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History tends to repeat itself, and mining stocks appear to be repeating their 2008 performance, which has very interesting implications. Why do I think that gold miners are repeating their 2008 price patterns? Please take a look at the below chart. The only times when gold stocks declined similarly sharply as they did this year were in 2013 and in 2008. Given that the situation in stocks appears to be similar to what we saw in 2008 (due to rising interest rates, for example), it seems that focusing on this analogy is particularly important right now. All right, let’s zoom in and see how mining stocks declined in 2008. Back then, the GDXJ ETF was not yet trading, so I’m using the GDX ETF as a short-term proxy here. The decline took about 3 months, and it erased about 70% of the miners’ value. The biggest part of the decline happened in the final month, though. However, the most intriguing aspect of that decline – which may also be very useful this time – is that there were five very short-term declines that took the GDX down by about 30%. I marked those declines with red rectangles. After that, a… Read More »Can a rally in Gold stocks really be bearish?

Stocks have continued to make headway this afternoon, oblivious of the recession fears dogging oil, which is down sharply again today. Stocks finish up the week with more gains “Stocks are once again shrugging off warnings about high interest rates in the US, and it appears the normal seasonal tendency of equities to rally in Q4 has asserted itself once again. Indeed, the fact that Fed speakers continue to bang the hawkish drum, but to little apparent effect, might suggest that traders still have their hearts set on a risk-rally into the end of the year, even if that sets everyone up for a fall in January.” Oil prices touch six-week low “Oil has seen several sharp drops this week, followed up by tepid rallies that suggest recession fears are really making themselves felt in the commodity. The latest drop today has seen around 4% wiped off Brent and WTI; this in itself might be giving fresh impetus to the equity rally. While FOMC members go on about rising rates, the market is watching oil and other things like shipping rates and expecting further weakness in US CPI prints in coming months.”

Consumer inflation in Japan accelerated to 3.7% in October, repeating 2014 highs and approaching the peak of 4.2% in late 1990. Excluding fresh food, prices rose by 3.6% y/y, the highest since 1982. At the same time, price growth was expected to slow from 3.0% to 2.7%, so the difference between expectations and facts looks shocking. The highest price growth since the early 1980s unites the developed nations, going well beyond the price of energy, as was the case in previous years of recent decades. However, in North America, inflation is already on its way down; in Europe, it is likely to peak in November. This divergence in inflation trends is mainly due to exchange rate movements, where the yen has been the hardest hit. In October, the country's monetary authorities stood up for the yen (in Japan, currency interventions are the prerogative of the Ministry of Finance and not the Bank of Japan). Nevertheless, an important fundamental factor weakening the yen was still the policy of the Bank of Japan, which remains the only central bank in the world that keeps negative interest rates. Although consumer inflation in Japan has been above the central bank target for the last… Read More »Japan inflation at multi-year highs, while BoJ stuck in denial

With the UK's Autumn Statement out of the way, attention turns back to the economic data which are deteriorating – UK PMIs are likely to re-emphasise the worsening condition and that a recession is coming. In Sweden, the Riksbank is expected to hike by 75bp next week, raising the policy rate to 2.5%. US: Ongoing weakness in housing data Thanksgiving means a holiday-shortened week in the US with the focus set to remain on the outlook for Federal Reserve policy. Market pricing has switched markedly since the surprisingly soft October CPI print but Federal Reserve officials continue to suggest there is more work to be done to ensure the inflation front is defeated. Indeed, we continue to hear comments suggesting the risk of doing too little outweighs the consequences of doing too much in terms of interest rate increases. Expect more next week. Data-wise we are looking at ongoing weakness in housing data, but durable goods orders should rise given firm Boeing aircraft orders. Nonetheless, it is doubtful this will be market moving in any meaningful way. The November jobs report on 2 December and the November CPI print on 13 December are the big releases to watch. UK: Focus switches back to the… Read More »Key events in developed markets next week

As warning signs for the economy mount, investors are cheering for more bad news. That's because they expect economic weakness will force the Federal Reserve to stop raising interest rates and eventually re-embrace loose monetary policy. One reliable indicator over the years of an upcoming recession is an inverted yield curve. An inversion occurs when short-term interest rates rise above long-term rates. Typically, a 3-month Treasury bill or 2-year note will yield less than a 10-year note or 30-year bond. Shorter-duration debt instruments entail less risk and therefore deliver less reward under normal circumstances. But over the past four months, short-term IOUs have begun to yield more than longer-term paper. This week, the yield on the 10-year Treasury fell to 3.7%, while the 2-year rose to 4.4%. That represents the biggest yield curve inversion in decades. And as institutional futures trader and broker Jim Iuorio notes, the current inversion implies strongly that a recession is coming. Jim Iuorio: A normal sloped yield curve has longer term bonds paying higher interest rate than shorter term. The higher rate is a reward for being willing to lock up your money for longer periods of time. Economists believe that an inversion of yields… Read More »Investors aren’t buying the Fed’s hawkish posturing

Another busy week is coming up for FX markets, featuring the minutes of the latest FOMC meeting and a rate decision in New Zealand that investors are split on. Most importantly, business surveys from the major economies will reveal whether US inflationary pressures continue to cool off and whether Europe is already in recession. 

After the rally driven by the low US CPI print, markets have traded more cautiously this week. US October retail sales growth surprised to the upside, signalling that the low inflation print did not necessarily reflect easing demand, as Fed would have hoped for. We continue to see near-term balance of inflation risks tilted to the upside, and expect the market optimism to turn out only temporary; in our latest FX Forecast Update – USD selloff to prove temporary, 14 November, we maintain our 12M EUR/USD forecast at 0.93. Geopolitics were on the agenda in the first G20 meeting after Russia’s invasion to Ukraine. Joe Biden and Xi Jinping met for first time face-to-face after Biden became the president, and despite the past years’ tensions, the leaders struck a more constructive tone, emphasizing that neither party wants to enter a new cold war and that communications lines would be reopened. That being said, we think that especially the Taiwan issue and the recent US tech restrictions will maintain tensions elevated; see our earlier paper: Research US-China: Long-term tensions are here to stay no matter the election result, 5 October. While the Democratic Party ended up performing better than expected in… Read More »Weekly Focus: Markets turn more cautious after the CPI rally

Summary United States: Even with Encouraging Inflation Developments, Economic Resilience Continues to Challenge the Fed In line with last week's CPI performance, the headline PPI increased 0.2% sequentially, two-tenths below expectations. The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations. Weakness continued in the housing market, which is clearly in recession. Next week: Durable Goods Orders (Wed), New Home Sales (Wed) International: What's Going On with Global Inflation? This week, October CPI data were released for the U.K., Canada and Japan, highlighting diverging paths for inflation in each economy. In the U.K., headline CPI inflation rose to 11.1% year-over-year, with the electricity, gas and other fuels category up nearly 90% compared to last year. Meanwhile, headline inflation in Canada has receded from a recent peak, coming in at 6.9%, but underlying price pressures continue to intensify. Last, Japan's inflation is much more contained compared to the U.K. and Canada, although prices are elevated by recent historical standards. Headline inflation quickened to 3.7% in October. Next week: Australia PMIs (Wed), Eurozone… Read More »Weekly economic and financial commentary

Outlook: We are seeing a pullback in commodities, currencies and equity markets that does not arise from any particular economic event or data. This could be rising risk aversion but we can’t put a finger on a driving factor–nothing specific jumps out. The only real Big Event is the UK budget, and it’s not inconceivable that the market is still judging whether it wants to accept it. The budget proposal in a nutshell is “about £30 billion in spending cuts and £25 billion in tax increases, including a six-year freeze on income tax thresholds and lowering the top income tax rate to £125,000,” as Trading Economics puts it. The UK aside, the pullback in multiple asset classes may mean the pullback is pure positioning and therefore short-lived—not a reversal back to the primary trend. The US news today includes Oct housing starts, likely another drop but not as awful as Sept (-8.1%). We all know about the big and ongoing drop in house prices and seller reluctance, so an ongoing decline in starts is hardly surprising. The reversal in home inflation has two major effects—it can lower inflation reports generally going forward (shelter is 24% of CPI, if badly formulated).… Read More »We are seeing a pullback in commodities, currencies and equity markets

Markets US stocks slid for the second day as Fed hawks continued to circle the wagons, repeatedly emphasizing their fight against inflation is far from done. So with investors beginning to question the validity of the post-CPI market moonshot, it effectively pushes out the process of getting constructive for next year. If the Fed raises Funds to 5% and then holds through the expected H1 2023 recession, that’s hardly a good signal for equity markets. Broader markets are entirely in thrall to interest rates. Air pockets lower were evident in virtually every asset class as US 10-year Treasury yields climbed after St. Louis Fed President James Bullard said policymakers should increase interest rates to 5% to 5.25% to curb inflation. The S&P 500 and the tech-heavy Nasdaq 100 declined for the second consecutive session as the falling tide grounds all ships. Price actions suggest investors lack the necessary conviction above 4000 on the S & P 500. Things can turn on a dime, primarily when the fear of missing drives sentiment. However, the odds of a pre-Thanksgiving rally are giving way to the hawkish Fed drumbeat and pushback on China reopening plays.   Oil  Oil prices plummeted as traders dumped… Read More »Markets are entirely in thrall to interest rates