Get started

Inflation

Fight or Flight?On February 1st, the Federal Reserve (Fed) announced a widely-expected 25bps rate hike. This was the rallying cry for the current market rally to continue. Is this confidence warranted? An interesting note is that the FOMC meeting minutes and the associated press conference appeared contradictory in nature because there was not a straightforward hawkish or dovish narrative across both. The statement was hawkish. Meanwhile, Fed Chairman Powell’s language in the press conference was remarkably dovish, describing the disinflation process as having started and as "encouraging and gratifying". This was the point that markets took as the signal to continue the recent rally. Precious metals, equities, and risk assets have all seen significant post-meeting relief. The first innings of a recession always appear to be somewhat of a soft landing in which inflation and growth begin to slow gradually. Yesterday’s meeting echoed the idea that recent indicators point to a modest increase in spending and that inflation has eased, precisely what the first innings of a recession would predict. As markets, potentially shortsightedly, adopt the soft landing narrative, the Fed’s lack of pushback against easier financial conditions added fuel to the fire. Given this, it is doubtful that markets will stop rallying until one of two cases occurs: First, if data comes in hot, it potentially frightens markets into thinking the Fed will turn back hawkish and raise rates more than the recently observed 25bps hike. The second scenario is the other extreme. Should data start coming in highly recessionary with lower inflation and weak growth, this will eliminate all believers in the soft landing narrative, thus halting the rally. However, at present, it looks like the market rally of 2023 could continue until either of these scenarios happen. An important thing to note is that whenever inflation has exceeded 5% in the past, it has never come back down without the Federal Funds Rate exceeding the rate of CPI inflation. Considering the Federal Funds Rate is currently between 4.5% and 4.75% whilst CPI inflation is at 6.5%, more rate hikes are on the horizon unless data comes in highly recessionary. CPI data on the 14th of February will provide significant insight into whether or not the Fed will follow the likes of the European Central Bank & Bank of England and go with a 50bps hike rather than a 25bps hike. Another important thing to note is that Apple , Amazon , and Alphabet (the parent company of Google ) all missed earnings last night. If three of the world's largest companies missed earnings, it does not breed confidence for economic hopes of avoiding a recession. One thing seems certain, the S&P500 is likely to take a hit when the NYSE opens later today.
by Coinrule
22
Don't Fight The FedOn February 1st, the Federal Open Market Committee (FOMC) meeting minutes were released, and the Fed announced a 25bps rate hike. As such, markets started to rally. An interesting note is that the FOMC meeting minutes and the associated press conference appeared contradictory in nature because there was not a straightforward hawkish or dovish narrative across both. The statement was hawkish. Meanwhile, Fed Chairman Powell’s language in the press conference was remarkably dovish, describing the disinflation process as having started and as “encouraging and gratifying”. This was seen by markets as the signal to continue the recent rally. Precious metals, equities, and risk assets have all seen significant post-meeting relief. The first innings of a recession always appear to be somewhat of a soft landing in which inflation and growth begin to slow gradually. Yesterday’s meeting echoed the ideas that recent indicators point to a modest increase in spending and that inflation has eased, precisely what the first innings of a recession would predict. As markets shortsightedly adopt the soft landing narrative, the Fed’s lack of pushback against easier financial conditions added fuel to the fire. Given this, it is doubtful that markets will stop rallying unless one of two cases occurs: First if data comes in hot, it potentially frightens the market into thinking the Fed will turn back hawkish and raise rates more than the recently observed 25bps hike. The second scenario is the other extreme. Should data start coming in highly recessionary with lower inflation and weak growth, this will eliminate all believers in the soft landing narrative, thus halting the rally. However, at present, it looks like the market rally of 2023 could continue until either of these scenarios happen. An important thing to note is that whenever inflation has exceeded 5% in the past, it has never come back down without the Federal Funds Rate exceeding the CPI . Considering the Federal Funds Rate is currently at 4.65% and CPI inflation at 6.5%, more rate hikes are on the horizon unless data comes in highly recessionary. CPI data on the 14th will provide significant insight into whether or not the Fed will follow the likes of the European Central Bank & Bank of England and go with a 50bps hike rather than a 25bps hike. Another important thing to note is that Apple , Amazon , and Alphabet (the parent company of Google ) all missed earnings last night. If three of the world's largest companies missed earnings, it does not breed confidence in the hopes of avoiding a recession. One thing is for sure, the S&P500 will take a hit when the NYSE opens later today.
Long
by Coinrule
GBP/USD sliding after dovish BoE hikeThe British pound has posted sharp losses on Thursday and continues to lose ground in the North American session. GBP/USD is trading at 1.2251, down 0.98%. The major central banks remain the focus of the market's attention. The Bank of England raised rates by 50 basis points, just one day after the Federal Reserve's 25-bp hike. This marked a second straight increase of 50 bp, bringing the cash rate to 4%. As with the Fed decision, the hike was expected, but investors found plenty to cheer about, resulting in the pound reversing course and losing ground. Governor Bailey said in a follow-up news conference that inflation pressures remained and inflation risks were skewed to the upside. Still, investors found plenty of reasons to be optimistic. Bailey said that inflation had turned a corner and noted that members had removed the word "forcefully" from its forward guidance statement. The BoE is now projecting that inflation will fall to around 4% by the end of the year and that the recession will be shallower than it had anticipated. The less pessimistic outlook for inflation and the economy sent risk appetite higher and pushed the pound lower. The markets were in a good mood after the decision, but there are plenty of problems ahead - inflation is above 10% and some half a million workers went on strike on Wednesday. The Fed raised rates by 25 basis points as was widely expected. The Fed noted that inflation has eased but reminded listeners that it remained much higher than the 2% target. Jerome Powell signaled that more rate hikes are coming and said he did not expect to cut rates this year. This was essentially a repeat of the hawkish message we've heard before, but the markets chose to focus on Powell saying that the disinflation process had started and that he expected another couple of rate hikes before winding up the current rate-hike cycle. This sent the US dollar broadly lower on Wednesday. Besides inflation, the Fed is focused on employment data, which will make Friday's nonfarm employment report a key factor in future rate policy. In December, nonfarm payrolls fell from 256,000 to 223,000 and the downturn is expected to continue, with an estimate of 190,000 for January. This release could result in further volatility in the currency markets on Friday. .
by OANDA
CRYPTO CRIPPLED?Bitcoin bounces off $25246.29 which is the new resistance. Btc is down -60.74% since march 21th & I currently see it dropping another 100% in the coming months the way the chart is structured currently. Rising US yields are applying a visible downside pressure on the pricing of cryptocurrencies. The latter hints that this alternative asset class may not be immune to the rising interest rates and a tighter monetary policy environment globally. We could see the downside pressure building stronger in the medium run, and cause a bit more bleeding as the Fed walks towards concrete tightening. There is also the fact that higher energy prices make crypto mining more expensive. So that’s also a fundamental reason that prevents Bitcoin from being a safe haven asset in the actual environment.
BITSTAMP:BTCUSDShort
by xavierNF
You Can Have the Cake and Eat it TooCBOT: Treasury Yield Spread 10Y-2YY ( CBOT_MINI:10Y1! CBOT_MINI:2YY1! ), Micro Dow ( CBOT_MINI:MYM1! ), Micro S&P ( CME_MINI:MES1! ) On Wednesday, the Federal Reserve raises its benchmark Fed Funds rate by 25 basis points to a target range of 4.5%-4.75%. The move marked the eighth consecutive hikes that have began in March 2022. The overnight risk-free rate is now at its highest level since October 2007. Fed Chairman Jerome Powell sends mixed signals in his post-FOMC meeting news conference but appears more dovish comparing to previous speeches. The Committee thinks that “on-going increases in the target range will be appropriate”. These words send stocks down minutes after the speech begins at 2:30PM. However, during the Q&A session, when the Fed Chair confirms, for the first time, that “the disinflationary process has started,” the stock market rebounds strongly and finishes in the positive territory for the day. Other mixed messages: • Inflation data shows a welcome reduction in the monthly pace of increases; • It would be “very premature to declare victory or to think we really got this”; • It’s “possible” that the funds rate could stay lower than 5%; • Unlikely the Fed would cut rates this year unless inflation comes down more rapidly. Actions speak louder than words. In two rate-setting meetings, the Fed has slowed the pace from 75 bps to 25 bps. The path is not likely to reverse, and future rate hikes will come down to just two options, either 0 or 25 bps. In my opinion, the terminal rate will end at 5% or 5.25% after the March and May meeting. In recent months, the “Risk” button has been pressed on for risky assets: • The Dow is up 19% since October, and the S&P and the Nasdaq are up 17% and 18% for the same period, respectively; • Gold futures rallies 21% since November, while Bitcoin jumps 58%; • Tesla and Ark Innovation ETF gain 47% and 33% year-to-date, respectively. Historically, it’s rare for the stock market to dip two years or more in a row. For the S&P 500, it only happened four times in the last 100 years. The odds favor stock investors in the Year of Rabbits after a brutal double-digit selloff in 2022. Fed rate hikes and high inflation are like a brake that decelerated the running economy car. Now that the driver’s foot is off the brake, will the economy improve immediately? Not so fast. We will endure higher costs for months to come. Take the example of food items, once the price goes up, it usually stays up for the year. Sometimes, suppliers resolve to reducing the size of package for the illusion of keeping the same price, a tactic known as “Shrinkflation”. Wages, rent, phone bill, cable TV, utility, homeowner association fees and sales tax also seldom go down. All these point to a sticky inflation. Without massive government stimulus to press the gas pedal, subdued growth is on the horizon. However, the stock market is forward looking. Investors already see an "invisible foot" on the accelerator and begin buying in the dip. On balance, I’m bullish about risky assets, but would consider protecting my investments carefully. The inversed yield curve is a proven and tested signal of a potential recession. The 10Y-2Y Treasury yield spread is at -64 bps after the Fed rate decision. The yield spread turned negative last July and stayed below zero in the last seven months. Major crises could break out unexpectedly, crashing our party. The year-long Russia-Ukraine conflict could intensify, tensions in the Taiwan Strait could escalate, and the US government might not be able to avoid a national debt default. A Hedged Position on Stock Index Futures We could consider using the CME Micro E-mini S&P futures to establish a bullish position on the U.S. stock market. The June contract MESM3 is currently quoted at 4177, which is 58 points above the cash index. To protect my position from any adverse market movement, an out-of-the-money put option could be placed at the 3950-strike. If you are more pessimistic, a lower strike of 3840 may be considered. The benefit of futures over cash index ETFs lies with the leverage. With a smaller margin deposit upfront, investment return could be amplified if the market moves in your favor. The downside is that the loss will also ramp up quickly if the market moves against you. Put options protect us from any downfall below the strike price. Unlike futures, the maximum loss from a long options position is the premium you have paid upfront. A combination of long futures and long put options is, in theory, limited downside with unlimited upside. The risk and return tradeoff are asymmetry in this case. As a result, you can have the cake and eat it too! Happy trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CBOT_MINI:10Y1!Long
by JimHuangChicago
9
Pound in holding pattern ahead of Fed, BOEIt has been a quiet week for the British pound, but that could change in a hurry, with the Fed announcing its rate decision later today, followed by the Bank of England on Thursday. It's a virtual guarantee that the Federal Reserve will raise rates at today's meeting by 25 basis points. This would bring the benchmark rate to 4.75%. The Fed has had some success bringing down inflation, which fell to 6.5% in December. Inflation has de-accelerated for six straight months, which certainly sounds like it has peaked. Still, the Fed won't be using the "P" word anytime soon for fear of an excessive reaction from the markets. The markets are counting on a dovish pivot from the Fed, given the increasing signs that the US economy is slowing down. Will the Fed stick to its hawkish stance at the meeting, or will it present a more dovish stance? If the Fed signals that there are no plans to pivot, the US dollar should gain ground. Conversely, any hints about an easing in policy, such as a cut in rates later this year, would raise risk appetite and weigh on the dollar. The Bank of England follows the Fed with its own rate announcement on Thursday. The central bank is widely expected to raise rates by 50 basis points, which would bring the cash rate to 4.0% and would mark a 10th straight rate increase. Given the weak economy and sharp drop in housing prices, there is an outside chance of a modest 25-basis point hike. Despite the steep tightening cycle, inflation is running at a sky-high 10.5%, so the BoE is in no position to talk about a pause in rate hikes without inflation heading lower. Wage growth is becoming a major concern for the BoE, and today's massive strike by public servants for better pay won't help matters. Wages haven't kept up with soaring inflation, which is why we're seeing disgruntled workers go on strike, but wage growth is close to a record pace and is a major factor behind inflation which is still in double digits. GBP/USD is putting pressure on support at 1.2289. Next, there is support at 1.2203 There is resistance at 1.2369 and 1.2474
by OANDA
$AERC september update 👁‍🗨*This is not financial advice, so trade at your own risks* *My team digs deep and finds stocks that are expected to perform well based off multiple confluences* *Experienced traders understand the uphill battle in timing the market, so instead my team focuses mainly on risk management* Today my team took the opportunity to average down on our $AERC position. We are expecting a bullish run before the end of the year, but if one happens sooner, we will of course act in our favor and do what we think is best. 4th entry: $3.60 Average PP/S: $4.8 If you want to see more, please like and follow us @SimplyShowMeTheMoney
ALong
by SimplyShowMeTheMoney
7
$TUP food storage 2.0 👁‍🗨*This is not financial advice, so trade at your own risks* *My team digs deep and finds stocks that are expected to perform well based off multiple confluences* *Experienced traders understand the uphill battle in timing the market, so instead my team focuses mainly on risk management* My team entered Tupperware Brands Corporation $TUP today at $8.5 per share. Our take profit is set at $14. We also have a stop loss at $7 OUR ENTRY: $8.5 TAKE PROFIT: $14 STOP LOSS: $7 If you want to see more, please like and follow us @SimplyShowMeTheMoney
TLong
by SimplyShowMeTheMoney
6
NZD/USD steady ahead of employment releaseThe New Zealand dollar has edged lower on Tuesday. In the North American session, NZD/USD is trading at 0.6462, down 0.10%. New Zealand releases the Q4 employment report later today. Unemployment is expected to tick lower to 3.2%, following a 3.3% reading in the third quarter. This would mark the lowest unemployment rate in over four decades. Employment change is projected to have climbed 0.7% in Q4, after a 1.3% gain in Q3. What will be particularly interesting is wage growth, which has been robust and may have jumped as much as 9% y/y in the private sector. Wage growth has been contributing to high inflation, which the Reserve Bank of New Zealand is determined to bring down. Inflation was unchanged at 7.2% in the fourth quarter, more than three times the central bank's target of 2%. The Federal Reserve concludes its 2-day meeting on Wednesday, and a 25-bp increase is priced at close to 100%. This doesn't preclude volatility in the currency markets, as a hawkish stance from the Fed, either in the rate statement or in comments from Jerome Powell, could provide a boost to the US dollar. The markets continue to talk about a rate cut late in the year due to the weakening US economy, but the markets could be in for a nasty surprise if the Fed reiterates its hawkish stance that rates will remain high until inflation is subdued. What the Fed has in mind after tomorrow's rate hike is not clear and investors will be hoping that the meeting will provide some clarity on that front. 0.6446 is a weak support line. The next support level is 0.6365 There is resistance at 0.6485 and 0.6532
by OANDA
The Rand in the rocky credit markets The economic calendar is wild this week so I thought it would be best to do a deep fundamental dive into the USDZAR . All the attention will be on the Federal reserve tomorrow and whether or when they will pause their rate hikes. We need to look past the hype around the interest rate and the “pivot" narrative. Focus should however be on how the markets will cope with the Fed’s liquidity drain and how it will impact the future price of money ( ie . Interest rates). Before we kick-off, correlation does not imply causation... I’ll start by explaining the chart you’re looking at. What you’re seeing is the positive correlation between the USDZAR and the difference between the South African government bond 10-year yield (ZA10Y) and the US 10-year treasury yield (US10Y). The interest rate differential is referred to as the carry trade potential. Investors can borrow money on the cheap from developed low-risk markets and invest the borrowed money in riskier destinations to earn more interest. The interest rate difference is then pocketed by the investor. The preferred vehicle to capitalise on the interest rate differentials between two locations are government bonds (they are low risk and liquid). The reason for the positive correlation between the USDZAR and the bond yield differential is because when there is risk-on sentiment in the market, investors tend to move funds out of the safety of US treasuries and into riskier assets. The sell-off in US treasuries causes US10Y yields to rise (decreasing the bond yield differential), and the rand tends to appreciate in risk-on phases of the market, citrus paribus. (Decreasing bond yield differential; USDZAR decrease due to rand appreciation). Conversely, when investors are risk-off they run to the safety of US treasuries. The buying of US-treasuries lowers the US10-year yield which increases our bond yield differential. We all know how rapidly the rand can depreciate in risk-off phases when the liquidity wave pulls back to the US, leaving the rand on the rocky shore. (Increasing bond yield differential; USDZAR increases). Our strong correlation however weakened in August 2022 when the US 10-year yield rocketed higher after the Fed started their hiking cycle. Let’s zoom in on the Fed since its Fed week. The most important chart in the market , the Fed’s balance sheet: www.federalreserve.gov . The Fed has so far tapered roughly 5.52% off its balance sheet since April 2022. The Fed is selling treasuries to taper its balance sheet and to soak up liquidity from the market (if there will be enough buyers, only time will tell). This is rand negative. Now let’s get to where all this week’s focus will be, the Fed’s interest rate decision. The Fed is expected to slow its rate hikes to 25bps this week and push rates from 4.50% to 4.75%. The Fed tends to follow the US02-year yield (US02Y) as guidance on its interest rates and it seems as if the US02-year yield has topped out between 4.75% and 5.00%. The Fed pause seems near, and the latest inflation figures from the US supports the narrative that the Fed has managed to cool inflation. The most concerning thing in the market currently is the inverted yield curve: History doesn’t repeat itself, but it rhymes. For the Fed to normalise the credit markets it will have to pause rates. That is usually when something the market breaks and the Fed is forced to cut rates and inject liquidity into the markets. When the Fed pushes easy money ( QE or whatever buzz phrase they'll use) into the market investors rotate from longer dated bonds to shorter dated bonds. To conclude, if and when the Fed pauses its rate hikes, the US10-year yield will melt higher which could be rand positive based off our correlation analysis. Just have popcorn (and gold , silver and other real assets) ready for when the Fed is forced to cut rates/ pivot because that will be caused by arguably the biggest credit market implosion in the history of fiat money. To end off I leave you with the words of Zoltan Pozsar: "commodities are collateral, and collateral is money."
by Goose96
Dont be fooled by the pump!!!!!Bitcoin has no value. Its value is made by human emotions. What happens when humans enter the depressive state of mind? Bitcoin will no longer be supported nor be interesting. Last time I posted on Bitcoin, I said that the narrative that would drive the price down was corona. And i quote: "With this corona bullshit..." This time the narrative will change. WAR and INFLATION will drive bitcoin down this time. WAR and INFLATION will make people enter a depressive state of mind. DXY will be pumped (WAR will cause this) = Bitcoin dumped. Short the next pump to 25k and join me on this ride to the ashes. "What has been will be again, what has been done will be done again; there is nothing new under the sun." Ecclesiastes 1:9 Thank you!
Short
by Chew5Gum
9
Be prepared for a hawkish-than-expected Fed this week?Happy New Year of Rabbit! We will have a busy week. In addition to companies keep reporting result (Four of the FANNG companies will report earnings this week), other major events include a decisive Fed meeting, ECB meeting, BOE meeting, US employment data and OPEC+ meeting. Everyone’s focus will be on Fed meeting. Market fully expects a 25bp rise this week, and Fed might bow to market pressure and adapt a slower hiking pace. Having said that, the risk is Fed might signal there will be more interest rate hikes before the rate reach above 5%, rather than Fed Watch pricing in a pause at 4.75%. There is no doubt inflation is slowing down and the decelerating pace is pretty impressive, but there is still a big gap from the 2% target. Although there was some layoff news, they mainly concentrated on the sectors/companies that expanded rapidly during pandemic and now they are just downsizing to pre-covid level. From the initial jobless claims number, we can see the labour market stayed strong that might keep service inflation elevated. On Friday’s employment report, market expects hourly earnings will grow 4.3% yoy in January and unemployment rate inch up to 3.6%, that might force Fed to hike rate more than expected. The reopen of China economy might also pose risk to higher inflation. Cyclical commodity price such as copper and crude oil moved higher, offsetting the demand destruction concern resulted from a potential global recession. NYMEX WTI Crude Oil Futures broke the downtrend, a further breakthrough above USD82.64 might confirm a formation of uptrend, and could test USD93.64(Q4 double top high) and then USD96.97 (50% retracement). Any further expansionary fiscal policy targeting property or infrastructure sector in China, could also push the commodities price higher and thus the inflation. The supply chain diversification will structurally push up inflation. As the world factory, supply chain in China is very mature and cost effective, any shift of production line to other countries likely associated with higher cost. Idle capacity in China, together with new investment on supply chain in different countries, will permanently push the production cost higher. Globalization helped contain inflation, and the reverse will drive it up. There is risk the inflation will hover around 4% and refuse to go down further, that might put Fed in a difficult situation and diminishing any hope there will be an interest cut this year. ECB and BOE are expected to hike rate by 50bp this week. This might prevent Fed from being too dovish. OPEC+ will have meeting this week and no policy change is expected. However, we need to monitor the risk of escalation of geopolitical tension in Ukraine, and how Russia responds to the price cap on refined products imposed by EU and G7 from Feb 5. Be prepared for some market volatility, and a hawkish-than-expected Fed this week. Happy Trading. Disclaimers Above information are for illustration only and there is no guarantee on the accuracy of the information. They should not be treated as investment recommendations or advices. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
NYMEX:CL1!Long
by FOTrading