June 12- 18, 2022
FEAR NOT Brave Investors
Where have we been and where are we going? Join our weekly market thread on Traders Community…
The Week That Was – What Lies Ahead?
Click on the links below to navigate to the relevant section.
- Part A: Stock markets
- Part B: Bonds
- Fed and Banks
- Part C: Commodities
- Energy – Oil and Gas
- Gold and Silver
- Part D: Foreign Exchange
- Geopolitics and Economics
- Economy Week ahead
Markets were roiled after Friday’s much hotter-than-expected 40-year high May CPI and the worst consumer sentiment ever Friday. Stocks cratered, for the week, the S&P 500 was down 5.1%. The index closed Friday at 3,900, off 2.9%. Looking ahead The Fed will release new economic and interest rate forecasts at 2 p.m. Wednesday but what Federal Reserve Chair Jerome Powell has to say at 2:30 p.m. is the all-in focus.
The Fed is widely expected to raise the fed funds rate by a half point and again next month, but hot inflation has expectations policymakers could hike faster and higher. Both Barclays and Jefferies changed their forecasts Friday to include a 75-basis point hike for Wednesday. On Friday, the 2-year Treasury yield reached 3.06%, and the spread was only 10 basis points. If the 2-year were to move above the 10-year yield, the curve would be inverted, which is a recession signal.
If that is not enough from the bankers, we also got the BoE to hike again, BoJ likely to stand pat, PBoC cut risk, SNB to follow the ECB, Brazil’s central bank’s guidance to be key, CBCT slowly tightening.
Key Rates and Spreads
- 10-year Treasury bonds 3.16%, up +0.22 w/w (1-yr range1.08-3.13)
- Credit spread 1.95%, down -0.13 w/w (1-yr range1.65-4.31)
- BAA corporate bond index 5.11%, up +0.09% w/w (1-yr range: 3.13-5.25)
- 30-Year conventional mortgage rate 5.85%, up +0.41% w/w (2.75-5.85) (new 10-year high) (1-yr range 2.75-5.85)
- 10 year minus 2 year: +0.10%, down -0.18 w/w (1-yr range -0.12 – 1.59)
- 10 year minus 3 month: +1.81%, up +0.05% w/w (1-yr range -0.99 – 2.04)
- 2 year minus Fed funds: 2.34%, up +0.51% w/w
When Risk Explodes “Periphery” Debt:
U.S. high-yield CDS prices surged 59 this week to 532 bps – the largest weekly increase since June 2020 – to the high since June ‘20. The U.S. has its own “periphery” debt issue loaded with “subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on.
A massive infrastructure has evolved over this long cycle to spur consumption for tens of millions, while financing thousands of uneconomic enterprises. The “periphery” has become systemic like never before. The wrecking crew is int the house.
Here isa reminder, the collapse of the “periphery” telecom junk debt (i.e. Worldcom) Bubble certainly was a major factor in the bursting of the nineties “dot-com” Bubble. But it was too small to be systemic. Periphery mortgage Credit became systemic with the proliferation of subprime mortgages and derivatives.
Bond Funds Dumped
Global investors resumed selling bond funds in the week to June 8… Investors pulled $9.46 billion out of global bond funds in the week, after purchases of $7.2 billion in the previous week-the only weekly inflow since March 30, Refinitiv Lipper data showed.”
“U.S. bond funds witnessed massive outflows in the week to June 8 after a weekly inflow… According to Refinitiv Lipper…, investors withdrew $7.61 billion out of U.S. bond funds after the purchases of $7.09 billion in the previous week, which was the only weekly inflow since Jan 5.” June 10 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy
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!
US consumer inflation continues to rise, prices for energy jumped 34.6% from a year earlier, the cost of groceries rose 11.9% on the year. Shelter costs also accelerated higher. Real Earnings are declining at a rapid rate. CPI in May rose+1.0% vs +0.7% expected m/m. Core CPI rose 0.6% (consensus +0.5%). The dollar rose to a three-week high after the inflation data release. The bond and stock markets began selling off on inflation fears yesterday. 10-year yields rising over 3%.
Energy prices rose 34.6%, the most since September of 2005 and food costs surged 10.1%, the first increase of 10 percent or more since the period ending March 1981.
Food prices have been almost vertical for the past year, though we have seen a respite in the past few months. World food prices as measured by the FAO Food Price Index dropped 0.6% on the month to 157.4 in May 2022. It was the second month of declines, though still sitting just under the record high 159.7 from March. Price falls were seen in the vegetable oil index (-3.5%), dairy price index (-3.5%) and the sugar price index (-1.1%). Price rises were seen in the cereal price index (+2.2%) and meat prices (+0.5%).
The market seems to go through phases of trading on the premise that the US is at or close to, peak inflation. The shock will come if better inflation news in coming months is not coming. The PCE price index is closely watched since it is the preferred inflation measure of the Federal Reserve, which has begun raising interest rates last month for the first time since the pandemic began to tamp down rising prices.
With all the redirection of blame at the Fed about inflation one has to understand it is a global phenomenon outside the Fed’s Control. With the war drums louder than ever the supply chain issues are out of control. The Federal Reserve is not in control of global energy and commodities prices.
Everything points to powerful inflationary dynamics and a Federal Reserve so far “behind the curve.”
The Fed has kicked off its first real tightening campaign since 1994, with securities markets already at the brink of illiquidity and dislocation. Markets could soon be screaming for assurances of the Fed’s “buyer of last resort” liquidity backstop, while the Fed is prepared to begin withdrawing liquidity by selling Treasuries and MBS. .
Here is a dose of reality. or was it all just money laundering?
“The nonfungible token of Jack Dorsey’s first tweet, which sold for $2.9 million last year to Sina Estavi, failed to garner much in the way of interest when it was recently put up for resale, Coindesk reports. The auction for the NFT closed with only seven offers ranging from just 0.0019 Ether to 0.09 ETH, or about $6 to about $280. A far cry from the $48 million sought by the owner.”April 13 – Bloomberg (Patrick McHale)
Another important aspect is the Fed doesn’t Control corporate pricing or wage decisions. Let us be clear geopolitical, climate change developments and what an out of depth, politically motivated administration are outside the Fed’s sphere of influence. There has been over $5.1 Trillion new “money” in 126 weeks, it’s a reasonable conclusion the Fed has lost control of Inflation.
The VOLX`s underlying instrument is the Mini VIX™ Future. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility. The VIX is calculated using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls (options) on the S&P 500.
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 was wrecked 5.1% (down 18.2% y-t-d)
- Dow fell 4.6% (down 13.6%).
- Nasdaq100 fell 5.7% (down 27.5%)
- The S&P 400 Midcaps fell 4.7% (down 15.4%),
- Small cap Russell 2000 stumbled 4.4% (down 19.8%).
- Utilities dropped 4.1% (down 2.0%).
- Transports slumped 7.4% (down 18.9%).
- Banks sank 7.8% (down 20.3%)
- Broker/Dealers lost 6.9% (down 20.9%).
- Semiconductors sank 7.5% (down 28.2%).
- Biotechs dropped 5.3% (down 20.9%).
- While bullion jumped $20, the HUI gold index slipped 0.2% (up 1.1%).
Biggest SPX Stock Winners and Losers Last Week
Cboe Daily Market Statistics
US Markets YTD
- Dow Jones Industrial Average -13.6% YTD
- S&P 400 -15.4% YTD
- S&P 500 -18.2% YTD
- Russell 2000 -19.8% YTD
- Nasdaq Composite -27.5% YTD
Global Stock Market Highlights
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 6932 down 4.2% for the week, below 7,000 points for first in four weeks in biggest weekly decline since April 2020
- The finance sector lost 9% for the week in a sign of how the RBA shocked the market with its 0.5 per cent rate rise.
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%).
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.
The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the Tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in
The S&P 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.
Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan. To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.” Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances
A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets
The Dow tested its weekly up channel after bouncing back to test the Tenkan and Kijun we watch for the reaction here. Resistance is the channel, support the cloud and previous breakups.
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.
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
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)
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.
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.
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.
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
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:
- Oracle Corporation (ORCL)
- HEXO Corp. (HEXO) Planet Labs (PL), Li-Cycle Holdings (LICY), and Sprinklr (CXM).
- Motorcar Parts of America (MPAA) John Wiley & Sons (WLY).
- Adobe (ADBE) The Kroger Co. (KR) and Jabil (JBL).
- 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):
US IPO Week Ahead:
Connexa Sports Technologies is expected to start trading on June 14. The connected sports company aims to build a direct connection to consumers with products and technologies, while also building out the infrastructure to enhance automated production live-streaming, fan engagement and monetization opportunities.
Quiet period expirations for Visionary Education Technology Holdings Group (VEDU) and Okyo Pharma (OKYO) on June 13 to free up analysts to post ratings.
IPO lockup periods expirations for blocks of shares of Samsara (NYSE:IOT), Arena Group (AREN), Genenta Science S.P.A (GNTA), and Fresh Vine Wine (VINE). Of the group, only AREN trades above its IPO pricing level.
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 $2.895 billion, while junk bond funds recorded inflows of $1.336 billion (from Lipper).
U.S. Treasuries ended the week sharply lower sending yields on the 10-yr note and shorter tenors past their highs from May in response to another hotter than expected CPI report. This week’s underperformance in shorter tenors tightened the 2s10s spread by 16 bps to 12 bps.
- 2-yr: +22 bps to 3.04% (+36 bps for the week)
- 3-yr: +21 bps to 3.21% (+33 bps for the week)
- 5-yr: +19 bps to 3.25% (+30 bps for the week)
- 10-yr: +11 bps to 3.16% (+20 bps for the week)
- 30-yr: +3 bps to 3.20% (+9 bps for the week)
All good until markets hold up but take note that the loosest financial conditions in history have supported record corporate debt issuance. While easy credit availability has supported economic activity, funding new investment whilst keeping vulnerable companies afloat. The combination of urban shifts through virus and riots fears fueled a booming MBS market and record low mortgage rates pushed strong housing markets into Bubble risk territory.
Highlights – Mortgage Market
- Freddie Mac 30-year fixed mortgage rates jumped 20 bps to 5.23% (up 227bps y-o-y).
- Fifteen-year rates gained six bps to 4.38% (up 215bps).
- Five-year hybrid ARM rates rose eight bps to 4.12% (up 157bps).
- Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 20 bps to 5.57% (up 248bps).
- 30-Year conventional mortgage rate 5.85%, up +0.41% w/w (2.75-5.85) (new 10-year high) (1-yr range 2.75-5.85)
Highlights – Federal Reserve
- Federal Reserve Credit last week added $1.5bn to $8.881 TN. Over the past 143 weeks, Fed Credit expanded $5.154 TN, or 138%.
- Fed Credit inflated $6.070 Trillion, or 216%, over the past 500 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt last week slipped $1.1bn to a two-year low $3.395 TN.
- “Custody holdings” were down $153bn, or 4.3%, y-o-y.
- Total money market fund assets jumped $26.4bn to $4.553 TN. Total money funds were down $53bn, or 1.1%, y-o-y.
- Total Commercial Paper jumped $18.3bn to a seven-month high $1.157 TN. CP was down $19bn, or 1.6%, over the past year.
Highlights – European Bonds
Greek yields surged another 67 bps this week to 4.38%, with a stunning 10-session spike of 172 bps. Italian yields jumped 36 bps to 3.76% (up 167bps in 10 sessions). Yields were up 34 bps in Spain to 2.78% (131bps) and 32 bps to 2.80% (142bps) in Portugal. Even German bund yields rose 24 bps to 1.52% (96 bps), as French yields jumped 29 bps to 2.10% (107bps).
- Greek 10-year yields surged 67 bps to 4.38% (up 307bps y-t-d).
- Ten-year Portuguese yields jumped 32 bps to 2.80% (up 233bps).
- Italian 10-year yields surged 36 bps to 3.73% (up 259bps).
- Spain’s 10-year yields spiked 34 bps higher to 2.78% (up 221bps).
- German bund yields jumped 24 bps to 1.52% (up 169bps).
- French yields rose 29 bps to 2.10% (up 190bps).
- The French to German 10-year bond spread widened 5 to 58 bps.
- U.K. 10-year gilt yields jumped 29 bps to 2.45% (up 148bps).
Highlights – Asian Bonds
- Japanese 10-year “JGB” yields increased two bps to 0.25% (up 18bps y-t-d).
Part C: Commodities
- Bloomberg Commodities Index gained 1.2% (up 36.6% y-t-d).
- Spot Gold rose 1.1% to $1,872 (up 2.3%).
- Silver slipped 0.2% to $21.89 (down 6.1%).
- WTI crude gained $1.80 to $120.67 (up 60.4%).
- Gasoline declined 1.9% (up 87%)
- Natural Gas rallied 3.8% (up 137%).
- Copper dropped 4.0% (down 3.8%).
- Wheat rose 3.0% (up 39%),
- Corn slipped 0.9% (up 21%).
- Bitcoin fell $525, or 1.8%, this week to $29,155 (down 37%).
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 extended its fall on Friday for a straight third weekly loss as rates weakened across smaller vessel segments. The overall index, which factors in rates for capesize, panamax, supramax and handysize shipping vessels plunged 12% this week, the BDI lost 22 points to 2,320 points
- The panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, dropped 45 points, or 1.7%, to 2,629 points and has lost about 7.8% in this week. Average daily earnings for panamaxes, decreased by $402 to $23,662.
- The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, inched up 2 points to 2,371 Friday but has lost about 19% this week.
- The supramax index for smaller vessels shed 32 points to 2,495.
We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle.
We have seen $AA retest the previous high after the +3 Spit as the Chikou rebalanced. We have the Gap below at +1/8 confluence. We move to 240 for this pennant resolution.
Copper rebounded sharply off the 50wma but again has failed on the cloud spit and channel break. The flattening Weekly Tenkan and Kijun acted as a magnet to close right there. #HG power spits have quickly rebalanced back into the wide channel. Copper had been a leader in the risk on movement for commodities.
Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.
Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.
“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):
We analyze the WEAT ETF as a surrogate to Wheat given its high beta relationship and more liquid aspect as an investment vehicle.
WEAT this week retested the Tenkan (orange) and was rejected. Essentially, we are retesting the 8/8 move and high after it spat 8/8, and the minimum target. We did complete a measured 4/8 correction off highs meaning key support as that base, the 50dma and the pennant confluence. From here WEAT support comes it at the pennant base, resistance at Tenkan
Corn rally topped out at the highest since 2012 in Chicago at +1/8 and has corrected back to break the Tenkan which it swiftly regained this week after bouncing off 720, which also the price successfully retested the high from April 2021. From here we watch if Tekan can be reclaimed, which will tell the wave structure. Support is at the Kijun 7/8 confluence.
Soybeans broke out of the bull pennant framed by +4/8 and +1/8 but was unable to sustain the break closing right at the breakout. Support at the Tenkan is key as we see if this is a spit of a spit to move higher or a failure. The Futures pivot has moved to $17/bushel benchmarks. Futures spat the Weekly +4/8 over $17.50/bushel three times now. Any flattening Kijun will be a magnet just under the 8/8. The weekly cloud and 50wma mingle around the $14.6/bushel benchmark are massive.
US Crude Oil (WTI)
Another big week for oil, after hitting our initial 8/8 target retest completing either a iii of (5) or (v) of 5 as marked. From there we saw a grinding ABC or 1 of 3 higher and MM recalculation higher to almost +2/8 and 161.8% Fib retest. We are in a completive mode with this impulse, it’s a question of degree on the topside, use the Murrey math 240/60 grid.
On the way up potent WTI price action indicative of 3rd wave energy highlighted by spits of the Tenkan to new highs. Recall prior to this move the completion in 5 waves (iii or i) saw heavy selling with eventual confluence kiss of death with 50dma at the top of the cloud. From there down in 3 waves, completing a C or IV? Support wasn’t found until 0-8. From there we have accelerated higher through the cloud twist. Support Kijun and Tenkan. Closed above 50dma with grid above
The key is crowd behavior to help tell the story which in energy is often around geopolitics. A great example of why we watch ABC corrections and from here we get the energy from the break being balanced. This move that was powered by 50 dma Tenkan spit of a spit – hence the fractal energies reverberations. Support is previous lows, Murrey Math levels and Fib cluster. Support is the 50dma, kijun, tenkan and prev high confluence.
WTI crude Oil futures continued higher after corrected the sell off to the Kijun. That was after it’s measured move reversed from 7-year highs and regained them right to the top of the weekly channel with the downside open. Risk support is the grid. Long term 61.8% target fueled the spit of a spit by ABC bull flag after rebalanced Chikou sated the 5 waves. Support previous high and Weekly Tenkan & Kijun which closed turning up under the 100% to give next impulse clue after holding above 50wma after regaining energy above Tenkan and Kijun. Resistance the Murrey Math levels and previous breaks (off monthly)
These are special times, recall “After we regained the pattern 261.8% from the extreme (-$40) move. The climax of the larger acceleration lower after broke the weekly uptrend, a fractal of the sharp and all the way to all time lows to negative pricing we have seen mirror replications.” Support is previous channels, tenkan and Kijun. Above we have Murrey Math time and price
US Natural Gas (Henry Hub)
US Natural Gas has continued higher after it completed 3 waves correcting the daily 8/8 spit correction to -2/8. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. We closed over the 2 most recent highs and +1/8 right. Support is Tenkan, Kijun below.
The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this week’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance
Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.
Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.
Notably no sharp reversal, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. This move was fueled by a fractal of the classic double top playing out after a spit of the weekly Kijun was sent back off Tenkan only to reverse all the way to spit the 50wma for the energy needed. Resistance is Previous highs and Murrey Grid.
The Natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence. A question of continuation with the 50wma as resistance and cloud as support.
Recall the impulse wave powered from the spit of 50wma to get over weekly Kijun and Tenkan. This was energized with a series of fractals between old 38 and 50% channel, as you would expect in a seasonal commodity with weather a prime mover. Resistance is Fib/Murrey confluence, support Tenkan, Kijun – as always count your ABC’s
Key Energy Reports
- Around The Barrel – Crude Oil Outlook with A Desperate United States Turning to Iran with Prices Vertical
- Into The Vortex – Natural Gas Outlook with Threats of Russian Ukraine Conflict Hitting Global Supply
- ExxonMobil Delivers Big Earnings, Continues to Pay Down Debt as Oil and Gas Prices Surge
- The Energy Crisis and Volatility See Natural Gas and VIX the Best Performing Futures in January
- Chevron Earnings Miss on Weaker Production Outweighing Gains from Soaring Oil and Natural Gas Prices
- Natural Gas Squeezes in Largest One Day Percentage Move on Record as Traders Caught Short Molecules
- Australian Coking Coal Record High with Strong Demand in Korea and Japan
- OPEC Monthly Oil Market Report January 2022
- Lower US Producer Price Inflation Dependent on Oil Prices
- Fitch Outlook For North American Oil & Gas is Neutral in 2022
- Spot Gold was little changed at $1,851 (up 1.2%).
- Silver declined 0.8% to $21.93 (down 5.9%).
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.
Silver, like Gold bounced under the cloud base. Back underr 50wma after spitting Tenkan providing support after reversed. Closing under weekly Kijun which is now resistance. Major support is previous lows
Part D: Forex Markets
John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
For the week, the U.S. Dollar Index gained rose 0.9% to 104.18, gaining 2.0% for the week. The Index is now within a point of its high from mid-May after bouncing off its 50-day moving average (102.10) this week.
- For the week on the upside, Nil
- On the downside, the Japanese yen 2.6%, the Swiss franc 2.6%, the Australian dollar 2.1%, the euro 1.9%, the Canadian dollar 1.4%, the British pound 1.4%.
- For the week on the upside, Nil
- On the downside the Brazilian real declined 4.3%, the Norwegian krone 2.8%, the Swedish krona 2.6%, the New Zealand dollar 2.1%, the South Korean won 2.1%, the Mexican peso 2.0%, the South African rand 2.0%, the Singapore dollar 0.9%, Chinese (onshore) renminbi declined 0.73% versus the dollar (down 5.26% y-t-d).
Australian Dollar – AUDUSD
The Aussie dollar reversed with cloud, Kijun and channel confluence over $0.7250, its highest levels in three weeks. It closed under the Tenkan around the channel midpoint. 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. Support is the Murrey Math Levels. Resistance also the Cloud, Tenkan and Kijun like many commodities.
New Zealand Dollar – NZDUSD
The Kiwi mirrored the AUD in its wave (iii) spit to lower channel wing recover to Tenkan where it met the KOD. Momentum failed and reversed from there. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel. We closed back under the old 61.8% break.
Canadian Dollar – USDCAD
The Loonie has continued to benefit from the USD’s broad correction as an improving fundamental background for the CAD of strong growth, hawkish central bank, favorable terms of trade. Since the USDCAD reversed its surge over 1.30 to test the cloud below and recaptured the Tenkan led by the AUD and NZD as it spat the weekly flat-topped triangle. Higher US yields has negated much of the oil price impacting direction. Watch flat Kijun and Tenkan. Use Fibs for support and resistance.
Euro – EURUSD
The Euro reversal off last month’s lowest closing rate since 2017 at the outer channel reversed at the April break retest and spat the Tenkan after ECB President Christine Lagarde said the central bank will raise by 25% next month but still well behind the Fed. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) reflecting Tenkan (orange) creates any impulse as EURUSD develops in the channel. Watch 3 waves to see development for continuation. Again, governed by EURGBP and Bund volatility
British Pound – GBPUSD
British pound lost most of its steam from its biggest weekly gain since December 2020 against the dollar to above $1.26 to close to i at 1.2320 after retesting the channel and Tenkan and being repelled. It found support ahead of MM 2/8 which also May 2021 1-2 test. Above we have channel and Tenkan confluence and flattening Kijun. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.
Euro Pound – EURGBP
EURGBP is back testing 50wma which it back tested to break back above a messy bill flag and to the cloud as the GBP failed. 50wma and clouds resistance. Kijun support with Tenkan but flat so need upturn to continue higher.
Japanese Yen – USDJPY
USDJPY corrected to the weekly Tenkan at 125.88 which held and fueled a swift return higher. From the we accelerated higher moving above the May high of 131.342 which was 20-year highs for the USDJPY. It hasn’t let up closing the week at 3/8 134.42 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.
Mexican Peso USDMXN
The Mexican Peso held its triple bottom to rally back to the Tenkan as rates rose in the US. It continues in the long sideways pattern and consolidates despite outside uncertainty from oil and high rates. The recent high near 19.5 per USD was the highest level since March of 2020 and tracked general strength in Latin American currencies which has since reversed. Use the Gann octave and the extension fibs to help measure the noise.
Turkish Lire USDTRY
The Turkish Lira slow decline has picked up speed as it broke into the next corrective channel tier falling to 17 against the dollar on Wednesday, extending a steep slide this week closer to that all-time low of 18.4 hit in December. President Recep Tayyip Erdoğan vowed once again to cut interest rates despite spiraling inflation. The Turkish president said this week that the country had ‘wasted years’ with the misguided view that prices should be controlled by using higher borrowing costs to suppress consumption. Such policies, he said, benefited only ‘those living a charmed existence and filling their pockets with [the proceeds of] high interest’, including foreign investors.”
To recap the wild 18-10 USDTRY swing last year reversed after falling in 3 waves to explode over the Tenkan, weekly cloud Kijun and 50wma below. The Murrey Math and Fib targets with last year’s Lire all-time lows in a hyper inflating collapse. So far this year the lira is the worst performer in emerging markets. Turkey’s lira has lost 22% this year, raising concerns that the country could be heading for a repeat of the FX crisis seen at the end of last year.
Bitcoin continues to perform technically to perfection. Impulse begets impulse. To understand panic, understand greed. $BTC tested the top of a rising channel after the preceding sharp downturn which was the downside breakout of an earlier bearish flag, after breaking downside a H&S top and then down it went….
Recall Bitcoin exploded higher following it’s correction impulsively upon completing 5 waves up at +2/8. Each Tenkan and Kijun tap saw an explosive kiss of death until we completed 3 waves to around 28,000. From there we have seen extreme volatility.
Looking back Bitcoin put in a high of $63,000 around Coinbase, the largest US crypto exchange successfully went public which signaled profit-taking. The recent high over $68,000 came after the launch over the Bitcoin ETF, Bitco. From that high we have 2 main alternatives a V of a 1 of a V. For bears it a completive five with impulse right to the 50wma – an incredible 26% fall in a Friday night session. That’s impulse! We watch for an ABC to develop here support is the 50wma and bottom of the weekend cloud.
The Fail of TerraUSD
May 12 – Wall Street Journal (Alexander Osipovich and Caitlin Ostroff): “The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market. This week TerraUSD became part of the frenzy too, slumping by more than a third on Monday and then tumbling as low as 23 cents on Wednesday. The collapse saddled investors with billions of dollars in losses. It ricocheted back into other cryptocurrencies…”
May 16 – Financial Times (Scott Chipolina): “Traders have yanked $7bn from Tether since the world’s biggest stablecoin last week briefly lost its peg against the US dollar, intensifying concerns about the assets that underpin the global cryptocurrency market. Tether’s market value has fallen by 9% since May 12 to $76bn as tokens have been removed from circulation to meet redemption requests, CryptoCompare data show. The decline came after Tether last Thursday traded at about 95 cents, well below the $1 level it seeks to maintain following the failure of a smaller rival. Observers inside and outside the crypto market have warned that deeper or more lasting volatility in stablecoins, which are designed to maintain a one-to-one peg with the dollar, could drag down the value of thousands of speculative crypto assets that have drawn buyers around the world.”
We have seen what you would expect from a 5 wave impulse peak and ABC correction, a violent correction and completion. Use Murrey Math levels for corrections and targets as algorithms control the herd here, support is the cloud and sharp ABC, 1-2 moves. From there prices agitated towards those ATHs as news of a Bitcoin ETF fueled the rally, sound familiar? But this time it wasn’t signaling we are in a 3 high probability but a 5.
On the Risk Radar
Geopolitical Tinderbox Radar
Economic and Geopolitical Watch
Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).
Major US Banks Deliver Mixed Results in 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.
- Morgan Stanley Advisory Revenue Nearly Doubled Offsetting Weakness in Underwriting
- PNC Bank Revenue Grew 11% Boosted by the BBVA USA Acquisition.
- Wells Fargo Revenue Falls in Consumer, Corporate and Investment Banking
- Citigroup Earnings Affected by Higher Credit and Russian Exit Costs
- Goldman Sachs Beats Earnings Expectations on Strong Currencies and Commodities Trading Results
- JPMorgan Sets Aside $900 million To Prepare for Economic Turmoil
- BlackRock Profits Rise 20% Despite Lower AUM With Lower Investor Confidence in Markets
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”
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
- Monday: Nothing of note
- Tuesday: May NFIB Small Business Optimism Index (prior 93.2) at 6:00 ET; May PPI (prior 0.4%) and Core PPI (prior 0.5%) at 8:30 ET
- Wednesday: Weekly MBA Mortgage Index (prior -6.5%) at 7:00 ET; May Retail Sales (prior 0.9%), Retail Sales ex-auto (prior 0.6%), May Import/Export Prices, and June Empire State Manufacturing (prior -11.6) at 8:30 ET; April Business Inventories (prior 2.0%) and June NAHB Housing Market Index (prior 69) at 10:00 ET; weekly crude oil inventories (prior +2.03 mln) at 10:30 ET; June FOMC Rate Decision (prior 0.75-1.00%) at 14:00 ET; and April net Long-Term TIC Flows (prior $23.10 bln) at 16:00 ET
- Thursday: Weekly Initial Claims (prior 229,000), Continuing Claims (prior 1.306 mln), May Housing Starts (prior 1.724 mln) and Building Permits (prior 1.819 mln), and June Philadelphia Fed Survey (prior 2.6) at 8:30 ET; and weekly natural gas inventories (prior +97 bcf) at 10:30 ET
- Friday: May Industrial Production (prior 1.1%) and Capacity Utilization (prior 79.0%) at 9:15 ET
FEDERAL RESERVE CHAIR JEROME POWELL
OTHER FED OFFICIALS
Global Central Bank Events
Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.
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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.