
Analysis Of Tesla: A Temporary Corrective Rally Should Not Come As A Surprise

The Korea Fair Trade Commission (KFTC) Will Impose A Fine Of $2.2 Million On Tesla Inc

Kamila Szypuła Kamila Szypuła 03.01.2023 10:28
Electronic cars are becoming more and more popular, be it from manufacturers, users or investors. Like everything, it has its limits. It turns out that the most popular EV manufacturer Tesla overestimated its capabilities for which it can pay as much as $2.2 million. Ecology is not only a change of sapline cars to EVs, but also a reduction in the production of plastic or its recycling. Plastic is still arriving and its recycling takes too long compared to its production. Chemical recycling may be the solution. In this article: Punishment for Tesla Chemical recycling Punishment for Tesla There is no doubt that electric cars are our future. The most famous electric car maker, Tesla, has been struggling with a lot of problems lately, while its owner Elon Musk is focusing his attention on Twitter activities. Although we can already use electric vehicles, there are still many problems that need to be eliminated if electric cars are to become as common as the current ones powered by oil or gas. Tesla advertises itself as the most efficient electric car, but according to South Korea, it is not. The driving range of the US electric car maker's cars drops by up to 50.5% in cold weather compared to how they are advertised online. According to the Korea Fair Trade Commission (KFTC), the range has been exaggerated, and thus the KFTC will impose a fine on the producer. South Korea's antitrust regulator has said it will impose a fine of 2.85 billion won ($2.2 million) on Tesla Inc. South Korea fines Tesla $2.2 million, saying the driving range of the American EV maker's cars can plunge in low temperatures by up to about half of what they’re advertised online https://t.co/bjVbATtXyk pic.twitter.com/jpQTY2wjAG — Reuters Business (@ReutersBiz) January 3, 2023 Read next: First Trading Day Of 2023: GBP/USD Is Trading 1.2051, USD/JPY Pair Below 131, The Aussie Pair Is Around 0.68 And EUR/USD Above 1.0680| FXMAG.COM How to deal with excess plastic garbage - chemical recycling As consumption increases, so does production, and so does trash. On a worldwide scale, we produce 2.6 trillion pounds of trash per year. What's more, the most of it are plastic items that decompose far too long. Plastics, often colloquially referred to as plastic, can take 100 to 1000 years to decompose. In this case, too, much depends on the specificity of the discarded material. For example, a plastic bag takes about 400 years to decompose, and candy wrappers take 450 years to decompose. To change the amount of waste generated, it is recycled, but as recent data shows, this is not enough. Scientists and other activists are trying to find innovative solutions to this problem. The problem is that most plastics are simply not recyclable. And even those whose quality deteriorates every time they are reworked, meaning they will eventually end up in the landfill as well. Many environmentalists say this means we need to stop producing plastics at source and support bans or taxes on single-use plastics. But plastics industry groups are betting on a technology known as chemical recycling to break down any type of plastic into its raw components and turn it into fuel or plastic that is just as good. Chemical recycling has many advantages, e.g. we reduce the amount of waste, we do not have to produce materials from scratch or waste non-renewable resources, we do not need additional space for storing plastic waste and we are able to reduce the area of ​​existing landfills. So it may turn out to be more beneficial for the environment. Plastics recycling is failing, and the industry is betting big on a technology called chemical recycling to try and save it. So can chemical recycling help our plastic problem? Watch the full video here: https://t.co/0uDzfiPF7k pic.twitter.com/rQPPxobUKb — CNBC (@CNBC) January 3, 2023
The delayed release of Germany's inflation data should confirm the slowdown seen across the rest of the continent amidst falling energy prices due to a relatively mild winter

Softer German inflation print could underpin capital inflow to the euro

Alex Kuptsikevich Alex Kuptsikevich 04.01.2023 14:32
Inflation data from Germany yesterday and today reinforce hopes that the inflation wave is rolling back faster than expected. Whilst the early success does not promise a quick win, it does raise prospects that high inflation expectations have been avoided. According to a provisional estimate, consumer prices for December in Germany fell by 0.8% after falling by 0.5% the month before. Notably, we are seeing a fall rather than simple exhaustion of growth. Vendors have begun to reduce prices actively following the fall in raw materials and energy costs. Annual inflation has slowed from 10.4% in October to 8.6%. However, the high-base effect will begin to be felt in February. Import prices, an early indicator of inflation, accelerated their fall in November, losing 4.5% after decreasing by 1.2% and 0.9% in the previous two months. Import prices are 14.9% higher than a year earlier - a significant retreat after staying close to 20% y/y for the seven months to September. Read next: Investors should look for new stars in long-term portfolios, realising that the world began a new period in the long-term macro cycle last year says FxPro's analyst| FXMAG.COM Generally, weak inflation figures are bearish news for the currency as they suggest a sluggish economy and lead to lower interest rate forecasts. In this case, however, such an essential sigh of relief could support capital inflows into the euro. With lower inflation, the single currency retains more purchasing power. Furthermore, assuming less shock therapy from the ECB, investors may look more closely at purchases of European assets, expecting less dramatic degradation of local company earnings and not so steep a rise of debt service costs.
Korea: Consumer inflation moderated more than expected in February

Asia Week Ahead: The Bank Of Korea Is Expected To Use The Rate Hike Card More Carefully

ING Economics ING Economics 05.01.2023 10:35
Next week’s data calendar features China's growth numbers, inflation readings from Australia and India, plus a key central bank meeting Source: Shutterstock Inflation finally on the downtrend? The new monthly Australian inflation series should show a further small decline in the inflation rate to 6.8% year-on-year, down from October’s 6.9% rate – still too high for the Reserve Bank of Australia to stop tightening, but moving in the right direction. And in India, further falls in food prices and stable gasoline should bring the price level down by 0.1/0.2% month-on-month, although similar falls last year mean that the inflation rate could hold up at around 5.9%YoY for a second month – still, within the Reserve Bank of India’s target range and indicating that we may be closing in on peak rates.   China activity and loan data due in the coming days China will announce loan data between 9 and 15 January and activity data and GDP data between 10 and 27 January. Loan growth should have slowed in the last month of 2022 even after the People's Bank of China cut the required reserve ratio (RRR) to absorb liquidity. The impact of the RRR cut in December should be reflected in loan growth data for January and support economic activity post-reopening. China also reports activity data and we expect retail sales to face a deeper contraction on a yearly basis. Meanwhile, industrial production could turn from positive growth to mild contraction in December. This suggests that growth was supported mainly by fixed-asset investments for the period. As a result, GDP growth for the fourth quarter of 2022 should fall into a slight year-on-year contraction. BoK could surprise with a pause Bank of Korea (BoK) will meet next Friday. The market expects a 25bp hike, but we maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause. Philippines exports likely to reverse recent surprise gain Exports are expected to revert to contraction following a surprise jump in the previous month. Electronics form the bulk of outbound shipments from the Philippines and given slowing global demand we could see the overall exports sector fall back into the red. Imports on the other hand should continue to expand, resulting in the trade deficit widening to roughly $4.4bn.  Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Despite The Improvement In The Outlook Due To Falling Energy Prices, The Economic Environment In Britain Remains Difficult

The Bank Of England Urgently Needs To Tame Stubbornly High Inflation

InstaForex Analysis InstaForex Analysis 04.01.2023 15:05
Before the end of the year, we asked InstaForex about UK economy, which is expected to decrease significantly, as we approach the end of the year. Let's have a look how do they see the near future of the UK economy and what would BoE consider as a gauge ahead of next interest rate decision. Although the UK GDP for the third quarter turned out to be noticeably worse than expected, the reading was still relatively positive. In annual terms, economic expansion contracted to 1.9% from 4.0%. However, a 2.0% economic growth is quite acceptable for Western countries. At first glance, it might seem that the British economy remains stable. However, in quarterly terms, it shrank by 0.3%. It indicates that the economy is gradually sliding into a recession. Notably, analysts have been predicting such a scenario for a long time. The energy crunch has considerably crippled the eurozone economy as well as the British one. The EU managed to fill its storage sites and avoid fuel shortages. However, it would hardly help it in the future. Even after some stabilization, energy prices soared by two or three times compared to last year. Such sharp price swings adversely affect the European economy. The manufacturing sector is bearing the brunt. Production costs have risen dramatically. Manufacturers are forced to reduce the profit margin to boost their market competitiveness. However, this move leads to a bigger extension of the payback period. However, in the EU,  the payback period is almost the longest one in the world. A few years ago, the payback period of individual industrial enterprises could stretch to 50 years. It made investments in the European economy less attractive.  Over such a long time, investors will only be able to return the invested funds, abandoning hopes for any profit. Recently, the situation has become even worse. It will inevitably lead to an increase in unemployment and a reduction in tax revenues.  Thus, many European manufacturers, including British ones, are now mulling over options for moving industrial production to other regions with lower energy costs and cheap labor. It will inevitably lead to an increase in unemployment and a reduction in tax revenues. In turn, governments will have to deal with worsening social policy, e.g. payments of pensions and benefits.  The situation is extremely challenging. However, those problems appeared a long time ago. The energy crisis and other economic woes have just exposed those cracks.  Things are getting worse due to the Bank of England’s monetary policy stance. It is adamant when it comes to rate increases. As a result, the borrowing costs are rising, which further extends the payback period. Such a problem is quite acute for those who are opening new enterprises or are going to modernize the existing ones.  Even if British companies decide to keep firms and staff, it will be difficult for them even to repair equipment. As for its upgrade, it would seem an attainable goal. Naturally, such companies will quickly lose market competitiveness and lower their production volumes. It will be a rather long and painful downturn.  Read next: Bitcoin: As for the price levels, one should pay attention to the level of $18,000 that has been recently hit. Probably, this level may well serve a starting point for buyers in case the price holds above it on a daily chart | FXMAG.COM The only thing the Bank of England can do is to reduce borrowing costs The Bank of England urgently needs to tame stubbornly high inflation. According to the latest data, inflation slowed to 10.7% from 11.1%. However, it is too early to talk about a steady decline in consumer prices. In June, inflation also dropped to 9.9% from 10.1%. Shortly after, it climbed again. Moreover, its rise was facilitated by supply chain disruptions and production cuts.That is, demand is constantly growing despite the shortage of goods. This is the main reason for an uptick in consumer prices. To some extent, the problem can be resolved at least partially by increasing the output volume. However, this option looks unlikely given the high cost of investment in the industrial sector.  The only thing the Bank of England can do is to reduce borrowing costs. Besides, the watchdog is not responsible for all other issues such as legislation and taxes. Judging by the results of the last meeting, the regulator may start lowering interest rates. Additionally, speculators were surprised that two of the nine board members voted for a rate cut. The Bank of England tries to act preemptively Once inflation starts to decline confidently, the Bank of England will stop the key interest rate hike. Then, after a small pause, it is likely to loosen its monetary policy. It is quite possible that the first key rate cut will take place as early as the first part of 2023. Notably, the BoE was among the first central banks that launched monetary policy tightening. In general, the economic situation in both the US and Europe is almost the same. On both sides of the Atlantic, most structural problems are identical. The Bank of England tries to act preemptively, whereas the European Central Bank and the Federal Reserve are closely monitoring the effect of these actions. If the result is not negative, they immediately take almost the same measures. At least in the last few years, the situation has been developing according to this scenario. There is no wonder. The fact is that the Bank of England is managing a large economy, but it cannot be compared with the economies of the US and the European Union. In other words, the Fed and the European Central Bank have weightier responsibilities. Any unwise decision may lead to alarming global consequences. Apart from inflation, central banks should also take into account the labor market condition. The Bank of England does not have difficulties with this issue. In the UK, the unemployment rate is 3.7%. In the last few months, it has been rising, thus approaching its usual level of 4.0%. This, in turn, provides the BoE with another reason to cut its benchmark rate, especially if the unemployment rate slightly exceeds 4.0%. This is likely to happen when the BoE sees a steady slowdown in inflation. It is highly likely that in early 2023, the Bank of England will raise the key interest rate once more. This time, analysts expect a 25-basis-point rise to 3.75% from 3.5% aimed at reinforcing progress in combat against inflation. At the second meeting of the year, the key rate will remain unchanged so that the regulator can analyze the effect of its previous decisions. At the following meeting, which is scheduled for May 11, the central bank may cut the benchmark rate to 3.5% from 3.75%. All the following cuts will be more moderate compared to the hikes in 2022. They are likely to be limited by rather high inflation and fears that it may resume surging amid a rapid drop in interest rates. It is highly possible that by the end of the year, the key interest rate will be lowered just to 3.0%. Could such measures support the UK economy? The UK is unlikely to avoid a recession. The fact is that the US is expected to slip into a recession, thus negatively affecting the European economy. However, the loosening of monetary policy may cushion the possible impact. Nevertheless, the Bank of England is unable to alter the situation considerably. It simply has no tools to affect structural economic problems. Thus, the regulator has only a minor influence on expenses in the industrial sector. It can settle just the financial component of the issue, which is of minor importance. The Bank of England can postpone the relocation of enterprises outside the United Kingdom, thus allowing the government to take effective steps if it decides to take this opportunity. 
Decarbonizing Steel: Contrasting Coal-based and Hydrogen-based Production Methods

Consumer Inflation Fell For The Second Month In A Row In Poland Thanks To Cheaper Coal

ING Economics ING Economics 05.01.2023 12:21
CPI inflation fell to 16.6% year-on-year in December from 17.5% YoY in November on the back of cheaper coal (down by more than 20% vs. November). Core inflation continued to trend upwards and probably rose to 11.7% YoY from 11.4% YoY in the previous month. Persistently high core inflation will leave no room for rate cuts in 2023   According to the flash estimate, CPI inflation fell to 16.6% YoY in December (ING: 17.4%; consensus: 17.3%) from 17.5% YoY in November. Compared to November, prices rose by just 0.2%, largely due to a 3.3% monthly fall in energy prices. This can be attributed to a decline in coal prices, including government-subsidised imported coal. Given that electricity and gas prices for households are regulated and did not change significantly in December, this means that coal cheapened by more than 20% in December relative to November. By contrast, the fall in fuel prices and the rise in food prices were both close to our expectations. We estimate that core inflation, excluding food and energy prices, accelerated to 11.7% YoY in December from 11.4% YoY in November. Consumer inflation declined for the second month in a row, but the scale of the decline in December was sharper than the most optimistic forecasts. The withdrawal of the Anti-Inflation Shield from 1 January and the low reference base associated with its introduction will boost annual CPI inflation readings in the first two months of this year. The local peak is therefore still ahead, but it is increasingly likely to be below 20% YoY. There is also a growing chance that inflation could decline to single digits by the end of 2023. This means that the MPC will most likely be able to formally declare that the current rate hike cycle is over. We expect that rates will probably remain unchanged until March (and most likely throughout 2023), while the MPC awaits the results of the next macroeconomic projection to better assess the inflation outlook. The energy shock is losing momentum supported, among other things, by weather anomalies in Europe. In our view, there will be no conditions for interest rate cuts this year due to the high and persistent core inflation. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hungarian Industrial Production Shows Surprise Uptick in Summer

Harvard Business Review Research Shows That Education Is No Longer So Important On The Labor Market, The Ban On The Import Of Hamsters Has Been Lifted, 60/40 Portfolio Is Ended?

Kamila Szypuła Kamila Szypuła 05.01.2023 13:03
The pandemic started cyclical events. Even defenseless hamsters were affected by the pandemic, but now their integration has changed. The uptick in growth started just before the pandemic, according to health, but only 2022 towards the region, even the 60/40 portfolio was affected. In this article: Education Is No Longer So Important On The Labor Market Hamsters Will Return To Hong Kong 60/40 portfolio Education Is No Longer So Important On The Labor Market In the past, having a higher education meant getting a well-paid job. Employers were looking for educated employees. According to a study conducted in 2022. According to Harvard Business Review and labor data firm Emsi Burning Glass, between 2017 and 2019, 46% of medium-skilled occupations and 31% of high-skilled occupations reduced the degree requirement on job postings. Which may mean education may not matter as much to job searches in 2023 as it once did. When employers drop degree requirements, they become more specific about skills in job postings, detailing soft skills. Take, for example, hiring an office manager. They must be extremely organized, have good interpersonal skills and understand the basics of accounting. The world is changing and so are the conditions on the labor market. Young job seekers must take these changes into account. Employers may finally stop caring about where you went to school, says HR expert: 'We have been using education as a proxy' (via @CNBCMakeIt) https://t.co/3OQGuVlFcO — CNBC (@CNBC) January 5, 2023 Hamsters Will Return To Hong Kong The pandemic caused by the Sars-Cov 2 virus has caused a lot of confusion around the world. From restrictions to lockdown. Life changed quickly, part of our lives had to move to the virtual zone, including teaching and work. Asia was and, as data from China show, is still the center of the coronavirus. In this region, it was especially believed that bats, hamsters, dogs and others were responsible for spreading the virus. Hong Kong even took action and killed 2,000 hamsters to fight Covid-19 and banned the import of these animals. Now there is information that the ban on the import of hamsters has been lifted. Imported hamsters still need to test negative for the virus before they can be sold. They're not just jet critters; arriving people are required to undergo tests before boarding a plane, even though China opposes similar measures against its citizens in other countries. Masks remain mandatory, with no plans to lift the requirement to wear them in many public places. Other stringent measures, such as shortening school days and daily tests for students, will remain in place for a few more weeks. From Breakingviews - Hong Kong’s hamsters sound shrill warning https://t.co/BLnELRnob3 — Reuters Business (@ReutersBiz) January 5, 2023 Read next:Samsung Suffers From Weakening Demand, Amazon Will Increase The Total Number Of Layoffs To Over 18,000| FXMAG.COM 60/40 portfolio Many people hedge their portfolio in the stock market. From the 1980s until recently, a portfolio of 60% stocks and 40% bonds had a "golden age." But that strategy may no longer have the same relevance. Persistent inflation and growing recession fears have hit markets in 2022. , bringing strong headwinds to the 60/40 portfolio and prompting some critics to declare the "end" of 60/40 as a useful investment strategy. There are also opinions that the 60/40 portfolio will yield lower risk-adjusted returns compared to those of the last four decades, but that doesn't mean it's broken. You need to know the details of this wallet from the beginning as well as its background to see for yourself which opinion is more real. Is the 60/40 portfolio dead? Our strategists don’t think so, but they do expect a bumpier road ahead for the popular strategy. Learn why here: https://t.co/44GHjqYscE — Morgan Stanley (@MorganStanley) January 4, 2023
Italian headline inflation decelerates in January, courtesy of energy

In Italy The Peak In Headline Inflation Might Have Passed

ING Economics ING Economics 05.01.2023 14:19
Positive developments in gas prices suggests that the peak in headline inflation might be behind us, but future declines will be slowed down by some inertia in the core component Weather conditions will play a key role in determining the scope of the deceleration in the energy component of the CPI basket Energy goods and fresh food at the heart of the deceleration Preliminary Istat data shows that in December 2022 the headline inflation slowed down marginally to 11.6% year-on-year from 11.8% in November, in line with expectations.  The drivers of the slowdown were the modest deceleration in the energy good component (to 64.7% from 67.6% in November) and in fresh food (to 9.5% from 11.4%). The core measure, which excludes fresh food and energy, inched up to 5.8% year-on-year from 5.6% in November, signalling that the pass-through of past energy price pressures is still ongoing, if at a decelerating pace. Energy component still exposed to volatility Looking forward, the inflation profile looks set to remain volatile, reflecting the timing of administrative decisions put in place by the government to contain the impact of past energy price increases on household and business balance sheets. Within the energy domain, in January we will likely have a neat decline in the regulated price of electricity and an increase in fuel prices at the pump as the government decided not to confirm the cut to related excises. A contained increase in motorway fares (they were frozen in January 2022) could marginally push up the transport component in January. Weather-driven gas price declines justifies some short-term optimism Over the first quarter of 2023, weather conditions will play a key role in determining the scope of the deceleration in the energy component of the CPI basket. The recent decline in TTF gas prices to the €60/MWh area reflects the combination of abnormally mild winter weather and of related softer gas demand, and is extending to future contracts maturing over 2023. If confirmed, it could bring about a sharp deceleration in the energy inflation component over the next few months. The unusually high level of gas storage filling at this time of the year (at 82% vs a 73.8% average during the pre-Covid 2017-19 period in the same days of the year) encourages some short-term optimism. Peak in headline inflation possibly passed All in all, today’s data suggest that the peak in headline inflation might have been passed. The pace of the decline in headline inflation will depend on how the energy and the core components will balance out. We still believe that the core measure has some room for further increases: the energy pass-through is not over yet, and wage increases, so far scarcely perceptible, might become more visible over the course of 2023. However, a favourable base effect should increasingly push down the energy component. After today’s release, the statistical carryover for 2023 average headline inflation is 5.1%. We forecast average CPI inflation at 6.6% in 2023.     Read this article on THINK TagsItaly Inflation Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Monitoring Hungary: Glimmering light at the end of the tunnel

The Hungarian Labour Market Will Remain Tight And Labour Shortages Will Be There In Some Parts Of The Economy

ING Economics ING Economics 07.01.2023 10:27
The labour market has shown signs of weakening since the summer. But this deterioration is too slow to result in a strong and sudden anti-inflationary shock   The biggest market in Budapest   The Hungarian Central Statistical Office (HCSO) released the latest set of labour market data (wages and unemployment rate) in early January. Wage growth from October suggests that employers are adapting to the strong inflation environment, giving unscheduled, additional wage increases to keep labour in place. In parallel, unemployment statistics reflect that there are still more sectors facing labour shortages than sectors suffering from cost pressures. Nominal and real wage growth (% YoY) Source: HCSO, ING   Gross average wages increased by 18.4% year-on-year in October 2022. If we remove the impact of one-off payments and bonuses, we see roughly similar underlying wage growth (18.5% YoY). This suggests that recent inflation-related wage adjustments are built into base salaries. However, despite the strong underlying wage increase, surging inflation is erasing more and more from the nominal rise. Real wages fell by 2.2% on a yearly basis in October due to the more than 20% headline inflation. With the expected move higher in inflation (possibly peaking only in March 2023), real wage growth could turn into deep negative territory, dragging down consumption during late 2022 and the first half of 2023. Wage dynamics (three-month moving average, % YoY) Source: HCSO, ING   Wage growth in the private sector came in at 18.2% year-on-year, significantly higher than the year-to-date average. Salaries rose by 18.6% in the public sector over a year. In this regard, there is a general sense of wage increase, though the private sector wage growth can be seen as remarkable, considering all the cost-related pressures here. This explains a lot about the health of the Hungarian labour market during a cost-of-living crisis. Employment data points to a steady labour market. The employment rate has been pretty much unchanged for five months now. The November unemployment rate came in at 3.8%, alternating between this and 3.6% for four months now. Though this is significantly higher than the 3.3% nadir in June, it is hard to say that this is an earth-shattering or ground-breaking change. The labour market is weakening only in incremental steps. Labour market trends (%) Source: HCSO, ING   Reading through the details, we can see that fluctuations in the labour market have increased in recent months. This may partly be the result of a bifurcated economy. While certain sectors (e.g. services) are reacting to the constantly changing economic environment with layoffs, other sectors (e.g. manufacturing) are able to partially absorb these workers. While the energy shock is impacting service providers more, the high level of new orders and the capacity expansions are keeping labour needs alive in manufacturing. It is also interesting that the number of participants in the labour market increased in November on a monthly basis. This did not lead to an increase in employment but rather increased the number of unemployed. We conclude from this that due to the intensified pressure on household budgets, more and more people are becoming active job seekers, increasing the statistical number of unemployed. Number of job vacancies and job vacancy rate Source: HCSO, ING   Despite the recent resiliency, if employers realise that difficulties are mounting (still high costs accompanied by lower demand for their products and services), more companies will be forced to start an extensive labour market adjustment. To put it more simply, they will try to save on costs by downsizing and thus will try to maintain their profitability despite the expected decrease in revenues. Accordingly, we expect the unemployment rate to rise further, and to peak around 4.5% during mid-2023. However, this hardly qualifies as a significant labour market adjustment or deterioration. The Hungarian labour market will remain tight and labour shortages will be there in some parts of the economy, thus we can’t see the job sector providing a sizable anti-inflationary shock in a 20%+ inflation environment. Read this article on THINK TagsWages Unemployment rate Labour market Hungary Employment Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hungarian inflation peak is behind us

Hungary: The Fuel Trade Was The Only Sector That Did Not Have A Poor Trading Record

ING Economics ING Economics 07.01.2023 10:44
Despite the positive headline reading for November retail sales, the overall consumption picture is bleak Vehicles line up to be fueled at a gas station in Budapest, Hungary 0.6% Volume of retail sales (YoY) Consensus 1.8% / Previous 0.6% Worse than expected   November retail sales data were a bad surprise for those who were hoping for the usual year-end shopping frenzy. The mediocre 0.6% year-on-year growth in the volume of retail sales in November is a result of a 0.15% month-on-month performance, which is pretty poor.  When it comes to the details, we can’t see any major surprises, at least not in the month-on-month developments. On a monthly basis, food retailing practically stagnated. And this is despite the fact the pensioners (who have the highest level of propensity to consume) got a significant lump sum payment as the government by law needed to match pension growth with inflation, retrospectively. So it's evident that consumers have been adapting to the new reality of galloping food prices. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   Regarding non-food retailers, we see a similar story as households reduced demand for non-essential goods. Sales volume in non-food stores shrank by 0.4% on a monthly basis causing a 2.3% year-on-year drop. And this performance comes in a month earmarked by the month-long Black Friday sales period. While sales events aren't as frequent and strong as they used to be, the dropping purchasing power of households is impacting non-food retailers. The two segments where we saw some positive developments were clothing (due to seasonal factors) and second-hand goods shops as consumers hunt for bargains. With weak performance in food and non-food retailing, this leaves us with only one sector which saw growth: fuel retailing. Drivers were queuing in long lines to fill up gas tanks as rumours started to swirl in November that the government might be ready to scrap the fuel price cap. As a result, the month-on-month fuel sales growth came in at 2.9%, in volume. The government phased out the fuel price cap in mid-December, so fuel retailing should post a strong December as well. However, this doesn’t change the underlying picture, which is that without fuel retailing, consumption is falling. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING   As real wage growth will drop further into negative territory during the next few months (with further rising inflation), we see retail sales continuing to fall. As soon as car users begin to adapt to the market prices, fuel consumption will fall significantly, while extreme food price inflation and the move away from non-essential purchases will be a major drag on growth in retail sales. Against this backdrop, we expect a significant slump in consumption during the fourth quarter of 2022. This will be a major drag on GDP growth and after the third quarter’s negative quarter-on-quarter reading, we see a repetition of a downturn in the last quarter of 2022. This means Hungary falling into a technical recession in the fourth quarter. A subpar performance at the year-end will create a negative carry-over effect and the possible continuation of this poor performance during the first quarter will translate into a stagnation-like economic performance in 2023 as a whole. Read this article on THINK TagsRetail sales Hungary Households GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Market Watch: Earnings Boost and Consumer Confidence Surge Ahead of Key FOMC Decision

How To Measure Poverty? – The Misery Index

Kamila Szypuła Kamila Szypuła 07.01.2023 18:33
It seems that living in a developed or developing country will go through poverty and poverty is something abstract but in every country there are groups of people who live in poverty. The cause of poverty is money. Money may not make you happy, but there is often a correlation between economic opportunity and personal well-being. After all, you probably won't be very happy if you can't afford basic necessities, find a job, or get a loan. To check how many cases there are that cannot afford to meet basic needs, the Misery Index was created. What is the Misery Index and what is it used for? The Misery index is an economic indicator that measures how well the average person is doing financially. It uses a few simple inputs to create an easy-to-understand and repeatable measure of a nation's poverty level. The classic Misery Index consists of two components: inflation and the unemployment rate. In the simplest sense, inflation is a loss of purchasing power by households as a result of an increase in consumer prices. In turn, the unemployment rate affects the household budget in two ways. First, some household members cannot find work, which reduces family income. In addition, the high unemployment rate lowers the wage pressure, so that nominal wages do not grow quickly. Due to the fact that the index is the sum of the inflation rate and the unemployment rate, the high value of the Misery Index may be due to: High unemployment rate and high inflation, High inflation and low unemployment rate, High unemployment and low inflation. As a rule, economists consider the economy to be in full employment when the unemployment rate is 4-5%. In turn, the inflation target for many countries varies between 2-3%. As a result, the "optimal" poverty rate should be between 6%-8%. Factors included in the Misery Index A closer look at each of the misery index factors can be important in understanding how indexes work. Focusing on Hanke's Annual Misery Index (HAMI), which we'll discuss later, these factors are: Annual unemployment rates. Unemployment measures the percentage of people who are actively looking for a job but cannot find one. Annual inflation rates. Inflation is the rising cost of goods and services. When prices go up, you need more money to buy the same thing, so inflation can lead to unhappiness. Interest rates on bank loans. The rates that banks pay for short-term loans, which may affect the rates consumers pay for loans and lines of credit. Gross domestic product change. Real gross domestic product (GDP) measures the change in a country's economic output after accounting for inflation or deflation. A higher number is worse because it indicates that the country is more unhappy. How to Calculate the Misery Index To calculate HAMI, add inflation, unemployment and interest rates. Then subtract GDP per capita to determine the current poverty rate. HAMI = [Unemployment + Inflation + Bank Credit Rate] − Real GDP growth Misery Index - Limitations The simplicity of the aforementioned index is also its disadvantage, because it leads to the fact that its indications are not as precise as the more "sublime" variants of indicators measuring the "health" of the economy. Here are some examples of the misery index's disadvantages: One of the disadvantages of the index is its "blindness". An example is the unemployment rate, which does not measure the level of the unemployed in the entire population, but only in the group of people actively seeking employment. For this reason, people who have lost their jobs and stopped looking for them are not considered unemployed. Another problem is the interpretation of the level of inflation. Periods of very low inflation, or even deflation, are "good" according to the poverty index, but they may indicate stagnation rather than health. A good example is Japan, which has had problems with raising the level of inflation for many years. However, the effects of government actions in Japan are poor. The third disadvantage is also that they treat the increase in inflation and the unemployment rate in the same way. However, a 3 percentage point increase in the unemployment rate has a greater effect on "population poverty" than a 3 percentage point increase in the inflation rate. The Story of the Misery Index The misery index was created by economist Arthur Okun, who used the simple sum of the inflation rate and the unemployment rate. He decided that such a composition of the indicator would make it possible to examine the "health" of the economy. The lower the index, the better the condition of the national economy. Arthur Okun was from 1968 to 1969 chairman of the US Council of Economic Advisers (CEA) during the presidency of Lyndon Johnson. He was also a professor at Yale University. In addition to the poverty index, he also formulated the relationship between the unemployment rate and Gross Domestic Product (GDP). It was named Okun's law in honor of its discoverer. It says that an increase in the unemployment rate above the "natural level" has a negative impact on the level of GDP. The popularity of the misery index dates back to the 1970s, after President Nixon suspended the US dollar's convertibility to gold. This was one of the reasons why the US economy struggled with high unemployment and high inflation over the next few years. Source: investopedia.com
Bank Of England Will Probably Be Unable To Avoid A Significant Easing Of Policy

The Issues That The UK Economy Is Facing Are Real: Interest Rate Expectations Peaking, Inflation Falling, And A Manageable Trading Downturn

Franklin Templeton Franklin Templeton 08.01.2023 12:48
Macroeconomic trends If 2023 is anything like 2022, then the UK may be in for a bumpy ride – inflation surged, interest rates soared, currencies swung, and the UK government clashed. But for us, one of the main challenges ahead for UK equities can be succinctly summarised: Will inflation begin to moderate as economic activity wanes? Indeed, macroeconomic headwinds remain. Investors remain hopeful that UK inflation has peaked, but continue to balance the prospect of surging prices with the rising cost of debt. Whilst the notion of transitory inflation has largely been disproven through 2022 as CPI data remained elevated, some factors are undoubtedly considered stickier than others. Frictional supply chain costs as the world emerges from the COVID-19 pandemic are already beginning to subside, but secular impacts on inflation such as globalisation and demographic change should not be overlooked. Thus, as the prospect of a technical recession is increasingly considered within the UK, the inflationary backdrop will be key to shaping its severity. Fortunately, an easing of global inflationary pressures is beginning to unfold. Data released in November showed that US consumer prices had risen by 7.7% over the past 12 months, falling short of the 8% estimates. In December, China announced a reversal of key zero-Covid policies after weeks of civil unrest. And indeed, global commodity prices have moderated since their extreme volatility earlier in the year. As inflation looks like it is peaking in the UK, the news of a cooling backdrop in the US has helped drive a rerating of equities and a pullback in government bond yields domestically. Inflation in the UK is expected to continue to fall back from highs over the next few months, although the impact from changes in consumer energy support policy will likely be a key determinant as to how this plays out. Assuming an easing in headline inflation figures, we expect the central bank to be nearing a peak in its monetary tightening programme. The Bank of England recently made steps to reduce its balance sheet, embarking on a programme of quantitative tightening in Q4 2022. Higher interest rates mean higher financing costs for corporations and consumers. Combined with the tighter flow of liquidity, this may present some short-term challenges for UK equities whilst the positive effect of moderating inflation takes its time to embed into supply/demand habits. Key economic concerns are the length and depth of this inevitable slowdown – investors remain closely focussed on the central bank response as the risk of a policy mistake is increased. As the short-lived “Trussonomics” regime unwinds, the central bank at least has some relative market stability in order to play its best hand. Market inferred peak base rates have moderated by over 100 basis points (bps) since the (not so) mini budget was announced earlier in 2022. The perception of a safe pair of economic hands with Prime Minister Rishi Sunak and Jeremy Hunt, chancellor of the Exchequer, has improved sentiment to the UK into 2023. With gilt yields stabilised, and an economic catastrophe seemingly circumnavigated, the expectation of relatively benign markets should be well received by the Bank of England as they execute monetary policy over the coming months. One must be reminded that not all consumers are proportionately impacted by the enduring cost-of-living crisis consuming the UK. The UK remains in a position of strength from the perspective of excess household savings – savings accumulated throughout the Covid-19 pandemic are now earning an attractive rate of interest income. Furthermore, the UK mortgage market has evolved since 2005 – the last meaningful period of central bank tightening – when 70% of mortgages were financed on variable terms. Today, only 14% of the UK mortgage market is financed with variable rates. The extent of fixed rate mortgage financing and indeed outright home ownership within the UK should continue to partially offset the cost-of-living burden instilled by soaring consumer energy bills. But we do expect a degree of consumer caution to remain until broader costs begin to moderate. The labour market has continued to demonstrate resilience throughout this period of volatility. Although latest data indicate that unemployment rose to 3.7% in Q3 2022 and that job vacancies dropped for the fifth consecutive quarter, one must be reminded that the labour market remains buoyant relative to historic levels. Signals such as a falling labour inactivity rate are indicative of employment re-engagement, particularly amid the over 50s, as soaring costs prompt ‘early retirees’ back into employment. Thus, we do not expect a surge in the unemployment rate, which should provide some protection against the risk of a prolonged, severe recession. Despite the relative strength of the UK equity market throughout a period of heightened volatility, investors remain mindful of the value that remains. The UK market is trading on a forward P/E ratio of around 10x – 20% beneath its 15-year median – and offers a dividend yield of 4%. Contrasting with the US, trading on a forward P/E ratio of around 18x – 12% above its 15-year median – and a dividend yield of 1.7%, UK equities look cheap to us. An economic slowdown is widely anticipated across global markets and as such, should investors continue to address the notion – is this bad news already priced in to UK assets? The UK market remains forward-looking, and in our mind is pricing in an excess of pessimism given where valuations are today. Thus, we believe the attractiveness of the region is enhanced to investors as evidenced by ongoing M&A activity, as indeed are the prospects for continued resilience through 2023 and beyond. Small- and mid-cap UK equities UK small-and-mid (SMid) cap has been an asset class that has been hugely out of favour over the last 12 months, leading to significant underperformance versus the wider UK equity market. Yet, we believe that the prospects for many companies in this area of the market remain much brighter than the investor value inferred in today’s constricted valuation multiples. Amongst the current barrage of UK negativity, short termism and ongoing selling pressure, we believe opportunities are emerging that set the stage for a recovery in 2023. The issues that the UK economy is facing are real. However, we believe that next year we are likely to see interest rate expectations peaking, inflation falling, and a manageable trading downturn. We are increasingly enthused by some of the compelling opportunities that we observe within the Smid cap market which lays the foundation for future returns. We do expect earnings to come under pressure in the short term, but the degree of valuation discount observed assumes a wide margin of safety. Currently, Smid cap companies are trading towards the lower end of their historical valuation range, along with what we believe to be attractive dividend and free cash flow yields. Many businesses are entering this well signalled downturn with significant balance sheet strength, and this enables them to continue to invest and take advantage of the opportunities which should inevitably arise. After exiting a disruptive pandemic period, not only in sound financial shape, but also operationally and competitively, we believe that many businesses and their prospects have actually been significantly strengthened. In our view, the flexibility, strength and resilience engrained in many Smid cap companies is being underestimated. Thus, we believe the prospects of the UK Smid cap market are enhanced, where the risk/reward opportunity is beginning to look compelling over the long term. Large-cap UK equities UK large-cap businesses kept the UK equity market afloat through 2022, as many other developed markets suffered at the hands of an inflationary resurgence. As humanitarian tragedy and geopolitical unrest reverberate across Europe, investors continue to shelter in recognised safe havens; this has led to an encouraging period of attractive relative returns for the FTSE 100 Index. Looking forward into 2023, the FTSE 100 looks well positioned to continue to demonstrate resiliency in the face of global headwinds. Of course, investors are presented with many unknowns… Will an enduring economic recession engulf the market? The FTSE 100 is comprised of some of the highest quality, cash generative businesses listed within the UK. These businesses are well capitalised and many raised equity where needed during the pandemic, and thus start from a position of strength relative to speculative/higher leveraged alternatives. Defensive havens remain prevalent – tobacco, pharmaceutical and utility businesses are demonstrably less sensitive to economic cyclicality. Will inflation persist? The FTSE 100 is constructed by many companies that exhibit innate inflationary resistance. Real asset businesses such as oil and gas majors and metal miners account for over 20% of the index. Whilst some may argue that their fate is in the hands of global commodity volatility, most would concur that these remain an effective hedge against soaring inflation. Furthermore, regulated businesses such as utility companies have a reliable mechanism for protecting their revenue streams from inflation. Will interest rates settle at 3-4%? Inherent interest rate protection is prevalent within the index. Multinational banks are now beginning to earn material interest income margins from their lending, after over a decade of frankly negligible rates. Furthermore, long-term liabilities for life assurance businesses are now discounted at a higher rate, reducing the value of their liabilities in today’s terms. The UK market has lagged the US market for some time due to the notable omission of high-growth, pre-profit stocks where the terminal value is discounted from many years into the future. These businesses were able to thrive in a zero-rate environment. But as rising interest rates inflate the discount rate used for equity valuations, these high-growth stocks are disproportionately sensitive to hawkish policy relative to the established, profitable, and mature businesses prominent within the FTSE 100 Index. Should investors not know what steps to take next. Then in our mind the notion of being “paid to wait” is an attractive concept amid the UK large-cap market. The mature nature of the UK large-cap landscape instils a degree of resilience in the propensity of businesses to return capital to shareholders. This may be derived from reliable dividend income – the FTSE 100 is a natural hunting ground for income, yielding over 4.5% - or indeed the opportunity to benefit from share buybacks which remain commonplace, particularly amongst businesses generating windfall profits. Source: Bloomberg as at 16/12/2022 unless otherwise stated. Read the full report
EUR: Stagflation Returns Amid Weaker Growth and Sticky Inflation

2022 Was One For The Record Books, Interest Rates Rose, Spreads Also Rose Across The Board

Franklin Templeton Franklin Templeton 08.01.2023 12:53
Time with loved ones over the new year provides the right perspective to focus on what is important.  So, before I dive into my market outlook, allow me to wish you a happy and prosperous new year. For fixed income, 2022 was one for the record books. Interest rates rose more than most predicted, and inflation continued its decade-long ability to surprise forecasters. Spreads also rose across the board, with few exceptions, and the US dollar was strong against developed and emerging market currencies, leaving little room to avoid financial market pain. Bonds in the Gulf Cooperation Council (GCC) countries1 as well as global sukuk markets did an admirable job relieving much of that pain. Contrary to most investors’ perceptions of this region and asset class as volatile and risky, GCC fixed income and global sukuk markets delivered on their defensive attributes, declining 61% and 43% of the drawdown of emerging markets, respectively (see Exhibit 1 below.)2 Exhibit 1: 2022 Performance Normalized to 100 on December 31, 2021 Normalized Fixed Income PerformanceDecember 31, 2021–December 27, 2022   Source: Bloomberg, as of December 27, 2022. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or guarantee of future results. See www.franklintempletondatasources.com for additional data provider information.   The major reason for this outperformance came from the stability of credit spreads. Whereas spreads across emerging markets widened by as much 80% and currently sit at approximately one-third higher than the beginning of 2021, GCC and global sukuk credit spreads were very resilient, spending much of the past year 20%-40% below their levels of 24 months ago (see Exhibit 2.)3 Exhibit 2: Index Credit Spreads Normalized to 100 on December 21, 2020 Normalized SpreadsJanuary 1, 2021–December 27, 2022   Source: Bloomberg, as of December 27, 2022. Actual Credit Spreads: Global Sukuk 83 bps, GCC 189 bps, EMBIDGD 499 bps, Global HY SS 823 bps)BP=basis point; one basis point is equal to 0.01%. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or guarantee of future results. See www.franklintempletondatasources.com for additional data provider information.    Several factors come into play here. Part of this stability comes down to fundamentals. The GCC had a successful public health response to the COVID-19 pandemic and a robust reopening that, according to the International Monetary Fund, came at a fraction (about 1/6) of the cost it took advanced markets to engineer the same recovery (1.5% versus 7.5% of their 2020 gross domestic product as a fiscal response to COVID-19).4  Ukraine and Russia are remote from the GCC and the linkages are limited, which together with higher oil prices, supported the relative strength of GCC economies.  From a technical perspective, bond and sukuk issuance was down approximately 48% from a year ago,5 with demand stable or arguably increasing as foreign investors gradually reduced their structural underweight to the GCC. This last point is important. The GCC represents over 20% of the JPM EMBI Global Diversified Index and over 10% of JPM CEMBI Index, which we believe requires a thoughtful, active approach to regional allocations.  This explains much of the past, but where do we go from here? When we came into 2022, we expected the US Federal Reserve (Fed) to raise real rates and tighten financial conditions. By the middle of the year, we thought the job may have been done, with 10-year Treasury real rates above 0.75%, having moved from negative 1%.6 Real rates kept rising to above 1.5%, presenting attractive opportunities to take advantage of yields that had reached levels we have not seen in two decades. In a relatively short period of time, the Fed raised rates by 425 basis points, transforming the potential income production and protection fixed income can provide portfolios. Looking into 2023, we believe investors will want to take advantage of these yields. The turnaround in fixed income may have already started in November, but the outlook for bonds and sukuk remain more attractive to us than other risk assets—certainly on a risk-adjusted basis, but potentially also on an absolute basis. Exhibit 3: Historical Average Index Yield to Maturity in Percent Absolute Yields Approaching Highest Levels in Two Decades (Excluding the Global Financial Crisis)January 1, 2002–December 27, 2022   Sources: Bloomberg, as of December 27, 2022. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results. See www.franklintempletondatasources.com for additional data provider information.   The challenge of course is that the Fed seems intent on continuing to tighten financial conditions, against what we see as an ongoing economic slowdown. We believe the Fed is guiding to a higher terminal rate well above 5%,7 intends to stay there at least through 2023, and only cut rates gradually thereafter. The market may change its view as economic data comes through—particularly inflation data—but for now has lowered its estimate for the terminal rate slightly to 4.9% by March 2023, and expects rate cuts to begin by July 2023. Implicit in both projections is that inflation has peaked, and the majority of rate hikes are behind us.  From our perspective, it seems sensible to at least project stable benchmark rates, that may also decline faster if the recession in the United States is more significant, or inflation declines more rapidly. We recognize these as critical inputs and enter the year long duration. Credit spreads are more challenging to forecast; there is a risk they widen. That is why we have a pronounced preference for higher-quality credits that have financial buffers to manage slowing economic activity. This is not to say we are not taking any risk, as there are opportunities in emerging markets that reflect dire outcomes that we think may not materialize, or at least compensate us for the risks involved. On average, however, our portfolios do have higher credit quality than the recent past. Oil may be vulnerable to slowing demand, but we think both OPEC+, through production cuts, and the US administration, through commitments to replenish its strategic petroleum reserves (SPR), should manage to keep oil prices above US$70 a barrel, which is enough to keep pressure on GCC credit trajectories at a modest level. It is worth considering that this oil-price cycle, because of reforms to national oil companies and fiscal budgets, has had a more benign impact on local liquidity, so financial conditions will likely remain tight across the GCC without further domestic monetary intervention. Exhibit 4: GCC Banks’ Liquidity Measured Using Loans-to-Deposit Ratios (2017-August 2022) GCC Bank Loans to Deposit Ratios at Various Brent Oil Prices2017–August 2022   Source: Franklin Templeton Research, as of October 2022.   The outlook for issuance appears set to improve, returning to annual levels of US$75-$80 billion on average. GCC governments are expected to see US$199.3 billion in fixed income maturities over the next five years (2023-2027), with corporate maturities at US$169.1 billion, for a total of US$368.4 billion).8 Saudi Arabia is expected to see maturities of US$125 billion until 2027, followed by UAE and Qatari issuers at US$109.8 billion and US$73.1 billion, respectively.9 The GCC’s share of emerging market issuance is set to increase, especially if lower rated (single B and below) issuers continue to struggle accessing primary markets. Exhibit 5: GCC Bonds, Loans and Sukuk Issuance and Projected Bond Redemptions 2022 Issuance Declines 48%Maturities Set to Increase from 2023 (in US$, Thousands)2023–2027 (Forecast)   Source: Bloomberg, as of December 27, 2022. There is no assurance that any estimate, forecast or projection will be realized.   After every sharp drawdown in fixed income, there have been strong recoveries. Though one must be careful not to discount the adjustment that bond markets have just lived through, we believe high-quality bonds have the potential to deliver the best risk-adjusted returns.    Faced with continued uncertainty and an abundance of risk, one may be tempted to time the market or wait for attractive entry levels. We believe this may be a mistake. In our view, it would be more prudent to focus on asset allocation and consider an increase in higher-quality fixed income sectors, including GCC bonds or global sukuk, that look poised to better defend portfolios and provide attractive levels of income.  Endnotes The Gulf Cooperation Council (GCC) is a political and economic union of Arab states bordering the Persian Gulf. Established in 1981, its six members are the United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain. The Dow Jones Sukuk Total Return Index is designed to track the performance of global Islamic fixed income securities, known as sukuk. The index measures an investment (excluding reinvestment) in US dollar-denominated, investment-grade sukuk that have been screened for Shariah compliance. The JP Morgan EMBI Global Index measures total returns for traded foreign debt instruments in emerging countries. The FTSE MENA Broad Bond Index tracks GCC corporate and sovereign bonds. The Bloomberg Global High Yield Index measures the global high yield debt market, representing the US High Yield, the Pan-European High Yield, and Emerging Markets Hard Currency High Yield Indexes. The Bloomberg Global Aggregate Index measures global investment-grade debt from 28 local currency markets including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or guarantee of future results. See www.franklintempletondatasources.com for additional data provider information. Spreads are measured in basis points. The JP Morgan Middle East Composite Index (MECI) measures the performance of Middle East corporate and sovereign bonds. The J.P. Morgan Emerging Market Bond Index Global Diversified Index (EMBIGD) is a uniquely weighted USD-denominated emerging markets sovereign index. The Dow Jones Sukuk Total Return Index is designed to track the performance of global Islamic fixed income securities, known as sukuk. The index measures an investment (excluding reinvestment) in US dollar-denominated, investment-grade sukuk that have been screened for Shariah compliance. The J.P. Morgan Emerging Markets Bond Index Global ("EMBI Global") tracks total returns for traded external debt instruments in emerging markets. Source: IMF, COVID-19 Policy Tracker and staff calculations. Source: Bloomberg, as of December 27, 2022. Source: Bloomberg. FOMC “Dot Plots” as of December 14, 2022, show a median of 5.125%, and a high of 5.625%. There is no assurance that any estimate, forecast or projection will be realized. Sources: Bloomberg, Kamco Invest Research, GCC Fixed Income Market Update, December 2022. Ibid. WHAT ARE THE RISKS? All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in lower-rated bonds include higher risk of default and loss of principal. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. In general, an investor is paid a higher yield to assume a greater degree of credit risk. The risks associated with higher-yielding, lower-rated debt securities include higher risk of default and loss of principal. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.
Belgian housing market to see weaker demand and price correction

The Current Environment Presents A Compelling Opportunity To Consider Allocating To Real Estate Strategies

Franklin Templeton Franklin Templeton 08.01.2023 12:57
Global central banks have raised interest rates to grapple with reemergent inflation, causing bond and equity valuations to decline in synchrony. The historical diversification benefits of traditional stock and bond investments has turned on end. Amid a continued challenging overall environment, we believe many investors will need a more sophisticated toolbox to meet their long-term goals. In this environment, we believe alternative investments can be used as multi-faceted tools for portfolio construction. Alternative investments, defined as private equity, private credit, real assets—such as real estate and real estate investment trust (REITs)—and hedge funds, have the potential to provide investors with higher returns, higher income, lower volatility and diversification benefits relative to traditional investments.1 Consequently, they can be employed to enhance potential growth, income, defensiveness and/or to provide a hedge against inflation. Benefits of investing in real estate Real assets are tangible, physical assets whose value is derived from their physical use—which includes infrastructure, natural resources and real estate. Of these, real estate is the largest segment of real assets,2 representing a diverse set of opportunities across both categories of use and geography. Real estate has historically been a source of growth and income, diversification and a hedge against inflation. Investors can access real estate in one of three ways: through allocation into publicly traded REIT stocks, unlisted real estate funds or direct assets. Real estate has historically delivered returns on par with equities, with REITs modestly outperforming unlisted real-estate funds (see chart below).  30-year Annualized Returns Through June 30, 2022   Source: Morningstar Direct as of June 30, 2022. Private Real Estate: NFI-ODCE Index; Public Real Estate: MSCI US IMI Real Estate 25/50 Index. The NFI-ODCE Index measures investment returns (gross of fees) of the largest private real estate funds pursuing a core investment strategy, which is typically characterized by low risk, low leverage (less than 40%), and stable properties diversified across the United States. The MSCI US IMI Real Estate 25/50 Index (USD) is designed to capture the large-, mid- and small-cap segments of the US equity universe. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results. See www.franklintempletondatasources.com for additional data provider information.   In addition to its historically compelling return profile, real estate has typically offered yields above those of broad stock indexes as well as sovereign debt and high-grade municipal and corporate bonds over full market cycles.3 Real estate cash flows and values have also typically increased over time as the cost of marginal new supply rose and created a natural linkage to the rate of inflation.4 Consequently, real estate has tended to both sustain value relatively well during recessions and perform admirably amid heightened inflation.5  Private real estate vs. publicly traded REITs An investor can gain exposure to real estate through publicly traded REIT products or via open-end or closed-end private equity funds. The assets underlying each is effectively the same: commercial real estate. Returns on private real estate have modestly lagged public REITs, as measured by the National Council of Real Estate Investment Fiduciaries Fund Index – Open End Diversified Core Equity (NFI-ODCE Index) and the MSCI US IMI Real Estate 25/50 Index, respectively, but could be viewed as comparable assuming some allocation to value-additive strategies.6 However, private commercial real estate tends to be less empirically volatile and exhibits lower correlation to other financial assets. This is because values are determined based on relatively infrequent appraisals, whereas a publicly traded REIT is marked-to-market daily and will reflect the constant turbulence of interest rates, risk premiums and other macroeconomic variables. Public REITs also typically have lower leverage and more frequent use of unsecured corporate debt whereas private real estate can have more than 50% loan-to-value with more frequent use of first-mortgage financing. Private real estate can have a greater potential exposure to value-add opportunities as public REITs are limited by capital return requirements to maintain tax-free REIT status. However, REITs have a diverse universe of investable assets across many subsectors including towers, self-storage, timber and cold storage versus private real estate’s exposure of more traditional subsectors with fewer opportunities in more niche subsectors. Thus, investor preferences should determine which would be more suitable when making allocation decisions.  Reasons to invest in both We believe many investors should consider allocations to both private and publicly traded equity strategies to effectively take advantage of the beneficial attributes of real estate. Such an approach can potentially maximize returns, while reducing portfolio risk. The return profiles of combined portfolios exceeded those of both the 100% private and 100% publicly traded equity portfolios.7 In our analysis, this approach can also provide adequate liquidity to ensure access to capital and allow for tactical rebalancing.  Portfolio Mix of Public and Private Real Estate: 20-years Annualized Risk and Returns Through June 30, 2022   Source: Morningstar Direct as of June 30, 2022. Private Real Estate: NFI-ODCE Index; Public Real Estate: MSCI US IMI Real Estate 25/50 Index. The NFI-ODCE Index measures investment returns (gross of fees) of the largest private real estate funds pursuing a core investment strategy, which is typically characterized by low risk, low leverage (less than 40%), and stable properties diversified across the United States. The MSCI US IMI Real Estate 25/50 Index (USD) is designed to capture the large-, mid- and small-cap segments of the US equity universe. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results. See www.franklintempletondatasources.com for additional data provider information. Calculation based on a monthly rebalance to the allocation referenced.   Why now is a good time to invest in public real estate In our opinion, the current environment presents a compelling opportunity to consider allocating to real estate strategies. Inflation is running high and growing increasingly persistent. Concerns about whether central banks have the will to combat and defeat inflation in the face of economic risks and imbalances are warranted. For example, industrial real estate is seeing market rent growth exceeding 20% per annum—and, in some places, well above that average—because demand far exceeds supply, vacancy is at record lows, and the cost of new construction is spiraling higher.8 Apartment rents have surged in response to consumers demanding more living space as lifestyles adjust to a new, more home-centric post-pandemic normal. Pandemic-motivated demand for self-storage has pushed vacancy to record lows and rents to record highs. Inflation is a scourge to financial assets unless, of course, one owns scarce assets that can capture and reflect that inflation. In response to high inflation, global central banks have embarked on an aggressive policy of tightening monetary policy, which has raised nominal and real interest rates. This has weighed on commercial property values, as the discount rate applied to cash flows has increased substantially in a short timeframe. In our analysis, this creates an opportunity for a well-chosen portfolio of commercial real estate that can seek to mitigate these pressures through collateralized cash flows that are hedged from the risk of inflation-related devaluation.     We’ve seen a valuation contraction in publicly traded commercial real estate, as asset values have been remarked to reflect higher interest rates. Notably, publicly traded REITs trade at an average 20% discount to net asset value (a measurement of the private market value of the embedded real estate), which has historically marked a nadir for the relative valuation of public real estate (see chart below). The combination of inflation-linked cash flows and the prevailing discount to private market value make the current environment for publicly traded commercial real estate attractive, in our view. The uncertainty surrounding the macro outlook contributes to our view that active management is especially important to discern which opportunities offer high quality, in demand, supply constrained assets and prudent capital structuring and allocation. Historical Price-to-Net Asset Value (P/NAV) Ratio 1996-2022   Source: Evercore ISI/Steve Sakwa as of September 30, 2022.   Endnotes These asset types also carry risks different from traditional investments, please see the disclosures at the end of this document for an explanation of the risks associated with private assets. Sources: Harvard Business School Online, “What are Alternative Investments,” July 8, 2021. McKinsey & Company, “Private Markets Rally to New Heights: McKinsey Global Private Markets Review 2022,” March 2022. Source: Bloomberg as of 11/30/22. Source: Forbes, “What History Teaches Us About Inflation And Commercial Real Estate,” 7/18/22. Sources: NAREIT, “Historical Real Estate Performance Before, During, and After U.S. Recessions, 11/8/22 and CRE, “Is Commercial Real Estate an Inflation Hedge?” 2011. Source: Morningstar Direct as of June 30, 2022. The NFI-ODCE Index measures investment returns (gross of fees) of the largest private real estate funds pursuing a core investment strategy, which is typically characterized by low risk, low leverage (less than 40%), and stable properties diversified across the United States. The MSCI US IMI Real Estate 25/50 Index (USD) is designed to capture the large-, mid- and small-cap segments of the US equity universe. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.  See footnote 6. Source: JLL Research, “Industrial Market Overview: Q2 2022,” 2022. WHAT ARE THE RISKS? All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stocks historically have outperformed other asset classes over the long term but tend to fluctuate more dramatically over the short term. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds adjust to a rise in interest rates, the share price may decline. The risks associated with a real estate strategy include, but are not limited to various risks inherent in the ownership of real estate property, such as fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by general and local economic conditions, the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, environmental laws, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in alternative investment strategies are complex and speculative investments, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative investments may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Additionally, investments in private securities and obligations may be thinly traded, have no ready market or exchange and require private negotiation, and which may be restricted as to their transferability. These factors may limit the ability to sell such securities at their fair market value.  
Saxo Bank Podcast: A Massive Collapse In Yields, Fed's Tightening Cycle And More

Federal Reserve Officials Remain Concerned That Policy Needs To Be More Restrictive For A Long Period Of Time

ING Economics ING Economics 08.01.2023 13:27
In the US, we see a further moderation in the annual rate of inflation, from 7.1% to 6.6%, and expect much sharper falls from early second quarter onwards. For the UK, we expect a negative monthly GDP figure for November, and for now are pencilling in a 0.1% fall in fourth quarter GDP. In the eurozone, we see a further improvement in the trade balance In this article US: Core inflation pressure elevated for now UK: Monthly GDP to point towards second consecutive quarter of negative growth Eurozone: Further improvements in trade balance expected   Shutterstock   US: Core inflation pressure elevated for now It is clear that economic headwinds are intensifying and business surveys are softening as a result. With business leaders becoming more pessimistic, we expect this to translate into weaker hiring and eventual job shedding as companies look to cut costs. Competitive pressures amid a weakening demand environment also suggest that inflation should slow too. However, Federal Reserve officials continue to indicate they think they have more work to do in the battle to get inflation back to the Bank's 2% target. They remain concerned that policy needs to be more restrictive and to stay restrictive for a long period of time to ensure that demand moves into balance with the economy’s supply capacity and price pressures subside. In that regard, the key data point next week is the US CPI report. We expect to see a further moderation in the annual rate of inflation from 7.1% down to 6.6%, but this is still more than three times faster than the Federal Reserve’s 2% target. Fed officials have made it clear they expect goods price inflation to continue softening  -  expect another big drop in used car prices given the steep decline in new vehicle sales as consumers pull away from major purchases and lending criteria becomes stricter. But officials are seemingly focused on services ex housing. The consumer spending story looks OK right now and that is likely to keep core inflation pressures somewhat elevated while. It is too soon for the weakening in the housing market to show up in a clear moderation in the cost of shelter since it typically lags by 12-14 months so that is more of a story for the second quarter into the third. Meanwhile, medical care costs, having fallen for two consecutive months, are unlikely to be quite so helpful in depressing overall inflation. Still, a 0.3% month-on-month print would lead to the annual rate of core inflation hitting 5.7% versus 6% in November. We expect to see much sharper falls in the annual rate of inflation from the early second quarter onwards. Other things to look out for include consumer confidence and small business confidence. Both are likely to remain weak given the impact of falling asset prices, high inflation and more headlines regarding job losses from some big corporate names. Also, look out for comments from officials, including Fed Chair Jerome Powell. UK: Monthly GDP to point towards second consecutive quarter of negative growth The UK’s monthly GDP figures have been a bit all over the place recently, in part because of the Queen’s funeral last September. But strip out the volatility and the economy is clearly weakening, and the constant downtrend in retail sales through last year is one such example. We expect a negative monthly figure for November, after October’s artificial bounce back following September’s extra bank holiday. That, and another such decline in December, would probably be just enough to lock in the second consecutive quarter of negative growth and mark the start of a UK recession that’s likely to last until at least the summer. For now, we’re pencilling in a 0.1% fall for overall fourth quarter GDP when the figures are released next month, and just over a 1.5% peak-to-trough fall in output over several months. Eurozone: Further improvements in trade balance expected The eurozone kicks off the year with new labour market data. October saw unemployment drop once more despite deteriorating economic conditions. The question is how long the labour market can continue its run of improving unemployment rates. If indeed we see unemployment decreasing further, this could unleash more hawkishness from the European Central Bank. Besides unemployment, we also get trade and industry data. Industrial production has been resilient despite the energy shock, but survey data points to weaker activity regardless. The trade balance is important to watch as expensive energy imports have completely flipped the eurozone trade balance from surplus to deficit. October saw an encouraging improvement in the trade balance and the question is whether softening natural gas prices have caused further improvements. This is important for the fair value of the euro/dollar. Key events in developed markets next week Refinitiv, ING TagsUS Eurozone   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The UK Contracts Faster Than Expected in July, Bank of England Still Expected to Hike Rates

Searching For The Optimal Way To Manage The Company - Holding

Kamila Szypuła Kamila Szypuła 08.01.2023 14:07
The search for the optimal way to manage a company involves many unknowns. One of them is - what is a holding and what are its advantages and disadvantages. Accurate knowledge of the characteristics of this structure makes it possible to determine whether it will be profitable for a given company. What is holding? Holding is a form of association of several companies related by capital or personally. Typically, one of them is dominant and can control the activities of the others. Holding is one of many forms of concentration of capital and association of companies. In addition, there are also types such as: concern, trust, conglomerate, consortium, joint venture. Relationships within the holding company are quite tight. Although subsidiaries have their own legal personality and are fully independent entities in their day-to-day operations, they are de facto controlled by the parent company. One of the basic criteria of a holding company is the fact that the subsidiary company has at least 50 percent. share capital or shares in a subsidiary. Then you can talk about a holding company. Why is a holding company created? There can be many reasons, such as cost optimization and more effective management of capital and human resources. Another criterion may be risk diversification. If the parent company, through its subsidiaries, operates in many industries, there is less chance that all of them will suddenly fall into crisis. Types of Holding In the literature, you can find many classifications of holdings, such as the division according to the nationality of capital or subjective criteria. One of the most popular divisions, however, is the division into holdings: horizontal, i.e. the holding's daughter companies operate in the same or similar industry, vertical, when subsidiaries operate in a complementary manner, i.e. they complement each other. For example, processing plants, wholesalers and grocery stores, diagonal, in which subsidiaries operate in completely different sectors of the economy. A holding company is often identified with a capital group, which is correct in most cases. Sometimes, however, the connections in the holding company may be, for example, only personal. In this case, there is no need to talk about the capital group anymore. The second commonly used criterion for the division of holdings is subjective and objective distinction. The subjective indicator is related to the legal form and status of individual entities. In this case we are dealing with holdings: subjectively uniform, covering only companies with the same organizational and legal form, mixed entities, which include enterprises with various organizational and legal forms. The objective criterion pays particular attention to the type of activity of the parent company: a homogeneous holding creates a situation in which the parent entity is most often limited to participation in other entities, mixed objective holding – in this case, the parent company operates not only as a holding company, but at the same time it also carries out traditional activities such as production or trade. For completeness, it is worth quoting two other criteria for the division of holdings. The first of them takes into account the nature of the subordination relationship between the units - open and hidden holding companies are distinguished, while the second one refers to the territorial scope of the holding structure - according to it, domestic, foreign and international holding companies are distinguished. Advantages and disadvantages of the holding company The holding structure has many advantages for companies, but also some disadvantages. As for the advantages of the holding company, the following should be mentioned: separate legal personality of entities, which in the event of bankruptcy of one of them protects the rest against, among others covering the liabilities of the bankrupt company, increasing operational efficiency thanks to the possibility of consolidated management, simplicity of the structure enabling efficient modification of its individual elements, the possibility of creating an internal pricing, financial, transport and sales policy, an opportunity to reduce administrative expenses and to consolidate the taxation of the holding company. The disadvantages of this form of economic organization include: the need to pay great attention to the quality of information flow - small errors in communication can have glaring consequences, the possibility of too much disproportion in the effective implementation of the interests of the parent company and weaker subsidiaries, the risk of excessive influence of the parent entity on its subordinate entities. The essence of the holding The essence of a holding company is the division of roles of individual entities - one of them occupies a dominant position, and the others become controlled entities. In order to be considered a holding company, the addictive organization must have at least 50 percent of the share capital or shares in the subsidiary. The parent company, also known as the parent company, is responsible for setting the direction in which the organization is developing, as well as managing the business and controlling the activities of subsidiaries, most often referred to as daughter companies. Subsidiaries, on the other hand, focus on service or production activities, using the know-how of the parent company. Both parties benefit from clearly assigned roles, as they are able to achieve their goals more effectively. Source: ivestopedia.com
German labour market starts the year off strongly

The New Year Started On A More Optimistic Footing For The German Economy

ING Economics ING Economics 09.01.2023 11:06
Industrial activity in November provided more evidence that the economy did not fall off a cliff in the fourth quarter but was not strong enough to avoid a contraction either   German industrial production increased by 0.2% month-on-month in November, from a downwardly revised -0.4% MoM in October. On the year, industrial production was down by 0.4%. Production in the energy-intensive sectors increased by 0.2% MoM and is now down by almost 13% compared with November last year. While production in the energy sector increased by 3% MoM, activity in the construction sector weakened by 2.2% MoM. Glass half full or half empty? Today's industrial production data brings back the old question of whether the glass is half full or half empty. To some, the current stagnation means that German industry is holding up better than feared. To others, it is only filled order books at the start of the war in Ukraine and the backlog of orders that prevented more severe damage to industrial production. In any case, industrial production is still some 4% below its pre-pandemic level. Almost three years after the start of the pandemic. The former growth engine of the German economy is stuttering and improvement is not really in sight. Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months, the lagged impact of high energy prices and potential supply chain frictions as a result of China’s Covid policies all bode ill for the short-term outlook. Still, the New Year started on a more optimistic footing for the German economy. The mild temperatures almost seem to have ended the energy supply crisis, at least for now. National gas reserves have increased again, and consumption is clearly below historical averages. However, the question is how sustainable the safety net of warmer temperatures and fiscal stimulus can be. Even at the risk of being perceived as the boy who cried wolf, the short period in early December when a real winter spell pushed gas consumption more than 10% above historical averages illustrates how deceptive the optimism at the start of the year could be. Let’s not forget that the German economy is still facing a series of challenges which are likely to weigh on growth this year: energy supply in the winter of 2023/24, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure and an increasing lack of skilled workers. While the warm weather should actually ring alarm bells in terms of climate change, it is a welcome surprise for the economy. However, the warm weather does not simply blow away all economic problems. Solid construction sector too little to avoid recession Today’s industrial production data was the last hard macro data before the German statistical office releases its first estimate of fourth-quarter growth. Remember that in the third quarter, soft data plunged like a stone although actual GDP growth surprised to the upside. This time around, it looks as if hard data will be catching up. So far, and compared with the third quarter, retail sales, exports and industrial production all point to a mild contraction in the economy. Only the construction sector seems to be in growth territory. Despite the latest improvements in confidence indicators, available hard data still suggests that the economy’s slide into recession has continued. Read this article on THINK TagsIndustrial propduction Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
ECB's Hawkish Hike: Boosting EUR/USD and Shaping Global Monetary Policy

After The Correction, Jack Ma's Share In Shareholder Votes Will Fall To 6.2%

Kamila Szypuła Kamila Szypuła 09.01.2023 10:47
Chinese billionaire Jack Ma will no longer control Ant Group - shareholders of the financial giant have agreed to change the shareholding structure. In this article: Russia Attack a village market in Kharkiv Oblast Jack Ma had not his 50% voting share Russia Attack a village market in Kharkiv Oblast The war in Ukraine has been going on for almost a year. The new year does not show that the situation would change. Heavy fighting continues in the Luhansk and Donetsk regions, especially around Bakhmut and Soledar, and the world is watching developments. Russian forces struck a village market in Kharkiv Oblast in northeastern Ukraine, according to a top regional official, leaving one woman dead and several others hospitalized. Rescue services are on site. Seven civilians, including a 13-year-old girl, were injured in the rocket attack. Attacks bring death to non-innocent people, this time a 60-year-old woman was killed. According to sources, there may still be injured people under the rubble, or in the worst case, more people who have lost their lives. In other news, the Russian government has extended support for a legislative amendment that would classify maps that question the country's official "territorial integrity" as punishable extremist material, state news agency Tass reported Sunday. Russia annexed the Ukrainian Crimea in 2014 – a move rejected by Ukraine and many countries as illegal. Since then, Ukrainians and their government have often objected to world maps showing Crimea as part of Russian territory. Bakhmut 'holding out against all odds,' Zelenskyy says; Russia backs ban on maps disputing territory https://t.co/tFAl5chLhp — CNBC (@CNBC) January 9, 2023 Read next: Plans To Sell FTX Assets Met With Opposition From US Trustee Andrew Vara| FXMAG.COM Jack Ma had not his 50% voting share Beijing may appease the tech champions, but that may be more deliberate than permanent. As the economy falters after years of the pandemic, while demand abroad declines, China needs big tech giants to put an end to job cuts for now. Ant Group is a fintech affiliate of Alibaba - both were founded by Ma. On Saturday, the company announced that Ma's more than 50 percent voting share would be reduced to around 6 percent, and a fifth independent director would join the board. Before the change, the Chinese billionaire owned over 50 percent. votes in Ant via Hangzhou Yunbo and two other entities. Ant Group added in a statement that the voting rights adjustment was intended to make the company's shareholding structure "more transparent and diversified" and would not result in any changes to the economic interests of any shareholder. The voting rights revision came after Chinese regulators refused to agree to Ant received $37 billion for development from its November 2020 IPO and ordered the company to restructure its operations. A month earlier in Shanghai, Ma had criticized China's financial regulation system and state-owned banks. Moreover, Ma's defenestration unexpectedly strengthened Alibaba and other Ant affiliates. From Breakingviews - Jack Ma's Ant is China tech's tiniest bellwether https://t.co/85VyQdHqjB — Reuters Business (@ReutersBiz) January 9, 2023
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Asia Market: Japan CPI Hit 4.0% YoY For The First Time Since 1982, In China The Reopening Has Resulted In A Greater Increase In Arrivals Than Departures

ING Economics ING Economics 10.01.2023 08:30
Big rally in Asian FX yesterday, but today could see some profit taking  Source: shutterstock Macro outlook Global Markets: Monday stands for “mainly mediocre”. US stocks opened up but after rising in early trading, lost momentum and slid towards the close. This left the S&P500 roughly unchanged on the day, though the NASDAQ hung on to some of its gains and finished up by 0.63%. After tumbling sharply on Friday following the payrolls report, US Treasury yields only declined slightly more on Monday. 10Y Treasury yields fell 2.6bp to yield 3.53%, while 2Y yields dropped by 4bp. Two Fed officials yesterday hinted that they saw rates being raised above 5%. Raphael Bostic saw rates rising to 5-5.25%, while Mary Daly gave a vaguer “somewhere above 5%” indication. Both suggested that rates could start to go up in 25bp increments from here. Fed funds futures markets have reverted to not pricing in even 5% for peak Fed funds. The current implied peak comes in June this year at 4.93%. There were further increases in the EURUSD yesterday, which has now risen to 1.0733. This was mirrored in the AUD, which is back above 69 cents, and at its highest level since September last year.  Cable is also up at 1.2185 and the JPY is steady at 131.70. Asian FX had a great day yesterday. The KRW gained 2%, leading a pack that saw gains across the board. The THB, PHP, CNY, and SGD all gained between 1.69% (THB) and 0.7% (SGD). Today will likely see much more muted gains and perhaps some profit-taking. G-7 Macro: It was a quiet day for macro news in the G-7 yesterday. And it is also relatively quiet too today. The US NFIB business survey will be the main data point to look at. China:  Fiscal spending in 2023 should be stronger than last year. Increased spending for 2023 includes an increase in the issuance of special local government bonds and tax breaks for small and medium-sized enterprises. The aim of more government spending is to increase employment during the reopening process. So far, the reopening (which began on 8 January) has resulted in a greater increase in arrivals than departures as outbound travel has been deterred by the requirement for Covid tests in some foreign locations. We expect retail sales to pick up gradually in 1Q23 as some people could still be struggling to land a job at the beginning of the reopening process. Then we should see more pickup in activity in 2Q23, and more solid growth in 2H23. Chinese New Year annual migration has already started, and so far, we see more mobility than last year. This year, there are no "border controls" when people travel across provinces in Mainland China. The point to look for is whether this year's migration can reach a level similar to early 2020 (before Covid restrictions were imposed) Japan: Tokyo December CPI inflation data has been released. Both headline and core inflation (excluding fresh food) hit 4.0% YoY for the first time since 1982. As core inflation beat the market consensus of 3.8%, market expectations for the Bank of Japan’s (BoJ’s) exit strategy are expected to rise. But we do not believe that this data will persuade the BoJ to take any further action at their meeting next week. The BoJ thinks that higher-than-usual inflation is not sustainable, plus, other data, such as today’s household spending and the latest real cash earnings, both contracted, signalling weak growth. South Korea:  The current account posted a deficit of USD0.6bn in November - the first deficit in three months. The deficit in the goods account widened due to higher commodity prices together with sluggish exports. Also, the deficit in the services account widened as freight fares fell and outbound travel increased significantly. Today’s weak current account adds more downside risk to last quarter’s GDP.  With Industrial production and trade weaker than expected, we are considering lowering our GDP forecast for 4Q22 from -0.1% QoQ to -0.2%. Philippines: November trade data is out today.  Exports may revert to negative territory after last month's surprise growth given expectations for weak demand for electronics.  Imports, on the other hand, will likely sustain gains but fall short of double-digit growth as global energy prices eased from their peak in 2022.  The overall trade deficit should remain sizable at roughly $4.5bn, enough to keep the PHP from appreciating sharply this year as the current account remains in deficit. What to look out for: US and China inflation reports later in the week Philippines trade balance (10 January) South Korea good balance (10 January) Japan Tokyo CPI inflation (10 January) US NFIB small business optimism survey (10 January) Powell gives speeches (10 January) Australia retail sales (11 January) Malaysia industrial production (11 January) Japan trade balance (12 January) Australia trade balance (12 January) China CPI inflation (12 January) India CPI inflation (12 January) US CPI inflation and initial jobless claims (12 January) Fed’s Harker gives a speech (12 January) South Korea export price index and BoK decision (13 January) US University of Michigan sentiment (13 January) Fed’s Bullard gives speech (13 January) China trade balance (14 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
FX Daily: Upbeat China PMIs lift the mood

In China Corporate Bond Issuance Should Climb When The Economic Environment Improves

ING Economics ING Economics 10.01.2023 15:18
China loans grew faster than expected in December. Government bond issuance continued to increase in the last month 2022. Both reflect the urgency of government policy to support economic growth. As such, 2023 will be a year of re-leveraging Loans grew faster in December New yuan loans increased by CNY1400 billion in December, more than the consensus expectation of CNY1200 bn. This increase is interesting as banks usually defer loan growth in the last month of the year to the first month of the next year. The increase was mainly in the medium to long-term corporate loans, at CNY1209 bn, higher than CNY737 bn in the previous month. This echoes the government policy to increase financing channels for real estate developers. Mortgages did not record an obvious increase in the month.  Quiet corporate bond issuance in contrast with busy government bond issuance Most of the other loan and credit data are not eye-catching. The exception is that government bonds, including local government bonds, continued to increase while corporate bonds recorded a fall in net issuance. Government bond net issuance increased by CNY278 bn while corporate bond net issuance decreased by CNY270 bn. This contrast highlights that the government kept getting funding for fiscal spending in the last month of the year.  2023 will be a year of releveraging In 2022, government bond net issuance increased by CNY7.12 trillion while corporate bond net issuance increased by only CNY2 tr. This difference shows the bad economic environment and deleveraging reform of 2022. We expect this is going to change in 2023. Corporate bond issuance should climb when the economic environment improves. This does not squeeze out government bond issuance as local governments would need funding for continual construction of uncompleted home projects and infrastrastructure investments.  Loan growth could be strong in 2023 if the government relaxes "the three red lines" financial leverage indicators for real estate developers.  In short, 2023 will be a year of re-leveraging. Read this article on THINK TagsMonetary Policy Loan growth China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
From 2017 to 2022 global consumer paper payment decreased by almost $4tn. What about card payment value among these years? The growth is huge

From 2017 to 2022 global consumer paper payment decreased by almost $4tn. What about card payment value among these years? The growth is huge

Kendrick Sands Kendrick Sands 10.01.2023 21:23
Euromonitor projects total card payment value will increase by USD18 trillion over the next five years with the growth nearly evenly split between credit and debit cards. Cash reached the lowest rate in 2022 as a portion of consumer payment value at 22% as consumers turn to electronic and card alternatives. The high level of card conversion for consumer payments does not match B2B payments which heavily favour electronic direct and paper channels over financial cards offering an opportunity for card networks, issuers, and digital payment platforms. Cash continues decline across markets Global consumer paper payment value dropped by USD3.8 trillion from 2017 to 2022. The decline was not confined to certain markets, with only eight of the 47 researched gaining in consumer paper payment absolute value over the previous five years. Singapore had the highest drop in consumer paper value over the same time frame with an 89% decline.  The migration of consumer payments to financial cards and electronic direct channels has been accelerated by government efforts to increase transparency and security of consumer payments overall. Also driving the conversion is the access to financial services and efforts to make card acceptance universal. Fintech has played a leading role in making financial products and services easier to use and lower the overall cost for consumers. Ever-increasing share of m-commerce, benefiting from shifting retail format The migration of retail online contributed to rising m-commerce which has increased globally by USD3.5 trillion from 2017 to 2022. Together with the ease of access offered with mobile devices, this is expected to further drive use to reach USD10 trillion by 2027.   While a large portion of m-commerce growth will come through proximity m-commerce, it will grow slower than remote m-commerce and is expected to account for 35% of total by 2027, down from 39% in 2022. The single market that is driving m-commerce payment value has been China, which accounted for 55% of all m-commerce in 2022. However, with greater global adoption the country’s share is expected to fall to 47% by 2027. Read next: According to Euromonitor, 2022 Value of Buy Now Pay Later transactions is predicted to hit $156bn| FXMAG.COM Asia Pacific secures its position in payments Since 2017 Asia Pacific has been responsible for at least half of all consumer payment value. The region’s share of card payment value has consistently increased and is projected to account for 63% by 2027. While China accounted for 81% of the payment value in the region, the country’s share is expected to decline as other emerging markets in the region achieve higher rates of financial service adoption. Generating the most card payment value has created the world’s largest card issuers and network by processed value and contributed to rapid innovation in acceptance and access. B2B payments represent biggest opportunity in terms of cash conversion Euromonitor identified USD32 trillion in commercial paper payment value globally with the vast majority of other B2B taking place electronically. This is two times the opportunity for card and electronic payment providers who have traditionally focused on capturing the remaining USD15 trillion in consumer paper payment value. In 2022, commercial card value only accounted for 2% of global B2B payment value. Increasing cards share of total B2B will require developing compelling incentives and rewards to merchants, primarily small and medium businesses.  BNPL becoming established lending method Total BNPL lending across the researched markets increased 9% from 2021 to 2022 to reach USD156 billion. The rapid rise of the lending channel has unlocked significant consumer spending and increased the products and services available to all income segments but is facing several challenges going forward. Regulations, rising interest rates and a potential economic recession could all upend the lending channel in the medium term. Additionally, the number of companies offering BNPL solutions continues to accelerate further driving down the potential profitability of the channel going forward. For further insight and analysis, please read our report, World Market for Consumer Finance Source: Top Trends in Consumer Finance and Payments - Euromonitor.com
The Overall Picture Is Positive For The Czech National Bank

The Overall Picture Is Positive For The Czech National Bank

ING Economics ING Economics 11.01.2023 11:44
December inflation brought a downward surprise and is good news for the central bank. However, the main issue at the moment is the January re-pricing and the impact of government measures on the CPI. The January number should bring inflation back to higher levels, but lower than the central bank expects December inflation was lower than expected in the Czech Republic 15.8% December inflation (YoY)   Lower than expected Mixed picture but overall lower than expected The overall level of consumer prices remained the same in December as in November (0.0% month-on-month). On an annual basis, consumer prices rose by 15.8% in December, 0.4pp lower than in November. The average inflation rate for the full year 2022 was 15.1%. Price developments varied across the different sections of the consumer basket. The fall in fuel prices was offset by price increases, particularly in housing, energy and food. However, growth in these items was lower than we expected. Core inflation also slowed from 0.4% to 0.2% MoM according to our calculations which translates into a slowdown from 13.8% to 13.2% year-on-year. The official number will be published by the Czech National Bank (CNB) later today but the overall picture is positive for the central bank. The CNB's November forecast was expecting a 19.1% headline number for December, however if we adjust this number for the effect of government measures, today's result is close to the CNB's forecast. Contributions to year-on-year inflation (pp) Source: Macrobond, ING Re-pricing is the main risk for January December brought a significant signal that inflation is coming under control. However, the true test of where inflation really is will not come until January. For the next figure, we see two main issues: energy prices and new year repricing. From January, the government's measure will switch from a saving tariff to an energy price cap, but we estimate this should have about the same effect (3.5pp). We thus see the main uncertainty in the January re-pricing. On the regulated side, apart from energy prices, we see a 5% excise tax hike on tobacco, which should lead to a 0.1pp contribution to CPI. On the market side, the situation is unclear. Last January, prices jumped by 4.4% MoM, the most in the region. The same pace would equal 15.7% YoY this year. We don't have all the surveys yet, but it is already certain that the same drop in fuel prices as in December (10% MoM) cannot be expected for January. And it can also be assumed that January is the last time retailers can increase their margins and offset higher costs. On the other hand, today's number lowers our expected inflation profile from above 17% to above 16% for January. Central bank expectations For CNB, today's number is clearly good news. Given the underestimated effect of government measures on the CPI, it's hard to read where the central bank's expectations really are these days. However, Governor Ales Michl mentioned in a recent interview that inflation may reach levels above 20% YoY in January. However, yesterday Deputy Governor Eva Zamrazilova said she expects levels more around 18% YoY. Both estimates suggest that the CNB expects the YoY figure to return to higher levels after the end of the saving tariff. The central bank will release a new forecast before the January number, however, at the moment we expect January inflation to be below the central bank's expectations. On the other hand, we believe the rhetoric of "higher rates for longer" will remain in place. Read this article on THINK TagsCzech Republic Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
National Bank of Poland Meeting Preview: Anticipating a 25 Basis Point Rate Cut

Discussion Of Bank Representatives On Financing The Ecological Transformation

Kamila Szypuła Kamila Szypuła 11.01.2023 13:23
The problems of climate change are becoming a frequent topic of discussion. Many governments and central banks are taking action to increase ecological transformations. The difficult economic situation raises the question of whether, in the fight against inflation, it is necessary to undertake investment activities in ecology? In this article: Digitizing Asia Financing the ecological transformation through monetary policy Digitizing Asia The development of technology and digitization is very important. This was shown by the time of the pandemic, in which technology played a significant role. The digital landscape of Asia has grown in recent years, and its further development may be an even greater opportunity for the inhabitants of this region. Digital technologies can increase the efficiency of the public and private sectors, expand financial inclusion, improve access to education and open up new markets by enabling companies to serve distant customers. During the pandemic, for example, digitalization has improved the allocation of valuable resources to health and social services, enabling quick relief while controlling public spending leaks. Digitization helped maintain resilience during the pandemic, where combined with heavy fiscal support, remote working and online sales, it protected employees, students and businesses. The pandemic has accelerated the trend of digitization of the region. The percentage of patent applications related to remote working and e-commerce technologies has increased during the pandemic. As the data shows, Asia is the leader in online retail. But despite this, there are still regions in Asia where digitization is not at a satisfactory level, and the differences between highly digitized and low digitized regions may be of key importance for the whole of Asia. Greater digitalization can help boost productivity growth in Asia, which already has shown itself to be a leader in fields from robotics to e-commerce. See our latest blog for more. https://t.co/QDPoYNFZiM pic.twitter.com/cN22xOfdtv — IMF (@IMFNews) January 10, 2023 Read next: Pietro Beccari Will Be The Louis Vuitton’s CEO, Departures Several Top Executives At Rivian| FXMAG.COM Should the role of central banks in the fight against climate change be active? There are divisions among the world's most powerful central banks over their role in tackling climate change as policymakers focus on curbing inflation. US Federal Reserve Chairman Jerome Powell said the Fed would not become a "climate policy maker" or engage in matters beyond its congressional mandate. The Governor of the Bank of Japan, Haruhiko Kuroda, said that any climate-driven policy decisions must remain within the relevant mandates of central banks and avoid compromising the market neutrality of policy makers. Whereas, from the ECB, Isabel Schnabel said the Frankfurt-based institution needs to become more climate-friendly. Soaring inflation and rising interest rates have thwarted the ECB's plan to redirect its corporate bond holdings towards greener assets to support the energy transition. Should banks participate in the ecological transformation? There are many who are in favor of it, because by financing such investments, the country in which the bank undertakes such activities builds a positive image for future investors. But in a difficult economic situation where it is difficult to implement, the question arises whether to take action in this direction. It all depends on whether the governments of the countries will be able to undertake this task. Major central bankers dispute role in tackling climate change as they battle inflation https://t.co/tN2NI4I6oy — CNBC (@CNBC) January 11, 2023
GM, Ford, Google And Solar Producers Would Work Together To Set Standards For Increasing The Use Of VPPs

GM, Ford, Google And Solar Producers Would Work Together To Set Standards For Increasing The Use Of VPPs

Kamila Szypuła Kamila Szypuła 12.01.2023 13:18
A virtual power plant is intelligent software that connects multiple generators, energy storage and consumers into one optimized ecosystem. A virtual power plant can support a photovoltaic farm in several ways. For example, they can mediate in the sale of energy from the farm, so the participation of large companies can bring an increase in interest, which has a lot of benefits for both parties. In this article: Advancements in obesity and Alzheimer’s care Airlines problems Scaling up the use of virtual power plants Why is retail investment lagging behind on the old continent Advancements in obesity and Alzheimer’s care We live in times where development is quite fast. The technology of our life has made our life easier, especially communication. With the development of technology, our lifestyle has changed to a more sedentary one, which leads to overweight and even obesity. Being overweight, depending on how many calories you consume, can progress to obesity. Nowadays, the problem of overweight affects many societies mainly due to: a sedentary lifestyle, lack of regular physical activity and an incorrect, unbalanced diet. Moreover, a change in our diet, in which we consume more sugars than our grandparents did, increases the risk of Alzheimer's. These two diseases can affect anyone, which is why the development of the medical sector in this direction is important. Advancements in obesity and Alzheimer’s care present new opportunities for the healthcare sector in 2023. J.P. Morgan’s Chris Schott shares why at #JPMHC23. — J.P. Morgan (@jpmorgan) January 11, 2023   Read next: The New Disney Drama: Disney Is Opposing Activist-Investor Nelson Peltz| FXMAG.COM Airlines problems Airlines in the United States have recently faced many problems. Due to unfavorable climatic conditions during the Christmas period, many flights were delayed or cancelled. There are also problems from the technical side. Systems have been failing recently, and transport companies are doing what they can to restore full efficiency. BREAKING: Widespread U.S. flight delays expected after critical FAA system goes down; agency currently working on getting it back online pic.twitter.com/DVQAw4nsTE — CNBC Now (@CNBCnow) January 11, 2023 Scaling up the use of virtual power plants Companies including GM, Ford, Google and solar producers said on Tuesday they would work together to set standards for increasing the use of virtual power plants (VPPs). Energy transition nonprofit RMI will host the initiative, the Virtual Power Plant Partnership (VP3). VPPs are poised for a surge in the United States, where the Inflation Reduction Act of 2021. created or extended tax incentives for electric cars, electric water heaters, solar panels and other devices whose production and consumption can be coordinated to seamlessly load the grid. RMI estimates VPPs could reduce US peak demand by 60 gigawatts by 2030 VPPs have already improved network reliability in countries such as Germany and Australia, and in some US states. During last August's extreme heatwave, wholesale market operator California Independent System Operator avoided power outages by calling in all available resources, including VPP, to send electricity. Google Nest Smart Thermostats have contributed to reducing the load. WATCH: Companies including GM, Ford and Google said they would work together to establish standards for scaling up the use of virtual power plants, which are systems meant for easing loads on electricity grids when supply is short https://t.co/WPvixNGfyA pic.twitter.com/3Fs2rut5kz — Reuters Business (@ReutersBiz) January 12, 2023 Why is retail investment lagging behind on the old continent? Although the share of retail investors in Europe has doubled since 2020, it remains low. By comparison, the retail business still accounts for just 5-7 percent of total trading volume in Europe, compared to over 25 percent in the US and over 60 percent in China. So why is retail investment lagging behind on the old continent and is it possible to change this situation?   How do "free" trading platforms get paid? https://t.co/u1wiWxww1K (via @CNBCi) pic.twitter.com/0qoa9C9ZF8 — CNBC (@CNBC) January 12, 2023
The German economy underperformed in the Q4 of 2022, GDP declined

The Adverse Effects From The War And The Energy Crisis Will Be A Drag On The German Economy

ING Economics ING Economics 13.01.2023 11:45
The German economy grew by 1.9% in 2022. This implies a stagnating, not contracting, economy in the fourth quarter. Will the widely-predicted recession simply fail to materialise? We remain doubtful. Avoiding the worst does not suggest the economy is doing well. The economy has just returned to its pre-pandemic level   Same procedure as every year. The German statistical office just released a first estimate for GDP growth in 2022, without having any single hard data point for the month of December. According to this first estimate, the German economy grew by 1.9% year-on-year, from 2.6% in 2021. Definitely not bad for a year with lockdowns and a war. However, to put things in perspective: the German economy has only just returned to its size of late 2019. Three years of crisis have not passed by unnoticed. First estimate points to stagnation not contraction in fourth quarter The most important element of this annual growth rate is what it means for fourth quarter growth. According to the statistical office, the German economy stagnated in the fourth quarter, after growing by 0.4% quarter-on-quarter in the third quarter. In the past, these implied estimates for the final quarter were very accurate. However, at the current juncture, the economic performance in December could have been more volatile and disruptive than in the past; think of the weather impact, longer Christmas breaks and stronger-than-expected impact from the energy crisis on consumption and production. We think that this estimate for the fourth quarter will still be revised somewhat. In any case, today’s data shows that for the entire year 2022, the catch-up effect after the end of lockdowns, both for consumption and production, outweighed the economic fallout from the war in Ukraine. In the final months of the year, fiscal support also cushioned the downswing. Avoiding the worst doesn't mean that growth will rebound strongly Looking ahead, the post-lockdown catch-up is over and will not support economic activity in 2023. The adverse effects from the war and the energy crisis are likely to prevail and will be a drag on the economy. Weakening new industrial orders since February last year and weak consumer confidence are just two of many reasons for more trouble ahead for the German economy. Still, the New Year started on a more optimistic footing for the German economy. The mild temperatures almost seem to have ended the energy supply crisis, at least for now. National gas reserves have increased again, and consumption is clearly below historical averages. While the warm weather should actually ring alarm bells in terms of climate change, it is a welcome surprise for the economy. That said, the weather is far from predictable and the economic safety net is built on fiscal stimulus. More generally, let’s not forget that the German economy is still facing a series of challenges which are likely to weigh on growth this year and beyond: energy supply in the winter of 2023/24, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure and an increasing lack of skilled workers. Today's data suggests that the widely-predicted recession might not happen. We remain very cautious. The sheer fact that the German economy avoided the worst, unfortunately, does not mean that all of the economic problems have disappeared. Read this article on THINK TagsGermany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

China's Exports Should Face Headwinds In The First Half

ING Economics ING Economics 13.01.2023 11:52
China's exports and imports continued to contract in December. This signals weak external demand which could hamper the economic recovery. The government could spend more on infrastructure to fill the gap and ensure the economy recovers after reopening Chinese container ship Contraction in both exports and imports Exports contracted 9.9% year-on-year while imports fell 7.5% YoY in December. Both have now contracted for three months in a row. This is in contrast to the bright external market before the fourth quarter of last year. Overall, exports and imports grew 7% and 1.1% in 2022, respectively. Integrated circuits, which are the parts necessary for every electronic good and a very important export item for China, saw exports drop in December. We believe this will continue through the first half of this year as the US and Europe enter a mild recession.  This also implies that China's exports should face headwinds in the first half. This is not good timing for the economy as it has only just started to reopen from lockdowns. China needs fiscal support When it comes to the outlook for 2023, many observers expect that the reopening will help China to grow. We expect the same, but not immediately after reopening. We believe that consumer sentiment will be weak in the first quarter. Consumers are more likely to be spending money on healthcare services than general shopping. So there is a need for fiscal support, especially in the first three months of the year.  Infrastructure investment went quiet in 2022. Local governments, which have negotiated with financially healthy real estate developers to complete the construction of unfinished homes, may spend more time on infrastructure. This includes both hardware and software infrastructure, e.g. technology and telecommunications.  Until we see any significant increase in infrastructure investment, we maintain our GDP forecasts at 2.1% for 2022 and 4.3% for 2023.   Read this article on THINK TagsChina trade Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Taiwan's Central Bank May Continue To Shadow The US Fed's Rate Hike Path

Taiwan's Central Bank May Continue To Shadow The US Fed's Rate Hike Path

ING Economics ING Economics 14.01.2023 10:02
Weak global semiconductor demand, limited benefits from China's re-opening, and further rate hikes mean it'll be a tough year ahead for Taiwan In this article Taiwan: At a glance 3 calls for 2023 Weak semiconductor demand leading to slower growth Mainland China's reopening of borders may not benefit Taiwan Monetary policy will weigh on the economy   Taiwan accounts for around two-thirds of semiconductor production Taiwan: At a glance Taiwan's economy has been showing signs of weakness since September 2022, when global semiconductor demand slumped. That was mostly due to high inflation and therefore weaker demand for electronic goods in the US and Europe. Demand from China, which is also a big consumer market, also suffered due to Covid-19 measures. Average growth in the first three quarters averaged above 3% year-on-year. This is low compared to 7% for the same period in the previous year. Inflation picked up but didn’t exceed 3.6% in 2022. The central bank still raised the discount rate to 1.75% from 1.125%. The Taiwan dollar weakened against the US dollar by around 10% in 2022. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1Weak semiconductor demand leading to slower growth Taiwan's economy will continue to come under pressure from shrinking sales of semiconductors as external demand wanes. Semiconductors contribute around 40% of Taiwan's exports. As high inflation continues to lower purchasing power in the US and Europe, and with Mainland China's economy yet to recover fully, the challenging time for semiconductors and therefore trade for Taiwan could continue until at least the first half of 2023. If external demand improves in the second half of the year, Taiwan’s economic growth should accelerate. 2Mainland China's reopening of borders may not benefit Taiwan Mainland China's elimination of most Covid restrictions and the reopening of borders may not benefit Taiwan, at least in the first half of 2023. Taiwan has banned Mainland Chinese tourists since the Covid outbreak, and only allows Chinese citizens to visit for business or family reasons. This means retail sales in Taiwan may not recover to pre-Covid levels in 2023. 3Monetary policy will weigh on the economy Taiwan's central bank may continue to shadow the US Fed's rate hike path, at least in the first quarter of 2023. That means the monetary policy will exacerbate the weak growth of the economy. This is a risky policy, which could bring further financial pressure to companies and households that will face higher interest costs. On the fiscal side, the government may need to extend preferential policies to small and medium-sized enterprises and it is likely to spend more on military expenses. The New Taiwan dollar (TWD) could be volatile when the central bank changes its interest rate path from hikes to cuts. Taking more time to move from hikes to easing than the Fed in the US could help support the TWD against the US dollar from the second quarter to the fourth quarter of 2023. Taiwan forecast summary table CEIC, ING estimates TagsTaiwan Semiconductors Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
European Markets Await Central Bank Meetings After Strong Dow Performance

A Form Of Non-Cash Settlements - What Is Collection And How Does It Work?

Kamila Szypuła Kamila Szypuła 15.01.2023 12:53
Collection is one of the tools that an entrepreneur can use in settlements with his contractors. This form involves the bank acting as an intermediary in the area of financial matters. Definition Collection is a form of non-cash settlements. It involves the supplier placing an order with his bank to collect the receivables from the recipient. The collection is used by companies that trust their business partners, and when there are no fears that the buyer will refuse to collect the goods or pay for them. It is the use of non-cash money as a means of payment. Until now, it is known that in order to settle financially using a collection, cash is not needed. The main role here is played by the collecting bank, which collects receivables from the recipient at the customer's request. The Bank is a completely neutral party, it is only an intermediary between contractors and does not control the contract between them in any way. The bank is also not responsible for the success of the transaction. Nor does it recognize the collection as a source of obligation towards itself. In order for a bank customer to use a collection loan, he must meet several conditions, as in the case of an attempt to obtain a traditional loan. The element taken into account in such a situation is primarily the creditworthiness of the entrepreneur. The price of the goods for which the bank will charge the contractor is also important. The means of payment are both financial and commercial documents. The first type of items includes bills of exchange, checks, depositary receipts, banknotes, as well as stocks and bonds. On the other hand, commercial documents are defined as invoices, certificates of goods, transport documentation, documents confirming the title of ownership or insurance documents. Types of collection Due to various factors that are important in specific transactions in which credit collection is used, many variants of this form of payment have been distinguished. Taking into account the subject of the collection, the following are distinguished: Documentary collection - most often used in settlements between enterprises conducting business activity, the bank collects the amount due from the counterparty if it receives the relevant documents that are the subject of the collection; Financial collection - the opposite of documentary collection, in this case only financial documents are the subject of the collection. Due to the time of collecting the receivables by the bank, the following are defined: Cash collection - consists in making repayments within 3 days of the bank's notification of the arrival of the collection documents from the other party's bank; the fee must be paid in order to be able to receive the goods. Acceptance collection - consists in making a payment within the time limit set by the payer, which is why this type of collection is referred to as timely. Immediate collection - involves the immediate settlement of the amount due by the payer. Automatic collection - is used in situations where partners trust each other and the transaction is of high value, then the banks authorize each other to charge each other, automatic payments are made. Guaranteed collection - they are used in the event of lack of confidence in the counterparty; the principal then expects a guarantee from the bank of his business partner in the event of failure to pay the fee within the agreed period. There are also other types of collection: Commodity collection - consists in the fact that the bank may release the goods to a third party if the payer fulfills the agreed obligation. Car collection - consists in providing the bank with income from the whole day, the name comes from the means of transport in which the given takings are transported. The sender sends the goods to the payer, and then submits documents confirming the shipment of the goods and authorizing its collection to the bank. The donor's bank sends the received documents to the intermediary bank. The collecting bank confirms receipt of the documents to the payer's bank and sends the payer a request to purchase the collection together with a copy of the commercial invoice. When the collection documents are received by the bank, the payer receives further instructions from the bank. If he meets them, he will receive the documents that are the subject of the collection. After meeting the collection conditions, i.e. payment or acceptance of the bill of exchange, the payer collects the documents and thus is entitled to dispose of the goods. The Bank is limited only to intermediation in the transfer of documents and payment. It does not check the authenticity of commercial documents and is not obliged to make payments from its own funds. He is only responsible for handling the documents received strictly in accordance with the instructions of the sender. for the payer - before making the payment, he can see and evaluate the documents being the subject of the collection and only then make the payment; the ability to make payments after delivery of the goods to the destination - does not require the involvement of funds in advance for the applicant - he is sure that the documents will not be released to the importer until he meets the conditions contained in the collection order. collection is a risk for the seller, as the buyer may refuse to pay, the buyer is not sure whether the seller has fulfilled all the terms of the contract. Collection steps The sender sends the goods to the payer, and then submits documents confirming the shipment of the goods and authorizing its collection to the bank. The donor's bank sends the received documents to the intermediary bank. The collecting bank confirms receipt of the documents to the payer's bank and sends the payer a request to purchase the collection together with a copy of the commercial invoice. When the collection documents are received by the bank, the payer receives further instructions from the bank. If he meets them, he will receive the documents that are the subject of the collection. After meeting the collection conditions, i.e. payment or acceptance of the bill of exchange, the payer collects the documents and thus is entitled to dispose of the goods. The Bank is limited only to intermediation in the transfer of documents and payment. It does not check the authenticity of commercial documents and is not obliged to make payments from its own funds. He is only responsible for handling the documents received strictly in accordance with the instructions of the sender. Benefits of collection for the payer - before making the payment, he can see and evaluate the documents being the subject of the collection and only then make the payment; the ability to make payments after delivery of the goods to the destination - does not require the involvement of funds in advance for the applicant - he is sure that the documents will not be released to the importer until he meets the conditions contained in the collection order. Cons of collection collection is a risk for the seller, as the buyer may refuse to pay, the buyer is not sure whether the seller has fulfilled all the terms of the contract.   Source: Dobosiewicz Z. (2005), Bankowość, Owsiak S. (2015), Finanse
India: Reserve Bank hikes and keeps tightening stance

India: Inflation Has Shown Clear Signs Of Peaking Out

ING Economics ING Economics 15.01.2023 16:42
Proactive policy in 2022 leaves India in a good position to benefit from easier conditions in 2023. India's lesser reliance on trade with China also provides a buffer, while a rethink on global bond market inclusion for government securities could see substantial capital inflows In this article India: At a glance 3 calls for 2023 Nearing peak rates Global bond market inclusion India to benefit from FDI inflows   Shutterstock India: At a glance India’s economy is bucking the global trend, showing signs of strength in the third quarter of 2022 as the annual growth rate slightly beat expectations to grow at 6.3%YoY. That leaves GDP on track to grow by 6.3% for the full calendar year of 2022 and a bit less than 6% for the fiscal year 2022/23. While GDP remains relatively robust, inflation has shown clear signs of peaking out. The latest inflation print for November came in at just 5.88%YoY below the Reserve Bank of India’s target and materially lower than the policy repo rate (currently at 6.25%) following a 35bp rate hike in December. The INR remains one of the region's weaker currencies and has not held on to earlier gains in November and December. India GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 Nearing peak rates Rates are close to a peak and will come down before the end of the year. Now that policy rates are positive in real terms (which will continue as the high inflation tide recedes), we're confident that the peak will be close even without further hikes from the RBI. There also remains a chance that we may already have seen it. The next rate decision doesn't take place until 8 February and could still be influenced by an additional inflation release on 12 January. With inflation in India likely closing in on 4-5% by the middle of the year, we believe the central bank could start to tentatively take back some of its tightening before the end of 3Q23. 2 Global bond market inclusion Indian bonds will be included in global indices in 2023. Both JP Morgan and FTSE Russell kept Indian bonds on their watch list for inclusion in 2022 and are expected to make a decision on inclusion early this year. Key reasons for excluding Indian government bonds from their indices in 2022 include tax treatment for foreign investors, which the government has not seemed in any hurry to change its stance on. Lengthy settlement of INR bond transactions which takes place onshore is not helping, although moving settlement to Euroclear is not a deal-breaker given that neither Chinese nor Indonesian bonds are settled there. Adding Indian government bonds to these indices will fill a gap left by the exclusion of Russian bonds. At stake for India is an estimated $40bn of capital inflows that will help pay for the current account deficit and support the INR. 3 India to benefit from FDI inflows India will continue to climb the rankings of foreign direct investment destinations in 2023, even as the external economic outlook darkens and China re-opens. India is increasingly being seen as an alternative destination for investment following policy measures designed to ease FDI inflows and promote the manufacturing industry, as well as investment issues in China (trade wars, tech wars, zero-Covid etc). India is the only economy in Asia to offer the potential for scalability, which was one of the main attractions of China. Its younger population and growing middle class also make it a sizable end-market for sales, in addition to being a site for export production. India forecast summary table CEIC, ING estimates TagsINR Indian bonds India investment India economy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Czech Republic: Tax Revenues Should Be Higher Than MinFin Expects

Czech Republic: Tax Revenues Should Be Higher Than MinFin Expects

ING Economics ING Economics 16.01.2023 10:47
We forecast a better state budget result than expected by MinFin. The financing needs are higher for this year, but the net CZGBs issuance is roughly the same. We expect issuance to concentrate at the long end of the curve. Eur needs are unusually high, which MinFin will cover with a combination of sources. Rating downgrade risk is lower but still remains Fiscal policy: Better picture than MinFin expects, as usual The state budget for last year ended with a deficit of CZK360bn, which was CZK15bn better than expected by the Ministry of Finance (MinFin) and closer to our forecast. The detail of the result gives us two takeaways for this year: (1) MinFin has again confirmed our assumption that it is unable to spend the planned expenditure and also is underestimating tax revenues, (2) MinFin failed to draw CZK45bn from EU funds, which should be compensated this year. Overall, the pattern of a better state budget outcome than MinFin forecasts remains. We expect CZK270bn for this year, while MinFin's plan is CZK295bn. In addition, we see downside risks given the drawdown of EU fund allocations from last year. At the same time, we retain a bias that tax revenues should be higher than MinFin expects mainly due to inflationary reasons. Other sectors of the public finances are expected to remain in surplus, improving the overall public finance picture. The general government balance is thus expected to improve from 4.6% last year to 3.2% of GDP this year according to our forecast. State budget development and 2023 forecasts Source: MinFin, ING estimate Higher needs but CZGBs net issuance unchanged Financing needs amounted to CZK635.6bn (8.6% of GDP) last year, of which CZK424.3bn was financed through the issuance of Czech government bonds (CZGBs). For this year, MinFin expects an increase in financing needs to CZK649bn (8.7% of GDP), and we expect lower needs of CZK624bn (8.4% of GDP) due to a lower forecast of the state budget deficit. Gross CZGBs issuance is projected by MinFin in the range of CZK400-500bn, we expect CZK476bn, which would imply a year-on-year increase of 12.3%. However, there is also a significant year-on-year increase in the volume of CZK200.2bn of bond redemptions, which implies essentially flat net CZGB issuance at CZK275.8bn this year compared to last year. Total financing needs and CZGBs issuance (CZKbn) Source: MinFin, ING estimates   Two CZGBs are maturing this year, CZK88.3bn in April and CZK118.2bn in October. The first auction this year confirmed that demand is sufficient and the market has no problem with lower yields. Combined with the cash buffer, we think MinFin is in a comfortable position to spread the CZGBs issuance over the year. Moreover, MinFin expects the Czech National Bank (CNB) rate cuts in the fourth quarter, in its latest forecast. While the normal pattern has been frontloading in the first quarter, and last year we saw unusually high supply in the third quarter, we expect a more even spread of issuance this year. However, if conditions are favourable for MinFin, the practice of larger-than-planned auctions can be expected. In terms of parameters, the average maturity of CZGBs is currently only slightly below MinFin's 6.5-year target. If market conditions allow, we expect MinFin to focus on issuance at the long end to leverage the curve inversion. We believe issuance will be concentrated in CZGB 5.50/28 and 5.00/30, which combined can cover CZK140bn of needs within their issuance limit. Overall, the current five-year maturity issuance limits could cover this year's total issuance, but given the lower demand for super-long bonds, we expect MinFin to introduce new issues later this year. Financing needs for 2023 (CZKbn) Source: MinFin, ING estimates Unusually high EUR needs financed through CZGBs An interesting topic this year will be the euro's financial needs, which are unusually high for the Czech Republic. We identify that CZK140.5bn of the CZK624bn financing needs are euro-denominated, roughly €6.1bn. These, in our view, will be financed by MinFin through a combination of euro-denominated CZGBs (€3.0bn), repayments of euro-denominated loans to energy suppliers (€1.9bn) and loans from supranational institutions (€1.2bn). In addition, the mismatch between funding maturities will now be newly covered by euro-denominated T-bills instead of money market loans. For now, MinFin has two euro-denominated CZGBs in the market. The longer of the two, CZGB 0.00/27, still has a free issuance limit, but to cover the entire need, we think MinFin will issue a new bond with a longer maturity to build the EUR curve. In addition, these bonds have become ECB eligible, so we believe this will be the preferred route over conventional Eurobonds.   CZGBs maturity calendar (CZKbn) Source: Refinitiv, ING Technicals: Risk of rating downgrade is lower In our view, the downgrade risk that we have highlighted in the past is gradually diminishing due to the calming of energy prices, government measures to protect households and industry, and a slightly better fiscal picture. In addition, the CEE region's rating review calendar is favourable for the Czech Republic given the first review only in March (Fitch), when we could already hear more details from MinFin regarding the planned consolidation of public finances for the coming years. However, we still see a risk of a possible downgrade, especially for the Fitch rating review. In the GBI-EM space, essentially all eligible bonds except CZGB 1.95/37 and 4.85/57 are already included in the index at the moment. Perhaps at the end of the year due to a shift within the maturity buckets, we will see a chance for CZGB 1.95/37 to be included. On the other hand, we expect CZGB 0.45/23 to lose the GBI-EM title in March and 5.70/2024 in October this year. The share of foreign holders of CZGBs fell to 26.5% last November, continuing a long-term gradual trend. Even so, the ratio remains the highest in the CEE region. Nevertheless, in nominal terms, the holdings of CZGBs by foreign entities remain slightly above CZK700bn. The decline in the ratio resulted from rising holdings by the local banking sector, which increased by 26% to CZK1101bn between January and November last year alone. Read this article on THINK TagsCzech Republic Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
McDonald's Will Be Replaced In Kazakhstan By The Russian Vkusno & Tochka

McDonald's Will Be Replaced In Kazakhstan By The Russian Vkusno & Tochka

Kamila Szypuła Kamila Szypuła 16.01.2023 12:05
The war in Ukraine is forcing not only governments but also large companies to act. Well-known brands left Russia, but they were replaced by local ones. War is not scary rich who keep getting richer. In this article: McDonald's Will Be Replaced In Kazakhstan The rich keep getting richer The self-driving car market McDonald's Will Be Replaced In Kazakhstan As a result of Russia's attack on Ukraine, many large companies withdrew from the Russian market. The most famous fast food seller, McDonald's, has also withdrawn from this market. The closure of premises in Russia came after Moscow sent tens of thousands of troops to Ukraine last February. Also in neighboring Kazakhstan, McDonald's was forced to close its restaurants, citing supply problems. Kazakhstan McDonald's stopped buying stock from Russia and had trouble replacing it. Russia quickly replaced McDonald with the local brand Vkusno & tochka. Now Vkusno & tochka is trying to expand its reach to neighboring kazahtstsnu after McDonald exit from the market. Russia's McDonald's successor applies for trademark in Kazakhstan https://t.co/CPXp5xKjGT pic.twitter.com/1nrt3BVTTz — Reuters Business (@ReutersBiz) January 16, 2023 Read next: The Swedish Real Estate Market Will See Significant Price Drops| FXMAG.COM The rich keep getting richer A total of $42 trillion in new wealth has been created since 2020, according to a new Oxfam report, of which $26 trillion, or 63%, has been accumulated by the top 1%. The other 99% of the world's population has amassed just $16 trillion in new wealth. The Oxfam report analyzed global wealth creation data from Credit Suisse, as well as data from the Forbes Billionaires List and the Forbes Real Time Billionaires List to assess changes in the wealth of the ultra-rich. This report shows how quickly the social disparities between the ultra-rich and average people can widen. The Covid-19 pandemic has slowed down efforts to fight poverty. Changes in tax policy would help fight ongoing crises, including poverty, around the world. According to Gabriela Bucher, executive director of Oxfam International, she called for higher taxes for the ultra-rich, saying it was "a strategic precondition for reducing inequality and restoring democracy". The richest 1% amassed almost two-thirds of new wealth created in the last two years, Oxfam says https://t.co/AkiFUqLKvl — CNBC (@CNBC) January 16, 2023 The self-driving car market The car market is one of the fastest growing. Electric cars are becoming more and more common. Autonomous driving could become the next technological revolution in the automotive industry, possibly a more significant megatrend than electrification. The self-driving car market is also constantly evolving. Economies around the world are still competing even in terms of being the leader in the production of electric cars or self-driving cars. China is the second largest economy in the world and most car factories are located in the country, which is why many experts and people observing the self-driving car market believe that China has the potential to lead in the mass implementation of autonomous cars. Moreover, in favor of confirming this thesis, the USB analysis shows that the potential size of the autonomous driving market in China may reach the level of approximately USD 100 billion by 2030. Does China have the potential to lead in the mass deployment of self-driving cars? Follow the link to find out why they may be best placed to win the race to autonomous driving. #UBSResearch #shareUBS #EvidenceLab — UBS (@UBS) January 16, 2023
The Results Of The March Meeting Of The Bank Of Japan Are Rather Symbolic

Asia Market: The Bank of Japan (BoJ) Is Expected To Stand Pat

ING Economics ING Economics 18.01.2023 09:20
Bank of Japan (BoJ) meeting is under the spotlight today  Source: shutterstock Macro outlook Global Markets: US stock markets traded sideways on their return from the long weekend, and equity futures are suggesting another nervous day ahead. The EURUSD has nosed back below 1.08 as of writing, but rather than reflecting a general sense of market unease, the cause seems to be specific to the EUR. Bloomberg is running a story today suggesting that ECB President, Christine Lagarde, is leaning towards smaller hikes after a 50bp February increase, and this may be tempering the EUR’s strength. There is a bit more life elsewhere in the G-10 FX space. For example, the AUD has risen to 0.699. Cable is also looking stronger, up at 1.2285 and the JPY is also fractionally stronger at 128.21 ahead of the BoJ meeting today (on which more below). Asian FX was mostly weaker yesterday. The CNY dropped half a per cent, rising at one point to 6.78 before settling a little lower, and this despite the better-than-forecast GDP figures yesterday. The IDR and PHP were also softer on the day. US bond markets gave a mixed performance, with yields on 2Y bonds dropping 2.7bp, while those on the 10Y Treasury rose 4.4bp to 3.548%. The Fed’s Barkin is reported to have said that it is “too soon” to end Fed hikes, which one could interpret as meaning that he sees the case for ending hikes as building, and therefore needing pushback. They say “never fight the Fed”, but equally, you might well take the advice “never take the Fed at face value”. G-7 Macro: US advance retail sales for December will be the most watched data release today. A 0.9% MoM decline is the median forecast number – which may be received reasonably by markets as pointing the economy in the right direction for lower inflation and an eventual pivot by the Fed. PPI data will probably add impetus to this, with a small month-on-month decline expected. Elsewhere, we have UK December inflation and final Eurozone inflation figures neither of which should provide markets with too much cause for concern.    Japan: The Bank of Japan (BoJ) is expected to stand pat today after announcing a surprise band widening in December. 10Y JGB yields have traded above 0.50% over the past few days, which suggests that the market is expecting another widening of the yield band or even abandoning the yield curve control (YCC) policy in near future. In our view, the economy is not ready for a reduction in stimulus yet. Today’s core machinery orders data recorded a fall of 8.3% MoM in November (vs 5.4% in October and -1.0% market consensus) and other recent activity data have also been weak. We believe that the BoJ’s outlook will support our view. We expect the BoJ's GDP forecast for FY2022 and FY2023 to be revised lower. For CPI, we expect the BoJ to revise their forecast up a bit, but for it to remain below 2.0% next year. Another reason for the BoJ to leave policy alone today is that another band adjustment would probably just increase market expectations for even more policy tightening after that, and this is not what the BoJ would like to see. Taiwan: GDP for 4Q22 will probably show slower growth than the previous quarter due to weaker external demand for semiconductors. This should result in annual GDP growth of around 2% in 2022 compared with 6.53% in 2021. We expect more headwinds from external demand in 2023 while the central bank will likely continue to shadow the Fed in raising interest rates. Both factors mean a challenging year for Taiwan’s economy in 2023.  What to look out for: BoJ discussion on Yield Curve Control Japan core machine orders and industrial production (18 January) BoJ policy meeting (18 January) Taiwan GDP (18 January) US retail sales, PPI, industrial production and MBA mortgage applications (18 January) Japan trade balance (19 January) Australia employment change (19 January) Malaysia BNM policy meeting (19 January) Bank Indonesia policy meeting (19 January) US initial jobless claims and housing starts(19 January) South Korea PPI inflation (20 January) Japan CPI inflation (20 January) US existing home sales (20 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

Un Secretary General Antonio Guterres Encouraged The Transition To Green Energy At The World Economic Forum In Davos, The Chinese Economy May Surprise You Positively

Kamila Szypuła Kamila Szypuła 18.01.2023 12:53
Attention has recently focused on the World Economic Forum. Many statements were closely followed from economic to political information. Representatives of the United Nations also spoke. Un Secretary General Antonio Guterres calls for a focus on transforming into green energy. The reopening of the Chinese economy is also attracting attention, with speculation on what to expect from the reopening of the world's second largest economy. In this article: China's economy may improve The transformation of world powers into green energy Jim Cramer’s opinion China's economy may improve The reopening of the Chinese economy after several years of strict "zero-Covid" measures has lifted the mood among economists. China's GDP grew by just 3% in 2022, official figures revealed earlier this week, the second slowest growth rate since 1976 and well below the government's target of around 5.5%. However, short-term data point to a faster-than-expected recovery as pandemic measures have been phased out. Reopening has proven difficult as China has reported a massive spike in Covid cases and deaths in recent weeks. Nevertheless, how many economists are positive about the situation in the Chinese economy in the second half of the year. The situation of the Chinese economy is of particular importance for the rest of the economies. China as the second largest in the world is important for many other economies, for example for Australia with which it is related in trade. China's economy will be 'on fire' in the second half of 2023, StanChart chairman says https://t.co/fKyQs1kQpb — CNBC (@CNBC) January 18, 2023 The transformation of world powers into green energy The transformation of world powers into green energy was one of the main topics at the Davos forum. Investments in renewable energy sources may turn out to be crucial for the climate in the coming years. International constraints are increasingly putting pressure on companies to focus on policies that reduce greenhouse gas emissions. Concern for the planet has increased in recent years, but not all countries or companies are so quick to implement ecological changes. While companies are increasingly committed to reducing their greenhouse gas emissions as close to zero as possible, the metrics and criteria they use are often questionable or unclear. That's why UN Secretary-General Antonio Guterres called on business leaders gathered at the World Economic Forum in Davos on Wednesday to follow the rules outlined by a group of experts. The economic situation may make it difficult for companies or countries to implement these principles, but everyone must realize that it is extremely important now to take care of the climate for future generations. Davos 2023: UN chief urges 'credible' net-zero pledges or risk greenwashing https://t.co/ZF1ipes21P pic.twitter.com/U8SAGzai1z — Reuters Business (@ReutersBiz) January 18, 2023 Jim Cramer’s opinion Investors often take into account the opinion of experts about assets in the stock market. Jim Cramer, like an expert, gives valuable tips. This time he expressed opinions on Boeing Co, Biohaven, Flex and more. .@JimCramer also weighed in on Biohaven, Flex and more. https://t.co/fyzGTNUd2U — Mad Money On CNBC (@MadMoneyOnCNBC) January 18, 2023
Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

The ZEW Index: The Mildly Negative Assessment Of The US Economy, The German Economy Was Assessed Similarly To The Eurozone As A Whole

Conotoxia Comments Conotoxia Comments 18.01.2023 13:54
The ZEW Index is a survey of the economic sentiment of financial market experts in Germany. It measures expectations for the German economy over the next six months. The survey is conducted by the Centre for Economic Research (ZEW). The indicator is based on responses from analysts and economists from banks, insurance companies and other financial institutions. It is regarded as an important indicator for assessing economic activity in Germany and is closely monitored by many investors. Currently, the value of this indicator has reached a positive reading for the first time since February 2022 (16.9 points), which could mean that the situation of this economy could be improving. What else could we learn from the survey? Evaluation of the economic situation The January survey was conducted among 179 analysts and specialists. Regardless of the region assessed, the majority of specialists view the current economic situation negatively. The worst performer here is China, where as many as 77% of respondents view the current economic situation negatively. Second from the bottom is Germany with 60.3%. What may seem interesting is the mildly negative assessment of the US economy, currently at minus 5 points, which is a drop from the previous positive reading of 6.8 points.China also ranks first in terms of perceptions of the future. As many as 58.9% of respondents answered that the situation for this economy would improve (previously 41.9%). This may be linked to the expected easing of the 'zero COVID' policy. Similarly, respondents answered about the behaviour of the SSE Composite index (56% positive responses), to which we could gain exposure through the iShares MSCI China ETF (MCHI). Source: Conotoxia MT5, MCHI, Weekly The future of the German economy was assessed similarly to the euro area as a whole. The ZEW index reached 16.9 points and 16.7 points respectively. This is a significant improvement on the previous reading, which rose by more than 40 points in both cases. 44% of specialists forecast that the value of the DAX index (DE40) would increase, while 38.1% of respondents believe that it would remain unchanged. There is a noticeable improvement in sentiment relative to the last survey for all indices. Source: Conotoxia MT5, DE40, Weekly Despite the negative reading of the ZEW indicator for the future of the US economy, at minus 6.7 points, we continue to see an improvement on the last reading, which was minus 23.3 points. One could conclude that more important than the value of a given indicator is its trend of change. A more optimistic view is taken of the future of the Dow Jones Industrial index (US30), with 48.2% of respondents expecting it to increase in value (previously 41.1%), while 31% believe it would remain unchanged. Source: Conotoxia MT5, US30, Weekly The foreign exchange market and interest rates The survey questions also focused on two currency pairs: the euro to the US dollar and the euro to the Chinese yuan. In both cases, survey's experts expect a significant strengthening of the European currency. The biggest change is expected for the EUR/USD pair, where as many as 53.5% of respondents expect an increase (previously 46.2%) and 33.5% assume no major change. Source: Conotoxia MT5, EURUSD, Weekly The positive attitude towards a strengthening of the euro appears to be linked to interest rate expectations. Almost unanimously, 87.1%, respondents were in favour of an increase in euro area interest rates in the short term. However, they are less positive about increases in the long term (we could assume more than six months), where 48.3% of respondents expect rates to rise and 36.5% expect no change. In second place in terms of expected interest rate increases is the United States. 79.2% of respondents see a further tightening of monetary policy in the forthcoming FOMC decision. In the long term, 38% of respondents expect an increase and 39.8% expect no change. These expectations seem to be reflected in US bond yields. Long-term 10-year bonds have lower yields than short-term ones (e.g. 2-year bonds). Currently, this difference is 0.65 percentage points. This situation may seem illogical, as why would we want to receive less for holding our funds longer. Historically, a similar relationship has usually heralded a period of recession or slowdown in the economy, which, it seems, we are beginning to feel today. Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Indonesia: Inflation moderates further in March

Bank Indonesia Has Lifted Its Policy Rate By 25bp, The Market Expected Such A Move

ING Economics ING Economics 19.01.2023 11:54
Bank Indonesia has lifted its policy rate by 25bp as expected, but its tone has shifted to dovish Bank Indonesia governor Perry Warjiyo 5.75% BI policy rate   As expected Bank Indonesia raises policy rate and lowers global growth outlook Bank Indonesia (BI) raised its key policy rate by 25bp to 5.75%, a move widely expected by the market. BI Governor Perry Warjiyo suggested that global growth would likely slow with the central bank lowering its outlook for 2023 GDP growth to 2.3% year-on-year (down from 2.6%).  On the domestic front, BI still believes growth will settle within the 4.5-5.3%YoY expectation but this call appears to be banking on China making a quick recovery post-Covid lockdowns. Meanwhile, Warjiyo also indicated that inflation had peaked sooner than expected in what could be the central bank’s subtle shift in focus away from inflation and back to growth momentum. BI's shift in tone suggests that this rate hike cycle could be coming to a close soon Source: Badan Pusat Statistik and Bank Indonesia Dovish undertones suggests BI may be close to tapping out of this rate hike cycle Despite today’s rate hike, we acknowledge the apparent shift in tone from Warjiyo. BI has opted to extend its tightening cycle given that inflation will likely be above target for the first half of 2023. However, BI’s downward revision to the global growth outlook suggests that it is now increasingly wary of the negative impact this could bring to Indonesia’s own growth trajectory. The stark shift in tone suggests that BI is likely approaching the end of this rate hike cycle and that a pause will be considered in the coming months.      Read this article on THINK TagsBank Indonesia Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

Weaker Activity And An Increasingly Benign Inflation Backdrop In US

ING Economics ING Economics 19.01.2023 14:38
Widespread falls in key retail sales components and broadening signs that inflation pressures are rapidly moderating means we are getting very close to the peak for Federal Reserve policy rates. A 25bp hike in February still appears odds-on, but the case for additional hikes is looking less convincing US retail sales fell 1.1% month-on-month in December Broad, steep declines in retail sales In what is yet another disappointing set of US activity data, retail sales fell 1.1% month-on-month in December, worse than the -0.9% figure the market was expecting. Meanwhile, November's contraction of -0.6% was revised to an even weaker -1% MoM print. The damage was widespread with 11 of the 14 main components posting monthly declines including motor vehicles/parts (-1.2%), furniture (-2.5%), electronics (-1.1%), gasoline stations (-4.6%), department stores (-6.6%) and non-store retailers (-1.1%). Of the three that didn’t fall we have food/beverages flat on the month, sporting goods up 0.1% and building materials up 0.3%. Retail sales levels (February 2020 = 100) Source: Macrobond, ING   Lower gasoline prices obviously had a big impact given this is a dollar value report, but even if you exclude them, retail sales fell 0.8% after a 0.9% fall in November. The decline in autos is no surprise given the drop in unit volumes already reported while variable weather patterns may also have played a part, particularly on eating out. Nonetheless, the breadth of weakness, including internet, underlines the weaker consumer spending story as worries about squeezed incomes and falling asset prices weigh on sentiment. Can spending on services offset the gloom? The core 'control' group, which omits volatile components such as autos, gasoline and building materials and better tallies with broader consumer spending activity was also poor – falling 0.7% MoM rather than the 0.3% consensus. We can only hope that spending on services is holding up better. As the chart below shows, retail sales as a proportion of total consumer spending remains well above pre-Covid trends, so it may well be that overall spending holds up better as consumers gradually re-balance their spending back towards services. Retail sales spending as a proportion of total consumer spending Source: Bloomberg Increasingly benign inflation backdrop argues against the need for more major hikes Meanwhile the producer price inflation report showed that pipeline price pressures were also weaker than expected in December and November. Headline PPI fell 0.5% MoM rather than at the -0.1% rate expected  while November was also revised down a tenth of a percentage point. Core PPI (ex food & energy) was in line at just 0.1%, but November’s rate of price increases was revised down two-tenths of a percent. So we have further evidence of weaker activity and an increasingly benign inflation backdrop, which clearly suggests we are in the end game for Fed rate hikes. Today’s numbers, coming after the softer CPI report, should cement expectations for a 25bp Federal Reserve interest rate hike in February and at the margin diminish the case for additional rate hikes – currently we expect a final 25bp in March. With recessionary forces intensifying and inflation looking less and less threatening, the prospects for Fed rate cuts later in the year are growing. Read this article on THINK TagsUS Retail sales Inflation Federal Reserve Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Industrial Production Adds To The Gloom Surrounding The US Economy

Industrial Production Adds To The Gloom Surrounding The US Economy

ING Economics ING Economics 19.01.2023 14:43
Coming on the back of the weakness in retail sales, the steep drop in industrial production and news of more job lay-offs adds to fears the US could already be in recession. This is the third consecutive month of contraction in industrial activity with output declines looking broad-based  Industrial production experienced its third consecutive monthly contraction in December Manufacturing falls add to the gloom on the US economy Industrial production adds to the gloom surrounding the US economy, missing expectations by quite a margin and posting its third consecutive monthly contraction in output. Total output fell 0.7% month-on-month in December (the market consensus was -0.1%) while November is now reported as a 0.6% contraction after initially being reported as a 0.2% decline. Manufacturing is responsible for most of the weakness with output falling 1.3% in December after a 1.1% drop in November (that was initially reported as a 0.6% fall). All the main sub-components fell with motor vehicles/parts down 1%, machinery down 3.4% and computer/electronics dropping 1%. Mining fell 0.9% MoM, possibly reflecting weaker oil and gas prices, which may have disincentivized some drilling. Bad weather may also have had an impact, but cold temperatures certainly boosted utilities. Output rose 3.8% with natural gas demand surging 8.2% on strong demand for heating. Levels of US industrial output by sector Source: Macrobond, ING   Coming on the back of such a poor retail sales report it reinforces the message that recession is on its way and we could in fact already be in it. The Conference Board’s measure of CEO confidence is at its lowest level since the Global Financial Crisis and this means companies are going to increasingly adopt defensive strategies so the strong jobs numbers – pretty much the only decent set of numbers right now – cannot continue in this environment. Note Microsoft's announcement of 10,000 job losses this morning (nearly 5% of its workforce) – remember jobs are always the last thing to turn in a cycle given labour data is such a lagging indicator. More bad news will be coming in the months ahead with the Federal Reserve likely to reverse its rate hikes from late third quarter 2023 onwards. Read this article on THINK TagsUtilities US Recession Manufacturing Industrial production Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Rates Spark: Central banks vs economic data

The ECB Is Far From Being Done With Rate Hikes

ING Economics ING Economics 19.01.2023 14:48
The minutes of the European Central Bank's December decision once again confirm the main messages heard during and after the meeting: the Bank is far from done with its rate hike cycle A keynote speech by ECB President Christine Lagarde will be in focus today   The key takeaways from the December minutes were that “the monetary policy stance had to be tightened decisively and that the current configuration of interest rates and expectations embodied in market pricing was not sufficiently restrictive to bring inflation back to target in a timely manner”. Several ECB members were in favour of a 75bp rate hike (instead of the decided 50bp) and also preferred a fast pace for the reduction of reinvestments under the Asset Purchase Programme. ECB is far from done with rate hikes Looking ahead to future ECB meetings, it is clear that the central bank is far from being done with rate hikes. Admittedly, the recent drop in eurozone inflation has nothing to do with the ECB’s rate increases so far. The surge in inflation was mainly a result of higher energy prices, and the recent drop has consequently been driven by lower energy prices. Therefore, when predicting what the ECB will do next, it doesn’t make sense to analyse what the ECB should do but rather, what the bank is saying it will do. Hawkishness is no longer a characteristic of just a few ECB members; it is now the mainstream view. Another 50bp rate hike at the February meeting in two weeks looks like a done deal and another 50bp rate hike at the March meeting even looks highly likely. As long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. To some extent, we are currently witnessing a mirror image of the ECB until 2019. Back then, the Bank had a clear easing bias and was chasing disinflation with all means possible, even though the root causes for disinflation lay outside of the ECB’s realm. Now, the ECB has a clear tightening bias and is chasing inflation which arguably also has its root cause in something the ECB cannot tackle. Still, it looks as though the current generation of ECB policymakers will only let go once they are fully convinced that inflation is no longer an issue. In this regard, the slight improvement of the eurozone’s growth prospects as well as abundant fiscal stimulus have given the Bank even more reason to continue with its hawkish mission. With all of this in mind, it is hard to see that the ECB would cut interest rates any time again. Current market expectations about ECB rate cuts in 2024 are premature. If anything, these expectations as reflected in dropping longer-term interest rates are an additional argument for the ECB to stay hawkish. Just remember that the ECB’s December hawkishness was also a result of the Bank's view that market pricing was too dovish. Today's comments by both Christine Lagarde and Klaas Knot illustrate once again the ECB's determination to go all the way. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB CPI Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

In Poland The Economic Downturn Will Weaken Job Creation

ING Economics ING Economics 20.01.2023 12:02
In December, average wages in the corporate sector rose by 10.3% year-on-year, and employment by 2.2% YoY, both below the consensus. While the situation in the Polish labour market remains favourable, some signs of cooling are visible Poland's labour market remains tight   Despite the payment of annual awards and bonuses, overall wage growth came in lower than expected (12.6% YoY), which may have been partly due to the withholding of raises in anticipation of an increase in the minimum wage from the beginning of 2023 and/or an increase in sick leave due to an unusually high number of flu cases. At the same time, employment fell by 2,300 from November, which translated into a lower-than-expected annualised reading (2.2 vs 2.3% YoY). Weaker-than-expected figures for December do not change the positive assessment of the labour market. The strength of labour demand and labour shortages is evidenced, among other things, by the rapidly growing employment of immigrants. Nearly 800,000 refugees have taken up work in Poland on the basis of simplified procedures (and are not accounted for in official stat office data), while only about 15,000 people from Ukraine are listed in the registers as unemployed. At the end of last year, the number of foreigners insured with Social Security exceeded one million people. Demand for labour is facing constraints on the supply side, resulting in double-digit wage growth. Elevated inflation is translating into an increase in wage expectations in sectors recording favourable financial results. At the same time, as of early 2023, the minimum wage increased by 16%, which is likely to translate into an adjustment of the entire wage grid in the economy. The economic downturn will weaken job creation, but a significant increase in the unemployment rate is not expected. For structural and demographic reasons, the Polish market is facing labour shortages. The working-age population is shrinking, and the potential for further increases in the labour force participation rate is also steadily declining. Under such circumstances, upward pressure on wages should be expected to continue, although wage growth is likely to remain slower than the rate of price growth in the first part of this year. Read this article on THINK TagsPoland wages   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Thai Sugar Output to Decrease by Nearly 20% in 2023/24 Season Due to Drought Conditions

Subsidies - Assistance In The Implementation Of Special Social Goals

Kamila Szypuła Kamila Szypuła 21.01.2023 11:13
To support sustainable development, countries also support each other financially by offering subsidies. The European Union, which brings together 27 countries, is a perfect example of how other countries support the weaker ones in this way. Definition Subsidies - this is a non-repayable benefit provided to the beneficiary, subject to specific settlement rules, which is transferred from public funds (budget or local state) for the implementation of public tasks or other activities, the operation of which is considered expedient. If they are not used or used but not in accordance with their intended purpose, they are subject to return. The beneficiaries may be both entities with and without legal personality, including state institutions, business entities, non-governmental organizations, international organizations, and natural persons. Subsidies are an instrument to support exports, most often of an indirect nature. Subsidies as an instrument of economic policy are introduced to achieve a specific goal, usually social (equalization of wealth, protection of the poorest, equal opportunities) or economic (saving enterprises or sectors, stimulating the desired behavior of producers or consumers). Types of subsidies The following subsidies can be distinguished from the state budget: Purposeful - for financing or subsidizing commissioned tasks and own tasks of local government units, tasks commissioned to entities outside the public finance sector. Subjective - for co-financing the current activity of the entity indicated in the act Objective - for subsidies to certain types of products or services, for subsidies to interest rates on certain bank loans. Local government units may also receive subsidies (subsidies) from the state budget for the performance of tasks of a special nature, such as the removal of direct threats to public safety and order, and for the implementation of poviat tasks, services, inspections and guards. A special type of subsidization is a subsidy, which is a non-repayable financial aid granted to specific entities (institutions, economic or social organizations, natural persons), usually from the budget or extra-budgetary funds, in order to support their activities. We also distinguish subsidies: Forbidden (red) - are harmful to both the importer and the exporter. Direct subsidies, government subsidies based on export performance, export rebates and credits, foreign exchange write-offs, more favorable freight rates, duty exemptions or refunds, and financial preferences are prohibited. Sanctionable (yellow) - these are production subsidies; cause harm by causing "serious damage" to the interests of another WTO member country. Allowed (green) - otherwise non-specific subsidies. They consist of: support for backward regions of a given country - in Poland, regions are voivodeships; backward regions are those where the unemployment rate exceeds 110% of the national average or GDP per capita does not exceed 85% of the national average, support for research work, adaptation to the requirements in the field of environmental protection. Classification of subsidies Due to the way in which subsidies are granted: General subsidies - granted to all entities meeting certain conditions, Specific subsidies - granted only to selected beneficiaries. Due to the entity providing financial assistance: State subsidies - granted as part of the economic policy pursued by a given country, i.e. industrial, commercial, agricultural, environmental, regional, social and cultural policies, Cartel subsidies - they are granted by the cartel to its members based on its pricing policy, these subsidies are intended to compensate for keeping the price of a given product at a sufficiently low level. Due to the form of providing financial assistance, the following are distinguished: Bonuses - the beneficiary receives funds directly, Incentives - are an element of the regulatory system created by the state, which enables obtaining financial resources, by e.g. reducing expenses incurred by enterprises for the state, creating insurance and guarantee funds, a policy of limiting or freezing wage increases, applying duty reliefs and tariff rates , diversified exchange rate policy, facilitating access to markets and production factors, technologies and techniques, and others. Subsidy problems EU funds, as well as other subsidies, are often used inconsistently with the specified rules, because they lead not to aid, but to economic benefits for entrepreneurs. Source: Woźniak M. (2011) Prace z zakresu polityki przemysłowej i ekologicznej, investopedia.com
National Bank of Poland Meeting Preview: Anticipating a 25 Basis Point Rate Cut

Reserve Requirements - A Percentage Of A Commercial Bank's Cash That Is To Be Kept

Kamila Szypuła Kamila Szypuła 22.01.2023 14:23
In many countries, commercial banks are required to maintain reserve requirements. This means that banks have to deposit part of their funds in accounts with the central bank. Definition Required reserves - a percentage of a commercial bank's cash that is to be kept (refers to the average monthly balance) on its account at the central bank. On the one hand, the system of required reserves ensures the solvency of commercial banks and, on the other hand, allows the central bank to regulate the amount of money in circulation. Increasing the required reserve results in limiting the lending activity of commercial banks, while reducing it increases their lending activity. If such a reserve is, for example, 10%, it means that the bank must keep 10% of the monetary resources at its disposal on an account with the central bank. Commercial banks hold cash on current accounts with the central bank for mutual settlements on a daily basis. Current accounts are also used to make payments with the central bank itself. In the past, depositing funds with the central bank was intended to ensure the solvency of commercial banks. Currently, this is not the most important goal. Modern commercial banks have huge assets and their own reserves that their solvency is not at risk. However, they are required to hold mandatory reserves. Each bank must maintain a reserve requirement on its account with the central bank. Other information Currently, the system of mandatory reserves as a tool to ensure the liquidity of banks is losing its importance and its role as a tool to regulate the credit potential of the banking sector is increasing. As a restrictive tool, the Monetary Policy Council may raise the required reserve rate, which will result in a larger part (than previously) of a given bank's assets having to be transferred to the central bank. On the other hand, lowering the required reserve rate results in retaining more assets in the vaults of commercial banks, which entails, among others, an increase in lending and stimulation of investment processes. It should be remembered that the maintenance of mandatory reserves inconsistent with the established ratios is associated with penalty interest. Factors determining the level of required reserves In line with the reserve requirement policy, the central bank sets different reserve levels for different types of bank deposits. This results from the maturity dates of deposits and concerns the risk of their withdrawal. Therefore, AWIST deposits have a higher reserve requirement ratio than term deposits, which have a longer maturity. Other factors influencing the level of the indicator include: the legal nature of the depositor (legal or natural person), contribution height, depositor's place of residence. Advantages and disadvantages of the required reserve ratio In the event of an increase in the required reserve ratio, banks with lower but sufficient liquidity may experience financial difficulties. This is the disadvantage of this instrument. Compensatory purchases of short-term securities in these banks by the central bank are then necessary in order to replenish liquid reserves. The advantage of the reserve requirement is that its use affects the liquidity of banks without an immediate impact on market interest rates. The central bank may temporarily pursue several goals at the same time. Source: Bankowość, investopedia.com
Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

SEO’s Program That Aims To Transform The Structure Of The US Market

Kamila Szypuła Kamila Szypuła 22.01.2023 16:33
Financial bodies around the world both individually and collectively strive for continuous development. SEO is still at the forefront and working on the next program. What's more, the market of limited food, despite the research, will continue to develop and enjoy great popularity. In this article: Organic food industry will continue to enjoy popularity Criticized Bayer's CEO Buying your first home do not have to be stressful SEO’s Program Organic food industry will continue to enjoy popularity Some health-conscious consumers are turning to organic rather than conventional products due to concerns about highly processed foods, artificial ingredients, and the impact of pesticides, hormones, and antibiotics. The organic food industry is a dynamically developing business, whose sales increased by 12.4% last year. However, there is conflicting data on whether organic food is actually healthier and safer. Many experts also agree that there is no significant nutritional difference between organic and conventional farming. Despite this, the organic food industry will continue to enjoy popularity. The organic food industry is booming. But what does "organic" even mean? Watch the full video here: https://t.co/4b1KFVx8Ic pic.twitter.com/59K2RPX5JJ — CNBC (@CNBC) January 22, 2023 Criticized Bayer's CEO Investors and shareholder exert a large influence on the board of any company. Bayer also faces such pressures. Union Investment, criticized Bayer's CEO for his lack of commitment. Bayer is facing demands from activist investor Bluebell Capital Partners to break up, with a sale of the company's consumer health unit and, at a later stage, for a separation of Bayer's pharmaceuticals and agriculture businesses. Bayer investor criticizes Bayer chair for lack of initiative - WirtschaftsWoche https://t.co/o5Jxb42zvu pic.twitter.com/QyPpValhPX — Reuters Business (@ReutersBiz) January 22, 2023 Buying your first home do not have to be stressful Although the real estate market is not doing well in the current economic situation, there are still people who want to have their own place. Buying your first home can be exciting, but make sure you're prepared for all of the financial ramifications. The process may seem tedious, but for many people the stress of buying a home outweighs the pleasures of owning a home. Just remember that a little advance planning - and saving - can make the buying process much easier. 7 keys for first-time home buyers 🔑 Don't buy just as investment🔑 Know what you can afford🔑 Check your credit🔑 Understand all other costs🔑 Plan to put down at least 20%🔑 Know what docs you'll need🔑 Get loan pre-approval#OwnYourOwnHomeDay https://t.co/q0A1ATzgfz — Charles Schwab Corp (@CharlesSchwab) January 21, 2023 SEO’s Program In the aftermath of the global financial fund, the US banking regulator took steps to strengthen the banking system through a series of changes. The changes mainly concern digitization. The Securities and Exchange Commission (SEC) is pursuing a program that aims to transform the structure of the US market and bring about profound changes in the way equities and fixed income securities are traded. The stock market structure plan will be equally ambitious and will focus on enhancing the individual investor experience. The Securities and Exchange Commission is pursuing an agenda that is set to reshape US market structure and impose profound changes in how equities and fixed-income securities are traded.https://t.co/xeSzdCkyVL — Bloomberg Terminal (@TheTerminal) January 22, 2023
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

South African Petrochemical Company Sasol Is Moving Away From Fossil Fuels, Germany Again Refused To Send Tanks To Ukraine

Kamila Szypuła Kamila Szypuła 24.01.2023 11:37
Companies are the main producers of pollution, which is why more and more of them are choosing renewable energy. The South African company is also moving towards net zero carbon. What's more, Germany refuses to support Ukraine, which is fighting the occupiers. In this article: Away from fossil fuels No tanks form Germany The energy transition Away from fossil fuels The green revolution is taking place all over the world. Information also appears from Africa. More and more companies are moving to a plan to achieve net zero carbon emissions by 2050. South African coal-dependent Sasol said on Tuesday it had signed three wind power purchase agreements as it transitions to renewable energy to meet its carbon targets. Sasol said in a statement it was working with French gas company Air Liquide. Sasol also announced that it has signed a long-term contract with the Msenge Emoyeni wind farm in the Eastern Cape. South Africa's coal-reliant Sasol signs 289 MW wind power deals https://t.co/SRbhRNCamh pic.twitter.com/Zt40owNX1f — Reuters Business (@ReutersBiz) January 24, 2023 Read next: Salesforce Is Being Tested As Its Growth Slows Down| FXMAG.COM No tanks form Germany The war in Ukraine has been going on for almost a year. Ukrainians are constantly fighting for their country, but they need the right equipment to do so. Many Western countries help Ukrainians in every way. Ukraine has long been begging for tank units from its allied West to counter the ongoing Russian invasion. But Germany again refused to commit to sending German tanks to Ukraine despite strong pressure. Last Friday's defense summit at Ramstein Air Base failed to produce a tank deal for Kiev, and so far only Britain has pledged to send 14 of its own Challenger 2 tanks to Ukraine. The latest comments from Berlin come after months of pressure on the German government to offer Ukraine some of its Leopard 2 tanks or allowed its allies to export their own German battle tanks. On Saturday, the Baltic states of Estonia, Latvia and Lithuania issued a joint statement in which Germany would "supply Leopard tanks to Ukraine." Poland and Finland have repeatedly expressed their readiness to provide Leopard 2 units. France has stated that it does not rule out sending its own Leclerc tanks to Ukraine. The delivery of appropriate military equipment may determine the course and even the outcome of the war. Germany refuses to commit to sending tanks to Ukraine despite pressure from allies https://t.co/n1ceoW1HQI — CNBC (@CNBC) January 24, 2023 The energy transition The world is racing against time to reduce its dependence on fossil fuels. There is a great challenge for the whole world The challenge is that while energy consumption per capita has peaked in many developed economies, it is increasing in those that are still developing. Energy changes do not take several years, but have been carried out for decades. Thanks to wind and solar, the share of low-carbon energy has recently accelerated, and the energy transition required today is unlike any other in history. The world needs so much more than just wind and sun to get through. Other renewable energy sources such as bioenergy and green hydrogen will be key. The energy transition required today is like no other in history. Energy transitions of the past were really just energy additions. The latest F&D visualizes the challenge the world faces in bringing about a clean energy transition. https://t.co/blDZWbytSm pic.twitter.com/9CrgQXEn6D — IMF (@IMFNews) January 24, 2023
The RBA Raised The Rates By 25bp As Expected

Asia Market: Disappointing Inflation Data From Australia

ING Economics ING Economics 25.01.2023 09:03
Disappointing inflation data already out from Australia suggest a higher peak cash rate. Singapore inflation data are out later  Source: shutterstock Macro outlook Global markets: Happy Chinese New Year to all our readers. US equity markets regained their composure at the end of last week, and have traded more or less sideways since then, so there is not too much to catch up on after the recent holidays in Asia. The S&P500 is now at 4016.95, which leaves it slightly above its 200-day moving average. The early part of this week saw US 2Y Treasury bond yields rising sharply, before drifting slightly lower again yesterday. The current 2Y yield is 4.21%. 10Y US Treasury yields have performed a similar rise then decline, currently at 3.45%. EURUSD pushed above 1.09 last Friday but has been trading just south of that in the first two days of this week. There is a mixed performance from other G-10 currencies. The AUD is looking firm against the USD, trading above 70 cents currently. But sterling is softer at 1.2332. And the JPY is holding at about 130, just slightly stronger after a weak start to the week. In other Asian FX, there isn’t much action given the Chinese New Year holidays in much of the region. The INR has been losing ground on reports of USD buying by Indian oil companies. G-7 Macro: Since we went on holiday, the most notable G-7 releases have been a bunch of PMI figures out of Europe, which painted a slightly less bleak picture of the economy than for some time, with the composite PMI just clawing its way back above the 50 threshold boom/bust level. Today, we get more colour on Germany from the Ifo business index. And the Bank of Canada will most likely raise rates a further 25bp taking policy rates to 4.5% Australia: Another big upside miss to the Australian CPI data, with December inflation rising from 7.3% to 8.4% YoY. This increase took the 4Q22 inflation rate up to 7.8% YoY from 7.3%. Both weighted median and trimmed mean measures of inflation also rose. We've had our cash rate forecast under "double-secret probation" for the last month, and see no other course of action than to raise this from 3.6% to 4.1%, by extending the Reserve Bank's hiking activity a further 2 months.  Singapore: December 2022 inflation is due for release later today.  The market consensus points to headline inflation easing slightly to 6.6%YoY while core inflation is likewise expected to soften to 5.0%YoY (from 5.1% previously).  Despite the slight dip in inflation, price pressures remain evident and core inflation is still well above the Monetary Authority of Singapore’s (MAS) inflation target of 2%. The recent rebound of the SGD means that the MAS may not need to tinker with policy just yet but we do expect the MAS to be mindful of the SGD’s appreciation which could eventually weigh on an already challenged export sector.    What to look out for: Australia and Singapore inflation Australia CPI inflation (25 January) Singapore CPI inflation (25 January) Bank of Thailand policy (25 January) US mortgage applications (25 January) South Korea GDP (26 January) Philippines GDP (26 January) Singapore industrial production (26 January) Hong Kong trade (26 January) US GDP, personal consumption, core PCE, initial jobless claims (26 January) Japan Tokyo CPI inflation (27 January) Australia PPI inflation (27 January) US personal spending and University of Michigan sentiment (27 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Despite The Challenges Starbucks Is Developing In Italy, Bank BNP Paribas In Frankfurt Have Been Raided

Despite The Challenges Starbucks Is Developing In Italy, Bank BNP Paribas In Frankfurt Have Been Raided

Kamila Szypuła Kamila Szypuła 25.01.2023 12:35
The estates have a special culture of drinking coffee, which is why this country was a challenge for a popular chain store - Starbucks. In this article: BNP Paribas in Frankfurt have been raided Despite the challenges, Starbucks has persisted in Italy UBS about economy IMF for Haiti BNP Paribas in Frankfurt have been raided The offices of French bank BNP Paribas in Frankfurt have been raided by German police. The bank is under investigation for a multi-billion dollar tax fraud known as "cum-ex". The cum-ex trading system that flourished after the 2008 credit crunch relied on rapidly trading company shares around dividend days, diluting share ownership and allowing multiple parties to claim rebates. The scandal has rocked German political and financial circles and lawmakers say it has cost taxpayers billions of euros. German police raid offices of French bank BNP Paribas in Frankfurt - Handelsblatt https://t.co/T94qPeKCPm pic.twitter.com/71qALQ5CQr — Reuters Business (@ReutersBiz) January 25, 2023 Despite the challenges, Starbucks has persisted in Italy Italians take their coffee culture very seriously - it is full of traditions, customs and rituals. When Starbucks announced formal plans to open in Milan, some local residents disagreed. However, in 2018, Starbucks opened its first store in Italy, a 25,000-square-foot roaster in Milan. To ensure a smooth transition into uncharted territory, the company partnered with an Italian brand manager and other local companies. Despite the challenges, Starbucks has overcome all odds in Italy and is even planning expansion. Can Starbucks find success in Italy — the country that invented the espresso? Watch the video to find out. https://t.co/f27hd0tF4f pic.twitter.com/m0wyWQ4ac9 — CNBC (@CNBC) January 25, 2023 Read next: The Department Of Justice's Lawsuit Against Google | FXMAG.COM UBS about economy Inflation remained high in 2022, interest rates rose, growth expectations fell, and stock and bond markets suffered. Next year, inflation will be a major topic for economists and economies around the world. Many economies believe the worst is behind them and inflation has peaked. As we enter 2023, high inflation and rising interest rates, along with heightened earnings expectations and geopolitical risk, are shaping our investment themes. Has inflation peaked yet? If not now, then when? Find out more about an “inflation inflection” and other inflections in our UBS Year Ahead 2023. https://t.co/OaCWkxYGN2#shareUBS pic.twitter.com/siPWRRLapw — UBS (@UBS) January 24, 2023 IMF for Haiti The management of the International Monetary Fund (IMF) approved the first review of Haiti's Personnel Monitoring Program (SMP). The SMP will help the government restore macroeconomic stability and lower inflation. Despite the tougher macroeconomic environment and downside risks, recent data and progress on structural reforms suggest that the authorities are making significant efforts to mitigate Haiti's many challenges. The Haitian authorities adopted a budget for the financial year 2023 which is in line with the objectives agreed under the SMP and in the context of the medium-term budget. Ensure that a substantial budget allocation is used to protect the most vulnerable and implement public finance management systems to monitor the use of public funds. In addition, IMF staff will continue to work closely with the authorities to support the implementation of their agenda and help them build public support. IMF Management has approved the first review of Haiti’s Staff Monitored Program to help 🇭🇹 restore macroeconomic stability and lower inflation, given the burden of inflation on the poor. https://t.co/YI3995OEry pic.twitter.com/QZ917QcceX — IMF (@IMFNews) January 24, 2023
Spanish economy picks up sharply in February

A Remarkably Strong Figure Of Unemployment Rate In Spain

ING Economics ING Economics 26.01.2023 10:26
Spain's unemployment rate increased slightly to 12.87% in the fourth quarter of 2022, from 12.67% three months earlier. Although we should not expect a major reversal, the labour market will weaken further this year Spain's labour market is holding up well Spain's unemployment rate was 12.87% in the fourth quarter of 2022, still well below the long-term average. Despite the small increase, it is still a remarkably strong figure at a time when we are facing an energy crisis and record-high inflation, which are creating business uncertainty. The strong numbers are largely due to a strong first half of the year. In early 2022, Covid-19 restrictions were lifted, causing economic growth to pick up very strongly. Despite the outbreak of war in Ukraine, the economy continued to do very well until the summer because we were still in the middle of that recovery. Many additional jobs were then created, especially in the service sector. There are also several structural factors that increase the demand for labour. The most important of course is the ageing population, which makes the labour market structurally tighter. A growing weight of the more labour-intensive service sector in the economy also structurally increases the demand for labour. Consequently, previous economic models, such as Okun's law which provides an empirical link between a country's economic growth and the unemployment rate, are no longer sufficient to understand labour market dynamics. Labour market will further weaken this year The war in Ukraine, the energy crisis, and sharp price increases have had a major impact on Spanish companies. However, we should not forget that the labour market always reacts to economic cycles with some delay. Therefore, we will not see the effect of the energy crisis on unemployment figures until this year. On the other hand, a major turnaround seems unlikely in the short term. Given the difficult economic conditions, hiring dynamics and company vacancies are still decent. We will need to see a further weakening of companies' hiring intentions before unemployment begins to rise. Several structural factors will continue to ensure that labour demand remains high in the coming years. We expect unemployment to start rising again during 2023 and reach 13.1% by the end of 2023. Read this article on THINK TagsUnemployment rate Spain Labour market Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Tesla Is Expected A Temporary Rally

Musk Intends To Cut Costs In Tesla On Everything

Kamila Szypuła Kamila Szypuła 26.01.2023 11:34
After Elon Musk acquired Twitter, many investors are wondering what's next for Tesla. Recently, after publishing the results, Elon Musk shared plans for Tesla. In this article: Cuts Apple has maintained its position as the largest smartphone manufacturer Asia will be the leader in the future The future of Big Tech in 2023 Cuts Elon Musk's attention has recently been largely focused on Twitter's activities, but he does not forget about Tesla. Musk intends to cut costs on everything from parts to logistics, while keeping the pressure on competitors with discounted sticker prices. Tesla is also cutting costs by redesigning battery and electric motor system components, removing features owners don't use, based on data collected from Model 3 sedans and Model Y SUVs on the road Elon Musk has a playbook for Tesla headed into what he believes will be a 'serious' recession: cut costs on everything from parts to logistics, while keeping the pressure on competitors with discounted sticker prices https://t.co/tyYV26iN6v pic.twitter.com/G1KyALvLjY — Reuters Business (@ReutersBiz) January 26, 2023 Apple has maintained its position as the largest smartphone manufacturer The difficult economic situation also affected the sales of smartphones. Global smartphone shipments declined in the fourth quarter of 2022, according to research firm IDC. A total of 1.21 billion smartphones were shipped in 2022, the lowest annual shipment volume since 2013 due to significantly weakened consumer demand, inflation and economic uncertainty. Apple has maintained its position as the largest smartphone manufacturer in the world. The US tech giant shipped 72.3 million iPhones in the fourth quarter, down 14.9% year-on-year. Samsung, the second largest player in the smartphone market, saw sales fall 15.6% year-on-year to 58.2 million units. Samsung did not release an all-new flagship smartphone for the fourth quarter. Smartphone shipments plunge to a low not seen since 2013 — their largest ever decline https://t.co/KHk5fHELJr — CNBC (@CNBC) January 26, 2023 Read next: Trump Returns To Social Media, Meta Will Restore The Former President's Account| FXMAG.COM Asia will be the leader in the future Since the outbreak of the coronavirus pandemic, global growth has been put to a significant test. This was especially shown in 2022, where the growing inflation and interest rates affected the condition of the economies. Investors and economists are wondering whether global economic leaders will maintain their positions or will this change over the years as a result of events. The United States is the economic leader followed by China. According to economists, this may change and the main driving force of global growth will not be Western countries, but countries from Asia. This is very likely because most of the population is in this region, and this region is developing dynamically and thus offers jobs and attracts new residents. What countries are likely to power global growth in the decades to come? We cover the answer in our #ExchangesGS podcast here: https://t.co/G60vRNYV1u pic.twitter.com/w61esY8sv2 — Goldman Sachs (@GoldmanSachs) January 25, 2023 The future of Big Tech in 2023 2022 was a difficult year for Silicon Valley. After solid growth lasting more than a decade and a pandemic-induced boom, Big Tech giants like Meta, Alphabet and Apple have lost market value. Overall, Big Tech faces countless challenges in 2023, including macroeconomic pressures, increased competition, supply chain issues, and bloated cost structures. However, there are positive sides to every cloud: companies are now rethinking their business strategies, which could pave the way for a more sustainable era for Big Tech. For example, when it comes to Meta, the company is expected to continue to focus on its new AI Discovery engine, ads, and business platforms. Big Tech firms endured a tough year due to macro headwinds, supply chain issues, and plummeting revenues. J.P. Morgan Research explores the opportunities that lie ahead. — J.P. Morgan (@jpmorgan) January 25, 2023
Asia Morning Bites - 14.02.2023

Asia Morning Bites - 27.01.2023

ING Economics ING Economics 27.01.2023 09:01
Tokyo inflation data give the JPY an early boost.  Korean business sentiment dips.  Source: shutterstock Macro Outlook Global Markets: China is still out on holiday until next week, so no stock action to report there, though Hong Kong is back and the Hang Seng put in a solid performance yesterday, opening up and making further gains over the session. US stocks also did well, buoyed by stronger than expected GDP data, though as James Knightley’s note on this reveals, there are worrying signs of a slowdown ahead buried under the headline number. US Treasury yields also got a lift from the GDP figure, with 2Y and 10Y bond yields rising 5.8 and 5.3 bp respectively. The 10Y now sits at 3.495%. The EURUSD has pulled back below 1.09, but could just be a temporary departure, as it looks to be back on a rising trend again. Other G-10 currencies are looking reasonably firm. And the JPY has opened stronger this morning after stronger-than-expected Tokyo CPI data. Other Asian FX had a solid day yesterday, led by the Offshore Renminbi, which is at 6.733 today ahead of China’s return to markets next week.    G-7 Macro: As mentioned above, the main news yesterday was the 2.9% annualised GDP QoQ growth from the US in 4Q22. Personal consumption slowed to 2.1% from 2.3%. Gross private investment rose only 1.4%, within which was a 3.7% decline in business equipment investment and a 26.7% fall in residential investment. Durable goods orders for December were also stronger than expected,  though here too, there were some more negative signals beneath a strong headline figure. Today, we get PCE deflator figures for December, though as we have already got the full 4Q deflator figures from the GDP data, there shouldn’t be any real news here. The pre-GDP consensus was for a drop in the core deflator to 4.4%YoY, with a slight pick up in the MoM rate from 0.2% to 0.3%. The University of Michigan consumer sentiment and inflation expectations figures are also due later. Japan: Tokyo CPI for January came out with an upside surprise. Headline inflation accelerated more than expected to 4.4% YoY (4.0% in December and consensus), and core inflation - excluding fresh-food also rose to 4.3% (vs 4.0% in December, 4.2% consensus).  Looking at the details, the surprise mainly came from fresh food prices, which rose 6.4% (vs 4.4% in December) while utilities rose the most by 22.8%. We think that consumer prices are expected to come down slowly from February as the government’s energy subsidy program will start to work. The JPY looks like responding to the growing market expectations for the Bank of Japan’s policy shift due to a higher-than-expected inflation outcome. Based on the minutes of the BoJ meeting in January, the majority of the board was still in favour of keeping the current level of easing policy and monitoring the policy adjustment in December, but at the same time, there is also a growing view that the current policy should be revisited sometime in the future. We still think the policy change is a long way off. The Spring salary negotiations are key to watch as wage growth is a prerequisite for sustainable inflation. South Korea:  The Bank of Korea’s business survey results show that both manufacturing and non-manufacturing have a dim outlook for their businesses. The January outlook index fell to 65 from 68 for manufacturing and 70 from 72 for non-manufacturing. We believe that from now on, manufacturing sentiment will rebound due to China’s reopening, but non-manufacturing sentiment is expected to stagnate for a while as domestic demand conditions continue to deteriorate.  What to look out for: US University of Michigan sentiment Japan Tokyo CPI inflation (27 January) Australia PPI inflation (27 January) US personal spending and University of Michigan sentiment (27 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
China’s Foreign Minister Qin Gang Downplayed Russia’s Invasion Into Ukraine

Ukraine Is Calling For More Sanctions Against Russia

Kamila Szypuła Kamila Szypuła 27.01.2023 12:28
The war is gaining new momentum, many countries are declaring their help for Ukraine by offering modern weapons. But will it be enough? Ukraine believes that more sanctions could significantly weaken Russia. In this article: President Volodymyr Zelensky called for more sanctions against Russia Regulations for banks in the EU The IMF’s gold standard for Belgium More sanctions against Russia The war in Ukraine is becoming more and more dangerous. Russia is carrying out increasingly brutal attacks. Several regions of Ukraine have to introduce emergency power outages. Millions of Ukrainians experience regular power outages and freezing winter temperatures as Russia attacks critical infrastructure and energy facilities. The attacks came a day after Ukraine's western allies pledged to send battle tanks to the country, opening up a new front in the types of weapons they are ready to deliver against Russian forces. President Volodymyr Zelensky called in his late-night video speech for more sanctions against Russia and for the establishment of a tribunal to deal with Russian war crimes. Japan on Friday announced additional sanctions in response to Moscow's recent actions in Ukraine, banning the export of key strategic goods to Russia and freezing the assets of a dozen people. Zelenskyy demands more sanctions as Russia bombards Ukraine; explosions heard near nuclear plant https://t.co/dqfnxmGhcj — CNBC (@CNBC) January 27, 2023 Read next: Another Sector Announced Layoffs, Hasbro Reduced Its Workforce, IBM And SAP Have Joined Technology Companies That Are Reducing Employment| FXMAG.COM Regulations for banks in the EU Banking regulation is coordinated internationally by regulators, but there are still differences in how the rules work in practice and how they are implemented. The European Banking Federation and consultants Oliver Wyman conducted a study in which they found that banks in the European Union could increase lending by almost a third if regulators applied capital requirements in the same way as their US counterparts. Ease capital rules on EU banks to boost lending, banking industry says https://t.co/onyrj9Ca26 pic.twitter.com/BDhcroGsec — Reuters Business (@ReutersBiz) January 27, 2023 The IMF’s gold standard for Belgium The IMF Data Standards Initiatives were established in the mid-1990s to increase the transparency of member countries' data as a global public good and to promote the development of robust statistical systems. Belgium adheres to the IMF Special Data Dissemination Standard (SDDS) Plus and meets the most stringent standards for the dissemination of basic macroeconomic and financial data on the state of the economy and its financial interconnections. This is a strong testament to the country's commitment to data transparency to the public, markets and the international community, which, among other things, fosters efficiency in markets, better policies and greater accountability in policymaking, and richer and better. Belgium is the latest country to have achieved the IMF’s gold standard for data transparency, the SDDS Plus, which recognizes their achievements in the dissemination and quality of 🇧🇪 macroeconomic and financial data. https://t.co/3dMv5KR9tV pic.twitter.com/rgNTR04z8a — IMF (@IMFNews) January 27, 2023
Unemployment Hysteresis - Being Out Of Work For A Long Time

Unemployment Hysteresis - Being Out Of Work For A Long Time

Kamila Szypuła Kamila Szypuła 28.01.2023 10:45
Being out of work for a long time is socially, economically and individually negative. This type of situation is referred to as hysteresis. This concept has been borrowed to social and economic sciences, and now we can talk about unemployment hysteresis. What is hysteresis? Hysteresis in the field of economics refers to an event in the economy that persists even after the factors that led to the event or otherwise proceed are removed. Hysteresis often occurs after extreme or prolonged economic events, such as an economic crash or recession. For example, after a recession, the unemployment rate may continue to rise despite economic growth and the technical end of the recession. In short, hysteresis in an economy occurs when the long run equilibrium is dependent on how that equilibrium has changed in the short run. Genesis The term hysteresis was coined by Sir James Alfred Ewing, a Scottish physicist and engineer (1855-1935), to refer to systems, organisms and fields that have memories. In other words, the consequences of some inputs are felt with some time delay. Hysteresis comes from the Greek word for scarcity or scarcity. Example of hysteresis The recession that Britain experienced in 1981 is a good illustration of the effects of hysteresis. During the country's recession, unemployment skyrocketed from 1.5 million in 1980 to 2 million in 1981. After the recession, unemployment rose to over 3 million between 1984 and 1986. The turmoil of the recession resulted in structural unemployment that persisted during the economic recovery and became difficult to manage. Types of hysteresis Unemployment rate hysteresis A typical example of hysteresis is the lagged effects of unemployment, where the unemployment rate may continue to rise even after an economic recovery begins. To understand the unemployment hysteresis, we must first examine the types of unemployment. During a recession, i.e. two consecutive quarters of declining growth, unemployment rises. When a recession occurs, cyclical unemployment rises as the economy experiences negative growth rates. Cyclical unemployment rises when the economy is underperforming and falls when the economy is growing. Workers lose their jobs when companies make redundancies during a period of low demand and declining corporate revenues. When the economy re-enters the expansion phase, it is expected that businesses will start hiring unemployed people again and the unemployment rate in the economy will begin to fall towards the normal or natural rate of unemployment until cyclical unemployment drops to zero. This is of course the perfect scenario. However, hysteresis tells a different story. Hysteresis states that as unemployment rises, more people adjust to a lower standard of living. By getting used to a lower standard of living, people may not be as motivated to achieve the previously desired higher standard of living. In addition, as more and more people become unemployed, it is socially acceptable to be or remain unemployed. Most importantly, employers themselves have been hit hard during the crisis and will be more likely to demand more from their remaining workforce before incurring greater labor costs. Read next: The Aussie Pair Is Holding Above 0.7100, The Major Currency Pairs Are Waiting For US PCE Report| FXMAG.COM Hysteresis caused by technology Unemployment hysteresis can also be seen when companies switch to automation during a market downturn. Workers without the skills required to operate these machines or newly installed technology will become unemployed as the economy begins to recover. In addition to employing only tech-savvy employees, these companies will ultimately have fewer employees than before the recession phase. How to prevent hysteresis? Economies in recession and hysteresis where the natural rate of unemployment is rising tend to use economic incentives to combat the resulting cyclical unemployment. Expansionary monetary policy by central banks may also include an increase in government spending in regions or industries most affected by unemployment. However, hysteresis is more than cyclical unemployment and may persist long after the economy recovers. In the case of long-term problems, such as a lack of skills caused by technological advances, vocational training programs can be helpful in combating hysteresis. Source: investopedia.com, Begg D., Fischer S., Dornbusch R. Macroeconomy
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

A Loss Of $48 Billion In Shares Of The Indian Group Adani As A Result Of The Hindenburg Research Report

Kamila Szypuła Kamila Szypuła 29.01.2023 19:13
Companies around the world are constantly assessed by state institutions and those outside. Reports and all kinds of information have a greater or lesser impact on the situation of a given company, but the example of Adani Group shows that one report can generate large losses. In this article: The power nutrient The bond market A Loss Of $48 Billion In Shares The power nutrient Everyone wants to be healthy and matter. On the internet you can find various diets and tips on how to achieve this. Many specialists repeat that the most important thing is a proper diet, and especially taking care of its micronutrients. Fiber is a nutrient superhero, and yet most people don't get enough in their diets. Researchers have found that adequate dietary fiber intake is associated with a reduced risk of heart disease, stroke, high blood pressure, certain gastrointestinal disorders, and type 2 diabetes. There is also evidence that the benefits of fiber extend beyond any specific ailment: eating more fiber can lower human mortality. A study by the National Institutes of Health found that people who consumed higher amounts of fiber, especially from grains, had a significantly lower risk of dying over a nine-year period compared to those who consumed lower amounts of fiber. While you can easily take a fiber supplement, you will miss out on all the other vitamins and minerals that whole foods provide. The best sources of fiber are whole grains, fresh fruits and vegetables, legumes and nuts. It is worth considering whether we consume the right amount of fiber and take care of our health. A dietitian says this is the "power nutrient" she eats for a longer, healthier life—but 95% of Americans lack in their diet. (via @CNBCMakeIt) https://t.co/cEhnURQYOd — CNBC (@CNBC) January 29, 2023 The bond market The bond market is an opportunity for profit, but it is also risky. Last year, an avalanche of events caused the market to collapse - the Russo-Ukrainian war, the tightening of the Federal Reserve, rising inflation and soaring energy prices. High yield bonds did not run away, losing nearly 11% due to recession fears but also due to rising interest rates. In response, investors paid out a record $52.8 billion in the first three quarters of 2022. The good news is that this sale has boosted profitability and could be a buying opportunity. Despite the difficulties on the market, it is worth looking for opportunities, not obstacles. A current yield level of around 9% offers an attractive entry point from an income perspective for high-yield bond fund investors.Here is a closer look at a few of the funds favored by our analysts. https://t.co/kHDE6LCqN1 — Morningstar, Inc. (@MorningstarInc) January 29, 2023 A Loss Of $48 Billion In Shares A report by Hindenburg Research triggered a loss of $48 billion in shares of the Indian group Adani. The Hindenburg Report questioned how Adani Group exploited foreign entities in tax havens such as Mauritius and the Caribbean islands. The company did not leave the case without a competitor. Adani said on Thursday he was considering taking action against Hindenburg. India's Adani Group: Hindenburg report intended to create false market https://t.co/epI05jy6GK pic.twitter.com/0IZ4coQS7V — Reuters Business (@ReutersBiz) January 29, 2023
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Asia Morning Bites - 30.01.2023

ING Economics ING Economics 30.01.2023 10:08
China markets reopen after the lunar new year holidays. Tech earnings could drive trading direction ahead of major central bank meetings later this week  Source: shutterstock Macro outlook Global Markets: Helpful US PCE inflation data on Friday helped offset mixed earnings news to enable the S&P500 to make some small gains on Friday (+ 0.25%). The NASDAQ gained 0.95%. Chinese markets re-open today after the Lunar New Year Holidays, and the government’s aims to boost consumer spending this year could further help stocks in associated sectors. The Hang Seng Index finished 0.54% higher on Friday. India’s stock markets bucked the positive trend across the region in response to a now well-publicized short-seller report and subsequent rebuttal by one of India’s biggest stocks. Bond markets were fairly quiet on Friday ahead of this week’s big central bank meetings and debt ceiling talks. The 2Y US Treasury saw yields rise 1.6bp while the 10Y bond yield rose less than a basis point to 3.503%. EURUSD has also been fairly steady, currently at 1.0870. Other G-10 currencies are fairly steady too, though there was quite a lot of volatility in the GBP on Friday ahead of this Thursday’s Bank of England rate decision. Asian FX was mixed on Friday, but outside the THB and IDR, which lost some ground to the USD, moves were mostly very slight. G-7 Macro: As mentioned, the PCE deflator data on Friday helped to quell inflation fears. The December core PCE inflation figure dropped to 4.4% from 4.7%, taking the 4Q average to 4.7%, below the Fed’s forecasts from the December FOMC meeting. See more here from James Knightley on this and the slowdown in consumer spending.  Germany releases preliminary 4Q22 GDP data today. The median forecast for this is for zero growth quarter on quarter. China: The Netherlands and Japan will join the US on export controls of advanced chip manufacturing equipment to China. In the short term, China does not have the capacity to expand or upgrade semiconductor chip manufacturing. But at the same time, it means that China knows that it must put R&D of semiconductors and equipment at the core of its national strategy. Also on policy, the government wants growth, and primarily, it wants it from consumption. Local governments are being encouraged to implement measures to increase employment and therefore consumption. We also do not rule out preferential consumption policy, e.g. consumption of household appliances. The PBoC has also extended its re-lending programme for clean coal for this year. This is to ensure sufficient power supply during the economic recovery. What to look out for: FOMC meeting New Zealand trade balance (30 January) South Korea industrial production (31 January) Japan retail sales and industrial production (31 January) Australia retail sales (31 January) China manufacturing and non-manufacturing PMI (31 January) Taiwan export orders (31 January) US Conference board consumer confidence (31 January) New Zealand unemployment (1 February) South Korea trade balance (1 February) Japan Jibun PMI (1 February) Regional PMI manufacturing (1 February) China Caixin PMI manufacturing (1 February) Taiwan industrial production (1 February) Hong Kong GDP (1 February) Indonesia CPI inflation (1 February) US ADP employment change (1 February) ISM manufacturing (1 February) FOMC meeting (2 February) South Korea CPI inflation (2 February) ECB policy meeting (2 February) US initial jobless claims, durable goods orders and factory orders (2 February) Japan Jibun PMI services (3 February) China Caixin PMI services (3 February) Singapore retail sales (3 February) US non-farm payrolls and ISM services (3 February)   Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Apple May Surprise Investors. Analysts Advise Caution

Samsung Demand For Semiconductors And Smartphones Remains Weak

Kamila Szypuła Kamila Szypuła 31.01.2023 11:27
Demand for smartphones across all price ranges is expected to decline quarterly in the first three months of this year due to the continuing economic slowdown and other factors contributing to macroeconomic instability. Samsung is suffring for lower demand Samsung is the world's largest manufacturer of two main types of memory chips called DRAM, which allows devices to multitask, and NAND flash, which provides storage in devices. Samsung Electronics Co. expects demand for semiconductors and smartphones to remain weak as macroeconomic challenges and recession fears continue to weigh on sales. The global smartphone industry is also in crisis, causing profits to fall for Samsung, the world's largest smartphone maker by shipments. Demand for smartphones across all price ranges will decline quarterly in the first three months of this year due to continued economic slowdown and other factors contributing to macroeconomic instability. Memory chip makers, many with large inventories, are also making bleak predictions as demand for gadgets continues to decline after the pandemic boom. Samsung's profit Samsung's fourth-quarter operating profit was 4.31 trillion won, equivalent to $3.5 billion. Revenue for the three-month period fell by about 8% compared to last year to 70.5 trillion won. The company's net profit for the last three months of 2022 more than doubled to 23.84 trillion won, reflecting a one-time tax cut based on new accounting procedures as part of a recent revision of South Korea's subsidiary dividend tax rules, Samsung said. Samsung's full-year net profit for 2022 was 55.6 trillion won, an increase of 39.5% over the previous year. Revenue for the full year was 302.2 trillion won, up 8% over the previous year. Read next: Glovo Is Planning To Layoff 250 Workers Worldwide, The Middle East Is Already Suffering From A Water Shortage| FXMAG.COM Samsung will keep its 2023 capex plans Despite the current slowdown, Samsung said it will keep its 2023 capex plans at a similar level to last year as it wants to prepare for mid- to long-term demand. The move contrasts with that of rivals, which have already withdrawn their capacity expansion plans or slashed production for this year to ease the oversupply. Samsung said it is in the process of optimizing and upgrading its production lines. While tough market conditions continue, Samsung plans to launch its new Galaxy S23 series of smartphones this week as the industry's first major launch this year. Opinion of analysts Given the global economic slowdown and persistent inflation and geopolitical tensions, the smartphone market is expected to shrink in 2023. Memory prices peaked during the early Covid-19 pandemic due to strong demand for tech products and began to fall in late 2021. Quarterly declines became steeper in the second half of last year. Industry analysts expect average contract prices for both types of memory to continue declining in the first half of the year as demand remains weak and inventory levels high amid continued macroeconomic challenges and deepening recession fears. Conditions may improve in the second half of this year depending on macroeconomic developments that could revive global demand for chips. Memory orders may increase as corporate and consumer spending rebounds based on changes in interest rate policy. Samsung share prices In late January, Samsung's shares rose to their highest levels of six months ago. But then Samsung shares traded about 3.5% lower on Tuesday afternoon after the results were announced. Highest scores in January were read at 64,600.00 then dropped to 61,000.00 Source: wsj.com, finance.yahoo.com
German labour market starts the year off strongly

German labour market starts the year off strongly

ING Economics ING Economics 31.01.2023 11:34
Only a small increase in unemployment in January shows that the labour market remains an important source of resilience in the economy Almost four million people in Germany work in the metal and electronics industry   German unemployment increased by 162,100 in January, increasing the number of unemployed to 2.616 million. The seasonally-adjusted unemployment rate, however, dropped to 5.3%, from 5.5% in December. Don’t be fooled by the increase in unemployment. This was still the second-best January performance of the German labour market since reunification, with a small caveat that the number of people working in furlough schemes has increased significantly over the last few months. Source of resilience The strong labour market was an important driver of the economy’s resilience last year. A combination of fiscal stimulus, furlough schemes and demographic change seems to have made the German labour market almost invincible. It, therefore, doesn’t come as a surprise that wage pressure has picked up. We expect wage growth of around 5% this year and 3% in 2024. Not included in these numbers are one-off payments that have become more popular in wage bargaining since the government announced it would exempt one-off payments of up to 3000 euros from taxes and social contributions to help alleviate the impact of rising inflation. Earlier this morning, however, the sharp drop in retail sales (-5.3% month-on-month in December) showed that even the solid labour market cannot prevent high inflation and uncertainty from denting private consumption. Read next: Samsung Demand For Semiconductors And Smartphones Remains Weak| FXMAG.COM Looking ahead, the lack of skilled workers remains a huge burden for the German economy. This has been driven not only by the end of lockdowns but also by structural trends like demographic change and it is a problem that is more likely to worsen than improve over the coming years. As a result, Germany will either witness additional wage pressure or a shrinking of the supply side as companies have to scale down production. The labour market has been an important driver of the economy's resilience over the last few years. In the coming years, the labour market will be another symbol of the structural transition that the entire economy will have to undergo. Read this article on THINK TagsLabour market Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

Many European sectors will suffer from a weak economy in 2023

ING Economics ING Economics 31.01.2023 11:38
In 2023, many EU sectors will see diminishing growth due to a weak economy. Manufacturing, staffing and construction are likely to face a small decline though not all sectors will shrink. While the Technology, Media & Telecom (TMT) and transport sectors should see lower growth than last year, the outlook remains positive Robotic arms operate in a welding hall of the Suzuki manufacturing plant in Hungary Sluggish developments in many industries Development production (volume value added) EU sectors (Index 2018=100) Source: Eurostat, ING Research (2022 Estimate & 2023 Forecast) Energy prices still a drag but gas and power markets have eased Given the circumstances, European companies could not have hoped for a better situation during the first half of the heating season. Demand destruction, milder-than-usual weather and continued LNG supply have ensured that storage levels are still at record-high levels. Day-ahead TTF gas prices have fallen as much as 83% from the peak in August 2022 and APX power prices by 75%. This leaves Europe in a better-than-expected position for the remainder of this winter and the same is true for the 2023 filling season of gas storages. However, it is still vital that the region is cautious through the remainder of this winter, as Europe needs to try to end the current heating season with storage as high as possible as gas flows from Russia could still be reduced further, both in terms of pipeline flows and LNG shipments. Futures markets currently expect TTF gas prices to trade between 55 and 65 euro/MWh throughout 2023 and carbon prices to remain within their trading band of 75 to 100 euro per ton CO2. Hence, markets currently expect APX baseload power prices to trade between 140 and 175 euro/MWh throughout 2023. That is a lot lower compared to the future prices before the start of the winter, but still three to four times higher than pre-crisis levels. Hence, energy prices will continue to weigh on European sectors in 2023. European gas storage levels are at record high levels EU gas storage levels Source: ING Research based on Refinitiv and Gas Infrastructure Europe Manufacturing: Still cloudy, but gradually clearing up In recent months, the outlook for European industry has improved somewhat thanks to a mild winter and governments bolstering producer confidence by dampening the extreme energy prices. Given the fact that the sector has encountered a growing number of persistent problems, production held up well in 2022. Average growth was around 2%, but sectoral differences were large, ranging from sharp contractions in energy-sensitive basic materials such as chemicals (-5.5%) and base metals (-3.5%), to strong growth in consumer goods such as pharmaceuticals (+14%) and clothing (+5%). Production interruptions have been greatly reduced, but like the high energy prices, are not yet a thing of the past. In addition, a post-Covid consumption shift from products to services and stagnation in the US will most likely continue to weigh on demand in the first half of 2023. The reopening of the economy in China provides some counterweight on the demand side. Manufacturers’ expectations for the near future have become less pessimistic. In addition, automakers clearly continue to benefit from the more reliable supply of semiconductors and other electronic components, which is enabling them to eliminate the large production backlogs. In that respect, it is also encouraging that the Ifo index, Germany's most prominent indicator, rose for the fourth time in a row in January. Still, don’t expect a full-blown industrial upswing in 2023. The more bearish factors dominate for now, and some renewed but subdued growth in the second half of 2023 seems the most realistic scenario. Food manufacturing: Slight decline after two years of strong growth Growth in production volumes in food manufacturing has been particularly strong over the last two years, partially because of a Covid rebound. Over the past 20 years, there are three periods in which production volumes decreased in line with a general economic downturn, namely 2008-‘09, 2012-‘13 and 2020. We believe 2023 could mark a decline in the range of 0.5% to 1% for food makers as the general economy balances between contraction and stagnation. While the inflation peak seems to have passed, there are still many food manufacturers that plan to raise sales prices in the months ahead. However, since December, this group is no longer in the majority. Food inflation came in at 12.2% in 2022 which has likely caused shifts in consumer demand as more households look to save money when shopping for groceries or eating out. For food producers, this could mean that companies that primarily focus on making private-label products and supplying discounters fare a bit better in terms of sales volumes compared to branded food makers. Still, the latter have more pricing power in general and are in a better position to defend margins. Construction: Order books still well-filled In November 2022, EU construction production decreased a bit (-0.4%) compared to October but was still above the volume of a year earlier. Higher interest rates and a weaker economy are making home buyers and firms more reluctant to invest in new residential and non-residential buildings. In addition, higher building material costs have made new investments more expensive although some building materials prices have decreased in the last few months. That said, EU construction firm order books are still well filled with 9.0 months of ensured works at the beginning of 2023. The EU construction confidence indicator declined in the first half of 2022, but since then, has hovered around neutral. So, the developments are certainly not bad in every subsector. High energy prices are creating additional demand for energy-saving construction works in the installation and maintenance market. All in all, we expect only a very slight decrease (-0.5%) in total EU construction volumes in 2023. Increase in sentiment indicator retail and manufacturing sector in January 2023 European Union Sentiment indicators Source: Eurostat, ING Research Retail: Weak start to the year but some recovery expected 2023 is likely to be another interesting year for retail. Last year saw people spend more money than ever at the store and online, although volumes have been on a declining trend since late 2021. This is a clear sign that consumers are suffering from high prices. We also note that pre-pandemic preferences are now returning with consumers once again spending more on services and less on goods. Slowing volumes and easing supply chain problems have led to fast growth in inventories, which could prove problematic early in the year given that consumers are becoming more cautious about spending on goods. The big question mark is how purchasing power will recover over the course of the year as inflation is expected to drop. Wage growth is set to increase, but not to the extent that purchasing power will improve in the first half of the year. Still, with unemployment expected to remain low, there seems to be potential for recovery in sales volumes in the second half of the year. TMT: Growth will slow but remain strong We estimate that growth in the information and communication sector was 5.8% in 2022 and we forecast 3.5% growth for 2023. This is a composite figure that reflects growth above 3.5% in the sub-sector “Computer programming, consultancy, and information service activities”, while growth should be more subdued in the telecom sub-sector. Our expected growth for the information and communication sector is below the historic average, in line with the expected economic slowdown. The sector has been growing much faster than the overall economy over the years. According to European Commission survey data, managers of the largest subsectors of the information and communication sector have a neutral view about the near-term business prospects. They do not think that there are specific factors which will restrain growth, although some managers report it is a challenge to find personnel. Interestingly, the sector is experiencing a lot of price pressure, which is favourable for customers. Nominal growth will therefore be more subdued than volume growth in 2023. Read next: Samsung Demand For Semiconductors And Smartphones Remains Weak| FXMAG.COM Transport & Logistics: Rebound of passenger travel outweighs headwinds for freight The European transport and logistics sector is entering a new phase of reality after the unprecedented impact from the pandemic and the Russian invasion of Ukraine. Unlike 2022, this year starts with (nearly) all travel restrictions removed. With European interest in (leisure) travel continuing to resume, the aviation sector is set to proceed on a low double-digit recovery track. Public transport networks are also expected to see higher occupancy rates. On the dominant freight side, the outlook is bleaker, with consumers spending more on services and demand for goods faltering amidst economic weakness and sanctions. German road transport traffic on motorways – a relevant indicator - ended last year in slight negative territory. But freight logistics could pick up over the course of the year as the European manufacturing sector shows signs of improvement, and China’s Covid policy U-turn could benefit airlines as well as trade (and the ports- and shipping sector). On balance, we expect the transport and logistics sector to grow by 1.5% in 2023. Staffing: Hiring freezes seen due to EU recession fears After two years of buoyant market growth, the outlook for the European staffing sector is darkening for 2023. With economic activity in most European economies expected to slow down, market volumes in the European Union are likely to decline by 1% in 2023. A combination of lower economic growth forecasts and rising costs will likely soften demand for temporary agency workers, especially in certain energy-intensive and/or consumer-oriented industries. Although unemployment will rise slightly, the labour market remains tight in most European economies. Hence, clients are more likely to turn to temp agencies since they are better equipped to find candidates than the clients themselves. However, at the same time, the tight labour market will limit the growth potential of temporary employment agencies, as it becomes more difficult for them to recruit new employees. Read this article on THINK TagsTransport TMT Manufacturing Forecasts Food EU Construction Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
RBA Pauses Rates, Australian Dollar Slides 1.3% on Economic Concerns; ISM Manufacturing PMI Expected to Remain Negative

Weak Performance For EU Q4 GDP, The UK Economy Is Also Expected To Experience A Weak Quarter

Michael Hewson Michael Hewson 31.01.2023 13:10
European markets struggled for direction yesterday, after German Q4 GDP showed a surprise contraction of -0.2% and core CPI in Spain rose to a record high of 7.5%, pushing yields across the bloc sharply higher. With the ECB due to meet later this week and expected to raise rates by 50bps, yesterday's weakness appears to have been driven by concern that the EU economy might not be as strong as thought, and inflation a lot stickier.   US markets also continued their own Jekyll and Hyde behaviour with the Nasdaq 100 posting its biggest one-day loss this year, as the strong rally of last week gave rise to a more tempered approach as the Federal Reserve gets set to kick off its two-day meeting later today.   Yesterday's surprise increase in Spanish core inflation for January to record highs also appears to have raised concerns that high prices might not come down as quickly as thought, and growth a lot slower, despite the recent sharp falls in energy prices. With Asia markets also sliding back this morning, markets here in Europe look set to open lower as we come to the end of what has been a strong month.   Later today we should get a better idea of whether the contraction in the German economy in Q4 was a localised issue, or symptomatic of more widespread economic weakness across the EU.   The French economy is expected to slow in Q4, down from 0.2% in Q3, to 0%, while the Italian economy is expected to contract by -0.2% in Q4. This is expected to translate into a similar weak performance for EU Q4 GDP which is forecast to show a contraction of -0.1%.   The UK economy is also expected to experience a weak quarter, however we won't know the actual numbers on that until next week, but recent lending data has already shown that consumers have already started to rein back on their spending, although we did see a bit of a pickup in November.   Read next: The Government Pension Fund Global Suffers Losses| FXMAG.COM   Net consumer credit in November more than doubled from 700k in October, to £1.5bn. This may well have been driven by a surge of holiday bookings judging by the recent November GDP numbers, which showed a strong performance from the travel sector. This resilience may well extend into December with an expectation of £1.1bn.   Mortgage approvals on the other hand, have slowed sharply since the summer months, and are expected to remain subdued in December, with expectations of a fall from 46.1k to 45k.   In the US the latest consumer confidence numbers for January are expected to see another gain to 109, after a surprise surge in December saw this indicator rise sharply to 108.3 from 101.40. This rise in consumer confidence is a little puzzling given that retail sales in the US for both November and December showed sharp declines.   One indicator that is likely to be of particular interest to the Federal Reserve as they convene their latest meeting today is the employment cost index for Q4 which is expected to slow from 1.1% from 1.2% in Q3. This is another key indicator for the Federal Reserve after last week saw core PCE fall to its lowest levels in over a year.  An upside miss on the ECI would be bad news for any sort of dovish expectations from tomorrow's decision.   EUR/USD – we saw another failed attempt to push above the 1.0900 area before slipping back again. The main resistance remains at the 1.0950 area which is 50% retracement of the move from the 2021 highs to last year's lows at 0.9536. A move through 1.0950 opens up a move towards 1.1110. Support remains back at the 1.0780 area.   GBP/USD – has continued to struggle above the 1.2400 area after last week's failure to move through the 1.2450 resistance area. We need to see a move through the 1.2450 area to target further gains towards 1.2600. A move below 1.2250 could see a move towards 1.2170.    EUR/GBP – the failure to make progress through the 0.8850 area last week has seen the euro slip back. Key support remains at the 50- and 100-day SMA which we earlier this month at the 0.8720/30 area. Below 0.8720 targets 0.8680.   USD/JPY – needs to break through the 131.00 area to target a move back towards 132.60. While below 131.00 the risk is for further declines towards the lows at 127.20. We have trend line support at the 129.00 area initially.   FTSE100 is expected to open 18 points lower at 7,767   DAX is expected to open 50 points lower at 15,076   CAC40 is expected to open 22 points lower at 7,060     Email: marketcomment@cmcmarkets.com Follow CMC Markets on Twitter: @cmcmarkets Follow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

China May Be Optimistic About The Future Of The Pandemic Situation

Conotoxia Comments Conotoxia Comments 31.01.2023 15:08
At the end of last year, we could learn that China's budget deficit reached record highs from January to November 2022. The property crisis and the zero-tolerance policy for COVID-19 may have contributed to this, with fiscal spending outstripping revenue by US$1.1 trillion and being twice as large as the year before. However, it seems that we may  see a light at the end of the tunnel in the form of a loosening of the pandemic policy. Is it worth investing in shares of Chinese companies? Macroeconomic data from China Official figures from China say that the increase in the deficit was due to a fall in land sales, a fall in tax revenues and an increase in health and welfare spending, which was linked to the coronavirus outbreak. The authorities in the Middle Kingdom now appear to be under pressure to cut spending, as the deficit target has remained unchanged. Public finances are forecast to probably improve in 2023, when China exits the zero COVID policy completely. This could be seen from the latest readings of the PMI sentiment index for the industrial sector, which exceeded expectations and rose to 50.1 points (49.8 expected), up from 47 points in the previous month. The future outlook appears to be improving, as evidenced by increases in the share prices of Chinese companies. The ChinaH Index (CHINAH) has risen 50% from its October lows. This seems to have broken a 2-year slump. Nevertheless, a correction could be expected in the near term, so caution should be exercised when investing in this market. Source: Conotoxia MT5, CHINAH, Daily Pandemic situation According to WHO data, the weekly record of confirmed infections of more than 40 million cases was in the second half of December 2022. Since then, the number of weekly infections has fallen to the 175,000 cases recorded last week, a reduction of 99.5 per cent. However, it should be noted that the Chinese authorities have ended their mass testing programme, so the latest data may not be very reliable. Up to 89.5 per cent of the Chinese population is fully vaccinated. According to official data from November 2022, Chinese health services have already vaccinated 40 per cent of people over 80 with two doses of vaccine and a booster dose. China has now set a target of vaccinating 90% of the elderly by the end of January. The difference in the percentage of the population fully vaccinated was a result of the focus on vaccinating working-age people first. It seems that by reducing the number of tests performed and the number of new vaccinations, China may be optimistic about the future of the pandemic situation. Read next: AUD/USD Pair Remains Under Strong Selling Pressure, The EUR/USD Pair Has Been Falling But Remains Above 1.08$| FXMAG.COM Source: WHO, China confirmed Cases What lies ahead? Looking, among other things, at the purchases of the largest mutual funds, which in a recent Bank of America research report declared that emerging market equities, including China's, are most prevalent in their portfolios. We can assume that, in the long term, these shares appear to be an attractive investment.     Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

India's Adani Group May Have Passed A Key Test, Positive EU CPI Report

Kamila Szypuła Kamila Szypuła 01.02.2023 12:10
Recently, there has been a lot of talk about the impact of the Hindenburg Research report on India's Adani group. It seems that the company will cope with the current problems. Another positive is the report on inflation in the euro zone, CPI fell again. In this article: Headline-topping news India's Adani group may have passed a key test The 9th International Conference on Financial Markets EU CPI drop The European Union, 20-country region underwent a major price surge in 2022 after the Russian invasion of Ukraine pushed energy and food costs up across the bloc. However, the latest data provide further evidence that inflation has started to ease. Inflation in the euro zone fell for the third month in a row in January due to a significant drop in energy costs. According to preliminary data published on Wednesday, headline inflation in the euro zone amounted to 8.5% in January. In December this indicator amounted to 9.2%. Energy remained the biggest cost driver in January, but fell once again from previous levels. Now investors of the EUR/USD pair will counter at the Fed meeting and will await tomorrow's decision of the ECB. Euro zone inflation dips for a third straight month as energy prices continue to fall https://t.co/Fy81jgxCKf — CNBC (@CNBC) February 1, 2023 India's Adani group may have passed a key test The world's third richest man completed a $2.4 billion stock sale in a Hindenburg short sale attack. India's Adani group may have passed a key test by raising $2.5 billion in the face of a short-selling attack, but its response to the allegations and results of regulatory probes will shape its outlook, analysts and investors say. Most of the conglomerate's shares fell Wednesday, bringing losses to $84 billion after last week's Hindenburg Research report. Moreover, looking at India, the country is set to be the world's fastest-growing major economy in the year to March 2024 as the post-pandemic retail boom and recent bank balance sheet repairs attract new investment, fueling demand for everything. From @Breakingviews: Gautam Adani completed a $2.4 billion share sale amid Hindenburg’s short-seller attack. His group now faces refinancing challenges. Local lenders may step up, but funding will be pricier with more strings attached, says @ShritamaBose https://t.co/WMdi9lLFf9 — Reuters Business (@ReutersBiz) February 1, 2023 Read next: Intel's Cost Reduction Also Includes Executive Compensation | FXMAG.COM The 9th International Conference on Financial Markets In 2020, the world was stopped by the COVID-19 pandemic, which highlighted the importance of cooperation, flexibility and readiness for unforeseen challenges both in everyday life and in the economy. The year 2022 brought new trials. The war in Ukraine started by Russia has led to turbulence in various sectors, from energy to financial. The 9th International Conference on Financial Markets "Strengthening Recovery, Developing Resilience", co-organized by the Ministry of Finance of the Republic of Lithuania and the Lithuanian Banking Association, brings together high-level decision makers and business practitioners for leadership and ideas exchange on topical topics related to financial markets and more. The forum will discuss the needs of the EU and Baltic capital markets and the actions required. In addition, the further development of capital markets for the Baltic States and an overview of the implementation of digitization and innovation in the sector will be discussed. The Director of the IMF European Department, Alfred Kammer, will participate in a panel discussion at the International Financial Markets conference, focused on capital markets in the Baltics, their challenges and the need for action. Registration: https://t.co/KkDPKQTRM3 pic.twitter.com/F4w5t7Px01 — IMF (@IMFNews) February 1, 2023
Economic Calendar Details and Trading Analysis - August 7 & 8

India: A look at the Union Budget for 2023-24

ING Economics ING Economics 01.02.2023 12:17
India's Finance Minister Nirmala Sitharaman has announced an ambitious budget, with big increases in infrastructure spending and a reduction in the deficit below 6% Indian Finance Minister Nirmala Sitharaman holds a folder containing Union Budget documents in New Delhi, India, on 1 February 2023 5.9% % GDP Deficit target 23/24 Deficit adherence in 2022/23 has been good A few days leading up to today's Union Budget speech, Finance Minister Nirmala Sitharaman received some good news as the December 2022 fiscal deficit numbers came in sharply down from the December 2021 total, giving her more wiggle room for a budget centred on growth for the year ahead. In her latest budget, the deficit target for this fiscal year was left unchanged at 6.4% of nominal GDP with three months left in the fiscal year to run. Currently, the numbers are running below (i.e. a smaller deficit) what we calculate the government needs to achieve in order to come in on target for the year at 6.4%. However, the last three months of the fiscal year have a nasty habit of springing some unwelcome surprises, and we think there is still some scope for a little overshoot by the end of the fiscal year, which would leave the deficit closer to 7.0% of GDP, a slight increase of the 6.7% outcome for 2021/22. Fiscal 2022/23 deficit evolution and target Source: CEIC, ING New deficit target reduced to 5.9% The Union Budget for the fiscal year 2023/24 sets a deficit target of only 5.9% (on a primary deficit of only 2.3% GDP – interest payments make up 24% of all budget expenditure). This is ambitious, coupled with a sizeable increase in capital expenditure that is 37.4% more than the prior year's total. Underlying these estimates is a forecast for nominal GDP growth of 10.5% over 2022/23. This also seems about right to us, as inflation falls closer to the mid-point of the Reserve Bank of India's 4+/- 2% inflation target, and real GDP growth comes in around 6% for the year, a bit down on this year, but still one of the highest rates of growth in Asia.  For a bit of balance, we do note that in the last fiscal year, the budgeted capital expenditure fell short of achieving some of the physical targets for home building, road building and water connectivity that it was supposed to deliver. Making sure that the extra expenditure this year delivers what it is supposed to on the ground will ultimately be as important to India's long-term growth potential as meeting arbitrary deficit targets.   Helping India to achieve these underlying growth assumptions, and hence the budget projections, India's large and not particularly open economy shields it to some extent from the slowdowns we are expecting in the US and Europe. India is also not particularly exposed to the downturn in the semiconductor industry that is weighing on the exports and production outlooks for many other Asian economies, and which will likely weigh on growth at least until the middle of this year.  India is also benefitting from a more imaginative approach to foreign direct investment from many multinational corporations looking for an alternative to China following trade and tech wars. And this is resulting in increased foreign direct investment inflows that will not only provide employment but typically also boost domestic productivity and raise the potential growth rate.  Budget deficits as % nominal GDP (fiscal years) Source: CEIC, ING Financial markets give the 'thumbs up' to the budget Our relatively favourable perspective on this budget seems to be shared by financial markets. The Indian rupee (INR) opened trading a little stronger on the day and is about 81.80 as of writing. We think the INR should appreciate a little further over the coming quarters as the US dollar (USD) backtracks and we look for the rupee to reach USD/INR 80.0 by mid-year. The bond market also seems to share our relative optimism. 10Y Indian government bond yields are down about 4bp to 7.30%, which represents a cautious "thumbs up" from investors.  Read this article on THINK TagsINR Indian economy Indian deficit India Union Budget India bond market Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Navigating Gold's Resilience Amidst Rising Yields and a Strong Dollar

Dutch utilities: Addressing the capex and opex challenges

ING Economics ING Economics 01.02.2023 12:20
Dutch grid utilities have had regulatory frameworks that in the past offered the lowest return on capital and debt. The current regulatory period is no different and the network companies have struggled to generate the necessary cash to fully fund their investments. Adding to this challenge, the energy crisis has added much higher operating costs Source: Shutterstock The 2021-2026 regulatory period for the Dutch grid companies Across Europe, energy distribution and transmission activities are regulated. The network companies are monopolies whose allowed tariffs and revenues are defined by regulators. With formulas taking into account the cost of equity, the cost of debt, inflation and other market elements, the Dutch regulated utilities have evolved within the least generous remunerative frameworks in the last ten years. One of the causes is the decreasing cost of debt, reflecting the sharp decline of government bond yields. If regulated utilities can save money on servicing their debt, the lower financial expenses do not compensate at all for the additional hundreds of millions of euros electricity and gas network companies have to find for their surging capital expenditure. Dutch network utilities: Further reduction in the WACC (weighted average cost of debt and capital) in % Source: ACM, ING The initial remuneration determination was improved but remains low The determination of the weighted average cost of capital has been set following a similar approach to the former regulatory period. The declining (and even negative) sovereign rates as well as the very low cost of debt led to another reduction in the allowed remuneration. The formula led to a progressive decline of the nominal WACC to 2.77% in 2026 compared with c.3% in 2021. The formula included an average annual inflation of 1.77%, leading to a real WACC around 1% at the end of the regulatory period. Dutch gas and electricity distribution companies (DSOs) appealed against the decision of the ACM, the Dutch regulator. The DSOs obtained some improvements: Gas network activities to be remunerated at a nominal WACC level and grids subjected to a limited degressive depreciation Electricity activities to benefit from a 50% nominal WACC (including half of the inflation indicator) instead of real WACC The yearly revision of inflation and market elements forming the WACC formula Tariffs to sharply rise in 2023 At the end of November 2022, the Dutch regulatory body ACM published the 2023 tariffs for the transmission and distribution network companies. 2023 will mark an important surge in tariffs due to the need to (re)cover operating costs that have significantly increased. The costs reflect higher energy bills for grid companies as they themselves are important users of power to operate their networks. Although more marginal, the lack of skilled staff leads to increasing salary costs in a tight employment market environment. TenneT, Alliander, Enexis and Stedin will charge customers much higher in 2023 vs. 2022, except for Nederlandse Gasunie, which was not given a positive conclusion by the regulatory body (ACM). The gas transportation company has appealed the decision. TenneT’s 2023 allowed tariffs for transmitting electricity will increase by 51% compared with 2022. In 2022, TenneT was able to charge an aggregate of €850m in the Netherlands for its transmission services. In 2023, the transmission system operator will be able to charge €1,254m. The sharp rise should compensate for the surging costs that have occurred since 2021. For instance, TenneT’s purchasing costs for energy and capacity reached €850m in 2021 when the company would disburse a yearly average of €280m in the period 2018-2021. Note that this increase comes from higher costs only. It is not a policy measure to make funding of the large energy transition capex easier, a policy option that has been discussed in the past. TenneT sees strongest increase in allowed revenues Source: ACM, ING +31% in tariff increase for gas and electricity transmission services for the Dutch final customer     With the ACM’s decision, Stedin’s 2023 charges will grow by 38% for a total allowed revenue (electricity and gas distribution services) of €1,618m. Alliander’s regulated activities will be able to generate €2,251m, representing a 35% rise compared with 2022 and Enexis €1,837m (+26% vs. 2022). According to the regulator, a household with an average energy usage paid €392 for the year for electricity and gas network services. In 2023, the average bill for these services will surge to €513 – a 31% increase for the Dutch final consumers. Spiraling investment needs on the back of the energy transition The tariffs increase should restore the balance between revenues and operating costs, but the financing of capital expenditure plans remains a challenge. The energy transition and the strong development of renewables in the country impose higher investments to upgrade and develop the grids. Taking into consideration Germany, the transmission network companies (TSOs), TenneT and Nederlandse Gasunie will invest a total of c.36bn between 2025 and 2030. The three gas and electricity distribution network companies (DSOs) will invest €23bn in the same period. These amounts are respectively 20% and 40% higher than in the period 2019-2024. Energy transition leads to strong increase in investment for network operators Source: Company data, ING Past capital injections have not been enough TenneT is 100% owned by the Dutch state. The electricity transmission network company already received capital injections in the last ten years (€600m in 2011/2012 and €1.2bn between 2017 and 2019). TenneT and the Dutch government agreed on a €4.25bn capital injection to be able to maintain current ratings. The Dutch State has budgeted €2.57bn that it will distribute to TenneT between 2023 and 2025. Another €1.68bn remains to be found. TenneT and the Dutch State are still exploring alternatives. A preferred solution is a capital stake by the German government, as TenneT has many operations in Germany, but parties disagree on the conditions of an equity stake. Enexis obtained a €500m convertible hybrid shareholder loan paid in two tranches. The first tranche of €421m came in July 2020 while a second tranche of €79m was added in November 2020. In December 2021, 70 out of the 76 shareholders of Alliander agreed on a capital injection of €600m in the form of a reverse convertible hybrid shareholder loan.  Stedin is the DSO in the most challenging position with capital expenditure already surpassing cash flow generation for a few years. In June 2021, Stedin Group’s shareholders strengthened the grid operator’s equity by €200m in the form of cumulative preference shares. Recently, the network company estimated it will need an additional funding of €1.8bn between now and 2030 to finance its investments in full and maintain an appropriate credit profile. Securing the financial help of the Dutch State These recent capital injections are more than welcomed but the shareholders of Enexis, Alliander and Stedin (Dutch provinces and municipalities) do not have the financial facilities to accentuate the financial help to their respective regional grid companies. In 2022, the Dutch gas and electricity network companies started to look for other solutions, including the introduction of a new shareholder into their capital: the Dutch State. Alliander, Enexis and Stedin have reached a “framework of agreements” with the Dutch Ministry of Finance and the Ministry for Climate and Energy Policy. The Dutch government will reinforce the DSOs’ capital in exchange of a stake. With urgent financial needs, Stedin is the first DSO to secure €500m of reserves from the Dutch State. Alliander and Enexis should be able to communicate on capital injections when agreements are finalised. The agreements also stipulate that the regional shareholders could be asked to participate again to further capital increases. Large investments, changes in remuneration as well as new shareholder structures put the sector in a turbulent environment. Luckily the Dutch government is working on capital injections that should limit the negative impact of higher indebtedness. The consequences of the Russian-Ukraine war reinforce the need to accelerate the energy transition and to guarantee the required investments. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Italian headline inflation decelerates in January, courtesy of energy

Italian headline inflation decelerates in January, courtesy of energy

ING Economics ING Economics 01.02.2023 13:34
Today's release shows a divergence between the headline and core measures, which could continue for a few months. This pattern is unlikely to revive consumption, for the time being, but might start affecting supply Italian inflation decelerated in January, mainly on lower energy prices Regulated energy prices push down headline inflation The headline inflation peak should now be behind us. According to the preliminary estimate, headline inflation declined in January to 10.1% year-on-year (from 11.6% in December), in line with expectations. Unsurprisingly, the inflation decline was mainly driven by the sharp fall in regulated energy goods inflation (down to -10% YoY from +70.2% YoY), but also non-regulated energy goods, fresh food and recreational services contributed marginally to cool down headline inflation. The expiration of excise cuts on fuels had the expected upwards effect on transport inflation. The core measure inches up again at a non-accelerating pace However, the most interesting part of the release, from the European Central Bank perspective, was the core inflation part. The core measure inched up once again to 6.0% (from 5.8% in December), signalling that the pass-through of past energy price pressures is yet in place, albeit at a non-accelerating pace. This might continue for a few months more, but if energy prices continue to be well-behaved, chances are that the peak in core inflation might be reached by mid-year. The pattern should continue if gas prices remain well-behaved Looking ahead, we expect the divergence between headline and core inflation to continue in February, once again courtesy of the energy-related component. With TTF gas prices now hovering in the 60 €/MWh area, we expect retail gas prices to fall markedly in the month. The expected modest increase in the core measure should not prevent headline inflation from decelerating to the 9%+ area in February. Read next: USD/JPY Pair Drop Below 130.00, GBP/USD Is Trading Below 1.2330, The Australian Dollar Remains Generally Up| FXMAG.COM No short-term positive impact on consumption expected All in all, the inflation picture seems to follow the expected profile. Notwithstanding the headline deceleration, the stubbornness in the core measure remains an issue for short-term growth developments. True, resilience in employment represents a crucial safety net for households, but with contractual hourly wages increasing at a very modest 1.5% yearly pace, it can only limit damages on real disposable incomes. For the time being, consumption looks set to remain under pressure. Interesting signals on the supply front worth monitoring Where the energy deceleration might have a more immediate positive effect is on manufacturing, and particularly on energy-intensive sectors. The PMI indicator for January, also released earlier today, was back in expansion territory at 50.4, interrupting a six-month run of sub-50 readings. This is a tentative indication that something might happen on the supply side front already in the first quarter. Read this article on THINK TagsItaly inflation Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
US Inflation Rises but Core Inflation Falls to Two-Year Low, All Eyes on ECB Rate Decision on Thursday

IMF Forecast Says Emerging Markets Are Projected To Outperform Developed Economies

InstaForex Analysis InstaForex Analysis 01.02.2023 14:49
In its economic outlook update on Tuesday, the International Monetary Fund said it forecasts global economic growth of 2.9% this year and a recovery to 3.1% in 2024. Although growth is expected to be below trend, economists do not see a recession on the horizon. IMF Chief Economist Pierre Olivier Gourinchas said economic growth was surprisingly resilient in the third quarter of last year, thanks to strong labor markets, business investment, and excellent adjustment to Europe's energy crisis. Inflation has also shown improvement, and overall numbers are now declining in most countries, even if core inflation, which rules out more volatile energy and food prices, has yet to peak in many countries. With inflationary pressures easing, China's reopening and a weaker U.S. dollar are easing the situation for emerging markets and developed countries. An updated IMF forecast says emerging markets are projected to outperform developed economies. Analysts note that 9 out of 10 advanced economies are likely to slow down next year. The U.S. economy is also expected to grow at a slower rate of 1.4% and by 1% in 2024 as the Federal Reserve's aggressive monetary policy continues to weigh on the economy. Europe, meanwhile, is projected to grow 0.7% this year and to 1.6% next year. The IMF said that the European Central Bank is just beginning a tightening cycle and the region's dependence on energy imports is creating problems for economic activity. The IMF is more bullish on China as the government reopens its economy and lifts restrictive policies. Economists predict that China will grow by 5.2% this year and slow down by 4.5% in 2024. Despite optimistic forecasts, economists warn that there are ongoing risks. Persistently high inflation, forcing central banks to continue aggressively raising interest rates, and geopolitical tensions in Ukraine, threatening global stability and destabilizing food and energy markets, pose risks to their outlook. "This time around, the global economic outlook hasn't worsened. That's good news, but not enough," Gourinchas said. Relevance up to 10:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/333880
Monitoring Hungary: Glimmering light at the end of the tunnel

Monitoring Hungary: Glimmering light at the end of the tunnel

ING Economics ING Economics 02.02.2023 08:41
In our latest update, we reassess our Hungarian economic and market forecasts, as we are waiting proof of a technical recession. Inflation and EU funds remain the key topics in the coming months, but we now see the light at the end of the tunnel in several aspects Hungary's parliament building in Budapest Hungary: At a glance As some hard and soft data suggest more resiliency in external demand, we see better prospects ahead for the Hungarian economy as well. The peak in inflation is still ahead of us and while the start of the new year could bring some ugly surprises, we see some signs of easing pipeline price pressures. The central bank has just turned up the volume regarding its hawkish tone and we see the dovish pivot only in the second quarter. The significantly reduced energy consumption of the country combined with lowering global commodity prices will bring an improvement in the external balance. We see the 3.9% deficit-to-GDP target as roughly realistic, where the key risk remains securing the planned 2.9% of GDP transfers from the European Union. Despite a rough start to 2023 in sovereign rating reviews, we think that agencies are a bit behind the curve, and we are hopeful for a quick turnaround. The forint became the star of the region in the first few weeks of this year and as the market is shrugging off the negative rating actions, we remain bullish on HUF. We expect the steepening bias to continue in local rates, while liquidity conditions remain an obstacle to having a strong view here. Quarterly forecasts Source: National sources, ING estimates First leg of technical recession is already in Even though we haven’t seen the fourth quarter GDP data, the 0.4% quarterly drop in the previous quarter confirms our view that Hungary slid into a technical recession in late 2022. A deteriorating industrial performance, along with weakening retail sales in the fourth quarter do not point to a rebound in activity, thus we forecast the economy to shrink by -1.2% quarter-on-quarter (QoQ). As financial conditions are tightening and households’ purchasing power is deteriorating, we do not expect a rebound in the first quarter of 2023. We expect the Hungarian economy to recover only in the second half of 2023, resulting in a 0.7% GDP growth for the whole year. Nevertheless, an improving global growth outlook poses an upside risk to our forecast, limited by a possible next wave of energy price shock. Hungarian GDP falls in the third quarter, confirming the deteriorating outlook Real GDP (% YoY) and contributions (ppt) Source: HCSO, ING Car manufacturing performance is not enough to save industry Industrial production in November jumped by 0.8% year-on-year (YoY), adjusted for working days. At first glance, it might seem like industry is holding up against the backdrop of high energy prices, but the -0.7% performance on a monthly basis further increases the odds of a technical recession. Even though car manufacturing expanded significantly, the drop in food industry and electronics were much of a drag. The more conscious energy usage has impacted the energy production subsector, further worsening the overall performance. After months of PMI readings above 55+ and consequent negative industry performances, soft and hard data seems to be decoupling. The main reason could be the high level of stock of orders, coupled with capacity enhancing investments, which bode well for the longer-term outlook. Hungarian industry runs into trouble again Industrial production (IP) and Purchasing Manager Index (PMI) Source: HALPIM, HCSO, ING Retail sales are weakening as real wage growth deteriorates Retail sales rose by a mere 0.6% YoY in November, as the 0.15% monthly increase was just enough to put the performance above water for the time being. As food prices were increasing by more than 40% on a yearly basis, consumers are adapting to the new reality by cutting back on the volume of food purchases. What’s even more, only fuel retailing could expand on a monthly basis, by posting a 2.9% growth, since consumers reduced demand for goods from non-food retailers likewise. As the government scrapped the fuel price cap on 7 December, we expect fuel consumption to fall significantly, dragging overall retail sales volume to negative territory going forward. Weakening overall consumption in all three sub-sectors will leave its mark on fourth quarter GDP, thus further increasing the chances of a technical recession. Mediocre Hungarian retail sales continue to drag on growth Retail sales (RS) and consumer confidence Source: Eurostat, HCSO, ING Inflation peak is still ahead of us Even though December’s 24.5% YoY headline inflation surprised to the downside, the peak is still ahead of us. The lifting of fuel price caps pushed the headline reading higher by 2.1ppt in December, while underlying inflation strengthened too. Besides fuel, food and energy remains the main contributor to the extreme inflation. In January-February, we see further acceleration to above 25% as start-of-the-year repricing could be stronger than usual, especially in food and services. This might be the peak however, as pipeline price pressure has started to abate (see producer prices), global commodity prices have been dropping and more retailers are complaining about fading repricing power. The slow and gradual retreat of price pressure will translate into an 18.5% average CPI in 2023, but we see a single digit print by the year-end. Risks tilted to the upside are mainly due to the presence of the price-wage spiral, in our view. Hungary’s inflation accelerates, but less than expected Inflation and policy rate Source: NBH, ING Monetary policy continues its tightening The National Bank of Hungary (NBH) has left the interest rate complex unchanged since mid-October, leaving the base rate at 13.0% and the one-day quick tender as the effective marginal rate at 18%. However, by doubling the required reserve ratio (RRR) – effective from April – at the January meeting, the NBH continues the tightening cycle via liquidity-related measures. Draining excess forint liquidity via targeted and temporary tools, along with stricter RRR will help the central bank achieve price and market stability. As the NBH patiently waits for a material and permanent improvement in the general risk sentiment, we think the first signs of any potential pivot might come only at the March rate setting meeting. But after the January hawkish surprise, we are now skewed a bit more towards the idea that the central bank’s hawkishness will reach well into the second quarter. National Bank of Hungary review: Good things come to those who wait Real rates (%) Source: ECB, NBH, ING Trade balance will improve as energy prices moderate The HUF1,415bn trade balance deficit in goods in November was the second highest on record. The main culprit was the energy import bill, which ballooned as energy prices stayed elevated throughout September. As energy import prices in Hungary follow the Dutch TTF gas prices by a two-month lag, the September 200 EUR/MWh average price put serious pressure on the overall trade balance. With gas prices falling off a cliff from the autumn highs we expect a significant improvement going forward, as October’s average price for TTF was 81 EUR/MWh. For 2023, improvement in the global growth outlook could help the export side, along with a positive outlook for the export-driven industry. In the meantime, gas demand destruction and lower energy prices could help alleviate the pressure on the import side along with the retreating domestic demand. Trade balance (3-month moving average) Source: HCSO, ING Budget shows significant tightening compared to previous years The Hungarian budget posted a HUF1,287bn deficit in December, thus having a HUF4,753bn cash flow-based deficit for the year of 2022, totaling to a Maastricht-based 4.9% of GDP deficit (6.1% with extraordinary gas stockpiling). High energy prices put serious pressure on the overhead reduction scheme embedded in the budget’s expenditure side, which was attempted to be counterbalanced by new windfall taxes and austerity measures. This year, the government is calculating with a deficit totaling to 3.9% of GDP, with the Overheads Protection Fund (HUF2,610bn) and debt servicing (HUF2,074bn) being one of the costliest components. On the revenue side, EU transfers are planned at 2.9% of GDP, signaling confidence in a deal with the EU, however the planned 1.5% GDP growth is higher than our current 0.7% estimate, which poses some negative risk. Budget performance (year-to-date, HUFbn) Source: Ministry of Finance, ING The fate of EU funds is the most important rating driver After dodging an outright downgrade last year, this time S&P changed Hungary’s credit rating from “BBB” to “BBB-“ with a stable outlook in early 2023. Markets do not seem to be bothered by either S&P’s downgrade, or Fitch’s change in outlook from stable to negative in January, suggesting the markets’ take that rating agencies look too much into the rear-view mirror. The factors that have the highest weight in rating decisions remained the same: the fate of the EU deal and economic policies. Regarding the former, we remain optimistic about a final deal being struck between the EU and the government, but in the coming months we see continued uncertainty in headline news. So, we expect Moody’s to follow Fitch in changing Hungary’s outlook from stable to negative at its March review. However, peaking CPI, a rebound in growth and improving external balances alongside EU funds flow might lead to a pivot in rating reviews. CDS and sovereign credit rating (S&P) Source: S&P Global Ratings, ING Forint starts 2023 with impressive outperformance The forint has been the top currency in the EMEA region since the beginning of 2023 and number three in the EM space. Going forward, we believe that the forint still has a lot to offer and see it continuing on its current path. The NBH confirmed the hawkish intent, and we expect to see further progress in the EU story. Moreover, FX-implied yields are by far the highest in the region and the central bank has announced further steps to keep liquidity tight in the market. In addition, we also see favourable conditions for the forint at the global level. While EUR/USD is climbing higher, gas prices still have room to fall in the first quarter in our view, and it is the forint that may benefit the most within CEE. On the other hand, the biggest risk at the moment is the positioning, which is heavily tilted to the long side. Thus, we think further gains in the forint will be slower than what we have seen in the last two months, and moreover, the forint will be sensitive to the global story, with geopolitical escalation impacting gas prices or the EU story. FX performance vs EUR (1 February 2022 = 100%) Source: NBH, ING Short end of the curve to remain volatile in coming months The NBH's decision in January has certainly calmed market speculation of an early central bank rate cut for a while. Also, higher inflation prints should keep the short end at higher levels until at least mid-March. On the other hand, we expect the market to start betting on early rate cuts again near the NBH meeting dates. So, the coming months at the short end of the IRS curve could be pretty volatile, bouncing around in a certain range. The long end of the curve on the other hand has dropped significantly in recent weeks and is not that far from CEE peers. We also don't expect it to have that much room to go lower yet. Overall, we maintain our view for the IRS curve to move lower and steeper. However, NBH and CPI pivoting may be volatile in the coming weeks, which continues to be supported by low liquidity, where we have seen only little improvement so far. Hungarian sovereign yield curve Source: GDMA, ING   On the bond side, Hungary's AKK, like CEE peers, took advantage of favourable market conditions and heavily frontloaded the issuance. According to our calculations, AKK issued 18.2% of its planned Hungarian government bonds (HGBs) and 86.7% of FX bonds. This, together with the cash buffer, gives AKK a very comfortable situation and the ability to stop the issuance if global conditions deteriorate in the coming months. This should limit the scope for a potential sell-off, however we see HGBs still bearing more risks compared to Czech or Romania government bonds and the recent rating and downgrade outlook from S&P and Fitch does not help much. Read this article on THINK TagsQuarterly forecasts Outlook Monitoring Hungary HUF Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spanish economy picks up sharply in February

Spanish tourism rebounded last year but still lagged pre-Covid levels

ING Economics ING Economics 02.02.2023 10:24
Spanish tourism experienced a solid recovery last year although the number of visitors was still only 86% of pre-Covid levels. A further recovery will support Spanish growth in 2023 Tourists in Benidorm, Spain 71.6 million foreign tourists visited Spain in 2022, or 86% of pre-Covid levels Now that the Spanish statistics office, INE, has announced the remaining figures for December, we have a full picture of last year. In 2022, 71.6 million foreign tourists visited Spain, up 130% compared to 2021, but still 14% less than in the pre-Covid year 2019. Spanish international tourism experienced a strong recovery in the first half of the year but slowed from the summer. While the number of foreign visitors was already at 92% of its pre-Covid level in July, the gap remained intact in the second half of the year. High inflation and energy prices have put considerable pressure on the purchasing power of households in Europe, causing them to save on their travel budgets. In addition, the strict Covid restrictions in China and the loss of Russian tourists, who still accounted for 1.3 million visitors or 1.6% of the total in 2019, have also slowed down international tourism in Spain. The number of foreign visitors to Spain still considerably lags pre-Covid levels (in millions) Source: INE Domestic tourism already fully recovered from pandemic Domestic tourism recovered from the pandemic much faster than international tourism. In April, the number of overnight stays by residents had risen above pre-Covid levels. For all of 2022, the number of overnight stays by Spaniards was at the same level as in 2019. The effect of the cost-of-living crisis on domestic tourism was probably mixed. On the one hand, domestic tourism probably received a boost because many Spaniards opted for a domestic holiday this year instead of a trip abroad to save money. On the other hand, many families have likely cut back on their travel budgets, which has likely slowed domestic tourism in 2022. Also, the uncertainty associated with the pandemic at the beginning of last year probably caused more families to decide to stay closer to home. The number of overnight stays by Spanish residents Source: INE A further recovery in international tourism will contribute positively to Spanish growth this year Tourism is an important economic sector in Spain, contributing 14% to total GDP in 2019, according to the World Travel and Tourism Council. Sustained growth in the number of international visitors would be one of the key elements supporting Spanish GDP this year. We expect the number of international visitors to grow by approximately 10% in 2023. There is still great recovery potential, especially in the first half of the year, as the sector was just starting to emerge from the doldrums during the same period last year. In addition, there are also some early signs that the Chinese are keen to travel again. Once the health situation in the country normalises and the remaining travel restrictions are lifted, a growing number of Chinese visitors will boost Spanish tourism. We expect the Spanish economy to grow 1.2% this year, an upward revision thanks to a better-than-expected fourth quarter of 2022. Read this article on THINK TagsTourism Spain GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Dutch GDP sees a sharp drop in the first quarter

Dutch industry goes from top gear into reverse

ING Economics ING Economics 02.02.2023 11:51
High prices and stagnating demand are causing a turnaround in the Dutch industry. After two years of strong growth, increasing headwinds lead to a moderate correction in output in 2023. However, developments differ strongly between industrial subsectors Slight contraction in 2023 Dutch industrial production has been on a downward trend since May 2022. Major causes for this are high energy and material prices, the weakening global economy and the shift in consumer preference from goods to services since the economy reopened post-Covid lockdowns. Domestic and foreign demand for Dutch products will remain under pressure in the first half of 2023. Thanks to a strong first four months of the year, there was still growth on average in 2022. In 2023, the opposite will be the case. The year starts with a contraction, after which, at best, moderate growth will not push the annual figure above zero. Moreover, the downside risks of persistently high purchasing and energy prices on demand and further scaling-down of production in basic industries remain high. Dutch industry from growth in 2022 to contraction in 2023 Volume growth of Dutch industry* Source: ING Research based on CBS *gross added value **forecast High energy prices and destocking weigh on production... While stocks of finished products have long been insufficient due to supply and production disruptions, they are now at unprecedented levels relative to demand. Producers are almost as negative about their sales stocks as they were shortly after the outbreak of the Covid-19 pandemic. As a result, they have to eliminate their surplus sales stocks before increasing production again. Producers are more negative about sales stock than at the start of the pandemic Manufacturers' assessment of stock of finished product* Source: ING Research based on CBS *balance of percentage positive (too little stock) and negative (too much stock) assessments, seasonally adjusted ...especially in energy-intensive basic industries The bullwhip effect that previously accelerated inventory building is now causing the reverse effect. Suppliers and end producers are reducing their stocks in line with the expected drop in sales, causing a decrease in purchasing activity. Suppliers are also reducing their inventories, but at the same time see sales immediately decline, which means that stock positions are reduced even further. Together with production restrictions due to high energy costs, this leads to a strong decline at the beginning of production chains, such as in the base chemical, base metal and plastics industries. Strongest decline in energy-intensive industries, strongest growth in production of pharmaceuticals and capital goods Production development of the three fastest growing and three most contracted Dutch industries, December 2021 to November 2022* Source: ING Research based on CBS *seasonally-adjusted daily production; two-month moving average; subsectors with more than €5bn production value Demand will not bounce back strongly Given the large sales inventories and the moderate economic outlook, renewed industrial growth in the Netherlands is unlikely to be exuberant over the course of 2023. Domestic demand is under pressure for the time being due to persistently high prices that hinder both consumers and businesses. Domestic investment is expected to contract slightly and household consumption will barely grow. International demand may gradually increase, but due to limiting factors such as high and volatile (energy) prices, renewed growth probably remains moderate. Energy prices are expected to remain relatively high and volatile. Production levels fell much less than energy consumption due to savings Despite a decline since May, total industrial production held up quite well in 2022. In November, it was still 8% higher than at the beginning of 2020 just before the pandemic started, after peaking at 14.5% in April. At the same time, industry consumed on average 30% less gas. Producers are reducing gas intensity by limiting production, purchasing more semi-finished products from outside Europe and saving energy. In addition, alternative fuels are being used more often, such as LNG, coal or oil products, such as naphtha, or residual gases, such as fuel gases from petrochemical crackers. Read next: Resumption Of Cooperation Between Airbus And Qatar Airways| FXMAG.COM Strong import growth of intermediate goods Production remains relatively high, partly because intermediate goods – normally produced using highly energy-intensive processes – are increasingly imported from Asia and the US. They serve as a substitute to keep the production of final products up when domestic intermediates' production has been curtailed. Think of ammonia, which is needed for fertiliser production, and of aluminium and zinc (non-ferrous metals), which have a wide variety of applications. This does not always prevent companies that are highly dependent on the gas price from having to reduce or shut down their production. Imports of energy-intensive basic products increased sharply Growth of import value per commodity category in 2021 and 2022 compared to the same period in 2019, total Jan.-Sept.* Source: ING Research based on CBS *Goods from main product categories that make up at least 10% of total imports Industrial gap: high-tech industry will grow in 2023... As long as supply chains continue to recover and overdue production continues to drive growth in specific sub-sectors, the industry as a whole will not experience a deep trough in 2023. Due to filled order books and high production backlogs, the internationally interconnected transport equipment industry and the high-tech industry are expected to continue to grow in 2023. The impulses of the ongoing digitisation and electrification are an important growth engine. With companies such as ASML, ASMI, NXP and Besi and large suppliers such as VDL in its ranks, the Netherlands plays an important role in the structurally growing semiconductor industry. Order books in the technology industry are still well filled Assessment of order book level, Dutch industry* Source: ING Research based on CBS *balance of percentage positive and negative assessments, seasonally adjusted ...while energy-intensive industry is declining The still relatively high gas price continues to dampen production, also because more and more old energy contacts are coming to an end. This puts the most pressure on production in the (petro)chemical, base metal and plastics industries. Due to the large cost share, the processes in those industries are already very energy-efficient and extensive energy savings are difficult or very costly and time-consuming. Many chemical companies also use natural gas as a raw material for their products, which means that rising energy prices hit them extra hard. Examples include Yara, which reduced its ammonia production for fertilisers, OCI, which produced less ammonia and methanol, and Nobian, which reduced salt production. Many companies at the Chemelot chemical complex have also considerably scaled back production or even shut it down completely as high gas prices reduce profitably. The fall in energy prices due to the mild winter weather offers some welcome relief. Read this article on THINK TagsSupply chains Outlook Netherlands Industry Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
ByBit calls Aragon today's outperformer. Ethereum validators earned a record $46 million in staking rewards

Santander Bank Polska Shareholders Can Expect A Solid Dividend, The ETH Liquid Staking Narrative Is Already Going Strong

Kamila Szypuła Kamila Szypuła 02.02.2023 12:50
Summaries of the last quarter come from companies. Shareholders are waiting for dividends. After a solid profit, Santander Bank Polska is ready to share it with its shareholders. What's more, the ETH market is constantly evolving. In this article: Share the profit with shareholders UBS is sponsors New terms Share the profit with shareholders The Polish branch of the Spanish Banco Santander posted a net profit of PLN 2.8 billion (USD 654.3 million) in 2022, up 152% year-on-year, driven by high interest rates. This optimistic result made Santander Bank Polska plan to share the profit with its shareholders through a solid dividend. The bank is in talks with the Polish financial regulator KNF regarding a possible dividend payment and is waiting for its decision. Santander Bank Polska plans to share profit with shareholders - CEO https://t.co/eFRmKIWnMe pic.twitter.com/2kQvht46vI — Reuters Business (@ReutersBiz) February 2, 2023 Read next: Resumption Of Cooperation Between Airbus And Qatar Airways| FXMAG.COM UBS is sponsor A foundation is a non-governmental organization established to achieve social and economically useful goals. Like any foundation, it needs funds. In order to obtain them, foundations often organize collections or look for disputes among large companies or famous people. One of the most attractive sponsoring areas for companies is certainly sport. This is the effect of the high return that companies get thanks to the strong connection of fans with the brand, identified with their favorite club or athlete. The attitude of fans' loyalty towards clubs influences their attitude towards sponsors and purchasing decisions. The 43 OAK Foundation is a organization based on the development of young athletes who are either minorities or underprivileged. They provide transportation, equipment, ice time, funding for travel hockey leagues and tournaments and other vital resources for the players. One of the sponsors of this organization is a multinational investment bank and financial services company - UBS. UBS is a proud partner of @43OakFoundation, helping young players reach their athletic goals and mentoring them, on and off the ice. Together with the @NYIslanders and @UBSArena, we’re promoting diversity and inclusion through the sport of hockey. #BlackHistoryMonth #shareUBS pic.twitter.com/OPJUbFuaa8 — UBS (@UBS) February 1, 2023 New terms New terms come along with development. The cryptocurrency market is one of those that is full of new concepts. ETH liquid staking, Lido staking and Liquid staking derivatives may seem foreign to many novice traders. So it's not worth getting behind and immediately familiarizing yourself with these concepts in a special guide, because the cryptocurrency market is developing very quickly and now is the best time to develop yourself and your finances and investments. The ETH liquid staking narrative is already going strong but that does not mean you are necessarily late. Ethereum upgrades and scaling will be one of the main narratives in 2023. Another intriguing project on the horizon is Eigenlayer. #ETH liquid staking! Lido staking! Liquid staking derivatives!So many buzzwords, so little time... 😱Let #CMC help you dive into this overall definition and the details of #Ethereum liquid staking 👇https://t.co/IwVIY997Mj — CoinMarketCap (@CoinMarketCap) February 2, 2023
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

ECB hikes rates by 50bp

ING Economics ING Economics 02.02.2023 14:39
The European Central Bank has hiked interest rates by 50bp and made a quasi-announcement of a further 50bp hike in March, opening the door to either a pause or a slower pace in its hiking cycle   And they did it again. The ECB hiked interest rates by 50bp, bringing the deposit rate to 2.5% and the refinancing rate to 3%. But there was more, the ECB quasi pre-announced another rate hike next month by 50bp as well, opening the door to either a pause or a slower rate hike pace beyond March. The ECB also confirmed the December decision that the Asset Purchase Programme (APP) portfolio will decline by €15bn per month on average from the beginning of March until the end of June 2023. Not done, yet It took the ECB a while, but it seems to have got the hang of it: hiking interest rates. And as long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. The increasing probability that a recession will be avoided in the first half of the year also gives companies more pricing power, showing that selling price expectations remain elevated. The celebrated fiscal stimulus, which has eased recession fears, is an additional concern for the ECB as it could transform a supply-side inflation issue into demand-side inflation. These are two factors that could extend inflationary pressures in the eurozone, albeit at a lower level than we see at the moment. As a consequence, we expect the ECB not only to continue hiking into late spring but also to keep interest rates high for longer than markets have currently pencilled in. Whether the ECB agrees with this view or not might become clearer at the press conference, starting at 2.45pm CET. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Czech National Bank Review: Copy paste but still different

Czech National Bank Review: Rates higher for longer

ING Economics ING Economics 03.02.2023 08:49
The Czech National Bank keeps rates unchanged at 7.0%. The CNB's new winter forecast suggests headline inflation accelerating from 15.8% to 17.4% year-on-year, then a gradual moderation to 7.6% in the fourth quarter this year. The CNB is likely to keep rates at 7% for a longer period The Czech National Bank in Prague 7.00% CNB's key policy rate No change As expected CNB on hold, inflation to pick up to 17.6% Unsurprisingly, the Czech National Bank kept its interest rate unchanged in its February monetary policy meeting. Two board members voted for 50bp (very likely Tomas Holub and Marek Mora). The previous hiking cycle finished last June, when the hawkish bank board of CNB Governor Rusnok hiked by 125bp to 7%. Since the start of dovish Governor Michl's term, the new bank board has kept interest rates unchanged.   The new CNB outlook forecasts inflation to pick to 17.6% in January and to decline relatively swiftly from spring towards 7.6% in the last quarter of this year. After a market drop of headline inflation to 2.3% in the first quarter of 2024 the CNB forecast suggests it being mostly flat throughout the whole remainder of the next year. The CNB forecast of GDP shows a shallow recession to end in the second quarter, followed by soft recovery thereafter. Hence the overall GDP growth in 2023 is expected at 0.3%. New CNB forecast Source: CNB Board diverges from rate forecast on hawkish side The forecast implies additional hikes by roughly 100bp in the first quarter followed by 200bp cuts until year-end. According to Governor Michl, however, the board preferred to keep key interest rates unchanged for longer, having regard to the sensitivity scenario which will be presented on Friday, 3 February. In this simulation, inflation falls close to the inflation target in the first half of next year as well. The Governor said the risk of current FX strength for export performance and economic recovery is given lesser weight compared to the priority to slash inflation back to the target. The outcome of today's CNB board meeting is an interesting mix of dovish/hawkish stance. Refusing a rate hike suggested by the new forecast on the one hand, and a resolution to keep rates rather higher compared to forecasts on current already high levels for longer period. It seems the possible reduction in interest rates is limited this year, maybe 50bp or less, while the first possible cut could be delivered in August, a symbolic 25bp, while in the fourth quarter we may see another 25bp in November.  Read next: Santander Bank Polska Shareholders Can Expect A Solid Dividend, The ETH Liquid Staking Narrative Is Already Going Strong| FXMAG.COM What to expect in rates and FX markets Today's meeting gave the koruna another reason to maintain its current record strong values. The intervention regime seems to be here to stay for a longer period of time, and its abolition is out of the question at the moment. Although the CNB last intervened in September last year in our view, the central bank's presence in the market will continue to play a key role. However, as we mentioned in our preview, the main driver at the moment, in our view, are global factors – falling gas prices and a higher EUR/USD. Thus, the CNB is more of a complementary factor why to be positive on the koruna. Moreover, the koruna still offers decent and stable carry. Thus, the main enemy at the moment is the market positioning, which was already the most long in CEE before the CNB meeting in our view. Thus, the koruna may test stronger levels in the short term but the EUR/CZK move lower is limited in our view and the koruna will be rather stable compared to CEE peers. The premature dovish expectations we highlighted in our preview got a direct hit after today's meeting from the CNB governor saying that market expectations are wrong and rates will be higher than the market expects. In addition, next week we will see January inflation which should be on the higher side and support a reassessment of current expectations. On the other hand, the long end of the IRS curve is being pulled down by core rates, which leads us to flatteners as the best positioning for the coming weeks. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Inflation in Singapore heats up again in April

Singapore: December retail sales rise by 7.4%

ING Economics ING Economics 03.02.2023 08:57
Retail sales growth in Singapore outpaced market expectations last December. Will this trend continue in 2023? 7.4%YoY December 2022 retail sales growth   Higher than expected December retail sales up 7.4% Retail sales in Singapore continued to expand at a decent pace in December, up 7.4% year-on-year, exceeding the market consensus of a 5.8% gain. Meanwhile, sales were up 1.3% compared to the previous month. The recent trend of falling supermarket sales coupled with strong spending at department stores and on recreational goods extended into December. Supermarket and hypermarket sales fell 2.2%YoY while department store sales and spending on recreational goods were up 11% and 7.8%, respectively.  Retail sales sustained gains in the face of elevated prices, with the return of foreign tourists helping to bolster the numbers.  Read next: USD/JPY Pair Is Trading At 128.48 The Aussie Pair Is Above 0.71$| FXMAG.COM Further moderation expected in 2023? We can expect further moderation of retail sales in early 2023 as prices remain high and economic activity takes a hit from the projected global slowdown. The implementation of the goods and services taxes at the start of 2023 should add more downward pressure on sales, but the potential return of tourists from mainland China could be an offsetting factor if they start to arrive.  Until we see a significant uptick in visitors from China, we will need to retain our forecast for softer but positive retail sales for 2023, which should weigh on overall growth prospects.     Read this article on THINK TagsSingapore retail sales Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Rates Spark: Italy's Retail Bonds and Their Impact on Government Funding

Rates Spark: What really happened yesterday and will it reverse?

ING Economics ING Economics 03.02.2023 09:02
Either markets are not listening closely enough, or they are, and see only one way for long end rates. We get that. Weak data should result in a nudge lower in market rates. But here, US long end rates in particular look stretched to the downside versus the funds rate. Next cue from payrolls The rally makes sense at the front-end, less so at the long end Front ends are clearly positioning for a change in the rates cycle. The implication here is central banks are practically done, and the follow on is next big moves, beyond final hikes, are down, especially for the US. That’s fine. Typically 2’s will average out the path of the official rate in the coming couple of years, and should broadly breakeven against that profile. If you look at the futures profile for the Fed funds rate it gets to 3% in the next 18 months. If that’s realized, the straight average over the coming two years is 4.05%, pretty close to the current 2yr yield. We have a lower bottom for the funds rate at 2.5%, so in fact that can go lower, below 4% and towards 3.75%. falls in long rates will continue to loosen financial conditions. That’s a problem for the Fed The bigger issue is the 10yr. It’s now at around 3.4%, and at 175bp through 6mth Libor. It has never been stretched further than this over the past four decades. Based off that there should not be huge room to the downside for the 10yr yield. That can change when the Fed stops hiking. But the Fed is still hiking, and even as they hike, financial conditions continue to loosen. The Bloomberg measure suggests that financial conditions are loose in absolute terms. And while Chair Powell brushed this off at the press conference on Tuesday, the reality is falls in long rates will continue to loosen financial conditions. That’s a problem for the Fed, or it should be. So, the rally on the front end is fine, as even as the Fed hikes more, that can also mean bigger subsequent cuts. The back end makes less sense, apart from the simple logic that data confirming easing inflation pressures needs to be rewarded by another nudge lower in yields. We woudn't be doing our jobs if we did not point out that long end rates are stretched like a spring that could easily snap back. The same can be said of credit spreads, and wider risk assets though, which further complicates direction for market rates. Can everything sell off at a certain point? It's happened before. Long end dollar rates are sinking deeper below the front end Source: Refinitiv, ING US jobs data key to validating the rally This week has also pitted central bankers against the data. And it appears that markets are taking their cues more from the latter, seeing the central bank meetings as a final hurdle that a broader market rally in rates had to overcome. And, after all, central banks see themselves as increasingly data dependent these days?   By itself 190k should be still too high for the Fed, but likely low enough for markets This narrative culminates in the US jobs data release today. Employment creation remains strong for now. Jobs openings data this week pointed to another increase, contradicting the increasingly frequent anecdotal stories of job layoffs, and the jobless claims data looked equally robust this week. But it seems only a matter of time before the job market will start to show first cracks. The ADP payrolls estimate pointing to 106k fits the narrative, though it hasn’t nudged the consensus for today’s number below 190K. By itself 190k should be still too high for the Fed, but likely low enough for markets. It is too high to give an all clear on inflationarly pressures and justifies a Fed stance where more hikes are still to come. But with the markets inherently forward looking and in extrapolating mode it would take a notable upside surprise in today’s jobs data to turn around market momentum. The ECB undid one year of struggle to keep real rates positive in one day yesterday Source: Refinitiv, ING The ECB's feeble pushback fails to impress The European Central Bank hiked by 50bp and committed to another 50bp increase in March. By ECB standards that is already hawkish. But as the ECB said it will “then evaluate the subsequent path”, that firmer commitment does not stretch beyond the next meeting. This would have been necessary to counter a market that is increasingly pricing in rate cuts for late 2023 to 2024, bringing along the easing of financial conditions that is counterproductive to the ECB’s main goal of bringing down inflation. The market rally yesterday was mainly a drop in real yields The market rally yesterday was mainly a drop in real yields. It had taken a concerted communications effort ahead of the meeting to lift the 5Y real ESTR OIS rate to 40bp. It has now dropped back to 20bp. While still well above pre-December levels of -40bp we doubt that the this sits well with the majority of the ECB’s Council and we may well see post-meeting attempts to straighten the hawkish record. Reuters reported after the decision that policymakers are seeing "at least two more hikes", but the caveat is again that the Council is a diverse group and “differences remained about their pace and final destination”. Against this backdrop the ECB may struggle to decouple longer EUR rates from a broader rally led by the USD and GBP, where central banks are closer to their cycle peaks. But we think a relative underperformance/rise of EUR rates is still probable. And remember, ECB policy rates are still some 200bp below the Fed's and 150bp below the Bank of England's. Risk assets are large beneficiaries of the ECB lacking hawkish teeth Risk assets are large beneficiaries of the ECB lacking hawkish teeth. The 10Y BTP/Bund spread tightened by 19bp and is approaching the 180bp mark again. The ECB’s detailed parameters for reducing its asset portfolio yielded little surprises with a proportionate approach to reinvestments being taken. But there had been some speculation that the ECB would rebalance the PSPP portfolio towards Supranationals in the context of "greening" the portfolio. Some contemplated even that the ECB might already hint at increased amounts for later in the year. In hindsight, perhaps a sensible option given the weak perception of rates guidance. At the margin, both would have been detrimental to government bonds and sovereign spreads.  Read next: USD/JPY Pair Is Trading At 128.48 The Aussie Pair Is Above 0.71$| FXMAG.COM We expect a further convergence of 5Y swap rates Source: Refinitiv, ING Today's events and market view After the three central banks hiked rates this week and added that the fight against inflation was not over, longer market rates are still net lower on the week, significantly so. The Fed was reluctant to push back against easing financial conditions, the BoE displayed a dovish tilt and the ECB fumbled its attempt at being hawkish. That said valuations are looking stretched, not just because central banks are still not done hiking. In the US we have an eye on the curve, in the Eurozone 10Y Bund yields are again coming close to the 2% threshold. This is also why the US jobs data will be key in validating the rally, though we do think it would take a larger upside surprise to halt the current momentum. Other data to watch is the ISM services which is expected to nudge back above the 50 mark after last month's downside surprise. The to-be-expected ECB post-meeting communication and any attempts to salvage the hawkish message will probably have a more relative impact in this environment than being able to bring about a turnaround in outright levels on their own. Read this article on THINK   TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites 13 March 2023

Asia Morning Bites - 03.02.2023

ING Economics ING Economics 03.02.2023 09:09
With central bank decisions out of the way, it's all about the US jobs report out tonight.   Source: shutterstock Macro outlook Global Markets: Thursday marked another very solid day for US equities. The NASDAQ, which had risen by 2% on Wednesday, piled on another 3.25% on Thursday as further thoughts of a Fed pause/pivot gained ground. The S&P500 rose 1.47%. Chinese stocks didn’t fare so well, with the Hang Seng Index and CSI 300 both dropping. Most of the action in bond markets yesterday was outside the US Treasury market, which didn’t move much. But European bond markets saw steep falls in yields as both the ECB and Bank of England hiked policy rates by 50bp. 10Y Bund yields  dropped 21.3bp, while Gilt yields fell a staggering 30bp. There were similar-sized falls in Italian and Greek bond yields. Markets seem to be taking the view that policy rate hikes are nearing an endpoint across the whole of the G-10.  All of this has undone some of the EUR’s recent sparkle, and it has dropped back below 1.10 to 1.0923 as of writing, taking the G-10 currencies, AUD and GBP with it. The JPY seems to have weathered this latest retreat better than the other  G-10 currencies and is at 128.71. There were gains for most of the Asian currencies yesterday, led by the PHP, KRW and TWD. The INR and THB missed out on the appreciation, losing a little ground to the USD. Today, we will probably see Asian FX dropping back after the G-10 moves overnight.   G-7 Macro: Here are some links to our economists’ thoughts on the European Central bank meeting and the Bank of England Meeting. The short story on both seems to be that the ECB is trying to get us to believe that they will hike a further 50bp in March with possible hikes beyond that, but in reality, seem to be wondering if the data will compel them to do that. A bewildering mixture of pre-commitment and data dependency which leaves many analysts scratching their heads. The Bank of England is a lot clearer, with hints that they may now be done. Today, we have the January non-farm payrolls release in the US, and after the weak ADP survey earlier this week, there must be some speculation that we see a surprise undershoot of the consensus 190,000 job gain view. Anything is possible with payrolls, and over a longer time frame, we would not discount the explanatory power of the ADP survey. But as a month-on-month predictor, we’d rather flip a coin, to be honest. Hourly earnings (currently 4.6%YoY) and the unemployment rate (3.5% right now) will be as interesting as the payrolls figure itself, given the Fed’s recent preoccupation with the labour market. But then markets do not seem to be paying much attention to what the Fed is interested in right now, and probably rightly so.  The service sector ISM that is also released later today will be of mainly academic interest following the payrolls number. China: According to the Financial Times, US Secretary of State, Antony Blinken, will meet China's Xi Jinping on 5 and 6 Feb. Before that, China is trying to convince Japan and the Netherlands to relax their ban on exports of semiconductor equipment. We do not expect these talks to succeed, so U.S.-China relations may continue to deteriorate. This is a new risk in the supply chain for some industries, as China could respond by halting exports of solar panel technology. There could be more tit-for-tat retaliation between the US and China for the remainder of 2023. This is not good news for global macro. While the impact may not be apparent at this early stage, repeated retaliation could weigh on long-term global growth. The Caixin Services PMI should rise above 50 in January, but this is no longer “news” and therefore should not substantially impact the market. Singapore: December retail sales will be reported today.  Market consensus points to a 5.2%YoY increase, a moderation from the 6.2%YoY gain in the previous month.  We’ve noted a gradual slowdown in retail sales which was reflected in a similar downturn in general economic activity.  Higher prices appear to be taking their toll on spending although department store sales have held up well, possibly supported by tourist arrivals.  Expect more of the same in early 2023 as high prices and the implementation of the goods and services tax increase kicked in this January.  Read next: Santander Bank Polska Shareholders Can Expect A Solid Dividend, The ETH Liquid Staking Narrative Is Already Going Strong| FXMAG.COM What to look out for: US jobs report Japan Jibun PMI services (3 February) China Caixin PMI services (3 February) Singapore retail sales (3 February) US non-farm payrolls and ISM services (3 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Moderate Outlook: Growth and Disinflation Trends in the French Economy

French industrial production continues to catch up

ING Economics ING Economics 03.02.2023 11:10
French industrial production continued to grow in December but still hasn't returned to its pre-pandemic level. While the shock of 2022 has yet to be fully digested by French companies, the outlook for 2023 remains moderate The French labour minister, Olivier Dussopt. being shown round a factory in southern France last month Increase in industrial production French industrial production increased by 1.1% over one month in December 2022, after +2% in November, thanks largely to a rebound in electricity production. Manufacturing output rose by 0.3% Month-on-Month in December, after +2.4% in November. The rebound was driven primarily by transport equipment manufacturing, which continues to recover after months of supply chain disruption. However, transport equipment production is still 14% below its pre-pandemic level. In December, coking and refining also grew rapidly, continuing its recovery from the October strikes which saw output fall by 47% over a month. The manufacture of capital goods fell by 3.3% in December, and the production of foodstuffs fell by 1.7%. Over the year, French manufacturing production increased by 3.6%. This is faster than GDP (+2.6% in 2022). Nevertheless, we still haven't fully recovered from the disruption of 2020 and 2021. At the end of 2022, French manufacturing output was still slightly below its pre-pandemic level, while GDP was 1.2% higher. It is also worth noting that, according to detailed GDP data published this week by INSEE, the value added of the manufacturing sector fell by 0.5% in the fourth quarter of 2022, despite the increase in production over the same period.  Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM 2023 expected to be a minor year What can we expect in 2023? Thanks to supply chains easing, the production of transport equipment should continue to catch up and that should boost the whole of French manufacturing production. On top of that, since the beginning of the year, optimism seems to have returned thanks to the fall in energy prices on the international markets and the reopening of China, leading to upward revisions of the growth outlook. But beware of over-optimism. The shock of 2022 has yet to be fully digested by French companies. In a recent study that takes into account the types of contracts existing in France, INSEE estimates that most of the increase in electricity bills for companies has yet to take place. While bills rose by an average of 30% in 2022 for companies in the agricultural and industrial sectors, a rise of 92% is expected in 2023. As the INSEE study is based on data collected in November before the plunge in international energy prices, the rise in bills for 2023 may be overestimated. Nevertheless, there is little doubt that business energy bills will rise more in 2023 than in 2022 in France, despite the fall in spot prices on the markets. This is likely to hamper industrial production. In addition, the global economic slowdown, particularly in Europe and the United States, and the rise in interest rates, which increases the cost of financing for companies, are also likely to weigh on the industrial outlook in 2023. So, the contribution of industry to growth is likely to be subdued at best.  We expect GDP to grow by 0.4% in 2023, after +2.6% in 2022. Read this article on THINK TagsIndustrial production GDP France Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
UK Gfk Consumer Confidence index got better fourth month in a row

What To Expect From The Coming Week 06/02 – 10/02/2023? For The Pound The Most Important Will Be UK PMI

Conotoxia Comments Conotoxia Comments 03.02.2023 13:19
A considerably calmer week ahead compared to this week, at least in terms of the economic calendar.  Monday 06.02. 09:30 GMT, UK Construction Purchasing Managers Index (PMI) January UK Purchasing Managers Index provides insight into the activity level within the construction industry as reported by purchasing managers. This measure gives an understanding of the condition of the UK construction industry, as purchasing managers are considered to have access to first-hand data on their company's performance.   A reading above 50 indicates expansion, while a reading below 50 indicates contraction in the construction industry. UK construction companies have signalled a resuming slowdown in business activity growth since the November data came out, reflecting slower demand and reduced risk appetite due to higher borrowing costs and uncertainties about the economic outlook. The forecast for the January PMI is 49.6, indicating a slight contraction in the construction sector.  Higher than expected reading may have a bullish effect on the GBP, while a lower-than-expected reading could be bearish for the GBP.  Impact: GBP Tuesday 07.02. 13:30 GMT, US Trade Balance (Dec) The trade balance measures the difference in value between imported and exported goods and services during the reporting period. A positive figure indicates that more goods and services were exported than imported. The US trade balance has historically been negative, and a worsening trend could be observed over the long term. In March 2022, the US trade balance surpassed -100 billion USD for the first time in history, and since then, it has fallen to -61.50 billion USD, according to the November data. December's data are expected to show a slight deterioration to -68.70 billion USD. A higher-than-forecast reading may be seen as bullish for the USD, while a lower-than-forecast reading (larger negative number) may be interpreted as bearish for the USD. An outflow of USD from the country and lower foreign demand for US products during a trade deficit could lead to a depreciation of the currency, which in turn may boost the country's exports as its goods become cheaper for the rest of the world. Impact: USD Read next: Japanese Startup Aerwins Technologies Will Be On NASDAQ| FXMAG.COM Friday 10.02. 13:30 GMT, Canada Employment Change (Jan) The employment change report shows the change in the number of people employed, which is an essential indicator of consumer spending. While an increase in the number of people in employment usually signals a positive move in economic expansion, market participants may be hoping for a lower number as this would indicate that the central bank's tightening policy is working and further interest rate hikes may not be necessary.  Previous figures for employment changes in Canada have been very volatile. While August saw a decline (-39.7 thousand jobs), September and November showed slight gains (+21.1 thousand and +10.1 thousand jobs, respectively), followed by increases of over 100 thousand in October and December. Friday's data for January are expected to show a possible increase of 8 thousand.  A higher-than-forecast reading may have a bullish effect on the Canadian dollar and a bearish effect on the stock market. In contrast, lower-than-forecast reading may have a bearish impact on the Canadian dollar and a bullish effect on the stock market. Impact: CAD, S&P/TSX Composite Index Stocks to watch Activision Blizzard (ATVI) announcing its earnings results for the quarter ending on 12/2022. Forecast: 0.7946. Positive earnings surprise in 7 out of the last 10 reports. Time: Monday, February 6, after the market closes. Walt Disney (DIS) announcing its earnings results for the quarter ending on 12/2022. Forecast: 1.51. Positive earnings surprise in 7 out of the last 10 reports. Time: Wednesday, February 8, after the market closes. AstraZeneca ADR (AZN) announcing its earnings results for the quarter ending on 12/2022. Forecast: 0.6825. Positive earnings surprise in 7 out of the last 10 reports. Time: Thursday, February 9, before the market opens. PayPal Holdings Inc (PYPL) announcing its earnings results for the quarter ending on 12/2022. Forecast: 1.19. Positive earnings surprise in 9 out of the last 10 reports. Time: Thursday, February 9, after the market closes. Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement, or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy

The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy

Franklin Templeton Franklin Templeton 04.02.2023 08:15
The Global Economic Profile How do all these factors play out for the global trends that drive markets? The world’s two largest economies appear to be on completely opposite cycles: one stimulating and gunning for growth; the other very restrictive and prepared to incur a recession for the sake of reducing inflation. Sequencing will be important. Most leading indicators predict a softening in U.S. economic trends well into the year, based on what the Fed has already done, and further if the Fed continues to tighten. If inflation falls as fast as we suspect, and the Fed pauses, the growth slowdown would be more shallow but still slower for most of the year. In China, signs indicate that the pandemic may have already peaked across a range of big cities. How people react is unknown, particularly with another wave expected in May/ June. After years of indoctrination about the hazards of this virus, it may take a while to regain confidence. The measures to stimulate the economy are only beginning, and the scale of support required to turn the property sector around will have to be substantial. Netting it out, the first half of 2023 looks like it will be fairly disinflationary for the global economy, with spending and growth looking quite weak over the first six months of the year. Markets may front run the trends discussed here, but actual traction in the real economy, particularly in China, may not develop much momentum before the second half of the year. Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM Definitions Deflation refers to a persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money. Disinflation is a temporary slowing of the pace of price inflation and is used to describe instances when the inflation rate has reduced marginally over the short term. Modern Monetary Theory (MMT), not widely accepted, has the following basic attributes: A government that prints and borrows in its own currency cannot be forced to default, since it can always create money to pay creditors. New money can also pay for government spending; tax revenues are unnecessary. Governments, furthermore, should use their budgets to manage demand and maintain full employment (tasks now assigned to monetary policy, set by central banks). The main constraint on government spending is not the mood of the bond market, but the availability of underused resources, like jobless workers. Author: Francis A. Scotland, Director of Global Macro Research This article is part of the report
US jobs surge catches everyone off-guard

US jobs surge catches everyone off-guard

ING Economics ING Economics 04.02.2023 08:34
The US added more than half a million jobs in January, way above what anyone expected given the softening economic newsflow and rising job lay-off announcements. Great news that ensures another 25bp hike in March, but we have to be wary of extrapolating from this one data point The US added 517,000 jobs in January, much higher than expected 517,000 Number of jobs the US economy added in January   Jobs surge with little sign of any weakness So US non-farm payrolls rose 517,000 in January versus the 188,000 consensus and way above any of the forecasts that were out there. There were also 19,000 of upward revisions to the past couple of months of data. Meanwhile the unemployment rate dropped to 3.4% from 3.5% (consensus 3.6%) with the household survey reporting an 894,000 increase in employment and a 28,000 drop in the number of people classifying themselves as unemployed. Average hourly earnings rose 0.3% month-on-month as expected. So despite this fantastic job creation story, employers are easily able to pick up new workers without needing to pay-up, which is surprising given how tight the jobs market is. The details show goods producing employment rose 46,000 with services adding 397,000 leaving private payrolls up 443,000. The government sector then added a huge 74,000 jobs. Pretty much every component rose with health & social assistance (+105k) and leisure and hospitality looking (+128k) particularly strong. It's difficult to rationalise given the economic data A real surprise, which is difficult to explain. We have to just take that on the chin and say despite seven consecutive monthly falls in residential construction output, three consecutive falls in industrial production and consumer spending disappointing in November and December firms are still happy to hire. Maybe the Fed will keep hiking for longer, but we will need to see the economy suddenly rebound to make this great job news continue. Surging lay-offs suggest employment will weaken Source: Macrobond, ING  Read next: Today's ECB Policymakers Comments Seem To Help The EUR/USD Pair, The Australian Dollar Fall Against Strong US Dollar| FXMAG.COM We have to be a little sceptical though given that confidence in America’s board rooms and the small business sector (Conference board survey of CEOs and the NFIB small business optimism index) are below the levels seen at the worst point in the pandemic. This would hint at a more defensive mindset that focuses more on cost reduction rather than business expansion. That is certainly the story from the Challenger job lay-offs series in the chart above. We are not looking another 500,000+ figure next month… Read this article on THINK TagsWages US Jobs Federal Reserve Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

This could well be a ‘fool’s spring’

ING Economics ING Economics 04.02.2023 08:40
We should guard against the premature return of optimism even if things seem better than expected. Watch: New year optimism may be short-lived The first month of the new year brought a couple of positive surprises to the global economy. The less complicated-than-expected reopening of the Chinese economy, lower energy prices and a bout of optimism from soft indicators out of Europe didn't only fuel a stock market rally but also led to a wider upward revision of many growth forecasts. However, as much as in times of darkness, even a sunrise is mistaken for a sunset, first signs of optimism do not always point to an upcoming growth party. We have said it before, but better is not necessarily good enough. Up to now, the sheer fact that the European economy has been holding up better than feared and could even have avoided a winter recession brings welcome relief. The same holds for the US economy, where it takes longer than initially expected before higher interest rates finally take their toll. Together with the reopening of China, the global economy is definitely in a better place than feared only a couple of months ago. However, we don’t think that this is yet the right time to become overly optimistic. In fact, the list of potential risks - but also very real drags - on many economies is still long. In this regard, particularly the idea that the latest improvements in soft European indicators could signal an upcoming rebound of the economy looks premature. Given that the European economy has now been lagging behind that of the US on so many aspects, be it inflation, monetary policy or growth, it is hard to see why the European economy would rebound when the US is staging a soft or hard landing. The latest soft indicators in Europe could have been like those rays of sunshine in January: temporary relief but too early to foretell spring weather. Read next: Japanese Startup Aerwins Technologies Will Be On NASDAQ| FXMAG.COM The example of the US illustrates that textbook economics still works: excess demand fueled higher inflation, triggered a strong monetary policy reaction, and higher interest rates are now pushing the economy into recession. The first cracks in the labour market have become visible, and the housing market has started to come down. As inflation will retreat sharply, we still expect the Fed to cut rates in the second half of the year, even if a milder recession and somewhat higher core inflation could lead to second-guessing at the Fed. The example of the US economy is also a good reminder for Europe. Here, headline inflation has also started to come down, but core inflation remains stubbornly high, partly driven by the ongoing pass-through of last year’s higher energy prices but also partly driven by fiscal stimulus. The risk here is that what initially was a supply-driven inflation shock could become demand-driven inflation as a result of fiscal stimulus. In any case, the US example should tell the eurozone that higher interest rates do matter and can bring down economic activity: traditional economic wisdom. However, for a long while, the dampening impact of higher ECB interest rates on the eurozone economy seems to have been ignored by many experts and policymakers. Finally, remember that decoupling between the US and the eurozone economy has never really existed. With a slowing economy, it looks almost impossible to see an outperforming eurozone economy when at the same time, the full impact of ECB rate hikes still needs to materialise, the region is still facing an energy crisis, and the war in Ukraine mercilessly continues to drag on.  The outlook for the global economy has improved, but better is still not good enough. The list of risks is long and the probably most underrated risk is central banks’ action to defeat inflation. Nothing’s wrong with that, but please remember that at least in the US, eight out of the last nine times the Fed embarked on a series of interest rate hikes to rein in inflation, a recession followed. TagsMonthly Economic Update Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

Quick-fire answers to your global economy questions

ING Economics ING Economics 04.02.2023 08:49
Give us a minute, and our economists will give you some answers to the global economy's biggest questions, notably around energy and China's reopening. And take a look at our three scenarios for the world as February begins In this article How far could gas prices rise from here, and what would be the major cause? Is Europe still heading for recession? If gas prices rise, have governments done enough to shield consumers/businesses in Europe? Is the end of zero-Covid in China a gamechanger? Is inflation really falling, and have markets been too quick to price in cuts? Can the US economy avoid recession? Can the recovery in risk assets continue?   Three scenarios for the global economy ING   ING   ING How far could gas prices rise from here, and what would be the major cause? We currently expect that European gas prices will average EUR 70/MWh over 2023, peaking in the fourth quarter with an average of EUR 80/MWh. However, clearly there are significant upside risks to this view. If remaining Russian gas flows to the EU were to come to a halt and if we were to see stronger than expected LNG demand from China this year, this would tighten up the European market significantly. Under this scenario, we would need to see stronger-than-expected demand destruction to keep the market in balance. As a result, prices would need to trade higher, potentially up towards EUR 150/MWh going into the '23/24 winter. The European Commission’s price cap of EUR180/MWh for TTF should provide a ceiling to the market, at least for exchange prices within the EU. Is Europe still heading for recession? Lower energy prices and high levels of national gas reserves as a result of the warm weather and lower energy consumption have helped the eurozone economy to avoid an energy crisis this winter. Fiscal stimulus has also supported the economy and prevented the eurozone from falling into a severe recession. However, the eurozone economy is not out of the woods yet. Industrial orders have weakened and once the post-pandemic boost is behind us, growth in the services sector could soften. With (core) inflation remaining stubbornly high and the full impact of ECB rate hikes still materialising (with activity in the construction sector particularly vulnerable), the eurozone is facing a longer quasi-stagnation. The worst-case scenario has been avoided for now but this doesn’t automatically lead to a strong recovery. If gas prices rise, have governments done enough to shield consumers/businesses in Europe? It took a while but at the end of last year, fiscal support measures in most eurozone countries had reached levels seen during the pandemic. For the eurozone as a whole, the announced fiscal stimulus amounts to around 5% of GDP. The stimulus packages are largely aimed at supporting household purchasing power but also at keeping companies’ energy costs at bay. However, if energy prices remain at current levels, the full amount reserved for energy price caps will not have to be used up. While these packages offer significant relief in the short run, they will not be able to shield consumers and businesses against structurally higher energy costs. Government expenditures in the eurozone already amount to around 50% of GDP and with the weighted eurozone government budget at 4.5% of GDP, any room to scale up deficit-financed stimulus, which is exclusively aimed at supporting consumption, looks limited. Is the end of zero-Covid in China a gamechanger? The surprise reopening of the Chinese economy will certainly boost demand, and we have revised up our GDP forecasts accordingly. What is still unclear is how much and when the reopening will boost domestic spending within China, especially on services. Household balances are swollen after prolonged inactivity, so some "revenge" spending seems plausible. How important these balance sheet effects are for spending within China is still being debated, with unemployment still high and wage growth still subdued. Of greater global relevance will be how strongly industry recovers, as this will dictate the strength of the recovery in demand for commodities, including energy. Our current thinking is that manufacturing recovers more slowly than domestic spending on services, and this should not result in a substantial boost to global commodities prices, though some upward price pressure is probable. With the economy just emerging from the Lunar New Year, and data clarity very low right now, this "goldilocks" view is offered with fairly low conviction. Is inflation really falling, and have markets been too quick to price in cuts? Headline inflation rates across the developed world should fall this year as the sharp rises in food, fuel and goods prices of late 2021-mid 2022 are unlikely to be repeated. Admittedly, of these three categories, food prices have probably the biggest potential to rise again significantly this year. With commodity prices – including food indices – having fallen in many cases, there is a case for a sharp reduction in goods-related inflation this year, and in some categories, outright price falls. This story is likely to be more aggressive in the US, where month-on-month increases in core CPI and PCE deflator readings have slowed from 0.5-0.6% in the middle of last year, to 0.2-0.3% more recently. That's still above the 0.17% MoM average required to take the year-on-year rate to 2%, but we're getting close. Rents are topping out, vehicle prices are falling and there is growing evidence that corporate pricing power is waning with businesses thinking more defensively as recession fears mount. We continue to forecast core inflation measures getting down to 2% by the end of 2023. In Europe, the story is likely to be more gradual. Core inflation is yet to peak, and the lagged impact of higher energy prices is continuing to put pressure on services pricing. The strong prevalence of collective bargaining in many European countries also suggests wage pressures will continue to feed through, too, and ongoing fiscal stimulus and government intervention could lengthen the inflationary pressure. The fear is that supply-side inflation could morph into demand-side inflation. The divergence between the EU and the US in terms of inflation suggests that markets are right to be pricing rate cuts from the Federal Reserve later this year, while the easing priced in from the ECB in 2024 looks premature. Can the US economy avoid recession? Possibly, but we need something to turn around quickly. We have a housing market correction coupled with six consecutive monthly falls in residential construction, three month-on-month drops in industrial production and two consecutive 1%+MoM falls in retail sales, which hint at a broadening slowdown. Meanwhile, the labour market is showing tentative signs of cooling after five consecutive months of decline in temporary help, which typically leads to broader labour market trends. With CEO confidence at the lowest level since the global financial crisis, implying a growing proportion of businesses adopting a more defensive stance, the risks are mounting that there will be a recession. However, strong household balance sheets and a robust-looking jobs market suggest it will be relatively short and shallow, assuming inflation falls as we expect and the Fed is able to offer stimulus later this year. Can the recovery in risk assets continue? It has been a strong start to the year for risk assets, underpinned by robust inflows. Equity markets are up as much as 9% in Europe and dedicated bond funds are up anywhere between 2-4%. But risk assets will struggle to post further near-term gains should our view for some tactical upward pressure on market rates bear fruit. It’s a non-consensus call though, and even if market rates were to fall it’s more likely that the market reads this as a measure of underlying angst, which can cause issues for risk assets, via an elevation in perceived default risk ahead. The strong rally in credit markets has lasted for over three months before which credit was pricing in a significant recession. The value that was evident then has evaporated. Nonetheless, with persistent inflows to the sector remaining a dominant theme, we remain constructive in the longer term and further returns in the sector will be a function of yield and carry, rather than spread tightening. In FX, growing headwinds to risk assets would provide some temporary support to the dollar and help cement a 1.05-1.10 EUR/USD trading range for the rest of the quarter. Later in the year, however, 1.15 levels are possible as the conviction builds over a Fed easing cycle. TagsEconomy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
RBA Meeting Minutes - policymakers were concerned about weak productivity growth that would trigger inflation risk

Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike

Kamila Szypuła Kamila Szypuła 05.02.2023 09:43
The Reserve Bank of Australia (RBA) will be making its first monetary policy decision for the year next week. Expectations The Reserve Bank (RBA) Board meets next Tuesday and the most important item on the agenda will be the official interest rate decision. In the last eight games, he has risen every time, by a record 300 basis points in total. He did this in an effort to slow down the rate of economic growth, and thus bring inflation back to the target range of 2-3 percent as quickly and painlessly as possible. The Reserve Bank board is expected to raise interest rates by another 25 basis points on Tuesday, bringing the cash rate to 3.35%. The expected 25 bp hike next week would be the ninth in a row. One of the reasons for the expected increase is the latest inflation data, which in December 2022 reached 1.9% quarterly and 7.8% annually. The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday. Two extreme views The February interest rate question is sure to spark heated debate. The RBA board will eventually discuss whether it needs to lay off tens of thousands more as it works to meet its inflation target. This is a serious decision. Two extreme views will be confronted at the February RBA meeting. First, it would be unwise to raise interest rates as growth is clearly slowing down, all future inflation rates are falling and global growth is headed for a hard landing. The second view from the RBA deliberations will scream “rate hike”. Inflation is at a 32-year high and well above target, the unemployment rate remains at a 48-year low - fueling wage growth - and there is a risk that inflation will not fall as expected unless the economy is further weakened by another interest rate hike. Expectations of economists from Australian banks Here's what big bank economists have to say about next week's RBA board meeting: ANZ said the strength of inflation cemented a 25 basis point RBA hike this month. NAB economist Taylor Nugent said the RBA is expected to deliver 25 basis points gains next week, thanks to a taming rate of inflation. Westpac expects the RBA to raise interest rates by 25 basis points in February and March, bringing the cash rate to 3.60%. Read next: Forex Weekly Summary: USD/JPY Ended At 129.80, AUD/USD Closed Above 0.71| FXMAG.COM Other data To start the week, the Melbourne Institute will release its monthly inflation index.The Australian Bureau of Statistics will release December's international trade data on Tuesday. The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday. The unemployment rate is important Next Friday, following Tuesday's board meeting, the RBA will release its most important quarterly monetary policy statement. It will feature the RBA's updated economic outlook, with the focus - as always - on the RBA's calls on the unemployment rate and inflation. The pressure on the labor market in recent times is important. The unemployment rate is at a multi-decade low, employment fell in December, and various future job demand indicators in business surveys, job postings and job vacancies tilt downward. This means, quite plainly and simply, that the best of the good news about unemployment is behind us. The outlook for inflation will also be extremely important. The RBA had previously projected inflation to fall to 4.7 percent. at the end of 2023, and then to 3.2 percent. by the end of 2024, after reaching a peak of 8.0 percent. Source: investing.com, rba,gov.au
Key events in developed markets next week - 05.02.2023

Key events in developed markets next week - 05.02.2023

ING Economics ING Economics 05.02.2023 10:41
Due to the artificial bounce in activity in September, we believe the UK will narrowly avoid entering a technical recession in the fourth quarter of 2022. For Sweden, we expect the Riksbank to hike by 50 basis points next Thursday, due to persistent core inflation and uplifts in wage growth In this article US: Eyes on Jerome Powell's appearance at the Economic Club UK: narrowly escapes late 2022 recession Sweden: Riksbank to hike by 50bp, but the peak isn’t far off   Shutterstock    US: Eyes on Jerome Powell's appearance at the Economic Club After last week’s excitement, it is a much quieter week for US data and events. With activity data softening and inflation cooling, the market remains unconvinced about the Federal Reserve’s desire to raise interest rates a “couple more times” as outlined by Fed Chair Jerome Powell this week. A recession appears to be the base case with expectations of policy easing in the second half of the year, which is putting downward pressure on the dollar and US Treasury yields. This is going someway to undermining the effectiveness of the Federal Reserve’s rate hikes at the short end of the curve as it battles to ensure inflation is eradicated from the system. Consequently, the highlight for the week could be Powell’s appearance at the Economic Club of Washington. If he fails to push back meaningfully against the market reaction, the implication would be that the Fed itself is relaxed with what the market is doing, which risks it pushing further in the direction of pricing future interest rate cuts. Several other Fed officials are scheduled to speak during the week. In terms of data, it is largely second-tier releases although the trade balance could be interesting. It has narrowed sharply through 2022, contributing positively to GDP growth in the second half of the year, but this appears to be unsustainable. It was driven by falling imports rather than rising exports and we see a strong chance that this partially unwinds in December. Meanwhile, the Conference Board measure of consumer confidence is expected to improve given the rally in equity markets and the fall in gasoline prices with a strong jobs market continuing to provide a firm underpinning for now. UK: narrowly escapes late 2022 recession An artificial bounce in activity after the Queen’s funeral last September suggests the economy will narrowly avoid entering a technical recession in the fourth quarter. Nevertheless, we expect a modest contraction in the first quarter of this year and probably the second, meaning recession is still the base case. It is however likely to be very mild by historical standards, not least because the recent fall in gas prices now means the government can probably cancel April’s planned increase in household energy bills – and indeed they’ll probably have fallen from the current £2,500 annual average to £2,000 by the summer. Sweden: Riksbank to hike by 50bp, but the peak isn’t far off The Swedish economy is not looking great. GDP fell by half a percent in the fourth quarter, while house prices are down 15% on last February’s peak. For now though, the Riksbank is more worried about core inflation which has continued to climb. Important pay negotiations are due to conclude in a matter of weeks, and all signs point to an uplift in wage growth across wide areas of the economy. With new Governor Erik Thedeen warning against recent SEK weakness, and the Riksbank saying in the past that it wants to stay ahead of the ECB in its tightening cycle, we expect a 50bp rate hike next week. Nevertheless, with the housing market under pressure, we think we’re nearing the top for Swedish rates. We expect one further 25bp hike in April, marking the top of the cycle. Key events in developed markets next week Refinitiv, ING TagsUS UK Sweden Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone economy boosted by service sector growth

Key events in EMEA next week - 05.02.2023

ING Economics ING Economics 05.02.2023 10:53
An action-packed week ahead for Hungary. As the government has abolished the fuel price cap, we expect signs of a downturn in retail sales and industrial production figures, while headline and core CPI move above 25% year-on-year. In the Czech Republic, we see headline inflation accelerating further to 17.6% year-on-year, while core prices remain at 13% In this article Czech Republic: Spikes in CPI unlikely to influence CNB's decision Hungary: Data impacted by abolishment of fuel price cap   Shutterstock Czech Republic: Spikes in CPI unlikely to influence CNB's decision In Czech we expect the CPI increased by 6.1% MoM in January and hence the headline inflation likely accelerated further from 15.8% to 17.6% YoY. This increase was likely owing to the increase of regulated prices by around 40% YoY, while core inflation still remained strong at 13% YoY. This is in line with new CNB forecast. We see the risk, however, that some reprising upwards was made later in January hence it would be reflected rather in February CPI reading. Even a further spike in headline inflation is unlikely to persuade the CNB board to change their stance to keep rates unchanged at the next meeting in March.   Read next: Definition: Social Inequalities i.e A Socio-Economic Phenomenon| FXMAG.COM Hungary: Data impacted by abolishment of fuel price cap After a quite boring week, next week’s calendar will be really action-packed. On Monday and Tuesday, the Hungarian Statistical Office is going to release the December retail sales and industrial production figures. We expect to see major signs of a downturn. In retail sales, the government let go the fuel price cap, which lead the fuel sales falling from a cliff, while food and non-food retailers are suffering from a lowering demand due to the drop in households’ purchasing power. As industry had two working days less to produce in December 2022 than a year ago, we see the year-on-year performance to shrink, though seasonally and working day adjusted print will show a bit more favourable picture. Wednesday will be about balances. We see the January budget balance in deficit due a one-off expenditure item related to a public financed acquisition. Meanwhile, the December trade balance will bring some good news, as lower commodity prices will be finally filtering through the energy balance, as new energy contracts in the private and public sectors are following the global stock prices with a two-month lag. Last, but definitely not least, Friday brings the first inflation print of 2023. We see both headline and core CPI moving above 25% year-on-year, mainly driven by a strong start-of-the-year repricing in food and services and a second-leg impact of the scrap of the fuel price cap. In contrast, price changes in household energy and durable goods will limit the upside in the acceleration, in our view. Key events in EMEA next week Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsHungary EMEA and Latam calendar EMEA Czech Repulbic Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites - 10.05.2023

Asia Morning Bites - 06.02.2023

ING Economics ING Economics 06.02.2023 08:36
Payrolls shock and balloon pop to dominate today's trading Source: shutterstock Macro outlook Global Markets: Once again, US non-farm payrolls caught markets off guard, with a surprisingly strong headline figure which drove up US bond yields and caused the USD to strengthen. 2Y US Treasury yields rose 18.4bp to 4.289%, while 10Y yields rose 13.2bp to 3.525%. EURUSD dropped back below 1.08, and the USD also rallied against other G-10 currencies. The AUD is back below 70 cents at 0.6925. Cable has fallen all the way back to 1.0250 and the JPY shot back above 132, though has since settled back to 131.67 this morning. Part of that JPY move may have been on speculation about BoJ Governor Kuroda's successor, as BoJ incumbent and continuity candidate, Masayoshi Amamiya was rumoured to have been approached for the job. Finance Minister, Shunichi Suzuki later said he hadn't heard anything about the nomination. Most Asian currencies have weakened against the USD. Many of them will fall sharply in early Asian trading as they take onboard the G-10 movements. USDCNH is back up to 6.8219 with the balloon incident not helping China's currency (see more below).  US stocks didn’t like the implications of a stronger labour market either, as it hurts the Fed pause/pivot story. The S&P500 dropped 1.04% on Friday, while the NASDAQ was down 1.59%. The Hang Seng and CSI 300 were also both down on Friday. G-7 Macro:  For the full gory details of the US labour report, please refer to James Knightley’s note. The headline numbers are a 517,000 rise in employment, a fall in the unemployment rate to 3.4% from 3.5%, but a moderation in hourly wage inflation to 4.4%YoY from 4.8%. James has gone on to dig deeper into the detail of the report, which reveals that almost all of the employment gains were part-time, and much may be attributable to warmer than usual weather in January, lifting outside work which would normally be very limited at that time of year. The weather has since turned very cold, which suggests that we may see some reversal of the apparent strength in the labour market next month. Though who really knows with this data? There is no data out of the US today. In the rest of the G-7, German factory orders data for December are the main release. A continuation of double-digit year-on-year declines is expected. China: The Chinese balloon shot down by the US has hardened President Xi's stance on relations with the US, which was inevitable as he needs to demonstrate strong foreign policy to China’s citizens. The implication is an intensified tech war. Both sides will likely impose more export bans on technology in different industries. This is a new threat to supply chain disruption, although the risk of logistical disruption from Covid restrictions has now disappeared. This new risk is more of a long-term risk than an imminent one. Nonetheless, the balloon event is bad for the yuan today. Indonesia:  4Q22 GDP is set for release today.  The market consensus points to a 4.9%YoY gain, good enough to take 2022 full-year growth to 5.3%.  Indonesia’s export and manufacturing sector managed to post solid growth in 2022 in large part due to the global commodity price surge.  This area of support faded towards the end of lat year and the economy will need to rely on other sectors like domestic consumption to carry growth momentum on into this year.        What to look out for: Fed speakers and China inflation Indonesia GDP (6 February) Thailand CPI inflation (6February) Australia RBA meeting and trade balance (7 February) Philippines CPI inflation (7 February) Taiwan trade balance (7February) US trade balance (7 February) South Korea BoPcurrent account (8 February) India RBI policy meeting (8 February) US mortgage MBA applications (8 February) Fed’s Powell, Williams, Cook and Barr speak (8 February) Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Fed’s Kashkari and Waller speak (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February)   Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia: fourth quarter GDP surprises on the upside but growth momentum is fading

ING Economics ING Economics 06.02.2023 08:43
GDP growth in the fourth quarter of last year beat market expectations, but signs point to a slowdown in 2023 Jakarta, the capital of Indonesia 5%YoY 4Q 2022 GDP growth   Higher than expected Fourth quarter GDP growth beats consensus Economic activity rose 5% year-on-year in the fourth quarter of 2022, up 0.4% from the previous quarter and better than the market consensus of a 4.9%YoY gain. The better-than-expected growth performance takes full-year growth to 5.3%YoY. Solid household spending (4.5%YoY) offset a contraction in government spending (-4.8%YoY) as well as compensating for slower capital formation (3.3%YoY vs 6.5% previous) and a narrowing trade surplus. Indonesia’s export and manufacturing sectors benefited from rising commodity prices in early 2022 but this key support has now faded. Exports, mining/quarrying and manufacturing all managed to eke out gains in the fourth quarter but at a more measured pace compared to the previous quarter.  We can expect exports and the manufacturing sector to face headwinds in 2023 with the economy needing to rely more heavily on household consumption for growth. Household spending proved resilient in 2022 but stubbornly high inflation (January inflation at 5.3%YoY) could weigh on consumption at least in the first half of 2023. Fourth quarter GDP surprises on the upside but 2023 brings fresh challenges to growth outlook Source: Badan Pusat Statistik Bank Indonesia shifting its stance? Bank Indonesia (BI) has been busy over the past few months, lifting its policy rate from 3.5% to 5.75% to deal with above-target inflation. BI Governor Perry Warjiyo however recently hinted that the current policy rate hike cycle could be coming to an end soon. BI will likely consider reversing its current stance to dovish should inflation continue to soften amid slowing growth momentum.  If inflation continues to edge lower, we could see BI pause policy rates as early as the first quarter of the year to shift focus back to growth support amid the global economic slowdown.    Read this article on THINK TagsIndonesian CPI Indonesia GDP Bank Indonesia Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Kiwi Faces Depreciation Pressure: RBNZ Expected to Hold Rates Amidst Downward Momentum

Rates: Reasons the upside can be tested

ING Economics ING Economics 06.02.2023 08:47
Most macro indicators argue for more downward pressure on market rates. However, we think things are more nuanced than that. Belated ECB and Bank of Japan tightening, and remarkably low US market rates versus the Fed’s ambitions, present reasons for market rates to back up a bit from here In this article Eurozone and Japanese rates primed to provide independent upside pressure In the US, it's a story of a remarkably stretched full curve inversion Never before (since the 1990s at least) has the 10yr been so rich at this stage of the cycle   Eurozone and Japanese rates primed to provide independent upside pressure One key element ahead is the probability that the ECB will hike by more than the Fed does in 2023. This is a factor that can push global market rates higher, as it implies a narrowing in the spread between Treasury and Bund yields, driven by independent upward pressure on Bund yields. A second related element is the upward pressure being brought to bear on Japanese government bond (JGB) yields. The 50bp cap on the 10yr JGB yield is yet again being tested by the market. This is another independent pressure that will act to narrow spreads to Treasuries, adding an upside excuse for core global yields generally. In the US, it's a story of a remarkably stretched full curve inversion In the US, the spread between the 10yr yield and front-end rates is remarkably stretched, as can be gleaned from the deep inversion of the curve. While an inverted curve is perfectly normal as we approach the end of a rate hiking cycle, it’s the degree of inversion that’s startling. There are many ways to measure this. The graph below is one. It shows the 10yr yield currently at 1.7% below the 6mth Libor rate (we use the 6mth tenor to incorporate future hikes). This has never been so stretched (on data going back to the 1980s). 6mth Libor is a staggering 1.7% above the US 10yr Basis points Macrobond, Federal Reserve, ING estimates Never before (since the 1990s at least) has the 10yr been so rich at this stage of the cycle There is another important element to consider – timing. It is not at all unusual for the 10yr to trade below money market rates as the Fed approaches the peak in the cycle. In fact, it’s like that in practically every cycle. But the extreme, where the 10yr trades most through money market rates, tends to be just before the Fed is about to execute a first cut (having held rates at a peak for a number of months). Here, however, we have similar extremes while the Fed is still hiking. This is unprecedented. To put some numbers on this, past cycles have typically seen the 10yr trade some 75bp below the Funds rate on the eve of a rate cut. The most extreme version was during the dot com bust when the 10yr was some 150bp through the Fed funds rate just before the first cut. Fast forward to today, and the 10yr yield is already 83bp below the Funds rate. If the 10yr yield remains here (at around 3.5%) that stretches to 108bp after the expected hike on 1 February, and if we get a March hike it stretches it further to 133bp. That’s against a backdrop where the Fed is nowhere near an actual rate cut. Bottom line, we identify the US 10yr as being exceptionally rich to the money market rates, and we see independent pressure for upside to market yields from the eurozone and Japan. That’s an important counter to weak macro data that’s been driving market yields lower since late 2022. TagsRates Monthly Economic Update Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Australian Employment Surges in August Amid Part-Time Gains, While US Retail Sales and PPI Beat Expectations

2023 ESG Outlook: This Year ESG Will Remain A Priority

Franklin Templeton Franklin Templeton 06.02.2023 09:26
ClearBridge Investments: We can look forward to more efficient and transparent sustainable investing in 2023. Through active investment and engagement, ESG should maintain and grow its prominence in the business landscape. Finishing a year of firsts It is an encouraging time for those integrating environmental, social and governance factors into the investment process, as 2022 delivered a series of firsts that should help improve that process as well as broader conversations around sustainability. Many of these were regulatory, such as: the first year of implementation of the Sustainable Finance Disclosure Regulation (SFDR), which aims to improve transparency in the market for sustainable investment products and prevent greenwashing; new proposed regulations in the U.S. to update the “names rule,” the “issuer rule” and the “investor rule”, all to bolster transparency and disclosures for ESG investments; and the Department of Labor permitting retirement plan fiduciaries, such as 401(k) plan sponsors, to consider climate change and other sustainability factors when they select investment options and exercise shareholder rights, such as proxy voting for plan-held securities. It was also the first year for managers in the Net Zero Asset Managers initiative such as ClearBridge to submit their target-setting methodologies for approval. ClearBridge shared a methodology that offers a forward-looking approach to verifying net-zero alignment that corresponds with our investment goal of identifying companies that will maintain shareholder value and be successful well into the future, as well as with our fiduciary duty. The year ahead: Regulation, energy transition, biodiversity and human rights Looking ahead, regulation will remain a key topic for sustainability-minded investors in 2023 as it begins to have a greater impact on how sustainable investing strategies are perceived and evaluated by investors. Beginning in January, Level 2 requirements of SFDR will include reporting on principal adverse impacts, though data on these remain difficult to gather, assess and compare. On a global basis, the number of regulatory initiatives jumped by 37% from 2021 to 2022, with the European region leading, and the figures are expected to keep rising going forward. The clean energy transition will continue to dominate sustainability discussions, with the U.S. Inflation Reduction Act (IRA) creating more than a decade’s worth of spending and tax credits and offering long-term visibility on climate-friendly investments across sectors. The act offers tailwinds for renewable energy, further improving its cost competitiveness, as well as electric vehicle supply chains and companies helping the climate with solutions in buildings and energy efficiency. One caveat here is that it’s important to not lose sight of company profitability and the strength of the business model: in the long term, policy tailwinds are no substitute for strong fundamentals. The IRA also turbocharges renewable energy deployment, jumpstarts emerging technologies like battery storage, clean hydrogen and carbon capture and storage, and incentivizes U.S. manufacturing, while highlighting fair wages and the responsible production of minerals necessary for the energy transition. Mineral production is a topic growing in importance: electrification requires large amounts of copper, for conducting electricity, and battery materials such as cobalt and lithium, for storing it. Mining these minerals entails substantial ESG risks. It is vital for clean energy storage investors to be responsibly involved in extractive industries, as we know mining can be tough on the environment. Many mines operate in emerging economies with substantial risks due to lower living standards, reduced social protections, and lax governance and environmental regulations. Extractive industries will yield many of the raw materials necessary for electrification; taking care of the land and the people on it will be paramount. Biodiversity and human and labor rights also continue to grow as a focus, based on our company and industry engagements, in particular for companies with operations or suppliers in emerging economies, though developed market conditions need to be monitored as well. One survey of 51 institutional investors showed that biodiversity is expected to gain equal mindshare with climate change in 2023 (Exhibit 1). Biodiversity, or the variety of life on Earth and its interactions, is commonly perceived as the “less engaged environmental priority” next to climate change, and it is a fairly broad term we should be careful not to ignore. What ESG Topic Will Be More Top of Mind in 2023? Exhibit 1: Biodiversity Gaining in Prominence Among Institutional InvestorsAs of December 2022   Source: Bernstein ESG Outlook Surveys, 2022 (n=53) and 2023 (n=51).   On the human and labor rights side, more investor disclosures are being considered by the SEC and, based on 2022 proxy trends, we should expect social shareholder proposals, which increased 17% year over year in 2022,1 to continue increasing in 2023. The main driver of that increase was the 81% growth in proposals on civil rights, human rights and racial equity impact,2 though roughly half of racial audit proposals were withdrawn after companies agreed to perform some form of audit — a sign companies are starting to see the value in this type of assessment.  In 2023 we should be on the lookout for more shareholder proposals related to climate disclosure and goals, political spending disclosure, EEO-1 workplace disclosure, enhanced disclosure of diversity of the board, cybersecurity, director qualifications, and other human capital management disclosures. Scrutiny of ESG calls for clarity, but its intention has been constant for 30+ years In the past year, there has been a fair amount of public discussion, as well as some politically motivated action, around ESG investing, prompting some to even position themselves as “anti-ESG.” Unfortunately, in our view, some of the discussion in the U.S. focuses more on misperceptions than the underlying investment practice. One misperception is that ESG investing is new. As practitioners of sustainable investing for 35 years, we have used a variety of names for our investment approach since we first began integrating environmental, social and governance factors into our investment analysis in 1987, including socially responsible investing (SRI), socially aware investing (SAI) and, today, ESG investment. While the term “ESG” has received a lot of attention, as has “greenwashing,” ESG investing is not a new “trend” for ClearBridge. We stayed with the term ESG after helping to coin it in 2004 with our United Nations Environment Programme Finance Initiative Asset Management Working Group partners, as, practically speaking, we believe every investment has environmental, social and governance risk and return implications. Other misperceptions garnering attention involve “values” and investing. Some perceive the priority for ESG investors to be divestment from certain industries such as fossil fuels. In reality, however, only 13% of U.S.-domiciled ESG strategies actually have fossil fuel exclusions (Exhibit 2). U.S. ESG Funds Less Likely to Divest from Some Controversial Categories Exhibit 2: Asset-Weighted Percent of ESG and Exclusionary with Zero Exposure to Each CategoryAs of November 2022   Source: Morningstar, Goldman Sachs Global Investment Research.   Similarly, there has been a long-held assumption that ESG investors focus primarily on “values,” and in doing so create an exclusionary approach (such as excluding tobacco companies, weapons companies, etc.). But in our review of a representative U.S. stock universe, we found only 4% of the universe was excluded by such screens (the most common for U.S. ESG funds).3 Divestment from fossil fuels is one strategy for investors seeking to support the energy transition, but it is not as commonly used by ESG investors as some headlines would suggest. To complicate the story, many fossil fuel companies are adapting to support a greener future, and there is energy alpha outside the traditional energy sector, in tech and industrials, for example. As noted above, ESG investors have other investment options in energy (as a sector), such as clean and renewable energy where demand and pricing have expedited the growth trajectory. These issues deserve careful consideration from fundamental investors across the industry. With investors, employees and other stakeholders continuing to press for climate and diversity policies and disclosures, and companies and their boards navigating increasingly complex legal and regulatory environments, ESG will remain a priority in 2023. Whether mandated by governments or initiated by companies to create long-term shareholder value, mitigate risk or respond to campaigns by investors, customers, employees and other stakeholders, we can look forward to more efficient and transparent sustainable investing in 2023. Through active investment and engagement, ESG should maintain and grow its prominence in the business landscape. Endnotes Source: Sullivan & Cromwell LLP. Ibid. Using the MSCI USA Index. Exclusions tested: tobacco products, major weapons, controversial weapons, gambling operations, nuclear power generation, alcohol products and UNGC violators. WHAT ARE THE RISKS? Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors. US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities. Franklin Templeton and our Specialist Investment Managers have certain environmental, sustainability and governance (ESG) goals or capabilities; however, not all strategies are managed to “ESG” oriented objectives.   Source: 2023 ESG outlook: Greater scrutiny on companies and sustainable investments | Franklin Templeton
UK Jobs Report Strengthens Case for June Rate Hike and Signals Caution on Rate Cuts

Adani Group Company's Crisis Is Gaining Momentum, Finland Is The Happiest Country

Kamila Szypuła Kamila Szypuła 06.02.2023 11:38
After the Hindenburg Research report, Adani is struggling many problems. Finland maintains its position on the World Happiness Report list. In this article: The crisis of Adania Finns are the happiest China and zero carbon emissions The crisis of Adani The crisis engulfing the Adani group intensified on Monday. Adani group company Adani Enterprises Ltd was forced to drop its $2.5 billion share sale last week, with group chairman Gautam Adani losing his crown as Asia's richest person and slipping down the world's rich rankings. The crisis was started by Hindenburg Research on January 24, which accused the Adani group of stock manipulation, unsustainable debt and the use of tax havens. The Adani Group, one of India's leading conglomerates, has rejected the criticism and denied wrongdoing The Reserve Bank of India said on Friday that the country's banking system remains resilient and stable. Lawmakers of India's main opposition party kicked off planned protests at some state-run companies over the crisis at Adani group, whose seven listed firms saw another sell-off that drove their market loss to $112 billion in under two weeks. More here: https://t.co/uaPrCqBsdO — Reuters Business (@ReutersBiz) February 6, 2023 Read next: The US Judge Denied The FTC's Request, Giving The Meta An Important Victory| FXMAG.COM Finns are the happiest Everyone is looking for the perfect place to live, often suggesting special rankings of cities or even countries. What makes a given society happy and how to assess the level of happiness. Finland has been ranked as the world's happiest country for five years in a row, according to the World Happiness Report. In the 2022 report, people in 156 countries were asked to “rate their lives today on a scale of 0 to 10. It also looks at the factors that contribute to social support, life expectancy, generosity and lack of corruption. The culture of a given region, country can be important because it affects our metalness and the way we look at the world. Finis focus more on what makes you happy and less on looking successful. What's more, they focus on nature. According to a 2021 survey, 87% of Finns believe that nature is important to them because it gives them peace of mind, energy and relaxation. Trust is also important. Finns trust each other and value honesty. If you forget your laptop in the library or lose your phone on the train, you can be sure that you will get it back. So, maybe other nations should follow the example of the Finns and apply these tips in their lives, or become happy nations as well, even competing with Finland. I'm a psychologist in Finland, the No. 1 happiest country in the world — here are 3 things we never do. (via @CNBCMakeIt) https://t.co/qqqOQXuak2 pic.twitter.com/IulR2iaABy — CNBC (@CNBC) February 6, 2023 China and zero carbon emissions For highly developed and developing countries it is essential to achieve zero-carbon. China as the second largest economy in the world is implementing numerous programs to achieve this goal. This year is expected to be a pivotal year for the development of ESG and, in particular, the effects will be visible in China. How zero carbon emissions will affect five key sub-sectors: solar, wind, renewable energy operators, power grid and hydrogen, many specialists will prepare their forecasts. How will China’s zero-carbon goals affect five key subsectors: solar, wind, renewable operators, power grid, and hydrogen? #UBSResearch digs deeper into the opportunities and risks for these energy producers. #shareUBS #renewableenergy #energy — UBS (@UBS) February 6, 2023
National Bank of Hungary Review: A new beginning without commitment

Hungarian retail sales suffer from record inflation

ING Economics ING Economics 06.02.2023 14:41
After the fuel price cap was lifted in early December, fuel consumption dropped by 18.4% month-on-month. However, record-high inflation dragged down overall consumption similarly -3.9% Volume of retail sales (YoY, wda) ING forecast -4.4% / Consensus 0.2% / Previous 0.6% Worse than expected   The extremely poor performance of December’s retail sales data caught most economists off-guard as the volume of retail sales contracted by 3.9% year-on-year. The last time we saw such a large YoY decline was in February 2021 when the entire country was under a full-scale lockdown. What’s more, this decline was the result of a 1.0% monthly fall in the volume of retail sales. In our opinion, such a weak fourth quarter performance in retail sales will take its toll on last year’s fourth quarter GDP data as well. Diving deeper into the details we can see structural issues, even if we factor out the fuel retailing component, which was largely expected to decline. On a yearly basis, food retailing declined by 8.3%, but even on a monthly basis, it only grew by 0.1% during the holiday season, which means that the largest component in retail sales virtually stagnated. Overall, this reflects the new reality that consumers had to adapt to higher food prices as food inflation in December accelerated to 44.8% YoY. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   Non-food retailing posted a 0.4% drop on a yearly basis, despite a 1% month-on-month increase, with sub-sectors displaying heterogenous monthly dynamics. In this regard, the biggest surprise came from the second-hand goods shops, where the monthly turnover increased by 31.1% in volume. In our view, this is another by-product of the extremely high inflationary pressure as consumers are shifting to buying second-hand goods with record haste. This realisation comes amid the Christmas shopping spree, which by previous standards should have boosted the volume of sales in clothing, manufactured and home furnishing goods but in fact, these items all showed declining demand. With stagnating food retailing and declining non-food turnover, the last component further dragged down the headline number. Fuel retailing posted an 18.4% MoM decline. At first glance, the 1.3% growth on a yearly basis can be misleading concerning the current state of fuel retailing, thus we believe that the enormous monthly decline better reflects the current picture - which is very bleak. The Hungarian government lifted the fuel price cap in early December which resulted in a drastic drop in the volume of fuel retailing as drivers adapted to market fuel prices. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING  Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM With December’s negative retail sales reading, we do not expect any positive surprise regarding last year’s fourth-quarter GDP data, which will be released next week. In our view, the quarter-on-quarter contraction in the last quarter will officially mean that the Hungarian economy has been in a technical recession since the second half of last year. Going forward, we see further deterioration in retail sales data at least until March, as real wage growth continues to drop. With food prices remaining at highly elevated levels, we expect further stagnation in the food retailing sub-component, while consumers will continue to adjust to market fuel prices. In this regard, we expect further additional drops in fuel retailing on an annual-based comparison, while sub-components in non-food retailing should continue to deliver mixed signals as consumers are continuously optimising and shifting preferences to keep up with record inflation. Read this article on THINK TagsRetail sales Hungary Households GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Disinflation in Romania is becoming more evident

Romanian consumers shrug off pessimism into year-end

ING Economics ING Economics 06.02.2023 14:44
Retail sales accelerated by 3.8% in December, taking the quarterly advance to 3.8% and full-year 2022 to 5.1%. The data supports our call for a robust fourth quarter GDP reading, but also for a visible slowdown in the first quarter   After a somewhat weak third quarter, retail sales accelerated in the fourth quarter of 2022, expanding by 0.8% versus the previous three months. In the third quarter, retail sales contracted by 0.8% from the second. In annual terms, December 2022 was only the third month of 2022 to witness an acceleration, as sales increased by 3.8% compared to December 2021. The robust headline number for December is supported by a relatively good structure as well, with non-food sales increasing by 6.6% and fuel by an impressive 13.6%, likely on the back of somewhat lower car fuel prices. Food sales remain less cycle-sensitive and dropped by 1.3% in December. Retail sales (YoY%) and components (ppt) Source: NSI, ING   With the picture for 2022 now complete, we can safely state the obvious, namely that consumer spending was remarkably resilient throughout the year. The very gradual slowdown compared to 2021 looks more like a return to a normal cruising speed than something that might raise an eyebrow. As resilient as it might be, however, most signs point towards a slower start to the year for consumption. Facing sharply higher interest rates and deteriorating risk sentiment, the stock of consumer loans advanced by only 4.1% in 2022 with the actual new production of loans being mostly negative throughout the year. Moreover, while in 2022 retail sales might have still benefited from post-pandemic pent-up demand, it looks highly unlikely that there is any more of that into 2023. Consumer lending turning less supportive Source: NSI,NBR,ING  Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM Somewhat balancing the consumption story, wage dynamics remained reasonably sound in 2022, with the average nominal net wage advancing by around 12.0% (December data is not out yet). This is below, but dare we say not that far from the 13.8% average inflation rate. Looking forward to 2023, there is a reasonable chance for the wage advances to recover the lost ground and exceed the average inflation rate. Overall, it is obvious that the destruction of purchasing power has not been of a great magnitude, and this should act as a backstop for private consumption in the short- to medium-term.   Retail sales following real wages Source: NSI, ING   All considered, the consumption story will likely remain in positive territory in 2023, though a growth slowdown to very low single digits looks most probable. With the fourth quarter sales picture complete, we remain of the opinion that the GDP advance has probably been quite robust in the fourth quarter. We maintain our estimate for a 1.0% quarterly expansion. This should take full 2022 GDP growth to around 5.0% and provide a strong carryover effect into 2023 which we maintain at 2.5%. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
The Year Of The Rabbit May Well Require Investors To Be Flexible And Opportunistic

The Year Of The Rabbit May Well Require Investors To Be Flexible And Opportunistic

Franklin Templeton Franklin Templeton 07.02.2023 08:00
Gong Xi Fa Cai! Franklin Templeton Emerging Markets Equity’s Chetan Sehgal shares some thoughts on investing in China in the Year of the Rabbit. Feng Shui, the traditional Chinese practice of harnessing the flow of energy, indicates the Year of the Rabbit can pull people in different directions. For 2023, we may well see investors getting pulled in opposing directions, as hope and delivery could be at opposite ends of the year. It is hoped Chinese consumption will recover A surge or “revenge spending” in the initial phase of economic reopening, followed by a slower pace of growth, has characterized the pattern of post COVID-19 consumer spending in emerging markets. The slowdown was due in part to rising inflation and higher interest rates, which crimped real purchasing power. China is expected to follow a similar pattern of post-COVID consumption, with consumers enthusiastically pursuing “revenge spending” in the Year of the Rabbit. An estimated RMB 6.6 trillion in excess savings has been built up during three years of zero-COVID policy, which should in part act as a driver. The key question is what happens after the initial phase of reopening and whether increased consumption will translate into higher earnings in the corporate sector. Inflation is forecast to remain subdued in China during the Year of the Rabbit, partially due to the decline in energy prices from their peak, the stable domestic supply of agricultural commodities and sourcing commodities from Russia, which has emerged as a pariah state in the developed world. As such, Chinese purchasing power is not expected to weaken. Corporate earnings should deliver, eventually From a corporate earnings perspective, the near-term outlook remains weak as companies struggle to scale up production and distribution in the face of COVID-19 pandemic. Additionally, the outlook for the real estate sector is lacklustre, and credit demand may take time to recover, which is likely to act as a drag on the financials sector. However, we expect earnings to recover in the second half of the year as supply chain issues are addressed and the real estate sector stabilizes. One of our areas of focus is on the electrification of transportation, which includes batteries used in electric vehicles. The structural outlook for this sector remains positively charged. Market outlook is positive, but uneven After ending its zero-COVID policy, China embraced economic reopening despite the societal costs. Policymakers have gone out of their way to bolster external relationships, (e.g., with Australia) and rolled out policies to mend the economy (e.g., in the real estate sector). However, the cost of capital remains elevated, partly due to higher rates in the developed world and state crowding out of the private sector domestically. In addition, weak demographics in China need to be addressed. Renewed freedom of movement combined with incentives to start a family could help reverse recent data showing a contraction in the population. China has the largest weight in emerging market indexes and has strong trade links with other emerging markets. A strong and recovering Chinese stock market should be good for emerging markets. Leadership in a multi-polar world The world leaders of the current generation are powerful, and their authority seems to be unrivalled. However, many of these leaders have strong agendas which have resulted in turmoil and conflicts, such as the Russia-Ukraine war. Persistently high inflation in Turkey creates risks for President Erdogan as he prepares for elections in June of this year. State elections in India later this year could give an indication of how President Modi and his BJP party will perform in national elections in 2024. The Year of the Rabbit is likely to see world leaders continue to re-balance global power, and we expect governments in the developed world to also court other countries. The world still awaits a Jade leader. What it means for investors Given the steep declines in emerging markets in the latter months of 2022 and a strong start to the year, the Year of the Rabbit may well require investors to be flexible and opportunistic. Argentinian football player Lionel Messi was born in the Year of the Rabbit, and we are hopeful that in the year ahead, emerging markets will perform as well as Argentina did during the 2022 World Cup.
US Inflation Eases, but Fed's Influence Remains Crucial

US jobs: Should we change our view? - 07.02.2023

ING Economics ING Economics 07.02.2023 08:50
January's jobs report was far stronger than expected, so have we been too pessimistic on the US economy? On the face of it the data makes the 'soft landing' story look more plausible, but as we dig through the data there remains major areas of concern. While interest rates will rise further, we still think the Federal Reserve will switch to rate cuts by year end A warmer-than-usual January has led to less disruptions in the construction sector Hot jobs data suggests interest rates could stay higher for longer Friday’s US January jobs report was far stronger than what both the market and we had expected and has prompted a major debate on whether this means the economy is more resilient than thought. In turn does this mean interest rates need to stay higher for longer? It showed a 517,000 increase in non-farm payrolls with substantial upward revisions, including 71,000 to the previous two months while the unemployment rate dropped to a 53-year low at 3.4%. Given the softer activity data and weakening sentiment, economists had expected a mere 188,000 jobs would be added with even the most optimistic forecast of 320,000 being well short. The unemployment rate had been expected to tick higher to 3.6%. We have been in the camp that thought we would get one more rate rise in March with a slowing economy, weakening jobs market and falling inflation prompting a sharp reversal in the Fed’s policy stance from late third quarter onwards. So does this report mean we need to rip up our forecasts and start again? Yet inflation pressures continue to subside It does make the soft landing scenario look more plausible – the idea that inflation will slow to 2% over the next 12 or so months without a recession and significant job losses. After all, inflation will continue to fall given shelter is such a major influence and house prices are dropping everywhere and rents are topping out in all major cities. There is also evidence that corporate pricing power is weakening while labour costs are moderating as indicated by average hourly earnings numbers within Friday’s reports and the Bureau for Economic Analysis’ data on personal incomes from wages and salaries. The latest employment cost index was softer than expected with slowing quarterly gains set to push the year-on-year rate of growth lower through 2023. YoY change in worker compensation Source: Macrobond, ING   This all points to a lack of need for major rate hikes from here. But it also raises a very important question. If the labour market is so hot, why are the costs of employing people decelerating and converging back to pre-Covid trends? Why was the jobs report so strong? To try to explain it our starting point is to look at one-off factors that could have boosted the numbers. The most obvious case is the 74,000 jump in government workers led by state and local government education workers. This was due to the ending of strike action by University of California Academics. This merely reverses job losses seen in November and December and means February will experience a return to much lower growth. Nonetheless, there was no single event that could explain the strength in private payrolls, which rose 443,000. There was no single event that could explain the strength in private payrolls So we now look at the employment surveys that give us a general indication of demand for private sector workers. Job vacancies, which rose to 11mn in December, equivalent to 1.9 job vacancies for every unemployed American, do just that. However, it has been incredibly strong throughout the past two years and that hasn’t prevented a slowdown in payrolls growth. Moreover, the ISM employment indices for the manufacturing and services sector are 50.6 and 50.0, respectively, which indicate stagnant employment growth given 50 is the break-even level. They are also at the same level they have averaged over the past six months, so again, no reason for a bounce in hiring. Then there is the NFIB small business hiring intentions. A net 19% of small businesses were looking to hire workers in January versus 20% for the six-month average so nothing much there. Next we look at the ADP private payrolls, which listed private payrolls as growing by just 106,000. So there is nothing really from the demand side indicators to point to such a strong rise in January payrolls.   No hiring, fewer firings Next we look at the difference between the seasonally adjusted payrolls growth, which is used to observe the cyclical trends – the 517k number that shocked everyone – and the underlying data. The chart below shows the non-seasonally adjusted changes in employment in each month over recent years and it is obvious that January is when a lot of workers lose their jobs due to seasonal factors. Typically 2.7-3.1mn jobs are shed in January. I’ve taken out 2020 given the wild swings caused by the pandemic through that year, but even January 2020 saw a 2.8mn drop in employment. This year there were only 2.5mn jobs lost in January – we have to go all the way back to 1995 to find a January that lost fewer jobs. Non-seasonally adjust payrolls changes (mn) Source: Macrobond, ING   These seasonal job losses are partly down to the end of the holiday season with people spending less on retail, leisure and hospitality in January with businesses typically laying off staff at this time. Then there is the weather impacting with winter temperatures and snow limiting the ability of people to work outside – so the like of construction gets hit along with mining and oil and gas drilling. This January was warmer and had less snow than the average over the past 20 years so construction, mining and drilling has been less disrupted and people have been out and about more, spending money. This suggests that we should also anticipate strong retail sales and industrial production for January. February has been much colder so far. The story behind the strength in the payrolls number is fewer people being laid off rather than any meaningful increase in hiring So essentially the story behind the strength in the payrolls number is fewer people being laid off rather than any meaningful increase in hiring. This view is backed up in the Homebase employment data. Homebase is a labour scheduling and time tracking tool used by tens of thousands of local businesses that are often individually owned and primarily consist of restaurant, retail and personal services – so reflect the experiences of businesses that won’t be tracked by the larger survey organisations. Homebase number of workers versus median for the period Jan 4- Jan 31 2020 (% difference) Source: Macrobond, ING  Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM These small businesses have been struggling to hire so there may also be a degree of labour hoarding, fearing that if they lay workers off they may not be able to recruit them when business is better. This is consistent with the decline seen in initial jobless claims yet continuing claims are flat lining – no hiring, fewer firings. The chart above shows that the January decline in employment was not as significant as in 2021 or 2022. If it isn’t hoarding then we should be braced for colder weather in February to mean seasonal lay-offs have simply been delayed from January into February. Lay-offs are on the rise From a job lay-offs announcement perspective the outlook for coming months doesn’t look good. Outplacement firm Challenger, Gray & Christmas provides long-term data on lay-offs and hiring announcements by industry and it reported in January that lay-offs rose 440% YoY. The data is volatile, but if we take a 3M average of the annual rate we see that such big increases in lay-offs do typically result in employment growth eventually turning negative – the chart has employment on the right-hand scale inverted so a movement higher implies weakening. Rising lay-offs point to a deteriorating outlook for employment Source: Macrobond, ING   They also track data on hiring announcements so we can get a net figure. In January there were only three sectors out of 30 hiring in net terms; entertainment/leisure, energy and the non-profit sector. The caveat that this reflects larger employers needs to be added, but it doesn’t offer much encouragement for continued strength in payrolls. Challenger lay-offs, hiring and net position in January, by sector (000s) Source: Macrobond, ING   Neither do business surveys in general. Confidence in America’s board rooms and the small business sector (Conference board survey of CEOs and the NFIB small business optimism index in the chart below) are below the levels seen at the worst point in the pandemic and are on a par with where we were during the Global Financial Crisis. This would hint at a more defensive mindset that focuses more on cost reduction rather than business expansion. This certainly tallies with the increase in lay-off announcements. Business optimism is weak Source: Macrobond, ING The jobs market is not as strong as January payrolls suggest As such we appear to have a story where bigger businesses are becoming more cautious and are signaling that demand for workers is flat to falling. Smaller businesses, that struggle to offer the pay and benefits on offer at larger employers are still doing ok and are keen to retain (hoard labour) and hire selectively, but we are a long way from a booming jobs market. This brings me to my final chart and it paints a remarkable story that full-time employment in America has flatlined since March 2022. All of the jobs created since then have been part-time. This does not paint the picture of a vibrant jobs market. US full-time and part-time workers (millions) Source: Macrobond, ING   The data suggest we are starting to lose higher paid full-time workers while gaining lower paid part-time workers, which suggests that aggregate household incomes will fall and the economy will continue to gradually soften. While Friday’s jobs report makes a Fed funds peak of 5-5.25% look more plausible in May, it is not guaranteed. Furthermore, while our 100bp of rate cuts from the third quarter onwards may be too aggressive, we continue to believe that the Fed will be in a position to cut interest rates before the end of the year on the back of decelerating inflation, slower growth and a weaker jobs market. Read this article on THINK TagsUS Jobs Interest rates Federal Reserve Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Germany's 'Agenda 2030': Addressing Stagnation and Structural Challenges

Germany’s sudden halt in December is confirmed

ING Economics ING Economics 07.02.2023 09:17
A terrible industrial production report confirms the economy's sudden and hard halt in December.   German industrial production decreased by 3.1% month-on-month in December, from +0.4% MoM in November. On the year, industrial production was down by almost 4%. Production in the energy-intensive sectors plummeted by 6.1% MoM and is now down by almost 20% compared with December last year. While production in the energy sector decreased by 2.3% MoM, activity in the construction sector fell by 8% MoM. This is a simply horrible report. Industrial pain is real Today's industrial production data brings back the old question of whether the glass is half full or half empty. To some, the current stagnation means that German industry is holding up better than feared. To others, it is only filled order books at the start of the war in Ukraine and the pandemic backlog of orders that have prevented more severe damage to industrial production. In any case, industrial production is currently almost 8% below its pre-pandemic level and the sharp drop in production in energy-intensive sectors illustrates how much the energy crisis is hurting industry. The former growth engine of the German economy is stuttering and no improvement is in sight. Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months and the lagged impact of high energy prices all still bode ill for the short-term outlook. Read next: Adani Group Company's Crisis Is Gaining Momentum, Finland Is The Happiest Country| FXMAG.COM Today’s industrial production was the last hard data for the month of December. It is a month to forget. Retail sales, exports and imports all fell sharply. Either this data will be strongly revised upwards in the coming months or the German economy entered hibernation in December. Despite the latest optimism reflected in improving sentiment indicators, this economic hibernation is unlikely to end any time soon. Read this article on THINK TagsIndustrial propduction Germany GDP Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

The Worst Outcomes For Europe In The Wake Of The EU Shutting Itself Off From Cheap Russian Energy Were Thankfully Not Realised

Saxo Bank Saxo Bank 07.02.2023 09:54
Summary:  Models are used everywhere in the financial world. But what do you do when the models you use don't work anymore? That's what this Quarterly Outlook is all about. An Executive Summary In the introduction to this outlook for early 2023, Saxo CIO Steen Jakobsen argues that our economic models and our assumptions for how market cycles are supposed to work are simply broken. And so should they be, as why should we even want to return to the ‘model’ of central banks engaging in moral hazard and bailing out incumbent wealth, rentiers and risk takers, the rinse-and-repeat we have seen in every cycle since Fed Chair Greenspan bailed out LTCM in 1998? This new post-pandemic and post-Ukraine invasion era we find ourselves in has brought an entirely new set of imperatives beyond bailouts and reinflating asset prices. Instead, we need to brace for the impact of higher inflation for longer as we scramble for supply chain reshoring and redundancy, and as we transform our energy systems to reduce reliance on fossil fuels and reduce our impact on the climate. And it won’t be all pain for all assets. Quite the contrary; it will bring a refreshing return of productive investment and a brighter future for everyone.  The return to more productive deployment of capital will have to mean investing more in the real, physical world to accomplish the new set of supply chain and resource access imperatives, not pouring money into digital platforms that capture excess profits by monopolising markets and user attention. On that note, our equity strategist Peter Garnry looks at whether the multiple decades of underperformance for equities dealing in tangible assets is ending, with intangibles and financials set to underperform after decades of excess financialisation. He also pokes into the geographies that look the most interesting as supply chains diversify.  Our macro strategist Christopher Dembik notes that the worst outcomes for Europe in the wake of the EU shutting itself off from cheap Russian energy were thankfully not realised. Danger and opportunity lie ahead for Europe, which faces the steepest challenges in the new world order, but where the sense of crisis will bring the needed change the quickest. As well, Europe is set to benefit from China, its largest trading partner, coming back online this year. Our market strategist for Greater China, Redmond Wong, looks at where the most potential lies in Chinese equities after China executed a seeming total about-face in its zero-Covid tolerance and other policies that cracked down on the property and technology sectors and were presumed to be the hallmarks of rule under Xi Jinping. Charu Chanana, our market strategist in Singapore, picks up on the rest of Asia, weighing the relative value across several Asian markets. She argues that India and also the traditional exporters will benefit both from renewed demand from China and from investment by both China and OECD countries looking to leverage production – and supply chain diversification potential. In commodities, Ole Hansen looks at the potential for the extension of a bull market in industrial metals as China, the world’s largest commodity consumer, returns in force from lockdowns and not least, as the metal-intensive investment in green energy deepens. The end of China’s lockdowns will also boost crude oil demand by the most in years as China normalises air travel levels. On the supply side, the avoidance of Russian crude and the end of risky, massive drawdowns of much of the US strategic reserves will weigh. Gold could be set to thrive with a turn lower in the USD, but also as a growing roster of countries looks for alternatives to the greenback for maintaining reserves and conduction trade outside the USD system. Our strategist in Australia, Jessica Amir, breaks down what Australia has to offer as a formidable exporter of resources and list of Australian resource companies involved in everything from the EV-battery supply chain to iron ore and gold. With the return of solidly positive interest rates after the seeming endless years of ZIRP and NIRP, especially in Europe, Peter Siks of our CIO office looks at a far better expected return for the traditionally balanced portfolio. This is somewhat ironic, given that 2022 offered the worst nominal returns for traditionally ‘balanced’ stock and equity portfolios in modern memory. FX strategist John Hardy looks at the potential for a turn lower in the USD this year and the likelihood of a much stronger JPY in the first half of the year, chiefly driven by its late-comer status to the central bank tightening party and the exit. Finally, crypto strategist Mads Eberhardt sees the risk of more challenges ahead for crypto, particularly the smaller cryptocurrencies as retail participation risks continuing to wither, even as the longer term prospects will brighten in line with the deepening institutional participation in the space in coming years. We wish you a safe and prosperous 2023.  We strongly believe that markets and the global economy are entering a new era. It won’t be an easy transition, but all great transitions bring exciting new opportunities for those willing to walk away from the old assumptions and to look at how their investments and efforts can contribute to the new world taking shape before us.  Source: Quarterly Outlook Q1 2023 - The models are broken | Saxo Group (home.saxo)
Asia Morning Bites - 10.05.2023

China Has Shown Tentative Signs Of Becoming More Conciliatory Toward The United States

Saxo Bank Saxo Bank 07.02.2023 10:05
Summary:  The moves of China to shore up its economy through the reopening from pandemic containment, support to the real estate sector, ending of the crackdown on the internet platform companies, and attempts to thaw relations with key trading partners are in a positive confluence of an upturn in the credit impulse cycle. The combined impacts tend to support further rallies in Chinese equities in Q1 and lend support to global commodities and growth. The Chinese growth locomotive is battered As discussed in our Q3 and Q4 outlooks last year, China has been in the transformation to a new economic development paradigm, walking away from its labour-intensive, energy-intensive and export-oriented model that had been the backbone of the development of the Chinese economy in the prior decades to focus on high value-added industries, self-reliance and comprehensive national power. The terrain on which the transformation travels is rough. Transforming an economy with a declining working-age population, and with a workforce that is largely unskilled and from rural areas, is a daunting task. The surge in volatility in global energy prices and an increasingly hostile external environment driven by concerns about supply chains and geopolitical tension are additional hurdles. The crackdown on the real estate sector, the mega-cap internet platform companies, and the tycoons and vested interests behind both sectors to steer economic development to a new path, pursue the course of common prosperity, and claw back economic power have added further challenges on keeping the growth engine even moving forward. In Q4, China hit the gigantic pothole of the surge of the highly infective Omicron variant of Covid-19, which completely upended the pandemic containment model that had once been touted to symbolise the superiority of socialist China’s way of governance. The skyrocketing fiscal burdens of implementing quarantines and costs of tens of billions of PCR tests and the general disruption of economic activities and land sale revenues brought local governments to a fiscal cliff. Discontent first bubbled up on social media and eventually saw citizens taking to the street briefly in November of last year. Fixing the economic engine becoming the priority With economic growth grinding to a halt, refitting and reviving the economic engine brought a quick about-face in policies. On 11 November 2022, the Chinese health authorities relaxed guidelines for the country’s pandemic containment measures, with a series of further relaxations and the subsequent abandonment of the dynamic zero-Covid policy in December 2022. On 13 November last year, the People’s Bank of China and the Banking and Insurance Regulatory Commission jointly issued 16 measures to improve private property developers’ access to funding and opened the gate for a number of other additional policies to help shore up the balance sheets of property developers.  At the Chinese Communist Party’s Central Economic Conference held on 15 and 16 December 2022, the Chinese leadership sent out a clear signal of shifting to a conciliatory stance towards the private sector and pledged to support internet platform companies without mentioning preventing the disorderly expansion of capital which haunted internet platform companies since 2020. On 26 December 2022, the Chinese authorities announced a downshift of the handling of Covid-19 infections to category-B, the same as avian flu, hepatitis, tuberculosis and so on, and a lifting of border restrictions starting from 8 January 2023. On 9 January, Guo Shuqing, China’s top financial regulator, said that the campaign to rectify the 14 mega-cap internet platform companies’ financial business arms was basically completed.  In short, over the past two months, China has taken a U-turn in policies regarding Covid-19, the property sector and internet platform economy as it tries to fix the economy. The magnitude and pace of the shifts have far exceeded the expectations of many investors who were expecting a more gradualist approach and ‘opening up’ timing closer to March 2023 or later.  Facing down geopolitical hazards Besides the domestically oriented policy measures, China has shown tentative signs of becoming more conciliatory toward the United States and its allies after a sense of escalating confrontation. When they were in Bali, Indonesia for the G20 Summit in late November, China’s President Xi and US President Biden held a three-hour long meeting, with both leaders showing some goodwill gestures.  Further gestures towards the US were later deliberately expressed by the newly appointed minister of foreign affairs, Qin Gang, in an article in the Washington Post. Qin Gang turned up the charm and affectionately recollected his days as ambassador to the US, praising Americans as “broad-minded, friendly and hard-working” and saying that the “future of the entire planet depends on a healthy and stable China-U.S. relationship”.  Another move to thaw tensions was China’s invitation of Australia’s foreign minister to visit in December last year. China subsequently placed an order to import Australian coal for the first time in more than two years after it imposed an unofficial ban on Australian coal in 2020.  The confluence of the policy cycle and credit cycle amplifies the reacceleration potential These substantial policy shifts were rolled out rapidly in a matter of two months and clearly demonstrated the Chinese determination to adjust the direction of the new development paradigm from 2020 and dig the economy out of the Covid-19 containment pothole. We believe that China’s drive to structurally transform its economy into a new economic paradigm remains intact. The recent policy shifts are to fix the economy as if in a cyclical downturn. In spite of the short-termism potentially embedded in the policy shifts, they are in the confluence of an upturn in China’s credit cycle and can produce powerful impacts on the Chinese economy and its equity market. China’s credit impulse is an index that measures the flow of new credit as a percentage of GDP and its 12-month rate of change tends to lead the turn in the real economy by 10 to 12 months. In Figure 1, we plot the year-over-year percentage change of the Bloomberg China Credit Impulse Index 11 months forward against China’s Manufacturing Purchasing Manager Index. The Credit Impulse has bottomed and turned to trend upward since Q4 last year and points to expansion through most of 2023.  Source: Saxo Markets; Bloomberg LP. Moving from infrastructure to technology and consumption stocks in Q1 Investors are rightly looking through the initial shockwave of Covid-19 infection across the country in December and into the start of this year to the subsequent reacceleration of economic activities and credit expansion. The investment case for Chinese stocks in Q1 is strong. Last year, we preferred resorting to the infrastructure space for its benefits from the counter-cyclical policy tailwinds as the Chinese government was pouring money in that direction. For 2023, as the Chinese economy is moving into a cyclical upturn, we believe cyclical growth stocks, including technology and domestic consumption names, will outperform. Leading internet platform companies such as Alibaba, Tencent, JD.COM and Pindoudou, and consumer discretionary names China Tourism Group Duty Free, CR Beer, Jiumaojiu, Li Ning and many others, may offer interesting investment opportunities.  Spill-overs to global commodity markets and growth The reacceleration in economic growth in China may spill over to push up commodity prices globally, especially those of industrial metals and energy, as well as contribute to global industrial production and GDP growth. As an excellent paper from Fed researchers concludes, “what happens in China does not stay in China”.   Source: Refitting China’s broken growth engine | Saxo Group (home.saxo)
National Bank of Hungary Review: A new beginning without commitment

Hungarian industry surprises on the upside

ING Economics ING Economics 07.02.2023 14:54
After two months of poor performance, Hungary's industrial production registered a surprise 3.8% month-on-month expansion. As always, car manufacturing did the heavy lifting Workers on an assembly line at an Audi factory in Hungary 5.7% Industrial production (YoY, wda) Consensus -0.5% / Previous 0.9% Better than expected   Traditionally, industrial production in December has performed worse than in the previous two months, but this was not true in 2022. According to the raw data, industrial production rose by 2.0% year-on-year (YoY), while the rate of growth came in at 5.7% after adjusting for calendar effects. The significant difference is due to the fact that there were two fewer working days in December 2022 than in 2021. The better-than-expected yearly-based expansion is the result of a surprisingly good 3.8% increase in industrial production from November to December. In fact, growth in December was so strong that industry was essentially able to make up for the contraction it had accumulated over the previous two months and production levels returned to near September levels. Performance of Hungarian industry Source: HCSO, ING   We have to wait another week for the Hungarian Central Statistical Office (HCSO) to release the detailed subsector data but judging by the short commentary posted by it, the performance continues to be a tale of two halves. According to the preliminary statement, the largest positive contributors to industrial performance were car- and electrical equipment manufacturing, which both expanded on an annual basis. In contrast, other sectors, such as the dominant food industry and electronics manufacturing posted year-on-year contractions in the volume of production. Against this backdrop, the overall positive industrial performance is due to strengthening car manufacturing and related supply sectors, like electric vehicle battery production. Volume of industrial production Source: HCSO, ING  Read next: EUR/USD Drop Below 1.0700$ And GBP/USD Drop To 1.967$, The Aussie Pair Holds Above 0.69| FXMAG.COM After three consecutive PMI readings of 55+ (63 in December) and two consecutive drops (October and November) in the volume of industrial production on a monthly basis, it seems like the forecasting ability of this soft indicator is deteriorating. In our view, PMI readings alone are not able to predict the future trajectory of industrial performance, but when combined with other types of soft indicators the outcome is much clearer. Factors limiting production in Hungarian industry (% of respondents) Source: Eurostat, ING   In this regard, the latest quarterly survey results on factors limiting production, along with the current level of capacity utilisation data, further clarifies the direction of Hungary's industry. Eurostat data shows that capacity utilisation has improved since the last survey was conducted, signalling almost 79% utilisation in the first quarter of 2023, although this is still below last year’s average. On the other hand, labour-related issues eclipsed insufficient demand as the number one factor that is limiting production, according to the survey. Such an outcome comes as no surprise given the already well-known tightness of the Hungarian labour market. The improvement in equipment and demand-related concerns, along with growing capacity utilisation are in line with the trend in PMI data, which has been expanding since October 2022. Current level of capacity utilisation (%) Source: Eurostat, ING   Even though December’s surprisingly good industrial performance somewhat counterbalanced the declines registered in the previous two months, we believe that the overall performance may have held back the economy in the fourth quarter of 2022. After yesterday’s bleak retail sales data and considering today’s industrial data, it has become even more likely that GDP contracted significantly on a quarterly basis during the last quarter of 2022. Going forward, recent global positive news, ranging from pro-growth economic policies in China to improving growth expectations in the US and Europe, all point to strengthening industrial production this year. According to the latest (November) data, the stock of orders was up by almost 20% YoY, which in future should translate into real production activity as global and local economic sentiment improves. In our view, from the second half of this year, industry will become one of the most significant drivers of economic growth. Read this article on THINK TagsPMI Manufacturing Industry Industrial production Hungary Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

Ongoing Economic Weakness Could Certainly Make Next Year Far More Difficult

Franklin Templeton Franklin Templeton 08.02.2023 08:03
A slowdown in US economic activity this year is likely to impact most states, which could face budget deficits, according to Jennifer Johnston, Franklin Templeton Fixed Income's Director of Municipal Bond Research. She outlines implications for the muni market. Key takeaways: We knew that California would announce a budget deficit. California’s credit ratings incorporate the tax volatility it faces, so as long as the state employs a diverse approach to addressing any deficits, we don’t expect any ratings actions at this time. A slowdown in US economic activity is likely to impact most states and some could see budget deficits as costs rise at the same time. States and many muni credits go into this period of slower or negative growth with very strong balance sheets and reserve funds. For those who watch state budgets closely, January marks the official beginning of “budget season” with California Governor Gavin Newsom’s release of his preliminary budget for fiscal year 2024 (FY24). With the sheer size of California’s budget and its highly volatile tax revenue structure, among other things, the California budget release gives us a peek into some of the challenges or opportunities that the larger US states will have as we move closer to June 2023 budget adoptions. It was no surprise that Newsom announced a budget deficit. First, the state has been reporting monthly underperformance of revenues since the summer. Second, the state is highly dependent on capital gains and personal income tax revenue, which are weakening due to stock market weakness and wage growth slowing. And finally, the state had been seeing unprecedented revenue growth post-pandemic and we know that this would not continue indefinitely, especially given the Federal Reserve’s increases in interest rates and inflationary pressures. The questions for muni credit experts included: What is driving the volatility? Will the announcement of California’s budget deficit lead to a downgrade?  Could this deficit announcement result in drawn out budget battles that hurt credit?  Can the deficit be eliminated?  Is this a trend that we are likely to see in other states? Let’s take each of these questions. What is driving the volatility? The state’s general fund is highly reliant on income taxes and in particular, capital gains taxes. The state also has a number of taxes levied on higher income people who tend to have more volatile incomes. So, when investment markets perform well, the state tends to see sharp increases in tax revenue. But when investment markets perform poorly, we see declines, like in 2022. The two charts below illustrate the volatility of capital gains taxes.1 Will the announcement of California’s budget deficit lead to a downgrade? At this point, our answer is no. First, this is a very early look into the governor’s projections and priorities; there are still four months until the next budget release and five months until adoption deadlines.  Second, the state has very high levels of reserves and many tools in its toolbelt to close this budget gap. And three, we feel that so long as the state bases the budget on realistic assumptions and closes the deficit in an appropriate way, the rating is likely stable for now. Could this deficit announcement result in a drawn-out budget battle that hurts credit? While various members of the government will have their own estimates and priorities, we expect that the fact that the same party leads both the executive and legislative branches of government will enable a smooth path. Major priorities are likely to be similar, it is just the details that will need to be agreed upon. Second, the state enters this challenge with very robust reserves and many tools in its budget- deficit toolbelt. And third, there is ample time for the governor and legislature to look at potential solutions and get others on board. Can the deficit be eliminated? The short answer is yes, and a balanced budget is a requirement. The state has less power over technology sector layoffs and economic underpinnings, but as mentioned above, reserves are large and there are lots of tools to address the deficit. Over the next few months as the economic picture becomes a bit more clear, the governor will be socializing his ideas among legislators and other stakeholders. There are tough decisions ahead for the governor and legislature, but the tools available should make the question not “if” but “how.” Is this a trend we are likely to see in other states? Only a few states have released their preliminary budgets at this point, but we think that California will be more of an outlier this year rather than part of a trend. California’s budget is highly reliant on income taxes, and capital gains taxes in particular. This makes revenues very volatile, and we can see large shifts depending on how financial markets (i.e., capital gains) perform. This isn’t a surprise and the fact that the state’s revenue stream is so volatile (both to the positive and negative) is factored into the state’s rating. It’s  one of the key reasons that we think the state should have higher reserves than others. If economic conditions weaken and remain weak, we could see other states reveal deficits, but that remains to be seen. Capital Gains Revenue as Percent of General Fund Tax Revenues: California 2011–2023 (estimate)Dollar amounts in billions   e/ Estimated 1/ Excluding transfers. Source: California Department of Finance, 2023-24 Governor’s Budget Forecast. There is no assurance that any estimate, forecast or projection will be realized.   Capital Gains as a Percentage of Personal Income: California   Source: California Department of Finance, 2023-24 Governor’s Budget Forecast. There is no assurance that any estimate, forecast or projection will be realized.   In summary, California definitely has its challenges, but we think it has the tools to deal with them in a way that should not impact its credit rating this year. Ongoing economic weakness could certainly make next year far more difficult. Which state is next? New York State has the first fiscal year end (March 31) so we will soon have additional insight into their budget. New York City has released its $102.7 billion FY24 preliminary budget which projects increased revenue assumptions of $1.7 billion for FY23 and another $738 million for FY24, but year-over-year revenues are expected to decline by $3.7 billion or -3.5%, which brings a year-over-year revenue change that is flat. Michigan, which has a September 30 fiscal year, updated FY22 revenue assumptions by +$1.5 billion due to outperformance of sales and income taxes. While FY23 revenues are expected to be lower than FY22, estimates have been revised higher. All eyes are on Illinois, which should release its FY24 budget in a few weeks. A November mid-year update estimated that the current fiscal year could see a new positive surplus of $1.689 billion. Tax revenues are expected to grow $3.7 billion, about $1.3 billion of which would be used to make an additional transfer to the Rainy Day Fund. We will be watching these developments closely and are optimistic most states can weather changing economic conditions. We have an extensive research team which highlights our ability to be nimble and can pivot quickly if we uncover any cause for concern. Endnote Source: Governor’s Budget Summary, State of California, 2023-2024. WHAT ARE THE RISKS? All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolio’s value may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.    
Asia Morning Bites 13 March 2023

Asia Morning Bites - 08.02.2023

ING Economics ING Economics 08.02.2023 08:59
Reserve Bank of India (RBI) will decide if the economy needs one last rate hike today. Powell's speech fails to deliver anything new.   Source: shutterstock Macro outlook Global Markets: It didn’t take much for markets to re-find their mojo after last Friday’s payrolls shock, just a speech from Fed Chair Powell, at which he was not materially more hawkish than he was after the recent FOMC decision. Powell said that the economy would need more interest rate rises to keep inflation on a consistent downward track. But that was not really a deviation from what had already been said, and equity markets saw that as an excuse to rally. For more background on the payrolls figure, the linked note from James Knightley is required reading. The S&P500 rose 1.29%, while the NASDAQ rose 1.9%. US Treasury Bond markets largely shrugged off Powell's remarks. Yields on 2Y US Treasuries declined less than a basis point and rose 3.4bp on 10Y bonds taking their yield to 3.674%. EURUSD is roughly unchanged from this time yesterday at 1.0725. The AUD has done better, rising to 0.6956 after a fairly hawkish RBA statement following their 25bp rate hike yesterday. See here for more details.  Sterling edged slightly higher against the USD and the JPY also advanced, moving down to 131.08. Asian FX was mixed. Propping up the bottom of the league table with a 1.24% decline was the PHP following poor inflation data yesterday. The MYR also lost more than a per cent, followed by the IDR and the VND. Outside the G-10 currencies, the SGD and THB were the best of a bad bunch yesterday, rising 0.33% and 0.2% respectively. G-7 Macro: Apart from Wholesale inventories, and mortgage applications in the US, this is a very thin day for macro in the G-7. A good day for some filing. India: At 1230 SGT/HKT, the Reserve Bank of India (RBI) will decide if it needs to raise rates any further. The overwhelming consensus is for a further 25bp rate hike taking the repo rate to 6.5%. There are, however, a couple of forecasters looking for no change. And we have some sympathy for that view. Policy rates are already above the rate of inflation, which itself has dipped back into the top of the RBI’s inflation target range. Sure, it isn’t low enough yet, but the arguments for yet more tightening when the current medicine seems to be working do not look overly compelling to us. If they do hike, we would be looking for some indication that rates may have peaked. If they don’t, the rhetoric can lean more towards policy becoming more data-dependent. In any case, we will know shortly after midday. What to expect: RBI meeting, Fed speakers South Korea BoP current account (8 February) India RBI policy meeting (8 February) US mortgage MBA applications (8 February) Fed’s Williams and Cook speak (8 February) Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Fed’s Kashkari and Waller speak (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more    
India: Reserve Bank hikes and keeps tightening stance

India: Reserve Bank hikes and keeps tightening stance

ING Economics ING Economics 08.02.2023 09:09
The Reserve Bank of India (RBI) hiked a further 25bp, though rather than signalling "job done", they have maintained their tightening bias Reserve Bank of India Governor Shaktikanta Das 6.50% Repo rate Up 25bp As expected "Headline inflation has moderated with negative momentum in November and December 2022, but the stickiness of core or underlying inflation is a matter of concern. " - Shaktikanta Das - Governor RBI A more hawkish hike than anticipated The prevailing view before this meeting was that the RBI would hike, but indicate that this was the last hike in this cycle as inflation was both below the RBI's policy rate (indicating positive real policy rates) and was also back within the RBI's 4+/-2% inflation target.  We had actually felt that the RBI might, as a result of falling inflation, decide to pause at this meeting - a minority view - and one which turned out to be wrong in the end.  But the consensus didn't get it all its own way either. Governor Shaktikanta Das said in his statement that the Monetary Policy Committee would "continue to maintain strong vigilance against inflation" a view he justified by noting persistently high core inflation which threatened to de-anchor inflation expectations. Indian headline and core rates of inflation relative to the RBI's target Source: CEIC, ING So it's all down to the data now... The chart above shows how the headline rate of Indian inflation has fallen, but that various core measures have remained persistently above the upper bound of the RBI's inflation target.  What is also fairly clear about these core measures of inflation, is that, unlike some western economies, the core inflation rates can deviate from headline inflation for considerable periods of time. So we can't take too much solace in the fact that headline inflation rates will likely continue to fall, as it could be a long time before core rates move down and into line with them. Another factor we need to consider is the fact that India's economy continues to grow quite robustly. The RBI's forecast for growth in fiscal 2024 (the year ending March 2024) was 6.4%, only marginally down from the forecast of 7.0% for fiscal 2023. This will also be providing the RBI's Monetary Policy Committee with additional confidence that it has room to move rates up some more, without undue risk of triggering a recession. Indeed, Governor Das remarked that overall monetary policy remained accommodative, implying that there is further upside risk to rates if inflation is to be sufficiently tamed.    It seems reasonable to conclude that until these measures of inflation present less of a threat, by falling below 6% and remaining there for a couple of months, we can't rule out further rate hikes. So we will be amending our forecasts and adding a further 25bp taking peak policy rates to 6.75% after this latest increase and pushing back the timing of eventual rate cuts until next year. That said, the decision wasn't unanimous. Two of the six-member MPC decided not to vote for the hike, and two also did not vote to keep the policy stance of withdrawing accommodation. Taking all of this together suggests that there is still a little more tightening to come, but though this latest hike did not represent the last in this cycle, we are now getting very close to the peak. Financial markets took the rate decision and outlook in their stride. The INR did not react much at all, and 10Y government bonds only rose about 3bp to just under 7.34%. Read this article on THINK TagsRBI policy rates RBI INR Indian inflation Indian economy   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
SEK Faces Risks as Disinflation Accelerates Ahead of Riksbank Meeting

Douyin Wants To Enter The Food Delivery Industry

Kamila Szypuła Kamila Szypuła 08.02.2023 12:22
The Internet and social media are a good place to promote your business. In China, one of the TikTok applications wants to enter the food delivery industry. In this article: The food delivery industry in China Russia's MTS bank has UAE licence More than in any other year The bond market The food delivery industry in China The food delivery market is constantly evolving. Apps such as Uber Eats or Glovo are very popular. China has its own counterpart, but other companies also want to enter this market. Douyin is the Chinese version of TikTok which is owned by ByteDance. ByteDance's douyin is testing a type of food delivery service in China. Restaurant owners often broadcast live on Douyin to promote their business. By doing so, they can offer discounts. The user can then redeem this offer and choose the time the food will arrive. The food delivery industry in China is dominated by Meituan and Ele.me. However, ByteDance's initial steps in the market suggest that the company wants a piece of the market, and their business model is different from the current market. ByteDance is testing food delivery service via its Chinese version of TikTok https://t.co/36zS7pddDl — CNBC (@CNBC) February 8, 2023 Read next: The Decline In Tech Valuations Continues To Hit SoftBank| FXMAG.COM Russia's MTS bank has UAE licence The tougher Western sanctions against Russia have not yet directly targeted telecommunications infrastructure. The fintech unit of the largest Russian mobile operator Mobile TeleSystems -MTS - has received licenses from the Central Bank of the United Arab Emirates. The UAE, like Saudi Arabia, maintains good relations with Moscow despite pressure from the West to help isolate Russia from the invasion of Ukraine, which Moscow calls a "special military operation." Russia's MTS bank has UAE licence -central bank website https://t.co/nPrzeEAFgy pic.twitter.com/ksib85fIpZ — Reuters Business (@ReutersBiz) February 8, 2023 More than in any other year The cryptocurrency market is vulnerable to hacker attacks. Reports show that hackers are hitting this market particularly hard. A confidential United Nations report shows that in 2022 North Korean hackers stole more crypto assets than in any other year. So the main task as always will be to implement the maximum protection of funds in any project. Or it may seem that the problem is North Korean #hackers, but that depends on how you look at the situation. #cryptonews: A confidential United Nations report has revealed North Korean hackers stole more #crypto assets in 2022 than in any other year 🫢Stay #SAFU! — CoinMarketCap (@CoinMarketCap) February 8, 2023 The bond market Many people want to try their hand at investing. They often choose stocks or bonds. These are two key reasons to own quality bond investments. Most bonds make semi-annual interest payments that are known in advance based on a percentage of the face value. Bonds also have fixed face values and maturity dates, so in the event of default, investors know in advance what they will receive and when. However, given how large and complex the bond market is, there can be some confusion about how to actually invest. Therefore, before making a decision on such an investment, you should increase your knowledge in this area, for example by using the materials of financial institutions. Five key points about bond investing, ranging from "how" to invest to "why now?"https://t.co/pTt30eiGJg — Charles Schwab Corp (@CharlesSchwab) February 7, 2023
Asia Morning Bites 13 March 2023

Asia Morning Bites - 09.02.2023

ING Economics ING Economics 09.02.2023 08:40
Taiwan's inflation this afternoon and US initial jobless claims to chew on tonight. More Fed speakers are scheduled, but markets are currently not paying them much attention Source: shutterstock Macro outlook Global Markets:  US stocks don’t seem to know which way to turn currently, and after Monday’s fall and Tuesday’s rise, Wednesday saw them falling again. There was nothing of note on the macro calendar, but a slew of Fed speakers kept up a hawkish background hum, which was probably the main cause of the falls. The S&P 500 fell 1.11%, and the NASDAQ fell 1.68%. Chinese stocks were down slightly, the HSI just barely lower by 0.07% and the CSI 300 down 0.44%. FX was quite whippy on Wednesday. EURUSD rose to 1.076 at one point but gave that all back to settle slightly lower at 1.0715. The AUD performed a similar set of acrobatics but finished close to where it started and is currently 0.6926. Cable actually performed a little better, the pound climbed up above 1.21 vs the USD, and though it too drifted lower, maintained a level of 1.2070. The JPY is at 131.34, slightly weaker than this time yesterday. Other Asian FX delivered a mixed bag, with the SE Asian currencies mainly stronger against the USD, but the more continuously traded currencies slightly softer. We will probably see some convergence with the SE Asian currencies coming more into line with their Northern peers this morning. US Treasury markets have gone back into “ignore the Fed” mode. 2Y US Treasury yields fell 4.4bp while yields on 10Y bonds fell 6.4bp to 3.61%. G-7 Macro: Preliminary German CPI for January is released today, and the consensus expects it will rise back up to 8.9% from 8.6% YoY in December. There is nothing else on the Macro calendar except for a couple more Fed speakers – Kashkari and Waller. So the hawkish tone should continue through today too. Markets may continue to ignore it ahead of next week’s CPI release. China:  Loan data released between 9 Feb and 15 Feb should show a jump in new yuan loans to over CNY 4 trillion. This is a seasonal phenomenon. Chinese banks usually book loans at the beginning of the year. Any amount over CNY 4.37 trillion will suggest strong loan demand from corporates that expect a strong recovery in the economy. Taiwan:  CPI inflation should be stable at around 2.7%YoY with WPI expected at around 5.3%YoY from 7.14%. In theory, this set of data should give Taiwan’s central bank an option to pause from March 2023. The downside of this would be a widening interest rate differential, which could induce portfolio capital outflows. In that case, the central bank could choose to just follow the Fed's hikes with small steps of 12.5bp from the current level of 1.75%. This would put extra pressure on the economy as we expect the semiconductor industry in Taiwan to experience a downward cycle in 1H23. This should result in a mild recession in Taiwan's economy in the same period. As such, the March meeting will be a difficult decision for Taiwan’s central bank. What to look out for: US initial jobless claims and Taiwan inflation data Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Credit Suisse Reported Its Biggest Annual Loss Since The 2008, Ukrainian President Is Asking For Help And More Weapons In Brussels

Credit Suisse Reported Its Biggest Annual Loss Since The 2008, Ukrainian President Is Asking For Help And More Weapons In Brussels

Kamila Szypuła Kamila Szypuła 09.02.2023 12:21
Credit Suisse shocks with very bad results. Ukraine needs even more support. In this article: The crucial battle for Bakhmut is coming IMF forecasts The Loss The crucial battle for Bakhmut is coming Ukrainian President Volodymyr Zelensky is in Brussels, where he is the third stop on his tumultuous European journey, to ask for help and more weapons to help his forces fight Russia. The stakes are high for Ukraine as it prepares for an expected large-scale offensive by Russian forces. Russian and Ukrainian forces had been fighting hard for Bakhmut for months, and Moscow saw its capture as a strategic objective and a way to cut off Ukrainian supply lines in Donetsk. Russian officials recently claimed that Moscow's forces had almost completely surrounded Bakhmut. Ukraine may soon face a critical decision regarding a tactical withdrawal from Bakhmut in eastern Donetsk Oblast as the city's fate hangs in the balance. Russia is fighting wars despite economic difficulties. Dependent on exports, the Russian economy withstood the impact of the sanctions better than initially expected, but still recorded a decline in GDP of around 2.5%. While Russia's economic outlook is not so bleak this year, with Russia facing labor shortages, lower oil and gas revenues due to price caps and embargoes, and a rapidly growing budget deficit, 2023 presents new challenges for the government. Zelenskyy on European mission for more aid, jets; Russian strikes intensify in Ukraine's east https://t.co/06AhAiudry — CNBC (@CNBC) February 9, 2023 Read next: Disney Plans To Cut Costs And Jobs, Google Is Now Rolling Out AI Chatbot| FXMAG.COM IMF forecasts Since the outbreak of the coronavirus pandemic, economic threats have accumulated. With inflation above the expected level of 2% and rising interest rates, an economic slowdown is expected. The IMF projects global growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023. This forecast is based on the current geopolitical situation, severe health impacts in China could hold back recovery, Russian war in Ukraine could intensify and tightening global financing costs could worsen debt problems. Financial markets can also suddenly change prices in response to unfavorable inflation news, while further geopolitical fragmentation can hamper economic progress. Achieving sustainable disinflation remains a priority in most economies facing the cost of living crisis. Stronger multilateral cooperation is essential to preserve the benefits of a rules-based multilateral system and to mitigate climate change by reducing emissions and increasing green investment. Global growth is projected to fall from an estimated 3.4% in 2022 to 2.9% in 2023, before rising to 3.1% in 2024. Watch IMF Chief Economist @pogourinchas summarize the key findings of our World Economic Outlook Update: https://t.co/4ifKc9pKeL #WEO pic.twitter.com/YHBTCKzFxj — IMF (@IMFNews) February 9, 2023 The loss The Credit Suisse group posted its biggest annual loss since the 2008 global financial crisis. The bank, plagued by one scandal after another, saw a sharp acceleration in disbursements in the fourth quarter with an outflow of more than 110 billion Swiss francs ($120 billion). The bank's shares fell 5% in morning trading. Credit Suisse warns of more losses after sliding deep into the red https://t.co/l6kxIXz4wX pic.twitter.com/xDKpVCsErF — Reuters Business (@ReutersBiz) February 9, 2023
Listen: Ukraine war, one year on

Lockheed Is Facing Performance Issues Concerning Some Of Its Products, Which May Hurt Its Results

Conotoxia Comments Conotoxia Comments 09.02.2023 13:52
The US State Department is considering approving the sale of HIMARS artillery missile systems to Poland for $10bn. The deal will include 18 launchers and long-range munitions. We were able to learn from a release from State Department officials that providing the weapons to Poland would meet US foreign policy objectives by: "improving the security of a NATO Ally that is a force for political stability and economic progress in Europe". It seems that the manufacturer of this armament could particularly benefit from this contract. Is Lockheed Martin Corporation the Cyberdyne Systems from "Terminator" movie? Lockheed Martin Corporation (Lockheed) is one of the largest manufacturers of military equipment and weapons technology in the world. The company was founded in 1912 and is headquartered in Bethesda, Maryland. Lockheed Martin is a supplier of military combat aircraft (37.7% of revenue), missiles (19.1% of revenue), air and missile defence systems (23.2% of revenue), satellites and space programmes (29.6% of revenue) and other vital systems to militaries and government agencies around the world. The company also researches and develops new technologies related to weapons and security. The comparison to Cyberdyne Systems may at first glance seem exaggerated. Nevertheless, it is one of the three largest companies in the US military sector. To a large extent, it could influence the military destiny of the world. Lockheed Martin's business model is based on the sale of defence and security products and services. The company's main source of revenue is the sale of military products and weapons technology. The company also earns money by providing maintenance services and upgrades for its products, as well as by working with other companies to develop and market new technologies. Financial situation The company's shares have risen by more than 23% since the outbreak of the conflict in Ukraine. From the last published report for Q4 2022, we could learn that Lockheed Martin's revenue increased by only 7% year-on-year. Despite the increase in revenue, the company's operating profit fell by 6.6% year-on-year. This appears to have led to the company's net profit margin falling to 8.7% (previously 9.1%), which is still better than the industry average of just 1.9%. According to analyst firm Zacks: 'Steady contract flows and subsequent backlog growth bolster its long-term revenue prospects. Budgetary provisions tend to boost its business. Yet strains between the U.S. and Turkey, as a result of the latter accepting Russian products, might hurt Lockheed's component supply from that country. Lockheed is facing performance issues concerning some of its products, which, in turn, may hurt its results. Also, an uncertainty revolving around the possible sanction by China on Lockheed might impact the company’. Including the aforementioned USD 10 billion worth of equipment sales to Poland, the company's revenue growth would be as much as 27%. It seems that this is why the number of 'strong buy' recommendations has increased from three in January to the current seven. What does Wall Street think of Lockheed Martin's share price? According to the Market Screener portal, the company has 22 recommendations, and among these, the majority are those with the content: "Hold" and "Buy". The average target price is set at USD 502.3, 7% above the last closing price. The highest target price is at USD 774 and the lowest is USD 334. Source: Conotoxia MT5, Lockheed, Daily Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Nasdaq 100 Underperforms and Faces Key Resistance - Technical Analysis and Market Outlook

Participants Are Hungry For More Personalized Solutions

Franklin Templeton Franklin Templeton 10.02.2023 11:53
The retirement savings industry is at the dawn of a mega-trend that will define the next decade or more—personalization, according to Kevin Murphy, Franklin Templeton’s Head of Workplace Retirement Distribution. As an industry, we tend to overcomplicate things, which can be to the detriment of those we serve—hard-working Americans saving for their future financial independence. It’s a result of being in the industry for many years, and then taking for granted that our end clients understand random terms like auto-escalate, QDIA, 408b2, and the vague “managed accounts.” As we see it, this is not helping anyone. How do we fix it? Give workers not only what they need, but what they want. And, give it a name they understand. We can start with the facts. More folks need access to a workplace savings plan, and those who do have a plan need help and advice. And by advice, we don’t mean just investment advice, but SAVINGS advice. It’s fitting as we see that participants are hungry for more personalized solutions. Franklin Templeton’s 2023 Voice of the American Worker survey confirms that personalization goes a long way when it comesto the retirement savings behaviors of US workers. According to survey respondents, 78% of workers say they would be interested in more personalized 401(k) investment options tailored to their unique financial situation, while 77% confirmed a more personalized 401(k) investment option would encourage them to participate and/or contribute more to their retirement savings. And 75% responded that if their employer offered a customized managed account solution as an option in their 401k plan, they'd be more likely to stay in that plan if they retired or change employers. Of note, these statistics are emphasized even further for the Millennial generation, the largest portion of today’s workforce. “I can change, you can change, we all can change” – Rocky IV Target-date funds (TDF) have been a great benefit in recent decades, and they’ve done a great job helping many American workers save for their future, especially when used as a default or qualified default investment alternative (QDIA). However, we believe these vehicles have not evolved in a meaningful way since they became available in the 1990s—over 30 years ago. C’mon now—are your kids still playing Tetris on their Gameboys? We view TDF’s as stagnant and stale, never giving employees the ability to update their goals, or ever recommending an increase in their savings rate, or do anything besides put employees in a box. Managed accounts can plan a role in supporting improved savings behavior; in fact, participants in a managed account on average participate at a rate 2% higher than those with a TDF,1 which may have a meaningful impact over the long term. We believe we’re at the dawn of a mega-trend that will define the next decade or more of the retirement savings industry—PERSONALIZATION. It is all around us in our daily lives, so why isn’t it more widely available to 401(k) plan savers? The solution we have is not new, it just has a name that sounds like an ancient tool used by old stock brokers: “managed accounts.” One of the most common misconceptions we hear is “managed accounts are just an expensive target-date fund!” Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM Today’s solutions address previous objections We all have watched fees come down. For reference, we believe the all-in cost, including investment expenses of a blended investment menu (active and passive), can be less than 40 basis points (bps), which would include advice, technology and delivery fees. We believe getting those fees closer to 30 bps may even be possible. Also, the technology is getting better and creating an improved user experience. So is the quality of data recordkeepers can provide to create an even more personalized experience for participants. It’s not Tetris, and it’s not a Gameboy they’re using. All things being equal, especially price, wouldn’t most participants rather utilize a personalized portfolio than an off-the-shelf portfolio that does not use their unique goals (i.e., financial independence/what’s your number) as a key component of the decision-making process? We think so, and now’s the time to strategize on how we can best present these increasingly innovative solutions in a participant benefit-focused manner. Can you change  a name? It’s 2023. You can change anything. We’re going to make a bold proposal. Our focus should be on personalization, not “managed accounts.” And let’s be clear with the terminology we use, since we know language matters. Let’s commit to using the word “personalized.” Managed accounts can be a lot of things —a separately managed account in the wealth management world mainly. But what is it really in the 401(k) world? In our view, it is simply personalized savings advice and has very little to do with an “account,” which is just an operational vehicle. So, how about we change the name to better describe the potential benefit it provides to today’s US worker? “Personalized advice” or “personalized solution” or even “personalized portfolio” all come to mind. Many options exist as we modernize our language, and it’s increasingly clear to us that the time is now to do so. It’s time to be more descriptive about the type of solution we are providing: a personalized solution that helps many people achieve their number one goal: financial independence. Source: “Managed accounts” is a terrible name | Franklin Templeton
Producer Price Fall and Stickier Services Inflation: Impact on CPI and Resilient Consumption

Italian industrial production rebounded in December, beating expectations

ING Economics ING Economics 10.02.2023 12:12
Industry may have been less of a drag on fourth-quarter GDP growth than expected. Positive signals from confidence data in January warrant some optimism, but do not clear the way for a substantial short-term acceleration, given the uncertain external environment Source: Shutterstock Production rebounds, not in energy-intensive sectors In December, industrial production rebounded an unexpectedly strong 1.6% in seasonally-adjusted terms, after three consecutive monthly declines. Production expanded on the month in all of the large aggregate categories, but more markedly in capital goods and energy. The sector breakdown shows that the ongoing improvements in the functioning of supply chains had a positive effect on transport equipment. However, energy-intensive producers of chemicals, plastics and tiles, paper, and metals and metal products continued to suffer, signalling that the impact of the energy shock was still weighing on supply by the turn of the year.   The consequences of the energy crisis weighed heavily on industry in 2022 During 2022 as a whole, industrial production posted a 0.5% increase, driven by consumer and capital goods. Almost inevitably, the consequences of the war in Ukraine on energy prices weighed heavily on the manufacturing sector over the year. The measures put in place by the government provided only partial compensation and manufacturing acted as a drag on economic growth. This put the onus on services to fuel growth. Confidence improvement encouraging, but short-term acceleration unlikely With the December release now in the bag, we now know that the statistical carryover for 2023's industrial production is a modest 0.3%. Business confidence data published after the turn of the year was positive but did not dispel uncertainty. While the PMI entered expansion territory, orders remained soft and the stock of finished goods is relatively high, suggesting that a substantial acceleration in production is unlikely, at least in the short run. To be sure, the consolidation of wholesale gas prices at current levels could help to support businesses, particularly in energy-intensive sectors.  Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM Today’s release does not change the picture for GDP growth in 2023. We are currently forecasting average GDP growth at 0.7% in Italy, with a minor 0.1% quarterly contraction in the first quarter. Should early positive signals be confirmed, a flat or mildly positive first quarter could easily materialise. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Mexico’s Central Bank Surprised Markets With A 50bps Rate Hike Once Again

Latin America Is Generally On A Decelerating Path

Franklin Templeton Franklin Templeton 11.02.2023 11:51
Growth and inflation outside the United States Michael, let’s look more globally. What’s your outlook for inflation and growth outside the United States? Michael: It’s a challenging time because there’s a lot of variance when looking at different parts of the world. In Europe, inflation is currently running higher than in the United States. It is only beginning to peak on the headline inflation numbers, and the core numbers (excluding food and energy) are still in an upward trend, whereas in the United States, both inflation measures have been trending down. It’s a question of how quickly they trend down. Energy was a much bigger factor in Europe, and wage negotiations were a very significant contributor to some of Europe’s inflationary dynamics. “ The key takeaways looking globally at inflation are that Latin America is generally on a decelerating path, and that Asia is slightly accelerating, but the terminal level will likely be a lot lower than what we witnessed in the United States and what we’re seeing in Europe.” Michael Hasenstab Asia looks very interesting. The core Tokyo CPI, which comes out a little earlier than the national CPI, rose 4% in December, the highest level since the 1980s. While it does tend to differ from the national reading, it’s an interesting signal in that Japan is seeing some different dynamics. Many investors had written off Japan because for decades it struggled with a deflation liquidity trap. So, I think it is an interesting dynamic and has important implications for growth and for currencies. If we look at the rest of Asia, we did not see the same magnitude of inflation that we saw in the United States or in Europe. It was a lot more moderate, and lagged, because COVID-related policies greatly restricted the opening of economic activity. While inflation in the United States has been on a clear downtrend in recent months, there are still some moderate upticks in Asia, but the magnitude is different. It’s at much lower levels generally throughout the region. With China beginning to open again, growth dynamics there could have some moderate inflationary impacts, but for good reasons. In Latin America, some countries saw inflation readings surge earlier and faster than in Europe or the United States—hitting double-digits. It necessitated some very aggressive central bank activity, which did occur. And now in many cases we’ve seen that inflation trajectory change to inflation coming back down. So, the key takeaways looking globally at inflation are that Latin America is generally on a decelerating path, and that Asia is slightly accelerating, but the terminal level will likely be a lot lower than what we witnessed in the United States and what we’re seeing in Europe. Quality and duration decisions key in “run” toward fixed income Gene, you’re looking at multi-asset portfolios, trying to make some decisions in terms of positioning. What is your thinking right now? Gene: The inflation outlook and commensurate policy response, and the equity and bond market reactions to these variables, have largely influenced changes to our asset allocations from 2022 until now. We look at inflation as being both a cause and a symptom of underwhelming market performance in 2022, and it’s really changed the calculus for all risk assets over the past quarter: for equities, fixed income and everything in between. We think the Fed, and most other central banks, have really set the economic context over the past year, given the tightening of rates in response to higher-than-expected inflation. We believe that’s going to continue, and we’ve already seen the negative impact inflation had on equities last year. But perhaps the reset in bond yields has been a stronger force driving allocation shifts. Consequently, bonds overall offer a much more favorable risk and return tradeoff against equities than we’ve seen at any point in recent memory. We characterize this asset allocation preference as not so much about running away from equities, but rather, running toward fixed income. Last year it was challenging to eke out return from fixed income, and it was a pretty disastrous year in terms of portfolio-level returns. So far, that’s not looking to be the case this year. Over the last couple of quarters, we have shifted our strategies from being at one point overweight equities to now overweight fixed income, as equities continue to track the economy and resulting policy response. As I mentioned, we believe a recession is ultimately looming on the horizon and we are monitoring the situation very closely. Should “recession” go from concern to reality, this will likely have profound implications on asset allocation, and not just at a high level between equity and fixed income, but also within equity and fixed income sectors. Read next: EUR/USD Pair Is Belowe $1.07, USD/JPY Pair Is Back To 131 And GBP/USD Pair Is Slightly Above $1.21| FXMAG.COM Sonal, Gene mentioned that from an asset allocation point of view, he’s “running toward fixed income.” Can you share your thoughts on duration and where you think there are opportunities now within fixed income? Sonal: Historically, I’ve always been pretty pessimistic about the outlook for fixed income, but I do think this is a great point in fixed income—that I completely agree with Gene on. Markets have recently seen huge daily swings in basis points, so it makes abundant sense to shorten your duration, but you have to do it tactically. If you can be tactical, I’d say it’s a good time to be invested relatively short to benchmark indexes because I have very little doubt that we’re going to see selloffs, we’re going to see the market react to the Fed, perhaps to actions out of Japan. We’ve had a strong start for fixed income in the first three weeks of this year, which in my view, makes it an excellent time to actually stay a bit short duration because that’s not going to last. Having said this, the areas where I am most bullish would be investment grade, which seems fairly boring but offers good yields currently around 4%–5%. This implies some duration, but is an area that should be able to weather a mild recession. I’m also looking at high-yield credit, which in an absolute way is delivering much higher yields. There will be volatility, but if you can ride out the next 18 to 24 months and are very selective, I think it’s an excellent time to enter the market. Over the past several years, investors had to go to the alternatives space, or private credit to see the types of returns that we are currently getting in liquid public markets on the fixed income side. I would reiterate that it’s great time to be an active investor, because you want to try to avoid those pockets of extreme weakness. At this point, I’d be a little more hesitant in the floating-rate space, because you have to be extremely careful with interest rates continuing to go up. Lastly, emerging markets are looking at decent fundamentals, and fabulous valuations in terms of starting points in hard currency as well as local currency. I think the US dollar probably has gotten pretty much toward its topmost level, especially as we continue to see changes from Japan. I think this sets us up nicely in the emerging markets space.
FX Daily: Upbeat China PMIs lift the mood

China was a leader in the region, buoyed by the government’s support for the economy to spur domestic demand and revive the property sector

Franklin Templeton Franklin Templeton 11.02.2023 12:04
Domestic demand in focus Emerging Market Insights Three things we ’ For illustrative purposes only and not reflective of the performance or portfolio composition of any Franklin Templeton fund. re thinking about today China’s reopening and impact on energy prices. China’s economic reopening is proceeding swiftly, despite the spike in COVID-19 cases in early January. Investor attention has recently switched to the reopening’s impact on energy prices. In contrast to Europe, China is experiencing a bitterly cold winter, with average temperatures 15ºF below average for the month of January.1 This is increasing demand for natural gas, the majority of which China imports from overseas. Liquid natural gas (LNG) prices in Asia and Europe have not yet reacted to the frigid weather in China, as Europe is experiencing temperatures on average 15ºF above average over the same period.2 However, if this were to change, LNG prices could rise, reigniting global inflation concerns and limiting China’s room for fiscal maneuvering given gas subsidies provided to households. Markets pivot toward growth. January witnessed a dramatic shift in the performance of growth stocks, with the MSCI Emerging Markets Growth Index posting double-digit returns.3 Value stocks witnessed positive performance but lagged behind. This is a reversal of the 2022 performance trend, wherein value stocks performed better than growth stocks as rising interest rates undermined the outlook for the latter. Looking ahead, the likelihood of a continuation of this January’s trend will likely be dependent on the direction of interest rates and the US dollar, among other factors. Emerging markets (EM) earnings outlook. 2023 Consensus expectations are for a recovery in emerging market earnings in , following a sharp decline last year. China’s reopening and economic recovery is expected to drive earnings, particularly in the financials and consumer discretionary sectors. High interest rates typically benefit banks, and a recovery in consumer technology business prospects looks likely to us, including ecommerce. Outlook The prospect of weaker external demand has led policymakers in EMs turn to domestic demand, in particular consumption, to shore up economic growth. For example, South Korea plans to offer large tax breaks to semiconductor and other technology companies investing within the country. The country is also planning to make investing in the local stock market easier for foreign investors and is providing subsidies for citizens to cope with increasing prices. Thailand has also approved a budget to boost tourism in the country, one of its biggest growth drivers. The longterm structural tailwind of EM consumption growth via expansion of the middle class and premiumization of buying patterns is now more significant than ever, in our view. The Chinese consumer opportunity is under the spotlight following the country’s economic reopening. Some US$2.6 trillion in Chinese bank deposits were amassed in 2022 — and middleclass households are looking to draw down these saving to spend on experiences, products and services. This is driving the premiumization trend opportunity at the heart of the EM consumption story we see. Other opportunities that look to boost EM growth besides Chinese consumption abound. For example, a surge in initial public offerings in the Middle East should help drive consumption via a trickle-down wealth effect. We believe these uncorrelated drivers of returns in EM economies present an investment opportunity which our team’s deep experience, local expertise and a bottom- up investment approach are poised to uncover. While this is a time of uncertainty, we continue to stress the importance of taking a long-term view and undertaking due diligence in making investment decisions. With over 30 years of experience in EMs, we are no strangers to market uncertainties and are experienced in investing through highly volatile periods, which we believe has helped us remain calm in the current market environment. We recognize that this period will pass, with history having shown us that markets should eventually stabilize and recover. Emerging markets key trends and developments Global equities began the year on a strong footing and nudged higher in January, with EM equities outpacing their developed market counterparts. Cooling inflation and growth in the US economy spurred sentiment, raising hopes that the economy may avoid a recession. Within EMs, analysts have raised 2023 earnings estimates for Asian companies given slowing inflationary pressures and China’s reopening.6 For the month of January, the MSCI Emerging Markets Index rose by 7.9%, while the MSCI World Index advanced by 7.1%, both in US dollars. Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM The most important moves in EMs in January 2023 Emerging Asian stocks finished the month higher, holding onto gains from the previous quarter. Once again, China was a leader in the region, buoyed by the government’s support for the economy to spur domestic demand and revive the property sector. A possible peak in COVID-19 infections, signs of normalization of China and the reopening of the China-Hong Kong border also boosted sentiment. Conversely, Indian stocks were under pressure from continued selling and higher oil prices. Latin American EM equities also swung higher in January, with all countries showing gains. Regional heavyweights Mexico and Brazil started the year on higher ground. Brazil reported a sharp drop in inflation at the end of 2022 due to fiscal measures and monetary policy tightening. Mexico saw economic activity rebound in 2022 as the tourism sector experienced a revival. Exports from the automotive sector also contributed to Mexican economic growth. EMs in Europe, Middle East and Africa also advanced as a whole but saw more moderate gains than Latin American and Asian EMs. Saudi Arabian shares ended higher amid a recovery in oil prices, and South African equities benefited from relatively cheap valuations and a slowing inflation rate. Conversely, Turkish stocks tumbled and ended a prior rally as investors shifted their risk appetite and took profits in a market which outperformed in 2022.
Tourism: The Driving Force Behind Spain's Economic Growth

Poland’s President Andrzej Duda Said The Decision To Send Fighter Jets To Ukraine Was “Not Easy To Take”

Kamila Szypuła Kamila Szypuła 13.02.2023 11:31
The war has been going on for almost a year. Even though the Ukrainians fiercely defend their borders, they do not go without the right equipment. Ukraine asks its allies for help in the form of appropriate equipment, but such decisions as the example of the Polish president shows are not easy. In this article: French economy remains cautious War in Ukraine Orpea’s revenue growth remained solid French economy remains cautious After a strong economic recovery after the pandemic, France was hit by an energy shock caused by Russia's invasion of Ukraine. Inflation picked up and economic activity slowed down. Nevertheless, the economy remained resilient and inflation much lower than in other EU countries due to a more limited dependence on Russian gas. The government has also made significant reforms in fiscal policy. The government has made significant progress by proposing reforms to increase growth potential while lowering fiscal costs, including revised unemployment benefits to help increase labor supply and a comprehensive pension reform to rebalance the pension system and increase the employment rate of older workers to bring the effective retirement age closer to the EU average. The banking sector weathered the crisis well and supported the economic recovery, but global threats to financial stability are increasing. Despite the good news, the French economy remains cautious as the impact of the global situation may also be visible in this country. 🇫🇷France’s policies cushioned the impact of the energy shock, but economic growth is set to slow further and public debt will remain high. More in this Country Focus article. https://t.co/mPhkDZr4a6 pic.twitter.com/d43k423xE4 — IMF (@IMFNews) February 13, 2023   Read next: Amazon Is Slowly Dismantling Tony Hsieh’s Version Of Zappos, Louisa Vuitton Doubled Sales| FXMAG.COM War in Ukraine Moscow said on Monday that its forces had moved several kilometers along the Ukrainian front line, while Kiev said its troops had repelled Russian attacks in various areas. The Russian Ministry of Defense reported that Russian troops managed to move 2 km to the west in four days. Russia's foreign spy services said Monday it had intelligence that the US military was preparing Islamic militants to attack targets in Russia and the former Soviet Union. The agency did not release the intelligence behind its claim, and the claims could not be immediately verified. Moreover, from the events surrounding the war, Polish President Andrzej Duda said that the response to President Volodymyr Zelensky's request for F-16 aircraft was a "very serious decision", but gave no further indications as to whether this would happen. Ukraine war live updates: Wagner Group claims village; Polish president says jets decision 'not easy' https://t.co/pvqLoLfIyJ — CNBC (@CNBC) February 13, 2023 Orpea’s revenue growth remained solid French nursing home group Orpea reported nearly 8% revenue growth in the fourth quarter and has provided details of a planned capital increase. Orpea said revenue growth remained solid. It said the cash improvement was mainly due to extended credit lines and the suspension of payments made by creditors last year. Orpea shares jump on Q4 revenue and cash boost https://t.co/mbqiKCigqd pic.twitter.com/bq3UQwRpji — Reuters Business (@ReutersBiz) February 13, 2023
Both Visa And Mastercard Are Delaying The Launch Of Some Cryptocurrency-Related Products

Brazil’s Bank Allows To Pay Taxes Using Cryopto, Ford Will Cut Jobs In Europe

Kamila Szypuła Kamila Szypuła 14.02.2023 11:38
The development of cryptocurrencies gains momentum when we learn about the decision of one of the Brazilian banks allows to pay taxes with this form of payment. Car manufacturers are also switching to more modern methods. Ford plans to increase the production of electric cars, but for this purpose it is forced to reduce employment. In this article: Ford layoffs in Europe GIC continued to seek long-term investment opportunities in China Paying taxes with crypto Global supply chain Ford layoffs in Europe Ford is focused on the production of electric vehicles and is taking decisive action to this end. Ford said it intends to cut 3,800 jobs in product development and administration in Europe over the next three years. Ford will retain approximately 3,400 engineering positions in Europe, focusing on vehicle design and development, as well as developing related services. Ford to cut 3,800 jobs in Europe in shift to electric vehicle production https://t.co/t2ecTiu9Ez — CNBC (@CNBC) February 14, 2023 Read next: Walmart Plans To Close Offices, Ford Invests In Battery Factories | FXMAG.COM GIC continued to seek long-term investment opportunities in China According to research firm SWFI, GIC is the world's fifth largest sovereign investor with $690 billion in assets. It has large listed Chinese companies in its portfolio and has not announced any major sales of private Chinese companies in the last year. Over the past year, GIC has also reduced its commitments to China-focused private equity and venture capital funds. Singapore's sovereign wealth fund GIC said it continued to seek long-term investment opportunities in China. Singapore's GIC says still exploring China investment opportunities https://t.co/zk6KyfxSSI pic.twitter.com/7Oae0b0HNX — Reuters Business (@ReutersBiz) February 14, 2023 Paying taxes with crypto Countries are increasingly enabling payments with cryptocurrencies. In many countries, cryptocurrencies are becoming more and more common, and governments are working on regulations in this area. In Latin America, cryptocurrencies are more popular. An example may be the recent operation of one of the banks in Brazil. Brazil’s oldest bank allows residents to pay their taxes using cryopto. If this form works in this bank, we can expect other banks to follow this example, until it becomes one of the forms that Brazilians can pay taxes. What's more, other countries will follow this example. #cryptonews: Brazil’s oldest bank allows residents to pay their taxes using #crypto 🇧🇷 — CoinMarketCap (@CoinMarketCap) February 14, 2023 Global supply chain Multiple bottlenecks have disrupted global supply chains and the pandemic highlighted how interconnected the world is. The supply shock that started in China in February 2020 and the demand shock that followed the global economy shutdown revealed weaknesses in the production strategies and supply chains of companies almost all over the world. Last year, attention focused on the rising cost of living, but this will also affect the types and quantities of goods available and how quickly they reach store shelves. On the one hand, rising household bills and the impact of inflation may limit demand to some extent. The invasion of Ukraine is the root cause of much of the energy and food price inflation that countries are experiencing today. This has led to chaos in supply chains this year, fueling the global food crisis. Fertilizer shortages are also limiting agricultural production in many countries. What's more, international connections are now difficult, and problems with transport may generate higher costs. Economic and political events show how connected we are and how important it is for the global supply chain to remain stable. Transportation issues can lead to rising costs and worldwide disruption. Take a closer look at the global supply chain: https://t.co/BYTn9j6KYt pic.twitter.com/b1FHMle7bf — J.P. Morgan (@jpmorgan) February 13, 2023
Inflation in Singapore heats up again in April

Singapore Is Expected To Get A Lift From The Increase In GST

Saxo Bank Saxo Bank 15.02.2023 09:18
Summary:  Singapore’s 2023 budget announcement encompassed more support measures to fight price pressures but also brought back a focus on long-term goals of innovation and productivity. This means retail stocks and REITs could benefit, as could companies with high R&D. Higher taxes for the wealthy may do little to dampen demand and rents could continue to run higher. SGD could come under more pressure as the greenback remains in favor. Singapore announced the 2023 budget on 14 February, aiming to narrow the deficit to 0.1% of GDP in the year starting April from a revised 0.3% deficit this year. Revenues are expected to get a lift from the increase in GST and higher taxes on high-value property as well as increased taxes for multinational companies, while the expenditure will be lowered as Covid-era stimulus measures are relaxed. Still, focus remained on supporting Singaporeans amid a high inflation environment and the increase in GST. Subsidies for low-income families increased by S$3 billion but the budget also brought back a long term focus with measures to enhance competitiveness of companies and supporting family planning. Let’s assess what this can mean for Singapore stocks: Consumption focus Increasing the handouts to citizens by S$3 billion in the year starting April will support private demand despite high inflation pressures. This could be positive for value grocers like Sheng Siong (OV8) and restaurants like Kimly (1D0) or Jumbo Group (42R) . This could in turn benefit retail REITs like Frasers Centrepoint Trust (J69U) or Suntec REIT (T82U) which have a large part of their malls dedicated to food courts and restaurants. Read next: GBP/USD Pair Rose Sharply Above $1.22, EUR/USD Pair Also Rose| FXMAG.COM Innovation push Keeping a long-term focus, Singapore announced measures to promote innovation by topping up the national productivity fund by S$4 billion. Businesses will enjoy tax deductions of up to 400% (previous 250%) of qualifying innovation expenditure under the new Enterprise Innovation Scheme. This brings positives for companies that invest in R&D, for instance AEM Holdings (AWX), Venture (V03), UMS (558), ISDN (I07) and Nanofilm (MZH). Labor market support Singapore also announced a focus on developing labor-market intermediaries who can go through industry training and employment facilitation to fast pace job opportunities for Singaporeans. This brings staffing-solutions providers such as HRnetgroup Ltd (CHZ) in focus. On the flip side, higher CPF contributions would potentially add to manpower costs for companies, and weigh on long-term earnings. But the measure is to be implemented in a progressive manner over 4 years, so the effect will be gradual. On watch will be companies with a high labor cost including ST Engineering (S63) and Singapore Airlines  (C6L). Moreover, higher foreign company taxes could divert some foreign flows away. Singapore intends to set its effective tax rate for multinational enterprises at 15% starting 2025, in line with a global agreement to increase the floor rate. Property taxes To boost revenues, Singapore will raise taxes for higher-value properties. Residential properties in excess of S$1.5 million and up to S$3 million will be taxed one percentage point higher at 5%. Properties in excess of S$3 million will be taxed at 6% from 4% earlier. This is a negative for City Developers (C09), UOL (U14), Capitaland Investment Ltd (9CI) and Keppel Corp (BN4). However, the measure appears modest for the wealthy individuals and is unlikely to deter demand. SGD weakened to test the 50DMA USDSGD rose higher following the budget announcement to test the 50DMA at 1.3338. Singapore dollar is down over 2% since the highs of early February. A break above opens the door to 1.3400 and 1.3600. Disappointing growth prompted the Monetary Authority to say that cumulative tightening measures could help to slow growth, suggesting further tightening measures will remain cautious. Meanwhile, US inflation remains sticky and the potential for US yields and the US dollar to go higher means more pain could come for the Singapore dollar.   Source: Macro Insights: Singapore’s balanced 2023 budget – which sectors and stocks could see an impact? | Saxo Group (home.saxo)
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

EY Will Review Darktrace Key Financial And Control Processes

Kamila Szypuła Kamila Szypuła 20.02.2023 12:36
Darktrace wants to audit with EY. An audit in a company is always a serious undertaking. However, it is worth trying to bring our company as many benefits as possible. In this article: Audit Of Darktrace Shein aims high The golden ratio for personal finance Audit Of Darktrace Cybersecurity firm Darktrace said on Monday that it had appointed audit firm EY to review its key financial and control processes. EY will report to the chairman of Darktrace's audit and risk committee, Paul Harrison. Darktrace, whose tools allow companies to combat cyber threats using artificial intelligence, was the subject of a report last month by New York-based asset manager Quintessential Capital Management. QCM said it found alleged flaws in Darktrace's accounting, including "round-trip" and "channel push" practices designed to inflate revenue. The company said it was "deeply skeptical about the validity of Darktrace's financial statements" and believed sales and growth rates may have been overstated. Darktrace hires EY to review financial processes after damning short seller report https://t.co/jEbHAmhp4a — CNBC (@CNBC) February 20, 2023 Read next: Twitter And Elon Musk Face A Growing List Of Claims| FXMAG.COM Shein aims high Online clothing retailer Shein believes it can generate $7.5 billion in profit by 2025 by doubling sales to $58.5 billion. This is well above the annual revenue and profit projections. Shein's revenue growth slowed from 57% in 2021 to 45% last year; the company expects to continue with its 2025 target of an average annual growth rate of 37%. To meet its financial goals, Shein will likely need to adjust its business model to include more premium labels and allow third parties to sell products through its app. From Breakingviews - Shein's ambitions are a bit of a stretch https://t.co/M2FybNeQKz — Reuters Business (@ReutersBiz) February 20, 2023 The golden ratio for personal finance Regardless of age, everyone worries about what will happen tomorrow and even what will happen in 5 or 10 years. Especially financial issues arouse a lot of emotions, there are also a lot of questions about savings. When to start saving? How much best to save? Are there tools to help with budgeting? There are many different opinions on how much a person needs to save to fund a secure retirement. Many people advise you to save at least 20% of your gross income. If that's not possible, start with what you can save and work your way up. Saving anything is better than nothing, but a consistent 20% savings over time is a sound rule of thumb in my opinion. In addition to saving, the question arises as to how much debt can you get? Sometimes a dream house or apartment or another random situation forces you to reach for a loan. Some debts are manageable. Overwhelming debt can be a poverty trap. Borrowing to invest in income-generating assets such as real estate and professional skills can provide you with a better financial situation in the long run. How do you know if you’re saving enough? How much debt is too much?The golden ratio can help you find the right balance between spending and saving in your budget. Here's how it works: https://t.co/IgF40cGdB3#personalfinance #financialplanning — Morningstar, Inc. (@MorningstarInc) February 20, 2023
Polish economy proves its resilience with only minor GDP contraction in the first quarter

Poland’s industrial production disappoints in January

ING Economics ING Economics 20.02.2023 12:43
Poland's industrial production remains sluggish due to continued shocks from the war in Ukraine. Export-oriented sectors found some respite though from reduced pressure in global supply chains and lower natural gas prices in January Opel factory in Gliwice, Poland   Industrial production grew by 2.6% year-on-year in January, clearly below our forecast and the consensus estimate of 4.0%, although stronger than the 1.0% YoY rate seen in December. Manufacturing continues to benefit from improving global supply chains, supporting production in some industries (including automotive, electrical equipment, and machinery). Solid increases have also been seen in the production of pharmaceuticals, food, textiles and clothing. The year-on-year acceleration was also supported by a favourable pattern of working days. Deep declines were seen in chemicals, metals, computer and wood manufacturing, but partly due to the high reference base in these industries from a year ago. Producer prices remain on a downward trend and, in line with consensus, growth slowed to 18.5% YoY from 20.5% YoY in December. On a monthly basis, however, PPI prices accelerated to 0.8% MoM from 0.6% in December, indicating the persistence of producer inflation. Of the four main categories reported by the Polish CSO, month-on-month increases were recorded in three of them (mining, electricity/gas/steam and water supply/wastewater), while manufacturing prices fell 0.4% MoM compared with a 0.6% decline a month earlier. Today's data confirms expectations of a weakening in economic activity in the first quarter and a gradual easing of pressure on producer prices, linked to a fall in wholesale energy prices, mainly natural gas, due to the mild winter and a decline in gas demand in Europe. Industrial production and producer prices, YoY change, in percent Source: CSO data. Read this article on THINK
Dutch GDP sees a sharp drop in the first quarter

Rent regulation in the Dutch housing market: help or hindrance?

ING Economics ING Economics 21.02.2023 11:52
The announcement of new rent regulations in the Netherlands has prompted rising uncertainty among developers, landlords and households. Negative effects will likely subside over time, but the short-term outlook appears much more clouded given the expected delays in construction and persistent housing shortage Proposed rent regulation hinders new construction Government plans to regulate middle-segment rent prices as of 2024 are currently underway in the Netherlands, aiming to limit the maximum per month to approximately €1,100 using a points system. While questions have been raised over the potential for such measures to slow down housing production, any impact will likely be subdued in the long run. Lower rental income ultimately puts downward pressure on land prices, thereby helping to restore the return on housing construction. Rent regulation does not, however, aid in solving the structural housing shortage. Instead, it reduces the total rental supply and increases aggregated demand for housing. The short-term benefits (i.e., private sector tenants benefiting from lower rents) are unlikely to be sufficient to offset such negative side effects. Revenues and costs of building a residential rental home Source: ING Research Short term outlook for building production These measures will inevitably delay the implementation of ongoing housing construction projects in the short term. As a result of the announced regulation, the expected rental income will be lower than previously thought for these projects. In response, investors will pay a lower price for these rental properties while the cost to the developer remains constant in the short term. This has a negative impact on the business case for these projects for developers with two major consequences: Delays: project promoters will try to rebalance the business case of ongoing projects, e.g., by renegotiating the land price and examining which project adjustments help to reduce costs (building smaller dwellings, for instance). This will take extra time and will slow down the implementation of projects.  Fewer projects: developers will cancel some projects or postpone them indefinitely if they fail to rebalance the business case through renegotiation. Read next:Amazon Will Pay Employees A Lower Salary Due To Lower Stock Prices, Declining Demand For 5G Equipment Will Result In The Loss Of 1,400 Jobs At Ericsson| FXMAG.COM Impact of rent regulation varies by project The extent to which the announced rent regulation causes delays varies between housing construction projects. Three characteristics play an important role: 1   The impact on rental income The financial shortfall increases with the share of homes affected by the regulation and the difference in size between the maximum rent and previously assumed rent. The higher these shares, the higher the probability of delay. 2   Land prices The scope for absorbing financial shortfalls is smaller for developers who have acquired relatively expensive land. This is the case for land purchases that took place just before the announcement of rent regulation and the tipping point of the housing market, or for developers who have bought land at a relatively high price for various reasons. In these scenarios, rent regulation will soon lead to a financial deficit, and the risk of a project being delayed increases. 3   Room for negotiation  If the developer has not yet bought the land, there may still be room to renegotiate pricing. However, the opportunity to do so will be limited in some cases, including those where the landowner would incur higher costs for the foundational groundwork. In order to avoid a larger financial deficit on the project, there would therefore be less willingness to sell at a lower price. Uncertainty over rent regulation slows housing construction output Some of the current uncertainty surrounding the planned regulation is hindering housing construction, thus making it increasingly difficult for residential investors to calculate the financial business case of projects in a reliable way. To ensure that delays are limited in the short term, it's important that decisions surrounding rental regulation are finalised quickly and efficiently – all the more because of the multiple downside risks currently being faced by the construction sector. Additional obstacles include rising interest rates (and associated demand shortfalls), higher construction costs and issues with nitrogen supply, as shown in the chart below. Number of building permits is falling Source: ING Research, National Statistics   We have seen the number of building permits decline in recent times, which is a prelude to lower house building output. As uncertainties surrounding mid-rent regulation persist, investors will remain more reluctant to purchase rental housing. This will increase the negative impact on new building production. In the long run, lower land prices compensate for the revenue loss from rent regulation Source: ING Research Long term impact of mid-rent regulation on new construction set to fade While the regulation of medium-term rents will curb housing construction output in the short term, the effects will fade in the long term for the following reasons: Once the details of the regulation are finalised, more certainty will be felt among developers. As a result, the measure will be taken into account in the early stages of project design in order to make the business case. They may, for instance, build smaller dwellings or opt for less luxurious finishes in order to reduce costs. On the other hand, if the scale of new housing proves less profitable than anticipated, attention may turn to the construction of larger, more luxurious dwellings which lie outside the scope of regulations imposed on the middle segment. Lower rent revenues put downward pressure on the price of land, as its value is derived from house prices (and not the other way around). While rent regulation works quickly through the market value of rental properties, adjusting land prices takes more time. Landowners are expected to hold onto original prices, which complicates negotiations with developers and investors in the short term. In order to prevent investors in rental housing from dropping out, however, lower prices are likely to be accepted eventually. This will, in turn, help to restore the profitability and interest in new rental housing. Rent regulation not a structural solution to the housing shortage Apart from the delaying effect of rent regulation on housing construction in the short term, the measure has other negative side effects on the housing market. In the long term, rent regulation does not help to solve the housing shortage because it leads to: Fewer rental properties: private landlords will often opt to sell properties after rental contracts expire. This reduces supply in the private rental sector and increases that of owner-occupied homes. The chance of finding a home therefore rises for households looking to buy at the expense of those looking for rental homes in the private market (i.e., those whose income is too high for social rental housing but cannot or do not want to buy). Additional demand for homes: rent regulation makes renting less expensive, which ultimately increases the overall demand for rental housing. Younger people, for example, may be incentivised to move out of their parent's homes sooner. If supply remains the same, this will exacerbate the pre-existing shortage in the housing market, with the number of households unable to find suitable properties likely to rise as a result.  As a result, it's likely that the planned regulation could add fuel to the fire of the ongoing housing shortage. It could also trigger further rent rises in the unregulated segment and cause affordability levels in this area to deteriorate. There is a slight advantage opposite to these negative effects: a small number of free-sector tenants will benefit from lower rents, thus increasing the affordability of the private rental sector for this select group. Exploring alternative solutions So if rental regulation does not help to tackle the housing shortage, what else might? Stimulating new-build production plays a major role in reducing the housing shortage, including various policy approaches such as land value capture. This increases the benefits of new construction for landlords and their residents and encourages property owners to allow more housing construction. A Dutch report we published last year delves into the details of this and other solutions for expanding the (free) rental sector and making it more affordable. Read this article on THINK TagsRental market Housing Europe Construction Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
National Bank of Hungary Review: A new beginning without commitment

National Bank of Hungary preview: Not there yet

ING Economics ING Economics 23.02.2023 12:09
We are seeing tentative signs of improvement in Hungary's economy, but it's still early days and so we expect central bank policymakers to continue adopting a wait-and-see approach The National Bank of Hungary in Budapest 13% ING's call No change in the base rate The rationale behind our call The National Bank of Hungary (NBH) has made it clear on several occasions that the temporary and targeted measures (introduced in mid-October) will remain until there is a material and permanent improvement in the general risk sentiment. This general risk sentiment is defined by the combination of external risks (war, global monetary policy, energy, general investor sentiment) and internal risks (EU funds, current account imbalance). There has been a lot of improvement in the general situation. When it comes to market sentiment, the market’s view is clearly positive about Hungary; EUR/HUF is now flirting with 380, in contrast with the 400 seen before the last rate-setting meeting. The emerging market relief rally on dropping energy prices has fuelled an improvement in global sentiment as well. However, Hungary is still experiencing high energy prices at the back end, so there has been little relief, so far. And the improved global sentiment around energy prices has only just started to translate into hard evidence: the December trade balance showed a deficit of only €154m (vs €1.2bn in November). The fourth quarter (preliminary) current account deficit came in at €3.95bn, showing a €0.52bn improvement over a quarter. This is the impact of lower energy prices. There is also anecdotal evidence that food prices have started to drop, alongside fuel prices, which makes us think that we’ve already seen the peak in inflation in January of 25.7% year-on-year. Because of this, we expect the National Bank of Hungary to keep its composure at its 28 February meeting and wait for more hard evidence before it starts to communicate about any upcoming pivot. ING's inflation and base rate forecasts for Hungary Source: NBH, ING   Even if the data suggest that the time is right for a change, there is a need to be patient due to the ongoing debate over the reforms needed to unfreeze access to EU funds. Though we see the government settling the dispute regarding the judiciary reform (a horizontal issue, which needs to be cleared before meeting other super milestones), there is just too much uncertainty still about the deal. In such an environment, we see the central bank keeping its guard up, sending hawkish messages and patiently waiting for more proof of improvement regarding external, internal and political topics. In our view, the base rate remains unchanged at 13.00% with no change to the interest rate corridor as well. The targeted, temporary measures will continue as well, as any abrupt change to the structure or to rates could reverse the gains made by the forint, which would hinder the central bank’s task to reach the inflation target over the monetary policy horizon. A trend-like change in external and internal risk sentiment could lead to a better situation by the time the March rate-setting meeting takes place. However, we think that the NBH will wait at least until April to deploy any changes to the targeted, temporary measures. Even if easing starts during the second quarter, the process will be gradual and slow with a pause after the rates merge at 13%. We see the central bank starting regular rate cuts during the fourth quarter, strictly taking care of the real interest rate to remain positive. The main interest rates (%) Source: NBH, ING Our FX and rates call On the rates and bonds side, the global sell-off has hit the Hungarian market hard over the last few days, and the high CPI number and hawkish NBH pushed the whole interest rate swaps (IRS) and Hungarian bonds (HGBs) curve up, disrupting the normalisation process. The NBH appears to be serious about its hawkish tone, and in our view it will be a challenge for the market to start pricing in a central bank rate normalisation again. On the other hand, in the interim, core rates should ease their pressure on the long end of the curve. The question mark is whether we will see a steeper or flatter curve first. At the moment, we are leaning more toward the latter. In either case, however, the direction of the curve movement should be downward. Hungarian yield curve Source: GDMA, ING   On the bond side, although the beginning of the year showed a surprising deficit in the state budget, we remain optimistic that the MinFin target will be met this year. On the funding side, we estimate that the Government Debt Management Agency AKK has issued about 14.2% of planned HGBs, a bit behind Central and Eastern European (CEE) peers. On the other hand, issuance is strong on the retail and FX bond side, so overall we see AKK in a comfortable position. After the global sell-off, the 10y HGB yield got as high as 8.85%, correcting down a bit later, but these levels should attract new buyers again. We still see a better story in the Czech Republic and Romania in the CEE space but remain constructive on HGBs and the positive normalisation story in Hungary. CEE currencies vs EUR (1 Feb = 100%) Source: NBH, ING   The forint continues to maintain a number one position within the CEE region and in our view the reasons why the forint should outperform persist. Higher EUR/USD should improve the outlook for the region as a whole, gas prices are again testing new lows, plus the recent sell-off in the rates space has once again pushed the rate differential in Hungary back to levels from the beginning of the year and pushed FX implied yields back to record levels. Overall, we continue to see a positive story supporting further gains in the forint. However, heavy long positioning remains an obstacle on the way down. In the short term, we expect the NBH meeting may only deliver a small boost to the forint given the clearly hawkish message in January. On the other hand, Moody's ratings review in early March may bring a reminder of the issues still on the table. Moreover, the EU story could again bring some headlines that may not be positive for FX at first glance. Overall, we expect the forint to peg toward the 380 EUR/HUF level in the coming weeks. Read this article on THINK TagsNBH National Bank of Hungary Monetary policy Hungary FX Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
New Zealand Dollar's Bearish Trend Wanes as Global Growth Outlook Improves

Visa Success At The Expense Of Small Businesses

Kamila Szypuła Kamila Szypuła 24.02.2023 10:34
Visa is a global market leader, but at what cost? In this article: 60% transaction were made by Visa Lawsuit against Volkswagen Global growth 60% transaction were made by Visa Costing from credit/debit cards has become commonplace. Card payments are not only convenient, but also fast. In the queue at the store, instead of waiting for the rest or looking for the right denominations, it is more convenient to apply the slices. Americans and others are increasingly using plastic to spend money, allowing Visa to increase its dominance in the credit and debit card space. According to a 2020 report by HSN Consultants, people in the US spent $6.7 trillion using credit and debit cards, an increase of 88% compared to 2009. Of these transactions, more than 60% were made with Visa cards. Visa has become one of the most valuable companies in the world. However, some retailers say Visa's success has come at the expense of merchants who rely on them to process payments. Some even claim that Visa's fees are too high. So there is a thought that Visa has gained success at the expense of small businesses. As debit and credit cards become more essential in our daily lives, Visa has quickly grown to become one of the most valuable companies in America. So how exactly does Visa make money? Watch the full video here: https://t.co/J1Rga4jjGc pic.twitter.com/nKfW9vcDil — CNBC (@CNBC) February 24, 2023 Read next: The Fight For Evidence Concerns A DoJ Lawsuit Filed Against Google| FXMAG.COM Lawsuit against Volkswagen A German court on Friday dismissed farmer Ulf Allhoff-Cramer's lawsuit against Volkswagen. The case, similar to another filed by two Greenpeace bosses and climate activist Clara Mayer, required Volkswagen to stop producing fossil fuel-emitting cars. Ulf Allhoff-Cramer has alleged that its carbon emissions may be causally related to droughts and other climate changes, which it claimed were damaging. German farmer's lawsuit against Volkswagen demanding tighter carbon emissions targets dismissed https://t.co/EwoS7jJSrG pic.twitter.com/3VFq5aA6xT — Reuters Business (@ReutersBiz) February 24, 2023 Global growth Growth will remain weak by historical standards as the fight against inflation and Russia's war in Ukraine take a toll on activity. Despite these headwinds, the outlook is less gloomy than in IMF’s October forecast. The global economy is expected to slow down this year, only to pick up again next year. Growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, solid household consumption and business investment, and a better-than-expected adaptation to Europe's energy crisis. Inflation also showed an improvement. A positive signal comes from the second largest economy in the world. India remains a bright spot. Together with China, it will account for half of global growth this year. China's abrupt reopening paves the way for a rapid recovery in activity. It is worth remembering that the war is still a problem. The escalation of the war in Ukraine remains a serious threat to global stability, which could destabilize energy or food markets and further fragment the global economy Stay up-to-date on the pulse of the global economy with our latest edition of Charts in Motion, or read the blog. https://t.co/0f3Ps3RYzr pic.twitter.com/MubKQ5If6y — IMF (@IMFNews) February 23, 2023
US Flash, that is to say preliminary, PMI for April came in at a better-than-expected 50.4 versus a downwardly revised 49.2 in March and a forecast 49

Key events in developed markets next week - 25.02.2023

ING Economics ING Economics 25.02.2023 11:53
US data next week should help to test our hypothesis – that the strength in activity data has been largely caused by spring-like temperatures in January. Hence, we see a partial correction in the ISM services indices. House prices should remain under downward pressure, but a collapse in pricing looks unlikely at this stage Shutterstock US: Strength in activity data likely caused by favourable seasonal adjustments January US activity data was, in general, very strong with the economy adding half a million jobs, retail sales jumping 3% month-on-month, and the ISM services new orders sub-component surging 15 points to its strongest level for five months. We cautioned that the stark contrast in weather between December’s wintery, cold conditions that caused travel chaos and January’s almost spring-like temperatures played a big part in the strength of data, while favourable-looking seasonal adjustments appear to have given an additional boost. This week we will get a first test of that hypothesis with the ISM manufacturing and service sector reports for February. February hasn’t been especially cold, but it has been closer to the seasonal norms so we expect to see a partial correction in the ISM services indices. The manufacturing index should move higher though, aided by the China re-opening story, while the more positive European energy backdrop could also be supportive. Meanwhile, durable goods orders should fall quite a lot, but this is entirely due to volatility in Boeing aircraft orders – the company received 55 orders for aircraft in January, down from 250 in December. Outside of transportation, orders are likely to be flat. There will also be plenty of housing data to take a look at. New home sales may get a bit of a lift due to the pleasant weather conditions in January, but the fact that mortgage applications for home purchases have halved since their peak is a huge structural headwind to overcome. Moreover, prices will remain under downward pressure given that demand has fallen so substantially, but the lack of supply means a collapse in pricing looks unlikely at this stage. There are lots of Fed speakers scheduled, but the message will remain that ongoing interest rate hikes should be expected until there is more confidence that inflation is under control. Key events in developed markets next week Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsUS Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia week ahead: Policy meetings in China and the Philippines

Asia week ahead: growth and inflation reports from major economies - 25.02.2023

ING Economics ING Economics 25.02.2023 12:02
Next week’s Asia calendar features GDP data from India and Australia, inflation from Australia, Japan and Indonesia, Singapore’s retail sales and PMI data from Korea, Japan, China and Taiwan In this article India’s economy not slowing anytime soon Inflation to remain resilient in Australia Trade, PMI, and industrial production data from Korea PMI, jobless rate and Tokyo CPI from Japan China PMI data to be released next week Upcoming Taiwan manufacturing PMI Indonesia’s core inflation to stay flat in February Singapore retail sales to slip in January?   Shutterstock India’s economy not slowing anytime soon High-frequency activity indicators for the fourth quarter showed little sign of slowing in India, and as a result, we are looking for the year-on-year growth rate to come in at 4.0% or even higher. Substantial base effects make the interpretation of a single quarter’s data virtually impossible. But a figure of 4.0% in the fourth quarter will deliver a growth rate of 6.7% for India for the calendar year of 2022 and put it on course to achieve around 6.3% for the fiscal year that ends in March 2023. We anticipate another year of growth in the region of 6% in 2023 following a supportive budget which contains a big increase in capital investment in infrastructure. Inflation to remain resilient in Australia The end of 2022 was characterised by extensive flooding in some parts of Australia, and we would not be surprised to see this have some impact on the 4Q22 GDP numbers that are due on 1 March. Tighter monetary policy will likely exert a slight drag on the economy, especially from the more interest-sensitive parts of the economy, such as housing. We anticipate GDP growth of 0.5% quarter-on-quarter (2.5% year-on-year), which will still deliver a respectable 3.6% growth rate for the full year 2022. Australia also releases January CPI inflation data. The December figures provided a rude shock to those who thought that inflation had peaked, with the unprecedented 27% month-on-month increase in holiday prices the culmination of the economic re-opening colliding with seasonal holidays. We do anticipate some unwinding of that result, though there is likely to be plenty of residual strength in other parts of the CPI result to limit the decline in the inflation rate from 8.4% to 8.2%YoY (0.3%MoM). Trade, PMI, and industrial production data from Korea In Korea, we expect exports to deepen their contraction further in February mainly due to the sharp decline in semiconductor exports. Meanwhile, manufacturing PMI is expected to rise marginally on the back of the optimism surrounding China’s reopening, but remain below 50. Given sluggish exports in January, we expect January’s industrial production to decline but retail sales could rebound as severe weather may have boosted weather-related consumption. So, a weak start to the quarter will likely weigh on first quarter GDP, which could translate into a contraction.    PMI, jobless rate and Tokyo CPI from Japan With a relatively late reopening of the economy, Japan should continue to recover on the back of the government support programme. Thus, we believe that service PMI and hiring are expected to improve. However, January’s cold wave probably had a negative impact on manufacturing activity and consumption, thus we foresee a decline in the January industrial production numbers. Meanwhile, Tokyo CPI inflation is expected to come down quite sharply to a 3% level from the recent peak of 4.4% due to the government energy subsidy programme and base effects. China PMI data to be released next week In China, we expect manufacturing activity to pick up in February as factories resumed work after the long holiday. Services PMI however could dip to just above 50 after the spike in spending related to the holiday which was likely offset by an increase in financial and real estate services. Upcoming Taiwan manufacturing PMI In the coming week, Taiwan is set to release manufacturing PMI. We expect the numbers to move higher from 44.3 to 47.0 in February after the Chinese New Year. Export orders for semiconductors, however, were still in contraction, which is not a good sign for the prospects of manufacturing activity. Indonesia’s core inflation to stay flat in February Headline inflation in Indonesia could tick higher to 5.4%YoY but the core inflation reading is expected to remain flat in February. Bank Indonesia (BI) cited slowing inflation as one of the main reasons for pausing at its most recent policy meeting. Price pressures have eased somewhat but BI might refrain from cutting policy rates until we see a more pronounced slide in core inflation. Singapore retail sales to slip in January? Retail sales in Singapore are expected to post a modest contraction in January after a surprise gain in December 2022. The implementation of the latest round of goods and services tax may have had a negative impact, although solid department store sales may have provided a boost to overall retail sales. Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Markets Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone economy boosted by service sector growth

Key events in EMEA next week - 25.02.2023

ING Economics ING Economics 25.02.2023 12:11
For Hungary's rates-setting meeting next week, we expect no changes to be made. In the Czech Republic, we think the GDP report will confirm the previously-published flash estimate, and that the economy has continued to decline, entering into a mild recession In this article Turkey: Risks to outlook are on the upside Czech Republic: two quarters of continuous decline in GDP Hungary: No changes from the policymakers yet   Shutterstock Turkey: Risks to outlook are on the upside We expect February inflation to be 1.7% month-on-month, leading to a further decline in the annual figure down to 53% from 57.7% a month ago due to a supportive base and stability in the currency. However, given deeply negative real interest rates, further disinflation would be quite challenging, while risks to the outlook this year are on the upside with a potential policy mix of larger fiscal stimulus and looser monetary policy following the devastating earthquakes. Regarding GDP growth, we expect further moderation to 3% for the final quarter of 2022, mainly due to weakness in the external demand, with growth for the full year 2022 will be around 5.3% due to a strong performance in the first half. Czech Republic: two quarters of continuous decline in GDP The Czech GDP report will likely confirm the previously-published flash estimate that the economy declined in the fourth quarter of last year, making it two consecutive quarters of decline, entering the Czech economy into a mild recession. The recession has mainly been driven by a continuous strong decline in consumer spending as households are facing the burden of high energy prices on their purchasing power. Nevertheless, investment and exports likely recovered, despite lingering restrictive monetary policy in terms of high interest rates and strong currency. This seems to be a promising sign that the recession will be shallow, without a significant impact on the labour market, and the economy should return to soft growth in the second half of the year, driven by a gradual improvement in external demand. Hungary: No changes from the policymakers yet The main event in Hungary is the February rate-setting meeting. We have seen glimmers of hope that the economic picture in Hungary is about to improve. However, it is early days and therefore we expect the central bank to remain patient and see no change from the policymakers yet. While we are still waiting for January activity data, we are going to see another manufacturing PMI where we expect the reading to suggest optimism based on the still high level of orders. After that, we will look back again to try and understand the factors behind the late-2022 technical recession. As the Statistical Office reminded us in its press release after the flash GDP estimate, data quality has worsened so we might see some non-negligible revisions in the GDP data. Key events in EMEA next week Refinitiv, ING TagsTurkey Hungary Emerging Markets EMEA and Latam calendar EMEA Czech Republic Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
NATO Membership Is Swelling, With Neutral Sweden And Finland Joining Soon

NATO Membership Is Swelling, With Neutral Sweden And Finland Joining Soon

Franklin Templeton Franklin Templeton 25.02.2023 13:02
One: Who are the winners? In this environment, we believe one set of winners is the countries that can benefit from the recalibration of supply chains. They could be established, like Mexico, where unit labor costs are relatively low, the transport infrastructure is good, and there is a sizable pool of experienced maquiladora workforce as well as agile companies that can adapt to requirements quickly. Another will be those countries that have significant access to specific raw materials that are critical for semiconductors or electric vehicle (EV) batteries, as well as the ability to offer a stable base for manufacturing or processing. Mexico also benefits here, from having valuable resources. The United States Government Accountability Office (USGAO) has compiled a list of “critical” minerals. Mexico is a top three supplier for 14 of them and has potential to offer more, like lithium (EV batteries), bismuth (pharmaceuticals), graphite (semiconductors), lead and selenium—the last three of which are particularly valuable as they can replace supplies from China. Another obvious contender to us would be Indonesia, which has the added advantage of a significant consumer market and a strategic location in the Association of Southeast Asian Nations (ASEAN). Jakarta has an additional attraction for foreign investors—it has the fourth biggest population in the world at 275 million. This implies that it is attractive for foreign direct investment (FDI), as the consumer market is growing fast. Furthermore, with 15–24 year olds representing nearly 16% of the population,14 there is a demographic dividend in place. At the company and sector level, those companies that can address existing and priority shortcomings in specialist infrastructure are clearly in a privileged position. The construction of LNG terminals, short distance pipelines and industrial machinery modernization for energy efficiency are some examples. Along with this group are the enablers or beneficiaries of an acceleration in green-energy transformation. Together, these companies could boost economic growth and lay the foundations for longer-term structural and productivity improvements, in our analysis. In any case, defense companies stand to benefit in the coming decade. In part, this is down to the lessons of the Russia-Ukraine war. Full-scale land wars consume enormous amounts of plain-vanilla ammunition, and the use of relatively “dumb” munitions or unsophisticated drones can still be very effective. This efficacy is partly in their destructive capacity, but also in the economics of war. An effective antiaircraft and antimissile battery uses extremely expensive ammunition to stop very cheap drones. All of this has implications for how the NATO procurement and planning process is organized, and ultimately how war is likely to be waged in the future. And for the companies involved in the military-industrial complex, the top priority will probably be to invest in capacity expansion, providing even more scope for revenue growth in the specialist-engineering subsector. In commodities, the clear beneficiaries are the “good” producers, since their client base represents over 60% of world GDP. However, we may see some “neutral” producers migrate to the “good” list to benefit from the decrease in competitive pressures, as the “bad” producers get excluded from lucrative markets. Two: Governments need to issue more debt—inflationary pressures abound Inflation has put a temporary ceiling on debt issuance, as interest costs have been rising fast. The global debt pile stood at around US$294 trillion in the third quarter of 2022, putting the world’s GDP ratio at an estimated 343%.16 Nevertheless, we expect debt issuance to climb again this year, as governments seek to implement pro-growth policies and boost investment in defense, as well as deal with higher-interest costs. For many, currency weakness presents additional headwinds. The traditional taboo around high debt-to-GDP ratios is only relevant for those countries that cannot easily refinance. Japan can sustain a ratio of 250% of GDP, the United States could go to 150%, and so on. The key point here is that the high-income countries will be better able to deal with the service costs and continue to find a market for its issuance. By default, this trajectory leads to increased polarization between the high-income and low-income countries. Developing countries tend to have lower sovereign debt/GDP than in the past, so for China the bulk of the debt is in the non-financial corporate sector (159% of GDP), while Indonesia’s equivalent ratio is a relatively modest 24%. The squeeze is being felt across low-income countries, such as Sri Lanka and Zambia. According to the World Bank, “as many as a dozen developing economies could prove unable to service their debt. One of the biggest long-term impacts for the world is the European attitude to defense. Until the Second World War, Europe had a war every 20 years. Except for the breakup of Yugoslavia in the 1990s, Europe has been a continent that believed that creating close economic relationships can take the sting out of geopolitical rivalries. No longer. We believe the German word Zeitenwende meaning “change of eras” captures the moment perfectly. NATO membership is swelling, with neutral Sweden and Finland joining soon, and an energized political class is prioritizing at least 2% of GDP to be dedicated to defense. This is not possible without issuing significant debt and, given the small production capacity in the military-industrial complex on both sides of the Atlantic, it is likely to be inflationary. Add to this the turbo-charged drive to accelerate the green-energy transition, the wave of industrial company capital expenditure to modernize industrial plants, and we see a series of inflationary waves coming over the next decade that would seem to question the validity of historic inflation targets of 2%. In practical terms, it doesn’t matter too much if it’s 3% or 4%, the markets will adjust accordingly. What the markets will struggle with is volatility of inflation and consequently of interest rates. Three: It’s all different now It seems to us that the good times of freewheeling globalization and converging economies in a higher-growth trajectory are ending, with national security interests and ideology now taking priority over economic logic. The result is a fragmented world, with trade barriers and increasingly regionalized trade zones, underpinned by ideology, geopolitical alignment, and perceived national security considerations. We believe we need a massive reallocation of resources, which implies a need for positive real interest rates. This is because there will be so much issuance from both governments and the private sector, that there will be competition for investors’ cash. The traditional sources of long-term savings might be squeezed or even reduced over time, as the working populations in mostly high-income countries shrink and their social costs increase. A striking illustration is provided by the National Pension Service (NPS) of Republic of Korea, which is set to run out of money by 205519 because of the country’s aging demographics. There will be increasing government intervention in most western countries—not always efficiently or even usefully. In the short term, it seems that asset prices have generally adjusted downwards, and there is optimism for economic growth. Fixed income is attractive again, but equity markets may have to temper earnings growth expectations, and inflation may remain higher than the traditional target of 2% for several years. In summary, we believe we are at a global Zeitenwende, with implications that range from structurally higher debt, inflation and interest rates to a requirement for higher investment returns at a time of economic fracturing of the world. In our opinion, this scenario makes every investment decision loaded with implicit factor weights that are not currently mainstream. Source: Topic Paper_Inst_RuUk_0223_US.indd (widen.net)
Even Slower Overall Growth In 2023 Than Was Seen Last Year Is Expected

Okun’s Law - Relationship Between Unemployment And Economic Growth

Kamila Szypuła Kamila Szypuła 25.02.2023 18:54
Okun's law is an observed relationship between a country's GDP (or GNP) and employment levels. Definition Macroeconomic relationship between unemployment and economic growth. According to this law, for every 2% decrease in real GDP relative to potential GDP, the unemployment rate increases by 1 percentage point. This means that unemployment, exceeding a certain threshold, has a negative impact on GDP, reducing the possibilities of potential production. Genesis The most severe consequence of any recession is an increase in the unemployment rate. When production falls, enterprises need less labor, so they stop recruiting new employees and reduce existing employment. It turns out that unemployment during the business cycle follows production. This significant interdependence of production and unemployment discovered by Arthur Okun is called Okun's law. The basic conclusions and premises in macroeconomic policy from Okun's law is the observation of GDP: real GDP must grow at the same rate as potential GDP to prevent unemployment from rising, in a sense, GDP must maintain its momentum for unemployment to remain constant, In order to reduce the unemployment rate, real GDP must grow faster than potential GDP. Okun's Law thus provides the key to understanding the relationship between the product market and the labor market. It describes the relationship between short-term changes in real GDP and changes in unemployment. Variability of Okun's law Okun's law is not a result obtained from theory. This law is based on observations and empirical results. The obtained results are only an approximation, because in addition to unemployment, other factors are also taken into account, i.e. technology or productivity. Despite the relationship between economic growth and unemployment shown by A. Okun, this relationship may be different for each country depending on the time of the study (A. Salomon, p. 16). Therefore, Okun's rule can be presented in various formulas: difference version, gap version, dynamic version, production-function version In 1993, Martin Prachowny estimated that for every 1% increase in unemployment, there is about a 3% decrease in output. He believed, however, that most of the change in production that occurs is due to changes in factors other than unemployment. Is Okun's law true? While Okun's law has proven true at certain times in history, there have also been conditions where it has not been true. The Federal Reserve Bank of Kansas City conducted a 2007 review of Okun's law by looking at quarterly changes in unemployment and comparing this data to quarterly growth in real product. According to their findings, Okun's law was largely accurate, although there were many periods of instability where unemployment did not change as predicted by the formula. The study found that "Okun's law is not an exact relationship" but "predicts that slowing growth tends to coincide with rising unemployment." The review found a negative correlation between quarterly changes in employment and productivity, although the ratio of this relationship tended to fluctuate. In other studies, Okun's law worked out better than the researchers expected. Although early GDP data suggested that the Great Recession was a departure from Okun's law, later revisions of this data largely confirmed the law's predictions. Example The years 1979-1982 were a period of economic stagnation. During this period, there was no real GDP growth as opposed to potential GDP, which had a growth rate of over 3% per year. How has this affected the unemployment rate? Recall that for every 2% of GDP shortfall in relation to the potential level, 1 percentage point is added to the unemployment rate; a 9% shortfall in GDP should lead to an increase in the unemployment rate by 4.5 percentage points. Starting with an unemployment rate of 5.8% in 1979, according to Okun's law, the projected unemployment rate in 1982 should be 10.3%. Official statistics recorded a slightly lower unemployment rate of 9.7% for 1982. This example shows how Okun's law can be applied to predict unemployment over the course of a business cycle. Source: Smith P., Beeg D., Ekonomia, Salomon A., Zatrudnienie i bezrobocie
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

The Effect Of Shifting The Aggregate Demand Curve - Demand Shocks

Kamila Szypuła Kamila Szypuła 26.02.2023 18:46
Economics is immediately associated with the concepts of demand and supply. However, there is also a special demand case. Definition Demand shocks are certain events, both policy and non-policy, that have the effect of shifting the aggregate demand curve. Then demand suddenly and dramatically changes. There are two types of demand shocks: positive (positive) and negative (negative). They are classified as economic shocks. From time to time, shocks or disturbances occur in the economy affecting economic dependencies, throwing the economy out of balance and which may require a policy response. Unpredictable events occurring in the economy are commonplace. They are influenced by, for example, the often inconsistent behavior of business people and the degree of technical sophistication of the financial system. These disruptions may be temporary or permanent. It is difficult to tell them apart when they occur. Transient disturbances can be ignored as they will soon disappear anyway. A shock to aggregate demand periodically shifts the economy away from potential GDP and sends it into boom or recession. By gradually adjusting the price level, the economy eventually returns to normal. The cause of shocks are unexpected changes concerning, for example: fiscal and monetary policy of the state (easing or tightening), expectations of market participants as to possible profits or income, increase in private or public spending and changes in consumer preferences. Monetary and fiscal policy are important determinants influencing the shape and location of the aggregate demand curve. Negative demand shock It occurs when there is a sharp drop in demand. As a consequence, the aggregate demand curve shifts to the left. Consequences: Falling GDP below the potential level, Lowering the price level (deflation), Interest rate decrease, Short-term decrease in supply, Increase in investment expenditures. The gradual adjustment process will continue until real GDP returns to its potential level. Investments will increase by exactly the amount by which they initially decreased. The interest rate will be low enough to stimulate investment. Over the long term, real GDP will return to normal, but during a period of gradual price adjustment, the economy will go through recession and rising unemployment. Read next: Stolen Goods End Up On Amazon, Ebay And Facebook Marketplace| FXMAG.COM Positive demand shock It occurs when there is a sharp increase in demand. Then the aggregate demand curve shifts to the right. Consequences: Initial drop in interest rate, Increase in investments, exports and consumption, Short-term increase in supply, Growth in GDP and prices (inflation), followed by an increase in the interest rate. Through this process of gradual price adjustment, the economy will eventually return to normal. However, before that, it will go through a period of inflation and a boom in economic activity. Policy response to demand shocks Monetary or fiscal policy is able to compensate for the shock that affects aggregate demand. A shift in aggregate demand outward or inward can be reversed by a policy in the opposite direction. In general, stability in aggregate demand is desirable. However, most economists argue that active policies could increase instability rather than compensate for it. Monetarists are even opposed to implementing policies that counter shifts in aggregate demand. Other anti-active policy economists believe that demand compensation policies will have no effect on Gross Domestic Product (GDP). Source: Begg D., Fischer S., Dornbusch R., (2007) Makroekonomia
Asia week ahead: Policy meetings in China and the Philippines

China’s solid PMIs hint at a high GDP target at the Two Sessions

ING Economics ING Economics 01.03.2023 09:42
Both manufacturing and non-manufacturing PMIs for February were very strong. Some sub-indices are the highest in several years. This supports our view that the Two Sessions government meeting will set a high GDP growth target Beijing, China 52.6, 56.3 Manuf. and non-manuf. PMIs   Higher than expected Both manufacturing and non-manufacturing PMIs were very strong The official manufacturing and non-manufacturing PMI indices came in at 52.6 and 56.3, respectively, in February compared to 50.1 and 54.4 in January. The CAIXIN manufacturing PMI was 51.6 in February up from 49.2 in January. This set of numbers is stronger than market expectations. Not only were headline PMI numbers very strong but some sub-indices were the highest in several years. For manufacturing, new orders reached 54.1, the highest since September 2017, while new export orders reached 52.4, the highest since March 2011. These two reflect strong demand expected by retailers. Moreover, suppliers’ delivery times reached 52, rising over 50 for the first time since July, and beating the previous highs from December 2007. The job market is also making a comeback as manufacturing employment rose to 50.2, which was the first expansion in two years. Meanwhile, the non-manufacturing employment sub-index increased by the most since August 2018. In short, this set of PMI data implies that the recovery is still on track. Spending power should rise with the strong employment data Employment PMI subindices of manufacturing and non-manufacturing employment surpassed previous highs in February The Two Sessions may set a high GDP growth target We believe that the government will set a GDP growth target of 5.5% to 6% at the Two Sessions on 5 March. This set of PMI data gives the government a very good reason to set a high growth target. Even though the recovery is on track, this year will not be easy with the central government requiring local governments to grow their economies with high-quality growth prospects in mind. The two KPIs for local governments mean that there could be more business opportunities for ESG. Read this article on THINK TagsPMI China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia: Headline inflation ticks higher but core sustains downtrend

ING Economics ING Economics 01.03.2023 09:45
Slowing core inflation gives Bank Indonesia a reason to stay dovish Jakarta, the capital of Indonesia 5.5% YoY headline inflation   Higher than expected Headline inflation rises to 5.5% due to uptick in food Price pressures remain evident with February inflation moving past expectations to settle at 5.5% year-on-year and up 0.2% from the previous month. Food inflation was the main driver for today’s upside surprise, rising 7.2% compared to 5.8% in January and up 0.5% from the previous month. Other sectors that saw elevated inflation were transportation (13.6%), household equipment (4%) personal care & services (5.6%) and restaurants (4.1%). Elevated inflation for basic food items and personal services could challenge household spending in the coming months and weigh on growth prospects.  However, despite the uptick in headline inflation, core inflation edged lower to 3.1% from 3.3% as all sectors outside food inflation recorded slower inflation compared to the previous month.       Moderating core inflation gives BI some breathing room Source: Badan Pusat Statistik BI still likely dovish despite headline inflation miss Despite the upside in headline inflation, we expect Bank Indonesia (BI) to retain its relatively dovish stance given the decline in core inflation. BI Governor Warjiyo recently reiterated his stance that the central bank would not need to hike rates further this year and falling core inflation supports this view. However, given that overall headline inflation remains well above target and could stay elevated in the near term, we believe that BI will not have room to cut rates until the headline reading trends back towards target.  Thus we are looking at a possible protracted pause from BI with the performance of the Indonesian rupiah likely the only factor that could convince BI to adjust its current dovish stance.      Read this article on THINK TagsIndonesian rupiah Indonesian CPI Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites - 22.05.2023

Positive Signals From China, Bitcoin Is Trading More Than 2% Higher

Craig Erlam Craig Erlam 01.03.2023 11:43
Equity markets in Asia are enjoying some decent gains overnight, with China and Hong Kong the obvious outperformers, while Europe is also enjoying a positive start on Wednesday. Choppy trading conditions are still evident this week although the latest Chinese PMIs have provided some cause for more optimism. It was already believed that the transition from zero-Covid to living with it was going smoothly but this survey data suggests businesses are now extremely optimistic about the future. That bodes well not just for China but regionally as well, as strong demand boosts trade and a resurgence in tourism restores the battered industry. There’s still a long way to go and there could be setbacks along the way but investors will no doubt be encouraged by these early signs. Those with close economic links with China have seen their currencies perform well in the aftermath of the releases, while the yuan is also trading much stronger on the day. While the initial reopening data may be noisy, a strong rebound will be very welcome after a very challenging 2022. Read next: Some Mcdonald's Locations Don't Promote Hip-Hop Stars' New Meal| FXMAG.COM A timely boost Not one to miss out on a bump in risk appetite, bitcoin is trading more than 2% higher this morning. It appears to have consolidated around late-February lows in recent days after failing to break key resistance – $24,500-$25,500 – in the middle of the month. That could be a sign of weakness, at least in the short-term, although ultimately it’s hard to imagine that occurring if we do see risk appetite continue to improve. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  
Belgian housing market to see weaker demand and price correction

Developer Vanke Is Selling 300 Million Shares To Allocate For The Proceeds To Debt Repayment

Kamila Szypuła Kamila Szypuła 01.03.2023 12:35
The real estate market has suffered from the pandemic and high inflation, especially in China. Sales have fallen but costs have not disappeared, which is why real estate developers are doing their best to cover debts. In this article: The car market Real estate sector in China The demand for bonds What to invest in? The car market The car market is constantly changing from a slow transition from combustion cars to electric cars, and the type of trade is changing from traditional to online. There are challenges ahead for sellers and products, and the sooner they seize the opportunity, the better. Consumers are increasingly frustrated with high prices. New car prices have hit an all-time high due to parts shortages and high demand for cars, especially for Americans who have moved to suburban areas during the Covid-19 pandemic and need their personal vehicles as their primary mode of transportation. Is the car dealership on its way out? Watch the video to learn how these companies are taking over the auto dealership industry. https://t.co/OHiXPfWUPW pic.twitter.com/Nv3JPoV2aq — CNBC (@CNBC) March 1, 2023 Read next: Some McDonald's Locations Don't Promote Hip-Hop Stars' New Meal| FXMAG.COM Real estate sector in China The real estate sector in China has been facing a serious liquidity crisis since mid-2021, with many developers defaulting or delaying debt repayments. Developer companies are trying to solve this problem. China Vanke Co Ltd is seeking to raise approximately USD 500 million through a new equity offering in Hong Kong. The state-backed developer Vanke is selling 300 million shares, the company plans to allocate 60% of the proceeds to debt repayment and the rest to supplement working capital. Property developer China Vanke to raise $500 mln via share placement - term sheet https://t.co/gtwqIChl45 pic.twitter.com/oaA5jczVP7 — Reuters Business (@ReutersBiz) March 1, 2023 The demand for bonds After a decade of near-zero interest rates around the world, interest rates have risen as central banks scramble to contain inflation, hitting markets as a result. However, amid signs that inflation is coming down and interest rate hikes may be slowing, the bond market could be the main beneficiary. In light of the slowdown in economic growth, markets are betting that central banks will back off from raising interest rates as the risk of a recession mounts. This direction strengthens the demand for bonds, which are perceived as safe assets. Overall, the prospect of a slowdown in interest rate hikes could mean good news for the Developed Markets bond markets, which are expected to see further positive returns in 2023. Global bonds surged 4.1% to start the year, their best performance in over two decades. But the tightening cycle is not over yet, so will the bond market rebound last? https://t.co/TY5CqLlDn9 pic.twitter.com/tqofW9EymP — J.P. Morgan (@jpmorgan) February 28, 2023 What to invest in? Brutal market performance in 2022 has reignited the narrative that active funds can handle market turmoil better than passive peers. But a year is not enough to draw conclusions. Investors have a hard nut to crack when it comes to what to invest in. Should investors turn to active funds?Despite an uptick in success by U.S. stock-pickers, the latest evidence debunks the claim that active funds better navigate market turmoil than their passive peers.Here's our latest Active/Passive Barometer report: https://t.co/XNMFQLNqhl — Morningstar, Inc. (@MorningstarInc) February 28, 2023
Belgium: Core inflation rises, but the peak is near

Belgian property market on the back foot in race to climate neutrality

ING Economics ING Economics 02.03.2023 09:54
Belgium needs to significantly increase the pace of renovation in order to meet the 2050 target of having all homes climate-neutral, but faces a bigger challenge than other countries due to having an older and larger housing stock, fewer flats, and a higher proportion of low-income homeowners who lack the financial resources for energy renovations A suburb in Belgium Real estate is crucial to the EU's goal of becoming climate neutral by 2050 Energy efficiency is becoming increasingly important for the real estate market and will continue to play a crucial role in the future. Europe's ambition is to become the first continent to become climate neutral by 2050, meaning that the European Union will no longer contribute to global warming. This goal has been embraced by all EU member states. As buildings currently account for 36% of greenhouse gas emissions in the EU, the construction and real estate sectors play a decisive role in achieving this goal. Europe wants to significantly reduce the greenhouse gas emissions and energy consumption of the building stock by 2030 and make it completely climate-neutral by 2050. It is vital to significantly increase the renovation rate of energy-inefficient buildings to achieve these ambitious targets. Heating buildings responsible for 20% of greenhouse gas emissions Building heating accounted for 20% of Belgium's greenhouse gas emissions in 2021, of which 15% was for heating residential buildings and the remaining 5% for heating non-residential buildings. In the residential sector, we see a clear downward trend in greenhouse gas emissions caused by heating. Between 1990 and 2021, for example, emissions fell by 20% despite an increase in the number of buildings. The decrease is largely due to the milder winter weather in recent years, which means we need to heat less. On the other hand, the improved energy efficiency of buildings has also reinforced the downward trend. In contrast, in the non-residential sector, which includes shops, offices, etc., greenhouse gas emissions increased by 36% between 1990 and 2021, partly due to the strong growth in the number of employees and therefore buildings. While the residential sector will also have to greatly increase the pace of renovation to reduce emissions, the non-residential sector in particular will have to play catch-up in the coming years. Despite the progress, Belgium does remain one of the worst-performing countries at a European level in terms of residential energy consumption and per capita CO2 emissions. Only Luxembourg has even higher emissions per inhabitant. In 2019, average Belgian residential emissions were 1.34 tonnes of CO2 per year, almost double the European average and well above Belgium's neighbours. To meet the climate goals, greenhouse gas emissions must fall by at least 80% compared to 1990 by 2050, meaning that current residential CO2 emissions of 1.34 tonnes per person must fall to around 0.30 tonnes. Greenhouse gas emissions per capita, residential sector, 2019 Source: Eurostat Unfavourable starting position makes energy transition extra challenging While all European Union countries face the same challenge of making their entire building stock climate-neutral by 2050, Belgium will have to make extra efforts to achieve this objective. The Belgian real estate market has a number of characteristics that place it in a less favourable starting position for the upcoming energy transition. Below we discuss each of these factors. 1. On average, homes are larger than those in neighbouring countries According to Eurostat figures, Belgian homes are significantly larger than those in neighbouring countries and the EU average. With an average house size of 124 m² in 2012, Belgium only lost out to Luxembourg (131 m²) and Cyprus (141 m²). New houses built since 2012 are slightly smaller on average and are likely to have brought the Belgian average down a little. Nevertheless, Belgium will still score highly in the rankings because new construction is only a small part of the total building stock. Moreover, other European countries are also building smaller and smaller homes. In addition, the size of dwellings can also be determined by the average number of rooms per person. According to Eurostat data, Belgium had an average of 2.1 rooms per person in 2021, leaving it a little behind Malta (2.3 rooms per person) and matching the Netherlands. This is remarkably higher than Germany and France, with an average of 1.8 rooms per person, and the EU average of 1.6 rooms per person. The above indicators show that, on average, Belgian houses have a larger living area than in neighbouring countries and have more rooms to heat and cool, so they consume more energy. Moreover, large houses also have greater heat loss because there are more doors, windows and vents, allowing heat to escape more easily. Average number of rooms per person, 2021 Source: Eurostat   2. Belgium has relatively more open and semi-open buildings In general, flats are more energy-efficient than houses because they have more common walls. As a result, less surface area is in contact with the outside air and less heat is lost. In addition, flats also tend to be a bit smaller than houses, which means fewer rooms need to be heated. With only 22.3% of the total housing stock in the form of flats, Belgium currently has the third lowest share of flats in Europe. Only Ireland (9.8%) and the Netherlands (17.5%) have an even lower share. Then again, unlike the Netherlands, Belgium has relatively more four-fronted houses, where the potential for heat loss is naturally also higher than in closed or semi-open buildings. Building stock by housing type, 2021 Source: Eurostat   3. Belgium has a very old building stock More than 60% of residential buildings in Belgium were built before 1981, meaning they are older than 40 years. Moreover, almost a quarter of residential buildings were built before 1946, meaning they are older than 75 years. Older homes tend to have higher heating requirements than new homes. Energy efficiency was not a priority back then and technological solutions were less developed than today. 4. Relatively more low-income people own their homes Finally, compared to other countries, Belgium also has a high share of homeowners among low-income households, who often do not have sufficient financial resources to pay for a full energy renovation. Plus, low-income households often live in houses with lower energy efficiency, which means that renovation costs are just higher for them. Homeownership by income group, 2015 or latest available year Source: OECD Belgian buildings require more energy for heating These different characteristics of the Belgian property market, namely relatively large and old houses and more open and semi-open buildings, mean that Belgian buildings lose a lot of heat. Therefore, in Belgium, 73% of household energy consumption goes to heating buildings. This puts us in second place in Europe, after Luxembourg which uses 83% of its energy consumption to heat buildings. Belgium thus scores considerably higher than Germany (67%), France (63%), the Netherlands (61%) and the EU average (63%). Many Belgians hesitant to tackle their renovation Although high energy prices have significantly reduced the payback period for energy renovations and stricter regulations are on the way, many Belgians still seem reluctant to tackle the energy renovation of their homes. Last year, there were many relatively minor interventions, such as installing solar panels or extra insulation, but there are signs that the pace of in-depth energy renovations has slowed. Although during the pandemic, the number of building permits issued for renovations rose sharply as many families had more time and spent less money on services, the number fell back to pre-pandemic levels in October. The number of mortgages granted for renovations also fell in the second half of last year to below levels seen in recent years. Finally, data from the European Commission also showed that households' intention to renovate their homes over the next 12 months is at its lowest level in more than 20 years and significantly lower than in neighbouring countries. Number of building permits granted for renovation, October month only Source: Statbel Need for integrated solutions for all aspects of energy renovations To conclude, it seems that the pace of deep energy renovations is slowing down after accelerating during the pandemic. There are several barriers that families experience in tackling their renovation. Many families do not have sufficient financial resources to carry out a renovation, but also experience a lot of other non-financial obstacles that keep them from starting. Families are left with many questions about the total cost of an energy renovation, the payback period, the effect on the EPC score and the value of their house, and the ideal sequence and planning of energy renovations. In addition, home renovation requires technical, administrative and legal knowledge and depends on cooperation between different specialised suppliers, which is an additional non-financial barrier. Nevertheless, the renovation rate will have to increase dramatically to meet EU targets. It is therefore essential to help households through the different steps of energy renovation and work towards integrated solutions that offer households a tailor-made solution, taking into account their financial possibilities, their renovation preferences and the characteristics of their home. Read this article on THINK TagsReal Estate Netherlands Germany ESG Belgium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

The search for a new equilibrium

ING Economics ING Economics 04.03.2023 10:23
Optimism about an imminent strong economic recovery and a change of tack by the central banks was short-lived. We expect a longer period of subdued growth in the eurozone, while we also anticipate a significant slowdown of the US economy. It's no surprise markets and analysts are having a hard time seeing clearly at the moment The search for renewed balance in the global economy   Recent weeks have shown that optimism about an imminent strong economic recovery and a pivot by the major central banks was premature. Markets, economies and central banks are still searching for a new balance, a new equilibrium, of structural transition and cyclical developments, higher inflation and interest rates, stricter monetary policy and loose fiscal policy. The path to this new balance, wherever it may be, was always expected to be rough and volatile and not linear. In fact, major central banks are witnessing stubbornly high inflation and still very few signs that recent monetary tightening will destroy demand and hence bring down inflation. We have argued before that both markets and central banks are currently too impatient. It simply takes months before tighter monetary policy finds its way into the real economy. And it will. Or put differently, if the greatest monetary policy turnaround in years does not leave any marks on the real economy, we could also close all central banks. However, since last summer, central bankers seem to have become increasingly afraid that they may lose their grip on inflation. This is why there is currently so little patience and rather a trend of "high or higher for longer". No single central bank wants to be on the wrong side of inflation. Longer-term inflation projections are no longer the main anchor. It is rather a combination of current headline and core inflation, longer-term inflation projections and a large portion of gut feeling. In any case, probably the biggest concern for most central bankers at the moment is relaxing too early. This is why a scenario in which central banks overshoot with their rate hikes is more likely than a scenario in which central banks start cutting rates prematurely. All of this means that the US Federal Reserve and European Central Bank (ECB) will continue to hike interest rates in the coming months. While the global economy will still experience the full impact of the monetary policy tightening of the last year, major economies are clearly out of sync. The reopening of the Chinese economy is only gradually gaining traction and we expect it to last until the second half of the year before the recovery really takes off. The relief that the reopening of the Chinese economy should at least provide for the European economy will not be enough to stage a strong recovery. The eurozone economy seemed to have avoided a recession before we received downward revisions in German growth data. Now, a technical recession is still possible. Even though lower energy prices and the Chinese reopening could give a short-term boost to industry, the large inventory build-up as well as the ECB’s monetary tightening will weigh on the recovery. We expect a longer period of subdued growth in the eurozone. The resilience of the US economy has been remarkable. However, we do see the first cracks in the labour and housing markets and expect a significant slowdown of the economy. Still, with the Inflation Reduction Act and rich energy supply, the US economy should experience a rather textbook-style slowdown, followed by looser monetary policy and consequently a recovery in 2024. With economies struggling between cyclical and structural developments, governments moving from short-term stimulus to longer-term investments, stubbornly high inflation and a new era of "high for longer" at central banks, it shouldn’t be a surprise that markets and analysts are having a hard time seeing clearly at the moment. Remember Jimmy Cliff, who only saw all the obstacles in his way when the rain was gone? In the global economy, it will still take some time before the rain disappears. ING's base case scenario ING Alternative scenarios #2 ING Alternative scenarios #3 ING TagsMonthly Economic Update   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Disappointing activity data in China suggests more fiscal support is needed

China’s recovery is not much of a surprise

ING Economics ING Economics 04.03.2023 10:50
Strong consumption during the January holidays eased back in February and infrastructure spending is not growing robustly, either. This hints at only a gradual continuation of the recovery in February. We expect this will persist until March, after which, the Two Sessions will provide us with further clues In this article China's recovery is not a big event, yet Infrastructure is lagging as the second growth engine All eyes on the Two Sessions   Shutterstock Jabil Wuxi electronics factory in China - 21 Feb 2023 China's recovery is not a big event, yet China's economic reopening appears to be a gradual one. Consumption was very strong during the holidays in January but was more subdued in February. We have not seen 'revenge' spending. This is especially true in the car market as subsidies for electric vehicles have ended. We also do not expect strong handset sales in February as many people bought new handsets during the recent holidays.  Nevertheless, we believe that consumption strength is increasing following an improving jobs market. After the Chinese New Year, more people landed jobs in the services sector. And wages in factories have generally increased. This should have a positive knock-on effect on the jobs market in the services sector and China could experience a rising wage spiral in the first half of 2023. Infrastructure is lagging as the second growth engine We have not yet seen the infrastructure investment data from the government. But media reports do not suggest a lot of new infrastructure projects from local governments. This might be related to the change of government personnel at the Two Sessions. If so, we should note from the Two Sessions: 1) the scale of new issuance of local government special bonds, which we expect to be CNY4 trillion; and 2) which sub-sectors within infrastructure should receive the most government money. For the latter, we believe that environmental, social, and corporate governance (ESG) infrastructure and technology research and development infrastructure will be prioritised over brand-new transport infrastructure. Infrastructure and local government bonds CEIC, ING All eyes on the Two Sessions There will be a lot of attention on the Two Sessions given that it is a year of new government personnel even though President Xi Jinping remains the leader. And the country faces more geopolitical tensions with various parts of the world. In addition, it is a year of recovery. The Two Sessions will give us many hints on policy direction, and how that will affect different sectors.  You can read our Two Session preview here. Given the gradual pick-up of the economy, we are keeping our GDP forecast for 2023 at 5%. TagsTwo Sessions Infrastructure Consumption China   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
China’s Foreign Minister Qin Gang Downplayed Russia’s Invasion Into Ukraine

The War In Ukraine Seems To Have Reached An Impasse, The Goal For This Year For China Is To Increase GDP By 5%

Kamila Szypuła Kamila Szypuła 06.03.2023 09:56
After more than a year of war, the situation seems to be at an impasse, and the current signals from Bakhmut are not clear. The markets are focused on economic objectives that have been outdone by the second largest economy in the world. In this article: The war in Ukraine Two Sessions The war in Ukraine The war in Ukraine appears to have reached a stalemate, with Russian forces reporting some gains in eastern Donbass. Bakhmut's status is unclear after conflicting reports over the weekend about how much of the city was controlled by Russian forces and whether Ukrainian forces had begun withdrawing from parts of the city. Volodymyr Nazarenko, the commander of the Ukrainian troops in Bakhmut, said in Telegram Sunday that "there are no decisions or orders regarding retreat" and that "the defense is holding on" However, analysts at the Institute for the Study of War think tank said on Sunday that Ukrainian forces appeared to be conducting a "limited tactical retreat" in Bakhmut. ISW reported that Ukrainian forces may be withdrawing from their positions on the eastern bank of the Bakhmutka River, which crosses the eastern flank of the city. However, he added that while Russian sources claim that their forces have occupied the eastern, northern and southern parts of Bakhmut and claim to be reporting from positions in eastern Bakhmut, he cannot independently verify these claims. Moreover, German Chancellor Olaf Scholz said on Sunday that Russia's complete withdrawal from Ukraine would be the basis for future peace talks. Scholz, like U.S. President Joe Biden, said Germany would support Ukraine "as long as necessary," but Berlin was criticized for delaying giving Kiev weapons, especially Leopard 2 tanks, which it had been asking for for months. Time could be running out for Ukrainian forces in besieged Bakhmut; Russia turns to 'vintage' tanks https://t.co/hH9oeo83uu — CNBC (@CNBC) March 6, 2023 Read next: Discontinuation Of The Silvergate Exchange Network, What Does It Mean To Burn Crypto?| FXMAG.COM Two Sessions "Two Sessions" is an annual parliamentary meeting that brings together delegates from all over China to discuss and approve national priorities, which includes the National People's Congress and the Chinese People's Political Consultative Conference, this year is short-lived and the goals they set are relatively briefly. This year, the purpose of the meeting was to formalize the government titles for the new prime minister, deputy prime ministers and heads of ministries, as well as annual targets for GDP growth, inflation and employment. China aims to increase GDP by "about 5%" in 2023, which may seem low given last year's 3%, which was the country's weakest performance in decades. Moreover, China only repeated its commitments to increase household spending by raising incomes. The fiscal deficit is set at 3% of GDP this year, a marginal increase from 2022, and there are no plans for direct transfers to spur purchases. At the same time, Beijing remains committed to reining in real estate speculation, which will limit the industry's ability to drive growth. Among the events already announced, China's new foreign minister Qin Gang is due to hold his first press conference on Tuesday morning. From Breakingviews - China gives itself easy GDP homework https://t.co/Y43VcTot8g — Reuters Business (@ReutersBiz) March 6, 2023
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

Euro Credit Supply

ING Economics ING Economics 06.03.2023 13:03
Pre-funding before CSPP & CBPP3 tapering Decent supply in February as pre-funding comes before CSPP tapering • Corporate supply amounted to €27bn in February, up on last year’s €14bn but in line with February 2021. Supply on a year-to-date basis is still decent, following the heavy supply in January, currently pencilled in at €68bn. This is running ahead of last year’s €52bn and is more in line with, or slightly ahead of, previous years. The funding environment has been more conducive for issuance, as spreads are stuck around these arguably tight levels. The ECB was still purchasing under its reinvestments, which we expected would push some issuers to pre-fund in the past two months - the central bank will begin tapering its reinvestments now in March, resulting in much less CSPP purchasing. Furthermore, the ECB will put focus on the secondary market, only purchasing green bonds and high ESG-scoring corporates in the primary market. Therefore, we could see supply slow slightly in the coming months. We forecast a small increase on last year’s €258bn, up to closer to €275bn this year. This is still a historically low yearly supply level. • Reverse Yankee supply totalled another €5.5bn in February, now €11bn for the year thus far. The cross-currency basis swap has tightened since October - by about 15bp in the 5yr and 8bp in the 10yr. The cross-currency basis swap is also not historically that wide. At the same time, the USD EUR spread differential has widened, particularly on the 5yr, albeit marginally tighter on the past week. As a result, the 10yr area has opened up an even larger cost-saving advantage for US issuers to issue in Euro and swap back to USD. This is now the case for 5yr too. This creates an attractive cost-saving advantage for Reverse Yankee supply Record-breaking covered bond supply • Covered bond supply remains on record-breaking track with €27bn covered bonds printed in February, resulting in YTD supply reaching a substantial €65bn thus far. Unsurprisingly, this month’s supply is heavily dominated by eurozone banks taking the opportunity to come to the market before the ECB ends its reinvestments of redemptions through the primary market, starting in March. This probably also explains why supply this month is focusing mostly on covered bonds and not so much on unsecured deals, with only €18bn issued in senior unsecured and just €4bn in bank capital. Read the article on ING Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

The Key Focus Will Be On How Powell Sees The US Labour Market

Michael Hewson Michael Hewson 07.03.2023 08:36
We saw a broadly positive start to the week yesterday, with the France CAC40 posting a new record high of 7,401, while the FTSE100 lagged over disappointment around China's GDP target for 2023. This disappointment weighed on the mining sector yesterday after China set its 2023 GDP target at a fairly modest 5%, pointing to weaker demand for commodities. This target, which is below last year's 5.5% target, suggests that the Chinese government is less likely to be as generous when it comes to helping to stimulate demand and economic activity. This focus on stability appears to be an acknowledgment that recent years have been far too generous and created areas of financial instability and that the focus now is a more conservative approach. Today's China trade numbers for February have seen a marked improvement in the wake of the sharp slowdown seen in the last 2 months of 2022, which saw the various rolling restrictions and lockdowns impact the Chinese economy markedly. In Q4 the Chinese economy stagnated to the tune of growth of 0%, equating to annual GDP growth of 3%. With today's trade numbers for the months of January and February covering the period over the Chinese New Year, we now have a better idea of how much the relaxation of lockdown restrictions may have unleashed pent-up demand, although they also come against a backdrop of the stronger comparatives of a year ago before the Omicron wave had taken hold. Today's numbers have seen exports slide by -6.8%, which was slightly better than expected, while imports slid by -10.2% which was more than expected. The Reserve Bank of Australia also raised rates as expected by 0.25% to 3.6%, as the central bank continues to navigate concerns about upending the mortgage market, against a backdrop of inflation that still looks very sticky. While the guidance was hawkish there was a slight softening bias suggesting the bank might be close to a pause, with the Australian dollar slipping back a touch. Today's main focus will be on the first day of testimony from Fed chairman Jay Powell to US lawmakers with questions likely to focus on the resilience of the US economy. There'll be the usual showboating by some US politicians who will want the Fed to go easy when it comes to future rate hikes, along with those who think the Fed has dropped the ball when it comes to inflation. The key focus will be on how Powell sees the US labour market, and whether the FOMC think that economic conditions have improved or deteriorated since the last Fed meeting. Markets will also be paying attention to whether Powell continues to peddle the same narrative of disinflation, which was a hallmark of his last press conference. If he acknowledges that inflation could be much stickier than the Fed thought over a month ago, that could prompt a pullback in US equity markets. What is notable is that while US equity markets have recovered to the same levels, they were at the time of the February Fed meeting, after another strong finish yesterday, bond yields are much higher, with the US 2-year yield over 80bps higher, which suggests that once again there is a disconnect between what bond markets are pricing on inflation, and what equity markets are pricing. Today's European open looks set to be a positive one on the back of yesterday's strong US close. On the currencies front the euro outperformed yesterday as more ECB policymakers touted the prospect of further multiple 50bps rate hikes in the aftermath of the expected 50bps hike that is due to be delivered next week. Austrian central bank governor Robert Holzmann said the ECB should do 50bps hikes in March, May, June, and July, potentially taking the main financing rate to 5%. These comments followed comments from ECB chief economist Philip Lane who also acknowledged the need for further hikes, beyond next week's meeting, stating that current high levels of inflation continue to be a concern for the ECB, and that core inflation momentum remains strong. EUR/USD – continues to range trade between the recent peaks around the 1.0700 area and above trend line support from the recent 1.0530 lows. We need to push through the 50-day SMA at 1.0730 to open up 1.0820. While below 1.0730, the bias remains for a test of the January lows at 1.0480/85.GBP/USD – continues to range trade between the 1.1920 area and the 200-day SMA, and the 50-day SMA at 1.2150 which remains a key resistance area. A break of 1.1900 retargets the 1.1830 area, while a break of the 1.2150 area is needed to retarget the 1.2300 area.EUR/GBP – retesting trend line resistance at 0.8900 from the January peaks last week. Above 0.8900 targets the 0.8980 area. We need to push below support at the 0.8820/30 area to retarget the 0.8780 area.USD/JPY – still below the 200-day SMA at 136.90/00 which is currently capping further gains. Support comes in at the 135.20 area. We also have interim support at 133.60. A break above 137.00 could see a move to 138.20. FTSE100 is expected to open 13 points higher at 7,943DAX is expected to open 17 points higher at 15,670CAC40 is expected to open 9 points higher at 7,382Email: marketcomment@cmcmarkets.comFollow CMC Markets on Twitter: @cmcmarketsFollow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
DPX Token Registered A 24-Hour Return Of 11.11%

The Twelvefold Collection Collected A Total Of 3,246 Bids During The 24-Hour Auction, More Frequent Reporting On The Flow Of Money To And From Israel

Kamila Szypuła Kamila Szypuła 07.03.2023 11:30
A large sale of the collection is an important event for the NFT market. Further banking regulations are also being observed. In this article: China The flow of money Banking and inflation The TwelveFold China At the National People's Congress on Sunday, the Chinese government announced a goal of "around 5%" gross domestic product growth in 2023 - the lowest level in more than three decades and below the 5.5% expected by economists. The administration also proposed a modest increase in fiscal support for the economy. President Xi Jinping and other officials have targeted the West for limiting China's growth prospects as relations between Beijing and Washington continue to deteriorate. Beijing is well aware that the U.S. will look to curtail its global influence by growing the “technology gap”. Negative reactions and further investment restrictions are therefore likely, at least from the US. How China's shifting growth picture could hit global markets https://t.co/isZYv12CJp — CNBC (@CNBC) March 7, 2023 The flow of money The Bank of Israel has instructed local banks to report more frequently about the flow of money into and out of Israel. The new directive comes at a time of instability in the Israeli shekel. Analysts have linked the results of the shekel to uncertainty over Prime Minister Benjamin Netanyahu's plan to change Israel's judicial system. Critics of the changes say Netanyahu is taking steps that will damage Israel's democratic checks and balances, enable corruption and lead to diplomatic isolation. The Bank of Israel has instructed local banks to report more frequently on the movement of money in and out of Israel, a central bank spokesperson said. More here: https://t.co/PoOluu5MI5 — Reuters Business (@ReutersBiz) March 7, 2023 Banking and inflation These are difficult times for central bankers. The increase in inflation in 2021 took many central banks by surprise. The challenges would have been much tougher had it not been for the significant improvements in central banking over the past three decades - in particular, advances in what is known as the inflation target. Under the inflation target, central banks make a clear commitment to a long-term inflation target and strive to achieve it by changing the interest rate policy that they control. Raising interest rates, such as what central banks are doing now, tends to bring down inflation by reducing spending on housing and other interest rate sensitive goods. Former Swedish central banker @leosven led the inflation-targeting revolution. Read a profile of him in the latest F&D. https://t.co/cGsIdEteS2 pic.twitter.com/xNC7MZNnj0 — IMF (@IMFNews) March 7, 2023 The TwelveFold The high-profile and controversial auction of Yuga Labs' debut Bitcoin NFT collection ended on Monday. The TwelveFold collection collected a total of 3,246 bids during the 24-hour auction that began on Sunday. Of these, the highest bid was 7.1159 BTC, or around $159,500. The lowest successful bid was 2.2501 BTC, which is just over $50,000. Yuga, the $4 billion company behind Bored Ape Yacht Club's dominant collection of NFTs, previously only hosted NFTs on the Ethereum blockchain. NEWS: @yugalabs' auction of its debut #Bitcoin NFT collection, TwelveFold, raises $16.5M with 288 successful bidders.📰 https://t.co/iJVTndsYGj pic.twitter.com/eK4keX4e6j — CoinGecko (@coingecko) March 7, 2023
National Bank of Hungary Review: A new beginning without commitment

No one saw this big drop coming in Hungarian industry

ING Economics ING Economics 07.03.2023 14:09
After a surprisingly strong December, industrial performance in January recorded a considerable fall, bringing industrial production back on a downward trend 3.2% Industrial production drop in January (YoY, wda) ING estimate 5.5% / Previous 5.6% Worse than expected   We did not see this coming. The last time the Hungarian industry performed this poorly was during the darkest days of the Covid-19 crisis. Back then, it was easy to understand the poor data, but the same cannot be said this time. According to the raw data, the volume of industrial production fell by 0.2% year-on-year in January, while the drop came in at 3.2% after adjusting for calendar effects. Industrial ouput was 5.1% lower than in December 2022. Clearly, any optimism we had in December when industrial production rebounded was premature. Performance of Hungarian industry Source: HCSO, ING   Even though the Hungarian Central Statistical Office (HCSO) will only release the detailed data next week (14 March), the preliminary statement gives us some clues about the state of Hungary's industry. It shows that the largest positive contributors to industrial performance were electrical and transport equipment manufacturing (e.g. electric vehicle batteries and cars), which both expanded on an annual basis. On the other hand, the food industry seems to be still struggling as it posted a yearly contraction in the volume of production. This hardly comes as a surprise given that the volume of sales regarding the manufacture of food, beverages and tobacco products have been contracting since June 2022 on a yearly basis. Other than this, we think that some energy-intensive sectors are still facing cost-side pressures as they could be stuck with bad energy contracts which are not following market prices. Volume of industrial production Source: HCSO, ING   The predictive power of the Hungarian PMI reading and the business confidence indicator has been deteriorating for some time. Since October 2022, each PMI release has come in above 55, with the latest print in February at 56.5, indicating an expanding industry. However, despite positive soft data readings, the hard data’s monthly dynamics have disappointed since October. December’s surprisingly good performance was a notable exception to this soft and hard data divergence, but in light of January’s data we believe that last year’s outperformance was an anomaly.  Manufacturing PMI and industrial production trends Source: HALPIM, HCSO, ING   Going forward, uncertainty concerning future industrial performance remains elevated with soft data releases offering little clues. The detailed release by HCSO published on 14 March will be important, as at the moment we have limited information regarding the cause of the sharp drop. We suspect that individual plant shutdowns (lengthened winter stoppages to save energy) and temporary factory outages (maintenance issues) are the main culprits behind January’s disappointing performance. Nevertheless, with the Hungarian industry starting 2023 so bleakly, we believe that a GDP contraction in the first quarter of 2023 cannot be avoided. Read this article on THINK TagsPMI Manufacturing Industry Industrial Production Hungary   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites 13 March 2023

Asia Morning Bites - 08.03.2023

ING Economics ING Economics 08.03.2023 08:19
Short-term yields surge after Powell's speech, driving USD appreciation. ADP and Beige book later ahead of Friday's payrolls.  Source: shutterstock Global Macro and Markets Global Markets: The positive tone at the end of last week abruptly vanished yesterday as global equities took another lurch downwards. In the US, the S&P 500 dropped by 1.53%, and the NASDAQ fell 1.25%. In China, the CSI 300 fell by 1.46%, and the Hang Seng also declined by 0.33%. Bond yields rose very sharply yesterday. The yield on 2Y US Treasuries rose 12.2bp to 5.008% after Jerome Powell’s hawkish testimony to the Senate Banking Committee (See more below), though the 10Y yield was virtually unchanged at 3.964%. One of those yields probably needs to change now to deliver some consistency. Either the 10Y needs to rise to reflect the higher for longer rate view, or the 2Y yields need to revert to their previous level. Ahead of Friday’s payrolls release, it’s a toss-up which of these transpires. The sharp rise in shorter maturity yields sent EURUSD into a steep dive, which has seen it reach 1.0550. This has also brought the AUD down to 0.6590, which was probably not helped by yesterday’s “dovish hike” by the RBA. Cable has dropped to 1.1829 and the JPY has pushed up to 137.20. Other Asian FX was also weaker yesterday. The CNH weakened by 0.74% to 6.9959. The SGD was also one of the weaker currencies on the day, falling 0.72% to 1.3315. G-7 Macro: Despite the overtly political stage for Powell’s speech overnight, he chose to go large on the inflation-fighting credibility theme, rather than provide any more soothing noises about the economy and soft versus hard landings. At one stage, Powell even appeared to raise the prospect of a return to larger rate hikes, saying, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”. See James Knightley’s note for more detail.  Today’s top data pick will be the ADP report. Admittedly, it was not even close to predicting last month’s 517,000 payrolls gain, but it is still the least bad labour market data point for indicating payrolls numbers. There is almost certainly no substance to the consensus 200K figure for this release. The Bank of Canada has a rate setting meeting today and is expected to leave rates at 4.5%. Tonight, we get the Fed’s Beige book. China: The Two sessions unveiled some changes to government structure, including a larger financial regulator, the State Administration of Financial Supervision and Administration (SAFSA), which will be responsible for monitoring and regulating risks in different parts of the financial system. After the changes are implemented, SAFSA will replace the existing regulator, CBIRC. We believe this will be helpful for risk prevention and earlier detection of risks in the financial system. We don't think SAFSA will tighten regulations immediately. Instead, we think it will gather more information from financial institutions in different areas and create a new model to monitor risk before implementing more regulations.    In addition to the expanded financial regulator, there have been other changes in technology, data, agriculture, ageing, intellectual property and public complaints departments or bureaus. All in all, these policy-making and oversight functions will be more centralized - some of them falling directly under the State Council. The State Council will be able to make better use of the information it has to make more efficient and effective policies, though possibly at the expense of some flexibility of a less centralized system. What to look out for: US ADP report and Powell's testimony to Congress US trade balance and ADP employment (8 March) Fed’s Powell speaks (8 March) Japan GDP (9 March) China CPI inflation (9 March) Malaysia BNM policy meeting (9 March) US initial jobless claims (9 March) Fed’s Barr speaks (9 March) Japan PPI inflation (10 March) US nonfarm payrolls (10 March) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Saxo Bank Podcast: The Risk Of An Escalation In The US-China Confrontation, The Risk Of An Escalation In The US-China Confrontation And More

Russia Unleashed A Wave Of Drone And Missile Attacks On Ukraine Overnight, SHEIN Is Expected To Raise Around $2 Billion In A New Round

Kamila Szypuła Kamila Szypuła 09.03.2023 09:48
The war in Ukraine is not coming to an end, and the recent acts of Russia show that the situation may escalate even more. Despite the lack of peace in the markets, companies continue to expand. Chinese retailer SHEIN has ambitious plans for this year. In this article: War in Ukraine The flotation Insights on the world economy and markets War in Ukraine Kiev and other major cities in Ukraine, including Lviv, Kharkiv and Odessa, were hit by a wave of Russian drone strikes and missile attacks overnight, Ukrainian officials said. The mayor of Kiev, Vitali Klitschko, said that there were a series of explosions in the capital that damaged the energy infrastructure and injured several civilians. The air alert lasted for almost seven hours in the capital. Officials at the southern port of Odessa, Lviv in western Ukraine and Kharkiv in northeastern Ukraine also reported nighttime drone and missile attacks. As a result of the missile attack on Ukraine, the power supply to the Zaporozhye nuclear power plant was interrupted. The Zaporozhye nuclear power plant, the largest of its kind in Europe, has repeatedly been at the center of conflict between Russian and Ukrainian forces, which accuse each other of shelling and threatening the operation and safety of the facility, and the risk of a potential catastrophic nuclear accident. International observers called for a demilitarized zone around the plant. 'The enemy is raging': Russia unleashes wave of drone and missile strikes on Kyiv and other cities https://t.co/4U3opXhcFh — CNBC (@CNBC) March 9, 2023 The flotation Chinese online apparel retailer SHEIN is expected to raise around $2 billion in a new round of funding this month and aims to go public in the US in the second half of this year. The UAE's sovereign wealth fund Mubadala is the lead investor in this round. Last month, the company held preliminary talks with several investment banks to select major bookrunners for its US IPO, with Tiger Global Management as the new investor. The flotation, if successful, would be one of the biggest worldwide this year. SHEIN is aiming for a U.S. listing and the flotation, if successful, would be one of the biggest worldwide this year and a test of U.S. investor appetite for Chinese companies amid volatile capital markets and geopolitical tensions https://t.co/A4W0RC864O pic.twitter.com/R1JpfFARyM — Reuters Business (@ReutersBiz) March 9, 2023 Insights on the world economy and markets Late last year, OPEC announced a production cut of 2 million barrels a day in response to slowing global growth and increased risk of recession among developed countries. However, increased demand from China following the lifting of COVID-19 restrictions, coupled with a slight increase in non-OPEC production this year, is likely to prompt OPEC to reverse. According to a new report by Goldman Sachs Research, oil prices could rise as high as $107 a barrel by the end of the year from around $84 today, depending on how OPEC responds to emerging market conditions. What's more, the problem of inflation and thus porcelain alloys is still on top. Stronger economic data has recently raised concerns that inflation is likely to remain stickier than expected. Goldman Sach also looks at how retailers cope with slowing consumer demand, high interest rates and rising prices. Which global macro risk are investors most worried about for 2023? Over 40% of attendees polled at our Global Macro Conference said ‘US-China tensions’, followed by 26% saying ‘inflation’. Explore our research insights by topic: https://t.co/Yfvww77V8h pic.twitter.com/EeH1hvfGJP — Goldman Sachs (@GoldmanSachs) March 9, 2023
Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

Silicon Valley Bank Was Forced To Sell Off Its Securities Sharply

Kamila Szypuła Kamila Szypuła 10.03.2023 11:27
SVB is a bank that mainly supports start-ups, as a large bank it seems solid and resistant to major crises. But as they show, even the big banks are vulnerable. In this article: Silicon Valley Bank UK economy Gender-segregated is still common Silicon Valley Bank For the Silicon Valley region, trouble comes at a particularly difficult time. Silicon Valley Bank has long been regarded as a driving force behind tech start-ups, providing traditional banking services while financing projects and companies deemed too risky for traditional lenders. But the 40-year-old company's close ties to technology make it particularly vulnerable to the industry's ups and downs cycles, and on Thursday those risks became clear. SVB was forced to sell off its securities sharply, offloading its $21 billion holdings at a loss of $1.8 billion while raising $500 million from venture capital firm General Atlantic. As a large regulated bank, the SVB was seen as a stabilizing force. But her recent financial maneuvering is causing concern among the firm's clients. According to SVB's mid-quarter update, one of the bank's main concerns is the amount of money its customers are spending. Total client funds declined over the past five quarters as cash burn continued at a rapid pace despite a slowdown in venture investments. At present, the SVB can only hope to remain a trusted source of funding for companies that want to eventually hold a significant portion of that money. Silicon Valley Bank's struggles spell further trouble for beleaguered tech startup market @rogoswami @levynews https://t.co/y9yGQn5tVt — Ted Kemp (@TedKempCNBC) March 10, 2023 UK economy Children returning to school after a disease-ravaged December provided an unexpected, one-off boost to the UK economy in January. The Office for National Statistics (ONS) said the UK economy grew by 0.3% month-on-month after falling 0.5% in December - a reading that is likely to further allay fears of a recession, at least in the short term. The entertainment sector - backed by the men's Premier League, which returned to action after the 2022 World Cup - has been another stimulus to the economy. As a sign of deeper problems for the economy, production and construction were contracted. British economic output rose by a better-than-expected 0.3% month-on-month in January. More here: https://t.co/eVei3cFlES — Reuters Business (@ReutersBiz) March 10, 2023 Gender-segregated is still common Despite significant progress in recent decades, labor markets around the world continue to be gender-segregated. Women's participation in the labor force remains lower than that of men, the gender pay gap is wide and women are overrepresented in the informal sector and among the poor. In many countries, legal restrictions persist that prevent women from developing their full economic potential. Better opportunities for women can also contribute to broader economic development in developing economies, for example through higher enrollment of girls in schools. #EmbraceEquity: "An economy can only reach its full potential when it taps into the talents of men AND women. The IMF’s gender strategy aims to bring women front and center in economic policy discussions.” —@KGeorgieva More on #IMFGender: https://t.co/EpHDwGYaTB pic.twitter.com/ry6ou7FEa0 — IMF (@IMFNews) March 9, 2023
The Research Firm Is Carrying Out A Sum-Of-The-Parts Valuation For Essential Utilities' Water And Gas Businesses

The Research Firm Is Carrying Out A Sum-Of-The-Parts Valuation For Essential Utilities' Water And Gas Businesses

Conotoxia Comments Conotoxia Comments 10.03.2023 14:00
Research firm Spruce Point has conducted a detailed analysis of Essential Utilities and, as with the high-profile Hindenburg Research report on Adani Group, has serious concerns about the accuracy of financial reporting, the business model and the company's ability to meet its financial obligations. In a report that is 91 pages long, Spruce Point believes that there is approximately 35-50% (to a price of US$20-28) downside risk to the company's shares. Let's take a look at the key points from the report. What does Essential Utilities do? Essential Utilities is a US holding company that provides water, wastewater and gas services in the United States. The company was founded in 1886 as Bryn Mawr Corporation and changed its name to Aqua America in 2007. In 2020. Aqua America changed its name to Essential Utilities to better reflect its business, which has expanded to serve gas customers. The company serves customers in 10 states, including Pennsylvania, Ohio, Illinois, New York, New Jersey and Virginia. The company designs, builds and operates water, wastewater and gas infrastructure, and also provides water and wastewater quality monitoring and waste-to-energy recycling and recovery services. In 2018, the company acquired US natural gas supplier Peoples Natural Gas (hereafter Peoples) for a largely borrowed sum of almost $4.3bn. Accusations concerning the water company Spruce Point cautions investors to be wary of companies that frequently change their names and corporate branding, as it may be a tactic to hide a problematic history. Essential Utilities, Inc. which went through a debt-financed acquisition of Peoples Natural Gas, thereby changing from a water and wastewater company to a water and gas company. Spruce Point's research suggests that this transaction was done out of necessity and masks mounting financial pressures, with negative cash flow and record leverage (debt-to-equity ratio of 1.19 against a sector average of 0.13). The company has a history of failed expansion efforts and negative customer feedback. According to the research firm, there is evidence that customer water supply revenues and return on equity and earnings per share were declining prior to the deal with Peoples Natural Gas. Although Essential Utilities benefited from increased water usage during the pandemic period, performance trends now appear to be normalising. The company presented weaker growth targets for 2023, no longer committing to a minimum rate base growth from the acquisition. The company has also slightly lowered its estimated organic growth rate. Spruce Point believes that the company's investors will experience further disappointment in future results. "The acquisition of Peoples Natural Gas is already being assessed for impairment." The article discusses Essential Utilities' acquisition of a gas company in 2018 for $4.275 billion. This was to expand the company's regulated natural gas business. However, there are concerns about Peoples' financial performance, and a recent audit by the Pennsylvania Utility Commission found that the company needs significant improvements in financial management, cost allocation, governance and gas operations. There are also long-term pressures on the natural gas business due to declining demand, which is linked to increased equipment efficiency and environmental measures, as well as increased interest in alternative energy. The potential for growth in the customer base is a key marketing argument used by Essential Utilities, but Peoples' performance remains below expectations, with forecasts reduced by $100 million a year. The article also discusses potential financial inaccuracies in Essential Utilities' reporting on the Peoples acquisition, as well as issues related to the quality of the customer base and provisions for doubtful accounts. "Essential Utilities' dividend policy is nonsense" Spruce Point has carried out a financial assessment of Essential Utilities, which has positioned itself as a growth company that aims to pay regular dividends. Essential Utilities' policy is to pay a dividend of no more than 65% of net profit. However, according to Spruce Point, this dividend policy is flawed due to high investment capital expenditure and acquisition commitments. Spruce Point suggests that Essential Utilities should pay a dividend commensurate with its free cash flow after meeting its investment and acquisition commitments. The company has never been able to cover its dividend from free cash generated after meeting these commitments, and its ability to do so has deteriorated since 2018. Spruce Point warns investors that the dividend reinvestment scheme offered by Essential Utilities at a 5% discount is not a good investment proposition. The funds raised from investors through these schemes could be used to pay dividends to other investors. Why does Spruce Point think Essential Utilities is overvalued? The warning issued by the research firm relates to Essential Utilities and its relationship with questionable brokerage firms. Spruce Point believes that the company is overvalued and that investors should pay particular attention to independent analyst Morningstar's opinion of the company's shares as a 'sell'. The research firm is carrying out a sum-of-the-parts valuation for Essential Utilities' water and gas businesses, which are separate companies. Spruce Point believes investors should also factor in significant dilution and a larger debt issue in valuing Essential Utilities' forward share price. The authors of the alert believe that Essential Utilities' financial pressures are being ignored by analysts, who are lowering financial estimates and target prices insufficiently. Therefore, the research firm estimated that an appropriate value per Essential Utilities share is between US$20 and US$28, approximately 35-50% below the current price. Source: Conotoxia MT5, EssentialUT, Daily Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Eurozone economy boosted by service sector growth

Key events in developed markets and EMEA next week

ING Economics ING Economics 11.03.2023 09:38
In the UK, all eyes are on Wednesday's Spring Statement and we believe there's little room for the Chancellor to row back on his previous plans for fiscal consolidation In this article US: Broad support for a 50bp move UK: Budget to scrap energy bill hike but maintain frugal medium-term plans Eurozone: Supply chain improvements should provide some optimism Poland: Rates cutes are unlikely this year given the path of core inflation   US: Broad support for a 50bp move After very strong data for January, all eyes are on the February numbers as markets look to gauge what the Federal Reserve has in store for interest rates. Warm weather and supportive seasonal adjustments to the data clearly boosted the activity story at the start of the year so we expect to see at least a partial correction in retail sales and industrial activity given the weather has subsequently followed more seasonal patterns. Inflation looks set to continue running hot though and that should mean that the market continues to favour a 50bp hike on 22 March. Fed Chair Jerome Powell's hawkish shift clearly signals that the Fed is focused on the here and now. Importantly, these views were expressed during testimony to Congress so these were not personal opinions but the views of the majority of the Federal Open Market Committee. Given this broad support for a more aggressive response, it seems likely that we will need to see significant weakness in all reports to prevent a 50bp move from happening. UK: Budget to scrap energy bill hike but maintain frugal medium-term plans Wednesday’s Spring Statement from UK Chancellor Jeremy Hunt will be the third fiscal event since last September, but hopefully the least dramatic. The fall in wholesale gas prices means the Chancellor can scrap the planned increase in energy unit prices, which for the average household would have seen the annual bill rise from £2,500 (or £2,100 when accounting for a fixed discount which expires this month) to £3,000. By the summer, bills are likely to fall to £2,100 on an annualised basis, without any government support at all. Perhaps the key question is whether the Chancellor maintains plans for fixed one-off payments for low-income and vulnerable households. None of this necessarily precludes a recession, but it should mean it’s milder than expected a few months ago when gas prices were higher. The near-term fiscal situation is also helped by the reduced risk premium in government borrowing since November’s Budget, and also the fact that recent borrowing figures have come in roughly £25bn lower than projected. But the medium-term picture, which is determined by new forecasts from the Office for Budget Responsibility, is unlikely to give the Chancellor much – if any – room to row back on his previous plans for fiscal consolidation. The OBR’s medium-term growth numbers have long looked too optimistic, and inflation too low. Unfortunately lowering government capital investment looks like the path of least resistance, at least politically, to achieve the government’s main fiscal goal of stabilising net debt as a percentage of GDP in the medium term. We’ll also get another round of jobs numbers next week, and we’ll be looking for clearer signs that wage growth is finally peaking. Survey data suggests it is, but so far the official numbers have continued to show persistently large increases in pay on a three-month annualised basis. This is one reason why we think the Bank of England is likely to hike by 25bp at its March meeting, though with encouraging trends emerging in the surveys of pricing behaviour, we think by May the committee will be more relaxed. Eurozone: Supply chain improvements should provide some optimism The eurozone will look forward to industrial data next week, for which some optimism is warranted on the back of a rebound in German production. Supply chain problems are fading rapidly, which allows industry to catch up on previous orders. Production data will show whether other countries are also profiting from this or whether slowing new orders dominate the direction of production at this point. Poland: Rates cutes are unlikely this year given the path of core inflation Current account: €-508m (January) The external imbalance is projected to gradually narrow over the course of 2023. The trade deficit should shrink on the back of improving terms of trade. Both exports and imports growth are slowing down, but the correction in energy commodities is expected to put a stronger drag on imports than softer external demand curbing exports. Solid January industrial output data from Germany back our trade forecasts. In January, we expect exports of goods to have expanded by 21.9% year-on-year, while imports grew by 19.5% YoY. In 2023, we expect the current account deficit to be 2.1% of GDP vs. 3.1% of GDP in 2022. CPI inflation: 18.7% YoY (Feb) The February CPI reading is highly uncertain due to the annual update of basket weights. We estimate that the update may bring an upward revision of the January reading to 17.4% YoY from 17.2% YoY reported previously. We believe that consumer inflation peaked in February at 18.7% YoY amid a low reference base – in February 2022, the government cut VAT rates on gasoline, food, electricity, natural gas and central heating. The months ahead will bring disinflation on the back of stabilising fuel and energy prices that will gradually bring down annual CPI inflation to single-digit levels in the fourth quarter. At the same time, core inflation is projected to remain sticky and elevated as the earlier energy shock should continue feeding into the prices of other goods and services. In our view, the path of core inflation will not allow the National Bank of Poland to start cutting rates this year and the easing cycle may start in late 2024. Key events in developed markets Refinitiv, ING Key events in EMEA next week Refinitiv, ING This article is part of Our view on next week’s key events   View 2 articles TagsUnited States UK fiscal policy EMEA and Latam calendar EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
Earnings season: Tesla stock price slipped after yesterday's news. The best selling car in Q1 was Model Y

Chinese EV and hybrid vehicle sales declined

Franklin Templeton Franklin Templeton 11.03.2023 09:55
Three things we’re thinking about today 1. Rising bond yields and a stronger US dollar. After falling to a low of 3.4% in early February, US 10-year Treasury bond yields have risen sharply over the past month as investor expectations of the terminal value for US interest rates moved higher.1 This led to an increase in the US dollar trade-weighted index by 3% over the same period. Dollar strength also weighed on sentiment toward emerging market equities, which have an inverse relationship with the level of the greenback. Higher US bond yields and interest-rate expectations have a negative impact on long duration assets, including technology companies. These companies, which have a high weighting in Asian emerging market indexes, tend to see downward pressure on their share prices as interest rates rise. 2. Renewed focus on governance. Selected companies in India and Hong Kong which are perceived to have below- average corporate governance have come under attack from so called “short sellers.” Aggressive accounting practices related to debt and depreciation policies are among the factors that short sellers highlight in justification of their negative views on these companies. We believe that investing in companies with good corporate governance, which includes factors such as conservative accounting practices, engagement with all stakeholders, and timely publication of annual accounts is the best way to avoid exposure to companies that are at risk from a short-selling attack. We also acknowledge that the perfect company rarely exists. 3. Slowdown in electric vehicles (EV) sales. Chinese EV and hybrid vehicle sales declined 6.3% in January.2 Chinese manufacturers have started to cut EV prices as sales soften, and in preparation for new product launches in the coming months. Balancing this negative factor is the weakness in lithium prices, a key input material for EV batteries, which have declined almost 30% from November 2022. Lithium prices have declined on weaker-than-expected demand and rising supply. Lower lithium prices is good news for EV manufacturers, where batteries can account for 45% of the manufacturing cost.3 Outlook The macroeconomic newsflow in the coming months may continue to cause market swings. Nevertheless, we remain focused on how the companies we invest in navigate these near- term uncertainties, as well as longer-term structural trends including digitalization and premiumization. Our investment team is focused on these trends in emerging markets (EMs), which we believe are likely to be the source of continued investment opportunities. Over the last 10 years, we have witnessed increased EM investment opportunities due to stronger institutions, diversified growth drivers, and technological advancements. Electric vehicles (EVs), solar panels and semiconductors are a few examples. Currently, we see some of the existing trends accelerating, along with increased consumer spending power, which we believe will continue to be recurring sources of growth over the long term. In the coming months, we believe the roll out of pro-growth policies in EMs could be a significant tailwind to domestic demand in selected markets. Across continents, local governments have introduced measures to cushion the impact of inflation and/or to spur consumption, and in turn, economic growth. In Latin America, Brazil will extend social welfare payments while Mexico and Colombia will raise the minimum wage, alongside Hungary and Poland in Europe. Some Asian governments are implementing tax cuts—the Philippines will extend lower tariff rates on eligible food items and Thailand will extend an excise tax cut on diesel. India will likely continue to prioritize capital expenditure to improve infrastructure, and has plans to venture into green tourism, where up to 50 new tourism destinations will be opened. We believe that these policies, coupled with the presence of companies with exposure to new technologies that will drive future sustainable economic growth, present opportunities for the EM investor. EMs are home to both upstream and downstream firms in key technologies for the future including EVs, solar panels and semiconductors. Our focused investment approach enables our on-the-ground teams to identify business models and management teams that display agility and resilience in a fast- changing world. Emerging markets key trends and developments Both emerging and developed market equities tilted lower in February over hotter-than-expected inflation and minutes from the Federal Reserve’s most recent policy meeting that pointed to further rate hikes. Two-year US Treasury yields neared a 15-year high, further weighing on equities. For the month, the MSCI Emerging Markets Index fell by 6.5%, while the MSCI World Index declined by 2.4%, both in US dollars.4 The most important moves in EMs in February 2023 Emerging Asian stocks finished the month lower, reversing gains from previous months. All countries in the sub-region declined. Initial euphoria over China’s reopening moderated over softer manufacturing activity and a pickup in inflation. US-China geopolitical tensions also elevated investor caution. Another month of falling exports impacted technology-heavy markets of South Korea and Taiwan, while Indian equities slipped over a rise in the country’s annual retail inflation rate and a resultant 25 basis-point rise in its key interest rate to 6.50%. All EMs in Latin America also ended the month down, with inflation a key theme in most countries. However, there were bright spots in several countries—Brazil’s economic activity increased 2.9% in 2022, with foreign direct investment reaching a five-year high in January. Mexico’s headline inflation for the first half of February receded slightly month-on-month, with a central bank official providing assurance that monetary tightening is reaching an end. EMs in the Europe, Middle East and Africa (EMEA) region also declined as a whole. A rebound in oil prices benefitted the United Arab Emirates, while worries of Federal Reserve rate hikes hung on Saudi Arabian equities. South Africa, one of the largest laggards in the sub-region, suffered from up to 10 hours a day without electricity due to breakdowns at the state power utility. The South African government has since taken on more than half of the state power utility’s debt.
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

The Improvement In Economic Data Over The Last Month Has Been Robust And Broad-Based

Franklin Templeton Franklin Templeton 11.03.2023 09:58
ClearBridge Investments continue to believe a recession is more likely than a soft landing, given many of these data points are lagging or coincident in nature. Key takeaways A string of positively surprising economic releases including robust jobs and retail sales reports has caused Wall Street and even some FOMC members to more firmly embrace the soft landing narrative. We continue to believe a recession is more likely than a soft landing, given many of these data points are lagging or coincident in nature. A recessionary red overall signal on the ClearBridge Recession Risk Dashboard supports this view. Leading indicators continue to erode, portending market volatility in the coming months. This could lead to a reversal in market leadership with a return to favor for the stalwarts of the 2022 bear market, including high-quality dividend growth stocks. Improving economic data suggest reacceleration over recession The first two months of the year have been anything but boring when it comes to the prevailing economic narrative. Coming into 2023, consensus was convinced a recession was imminent. By mid/late January, a soft landing became the primary storyline following cooler inflation and wage prints, with several Federal Open Market Committee (FOMC) members reinforcing this possibility. Given firming inflation data and an economy that appears to be reaccelerating, today the main narrative centers around whether the Federal Reserve (Fed) is (once again) behind the curve. In a more “normal” environment, one could shrug off this potential uptick given one of the fastest starts to a hiking cycle in modern history. However, this cycle has been anything but normal, with the pandemic altering many “typical” business cycle dynamics over the past three years. The improvement in economic data over the last month has been robust and broad-based, including but not limited to nonfarm payrolls, job openings and retail sales. Tellingly, the Citigroup Economic Surprise Index started the month at -6.1 and rose to +38.6 in February, indicating a series of better-than-expected economic data releases. On the back of this renewed economic momentum, many investors adopted the view that a soft (or no) landing will materialize. In fact, when looking at Google search trends, searches for “soft landing” jumped to a 15-year high last month. Search activity was last at (or greater than) current levels in May 2008, a few months prior to Lehman’s bankruptcy and the beginning of the Global Financial Crisis. While today’s backdrop is clearly different, this should serve as an important reminder that many head fakes and pockets of optimism occur along the way as the economy moves toward and through a recessionary period. Exhibit 1: Soft Landing Searches are Spiking   Note: 3-Month Moving Average; Search Interest is a relative measure where a value of 100 represents peak popularity and 50 means the term is half as popular.Data as of Feb. 28, 2023. Source: Google Trends. Past performance is not an indicator or a guarantee of future results.   When faced with conflicting data, we come back to the ClearBridge Recession Risk Dashboard as a guiding light when evaluating the most likely path for the economy. The dashboard has maintained an overall recessionary red signal since August 2022 and has continued to weaken under the surface in recent months. At present, the dashboard shows only three non-red signals and had no indicator changes in February. Despite improving economic momentum, we continue to believe a U.S. recession is in the cards this year. Exhibit 2: ClearBridge Recession Risk Dashboard   Data as of Feb. 28, 2023. Source: ClearBridge Investments.   We think a recession is more likely than a soft landing given the nature of the economic data that has been surpassing expectations. Most of the reports that have surprised to the upside have been lagging or coincident in nature, telling us more about where the economy has been rather than where it might be headed. Nonfarm payrolls, for example, is a coincident indicator that is useful in interpreting what is happening in real time. However, payrolls demonstrate non-linearity in recessions, collapsing rapidly as a recession takes hold. As a result, healthy payroll readings in one month do not mean much in terms of where they may be in the next quarter or two. This suggests investors should temper their enthusiasm about what a healthy labor market means in terms of the economic outlook for 2023. Put differently, we believe emerging signs of a soft landing are more of a head fake than the real McCoy. By contrast, many leading indicators look far more precarious at present. January marked the 10th consecutive monthly decline in the Conference Board’s Leading Economic Index (LEI), more than double the string of declines seen ahead of past recessions (four months). Combined with the recessionary red signal emanating from the dashboard, which focuses more on leading indicators, this affirms our view that a recession is looming on the horizon later in 2023. Exhibit 3: Leading Indicators Point to Recession   Data as of Jan. 30, 2023, latest available as of Feb. 28, 2023. Source: Conference Board US and FactSet. Past performance is not an indicator or a guarantee of future results.   With recession risks remaining elevated, we continue to see a choppy year for equities. With financial markets discounting less of a recession over the last few months, we believe a tactical opportunity is emerging in high-quality dividend growers. The 2023 rally has been led by 2022’s laggards (growth stocks) with investors buying (and/or covering shorts) in the most beaten-down areas of the market based on an improving outlook. At the same time, better economic data points have helped to create a bid for more cyclical areas of the market, meaning defensives and quality have been relative laggards so far this year. If our recession call for 2023 is correct, a reversal of the recent leadership should ensue, supporting blue chip dividend growth stocks. Such stocks have historically outperformed during and after the onset of monetary tightening cycles. Separately, equities demonstrating these characteristics could also do well in a “no landing” scenario in which the Fed would need to hike rates even further than currently anticipated due to overly resilient economic growth and elevated inflation, similar to much of 2022. Exhibit 4: Dividend Growers Have Historically Outperformed   Source: BMO Capital Markets Investment Strategy Group, FactSet, Compustat, FRB. Dividend Growth Screening Methodology: S&P 500 stocks screened each month end, no dividend cuts in the past five years, latest one-year dividend per share growth greater than the S&P 500, current dividend yield greater than the S&P 500, free cash flow yield greater than the dividend yield, dividend payout ratio lower than the S&P 500. Past performance is not an indicator or a guarantee of future results.   Definitions The ClearBridge Recession Risk Dashboard is a group of 12 indicators that examine the health of the U.S. economy and the likelihood of a downturn. The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Federal Reserve Board ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Global Financial Crisis (GFC) refers to the economic disruption that followed the collapse of prominent investment banks in 2007-2008, marked by a general loss of liquidity in the credit markets and declines in stock prices. The term “soft landing” refers to an effort on the part of the Fed to slow the economy and bring down inflation, while preventing the U.S. from entering a recession. "The real McCoy" is an idiom and metaphor used in much of the English-speaking world to mean "the real thing" or "the genuine piece/article". The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. The Citigroup Economic Surprise Index tracks whether a core set of economic data series has been coming in under expectations, at expectations, or over expectations. The Conference Board’s Leading Economic Index (LEI) is an American economic leading indicator intended to forecast future economic activity from the values of ten key variables. WHAT ARE THE RISKS? Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors. U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities. Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.  
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

Economic Data Could Remain Under The Shadow Of The Bank Crisis

Swissquote Bank Swissquote Bank 13.03.2023 10:53
The Silicon Valley Bank (SVB) and Signature Bank collapsed.SVB’s flash crash raised questions that other similar local banks in the US could also experience liquidity issues and may not be able to pay their depositors back, unless they also start selling their probably loss-making portfolios. The bank crisis The US authorities now step in to avoid contagion. The bank crisis will likely interfere with Federal Reserve (Fed) rate hike expectations. Fed Activity in Fed funds futures now assesses more than 98% chance for a 25bp hike in March, not because the US jobs data was soft enough to overhaul rate hike expectations last Friday, but because the Fed can’t ignore the issues caused by the steep interest rate increases in the banking sector and can’t afford to trigger a financial crisis to bring inflation back to 2%. CPI Tomorrow’s US inflation data is still important, but the developments across the banking sector could overshadow the data. Watch the full episode to find out more! 0:00 Intro 0:43 US bank crisis widens as SVB, Signature Bank collapse 5:49 The bank crisis hammers Fed expectations 8:05 Economic data could remain under the shadow of the bank crisis Ipek Ozkardeskaya  Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #SVB #Signature #Bank #collapse #bank #crisis #Fed #rate #expectations #USD #NFP #inflation #jobs #data #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH
Producer Price Fall and Stickier Services Inflation: Impact on CPI and Resilient Consumption

Italian headline inflation bounces in April on base effects

ING Economics ING Economics 02.05.2023 16:03
The road to headline disinflation is proving a winding one, and the profile is affected by the timing of past administrative decisions. Stable core inflation is comforting, but we will likely need more time for a clear decline   After posting four consecutive declines, headline inflation surprisingly increased in April to 8.3% year-on-year (from 7.6% in March), according to the preliminary estimate released by Istat. The harmonised measure reached 8.8% YoY from 8.1% in March. Once again, the driver was energy inflation, this time pushing up the headline measure due to an unfavourable base effect, which we had undervalued. More in detail, the culprit of the acceleration was the non-regulated part of the energy basket (+26.7% YoY from 18.9% in March), helped by recreational services and personal care. The disinflationary impact of regulated energy prices, which we had anticipated, and the small deceleration in food, lodging and travel service prices were not enough to compensate.   Core inflation was stable at 6.3% for the third consecutive month, suggesting that stickiness will likely make the disinflationary process a relatively slow one. After April’s release the statistical carryover for headline and core inflation for 2023 stand at 5.4% and 4.6%, respectively. Read next: ECB enters final stage of tightening cycle| FXMAG.COM All in all, today’s data confirms that the disinflationary process is not a linear one, with the profile conditioned by base effects determined by the timing of past administrative actions on energy prices. As a side effect, this adds so much noise to the data that short-term inter-country comparisons are almost useless. Also, the initial reopening effect on some services’ prices is proving stickier than expected. Having said that, the path to a further deceleration of inflation remains solid. Producer prices are decelerating sharply and pricing intentions as reported by business surveys have lately extended from manufacturing to services. This is, in principle, good news for core inflation developments, but data is showing that the process will likely be slow, and should accelerate only over the second half of the year. After today’s release, we will likely slightly revise up our forecast for average 2023 inflation, now at 5.7%. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Debt Ceiling Drama! How the Bond Market Reacts and What It Means for Rates

Debt Ceiling Drama! How the Bond Market Reacts and What It Means for Rates

ING Economics ING Economics 30.05.2023 08:38
Rates Spark: Debt ceiling deal adds to bond angst A deal to raise the US debt ceiling increases selling pressure on Treasuries, but will also result in tighter financial conditions for the economy. This opens upside to EUR rates but a soggy economic backdrop means wider rate differentials near-term.   Once approved, the debt limit deal paves the way to a liquid crunch  The deal between President Biden and House leader McCarthy amounts to the removal of a tail risk for financial markets, that of a US default. Even if this was a tiny probability event to begin with, it'll allow markets to focus on the more important debate: whether the Fed is indeed done with its hiking cycle. The budget deal, which lifts the debt limit for two years and caps some categories of government spending, still needs to be approved by the House tomorrow.   The outcome of the vote is uncertain but the likely opposition by some Republicans means Democrat votes will be key. We expect the run-up to the vote to see Treasury Yields gradually climb higher if more lawmakers come out in favour of the deal.   Money markets can expect a $500bn liquidity drain over the coming months Beyond tomorrow, US rates will quickly look past the deal and turn their attention to the Treasury's task of rebuilding its cash buffer at the Fed. Two aspects matter here. On the liquidity front, money markets can expect a $500bn drain over the coming months as more debt is issued. In a context of $95bn/month Quantitative Tightening (QT) and of likely tightening of at least some banks' funding conditions, this should amount to an additional drag on financial conditions for the broader economy.   This should ultimately draw a line under the US Treasury selloff but, should the new borrowing come with an increase in maturity, some of that support may be weakened.   The case for a June hike has strengthened after Friday's higher than expected core PCE print and Treasuries are set to trade softly into Friday's jobs report as recent prints have demonstrated the labour market's resilience. 4% yield for 10Y now seems a more achievable level.   Weak European data prevents EUR rates from rising as fast as their US peers        
Australian Dollar's Decline Persists Amid Evergrande Concerns and Economic Data

UK Inflation Dilemma: Can Rate Hikes Tackle Soaring Prices and Avert Recession?

InstaForex Analysis InstaForex Analysis 31.05.2023 09:00
On Tuesday, the demand for the pound was significantly higher than that for the euro. As soon as this happened, many analysts began to pay attention to the report on prices in UK stores, as shop price inflation accelerated to 9% this month. This indicates that UK inflation is decreasing slowly or not decreasing at all, despite the benchmark interest rate being raised to 4.5%.   The consensus forecast for the Bank of England's rate currently suggests two more quarter point rate hikes in June and August.   This would bring the rate to 5%. Any further tightening without alternatives would push the British economy into a recession, and even the current rate could potentially cause it, despite the BoE's optimistic forecasts. But how can inflation be combated if it hardly responds to the actions of the central bank?     I believe there can only be one disheartening answer: it cannot. If further rate hikes lead to a recession, the Brits, clearly dissatisfied with recent events within the country, may start a new wave of mass strikes. Take note that in the past year, many Brits have openly criticized the British government for the sharp decline in real incomes and high inflation.   If the rate increases further, the economy will contract, leading to an increase in unemployment. If the rate is kept as it is, it might take years for inflation to return to the target level. The BoE is in a deadlock. BoE Governor Andrew Bailey expects inflation to start decreasing rapidly from April. He noted the decline in energy prices, which will somewhat dampen inflationary pressure on all categories of goods and services. However, the April inflation report was unusually contradictory. While headline inflation showed a significant slowdown, core inflation continues to rise.   Therefore, it is not possible to conclude that inflation is slowing down in the general sense. We can only wait and observe. If Bailey turns out to be right, then the BoE will not need to raise the rate to 5.5% or 6%, which currently seems like a fantasy.   However, if inflation continues to hover around 10%, the BoE will need to devise new measures to address it without exerting serious pressure on the economy. It might require patience for several years. It is entirely unclear which option the central bank will choose.   The demand for the British pound may increase as market expectations of a hawkish stance grow. But will these expectations be justified? The pound may rise based on this, but fall even harder when it becomes clear that the BoE is not ready to raise the rate above 5%. I believe that wave analysis should be the primary tool for forecasting at the moment.     Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, as the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic.   A corrective wave may start from the 1.0678 level, so you can consider short positions if the pair surpasses this level. The wave pattern of the GBP/USD pair has long indicated the formation of a new downtrend wave. Wave b could be very deep, as all waves have recently been equal.   A successful attempt to break through 1.2445, which equates to 100.0% Fibonacci, indicates that the market is ready to sell. I recommend selling the pound with targets around 23 and 22 figures. But most likely, the decline will be stronger.    
China's Economy Faces Mounting Pressure as Weak PMIs Spark Renminbi Sell-Off

China's Economy Faces Mounting Pressure as Weak PMIs Spark Renminbi Sell-Off

Alex Kuptsikevich Alex Kuptsikevich 31.05.2023 11:03
The official services and manufacturing PMIs were much weaker than expected, adding to the move into defensive assets on concerns over China's economy.   The Manufacturing PMI fell from 49.2 to 48.8 instead of the expected 49.5. Readings below 50 indicate a contraction in activity during the month. Excluding periods of contraction due to lockdowns, this is the lowest level for the index in at least 13 years. Prices were the main driver of the decline, but falling order books and inadequate market demand were equally worrying.   The Services PMI fell from 56.4 to 54.5, below the expected 55.1. While these levels are below expectations, they align with the historical norm we saw before the coronavirus.   The weak data triggered a fresh sell-off in the renminbi. The USDCNH pair was above 7.12 at the start of European trading, its highest level since November last year. Over the past three weeks, the pair has hit new highs almost daily. Unlike in March and December, the central bank has not prevented the renminbi from weakening around the 7.0 level.   A weaker local currency benefits exporters as it increases their global competitiveness. The main side effect is higher inflation. But this is fine for China, where the CPI fell to 0.1% y/y in April, and the PPI lost 3.6% y/y. Perhaps all these effects are what the People's Bank is trying to achieve.   The weak economy, low inflation and the central bank's apparent resistance to the Renminbi weakness suggest that the USDCNH pair will continue looking for a top. The closest landmark is the 2019 and 2020 highs at 7.19, which the pair can reach relatively orderly within a few weeks and maintain the current momentum. However, one should be prepared that the recent move will be exhausted before the renminbi weakens to 7.3 per dollar, approaching last October's highs.  
GBP: Implied Yields and Trading Ranges

Australia's Reserve Bank Raises Cash Rate Again: Analysis and Outlook

ING Economics ING Economics 06.06.2023 12:30
Australia’s Reserve Bank lifts cash rate again This latest hike was not totally surprising given the backward steps from inflation according to the monthly data. Further tightening is not ruled out, but we think this may well be the peak for rates as we expect inflation to ease more substantially in the coming months.     Recent guidance has not been helpful We went into this meeting with very low conviction on our call for a further 25bp rate hike, taking the cash rate to 4.1%. This was in contrast to the consensus view, which was about 3:2 in favour of no hike at this meeting.   The Reserve Bank of Australia (RBA) had already delivered a 25bp rate hike at its May meeting, and that was against a backdrop of much better inflation data and came after the bank had hinted that rates may already have peaked. So with their reaction function muddied by recent actions, it was not at all clear whether the RBA would indeed respond to the increase in April inflation from 6.3% to 6.8% year-on-year, or wait for the full quarterly inflation figures to come out - and give more time for the effects of previous tightening to become apparent.   As it turns out, that April inflation increase was too much for the RBA to ignore, and policymakers did raise rates again. The recent increase in the unemployment rate also doesn't yet look like a convincing turn in the labour market, and indeed, disappears completely with just a little smoothing (three-month moving average) of the recent data, though a few more months may provide some more confidence that labour developments are moving in an encouraging direction. Labour data remains a key input into the RBA's rate-setting decision, at least that is what its statement suggests. Though we suspect it will cease to be as instrumental for policy decisions as inflation eases.     Any more? Never say never, but we think not As for whether this marks the peak in rates, we suspect the answer may be "yes". The statement accompanying the decision notes "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve." It feels like the RBA is hedging its bets on whether it will need to hike again, but we believe that inflation will fall more rapidly in the coming months (see chart), and that this will narrow the gap between inflation and policy rates, making real policy rates less negative. Real policy rates at zero tend to be a fairly basic benchmark for the point at which policy shifts from being accommodative to restrictive.   Risks to this view remain firmly on the upside, however. It would only take some acceleration in wage costs, some climate or other supply shock or more notable increases in house prices to shift the balance to one further (and probably final) hike. But as things stand, we believe this latest hike from the RBA should be enough, and still leaves a chance for the RBA to pull off the soft landing that it is clearly aiming for.  
Shifting Dynamics: Weakening Industry, Resilient Services, and the Impact on Consumption

Turkey's Post-Election Economic Rebalancing: Macroeconomic Challenges and Policy Outlook

ING Economics ING Economics 14.06.2023 07:47
President Erdogan was re-elected and the Erdogan-led People’s Alliance won a simple majority in Parliament.     The macro outlook points to a need to rebalance the economy given that: (1) the current account deficit has remained on an expansionary path; (2) total capital flows have remained weak; (3) there is a major fiscal expansion; and (4) the extra fiscal burden and the CBT’s supportive stance create further pressure on already elevated inflation.   In this environment, the main policy debate focuses on interest rate policy and whether there will be a return to a more conventional policy setting post-elections. The appointment of Mehmet Simsek as Minister of Economy and Finance shows an intention to return to conventional economic policies, though it is too early to decide the degree of orthodoxy. The signals imply that actions will be taken without delay following formation of new economy management.
EUR/USD Analysis: Low Volatility Ahead of US CPI Release, Market Players Brace for Potential Impact on Risky Assets

Emerging from Recession: Hungary's Path to Recovery and Inflation Normalization

ING Economics ING Economics 14.06.2023 15:13
The worst might be behind Hungary. Yes, the economy is still in a technical recession, but we see a way out from it by the second half of 2023. A key source of the recovery lies in the growing disinflation process. The collapse of the domestic demand erases the repricing power of companies. Thus, we see a single-digit headline inflation by the year-end and further normalisation in 2024.   This means a positive real wage growth yet again from late-2023. However, with depleted household savings and tighter fiscal headroom, we hardly see a boom in domestic demand. The recovery will be export driven, thus we see a quick return to surplus in the current account balance. Improving external financing needs and the new era of monetary policy (eg, persistent positive real interest rates from late-2023) lead us to be constructive towards Hungarian assets.   Forecast summary   Macro digest The Hungarian economy has been stuck in a technical recession for three quarters (3Q22–1Q23) due to sky-high inflation suffocating economic activity. Consumption has been markedly slowing down since last autumn, as households cope with double-digit price increases, resulting in deteriorating purchasing power. On top of this, the high interest rate environment prompted a collapse in private investment activity, coupled with the government’s mandated freeze on public investments.   The only silver lining has been net exports, recently. Export activity is helped by pent-up production in car and battery manufacturing, while imports slow on lower energy demand.   Contribution to YoY GDP growth (ppt)   We expect the economy to emerge from the technical recession in the second quarter of this year, although the year-on-year growth will remain negative. As most economic sectors are still struggling amid weak domestic demand, the one sector that stands out on the positive side is agriculture.   The reason for this lies in base effects, which this time will help a lot, as last year’s energy crisis and drought wreaked havoc on the performance of agriculture.   Though this year’s weather has been favourable as well. In this regard, the fate of the overall 2023 GDP growth rather depends on the performance of agriculture as domestic demand will remain weak for the remainder of the year, curbing industry, construction and services.   Key activity indicators (swda; 2015 = 100%) In parallel with an acceleration of the disinflationary process, we expect the economy to display a rebound from the third quarter, delivering growth in every aspect for the remainder of the year. However, we expect a modest growth rate of 0.2% for 2023 followed by a 3.1% GDP expansion next year, boosted by both returning consumption growth and rising investment activity next to positive net exports.   Headline and underlying measures of inflation (%YoY)     Headline inflation retreated to 21.5% YoY in May, after peaking in January, while core inflation has also improved, with services being the only component where we see upside risks in the short run. As for the other components, food inflation has moderated for five months, while both motor fuel and household energy prices have recently declined, supported by a fall in global energy prices and a stronger HUF. We expect inflation to continue to retreat gradually in the coming months, as demand is vastly constrained by the loss of household purchasing power. In addition, base effects are contributing significantly to this year’s disinflationary process, which will accelerate from the third quarter onwards, thus we see the year-end reading dipping comfortably below 10%. At the same time, we expect inflation to average around 18% for this year, with balanced risks to our forecast. However, after two years of double-digit average inflation figures, we expect the full-year average to come in at around 5% in 2024
Rising Chances of a Sharp Repricing in Hungarian Markets

Navigating Budgetary Challenges: Political Stability, Investments, and Deficit Reduction

ING Economics ING Economics 15.06.2023 07:59
Benefiting from an unusual context of political stability (which we expect to continue) and positive investor sentiment, the economy continues to perform decently, with help from increasing public investment spending. Yet, having not used the high GDP growth from 2021-22 to accelerate deficit reduction, the government finds itself in an uncomfortable budgetary position. Sticking to the 4.4% of GDP budget deficit target this year is proving more than just challenging, as public wage requirements are catching up after two years of high inflation, while budget revenues are not increasing as planned. Historically, cutting investments was the general solution to stick within the deficit, hence we do not exclude this option. And this is just for 2023 budget. Moving lower to a 3.0% of GDP deficit in 2024 as per current strategy looks very ambitious to say the least.   Forecast summary   GDP (YoY%) and components (ppt)   Investments offsetting the slowdown in consumption With a bit of help from the external context as well, which in the end hasn’t performed as badly as expected, the economy remained on track and continued to post solid quarterly advances throughout 2022. The environment is clearly weaker in 2023, with a quasistagnant first quarter growth, despite hard frequency data looking rather solid.   A welcome rebalancing in growth drivers from consumption to investments looks in the making, though we are not in a hurry to celebrate that, as the latest social demands might be partially satisfied by cutting into investment spending. This spending shift might in fact be growth supportive in the short term, though clearly not ideal from a medium- and long-term perspective.   On the brighter side, real wage growth turned positive in March as the average net wage advanced by an eye-catching 15.7%, with above-average growth visible in sectors such as agriculture, IT services, transportation and construction, while the public sector has generally seen below-average wage growth.   As real wage growth is set to accelerate further this year, a reacceleration of consumer spending could be envisaged in the second part of 2023.   Supply side GDP (YoY%) and components (ppt)   With a significant electoral year ahead, discussions about future economic policies and tax revamps are all over the place. This is blurring to some extent the policy visibility post-elections, though we tend not to put a too heavy emphasis on the headlines these days. Should it want to continue to tap into the RRF money, any future government will need to deliver the already agreed reforms as per the National Recovery and Resilience Plan, with very little room for manoeuvre. While some delays are already accumulating and losing some parts of future tranches cannot be excluded, the vast majority of political parties seem to strongly support sticking with the agreed plan.   Construction sector holding on (YoY% growth)   On the monetary policy front, we expect the National Bank of Romania (NBR) to cut rates when the first opportunity arises. Our central scenario assumes a rate cut once inflation inches below the key rate, which should happen in 1Q24. Nevertheless, if other regional central banks were to move ahead with cutting rates before the end of this year, we cannot rule out the NBR doing the same. For 2024, we expect a total of 150bp of rate cuts to 5.50%. 2024 inflation is likely to allow for even larger cuts, but we believe that the NBR will want to consolidate the lower inflation prints and will maintain a relevant positive differential between the key rate and inflation. The relative stability of the exchange rate should help as usual, with the EUR/RON rate expected to move upwards in small 1.0-2.0% increments each year.
CHF/JPY: Bullish Momentum Peaks, Short-Term Bearish Trend Emerges

Challenging Times Ahead: Negative Outlook for the CNY

ING Economics ING Economics 15.06.2023 08:45
Outlook for the CNY is negative There will doubtless be more support measures coming in the days and weeks ahead. And in anticipation of these, markets may rally. But the underlying story on the economy is extremely disappointing right now, and that suggests that apart from periods of temporary stimulus-generated relief, we should anticipate markets remaining soft in net terms.    The CNY gapped higher ahead of the data today, and there is nothing in the numbers that suggests that this gap should be closed. Our recently revised CNY forecasts already look out of date. 7.20 could be reached in days. And though the authorities will be keen not to see the currency weaken in an uncontrolled fashion, they will surely regard a weaker CNY as one of the policy tools they will need to lean on to help the economy out of its current state of weakness.    We will be returning to those CNY forecasts shortly. The profile will undoubtedly be raised further, and the turn probably pushed out too.   Contribution to year-on-year retail sales growth
EUR/USD Flat as Eurozone and German Manufacturing Struggle Amid Weak PMI Reports

Australia's Uncertain Path: Deciphering Inflation, Rate Hikes, and Market Confusion

ING Economics ING Economics 15.06.2023 11:39
Australia: Why markets may be pricing in too much tightening Australia’s economy is slowing, though not enough to quell inflation fears. Inflation itself is falling, though the pace of decline has been erratic and the labour market remains robust. Amidst all of this, the Reserve Bank of Australia has been hiking rates though is struggling to get its message across about the likely path from here.   Guidance has sometimes been inconsistent Markets have been taken on quite a ride in recent months. Firstly, the RBA noted at its February 2023 meeting that inflation was unlikely to fall into its target range until 2025. We don’t agree. But notwithstanding that, there seemed to be information contained in that statement that rates would stay higher for longer. Then there was the change to the policy statement in March moving from “further rate hikes” to “further tightening”, which seemed to suggest multiple planned hikes had dwindled to just one and was followed by a pause in policy in April. Markets smelled a peak in rates at 3.6%.     Then, despite further falls in inflation, the RBA hiked again in May and held the door open to further hikes (the previous singular rate hike hint seems to have been erroneous, misinterpreted, or both), and subsequent commentary emphasised the risks to rising unit labour costs and low productivity. That was then followed by a higher-than-anticipated wage price index for 1Q23, a softer-than-expected labour release for April, but a pickup in monthly inflation data. Markets were divided, but most thought the RBA would leave rates unchanged in June. They didn’t, and hiked to 4.1%, with a hint that further hikes were going to be data-dependent.     Most recently, the May labour data has strengthened unexpectedly again, raising doubts about the whole slowdown story and putting the RBA back under tightening pressure. Markets are still pricing in further hikes, but it doesn’t feel like they have a strong grasp on what is really going on, or where we are going from here. Admittedly, the macro data has been very erratic. But this hasn’t been helped by official guidance, which has not been very consistent. This note will try to make some sense of what is a very cloudy backdrop. But the reality is that the outlook remains extremely uncertain.   Productivity is cyclical  
GBP: Finding Support Ahead of Bank of England Meeting

GBP: Finding Support Ahead of Bank of England Meeting

ING Economics ING Economics 15.06.2023 13:17
GBP: Staying supported into the BoE meeting We are entering a few days of calm in the UK calendar after a slew of key data releases. Yesterday’s GDP data endorsed the recent re-rating of the UK’s growth outlook but hardly mattered for the Bank of England as much as the inflationary signals sent from the jobs and wage growth figures earlier this week.   Bank of England rate expectations were marginally scaled back after the Fed meeting, but still imply five 25bp rate increases from current levels before the end of the year. It’s important to note how the higher gilt rates are by themselves starting to have their tightening effect on the economy. Mortgage market distress is the most direct example, with major lenders hiking rates and some pulling mortgage offers following the recent repricing of tightening expectations.   It is, still, too early to factor that – or any implications for the housing market – into sterling, which will probably continue to find support into next week’s CPI and Bank of England meeting. EUR/GBP could move closer to the 0.8500 key support after today’s ECB decision.
Navigating Headwinds: Outlook for the Finnish Economy

Navigating the FOMC Decision: Unraveling the Implications of Aggressive Interest Rate Hikes

FXMAG Team FXMAG Team 16.06.2023 09:06
In the wake of 10 consecutive interest rate hikes, it is high time for the markets to embrace a more positive outlook. The Powell-led committee's aggressive pursuit of raising benchmark rates, although necessary, has cast a shadow of pessimism over financial markets, potentially overshadowing the remarkable achievements of industry pioneers. Throughout history, monetary policy has proven to be a valuable tool for achieving financial stabilization in economies. The United States has faced its fair share of hardships in recent times, including a prevailing sense of distrust toward local banks and the adverse ripple effects of the debt ceiling conundrum. These challenges have been further exacerbated by soaring nationwide inflation, which has also left its mark on the cryptocurrency market.   It has been 15 months since the Federal Reserve decided to pause the rate hikes, indicating a momentary respite for the nation's monetary defenses. During this time, cryptocurrencies have displayed a bullish trend when examined from a long-term perspective. While current market conditions may appear to be in the red, they could potentially serve as necessary corrections following the rapid price surges witnessed in the crypto asset space. The Federal Reserve's monetary policy is operating as intended, with continuous and comprehensive assessments of economic conditions. Crucially, these assessments should consider the implications not only for industry leaders but also for everyday households. Adopting a bottom-up approach may yield insightful findings regarding the broader impact of monetary policy decisions.   FXMAG.COM: Could you please comment on the FOMC decision? It’s about time for markets to see the brighter side of day after 10 straight interest rate hikes. The Powell-led committee has been on a frenzy of aggressive benchmark rate increases – while necessary – has infected financial markets with pessimism, and that can overshadow the successes and feats of industry pioneers. Monetary policy has historically served as a very useful tool for achieving economy financial stabilization, and the United States economy has been susceptible to quite the hardship in recent times. The distrustful sentiment towards local banks and the adverse ripple effect of the debt ceiling conundrum had been exacerbated with scorching nation-wide inflation. That has also had its impact on the crypto market. It has been 15 months since the Fed decided to pause the rate hikes, which perhaps is an indication that the nation’s monetary defenses are taking a breather. Since the start of the year, cryptocurrencies have been very bullish when putting on the long-term lenses. While contemporary market conditions are more in the red, they potentially serve as corrections to the recent sharp price bumps in crypto assets. The Federal Reserve’s monetary policy is doing as it should, given continuous extensive assessment of economic conditions. What’s pivotal here is the conditions to be assessed, which in my perspective should take into consideration the implications on industry leaders but also those on everyday households; a bottom-up approach may present quite the insightful findings.  
Understanding the Factors Keeping Market Rates Under Upward Pressure

Navigating the Data: Central Banks and Market Concerns

ING Economics ING Economics 16.06.2023 09:50
In the end it all boils down to data That tension between persistently high inflation and recession fears is of course a wider and ongoing market theme. Indeed, yesterday’s market reaction to the ECB and the quick fade was probably more down to mixed US data releases that came out just when Lagarde was set to speak.   More hints that US pipeline pressures are easing came from import prices falling faster than expected. And we also saw the weekly jobless claims grind higher again suggesting a softening of the jobs market. As our economist notes, probably not enough to deter the Fed from a potential hike in July following the hawkish pause this week, but enough to keep the market concerned about the outlook. As opposed to the bear flattening in EUR, the US curve bull flattened with the 10Y UST yield dipping towards 3.7% Overall, central banks this week have given themselves the flexibility and room to tighten policies further should data warrant it, keeping upward pressure on front-end rates. Yield curves could invert further but given how far they already stretch, long-end rates could still follow higher in the near term. Only the Bank of Japan (BoJ) bucked the hawkish trend set by the Fed and ECB (and likely continued by the BoE next week) today by leaving policy rates unchanged and dismissing calls for an adjustment higher of its yield curve control cap, currently standing at 0.5%. The lack of action today and the view put forward that the current spike in inflation will prove temporary leaves the market guessing about the timing of a potential normalisation of the BoJ's policy setting.   The long-end reflects markets skepticism with 2s10s curves inverting further Today's events and market view Some calm may return to markets after the key events of this week. It probably won't last too long with UK inflation and the Bank of England decision lined up for next week. And in the US we will also see Fed Chair Jerome Powell giving testimony to Congress.  As for today, in the eurozone we will see the release of the final inflation figures for May, but more attention should go to the usual flurry of ECB speakers in the wake of the meeting, though Lagarde pointed out the “broad consensus” around yesterday’s decision. And it seems the ECB has been successful in curbing the market's preoccupation with the terminal rate level and focussing it on a high-for-longer discussion – note the pricing out of future rate cuts as a driver of the front-end move higher since last week. The main US data release today is the University of Michigan consumer confidence survey, which also includes measures of longer-term inflation expectations. The consensus is for a slight downtick in the latter to 4.1% year-on-year for the 1-year horizon and to 3% for the 5 to 10-year inflation. But we will also see a number of Fed speakers for the first time after the FOMC meeting. In the end, the data will remain the key, for central banks to assess whether they have done enough on inflation, or markets to discern whether too much has been done already to hurt the economy.
Unlocking the Benefits: Deliverable KRW Market Reforms and Their Potential Impact

UK Retail Sales: Surprising Resilience Amidst Rising Inflation and Interest Rate Costs

Michael Hewson Michael Hewson 19.06.2023 07:56
UK retail sales (May) – 23/06 – for an economy that is wrestling with food price inflation of close to 20% the resilience seen in the UK consumer has been even more surprising so far this year. Consumer confidence has improved as petrol prices have come down and certainly helped with some of that, however we also can't ignore the recent rising in interest rate costs that could well start to act as a drag in H2 of this year.   In April we saw retail sales excluding fuel rise by 0.8%, partially reversing a sharp -1.4% decline in March, which in turn reversed a 1.4% gain in February. The gain in April was even more surprising given the rise in tax rates, including council tax and other utility bills that kicked in at the start of the fiscal year. For May estimates are for retail sales to fall by a modest -0.2%, even with recent updates from a few UK retailers pointing to continued resilience when it comes to spending patterns.
USD Weakness Boosts Commodity Complex as Oil Supply Disruptions Drive Prices Higher

Oil Prices Flat and Range-Bound, Market Braces for Economic Uncertainty. Gold Drifts as Data Awaited, Fed's Stance Holds Firm

Craig Erlam Craig Erlam 20.06.2023 13:07
Oil remains choppy but flat and in lower range Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless. Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term. While some believe the market will be in deficit later in the year, aided by the Saudi-driven OPEC+ cuts, which could support prices closer to what we saw late last year and early this, the economy remains one significant downside risk to this amid an adjustment in the markets toward higher rates for longer.   Gold drifting as we await more data Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month. It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data. The Fed last week made it perfectly clear that it doesn’t believe it’s done and its commentary this week, including Chair Powell’s appearing in Congress on Wednesday, isn’t likely to change in any significant way from that. It will be interesting to see if we get any response to UK inflation data as a potential signal of stickiness more broadly but then, there’s every chance it could be viewed as a UK issue, rather than an indication of something more, considering how much more the country has struggled until now.  
Japan's Economic Outlook: BoJ Policy and Scenarios

Oil Choppy But Flat in Lower Range as Gold Drifts: Market Analysis

Craig Erlam Craig Erlam 21.06.2023 08:55
Oil remains choppy but flat and in lower range Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless. Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term.   While some believe the market will be in deficit later in the year, aided by the Saudi-driven OPEC+ cuts, which could support prices closer to what we saw late last year and early this, the economy remains one significant downside risk to this amid an adjustment in the markets toward higher rates for longer.     Gold drifting as we await more data Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month. It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data.   The Fed last week made it perfectly clear that it doesn’t believe it’s done and its commentary this week, including Chair Powell’s appearing in Congress on Wednesday, isn’t likely to change in any significant way from that. It will be interesting to see if we get any response to UK inflation data as a potential signal of stickiness more broadly but then, there’s every chance it could be viewed as a UK issue, rather than an indication of something more, considering how much more the country has struggled until now.
Solid Wage Growth in Poland Signals Improving Labor Market Conditions

UK Inflation Challenges Bank of England: Rate Hike Expectations and Economic Impact in Focus

ING Economics ING Economics 21.06.2023 10:06
Headline inflation should come down more noticeably over the next couple of months, owing to some pretty hefty base effects. Last June saw a near 10% spike in petrol prices, whereas prices are currently falling, and of course in July we’ll see a material fall in household electricity/gas bills. Core inflation we think should come lower too, though to a much lesser degree and mainly because of further renewed downward pressure from certain goods categories.     Headline CPI, we think, will be just below 7% by July and around 4.5% by year-end. Core inflation will probably end the year above 5%.   All of this makes life even harder for the Bank of England. We think the bar for another 50bp hike is set pretty high, but a 25bp hike is basically guaranteed, as is another in August. But markets are now fully pricing a 6% peak for the Bank rate, which implies six more rate hikes from current levels. That seems excessive, and we suspect the Bank of England would privately agree.   When rates got this high last November, the BoE offered some rare pushback against market expectations and signalled a lower peak for rates. But this time, with inflation consistently coming in hotter than expected, we suspect officials will be more reluctant to offer any firm guidance on what comes next. Policymakers won’t want to steer market rate expectations lower, only to find that further inflation surprises force it to go further than it would like over the coming months.    UK inflation should come in lower in June/July on energy base effects   Ultimately though, 6% rates would be extremely restrictive. The current structure of the mortgage market – whereby the vast majority of households are fixed for either two or five years – means rate hikes filter through to the economy fairly gradually. That means that the length of time rates stay restrictive is arguably more important these days than the absolute level interest rates reach over the shorter term. As the BoE itself has made clear, the impact of all those past hikes is still largely to hit the economy – and just taking rates to 5% and keeping them there would exert a large drag on the economy. We also expect the news on inflation to get a little better through the summer. The BoE’s survey measures of inflation have been improving, and forward-looking indicators like producer prices point to more noticeable declines in headline CPI later this year. Crucially, we think the fall in gas prices is good news for service sector inflation, and suggests we could get more noticeable disinflation in this sector, even if wage growth takes longer to ease.
Solid Wage Growth in Poland Signals Improving Labor Market Conditions

Solid Wage Growth in Poland Signals Improving Labor Market Conditions

ING Economics ING Economics 21.06.2023 13:34
Poland: Solid wage growth in May while labour demand improves In May, average wages in the enterprise sector rose by 12.2% year-on-year, up from 12.1% in April. Double-digit wage growth should continue until 2025, allowing real wages to finally grow in mid-2023, after nearly a year of declines. Wages came close to expectations (consensus: 12.6% YoY). According to the release by the Central Statistical Office of Poland, the decline in average wages in May relative to April 2023 was due to a smaller scale of additional payments. Average employment in the enterprise sector increased by 0.4% YoY in May, in line with the consensus, following an increase of 0.5% YoY in the previous month.   Despite signs of a slowdown in many areas of the economy, the condition of the labour market remains robust. On the one hand, workers' wage expectations are driven by, among other things, high minimum wage increases, inflation, and persistent labour shortages in many sectors of the economy. On the other hand, companies' willingness to raise wages can be seen in surveys, such as the one recently conducted by the National Bank of Poland (text in Polish). Together with the high minimum wage hike in 2024, this suggests that wage growth will continue at double-digit levels until 2025. From the middle of this year, with inflation slowing down, wages should rise again in real terms, after almost a year of declines.   Labour demand, on the other hand, appears to be improving after some signs of weakness at the end of the first quarter. This is particularly evident in manufacturing, where employment fell continuously from May 2022 to March 2023. The construction sector is also doing better, which we link to the finalisation of projects financed by the "old" EU budget. In our view, the relatively low annual growth rate primarily reflects constraints of the labour supply.
Ukraine's Grain Harvest Surges, Export Challenges Persist Amid Black Sea Grain Initiative Suspension

Powell Testifies Before Congress, Rate Policy in Focus

Kenny Fisher Kenny Fisher 22.06.2023 08:24
Powell testifies before Congress Fed Chair Powell testifies before Congress on Wednesday and Thursday and lawmakers will likely press him on the Fed’s rate policy. The Fed paused at this month’s meeting but is expected to raise rates at the July meeting. Powell has expressed confidence that he can guide the economy to a soft landing and avoid a recession and large layoffs, even with further rate hikes. Many lawmakers, however, don’t share Powell’s optimism and are deeply concerned that the Fed’s aggressive tightening could cause significant damage to the US economy. . USD/CHF Technical USD/CHF is testing resistance at 0.8984. Above there is resistance at 0.9065 0.8902 and 0.8777 are providing support  
Turbulent Times Ahead: ECB's Tough Decision Amid Soaring Oil Prices

The Bank of England Hikes Rates Amid Concerns of Inflation, MPC Split, and Pound's Volatility

Craig Erlam Craig Erlam 22.06.2023 13:46
The Bank of England accelerated its tightening efforts after meeting this week, hiking rates by 0.5% in response to another raft of worrying inflation data.  And it's not just yesterday's CPI data that will have caused considerable discomfort for the MPC, the April figures were also far too high and wage numbers we've had in the interim suggest its becoming increasingly embedded. That had to have caused serious alarm within the BoE, within seven members of the committee anyway. Two policymakers voted to hold rates steady for the fourth meeting highlighting the widening gulf between the views on the MPC which may make finding a consensus going forward that much more challenging.  There's every chance that those backing 50 basis points did so in the hope that doing more now may necessitate the need to do less later on and for a shorter period of time. That's not how markets are initially perceiving it though, with the odds of Bank Rate rising above 6% increasing. It could get rather painful in inflation doesn't improve soon. The pound appears to be weighing up both of these considerations, as is evident in the very volatile response we've seen in the currency. Rate hikes are generally good for a currency but when they're rising to levels that could seriously threaten the economy, there's certainly an argument for the opposite to happen.     Turkish interest rates finally heading in the right direction  Another interest rate decision was announced alongside the BoE, with the CBRT reverting back to hiking interest rates aggressively in order to put a lid on inflation and steady the currency which has fallen another 15% in recent weeks.   President Erdogan won the election promising to defend lower interest rates having led a campaign of aggressive rate cuts under Governor Åžahap KavcıoÄŸlu, before immediately replacing him and the finance minister after the vote. A rate hike today was widely expected but the range of forecasts was vast and if anything, the 6.5% hike was at the lower end of the range.  Turkey faces many problems going forward as a result of the misguided policies over the last couple of years and that will likely warrant more aggressive tightening in the future. For now, investors may be mildly relieved that rates are heading in the right direction, if not fast enough. The risk is that Erdogan hasn't really hesitated to sack Governors that raise rates in the past so investors will never feel fully at ease as long as he's President.
Market Sentiment and Fed Policy Uncertainty: Impact on August Performance

Wall Street Anticipates Insights from Fed Chair Powell and ECB Forum

Ed Moya Ed Moya 29.06.2023 08:00
Wall Street awaits Fed Chair Powell and counterparts at ECB forum Mortgage demand rises for a 3rd straight week 10-year Treasury yield down 1.9 bps to 3.745%   The artificial intelligence trade had a major setback after the Wall Street Journal reported that the Biden administration could unveil new restrictions on the exports of AI chips to China. Nvidia, a pivotal mega cap tech trade, gets about 20% of its revenue from China. In Asia, AI related stocks were under significant selling pressure.   Despite a potential headwind for the AI trade, the NASDAQ 100 will likely have a record first half. BlackRock, the world’s largest asset manager is also betting big on AI, coming out with a new overweight call. BlackRock sees a mild recession happening later this year but anticipates a mega force like AI could still help equities outperform, given a weakening macroenvironment.   We should get some volatility going into quarter close as so many traders are starting to become bullish stocks and as so many stocks are near critical option levels. The FOMO trade might be here, but the economy is clearly feeling the effects of the Fed’s tightening cycle and the consumer is weakening but has no trouble getting a job, so it will be interesting how the stock market’s back gets broken.    
Yen's Rapid Weakening: Japan's Warning and Potential Currency Intervention

Yen's Rapid Weakening: Japan's Warning and Potential Currency Intervention

Kenny Fisher Kenny Fisher 29.06.2023 08:28
Earlier this week, Japan’s top currency diplomat, Masota Kanda warned that the yen’s weakening was “rapid and one-sided”. Kanda said he would not rule out any options, including currency intervention.   The markets have become accustomed to verbal intervention when the yen drops sharply, but Tokyo followed its bark with a bite late last year, when it intervened in the currency markets after the yen fell below 151. As the yen continues to depreciate, currency intervention becomes a stronger possibility.   On Tuesday, the US posted solid releases, an indication that the economy remains resilient despite the Fed’s aggressive tightening. Durable Goods Orders and New Home Sales were higher and beat expectations, and Conference Board Consumer Confidence jumped in June from 102.5 to 109.7, its highest level since January 2022. The strong numbers provide support for a Fed hike in July, with the markets pricing rate increase at 79%, according to FedWatch.     USD/JPY Technical USD/JPY is testing resistance at 144.65. The next resistance line is 145.36 There is support at 142.94 and 142.00       US Data MBA mortgage applications in the US rose for a third straight week, despite surging rates as housing demand remains healthy. The effects of the tightening of lending conditions are being reflected in the data, as the credit jumbo rate(expensive homes) rose to 6.91%, which is well above the Average 30 year fixed rate of 6.75%. The housing market isn’t weakening yet despite rising costs because demand is still growing and supplies remain tight.    
US Inflation Data in Focus as Attention Shifts, UK100 Rebounds with Caution Looming

Eurozone Bank Lending Trends: Household Borrowing Declines, Monetary Contraction Continues

ING Economics ING Economics 29.06.2023 09:12
Bank lending to households maintained its downward trend, and May brought the first Month-on-Month decline in household borrowing since the first lockdown in 2020. That was exceptional, of course, and before then, we only witnessed monthly declines in household borrowing in the depth of the euro crisis. The impact can be seen in housing markets where prices and transaction volumes are trending down and will feed through to the rest of the economy. Deposits by households increased by 1 billion in May, after declines in March and April. This suggests that the effects of the banking turmoil in the eurozone have remained very limited. Broad money growth was down again in May, bringing the annual growth rate down from 1.9% in April to 1.4%. Narrow money growth (M1) saw the annual downturn deepen from -5.2 to -6.4%, the sharpest drop in history. While there are circumstances that make the impact of this smaller or more dragged out than in previous episodes of monetary contraction, it remains a signal that tightening is well under way. Overall, the eurozone economy is currently in a roughly stagnant growth environment. The fast-paced rate hikes are set to still have a further dampening effect on economic activity as monetary transmission continues to work its way through the system. This leads us to believe that growth is set to remain sluggish at best for the foreseeable future. Still, today’s numbers do not show a cliff-edge drop that would change the ECBs thinking on further rate hikes.
Economic Uncertainty: PMI Contractions and Rate Reassessments

Painting a 3% to 4% Range for the US 10-Year Treasury Yield: Nearing the Peak of Rising Rates, with a Dash Lower and Overshoot in 2024

ING Economics ING Economics 03.07.2023 08:52
Painting a 3% to 4% range for the US 10yr We are nearing the peak for US rates, but we are not there yet. The 10yr needs to get to a 4% handle, the 2yr to a 5% one and the funds rate should peak out at 5.5%. Sticky inflation and an economy that won’t lie down rationalise a continuation of rising rates. But a dash lower in market rates is a theme for 2024, with an overshoot to the 3% handle the target for the 10yr   The US curve has shifted higher. More to come as a 4% handle on the 10yr is coming In recent weeks the US yield curve has shifted higher and the curve inversion has deepened further. The 10yr is now at 3.8%, and the 2yr is back above 4.8%, stretching the 2/10yr inversion back above 100bp. There is room for the 2yr to rise to 5% on the likelihood that the market prices out the rate cut bias just about discounted for the December 2023 meeting. Remember the 2yr was above 5% just before Silicon Valley Bank (SVB) went down.   The latest core PCE number at 4.9% reminds us that the US is still a '5% inflation economy'. We think this will change (inflation will ease lower), but for now it is what it is until dis-proven. The issue is that activity data is not lying down. The latest consumer confidence number for June, for example, has popped back out to 109.7 (versus 100 at neutral). Market rates can only rise given this, albeit muted by recent good demand for bonds. Had it not been for this recent buying we’d already be at 5% for the 2yr and 4% for the 10yr yield. But based on what we see in front of us, we are likely to get there. The rising pressure on market rates is also underpinned by a Federal Reserve that continues to sound quite a hawkish tone on worries that the inflation monster remains alive and well. The Fed skipped the rate hike opportunity for June, but seem very ready to resume hiking at the July meeting. There is over an 80% probability attached to a 25bp hike from that meeting. Beyond that, there is a 50:50 chance attached to the delivery of one final 25bp hike.   The rationale for maintenance of rate hikes for now is centred on the stickiness of inflation and the refusal of the economy to slow by enough to really quell inflation pressures. We actually think the Fed has done enough and could simply hold here rather than hike. But the Fed has made it pretty clear that it thinks it needs to keep hiking some more. The Fed will want to do the rate hiking exercise once, and not to have to come back again later and re-accelerate hikes. We target the 10yr Treasury yield to get back up to the 4% area; back to where it was before the SVB induced rally in bonds and sell-off in risk.   But the peak in market rates is nearing, and the next big journey is towards a 3% handle in 2024 At the same time, we note that lending standards have tightened significantly in recent months. On top of that there is a growing degree of concern with respect to the commercial real estate loans portfolios being held by US banks (a post-pandemic outcome). All of this adds to stresses coming from the banking sector, stresses that can hamper macro circumstances. Already key US forward-looking indicators, such as PMIs and ISMs, are in recessionary territory. The external backdrop is not great either, with the eurozone having moved into a state of technical recession, and China showing only a subdued re-opening oomph. The move to the recessionary environment paves the route for interest rate cuts from the Federal Reserve by early 2024.   The idea then is for 2024 to be a year with a rate-cutting theme. We see the Federal Reserve getting the funds rate down to 3% by the end of the year. Market rates will get there first. So, we see the 10yr Treasury yield heading to the 4% area in the next month, but by the end of 2023 it will be comfortably back below 4% with a view to heading towards 3%, likely overshooting to the downside.   The theme for the remainder of 2023 is for the 10yr to head for the 4% area, the 2yr to head for the 5% area, and for the fed funds rate to peak at 5.5%. The 10yr can then journey back down towards 3% through the first half of 2024, with the funds rate getting there by the end of 2024. And provided the funds rate bottoms at 3%, then the 10yr Treasury yield should be heading back up again in order to generate a normal upward sloping curve. A move back up to 3.75% would have a suitable 75bp gap above the funds rate.
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

Economic Calendar and Bitcoin Consolidation: Assessing Trading Lull and Bullish Signals

Kenny Fisher Kenny Fisher 04.07.2023 08:42
We may be seeing a bit of a trading lull at the start of the week with tomorrow’s US bank holiday tempting many into an extended weekend. The economic calendar looks busy but with a large portion being PMI revisions, that doesn’t necessarily equate to an abundance of trading activity. The revisions are often small and don’t really move the needle in terms of expectations for the economy and, at this moment, interest rates. And then there’s the fact that manufacturing being deep in contraction territory is nothing new and what revisions we did see doesn’t really change that. Even as far as prices are concerned, central banks at this stage are far more concerned with what’s happening in services than manufacturing so even that providing welcome disinflationary pressure won’t be enough.   Is the bitcoin consolidation a bullish signal? Bitcoin is continuing to fluctuate largely between $30,000-$31,000 in a manner that may feel encouraging to the crypto community after such a powerful rally a couple of weeks ago. While it hasn’t managed to capitalize any further, that it hasn’t given back a portion of those gains gives the impression that traders think there’s more to come and that this is merely a period of consolidation amid a bigger move. Time will tell whether that turns out to be the case and news flow may have a big part to play in the outcome but what we’ve seen so far is encouraging.  
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

Spanish Housing Market Contracts Amidst Challenges, but Soft Landing Expected

ING Economics ING Economics 05.07.2023 10:00
Spain’s housing market is contracting, but a soft landing remains likely The Spanish housing market has experienced a notable decline recently. However, despite the sharp rise in interest rates, there are enough mitigating factors that make a soft-landing scenario likely. We forecast 1% average price growth this year and 0% next year.   Spanish housing market sees 21% drop in sales in April The Spanish housing market has entered a clear slowdown recently, with several factors contributing to reduced demand for property. Rising interest rates, tighter credit conditions and global economic uncertainties, including geopolitical instability, have all dampened housing demand. In April, mortgage demand fell below its five-year average for the first time and the number of transactions also showed a clear downward trend in the first few months of this year. The latest figures from notaries, which are usually ahead of the official figures, suggest that this downturn is likely to continue in the coming months. According to the General Council of Notaries, home sales fell 21% in April compared to the same period last year, while the number of mortgage loans to buy a home fell by 32% year-on-year. However, the downturn is much less severe than in other countries, where mortgage demand has fallen even more sharply. This can partly be attributed to increased interest from foreign buyers following the relaxation of Covid restrictions in 2020 and 2021. Property scarcity also remains a persistent problem. Demand has exceeded supply in recent years, slowing the downturn in demand. Moreover, Spain's economy has performed better than the eurozone average, helped by a rebound in tourism, which has also supported the housing market.    
ECB Faces Dilemma as European Commission Downgrades Eurozone Growth Forecasts

Economic Data Paints Gloomy Picture, Risk Aversion Ahead of FOMC Minutes

Ed Moya Ed Moya 06.07.2023 08:28
We’re seeing some more risk aversion on Wednesday ahead of the release of the June FOMC minutes, with PMI data throughout the day painting a slightly more gloomy picture for the economy. Revisions in Europe were very modest, in the cases where we actually saw them, but they were to the downside and from already relatively depressed numbers. It’s clear that they point to a deceleration in the all-important services sector but that isn’t necessarily a bad thing if we ever want to see interest rates falling again. Nor is it a bad thing that there appear to be signs of cost pressures slightly softening in the surveys which will be encouraging for central banks, albeit not nearly enough to tempt them into pausing just yet. But it could suggest we’ll see more concrete signs of progress over the coming months. The data from China was no more encouraging, with the Caixin Services PMI falling quite markedly, further highlighting the challenging headwinds the economy is facing during its recovery from zero-Covid restrictions late last year.
BoK to Maintain Hawkish Stance; Singapore's GDP Set for Modest Rebound

BoK to Maintain Hawkish Stance; Singapore's GDP Set for Modest Rebound

ING Economics ING Economics 06.07.2023 13:58
BoK likely to extend pause but stay hawkish The Bank of Korea will hold a policy meeting next Thursday. As inflation is slowing to the 2% range, the BoK is expected to keep its policy rate at the current 3.50% level. We think the central bank will continue to remain hawkish so as not to give market participants an easing signal too early.   Singapore GDP growth to see slight bounce Singapore is set to release second-quarter GDP figures next week. First quarter GDP showed that the economy contracted from the previous quarter but still managed to eke out a 0.4% YoY gain. Singapore faces the twin challenge of contracting exports and industrial production as global trade slows. One bright spot is retail sales, which have provided some support amid the resurgence of visitor arrivals. This has helped to offset softer demand caused by still-high inflation.  We expect second-quarter GDP to bounce back, with a shallow expansion of 1.4% YoY. Growth will likely be stuck in this range until global trade prospects improve.  
ADP Employment Surges with 497,000 Gain, Nonfarm Payrolls Awaited - 07.07.2023

ADP Employment Surges with 497,000 Gain, Nonfarm Payrolls Awaited

Kenny Fisher Kenny Fisher 07.07.2023 08:57
ADP employment surprises with a huge gain of 497,000 On Friday, US releases nonfarm payrolls and Canada publishes the employment report Nonfarm payrolls are expected to fall to 225,000, Canada projected to add 20,000 jobs The Canadian dollar is in negative territory on Thursday. In the North American session, USD/CAD is trading at 1.3360, down 0.58%. The Canadian dollar has slipped over 1% since Wednesday.   ADP employment shows a massive gain  After the Fed minutes on Wednesday, the markets were awaiting the nonfarm payrolls on Friday. The ADP employment report, which precedes nonfarm payrolls, often gets no more than a cursory glance as it’s not considered a reliable precursor to the NFP. Thursday’s release, however, was simply too large to ignore. The ADP reported a gain of 497,000 in June, up from 267,000 in May and well above the consensus of 228,000. US nonfarm payrolls are expected to move in the opposite direction of the ADP report, with a consensus of 225,000 in June, down sharply from 339,000 in May. After today’s ADP shocker, Fed policy makers will be hoping that nonfarm payrolls decline as expected. If nonfarm payrolls follow the ADP lead and climb sharply higher, the Fed may be forced to raise rates more than expected in the second half of the year to cool the hot labour market. The money markets have repriced rate expectations for July following the ADP release. The probability of a 0.25% hike is currently at 94%, up from 86% prior to the ADP report. Fed Chair Powell has hinted at one more rate hike after July, but a September hike will be more likely if nonfarm payrolls rise on Friday. The ADP report grabbed all the headlines, but other employment numbers on Thursday could indicate that the labour market is slowly weakening. Unemployment claims rose from 236,000 to 238,000, higher than the consensus estimate of 245,000. As well, JOLTS Jobs Openings fell from 10.32 million to 9.82 million, shy of the consensus estimate of 9.93 million. The ISM Services PMI may be another headache for the Fed, as it jumped in June to 53.9, well above the May reading of 50.2 and the consensus estimate of 51.2 points. The report indicates that business activity is expanding and the economy remains strong, despite the Fed’s aggressive tightening cycle. Canada releases the June employment report on Friday. The economy is expected to rebound with 20,000 new jobs in June, after a loss of 17.3 thousand in May. The unemployment rate is projected to rise to 5.3% in June, up from 5.2% in May. . USD/CAD Technical USD/CAD is testing resistance at 1.3318. Next, there is resistance at 1.3386 1.3217 and 1.3149 are providing support  
EUR/USD Analysis: Low Volatility Ahead of US CPI Release, Market Players Brace for Potential Impact on Risky Assets

Strong ADP Job Gains and Surging ISM Services Index Boost US Economic Outlook User

ING Economics ING Economics 07.07.2023 09:09
ADP shows 497,000 jobs created in June, biggest gains in over a year ISM Services Index makes 4-month high ISM Prices paid declined from 56.2 to 54.1, lowest since March 2020 US stocks extend losses after a hot ADP report and impressive ISM services report raised the odds the Fed might have to do deliver more rate hikes beyond the July FOMC meeting. The dollar pared losses as Fed rate hike odds rose on expectations the NFP report will deliver its 15th straight beat.   ADP The labor market is not loosening at all according to this ADP report.  The headline gain of 497,000 jobs was much higher than the forecast of 225,000 and well above the downwardly revised prior reading of 267,000 jobs.  Leisure and hospitality jobs surged 232,000 as summer job hiring supports the narrative that Americans will be vacationing a lot this summer.  The Fed’s rate hiking campaign is not yet crippling small and medium size businesses, but that should change going into the fall.  ADP Chief Economist Richardson noted, “Consumer-facing service industries had a strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge”. The ADP report also includes coverage on wages, which showed year-over-year pay increase of 6.4%, which was down from 6.6% in May.    Jobless Claims Initial jobless claims for the week ending July 1st rose from 236,000 to 248,000, which was higher than the 245,000 consensus estimate.  Traders might not put a lot of weight with this weekly jobless claims report as it includes noise from the Juneteenth holiday and the summer auto closures.    Trade Data The May trade data showed the deficit narrowed from $74 billion to $69 billion as imports dropped 2.3% and exports weakened by 0.8%. The trade deficit won’t get a lot of attention but it does support the narrative that the economy is slowing down.    Fed Fed’s Logan noted that more rate hikes are necessary to combat inflation. Adding that a challenging and uncertain environment enabled a June pause. The data-dependent Fed will look at the labor market and that should support the case for much more tightening.   JOLTS The JOLTS report suggests the labor market is slowly weakening as job openings fell from 10.3 million to 9.824 million. The quits rate increased from 2.4% to 2.6%, which suggests people are confident they can get new work.   ISM Services Index The ISM Services report showed last month’s soft reading was not the beginning of a deteriorating trend. The ISM Services Index surged in June, rising to 53.9, significantly better than the prior reading of 50.3 and a 51.2 consensus estimate. Prices paid eased from 56.2 to 54.1. The employment component returned to expansionary territory at 53.1. This data suggest the economy still has a lot of strength. Treasury yields surged after the impressively strong ADP report and kept those gains post ISM services.     
New York Climate Week: A Call for Urgent and Collective Climate Action

Norwegian Krone Gains Momentum: Norges Bank's Hawkish Stance and Positive Economic Outlook Drive Recovery

Michał Jóźwiak Michał Jóźwiak 07.07.2023 16:17
The Norwegian krone, except for the Japanese yen, has faced a challenging start in 2023 as it emerged as the worst-performing G10 currency. This downward trend continued from the previous year, resulting in disappointments for the Scandinavian currency. However, experts have argued that the krone was undervalued given Norway's robust macroeconomic fundamentals. Now, with the help of a hawkish Norges Bank, which recently increased rates by 50 basis points in June, the currency is showing signs of recovery. The Norges Bank's decision to adopt a more hawkish stance should not come as a surprise. Core inflation, a key indicator of price dynamics, reached new highs in May. Additionally, the latest report from the Norges Bank indicates that Regional Network contacts expect wage growth to reach 5.4% in 2023, marking its highest level since 2008. These developments provide further support to the notion that price pressures in Norway may be more persistent than previously anticipated. FXMAG.COM: How would you comment on the latest data from the Norwegian economy and the actions of the central bank there, and what about the Norwegian krone as a result?   Michal Jozwiak: Aside from the Japanese yen, the Norwegian krone has been the worst performing G10 currency so far in 2023 - last year was also marked by disappointments for the Scandinavian currency. For a while, we have argued that the krone was deeply undervalued, particularly given Norway’s excellent macroeconomic fundamentals, and it seems that, with the help of a hawkish Norges Bank, which hiked rates by 50bps in June, the currency is beginning to recover.  Norges Bank’s recent hawkish pivot should come as no surprise. Core inflation, our preferred measure of price dynamics, rose to new highs in May. Furthermore, based on the recent report from the Norges Bank, Regional Network contacts expect wage growth to reach 5.4% in 2023 – its highest level since 2008. This gives further backing to the argument that price pressures in Norway may be more stubborn than previously thought.   The market is currently pricing in about 50bps of rate hikes in the next six months, however, we do not rule out an even more hawkish stance should we see further increases in core inflation and wages, possibly at the expense of lower growth in 2023. The possibility of higher central bank rates, and a degree of normalisation in the exchange rate that moves it closer to values justified by its fundamentals should, we believe, allow NOK to recover some of its earlier losses in the coming months.
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US Inflation Data Awaited as Jobs Report Supports Another Fed Hike, Weak Chinese Demand Stalls Inflation

Craig Erlam Craig Erlam 11.07.2023 08:16
It’s been a relatively slow start to the week but there’s still plenty to look forward to, most notably the US inflation data on Wednesday. Friday’s jobs report did nothing to level the debate on whether to pause at the next Fed meeting in two weeks. In fact, it may have even cemented another 25 basis point hike despite the NFP number falling short of expectations and, to the relief of many, well short of the ADP release. Wage growth remains a concern and on that front, the report was hot. At 0.4%, the monthly increase was a little higher than anticipated, while the annual reading remained at 4.4% (after an upward revision to the May number) despite an expectation that it would drop to 4.2%. Markets now see another hike as being almost 90% likely which seems fair under the circumstances. Weak Chinese demand sees inflation flatline in June The data from China overnight paints quite the opposite picture. An economy struggling on the demand side, despite initially rebounding strongly following the abolishment of zero-Covid. Excess supply is causing deflation at the PPI level and even CPI is now flat on an annual basis. This is more pronounced in goods, a trend we’re seeing elsewhere as services remain where the demand is, but even here we’re seeing more weakness than expected. Stimulus feels inevitable but so far it hasn’t been forthcoming enough and when it does arrive it will likely continue to be very targeted.  
Trade conditions will improve due to soft commodity prices

Trade conditions will improve due to soft commodity prices

ING Economics ING Economics 12.07.2023 11:01
Trade conditions will improve due to soft commodity prices Given the already poor performance of the first half of 2023, annual export growth will likely shrink. But we think export growth has already bottomed out and the contraction will ease in the third quarter and eventually turn positive in the fourth. Although the trade balance turned to a surplus in June for the first time in 16 months, it was mainly due to a sharp decline in commodity imports, rather than export recovery. The trade balance is expected to remain in surplus for most of the second half of the year, as the impact of import declines will accelerate with rapidly falling global commodity prices.  The sluggish export performance is mainly driven by the fall in semiconductors and petroleum. Unfavourable price effects dominated the poor performance of these two major export items. Looking at the exports in volume terms, the decline was modest compared to those in value terms. We believe that negative price effects will fade out gradually during the remainder of the year.   Exports in value terms declined sharply due to unfavourable price effects
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New Zealand Central Bank Hits Pause After 12 Consecutive Rate Hikes: Manufacturing Stalls and Inflation Expected to Decline

Kenny Fisher Kenny Fisher 12.07.2023 13:23
New Zealand’s central bank takes a pause after 12 consecutive hikes New Zealand Manufacturing PMI expected to show manufacturing is stalled US inflation expected to decline to 3.1% The New Zealand dollar showed some gains after the Reserve Bank of New Zealand paused rates, but has given up most of those gains. In the European session, NZD/USD is trading at 0.6206, up 0.14%.   RBNZ takes a breather There was no dramatic surprise from the RBNZ, which kept interest rates on hold at Wednesday’s meeting, as expected. The central bank has been aggressive, raising rates 12 straight times since August 2021 until Wednesday’s meeting. This leaves the cash rate at 5.50%. The RBNZ had signalled that it would take a break, with Deputy Governor Hawkesby stating last month that there would be a “high bar” for the RBNZ to continue raising rates. Today’s rate statement said that interest rates were constraining inflation “as anticipated and required”, adding that “the Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.” The RBNZ did not issue any updated forecasts or a press conference with Governor Orr, which might have resulted in some volatility from the New Zealand dollar. The central bank has tightened rates by some 525 basis points, which has dampened the economy and chilled consumer spending. Is this current rate-tightening cycle done? The central bank would like to think so, but that will depend to a large extent on whether inflation continues to move lower toward the Bank’s inflation target of 1-3%. The pause will provide policymakers with some time to monitor the direction of the economy and particularly inflation. If inflation proves to be more persistent than expected, there’s every reason to expect the aggressive RBNZ to deliver another rate hike later in the year. New Zealand releases Manufacturing PMI for June on Wednesday after the rate decision. The manufacturing sector has contracted for three straight months, with readings below the 50.0 line, which separates contraction from expansion. The PMI is expected to rise from 48.9 to 49.8, which would point to almost no change in manufacturing activity. The US will release the June inflation report later in the day. Headline inflation is expected to fall from 4.0% to 3.1%, but core CPI is expected to rise to 5.3%, up from 5.0%. If core CPI does accelerate, that could raise market expectations for a September rate hike. A rate increase is all but a given at the July 27th meeting, with the probability of a rate hike at 92%, according to the CME FedWatch tool.   NZD/USD Technical 0.6184 is a weak support level. Below, there is support at 0.6148 0.6260 and 0.6383 are the next resistance lines  
Germany's 'Agenda 2030': Addressing Stagnation and Structural Challenges

Germany's 'Agenda 2030': Addressing Stagnation and Structural Challenges

ING Economics ING Economics 13.07.2023 08:57
Germany needs an ‘Agenda 2030’. A stagnating economy, cyclical headwinds and structural challenges bring to mind the early 2000s and call for a new reform agenda   As Mark Twain is reported to have said, “History doesn't repeat itself, but it often rhymes.” Such is the case with the current economic situation in Germany, which looks eerily familiar to that of 20 years ago. Back then, the country was going through the five stages of grief, or, in an economic context, the five stages of change: denial, anger, bargaining, depression and acceptance. From being called ‘The sick man of the euro’ by The Economist in 1999 and early 2000s (which created an outcry of denial and anger) to endless discussions and TV debates (which revelled in melancholia and self-pity) to an eventual plan for structural reform in 2003 known as the 'Agenda 2010', introduced by then Chancellor Gerhard Schröder. It took several years before international media outlets were actually applauding the new German Wirtschaftswunder in the 2010s. It's hard to say which stage Germany is in currently. International competitiveness had already deteriorated before the pandemic but this deterioration has clearly gained further momentum in recent years. Supply chain frictions, the war in Ukraine and the energy crisis have exposed the structural weaknesses of Germany’s economic business model, and come on top of already weak digitalisation, crumbling infrastructure and demographic change. These structural challenges are not new but will continue to shape the country’s economic outlook, which is already looking troubled in the near term. Order books have thinned out since the war in Ukraine started, industrial production is still some 5% below pre-pandemic levels and exports are stuttering. The weaker-than- hoped-for rebound after the reopening in China together with a looming slowdown or even recession in the US, and the delayed impact of higher interest rates on real estate, construction and also the broader economy paint a picture of a stagnating economy. A third straight quarter of contraction can no longer be excluded for the second quarter. Even worse, the second half of the year hardly looks any better. Confidence indicators have worsened and hard data are going nowhere. We continue to expect the German economy to remain at a de facto standstill and to slightly shrink this year before staging a meagre growth rebound in 2024.   Headline inflation to come down after the summer What gives us some hope is the fact that headline inflation should come down more significantly after the summer. Currently, inflation numbers are still blurred by one-off stimulus measures last year. Come September, headline inflation should start to come down quickly and core inflation should follow suit. While this gives consumers some relief, it will take until year-end at least before real wage growth turns positive again. At the same time, an increase in business insolvencies and a tentative worsening in the labour market could easily dent future wage demands and bring back job security as a first priority for employees and unions. In any case, don’t forget that dropping headline inflation is not the same as actual falling prices. The loss of purchasing power in the last few years has become structural.
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Navigating the Political Landscape: Greece's Economic Outlook Amidst Election Results

ING Economics ING Economics 13.07.2023 09:24
Trying to ride the election wave in Greece Transitioning the economy into the new normal and maintaining a good growth pace won’t be easy, but we expect Greece to remain a growth outperformer in the eurozone for at least a couple of years.   Mitsotakis has managed to get a second consecutive mandate It took two election rounds for Prime Minister Kyriakos Mitsotakis, the leader of New Democracy, to obtain a second mandate. In the first round, held on 25 May, he came first but could not obtain an absolute majority due to the proportional system, deprived of the majority bonus. As it was already known that the next election would be held with a different system, reintroducing a majority bonus, outgoing PM Mitsotakis abstained from seeking any form of coalition and focused on the new election, which was held on 25 June. The different system did the trick. ND broadly replicated the result of May’s vote, but this time round, thanks to the bonus, this was enough to obtain 158 seats, out of a required majority of 151. Mitsotakis was again given the mandate to form a government which has assured him another four years in power. Confronted by a very poor result which saw the number of votes almost halve from the 2016 election result, Alexis Tsipras, the leader of the main opposition party Syriza, resigned.   Two oppositions The June election added a new feature to the Greek political scene: three small parties on the right of New Democracy managed to pass the 3% hurdle, obtaining parliamentary representation. This means Mitsotakis will now have to confront two oppositions: one on the left, which will likely need some time to reorganise after the heavy defeat of Syriza, and one on the right, which might prove to be more insidious in its desire for visibility. It will be interesting to see whether pressure from the right will impact the policy line of the government any time soon.
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USD/CNY: Little Confidence in Chinese Stimulus, Outlook for USD/CNY at 7.30

ING Economics ING Economics 14.07.2023 15:49
There seems to be little confidence that Chinese policymakers are prepared to jolt the economy into action. The turn in the broad dollar cycle may help cement a top in USD/CNY at 7.25/30, but the case for a markedly lower USD/CNY is hard to make right now. A better equity environment and improved terms of trade story may see the Korean won outperform       China’s weak economic re-opening continues to weigh on markets and the CNY, though hopes for stimulus measures have provided sporadic respite, along with People’s Bank of China fixing’s that indicate that investors should not view the CNY as a one-way bet on weakness. We are not hopeful of a meaningful package of stimulus measures, and with the economy flirting now with disinflation, there are growing signs that the weakness is spreading. Despite some recent USD weakness, we favour a move towards the 7.30 level over the coming quarter.      
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Retail Sales Fail to Dampen Wall Street as Bank Earnings Inspire Investor Confidence; Dow Faces Major Obstacle at 35,000

Craig Erlam Craig Erlam 19.07.2023 08:20
Retail sales numbers don’t hold Wall Street back Bank earnings give investors hope 35,000 a big obstacle to overcome for the Dow   Stock markets have turned positive on Tuesday after falling earlier, with US retail sales data initially weighing slightly. The numbers were much weaker than expected for June but then the May figures were revised up so it wasn’t all bad. I’m not convinced today’s data really changes things as far as the consumer or economy is concerned, all things considered, nor has it really changed anything on interest rate expectations, with markets almost fully pricing in a hike next week and probably no more after that. Wall Street was also buoyed by Morgan Stanley and Bank of America results which gave investors some further cause for optimism early in earnings season. Of course, this is just one hurdle cleared but investors will be hoping it’s a sign of things to come.   35,000 the next big obstacle for the Dow US30 Daily   The US30 has rallied almost 1% today but it quickly ran into resistance around 35,000. This level has previously been a key area of support and resistance, most recently in December, and it’s proving to be the case again. A break above here would be significant as the US30 hasn’t traded above here since April last year when it peaked around 35,500. This would be the next notable resistance level if it can overcome 35,000.  
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Canada's Inflation Expected to Ease, US Retail Sales Projected to Improve

Ed Moya Ed Moya 19.07.2023 08:32
Canada’s inflation expected to ease US retail sales projected to improve The Canadian dollar is almost unchanged on Tuesday, trading at 1.3204. USD/CAD should show some life in the North American session, with the release of Canadian inflation and US retail sales.     Will Canada’s core inflation fall? Canada releases the June inflation report later today, and the Bank of Canada will be hoping for good news. On an annualized basis, headline inflation is expected to drop to 3.0%, down from 3.4% in June, while the core rate is projected to fall from 3.7% to 3.5%. On a monthly basis, the markets are expecting mixed news. CPI is expected to tick lower to 0.3%, down from 0.4% but core CPI is projected to rise from 0.4% to 0.5%. The Bank of Canada raised rates by 0.25% last week, which brought the benchmark cash rate to 5.0%. The BoC will have some time to monitor the economy, with the next rate meeting on September 6th. The BoC would like to take a pause in September but may have to wait until later in the year if the economy does not show further signs of cooling before the September meeting.   US retail sales expected to climb The US economy is by and large in good shape, despite aggressive tightening by the Federal Reserve in order to curb high inflation. A key driver behind the economy’s strong performance has been consumer spending, which accounts for two-thirds of economic activity. The US releases the June retail sales report later today, with expectations that consumers remain in a spending mood. The consensus estimate for headline retail sales is 0.5% m/m, up from 0.3%, and the core rate is expected to rise 0.3%, up from 0.1%. The retail sales release is unlikely to change expectations that the Fed will raise rates at the July 27th meeting, with a 96% chance of a hike, according to the CME Tool Watch. However, an unexpected reading could lead to a repricing of a September rate hike, which has just a 14% probability. . USD/CAD Technical There is resistance at 1.3205 and 1.3318 1.3106 and 1.3049 are providing support    
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Rates Spark: A Pre-Central Bank Meeting Stretch and Bond Market Analysis

ING Economics ING Economics 24.07.2023 08:40
Rates Spark: The stretch before two key central bank meetings There was some selling of bonds yesterday, and it feels a bit vulnerable here considering the decent total returns recorded year-to-date against all odds given monetary tightening and the future recession risk. There is also a pre-FOMC and pre-ECB theme in the air. Many will wait to get the central bank(s) assessment of things before pulling the trigger.   Long duration buying in the past month morphs to a selling tendency Most of the past month has been dominated by bond buying, typically long duration in nature. The same has been seen in corporates, and there has also been a decent bid into high-yield bonds. A glance at total return year-to-date show some impressive bond market performances, led by higher beta products. There are always profit-taking risks attached to this. A lot of the buying in the past month or so had helped to keep core yields from getting too carried away to the upside. But yesterday more selling than usual was seen for a change, in particular out of Asia. This was a factor in unleashing Treasury yields higher. The low jobless claims number pushed in the same direction, but would not have been enough as a stand-alone to push the 10yr yield from 3.75% to 3.85%. And other data today has in fact been quite muted or negative for the economy. The terminal discount for the funds rate also remains elevated, with the Jan 2025 future still above 3.75%. That keeps the pressure focused on the upside for market rates. The 4% level for the 10yr Treasury yield is firmly in focus here, likely post next week's FOMC outcome; at least we'll likely need to get through that first.   Closing in on cycle peaks With inflation dynamics looking more encouraging, the general notion is that central banks are close to their cycle peaks in terms of tightening. If we look at current pricing, the market is seeing a good chance that the Fed will deliver its final hike of the cycle next week. Historical patterns suggest that a re-steepening of the yield curve led by the front end then followed as recession eventually ensued. And indeed, if it were to go by the Conference Board's Leading indicator, which posted another drop yesterday, we would have been in recession for a long time already.  However, the context looks somewhat different this time, as some parts of the economy still look unusually resilient. And markets are seeing a growing likelihood of a soft landing, which itself limits the drop in front-end rates as less aggressive rate cuts are then needed. On the flip side, that resilience continues to harbour potential upside risks to inflation. And central banks will therefore tread more cautiously and not take any chances. They are sensitive to their poor track records of forecasting inflation in the past and are basing their policies on current inflation dynamics rather than their models.   Curves have reflattened over past weeks, a clear steepening signal remains elusive      
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US Q2 GDP: Resilient Economy Faces Key Test Amid Inflation Slowdown

Michael Hewson Michael Hewson 24.07.2023 10:05
US Q2 GDP – 27/07  one of the key themes this week has been the resilience of the US economy, despite the sharp rise in rates over the last 12 months. Notably the resilience of the labour market has surprised with little sign of a slowdown on hiring, while inflation has been slowing quite sharply. This has helped consumers stay resilient with a solid rebound in personal consumption in Q1 to 4.2% after a weak end to last year. This rebound in consumer spending helped Q1 GDP get revised up from 1.2% to 2% in the final revision of Q1 GDP. The key test in this week's first iteration of US Q2 GDP will be whether this momentum was maintained. Judging by recent consumer confidence numbers, spending patterns and a resilient labour market there is little reason to suppose otherwise, although manufacturing is likely to be a weak spot. It's also worth keeping an eye on inventories to see whether these are being maintained, or being run down. 
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Canada's Retail Sales Slow as Former Fed Chair Suggests Last Hike

Kenny Fisher Kenny Fisher 24.07.2023 10:27
Canada’s retail sales expected to slow Former Chair Bernanke says the July hike may be the last increase The Canadian dollar is trading quietly on Friday. In the European session, USD/CAD is trading at 1.3157, down 0.09%. It has been a busy week in the currency markets, with the US dollar rebounding and posting strong gains against the major currencies. The notable exception has been the Canadian dollar, which has held its own against the greenback this week. We could see some movement from USD/CAD in the North American session when Canada releases retail sales for May.   Will Canada’s retail sales point to a softer economy? We’ll get a snapshot of consumer spending later on Friday, as Canada releases the May retail sales report. The markets are bracing for a slowdown in May after an impressive April release. The consensus estimate for retail sales is 0.5% in May, down from 1.1% in April. The core rate is expected to fall to 0.3%, compared to 1.3%. If the estimates prove to be accurate, it would point to the economy cooling down and provide support for the Bank of Canada to take a pause at the next meeting in September.   Is the Fed finally done? The Federal Reserve meets on July 26th and investors have priced in a 0.25% hike as a near certainty. September is less clear, but the markets have priced another hike at just 16%, according to the CME FedWatch tool. Are the markets being too dovish? Fed members have said that inflation isn’t falling fast enough, which could mean that another hike is coming after July. Former Fed Chair Ben Bernanke appeared to side with the market view, saying on Thursday that the July hike could be the final rate increase in the current tightening cycle. Bernanke said that the economy would slow further before the 2% inflation target was reached, but he expected any recession to be mild.   USD/CAD Technical There is resistance at 1.3205 and 1.3318 1.3106 and 1.2993 are providing support  
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ING Economics ING Economics 25.07.2023 08:20
Korea: 2Q23 GDP improved but with disappointing details South Korea’s real GDP accelerated to 0.6% QoQ (sa) in 2Q23 from 0.3% in 1Q23, which was slightly higher than the market consensus of 0.5%. However, the details were quite disappointing with exports, consumption, and investment all shrinking. We expect growth to slow in 2H23.   Net exports contributed positively to overall growth The upside surprise mainly came from a positive contribution from net exports (+1.3pt). However, we do not interpret this in a positive light, because it was not driven by an improvement in exports, but rather by a contraction of imports (-4.2%), which was deeper than that of exports (-1.8%). By major item, exports of vehicles and semiconductors rose as global supply conditions improved and global demand remained solid. But, exports of petroleum/chemicals and shipping services declined further with unfavourable price effects weighing. Falling commodity prices have had a positive impact on Korea's overall terms of trade, having a greater impact on imports, but "processed" exports such as petroleum/chemicals and shipping took more of a hit.   Net exports led growth but due to sharper decline of imports than exports   Meanwhile, domestic demand dragged down overall growth by -0.6pt As monthly activity and sentiment data already suggested, private consumption was down -0.1% with declining service consumption, while investment – both construction (-0.3%) and facilities (-0.2%) – contracted. Also, government expenditure dropped quite sharply (-1.9%) as spending on social security declined. We believe that the reopening boost effects on consumption have finally faded away, while tight credit conditions have also dampened investment. R&D investment (0.4%) was an exception, rising for the second consecutive quarter on the back of continued investment in new technologies.   GDP in 2H23 will likely decelerate again Forward-looking data on domestic demand indicates a further deterioration in domestic growth. Construction orders, permits, and starts have been declining for several months, while capital goods imports and machinery orders have also trended down recently. With continued market noise surrounding project financing and growing uncertainty over global demand conditions, business sentiment for new investment is very weak. This year’s fiscal spending will also not support the economy meaningfully, considering the tax revenue deficit and normalization of covid related spending. However, we think trade will take the lead in a modest recovery. We believe that exports will rebound by the end of the third quarter with support from improved vehicle demand, semiconductors, and machinery (despite the global headwinds). Please see our 2H23 outlook details here.   Korea's GDP is expected to slow down in 2H23     Although 2Q23 GDP was higher than expected, the details suggest a weaker-than-expected recovery in 2H23, together with weak forward-looking data, thus we keep our current annual GDP forecast for 2023 unchanged at 0.9% YoY.   The Bank of Korea watch We think today’s data should be a concern for the Bank of Korea (BoK). The BoK forecast growth to accelerate in 2H23 on the back of better exports. We agree that export conditions will improve, but we don't think they will be strong enough to dominate weak domestic growth, and today’s data also suggests that growth will slow down in the near future. Thus, the BoK’s policy focus will probably gradually shift from inflation to growth in 4Q23. In 3Q23, we believe that the BoK will continue to keep its hawkish stance while keeping a close eye on other major central banks’ monetary policies. Also, inflation may fluctuate a bit over the Summer season due to soaring fresh food prices amid continued severe weather conditions. However, if inflation stays in the 2% range for most of 2H23, then the BoK’s tone should shift to neutral and eventually revert to an easing cycle.
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Rates Spark: US 10yr Hits 4%, ECB Returns to 0% on Excess Reserves

ING Economics ING Economics 28.07.2023 08:36
Rates Spark: Don’t look down, yet Policy rates have practically peaked in the US and eurozone. Even if there is another hike it would be the final one. But market rates are not yielding to this. The US 10yr has re-hit 4%. The issue here is not the peak in policy rates, but the potential for cuts. Basically the market has reined back rate cut expectations, and that's keeping long rates elevated.   US 10yr makes the break to 4%. It should stay there for a while US market rates latched on to the strength in the activity data released on Thursday, rather than the calming in inflation data. Even if lower, the 3.8% on core PCE is still too high for comfort, and remains vulnerable to future upside should the economy continue to bubble as it has been doing. The release of decent consumer spending, a fall in jobless claims and firm durable orders all point to an economy that continues to defy the forces acting against it. For the 10yr Treasury yield, the issue remains that there is little room for lower yields if the terminal discount for the funds rate is not much below 4% in the medium term. The implied fed funds discount for Jan 2025 has in fact drifted higher, now up at 4.1%. Based off that the 10yr is in fact still arguably too low. We view the push up to the 4% area as perfectly valid, and indeed we anticipate that the 10yr yield remains above 4%, at least for as long as the medium-term discount for the fed funds rate also remains above 4%.   The ECB moves to 0% on excess reserves; don't worry, it's a move back to normalcy The European Central Bank (ECB) decision to pay 0% on excess reserves brings things back to where they were before the Great Financial Crisis (GFC). Regulatory reserves always paid zero percent. But since the GFC the ECB has remunerated reserves at the overnight deposit rate. This had to be done as else the banks would simply not hold them. The move back to 0% applies only to regulatory reserves, and not to excess reserves. It is a mild hit to banks, as they receive less interest income on reserves. But it is not dramatic, as the reserves held over and above the minimum will continue to get remunerated as normal. Latest data show that excess reserves across the banking system were running at EUR 3.6trn. These continue to get compensated at the deposit rate. Reserve requirements were running at an average of EUR 165bn. These will be compensated at zero percent. That represents about 5% of total reserves. It's not nothing, but it's also not terribly significant. This saves the ECB a few bob, but nothing more to it.   Today's events and market views Key US data on Friday includes the June PCE deflator. Look for a continuation of the deceleration in inflation, with the headline deflator set to ease down to 3% and the PCE core deflator to ease down in the direction of 4% (but likely to remain above). The University of Michigan Sentiment indicator for July is set to hold in the low 70's, which is below the average in the 85 area. It's been on a upward recovery, from around 60 in May. We'll also get the 5-10yr inflation expectation, which is expected to ease slightly to 3%. The eurozone will have a consumer price inflation focus, with the German lander CPI data to be followed by a country-wide one. A mild easing is expected, but still leaving inflation running uncomfortably high. We'll also see EU consumer confidence, which is likely to remain in the mid 90's, and below the benchmark reference of 100, signalling ongoing macro weakness.
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

China's Non-Manufacturing PMI Slows: Economy Faces Contraction Risks

ING Economics ING Economics 31.07.2023 15:49
China: PMI’s show non-manufacturing growth slowing further The decline in manufacturing eased slightly in July, but the non-manufacturing sector showed a larger-than-expected slowdown in growth and further falls could see it skirting with contraction.   At this rate, the service sector will join manufacturing in contraction China's official PMI data provides little encouragement that the economy is turning the corner. And while the authorities have been vocal in their support for the economy, so far, that has not translated into the sort of sizeable fiscal policy stimulus many in the market have become used to expecting. We don't think it is coming.  The key figure in today's release is the non-manufacturing sector PMI. This fell from 53.2 to 51.5, with 50 representing the threshold between growth and contraction. A further fall like the one we saw this month could push the non-manufacturing sector close to contraction, joining the manufacturing sector, which, while it improved slightly from a month ago, at 49.3 remains in negative territory.    Headline PMI indices   Prospects for the non-manufacturing sector aren't great Looking at the breakdown of the non-manufacturing sector, what strikes you is that most of the sub-components are already showing contraction. The one component that stands out from the rest, is expectations, which looks like an unrealistic outlier compared with what is going on elsewhere.  We can only put this down to continued hope that the government will pull something out of the bag that will re-invigorate the economy. However, while we believe that a great many micro measures will be implemented to improve the functioning of the economy, including a reduction in constraints on the private sector, we aren't at all convinced that there is a fiscal bazooka waiting to fire up the economy. So, if those expectations aren't fulfilled and begin to wilt, then this PMI could well join the manufacturing sector in contraction.   Tomorrow, the Caixin PMI data will provide another insight into the more private-sector and export-oriented parts of China's economy.    Non-manufacturing PMI components
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

RBA Takes Another Breather, Leaves Room for Future Tightening

ING Economics ING Economics 01.08.2023 10:25
Reserve Bank of Australia takes another breather Pausing for a second consecutive meeting, today's rate decision is in line with some better inflation data this month and means the Bank can respond to future data events with less fear of overdoing the tightening.   Not clear why market was even looking for a hike It is a genuine mystery to us why there was a small majority of forecasters looking for a hike at today's meeting. We certainly were not. The June inflation data came in better than most of the expectations, including on the core measures. So that alone should have been enough to keep the RBA on hold. And none of the other data since the last meeting have been particularly alarming. Sure, the labour data wasn't exactly soft, but it wasn't super-strong either, and the unemployment rate while still very low, was stable from the previous month.  In the statement in July, Governor Philip Lowe noted that further tightening "will depend upon how the economy and inflation evolve", and in the event, the economy and inflation tended to indicate that they were on the right track. For a central bank that has been keen to give the economy a chance where at all possible, there was simply no good argument for a hike today.   There will be better excuses to hike than existed this month   More hikes are possible - probably one, maybe two That doesn't mean that there is no chance of any further tightening in this cycle. And while the June inflation figures were lower than expected, the month-on-month increase was not even close to what is required to get inflation back to target. And that will have to change. Today's statement notes that there is still a chance for some further tightening and that the RBA will "continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market"  We think that this broad assessment means the RBA can be a bit more choosy when it does decide to tighten again. If it responded to every tiny mishap in the data, then rates would rapidly rise, and by the time the economy did finally show more evidence of turning, the odds are that they would by then have gone too far. This way, they are giving a soft landing the best chance of happening.  Base effects will become far less helpful after the July CPI release later this month, and the July reading of CPI will also incorporate substantial electricity tariff hikes which means that inflation could backtrack higher for July and August readings. That puts a September rate hike firmly into the frame, and possibly leaves the door open for a further hike before the base effects should turn more helpful once more - absent seasonal supply chain shocks, which is harder to take for granted in these climate-changed times.     So we will be looking for one more rate hike to 4.35% at the RBA's next meeting in September. And we will be reserving judgement on another and hopefully final one in October or November, if the macroeconomy remains resilient and if inflation is making insufficient progress lower. The September meeting would be Lowe's last meeting as governor, as the new Governor, Michele Bullock, will take over from 18 September. It would be a nice handover gift if the tightening were largely completed before she takes the helm. 
Europe's Economic Concerns Weigh as Higher Rates Keep US Markets Cautious

Fed July Senior Loan Officer Survey: Tightening Lending Standards Impact Economy, Rate Cut Odds Hold Steady

Ed Moya Ed Moya 01.08.2023 13:27
4.8% of Large & Mid-market firms in July say conditions tightened considerably, up from 3.2% in April. Commercial and Industrial loans for medium and large firms saw an increase in tightening terms (50.8% vs 46% prior) Fed rate cut odds for the December 13th meeting remained around 17.5% The Fed July Senior Loan Officer Survey (SLOOS) on Bank Lending Practices highlighted a that tightening lending standards occurred across all categories.  The impact from the Fed’s tightening cycle is clearly impacting the economy as weaker demand was noticeable for commercial and industrial loans, and CRE loans. Wall Street was not really surprised as the lag from Fed tightening is supposed to take several months before business notice significant tightening of credit conditions.  The dollar softened following the release as the survey supports the narrative that the economy will steadily and weaken and that should support rate cut bets for early next year.      
Europe's Economic Concerns Weigh as Higher Rates Keep US Markets Cautious

Eurozone GDP Shows Growth, US Stocks Await NFP Friday, Euro Remains Heavy Amid Germany's Economic Concerns

Ed Moya Ed Moya 01.08.2023 13:31
Eurozone Q2 GDP returned to growth with a 0.3% advance reading (prior revised higher to 0.0%). Eurozone core inflation held steady at 5.3% Stocks have a flat session as traders await NFP Friday US stocks are wavering ahead of a key Fed survey that should show loan growth is weakening and that the economy should steadily weaken.  The Senior Loan Officer Opinion Survey (SLOOS) will tell us how top lending officers feel about the credit outlook. The US dollar isn’t making any major moves as Wall Street grows more confident that a soft landing is very much obtainable.  Many traders won’t do much positioning until Friday’s NFP report, which should show the labor market remains tight.  The key for the payroll report might be what is happening with wages, as it seems fears of an acceleration of inflation have been downsized.  This week also includes the ISM reports which should show manufacturing activity is picking up and the service sector is cooling.  Weakening growth prospects is not the takeaway from this earnings season, but that could change if Apple and Amazon’s results tell a different story.      The euro remains heavy as concerns grow for Germany’s outlook.  German economy minister warned of five tough years and that bleak outlook could weigh on the euro.  EUR/USD might start to form a narrow trading range but that could change once we get beyond the NFP report.  It seems everyone is in wait-and-see mode and right now the US jobs report will steal the spotlight. The 1.0950 to 1.1050 could emerge as the key trading range until this week’s fireworks. US Data Both the ISM Chicago PMI and Dallas Manufacturing survey showed activity improved for a second consecutive month.  The Chicago PMI was softer-than-expected but has yet to benefit from increasing aircraft orders.  The Dallas Fed did not provide an inspiring outlook as activity remains sluggish, while prices paid and received rose.  The manufacturing part of the economy is still in contraction territory and the recovery will likely be unbalanced.   
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns - 02.08.2023

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Metals Exchange Inventories in China Decline: Copper, Aluminium, and Nickel Stocks Fall

GBP Faces Downside Risks Amid Bank of England's Interest Rate Decision

ING Economics ING Economics 03.08.2023 10:20
GBP: Some downside risks to sterling The Bank of England announces its interest rate decision and releases a new Monetary Policy Report (MPR) at 1300CET today. Most analysts expect a 25bp hike in the Bank Rate to 5.25%, but a significant minority are looking for a 50bp rate hike. Money markets price around 32bp of tightening today. Despite the welcome UK June CPI figures, no one expects the BoE to let its guard down on inflation and its statement will likely retain words to the effect that rates could be raised further were there evidence of more persistent price pressures in the economy. The market will also be looking out for the CPI forecasts in the monetary policy report and also whether the BoE has anything to say about Quantitative Tightening (QT), currently running at a pace of £80bn per annum. Some are arguing that QT could be accelerated to well over £100bn p.a. A slightly risk-off environment and our baseline call of the BoE only hiking 25bp could be a mild negative for sterling – especially were the BoE to go further than the Fed in acknowledging the process of disinflation. For cable that means an outside risk of a drop to the 1.2580/2600 area (depending on the dollar environment), while EUR/GBP could be correcting back to the 0.8640 area.
SEK: Enjoying a Breather as Technical Factors Drive Correction

Mixed Job Data Leaves CAD and USD Awaiting Clarity

Kenny Fisher Kenny Fisher 07.08.2023 09:04
Canada added a negligible 1700 jobs in July US nonfarm payrolls almost unchanged at 187,000 The Canadian dollar is showing limited movement on Friday. In the North American session, USD/CAD is trading at 1.3360, up 0.06%. Canadian and US job numbers were soft today, but the Canadian dollar’s reaction has been muted. Canada’s economy sheds jobs After a stellar job report in June, the July numbers were dreadful. Canada’s economy shed 6,400 jobs in July, compared to a 59, 900 gain in June. Full time employment added a negligible 1,700 jobs, following a massive 109,600 in June. The unemployment rate ticked up to 5.5%, up from 5.4%. Perhaps the most interesting data was wage growth, which jumped 5% y/y in June, climbing from 3.9% in May. The rise is indicative of a tight labour market and will complicate the Bank of Canada’s fight to bring inflation down to the 2% target. US nonfarm payrolls slips below 200K It was deja vous all over again, as nonfarm payrolls failed to follow the ADP employment report with a massive gain. In June, a huge ADP reading fuelled speculation that nonfarm payrolls would also surge, and the same happened this week. Both times, nonfarm payrolls headed lower, a reminder that ADP is not a reliable precursor to the nonfarm payrolls report.   July nonfarm payrolls dipped to 187,000, very close to June reading of 185,000 (downwardly revised from 209,000). This marks the lowest level since December 2020. The unemployment rate ticked lower to 3.5%, down from 3.6%. Wage growth stayed steady at 4.4%, above the consensus estimate of 4.2%. What’s interesting and perhaps frustrating for the Fed, is that the jobs report is sending contradictory signals about the strength of the labour market. Job growth is falling, but the unemployment rate has dropped and wage growth remains strong. With different metrics in the jobs report telling a different story, it will be difficult for the Fed to rely on this employment report as it determines its path for future rate decisions. . USD/CAD Technical There is resistance at 1.3324 and 1.3394 1.3223 and 1.3182 are providing support    
USD/JPY Tops Majors in Past Month; Strong Verbal Intervention from Japan's Ministry of Finance as Resistance Nears

Job Data Divergence: Canadian and US Employment Trends

Ed Moya Ed Moya 07.08.2023 09:08
USD/JPY declines on expectations BOJ will let rates rise quickly Fed rate cut bets fully priced in by March meeting; implied rate stands at 5.123% Fed’s Bostic noted US employment gains are slowing in an orderly manner, no need for tightening   NFP Day  The US economy should continue to gradually weaken as the labor market softens.  This labor market report showed 187,000 jobs were added to the economy, while wage pressures heated up, and as the unemployment rate dipped to 3.5%.  This NFP report should support the argument that the Fed is done raising rates.  Fed speak post payrolls poured cold water over the hot bond market selloff.  Fed’s Bostic said that the job gains are slowing orderly  and that they have no reason to hike again. Fed’s Goolsbee added that they are getting positive numbers with inflation and that the job market is cooling a little bit.  The risks for more Fed tightening are going away, but that could change with next Thursday’s inflation report.   USD/JPY     Price action on the USD/JPY daily chart show that the potential bearish ABCD pattern that formed a couple days ago is tentatively respecting trendline support at the 141.50 region.  If bearish momentum remains in place downside could target the 140.00 zone.  With the BOJ’s minor tweak to YCC in place and steady US data that supports the economy is weakening, the dollar-yen could see bearishness remain intact.  To the upside, 144.00 remains key resistance     Apple disappoints and Amazon Delivers The last two major tech giant earnings delivered diverging stories.  Amazon crushed it in the second quarter, while delivering financial discipline with lower spending.  The outlook impressed for both ecommerce and their cloud services, while the lower headcount made this a perfect earnings report. Apple told a different story than Amazon as their outlook devices weakened, which is prompting concerns that this might be as good as it gets over the short-term for share prices.  A weakening consumer and a similar fourth quarter is not inspiring investors.  
ARM's US IPO Amidst Challenging Landscape: Will Investors Pay an ARM and a Leg?

FX Daily: Currencies Gradually Detach from Bond Dynamics Amidst Dollar's Resilience

ING Economics ING Economics 08.08.2023 09:11
FX Daily: Currencies starting to detach from bond dynamics Volatility in long-dated sovereign bonds has remained elevated, but that has almost only been mirrored in a weaker yen in FX since the start of the week. The currency market is starting to detach from short-term bond swings, but the dollar’s newfound resilience could still consolidate into Thursday’s US inflation numbers.   USD: Wait and see It’s been a slow start to the week in the currency market, with the dollar being mixed but generally supported yesterday and in today’s Asian session. We continue to observe rather elevated volatility in bond markets, with long-dated Treasury yields rising again: unsurprisingly, the only notable move in FX since the weekend has been another leg higher in USD/JPY. With the Bank of Japan normalisation still looking too remote to temper bearish pressure on the yen, USD/JPY is the most exposed G10 pair to the ongoing bond market instability, especially given some signs of resilience in US equities, which limited losses in high-beta currencies. The US data calendar only includes second-tier releases until Thursday’s CPI figures. Today, the key highlights are the NFIB Small Business Confidence Optimism Index – which is expected to rise very marginally from June – trade balance figures from June, and final wholesale inventory numbers. It will be interesting to hear what FOMC members Patrick Harker and Thomas Barkin say about the economy in two separate speeches today, especially following last week’s slightly weaker-than-expected headline payroll figures. With the exception of the yen, it appears that most G10 currencies are losing their direct exposure to swings in US bond yields. At this stage, it would probably take a larger swing in yields to cause a substantial spill-over into FX than it did before the US credit downgrade by Fitch. Still, we expect some consolidation of the dollar around current levels into Thursday’s inflation numbers.
Bond Markets Feeling Weighted: US 10-Year Yield Still Pressured

CEE Update: Hungary's Inflation Dips Below 20%; Focus on State Budget and Forint's Movement

ING Economics ING Economics 08.08.2023 09:13
CEE: Inflation in Hungary finally below 20% Yesterday's meeting of the National Bank of Romania (NBR) was as expected and there were no surprises. Tomorrow, the NBR will present a new inflation report, however, for now we have silence from this side. This morning, July inflation in Hungary was released, posting a drop from 20.1% to 17.6% year-on-year. This is 0.1pp below market expectations and 0.1pp above central bank expectations. While inflation remains by far the highest in the CEE region, it is below 20% for the first time since last September and we expect it to be in single-digit territory by the end of the year. This is good news for the economy and the central bank, but also good news for the forint. Without many surprises, the market has no reason to push the central bank to cut rates faster, undermining the main attraction – FX carry. This, despite the decline in recent weeks, is one of the highest in the emerging market universe and by far the highest in the CEE region. Later today we will also get the Hungarian state budget result for July. The last two months show signs of stabilisation of the deficit at 85% of this year's target. State budgets are showing bad numbers across the region. However, in the Czech Republic, we have already seen the trend turn over, and in Romania, the government is trying to come up with a revision of the state budget in an attempt to keep the numbers under control. Today, we expect the deficit in Hungary to remain roughly unchanged. This should be good news for Hungarian government bonds. However, in case of a negative surprise, we could also see a spillover into FX due to the higher market attention. Moreover, this topic is of course linked to the EU money issue, which we expect to be back on the table in the coming weeks. So overall, everything revolves around the Hungarian forint at the moment. Values around 390 EUR/HUF open the question of whether we will hear some comments from the National Bank of Hungary, given that we are entering sensitive waters. Market positioning is probably rather balanced after the sell-off over the last few days, so we believe this leg of the move-up is over. But it is also hard to see a quick recovery. Despite a lot of local story, the correlation with the US dollar has been almost perfect for the past month. In other words, the main driver in our view is global factors and we don't see too much potential either way on this into US inflation numbers. So EUR/HUF may try to lower levels but we don't expect a big rebound after today's numbers.
Navigating Australia's Disinflationary Path: RBA Rates, Labor Market, and Inflation Outlook

Navigating Australia's Disinflationary Path: RBA Rates, Labor Market, and Inflation Outlook

ING Economics ING Economics 10.08.2023 08:38
Australia: How to ride a bumpy disinflationary path Australia's growth outlook has cooled off, but the labour market remains too tight and the decline in inflation has been primarily due to base effects. We disagree with markets' expectations that we have seen the peak in RBA rates, and expect at least one more hike. This should help a recovery in the undervalued (in the short- and medium-term) Aussie dollar.   After two months of 'no-change', the market has decided that the Reserve Bank of Australia (RBA) has finished hiking rates. We disagree. There has been only a modest slowdown in the economy, and most of the decline in inflation so far owes to base effects which are turning less helpful, while the run-rate for month-on-month inflation remains much higher than is consistent with the RBA’s inflation target. We expect at least one more hike, possibly in September or maybe waiting for the quarterly inflation numbers which will be known by the November meeting, and quite possibly two. That would take the cash rate target to 4.35% with an upper risk of 4.6%. If we are right that the US Fed has finished tightening, then this could see some outperformance of the AUD into year-end. AUD’s sensitivity to pro-cyclical trades and the shape of the yield curve, as well as its pronounced undervaluation, put it in a good position to potentially outpace other G10 peers in a multi-quarter USD decline.   The macro picture: Labour market remains tight GDP growth in Australia has slowed every quarter since the third quarter of 2022, and looks set to deliver another weak quarter of growth in the second quarter of 2023. NowCasting estimates are pointing to only about a 0.2% quarter-on-quarter increase, and 1.5% year-on-year annual growth rate in the second quarter.   Australian GDP projections   This suggests that the RBA’s rate tightening is indeed working, on top of the external factors weighing on growth (weak China re-opening, US and EU slowdown). But on many measures, the Australian economy remains robust, and this remains a concern when we dig into the inflation data and see that on some measures (admittedly not all) inflation is still running quite strong. In particular, Australia’s labour market shows only limited signs of slowdown. At 3.5%, the unemployment rate is close to its all-time low of 3.4% in October last year. And almost all of the jobs that have been created over that time have been full-time jobs, with commensurately higher weekly earnings, benefits and security than part-time jobs. That means household spending power is being supported. The consequence of this is that wages growth, though only measured quarterly, and with long lags, remains, according to the RBA’s own anecdotes, on an upward path. And this will help keep service sector inflation higher than would ideally be the case.   Wages, unemployment and inflation in Australia  
US Inflation Forecasted at 3.3%, UK GDP Projections at 0%, Fed Member Harker's Views on Rates

US Inflation Forecasted at 3.3%, UK GDP Projections at 0%, Fed Member Harker's Views on Rates

Ed Moya Ed Moya 10.08.2023 09:32
US inflation expected to rise to 3.3% UK GDP projected to fall to 0% Fed member Harker says rates may have peaked The British pound has had a relatively quiet week. In the North American session, GBP/USD is trading at 1.2731, down 0.13%. Markets eye US inflation, British GDP It has been a quiet week on the data calendar, with no tier-1 events out of the UK or the US. The rest of the week will be busier, with the US inflation report on Thursday and UK GDP on Friday. That could mean some volatility for the sleepy British pound. US inflation expected to rise The Federal Reserve’s aggressive tightening campaign has made its impact felt, as inflation has been falling and dropped to 3.0% in June. Headline CPI is expected to rise to 3.3% in July, while the core rate is expected to remain steady at 4.8%. Will an uptick in inflation change the Fed’s rate path? Probably not, especially if Jerome Powell follows the view that he has often stated, which is that a rate policy is not based on one or two inflation reports. The money markets are confident that the Fed will take a pause at the September 20th meeting, with an 86% probability according to the FedWatch tool. Another pause in November is likely (71% probability), but a higher-than-expected inflation report on Thursday would likely raise the odds of a rate hike in November.   Fed member Harker said on Tuesday that the Fed might be done raising rates, “absent any alarming new data”. Harker said that rates would need to stay at the current high levels “for a while” and went as far as to say that the Fed would likely cut rates at some point in 2024. The UK economy is not in good shape and the possibility of a recession is very real. GDP is expected to flatline in Q2 (0.0%) after a weak gain of 0.1% in the first quarter. A weaker-than-expected GDP reading could spook investors and send the British pound lower.     GBP/USD Technical GBP/USD is testing support at 1.2747. The next support level is 1.2622  1.2874 and 1.2999 are the next resistance lines
Doubts Surround Euro Amid European Economic Concerns and Political Speeches

Australian Sentiment Shift: Consumer Confidence Slides, Business Confidence Holds Steady

Kenny Fisher Kenny Fisher 10.08.2023 09:35
Australian consumer confidence declines, business confidence steady Fed member Harker says Fed may be done raising rates The Australian dollar has bounced back on Wednesday and is trading at 0.6552, up 0.13%. AUD/USD slipped 0.45% on Tuesday and dropped to its lowest level since June 1st. Australian consumer confidence slips, business mood stays steady Australia’s consumers remain deeply pessimistic about economic conditions. The Westpac consumer sentiment index declined in August by 0.4% to 81 points, well below the 100 level which divides optimists and pessimists. In July, the index rose 2.7%. Consumer sentiment fell despite the Reserve Bank of Australia’s decision in July to hold rates steady for a second straight month. The RBA has raised rates by some 400 basis points in the current cycle and high borrowing costs continue to dampen consumer sentiment. Business confidence also remains low, but the situation is somewhat better. The National Bank Business Confidence (NAB) index for July improved to 2, up from a downwardly revised -1 in June. This was the highest level since January. The zero level divides optimists from pessimists. Business conditions eased slightly to 10, indicating that businesses continue to show resilience to higher borrowing costs. The strength of the business sector is an encouraging sign that the economy could avoid a hard landing despite the RBA’s aggressive tightening cycle. Fed’s Harker eyes rate cuts in 2024 Fed member Harker said on Tuesday that the Fed might be done raising rates, “absent any alarming new data”. Harker said that rates would need to stay at the current high levels “for a while” and went as far as saying that the Fed would likely cut rates at some point in 2024. Harker was careful not to express an opinion about the September decision, but the Fed rate hike odds are just 14%, according to the FedWatch tool. The Fed raised rates in July, and Fed Chair Powell has signalled that he would raise rates one more time a stance that is clearly more hawkish than that of the markets.   AUD/USD Technical There is resistance at 0.6607 and 0.6700 0.6475 and 0.6382 are providing support  
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Dollar Weakens on Softening Fed Rate Hike Odds, US CPI Data, and Economic Outlook

Ed Moya Ed Moya 11.08.2023 08:25
Dollar falls as Fed rate hike odds soften to 10% for September and 20.2% in November US Annual CPI rose from 3.0% in June to 3.2% in July, snapping a streak of 12 consecutive declines Core CPI (ex-food/energy) fell to 4.7% year-over-year, lowest reading since October 2021   No surprises from the July CPI report After a roughly in-line inflation report, Wall Street remained optimistic that the Fed won’t need to raise rates in September.  Headline inflation rose but that was mainly due to the large drop we saw last month from the base effects.  Traders focused on the monthly readings and both headline and core saw gains held steady at 0.2%.  Markets are growing confident that the Fed is done raising rates as risk appetite remains intact as stocks rally and the dollar drops. It doesn’t seem likely that we will see a reacceleration with prices given the weakening labor market and as lending takes a hit.  The so-called super core services inflation gauge posted a 0.19% rise from a flat reading in June, but still well below last year’s half-percentage point pace.     Weekly jobless claims also came in higher than expected, which clearly supports the idea that the labor slowdown continues. The weekly first-time filings for unemployment reading rose from 227,000 to 248,000, while continuing claims edged lower from 1.692 million to 1.684 million. The Fed will have an easy time at Jackson Hole as there wasn’t anything from both the NFP and CPI report that would move members to tightening in September. The focus for the market will shift to rate cuts becoming aggressively priced in for next year, something the Fed will try to push against.     A Bank of America report showed household credit and debit card spending turned positive for the first time since March. They now expect a soft landing with no US recession.  The big question for markets is what will be the state of the economy in the fall, and whether resilience could drive a reacceleration with pricing pressures. EUR/USD The euro pullback might be over as the risk of more Fed tightening will get pushed back a couple of months.  The recent EUR/USD slide is hovering around a confluence of support that includes the 50- and -100 day SMAs and an uptrend support line that extends back to September 2022.  If bullish momentum emerges, upside targets include the 1.1250 region.  To the downside, 1.0928 provides initial support.      
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

UK Job Growth Slows as Wages Surge, Focus Shifts to CPI Release

Kenny Fisher Kenny Fisher 16.08.2023 11:45
UK job growth falls but wages soar UK releases CPI on Wednesday The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.2697, up 0.08%.   UK job market cools but wages jump Investors were treated to a mixed UK employment report today. The labour market, which has been surprisingly resilient in the face of the Bank of England’s tightening, is showing unmistakable signs of cooling. Employment fell by 66,000 in the three months to June, a huge reversal from the 102,000 gain in the previous period. The consensus estimate stood at 75,000. Notably, this was the first decline in job growth since August 2022. The unemployment rate rose from 4.0% to 4.2%, above the estimate of 4.0%, and unemployment claims rose to 29,000, up from 16,200 and above the estimate of -7,300. The one exception to the soft jobs report, but a critical one, was wage growth. Average earnings excluding bonuses rose 7.8% y/y in the three months to June, up from 7.5% and above the estimate of 7.3%. This was the highest level since records began in 2001. Average earnings including bonuses jumped 8.2%, compared to an upwardly revised 7.2% previously and above the estimate of 7.3%. The jump in wage growth will be unwelcome news for the Bank of England, as it indicates that the dreaded wage-price spiral continues to feed inflation. Higher wages are a key driver of inflation, and the BoE has warned that if wage growth doesn’t ease, it will be forced to raise rates even higher. This could mean that the weak UK economy will tip into a recession, but the BoE considers that the lesser evil compared to high inflation.   The BoE meets on September 21st and I do not envy Governor Bailey, who may have to cause more financial pain and raise rates. The UK releases the July inflation report on Wednesday, with CPI expected to fall to 6.7%, down from 7.9%. That would be a significant decline but it would still leave inflation more than triple the BoE’s target of 2%. The BoE and investors will be glued to the inflation report and I expect the British pound to have a busier day.   GBP/USD Technical GBP/USD is testing resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support    
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Challenges Ahead: Examining the Bank of England's Inflation Fight and Economic Deterioration in the UK

InstaForex Analysis InstaForex Analysis 16.08.2023 13:30
The Bank of England has raised interest rates fourteen times in a row, but has failed to make significant progress in the fight against high inflation. Moreover, recent reports, some of which were released on Tuesday, show a deterioration in various economic processes in the UK. Let's discuss this in more detail.     Inflation in the UK initially rose more sharply than in the US or EU. The market probably believed that if inflation in the UK was higher, the BoE would raise interest rates longer and stronger. To some extent, this is true since its rate has risen more compared to the European Central Bank. But at the same time, the Federal Reserve's rate is even higher and has every chance of remaining so until both central banks begin easing policies. As we can see, the pound sterling has no advantage in this regard. Unemployment in the UK has increased over the past year from 3.5% to 4.2%.   In other words, it is indeed growing in the UK, unlike in the US, where the indicator remains near its 50-year lows. Wage growth rates have increased from 5.8% to 8.2% in the last five months alone. And the faster wages grow, the higher the chances of a new acceleration in inflation. The last five quarters of the UK's GDP ended with the following results: +0.1%, -0.1%, +0.1%, +0.1%, +0.2%. Let's compare them with the last five quarters in the US: -0.6%, +3.2%, +2.6%, +2.0%, +2.4%. The difference is obvious. If the BoE's rate were now at 3% or 4%, meaning there was room for further rate hikes, the pound sterling could continue to rise based on everything mentioned above. However, the UK interest rate has risen to 5.25%, which is the highest level since 2008.   Its peak was at 5.75% in 2008. Assuming that the rate will not exceed this value, the BoE will raise the rate two more times at most. Theoretically, the central bank could increase it to 6.5-7%, which is clearly required by the current inflation rate, but for now I don't believe this will happen, and the market is unlikely to put such a scenario into prices. Therefore, monetary tightening in the UK is coming to an end, as it is in the US. America has almost achieved its target, and its economy has hardly suffered. The UK cannot boast of the same. I believe that demand for the pound will only decrease.     Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still consider targets around 1.0500-1.0600 quite realistic, and with these targets in mind, I recommend selling the instrument. The a-b-c structure looks complete and convincing. Therefore, I continue to advise selling the instrument with targets located around the 1.0836 mark and even lower. I believe that we will continue to see a bearish trend. The wave pattern of the GBP/USD pair suggests a decline.   You could have opened short positions a few weeks ago, as I advised, and now traders can close them. The pair has reached the 1.2620 mark. There's a possibility that the current downward wave could end if it is wave d. In this case, wave 5 could start from the current levels. However, in my opinion, we are currently witnessing the construction of a corrective wave within a new bearish trend segment. If that's the case, the instrument will not rise further above the 1.2840 mark, and then the construction of a new downward wave will begin.
Weak July Performance: Polish Retail Sales Disappoint Amid Economic Challenges

Weak July Performance: Polish Retail Sales Disappoint Amid Economic Challenges

ING Economics ING Economics 22.08.2023 14:40
Polish retails sales disappoint in July Retail sales join a list of disappointments in recent data readings on the Polish economy after less than stellar industrial production and labour market numbers yesterday.   Polish real retail sales fell by 4.0% YoY, and that's worse than the consensus expectation of a 3.8% decline, although milder than in June (-4.7%). Additionally, in seasonally adjusted terms, retail sales were 1.3% M/M higher in July compared to June this year. We saw retail sales decline across most major groups, except in motor vehicles & motorbikes parts, which was up 3.*% YoY, and that's consistent with the relatively strong growth in industrial production in this sector. The largest YoY declines were recorded in the groups "press, books, other sales in specialised shops" (down 13.6% YoY) or in the durable goods group "furniture, RTV, household appliances" (down 11.6%) and the category "other" (down 11.4%). Sales of food, beverages and tobacco also fell (by 4.2%), which can be linked to last year's high reference base following the influx of refugees from Ukraine. People's 'household' situation is slowly stabilising after real wage growth returned in June after almost a year of prolonged purchasing power erosion thanks to high inflation. Yesterday's labour market data, however, again saw wage growth (10.4% YoY) below CPI inflation (10.8% YoY in July). We expect a gradual improvement in household consumption in the coming months, particularly in the fourth quarter, when households’ purchasing power will improve further with disinflation continuing while wage growth remains in double digits.   Nominal wages, CPI inflation, and real retail sales, YoY, in %
SEK: Enjoying a Breather as Technical Factors Drive Correction

SEK: Enjoying a Breather as Technical Factors Drive Correction

ING Economics ING Economics 23.08.2023 10:23
SEK: Enjoying a breather The Swedish krona is emerging as an outperformer this week without any clear domestic driver justifying its strength against peers. EUR/SEK had risen above 11.90 and eyed 12.00, reaching new highs last week, and we suspect this week’s correction is primarily technically driven. News on the troubled landlord SBB continues to worry investors, although at these levels, SEK is pricing in quite a good deal of domestic risks. Incidentally, the housing market has shown signs of stabilisation, which might leave slightly wider manoeuvring room for the Riksbank to deal with high inflation. Keep a close eye on today’s Nvidia quarterly results. SEK is generally the most correlated G10 currency with US tech stocks. A disappointment on that side could trigger another EUR/SEK rally, even though some EUR softness is now helping put a cap on the pair. For the moment, a break above 12.00 is not our baseline scenario, and we see instead greater chances of a gradual – although bumpy – decline in the pair into year-end.  
Worrisome Growth Signals in Eurozone PMI: Recession Risks Loom Amid Persistent Inflation Pressures

Worrisome Growth Signals in Eurozone PMI: Recession Risks Loom Amid Persistent Inflation Pressures

ING Economics ING Economics 23.08.2023 12:44
Eurozone PMI paints worrisome growth picture Another weak PMI for the eurozone confirms a sluggish economy with recession as a downside risk. Inflation pressures for services remain stubborn as wage pressures continue to be a concern. The latter adds to our expectations that the ECB's hiking cycle is not over yet.   There is very little to like about today’s PMI. In recent months, the PMI has painted a worsening picture of eurozone activity, and August data are no different. The composite PMI dropped from 48.6 to 47 with the services PMI also dropping below 50. Inflationary concerns are not over though. The manufacturing sector has been in contraction for some time, with new orders falling and backlogs of work easing. This is helping inflationary pressures subside quickly. Services activity held up for a while but is now also showing contraction, according to the survey. While goods inflation is easing on the back of lower costs and weak demand, services inflation remains elevated for now due to increased wage cost pressures – despite weakening demand. The economic picture that we're seeing is quite worrisome. Growth in the bloc was decent at 0.3% quarter-on-quarter between April and June, but strong Irish growth masked a lot of underlying weakness. While we expect tourism to have contributed positively to third-quarter growth, business surveys like the August PMI show a picture of deteriorating activity. This makes a recession a realistic downside risk to the outlook. The main concern that the European Central Bank will have with this reading is the inflationary effect of wage pressures. The economy is cooling off significantly, but hawks on the ECB board will be tempted to push for one more hike as wage pressures are translating into elevated inflation pressures for services. The fact that the selling price inflation indicator from the PMI inched up this month clearly leaves the door open to another ECB rate hike.
Eurozone Services PMI Contracts, Global Bond Declines, Yen Rallies: Market Insights

Eurozone Services PMI Contracts, Global Bond Declines, Yen Rallies: Market Insights

Ed Moya Ed Moya 24.08.2023 12:30
Eurozone August Services PMI fell into contraction territory; dropping from 50.9 to 48.3 Treasuries extend gains after global PMIs disappoint; double digit declines across global 10-year bonds Yen rallies to a 1-week high against the dollar EUR/JPY (a daily char of which is show) as of Wednesday (8/23/2023) displays a noticeable pullback after the euro area’s service sector contraction worsened. The 20-nation bloc saw the service sector unexpectedly fell into contraction territory. This round of data does not support another round of ECB tightening. If bearishness resumes and prices fall below the 156.75 level, momentum selling could target the 154.75 region.  If the pullback is short-lived, the 158.50 zone will provide key resistance.     The eurozone is still battling elevated inflation and China’s weakness isn’t helping.  Considering how abysmal the flash PMIs were, it is surprising that inflation hasn’t significantly dropped.  After today’s poor eurozone services PMI reading, some traders are expecting the ECB might be ready to pause their tightening cycle in September.  Core inflation is still elevated, stuck at 5.5% in July, but that should drop over the next couple of reports.   ECB Rate Hike Expectations:     As ECB rate hike odds disappear, the euro looks like it could become a punching bag against the dollar.  The dollar gave back some gains after the US posted softer-than-expected PMI readings across the board.  The US service sector is barely hanging onto expansion territory and the employment component fell to 50.2, which was the lowest level since October 2022.   Jackson Hole Fed Chair Powell will try to outline the last part of their inflation fighting game plan.  The economy is weakening a little faster and that should help inflation pressures recede even further. Powell will try to balance the risks of brining inflation to target, while trying to deliver a soft landing.  He will likely try to push back rate cut bets deep into next year.    
UK PMIs Signal Economic Deceleration, Pound Edges Lower

UK PMIs Signal Economic Deceleration, Pound Edges Lower

Ed Moya Ed Moya 24.08.2023 12:45
UK manufacturing and services PMIs decelerate The British pound has edged lower on Wednesday. In the North American session, GBP/USD is trading at 1.2720, down 0.09%.     UK PMIs head lower The UK economy continues to cool down, and today’s PMI readings showed deceleration in both the manufacturing and services sectors. The Manufacturing PMI eased to 42.5 in August, down from 45.3 and below the consensus estimate of 42.5. The Services PMI disappointed and fell into contraction territory, with a reading of 48.7. This was lower than the July reading of 51.5 and missed the estimate of 50.8. GBP/USD fell over 100 basis points earlier but has recovered these losses. The weak data might not be such bad news as far as the Bank of England is concerned. The battle to curb inflation has not gone all that well, as the UK has the dubious honour of having the highest inflation among G-7 countries. If weakness in the manufacturing and services sectors dampens hiring and weighs on the tight labour markets, inflationary pressures could ease. The Bank of England meets in September and the markets have fully priced in a rate hike, but it’s unclear what will happen after that, with the markets pricing in one more hike before the end of the year. The BoE’s rate path after September will depend heavily on upcoming inflation and employment reports. It has been a light week on the data calendar and investors will be hoping for some interesting comments at the Jackson Hole Symposium which begins on Thursday. The Fed and other major central banks are expected to wind up their rate-tightening cycles and Jackson Hole has often served as a venue for announcing shifts in policy. Fed Chair Powell has insisted that the fight against inflation is not done, with inflation still above the 2% target. There is talk in the markets of the Fed trimming rates next year, but I would be surprised if Powell mentions rate cuts in his speech on Friday.   GBP/USD Technical GBP/USD pushed below support at 1.2714 and 1.2641 before rebounding higher  There is resistance at 1.2812 and 1.2885    
Taming the Dollar: Assessing Powell's Hawkish Tone Amidst BRICS Expansion

Taming the Dollar: Assessing Powell's Hawkish Tone Amidst BRICS Expansion

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.08.2023 09:22
Yes, Mr. Powell?  Those who expected the US dollar to tumble because BRICS are enlarging their alliance with top oil producers were disappointed yesterday. The US dollar extended gains to the strongest levels since the beginning of summer, as traders positioned for a hawkish speech from the Federal Reserve despite two Fed members hinting that the end of the Fed tightening is certainly near.   Boston Fed's Susan Collins said yesterday that we may be 'near a place where we can hold rates for a substantial amount of time', and Philadelphia Fed President Patrick Harker said that the Fed has 'probably done enough' and should keep the rates at restrictive levels and watch the impact on the economy.   Looking at the projections, the Fed's median rate showed in June that the Fed could increase rate one more time and stop, but pricing in the market suggests that the Fed may already be done with its rate hikes.   Bond investors are particularly focused on whether the Fed is willing to revise the neutral rate, r* - a rate at which the economy neither slows nor speeds up, higher. Any hint of a potential upside revision to the neutral rate could trigger a further bond sell-off.   Note that Jerome Powell has made it clear that the Fed itself doesn't know where this hypothetical r* stands.  But one thing looks increasingly plausible to everyone and that's what Bullard said: 'the probabilities are that we are in a new regime that will be a higher interest-rate regime', therefore a higher neutral-rate regime.   And that's best for President Biden, as inflation is one of the most effective ways to... deflate debt.  
Understanding the Factors Keeping Market Rates Under Upward Pressure

Swedish Krona's Plunge Amid Economic Challenges: Riksbank Rate Hike Expectations and Uncertain Future

Ed Moya Ed Moya 25.08.2023 09:39
Governor Thedeen say krona is fundamentally undervalued Markets fulling pricing in September Riksbank quarter-point rate hike Sweden’s government expects economy shrink by -0.8% in 2023 (previously eyed -0.4%) Sweden’s krona has been punished as the economy appears to be headed for a tough recession. Core inflation is coming down too slowly and that will keep the Riksbank hiking even as expectations grow for a lengthy recession.  The krona has not been getting any relief as many Swedes have started to embrace holding euros given the krona’s record plunge this year. Riksbank Governor Thedeen Riksbank governor Thedeen said that “the krona is too weak and it is fundamentally undervalued.” He added that “it should strengthen and we think that it will, but we know that it is almost impossible to predict currency moves over the short and medium term.” It is tough to call for a reversal after watching the krona fall to a fresh all-time low against the euro.  The current market expectations for the September meeting is to see the Riksbank raise rates by 25bps to 4.00%.  A freefalling krona is complicating the inflation fight, but that could see some relief as the outlook for the eurozone deteriorates. Expectations for the Sweden’s GDP are not seeing a strong consensus emerge.  Given the currency and inflation situation, it seems that the economy could be entering a recession that last more than a handful of quarters. The Swedish government is expecting a 0.8% decline in 2023 and a 1.0% growth for 2024.  It seems hard to believe that households will be a better position anytime soon, so a recession extending beyond 2024 seems likely.   The EUR/SEK weekly chart     EUR/SEK (weekly chart) as of Thursday (8/24/2023) shows the uptrend to record high territory is showing overbought conditions have arrived.  If the krona is able to firm up here, a mass exodus of EUR/SEK bullish bets could see price action tumble towards the 11.7118 region. If the plunge deeper into record low territory continues, EUR/SEK could make an attempt at the 12.000 which is just below the 141.% Fibonnaci expansion level of the 2020 high to 2021 low move. Last week, the krona was the most volatile G10 currency, so we should not be surprised if that volatility extends further given the chaos in the bond markets.    
Declining Bank Lending and Negative Money Growth Raise Concerns for Eurozone Economy

Euro Slides Below 1.08 Mark for First Time Since June, Fed's Harker Suggests Peak in Interest Rates

Kenny Fisher Kenny Fisher 28.08.2023 09:24
Euro falls below 1.08 for first time since June Fed’s Harker says interest rates may have peaked The euro has extended its losses for a second straight day. In the European session, EUR/USD is trading at 1.0785, down 0.23% and falling below the 1.08 line for the first time since June. Later today, Germany’s Business Climate is expected to ease for a fourth straight month. It has been a nasty slide for the euro, which has been unable to find its footing and has plunged a staggering 500 points over the past six weeks. EUR/USD is down 0.80% this week, in large part due to soft eurozone manufacturing and services PMI readings on Wednesday. The eurozone economy has been damaged by the war in Ukraine and Germany, known as the locomotive of Europe, is in trouble as well. The deterioration of China’s economy is more bad news for the eurozone’s export sector. The ECB’s rate-tightening cycle, aimed at curbing high inflation, has also dampened economic activity. Lagarde & Co. have a tricky task in charting out a rate path. If rates remain too low, inflation will remain well above the 2% target. However, too much tightening raises the risk of tipping the weak eurozone economy into a recession. Lagarde has a difficult decision to make and the markets are uncertain as well – ECB rate odds for the September meeting are around 50-50 between a hike or a pause. Harker says Fed could be done Investors are anxiously awaiting Jerome Powell’s speech at Jackson Hole later today. Meanwhile, Philadelphia Federal Reserve Harker made headlines on Thursday when he said that the Fed may have reached the end of its current rate-tightening cycle. Harker said that he didn’t see a need to raise rates further “absent any alarming new data between now and mid-September”.   At the same time, Harker stressed that he expected rates to remain at high levels for “a while” and ruled out rate cuts anytime soon. This was a pointed message to the markets not to assume that rate cuts are just around the corner.  I expect Fed Chair Powell to be even more cautious in today’s speech, perhaps with a reminder that inflation remains above target and that the door is still open to further tightening.   EUR/USD Technical There is resistance at 1.0893 and 1.0940 EUR/USD has support at 1.0825 and 1.0778    
Declining Bank Lending and Negative Money Growth Raise Concerns for Eurozone Economy

Declining Bank Lending and Negative Money Growth Raise Concerns for Eurozone Economy

ING Economics ING Economics 28.08.2023 16:25
Eurozone bank lending continues to weaken as money growth turns negative Higher interest rates and a stagnant economy keep bank lending on a weakening trend. Annual growth in broad money growth is now negative. This adds to expectations of a weak eurozone economy in the quarters ahead, but as the effects remain gradual this should not be a game-changer for the ECB ahead of its September meeting.   Annual growth in bank lending continues to trend down rapidly. Bank lending to the private sector grew by 7.1% year-on-year in September last year but fell back to just 1.6% in July. This has been driven by strong declines in business sector borrowing and a steady downward trend in household borrowing – which is mainly for mortgages. Non-financial corporate borrowing growth was 2.2% year-on-year in July, while household borrowing growth was just 1.3%. Money growth has been plummeting in recent months, as demand for borrowing weakens and the ECB starts quantitative tightening. This has resulted in the first negative reading of broad money growth (M3) in July, falling from growth of 0.6% to -0.4% year-on-year. Narrow money growth (M1) fell by -9.2% in July. Overall, monetary developments show that there is continued weakening of lending happening at the moment and that the money supply is shrinking. The trend remains rather gradual though. This means that the impact of higher rates on the economy continues to happen gradually and without any shocks. Still, there are no guarantees how this will develop further and weaker lending will result in lower investment down the line. With economic activity already in stagnation mode at the moment, monetary policy is set to contribute to a weak economic environment for the quarters ahead. The next ECB rate decision is in two-and-a-half weeks’ time and there are not too many key data points out in the interim that can sway the governing council’s decision. Today’s data show the continued significant impact of monetary policy, but the impact remains gradual. This means that they are unlikely to be game-changers for the no doubt heated debate among the governing council about whether another hike is necessary next month.
China's Supportive Measures and Metals Market Outlook

China's Supportive Measures and Metals Market Outlook

ING Economics ING Economics 29.08.2023 10:10
Metals – Supportive measures from China China announced some measures on Monday to support the economy and financial markets. Beijing has reduced the stamp duty on stock trading by 50% (from 0.1% to 0.05%), with the Chinese Securities Regulatory Commission also approving new retail funds to increase capital inflow and tightening IPO regulations to boost confidence among investors. Meanwhile, the National Development and Reforms Commission also pledged to increase private investments in the construction of national and key infrastructure projects including transportation, advanced manufacturing, and modern agriculture facilities among others. In addition, China announced some measures to support the flailing property sector. These measures have helped broader sentiment in financial markets. This is likely to see LME metals opening stronger today, with yesterday a bank holiday in the UK. Spot gold has managed to edge higher in recent days with the market reacting to hints from Jackson Hole that the Federal Reserve will likely keep rates unchanged at its September FOMC meeting. However, we could see some renewed pressure later in the year, with the market still coming around to the idea that the Fed may have to hike rates at least one more time later in the year. This continues to support the US dollar and treasury yields. However, we will need to keep a close eye on US data releases in the coming weeks, which could shed more light on what the Fed may do. This starts with the US jobs report on Friday. Despite strength in recent days, gold ETFs have seen 13 consecutive weeks of outflows. In addition, CFTC data show that over the last reporting week, speculators cut their net long in COMEX gold by 20,845 lots over the week to 25,695 lots, the lowest levels since March.
US Inflation Report Sets the Tone for Upcoming FOMC Meeting

German Government's Ten-Point Program for Economic Support: Assessing the Impact

ING Economics ING Economics 30.08.2023 09:55
German government sends in the paramedics The recent ‘Sick man of Europe’ debate seems to have woken up the German government. The government just announced a ten-point programme to support the economy. We are afraid that today’s announcement will not be enough and only be the beginning.   The summer break in Germany was anything but calm. Ongoing tensions between the government’s coalition partners and a growing concern that the economy was in for a longer period of stagnation had increased the sense of urgency to act. In a regular post-summer offsite, covering several topics, the government today agreed on a ten-point programme to support the economy. Not everything in this programme, however, is new. It is in fact a combination of old and new measures. Here are the details: The main new element is a so-called Growth Opportunity Law, basically introducing tax allowances and tax incentives for investments in energy efficiency, research and development. It also includes new depreciation rules for investments in new building to support the real estate and construction sector. According to the government, this law should provide fiscal stimulus of around 7bn euro per year. Start-up capital of around 1bn euro. For the rest, the programmes includes the already pre-announced Climate and Transformation Fund with more than 200bn euro to finance the green transition. According to the government announcement, 100bn euro from this fund would be available next year. The programme also includes the usual announcements to reduce bureaucracy, invest in e-government, speed up public tenders and provide secure and affordable energy. It also has some shoulder-clapping elements, stressing the measures taken already so far. Interesting is also what the programme doesn’t include. The currently heatedly discussed energy price cap for industry is not (yet) part of the programme.     Today's package is not a game-changer In short, many of Germany’s current economic problems are homemade and cannot be solved with one magic fiscal bullet. Therefore, it is not only about the numbers. But… the additional fiscal stimulus announced today is basically 8bn euro (0.2% GDP), which is less than the recently announced earmarked 20bn euro for potential subsidies for the chip industry. Consequently, today’s package will not be the big game-changer for the German economy. Still, it shows that the government has finally become aware of the economy’s problems but it will probably require more and more concrete steps into the same direction to get the economy up to speed again. Paramedics are normally not trained to provide long-term therapy.
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

China's Economic Pulse: Continued Downbeat Signals in PMIs Amidst Mixed Recovery

ING Economics ING Economics 31.08.2023 10:22
China PMIs remain downbeat A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop.   Mixed news - but no real improvement in total The latest official PMI data were not uniformly bad. The manufacturing index actually rose slightly, to 49.7, and this is the third consecutive increase since the May trough of 48.8. But it remains below the 50-level that is associated with expansion, and so merely represents a moderation in the rate of decline. That may be of some comfort to those of a sunny disposition.  The non-manufacturing series, which had reflected the bulk of the post-re-opening recovery, fell further in August. The index of 51.0 was a little lower than the forecast figures (51.2) but it is at least still slightly above contraction territory.   China official PMIs (50 = threshold for expansion / contraction)   Brighter signs in manufacturing Looking at the components underlying both series and starting with the manufacturing series: the latest data show an improvement in production to a point which actually points to expansion. That has to be tempered by the forward-looking elements of orders. Here, the data is mixed. Total orders have improved to hit the 50 threshold signalling that contraction has ended. This must be mainly domestic orders, as the export orders series remains bombed out. But that at least provides some encouragement about the near-term outlook.    Manufacturing PMI components   Outlook for service sector remains negative The forward-looking elements of the service sector PMI index remain in contraction territory, unlike their manufacturing counterparts, and that suggests that the headline index has probably not yet troughed and will fall further. A glimmer of hope may be in the export series, which, while clearly continuing to signal contraction, did fractionally rise this month.  Overall, though, both series seem to be converging on a point close to 50 consistent with an economy that is neither expanding nor contracting. Things could be worse. But markets are not likely to take too much comfort from this set of data.      Non-manufacturing PMI sub-components
Crude Conundrum: Will Oil Prices Reach $100pb Amid Supply Cuts and Inflation Concerns?

Jerome Powell's Enigmatic Speech at Jackson Hole: A Bumpy Landing Ahead, According to Franklin Templeton

Franklin Templeton Franklin Templeton 31.08.2023 10:48
According to Franklin Templeton, in his day, Federal Reserve (Fed) Chairman Alan Greenspan was (in)famous for his irascible obscurity—often speaking without being fully understood. In this year’s much-anticipated speech at the Fed’s annual central bankers’ gathering in Jackson Hole, Chairman Jerome Powell appears to have employed Greenspan’s speechwriter. Powell said a lot about the economy and inflation, but he obscured a great deal about future Fed policy. Yet beneath the (intended?) fog of his remarks was a worrisome message for devotees of soft-landing scenarios. Fasten seatbelts—the arriving passengers won’t enjoy a view of the majestic Tetons and should brace for a bumpy landing.    In his day, Federal Reserve (Fed) Chairman Alan Greenspan was (in)famous for his irascible obscurity—often speaking without being fully understood. In this year’s much-anticipated speech at the Fed’s annual central bankers’ gathering in Jackson Hole, Chairman Jerome Powell appears to have employed Greenspan’s speechwriter. Powell said a lot about the economy and inflation, but he obscured a great deal about future Fed policy. Yet beneath the (intended?) fog of his remarks was a worrisome message for devotees of soft-landing scenarios. Fasten seatbelts—the arriving passengers won’t enjoy a view of the majestic Tetons and should brace for a bumpy landing. The initial market response has been minimal. Equity and bond prices bounced around immediately after the speech, but diverged somewhat by the close as stocks finished higher while bond yields rose. We’re not sure that’s right and here’s why:   Powell’s key points To begin, Powell’s speech was a somewhat dull resuscitation of recent economic data, with a focus on the details of core personal consumption expenditures inflation (the Fed’s preferred measure). Having noted welcome declines in goods inflation and a probable decline in shelter inflation, Powell emphasized that non-housing core services inflation has been less responsive to either changes in the economy or to Fed tightening. Powell also remarked that current Fed policy is already “restrictive,” meaning that the real (inflation-adjusted) fed funds rate is above broadly accepted ranges of what constitutes its “neutral” level. But Powell carefully avoided saying what comes next. He noted that it could be a longer pause or additional rate hikes. But by failing to mention rate cuts, he sent his clearest message of the speech, namely that the Fed is either on hold with an already restrictive stance or might hike rates further. Easing anytime soon, however, is off the table.   Slave to dead economists? That’s the clearest message from Powell. Parsing his other “Greenspan-esque” remarks, it seems the Fed is sticking to the view that the achievement of its 2% inflation objective requires “slack” in the economy. “Slack” is, of course, a euphemism for job losses. That idea stems from the Phillips Curve—first developed over 60 years ago—which purports to show an inverse relationship between inflation and unemployment (i.e., higher unemployment leads to lower inflation). But many economists are less certain. The Phillips Curve has never depicted a stable relationship between joblessness and inflation, and in recent decades it has been even less reliable. In fact, many measures of US inflation have fallen significantly this year without the unemployment rate rising. However, it seems as though most Federal Open Market Committee members side with Powell’s Phillips Curve approach. If so, then the Fed is indeed laying down a marker for investors. Specifically, the implication is that policy must remain restrictive (or become more restrictive) until the unemployment rate rises. Also, the Fed’s threshold level of “slack” appears to be at least a 4.0% US unemployment rate (up from 3.6%). If so, the Fed is signaling that despite (or because of) the fog that surrounds our understanding of inflation dynamics, a bumpy landing is an unavoidable necessity.  
Unraveling the Resilience: US Growth, Corporate Debt, and Market Surprises in 2023

Unraveling the Resilience: US Growth, Corporate Debt, and Market Surprises in 2023

Franklin Templeton Franklin Templeton 31.08.2023 10:50
The resilience of US growth, earnings, and markets in 2023 has surprised many. After more than a year of aggressive Federal Reserve (Fed) rate hikes, the fact that the United States managed to avoid a recession, experience an upswing in US corporate earnings expectations, and witness a strong rebound in major equity indexes was unexpected at the beginning of the year. While numerous explanations have been offered to account for these phenomena, one crucial factor seems to have been overlooked—US private sector debt. Over the past 15 years, significant changes have occurred in US household and corporate sector indebtedness, reshaping the economy, profits, and equity valuations. These changes have made these factors less sensitive to monetary policy than they have been in over a generation.     The resilience of US growth, earnings and markets has been the big surprise of 2023. Following more than a year of aggressive Federal Reserve (Fed) rate hikes, few would have believed at the beginning of this year that the United States would avoid a recession, see an upswing in US corporate earnings expectations, and enjoy a strong rebound of major equity indexes. While many explanations have been offered to explain these phenomena, one important factor has been generally overlooked—US private sector debt. Over the past 15 years, US household and corporate sector indebtedness has changed significantly and in ways that make the economy, profits and equity valuations less sensitive to monetary policy than at any time in over a generation. We will focus on the corporate debt story here. But we must note that household borrowing habits have also changed in important ways since the global financial crisis (GFC). Total household debt, as a share of gross domestic product (GDP), has fallen by nearly a third since 2008. Credit standards have tightened, with fewer at-risk households able to borrow or borrow as much. And, importantly, mortgage borrowing has reverted to conventional 30-year fixed rate mortgages and away from floating rate or adjustable-rate mortgages. As a result, the lags between the Fed’s short-rate hikes and debt servicing costs in the household sector have lengthened. Those factors alone help explain why the US economy and consumer spending have held up better than many thought they would at the onset of 2023. A strong labor market, underpinned by post-COVID re-hiring, shortages of able-bodied workers, and fiscal stimulus have also contributed significantly to the resilience of demand. But for economists, policymakers and investors, there has been another interesting debt development underway: the absence of any discernable impact of rising interest rates on corporate profitability. That outcome deserves closer attention, because it has important implications for growth, profits and equity as well as credit market outcomes.   What has changed? Just as for the household sector, the GFC unleashed significant changes in the way companies borrow. Although overall corporate de-leveraging was more modest for companies than households since the GFC, a similar development has taken place in the tenor of borrowing. Specifically, one of the consequences of the GFC was to reduce company reliance on short-term borrowings such as commercial paper or bank loans and replace it with public and private credit instruments with longer maturities and fixed terms. For example, the commercial paper market was roughly $2.2 trillion in mid-2007 and as of August 2023, it is close to $1.2 trillion.1 In that same span, US investment-grade and US high-yield debt markets have mushroomed from $2.1 trillion to $7.8 trillion, and from $0.7 trillion to $1.2 trillion respectively.2 Meanwhile, global private credit has grown by $1 trillion.3 Mostly, those borrowings are fixed rate and the average maturities across these three asset classes range from 4 to 10 years.   Accordingly, lags between rising interest rates (courtesy of Fed tightening) and corporate debt servicing costs have lengthened. As a result, the corporate sector, by virtue of structural changes in corporate finance, has thus far been sheltered from the harshest impacts of what has otherwise been an aggressive series of Fed rate hikes since early 2022. But that is not all. As the most recent data for the second-quarter 2023 earnings season shows, companies across many sectors are reporting falling net interest costs, despite higher interest rates at all maturities. How is that possible? Part of the answer resides in an inverted yield curve, with short-term rates above long-term rates. Companies with high cash balances (based on resilient earnings as well as prudent capital spending) are enjoying higher interest revenues by parking their money in short-dated notes, but low interest costs having locked in lower rates via longer-term borrowing. The corporate sector is, in sum, playing an inverted yield curve to its benefit. That is a contributing factor to explain why, for virtually every sector in the S&P 500 Index (except for consumer staples and health care), net interest expense as a percentage of net profit is lower today than it was 20 years ago. Indeed, for the S&P 500 as whole, net interest expense as a percentage of net profit is today only about 40% of its 2003 level.4 The result is higher earnings—boosting share prices—as well as a more resilient corporate sector to Fed tightening. But is this happy situation sustainable? In the long run, no. At some point, new borrowings are required and maturing debt must be rolled over. If borrowing costs remain elevated, the good times will go away. But the corporate debt shield may yet endure for longer. That is because maturity extension has been significant for many companies and across many sectors. Since the end of 2020, for example, the proportion of investment-grade debt maturing after 2028 has gone from roughly 48% to 56%.5 This trend is even more pronounced among high yield (sub-investment grade) borrowers, with the proportion of borrowings extending beyond 2028 rising from 20% to roughly 42% of the market.6 And, of course, if rates fall between now and then (as would seem likely as inflation recedes), then companies may refinance on more agreeable terms before their debt matures.   It is also interesting to see where these developments are particularly significant. Within investment- grade markets, financials lead the way with a 50% increase in longer dated debt.7 The energy and technology sectors have witnessed increases of over 25%.8 At the other end of the borrowing spectrum, health care has not recorded a similar shift in debt maturity and, perhaps as a result, it has seen net interest expense take a bigger chunk out of net earnings in recent quarters.     The fact that profits have been shielded from the impacts of Fed tightening helps explain continued company interest in hiring. It also points to a positive feedback loop between profits, employment and demand that, while not sustainable forever, has helped to support US economic growth well into 2023. If so, the resilience of earnings and growth has another key implication for investors—namely reduced default risk. Credit risk is more nuanced. Individual defaults remain possible, and some will be unavoidable. But barring a freezing up of lending markets, overall corporate default rates are likely to be lower in this cycle than in prior ones.
Assessing the Resilience of the US Economy Amidst Rising Challenges and Recession Expectations

ECB at a Crossroads: Inflation Concerns and the Prospect of a Final Rate Hike

ING Economics ING Economics 01.09.2023 09:29
European Central Bank Macro developments over the summer have caused further complications for the ECB. While the rapid worsening of the economy should come as a surprise, at least judging from overly optimistic ECB growth forecasts so far, the speed with which headline inflation is coming down should still leave the central bank uncomfortable. Core inflation also remains too high and wage growth up until now signals that even without excessive wage settlements core inflation could stay higher for longer. We still expect headline inflation to come down significantly after the summer, mainly on the back of German headline inflation falling. However, if the ECB sticks to its stance of putting more emphasis on actual data rather than on expected data, the current inflation picture still argues in favour of another rate hike. After 425bp of rate hikes in slightly more than a year, a pause in the ECB’s hiking cycle at the September meeting would make perfect sense. However, the worsening economy and our expectation of an acceleration of disinflationary risks after the summer could easily transform a pause into an actual full stop. The question is whether everyone at the ECB could live with a terminal rate of 3.75%. We think that the hawks would prefer 4% and will therefore push for one final rate hike at the September meeting. A last one for the road, even if it remains a very close call.  
Bank of England's Rate Dilemma: A September Hike and the Uncertain Path Ahead

Bank of England's Rate Dilemma: A September Hike and the Uncertain Path Ahead

ING Economics ING Economics 01.09.2023 09:30
Bank of England The Bank of England looks poised to hike rates again in September, but November is less certain. Private sector wage growth is at a cycle high and looks unlikely to slow dramatically by the end of the year, and certainly not before November. Meanwhile, services inflation has risen higher again. And while we think the impact of lower gas prices should start to show through here with a lag, progress is likely to be limited by the time of the November meeting. That said, the wider economy is showing signs of slowing amid higher interest rates, and the jobs market is also noticeably cooling. We’re likely to see more evidence of this over the next couple of months. We’re erring on the side of a pause in November, but we don’t rule out another hike. Bigger picture, the BoE is clear that it wants to keep rates high for a prolonged period. We’ve pencilled in the first cut for the second quarter of next year but we acknowledge that may end up being delayed.  
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India's Robust 2Q23 GDP Growth of 7.8% Signals Economic Strength

ING Economics ING Economics 01.09.2023 10:15
India: GDP growth accelerates in 2Q23 At 7.8% YoY, India's GDP print for 2Q23 was precisely in line with the consensus expectation but nonetheless, singles out India as one of the few economies in the region where growth is actually firming, not declining. Total calendar-year growth of 7% or close is within reach.   No surprise, but it's still a good result The consensus forecast seems to have correctly decided to trust in some of the NowCasts circulating, which also pointed to a 7.8% growth rate. But although the number was correctly anticipated, this doesn't reduce just what a good figure this is.  Across the region, the combination of China's faltering economy, along with the lingering impacts of the semiconductor downcycle, is keeping growth subdued, and in some cases, actually weakening. Not so in India, where growth remains very firm. Part of that is clearly due to the very limited direct exposure to trade with China - the legacy of decades of political tensions. India is also not as exposed to the semiconductor industry as some other economies in the region, though this is slowly changing as supply chains are shifted around the region. At least for now, that has provided some insulation for India against some of the headwinds being faced by other Asian economies.    Where's the growth coming from Despite what was a fairly generous Union Budget this year, with only a modest reduction in the deficit target to 5.9% of GDP in fiscal 2023/24 from 6.4% in fiscal 2022/23, government spending is doing none of the direct heavy lifting at the moment. That said, behind the scenes, government capex and infrastructure development is almost certainly helping to draw in private investment growth. Capital investment contributed 2.8 percentage points of the 7.8% GDP growth total - another solid contribution after the 3.1pp contribution in 1Q23.  The other big contributor remained consumer spending. This too has been consistently strong, but has more than doubled its contribution this quarter to 3.5pp, up from 1.6pp in 1Q23.  The only blot on the ledger was from net exports, which were a substantial drag on growth this quarter, though this has not shown up in terms of a large inventory build, which often happens, so that doesn't necessarily imply any ominous unwinding of stock build-ups in the coming quarters. There was, however, also a fairly chunky swing in the "discrepancies" part of GDP, which is a residual term to account for GDP not picked up in the other main areas. This may well end up being reclassified into stocks at some point, so we aren't ruling out a future stock correction just yet.     Contributions to YoY% GDP growth (pp)
ECB's Potential Hike Faces Limited Rate Upside as Macro Headwinds Persist

India's Strong Economic Growth in 2Q23 Sets a Positive Trend

ING Economics ING Economics 01.09.2023 10:15
Production measures also looking promising GDP, or more precisely GVA (gross value added) measured in terms of industrial sector production, is also with a quick look.  Here, we see that the main engine for growth is not industry, which has slowed a little, but the service sector. And that ties in with the consumer spending observation we made earlier. Agriculture contributed a little less this quarter - perhaps reflecting the erratic monsoons we have seen this year.    GVA by sector (contribution to growth pp)   RBI easing not a priority Putting all of this together, it looks like the Reserve Bank of India (RBI) will be in no hurry to cut rates. Growth is clearly very strong and it looks like it will remain so in the quarters ahead. A growth rate of about 7% for the full calendar year looks probable, and something in the 6-7% range for next year is also looking likely.  The recent upward spike in inflation is, for now, almost entirely food price-driven, and there are already signs that the worst increases in tomatoes and onions are behind us, so there is equally little need for the RBI to tighten rates in response to this growth backdrop. The 6.5% policy rate will already look quite restrictive once the inflation numbers settle down again, which we believe they will do soon. Rate cuts are most likely the next direction for the RBI, but these can wait until next year. 
The ECB's Rate Hike: EUR/USD Rally in Question

Oil Prices Extend Rally Amid Mixed Chinese Data and Technical Signals

Kenny Fisher Kenny Fisher 01.09.2023 11:34
Strong run continues Chinese data doesn’t hinder the rally Momentum may be key as price approaches August highs   Oil prices are nudging higher again today, technically on course for a fifth day of gains in six in Brent – six in a row in WTI – although broadly speaking they’re just a little above the middle of what appears to be a newly established range. Brent peaked near $88 a few weeks ago and bottomed around $82 last week as we await more direction on the economy and therefore demand. Data this week has been on the weaker side, although it’s the jobs report tomorrow we’re most interested in. The Chinese PMIs overnight had something for everyone. Manufacturing was unexpectedly improved but still contracting at 49.7 while services were quite the opposite, expanding but at a slower pace than anticipated. All in all, it continues to paint the picture of a sluggish economy that’s showing few signs of bouncing back stronger.   Head and shoulders not meant to be The head and shoulders that formed over the last month appears to have failed before it even completed, with the recent rally taking the price above the peak of the right shoulder.     BCOUSD Daily   While these formations are never perfect, as per the textbook, and it could be argued that a decline from here could still potentially qualify as a second right shoulder, that may be clutching at this point. It’s peaked a dollar above, even if it only looks relatively minor on the chart which suggests to me the previous formation – which is only complete with a break of the neckline – is now null and void. Perhaps I can be persuaded otherwise if the price heads south from here. The question now is how bullish a signal this actually is? Are we going to see a run at this month’s highs? A break above $90? I’m not convinced at this stage. Recent momentum looks quite healthy but which could be a promising sign. But that will only be put to the test as we near the previous highs around $88. If the MACD and stochastic keep making higher highs as the price approaches $88 then that would certainly look more promising.  
US ISM Reports Indicate GDP Slowdown Despite Strong Construction; Manufacturing Continues to Contract

US ISM Reports Indicate GDP Slowdown Despite Strong Construction; Manufacturing Continues to Contract

ING Economics ING Economics 04.09.2023 10:40
US ISM reports remain consistent with GDP slowdown despite the construction boom Construction spending is performing strongly, but the ISM reports shows manufacturing has contracted for 10 consecutive months while next week's ISM services index is expected to post a headline reading consistent with the economy growing at a rate closer to 1% year-on-year rather than the 2.5% rate recorded in the second quarter.   ISM manufacturing index signals 10 months of contraction US ISM manufacturing index rose more than expected in August to stand at 47.6 versus 46.4 in July (consensus 47.0), but this is the tenth consecutive month it has come in below the break-even 50 level i.e. indicating contraction. The ISM surveys asks companies a range of questions on employment levels, orders, output, supplier delivery times and price pressures in order to come up with a broader picture of the state of the sector rather than measuring output alone such as in the industrial production report. The output index improved to 50 from 48.3, but new orders slipped back to 46.8. Prices paid moved higher to 48.4 from 42.6 but because this is below 50 it merely means that the rate of price declines are slowing rather than prices are moving higher. As such inflation pressures emanating from the manufacturing sector remain minimal and are consistent with goods consumer price inflation slowing closer to zero.     ISM reports suggest the economy is weaker than the GDP report has been signalling   Construction boom is a clear positive Meanwhile, construction spending rose 0.7% month-on-month versus the 0.5% consensus with June’s growth rate revised up to 0.6% from 0.5%. The housing market was a source of concern at the start of the year, but even with mortgage rates at 20-year highs and mortgage applications having halved, prices have stabilised and are now rising again nationally. Home supply has fallen just as sharply, with those homeowners locked in at 2.5-3.5% mortgage rates reluctant to sell and give up that cheap financing when moving to a different home and renting remains so expensive. This rise in property prices has boosted builder sentiment and lifted new home construction with residential construction rising 1.4% MoM in July after gains of 1.5% in June and 3.5% in May. Meanwhile, infrastructure projects under the umbrella of the Inflation Reduction Act are supporting non-residential construction activity, which posted the 14th consecutive monthly gain to stand 16.5% higher than 12 months ago.   Slower GDP growth ahead Construction is the stand out performer in the US right now, but next week's service sector ISM is predicted to slow to 52.4 from 52.7 and the combination of the two ISM series has historically been consistent with US GDP growth of 0-1% YoY, rather than the 2.5% the US posted in the second quarter (see chart). Just as the jobs report did earlier today, the ISM indices suggest little need for any further interest rate rises from the Federal Reserve.    
US CPI Surprises on the Upside, but Fed Expectations Unchanged Amid Rising Recession Risks

Canada's Q2 GDP Eases, US Nonfarm Payrolls Expected at 177,000 - Impact on USD/CAD

Craig Erlam Craig Erlam 04.09.2023 10:58
Canada’s GDP expected to ease in Q2 US nonfarm employment payrolls expected to dip to 177,000 The Canadian dollar is calm in the European session, trading at 1.3500, down 0.07%. I expect to see stronger movement from USD/CAD in the North American session, as Canada releases second-quarter GDP and the US publishes the July employment report. Canada’s GDP expected to slow in Q2 Canada usually releases employment reports on the same day as the US, but Canada’s July jobs report won’t be released until next week. Instead, today we have Canada’s GDP, a key release, along with the US employment release. Canada’s economy rebounded in the first quarter, as GDP rose 0.8% q/q. This beat the consensus estimate of 0.4% and added support to the case for the Bank of Canada raising rates at the September 6th meeting. However, today’s GDP report could chill rate hike expectations if the economy took a step backward in the second quarter. The consensus estimate for Q2 GDP stands at 0.3% q/q, which would indicate weak economic growth. If GDP is stronger than expected, the odds of a rate hike will likely increase. The GDP report is the final key release out of Canada prior to the rate meeting, which adds significance to the GDP release. Investors will also be keeping a close eye on the July US employment report, highlighted by nonfarm payrolls. On Wednesday, ADP Employment Change fell sharply to 177,000, down from a revised 371,000. The nonfarm payroll report is expected to decline slightly to 170,000, compared to 187,000 in the previous reading.   If nonfarm payrolls is within expectations, it will mark the third straight month of gains below 200,000, a clear sign that the US economy is cooling. This would not only cement an expected pause by the Federal Reserve next week but would also bolster the case for the Fed to hold rates for the next few months and possibly into 2024. . USD/CAD Technical USD/CAD tested resistance at 1.3523 earlier. Above, there is resistance at 1.3580 1.3444 and 1.3377 are providing support  
Canadian Economic Contraction Points to Bank of Canada's Pause

Canadian Economic Contraction Points to Bank of Canada's Pause

ING Economics ING Economics 04.09.2023 15:37
Canadian growth shocker confirms central bank to pause Canada’s economy surprisingly contracted in the second quarter with consumer spending slowing sharply and residential investment collapsing. Together with a cooling labour market, this should ease the Bank of Canada's inflation fears and lead to a no-change decision on 6 Sep. Still, the USD/CAD rally appears overdone, and we expect a correction soon.   We expect a pause this week Ahead of last Friday’s data, analysts were favouring a no-change outcome with just three out of 32 economists surveyed by Bloomberg expecting a 25bp interest rate increase while overnight index swaps suggested the market saw only a 15% chance of a hike. This was despite headline inflation surprising to the upside in July and the BoC signalling at the July policy meeting that it continued to believe inflation would only return to 2% by mid-2025 and that the door remained open to further hikes. The GDP numbers and the manufacturing PMI that we got on Friday have only cemented the no-change expectation. Markets are now pricing little more than a 1% chance of a hike after the economy contracted 0.2% annualised in 2Q versus expectations of a 1.2% increase while 1Q GDP growth was revised down from 3.1% to 2.6%. Consumer spending rose just 1% annualised while residential investment fell 8.2% to post a fifth consecutive substantial contraction. Net trade was also a drag, but there was at least a decent non-residential investment growth figure of 10.3%. Meanwhile, the manufacturing PMI slipped to 48.0 from 49.6 to post its fourth consecutive sub-50 (contraction) reading.   Canadian unemployment and inflation   Given the economy lost jobs in July we completely agree that the BoC will leave rates unchanged this month after having resumed hikes in June and July following a pause since January. Nonetheless, the BoC is likely to leave this as a hawkish hold given that policymakers are yet to be fully convinced they’ve done enough to return inflation sustainably to 2% given the recent stickiness seen. At a bare minimum, we will get a messaging of rates staying “higher for longer”, but given the perilous state of the Canadian property market and signs of spreading weakness globally, we do expect rate cuts to come onto the agenda by March next year.   CAD weakness not justified USD/CAD has rallied 3% since the start of August, broadly in line with the general strengthening in the US dollar, but in contrast with short-term USD:CAD rate differential dynamics. While USD/CAD rose in the past month from 1.32 to 1.36, the USD:CAD two-year swap rate differential was relatively stable in the -50/-40bp range throughout August, and only tightened to -30/-35bp after Canada’s poor 2Q GDP report.   Our short-term valuation model, which includes swap rate differentials as an endogenous variable, shows that USD/CAD is trading more than 2% over its fair value, a rather unusual mis-valuation level for the pair. Incidentally, CFTC data shows that speculators have moved back into bearish positioning on the loonie in recent weeks, with net-shorts now amounting to 9% of open interest.   USD/CAD is overvalued   We don’t expect the BoC to turn the tide for CAD, but the recent weakness in the loonie appears overdone, and technical indicators suggest a rebound is on the cards. We still expect USD/CAD to end the year close to 1.30 as CAD should benefit from the most attractive risk-adjusted carry in the G10, even without any more hikes by the BoC.    
Canada's GDP Contracts in Second Quarter, US Nonfarm Payrolls Signal Weak Labor Market

Canada's GDP Contracts in Second Quarter, US Nonfarm Payrolls Signal Weak Labor Market

Kenny Fisher Kenny Fisher 05.09.2023 11:45
Canada’s GDP contracts in second quarter US nonfarm payrolls, wages point to weak US labour market The Canadian dollar is unchanged early in Monday’s North American session, trading at 1.3594. Canada’s GDP unexpectedly soft in Q2 The Canadian dollar posted gains throughout last week but surrendered all of those gains on Friday after second-quarter GDP was softer than expected. Canada’s economy contracted in the second quarter by 0.2% y/y, much weaker than the consensus of a 1.2% gain. The Bank of Canada was also taken by surprise, as it had projected a gain of 1.5%. The economy has slowed sharply since the first quarter, which showed GDP at a revised gain of 2.6%. The BoC’s rate hikes continue to filter throughout the economy, which may be in a slight recession, as June GDP contracted by 0.2% and July is expected around zero. The GDP report was the last major domestic release before the BoC meeting on Wednesday. The soft data has cemented a pause from the BoC, after two consecutive meetings in which the BoC raised rates by a quarter-point but said that the decisions were a close call between a hike and a hold. The BoC odds for a hold have jumped to 97%, up from 78% prior to the GDP release. With a pause a virtual certainty, investors’ focus will be on the rate statement. Goldman Sachs is projecting a pause and one final rate hike in October.     In the US, the August employment report pointed to a cooling labour market. Nonfarm payrolls came in at 187,000, the third straight release below 200,00. Wage growth fell to 0.2% in August, down from 0.4% in July and below the consensus of 0.3%. The weak jobs report raised the odds of a Fed hold at the September meeting to 93% according to the FedWatch tool, up sharply from 78% just a week ago. . USD/CAD Technical USD/CAD is putting pressure on support at 1.3573. Below, there is support at 1.3509 1.3657 and 1.3721 are the next resistance lines  
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Finance in Flux: UBS's Record-Breaking Profits and Shifting Industry Tides

FXMAG Education FXMAG Education 05.09.2023 12:13
In the ever-evolving world of finance, recent developments have brought about significant changes in the banking sector. From historic profits to a shift away from remote work, these developments are reshaping the industry. Let's explore the key events that are making waves in the financial world.   Historic Profits at UBS One of the standout events in the financial sector is UBS's remarkable Q2 profit of $28.8 billion. This achievement can be largely attributed to the bank's acquisition of Credit Suisse, marking it as a historic milestone. This financial juggernaut's success underscores the importance of strategic acquisitions in the banking industry.   Return-to-Office Initiatives In a noteworthy shift, banks are taking a tougher stance on employees who prefer remote work. The era of widespread remote work, necessitated by the pandemic, is slowly coming to an end. Banks are now urging their staff to return to the office, signaling a return to pre-pandemic work norms. This change carries implications for work culture and the future of office spaces in the banking world.   Carbon Credit Market Uncertainty Confidence in the carbon credit market is waning. Carbon credits have been a vital tool in mitigating climate change, but recent events have raised concerns. As major players step back from the market, questions are being raised about its future effectiveness. The uncertainties surrounding carbon credits could have far-reaching consequences for environmental policies and sustainability efforts.   China's Economic Boost China, a key player in the global economy, is actively taking steps to boost its economic standing and strengthen its currency. As the world watches China's efforts to stimulate its economy, the implications for global markets are significant. The strategies employed by China could influence trade, investment, and currency dynamics on a global scale.   Airline Earnings Under Pressure The airline industry is facing headwinds as earnings outlooks dim. Factors such as rising fuel costs and economic uncertainties are impacting the profitability of airlines. As travelers cautiously return to the skies, airline companies are navigating a complex and challenging landscape.   NYC's Pension CIO Perspective In the realm of investment, the Chief Investment Officer (CIO) of New York City's Pension Fund provides insights into the impact of Wall Street's Environmental, Social, and Governance (ESG) pullback. Despite the recent trend of ESG considerations in investments, NYC's Pension Fund remains resilient, shedding light on the varying responses of institutional investors to ESG factors. The banking and financial sector is undergoing a period of significant transformation. UBS's historic profit, the return-to-office trend, carbon credit market concerns, China's economic endeavors, airline industry challenges, and the nuanced response to ESG factors are all contributing to a dynamic landscape. These developments not only shape the industry but also have broader implications for the global economy. As the financial world continues to evolve, staying informed and adaptable is key to navigating these changes successfully.    
Rates Reversal: US Long Yields on the Rise as Curve Dis-Inverts

Rates Reversal: US Long Yields on the Rise as Curve Dis-Inverts

ING Economics ING Economics 06.09.2023 12:17
Rates Spark: Dis-inversion from the back end We rationalise why US longer tenor rates are rising – basically, the curve is inverted and getting used to discounting structurally higher rates. If so, reversion to a normal curve must mean dis-inversion from the back end. When something breaks, that will change. But for now, it's more of the same: upward pressure on long yields.   The US curve can't stay inverted forever. So if rates don't get cut, long rates must rise There are many theories swirling around as to why the US 10yr yield did an about-turn on Friday, post-payrolls. It had initially lurched towards 4%. But in a flash, it was heading back towards 4.25%. We rationalise this based on two factors. First, the curve remains very inverted, with longer tenor yields anticipating falls in official rates in the future. That’s a normal state of affairs. But as long as the economy continues to motor along, the wisdom of having many rate cuts at all is being questioned by the market. Less future rate cuts raise the implied floor being set by the Fed funds strip. That floor continues to edge higher. That’s the second (and related) rationale. Friday’s payroll report was not one that suggested anything had broken. Rather, it hinted at more of the same ahead. There are lots of stories floating around about the rise in the oil price and heavy primary corporate issuance, but we’re not convinced they are the dominant drivers. They certainly push in the same direction, but that's all – contributory rather than driving. Until activity actually stalls, there is no imminent reason for the Federal Reserve to consider rate cuts, and as that story persists, the floor for market rates is edging higher and becoming more structural at higher levels. In that environment, the only way for the curve to dis-invert is from longer maturity yields coming under rising pressure as shorter-tenor ones just hold pat. Something will break eventually, but so far it hasn’t. The path of least resistance therefore remains one for a test higher in longer tenor market rates.   Accommodating structurally higher rates as the Fed stays pat   Today's events and market views Rates are drifting higher and a busy primary market is a technical factor – though usually fleeting – that has added to the upward pressure. But it is the data that has provided markets with the waymarks, although first impressions can prove deceptive.  Today’s key data is the ISM services which is expected to soften marginally, suggesting the sector is losing momentum towards the fourth quarter. For now, it would not meaningfully alter the overall situation. Susan Collins, president of the Boston Fed, is scheduled to speak on the economy and policy. Later tonight, the Fed will also release its Beige Book with anecdotal information on current conditions in the Fed districts. In the eurozone, we will get retail sales data for July. Yesterday, the European Central Bank’s surveyed consumer inflation expectations saw a slight uptick, but this was balanced by downwardly revised final PMIs – the net impact on market pricing for the September ECB meeting was marginal. No ECB speakers are scheduled for today. In government bond primary markets, Germany taps its 10Y benchmark for €5bn. The Bank of Canada will decide on monetary policy today with no change widely expected after the economy surprisingly contracted in the second quarter.  
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AUDUSD Hits Two-Month Low as RBA Holds Rates and Signals Further Tightening

Kenny Fisher Kenny Fisher 06.09.2023 13:01
RBA leaves the cash rate at 4.1% but signals more tightening may be needed China Caixin services PMI unexpectedly falls to 51.8 AUDUSD tumbles again to test recent support   The Australian dollar fell further this morning despite the RBA holding interest rates steady and warning that further tightening may be necessary. The central bank warned that while inflation is declining, a strong labor market and economy remain a risk. What’s more, persistent services price inflation which is being seen in other countries could be another potential upside risk in Australia in the future. Markets aren’t buying the hawkish warning though and continue to price in a 70% chance of no further increases from the RBA, with cuts then likely to start late next year. This will almost certainly change repeatedly over the months ahead but as things stand, clear progress is being made on inflation and the central bank has no desire to needlessly crash the economy.   AUDUSD tumbles after Chinese data and RBA decision The Aussie dollar continued to decline despite this, probably driven initially by the weaker Chinese Caixin services PMI reading but the technicals weren’t looking too good either.   AUDUSD Daily Source – OANDA on Trading View   In fact, they haven’t for a number of weeks, since the pair broke below the neckline of a double top pattern. In this case, the top fell around 0.69 and the neckline around 0.66. The first thing worth mentioning is this isn’t a perfect double top as it doesn’t follow a prolonged move higher in the pair. That said, it has trended lower since and the move below the neckline isn’t far from the size of the pattern itself, as the textbooks indicate can happen. More recently, the pair has traded between much tighter support and resistance – 0.6370 and 0.6520, respectively – and that still broadly remains the case, although today’s trading has been rather bearish and that support is being significantly tested.  
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

China's Caixin Services PMI Slides to 51.8, UK100 Recovers from Earlier Losses, and Potential Breakout Confirmation Signals in Focus

Kelvin Wong Kelvin Wong 06.09.2023 13:14
China Caixin services PMI slips to 51.8 UK100 erases earlier losses Potential breakout confirmation could be a bullish signal China is continuing its sluggish recovery this year with the latest Caixin services PMI slipping back to 51.8 from 54.1 and well below forecasts. As we saw in the official survey data last week, it highlights the economy is struggling from both weak internal and external demand. Measures to support the economy have been limited and targeted so far and there’s little to suggest that approach is going to change in the foreseeable future. The PMI data may be contributing to the weaker performance in China and Hong Kong overnight and the uninspiring start in Europe.     Confirmation of last week’s breakout in UK100  The chart isn’t offering too many clues either, with early declines erased and the UK100 trading marginally higher on the day. UK100 Daily Source – OANDA on Trading View The index has pulled off its lows over the last couple of weeks after a pretty miserable August but I’m not convinced the last month truly reflects the sentiment in the market going into the end of the year. It’s seen support this morning around 7,400, as it has on a number of occasions in months gone by after running into resistance yesterday around 7,500. That could perhaps be viewed as a bullish signal, a confirmation of the break above 7,400 last week, with 7,500 and 7,600 above the next notable areas of technical resistance. But broadly speaking, this still looks like an index that’s struggling for sustained direction. Perhaps with the end of global monetary tightening almost upon us, the outlook can become clearer which will enable a break in one direction or another.
German industrial production slumps for third straight month, raising recession risk

German industrial production slumps for third straight month, raising recession risk

ING Economics ING Economics 08.09.2023 10:32
German industrial production goes from bad to worse Industrial production dropped for the third consecutive month in July, providing more evidence of elevated recession risk for the German economy.   Germany’s industrial production continues its nosedive and even diehard pessimists are nervous. German industry dropped by 0.8% Month-on-Month in July, from -1.4% MoM in June; the third consecutive monthly drop. For the year, industrial production was down by 2.1%. Industrial production is now more than 7% below its pre-pandemic level, more than three years since the start of Covid-19. Production in energy-intensive sectors also decreased, by 0.6% MoM in July, and is still down by more than 11% over the year. The only positive news in today’s report is the increase in construction activity by 2.6% MoM, from – 3.1% MoM in June.   Risk of falling back into contraction remains high Today’s industrial production data will do little to change the current hangover mood in Germany. A stagnating economy in the second quarter after two quarters of contraction gave hope to some that the economy is on the way to improvement. However, the full batch of hard macro data for July suggests that the risk of recession is high again. Retail sales, exports and now also industrial production all dropped in July, giving the German economy a very weak start to the third quarter. Yesterday’s very disappointing drop in industrial orders - by almost 12% month-on-month in July - illustrates the current problem of German industry, that of shrinking order books and high inventories; a combination that simply doesn’t bode well for industrial production in the months ahead. The country finally seems to have woken up to the reality that it has lost international competitiveness over the last decade on the back of not enough investment and hardly any structural reform. The pandemic and the war in Ukraine have both worsened the problems without being the root cause. It doesn’t come as a surprise that, according to a recent survey, German companies have never been more pessimistic about the country’s international competitiveness. With earlier investment and reforms, the economy could have mastered the current challenges better. Economic stagnation is the new normal. Yesterday, German Chancellor Olaf Scholz called for a “Germany pact” - appealing to the country's democratic parties to unite in a concerted effort to modernise Germany, speed up bureaucracy and combat the current economic crisis. This call comes only a week after the government had announced a small programme to incentivise corporate investments in the energy transition, the construction sector and digitalisation. No details of how such a “Germany pact” could look were revealed. The positive news is that the sense of urgency has finally increased. Let’s now wait for more concrete policy action. Until then, stagnation in industry and the broader economy looks like the new normal.
China's August Yuan Loans Soar," Dollar Weakens Against Yen and Yuan, AUD/JPY Consolidates at 94.00 Level

China's August Yuan Loans Soar," Dollar Weakens Against Yen and Yuan, AUD/JPY Consolidates at 94.00 Level

Kenny Fisher Kenny Fisher 12.09.2023 10:33
China’s new yuan loans skyrocketed to 1.36 trillion yuan in August, much higher than the prior month’s 345 billion yuan. Optimism grows for China’s outlook as stimulus appears to filtering throughout the economy Dollar has biggest drop in two months as yen and yuan gain The big risk aversion trade over the summer has seen AUD/JPY consolidate around the 94.00 level.  A downbeat outlook for China kept the Australian dollar heavy, while US economic resilience has kept yen softer on a widening interest rate differential.  The AUD/JPY daily highlights a global growth picture that is either looking for a China rebound, which should help Australia’s growth momentum or a Japan recovery that is not on solid footing. The AUD/JPY daily displays a symmetrical triangle that shows price has converged towards the 94.00 region.  The bullish trend that started in the spring ended mid-June ahead of the 97.70 level.  Price is poised to either resume the longer-term bullish trend that started after the pandemic low was made in March 2020 or potentially show the start of a significant bearish reversal.                   The Australian dollar and Japanese yen seems likely to remain a key risk barometer, which means it could react strongly with what happens with this week’s US inflation data and with China’s decision on rates and their activity data.  If bullishness emerges, price could initially targets the 95.50 region, while downside support would come from the 200-day SMA level, which currently resides at the 92.00 level. This week the Australian economic calendar is filled with economic data that might take a backseat to everything that happens from the US and China.  The main Australian data release of the week is Australia jobs, which could show job growth rebounded, but will unlikely bring back rate hike expectations for the RBA  
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Commodities or AI: Which Will Take the Spotlight in Finance?

Saxo Bank Saxo Bank 12.09.2023 11:22
Are commodities on the verge of becoming the hottest topic in finance again, or will AI remain in focus? A year-long commodity sector correction showing signs of reversing The commodity sector looks set to start the third quarter on a firmer footing after months of weakness saw a partial reversal during June. Multiple developments, some based on expectations and some on actual developments, have all contributed to the strong gains, the most important being renewed dollar weakness as interest rate gaps narrow, OPEC’s active management of oil production and prices, the not-yet-realised prospect for the Chinese government stepping up its support for the economy and, not least, the risk of higher food prices into the autumn, as several key growing regions battle with hot and dry weather conditions.  Despite continued demand worries led by recession concerns in the US and Europe, the energy sector is holding up – supported by Saudi Arabia’s unilateral production cut, rising refinery margins into the peak summer demand season and speculative traders’ and investors’ belief in higher prices being near the weakest in more than ten years, thereby reducing the risk of additional aggressive macroeconomic-related selling. Elsewhere, we are seeing hot and dry weather raising concerns across the agriculture sector, while also raising demand for natural gas around the world from power generators towards cooling. The precious metal rally ran out of steam during the second quarter, as surging stock markets reduced the need for alternative investments while central banks continued to hike rates in order get inflation under control. Inflation may fall further but we increasingly see the risk of long-term inflation staying well above the 2% to 2.5% target area, and together with a growing bubble risk in stocks, continued strong demand from central banks, and the eventual peak in short-term rates as the FOMC shifts its focus, we see further upside for precious metals into the second half of the year. From the recent price performance across the different sectors, we could be seeing the first signs of markets bottoming out, with current levels already pricing in some of the worst-case growth scenarios. Data on the US economy is still showing economic activity below trend growth but is also not showing recession dynamics, and earnings estimates have increased substantially, especially in Europe, since the Q1 earnings season started in mid-April. The potential for additional gains from here, however, will primarily depend on whether China can deliver additional stimulus, thereby supporting demand for key commodities from crude oil to copper and iron ore. Weather developments across the coming weeks across the Northern Hemisphere and their impact on crop production will also be key. Gold pausing but a fresh record high remains the target Following a strong run-up in prices since November, gold spent most of the second quarter consolidating after briefly reaching a fresh record high. Sentiment is currently challenged by the recent stock market rally and the prospect for additional US rate hikes, thereby delaying the timing of a gold supportive peak in rates. So while the short-term outlook points to further consolidation below 2,000 dollars per ounce as we await incoming economic data, we keep an overall bullish outlook for gold and silver, driven among others by: continued dollar weakness; an economic slowdown, making current stock market gains untenable, leading to fresh safe-haven demand for precious metals; continued central bank demand providing a floor under the market; sticky US inflation struggling to reach the 2.5% long-term target set out by the US Federal Reserve (and if realised, it will likely to trigger a gold-supportive repricing of real yields lower), and a multipolar world raising the geopolitical temperature. In addition, silver may benefit from additional industrial metal strength, which could see it outperform gold. Overall, and based on the expectations and assumptions mentioned, we see the potential for gold reaching a fresh record high above $2100 before year-end.  
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UK GDP Contracts by 0.5% Amid Economic Concerns, Impact on GBP/USD Exchange Rate

Kenny Fisher Kenny Fisher 13.09.2023 13:36
UK GDP falls by 0.5% GBP/USD dips slightly lower The British pound has edged lower on Wednesday. In the European session, GBP/USD is trading at 1.2472, down 0.17%. The pound fell as low as 1.2441 earlier today but has recovered some of those losses. UK economy contracts by 0.5% The UK economy contracted by 0.5% in July, the largest decline this year. The reading reversed the 0.5% gain in June and missed the consensus estimate of 0.5%. The GDP report pointed to weakness across the economy, with declines in services, manufacturing and construction. There’s no question that the sharp increase in borrowing rates has cooled the economy, but there’s uncertainty as to what action the Bank of England will take at the meeting on September 21st. The markets have priced in a quarter-point rate hike at 75%, which means there is a possibility of a pause in rate increases. The UK economy may already be in recession and another hike will put a further strain on the economy. On the other hand, the battle against inflation is far from over, and with inflation running at a 6.8% clip, the BoE will need to do more to bring inflation closer to the 2% target. The UK jobs report on Tuesday was a reminder that inflation is alive and kicking. The economy shed a massive 207,000 in the three months to July, as the labour market is showing larger cracks. However, wage growth including bonuses hit 7.8%, unchanged from a month earlier and the highest on record. Wages are now rising faster than consumer inflation, which is one more headache for the Bank of England, which had a rough time in its attempts to bring down inflation.   GBP/USD Technical GBP/USD is testing support at 1.2459. Next, there is support at 1.2395  There is resistance at 1.2519 and 1.2592  
ECB's Tenth Consecutive Rate Hike: The Final Move in the Current Cycle

ECB's Tenth Consecutive Rate Hike: The Final Move in the Current Cycle

ING Economics ING Economics 14.09.2023 15:06
ECB announces final rate hike As they say, never put off till tomorrow what can be done today. And in that vein, the ECB just announced its tenth consecutive policy rate hike since July last year, hiking all interest rates by 25bp. Higher inflation and inflation forecasts look like the main drivers of the hike. The ECB's communication is clear: today was the last hike in the current cycle.   The fear of not getting inflation fully under control and the risk of stopping too early must have been a larger concern than the rising recession risk in the eurozone, motivating the European Central Bank to hike interest rates for the tenth consecutive time since last July. After a total of 450bp rate hikes, the ECB’s main policy rates are now at a record high. We will hear more about the considerations and the discussion at the press conference, starting at 2.45pm CET. For now, it clearly looks as if the ECB remains highly concerned about inflation, not only actual inflation but also future inflation as, for example, the newest ECB staff projections show headline inflation coming in at 3.2% in 2024. If you wonder why the ECB is not taking a step back and waiting until the full impact of the rate hikes so far has unfolded, the answer is very clear: it’s all about credibility. The ECB only has one job and this job is to maintain price stability. The eurozone has not seen price stability in almost three years. And even if the inflation surge is mainly due to factors outside of the ECB’s direct reach, the Bank simply has to show its determination to stamp it out. That this approach will eventually push the eurozone economy into a more severe slowdown does not matter to the ECB, at least not for now. Looking ahead, a further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for yet another rate hike before the end of the year. The remark in the official communication that “based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target” shows that today’s rate hike looks like the last. Today’s hike isn't only a credibility booster, it will also be the last in the current cycle.
Rates Markets Shift Focus: ECB Reaches Peak as Fed Holds Steady Amid Resilient Data

Rates Markets Shift Focus: ECB Reaches Peak as Fed Holds Steady Amid Resilient Data

ING Economics ING Economics 15.09.2023 08:30
Rates Spark: Transitioning from level to duration The European Central Bank has entered the next stage - rates markets are starting to look beyond the peak, with macro concerns guiding rates lower and the curve flatter. This is in contrast to the US where macro resilience holds hawkish tail risks for the Fed, but for now also gradually lifts the floor for longer rates.   Dovish relief with the ECB peak being reached The ECB delivered a dovish 25bp hike – and, a more mechanical increase in very front-end rates aside, the rest of the curve rallied. The decision was supported by a “solid majority” of the Council. The first reason for that reaction was that the ECB basically said that it has reached the terminal rate. The ECB does add the caveat that this applies given the current assessment of all data and data dependency could still mean that rates will increase –  President Lagarde did add that one could not say key rates reached their peak. Indeed, markets are also discounting tail risks of another hike over the coming months. But for all practical purposes the ECB no longer has a bias in rates and we are at the peak as long as there no larger surprises to the underlying scenario.    The other reason for the curve flattening is that the ECB did not offer anything to prop up longer rates. As Lagarde remarked during the press conference, neither outright asset purchase programme asset sales nor shortening the pandemic emergency purchase programme reinvestment period was discussed at any point. Riskier assets reacted with relief, in particular spreads of Italian government bonds over German Bunds saw a considerable tightening with the key 10Y spread tightening more than 4bp. That still leaves it somewhat wider compared to the end of last week with the Italian government’s growing budget deficits having come under increased scrutiny. Widening risks linger, but at least the ECB is not adding to those concerns for now.   The EUR curve may flatten relative to USD Going into next week’s Fed meeting we have already seen different narratives unfolding across USD and EUR rates. After initial oscillations rates took different directions – 10Y Bund yield closing down 6bp while the 10Y Treasury rose 3bp. While EUR markets were digesting the potential end of the tightening cycle amid growing concerns surrounding the growth outlook, the US was confronted with another slate of better-than-expected data. US CPI data earlier this week had seen some of the hawkish Fed tail risk being priced out. This was now reversed with the 2Y rate crossing above 5% again, and the curve a tad flatter. It is widely anticipated that the Fed will hold next week, but at the same time it will keep another hike on the table. While cooling, for now the data does not show any signs of the economy really toppling over. It may still mean that next week will likely be the last hike of the Fed's cyclce, but at the same time staying pat for longer amid resilient data will mean that gradual steepening pressure from the back end of the curve can take over again.     Today's events and market view The post ECB meeting period is usually marked by more background reporting on the Council’s decision and members giving their personal flavours surrounding the decision. Here we will be looking in particular at any differing assessments of  inflation versus growth concerns, and indeed in a first FT article some ECB hawks have warned taht a hike is still possible if inflation and wages stay hot. But overall the ECB has been quite clear in signalling that it has now entered the next stage, shifting the focus from the level of rates towards the duration that they will now be held steady to achieve its inflation target.   In the US, before we get back to a broader bear steepening theme the market may well want to first digest the import prices as well as the University of Michigan consumer sentiment survey and its inflation expectations component to round off its assessment of inflationary tail risks. Other US data to watch are industrial production and the Empire manufacturing index.  
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Eurozone Economy Faces Minor Contraction Amid Plummeting Inflation: A Look at the Challenges and ECB's Dovish Debate

ING Economics ING Economics 02.11.2023 12:08
Eurozone economy sees a small contraction as inflation plunges A drop in eurozone GDP keeps a small technical recession in the second half of 2023 a realistic prospect. With inflation falling faster than expected, the debate within the European Central Bank's governing council is set to turn more dovish, but don’t expect rate cuts anytime soon.   GDP decline is not meaningful, broad stagnation continues The drop of 0.1% quarter-on-quarter in eurozone GDP is not very dramatic. It was led by Irish GDP falling by 1.8% – a figure which is often subject to dramatic revisions. Germany experienced a small decline of 0.1%, while Italy stagnated over the quarter. Growth in France and Spain remained positive but still lower than last quarter. All in all, growth continued to trend around zero in the third quarter. While a technical recession is certainly possible in the second half of this year on the back of the third-quarter GDP reading and a weak start to the quarter according to first business surveys, we don’t see too much reason for real alarm so far. It does look like the economic environment is weakening at the moment, but no sharp recession is in sight either. Still, continued economic and geopolitical uncertainty alongside the impact of higher rates on the economy will weigh on economic activity in the coming quarters.   Inflation surprises should make ECB debate more dovish at coming meetings Inflation is really looking more benign at the moment. It has been falling for some time, but the pace of declines disappointed up until summer. September and October surprised positively despite high oil prices and still stubborn wage growth, which adds to confidence that inflation is slowly getting under control. The October decline from 4.3 to 2.9% was mainly driven by base effects from last year's high energy prices, but core inflation also continues to come down. Month-on-month price growth does not get reported on but a quick calculation suggests that goods prices rose well under 2% annualised in October, while services prices remained more sticky around 3.5% annualised. While high services inflation remains a concern, these figures do mean that annual core inflation – currently at 4.2% – will likely trend lower over the coming months. Especially as businesses are not indicating a new surge in prices is expected. The numbers start to point to a much better inflation environment, especially now that the economy is clearly performing much weaker than last year and most of the impact of recent hikes is still in the pipeline. While the European Central Bank (ECB) will be very keen to avoid making the mistake of the 1970s by easing too soon and allowing another spell of high inflation later, debates over whether current restrictive levels of interest rates are not too strict are set to grow louder in the months ahead. Don’t expect the ECB to lower rates anytime soon though; upside risks to inflation will weigh heavily in the central bank's decision-making at the coming meetings.
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CEE End-of-Week Report: Inflation Updates and Regional Dynamics

ING Economics ING Economics 10.11.2023 10:10
CEE: Busy end to the week Today we have a busy end to the week in the CEE region. October inflation will be published in Hungary. We expect a further fall from 12.2% to 10.3% year-on-year, slightly below market expectations, while the central bank expects 10.5%. Inflation therefore has a high bar for hawkish surprises in our view, and the lower number should support further market bets on rate cuts. However, this week the HUF seems to have fully disconnected from rates and is not interested at all. We believe the relationship should resume sooner or later and lower rates will drive EUR/HUF higher. Moreover, the EU money story seems to come into play soon, which should bring more volatility and a weaker HUF – at least initially. On the other hand, we remain bullish on the HUF in the long term. In the Czech Republic, we will also see the inflation print for October. We agree with the market expecting an increase from 6.9% to 8.4% YoY mainly due to the base effect from last year. The Czech National Bank (CNB) is expecting 8.3%. However, the survey range is quite wide and skewed towards higher numbers, which could encourage more paying flow in the rates space and support the CZK. On the other hand, we will also see the CNB minutes today, which we think could be more dovish than the press conference following the central bank's decision last week and could push EUR/CZK in the opposite direction. Looking ahead, however, we expect to see weaker economic numbers and hesitant statements from the CNB, which we think will boost rate cut bets and push EUR/CZK higher again. In Poland, Fitch will publish a rating review after the close of trading. We do not expect any changes this time but it will be the first review after the elections and it will be interesting to see the assessment of the loose fiscal policy and the plan for a record sovereign bond issuance next year.
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UK and US Inflation Data and China Retail Sales: Key Economic Indicators to Watch

Michael Hewson Michael Hewson 13.11.2023 14:36
By Michael Hewson (Chief Market Analyst at CMC Markets UK) UK Wages (Sep) /UK CPI (Oct) – 14 and 15/11 – last week's Q3 GDP numbers showed how much pressure the UK economy is under despite the continued slowdown in headline inflation we've seen over the past few months. Despite this slowdown headline inflation remains well above its peers in Europe and the US mainly due to the impact of the energy price cap which has kept prices in this area artificially high.   One major plus point has been wages growth which has taken some of the edge off, but which now looks as if it might have peaked. The last 3-months has seen earnings excluding bonuses remain steady at record highs of 7.8%, although including bonuses we're still above 8%. At the most recent Bank of England meeting interest rates were kept unchanged and a further sharp slowdown in headline inflation in October could reinforce the idea that the Bank of England is done when it comes to further rate hikes. September CPI came in higher than expected at 6.7%, with most of the increase being driven by higher petrol prices, which offset a modest fall in food prices.   Core prices eased slightly to 6.1% however services-based inflation rose from 6.8% year on year to 6.9%, and this is the area where the BOE has some concerns. That said this week's October inflation numbers should see another big slowdown given that the energy price component is expected to fall sharply from the same period last year, when the price cap jumped sharply. With energy prices now much lower, we can expect to see another sharp fall in this component which in turn should see a commensurate fall in the headline rate with expectations for a sharp slowdown to 4.8%, from 6.7%. Core CPI is expected to slow to 5.7%, from 6.1%.   US CPI (Oct) – 14/11 – having found a short-term base in June at 3%, US headline inflation has spent the last 3 months edging higher, although core CPI has still been slowing at a steady rate. Core prices slowed to 4.1% from 4.3% while there was a modest upside surprise in the headline number caused mainly by higher rent and fuel prices, and which did raise concerns that the Fed may well go with another rate hike between now and the end of the year.   These concerns have eased in recent days after a weaker than expected October jobs report, while retail sales in the US have also slowed. If we see further evidence of core prices slowing in October, then it could add fuel to the idea that the Fed might forego a pre-Christmas rate hike and leave policy as is. US CPI is expected to slow from 3.7% to 3.3%, with core prices expected to come in unchanged at 4.1%.   China Retail Sales (Oct) – 16/11 – last month China reported that its economy expanded by 1.3%, helped by a more resilient consumer, after retail sales rose by 5.5% in September, while industrial production rose by 4.5%. Industrial production has been steadily consistent over the third quarter; however, consumer spending has been much more constrained since the post Covid lockdown spike we saw at the start of the year.   One of the more consistent narratives of the last few months has been various luxury as well as other retailers who have reported a sharp slowdown in Chinese consumer spending, a trend that doesn't appear to be being reflected in the official Chinese data. The Q3 months have seen retail sales slow sharply, with gains of 2.5% and 4.6% in July and August, rounded off by 5.5% in September. While today's numbers do suggest a modest improvement in Q3 the extent of the rebound does raise questions given the weakness of recent trade data, as well as PMIs. For October retail sales are expected to show an increase of 7%, with industrial production remaining steady at 7%
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China's Central Bank Injects Additional Funds to Bolster Economic Recovery Amidst Lingering Challenges

ING Economics ING Economics 16.11.2023 11:12
China: People’s Bank of China (PBoC) injects more cash to support the weak economy Despite leaving the one-year medium-term lending facility (1Y MLF) at 2.5%, the PBoC injected a net CNY600bn (over and above amounts falling due) to help support stimulus spending, raising thoughts that perhaps they may also tap other policy tools such as required reserves in due course.   More funding will help activity to recover Ahead of the monthly deluge of activity data, the PBOC already provided markets with a positive surprise. Despite leaving the 1-year medium-term lending facility (1Y MLF) rate at 2.5%, the PBoC provided CNY1.45tr in funding, a net CNY600bn more than that which was falling due for rollover. The MLF is the conduit through which the PBoC lends funds to big commercial banks, who in turn, finance the rest of the economy. Short-term market interest rates have risen since September, as the CNY has weakened in the face of a stronger USD, and the PBOC has kept short-term funding costs high to deter CNY selling. However, this has also resulted in a bit of a liquidity squeeze, and it now looks as if the PBoC is looking to sidestep the unhelpful rate environment and alleviate liquidity issues by turning to volume lending instead.  In so doing, it raises thoughts that similar liquidity-enhancing policies, such as the rate of required reserves (RRR), might also be tapped in the coming weeks and months, as the government looks to support economic activity, without resorting to large direct fiscal stimulus measures, or to rate cuts, which could send the CNY weaker. The last cut in the RRR was back in September when the rate for banks was cut by 0.25%.    Activity data - mostly stronger except for anything property related The run of activity data again suggested further modest progress in China's recovery, though once again, there was a divergence between general activity, which moved forward, and anything property-related, which continued to flounder.  The year-on-year growth rate for retail sales moved from 5.5% to 7.6% YoY, and well above the 7.0% rate expected. But year-to-date year-on-year measures, which may be less whipped around by last-year's pandemic-related distortions, showed a smaller improvement from 6.8% to 6.9%.  Industrial production also showed gains, rising to 4.6%YoY (from 4.5%) and 4.1% YoY ytd (from 4.0%).  There was less good news for fixed asset investments, which slowed to 2.9% YoY ytd, from 3.1%. And property investment declined at a faster pace of 9.3% (from -9.1%) while residential property sales also fell slightly faster (-3.7% down from -3.2%).  The surveyed unemployment rate remained 5.0%, though we don't know what is happening to youth unemployment since the figures stopped being published. It most likely remains extremely high.    The economy is still struggling Taking all of the data together, the general sense is that things are moving slowly in a more positive direction, but that the economy still needs the liquidity support that the PBoC seems to be starting to provide, and the slightly more helpful fiscal stance that the central government is taking. We don't expect the external environment to improve meaningfully.  The US may be weathering high interest rates for now, but we suspect that won't last. And Europe is skirting recession, with little prospect of an upturn.  Moreover, while the property sector continues to struggle, which we expect will be the case for some considerable time, the spillover effects to the rest of the economy are likely to keep overall growth rates tepid. The government's 5.0% GDP growth target is not under threat any more. But it was always a very unambitious target.   
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

DAX Eyes New Record High as US ADP Report Takes Center Stage

Michael Hewson Michael Hewson 12.12.2023 12:39
DAX set to open at a new record high, US ADP report in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets saw another positive session yesterday with a new record high for the German DAX, while the FTSE100 fulfilled its role as the perennial party pooper with another disappointing session and closing lower for the second day in succession. This was mainly due to weakness in metals and energy prices with Brent crude prices closing at a 5-month low. US markets also struggled for gains with the Nasdaq 100 closing higher due to a strong performance from the Magnificent 7 led by Apple, and Nvidia, while the Russell 2000 finished the day over 1% lower, with the S&P500 and Dow closing little changed.     The indifferent finish seen in the US has been shrugged off by Asia markets with a strong session there after the Bank of Japan's latest Tankan survey showed a big improvement in manufacturers sentiment with the auto sector with the second successive month of gains as chip shortages eased.   This rebound in Asia markets looks set to filter through into this morning's European open with the DAX set to open at a new record high.   Yesterday's economic data from Europe pointed to a modest improvement in services sector economic activity, while the latest US ISM service sector numbers were a mixed bag, with the headline number coming in ahead of forecasts at 52.7. Prices paid did slow but by less than expected, coming in at 58.3 pointing to stickier than expected inflation, while the employment index edged higher to 50.7.   Today we get a look at the latest ADP payrolls report for November as an appetiser for Friday's non-farm payrolls report. We are starting see increasing evidence that the US jobs market is starting to slow, with vacancies falling to their lowest level since March 2021 and with the last two ADP reports adding a combined 202k new jobs as private sector hiring slows.   October saw 113k jobs added an improvement on September and November is expected to see an improvement on that to 130k, given that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period so we're unlikely to see any evidence of cracking in the US labour market this side of 2024.   We also have the latest rate decision from the Bank of Canada where we aren't expecting any changes to monetary policy here with the central bank forecast to keep rates unchanged at 5%.   The last 3-months have seen no growth in the economy at all while the October jobs report saw a rise of 17.5k jobs, all of these were part time positions. On full time employment we saw the first decline in jobs growth since May with a decline of -3.3k, while unemployment rose from 5.5% to 5.7% and the highest level since January 2021. We're also starting to see inflationary pressure continue to subside with core CPI on the median slipping from 3.9% to 3.6% in October.    EUR/USD – has fallen below the 200-day SMA at 1.0825, with a fall below the 1.0800 level raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now at the 1.0940 area, and behind that at last week's highs at 1.1015/20.   GBP/USD – the failure to move above the 1.2720/30 has seen the pound slip back towards support at 1.2580/90 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.    EUR/GBP – has found support at the 0.8555 area and is currently looking to recover through the 0.8600 area. While below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.   USD/JPY – currently trying to rally off the recent lows at the 146.20 area, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.   FTSE100 is expected to open 25 points higher at 7,514   DAX is expected to open 56 points higher at 16,589   CAC40 is expected to open 20 points higher at 7,407
National Bank of Romania Maintains Rates, Eyes Inflation Outlook

Romanian Economy Shows Resilience: Q3 Growth Revised Upward

ING Economics ING Economics 12.12.2023 13:35
Romanian growth figures reinforce signs of resilience The release of detailed data for third-quarter GDP growth, alongside a rather hefty upward adjustment of the flash print, points to a pretty resilient growth picture in Romania. We marginally raise our full-year growth forecast from 1.5% to 1.7%, with the risk balance still tilting upwards.   As the initial 0.2% annual growth in the third quarter has now been revised to 1.1%, the overall picture of Romania's economy certainly looks brighter for the full year. The quarterly growth has also been revised from 0.4% to 0.9%. Assuming no further data revisions (a difficult assumption to make), it would now take only a meagre 0.1% quarterly expansion in the fourth quarter to reach our initial 1.5% annual growth forecast. On the supply side, our assumption that agriculture can offer a positive surprise in the third quarter materialised, as the sector added 0.8pp to the 1.1% overall annual expansion. Boosted by the strong momentum in public infrastructure investments, the construction sector added 0.4pp. Industry remains a laggard, subtracting 0.4pp and marking the fifth consecutive quarter of negative contribution to the GDP growth.   Real GDP (YoY%) and contributions (ppt) - supply side   Demand side, there was a rather large negative contribution coming from inventories (included in “others” in the chart below) which subtracted 4.8pp from the 1.1% growth rate. Otherwise, the main engine of the economy right now remains fixed investments, which contributed with 3.7pp – the highest contribution since the third quarter of 2019. Net exports have also contributed positively again by 2.1pp. This is the third consecutive quarter of positive contribution from net exports, a rather unusual situation for the Romanian economy over the last 10 years or so.     Real GDP (YoY%) and contributions (ppt) - demand side   The few pieces of high-frequency data that we got for the fourth quarter so far are pointing towards a robust expansion, with retail sales starting the quarter on a rather strong footing and confidence data marginally improving as well. For 2024, we are likely to see a rebalancing of the growth drivers from investments towards consumption, though the former should still hold on close to double-digit growth. However, with public wages likely to stay well within double-digit growth and pensions due to be increased by 13.8% starting January 2024 and approximately 22.0% starting September 2024, the private consumption story is likely to show marked improvement. The above picture could complicate the National Bank of Romania's decision-making process, as the rising demand could slow the descent of an already sticky inflation profile, with many other uncertainties on the horizon. Again, this increases the likelihood of the rate-cutting cycle starting later and/or being shorter than our current 150bp estimate
The Commodities Feed: Oil trades softer

Japanese Economic Signals: Insights into BoJ Policy, GDP Contraction, and Future Rate Hike Expectations

ING Economics ING Economics 12.12.2023 14:08
Japanese data improves but we still don’t expect a BoJ policy shift this month Although third-quarter GDP was revised down unexpectedly, the improved current account and cash earnings suggest a rebound in growth in the current quarter. Market speculation about the Bank of Japan's possible policy turnaround at the December meeting has been amplified after recent remarks from Governor Kazuo Ueda and Deputy Governor Ryozo Himino.   GDP contraction deepened in 3Q23 Third-quarter GDP was unexpectedly revised down to -0.7% quarter-on-quarter (seasonally adjusted) compared to the flash estimate and market consensus of -0.5%. The largest revision came from private consumption, which fell 0.2% (vs 0.0% in the flash estimate) and the inventory contribution to GDP, which was down by 0.2% ppt. The negative contribution of inventory should be a good sign for the inventory restocking cycle. But household spending still lagged amid high inflation despite relatively healthy labour market conditions, which should be a real concern for the Bank of Japan. We think that weaker-than-expected GDP could justify the Bank of Japan's current easing policy at least for now.   Meanwhile, GDP for the first quarter was revised up meaningfully from 0.9% to 1.2% resulting in an upward revision to annual GDP. Thus, now we expect 2023 GDP to rise 2.0% year-on-year.    However, other data releases today - labour cash earnings, household spending, and current account - point to a rebound in growth in the fourth quarter, thus we believe that the BoJ will shift its policy early next year.   Contraction deepened in 3Q23   Labour cash earnings rose in October Labour cash earnings rose 1.5% YoY in October (vs 1.2% in September, 1.0% market consensus) beating the market consensus. Contractual earnings gained steadily by 1.3% (vs 0.9% in September) while volatile bonus earnings (7.5%) rebounded after two months of declines. Also, hours worked bounced back 0.7% for the first time in four months, thus overall labour market conditions and earnings appear to have recovered in October. However, wage growth was still short of inflation growth, thus real earnings dropped 2.3% in October, although at a slower pace than the previous month's -2.9%.  Nominal wage growth continues and is clearly faster than the previous year. Also, there are several news reports that big companies plan to raise wages above this year's level of growth. Thus, we believe that next year's wage growth should accelerate a bit more than the current year.    Cash earnings and household spending improved in October   Current account surplus widened in October In a separate report, the current account surplus widened more than expected in October to JPY 2.6tn (vs 2.0 in September, 1.8 market consensus). Despite the global headwinds, the current account surplus will likely widen in the coming months. Due to falling commodity prices, the merchandise account will turn to surplus while an influx of foreign tourists will help the travel account to remain in surplus. We expect the trade of goods and services to improve in the current quarter.    Current account surplus in October led by service (travel)   BoJ preview Several remarks by the Bank of Japan, including Governor Ueda, have shaken the FX market quite strongly. Deputy Governor Himino said that ending the negative interest rate policy would have only a limited impact on the economy and Governor Ueda yesterday met with the prime minister, highlighting the importance of sustainable wage growth and inflation, which led to a fairly rapid shift in market sentiment betting on the Bank of Japan's policy tightening. Dollar weakness is also supporting the sudden move of the yen partially, especially ahead of today's release of the US nonfarm payrolls data.   It seems like the BoJ is paving the way to a gradual normalisation and giving the market a signal that the time is approaching. However, since these comments were made outside of the BoJ meeting, any sudden major change of policy is not expected this month. Yes, we remember that Governor Kuroda surprised the market with a yield curve control tweak last December, but we believe Governor Ueda is unlikely to adjust policy without prior communication. Thus, we expect some changes in the statement and dialogue from Governor Ueda at the BoJ meeting on 18-19 December.    As we have previously argued, we think the Bank of Japan's rate hike will come in 2Q24, most likely at its June meeting. By then, the BoJ will be able to confirm a solid wage increase with Shunto's results. In terms of inflation, it will trend down early next year, but still core inflation, excluding fresh food, is expected to remain above 2%. Even if the BoJ carries out a rate hike, we believe that the Bank's JGB buying operation will continue in order to avoid a rapid rise in long-term yields.
Tesla's Disappointing Q4 Results Lead to Share Price Decline: Challenges in EV Market and Revenue Miss

Eurozone, German Service PMI Ease in December, Euro Snaps Four-Day Rally

Kenny Fisher Kenny Fisher 18.12.2023 14:07
Eurozone, German Service PMI ease in December Euro snaps four-day rally The euro has snapped a four-day winning streak on Friday. In the European session, EUR/USD is trading at 1.0949, down 0.38%. The euro has enjoyed a strong week, with gains of 1.77%. Soft Eurozone, German services PMIs weigh on euro Eurozone Services PMI eased in December, indicating that the economy continues to struggle. The PMI fell from 48.7 to 48.1 and missed the consensus estimate of 49.0. This marked a fifth straight month of contraction in the services sector, with 50 separating contraction from expansion. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. Euro soars after ECB pause The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected, but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring 1.09% against the US dollar after the announcement. ECB President Christine Lagarde reaffirmed that the Bank would continue its “higher for longer” stance, saying that the Bank was not about to let down its guard and lower rates. Lagarde sounded hawkish even though the ECB lowered its inflation forecast at the meeting. Inflation has fallen to 2.4% in the eurozone, within striking distance of the 2% target. Lagarde acknowledged that inflation was easing but said that domestic inflation was “not budging”, largely due to wage growth.   There is a deep disconnect between the markets and the ECB with regard to rate policy. ECB President Lagarde poured cold water on expectations for rate cuts, arguing that inflation had not been beaten. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024 and are confident that Lagarde will have to change her stance, with inflation falling and the eurozone economy likely in recession. . EUR/USD Technical EUR/USD is testing support at 1.0957. Below, there is support at 1.0905 1.1044 and 1.1096 are the next resistance lines    
NZD Update: Non-Tradeable Inflation Poses a Hawkish Opportunity for RBNZ Amidst Economic Consider

NZD Update: Non-Tradeable Inflation Poses a Hawkish Opportunity for RBNZ Amidst Economic Consider

ING Economics ING Economics 25.01.2024 15:05
NZD: Non-tradeable inflation offers RBNZ a hawkish "loophole" New Zealand’s inflation matched estimates at 0.5% quarter-on-quarter and 4.7% YoY in the 4Q print published overnight. This is a touch higher than our forecast (4.6%), but well below the 5.0% projected by the Reserve Bank of New Zealand for the period. However, non-tradeable CPI did come in hotter than expected at 1.1% QoQ, which has led to a move higher in short-term NZD rates. In FX, NZD/USD broke back above 0.6100 on the release, even though it quickly defaulted to being traded by external factors. The stronger non-tradeable CPI may offer an excuse for the RBNZ to stick to some hawkish narrative on 28 February, although they will need to admit that general inflation pressures have declined and the economy underperformed, making any promise of higher-for-longer a harder sell to markets. The next key release in New Zealand is the 4Q jobs report on 6 February. Until then, expect volatile Chinese sentiment and USD dynamics to drive NZD performance. Even in the case of an RBNZ dovish shift, we like the chances of a higher NZD/USD beyond the short term as the Kiwi dollar benefits from a broader USD decline and Fed rate cuts. Our year-end target is 0.64.

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