Olivia

US equities were stronger Thursday, S&P up 1.0%. US bonds rallied, 10yr yields down 15bps to 2.87% and 2yrs to 14bps after weak US data. Oil closed down 2.6%. but off the overnight lows The US employment situation is turning ugly as US continuing claims spiked higher, up to 1384k from 1331k the week prior. There are increasing reports of companies putting in place hiring freezes, if not moving to layoffs. Ford is reporting it has “too many staff.” Meanwhile, Philadelphia Fed manufacturing at -12.3 has retraced half of the post-pandemic recovery.  But it is still a case of bad data is still good news for stocks and very much highlights the disconnect between Wall Street and Main Street.  What's good for Main Street and what's good for Wall Street aren't necessarily the same thing. Mainly because the financial markets, by their very nature, pull events forward, whereas the public lives the economic slowdown in real-time. By slashing staff, companies can preserve profits, and with the uptick in unemployment, the Fed is forced to reverse course with rate cuts supporting equity multiples. Eventually, the pendulum will swing again in favour of Wall Street over Main Street. OIL Oil is struggling… Read More »It is still a case of bad data is still good news for stocks

EUR/USD The Euro recovers from today’s drop, with minor impact from weak EU PMI numbers that add to concerns about contraction in the third quarter but lacking direction for the third quarter. The single currency also failed to benefit more from ECB’s 0.5% rate hike (vs 0.25% forecast), though the ECB’s action keep the Euro inflated and preventing deeper fall for now, despite concerns about economic slowdown and darkened outlook. Near-term action is moving between daily Tenkan-sen (1.0115) and Kijun-sen (1.0283) which mark pivotal points and break of either would signal fresh direction. Traders await Fed’s decision next week, with initial euphoria about a jumbo 1% hike being cooled by some policymakers, keeping in play expected 0.75% that may disappoint those who expected more hawkish stance and possibly negatively influence the dollar. Technical studies are mainly bearish, though formation of bullish engulfing pattern on weekly chart may offer fresh support to Euro Res: 1.0283; 1.0330; 1.0361; 1.0400. Sup: 1.0205; 1.0153; 1.0115; 1.0078. Interested in EUR/USD technicals? Check out the key levels

EUR/USD The Euro recovers from today’s drop, with minor impact from weak EU PMI numbers that add to concerns about contraction in the third quarter but lacking direction for the third quarter. The single currency also failed to benefit more from ECB’s 0.5% rate hike (vs 0.25% forecast), though the ECB’s action keep the Euro inflated and preventing deeper fall for now, despite concerns about economic slowdown and darkened outlook. Near-term action is moving between daily Tenkan-sen (1.0115) and Kijun-sen (1.0283) which mark pivotal points and break of either would signal fresh direction. Traders await Fed’s decision next week, with initial euphoria about a jumbo 1% hike being cooled by some policymakers, keeping in play expected 0.75% that may disappoint those who expected more hawkish stance and possibly negatively influence the dollar. Technical studies are mainly bearish, though formation of bullish engulfing pattern on weekly chart may offer fresh support to Euro Res: 1.0283; 1.0330; 1.0361; 1.0400. Sup: 1.0205; 1.0153; 1.0115; 1.0078. Interested in EUR/USD technicals? Check out the key levels

Rising jobless claims, softer home sales, and a buildup in gasoline inventory all show the Fed front-loading rate hikes are causing demand destruction. Though it may take a couple of quarters for core CPI items, like rents, to decline, chances of a lower terminal rate are rising. As UMich and NY Fed inflation expectations have pulled back and 5y5y breaks are stable, the Fed should next week continue to hike 75bp and reiterate its data-dependent mode, and odds are increasing for a softer Fed rate hike profile. The massive rally in US Treasuries happened at the same time as the ECB meeting on Thursday, with yields moving down almost 20bp. However, the trigger is not so much by ECB, and it's more to do with the Philadelphia Fed Business Outlook. The number was feeble at almost 10-year lows before the pandemic. The reading on initial jobless claims was also a concern as investors have seen three weeks of back-to-back increases. The final nail will be the US PMI on Friday. If US PMI goes under 50, it will make a strong case for recession fears ahead of the Fed meeting next week. While structural headwinds are gusty for the yen,… Read More »Asia Open: The final nail will be the US PMI on Friday

Rising jobless claims, softer home sales, and a buildup in gasoline inventory all show the Fed front-loading rate hikes are causing demand destruction. Though it may take a couple of quarters for core CPI items, like rents, to decline, chances of a lower terminal rate are rising. As UMich and NY Fed inflation expectations have pulled back and 5y5y breaks are stable, the Fed should next week continue to hike 75bp and reiterate its data-dependent mode, and odds are increasing for a softer Fed rate hike profile. The massive rally in US Treasuries happened at the same time as the ECB meeting on Thursday, with yields moving down almost 20bp. However, the trigger is not so much by ECB, and it's more to do with the Philadelphia Fed Business Outlook. The number was feeble at almost 10-year lows before the pandemic. The reading on initial jobless claims was also a concern as investors have seen three weeks of back-to-back increases. The final nail will be the US PMI on Friday. If US PMI goes under 50, it will make a strong case for recession fears ahead of the Fed meeting next week. While structural headwinds are gusty for the yen,… Read More »Asia Open: The final nail will be the US PMI on Friday

This rally may well be on borrowed time despite its decent run over the past five days, thanks to next week’s earnings barrage and an impending Fed decision. Equities mixed but clock up good performance for the week “Investors will be pleased to see that the rally in stocks remains intact, having lasted longer than some of the other rebounds we have seen so far this year. But they will be wary of pushing their luck too hard into next week, given the avalanche of earnings heading their way, plus a Fed decision and the first reading on US second quarter GDP that might easily provide fresh recession worries.” Can earnings season keep up the good news? “It hasn’t been a bad start to the latest reporting season, but next week is absolutely chock-full of updates, although Amazon, Apple and others are bound to top the billing. Stocks have gone from pricing in full-blown doom to being much more optimistic, but sentiment remains fragile at best, and it wouldn’t take much to spark yet another leg down that rapidly unwinds the gains seen so far in July.”

This rally may well be on borrowed time despite its decent run over the past five days, thanks to next week’s earnings barrage and an impending Fed decision. Equities mixed but clock up good performance for the week “Investors will be pleased to see that the rally in stocks remains intact, having lasted longer than some of the other rebounds we have seen so far this year. But they will be wary of pushing their luck too hard into next week, given the avalanche of earnings heading their way, plus a Fed decision and the first reading on US second quarter GDP that might easily provide fresh recession worries.” Can earnings season keep up the good news? “It hasn’t been a bad start to the latest reporting season, but next week is absolutely chock-full of updates, although Amazon, Apple and others are bound to top the billing. Stocks have gone from pricing in full-blown doom to being much more optimistic, but sentiment remains fragile at best, and it wouldn’t take much to spark yet another leg down that rapidly unwinds the gains seen so far in July.”

Federal Reserve rate meeting – 27/07 – its certain that the Federal Reserve will be hiking rates again this week by another 75bps, with the only question being what comes in September, and whether we see 50bps or another 75bps. The most recent US inflation numbers jumped again in June to 9.1% on the CPI measure, although core prices did slip back. This jump once again highlights how far behind the curve the US central bank is, however, we are now starting to see signs that the US economy is starting to slow sharply in certain areas. For now, we can expect to see the Fed lean into the narrative that they need to get inflation under control even if it pushes headline unemployment quite a bit higher. Nonetheless, there does appear to be a concern that the Fed doesn’t want to overdo it even if the unexpectedly sharp increase in headline CPI did raise concerns that the FOMC might move by 100bps this week. An aggressive 100bps is by no means off the table, but it became less probable after two of the most hawkish Fed members, Christopher Waller, and St. Louis Fed President James Bullard pushed back on… Read More »The Week Ahead: Fed rate decision, UK banks, Shell, Unilever, Apple, Microsoft results

Recession calls are getting louder. If history is any guide, the bust is coming. Good news for gold! An economic hurricane is coming. Brace yourselves! This is at least what Jamie Dimon suggested last month. To be precise, he said: “Right now, it's kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road, coming our way. We just don’t know if it's a minor one or Superstorm Sandy.” When JP Morgan Chase’s CEO is painting such a gloomy picture, you know that something serious is going to happen! Indeed, both on Wall Street and Main Street, calls for a recession are becoming more common and louder. According to Markit, credit default swaps have nearly doubled so far in 2022, surpassing the pre-pandemic levels. The higher their prices, the greater the chance of default in the eyes of investors. The high yield bond market is also showing that worries about the state of the economy are rising. As the chart below shows, the spread between so-called junk bonds and Treasuries surged from about 300 to more than 500 basis points in 2022. It means that the risk premium… Read More »Gold will come out stronger from the economic hurricane

Recession calls are getting louder. If history is any guide, the bust is coming. Good news for gold! An economic hurricane is coming. Brace yourselves! This is at least what Jamie Dimon suggested last month. To be precise, he said: “Right now, it's kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road, coming our way. We just don’t know if it's a minor one or Superstorm Sandy.” When JP Morgan Chase’s CEO is painting such a gloomy picture, you know that something serious is going to happen! Indeed, both on Wall Street and Main Street, calls for a recession are becoming more common and louder. According to Markit, credit default swaps have nearly doubled so far in 2022, surpassing the pre-pandemic levels. The higher their prices, the greater the chance of default in the eyes of investors. The high yield bond market is also showing that worries about the state of the economy are rising. As the chart below shows, the spread between so-called junk bonds and Treasuries surged from about 300 to more than 500 basis points in 2022. It means that the risk premium… Read More »Gold will come out stronger from the economic hurricane