Traders Market Weekly: Valuation Matters in Earnings Season

July 10 – 16, 2022

FEAR NOT Brave Investors

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The Week That Was – What Lies Ahead?

Contents

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

• 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

Editorial

In a shortened holiday week, the market shaped itself into firstly Fed minutes and then a stronger on the surface jobs report, though there was enough for the Fed to be concerned about slowing growth with the sector mix, wage allocation coupled with layoffs. The JOLTS survey showed Job openings in the U.S. rose to 11.254 million in May. Layoffs and discharges remained around 1.4 million.

At days end the S&P 500 and Dow Jones Industrial Average closed with modest losses with Nasdaq the lone index to close up with a modest 0.1% gain. The S&P 500 posted its first four-day winning streak since late March closing up 1.9% on the week; Nasdaq closed up 4.6%, the Dow Jones Industrial Average up 0.8%. The vulnerability of all and the global instability was highlighted by Japan’s former Prime Minister Abe being assassinated during a campaign speech ahead of this weekend’s upper house elections.

The Q2 US earnings season kicks off with the money center banks. JP Morgan Chase and Morgan Stanley release on Thursday followed by Citigroup, BlackRock, Wells Fargo and BoNYM on Friday. We ended the week with Levi Strauss (LEVI 16.58 +1.0%) gaining after beating Q2 expectations a change from recent retail misses.

In addition to earnings kicking off Amazon $AMZN will hold a two-day Prime Day sales event. Jefferies estimated that Prime Day will contribute $8.1B to gross merchandise value and $4.7B to sales for Q3. Boeing could announce Q2 deliveries Thursday. $BA delivered 95 commercial airplanes in Q1 and 41 deliveries were made through the defense, space, and security programs. On Friday the Alphabet 20-for-1 stock split will become effective after the close of the market. Speculation is post-split could lead to $GOOGL being added to the Dow Jones Industrial Average.

The ISM Non-Manufacturing Index for June fell to 55.3% (consensus 54.2%) from 55.9% in May, slowing for the third straight month as businesses continued to wrestle with pricing pressures, supply chain issues, and labor supply constraints.  In Central Bank action we saw The Reserve Bank of Australia raise interest rates for the third consecutive time on Tuesday to 1.35%. The move was as expected by the RBA board. The Australian economy remains resilient, and the labor market is tighter than it has been for some time. Inflation in Australia is also high, but not as high as it is in many other countries

In other economic news this week the mortage refinance Index decreased 7.7% from the previous week and was 76% lower than the same week one year ago, as homeowners still have reduced incentive ahead of more Fed rate rises. The seasonally adjusted Purchase Index fell 4.3% from the previous week and 7.8% compared to the same week in the previous year because borrowers face an ongoing affordability challenge and a low inventory problem.  Let’s not forget the property mess in China, FT reported Chinese property developers are facing $13 bln in dollar-denominated bond payments during the second half of this year.

Twitter Games

After the market eyes were on Twitter after Elon Musk abandoned his takeover deal on the basis of not receiving answers to the questions on Bots. Twitter’s response was to say they will sue him. Things will get interesting here as Elon is alleging fraud or misrepresentation. Clearly the deal was overpriced in a NASQA market collapsed not long after the deal. This had also pressured his main asset, Tesla shares. The view here is he does the deal much lower $25-35, or he sues them for mispresenting. There is a chance he bites the bullet and pays the $1 billion break up penalty.

From a market point of view there is the view it stabilizes Tesla. However, if the accusations are true social media stocks become offered, $META, $SNAP and $GOOGL who are sent to go ex 20-1 split. The other point is it reaffirms the vulnerability of the market given the deal was unsustainable on realistic valuations. It reminds the market valuation matters.

Commodities (Most) Rebound

Lingering growth concerns left the 2s10s spread remaining inverted. The 2-yr note yield rose nine basis points to close at 3.12% and the 10-yr note yield rose nine basis points to close at 3.10%. We saw a big rebound in commodities this week. WTI crude oil futures was the most spectacular after trading to $95 handle rose to close at $105.06/bbl. Unleaded gasoline futures closed at $3.45/gal well off weekly lows and. Natural gas futures settled down 4.5% to $5.97/mmbtu but after rising from under $5.50 this week. Gold futures settled $2.60 higher to $1,742.30/oz Friday cutting some of its fourth consecutive weekly loss, down more than 3%, amid another strong week for the US dollar.

Independence – Never Take It for Granted Traders

“In aggregate, the market goes from order to disorder, and on that journey little pockets of order can form, including in commodities, bonds, stocks, currencies that circle back and reorder disorder. Then there is us the market player that reflects through order and disorder in an ever-evolving loop towards independence. It all starts with gravity and ends with equilibrium and back we go.” KnovaWave “The rules of market flux”

Key Rates and Spreads

Rates

• 10-year Treasury bonds 3.08%, up +0.19 w/w (1-yr range: 1.08-3.48)
• Credit spread 2.26%, down -0.14 w/w (1-yr range: 1.65-4.31)
• BAA corporate bond index 5.34%, up +0.05 w/w (1-yr range: 3.13-5.48)
• 30-Year conventional mortgage rate 5.84%, up +0.34% w/w (1-yr range 2.75-6.28)

Yield Curve

• 10-year minus 2-year: -0.02%, down -0.06 w/w (1-yr range -0.12 – 1.59)
• 10-year minus 3-month: +1.12%, down -0.28% w/w (1-yr range -0.99 – 2.04)
• 2-year minus Fed funds: +1.52%, up +0.33% w/w

Instability is pronounced, U.S. high-yield CDS sank 47 bps this week, reversing the previous week’s 44 bps surge. Investment-grade CDS declined six bps after jumping eight. While generally declining a couple basis points, bank CDS prices were notable for reversing only a fraction of the previous week’s surge.

Bond Funds Dumped

“The latest slump in US municipal bonds has sent investors fleeing a part of the $4 trillion market where they typically park cash to maintain short-term exposure and wait out periods of uncertainty. Muni exchange-traded funds have seen roughly $1.7 billion in outflows this month, on pace for the largest exodus since March 2020…” June 21 – Bloomberg (Fola Akinnibi):

Huge bond fund outflows continue. Investment-grade bond funds saw hefty outflows of $7.451 billion, and junk bond funds recorded negative flows of $2.625 billion (from Lipper). The pace hasn’t let up since 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

The rubber is meeting the road as the trifecta of rising interest rates, the Russian invasion of Ukraine and surging costs continues to weigh, this has been no surprise to us here and shouldn’t have been to the market and PTB. You can only play with fire for so long before you get scorched!

Inflation Matters

Wednesday – July 13

• 8:30 a.m. US consumer price index report expected to show a 1.0% month-over-month and 8.7% year-over-year rise in prices for June. Core CPI is expected to held steady from the previous month with a 0.6% gain.

Thursday – July 14

• 8:30 a.m. US producer price index report is expected to show a 0.8% month-over-month rise for the second consecutive month due in part to strong energy prices. Core PPI is forecast to increase 0.4% month-over-month.

Wednesday – July 15

• 8:30 a.m. International Trade (Import & Export Prices) for June – Prices of goods bought in the U.S. but produced abroad and the prices of goods sold abroad but produced in the U.S., respectively. Price changes are impacted by inflationary pressures and currency exchange rates.

Fed Chair Powell told an ECB Forum last month that the importance of fighting inflation is worth the risk of slowing economic activity too much since failing to restore price stability would be the bigger mistake.

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.

Volatility

The VOLX`s underlying instrument is the Mini VIX™ Future. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility. The VIX is calculated using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls (options) on the S&P 500.

When the VIX is highly reactive, VIX related products can serve as potentially effective hedging tools, when the VIX is not very reactive, traditional hedging techniques may be a better choice.

The nearest VIX futures contract expires on 7/13) the Risk Premium Adjusted Price (RPAP) is 25.35, less than a half point above the spot price at the close Friday

Monetary inflation is running wild. In 2021 Federal Reserve Credit expanded $1.391 TN or 19% to a record $8.742 TN. The Fed’s balance sheet inflated a mindboggling $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10 times since the mortgage finance Bubble collapse.

We need to grasp all the risks to be wary off and received plenty of flak from it. We always talk here about expect the unexpected and now that is front and center, gage the market’s reaction, the market is always right and that’s why we focused on the crowd psychology aspect over the past few weeks.

We are in an openly hawkish phase since late last year when the New York Fed president John Williams, who is a voting member continued with his hawkish tilt of late. He said we are seeing broader based increases in inflation. Fed Governor Bullard told US Core PCE Is “Quite High” and added that the Fed should take towards a more hawkish policy in the next couple of meetings. Then we had Fed Governor Christopher Waller say the rapid improving job market and deteriorating inflation data have pushed him towards favoring a faster pace of tapering and more rapid removal of accommodation.

“We have a market trying to interpret the Fed who is trying to find out how they can interpret their long-only portfolio at a risk parity where rates cannot rise.”

– MoneyNeverSleeps

Our weekly reminder for risk, timely given the V shape surge in commodities just a week. The downside is clear with the absence of moral hazard from repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets? How do we ween the markets off this continuous dip feed? At this point the Central Banks have kicked that answer down the road.

PART A – Stock Markets

Weekly Highlights – USA

Indices

• S&P500 rallied 1.9% (down 18.2% y-t-d)
• Dow increased 0.8% (down 13.8%).
• S&P 400 Midcaps recovered 1.1% (down 18.4%),
• Small cap Russell 2000 rallied 2.4% (down 21.2%)
• Nasdaq100 surged 4.7% (down 25.7%)

Sectors

• Utilities fell 2.7% (down 3.0%).
• Banks increased 0.4% (down 3.0%)
• Broker/Dealers jumped 3.4% (down 18.6%).
• Transports advanced 0.8% (down 18.7%).
• Semiconductors rallied 6.5% (down 33.7%).
• Biotechs rose 3.4% (down 11.1%).
• With bullion down $65, the HUI gold index dropped 4.5% (down 16.3%).

Biggest SPX Stock Winners and Losers Last Week

Cboe Daily Market Statistics

US Markets YTD

• Dow Jones Industrial Average: -14.4% YTD
• S&P 500: -19.7% YTD
• S&P 400: -19.3% YTD
• Russell 2000: -23.1% YTD
• Nasdaq Composite: -28.9% YTD

Global Stock Market Highlights

Highlights – Europe Stocks

• Stoxx 600 +2.4%
• U.K.’s FTSE +0.48% (down 2.9% y-t-d).
• France’s CAC40 +1.72% (down 15.7%).
• German DAX equities Index +1.58% (down 18.1%).
• Spain’s IBEX 35 equities index dipped -0.93% (down 7.0%).
• Italy’s FTSE MIB index +1.93% (down 20.4%). 

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 +2.2% (down 7.9% y-t-d)
• Hong Kong’s Hang Seng -0.6%
• China’s Shanghai Composite -0.9% (down 7.8%) 
• India’s Sensex +3.0% (down 6.5%)
• South Korea’s Kospi +2.0% (down 21.1%)

 Highlights – Australian Stocks

• The S&P/ASX 200 index rose +0.6% Friday to +2.3% for the week
• Major iron ore miners buoyed by news Chinese government considering new infrastructure stimulus via allowing local governments to sell 1.5 trillion yuan of special bonds this year. Copper and iron ore prices higher as a result

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

 Highlights – Emerging Markets Stocks 

EM equities wobbled.

• Brazil’s Bovespa index gained 1.3% (down 4.3%),
• Mexico’s Bolsa index slipped 0.5% (down 10.7%).
• Turkey’s Borsa Istanbul National 100 index dipped 0.4% (up 31.0%).
• Russia’s MICEX equities index increased 0.7% (down 41.3%).

Technical Analysis

S&P 500

Daily: SPX500 performed a perfect competitive wave last week at record fear and bear extremes. From there we rallied through the daily tanken to close at the Kijun by week’s end had completed a perfect measured 3 wave move on the 240 Murrey Math highlighted in the podcast. We bounced through the downward channel pulled by the twist ‘helium contusion’ on the completive.

Recall the fuel from the top of the channel after completing 3 waves off ATH, accelerated after broke the Tenkan through to the 4600 OI where it reversed with impulse back to Tenkan Bulls this a (ii) of a 5. Bears this is 1-2 of (i) completive V of degree. We watch if this low was a (iii), (a) or C. We have to respect the number of alternatives of degree of 5. With such trends keep it simple support is Tenkan and Kijun and watch for ABC. From no fear to panic is the driving element.

Recall SPX completed 5 waves up where it reversed with impulse with energy fueled from the power impulse down from +1/8 ATH spit of a spit fail. On the way down (just like up) it accelerated after it broke the Tenkan through the rejected Kijun and then through the median after tapping 8/8.

The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the Tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in

Weekly:

The S&P failed to continue through last week’s lows and re3versed to fill the gap and closed right above it. The flat weekly Kijun acted as a magnet as the Spoos blasted back up through the wave iii or C lows. Each new high evolved after testing Tenkan key support on the way and we are now getting a retest as resistance. We reiterate this needs to be recovered for a resumption of the uptrend meanwhile the bear market plays out. Watch Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.

Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan.  To repeat  “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.”  Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances

A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets

Dow Jones

The Dow tested its weekly up channel after bouncing back to test the Tenkan and Kijun we watch for the reaction here. Resistance is the channel, support the cloud and previous breakups.

NASDAQ 100

Since the Nasdaq spat the weekly cloud from MM 6/8 and broke Tenkan confluence with the cloud top and Kijun above it has sold off. Immediate resistance is this confluence. It continues to battle between the 38/50 Fibs.

Recall ATH was after it broke and held the weekly Tenkan to see a spit of a spit fail which is completive of 5 of some degree with Chikou rebalancing. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.

Russell 2000

The small cap Russell RUT had been developing a large flag which it did a false break to fuel the selling from there we replicated to the down (Adam’s theory).

Russell 2000 low-price tested the 38.2% retracement of the move up from the March 2020 low before bouncing higher.

Unlike SPX we could not get through Tenkan and Kijun which rejected the bounce highlighting its weakness. However, like the NASDAQ we broke above the tenkan. This is the index showing more of the fast money crowd and is trading like it. Closed right in the middle of the cloud. Needs to get traction in here for bulls. 8/8 support collapsed and is now major resistance.

Semiconductors SMH

Semiconductors SMH clean with reaction from above reverted with the retest & break of the triple top patterning in a pennant. Pull from Chip Shortage players $ON $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX $XLNX

NVidia $NVDA

NVidia got through another earnings week, which for now signaled the low at 5/8 and the breakup retest from May 2021. NVidia is a clear leader of #SOX #SMH look for cues there and ABC failures for changes. Above is the Key Break (mauve) and Tenkan to a flat cloud. Support the recent low.

Apple $AAPL

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.

ARKK ETF

The ARK Innovation ETF (ARKK) finally found some support at -1/8 and the 423.6% extension! The fund is filled with growth stocks and was the top-performing U.S. equity fund tracked by Morningstar in 2020, it has not been a pretty slide.

The ARKK ETF trading clinically, tested triangle breakdown and failed off 50 WMA. Some work at support at 61.8% of whole move and then wrecked again. Clear crowd behavior, we saw ATH in NASDAQ & SPX, yet this couldn’t raise a bid – very telling negative divergence. $ARKK rebalanced Chikou at week’s end

US Stocks Watch

Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals. 

Earnings Highlights This Week:

Monday includes

• Greenbrier (GBX), PepsiCo, PriceSmart (PSMT).

Tuesday includes

• AngioDynamics (ANGO)

Wednesday includes

• Delta Air Lines (DAL) Fastenal (FAST)

Thursday includes

• Taiwan Semiconductor Manufacturing (TSM), JPMorgan Chase (JPM), Morgan Stanley (MS), and Conagra (CAG). American Outdoor Brands (AOUT)

Friday includes

• Premarket Earnings – Bank of New York Mellon (BK), Citigroup (C), Wells Fargo (WFC), PNC Financial (PNC), U.S. Bancorp (NYSE:USB), and State Street (STT).
• Credit card metrics reports from Capital One (COF), American Express (AXP), Bank of America (BAC), and JPMorgan (JPM) for charge-off and delinquency trends.

“U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year… There have been 556 follow-on offerings, or stock sales by companies or existing shareholders, among U.S. companies this year, the most since 1996, according to Dealogic… They have raised a total of $133 billion. Behind the boom in share issuance? An ascendant stock market.”  August 25 – Wall Street Journal (Gunjan Banerji):

IPO Wrap

US IPO Week Ahead:

Onfolio (NASDAQ:ONFO) is expected to start trading in the U.S. on July 29. In Asia, Chinese podcasting startup Ximalaya is considering launching its planned Hong Kong IPO as soon as next week.

Quiet period expirations for Zhong Yang Financial Group (TOP), with the first analyst ratings expected to follow the expiration of the analyst quiet period.

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 suffered outflows of $5.789 billion, while junk bond funds reported inflows of $889 million (from Lipper).

U.S. Treasuries retreated for the third consecutive day on Friday, ending at their lowest levels in over a week. This week’s action saw another inversion of the 2s10s spread, which ended the week at -2 bps.

Yield Watch

• 2-yr: +9 bps to 3.12% (+29 bps for the week)
• 3-yr: +8 bps to 3.15% (+30 bps for the week)
• 5-yr: +9 bps to 3.14% (+26 bps for the week)
• 10-yr: +9 bps to 3.10% (+21 bps for the week)
• 30-yr: +8 bps to 3.27% (+16 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 dropped 40 bps to 5.30% (up 240bps y-o-y).
• Fifteen-year rates sank 38 bps to 4.45% (up 225bps).
• Five-year hybrid ARM rates fell 31 bps to 4.19% (up 167bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down nine bps to 5.69% (up 262bps).

Highlights – Federal Reserve

• Federal Reserve Credit last week dropped $34.3bn to $8.855 TN.
• Fed Credit is down $45.5bn from the June 22nd peak.
• Over the past 147 weeks, Fed Credit expanded $5.129 TN, or 138%. Fed Credit inflated $6.044 Trillion, or 215%, over the past 504 weeks.
• Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $14.1bn to $3.377 TN. “Custody holdings” were down $152bn, or 4.3%, y-o-y.
• Total money market fund assets jumped $26.5bn to $4.558 TN. Total money funds were up $47bn, or 1.0%, y-o-y.
• Total Commercial Paper declined $4.9bn to $1.165 TN. CP was up $31bn, or 2.7%, over the past year.

Highlights – European Bonds

• Greek 10-year yields jumped 18 bps to 3.67% (up 236bps y-t-d).
• Ten-year Portuguese yields rose 15 bps to 2.42% (up 195bps).
• Italian 10-year yields surged 20 bps to 3.29% (up 212bps).
• Spain’s 10-year yields gained 14 bps to 2.42% (up 185bps).
• German bund yields gained 11 bps to 1.35% (up 152bps).
• French yields increased eight bps to 1.88% (up 168bps).
• The French to German 10-year bond spread narrowed three to 53 bps.
• U.K. 10-year gilt yields rose 15 bps to 2.23% (up 126bps).

Highlights – Asian Bonds

• Japanese 10-year “JGB” yields increased one basis point to 0.24% (up 17bps y-t-d).

Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test

The Federal Reserve released its annual bank stress test after the market close Thursday. All 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks. With the dismal state of the economy through soaring inflation and record low consumer sentiment these tests were keenly watched. Banks suffered slightly more hypothetical losses in the 2022 severe test than last year, posting $612 billion in projected losses as capital ratios fell to 9.7%. Read More Here.

Part C: Commodities

Highlights

• Bloomberg Commodities Index declined 1.0% (up 16.9% y-t-d).
• Spot Gold dropped 3.6% to $1,742 (down 4.7%).
• Silver fell 2.7% to $19.32 (down 17.1%).
• WTI crude dropped $3.62 to $104.79 (up 41%).
• Gasoline sank 6.0% (up 55%),
• Natural Gas rallied 5.9% to $6.03 (up 62%).
• Copper fell 2.7% (down 21%).
• Wheat rallied 6.0% (up 16%),
• Corn recovered 2.7% (up 5%).
• Bitcoin rallied $2,300, or 11.8%, this week to $21,900 (down 53%).

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 fell on Friday 23 points, or about 1%, to 2,331 pressured by a drop in rates across vessel segments . The overall index, which factors in rates for capesize, panamax and supramax vessels was down 9.6% for the week.
• The capesize index lost 23 points, or 1%, to 2,396. The index shed nearly 19.8% this week, its worst drop since May 27.
• Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, fell $186 to $19,875.
• The panamax index fell 37 points, or 1.4%, to 2,695 points, notching a weekly decline of 5.8%. Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000-70,000 tonnes, decreased by $338 to $24,254.
• The supramax index for smaller vessels shed 17 points to 2,449.

Source: Baltic Sea Freight Index Fell Another 9.6% This Week as the Capesize index plunged 19.8% – TRADERS COMMUNITY

Aluminum (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle.

We have seen $AA retest the previous high after the +3 Spit as the Chikou rebalanced. We have the Gap below at +1/8 confluence. We move to 240 for this pennant resolution.

Copper

Copper rebounded sharply off the 50wma but again has failed on the cloud spit and channel break. The flattening Weekly Tenkan and Kijun acted as a magnet to close right there. #HG power spits have quickly rebalanced back into the wide channel. Copper had been a leader in the risk on movement for commodities.

Lumber

Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

Grains

USDA June 30 Acreage Report

USDA released one of the most influential reports for commodities Thursday morning, the June 30 Acreage report. The most significant point was corn again the largest crop produced in America in 2022. USDA raised 2022 acreage expectations for corn by 431,000 acres from the March 31. Markets pared some of their earlier morning’s losses on the news. The announcement reversed USDA’s March 31 Prospective Plantings report which had projected higher soybean acreage relative to corn for only the third time in U.S. history.

USDA June 30 Acreage Report Shows Corn the Largest Crop Produced in America in 2022 – TRADERS COMMUNITY

Wheat

KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.

Wheat actually performed the strongest of the grain complex, the only one to not threaten its weekly cloud. Wheat spat the 61.8% and closed right at the 50wma which it broke the week prior. The contract had continued its sharp impulsive collapse fueled from when it retested and broke the Tenkan (orange). This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall. From here Wheat support at that $800 confluence with the breakup level at 61.8% and the cloud finally showed some resolve. Resistance at Kijun and Tenkan.

Full Report: Wheat Futures Prices Recovered 6.0% Last Week as Exports Rose 19% From Last Week’s Volumes

Corn

Corn finally bounced from its freefall all the way to the cloud twist mean in the cloud. The Corn rally had topped out at the highest since 2012 in Chicago at +1/8 and has corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again, and empowered selling smashed through previous high, Kijun and 7/8 confluence. The 50wma gave no support with the cloud and 6/8 slowing the selling down. All these levels are now resistance.

Full Report: Corn Futures Recovered 2.7% Last Week as Drought and Dry Weather Worries Hover

Soybeans

Soybeans finally found some recovery this week hitting our cited support at the Cloud just over the 6/8 and the January breakup. The weekly cloud and Murray mingle around the $14.6/bushel benchmark are massive. Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Full Report: Soybean Prices Recover with Strong Export Volumes and Waning Recession Fears

Energy

US Crude Oil (WTI)

Daily:

Another big week for oil, but this time to the downside. On Friday WTI fell more than $7.00 past its 50-day moving average (109.36) to its lowest level in nearly four weeks. The price has been corrective after hitting our initial 8/8 target retest completing either a iii of (5) or (v) of 5 as marked. From there we saw a grinding ABC or 1 of 3 higher and MM recalculation higher to almost +2/8 and 161.8% Fib retest. We are in a completive mode with this impulse, it’s a question of degree on the topside, use the Murrey math 240/60 grid.

On the way up potent WTI price action indicative of 3rd wave energy highlighted by spits of the Tenkan to new highs. Recall prior to this move the completion in 5 waves (iii or i) saw heavy selling with eventual confluence kiss of death with 50dma at the top of the cloud. From there down in 3 waves, completing a C or IV? Support wasn’t found until 0-8. From there we have accelerated higher through the cloud twist. Support Kijun and Tenkan. Closed above 50dma with grid above

The key is crowd behavior to help tell the story which in energy is often around geopolitics. A great example of why we watch ABC corrections and from here we get the energy from the break being balanced. This move that was powered by 50 dma Tenkan spit of a spit – hence the fractal energies reverberations. Support is previous lows, Murrey Math levels and Fib cluster. Support is the 50dma, kijun, tenkan and prev high confluence.

Weekly:

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)

Daily:

US Natural Gas has continued higher after it completed 3 waves correcting the daily 8/8 spit correction to -2/8. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. We closed over the 2 most recent highs and +1/8 right. Support is Tenkan, Kijun below.

The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this week’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance

Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.

Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.

Weekly

Notably no sharp reversal, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. This move was fueled by a fractal of the classic double top playing out after a spit of the weekly Kijun was sent back off Tenkan only to reverse all the way to spit the 50wma for the energy needed. Resistance is Previous highs and Murrey Grid.

The Natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence. A question of continuation with the 50wma as resistance and cloud as support.

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

Precious Metals

• Spot Gold dropped 3.6% to $1,742 (down 4.7%).
• Silver fell 2.7% to $19.32 (down 17.1%).

Gold

Gold futures back testing the median after another rejection at the Tenkan (orange). Needs gets impulse off this ABC off this cloud or double top gains more weight and it follows silver weakness The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at it’s uptrend line since the August 2021 bottom and Kijun. It garnered strength after rebalancing after manic rise to +5/8 weekly rebalance of Chikou in 5 waves. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

Silver

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.”

Highlights

For the week the U.S. Dollar Index slipped 0.1% to 106.99 Friday, but still rose 1.8% for the week. (Up 9.9% y-t-d). 

Majors:

• For the week on the upside, the Australian dollar 0.7%
• On the downside, the euro 2.2%, the Swiss franc 1.7%, the Japanese yen 0.7%, the British pound 0.5%, the Canadian dollar 0.4%

Minors

• For the week on the upside, the Brazilian real increased 1.5%, the New Zealand dollar 0.1%, Chinese (onshore) renminbi increased 0.1% versus the dollar (down 5.06% y-t-d).
• On the downside, the South African rand declined 2.7%, the Swedish krona 1.7%, the Mexican peso 0.9%, the Norwegian krone 0.8%, the South Korean won 0.2%, and the Singapore dollar 0.2%.

 Australian Dollar – AUDUSD

The Aussie dollar reversed with cloud, Kijun and channel confluence over $0.7250, its highest levels in three weeks from there it reversed lower to 4/8 just over .68. It closed under the Tenkan around the channel midpoint. The currency got support from Australian bond prices seeing its largest weekly gain in a decade.  It was the only major currency up against the USD this week.

Since completing a 5 at the psychological 80 level it had fallen & continued to correct under the weekly cloud in emotive fashion. China lockdown fears overhang and AUDUSD forwards support with bonds and RBA raising. Support is the Murrey Math Levels. Resistancethe Cloud, Tenkan and Kijun like many commodities.

New Zealand Dollar – NZDUSD

The Kiwi mirrored the AUD in its wave (iii) spit to lower channel wing recover to Tenkan where it met the KOD. Momentum failed and reversed from there. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel. We closed back under the old 61.8% break.

Canadian Dollar – USDCAD

The Loonie has continued to benefit from the USD’s broad correction as an improving fundamental background for the CAD of strong growth, hawkish central bank, favorable terms of trade. Since the USDCAD reversed its surge over 1.30 to test the cloud below and recaptured the Tenkan led by the AUD and NZD as it spat the weekly flat-topped triangle. Higher US yields has negated much of the oil price impacting direction. Watch flat Kijun and Tenkan. Use Fibs for support and resistance.

Euro – EURUSD

The Euro reversal off last month’s correction off the Tenkan has been fast and furious to the lowest closing rate since 2017 spitting the outer channel. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) reflecting Tenkan (orange) creates any impulse as EURUSD develops in the channel. Watch 3 waves to see development for continuation. Again, governed by EURGBP and Bund volatility

British Pound – GBPUSD

British pound has lost all of the steam from its biggest weekly gain since December 2020 against the dollar to above $1.26 to be smashed to the bottom channel and 1/8 at 1.1928 after retesting the channel and Tenkan. GBP recouped some of its losses but is still undermined by political risk with PM Johnson resigning and recession fears. Sterling bounced from lows of last week to close under the Tenkan at 1.2o35. Above we have channel and Tenkan confluence and flattening Kijun. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.

Euro Pound – EURGBP

EURGBP back tested 50wma after breaking it last week. 50wma and cloud with Kijun support with Tenkan resistance. The EUR/GBP gave up control and weekly rally reversed three consecutive weeks.

Japanese Yen – USDJPY

After USDJPY corrected to the weekly Tenkan at 125.88 which held and fueled a swift return higher and has rallied dramatically. Dollar yen accelerated higher moving above the May high of 131.342 which was 20-year highs for the USDJPY. It hasn’t let up with Murray Math Weekly levels recalculating higher. USDJPY closed the week just over 7/8 135.22 after spitting 136.

On the way up the price accelerated after the close above the Tenkan over 114 hence the pull for it to correct to the Tenkan which it did to ignite this rally a month ago. The Murrey Math level should remain massive support for dollar-yen. Any change will come from the weekly Kijun as it breaks through the old channel.

Use your USDJPY Murrey grid for now. EURJPY AUDJPY will determine risk on/off. The Tenkan is the natural balance of support ahead.

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

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

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Economic and Geopolitical Watch

Banks

Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).

Major US Banks Deliver Mixed Results in Q1, 2021

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

• 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. 

Next Week’s Risk Dashboard via Scotiabank

• US CPI is still running hot
• BoC to up-size its hikes
• The Q2 US earnings season
• RBNZ, BoK, BCCh to continue to lead
• Australian jobs
• China’s economy
• Global macro readings

US Events Focus

US Data

• Monday: $43 bln 3-yr Treasury note auction results at 13:00 ET
• Tuesday: $33 bln 10-yr Treasury note reopening results at 13:00 ET
• Wednesday: Weekly MBA Mortgage Index (prior -5.4%) at 7:00 ET; June CPI (Briefing.com consensus 1.1%; prior 1.0%) and Core CPI (Briefing.com consensus 0.6%; prior 0.6%) at 8:30 ET; weekly crude oil inventories (prior +8.24 mln) at 10:30 ET; $19 bln 30-yr Treasury bond auction results at 13:00 ET; and June Treasury Budget (prior -$66.20 bln) at 14:00 ET
• Thursday: Weekly Initial Claims (Briefing.com consensus 239,000; prior 235,000), Continuing Claims (prior 1.375 mln), June PPI (Briefing.com consensus 0.9%; prior 0.8%), and Core PPI (Briefing.com consensus 0.5%; prior 0.5%) at 8:30 ET; and weekly natural gas inventories (prior +60 bcf) at 10:30 ET
• Friday: June Retail Sales (Briefing.com consensus 0.8%; prior -0.3%), Retail Sales ex-auto (Briefing.com consensus 0.6%; prior 0.5%), June Import/Export Prices, and July Empire State Manufacturing survey (Briefing.com consensus -0.9; prior -1.2) at 8:30 ET; June Industrial Production (Briefing.com consensus 0.2%; prior 0.2%) and Capacity Utilization (Briefing.com consensus 80.0%; prior 79.0%) at 9:15 ET; May Business Inventories (Briefing.com consensus 1.2%; prior 1.2%) and preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 49.4; prior 50.0) at 10:00 ET

Federal Reserve

Minutes to the FOMC meeting on June 14^th–15^th land on Wednesday at the usual 2pmET time. A recap of that meeting is available here. Recall that this meeting’s decisions were set up a couple of days in advance when Fed officials planted guidance with key media about a pivot toward a 75bps rate hike in communications blackout following the prior Friday’s CPI report.

Discussions around recession risk may be enhanced. There may be a greater discussion around the nearer-term size and pace of rate hikes, but the revised dot plot indicated a year-end target of 3 ½% for the upper limit of the fed funds target range from 1.75% at present.

FEDERAL RESERVE CHAIR JEROME POWELL

OTHER FED OFFICIALS

Global Central Bank Events

The central bank landscape will be marked by three decisions by regional central banks

The Reserve Bank of Australia is widely expected to deliver another 50bps cash rate target hike on Tuesday. Such a move is largely priced and expected by most economists.

Most expect Bank Negara Malaysia to deliver its second quarter point rate hike to 2% on Wednesday. Inflation climbed to 2.8% y/y in May and the ringgit has suddenly depreciated by about 5% to the USD since the Federal Reserve accelerated its pivot from April onward. Currency weakness risks instability and imported inflation.

Peru’s central bank is expected to hike by another 25bps on Thursday and to perhaps trigger a pause thereafter. CPI inflation for June arrives after this publication is being distributed but may further inform the policy stance in the wake of what has already been 525bps of rate hikes starting last August

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

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