Traders Market Weekly: Political Uncertainty Rising Globally

June 15, 2024

FEAR NOT Brave Investors

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Market Dynamics and Instability

The Week That Was – What Lies Ahead?

Fear and Greed Feed Volatility

Contents

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Editorial

More of the same this week from the S&P 500 and Nasdaq Composite with new record highs, and closes of 1.6% and 3.2% higher, respectively. Mega cap techs fueled the S&P 500 and Nasdaq as they have this manic FOMO rally. The Vanguard Mega Cap Growth ETF (MGK) popped 3.4%. Apple (AAPL) jumping 7.9% and hitting record highs after introducing “Apple Intelligence,” the personal intelligence system for iPhone, iPad, and Mac, at its Worldwide Developers Conference.

Broadcom (AVGO) surged 23.4% after a better-than-expected earnings report, outlook, and a 10-for-1 stock split announcement. Adobe (ADBE) gained 12.9% this week after earnings. These three names helped send the S&P 500 information technology sector up 6.4%. The next best performing sector was real estate, up1.2%. Leading the downside was, the energy (-2.3%) and financial (-2.0%).

The equal-weighted S&P 500 fell 0.5% this week and notably the Dow Jones Industrial Average declined 0.5% and the Russell 2000 fell 1.0%.

Lower yields helped the FOMO feeding frenzy. The 10-yr note yield declined 22 basis points this week and the 2-yr note yield declined 20 basis points to 4.69%. This followed this week’s bond auctions, a soft $58 billion 3-yr note sale, a strong $39 billion 10-yr note sale, and a solid $22 billion 30-yr bond reopening.

The activity in Treasuries also got support from May Consumer Price Index disinflation on a year-over-year basis in total CPI (actual +3.3%; prior +3.4%) and core CPI (actual +3.4%; prior +3.6%) and the May Producer Price Index showed a 0.2% month-over-month decline in total PPI while core PPI was unchanged from the prior month.

We also had the FOMC which as expected left the target range for the fed funds rate unchanged at 5.25-5.50% in a unanimous vote, as expected. “The Committee does not expect it will be appropriate to reduce the target range until it has greater confidence that inflation is moving sustainably toward 2 percent.,”

In the Summary of Economic Projections (SEP) there was a more hawkish tilt, with a median estimate of only one rate cut this year versus three at the time of the March projections. Fed Chair Powell’s was non-committal about the policy path. Rate cut expectations moved up with fed funds futures market is pricing in a 70.2% probability of a 25-basis points rate cut at the September FOMC meeting, up from 50.5% one week ago, according to the CME FedWatch Tool.

What is grabbing our attention is the continuing woes and distractions in China and the unstable emerging markets. The bond markets in the U.S. are also depicting risk adverse behavior. The final auction cycle of May was one of the weakest with the worst coupon auction cycles for some time. All three issues tailed market expectations, with a cumulative tail of 3.6 bps surpassed only by February 2021 and September 2023’s 2-, 5-, and 7-year auction cycle. Endless supply coupled with elevated inflation risk weighing on market sentiment globally

The market has a short memory. The week brought a big change from the reality check from Friday’s stronger-than-expected payrolls data with ten-year Treasury yields surging 14 bps (MBS yields up 16 bps), and two-year yields jumping 16 bps to 4.89%. The market ended the previous week pricing 37 bps of rate reduction by the Fed’s December 18th meeting (versus 49 bps at Thursday’s close). The strength was in earnings rising however which is what the Fed have been concerned about, full time jobs are falling, part time rising which typically is a recession indicator.

Europe remains on the radar. The euro continued to drift lower to its weakest in about a month, under-performing its major peers. Political uncertainty in Europe increased following parliamentary elections. While Europe’s far-right parties made only moderate gains across the bloc on Sunday their performance was more or less in line with the polls, French President Emmanuel Macron and German Chancellor Olaf Scholz both suffered humiliating reverses.

European Bonds Quiver

The spread between French (3.13%) and German (2.36%) 10-year government yields surged 29 this week to 77 bps, the largest widening in data back to the year 2000. This was the first double-digit spread gain since the 11 bps widening in Covid crisis June 2020.

Spreads widened significantly throughout peripheral European bonds.

  • Italian spreads to bunds widened 23 to 157 bps, the largest weekly gain since December 2022.
  • Greek spreads widened 24 bps, Spain 21 bps, and Portugal 19 bps.
  • France’s yields ended the week within three bps of Portugal.

June 14 – Reuters (John Irish and Elizabeth Pineau): “France is facing a ‘very serious’ moment as parliamentary elections loom, said President Emmanuel Macron on Friday, with financial markets rattled by the country’s far-right and far-left political blocs currently leading polls… ‘We are at a very serious moment in the history of our country. There are major issues at stake, with wars, and with unprecedented economic challenges,’ said Macron… A first series of opinion polls have projected that the RN, which has promised to cut electricity prices and VAT on gas and increase public spending, could win the election and be in a position to run the government. A poll conducted for Le Point magazine, published on Friday evening, forecast National Rally as in the lead in the first round of the parliamentary election, narrowly ahead of a coalition of left-wing parties called the ‘Popular Front’.”

“Le Pen Victory Threatens ‘Liz Truss-Style’ Debt Crisis in France.” French election stakes are arguably much greater than the Truss fiasco. The fledgling UK Prime Minister backtracked and resigned, and the gilts market soon recovered. There will be no quick market fix if the extremists assume effective control of French policymaking.

Ahead of these elections there were market-surprising/shocking election results in Mexico, India, and South Africa. Again, volatility was notable across global markets. The ECB and Bank of Canada cut rates last week, with markets seeing the global central bank community’s easing cycle now underway.

A reminder wealth inequalities become only more pronounced late in the cycle, creating a sprawling divergence between market euphoria and deepening public dissatisfaction. Political class market embracement and accommodation shifts to the appeasement of ever more powerful populist movements. Markets this week at least acknowledge the unfolding power-shift to disgruntled electorates. and voters, Cue the U.S. elections.

Cracks appear, recall last week: “Early Monday morning, one of the world’s most profitable currency trades unraveled, done in by a twist in Mexican elections few saw coming. Twenty hours later, investors in India started frantically dumping stocks, triggering a one-day, $386 billion wipeout, when they realized they had badly miscalculated the scope of Narendra Modi’s election victory. Around the world, surprise results in some of the biggest developing countries are illustrating how much markets have riding on the politics of 2024… From Mumbai to Mexico City, the Year of the Election — in which 40 countries are holding national votes — is already burning investors, providing an early warning as elections in the European Union and UK near, and five months ahead of the US presidential contest.”

NVidia Phenomena

Nvidia the surge continues; we came following a post earnings which boosted market capitalization to $2.619 TN – or 62 times earnings and 32.9 times revenues (from Bloomberg). Nvidia melted up Thursday morning to an all-time high $1,158 ($2.85 TN market cap) to end the week valued over $3 trillion. Quite the rise!

Monday brings its 10-for-1 stock split.

From the prior weeks some headlines: “Nvidia CEO Jensen Huang’s Net Worth Swells From $3 Billion to $90 Billion in Five Years.” “Nvidia’s Landmark Performance Hasn’t Been Seen ‘In the History of Capitalism,’ Says Tech CEO.” “Nvidia Shares Are Up Roughly 28-Fold in the Past Five Years.” “Nvidia Shows No Signs of AI Slowdown After Over 400% Increase in Data Center Business.” “Nvidia’s First Quarter Results Confirm That The Next Industrial Revolution Is Well Underway.”

Perspective:

May 24 – Bloomberg (David Ingles): “Nvidia’s 110% gain this year is enough to slingshot the company’s value above the entire market capitalization of Germany along with a range of other major bourses. The AI-boom poster child overtook Australia in early February, topped South Korea a few weeks later and as of the Thursday close, is now also above Germany. The next 20% leg higher would likely add Saudi Arabia and Canada to the list. And if the prediction from one of Bloomberg TV’s guests on Thursday is correct and Nvidia does top $10 trillion, that would make it larger than all the world’s stock markets except the US.”

Punters this isn’t the first time, lets think AOL, Cisco, Intel, Compaq Computer, Gateway 2000, Blackberry, 3Com among so many before from the Speculative Bubble Hype list. There is that EV and rare earth world recently to remind one of risk and price ahead of its self.

Much of this is climbing the wall of worry, FOMO and in the US, households have an abundance of excess savings and high liquidity. These are all factors we watch in our risk matrix. Remember the stock market is not the economy, the stock market is a mountain of human emotion guided by greed and fear.

Chart 1 Difference between total household net worth today minus what a simple, stable trend line fitted to the pre-pandemic era would have predicted to happen to net worth by now.
Chart 2 shows the cumulative change in household net worth by now compared to a trend line; American households have about US$18.9 trillion in ‘excess’ net worth. via Scotiabank

Where is the Fear in Instability?

The VIX traded intraday Thursday down to 11.52, the lowest level since November 2019 (following the restart of Fed QE). The MOVE (bond volatility) Index traded Wednesday at 82.49, the low since pre-Fed “tightening” February 9, 2022.

Compressed risk premiums and CDS prices are indicative of complacency. Markets behave this way when there is some underlying monetary disorder (dislocation in liquidity creation).

What all this does for markets is keep risk measures on, we see in the vicious VIX fails and short-term option volumes. It is when the risk avoidance measures, or tolerance fails this can trip up the whole structure of buying and cycling through risk assets.

Leveraged speculation, including “basis trades,” “carry trades” and run deep and why the yen and Mexican peso are deeply relevant to this whole structure.

In the backdrop we have war abroad in the Ukraine and Middle East, unsettled relations between Taiwan and China. At home in the US universities and cities to the North have become a quagmire of protest, illegal immigration placement and political vitriol that have deeply divided these regions. The cost of living through it all has sent many working through middle class families to the brink and beyond, insurance costs have risen over 100% in a year in some cases to name just one inflation cost that politicians lie about.

Oh China

June 6 – Bloomberg: “China’s property stocks entered a technical bear market over concerns that Beijing’s efforts to bolster the sector are too small to end the rout. A Bloomberg Intelligence gauge of Chinese developer shares fell 3.3% on Thursday, extending losses from a mid-May high to almost 21%. Sunac China Holdings Ltd. was the biggest laggard with a slump of 12%, while CIFI Holdings Group Co. sank 8.4%. Real estate stocks have retreated amid skepticism over a broad support package unveiled by the central government on May 17.”

June 7 – Bloomberg (Li Liu): “China’s financial regulator and the housing ministry require banks and local governments to work towards accelerating pace of lending to property developers, according to ministry-backed China Construction News. China seeks to better support financing needs of property developers and promote stable development of the market.”

Analysts have been encouraged that Beijing finally recognized the serious risks associated with China’s apartment Bubble collapse. It’s not an unreasonable market assumption that the colossal scope of the real estate debacle will require massive ongoing stimulus measures. The weak currency creates a predicament given Xi’s global ambitions require a “powerful currency.” A monumental reflation would push an already fragile renminbi off the ledge.

May 28 – Bloomberg: “China’s onshore yuan dropped to the weakest level since November as signs mount that policymakers are slowly letting the currency decline against a resilient dollar. The yuan fell to as low as 7.2487 per dollar as the People’s Bank of China gradually cut its daily reference rate for the managed currency to a level unseen in four months… The PBOC has been facing a constant battle to find the optimal pace of yuan weakness that’s conducive for growth, without triggering market panic or capital outflows. For most of the year, the central bank has kept the currency steady but pressures have been building due to worsening capital outflows and lackluster domestic growth.”

May 21 – Financial Times (Thomas Hale and Joe Leahy): “With the announcement of a Rmb300bn ($41bn) fund to support government purchases of unsold housing, the Chinese government last week appeared to finally unleash major firepower to tackle a three-year slowdown in the country’s real estate market. But while the new measures may mark a turning point in a crisis that has weighed heavily on China’s economy, analysts and economists said the hundreds of billions of renminbi was nowhere near enough. ‘This is a drop in the ocean given the scale of unsold stock,’ said Harry Murphy Cruise, an economist at Moody’s Analytics…”

May 30 – Bloomberg: “Chinese policymakers have identified reducing a glut of housing inventory as the key to ending the nation’s unprecedented property slump. It’s easy to see why. The country has the equivalent of 60 million unsold apartments, which will take more than four years to sell without government aid, according to Bloomberg Economics. The oversupply is dragging down prices at the fastest rate in a decade, giving people less reason to buy a home… Even in China’s four tier-1 cities, where the market is relatively resilient, it will take an estimated 27 months to sell the supply of new homes as of April, according to China Real Estate Information Corp.”

NB: The above Bloomberg article was published with a chart of “Months to Sell New Home Inventory:” Beijing 48.9 months, Wuhan 42, Fuzhou 41.1, Shenzhen 36.2, Nanjing 33.1, Changchun 31.7, Qingdao 31.3 months

  • Yan Yuejin, director of E-house China Research & Development Institute, was quoted: “There is a fundamental change in homebuyers’ confidence over the biggest cities in the long term. While low-tier cities have higher outstanding housing stock, the major inventory issue lies in bigger ones.”
  • “As of April, about 80% of China’s cities had an inventory absorption pace that was worse than a ‘warning line’ of 18 months…”
  • “Residences completed by developers but unsold expanded to 391 million square meters nationwide as of April, the highest since 2017… Including properties that are almost finished and approved for presale, the stock is much larger at about 1.8 billion square meters, JPMorgan… estimates.”
  • “China’s support package announced on May 17 is estimated to translate into 500 billion yuan of credit to help government-backed firms buy housing stock from developers… Reducing the inventory to a more optimal level through government-backed acquisitions would require 5 trillion yuan, according to JPMorgan analyst Karl Chan.”
  • May 17 – Wall Street Journal (Jacky Wong): “There are enough unsold homes in China to house every family in California and New York combined… Goldman Sachs estimates that there was around $4 trillion of residential inventory on a cost basis at the end of last year, including land and projects under construction. Around 45% of that are homes that are either completed or ready for presales. The bank said the property developers need approximately $400 to $600 billion of funding to go back to normal operations.”
  • Financial Times “And Goldman Sachs estimated that, in addition to the unsold housing stock, there were 90mn-100mn units of ‘shadow supply’ in China that were often bought as investment properties and had not been lived in.”

Any pushback to fledgling tightening these days ensures excessively loose financial conditions.

The massive liquidity out there stems the downside and promotes the upside until then. Let’s not forget the carry trade adding to the mix with the yen and Mexican peso at the fore front there. Interestingly it’s a big week for the consumer with CPI and Retail sales, for Mexico with elections nearing and for the Yen with Japanese intervention. These elements popping out of the risk acceptance matrix and the clues going forward for a bit.

Global inflation is surprising to the upside. Bond yields have generally surged back to highs since November.

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. 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.

The question investors have to ask is what he can do to inflation given most of it is supply driven or some would see political managed inflation. The Fed does not have the tools for and how quickly can consumers and businesses alike recalibrate from supply chain issues? The continuing war drums from Biden. Has wag the dog from Biden crossed your mind?

The downside bias in stocks in the previous weeks was partly related to rising interest rates with Fed officials suggesting they are in no hurry to cut rates because recent inflation reports have not given them enough confidence that inflation is on a sustainable path to the 2% target.

What now for Israel and Iran?

Soaring tensions between Iran & Israel

  • Israeli attack on an Iranian compound in Syria,
  • Iran launched an unprecedented assault against Israel.
  • Israel hit Iran with a missile in the early hours of Friday, in what appears to have been a retaliatory strike after weeks of escalating tensions between the two countries.
  • There is also the possibility of a knock-on effect of Russian aggressive opportunism. We saw that with the attack on Ukraine natural gas storage just days before the Iranian invasion.
  • Israel thwarted the attack with its multilayered air-defense network that includes systems capable of intercepting a variety of threats including long-range missiles, cruise missiles, drones and short-range rockets. Iran had vowed revenge since the April 1 airstrike in Syria, which Tehran accused Israel of being responsible for. Israel has not commented on it.
  • Should Iran escalate and overwhelm Israeli missile defenses and see larges deaths and casualties in cities such as Tel Aviv, which hosts the Kirya, the Israeli military headquarters Netanyahu will be hard pressed to not take much more drastic action in response. It gives Israel a reason to attack Iran’s nuclear program.
  • The region is a powder keg and there exists possibility of a full-scale war between Iran and Israel, and probably drag the United States in. US President Joe Biden reportedly warned Netanyahu that the US will not participate in any attack by Israel on Iran. In a Presidential election year Biden will most likely take the route that gets him the most votes.

Geopolitical Tinderbox

Turkey Geopolitical
Middle East Risk Monitor

What has changed in two years?

We are about two-and-a-half years since bond markets began tightening in anticipation of Federal Reserve rate hikes that began in March 2022 and the economy remains highly resilient. The rise in the two-year and 10-year Treasury yields was based by late 2022 and well ahead of the fed funds target rate that hit last summer. Lags are long and variable, and the US economy is not out of the woods yet particularly given the surge in mortgage rates, the economy has had significant time to adjust to higher market yields and the majority of mortgage holders are in under 3.9%, which presents another issue for Real Estate inventory. Lending conditions have been tightening, but at an ebbing incremental pace Credit spreads remain tight and the S&P500 has only moved slightly off the all-time peak in late March.

The US consumer has delivered but delinquency rates are rising for several credit categories. Looking deeper much of this has been more about normalization toward pre-pandemic patterns compared to when extreme policy supports, and very low rates meant little to no default activity in the pandemic. Scotiabank points out that “We are at a twenty-three year low in the debt-to-disposable income ratio and still toward record low debt service payments to incomes remain supportive of spending and lessen rate sensitivity compared to, say, strained measures into the GFC. The personal saving rate has normalized, but the stock of outstanding cash and checkable deposits on US household balance sheets remains very elevated “

What’s more is that US households also maintain very high liquidity with cash and near-cash balances sitting at about US$4 trillion, or four times the pre-pandemic level. Idle cash sitting around is tempting to spend. Overall, these points all taken together suggest that the outlook for US consumer spending continues to be strongly supported by ‘excess’ savings.

Looking back two years ago from our January 30, 2022, Traders Market Weekly we can see how little has changed and where herd opinion was so wrong.

The question investors have to ask is what he can do to inflation given most of it is supply driven, which he does have the tools for and how quickly can consumers and businesses alike recalibrate from Supply chain issues? Not to through in the energy crisis engulfing the world and the continuing war drums from Biden with Russia and The Ukraine. Significantly Ukraine’s President Zelensky said that media reports are making the current tension with Russia appear worse than it really is. Wag the dog from Biden crossed your mind? Did we mention Omicron. From our January 30, 2022, Traders Market Weekly

Well, the Fed is still behind the game on inflation and the tide has turned on Tesla and even more so on electric vehicles. This and inflation are not unrelated. Russia did invade Ukraine and that war is ongoing with the US writing billions in aid checks. This is also inflationary.

Where is the Fear?

The Cboe Volatility Index (VIX) traded intraday Thursday down to 11.52, the lowest level since November 2019 (following the restart of Fed QE). The MOVE (bond volatility) Index traded Wednesday at 82.49, the low since pre-Fed “tightening” February 9, 2022.

“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 to ATH in 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.

Our take remains the Fed is not just focused on inflation but risks such as the commercial real estate debacle. the high US dollar and the massive Federal debt refunding cost.

We need to grasp all the risks to be wary of but not ignore price reaction. 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 focus on the crowd psychology aspect.

Unsuspecting investors in their millions have or will lose meaningful amounts of their savings. They bought into the mania, threw caution to the wind, and will suffer the consequences regardless of the warnings of unsustainability. The reason we started TradersCommunity was for situations like this many moons ago. Beware of those ‘experts’ who never saw the sell off and chided you for believing it now claim to be gurus measuring risk. It’s a bit late when some of these stocks and markets are down 50-90%. Beware of those who claim long term investment when it all goes wrong. Anyhoo..

Our weekly reminder for risk, timely given the V shape to ATH in 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. 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 gained 1.6% (up 13.9% y-t-d),
  • Dow slipped 0.5% (up 2.4%).
  • S&P 400 Midcaps declined 0.9% (up 4.1%),
  • Small cap Russell 2000 lost 1.0% (down 1.0%).
  • Nasdaq100 jumped 3.5% (up 16.8%).
  • Utilities dipped 0.3% (up 10.5%).
  • Transports fell 1.4% (down 6.9%).
  • Banks dropped 2.6% (up 4.5%),
  • Broker/Dealers declined 1.1% (up 10.9%).
  • Semiconductors surged 5.9% (up 34.1%).
  • Biotechs fell 1.0% (down 4.2%). While bullion rallied $39, the HUI gold index declined 0.4% (up 7.7%).
Major US Stock Indices

Highlights – Europe Stocks

  • U.K.’s FTSE equities index declined 1.2% (up 5.3% y-t-d).
  • France’s CAC40 sank 6.2% (down 0.5%).
  • German DAX equities index slumped 3.0% (up 7.5%).
  • Spain’s IBEX 35 equities index dropped 3.6% (up 8.8%).
  • Italy’s FTSE MIB index sank 5.8% (up 7.6%).

 Highlights – Asia Stocks

  • Japan’s Nikkei Equities Index increased 0.3% (up 16% y-t-d).
  • south Korea’s Kospi index rose 1.3% (up 3.9%).
  • India’s Sensex equities index added 0.4% (up 6.6%).
  • China’s Shanghai Exchange Index declined 0.6% (up 1.9%).

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries: Friday +0.4% to 7749.0 (+1.6% for the week).
  • NB: Record intraday of 7901.2 points, Record closing high 7896.9
  • Shares posted their fourth gain in five sessions on Friday, as rising oil prices on optimism about China’s economy pushed energy stocks higher.
  • Shares of Beach Energy jumped 4% to $1.69, Santos rallied 2.1% to $7.86 and Woodside gained 1.9% to $28.63.
  • ASX 200’s third straight week of gain as signs of a loosening in the US labor market stoked optimism around interest rate cuts this year.

 Highlights – Emerging Markets Stocks 

  • Brazil’s Bovespa index declined 0.9% (down 10.8%),
  • Mexico’s Bolsa index fell 1.4% (down 9.0%). South Korea’s Kospi index rose 1.3% (up 3.9%).
  • Turkey’s Borsa Istanbul National 100 index rallied 3.3% (up 40.2%).
  • Russia’s MICEX equities index dipped 0.5% (up 3.8%).

Biggest SPX Stock Winners and Losers Last Week

May 2024 S&P 500 Performance

Technical Analysis 

Technical Analysis of key markets via KnovaWave

S&P 500

Daily: We saw a violent ABC for the 5 waves up for SPX continue right into bottom of the median line to give us an (a) or C of a 4. with impulse after completing 5. Reversed hard with energy fueled from the power impulse down from near +1/8 ATH. On the way up (just like down) It accelerated after it broke the Tenkan through the rejected Kijun and then the Kijun to close back over the median and 8/8. Bulls this was a (ii) of a 5. Bears this is a a-b of a C off a completive V of degree. We watch if this low was a (iii), (a) or C. Will determine if sharp ABC completed off all time highs around +1/8. 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. No fear is the driving element.

Daily S&P 500 Flat Top Triangle

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 weekly shows us the reenergized SPX tripped in 3 to test recent break up at Tenkan from there we had had a powerful rally to ATH. Again notice what happened “Each new high has evolved after testing Tenkan key support which is the next line after Friday’s dump & minor bounce.” We watch for a spit of a spit 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

Dow Jones

DJIA Weekly

NASDAQ 100

Nasdaq move to 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 bounced hard Support Tenkan to Kijun. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.

NASDAQ Record Highs

Russell 2000

The small cap Russell RUT has 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). Unlike SPX and NDX we could not get through Tenkan and Kijun which rejected the bounce. This is the index showing more of the fast money crowd and is trading like it. Closed right at the top of the cloud and at the channel. the flag. Needs to get traction in here for bulls. Support +1/8 through 7/8 (cloud base)

Russell Index Negative Divergence to NASDAQ

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. 

Microsoft MSFT

Microsoft Weekly Shape

NVidia $NVDA

Nvidia’s stock surged 15% this week after earnings, boosting market capitalization to $2.619 TN – or 62 times earnings and 32.9 times revenues (from Bloomberg).

“Nvidia CEO Jensen Huang’s Net Worth Swells From $3 Billion to $90 Billion in Five Years.” “Nvidia’s Landmark Performance Hasn’t Been Seen ‘In the History of Capitalism,’ Says Tech CEO.” “Nvidia Shares Are Up Roughly 28-Fold in the Past Five Years.” “Nvidia Shows No Signs of AI Slowdown After Over 400% Increase in Data Center Business.” “Nvidia’s First Quarter Results Confirm That The Next Industrial Revolution Is Well Underway.”

Following the announcement of NVDA 4/1 split some levels off the energy break NVidia hadn’t looked back with many gaps below until it hit the 2.618 target of the exhaustion phase. We saw another power move off the $200 retest (old $800) & earnings off $300 which retested. It is a clear leader of SOX SMH look for cues there and ABC failures for changes.

Nvidia NVDA stock chart

Apple $AAPL

Apple gently motored up to new ATH over the massive $160 then $170 thru to $180 gamma level. These levels will be key energy levels. Support from previous highs, resistance now Fibs and Murrey Math levels. Remember the impact $AAPL has, at least short term on all the major indices.

Apple AAPL Stock Chart

Meta $META

Exxon’s Market Value Tops Tesla’s as Oil Rises, EV Sales Slow

  • Tesla’s market value peaked at nearly $1 trillion over Exxon in November 2021
  • Exxon Mobil Corp. surpassed Tesla Inc. in market value for the first time in more than a year
  • Tesla down 41% this year after sales miss analysts’ estimates
  • Path to electrification may be slower than previously thought. Major players like Ford Motor Co. and Hertz Global Holdings Inc. are reassessing their commitments to EVs as they grapple with slow market penetration.
  • Exxon has reversed a decade-long decline in oil production and is capitalizing on rising oil prices
  • Tesla’s shares had fallen to $147.05, a market capitalization of $469 billion.
  • Exxon’s shares has increased to $119.88, a market capitalization of $475 billion.

Tesla $TSLA

Exxon Mobil $XOM

Exxon Stock Chart

Part B: Bond Markets

Highlights – Treasuries

  • U.S. Treasuries saw French election uncertainty drive some safe-haven interest which overshadowed weak new loan data out of China and a Bank of Japan decision to leave its uncollateralized overnight call rate unchanged at about 0.0% to 0.1% and to reduce its bond purchases over the next one or two years or so without giving specific details. Those details will reportedly come at the next policy meeting in July.
  • France’s left-wing parties are aligning as a “Popular Front” to challenge Marine Le Pen’s far-right National Rally Party. France’s finance minister warns that a left-wing win could mean an EU exit.
  • French President Emmanuel Macron’s party could face wipeout in snap elections after left formed unity pact, according to FT
  • The Bank of Japan left its uncollateralized overnight call rate unchanged at around 0.0% to 0.1%, as expected, and voted 8-1 that it would reduce bond purchases over the next one to two years or so; will provide more details at next policy meeting in July, but Governor Ueda suggests reduction would likely be sizable, according to Nikkei
  • The 10-yr note yield declined 22 basis points this week and the 2-yr note yield declined 20 basis points to 4.69%. This was in response to this week’s slate of bond auctions, including a soft $58 billion 3-yr note sale, a strong $39 billion 10-yr note sale, and a solid $22 billion 30-yr bond reopening.
  • The activity in Treasuries was also in response to May Consumer Price Index reflected some welcome disinflation on a year-over-year basis in total CPI (actual +3.3%; prior +3.4%) and core CPI (actual +3.4%; prior +3.6%) and the May Producer Price Index showed a 0.2% month-over-month decline in total PPI while core PPI was unchanged from the prior month.
  • Rate cut expectations moved up after the FOMCof the aforementioned events. The fed funds futures market is pricing in a 70.2% probability of a 25 basis points rate cut at the September FOMC meeting, up from 50.5% one week ago, according to the CME FedWatch Tool.
  • Total money market fund assets jumped $28bn to a record $6.121 TN. Money funds were up $664bn, or 12.2%, y-o-y.
  • Total Commercial Paper added $1.5bn to $1.269 TN. CP was up $139bn, or 12.3%, over the past year.
  • 2-yr: unch at 4.69% (-20 bps for the week)
  • 3-yr: unch at 4.43% (-22 bps for the week)
  • 5-yr: -1 bp to 4.23% (-23 bps for the week)
  • 10-yr: -2 bps to 4.22% (-22 bps for the week)
  • 30-yr: -5 bps to 4.35% (-20 bps for the week)

“The primary US investment-grade corporate bond market logged its busiest first quarter on record, super-charged by investors clamoring for high yields before the Federal Reserve starts cutting interest rates. Blue-chip firms have capitalized on robust investor demand to borrow a record $529.5 billion this year through Wednesday, far outpacing the previous high of $479 billion in the first three months of 2020… Sales hit a record in January and February and March issuance of $142.2 billion has exceeded expectations.” March 28 – Bloomberg (Caleb Mutua)

All good while 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 pushing strong housing markets into Bubble risk territory. What we are seeing now is the same risk, on steroids is in the commercial real estate market (CRE).

Fed Total Assets

Highlights – Federal Reserve

  • Federal Reserve Credit declined $908 million last week to $7.221 TN.
  • Fed Credit was down $1.668 TN from the June 22, 2022, peak.
  • Over the past 248 weeks, Fed Credit expanded $3.495 TN, or 94%.
  • Fed Credit inflated $4.411 TN, or 157%, over the past 605 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt gained $6.7bn last week to $3.331 TN.
  • “Custody holdings” were down $79 billion y-o-y, or 2.3%.

Highlights – Mortgage Market

  • Freddie Mac 30-year fixed mortgage rates declined four bps to a nine-week low 6.95% (up 28bps y-o-y).
  • Fifteen-year rates dropped 12 bps to 6.17% (up 10bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps 7.33% (up 32bps).

We do know we have massive speculation pockets, viz a viz the Semi stocks and cryptocurrency mania in just the matter of weeks. The Fed is effectively throwing additional fuel on historic speculative manias. Central banks have been adding liquidity to avoid systematic failure.

Highlights – European Bonds

  • Italian yields dipped three bps to 3.93% (up 23bps y-t-d).
  • Greek 10-year yields slipped two bps to 3.64% (up 59bps).
  • Spain’s 10-year yields declined seven bps to 3.29% (up 30bps).
  • German bund yields sank 26 bps to 2.36% (up 34bps).
  • French yields rose three bps to 3.13% (up 57bps).
  • The French to German 10-year bond spread spiked 29 bps to 77 bps.
  • U.K. 10-year gilt yields dropped 21 bps to 4.06% (up 52bps).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields declined three bps to 0.94% (up 33bps y-t-d).

Part C: Commodities

Highlights

  • Bloomberg Commodities Index added 0.6% (up 3.8% y-t-d).
  • Spot Gold rallied 1.7% to $2,333 (up 13.1%).
  • Silver recovered 1.4% to $29.555 (up 24.2%).
  • WTI crude recovered $2.92, or 3.9%, to $78.45 (up 10%).
  • Gasoline increased 0.7% (up 14%), while Natural Gas declined 1.3% to $2.88 (up 15%).
  • Copper slipped 0.2% (up 15%). Wheat dropped 2.4% (down 2%),
  • Corn increased 0.3% (down 5%).
  • Bitcoin dropped $3,500, or 5.0%, to $65,890 (up 55%).
US Futures Performance W/E 6/14/24

“An index of major crops wiped out its 2024 loss as bad weather stokes worries about harvests from wheat to coffee, reviving concerns about rising food prices. Droughts, frosts and heavy rain are popping up across key growers, threatening tighter supplies and lifting the cost of agricultural staples. A Bloomberg gauge tracking nine farm commodities has turned higher on the year and is headed for the largest weekly gain since July.”

May 24 – Bloomberg (Keira Wright and Mumbi Gitau)

“Commodities will advance this year as central banks in the US and Europe move to reduce interest rates, helping to support industrial and consumer demand, according to Goldman Sachs… Raw materials may return 15% over 2024 as borrowing costs come down, manufacturing recovers, and geopolitical risks persist, analysts including Samantha Dart and Daan Struyven said…. Copper, aluminum, gold and oil products may climb, according to the bank, which also stressed the need for investors to be selective as gains wouldn’t be universal.” March 25 – Bloomberg (Yongchang Chin)

BDI Freight Index

  • Baltic Exchange’s main sea freight index, which monitors rates for ships carrying dry bulk commodities, rose for the third successive day on Friday, rising about 0.3% to its highest since mid-May at 1,948 points. The BDI recorded a weekly gain of 3.6%, marking the third consecutive week of increases.
  • The panamax index, for ships that carry about 60,000-70,000 tons of coal or grain, advanced 1.6% to 1,950 points;
  • The supramax index climbed 22 points to 1,335 points.
  • The capesize index, which typically transports 150,000-ton cargoes of iron ore and coal, fell by 0.9% to 2,957 points.
  • Source: Baltic Exchange
Baltic Dry Index Weekly

Copper

“Copper briefly traded through $10,000 a ton as investors raised bets on Federal Reserve rate cuts, and Goldman Sachs… warned of intensifying supply stress. Metals joined a wider rally in risk assets after soft US jobs data triggered renewed speculation that the Fed will move to lower rates this year… The prospect of Fed easing is adding to tailwinds for copper as bulls predict further gains, with the world’s mines struggling to match growing demand.” May 7 – Bloomberg:

Copper continued its rally after rebounding sharply off the 50wma pulled up by the flattening Tenkan and Kijun to close right at the channel break – a key juncture. HG shrugged off demand concerns from resurgence in Covid-19 supply disruptions. The power spits of +8/8 and +2/8 were rebalanced by the Tenkan breaking the Kijun with 50wma and cloud below. Copper had been a leader in the risk on movement for commodities.

“Copper traded near $10,000 a ton, hitting a new two-year high on its way, as investors continue to pile in on a bet that miners will struggle to service a surge in demand for the bellwether industrial metal. Base metals have posted broad gains in recent weeks, and copper opened Monday with a fresh advance to $9,988 a ton. Signs of improvement in manufacturing activity from the US to China have buoyed metals…” April 22 – Bloomberg:

“Industrial metals including copper and zinc have outperformed global stocks this year as signs of a revival in demand from Chinese manufacturers add to concerns over tighter global supply. An index tracking the performance of six industrial metals on the London Metal Exchange has climbed 8% since the start of 2024… The index, which also includes lead, aluminium, tin and nickel, has risen sharply this month…” April 10 – Financial Times (Stephanie Stacey)

“Copper rallied to the highest in 14 months as investors flock to the bellwether industrial metal in response to rising supply risks and hopes for a global recovery in demand. Prices climbed as much 1.5% on Thursday after dovish comments from Federal Reserve Chair Jerome Powell added impetus to a rally that began in early February on fast-mounting risks to supply. Disruptions at major mines have left smelters paying historically steep prices to get hold of mined ore, and Chinese plants — which produce more than half of the world’s refined copper — are moving closer to implementing a joint output cut in response.” April 4 – Bloomberg (Mark Burton and Annie Lee)

Copper Futures Outlook

Gold

  • “For much of the past half century, US Treasuries have handily outpaced gold as a buy-and-hold investment. Now, bonds’ status as the ultimate haven is facing one of its biggest challenges yet. Investors traditionally flocked to US debt as a super-safe investment paying steady income, and backed by the world’s economic powerhouse. For buyers ranging from individual savers to sovereign nations, these attributes made it a superior investment to gold… This relationship has been shifting lately, with recent trends moving in gold’s favor.” May 23 – Bloomberg (Ye Xie and Yvonne Yue Li)
  • “Chinese buyers, spooked by a protracted property slump and a recent stock-market rout, are rushing toward gold as economic uncertainty looms… Gold consumption in China rose 5.94% from a year earlier to 308.91 tons in the first quarter, the state-backed China Gold Association said… Meanwhile, China’s imports of gold raw materials surged 78% in the same period, helping the country’s total gold output to jump 21.16%… In January-March, Chinese buyers’ purchase of gold bars and coins rose 26.77% to 106.32 tons, amounting to around a third of total consumption.” Wall Street Journal
  • Gold hit an all-time record last month week helped by China’s central bank (PBOC) buying for its reserves for a 17th straight month in March. Bullion held by the People’s Bank of China rose to 72.74 million fine troy ounces last month, according to official data released Sunday.
  • Precious metals were the stellar performer in the commodities arena in Q1. Gold surged $167, or 8.1%, to an all-time high $2,230. Silver jumped 4.9% to $24.96.
  • Central bank buying has also been a significant driver of its strength since 2022. Global central banks, led by China and India, continued adding to their gold reserves in February, marking a ninth straight month of growth, according to the World Gold Council.
  • China’s official reserve assets rose to the highest since November 2015. The country’s foreign exchange reserves rose to $3.2457 trillion by the end of March, the highest since December 2021, as the central bank aims to maintain stable holdings to fend off risks. They rose 0.6% from February and were up 1.9% from a year earlier.
Gold Weekly Outlook

Energy

US Crude Oil (WTI)

Daily: WTI Crude Oil has continued to rally since retesting the pennant breakout last December after completing the correction in 3 waves. From there it broke the pennant and retested to continue to retest the breakdown last October to break above those descending levels for higher. We are in a completive mode for bulls with this impulse, it’s a question of degree on the topside, use the Murrey math 240/60 grid. Completing a C or IV? Support is previous lows and the bull flag. The bear case is the high was a complete 5.

WTI Weekly KnovaWave Shape

Weekly: WTI crude oil futures held the support line from July 2021, having plunged around 50% off 2022 highs. It has broken to the topside of its sphere of influence to close out the quarter over Kijun and Tenkan which are now support. WTI completed 3 waves and powered through the tenkan and 50wma, h and held the retest. Risk support is the grid. Resistance weekly channel, Murrey Math levels and previous breaks (off monthly). Bear case is Wave 5 complete.

What we broke……. Crude Oil in the past quarter built a huge bull flag. We watch if the recent break was false, or we fail. Very clear pattern.

WTI Daily KnovaWave

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.

US Natural Gas (Henry Hub)

Daily: US Natural Gas futures are a great example of rebalancing mania. The market is still correcting the manic 5 post the Ukraine invasion and beyond. Since the breakdown of the correction channel with failed breakups we have continued to multi year lows in a pennant formation after holding the daily 1/8. We now look at our Adam’s theory fractal rules with fractal spits powering these moves lower. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 2/8 and cloud above. Kijun, 50 dma and cloud. Support is previous lows. Important to watch how this energy was built for shape correlation.

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 in the collapse lower.

Weekly: Natural gas still correcting the past month when blew through all levels of support after breaking the weekly 50wma and the Kijun gave a kiss of death. From there we Broke down out of the corrective channel (Wave 4 or IV) to new multi-year lows. This week we closed right at the weekly Kijun and 1/8. around the 50wma and tenkan in the cloud. The instability stems from the sharp reversals that have failed indicative of speculative fervor like the previous impulsive spikes. Support is the 1/8 Sphere. Bulls need all the damage down to be rebuilt. Kijun is major resistance given energy higher came from a clean break of the Kijun.

US Natural Gas KnovaWave Weekly Grid

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.”

The Yen Volatility Continues as Expected:

The dollar yen traded last month 160.17, the first time above 160 since April 1990. The yen rallied swiftly to 154.54 after intervention. The Japanese currency had weakened back to 157.94 by Wednesday, before a second round of intervention pushed the dollar/yen down to 153. It was back above 156 on Thursday, before reversing lower to end last week at 153.05. From high to low, it was a range of 5%. This week the downside resumed the Japanese yen declined 1.8%.

Yen weakness is providing key support to dollar melt-up dynamics with BOJ slow-motion “normalization” in a world of fast-moving dynamics. Bank of Japan left rates unchanged at zero to 0.1% at its Friday policy meeting and maintained its bond-buying program, pushing out the anticipated shift to QT reiterating that conditions would remain easy. The BOJ boosted its forecast of core CPI for the year from 2.4% to 2.8%.

Governor Kazuo Ueda basically ceded the yen fragility issue to the Ministry of Finance (MOF), affirming Friday it wasn’t in the BOJ’s purview. He conveyed little concern for yen weakness, while downplaying its inflationary impact. The market accordingly took the yen out to the woodshed. The Japanese currency smashed 1.7% in Friday trading to 158.33 to the dollar, the low all the way back to May 1990. From 151.76 to 158.33 in 13 sessions.

Market concerns are mounting that currency instability is about to intensify. Oil prices off their highs but stay bid soared as war drums continued to beat with Russia over the Ukraine and Israel and Iran going at it.

Bonds have been under intense pressure throughout Asia

Highlights

“The Indonesian rupiah declined to a fresh four-year low as investors unwound the emerging-market carry trade, prompting support for the currency from the nation’s central bank. The rupiah fell as much as 0.5% to 16,293 per dollar on Wednesday, its weakest since April 2020. That brings one of Asia’s highest yielding currencies below the level which triggered an unexpected interest-rate hike by Bank Indonesia in April to stem the rout.” June 5 – Bloomberg (Matthew Burgess and Grace Sihombing):

In the first quarter the dollar rode high against almost every major currency. We saw central banks, from Japan, China and India intervene, or consider intervening, to bolster their currencies. The yen in view of USDJPY 152 and the yuan struggling to break back below 7.2 USDCNH officials have stepped up efforts to stem any further depreciation.

In Japan it’s been verbal warnings, in China it has been state banks buying yuan and selling dollars.
Remember these two are major competitors for export dollars. With that there’s a school of thought that Beijing could have grown more tolerant of a weak yuan to maintain its competitive edge against the yen.

Japan’s predicament is a major issue. Yet the sustainability of China’s currency peg might be the elephant in the market. The yen has devalued 11.3% versus the renminbi over the past year, with the Indonesian rupiah down 4.3%, the Thai baht 3.2%, and the Malaysian ringgit 2.2%.

With China’s apartment Bubble deflation gaining further momentum, Beijing faces huge challenges to attain growth mandates. Maintaining competitiveness for China’s massive export sector will be a top priority. Especially with its archrival’s economy and stock market booming, Beijing is resorting to increasingly desperate measures to hold Bubble deflation at bay. According to Bloomberg, “China’s sovereign wealth fund likely bought at least $43 billion of onshore exchange-traded funds in the first quarter” – and this was only a portion of enormous “national team” market support.

Beijing used to claim they had studied and learned from Japan’s Bubble experience. Chinese officials later criticized U.S. and “western” central banks for adopting inflationary QE measures. Well, look who’s now talking central bank bond buying.

April 22 – Bloomberg: “China’s Ministry of Finance said it supports allowing the central bank to buy and sell government bonds, reaffirming a comment by President Xi Jinping that ignited market speculation about a change of monetary strategy. The ministry called for stepping up coordination between fiscal and monetary policy and ‘improving the mechanisms of base money injection and money supply adjustment,’ in an article written by a study group and published by the People’s Daily… It was based on a recent book that compiled Xi’s statements about finance and economics. In that text, Xi was quoted as saying that the People’s Bank of China should gradually increase the buying and selling of government bonds in open-market operations.”

As Beijing pushes ever harder to sustain its Bubble Economy and thwart systemic debt crisis, the world is watching. Ongoing massive Credit growth ensures an only greater debacle, while Beijing directives are bringing new meaning to “malinvestment.” Importantly, this is not the good old days when perceptions of a great and infallible Beijing meritocracy had global analysts – and rating agencies – reverent and inhibited. The bloom is off the rose, and skepticism is these days palpable.

April 24 – CNBC (Evelyn Cheng): “China’s state-directed economy may be creating the conditions for a new wave of bond defaults that could come as soon as next year, according to an S&P Global Ratings report… It would be the third round of corporate defaults in about a decade, the ratings agency pointed out. It comes against a backdrop of extremely few defaults in China amid concerns about overall growth in the world’s second-largest economy. ‘The real thing to watch for policymakers is whether the current directives are creating distorted incentives in the economy,’ Charles Chang, greater China country lead at S&P Global Ratings, said…”

  • For the week the U.S. Dollar Index increased 0.6% to 105.55 (up 4.2% y-t-d).
  • On the upside, the South African rand increased 2.8%, the Swiss franc 0.7%, the New Zealand dollar 0.6%, the Australian dollar 0.5%, the Norwegian krone 0.4%, the Swedish krona 0.3%, and the Canadian dollar 0.2%.
  • On the downside, the South Korean won declined 1.0%, the euro 0.9%, the Brazilian real 0.6%, the Japanese yen 0.4%, the Mexican peso 0.4%, the British pound 0.3%, and the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.11% versus the dollar (down 2.15% y-t-d).

 Australian Dollar – AUDUSD

The Aussie dollar is still correcting since completing a 5 at the pysch 80 level to fall under the weekly cloud in emotive fashion. The Australian dollar fell to test of the August lows of 0.7106 with Omicron fears. Should that double bottom go support ia the Murrey Math Levels. Resistance the Cloud, Tenkan and Kijun like many commodities.

Australian Dollar KnovaWave Weekly Outlook

Japanese Yen – USDJPY

USDJPY broke above after weakness with Treasury yields to rush to +2/8 and channel convergence, we have come a long way from that 108.00 massive support for dollar-yen back to test the top of the flat-topped triangle at 151/152. Any change will come from the weekly Kijun. Use your USDJPY Murrey 7/8 8/8 grid for now. EURJPY AUDJPY will determine risk on/off.

Japanese Yen v Dollar KnovaWave Weekly Outlook

“Japan’s Finance Minister Shunichi Suzuki said… that foreign exchange intervention should be done in a restrained manner, after data suggested Tokyo tapped a vast pool of foreign reserves for its recent yen-buying operations. ‘Foreign exchange intervention should be done with its necessity and effectiveness taken into account,’ Suzuki said… While intervention could be used to contain excessive moves in the currency market, such action ‘should be conducted in a restrained manner,’ Suzuki said.” June 6 – Reuters (Makiko Yamazaki, Tetsushi Kajimoto and Takaya Yamaguchi):

“The United States, Japan and South Korea agreed to ‘consult closely’ on foreign exchange markets in their first trilateral finance dialogue on Wednesday, acknowledging concerns from Tokyo and Seoul over their currencies’ recent sharp declines. The rare warning from the three countries’ finance chiefs came as receding expectations of a near-term U.S. interest rate cut pushed the yen to 34-year lows, keeping markets on alert on the chance of an intervention by Japan to prop up the currency.” April 17 – Reuters (Saqib Iqbal Ahmed)

Chinese Yuan – USDCNH

June 3 – Reuters (Alun John): “More global reserve managers plan to increase exposure to the now high-yielding U.S. dollar as their interest in China’s yuan has soured due to low returns and geopolitical tensions, the Official Monetary and Financial Institutions Forum said. The data, from a survey carried out by the think tank…, challenges – at least in the short term – the trend towards de-dollarisation, the idea that countries will diversify away from dollars.”

“Chinese businesses are hoarding dollars because they expect their own currency to weaken, and that in turn is exacerbating a slide in the yuan… This feedback loop has been playing out for months in mainland currency markets, spurred on by the dollar’s rising yield. Foreign exchange deposits have climbed $53.7 billion since September to $832.6 billion… Analysts say one of two things needs to happen to end the downward spiral: the Federal Reserve needs to make deep rate cuts or the yuan needs to hit some form of a trough. Both seem distant.” April 17 – Reuters

China manages its currency onshore by setting a daily reference rate against the dollar at 9:15 a.m. local time, around which it is then permitted to trade in a 2% range. The PBOC has kept the daily rate in such a tight range this year that a gauge of volatility in the fixing has dropped to the lowest since before the shock yuan devaluation of 2015.

Canadian Dollar – USDCAD

The Loonie is holding the Tenkan after a 3 year high in June and corrected that in 3 waves led by the AUD and NZD with oil price impacting direction. Watch flat Kijun and Tenkan at 8/8. Use Fibs for support and resistance.

Canadian Dollar KnovaWave Weekly Outlook

Mexico Peso – USDMXN

“A sharp drop in Mexico’s currency after a landslide election result has shaken foreign exchange markets as far as Hungary and Turkey this week, leaving investors asking whether the unwinding of hugely popular ‘carry trades’ will continue. A carry trade involves investors borrowing in currencies that have low interest rates, such as the Japanese yen or Swiss franc, and buying higher yielding ones such as the Mexican peso or, recently, the U.S. dollar. It has boomed in popularity as interest rates have diverged around the world and market volatility has stayed low. Yet the peso’s dramatic fall against the yen this week – it dropped 4.4% on Monday in its biggest daily decline since the COVID-19 crisis – is a sign that investors have been rapidly backing out of some of their favourite, and most lucrative, trades.” June 5 – Reuters (Harry Robertson):

“‘Super Peso’ Slides as Middle East Risk Threatens Carry Trade”: “The Mexican peso slumped the most in four years, as increasing conflict in the Middle East sapped demand for the currency that has been one of the favorite targets for carry trades. The peso tumbled more than 6% against the dollar as news began to filter through Friday of an Israel retaliatory strike on Iran, in what some in the market described as a ‘flash crash.’ The currency had climbed to the strongest in almost nine years last month, driven by relatively high local interest rates and low currency volatility.” Bloomberg (Marcus Wong)

USDMXN KnovaWave Weekly Outlook

Euro – EURUSD

Euro continues to bump up against that downtrend line from 2020 and spinning around the 50% of that year’s panic sell. The euro trades in what seems like eternal flags in the channel. We watch if Kijun (pink) testing Tenkan (orange) creates any impulse as EURUSD consolidates at the cloud. Watch 3 waves to see development for continuation. Watch for impulse off Chikou rebalance. Again governed by EURGBP and Bund volatility.  

Euro KnovaWave Weekly Outlook

British Pound – USDGBP

British pound classic retest of daily cloud break with magnet pulls of cloud twist after ABC correction – will need Tenkan to break through Kijun for more strength. The upcoming month will be heavy on UK data and election speculation which could mean an eventful time for the British pound.

British Pound KnovaWave Weekly Outlook

Bitcoin

Crypto Q1 24 Highlights

  • Bitcoin surged 64% during the quarter,
  • Ethereum gained 53%
  • Binance Coin soared 95%.
  • Having started trading on January 11th, the iShares Bitcoin ETF rose 52%.

Bitcoin is performing technically to perfection. Impulse begets impulse. To understand panic, understand greed. Bitcoin exploded higher following its 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 to a new record high and retest.

Bitcoin KnovaWave Weekly Outlook

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

Akio Morita mistakes

 Geopolitical Tinderbox Radar

The Week Ahead – Have a Trading Plan

Watch EarningsCentral Bankers and Geopolitics speeches, reports and rate moves.

Next Week’s Risk Dashboard

  • Intensifying political risk
  • The G7 family photo could soon face a make over
  • Elections threaten Eurozone unity
  • Trump’s proposals face a very different bond market
  • Canada won’t be an island
  • BoE to stay out of the election fray
  • UK CPI lands the day before the BoE
  • RBA to deliver another hawkish hold
  • BCCh may sound more cautious
  • PBOC likely to extend its policy hold
  • BCB may hit the brakes
  • Norges Bank still on hold until autumn?
  • A close call at the SNB
  • Rupiah weakness may drive BI to hike
  • BoC’s window on Governing Council
  • Global PMIs may indicate France as the growth outlier
  • US retail sales might face upside risk
  • US markets shut Wednesday for Juneteenth holiday
  • New Zealand’s flat economy

US Economic Highlights

  • Monday: June Empire State Manufacturing Index (prior -15.6)
  • Tuesday: May Retail Sales (prior 0.0%) and Retail Sales, Ex-Auto (prior 0.2%); May Industrial Production (prior 0.0%) and Capacity Utilization (prior 78.4%); April Business Inventories (-0.1%); April Net Long-Term TIC Flows (prior $100.5B); $13 bln 20-yr bond auction
  • Wednesday: MBA Weekly Mortgage Applications Index (prior 15.6%); June NAHB Housing Market Index (prior 45)
  • Thursday: Weekly initial Jobless Claims (prior 242K) and Continuing Jobless Claims (prior 1820K); May Housing Starts (prior 1360K) and Building Permits (prior 1440K); Q1 Current Account Balance (prior -$194.8B); June Philadelphia Fed Manufacturing Index (prior 4.5); EIA Crude Oil Inventories (prior +3.73M)
  • Friday: May Existing Home Sales (prior 4.14M); Preliminary June S&P Global US Manufacturing PMI (prior 51.3) and S&P Global US Services PMI (prior 54.8); May Leading indicators (prior -0.6%); EIA Natural Gas Inventories (prior +75 bcf)

Bond market Highlights

  • Monday: 
  • Tuesday: $13 bln 20-yr bond auction
  • Wednesday:
  • Thursday: 

Central Bank Highlights

There will be no shortage of central bank speak this week. Eight central banks with updated decisions this week.

  • RBA No ones expects Australia’s central bank to change its policy rate on Tuesday. Markets are priced for a hold and are not pricing a full quarter-point cut until early 2025. The prior meeting on May 7th delivered a higher-for-longer message. Since, then, 77k jobs have been created if which roughly half have been full-time. Wage growth remains high, Inflation also remains high and driven by domestic non tradeable prices that matter more to the RBA.
  • BCCh Chile’s central bank decision on Tuesday faces a somewhat divided and lightly populated consensus. Four out of seven expect a 25bps cut, 2 expect -50bps and one expects a hold. We may hear a more cautious sounding central bank toward the pace of easing either now or in future not least of which because of 525bps of cuts to date since they began last July. Since the 50bps cut on May 23rd, inflation has been a little hotter than expected and at 3% y/y remains above target. The peso has appreciated more than other crosses given higher copper prices and the unemployment rate fell.
  • PBOC A minority of forecasters mainly comprised of the usual suspects think that China’s central bank could cut its 1-year Medium-Term Lending Facility Rate from 2.5% by 10bps on Wednesday. Sixteen of 21 in Bloomberg’s poll think it will hold. Several factors may lean more closely toward a hold. For one, recent financing figures accelerated somewhat, suggesting that the lagging effects of prior reductions in required reserve ratios may be driving credit easing. The yuan has been weakening from about 7.1 to the dollar at the start of the year to 7¼
  • BCB Brazil’s central bank is expected to hold its Selic rate at 10.5% on Wednesday. This would be a natural progression from having downshifted the prior 50bps per meeting cut pace to 25bs in early May that reflected a more divided committee. A small recent increase in inflation expectations is a key concern, headline inflation appears to be stuck at just under 4% y/y, and potentially expansionary fiscal stimulus is being carefully monitored.
  • BoC’s Summary of Deliberations The Bank of Canada issues its Summary of Deliberations on Wednesday. These cover the process leading up to the June 5th decision to cut the policy rate. Watch for discussion that reflects the degree of consensus on Governing Council and possible indications on next moves.
  • Norges Bank Norway’s central bank is unanimously expected to hold its deposit rate unchanged at 4.5% on Thursday. Markets are priced for no change and all nine within consensus expect a hold. The prior meeting on May 8th stated no change for “some time ahead.”
  • SNB This one is a close call. Consensus is evenly divided between a policy rate hold at 1.5% and a 25bps cut on Thursday. Markets have about 70% of a cut priced in. SNB enjoys a good surprise, as evidenced by its 25bps cut on March 21st well ahead of the ECB. Recent inflation has been a smidge warmer than usual months of May but at 1.5% y/y and core CPI at 1.2%, there is ample justification to continue front-running the ECB especially given recent strength in the Swiss franc.
  • BoE The Bank of England is universally expected to hold Bank Rate unchanged at 5.25% on Thursday. Key will be guidance that could inform market pricing that is half way toward pricing a 25bps cut at the August 1st meeting. The BoE may wish to stay out of the fray ahead of the July 4th general election. After all, it cancelled all public communications during the election campaign. That could also add to reasons to be guarded on forward guidance
  • BI Bank Indonesia Thursday is widely expected to hold its policy rate at 6.25% with a small minority thinking that it could hike. That minority might be an understated risk. Key is that the rupiah has been weakening and currency stability matters a lot to this central bank given the implications for imported inflation and overall market and economic stability. Since early March, the rupiah has been among Asia’s weaker currencies to the dollar, having lost about 5% of its value as the Federal Reserve’s easing gets pushed out and more intensified uncertainty is creeping back into global markets. If BI decides to hold, it is very likely to have a hawkish feel to it.

Commentary via Scotiabank

US Earnings Highlights

Monday brings events from three mega caps, Nvidia, Apple and Eli Lilly. Apple’s Worldwide Developers Conference with Vision Pro and the iPhone 16. Nvidia will implement its 10-for-1 stock split. An FDA advisory panel will consider Eli Lilly’s Alzheimer’s drug, and he said he’s optimistic about the outcome.

Oracle and Casey’s General Stores reports on Tuesday. Wednesday earnings results from Broadcom. Signet Jewelers, RH and Adobe will report on Thursday. Friday a fireside chat from Affirm.

The earnings season is mixed as the earnings beat ratio remains high, but the revenue beat ratio is a coin-toss and other earnings details by sector and company have been highly variable. via ScotiaBank

  • Monday starts us off LEN
  • Tuesday includes CRMT, CGNT, KBH
  • Wednesday Includes
  • Thursday includes DRI, ACN, JBL, KR, SWBI
  • Friday includes KMX

US IPO Week Ahead

Listings are currently scheduled for the week ahead.

  • Two sizable IPOs are scheduled for the week ahead.
  • Precision medicine company Tempus AI (TEM) plans to raise $400 million at a $6.2 billion market cap. The company provides its Tempus Platform, which includes proprietary software and data pipelines to enable development of more personalized therapies. Highly unprofitable but growing, Tempus’ offerings have been used by approximately 95% of the largest public pharmaceuticals, and its clinical next generation sequencing volume in oncology rose nine-fold from 2018 to 2023.
  • Australia-listed biotech Telix Pharmaceuticals (TLX) plans to raise $202 million at a $4.2 billion market cap. Telix is focused on the development and commercialization of therapeutic and diagnostic radiopharmaceuticals, with a pipeline of candidates across various oncology indications. Its lead product, Illuccix, is a commercially available imaging agent for prostate cancer that has generated about $550 million in sales since its commercial launch in April 2022.

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2024. One suspects it will be a yearlong Groundhog Day for Biden, Trump, the GOP and the Democrats.  Throw on top of that Russia/Ukraine Israel/Gaza and China/Taiwan.

Trade Smart!

Akio Morita mistakes

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Note these charts, opinons news and estimates and times are subject to change and for indication only. Trade and invest at your own risk.

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

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Real Time Economic Calendar provided by Investing.com.

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Trade Smart!