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Inflation

Swiss franc climbing, eyes Swiss inflationSwiss franc has extended its gains on Monday. USD/CHF is trading at 0.8961 in the North American session, down 0.68%. The Swiss franc posted its strong weekly gain of the year last week, rising 1.35%. The Swissie jumped over 1% on Thursday after Swiss National Bank President Jordan hinted that the central bank could intervene in the currency markets in order to keep a lid on inflation. Thomas’ comments gave a boost to the Swiss currency, which has sagged in 2024. Even with last week’s strong gains, however, the Swiss franc has plunged 7.1% against the US dollar. The Swiss franc weakened after the Swiss National Bank unexpectedly lowered interest rates in March. A weaker Swiss franc helped make Swiss exports more competitive on world markets, but the currency’s sharp descent may have become too much of a good thing, as it is feeding inflation and raising concerns at the central bank. The Swiss franc’s downswing has had a strong impact on market expectations for a rate cut at the June 28th meeting. In early May, swap markets priced a 66% probability of a rate cut, which has fallen to around 40%. The SNB isn’t likely to make good on Jordan's threat to buy Swiss francs unless the currency continues to show a sharp depreciation, but last week’s jump shows how comments from central bankers can cause sharp swings in the currency markets. Switzerland releases May CPI on Tuesday. This is the final economic release prior to the central bank’s rate meeting and could be a major factor in the SNB’s rate decision. Swiss CPI is expected to tick up to 0.4% m/m in May, compared to 0.3% in April. USD/CHF is testing support 0.8966. Below, there is support at 0.8909 0.9061 and 0.9118 are the next resistance lines
by OANDA
The Dollar Remains On TrackThe dollar is right on its projected path as expected. Inflation has prevented the Fed from lowering rates at least once. Can we expect a rate drop before the end of the year? My guess is that even with a bit of inflation showing the Fed will drop rates at least once. There are several reasons for my conclusion here not least of which are weakening economic indications which are too numerous to list for the purposes of this post but some of which are the collapsing car market, cc default rates exploding, commercial real estate vacancies still increasing, and many other factors and lead indicators. There is also the fact that the Fed was initially expected to drop rates 3 times in 2024. Failing to drop at least once before the end of the year would have psychological ramifications on the market that potentially could be disastrous. And finally, there is the fun fact that historically the Fed has always adjusted rates in an election year. There is only one exception to this rule …2012. Based upon this statistic alone we can see that the probability of a rate adjustment this year is high. And we know that if there is an adjustment, it will almost certainly be to the downside as that is what has been expected all along. Any anomaly to expectations would cause chaos and catastrophe in the markets. All this being said we can then continue to expect the dollar to travel its expected pathway …down. 103.5 is the next support. Below that is that pink ascending trendline around 102 and rising.
TVC:DXYShort
by stewdamus
EUR/USD shrugs as Eurozone CPI higher than expectedThe euro has edged higher after eurozone CPI was hotter than anticipated. EUR/USD is trading at 1.0848 in the European session, up 0.27% on the day. The inflation rate in the eurozone surprised the markets with a hotter-than-expected release for May. The headline figure rose to 2.6% y/y, up from 2.4% in each of the past two months and higher than the market estimate of 2.5%. Energy and services prices accelerated while food inflation slowed slightly. Core CPI climbed to 2.9% in May, up from 2.7% in April and above the market estimate of 2.8%. Will the hot inflation report put a dent in the European Central Bank’s plan to lower interest rates next week? Probably not, as the ECB has strongly signaled it will cut rates and a change of heart now would not be viewed kindly by the markets. The May inflation report was higher than expected but the gain was partially attributable to one-off factors, such as a change in German public transit costs. Still, May inflation was higher in Germany, France and Spain, an indication that the path to the ECB’s 2% target will be bumpy. The ECB has slashed inflation from a high of 10.6% in 2022 to below 3% and a rate cut will provide relief to consumers and also provide a boost to the sluggish eurozone economy. In the US, the week wraps up with the Personal Consumption Expenditure price index, which is the Federal Reserve’s favorite inflation indicator. The indicator is expected to remain unchanged at 2.7% y/y and 0.3% m/m, respectively. An unexpected reading could trigger some movement from EUR/USD in the North American session. EUR/USD is putting pressure on resistance at 1.0855. Above, there is resistance at 1.0879 1.0822 and 1.0798 are the next support levels
by OANDA
EUR/USD climbs after US GDP, eurozone CPI nextThe euro has in positive territory on Thursday. EUR/USD is trading at 1.0840 in the North American session, up 0.37% on the day. The week wraps up with eurozone inflation on Friday. The market estimate for May stands at 2.5% y/y/, compared to 2.4% in April. The core inflation rate is expected to tick higher to 2.8% y/y, up from 2.7% in April. In Germany, the largest economy in the eurozone, inflation accelerated to 2.4% y/y in May, following a 2.2% gain in each of the past two months. This was the first time in five months that Germany’s inflation rate increased. On a monthly basis, inflation fell to 0.1%, a sharp drop from the 0.5% gain in April. The timing of the eurozone CPI release is significant, as it comes shortly before the European Central Bank rate meeting on June 6th. The ECB has strongly hinted that it will lower rates at the meeting and it would be a nasty surprise for the markets if the ECB changes its mind. With inflation under 3% and the eurozone grappling with sluggish economic activity, the conditions seems right for a rate cut. The ECB’s rate-tightening cycle has done a good job slashing inflation, and lower rates would provide some relief to households which are struggling with elevated rates and the high cost of living. In the US, second-estimate GDP was revised downwards to 1.3% y/y. This was below the 1.6% in the first estimate but higher than the market estimate of 1.2% and much weaker than the 3.4% gain in the fourth quarter of 2023. The drop in GDP was mainly attributable to weaker consumer spending, as consumers are yet to see any relief from the Fed’s high benchmark rate target of 5.25% to 5.50%. The Fed is concerned about stubbornly high inflation and FOMC members have been constantly pouring cold water on rate-cut expectations. The Fed has shown it can be patient and if the inflation picture doesn’t improve, it is conceivable that the Fed won’t lower rates before 2025. EUR/USD pushed past resistance at 1.0806 and is testing resistance at 1.0845 1.0765 and 1.0726 are the next support levels
by OANDA
Is Bitcoin a leading indicator of inflation?INDEX:BTCUSD Bitcoin is regarded (in some circles) as both a store of value and an inflation hedge. But what if Bitcoin is a leading indicator of inflation? In the chart shown, we can see the various Bitcoin peaks over the years preceding local peaks in US CPI (orange). The US interest rate is in blue. The last 4 peaks in US CPI YoY have occurred between 6.4 and 8.5 months after a peak in Bitcoin's price. Specifically: June 2016 high - 37 weeks (8.5 months) later at 2.7% December 2017 high - 28 weeks (6.4 months) later at 2.9% June 2019 high - 31 weeks (7.1 months later) at 2.5% November 2021 high - 33 weeks later (7.6 months later) at 9.1% It's also worth noting that the sequence of highs is the same; both BTC and CPI have a lower high, a higher high, lower high, then higher high. The peaks in 2011 and 2013 coincided with CPI highs 15 and 26 weeks later, but 2016/2017 was the time when crypto first entered the public's awareness. So why does this happen? Do Bitcoin whales buying lambos stimulate inflation? I'm joking, but I genuinely don't know, and I hope someone can explain lol. I've wondered if it's a case of correlation in that rising inflation is usually a sign of easy financial conditions—the ideal conditions for a risk asset like BTC to pump—with Bitcoin being the first to benefit as the ultimate risk asset (at least in the world of mainstream finance). I'm not sure though. The most concerning thing is the implication. We recently just made another all-time high in Bitcoin, but CPI sits at 3.4% at the time of writing, having moved sideways for almost a year now. As for whether this is a crazy coincidence, or me reaching to an astronomical degree, I don't know. The average period of time over these last 4 periods is 32 weeks, or around October/November time. The only catalysts I see are the US government spending money like it's going out of fashion and rising commodity prices. I'll also note that there doesn't seem to be any correlation with lows in inflation. Personal opinion on inflation: US inflation is stalling, rising, and falling across different measures. Producer prices, services inflation, annual PCE, and some core measures are tilting up. The only real decline recently has been core CPI. It's also interesting to note that 1 and 5-year Michigan inflation expectations are 3.3% and 3%, respectively. Multiple Fed officials have been hawkish lately: Fed's Barr: Q1 inflation was disappointing, it did not provide the confidence needed to ease monetary policy. Fed's Mester: Inflation risks are tilted to the upside. Fed's Bostic: It would not surprise me if it took longer to get to 2% inflation in the US than elsewhere. Given that we've reached a peak in interest rates (for the time being) but inflation has been moving sideways for around a year now, something has to change. It could be argued that monetary policy still needs time to work, but that doesn't really mesh with measures of inflation stalling or rising over the past year. Wouldn't the lag effect continue working to drive inflation lower? Likewise, why would the US economy be growing as fast as it is? One or more of three things will need to change: inflation, unemployment, or interest rates. Unemployment is at 3.9%, low by historical standards but rising since early 2022. Inflation, especially with what we've seen here, may also be on the rise soon. If the main lever the Fed has is monetary policy, it faces a dilemma. The data doesn't support a rate cut right now, while unemployment is rising slowly. If inflation begins to rise again, it may need to hike interest rates—not ideal when Joe desperately needs one for the upcoming election. This scenario of high inflation and high unemployment—stagflation—is what JPMorgan's CEO, Jamie Dimon, has been warning of : 'It’s a warning Dimon has issued before, previously saying he fears America is headed for a repeat of the 1970s when everything “felt great” and then quickly about-turned to a period of high unemployment and inflation paired with low demand, also known as “stagflation.” Appearing at AllianceBernstein’s Strategic Decisions conference on Wednesday, Dimon said he simply can’t see how the past five years of massive fiscal and monetary stimulus could result in anything other than this scenario. As it stands, the US dollar looks ready to surge higher and clear 2023 highs: While SPY and BTC, adjusted for inflation (CPI figure taken from first day of trading), sit below their 2021 highs: I am aware that the human tendency to look for patterns and confirmation bias may be clouding my judgement. However, in my view, the market is severely underestimating the risk of higher inflation and a potential interest rate hike, which I believe will drive the dollar higher throughout the rest of 2024. According to the Bitcoin chart, another wave of inflation could be back above 7%+. I personally find that hard to imagine, but second round effects in the 1970s saw inflation shoot past its previous peak. Deutsche Bank has drawn parallels with the 1970s . Long-term views: Long USD, Oil Short risk assets (equities, crypto) Unsure on gold and silver but skewed lower For these views to be truly validated, I would like to see: TVC:DXY above 105.75 NYMEX:CL1! above 84 AMEX:SPY below 494 NASDAQ:QQQ below 414 INDEX:BTCUSD below 56,500 This is not financial advice, nor a recommendation. I wrote this to bring attention to something strange I'd found, and strongly encourage you to do your own research. Thank you for reading.
INDEX:BTCUSD
by pasojov
23
Forecasting the US 10-Year Yield: Insights for Q2 and Q3Traders, as we navigate through the second and third quarters, understanding the potential movements of the US 10-year yield TVC:US10Y becomes increasingly crucial. Join me as we analyze the factors shaping the bond market and anticipate the trajectory of the 10-year yield in the coming months. I'm excited to share a comprehensive outlook, encompassing a short-term surge to 4.625%, a subsequent retracement to 4.3%, and finally, a bold move up to 5% by the end of July. TVC:US10Y Prepare for market turbulence! With inflation data grabbing the spotlight, brace yourself for a potential seismic shift in the financial landscape. As inflation data becomes the talk of the town, all eyes turn to the US 10-year yield TVC:US10Y , which stands on the brink of a surge towards the pivotal 4.625% threshold. We're in for a wild ride as inflation data takes center stage and sets the stage for market volatility. Reasoning: Economic Recovery Outlook: Assessing the pace and trajectory of economic recovery will be paramount in forecasting the US 10-year yield. Keep an eye on key indicators such as inflation rates, GDP growth, employment figures, and consumer sentiment surveys. Inflation Expectations: Rising inflation expectations can put upward pressure on bond yields as investors demand higher returns to offset the eroding purchasing power of their investments. Monitor inflation data releases and central bank statements for insights into future policy actions. Profit-Taking Opportunity: In anticipation of the yield surge, I'm eyeing profit-taking opportunities on USD pairs. The heightened yield environment could attract investors seeking higher returns, driving up demand for the USD in the short term. Inflation Data Surge: As inflation data takes center stage, the US 10-year yield is poised to surge towards the critical 4.625% threshold. This anticipated increase in bond yields is likely to trigger a ripple effect across the forex market, particularly impacting USD pairs. Global Economic Trends: Global economic trends and geopolitical developments can also impact the US 10-year yield. Factors such as international trade dynamics, monetary policy decisions by major central banks, and geopolitical tensions can influence investor sentiment and bond market movements. As we journey through the second and third quarters, let's stay proactive and informed to capitalize on opportunities in the bond market. Join the discussion as we navigate the intricacies of bond yield forecasting! #US10YearYield #Forecasting #BondMarketAnalysis 📈📉💡
TVC:US10YLong
by mackmackeyy
Euro edges lower as German inflation accelerates The euro is quiet on Wednesday. EUR/USD is trading at 1.0840 in the North American session, down 0.14% on the day. Germany’s inflation rate rose to 2.4% y/y in May, following a 2.2% gain in each of the past two months. The reading was in line with expectations, which explains the euro’s muted reaction. This is the first time in five months that German inflation has accelerated, with the increase driven by higher services and food prices. On a monthly basis, inflation rose just 0.1%, sharply lower than the 0.5% gain in April and below the market estimate of 0.2%. Core CPI, which excludes food and energy held steady at 3.0%. The higher-than-expected inflation report is an indication that inflationary pressures are alive and well in Europe’s largest economy. Eurozone CPI, which will be released on Friday, is expected to follow suit and tick higher to 2.5% y/y, compared to 2.4% in April. The European Central Bank will be carefully monitoring the eurozone CPI report, which comes less than a week before the ECB’s rate meeting. The central bank has signaled that it will lower rates at the June 6th meeting. Earlier this month, ECB President Christine Lagarde said last week that there was a “strong likelihood” of a rate cut in June and stated that she was confident that inflation was under control. On Monday, ECB Chief Economist Philip Lane said that the ECB was ready to cut rates next week “barring major surprises”. Interestingly, this would mean that the ECB will lower rates ahead of the Federal Reserve, which is not expected to cut before September at the earliest. The Fed is usually a leader on rate policy, but high inflation in the US has delayed plans to lower rates. This could have unfavorable ramifications for the ECB, as the euro would likely depreciate after an ECB cut, which would raise the risk of a rise in inflation. EUR/USD is testing support at 1.0845. Below, there is support at 1.0806 There is resistance at 1.0886 and 1.0925
by fisherkj4
Interest Rates look decently strongThe 2Yr yield has paced itself recently. The 10Yr #yield is picking up steam. Both went from a bearish moving average crossover, circles, to a bullish (Data not seen here, more info in profile) 2Yr is almost @ last years bank failure rates. 10Yr has been trading mostly above. Weekly 2Yr looks like it wants to skyrocket, if breaking out of the ascending triangle pattern. 10Yr has been treading higher, along its trend line. TVC:TNX Fed is in a catch 22. Cannot raise rates, more things will break BUT it but cannot lower, inflation.
TVC:US10Y
by ROYAL_OAK_INC
AUD/USD rises after retail sales tick higherThe Australian dollar has edged higher on Tuesday. AUD/USD is trading at 0.6667, up 0.25% on the day at the time of writing. Australia’s retail sales rise 0.1%, CPI next Australian consumers remain frugal and cautious, as retail sales rose just 0.1% m/m April. This was a rebound from the 0.4% decline in March and beat the market estimate of 0.2%. On a yearly basis, retail sales rose 1.3%, compared to 0.9% in March. Retail activity has been flat and that could prod the Reserve Bank of Australia to lower interest rates later this year. The RBA has held the cash rate at 4.35% for four straight times and the markets are anticipating that the next move will be a cut. However, the RBA has sounded hawkish and the RBA minutes of the May 7th meeting indicated that policy makers discussed a rate hike at the May 7th meeting. This was due to concerns that inflation, particularly services prices has been stickier than expected and that the path to the RBA’s 2-3% target will not be smooth. Australia releases April CPI early on Wednesday, which is expected to tick lower to 3.4% y/y, down from 3.5% in March. Fed members continue to send out a hawkish message about rate policy. Minneapolis Fed President Neel Kashkari said on Tuesday that he would want to see “many more months of positive inflation data” before the Fed lowers rates, adding that a rate hike should not be ruled out. Kashakri said earlier this month that rates need to stay in restrictive territory for “an extended period”. The markets are more dovish and have priced in a rate cut at 52%, according to the CME’s FedWatch. AUD/USD Technical 0.6643 is a weak support level. Below, there is support at 0.6578 0.6695 and 0.6760 are the next resistance lines
by OANDA
COST: Technical Strength Ahead of EarningsMuch of the Consumer Defensive industry and most Discount Stores have been in decline due to rising inflation. Many stores are struggling with lower revenues due to higher costs and their customers being more frugal during rising inflation periods. NASDAQ:COST is an exception with its massive strategy to buy food and common consumer necessities directly from producers and manufacturers and then use the Costco private label, Kirkland. The quality of the packaged food or clothing or other consumer product is the same, but with its ability to buy huge quantities, it has higher revenue growth after the pandemic that other stores would envy. The stock needs to settle into a sideways or platform trend to pattern out some excessive pricing structure from last quarter. It reports May 30th and the trend implies that the report should meet or exceed estimates. The previous Fundamental level is a Dark Pool Buy Zone, providing solid support. Pro traders followed that with a new pattern I call "the Nudge" which tends to lead upward momentum.
NASDAQ:COSTLong
by MarthaStokesCMT-TechniTrader
GBP/USD steady despite plunge in retail salesThe British pound continues to have a quiet week in which it has stayed close to the 1.27 line. GBP/USD is trading at 1.2715, up 0.13% at the time of writing in the European session. UK retail spending slumped in April with a 2.3% m/m decline. This followed a revised 0.2% decline in March and was much weaker than the market estimate of -0.4%. It was the largest decrease in four months, driven by a sharp fall gasoline and non-food items. Most sectors reported a drop in sales volume as unusually rainy weather put a damper consumer spending. On an annualized basis, retail sales fell 2.7%, after a revised 0.4% gain in March and missing the market estimate of -0.2%. Is the UK economy fading? The economy performed well in the first quarter, with Q1 GDP rising 0.6% q/q, its strongest quarter in over two years. The weak retail sales could be indicative of a weaker second quarter, which would support the BoE lowering the current cash rate of 5.25% which is throttling economic activity. With inflation falling to 2.3% in April, the 2% target is within striking distance and speculation has risen that the BoE will start to lower rates as early as August. In the US, the services and manufacturing sectors showed improvement in May. Services PMI jumped to 54.8 in May, up from 51.3 in April and above the market estimate of 51.3. This was the highest level in a year and pointed to improving business activity despite high interest rates. Manufacturing remains weak but the PMI rose from 50.0 to 50.9, which shows very modest growth. The 50 level separates contraction from expansion. GBP/USD is testing resistance at 1.2710. Above, there is resistance at 1.2736 1.2674 and 1.2648 are the next support levels
by OANDA
BTC - Path of least resistance and maximum painI'm not a conspiracy nut but giving room for belief in conspiracy theories, let's say the entire crypto market is a "washing machine" for various fronts. It just doesn't have any practical utility right now, that makes the world a better and safer place. The possibilities are endless but let's just say it hasn't been leveraged for any noble cause, yet. Sakamoto Natoshi would be turning in his grave should he know what his noble invention was being used for, if indeed it was a noble act from the get go. Bottomline, it has a shade to it's existence, and as such can only be construed to serve malicious intentions of governments, authorities and the rich. So it is always bound to opt the path of least resistance and maximum pain, as far as common folk are concerned, i.e. acting against them. Now stepping into reality, considering common folk, retail traders and institutions who are involved in this charade. Common folk: I meet people constantly who have never heard of bitcoin, also people who learnt about it's existence just now in 2024! A subset of this common folk with some grasp of how world economics work and an appetite for risk want a piece of the action. Retail Traders: I'm not sure if the term "retail traders" also encompasses the so called "whales". I'm assuming not. So let's say everyone working with a portfolio value of 1BTC or less. From this category (at least the sensible and well educated) never expected what happened in the first 3 months of 2024. But now that we are where we are, they also want a piece of the action(including myself), knowing very well they could be too late at the scene. Institutions: All the hedge funds and their 60+ grandpa managers who do not understand technology are also now a part of this charade, in addition to various tech companies and their CEOs, playing we know it all. "Apparently" the whole rally is attributed to the ETF inflows from said institutions. And somehow there is this sense of unshakable faith in the air, if these institutions are already invested, BTC is bound for the moon and it can never look back again. There are preposterous articles on how any price below 70k was a buy! Everything mentioned so far isn't an established fact! Let's now turn to tangible facts we know, our dear charts! Hoping and praying to the good lord, that this data is also not fabricated. The 12 month candle on the left is as big as it's ever gotten. We still have 7 months left to go until the candle closes. And looking at the volume, we are at 450k on this particular exchange, compared to an average of ~2 million on previous full candle. Assuming half a million traffic per quarter, this volume does make a lot of sense but what it doesn't correlate to, is the ETF's inflows. If anything, it should be double or triple the average based on all the news about the kind of money that's been inflowing. Very skeptical! If I were any sensible and should I consider myself in the position of a market maker, I see a lot of paths testing and breaking supports(the beaten path), rather than price discovery(the road not taken). Because, -who dares to buy any further?! -retail is already late to the party, don't want that portfolio eroding -institutions are "supposedly" already invested, who are they going to sell it too? They should be idiots to buy it all over again all the way to 100k, coz if nobody wants to buy now, who's gonna buy at 100k?! -halving has reduced the supply, there is less supply for the next 3 quarters than the previous 12 month candles and it makes sense to buy/sell lower again than at the 100k or 130k area On the contrary, looking at the perspective of taking bitcoin away from the common folk's reach, it does make sense to drive the price into the 6 figures. But then again, if you take it away from the common folk's reach, how is the so called "evil system", that's basically designed to prey on simple minds, supposed to work?! I know, I know, I'm rambling! The point is, I don't see this going to the moon any time soon! And I could be completely wrong about this and may have already fallen for the trap that's set for all of us! Time will only tell. Heartfelt thanks to anyone who's managed to reached thus far, please leave a like if you did like the read or teach me a swear word in your mother tongue down in the comments, for wasting your time! Peace!
KRAKEN:BTCUSD
by TulpenFieber
2
Top USD trades to watch ahead of Core PCE Data release The Federal Reserve’s preferred inflation gauge, US Core PCE (Personal Consumption Expenditure) Price Index MoM, is released at the end of the coming week. This means some USD trades could present themselves. But first, a quick recap on why the Core PCE Price Index matters and why it is the Fed’s preferred gauge: Unlike the more familiar Consumer Price Index (CPI), which uses a fixed basket of goods and services, the Core PCE offers a snapshot of consumer spending with a flexible and broader basket of goods and services that adapts to changes in consumer behavior. Importantly, it excludes volatile food and energy prices though. It is thus argued that the Core PCE provides a clearer view of underlying inflation trends. Some trading opportunities might exist in the EUR/USD and USD/CAD. The Euro Area’s Inflation Rate (Flash) data is due a few hours before US PCE, while Canada’s GDP Growth data is released at the exact same time as US PCE.
by BlackBull_Markets
GBP/USD shrugs as UK inflation higher than expectedThe British pound edged higher earlier today but has pared most of those gains. GBP/USD is trading at 1.2703, up 0.06% early in the North American session. UK inflation fell sharply in April, falling to 2.3% y/y. This was down from 3.2% in March and the lowest rate since July 2021 but higher than the market estimate of 2.1%. On a monthly basis, inflation dropped to 0.3%, down from 0.6% in March and just above the market estimate of 0.2%. Food prices fell while higher gasoline prices and services inflation contributed to upward pressure on CPI. Core CPI eased to 3.9% y/y, down from 4.2% in March but above the market estimate of 3.6%. The monthly reading surprised with a 0.9% gain, higher than the March gain of 0.6% and above the market estimate of 0.7%.GBP The inflation report was on the whole positive but the rise in April core CPI left investors with a sour taste and dampened expectations for rate cut in June. The money markets have lowered pricing of a June rate cut to just 18%, compared to 50% on Tuesday. The Bank of England has made inflation its number one priority and can point to an inflation rate that is closing in on the 2% target, after hitting a high of 11.2% in October 2022. The private sector is groaning under the weight of interest rates at 5.25% and the BOE has signaled that a rate hike is a possibility this summer but may have to delay an initial rate cut to August, as inflation remains sticky. In the US, we’ll get a look at the FOMC minutes of the meeting earlier this month. The minutes may provide insight into the mood of FOMC members. Based on the message that the Fed has been steadily feeding the markets, the minutes will likely be hawkish. The markets have priced in a rate hike in September but Fed members have pointed to high inflation as a reason to maintain rates in restrictive territory until there is clear evidence that inflation will remain sustainable around the 2% target. There is support at 1.2641 and 1.2570 1.2772 and 1.2843 are the next resistance lines
by OANDA
Is a rate cut imminent? Watching incoming UK Inflation data Is a rate cut imminent? Watching incoming UK Inflation data "The next move will be a cut," Bank of England's Andrew Bailey stated in response to a question about the Governors thoughts on interest rates during a speech at the London School of Economics. This does not mean the next decision will immediately be a cut; rather, rates will remain stable until a cut is implemented, effectively ruling out any rate hikes for now. This is an important distinction. The timing for cutting interest rates remains uncertain though. In the last decision, only two of the Committee's nine members voted for a rate cut. Helping decide when the cut will come will be the revelation of the UK latest inflation data, due very soon. UK inflation could be approaching a huge milestone, with some predicting that a sharp drop in the April figures will bring the headline rate below the Bank of England’s 2% target. This would be a significant decrease from the current rate of 3.2% and could determine whether a June interest rate cut is warranted, according to economists. On the GBP/USD chart, the previously dominant peak of April has been surpassed by pound bulls. The next challenge is to surpass late March’s surge to 1.2800. If achieved, the next resistance level could be the year-to-date high of 1.2893. However, recent consolidation may indicate a decline in bullish momentum. For the exact date and time, import the BlackBull Markets Economic Calendar to your email inbox.
by BlackBull_Markets
NZD/USD steady ahead of RBNZ rate announcementThe New Zealand dollar is almost unchanged on Tuesday. NZD/USD is down 0.06%, trading at 0.6102 in the European session at the time of writing. The Reserve Bank of New Zealand has shown it can be patient, having held the cash rate at 4.35% for six straight times. The central bank is expected to maintain rates yet again at Wednesday’s meeting as inflation has remained stubbornly high. Inflation has been moving lower and fell to 4% in the first quarter, down from 4.7% in the fourth quarter of 2023. However, this remains double the midpoint of the 1-3% target range and is too high for the RBNZ to start trimming rates in the near-term. At the same time, economic data for the first quarter was soft which should result in disinflation. The unemployment rate rose to 4.3% in the first quarter, private wage growth decelerated and GDP contracted by 0.1% q/q. The RBNZ had its mandate limited to inflation in December; previously, the central bank was mandated to maintain low inflation and full employment. Still, the strength of the labor market and wage growth will be eyed by the central bank as it determines its rate policy. The Federal Reserve continues to sound hawkish about rate policy and remains cautious about rate cuts. On Monday, Fed Vice Chair Philip Jefferson said that it was too early to tell if the downtrend in inflation would be “long lasting”. Fed Vice Chair of Supervision Michael Barr said that first-quarter inflation data was disappointing and was not supportive of easing monetary policy. For a second straight day, there are no US economic releases and we’ll hear from a host of FOMC members, which could provide insights about the Fed’s rate policy plans. NZD/USD is tested support at 0.6089 earlier . Below, there is support at 0.6039 0.6185 and 0.6235 are the next resistance lines
by OANDA
Arbitrage Idea on Food CommoditiesCME: Lean Hog ( CME:HE1! ), Live Cattle ( CME:LE1! ) Here is the official narrative on US inflation: The Federal Reserve’s monetary tightening policy has successfully brought down inflation rate from a four-decade high to about 3 percent, delivering much needed reliefs to US consumers. Government data supports this narrative. Take food costs as an example: In August 2022, CPI on food items reached a record 11.4%, well above the peak headline CPI of 9.1%. Rising food costs were a leading inflation contributor. By April 2024, the headline CPI went down to 3.4%, while food CPI was even lower at 2.2%, according to the Bureau of Labor Statistics (BLS). Low food prices helped decelerate the overall inflation. Grocery shoppers and restaurant diners would likely disagree as they tend to experience much bigger price hikes. Let’s read the same data from a different angle. • The headline CPI (CPI-U) rose from 267.054 in April 2021 to 313.548 in April 2024. (Note: The BLS CPI data sets the years 1982-84 as a baseline at 100.) In other words, CPI-U has gone up 17.4% in the past three years. • For the same period, food CPI rose from 273.090 to 321.566, up 17.8% in 3 years. This data shows the whole picture. The cumulative effect of multi-year inflation has elevated prices to higher levels. Annualized rates of increase have indeed decelerated. But as long as they remain positive, price levels will continue to go up. A Deep Dive on Food Inflation The BLS categorizes food items into “Food at Home” and “Food away from Home”. This methodology would result in the same type of food showing up in two categories. The logic behind it is debatable. While it makes sense to observe and report sales prices from different venues, it makes the task of data analysis much more complicated. I propose a reclassification of food items into meat, grain, and beverage categories. Each has several commodities trading on the futures market, where its price-discovery function helps bring all relevant supply and demand information together. The Livestock/Meat Market Live Cattle ( NASDAQ:LE ) and Lean Hog ( NYSE:HE ) are commodities contracts trading on the Chicago Mercantile Exchange (CME) futures market. In the past five years, Live Cattle futures have gone up over 60%, well above the 27.4% in CPI-Food for the same period. Meanwhile, Lean Hog advanced less than 5%. Why beef price rose rapidly when pork price declined throughout most of the inflationary period? What’s reason behind the diverged price patterns between the two meat products? We will come back to this in the next section. The Grain Market Corn ( TSXV:ZC ), Soybean ( NASDAQ:ZS ) and Wheat ( SEED_MSTRWHYT_FUTURES_WASDE:ZW ) are commodities contracts trading on the Chicago Board of Trade (CBOT) futures market. The 5-year price changes for Corn, Soybean and Wheat are 28.9%, 51.3% and 55.1% respectively, all above the 27.4% in CPI-Food for the same period. We observed that grain prices peaked in 2022 after the Russia-Ukraine conflict started. Wheat prices doubled in a matter of weeks, as investors feared that production by the two major wheat exporters may be interrupted. More recently, grain prices were trending down in the past two years, a result of stable supply and weak global demand. The Beverage Ingredient Market The 5-year price changes for Cocoa, Coffee, Orange Juice, and Sugar are 252%, 196%, 63% and 29% respectively. The spike of Cocoa price by 400% caught market attention earlier. This was followed by a nosedive with price cut in half. Cocoa contract does not have adequate liquidity. Trader speculation was likely the main factor causing the dramatic price movement. Arbitrage Opportunity with Live Cattle and Lean Hog Futures In “What Disinflation - Beef Price Went Up 64% in 5 Years”, published on August 7, 2023, I introduced an arbitrage idea for shorting (selling) the cattle-hog price spread. The 20-year price chart shows that the spread between live cattle (LE) and lean hog (HE) broadly stays in the range of $20-$60 per 100 pounds. On August 4th, LEV3 settled at $183.10 while HEV3 closed at $83.25. The spread has widened to nearly $100, well above the historical average. On May 17th, Live Cattle August contract LEQ4 settled at $178.85, while Lean Hog August contract HEQ4 closed at $99.55. The spread has narrowed to $79.30, down $20. Futures market confirmed my view. In my opinion, the same fundamental factors are still at work and could drive the spread down further to the $60 range. 1. Price Sensitivity and Substitution o When beef price gets too high, its demands could be partially substituted by the lower-priced pork. Price sensitive consumers would choose pork chops over a steak dinner. The result would be lower beef price and higher pork price, as the demand for the former is redirected to the latter. 2. Mean Reversion o The price spread at $100 was two standard deviations above its historical mean. Statistically speaking, such an outliner is abnormal. There is a good likelihood that the spread would fall back to the $20-$60 normal range. 3. Hog Cycle o The multi-year Hog Production Cycle has major impact, with fewer sows yielding a smaller hog production in the next 12-18 months. Hog production reduction would result in higher pork prices down the supply chain. For a thorough understanding of the fundamentals in the beef cattle and lean hog markets, please read my previous writings, listed at the end of this post. To set up a short cattle-hog spread trade, one could sell one live cattle contract and simultaneously buy one lean hog contract. Each cattle contract has a notional value of 40,000 pounds, or $71,540 (= $178.85 x 400). To buy or sell one contract requires a margin of $2,450. Each hog contract has a notional value of 40,000 pounds, or $39,820 (= $99.55 x 400). To buy or sell one contract requires a margin of $1,500. The two-legged spread trade requires an upfront margin of $3,950. Hypothetically, if the cattle-hog spread narrows to $60 from $79, the $19 difference would translate into an account credit of $7,600 (= 19 x 400). Using the margin as a cost base, the theoretical return on this trade would be 192% (= 7600 / 3950). The trade would lose money if the price spread did not narrow. 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 trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:HE1!Long
by JimHuangChicago
1
Rolling 5-Year InflationInstead of using the monthly inflation print, a 5-year (60-month) SMA is used to chart US inflation. The SMA is used to cut back on noise from “transitory” inflation, giving a better view of the broader inflation environment realized over the past half-decade. Said differently, it illustrates the inflation environment which policymakers and central bankers are/were “dealing with.” For a more short-term-oriented view of regime change, an EMA might be used in place of an SMA. A shorter-term view is likely to be more useful in the context of near-term interest rate cuts. Historically, inflation tends to evolve from one “regime” to another. The implications of a regime change are enormous, and I am growing in my conviction that we are now in a new regime, as evidenced by the SMA breaking through a key level (explained below). Since inflation prints (or, any macro data, for that matter) are a fool’s game to predict with a high degree of precision, I used a pseudoscientific approach which yielded 3.25% as the key level for inflation to “break through” to a new regime. Using 3.25% also gives us a “round” number, making it easier to quickly put inflation prints in context (for me, at least). My commentary and some ideas to consider: Why 3.25% is important: it had not been “breached” since 1996. Put another way: the prevailing inflation environment has reached a level not seen in 28 years. Why is 1996 important? A look back over the past century provides hindsight of when prior inflation regimes began and ended. After the “1970’s” (colloquially), we entered a new era which realized a prolonged downtrend in inflation worldwide. 1996 became a clear demarcation point upon identifying waves of “lower highs and lower lows” in the years since. Further, 1996 roughly coincides with the end of a series of markedly higher “waves” of inflation. I feel it is relevant to also point out the dramatic changes in the world since we last saw 3.25% in 1996. 1. Internet In 1996, the internet as we know it today was in its infancy. This is obviously a change of biblical proportions in the way we live, and never before in human history has the entire world been connected in this manner (i.e., we are the guinea pigs of computing). Entire libraries could be filled with commentary on the internet’s impact on the economy, so I will defer to the experts for opinions. That said, it has generally been disinflationary. 2. Tech Giants Today, the 6 highest weighted S&P 500 stocks account for ~25% of the index. In 1996, of these six, only MSFT and AAPL were “established” companies, and even then, AAPL was in the midst of an identity crisis and was nowhere near the trillion dollar behemoth it is today. As for the remaining four: NVDA was founded three years prior in 1993, and in 1996 laid off ~1/2 of its then-100 employees. GOOG was still a research project of a pair of PhD’s and wouldn’t launch for another two years. AMZN was still in its first year of operations as an online bookstore, a far cry from its monstrous scale today. And, finally, the founder and brainchild of META, Mark Zuckerberg, was 11 years old, and the term social media was still about a decade away from entering even the fringes of society’s lexicon. This is all to say, nearly 1/4 of the proxy for the “equity market” - the S&P 500 - is driven by ENTIRELY NEW “inventions” (or products, services, goods, etc.). In the context of inflation, NONE of these “inventions” have EVER existed in an economy with inflation “above 3.25%.” There is a mammoth amount of capital that is put towards tracking the S&P 500, and in order to balance weights when tracking, it involves the buying and selling of all its constituents together. Having been untested in a transition to a “higher” inflation regime, it remains to be seen how the heavyweights of the S&P will hold up. Should they demonstrate an inability to “absorb” inflation, it would likely result in a broader sell off of the S&P, and would be exacerbated by a rotation to fixed income should interest rates remain elevated and offer yield which is more attractive than uncertainty as to when the “absorption” will occur, if it does at all. 3. China In 1996, China was still in its second stage of economic reforms, privatizing SOE’s, and would not enter the WTO for another five years. The consequences of China’s reforms have been enormous, and are potentially the most important influencer of inflation over the past thirty or so years. Again, this is another topic that could fill a library, and I will not elaborate more. That said, the effects of China’s reforms have been largely disinflationary. It is uncertain whether this trend will continue, as China is now facing a host of serious financial issues which could reach a boiling point. In particular, China is now the dominant player in commodity markets, virtually controlling the supply and/or demand for many of the world’s raw materials. How this interacts with China’s navigation of financial issues is uncertain, but has potential to be highly disruptive to global supply chains, which would push inflation higher. 4. Government Debt The US’ prolonged wars in Afghanistan and Iraq, on which the country spent several trillion dollars over nearly two decades, were still several years from occurring. Unlike other wars in the 20th Century and in recent history, these wars were largely financed through government debt. In the opinion of many, these wars were considered to be failures. Largely agreeing with this notion, the expansion of deficit spending to finance “lost” wars not only diverted monies from useful purposes such as infrastructure and education, but also hastened the government’s need to “inflate away” its debt. According to a paper by Brown University’s Watson Institute, the interest expense alone on the debt used to finance these wars will likely exceed $2 TN by 2030. To put this in perspective, when considering the 2022 federal outlay for highway spending amounted to $47 BN, these interest payments on war debt are roughly equal to FIFTY YEARS worth of federal highway spending. To make matters worse, the debt from the US’ wars pales in comparison to the bonanza in government spending in response to COVID. A whopping $5 TN in stimulus was doled out in a matter of months. It will take years to determine the ultimate effect the stimulus money will have had on the economy’s “intangibles”. For now, it is clear this spending spree has bloated the government’s debt, and input can be argued the US is running a dangerously high Debt/GDP ratio - a bellwether of inflation. How does the government plan to dig itself out of this hole? Logic points towards the path of least resistance, which in this case means “inflating away the debt.” We very well may have already begun to see this process set in motion. Inflation, by its nature, carries political implications, which has often led to charged discourse and sensationalized media headlines. This rings particularly true in election years (this year) and in times of collective struggle (the COVID era). Unfortunately, this can muddy the waters when trying to make sense of the data prints. My aim was to make a simple illustration which can uncover a regime change in inflation. It is up to the user to determine whether the regime change signal holds validity.
ECONOMICS:USIRYY
by ltstrudw
Overall Sentiment for US Economy from January to May 2024The period from January to May 2024 has been marked by significant bearish sentiment due to multiple geopolitical events. The escalation of conflicts in Ukraine, increased US-China trade tensions, disruptions in the Red Sea, and heightened hostilities in the Middle East have collectively contributed to market instability. These events led to increased energy prices, supply chain disruptions, and heightened global volatility, which pressured the US Dollar Index. The overall bearish impact on the dollar was driven primarily by inflationary pressures from higher oil prices and increased geopolitical risks, reducing demand for the dollar as a safe haven. Large institutions had to adjust their portfolios and manage risks strategically to navigate the volatile environment.
TVC:DXYShort
by CandlesofKarma