News en

2023 has arrived and it looks set to be another interesting year for financial markets. Diverging forces are at play leaving markets in a tug of war between different drivers. In bond markets lower inflation and recession points to lower yields, but on the other hand still strong labour markets and high wage pressures as well as the Chinese reopening, which is set to be an inflationary force, is pulling in the other direction. An easing of financial conditions also challenge central banks as tighter conditions are needed to cool down the economy further. Hence, we see a risk of more hikes (and fewer cuts in H2 and 2024) than markets currently price – especially in the US. We look for bond yields to be range bound for some time caught in the middle of the diverging forces. In equity markets lower inflation, somewhat better visibility than in 2023, the Chinese reopening as well as plenty of cash on the sideline are all positive forces that could reduce risk premia and underpin stocks. However, the outlook of recession, still hawkish central banks and profits under pressure still point to a more defensive stance. We believe stocks will end the year… Read More »A tug of war in financial markets

That‘s what S&P 500 needs – and with my patient call of the upside resolution to the recent range being more probable. For all the excitement of making another great call, don‘t lose the big picture view. The not overly hot jobs figure allows for the Jan top to be made, with the first objective to be completed, being the upside break of 3,875. Note how well silver, copper, gold and oil are doing in the NFPs aftermath. I‘ll keep commenting the live price action on Twitter as: (…) The narrow window of opportunity to allow the market celebrate CPI while PPI continues raising its ugly head, is at hand. Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there (or on Telegram if you prefer), but the analyses (whether short or long format, depending on market action) over email are the bedrock. So, make sure you‘re signed up for the free newsletter and that you have my Twitter profile open with notifications on so as not to miss a thing, and to benefit from extra intraday calls. Let‘s move right… Read More »Less tightening win

In this Trading Opportunities Webinar, Neerav Yadav (Author of “Think with the Markets”) has discussed charts of Forex, Commodities, Indices. All discussions are based on Advanced Elliott Wave, with detailed Wave counts as well standard Supply and Demand analysis.

The dollar eased after US labor data on Friday, as US economy added 223K jobs in December, beating expectations for 200K increase, but wage growth slowed slightly (Dec 0.3% m/m vs 0.4% Nov / f/c) and unemployment fell to 3.5% from 3.6%, hitting pre-pandemic levels. The data suggest that the labor market remains tight, but also fuel expectations for softer approach by the central bank in its policy meeting in February, as bets for 25 basis points rate hike rose from 54% to 67%, while expectations for 0.5% raise dropped to 33%. Slightly calmer view of Fed’s hawkishness deflated the dollar index, which reversed the largest part of its Thursday’s rally, after bulls were trapped above daily Kijun-sen (105.10) that would add to negative impact from fundamentals. Daily studies show momentum indicator heading south and breaking into negative territory, which contributes to bearish signals. Fresh weakness looks for Friday’s close below daily Tenkan-sen (104.26) to further weaken near-term structure and keep recent multi-month lows at 103.12/06 (Dec 30/15) under increased pressure, with break lower to signal continuation of larger downtrend from 2022 high (114.72). Only firm break above daily Kijun-sen would bring bulls in play for fresh recovery. Res: 104.81;… Read More »Dollar slides on solid NFP but weaker than expected wage growth

Summary The December employment report was generally encouraging. Nonfarm payroll growth slowed modestly but remained solid with a 223K monthly gain. More importantly for Fed officials worried about the inflation outlook, wage growth cooled in December, and the labor force participation rate ticked higher for both prime age (25-54) and older (55+) workers. Despite the directional improvement in labor supply, the labor market remains exceptionally tight. The unemployment rate fell two tenths of a percentage point to 3.5%, matching its lowest level on record since 1969. It will take more than just this report to convince the FOMC that supply and demand in the labor market are in healthy balance. Cooler hiring and a bump in labor supply The December jobs report brought further signs that the labor market is beginning to soften, but remains incredibly strong. Nonfarm payrolls increased by 223K in December, not far off the Bloomberg consensus forecast of 202K. Revisions to the previous two months were slightly negative on net. The 223K new jobs added in December was the slowest pace of job growth since December 2020, when a surge in COVID cases was weighing on the U.S. economy. Job growth was generally broad-based and was… Read More »December jobs report: A late arriving gift

Summary Over the last few weeks, President Lula da Silva has moved forward with some of the fiscal policies that he not only campaigned on, but that also worried market participants. Recently, Lula has gathered support to raise constitutional spending limitations and enhance social spending, while he has also promoted the use of subsidized lending from state-owned development banks to drive economic growth. We believe this new direction for fiscal policy will ultimately be inflationary, and we now believe the Brazilian Central Bank (BCB) will delay easing monetary policy until Q3-2023. Moreover, financial markets believe BCB policymakers will resume the tightening cycle before cutting interest rates, which in our opinion presents investors will an opportunity to take advantage of a possible mispricing in Brazilian interest rates. Risks around our Brazilian real forecasts are also rising, and while we believe the currency can hover around current levels in the short-term and strengthen over the longer-term, more explicit evidence of an erosion of fiscal responsibility would prompt us to change our outlook on the Brazilian currency. Download The Full International Commentary

Summary United States: Economic Growth Remains on a Positive Trajectory, For Now During December, payrolls rose by 223K while the unemployment rate fell to 3.5% and average hourly earnings eased 0.3%. Job openings (JOLTS) edged down to 10.46 million in November. ISM manufacturing fell to 48.4 in December, while the services index unexpectedly dropped to 49.6. Construction spending increased 0.2% in November. The U.S. trade deficit narrowed to $61.5 billion in November. Next week: Small Business Optimism (Tue), CPI (Thu), Consumer Sentiment (Fri) International: Fiscal Policy Has Brazil Off to a Rocky Start Enhanced government spending has the potential to place Brazil's sovereign debt burden on a more unsustainable trajectory. With Brazil's public finances already in a precarious position and Lula now officially sworn into office, concerns regarding a lack of fiscal discipline are starting to materialize and shake confidence. Next week: Mexico Inflation (Mon), Brazil Inflation (Tue), Central Bank of Peru (Thu) Interest Rate Watch: Clear Message from December Minutes: Higher Rates for Longer The minutes from the Fed's latest policy meeting in December were released on Wednesday and highlighted a mildly-hawkish to neutral tone from Fed officials headed into last month's meeting. What stands out to us is… Read More »Weekly economic and financial commentary

The US gained 223K jobs in December, below the “whisper” expectations A cooling labor market implies a nearing end to the tightening cycle.  Wages are sliding and implies the stickiest inflation is falling – and the Fed is watching. Overpromise, underdeliver – that explains the decline of the US Dollar in response to the Nonfarm Payrolls. While the labor report showed an increase of 223K jobs – above what the calendar showed –, it is below what investors had expected following robust leading indicators. ADP’s figures and an upbeat employment component in the ISM Manufacturing PMI raise real expectations to roughly 250K. That explains the initial response, but there are deeper reasons to expect further falls. First, the trend in labor market growth is too the downside – December’s 223K iks lower than 256K according to the revised data for December. It extends a trend of moderation.  Secondly, wage growth decelerated to 4.6% YoY, significantly below estimates. That is a huge sigh of relief for the Federal Reserve. The world’s most powerful central bank went to lengths to explain that labor-related inflation is what it is focusing on. Why? First, non-core inflation such as energy and food prices are out… Read More »Nonfarm Payrolls Analysis: Mark March as the Fed’s final hike, Dollar set to decline

After a choppy start to the new year, markets will be bracing for the next set of CPI data out of the United States next week amid ongoing unease about Fed policy. Inflation stats are also due out of Australia, while in the United Kingdom, monthly GDP numbers could stoke recession fears yet again. China’s economy will be at the forefront of investors’ minds too as the December economic indicators start rolling in. But a potentially bigger market-moving event is a gathering of central bankers in Sweden where Fed chief Jerome Powell will be participating. Will US CPI maintain its descent? Markets may have given up hope of an early Fed pivot but they are still not convinced that rates will have to be raised too high into restrictive territory. The consumer price index for December due Thursday will be the next vital release that will either bolster bets of a more aggressive Fed or undermine policymakers’ warnings of additional rate increases to come. Inflation is clearly on the way down in the US. The question now is: how long will it take for it to fall back to within the Fed’s 2% goal and is there a risk it… Read More »Week Ahead – US inflation back in focus, UK data to underline recession risks

US CPI (Dec) – 12/01 – the last few months have seen US CPI fall from peaks of 9.1% in June to levels of 7.1% in November. This was well below expectations of 7.3% and a sharp fall from October’s 7.7%, offering a boost to those who think that the Federal Reserve may not have to go as hard, or as far on rate hikes this year. Core prices also subsided from 6.3% to 6% and could well slide further this week to 5.7%. Since then, some of that optimism has undergone a bit of a reset due to firmer wages numbers which do appear to offer some two-way risk to a narrative that wants to see the FOMC slow the pace of rate hikes to 25bps when they next meet on February 1st. Fed officials including Chairman Powell have insisted that rates need to go much higher and while markets remain sceptical of that narrative the calculation also needs to be made that many on the FOMC would rather err on the side of doing too much than too little and as such might be tempted to ignore the warnings signs of a hard landing. ECB Minutes – 12/01… Read More »The Week Ahead: US CPI, China Trade, Tesco, Sainsbury, M&S and US Bank earnings