Traders Market Weekly: Inflation and Central Banker Rate Watch

June 5 – 11, 2022

FEAR NOT Brave Investors

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The Week That Was – What Lies Ahead?

Contents

Click on the links below to navigate to the relevant section.

Editorial

After the fierce 2-week bear market rally stock markets sold off on Friday with the Nasdaq (-2.5% and -1% for the week) leading the pullback, the S&P 500 (-1.6%) and Dow (-1.1%) lost a respective 1.2% and 0.9% since last Friday. With FOMO still alive small caps held up a bit better with the Russell 2000 (-0.8%) giving back 0.3% this week. Top component Amazon (AMZN 2447.00, -63.22, -2.5%) finished a tad stronger than its sector as it will begin trading on a 20/1 split-adjusted basis on Monday.

The market was shaky after JP Morgan CEO Jamie Dimon warned of a ‘hurricane’ as the economy struggles against fiscally induced growth, quantitative tightening and Russia’s invasion of Ukraine. Tesla CEO Musk said they would cut 10% of staff and “super bad feeling” about the economy. Then we had a better-than-expected jobs report which did not signal a slowdown in the Fed’s rate hike plans.  The ISM Non-Manufacturing Index for May fell to 55.9% (consensus 56.6%) from 57.1% in April, slowing for the second straight month as businesses continued to wrestle with pricing pressures, supply chain issues, and labor supply constraints.

Key Spreads

High-yield spreads (to Treasuries) traded below 400 bps for the first time in a month, down from 481 bps on May 24th. Junk bond funds enjoyed big inflows after the slowest May in twenty years, the junk bond market saw more than $7 billion issuance in the “the busiest since mid-January.”

  • 10-year Treasury bonds 2.94%, up +0.20 w/w (1-yr range1.08-3.13)
  • Credit spread 2.08%, down -0.18 w/w (1-yr range1.65-4.31
  • 10 year minus 2 year: +0.28%, up +0.2 w/w (1-yr range -0.12 – 1.59)
  • 10 year minus 3 month: +1.76%, up +0.10% w/w (1-yr range -0.99 – 2.04)
  • 2 year minus Fed funds: +1.83%, up +0.18% w/w
  • 30-Year conventional mortgage rate5.44%, up +0.19% w/w (1-yr range 2.75-5.64))

For the week ahead we get the ECB who is widely expected to delay the start of baby-step (25bps) rate increases until next month. More central banks with RBA to deliver another hike, RBI, Chile, Peru are still raising rates and Russia’s CB to cut on phony ruble strength? We get to see if US inflation is still climbing and Chinese CPI to showcase Fed-PBoC divergence and LatAm CPI.

When Risk Explodes:

High-yield CDS rose 13 bps (after collapsing 66 bps the previous week), as junk spreads widened nine bps. The Semiconductor (SOX) dropped 3.0% Friday, Tesla was slammed 9.2% in Friday trading, with Micron down 7.2%, and Etsy falling 7.2%. Any reason to back away from the bursting tech Bubble theory?

High-yield Credit default swaps Surge

  • High-yield Credit default swap (CDS) prices surged 39 this week to 523 bps, trading intraday Friday above 530 bps for the first time since June 2020.
  • After beginning the year at 2.78, high yield spreads to Treasuries have widened over 100 bps in three weeks to an 18-month high 4.82 percentage points.
  • The iShares High Yield Corporate Bond ETF (HYG) has declined 2.3% this month (down 10.8% y-t-d), underperforming both the iShares Investment Grade ETF (LQD) (positive 0.1%) and the iShares Treasury Bond ETF (TLT) (negative 0.6%).

Oil prices have continued to push higher since US continues to drain it’s SPR which have not alleviated product shortages and the headline risk around the EU phasing out Russian oil by year end. The EIA reported distillates stocks are at 14yr low as demand for jet fuel and diesel take off. Padd 1 diesel inventories are at 25-year lows.

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!

Inflation Matters

WTI Crude keeps motoring higher, another $3.80 this week to $118.87, the high since the March price spike, while boosting 2022 gains to 71%. Heading into the busy summer driving season, Gasoline futures jumped another 5.9% this week to a record high, while increasing y-t-d gains to 91%. Natural Gas declined 2.3%, but prices are still up 129% this year. Copper was up 3.8% this week. Platinum surged 6.2%, while lead, nickel, tin and zinc all posted strong gains. 

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.

Volatility

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.

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

Highlights – USA

  • S&P500 fell 1.2% (down 13.8% y-t-d)
  • Dow declined 0.9% (down 9.5%).
  • Nasdaq100 declined 1.1% (down 23.1%).
  • S&P 400 Midcaps dipped 0.7% (down 11.3%)
  • Small cap Russell 2000 slipped 0.3% (down 16.1%).
  • Utilities lost 1.2% (up 2.2%).
  • Transports were unchanged (down 12.3%)
  • Banks slumped 1.7% (down 13.5%),
  • Broker/Dealers dropped 2.3% (down 15.1%).
  • Semiconductors fell 1.7% (down 22.4%).
  • Biotechs dropped 2.6% (down 16.5%).
  • Though bullion slipped $3, the HUI gold index increased 0.7% (up 1.3%).
Major US Stock Indices
Cboe Daily Market Statistics

US Markets YTD

  • Dow Jones Industrial Average -9.5% YTD
  • S&P 400 -11.2% YTD
  • S&P 500 -13.8% YTD
  • Russell 2000 -16.1% YTD
  • Nasdaq Composite -23.2% YTD

Highlights – Europe Stocks

  • U.K.’s FTSE equities index dipped 0.7% (up 2.0% y-t-d).
  • France’s CAC40 slipped 0.5% (down 9.3%).
  • German DAX equities index was little changed (down 9.0%).
  • Spain’s IBEX 35 equities index fell 2.3% (unchanged).
  • Italy’s FTSE MIB index slumped 1.9% (down 11.6%).

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 3.7% (down 3.6% y-t-d).
  • South Korea’s Kospi index rallied 1.2% (down 10.3%).
  • India’s Sensex equities index gained 1.6% (down 4.3%).
  • China’s Shanghai Exchange Index recovered 2.1% (down 12.2%).

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries at 7,238.8 gained 0.8% on the week, its third consecutive gain after snapping a 4-week losing streak
  • The energy sector rose 1 per cent and was the best performer for the week with a rise of around 4 per cent.
  • Healius was the worst performer on Friday, down 8.6 per cent following a downgrade.

The Australian ASX 200 Stock Market Closed Up 13% in 2021 With Lithium Plays Starring

 Highlights – Emerging Markets Stocks 

EM equities rose.

  • Brazil’s Bovespa index declined 0.7% (up 6.0%),
  • Mexico’s Bolsa index sank 3.4% (down 4.9%).
  • Turkey’s Borsa Istanbul National 100 index surged 6.7% (up 40.0%).
  • Russia’s MICEX equities index sank 4.1% (down 39.1%).

Biggest SPX Stock Winners and Losers Last Week

Major US Indices

Technical Analysis 

Technical Analysis of key markets via KnovaWave

S&P 500

Daily: SPX500 performed a perfect double bottom this week’s and 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.

Daily S&P 500 3 waves

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

Weekly:

The S&P closed right on the weekly Kijun after blasting through the downtrend on quad witching. We corrected the reversal of the breakup at Tenkan from there we had had a powerful rally to ATH. Each new high evolved after testing Tenkan key support, we are now getting a retest as resistance, making it support on this move. We reiterate this needs to be recovered for a resumption of the uptrend. We broke the Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.

S&P500 Weekly Outlook

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

Dow Jones

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.

DJIA Weekly

NASDAQ 100

Nasdaq spat the weekly cloud to the MM 6/8 and Tenkan confluence where it closed with the cloud top and Kijun above. Immediate resistance is this confluence. 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. From there we sold off right to Tenkan (as did SPX) and here we are. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue. Support Channel and cloud.

NASDAQ Record Highs

Russell 2000

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 now and then cloud base

Russell Index Negative Divergence to NASDAQ

Semiconductors SMH

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 saw Semiconductors rise 2.9% (up 40.0% YTD)

VanEck Vectors Semiconductors ETF

NVidia $NVDA

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.

Nvidia NVDA stock chart

Apple $AAPL

Apple will hold its Worlwide Developers Conference to expectations that updates to iOS/iPad OS, macOS, tvOS, and watchOS, and other software reveals will be made.

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.

Apple AAPL Stock Chart

Amazon $AMZN

Amazon from the double top has seen sharp double bottom on the down channel to close back over the 61.8%. We look for the channel to guide for now but mindful of the Adams fractal rule.

ARKK ETF

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. 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

Ark ARKK ETF Stock Chart

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:

Monday includes

  • Coupa Software (COUP)

Tuesday includes

  • Dave and Buster’s (PLAY), JM Smucker Company (SJM), G-III Apparel (GIII), Cracker Barrel (CBRL), United Natural Foods (UNFI), Academy Sports + Outdoors (ASO), and Guidewire Software (GWRE).

Wednesday includes

  • Casey’s General Stores (CASY), Ollie’s Bargain Outlets (OLLI), Five Below (FIVE), Thor Industries (THO), Campbell Soup (CPB), Bausch + Lomb Corporation (BLCO)

Thursday includes

  • Nio Inc. (NIO), Signet Jewelers (SIG) DocuSign, Inc. (DOCU), Vail Resorts (VAIL), Rent the Runway (RENT), and Stitch Fix (SFIX).

Friday includes

  • G-III Apparel (GIII)

“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):

IPO Wrap

US IPO Week Ahead:

No new IPOs are expected to start trading next week.

Quiet periods expire on Hanover (NASDAQ:HNVR) on June 6 and ProFrac (PFHC) on June 7 to free up analysts to post ratings. The IPO lockup period for a block of shares of Chicago Atlantic (NASDAQ:REFI), Cingulate (CING) and HashiCorp (HCP) also expires during the week.


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 saw outflows of $3.026 billion, while junk bond funds enjoyed inflows of $4.769 billion (from Lipper).

U.S. Treasuries 2s10s spread remained at 28 bps. However, the 2s30s spread tightened by five basis points to 43 bps due to outperformance in the long bond.

  • 2-yr: +5 bps to 2.68% (+22 bps for the week)
  • 3-yr: +6 bps to 2.88% (+24 bps for the week)
  • 5-yr: +4 bps to 2.95% (+22 bps for the week)
  • 10-yr: +4 bps to 2.96% (+22 bps for the week)
  • 30-yr: +4 bps to 3.11% (+14 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 slipped a basis point to 5.09% (up 210bps y-o-y). Fifteen-year rates added a basis point to 4.32% (up 205bps).
  • Five-year hybrid ARM rates dropped 16 bps to 4.04% (up 140bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 13 bps to 5.37% (up 225bps).

Highlights – Federal Reserve

  • Federal Reserve Credit last week contracted $21.7bn to $8.879 TN. Over the past 142 weeks, Fed Credit expanded $5.152 TN, or 138%.
  • Fed Credit inflated $6.068 Trillion, or 216%, over the past 499 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $29.1bn to a two-year low $3.396 TN.
  • “Custody holdings” were down $140bn, or 4.0%, y-o-y.
  • Total money market fund assets slipped $3bn to $4.526 TN. Total money funds were down $86bn, or 1.9%, y-o-y.
  • Total Commercial Paper increased $6.8bn to $1.139 TN. CP was down $46.5bn, or 3.9%, over the past year.

Highlights – European Bonds

  • Greek 10-year yields sank 23 bps to 3.48% (up 217bps y-t-d).
  • Ten-year Portuguese yields declined six bps to 2.07% (up 161bps).
  • Italian 10-year yields dropped 10 bps to 2.90% (up 173bps).
  • Spain’s 10-year yields declined four bps to 2.04% (up 148bps).
  • German bund yields added two bps to 0.96% (up 114bps).
  • French yields increased a basis point to 1.48% (up 128bps).
  • The French to German 10-year bond spread narrowed one to 52 bps.
  • U.K. 10-year gilt yields added two bps to 1.92% (up 95bps).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields were unchanged at 0.23% (up 16bps y-t-d).

Part C: Commodities

Highlights

  • Bloomberg Commodities Index was unchanged (up 34.9% y-t-d).
  • Spot Gold was little changed at $1,851 (up 1.2%).
  • Silver declined 0.8% to $21.93 (down 5.9%).
  • WTI crude jumped $3.80 to $118.87 (up 58%).
  • Gasoline surged 5.9% (up 91%),
  • Natural Gas declined 2.3% (up 129%).
  • Copper jumped 3.8% (unchanged).
  • Wheat dropped 10.2% (up 50%),
  • Corn fell 6.5% (up 23%).
  • Bitcoin gained $910, or 3.2%, this week to $29,680 (down 36%).

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 rose 67 points, or 2.6% to 2,633 points on Wednesday, halting six consecutive sessions of losses, amid greater demand in the larger vessel segment. The overall index factors in rates for capesize, panamax, supramax and handysize shipping vessels.
  • The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, surged 9.7% to 2,927 points, likely tracking a rally in iron ore prices.
  • The panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, fell 0.8% to 2,851 points.
  • Among smaller vessels, the supramax index shed 40 points to 2,703 points.

Source: Baltic Sea Freight Index Higher for Sixth Straight Week as Benchmark Iron Ore Futures Surged

Baltic Dry Index Weekly

Aluminum (Alcoa)

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.

Alcoa

Copper

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.

Weekly Copper Outlook
Copper Supply Crunch

Lumber

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.

Lumber Futures

Grains

“Farmers are in a race against the clock to get their crops in the ground this week, with planting of corn, soybeans and wheat well behind their usual pace. Wet and cool temperatures in key parts of the Midwest have delayed farmers’ planting plans, leaving them days to get crops in the ground before they start to lose out on a bigger harvest. If they don’t, some grain traders say that already high prices for agricultural commodities could rise even more… The U.S. Department of Agriculture said 22% of corn was planted, compared with 50% for the previous-five-year average. For soybeans, 12% was planted, compared with the previous-five-year average of 24%, and 27% of spring wheat was in the ground compared with a typical 47%…”

May 11 – Wall Street Journal (Patrick Thomas and and Kurk Maltais):

Wheat

We analyze the WEAT ETF as a surrogate to Wheat given its high beta relationship and more liquid aspect as an investment vehicle.

At the start of the week Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are during the war in Ukraine and threatening to drive up food prices even more. The government will suspend overseas sales to manage its food security.

WEAT broke the large pennant after it spat 8/8, and the minimum target. We have completed a measured 4/8 correction off highs meaning key support as that base, the 50dma and the pennant confluence.

Wheat ETF WEAT

Corn

Corn extended its rally to the highest since 2012 in Chicago to +1/8 and has corrected back to the Tenkan. Major grower and shipper Brazil, the center-west region had a dry April, hampering corn in its final development stages before harvest. U.S crops are just being sown, wet and chilly soils has left the plantings pace at its slowest start since 2013.

Corn Futures Outlook

Soybeans

Soybeans tested the previous +1/8 again to rally just under the Tenkan as it remains in the pennant. Futures continue to pivot the $16/bushel benchmark. Futures spat the Weekly +4/8 over $17.50/bushel twice. The flattening Kijun the magnet just under the 8/8. The weekly cloud and 50wma mingle around the $146/bushel benchmark.

Soybeans Weekly Outlook

Energy

US Crude Oil (WTI)

Daily:

Another big week for oil, April WTI crude oil (CLJ22) futures settled at $115.68 per barrel. That’s the highest close since September 2008. The high price$115.94, low price today $107.29. For the week, the price is up over 25%. The power was this move was built after hitting our initial 8/8 target completing a iii of (5) or (iii) of 5 as marked. From there we saw a sharp ABC higher and MM recalculation higher. 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 Daily KnovaWave

Weekly:

WTI crude Oil futures continued higher with aggression after corrected the sell off 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. Support is the median and Tenkan/Kijun. Long term 61.8% target fueled the spit of a spit by ABC bull flag after rebalanced Chikou sated the 5 waves. Resistance the Murrey Math levels and previous breaks (off monthly)

WTI Weekly KnovaWave Shape

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 

Oil Price Recovery

US Natural Gas (Henry Hub)

Daily:

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.

US Natural Gas KnovaWave Daily Grid

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.

Weekly

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.

US Natural Gas KnovaWave Weekly Grid

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

US Natural Gas 2014 and 2021 cycle Double Top

Key Energy Reports

Precious Metals

  • Spot Gold was little changed at $1,851 (up 1.2%).
  • Silver declined 0.8% to $21.93 (down 5.9%).

Gold

Gold futures settled $8.00 Friday lower (-0.4%) to $1,954.20/oz, up more than +1% on the week. 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.

Gold Weekly
Gold in Perspective

Silver

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

Silver Weekly Outlook

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.”

Highlights

For the week, the U.S. Dollar Index gained 0.5% to 102.14 (up 6.8% y-t-d).

Majors:

  • For the week on the upside, the Canadian dollar 1.0%, the Australian dollar 0.6%
  • On the downside, the Japanese yen declined 2.9%, the British pound 1.1%, the Swiss franc 0.6%, and the euro 0.2%.

Minors

  • For the week on the upside, the South Korean won increased 1.1%, the Swedish krona 0.4%, the Norwegian krone 0.3%, the South African rand 0.3%, Mexican peso 0.1%, Chinese (onshore) renminbi increased 0.59% versus the dollar (down 4.57% y-t-d)
  • On the downside the Brazilian real 0.9%, the Singapore dollar 0.5%, the New Zealand dollar 0.3%

 Australian Dollar – AUDUSD

The Aussie dollar appreciated over $0.7150, hitting its highest levels in three weeks, as strong retail sales data for April showed consumers held up well despite surging inflation, setting the stage for further increases in interest rates. Since completing a 5 at the psychological 80 level it had fallen & continued to correct under the weekly cloud in emotive fashion. The Australian dollar fell to a test of the lows of 0.6800 at 4/8 China lockdown fears and AUDUSD forwards before finding support. The Aussie rallied back over .70 heading into the weekend elections. Support is the Murrey Math Levels. Resistance also the Cloud, Tenkan and Kijun like many commodities.

Australian Dollar KnovaWave Weekly Outlook

New Zealand Dollar – NZDUSD

The Kiwi mirrored the AUD in its wave (iii) spit to lower channel wing. Momentum built from the cloud tap and rejected 50% Fib & 4/8 confluence. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel. We closed back over the old 61.8% break. Over the last four weeks, NZDUSD rose 0.69%. Over the last 12 months, its price fell by 10.82%.

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 Tenkan below 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.

New Zealand Dollar KnovaWave Weekly Outlook

Euro – EURUSD

The Euro continued its reversal off last week’s lowest closing rate since 2017at the outer channel extended gains to above $1.07, the highest in four weeks after ECB President Christine Lagarde said the central bank is likely to exit negative interest rates by the end of the third quarter. This added to the hawkish comments from ECB Knot and ECB Villeroy de Galhau last week. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) testing Tenkan (orange) creates any impulse as EURUSD develops in the channel. Watch 3 waves to see development for continuation. Watch also for impulse off Chikou rebalance. Again, governed by EURGBP and Bund volatility

Euro KnovaWave Weekly Outlook

British Pound – GBPUSD

British pound continued from its biggest weekly gain since December 2020 against the dollar to appreciate above $1.26 to close to its highest in four weeks. The move is on optimism that the new Cost of Living Support package will help boost consumer spending. as the latest economic data suggested the market might not need to scale back its expectations for Bank of England rate hikes much further. It found support at MM 2/8 which also May 2021 1-2 test. Above we have channel and Tenkan confluence and flattening Kijun for strength. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.

British Pound KnovaWave Weekly Outlook

Euro Pound – EURGBP

EURGBP after testing 50wma back tested to break back above a messy bill flag and to the cloud as the GBP rallied. Kijun, 50wma and clouds resistance. Over the last four weeks, EURGBP lost 0.72%. Over the last 12 months, its price fell by 1.18%.

Euro v British Pound KnovaWave Weekly Outlook

Japanese Yen – USDJPY

USDJPY is correcting with the weakness in Treasury yields after spitting +2/8 and channel convergence at 132.00. 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 this week. 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.

Japanese Yen v Dollar KnovaWave Weekly Outlook

Mexican Peso USDMXN

The Mexican Peso continues in the long triangle and consolidates despite outside uncertainty from oil and high rates strengthening to 19.5 per USD the highest level since March of 2020 and tracking general strength in Latin American currencies. Banxico’s last meeting where policymakers signaled those stricter measures could be implemented to curb inflation back to the bank’s target after the bank hiked interest rates by 50bps to 7%, the highest level since the start of the pandemic. Use the Gann octave and the extension fibs to help measure the noise.

Mexican Peso KnovaWave Weekly Outlook

Turkish Lire USDTRY

The Turkish Lira slow decline continues after 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. The Turkish lira weakened further to the top of the channel closer to that all-time low of 18.4 hit in December, after the central bank left interest rates unchanged once again this month, despite inflation and recession worries. So far this year the lira has lost nearly 23% against the greenback, making it the worst performer in emerging markets.

Turkish Lire KnovaWave Daily Outlook

Bitcoin

Bitcoin printed its 9th red weekly candle. The last record streak was 6, in 2014. BTC 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.

Bitcoin KnovaWave Weekly Outlook

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.

Bitcoin Mania in Perspective

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Turkey Geopolitical
Turkey Risk Monitor

Economic and Geopolitical Watch

Banks

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 Q1, 2021

The major money cents banks released earnings with many record results for Q3. Mainly from trading and loss reserve releases from the pandemic kitty.  Rising interest rates also help the bottom line.

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.

Potentially the top six banks can buy back $11 billion in the first-quarter. Goldman Sachs shares after the announcement led the rally with a 7.7% increase. Morgan Stanley and JPMorgan jumped 6.4% and 4.9% at intraday highs. Within minutes of the announcement all three banks have announced plans to resume buybacks in the new year.

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. otal Non-Financial Debt (NFD) expanded $737 billion during Q3 2020 to a record $60.113 trillion.

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”

Akio Morita mistakes

The Week Ahead – Have a Trading Plan

Watch Central Banker and Geopolitics speeches, reports and rate moves. 

For the week ahead we get earnings from the Nvidia and Zoom. The week starts with elections in Australia over the weekend with the ALP expected to win and the independents holding a new balance from the traditional parties. We’ll also get rate decisions from New Zealand and Turkey, as well as minutes from the last Fed meeting. The Fed’s Raphael Bostic will speak about the economic outlook on Monday and Esther George will give a speech on Wednesday. Both supports raising rates by 50-basis points.

President Biden’s is on a five-day Asia trip that will include a press conference with South Korean President Yoon Suk Yeol, a meeting with Japanese Prime Minister Fumio Kishida, and the Quad summit in Japan.

US Events Focus

US Data

  • Monday: Nothing of note
  • Tuesday: April Trade Balance (prior -$109.80 bln) at 8:30 ET; $44 bln 3-yr Treasury note auction results at 13:00 ET; and April Consumer Credit (prior $52.40 bln) at 15:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.3%) at 7:00 ET; April Wholesale Inventories (prior 2.3%) at 10:00 ET; weekly crude oil inventories (prior -5.07 mln) at 10:30 ET; and $33 bln 10-yr Treasury note reopening results at 13:00 ET
  • Thursday: Weekly Initial Claims (prior 200,000) and Continuing Claims (prior 1.309 mln) at 8:30 ET; weekly natural gas inventories (prior +90 bcf) at 10:30 ET; and $19 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: May CPI (prior 0.3%) and Core CPI (prior 0.6%) at 8:30 ET; preliminary June University of Michigan Consumer Sentiment survey (prior 58.4) at 10:00 ET; and May Treasury Budget (prior $308.00 bln) at 14:00 ET

Federal Reserve

FEDERAL RESERVE CHAIR JEROME POWELL

President Joe Biden to Meet with Federal Reserve Chair Jerome Powell Oval Office on Tuesday.
First meeting between them since Biden in November announced his intention to nominate Powell for a second term at the helm of the Fed.

OTHER FED OFFICIALS

Global Events


Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.

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