Get started

Interestrates

No Signs Of QE Tapering From The BoE Yet (06 August 2021)The BoE’s decision. As widely expected, the Bank of England (BoE) carried out no change to its monetary policy during its meeting yesterday. Interest rate remains at 0.10% with all eight voting committee members voting for no change. Quantitative easing (QE) remains at £895 billion in total. Michael Saunders, one of the hawks of BoE, voted for a reduction in government bonds purchase by £45 billion. Overall positive outlook of the UK economy in the near future. In the quarterly release of the BoE’s monetary policy report, the central bank said that the “impact of COVID on the UK economy fades further over time” although the Delta variant of the virus continues to spread in the UK. The confidence on the economic recovery led to the central bank’s positive revision of its economic projections. Economic Projections: For year 2021, UK GDP: 7.25 (7.25) CPI Inflation: 4.00 (2.50) Unemployment Rate: 4.75 (5.00) For year 2022, UK GDP: 6.00 (5.75) CPI Inflation: 4.00 (2.50) Unemployment Rate: 4.75 (5.00) For year 2023, UK GDP: 1.50 (1.25) CPI Inflation: 2.00 (2.00) Unemployment Rate: 4.25 (4.25) *Figures shown in parentheses refers to projections from May 2021 The BoE expects the UK economy to return to pre-pandemic level during the fourth quarter of 2021. As with the other major central banks, the BoE also felt that the recent rise in inflation is due to transitory factors. With the ceasing of the UK furlough scheme at the end of September, BoE Governor Andrew Bailey highlighted that unemployment was “no longer expected to rise”. He also mentioned that the challenge for the economy now is whether employers can fill up the job vacancies. On the matter of QE. Little was mentioned on QE during this meeting. The BoE said towards the end of its rate statement that “should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. The committee members also intend to start unloading the bond purchased by the central bank when interest rate has risen to 0.5% and will consider to do so actively when interest rate is at least 1%. According to the BoE, interest rate is projected to be at 0.5% by the third quarter of 2024. Hence, it is likely that the central bank will be holding on to its purchases at least in the near future. Interest Rate Projection: 2022 Q3: 0.2% 2023 Q3: 0.4% 2024 Q3: 0.5%
by GH_Lee
🔥 Strong fluctuation on gold today! Be ready! This is what we said in our analysis on EURUSD from earlier today about the FED Interest rate decision: "Today is the FED Interest rate decision. This is the most important event right now. Based on that we will see certain moves in the market. That's why we will wait for it in order to see in what direction we want to trade. The question is not if there will be change in the interest rate - there won't be! The question is when is that expected to happen in the future. The comments following the news are even more important and they will definitely cause some big moves. Right now, no one knows what will happen, what will be said and how it will affect the market. That's why in moments like this the market is quiet. We prefer to stay away from trades before the news but to spend more time analysing. If you don't want to be exposed to too much risk, then I suggest you wait." The news regarding he USD also affect price on gold and that's why we expect volatility in price here as well. It is possible to see market up at 1820, however until price is below previous highs we're going to be expecting a downside move. If price quickly gets up to 1820 and it then rejects that level, then we could be looking for aggressive entries. Whatever the case is, be prepared for some big moves and don't exceed your risk limit. 👍 Please support this idea with like and comment so we can help more people together. Thank you in advance! 🙏
FX_IDC:XAUUSD
by ForexTrendline
51
EURUSD before FED. What do we expect? Today is the FED Interest rate decision. This is the most important event right now. Based on that we will see certain moves in the market. That's why we will wait for it in order to see in what direction we want to trade. The question is not if there will be change in the interest rate - there won't be! The question is when is that expected to happen in the future. The comments following the news are even more important and they will definitely cause some big moves. Right now, no one knows what will happen, what will be said and how it will affect the market. That's why in moments like this the market is quiet. We prefer to stay away from trades before the news but to spend more time analysing. If you don't want to be exposed to too much risk, then I suggest you wait. Those are the key levels that we will be watching out for. We now have a higher low and a higher high. This is a sign for an additional upside move. In such a case the level that we will be looking for is 1,1880. Looking to the downside the first support is at 1,1777. Price closing outside any of those levels will give us a clear picture of what to expect, but we will be commenting on that tomorrow.
by ForexTrendline
18
📈EURUSD awaiting the FED decisionWe are waiting for FED's interest rate decision tomorrow. This is the most important event right now. Based on that a lot of trades are being taken and future moves are being determined. That's why we recommend to not trade before such an important news. Once we have a clear market direction, that's when we want to get involved. What are the expectations and more likely scenarios? EURUSD is still in a downtrend. As long as the pair doesn't go above 1,1880 that will remain unchanged. Also, it's very likely that we will see price reaching 1,1840-50. This is an entry opportunity using a low risk. If you will be doing that then make sure to wait for a push of the level and a reversal candle! Everything will be clear after the news, therefore if you don't want to take on unnecessary risk just wait! 👍 Please support this idea with like and comment so we can help more people together. Thank you in advance! 🙏
Short
by ForexTrendline
6
ECB Meeting And Its New Inflation Target (23 July 2021)New monetary policy strategy. Earlier this month, the European Central Bank (ECB) reconvened its policy review that was postponed since last year due to the COVID-19 pandemic. During the review, the central bank revised its current goal of achieving an inflation level of “below, but close to 2%” to the new goal of achieving 2% inflation with overshoots allowed. This new inflation target is symmetric, meaning to say that inflation falling below or rising above the 2% target are both equally undesirable. However, knowing that it is unlikely inflation will be constantly maintained at the 2% target, slight deviation from 2% temporarily is still acceptable by the ECB. But if inflation were to deviate from that target by a significant amount for a sustained period of time, the central bank will carry out the necessary actions to address it. Revised forward guidance. During the monetary policy meeting yesterday, the ECB held its interest rate and quantitative easing (QE) unchanged. The central bank’s President Christine Lagarde said that no discussion on quantitative easing was carried out. In response to the newly adopted inflation target, the ECB has revised its forward guidance on interest rates. “In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Simply put, the central bank will consider an interest rate hike only when inflation is seen to be reaching the 2% target way before the end of its projection horizon and is deemed to sustain for the rest of the projection horizon. Based on the ECB’s economic projection material, the projection horizon is defined to be three years. With the revised forward guidance, the ECB is now seen to be more accommodative for a longer duration. Looking at the ECB’s quarterly economic projections released in June, Inflation Forecast 2021: 1.9% 2022: 1.5% 2023: 1.4% we can see that the central bank’s inflation expectation is still quite a distance from 2%. During the press conference, Lagarde also highlighted that the ECB is expecting “inflation to rise over the medium term” although it is still below the 2% target, while “longer term inflation expectations have increased” but are some distance away from the target. Lagarde also mentioned that the recent rise in inflation in the eurozone is largely due to temporary drivers such as higher energy prices and base effects from the strong decline in oil prices. With the persistently low inflation in the eurozone, it is unlikely the ECB will carry out a rate hike in the near future.
by GH_Lee
EURUSD before ECB | What to expect? The analysis from yesterday is going as expected and it confirms the direction that we were looking at. And that gives us an opportunity to look for short positions today! But there are a few conditions! Do not enter a trade now. We're still waiting for ECB interest rate decision. That will cause volatility in the market. It is also very likely that there will be some misleading moves and that will be our moment to make an entry. We are going to be watching out for a certain price reaction in the selling zone and in case we see engulfing candles or long wick candles, then we're going to be looking for an entry. EURUSD should not rise above 1,1880, otherwise this scenario wouldn't be valid! If we see price pushing off of the zone then we could expect another downside move to 1,1700!
Short
by ForexTrendline
34
STOP STOP HUNTING!!!THIS IS THE DEFINITION OF A STOP HUNT! we've all seen how the dollar has exploded over the past couple of days but NZD is not giving up without a fight you can see that every time the kiwi goes below .695 on the weekly candle it rushes back up before the week is over. now fundamentally speaking, WE KNOW the RBNZ (New Zealand Central Bank) will be raising rates next month from the current .25%. & WE KNOW THE SMART THING TO DO IS TO PUT OUR MONEY INA STRONG CURRENCY WITH HIGH INTEREST RATES, ESPECIALLY AGAINST LOW ONES JPY( -.10%) CHF(-.75%), & USD (.25),which happens to be all the "SAFE HAVEN" currencies i cannot be the only one looking ahead and seeing the true potential of the KIWI. nzdusd must go to .7315 (400+ PIPS) nzdchf must go to .662 (250+ PIPS) nzdjpy MUST GO TO 83.9 (800+ PIPS)
Long
by SlattYSL
3
M2 Money StockWe are witnessing a Crisis on par with LTCM, similar to the Russian Bond collapse. The Reverse Repo pool can be used in Net Effect to raise Rates. "Net" as it has another insidious component to it - Money Markets will again come under duress as the DX moves below Par at 100 Basis. Money Market Funds are seeing large inflows as Primary Institutions are telling Corporate Depositors to stop placing Liabilities on their Balance Sheets (Deposits are a Liability) - Interest Rates are relatively low for Money Market Accounts. We are watching a liquidity crisis begin to unfold. Wells Fargo cutting off personal loans - banks will be in trouble beginning in August. Loans are how Banks profit. The moratorium of eviction and mortgage defaults is lifted on July 31st. Defaults on loans are assured. Wells Fargo calling in all personal loans now in order to buffer the approaching defaults. When cash in Banks is reduced - the ability for Banks to weather a series of defaults is impaired - the impairment only serves accelerates the liquidity crisis merely weeks away.
FRED:M2REALShort
by HK_L61
3
BULLISH reversal in play for the US Dollar! Following the 2008 Financial Crisis, the Federal Reserve had to apply loose monetary policy measures in order to stabilize and stimulate the economy. The Fed started lowering the Federal Funds Rate back in late 2007, as a response to the rising unemployment at the time. This is the most traditional monetary policy measure, which aims to stimulate both businesses and individuals to borrow and spend more, which in turn would lead to an increase in economic activity. When rates are low borrowing money to start a business, buy a house or a car looks much more appealing and attractive. When the economy is in a recession such monetary policy actions are helpful and needed, but if interest rates stay very low for way too long after the economy stabilizes, then the higher spending levels caused by the cheap available credit would simply lead to higher inflation. Inflation has been one of the most heavily discussed subjects so far in 2021 and rightfully so. You see, a substantial increase in inflation is a net negative for all of the major markets out there – Bonds, Stocks, USD Bonds Inflation is a bond’s worst enemy as basically a bond is a contractual agreement between a borrower (Seller of the bond) and a lender guaranteeing that the Lender (Buyer of the bond) would be receiving the bond’s Face Value at maturity plus all of the regular and fixed interest payments (coupons) up until that point. Well, considering that both the Face Value and Coupon are fixed US Dollar amounts, a higher inflation would basically erode the real returns of that bond. To put it in simple words if the yield on a 10-year Treasury bill is 2%, that means that the investor is guaranteed to get a 2% annual return on that bond investment. However, if annual inflation is at 5%, then that makes the bond investment much less appealing as an investor would be technically losing 3% per year in such environment. This is the main reason why bond yields constantly adjust to both Inflation and Interest Rate expectations. When Inflation goes up, Interest Rate expectations start shifting towards expecting a rate hike, which leads to lower bond prices and higher bond yields. This dynamic exists and occurs as in an inflationary environment bonds become less attractive and in order for demand to come back to the bond market investors need to see an adjustment in the bond yields (an increase), which will protect them against inflation and would make it worthwhile for investors to lend their money to the US government by buying these bonds instead of putting it in a savings account with the bank. The bond yields rise either when we see a rate hike or when investors expectations of a rate hike increase. This mechanic ends up protecting bond investors in a higher-interest and inflation driven environment and makes bonds more stable and attractive investment vehicles than stocks. Stocks With stocks it is much more straightforward. Stocks trade largely on current as well as discounted future corporate profits, and higher rates tend to cut into profits because they increase the cost of money. Additionally, when rates are higher that means that discounting future cash flows to the present occurs with a higher denominator, which leads to lower profitability. If the underlying reason for higher rates is inflation, rising prices and wages also increase a company's costs, which further erodes profits. As you can see higher inflation and higher rates lead to plenty of problems for stocks. USD Last but not least, inflation is also bad for the US Dollar as it erodes the purchasing power of every dollar in circulation. To put it in simple words, if you have $100,000 in your savings account earning 1% interest annually, but the inflation in the country sits at 3% you would technically lose 2% from the purchasing power of your capital, or in other words $2,000, in just 1 year. Now, after seeing why and how higher rates and higher inflation affect Bonds, Stocks and the US Dollar, you probably understand why all journalists, economists, investors, hedge fund managers, politicians, central bankers etc. are constantly discussing these topics. Inflation and Interest rates expectations are not static but rather very dynamic and are constantly modified and affected by economic reports, central bank commentary, monetary and fiscal stimulus etc. The predominant view in the market at the moment is comprised of the following elements: 1.”The US economy is on fire” – companies continue to deliver better than expected earnings, consumers are sitting on record levels of savings, people are eager to get back to their normal lives eating out, traveling, shopping. 2. “We will see 8-10% GDP growth in the 2nd half of the year” 3. “Inflation will continue to rise as a result of the low interest rate environment and the huge spending driven mostly by the heavy Fiscal Stimulus by the US Government. 4. “The Fed need to raise rates sooner in order to prevent a hyperinflation scenario” 5. “The Fed will most likely end up being behind the curve once they start tapering, which will force them to rise interest rates quicker” Now, while all of the above-listed arguments make sense to a certain extent, we believe that some of the most recent movements in the US Dollar Index (DXY) as well as the price action in the bond market, which sent bond yields lower despite the hawkish Fed in mid-June are giving us very valuable indications that there is more to that equation. We believe that the whole narrative that is circulating at the moment starts from the wrong place. Considering the fact that the US Dollar is the global reserve currency and that it has a direct impact on both US and Global inflation levels and GDP growth, every US economic analysis should start from analyzing the US Dollar performance and its possible future trends. It is true that inflation expectations affect the value of the dollar and that some people might argue that this is a “what’s first the chicken or the egg” argument, but the US Dollar is so much more than the inflation expectations that people throw at it left and right. The USD is the most influential currency in the world and depending on whether it gets stronger or weaker we see whole countries, regions and even continents either struggling or prospering. The US Dollar index (DXY) has been in a clear downtrend throughout the last 15 months, as a result of the unprecedented printing of money that we have witnessed by the Fed in response to the COVID-19 pandemic shock to the economy. The monetary M2 supply in the US increased from $15.5 trillion in February, 2020 to $18.84 trillion in October, 2020 and to $20.1 trillion in April, 2021. This represents a 21.29% increase in 2020 and a 29.7% increase year over year. Technically, such a massive printing of liquidity debases and devalues the underlying currency. As a result of that and the increased inflation speculations and worries among investors we have seen the US Dollar index dropping from $103 down to the $90 level. A lot of negativity has already been priced in the US Dollar as the logic shows that inflation will definitely be picking up, which makes it unattractive to hold significant cash reserves. Thus, everybody has been selling the USD for over a year now. However, what happened in the beginning of the year (January) was that the DXY reached the $90 strong multi-year support and found a lot of buying interest there. After a strong rebound up towards the $94 level back in April, the index came back and re-tested the $90 level and once again found a lot of buying interest, which pushed the price back up to the $92 mark in a matter of few trading sessions. This has created a clear double-bottom pattern with rising relative strength and a clear bullish interest at these levels. We believe that this is something that not many people are paying attention to as they are riding on the bandwagon that the “Dollar is going lower”. However the $90 support has been a crucial level for the DXY going all the way back to 1990s. Back in 2018 that was the exact level where the DXY stopped declining and reversed the 1.5 year long bear market that the USD was trading within since the start of 2017. The reason why we believe that the way the USD moves is so crucial at the moment comes from the fact that the main argument right now for a tighter monetary policy is associated with the “double-digit” GDP growth that everybody expects in the 2nd half of the year and the inflation that this is expected to create in the economy. Well, it seems that most people have forgotten that currency appreciation usually reduces inflation because imports become cheaper and the lower prices lead to lower inflation. It also makes imports more attractive, causing the demand for local products to fall. Local companies usually have to cut costs and increase productivity so they can remain competitive. Furthermore, that means that with the higher price, the number of U.S. goods being exported will likely drop. This eventually leads to a reduction in gross domestic product (GDP), which is definitely not a benefit. That translates to a benefit of lower prices, leading to lower overall inflation. The bond market also signaled that it does not expect the Fed to start tightening any time soon as there was a clear discrepancy between the hawkish Fed and the movement in the 10Y Treasury yields. You see, usually when an Interest Rate hike takes place or when Interest Rate expectations shift towards an increase in the Federal Funds rate, that is considered as bullish for bond yields. The reason for that as we pointed out earlier is associated with the fact that a rising interest rate environment and a potential for higher inflation makes bonds less attractive at the current extremely low yields. Bond yields then go up in order to bring back investors to the Bond market. Well, that has not happened this time around as even though we had a surprisingly hawkish Fed in mid-June, the 10Y Treasury yield has continued to fall. It seems that the 40-year long bull market for bonds has further to go. The Bond market always gives indications as to what is actually happening in the economy but very few people know how to read the correlations and information properly. The most recent price action in the 10Y Treasury yield shows that the real probability of the Fed tightening sooner than expected is much lower than what the equity markets and all other market participants are currently pricing in. Bond investors tend to have more macro-oriented view, which allows them to see the big picture better. So what does that mean? Well, with the US Dollar threatening to reverse its 1-2 year downtrend and break above the critical resistance sitting at 92-93 and Bond yields falling, the economy and inflation growth will be tamed organically by the higher dollar. We believe that this would lead to the Federal Reserve also pushing back its tightening program, which in turn will reignite risk-appetite in the market. Thus, we expect to see Growth outperforming Value in the coming months.
TVC:DXYLong
by DowExperts
GBPUSD analysis. Key levels! GBPUSD reached 1,40. At the same time EURUSD is at 1,20 After the FED interest rate decision yesterday, we saw a stronger USD and a sharp drop on both these pairs, which took price to their support levels. Right now those moves could continue to the next possible levels, but we expect it to end and therefore price will reverse and go back to the upside. We suggest that you don't enter short but look for a trend reversal on the lower timeframes with a long bias. Follow us for more opportunities!
Long
by ForexTrendline
9
EURUSD analysis before FEDToday is the most important day of the month for the future movement on EURUSD. The interest rate decision and the comments during the press conference will couse big moves. It's clear to everyone that there won't be changes in the interest rates but comments about any possible future changes will affect price immediately. Our expectations: a downside push in the zone around the 1,20 level and then an upside move will begin. Follow us for more opportunities! Good luck!
Long
by ForexTrendline
5
10 Yr Yields About to Break?When looking at the 10 Yr Yield chart, the price is currently sitting at a key area of support. A breakdown of that support could lead to a massive move to the downside. This would be enough to send equities and commodities soaring. A bounce from here should take yields right up to two big areas of resistance - first, the recent high around 1.75 and long term resistance at ~1.98-2.00. A breakout of those levels, although highly unlikely, would signal the market actually pricing in rate hikes in the near future. If that were to happen, I'm also assuming equities and commodities would not like that one bit. Another probable scenario is a temporary bounce up towards the resistance areas, followed by a rejection of those levels. Then, the most logical place for price to move would be down, down, down. Don't underestimate how important this move in the TVC:US10Y will be for equities and commodities, regardless of which direction it will be. The featured content is intended to be used for informational purposes only. Everything shared here is my own opinion. It is very important to do your own analysis before making any investment based on your own personal circumstances. Please subscribe to our channel if you like what you are seeing!
TVC:US10Y
by jstrasburger
US10Y Direction Will Influence NAS100The US10Y started trending up in February. This adversely affected the NAS100 as growth stocks started to feel the pinch of higher discount rates. The 10-Yr reached a high of around 1.75% at the end of March and then began to pull back (red vertical). This supported the NAS100 and growth stocks in general at first, but yields started to drift and the NAS100 followed. However, from 3rd June (blue horizontal), yields started to decline. Again this has supported the NAS100, which charted an all-time high yesterday. Currently, the correlation coefficient is sitting at -0.88, which shows a strong inverse relationship. Tomorrow's Fed decision is likely to have a large influence on the direction of the 10-Yr and as such growth stocks, through their discount rate adjustment.
TVC:US10Y
by FXCM
1
USDCAD analysis. Important news! Today Bank of Canada will publish their interest rate decision. We don't expect any changes, but there will be moves in the market! Last time in April, the interest rate remained unchanged, however there was a 150 pips move in the first hour! That's why we should expect moves today. USDCAD is currently trading sideways, which is very likely to end today. Entry options: Conservative - wait for the news to come out and once you see a clear breakout, then get involved in the direction of the breakout. Agressive - look for an entry before the news on a lower timeframe. Proper risk management and using stop loss is mandatory! Most probably we will see a downside continuation. Good luck!
by ForexTrendline
2
US Treasury Yield Curve and Inversions.This chart shows three times during the past three decades in which the yield curve inverts. An inversion is when the rate of a shorter term debt security is higher than the rate of a longer term debt security. This is identified on this chart in 2000, 2006, 2019. Treasury Debt Securities: Bill; less than one year to maturity at issue. Note; greater than one year but less than 10 years to maturity at issue. Bond; greater than 10 years to maturity at issue. In 2000 the yield of the 3 month US Treasury Bill was about 6.3% while the yields of both the 5 year Note and 30 year Bond were around 5.8%. In 2006 the yield of the 3 month US Treasury Bill was about 5.1% while the yields of both the 5 year Note and 30 year Bond were around 4.9%. In 2019 the yield of the 3 month US Treasury Bill was about 2.3% while the yield of the 2 year Note was around 1.8%.
TVC:US30YEducation
by ThrivingProject
1
Are bonds driving the ship?Liquidity is the whole ballgame As I've watched the market rip higher amid massive federal deficits, extremely low taxes, and extremely low interest rates over the last several years, I've experienced a growing conviction that "liquidity is the whole ballgame" where markets are concerned. You can chart stock market performance largely as a function of how "tight" or "easy" monetary policy is. Even the US badly losing a trade war to China and then getting locked down by a global pandemic couldn't keep this market down. Liquidity is controlled by the Fed and bond market, and inflation is the limit To a great extent, monetary policy is controlled by the Fed, and the Fed's mandate is to control inflation. So investors have definitely reacted negatively to rising inflation and Fed talk of eventually "tapering" asset purchases and raising interest rates. To be sure, the private market ultimately sets bond rates. Bond investors may demand higher interest rates if they see inflation coming, and lenders may demand higher interest rates on mortgages and consumer credit, too. But the private bond and lending market responds to signals from the Fed, so Fed policy and bond investor behavior go hand in hand. The bond market tries to anticipate the Fed and can be viewed as a leading indicator of what the Fed will do. Rising rates in early 2021 were bad for growth stocks and good for financials In the first months of 2021, bond rates rose sharply as inflation expectations rose and investor demand for low-interest bonds dried up. Technology stocks, especially unprofitable growth stocks like those held by Cathie Wood's ARK funds, sold off along with bonds. (Higher interest rates make it harder for unprofitable growth companies to raise capital through low-interest debt.) Meanwhile, financial stocks and highly profitable "cash cows" outperformed. (These companies are net lenders rather than net borrowers, so they tend to benefit from higher yields.) Basically, if you think the Fed will continue to pump liquidity into the system forever, you should bet on cash flow-negative bubble stocks like Cathie does. If you think liquidity's days are numbered, you should short ARKK and go long on Goldman Sachs. Liquidity rebounded in mid-March, but can it last? The bond selloff bottomed March 18, and since then, both bonds and growth stocks have made modest recoveries as yields eased. Partly this is just regression to the mean, and partly it may be that bond investors believed the Federal Reserve's narrative that inflation is "transitory" and that we won't need to taper asset purchases or raise interest rates until 2023. But inflation expectations have continued rising, and official inflation data have lately been surprising to the upside. The Citi inflation surprise index is at its highest level in 13 years. The dollar has been weakening, and foreign purchases of US treasuries have almost entirely dried up. The Russian government announced today that it will sell its reserves of US dollars and replace them with other nations' currencies. The dollar reserve system that made the last decade of "easy" monetary policy possible looks to be at risk. And the Fed is sluggishly beginning to respond to these warning signs. Regional Fed presidents Robert Steven Kaplan and Patrick Harker have been vocally calling for the Fed to start thinking about "tapering" bond purchases, and yesterday the Fed announced that it is, in fact, winding down one pandemic program to purchase corporate bonds. (But this is not a signal about tapering, they insisted to the press!) For now, Fed funds rate futures continue to price the odds of an interest rate hike in 2021 at less than 10%. But in April alone we saw month-over-month inflation of 0.8%, bringing the trailing 12 months' inflation rate to 4.2%. And 0.6% seems to be the consensus for the next two months, which would bring July's trailing 12 months' inflation rate to 4.9%. The Fed probably can't ignore 5% inflation for long. (And really it's a 7-10% inflation rate right now if you annualize the rates for March-July instead of adding up the rates for the trailing 12 months.) The technicals are flashing warning signs Although bonds have rallied since March 18, they hit a ceiling in the $140.50 - $141 range. They've also been unable to hold above their 50-day EMA or their 200-week EMA. Presently TLT is below all its major moving averages not only on the hourly chart, as shown above, but also on the weekly and daily charts: Note that TLT is still within the green triangle, but it is fast approaching a decision point. Also note the bearish hidden divergence on the RSI, which would tend to favor a downward breakout from the triangle. Recent strong economic data, including this morning's blowout payroll report, paint a picture of a strong economy and may lead to faster tapering by the Fed. That's one reason that both stocks and bonds sold off today despite the positive economic data. Sentiment is bearish I'm not the only one feeling bearish on bonds right now. The put/call ratio on TLT, is 1.8, significantly worse than the 30-day average of 1.4. And investors seem to expect the indices to sell off as well. SPY has a 1.9 put/call ratio, in line with the 30-day average, and QQQ has a 2.0 put/call ratio, only slightly better than the 30-day average of 2.1. The put/call ratio for ARKK has recently improved, down to 1.5 from the 30-day average of 1.8. But if I'm right that a bond sell-off would disproportionately affect growth stocks, then ARKK's put/call ratio may turn bearish again if TLT breaches the bottom of this triangle. ARKK's price action the last few days certainly doesn't look good:
NASDAQ:TLTShort
by ChristopherCarrollSmith
82