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Markets Less dovish comments from Fed officials overnight snapped yields higher, with the US 10yrs rallying back to 2.75%. At the same time, more sabre rattling from China sapped some confidence from equity markets with a sea of red this morning across major global indices. As we wrote on yesterday's Asia close note, prepare for The Fed speaker pivot push-back offensive to begin. With so few people believing in the 3.25% terminal rate, who buys this duration rally? Meanwhile, the China tail risk re-emerges, Ferrari's order book confirms the burgeoning income disparities, Uber re-ignites reopening, and BP can prepare for a populist backlash after a massive beat and dividend raise. US equities whipsawed between gains and losses before ultimately finishing lower on Tuesday, as geopolitical tensions remained at the forefront. Headlines surrounding US House Speaker Nancy Pelosi's arrival in Taiwan were greeted by China announcing missile tests, keeping investors on edge, despite Pelosi maintaining that her arrival did not alter longstanding US policy in the region. China's military drill is about 12 nautical miles from Taipei and 9 nautical miles from Keelung, which is very dangerous for military escalation between China and Taiwan as UN law defines territorial sea as within… Read More »Pelosi jitters and less dovish comments from Fed officials veer markets risk off

Outlook: A little risk-off never hurt anyone and makes a regular appearance on a Tuesday. Now that the US scored some points on the geopolitical stage, it’s only respectful to suspend a slow-motion sell-off for a while. Equities down, gold up, all is right with the world or at least it seems to make some kind of sense. Unless you are bound up in a yen trade, which rolls merrily on without rhyme nor reason. We can’t wait for a break in the 10-year differential to see what happens. It may take a while. See the chart from Bloomberg depicting the BoA forecast for the 10-year–a slide to 2%. Good grief! With Fed funds expected at 3-3.5%, how can this make sense? Either the market is dead-wrong about the Fed’s resolve or wrong about how fast recession shows up. The phrase “recession deniers” has popped up, as though economic measurement is a political theme. The Economist magazine, by the way, favors the no-recession verdict of two negative quarters. Now check out the dollar/yen against the 10-year differential. The relationship is fairly clear and implies that if the dollar/yen is leading this time, the sell-off against the yen is a carry-trade… Read More »The phrase “recession deniers” has popped up, as though economic measurement is a political theme

EUR/USD – 1.0268 Although euro's erratic rise from last week's low at 1.0097 (Wed) to a 1-week high of 1.0275 in New York yesterday suggests correction from 1.0278 has ended, subsequent retreat may yield further choppy swings and below 1.0226 (New York low) would head towards 1.0206, break, 1.0165/70. On the upside, a daily close above 1.0278 is needed to extend rise from 0.9953 (July) to 1.0320/25 later. Data to be released on Tuesday: Australia building permits, RBA interest rate decision, New Zealand GDT price. U.K. Nationwide house price, Swiss consumer confidence, manufacturing PMI. U.S. redbook, JOLTS job openings, Canada S&P manufacturing PMI.  

The RBA will likely increase the cash rate by 50 basis points. Australian inflation continues to rise in the second quarter of the year. AUD/USD is technically bullish and near a critical Fibonacci resistance level. The Reserve Bank of Australia will announce its monetary policy decision on Tuesday, August 2. Market participants anticipate another 50 bps cash rate hike. The central bank has accelerated the pace of tightening in June and has already hiked 125 bps this year, bringing the key rate to the current 1.35%. Australian policymakers noted in their July statement that the cash rate’s current level is “well below” what they consider a neutral one, which should be “at least” 2.5%. Nevertheless – and along with many other central banks – the RBA is juggling to contain inflation without restricting economic growth. The annual inflation rate rose by 6.1% in the second quarter of the year from 5.1% in Q1. It was slightly below-expected but still on the rise. It seems unlikely that the central bank will hike by 75 bps, but there are some chances of a 25 bps movement. Policymakers could turn cautious considering the impact higher rates may have on household spending, slowing further… Read More »Reserve Bank of Australia Preview: How aggressive can it be?

Outlook: The week has PMI’s already out and the US to come (with services on Wednesday). The Institute for Supply Management mfg index is expected to fall to 52.1 in July from 53, with all eyes on prices paid. We have two central bank meetings, Australia and UK, on Thursday. Later in the week it’s a ton of industrial output data, including German orders. As usual, though, attention is going to center on US nonfarm payrolls on Friday, with everyone ignoring JOLTS tomorrow. About the yen–we switched to long yen against the dollar, euro and AUD without any real confidence it will last. Probably the question about to rise to the surface is intervention should this turn into a runaway train. We doubt anyone can name the area where the BoJ runs out of patience but some obvious numbers come to mind, like the previous dollar low at 126.36 from May 24. We show the weekly chart to highlight how big a deal this really is. We are inclined to think the previous low is not meaningful and the line in the sand, when it comes, will be far lower, like 115. The key idea to justify jawboning/intervention is “lack… Read More »Do the inverted yield curve and high employment this time mean an inevitable recession?

S&P (SPY) closes up over 4% on the week. Nasdaq (QQQ) closed with a gain of 4.5% versus a week ago. Dollar loses its grip on power as Yen and Euro rally. A huge week in data terms. The Fed pushed rates higher by 75 basis points and everyone cheered. Equity markets rallied sharply, a curious statement but there you go. We did note that the previous 75 basis point hike in June was met with a sharp sell-off so why the difference this time? Well as we often say the market decides what it wants to do and then shapes the narrative around that outcome. We were told the Fed had turned all dovish because the market wanted and needed to rally. That was the path of least resistance and maximum pain to investors. The Fed merely abandoned guidance it didn't really get all lovey-dovey.  US GDP then came and added to the dovishness. Again more bad news, the US is in recession, but the equity market immediately begins to rally on this so-called bad news. Why? Because it wanted to. Bond yields falling helped high-risk sectors move higher and from there the only hurdle left was earnings. But… Read More »Week Ahead on Wall Street (SPY) (QQQ): Inflation and bond market yields hold the keys to this rally

Recap July 28 – The S&P opened with a 3 handle gap up and then traded another 15 handles higher into a 9:31 AM high. From that high, the S&P declined 45 handles into a 10:27 AM low of the day. From that low, the S&P rallied 87 handles higher into a 3:06 PM high of the day. From that high, the S&P pulled back 8 handles into the close. 7/28 – The major indices had a strong up day to finish with the following closes: DJIA + 332.04; S&P 500 + 48.82; & the Nasdaq Comp. + 130.17. Looking Ahead – Thursday was a strong up day and the market closed near the high of the day. We are now near the end of a a big three way cluster. The strong two day rally, we had provides the set up for a potential high on Friday. The most like scenario is for a Friday AM high. Please see details below. The Now Index has moved back to the NEUTRAL ZONE. Coming events (Stocks potentially respond to all events). B. 7/28 PM – Helio Mars enters Aries. Important change in trend Stocks. C. 7/28 PM – New Moon in… Read More »Pluto contra-parallel US Sun: Major change in US Stocks trend

USD/JPY continues to fall as the Japanese yen rally continues. In the European session, USD/JPY is trading at 133.26, down 0.72%. Yen rises on US GDP decline Thursday’s US GDP for Q1 was weaker than expected, as the -0.9% reading surprised the markets, which had projected a 0.5% gain. There was plenty of discussion about the soft GDP report, not so much that it underperformed, but rather over the question of whether the US was currently in a recession after two straight quarters of negative growth (GDP fell by 1.6% in the first quarter). Technically, a recession is widely defined as two consecutive quarters of negative growth. However, strategists in the Biden White House have been in emergency mode trying to spin the GDP release and avoid the “R” word at all costs. Optics are always crucial to politicians, and with mid-term elections in a few months, the Democrats don’t want to see the phrase “US in recession!” plastered in the media and are aruging that there are other methods of defining a recession, which of course, according to them, don’t apply to current economic conditions. However one chooses to define an economic recession, there’s no arguing that the US… Read More »Japanese yen extends gains as US GDP falls

The moving average gives mixed readings in the short term. The readings indicate a more bullish market while the longer term shows the opposite.  The momentum oscillator's relative strength index holds on to the natural zone, recording a 62 on the value line. Any uptick would support the bull market's continuous The British pound edged lower today in the initial European session after hitting the day's high, which coincided with the descending trendline at 1.2250. At press time, GBP/USD was trading at $1.2162, down -0.0016 or 0.13% on an intraday basis. The GBP/USD rose by approximately 500 pips from the year’s low that occurred on July 14. However, the cable has reached a level where the descending trendline acts as a guard, preventing the price from continuing its bullish trend. As a result, cable has retreated by around 100pips after hitting the descending trendline. This analysis relies on a four-hour time frame On the four-hour timeframe, the moving average reading shows mixed indications. The reading indicates the bullish continuation in the short-term support. The 50-MA crosses over above the 100-MA. Meanwhile, for a longer read of the 100-MA crossing below the 200-MA which does not support the bullish trend. However,… Read More »The GBP/USD price fell by approximately 100 pips after hitting the descending trendline

EUR/USD Looking at EURUSD’s chart, we can see that in the past weeks, it is traded mainly between the range of 1.0270 and 1.0130 whereas currently, it is at the rate of around 1.021. After the last comment from FED, EURUSD became bullish so it should be expected to hold its rate above its support level of around 1.0160, with a high possibility to test its resistance level.