Olivia

COT data is very important for gold as it’s tracked closely by a lot investors and speculators, especially for a longer-term approach. Looking at the Non-Commercials or Large Speculators, we can see that those are still heavily short, but they are approaching similar readings compared to 2013, 2015 and 2018. Notice that all of those extreme levels lead to a reversal, a rise in price, which can be very interesting now as well, especially when adding an Elliott wave count that shows a five wave drop from the high, now in late stages. In fact, there can be an ending diagonal with nice support at 1600/1610. GOLD COT Data At the same time, we have to respect the US yields of course, which are still on the rise and that’s why we see gold coming down as USD trades higher in risk-off environment. So for gold to recover we also have to ask ourselves, what can trigger a turning point? Well, it can be the FED, if they will be forced to slow down the hawkish approach next year, possibly if jobs data gets worse, or if they will be successful fighting the inflation. From an Elliott wave perspective, we… Read More »Gold to rally in 2023? Watch the Elliott Wave pattern, COT data and US yields

European markets lead the push higher, with the backlash for Liz Truss serving to warn off any potential governments seeking to employ a pro-growth policy. Meanwhile, Goldman Sachs closes out a period where US banks have highlighted ongoing economic risks despite improved margins. Stock gains highlight warning for those considering pro-groth strategy “European markets have continued the upbeat tone that has permeated through financial markets this week, with the DAX a particular outperformer after gaining 2%. The FTSE 100 has unsurprisingly lagged its European and US counterparts, highlighting how a resurgent pound will typically mute any recovery as internationally-focused stocks see their earnings devalued. While the UK is filled with concern over rising costs thanks to Jeremy Hunts less generous stance as Chancellor, the prospect of a tighter economic environment brings expectations that inflationary forces can be trimmed earlier than would be the case under Kwarteng’s pro-growth budget. Markets are clearly more optimistic after the UK’s missteps provided a stark warning that an expansionary government stance would simply prolongue the crisis if pitched against a central bank seeking to drive down inflation.” Goldmans beat estimates but future remains clouded “Goldman Sachs revealed better-than-expected earnings for the third quarter, with a… Read More »Stocks surge as UK budget calamity provides global warning

Outlook: The calendar includes industrial production and the Empire State manufacturing index (forecast at -5 from -1.5). Later in the week we get permits and starts, existing home sales, the Treasury capital flow report, Philly Fed, jobless claims, and more, with inflation numbers and the ZEW out of Europe. Information overload, as usual. It’s hard to ignore Friday’s Atlanta Fed GDPNow update–a tiny drop to 2.8% for Q3 from 2.9% (and based on a tiny drop in real personal consumption expenditures growth. We get another one on Wednesday. Notice how choppy the chart is–way up, then way down, then way up again. Also, the current reading above and outside the blue-shadow most-likely range, so presumably we should expect a drop any time now. This brings up the question of whether interest rates can or should be based on or at least correlated with economic growth. We’re pretty sure rates should not be zero or negative (ever), but what is the relationship? Conventional economics indicates a rise in rates is inversely correlated to growth and “should” suppress it. But just as low and negative real rates do not necessarily drive fresh growth (only asset bubbles), historical data over long periods of… Read More »How else to figure out what the market will do next?

Europe European markets look set to end a turbulent week very much on the up, although we are slipping off the highs of the day, and while the DAX looks set to finish higher for the second week in a row, the FTSE100 has had a much more difficult week. The task for the FTSE100 has been much harder, having hit a 20-month low yesterday, the UK index did look as if it might be able to reverse most of this week’s losses, however that prospect disappeared after the confirmation of the latest UK government U-turn, and the latest 1-year inflation expectations survey for the University of Michigan surged to 5.1% in October, serving to also pull US markets sharply lower. This week’s volatility in UK bond markets has had a significant effect on the FTSE100 with wild swings in house builders, consumer staples and banks. These moves have been driven by the sharp rise and fall in gilt yields, with the sharp moves lower in yields over the last 24 hours helping to pull these sectors off their lows, although today’s price action has been more subdued. Weighing on the FTSE100 this afternoon has been weakness in energy and… Read More »Sterling slides back after Truss U-turns, and Kwarteng departs

A busy end to the week, as UK Prime Minister Liz Truss sacked her Chancellor Kwasi Kwarteng and announced another U-turn in her government's tax cut plan. Find out exactly what happened and how markets reacted to the latest news.  We also tie in the latest developments in the UK bond market after Bank of England Governor Andrew Bailey told pension funds “You have three days to get out”. A brave move or asking for trouble? Finally, Thursday marked one of the largest intraday reversals in the US stock market on record. The initial move lower came after US Core CPI printed at a new 40-year high, but why did we rebound so quickly? Piers explains why the devil is always in detail!

Markets turn lower as we head towards the weekend, with Liz Truss budget reversal seeing economic uncertainty traded for political instability. UK political turmoil provides a fourth chancellor of 2022 “Kwasi Kwarteng has been ousted from No 11 just three-weeks on from the fateful mini-budget that was ultimately responsible for his demise. Liz Truss remains in charge for now, but there are rumours that her decision to reverse the corporation tax cut will do little to help her stay in the post much longer than Kwarteng. For traders, today has provided yet another bout of unpredictable volatility, with the risk-on momentum driven by falling yields reversing as political turmoil takes hold once again. Unfortunately for Truss, her swift ability to spook markets with a swathe of unfunded spending plans is now being followed by yet another rise in yields as markets wonder whether we could soon see another push to replace her.” Tale of two halves as morning rally starts to turn “Market volatility has continued apace today, with yesterday’s post-CPI rebound proving fleeting if this afternoon’s turnaround is anything to go by. Traders are keeping a close eye on yields, with the recent pullback providing the basis for a… Read More »Market volatiltiy continues as Kwarteng gets the push

Beware of narratives aimed at explaining market reactions, but it's crucial to have a go at the immediate market reaction and reverse course to the latest CPI report showing fresh 40-year high in US inflation. The sharp selloff in indices, metals and bonds lasted no more than 20 minutes, followed by a stabilization that took around 15 minutes before a powerful rally ensued into US lunch time. CPI was indeed hot, but core goods prices were unchanged. What about the action in FX and metals? Any bear market rallies there? Soaring from the abyss, but Friday always a test Before we start with FX and metals, it's crucial remind of the implications of bear-market rallies. We saw last spring several instance when market closed up above 2% to return from an intraday loss of 1-2%. Today's bounce in the S&P500 bears more significance as the index is set to close up more than 1% after having fallen by more than 2.5% earlier in the futures session. Most impressively, the rally in the S&P500 emerged to rally of the abyss of 3490 level (50% retracement of the rise from the 2020 lows to this year's highs). It also managed to close… Read More »Narrating or ignoring reversals

Thursday's performance in crucial US equity indices appeared to be the long-awaited reversal pattern: a long decline, final capitulation on bad news, and strong reversal for no apparent reason. The Nasdaq100 index is up more than 6.5% from its intraday bottom to its highs in European trading, drawing a long tail at the bottom of the daily candle yesterday. Additional bullish signals are also the accumulated oversold conditions from two months of relatively flat declines, which created the conditions for massive coverage of short positions, which we probably saw yesterday. It's hard to argue with the thesis that too much negativity is embedded in prices. The sell-off on downbeat news, triggered by the rapid work of trading robots, which took away about 4% in less than 2 minutes, activated buyers just over an hour later, which more than compensated for the initial decline. This amplitude of change has been extremely rare in history. But we are also unlikely to find a combination of this kind of reversal without a meaningful reason. Among the most frequent explanations is that the most pessimistic of all possible scenarios was built into prices: a 75-point rate hike at the next two meetings. After this,… Read More »Has Nasdaq U-turned?

US Dollar Index The dollar index edged higher in European trading on Friday, regaining traction after Thursday’s 0.7% drop. Unexpected drop was sparked by revived risk appetite, despite the latest report showed US inflation rose above expectations in September that adds to expectations for another aggressive action from Fed in the next policy meeting. Markets widely expect another 0.75% hike, which will be the fourth in a row, with conditions of persisting red-hot inflation, keeping in play the bets for possible 1% rate hike, although the expectations for such action are so far only at 10%. From the fundamental side, the overall situation remains very supportive for the dollar, as increased safe-haven flows on global political and economic uncertainty continue to inflate the currency. In addition, revised view for the US monetary policy signals that the Fed is likely to increase the size and pace of tightening and that interest rate would top at 5% by March 2023, overshooting the latest forecasts. The cocktail of positive factors leaves a little space for a deeper correction, although some price adjustments can not be ruled out. The picture on daily chart is mixed as 14-d momentum is in negative territory and heading… Read More »US Dollar Index outlook: Dollar takes a breather but remains robust as Fed stays on aggressive path

Summary United States: Inflation Is the Name of the Game Thursday's highly anticipated Consumer Price Index report surprised to the upside. Headline CPI rose 0.4% in September, and core CPI increased 0.6%. Even with some easing on a year-ago basis, the details of the report suggest inflation still has plenty of momentum and remains broad-based. Next week: Industrial Production (Tue.), Existing Home Sales (Thu.), Leading Index (Thu.) International: Increasing Signs of an Impending U.K. Slowdown This week's U.K. data offered increasing evidence of a slowing economy. August GDP unexpectedly fell 0.3% month-over-month and services activity dipped 0.1%, while industrial output dropped 1.8%. With GDP likely to also fall further in September, the U.K. economy is on course to contract for Q3 as a whole. The GDP data was not the only sign of softness, as labor market figures showed a decline in employment for the June-August period. Next week: China GDP (Tue.), U.K. CPI (Wed.), Canada CPI (Wed.) Interest Rate Watch: CPI Keeps Pressure on FOMC to Be Aggressive If there were any question that the FOMC would not raise its target range for the fed funds rate by 75 bps at its next meeting on Nov. 2, those doubts… Read More »Weekly economic and financial commentary