July 17 – 23, 2022
FEAR NOT Brave Investors
Where have we been and where are we going? Join our weekly market thread on Traders Community…
The Week That Was – What Lies Ahead?
Click on the links below to navigate to the relevant section.
- Part A: Stock markets
- Part B: Bonds
- Fed and Banks
- Part C: Commodities
- Energy – Oil and Gas
- Gold and Silver
- Part D: Foreign Exchange
- Geopolitics and Economics
- Economy Week ahead
Market volatility was again a lesson in crowd behavior. Market shaped daily off Fed expectations, China lockdowns, European implosion on energy prices all reflective off herd reactions. The market is moving predictability in an unpredictable way, a key adjunct in KnovaWave’s theory of reflexibility. The markets are but a reflection of anticipation and reacting to oneself in a continual distorted loop of cognitive self-absorbed confusion and cognitive malfunction. It is a world were instant algorithmic mathematical probabilities’ influence price action and therefore reactions. The understanding of the markets is inherently imperfect and intrinsic to constantly evolving activities.
This week was a classic reflection led by bond and currency market and filtered down through to equities and commodities. Let us look at the FOMC expectations for the next meeting. We went into the week with a 92% chance a 75 basis point hike was coming, Wednesday it was an 82% chance it was going to be 100 basis points and by Friday there was just about a 27% chance for a 100 basis point hike priced into the market after Federal Reserve Governor Waller speaking after back-to-back red hot inflation data said on Thursday, “with the C.P.I. data in hand, I support another 75-basis point increase” at the July FOMC. He added for him a 75-bps hike in July gets us to neutral which he sees as 2-2.25%.
He added that you don’t want to overdo rate hikes. The ebbs and flows of reaction meant by the end of it the market took 75bps ok and the lower neutral rate sated the extreme fears. The crowd had been led down the path that 75bp was a good thing.
The stock market week began with three days of selling and ended with a rebound that lifted the S&P 500 off its lowest level in nearly four weeks, not enough to close positive for the week, though well off the lows at just 0.9% down, the Nasdaq -1.6% underperformed and the Dow -0.2%. This week’s bond action compressed the 2s10s spread by 18 bps to -20 bps, the deepest inversion since late 2000, which reflects expectations for slower growth. The U.S. Dollar Index fell Friday 0.4% to 108.06, narrowing this week’s gain to 1.1%.
The vulnerability of all and the global instability was again highlighted by Italy’s Prime Minister Draghi losing support of a major coalition partner briefly driving the euro below parity against the dollar, helping the U.S. Dollar Index secure its third consecutive weekly gain with the Index reaching its highest level since September 2002.
Drahi won a no confidence vote, handed in his resignation which was rejection by the Italian President. Over in the UK there are on third round of picking a replacement for Boris Johnson. Just another week in European politics. Last week Japan’s former Prime Minister Abe was assassinated during a campaign speech ahead of this weekend’s upper house elections.
The Big Money Center Banks kicked off earnings this week with JP Morgan and Morgan Stanley Thursday and Citigroup, BlackRock, PNC, Wells Fargo and BoNYM on Friday. Before Monday’s open more financials with $BAC $SCHW $GS. So far it has been a mixed bag, but the common theme has been revenue drop in investment banking trading profits were up strongly with the banks. The bearishness in the markets lowered Blackrock’s assets under management to $8.5 trillion, from $9.6 trillion in the first quarter.
In the week ahead more big earnings from a diverse group of companies other than the big banks. Johnson & Johnson, Netflix and Lockheed Martin report results on Tuesday. Tesla and United Airlines issue their quarterly stories Wednesday. AT&T, Union Pacific and Travelers report Thursday. American Express and Verizon both release earnings Friday.
Besides earnings, there are key data releases for housing. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index on Monday. Housing starts Tuesday, and existing home sales Wednesday. On Thursday the Philadelphia Fed manufacturing survey and both manufacturing and services PMI are released on Friday.
Independence – Never Take It for Granted Traders
“In aggregate, the market goes from order to disorder, and on that journey little pockets of order can form, including in commodities, bonds, stocks, currencies that circle back and reorder disorder. Then there is us the market player that reflects through order and disorder in an ever-evolving loop towards independence. It all starts with gravity and ends with equilibrium and back we go.” KnovaWave “The rules of market flux”
Key Rates and Spreads
- 10-year Treasury bonds 2.93%, down -0.15 w/w (1-yr range: 1.08-3.48)
- Credit spread 2.34%, up + 0.08 w/w (1-yr range: 1.65-4.31)
- BAA corporate bond index 5.27%, down -0.07 w/w (1-yr range: 3.13-5.48)
- 30-Year conventional mortgage rate 5.72%, down -0.12% w/w (1-yr range 2.75-6.28)
- 10-year minus 2-year: -0.20%, down -0.06 w/w w/w (1-yr range -0.20 – 1.59)
- 10-year minus 3-month: +0.39%, down -0.59% w/w (1-yr range -0.99 – 2.04)
- 2-year minus Fed funds: +1.55%, up +0.03% w/w
Instability is pronounced, credit defaults are on track to rise in North America, Europe, Asia, and Australia, according to a survey by the International Association of Credit Portfolio Managers. The economic slump is likely to occur later this year or in 2023, according to the survey.
The rubber is meeting the road as the trifecta of rising interest rates, the Russian invasion of Ukraine and surging costs continues to weigh, this has been no surprise to us here and shouldn’t have been to the market and PTB. You can only play with fire for so long before you get scorched!
Energy prices rose 34.6%, the most since September of 2005 and food costs surged 10.1%, the first increase of 10 percent or more since the period ending March 1981.
Food prices have been almost vertical for the past year, though we have seen a respite in the past few months. World food prices as measured by the FAO Food Price Index dropped 0.6% on the month to 157.4 in May 2022. It was the second month of declines, though still sitting just under the record high 159.7 from March. Price falls were seen in the vegetable oil index (-3.5%), dairy price index (-3.5%) and the sugar price index (-1.1%). Price rises were seen in the cereal price index (+2.2%) and meat prices (+0.5%).
The market seems to go through phases of trading on the premise that the US is at or close to, peak inflation. The shock will come if better inflation news in coming months is not coming. The PCE price index is closely watched since it is the preferred inflation measure of the Federal Reserve, which has begun raising interest rates last month for the first time since the pandemic began to tamp down rising prices.
With all the redirection of blame at the Fed about inflation one has to understand it is a global phenomenon outside the Fed’s Control. With the war drums louder than ever the supply chain issues are out of control. The Federal Reserve is not in control of global energy and commodities prices.
Everything points to powerful inflationary dynamics and a Federal Reserve so far “behind the curve.”
The Fed has kicked off its first real tightening campaign since 1994, with securities markets already at the brink of illiquidity and dislocation. Markets could soon be screaming for assurances of the Fed’s “buyer of last resort” liquidity backstop, while the Fed is prepared to begin withdrawing liquidity by selling Treasuries and MBS. .
Here is a dose of reality. or was it all just money laundering?
“The nonfungible token of Jack Dorsey’s first tweet, which sold for $2.9 million last year to Sina Estavi, failed to garner much in the way of interest when it was recently put up for resale, Coindesk reports. The auction for the NFT closed with only seven offers ranging from just 0.0019 Ether to 0.09 ETH, or about $6 to about $280. A far cry from the $48 million sought by the owner.”April 13 – Bloomberg (Patrick McHale)
Another important aspect is the Fed doesn’t Control corporate pricing or wage decisions. Let us be clear geopolitical, climate change developments and what an out of depth, politically motivated administration are outside the Fed’s sphere of influence. There has been over $5.1 Trillion new “money” in 126 weeks, it’s a reasonable conclusion the Fed has lost control of Inflation.
The VOLX`s underlying instrument is the Mini VIX™ Future. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility. The VIX is calculated using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls (options) on the S&P 500.
When the VIX is highly reactive, VIX related products can serve as potentially effective hedging tools, when the VIX is not very reactive, traditional hedging techniques may be a better choice.
The nearest VIX futures contract expired on 7/13)
Monetary inflation is running wild. In 2021 Federal Reserve Credit expanded $1.391 TN or 19% to a record $8.742 TN. The Fed’s balance sheet inflated a mindboggling $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10 times since the mortgage finance Bubble collapse.
We need to grasp all the risks to be wary off and received plenty of flak from it. We always talk here about expect the unexpected and now that is front and center, gage the market’s reaction, the market is always right and that’s why we focused on the crowd psychology aspect over the past few weeks.
We are in an openly hawkish phase since late last year when the New York Fed president John Williams, who is a voting member continued with his hawkish tilt of late. He said we are seeing broader based increases in inflation. Fed Governor Bullard told US Core PCE Is “Quite High” and added that the Fed should take towards a more hawkish policy in the next couple of meetings. Then we had Fed Governor Christopher Waller say the rapid improving job market and deteriorating inflation data have pushed him towards favoring a faster pace of tapering and more rapid removal of accommodation.
“We have a market trying to interpret the Fed who is trying to find out how they can interpret their long-only portfolio at a risk parity where rates cannot rise.”– MoneyNeverSleeps
Our weekly reminder for risk, timely given the V shape surge in commodities just a week. The downside is clear with the absence of moral hazard from repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets? How do we ween the markets off this continuous dip feed? At this point the Central Banks have kicked that answer down the road.
PART A – Stock Markets
Weekly Highlights – USA
- S&P500 declined 0.9% (down 18.9% y-t-d)
- Dow slipped 0.2% (down 13.9%).
- S&P 400 Midcaps declined 0.7% (down 18.9%),
- Small cap Russell 2000 fell 1.4% (down 22.3%).
- Utilities dipped 0.3% (down 3.3%).
- Banks gained 1.0% (down 21.3%),
- Broker/Dealers were little changed (down 18.4%)
- Transports fell 1.4% (down 19.8%).
- Semiconductors jumped 2.9% (down 31.7%).
- Biotechs fell 2.6% (down 13.4%).
- With bullion falling $34, the HUI gold index sank 6.1% (down 21.4%).
Biggest SPX Stock Winners and Losers Last Week
Cboe Daily Market Statistics
US Markets YTD
- Dow Jones Industrial Average: -13.9% YTD
- S&P 400: -18.9% YTD
- S&P 500: -19.0% YTD
- Russell 2000: -22.3% YTD
- Nasdaq Composite: -26.8% YTD
Global Stock Market Highlights
Highlights – Europe Stocks
- U.K.’s FTSE equities index slipped 0.5% (down 3.1% y-t-d).
- France’s CAC40 was unchanged (down 15.6%).
- German DAX equities index fell 1.2% (down 19.0%).
- Spain’s IBEX 35 equities index lost 1.9% (down 8.8%).
- Italy’s FTSE MIB index sank 3.9% (down 23.5%).
Germany’s benchmark Blue Chip DAX 30 index (Deutscher Aktienindex) expanded to 40 companies on 20 September adding 10 new members to the German stock index from the MDAX which will be reduced from 60 to 50 members.
Highlights – Asia Stocks
- Japan’s Nikkei Equities Index rallied 1.0% (down 7.0% y-t-d).
- South Korea’s Kospi index dipped 0.8% (down 21.7%).
- India’s Sensex equities index fell 1.3% (down 7.7%).
- China’s Shanghai Exchange Index sank 3.8% (down 11.3%).
Highlights – Australian Stocks
- The S&P/ASX 200 index -0.68% Friday (-1.1% for the week).
- Materials sector down 3.2% Friday as iron ore and copper prices continued to fall. Fortescue finished down 6.2 per cent, with BHP Billiton off 3.5 per cent
Highlights – Emerging Markets Stocks
EM equities wobbled.
- Brazil’s Bovespa index sank 3.7% (down 7.9%)
- Mexico’s Bolsa index declined 1.1% (down 11.6%).
- Turkey’s Borsa Istanbul National 100 index fell 2.1% (up 28.3%).
- Russia’s MICEX equities index dropped 5.1% (down 44.3%).
Daily: SPX500 performed a perfect competitive wave last week at record fear and bear extremes. From there we rallied through the daily tanken to close at the Kijun by week’s end had completed a perfect measured 3 wave move on the 240 Murrey Math highlighted in the podcast. We bounced through the downward channel pulled by the twist ‘helium contusion’ on the completive.
Recall the fuel from the top of the channel after completing 3 waves off ATH, accelerated after broke the Tenkan through to the 4600 OI where it reversed with impulse back to Tenkan Bulls this a (ii) of a 5. Bears this is 1-2 of (i) completive V of degree. We watch if this low was a (iii), (a) or C. We have to respect the number of alternatives of degree of 5. With such trends keep it simple support is Tenkan and Kijun and watch for ABC. From no fear to panic is the driving element.
Recall SPX completed 5 waves up where it reversed with impulse with energy fueled from the power impulse down from +1/8 ATH spit of a spit fail. On the way down (just like up) it accelerated after it broke the Tenkan through the rejected Kijun and then through the median after tapping 8/8.
The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the Tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in
The S&P failed to continue through last week’s lows and re3versed to fill the gap and closed right above it. The flat weekly Kijun acted as a magnet as the Spoos blasted back up through the wave iii or C lows. Each new high evolved after testing Tenkan key support on the way and we are now getting a retest as resistance. We reiterate this needs to be recovered for a resumption of the uptrend meanwhile the bear market plays out. Watch Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.
Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan. To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.” Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances
A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets
The Dow tested its weekly up channel after bouncing back to test the Tenkan and Kijun we watch for the reaction here. Resistance is the channel, support the cloud and previous breakups.
Since the Nasdaq spat the weekly cloud from MM 6/8 and broke Tenkan confluence with the cloud top and Kijun above it has sold off. Immediate resistance is this confluence. It continues to battle between the 38/50 Fibs.
Recall ATH was after it broke and held the weekly Tenkan to see a spit of a spit fail which is completive of 5 of some degree with Chikou rebalancing. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.
The small cap Russell RUT had been developing a large flag which it did a false break to fuel the selling from there we replicated to the down (Adam’s theory).
Russell 2000 low-price tested the 38.2% retracement of the move up from the March 2020 low before bouncing higher.
Unlike SPX we could not get through Tenkan and Kijun which rejected the bounce highlighting its weakness. However, like the NASDAQ we broke above the tenkan. This is the index showing more of the fast money crowd and is trading like it. Closed right in the middle of the cloud. Needs to get traction in here for bulls. 8/8 support collapsed and is now major resistance.
Semiconductors SMH clean with reaction from above reverted with the retest & break of the triple top patterning in a pennant. Pull from Chip Shortage players $ON $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX $XLNX
NVidia got through another earnings week, which for now signaled the low at 5/8 and the breakup retest from May 2021. NVidia is a clear leader of #SOX #SMH look for cues there and ABC failures for changes. Above is the Key Break (mauve) and Tenkan to a flat cloud. Support the recent low.
On the way up Apple gently motored up to new ATH over the massive $160 then $170 thru to $180 gamma level on the way down these levels became key energy levels all the way to $132. Support held at the May break (just like NVDA) where from there it spat the cloud pulled by a flat Tenkan and Kijun as it rebalanced Chikou. It closed right at the old channel break and MM 8/8 which is now key. Remember the impact $AAPL has, at least short term on all the major indices.
The ARK Innovation ETF (ARKK) finally found some support at -1/8 and the 423.6% extension! The fund is filled with growth stocks and was the top-performing U.S. equity fund tracked by Morningstar in 2020, it has not been a pretty slide.
The ARKK ETF trading clinically, tested triangle breakdown and failed off 50 WMA. Some work at support at 61.8% of whole move and then wrecked again. Clear crowd behavior, we saw ATH in NASDAQ & SPX, yet this couldn’t raise a bid – very telling negative divergence. $ARKK rebalanced Chikou at week’s end
US Stocks Watch
Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals.
Earnings Highlights This Week:
- Bank of America (BAC), IBM (IBM), and Goldman Sachs (GS).
- Johnson & Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Hasbro (HAS), Silvergate Capital (SI)
- Tesla (TSLA), Abbott Laboratories (ABT), CSX (CSX), Las Vegas Sands (LVS), Biogen (BIIB), and United Airlines (UAL).
- AT&T (T), Philip Morris International (PM), Travelers Companies (TRV), Domino’s Pizza (DPZ), Union Pacific (UMP), Snap (SNAP)
- Verizon Communications (VZ), American Express (AXP), Twitter (TWTR), and HCA Healthcare (HCA)
“U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year… There have been 556 follow-on offerings, or stock sales by companies or existing shareholders, among U.S. companies this year, the most since 1996, according to Dealogic… They have raised a total of $133 billion. Behind the boom in share issuance? An ascendant stock market.” August 25 – Wall Street Journal (Gunjan Banerji):
US IPO Week Ahead:
The analyst quiet period expires on Golden Sun Education Group (GSUN) on July 18. The IPO lockup expires on the same day on Yoshitsu (TKLF).
Part B: Bond Markets
Inflation with Henry Kaufman
Kaufman is the legendary chief economist and head of bond market research at Salomon Brothers is someone who knows Inflation. Henry Kaufman in an interview with Bloomberg’s Erik Schatzker Jan 14, 2022:
“I don’t think this Federal Reserve and this leadership has the stamina to act decisively. They’ll act incrementally. In order to turn the market around to a more non-inflationary attitude, you have to shock the market. You can’t raise interest rates bit-by-bit.”
“The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector — and the more it will have to shock the system.”
“‘It’s dangerous to use the word transitory,’ Kaufman said. ‘The minute you say transitory, it means you’re willing to tolerate some inflation.’ That, he said, undermines the Fed’s role of maintaining economic and financial stability to achieve ‘reasonable non-inflationary growth.’”
Highlights – Treasuries
“This is shaping up to be the most volatile year for Treasuries in over a decade, as uncertainty about the impact of aggressive Federal Reserve tightening whipsaws yields. The yield on 10-year US notes has traded in a range of at least 10 bps in 50 of 95 trading days so far in 2022. That puts it on track for an annual rate of more than 130 episodes, which would be the highest since 2009.”May 18 – Bloomberg (Garfield Reynolds)
Investment-grade bond funds posted outflows of $2.987 billion, while junk bond funds reported negative flows of $652 million (from Lipper).
U.S. Treasuries compressed the 2s10s spread by 18 bps to -20 bps, the deepest inversion since late 2000, which reflects expectations for slower growth. This was up from inversion of the 2s10s spread ending last week the week at -2 bps.
- 2-yr: +1 bp to 3.13% (+1 bp for the week)
- 3-yr: -1 bp to 3.14% (-1 bp for the week)
- 5-yr: -1 bp to 3.05% (-9 bps for the week)
- 10-yr: -3 bps to 2.93% (-17 bps for the week)
- 30-yr: -1 bp to 3.09% (-18 bps for the week)
All good until markets hold up but take note that the loosest financial conditions in history have supported record corporate debt issuance. While easy credit availability has supported economic activity, funding new investment whilst keeping vulnerable companies afloat. The combination of urban shifts through virus and riots fears fueled a booming MBS market and record low mortgage rates pushed strong housing markets into Bubble risk territory.
Highlights – Mortgage Market
- Freddie Mac 30-year fixed mortgage rates jumped 21 bps to 5.51% (up 240bps y-o-y).
- Fifteen-year rates rose 22 bps to 4.67% (up 234bps).
- Five-year hybrid ARM rates gained 16 bps to 4.35% (up 194bps).
- Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up eight bps to 5.77% (up 254bps).
Highlights – Federal Reserve
- Federal Reserve Credit last week added $3.6bn to $8.859 TN. Fed Credit is down $42bn from the June 22nd peak.
- Over the past 148 weeks, Fed Credit expanded $5.132 TN, or 138%.
- Fed Credit inflated $6.048 Trillion, or 215%, over the past 505 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $10.8bn to $3.366 TN.
- “Custody holdings” were down $173bn, or 4.9%, y-o-y.
- Total money market fund assets increased $16bn to $4.574 TN. Total money funds were up $94bn, or 2.1%, y-o-y.
- Total Commercial Paper gained $6.1bn to $1.171 TN. CP was up $41bn, or 3.6%, over the past year.
Highlights – European Bonds
- Greek 10-year yields dropped 17 bps to 3.50% (up 218bps y-t-d).
- Ten-year Portuguese yields fell 11 bps to 2.31% (up 184bps).
- Italian 10-year yields slipped a basis point to 3.28% (up 210bps).
- Spain’s 10-year yields dropped 13 bps to 2.29% (up 173bps).
- German bund yields sank 21 bps to 1.13% (up 131bps).
- French yields dropped 13 bps to 1.75% (up 155bps).
- The French to German 10-year bond spread widened eight to 62 bps.
- U.K. 10-year gilt yields fell 14 bps to 2.09% (up 112bps).
Highlights – Asian Bonds
- Japanese 10-year “JGB” yields little changed at 0.24% (up 17bps y-t-d).
Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test
The Federal Reserve released its annual bank stress test after the market close Thursday. All 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks. With the dismal state of the economy through soaring inflation and record low consumer sentiment these tests were keenly watched. Banks suffered slightly more hypothetical losses in the 2022 severe test than last year, posting $612 billion in projected losses as capital ratios fell to 9.7%. Read More Here.
Part C: Commodities
- Bloomberg Commodities Index declined 2.1% (up 14.4% y-t-d).
- Spot Gold dropped 2.0% to $1,708 (down 6.6%).
- Silver fell 3.1% to $18.71 (down 19.7%).
- WTI crude sank $7.20 to $97.59 (up 30%).
- Gasoline slumped 6.8% (up 44%),
- Natural Gas surged 16.3% to $7.02 (up 88%).
- Copper sank 8.2% (down 28.8%). Wheat lost 12.9% (up 1%),
- Corn dropped 3.2% (up 2%).
- Bitcoin fell $1,023, or 4.7%, this week to $20,860 (down 55%).
Risk markets continue to respond to the war in Ukraine and the supply crisis from the Coronavirus outbreak and lockdowns.
BDI Freight Index
- The Baltic Exchange’s dry bulk sea freight index rose140 points, or nearly 7%, at 2,150 points, its highest since July 4. It rose 4% for the week. The overall index, which factors in rates for capesize, panamax and supramax vessels had its first weekly gain since mid-June.
- The capesize index rose 462 points, or 18.8%, to 2,919 points, its highest since June 20. The index gained 29% for the week.
- Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were up $3,834 at $24,209.
- The panamax index was down 35 points, or 1.8%, at 1,885 points, its lowest since Feb. 7. The panamax index fell 15.2% in its worst week since Jan. 21 and logged its fourth straight weekly fall.
- Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, decreased $311 to $16,969.
- The supramax index fell by 11 points to a new five-month low of 2,039 points, registering its eighth consecutive weekly decline.
We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle.
We have seen $AA retest the previous high after the +3 Spit as the Chikou rebalanced. We have the Gap below at +1/8 confluence. We move to 240 for this pennant resolution.
Copper rebounded sharply off the 50wma but again has failed on the cloud spit and channel break. The flattening Weekly Tenkan and Kijun acted as a magnet to close right there. #HG power spits have quickly rebalanced back into the wide channel. Copper had been a leader in the risk on movement for commodities.
Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.
Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.
USDA June 30 Acreage Report
USDA released one of the most influential reports for commodities Thursday morning, the June 30 Acreage report. The most significant point was corn again the largest crop produced in America in 2022. USDA raised 2022 acreage expectations for corn by 431,000 acres from the March 31. Markets pared some of their earlier morning’s losses on the news. The announcement reversed USDA’s March 31 Prospective Plantings report which had projected higher soybean acreage relative to corn for only the third time in U.S. history.
KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.
Wheat actually performed the strongest of the grain complex, the only one to not threaten its weekly cloud. Wheat spat the 61.8% and closed right at the 50wma which it broke the week prior. The contract had continued its sharp impulsive collapse fueled from when it retested and broke the Tenkan (orange). This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall. From here Wheat support at that $800 confluence with the breakup level at 61.8% and the cloud finally showed some resolve. Resistance at Kijun and Tenkan.
Corn finally bounced from its freefall all the way to the cloud twist mean in the cloud. The Corn rally had topped out at the highest since 2012 in Chicago at +1/8 and has corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again, and empowered selling smashed through previous high, Kijun and 7/8 confluence. The 50wma gave no support with the cloud and 6/8 slowing the selling down. All these levels are now resistance.
Soybeans finally found some recovery this week hitting our cited support at the Cloud just over the 6/8 and the January breakup. The weekly cloud and Murray mingle around the $14.6/bushel benchmark are massive. Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.
US Crude Oil (WTI)
Another big week for oil, but this time to the downside. On Friday WTI fell more than $7.00 past its 50-day moving average (109.36) to its lowest level in nearly four weeks. The price has been corrective after hitting our initial 8/8 target retest completing either a iii of (5) or (v) of 5 as marked. From there we saw a grinding ABC or 1 of 3 higher and MM recalculation higher to almost +2/8 and 161.8% Fib retest. We are in a completive mode with this impulse, it’s a question of degree on the topside, use the Murrey math 240/60 grid.
On the way up potent WTI price action indicative of 3rd wave energy highlighted by spits of the Tenkan to new highs. Recall prior to this move the completion in 5 waves (iii or i) saw heavy selling with eventual confluence kiss of death with 50dma at the top of the cloud. From there down in 3 waves, completing a C or IV? Support wasn’t found until 0-8. From there we have accelerated higher through the cloud twist. Support Kijun and Tenkan. Closed above 50dma with grid above
The key is crowd behavior to help tell the story which in energy is often around geopolitics. A great example of why we watch ABC corrections and from here we get the energy from the break being balanced. This move that was powered by 50 dma Tenkan spit of a spit – hence the fractal energies reverberations. Support is previous lows, Murrey Math levels and Fib cluster. Support is the 50dma, kijun, tenkan and prev high confluence.
WTI crude Oil futures continued higher after corrected the sell off to the Kijun. That was after it’s measured move reversed from 7-year highs and regained them right to the top of the weekly channel with the downside open. Risk support is the grid. Long term 61.8% target fueled the spit of a spit by ABC bull flag after rebalanced Chikou sated the 5 waves. Support previous high and Weekly Tenkan & Kijun which closed turning up under the 100% to give next impulse clue after holding above 50wma after regaining energy above Tenkan and Kijun. Resistance the Murrey Math levels and previous breaks (off monthly)
These are special times, recall “After we regained the pattern 261.8% from the extreme (-$40) move. The climax of the larger acceleration lower after broke the weekly uptrend, a fractal of the sharp and all the way to all time lows to negative pricing we have seen mirror replications.” Support is previous channels, tenkan and Kijun. Above we have Murrey Math time and price
US Natural Gas (Henry Hub)
US Natural Gas has continued higher after it completed 3 waves correcting the daily 8/8 spit correction to -2/8. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. We closed over the 2 most recent highs and +1/8 right. Support is Tenkan, Kijun below.
The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this week’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance
Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.
Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.
Notably no sharp reversal, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. This move was fueled by a fractal of the classic double top playing out after a spit of the weekly Kijun was sent back off Tenkan only to reverse all the way to spit the 50wma for the energy needed. Resistance is Previous highs and Murrey Grid.
The Natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence. A question of continuation with the 50wma as resistance and cloud as support.
Recall the impulse wave powered from the spit of 50wma to get over weekly Kijun and Tenkan. This was energized with a series of fractals between old 38 and 50% channel, as you would expect in a seasonal commodity with weather a prime mover. Resistance is Fib/Murrey confluence, support Tenkan, Kijun – as always count your ABC’s
Key Energy Reports
- Into The Vortex – Natural Gas Outlook with European Supply Tightness & Scorching Summer
- Around The Barrel – Crude Oil, Gasoline and Distillate Outlook
- OPEC Monthly Oil Market Report July 2022
- World Natural Gas Production and Delivery the Modern Geopolitical Weapon
- Renewables Sources Make Up 13% of Global Power Generation in 2021
- Wind and Solar Generate More Energy Than Nuclear Power
- China Overtakes Europe as World’s Biggest Renewable Electricity Generator
- Coal Consumption Rebounded to Near Record Highs as Primary Energy Consumption Soared in 2021
- Energy Crisis Pushes German Gas Giant Uniper SE To Seek 9 Billion Euro Bailout
- American Gasoline Prices Hit Record High $5 per gallon
Gold futures back testing the median after another rejection at the Tenkan (orange). Needs gets impulse off this ABC off this cloud or double top gains more weight and it follows silver weakness The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at it’s uptrend line since the August 2021 bottom and Kijun. It garnered strength after rebalancing after manic rise to +5/8 weekly rebalance of Chikou in 5 waves. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.
Silver, like Gold bounced under the cloud base. Back underr 50wma after spitting Tenkan providing support after reversed. Closing under weekly Kijun which is now resistance. Major support is previous lows
Part D: Forex Markets
John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”
For the week the U.S. Dollar Index slipped 0.4% to 108.06 Friday, narrowing this week’s gain to 1.1%. Friday (Up 13.0% y-t-d). Bloomberg Dollar Spot Index, which tracks the greenback against a basket of developed and emerging market currencies, rose as much as 1.2% to 1304.55 Thursday. The level is above the mark it hit in March 2020, with the previous high in data stretching back to 2005.
- For the week on the upside, nil
- On the downside, the Japanese yen 1.8%, the British pound 1.5%, the euro 1.0%, the Australian dollar 0.9%, the Canadian dollar 0.7%,
- For the week on the upside, Swedish krona increased 0.2%
- On the downside, the Brazilian real declined 2.8%, the South Korean won 2.0%, the South African rand 1.2%, the Norwegian krone 1.0%, the New Zealand dollar 0.4%, the Mexican peso 0.4%, the Singapore dollar 0.1%, Chinese (onshore) renminbi declined 0.93% versus the dollar (down 5.94% y-t-d).
Australian Dollar – AUDUSD
The Aussie dollar reversed with cloud, Kijun and channel confluence over $0.7250, its highest levels in three weeks from there it reversed lower to 4/8 just over .68. It closed under the Tenkan around the channel midpoint. The currency got support from Australian bond prices seeing its largest weekly gain in a decade. It was the only major currency up against the USD this week.
Since completing a 5 at the psychological 80 level it had fallen & continued to correct under the weekly cloud in emotive fashion. China lockdown fears overhang and AUDUSD forwards support with bonds and RBA raising. Support is the Murrey Math Levels. Resistancethe Cloud, Tenkan and Kijun like many commodities.
New Zealand Dollar – NZDUSD
The Kiwi mirrored the AUD in its wave (iii) spit to lower channel wing recover to Tenkan where it met the KOD. Momentum failed and reversed from there. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel. We closed back under the old 61.8% break.
Canadian Dollar – USDCAD
The Loonie has continued to benefit from the USD’s broad correction as an improving fundamental background for the CAD of strong growth, hawkish central bank, favorable terms of trade. Since the USDCAD reversed its surge over 1.30 to test the cloud below and recaptured the Tenkan led by the AUD and NZD as it spat the weekly flat-topped triangle. Higher US yields has negated much of the oil price impacting direction. Watch flat Kijun and Tenkan. Use Fibs for support and resistance.
Euro – EURUSD
The Euro reversal off last month’s correction off the Tenkan has been fast and furious to the lowest closing rate since 2017 spitting the outer channel. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) reflecting Tenkan (orange) creates any impulse as EURUSD develops in the channel. Watch 3 waves to see development for continuation. Again, governed by EURGBP and Bund volatility
British Pound – GBPUSD
British pound has lost all of the steam from its biggest weekly gain since December 2020 against the dollar to above $1.26 to be smashed to the bottom channel and 1/8 at 1.1928 after retesting the channel and Tenkan. GBP recouped some of its losses but is still undermined by political risk with PM Johnson resigning and recession fears. Sterling bounced from lows of last week to close under the Tenkan at 1.2o35. Above we have channel and Tenkan confluence and flattening Kijun. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.
Euro Pound – EURGBP
EURGBP back tested 50wma after breaking it last week. 50wma and cloud with Kijun support with Tenkan resistance. The EUR/GBP gave up control and weekly rally reversed three consecutive weeks.
Japanese Yen – USDJPY
After USDJPY corrected to the weekly Tenkan at 125.88 which held and fueled a swift return higher and has rallied dramatically. Dollar yen accelerated higher moving above the May high of 131.342 which was 20-year highs for the USDJPY. It hasn’t let up with Murray Math Weekly levels recalculating higher. USDJPY closed the week just over 7/8 135.22 after spitting 136.
On the way up the price accelerated after the close above the Tenkan over 114 hence the pull for it to correct to the Tenkan which it did to ignite this rally a month ago. The Murrey Math level should remain massive support for dollar-yen. Any change will come from the weekly Kijun as it breaks through the old channel.
Use your USDJPY Murrey grid for now. EURJPY AUDJPY will determine risk on/off. The Tenkan is the natural balance of support ahead.
Emerging Market Currencies
An EM CDS index traded up to 395 bps intraday Thursday (up 50bps w-t-d), the high back to April 3, 2020 before ending the week up 30 to 375 bps. EM CDS hasn’t had a weekly 50 bps jump since September 2020.
De-risking/deleveraging has turned more systemic throughout the global “Periphery.”
- Indonesia CDS jumped 20 this week to 165 bps, the high since May 2020.
- Vietnam rose 21 bps to 188 bps (July ’20),
- Philippines 18 to 148 bps (March ’20),
- Malaysia nine to 112 bps (May ’20),
- India seven to 175 bps (May ’20),
- Thailand six to 73 bps (April ’20)
- South Korea six to 54 bps.
- Hungary CDS surged 48 (to 230bps)
- Romania 39 (to 347bps).
- South Africa CDS surged 31 to 369 bps (high since May 2020)
- Turkey CDS 13 surged to an almost 20-year high 883 bps.
“Frontier” markets appear to suffer acute illiquidity.
- Mongolia CDS surged 161 to 604 bps (high August ’20),
- Egypt 344 (to 1,507 bps),
- Kenya 269 (1,417 bps),
- Iraq 131 (798 bps),
- Namibia 126 (728 bps),
- Argentina 274 (1,947 bps),
- Nicaragua 91 (695 bps).
- Colombia CDS surged 45 (332 bps),
- Brazil 37 (331 bps),
- Costa Rica 31 (335 bps),
- Uruguay 30 (167 bps),
- Peru 29 (158 bps),
- Guatemala 25 (332 bps),
- Panama 25 (158 bps),
- Chile 25 (141 bps),
- Mexico 18 (196 bps).
Mexican Peso USDMXN
The Mexican Peso held its triple bottom to rally back to the Tenkan as rates rose in the US. It continues in the long sideways pattern and consolidates despite outside uncertainty from oil and high rates. The recent high near 19.5 per USD was the highest level since March of 2020 and tracked general strength in Latin American currencies which has since reversed. Use the Gann octave and the extension fibs to help measure the noise.
Turkish Lire USDTRY
The Turkish Lira slow decline has picked up speed as it broke into the next corrective channel tier falling to 17 against the dollar on Wednesday, extending a steep slide this week closer to that all-time low of 18.4 hit in December. President Recep Tayyip Erdoğan vowed once again to cut interest rates despite spiraling inflation. The Turkish president said this week that the country had ‘wasted years’ with the misguided view that prices should be controlled by using higher borrowing costs to suppress consumption. Such policies, he said, benefited only ‘those living a charmed existence and filling their pockets with [the proceeds of] high interest’, including foreign investors.”
To recap the wild 18-10 USDTRY swing last year reversed after falling in 3 waves to explode over the Tenkan, weekly cloud Kijun and 50wma below. The Murrey Math and Fib targets with last year’s Lire all-time lows in a hyper inflating collapse. So far this year the lira is the worst performer in emerging markets. Turkey’s lira has lost 22% this year, raising concerns that the country could be heading for a repeat of the FX crisis seen at the end of last year.
Bitcoin continues to perform technically to perfection. Impulse begets impulse. To understand panic, understand greed. $BTC tested the top of a rising channel after the preceding sharp downturn which was the downside breakout of an earlier bearish flag, after breaking downside a H&S top and then down it went….
Recall Bitcoin exploded higher following it’s correction impulsively upon completing 5 waves up at +2/8. Each Tenkan and Kijun tap saw an explosive kiss of death until we completed 3 waves to around 28,000. From there we have seen extreme volatility.
Looking back Bitcoin put in a high of $63,000 around Coinbase, the largest US crypto exchange successfully went public which signaled profit-taking. The recent high over $68,000 came after the launch over the Bitcoin ETF, Bitco. From that high we have 2 main alternatives a V of a 1 of a V. For bears it a completive five with impulse right to the 50wma – an incredible 26% fall in a Friday night session. That’s impulse! We watch for an ABC to develop here support is the 50wma and bottom of the weekend cloud.
The Fail of TerraUSD
May 12 – Wall Street Journal (Alexander Osipovich and Caitlin Ostroff): “The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market. This week TerraUSD became part of the frenzy too, slumping by more than a third on Monday and then tumbling as low as 23 cents on Wednesday. The collapse saddled investors with billions of dollars in losses. It ricocheted back into other cryptocurrencies…”
May 16 – Financial Times (Scott Chipolina): “Traders have yanked $7bn from Tether since the world’s biggest stablecoin last week briefly lost its peg against the US dollar, intensifying concerns about the assets that underpin the global cryptocurrency market. Tether’s market value has fallen by 9% since May 12 to $76bn as tokens have been removed from circulation to meet redemption requests, CryptoCompare data show. The decline came after Tether last Thursday traded at about 95 cents, well below the $1 level it seeks to maintain following the failure of a smaller rival. Observers inside and outside the crypto market have warned that deeper or more lasting volatility in stablecoins, which are designed to maintain a one-to-one peg with the dollar, could drag down the value of thousands of speculative crypto assets that have drawn buyers around the world.”
We have seen what you would expect from a 5 wave impulse peak and ABC correction, a violent correction and completion. Use Murrey Math levels for corrections and targets as algorithms control the herd here, support is the cloud and sharp ABC, 1-2 moves. From there prices agitated towards those ATHs as news of a Bitcoin ETF fueled the rally, sound familiar? But this time it wasn’t signaling we are in a 3 high probability but a 5.
On the Risk Radar
Geopolitical Tinderbox Radar
Economic and Geopolitical Watch
Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).
Major US Banks Deliver Mixed Results in Q2, 2022
The major money cents banks released earnings with many strong results for Q3. Mainly from trading on the positive side. We see a reversal of loss reserve releases from the pandemic kitty. Rising interest rates also help the bottom line.
- Citigroup Earnings Beat Expectations with Strong Trading in Fixed Income and Net Interest Margin
- BlackRock Profits Fall as Assets Under Management Decrease $1.1 trillion With Lower Investor Confidence in Markets
- PNC Bank Revenue Grew 10% on Strong Loan Growth
- Wells Fargo Earnings Disappoint as Revenue Falls from Slow Down in Mortgage Banking
- Morgan Stanley Investment Banking Hit by Capital Markets Seizing Up
- JPMorgan Sets Aside More for Bad Loans and Suspends Buybacks after Earnings Miss
Banks stocks have benefited from the Federal Reserve partially lifting its hold on share buybacks, saying that banks can resume repurchases in the first quarter of 2021 as long they don’t exceed the average quarterly profits from their past four quarters. The change came after the Fed found that all major banks passed a second round of stress tests, indicating the firms can continue lending to businesses and households even if the economy dipped into a new recession.
Banks are also benefiting from the Federal Deposit Insurance Commission intending to ease the Volcker Rule, which restricts banks from making large investments into venture capital. The Volcker Rule was enacted in the wake of the 2008 financial crisis, and the new changes could potentially free up billions in bank capital. Bank stocks rose.
Through the first three quarters of 2020, NFD surged an unprecedented $5.740 trillion, or 14.1% annualized. NFD was up $6.181 trillion over the past year (11.5%) and $8.817 trillion (16.7%) over two years. For perspective, NFD expanded on average $1.830 trillion annually over the past decade. NFD has ballooned 71% since the end of 2008.
“Negative yields on long-dated government securities are more reflective of distorted market conditions than of stronger sovereign credit profiles, Fitch Ratings says. Lower interest service costs support sovereign creditworthiness, but this must be weighed against the impact of the economic conditions leading to lower yields and historically high government debt levels in a number of countries.- Fitch”
The Week Ahead – Have a Trading Plan
Watch Central Banker and Geopolitics speeches, reports and rate moves.
Next Week’s Risk Dashboard via Scotiabank
- ECB’s forward guidance to dominate attention
- Italian political dysfunction could escalate
- China’s supply chains and rising COVID cases
- Canadian inflation likely accelerated again
- Canada’s pluses and minuses
- UK inflation is between energy shocks
- A big week for US earnings
- Global PMIs to inform Q3 GDP tracking
- UK jobs still resilient?
- Kiwi CPI could influence the RBNZ’s next decision
- BoJ, PBoC likely to hold
- SARB to hike
- Russia’s CB to cut
- Bank Indonesia likely to hold
- Turkey and Erdogan likely to hold
US Events Focus
- July NAHB Housing Market Index (consensus 66; prior 67) at 10:00 ET This is a composite index (ranging from 0 – 100) comprised of Single-family home sales, Future sales expectations, and Buyer traffic, and is viewed as an indicator of new home sales trends. Collectively, the components are intended to provide a gauge of overall conditions in the market for selling new homes.
- May net long-term TIC flows (prior $87.70 bln) at 16:00 ET
- June Housing Starts (consensus 1.598 mln; prior 1.549 mln) and Building Permits (consensus 1.680 mln; prior 1.695 mln) at 8:30 ET Housing starts measure the beginning of the excavation of the land on which a new single or multi-family residence will be built and is used as a gauge of housing demand and strength in the construction industry. Building permits are required before excavation can begin, and any changes in permits are often reflected in starts in subsequent months.
- Weekly MBA Mortgage Index (prior -1.7%) at 7:00 ET;
- June Existing Home Sales (Briefing.com consensus 5.40 mln; prior 5.41 mln) at 10:00 ET; This is a good measure of overall demand in the housing market, because it aggregates completed closings on all single-family dwellings, which comprise the largest portion of the housing market. Home buying can imply economic stability, since it is often the largest single investment for any family. It can also lead trends in future durable goods purchases.
- Weekly crude oil inventories (prior +3.25 mln) at 10:30 ET;
- $14 bln 20-yr Treasury bond reopening results at 13:00 ET
- Weekly Initial Claims (consensus 240,000; prior 244,000), Continuing Claims (prior 1.331 mln), For the week ending 7/9/22, claims were up 9k after being up 4k the prior week. The 4-week moving average now stands at 236k, down 3k from the prior week.
- July Philadelphia Fed survey consensus -1.2; prior -3.3) at 8:30 ET;
- June Leading Indicators (Briefing.com consensus -0.5%; prior -0.4%) at 10:00 ET
- Weekly natural gas inventories (prior +58 bcf) at 10:30 ET
- Preliminary July IHS Markit Manufacturing PMI (prior 52.7) and preliminary July IHS Markit Services PMI (prior 52.7) at 9:45 ET
Global Central Bank Events
- European Central Bank decisions and communications on Thursday will lead a parade of global central banks as probably the most influential among them. ECB is very likely to stick to its guidance that the first-rate hike would be a quarter point lift to all of its rates including the key deposit facility rate presently at -0.5%, the Marginal Lending Facility Rate at 0.25% and the Main Refinancing Rate at 0%.
- The People’s Bank of China’s one-year and five-year Loan Prime Rates are likely to be left unchanged at 3.7% and 4.45% respectively on Tuesday. A small minority has gone for a small hike in the 5-year rate. The PBoC recently left its bellwether 1-year Medium-Term Lending Facility Rate unchanged at 2.85% while it has previously drained liquidity from the system.
- The Bank of Japan will probably stay sidelined again on Thursday. The yen’s slide to the dollar from 115 in early March to just shy of 140 now has prompted some market participants to think that Governor Kuroda will blink and adjust the 10-year bond yield target of 0% and its upper ceiling of +25bps or pursue other measures. We’ve maintained that this is unlikely because the BoJ views inflation sparked by a weaker yen and imported oil price shocks as transitory in nature versus the kind of durable progress toward its inflation target that it seeks.
- Bank Indonesia is widely expected to hold its policy rate unchanged at 3.5% on Thursday. Governor Perry Warjiyo recently offered remarks that lean against a tightening bias when he said “If the economy is still recovering, then we restrain the demand—raising interest rates, tightening loans—while the source of inflation currently is actually the supply, that’s where the risk of stagflation would occur.” Of course, one could debate his view on the source of inflation as many have across the world.
- South Africa’s central bank is expected to hike 50–75bps on Thursday which would add to the cumulative 125bps of tightening since the end of last year.
- President Erdogan’s central bank in Turkey is expected to hold its one-week repo rate at 14% on Thursday following last year’s easing that torpedoed the lira and drove much of the country’s present 79% y/y rate of CPI inflation.
- Russia’s is expected to cut its key rate again on Friday. Consensus ranges between a 50–100bps cut. The resumption of currency strength—albeit a highly manipulated one—is perceived to give such room to ease (chart 12).
Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.
-comment section below data-
Subscribe and Follow
Find us at www.traderscommunity.com
Follow our contributors on Twitter @traderscom @thepitboss16 @knovawave @ClemsnideClem
Note these charts, opinons news and estimates and times are subject to change and for indication only. Trade and invest at your own risk.