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Gold predicting that Big falling rates cycle has almost overThere are several factors that can drive gold prices up in long term. Some of the key factors include: 1. Global Economic Uncertainty: Gold is often seen as a safe-haven asset during times of economic uncertainty or market volatility. Investors tend to flock to gold as a store of value when traditional investments like stocks and bonds are perceived as risky. 2. Inflation: Gold is often used as a hedge against inflation. When inflation is high and inflation expectations are going even higher, the purchasing power of fiat currencies decreases, leading investors to turn to gold as a way to preserve their wealth. 3. Geopolitical Tensions: Political instability, conflicts, and geopolitical tensions can also drive up gold prices. In times of uncertainty or conflict, investors may seek the safety of gold as a reliable asset. 4. Central Bank Policies: The monetary policies of central banks, such as interest rate decisions and quantitative easing measures, can impact gold prices. While investors thoughts that lower interest rates and expansionary monetary policies tend to be supportive of higher gold prices are widespread, in reality - higher due to inflationary concerns interest rates are more supportive for gold prices. 5. Demand and Supply: Like any commodity, gold prices are influenced by supply and demand dynamics. Factors such as jewelry demand, industrial demand, and gold production levels can all impact the price of gold. These are just a few of the factors that can drive gold prices up. It's important to note that gold prices can be influenced by a wide range of economic, geopolitical, and market factors. The main Graph is an Annual chart for ratio between Gold prices in US Dollars (XAUUSD) and US Inflation (USCPI). In technical terms this graph indicates that 40-years deflationary plateau, and monetary cycle of falling USD rates has almost over, while due to mentioned above reasons, Gold can start its ride to outperform inflation within many upcoming years.
OANDA:XAUUSD
by Pandorra
Shelter Inflation. The Tail That Wags The DogInflation is finally cooling off as inflation gradually loosened its grip on Wall Street and the economy in 2023, raising hopes for a gentler Federal Reserve and further gains for the market in 2024. Stocks rallied to their best 9-weeks stripe over the past 20 years in November and December, 2023 (so-called 'Santa Rally') as investors raised their bets that the Fed is done hiking interest rates to fight inflation. 6Mo USCPI Inflation was at its lowest levels since Covid-19 pandemic in early 2023 Top 4 U.S. stock market Indices were in rally in 2023 The economy has cooled under the weight of rising interest rates, as the central bank intended, but remains surprisingly resilient. Energy prices are down. Food prices are mellowing out. But the cost of having a place to live is still rising much faster than just about every other essential. U.S. Consumer Price Index inflation Headline inflation was up 3.1% from a year ago, and so-called "core" inflation, which excludes volatile food and energy prices, was up 4%. But the cost of shelter, which is the biggest component of the basket of goods the BLS uses to measure the cost of living, was up 6.5%. "The shelter index was the largest factor in the monthly increase in the index for all items less food and energy," read the Bureau of Labor Statistics report accompanying the latest data on consumer prices. "The shelter index increased 6.5 percent over the last year, accounting for nearly 70 percent of the total increase." When the covid-19 pandemic hit, the cost of housing surged as those who could afford it sought out bigger homes and many city-dwellers transitioned to the suburbs. What goes into Consumer Price Index That and a glut of savings unhindered by low interest rates combined to exacerbate what had been a long-simmering Housing crisis the U.S. But now that baked-in price hikes and rising mortgage rates spurred by tightened Federal Reserve monetary policy have put a bit of a damper on things, the housing market is also starting to cool. U.S. Single Family Home Prices in "Bubble Mode" 30Yrs Fixed Mortgage Rate is at 20Yrs Highs. 30Yrs Mortgage Annual Payment U.S. Single Family Home, only Interest. Housing prices tend to be “much stickier” than most costs, which means that when they rise we feel it more - and for longer (read - "for ever"). Housing prices do not compressed like just baked iPhone or iMac later in few years of its release. - Does all af that mean that pre-covid levels of relative housing affordability are coming back? - Sure "No". But at least American wages, which are still rising faster than before the pandemic thanks to increased worker power, will have a little chance to make up some lost ground. The issue is still Federal Reserve' lagged tightening policy, that is "The Tail That Wags The Dog".
FRED:CUSR0000SAH1
by Pandorra
Golden Doomsayer judgment is that inflation still highGold prices traded higher midafternoon on Wednesday as a report showed US inflation is still high. Gold for June delivery was last seen up, again near US$2,400 per ounce. The US Bureau of Labor Statistics on Wednesday reported the April consumer-price index rose by 0.3% from March. Shelter, gas prices remain sticky. Notable call-outs from the inflation print include the shelter index, which rose 5.5% on an unadjusted, annual basis, a slowdown from March. The Shelter index (the largest US CPI component with near 32% weight) rose 0.4% month over month and was the largest factor in the monthly increase in core prices, according to the BLS. Sticky shelter inflation is largely to blame for higher core inflation readings, according to economists. In technical terms, Gold prices are on positive path, firmly above 26- and 52-weeks SMA, while 50/200-weekly SMA Golden Cross that occurred in 2017, still works pretty well, helps year after year to robust gain in yellow metal. Technical perspectives are near 2550 and 2800 per XAUUSD ounce in this time.
OANDA:XAUUSD
by Pandorra
1
Short GBPUSD on Strong USD SentimentThe Federal Reserve's unwavering commitment to a restrictive monetary policy aimed at restoring economic balance and curbing inflation, recent market sentiment strongly favors the US dollar. Against this backdrop, the GBPUSD pair finds itself in a precarious position, hovering around the pivotal point of 1.27815. The heightened expectations of the Fed continuing its policy firming, coupled with concerns over inflation, suggest a potential downside for GBPUSD. Technical analysis aligns with this sentiment, indicating a possible bearish trajectory towards the target level of 1.26181. As we delve into the intricacies of this forecast, it becomes evident that the dynamics of strong USD sentiment and the Federal Reserve's steadfast approach set the stage for a compelling trading opportunity. Technical Analysis: Current GBPUSD level: 1.27815 (around pivot point) Technical bias: Bearish 🐻 Target level: 1.26181 Reasoning: Strong USD Sentiment: The recent statements from the Federal Reserve suggest a commitment to a restrictive monetary policy stance to achieve their inflation target. This has led to a boost in market sentiment favoring the USD, as evidenced by recent economic data indicating inflationary pressures. Fed's Policy Actions: The Federal Reserve has implemented a restrictive policy over the past two years to achieve balance between demand and supply and restore price stability. The commitment to maintaining this stance until inflation reaches the 2 percent target suggests a continued strong sentiment for the USD. Inflation Concerns: The recent inflation data, with the consumer price index increasing by 3.4% in the year through December, highlights concerns about inflationary pressures. This could lead to a stronger push from the Fed to maintain a restrictive policy, adding to the bullish sentiment for the USD. Technical Levels: GBPUSD is currently around the pivot point area (1.27815), indicating a potential turning point. A break below this level could signal further downside movement. The target level of 1.26181 aligns with the bearish sentiment and provides a reasonable downside objective. Risk Management: Stop-loss can be set above Pivot Point or a key resistance level to manage potential losses. Monitor economic releases and Fed statements for any changes in sentiment that could impact the trade. Disclaimer: The outlined trading idea is not a guarantee of future results, and past performance is not indicative of future performance. Always use risk management strategies such as setting stop-loss orders to mitigate potential losses. It is essential to stay updated on economic releases, central bank statements, and any other relevant news that might impact currency movements. Happy Trading! 📉🐻
Short
by fardycurry
US & Headline CPI - October Release/Overview US CPI US Headline and Core CPI for October both came in lower than expected (decrease). US Headline CPI: YoY – Actual 3.24% / Exp. 3.3% / Prev. 3.7% (Green on chart) US Core CPI: YoY – Actual 4.02% / Exp. 4.2% / Prev. 4.13% (Blue on chart) The chart below illustrates the direction of the current YoY down trend for both Headline and Core CPI however we are still not at the historical moderate levels of inflation desired. You can see these moderate levels of inflation between 1 – 3% from 2002 – 2020 below. Nice to see the Core CPI come down, almost down, into the moderate historical averages PUKA
ECONOMICS:USIRYY
by PukaCharts
USD Ready To Complete a "Bullish Puzzle" After US CPI ReportToday holds significant importance as we await the release of US inflation data. Projections indicate a rate of 3.6%, surpassing the previous reading of 3.2%. This surge in expectations has propelled the US dollar's recent strength, driven by speculations that the Federal Reserve (FED) may consider implementing further interest rate hikes in the upcoming meetings. Additionally, escalating energy prices underscore the challenge of swiftly returning inflation to the 2% target. Consequently, the USD remains in an upward trajectory for the time being. Nevertheless, even if the inflation data hovers around or slightly exceeds the 3.6% mark, there's the possibility of a "buy the rumor, sell the news" effect. It's worth noting that the DXY has already seen a 6% rise from its summer lows, suggesting that a robust inflation report might already be factored into current prices. Taking an Elliott wave perspective into account, the recent price action appears corrective, with wave four unfolding within the broader uptrend. This implies that the market might be gearing up for one final upward surge in the coming days, potentially reaching resistance levels around 105.50-106. This zone could serve as the culmination point for higher-degree patterns. Therefore, I'll be on the lookout for signs of a reversal after this anticipated new high.
TVC:DXY
by ew-forecast
1
✅ Daily Market Analysis - THURSDAY AUGUST 10, 2023Key News: USA - Core CPI (MoM) (Jul) USA - CPI (YoY) (Jul) USA - CPI (MoM) (Jul) USA - Initial Jobless Claims Stock Futures Ascend as Earnings Await and CPI Looms As the night unfolded, stock futures embarked on a steadfast ascent, following the delicate incline exhibited by key benchmark indices. The investment community remained poised on the precipice, meticulously tracking the impending cascade of earnings reports, all the while casting a vigilant eye on a pivotal consumer price index (CPI) proclamation that held the potential to wield a profound impact on the trajectory of forthcoming interest rates. However, the Dow Jones Industrial Average found itself navigating a dip, navigating the currents of a persistent slide within the tech sector. This descent was notably fueled by a dip in the fortunes of chip stocks, prompting investors to exercise prudence in their bullish aspirations, particularly as the anticipation of Thursday's inflationary revelation loomed large. Delving into specifics, the Dow Jones Industrial Average encountered a measured contraction, reflecting a modest 0.5% decrement, which translated into a 191-point retreat. Meanwhile, the Nasdaq experienced a more pronounced downturn, marked by a substantial 1.2% dip, while the S&P 500 also participated in the retreat, conceding 0.7% of its value to the market's intricate dynamics. NASDAQ indices daily chart SPX indices daily chart China's Impact on Risk Sentiment: Unraveling the Deflationary Thread China's pivotal role in steering the risk-off sentiment across global markets cannot be overstated. The aftermath of lackluster trade data, witnessed a day prior, was further compounded by the release of yesterday's inflation metrics. These metrics served to solidify China's entry into the realm of deflationary pressures, unfurling a complex narrative that bears significant implications for the global economic landscape. The year-on-year trajectory of the Consumer Price Index (CPI) unfurled a retreat from its previous station of 0.0% to a stark -0.3%. This resonated in tandem with the Producer Price Index (PPI), which emerged at a formidable -4.4%. The emergence of this deflationary landscape finds its origins in the subdued domestic demand that has cast its shadow over the Chinese economic landscape. Foremost among the culprits is the persisting turbulence in China's property market, a challenge that continues to wield substantial influence. Adding fuel to the fire, concerns found additional fodder in the form of missed bond payments from Country Garden, further illuminating the fragility of the financial sector. Notably, the potency of the US dollar has experienced a modest tapering, a phenomenon partially attributed to the People's Bank of China (PBoC) asserting a more robust USD/CNY rate. This strategic move by the PBoC has contributed to the US dollar's diminished vigor. However, it's crucial to recognize that the steadfast reverberations of rate differentials, which have lain dormant for over a decade, stand poised to perpetuate the pressure on the Chinese yuan (CNY). In this intricate interplay of financial intricacies, China stands as a pivotal player, etching its influence on the broader global narrative. The implications of its economic trajectory ripple across continents, underscoring the connectedness of today's financial landscape. USD/CNY daily chart In the intricate weave of global dynamics, the US dollar stands resolute, ready to maintain its robust stance. As the shadows of risk aversion lengthen, particularly in anticipation of today's unveiling of the US Consumer Price Index (CPI) data, a potential worst-case scenario emerges. Should the CPI reading ascend significantly beyond expectations, the aftermath could entail an additional downward push on global equity markets. However, prospects for such an outcome appear dim, as the emergence of a markedly stronger CPI figure seems improbable, particularly considering the incipient trend of rental disinflation. Simultaneously, gold prices found themselves tracing a path to a one-month nadir on Thursday. The precious metal bore the brunt of a substantial downturn over the preceding week, bending beneath the weight of a resurgent dollar and mounting yields. As aversion to risk amplifies, traders are propelled toward the allure of the dollar, their actions rooted in the belief that US interest rates will remain perched at elevated levels for an extended span through the remainder of the year. This pattern illuminates the intricate dance of market sentiments, where the gravitational pull of the US dollar and the perceived trajectory of interest rates exert their gravitational influence, shaping the complex tapestry of financial maneuvers. XAU/USD daily chart Gold's Slide Fueled by Anticipations of Elevated CPI and Dollar's Rise The recent downturn in gold's fortunes finds its propulsion in the prevalent anticipation surrounding the US Consumer Price Index (CPI) inflation for July. The prevailing sentiment was one of expectation for a modest increase, cementing the CPI at a persistent level significantly above the Federal Reserve's designated target range. This lingering specter of persistent inflation plays a pivotal role in steering the actions of the Federal Reserve. The trajectory of such indications provides a heightened impetus for the central bank to maintain a posture of high interest rates and stringent policies. These circumstances cast an ominous cloud over assets like gold that lack yield, making them appear less attractive within the financial landscape. The allurement of an augmented CPI reading didn't merely impact the precious metal; it also bestowed a renewed vigor upon the US dollar. This evolution established the dollar as the preferred sanctuary for safeguarding investments, eclipsing the allure typically associated with gold. The greenback's trajectory inched towards its five-week zenith, while the 10-year US Treasury yields held close to their peak for the year 2023. Simultaneously, in a distinct twist of events earlier in the week, select Federal Reserve officials voiced their support for additional hikes in interest rates, citing the unrelenting grip of inflation. This vocal stance from within the central bank resonated against the backdrop of its prior indications, which hinted at the possibility of at least one more interest rate escalation within the current year. In this tapestry of interconnected events, the global financial landscape remains in a state of intricate flux, where inflation readings and central bank maneuvers influence the trajectory of assets and market sentiments. US Consumer Price Index Enduring Higher Rates: Gold's Performance and Precious Metals' Struggles The prevailing anticipation centers on the prospect of the bank maintaining elevated interest rates over an extended duration, a situation that casts a shadow over gold's potential for substantial upswings across the year. The enduring presence of heightened interest rates magnifies the opportunity cost linked to investments in gold and other akin non-yielding assets. In the midst of this environment, other precious metals are also navigating the tempest of significant losses for the week. Among them, platinum bore the brunt of a nearly 4% descent, while silver bore the weight of a 4.1% drop. These precious metals find themselves entangled in the same web of financial dynamics, where the pull of interest rates and the allure of competing assets contribute to the delicate dance of their market performance.
by FOREXN1
5
Elliott Wave Review Ahead Of US CPI Data On EUR, NZD and BitcoinWe have a busy week ahead, with plenty of important data for the interest rates policy in US, UK and EU. We have US CPI already tomorrow, which will be interesting data as speculators will put their bets on FOMC decision which is scheduled a day later. From an Elliott wave perspective, I will focus on EURUSD and KIWI which can offer nice buying opportunities on a pullback. I will also look at bitcoin. Trade well, Grega
by ew-forecast
GOLD TRADING IDEA 10 NOVEMEBRGOLD consolidated yesterday within the range with some dollar strength in play, we got some deeper pullback to 1721-1722 level , today also we will be stick with higher time frame bearish bias , and macro information advantage supporting dollar strength, Also today the CPI & jobless numbers will remain some key data shedule to release @ 7.00 PM IST will be pplaying important tole in next move of gold. If overall inflation numbers comes higher than expected then FED's hawkish path will be continued and we can see market back to higher time frame macro sentiment i.e Gold bears, Strong dollar, indices sell off If data shows improvement and CPI is lower than expected or as expected, investors will take that as hope of FED pivots and it will keep gold more bullish , dollar bearish and indices bullish. Trade idea for gold today. 1. We will be looking to sell gold near key level 1715-1716.5 Targeting 1700-1695 , 1721 will be another are of interest to sell gold for Target 1700. 2.We have a huge liquidity gap between 1702-1682, which shall get filled ,so any break below 1700 will be a short entry after confirmation for Target 1682, 3.We will be looking to buy only above 1723 with till 1730, 4. Unless we have a catalyst for dollar weakness ( New geopolitical tension , improved CPI data , currency intervention , bond buying etc) we are not seeing gold breaking above 1730. with some surprising CPI numbers only we are seeing gold to break above 1730 and there on till 1765.
OANDA:XAUUSD
by Fxoverseas
1
US CPI September Forecast Related to USOIL PriceHello everyone. Today I'm gonna make some forecast about the US CPI for September 2022. As we all know that Oil price retreated on September 2022 and from the chart you can see that there is some minor bullish momentum on 8.3% CPI reading but retreats below afterwards and this will be a good sign that the US CPI on September 2022 will have a lower reading. I'm forecasting around 8.1%-7.8%. Even though the reading is a positive sign but it is still far from the FED goals of targeting to 2% inflation as they highlight more that 3 times after the JHole symposium. I am feeling committed that we are going to have another 75 basis points in October FOMC meeting. Thus, we will see another DXY rally towards 121. Have a safe trade tomorrow.
FX:USOIL
by User54215116081
XAUUSD - GOLD CURRENT SITUATION#GOLD - - As we can see, GOLD is still going down since the last few days. The reason was that the US10Y was constantly strengthened by MARKET UPDATES. But as soon as there is an opportunity in the future, GOLD can be BUY as per the MARKET STRUCTURE. But yet there is no reason or incident to make GOLD MARKETS FUNDAMENTALLY UP yet. - By now, GOLD must go to 1671 LEVEL. After that, the PRICE must go up at 1910, definitely a STRUCTURE BREAK If one comes. Definitely follow the STRUCTURE we have given. Before that, the GOLD PRICE can be UP on the TRENDLINE by today's CPI DATA until the 1789 LEVEL. Pay attention to that too. - Currently, US 10Y is slightly UP. Also, DXY is also slightly UP. For this reason, GOLD is going down now. Anyway, everyone is waiting for US CPI DATA to come out today.
OANDA:XAUUSD
by benny_marshall
XAUUSD - GOLD CURRENT SITUATION- US10Y is currently slightly up to 3.0% LEVEL. Like we said before, it's been a bit of a CORRECTION in the last few days. We can see that the POSITIVE SENTIMENT for USD ECONOMIC DATA is also very POSITIVE for DXY. - The power of USD is still very strong in GOLD. US10Y will behave today on the behavior of CPI DATA in the NEWYORK SESSION. DXY has been DOWN very fast for the last few days. But now it is becoming UP. We look forward to hearing from DXY. US10Y LONG TERM UP is going to be with this RATE HIKE CYCLE and this MARKET CONDITION. Currently DXY is getting a bit UP with MARKET RISK OFF. Also when we look at DXY it has moved up to DXY 103.100 LEVEL. - The GOLD PRICE is currently moving slightly below the DYNAMIC S / R LEVELS. Most likely the GOLD PRICE will be SHORT TEEM UP in the future. GOLD SHORT TERM has a UP SIDE BIAS but may be more DOWN under the influence of DOLLAR in the future. So it can be a bit UP before SELL. In a DOWN SIDE CHANNEL a GOLD can be seen moving. - Currently the OVERALL MARKET is showing RISK OFF. STOCKS is currently RED showing a RISK OFF SENTIMENT. And the VOLATILITY is getting a bit UP. Also COMMODITIES show a DOWN SIDE BIAS today. Currently the MARKET has a RISK OFF SENTIMENT. Therefore, in the future, all NZD CAD AUD currencies may be slightly lower compared to JPY CHF and USD currencies. - GOLD PRICE can be UP again before DOWN until 1910 LEVEL. So GOLD is more likely to go back to the 1910 LEVEL. Then you can BREAK TREND LINE and definitely DOWN up to GOLD price 1786 LEVEL. If the TREND LINE is BREAK, you can go up to GOLD 1765 LEVEL DXY or US10Y if there is a UP TREND again. - However, the bigger picture will change if a new sentiment enters the market or the market takes a risk to strengthen the US dollar first.
OANDA:XAUUSD
by benny_marshall
EURUSD Update: US CPI and FOMC Meeting AheadJobless Claims hits the lowest level over 5 decades. As full employment becomes a reality, the Fed will be forced to focus more on taming inflation. Earlier rate hikes knocking at the door. On the other hand, ECB is keeping its accommodative position. Today's CPI data and FOMC meeting of next week will show us the path If today's US CPI comes above 6.5, FED will be forced to take the necessary actions very soon. this will send EU down to 1.08500, by the latest Q1 2022.
Short
by chartreader_pro
2
Canadian dollar edges higherThe Canadian dollar has posted slight gains on Wednesday. There are no Canadian tier-1 events on the calendar this week, so we can expect US releases will have a magnified impact on the movement of the Canadian dollar this week. With the Fed poised to launch a series of rate hikes starting in March and inflation surging in Canada, it's unlikely that the Bank of Canada will simply fold its hands. BoC Governor Tiff Macklem said as much when speaking to a Senate committee in Ottawa last week. Macklem said that additional interest rates are needed to lower inflation to the 2% target, with the number of hikes depending on economic developments. And after that? There hasn't been much guidance from the BoC, leaving the markets in the dark. Although Macklem was clear that additional rate hikes are on the way, his comments indicated that he still views inflation as transitory, saying that he expects inflation to ease in the second half of 2022. Macklem is speaking to the Canadian Chamber of Commerce today and any hints about rate moves could wake up the sleepy Canadian dollar. In the US, the markets have priced in at least five rate hikes this year, but the Fed is still more dovish. Earlier in the day, Fed member Bostic said that he saw inflation easing shortly and said he expects 3-4 rate hikes this year. Bostic's remarks boosted risk appetite, as concerns that the Fed will tighten aggressively have eased. US inflation continues to rise and the markets are bracing for an acceleration in January CPI. The consensus stands at 7.3%, which would be up from 7.0% in December. If inflation is within expectations or higher, the likelihood of a 50-basis point hike in March will increase. According to CME's FedWatch, the markets have priced in a 75% chance of a 25-bps rise and a 25% chance of a 50-bps hike at the March meeting. USD/CAD faces resistance at 1.2818 and 1.2873 1.2679 is being tested in support for a second straight day. Below, there is support at 1.2595
by OANDA
Australian dollar pauses after strong gainsThe Australian dollar is showing limited movement on Tuesday, after posting sharp gains at the start of the week. In the North American session, AUD/USD is trading at 0.7133, up 0.10% on the day. There are no tier-1 events out of Australia this week, but the data released this week is pointing upwards. The AIG Performance of Services Index for December and January punched past the 50-level into expansion territory, with a reading of 56.2, up from 49.6 beforehand. This was the first reading showing expansion in five months. This was followed by an excellent retail sales report for Q4, with gains of 8.2%, which was above expectations. Earlier today, the NAB Business Confidence survey in January jumped 15 points to +3, after a miserable -12 reading in December. However, the survey noted that business conditions weakened. With the government announcing that it will reopen the international borders and allow tourists in later this month, the economy should get a significant boost. At last week's RBA meeting, Governor Lowe said that a hike could be a year away or even longer, but the markets aren't buying it. Lowe is clearly in no rush to raise rates and may not have abandoned the view that inflation is transient and will ease in the near term. The markets, in contrast, are more hawkish and feel that high inflation will prompt the RBA to raise rates in the second half of 2022. In the US, we'll get a look at key inflation data on Thursday. The numbers could have an impact on the size of the expected rate hike next month. The markets have priced in a 33% chance of a 50-basis points hike. The Fed generally sticks to quarter-point moves, but may feel the need to inject a large hike in order to hit hard at inflation and res-establish credibility after taking heat for waiting too long to tighten policy. AUD/USD faces resistance at 0.7168 and 0.7258 There is support at 0.6987 and 0.6896 AUD/USD is near the 50% Fib of 0.7314-0.6968
by OANDA
High consumer price inflation is good for borrowers, right? Err…Another Market Myth Exposed The Nasdaq index has now declined by 10% from its November high , prompting the mainstream financial media to call it a “ correction ” whatever that means. I think they call it a bear market when it is down by 20% . Many stocks have already fallen by at least that amount, and realistically, it’s all semantics anyway. It’s early days, but what is curious, though, is that high yield , or junk , bonds continue to hold up. To be fair, junk bonds, as measured by the U.S.$ CCC & Lower-rated yield spread reached peak outperformance in June last year and have underperformed since, but yet there have been no signs, as yet, of any rush out of the sector. I heard an analyst on Bloomberg TV yesterday say that he was bullish of credit, particularly junk, because it does well in an accelerating consumer price inflation environment. The theory is that higher consumer price inflation means that companies can increase prices, thereby increasing revenue in nominal terms. At the same time, though, the amount the company owes via its bonds remains the same, thereby decreasing the debt’s real value and making it easier to service. It’s a win-win situation apparently, and that means junk bonds outperform. The opposite should be true under consumer price deflation. Junk bonds should underperform because, with nominal corporate revenues declining, the value of debt goes up in real terms, making it harder for corporates to service it. OK, I thought, channeling Mike Bloomberg’s mantra of, “ in God we trust, everyone else bring data ” let’s have a look at the evidence. The chart above shows the U.S. dollar-denominated CCC & Lower-rated yield spread versus the annualized rate of consumer price inflation in the U.S . Apart from the period of 2004 to 2006, there’s hardly any evidence to suggest that accelerating consumer price inflation is good for the high-yield corporate debt market. Junk bonds were only just being invented by Michael Milken in the 1970s, and didn’t come into popularity until the 1980s, but we can examine corporate bond performance by looking at the Moody’s Seasoned Aaa Corporate yield spread to U.S. Treasuries. Doing so, reveals that, in the first major consumer price inflation spike, between 1973 and 1975, corporate debt underperformed as the yield spread widened. In the second major consumer price inflation spike, from 1978 to 1980, corporate debt briefly outperformed but then underperformed dramatically, as annualized price inflation reached 13%. It goes without saying, of course, that this analysis is just looking at the relative performance of corporate debt under accelerating consumer price inflation. The nominal performance is another matter. Borrowers and lenders ( bond investors ) both got savaged in the 1970s with the Moody’s Seasoned Aaa Corporate yield rising from 3% to close to 12%. The conclusion we must reach is that the level of consumer price inflation does not matter to relative corporate bond performance. It does, however, matter for nominal performance . More semantics, some may say. What really matters is how it affects one’s wallet.
FRED:BAMLH0A3HYCEducation
by ferGOD
NZD yawns as manufacturing index slowsThe New Zealand dollar has posted small gains in Friday trade. In the European session, NZD/USD is trading at 0.7190, up 0.13% on the day. The pair is down 1.22% this week and is poised to have its worst weekly performance since mid-March. The BusinessNZ Manufacturing Index fell in April to 58.4, down from 63.6. Although this was a significant drop, investors do not appear to be concerned, as the response of the New Zealand dollar has been muted. The index still remains well into expansionary territory, above the 50-level which separates expansion from contraction. Global conditions have improved, which bodes well for the manufacturing sector. The New Zealand dollar plunged on Wednesday, as risk sentiment deteriorated after the US inflation report massively outperformed. This sent global equity markets and risk currencies like the New Zealand dollar sharply lower. The surge in inflation was a signal for many investors that higher inflation is here to stay, despite the Federal Reserve's insistence that the uptick in inflation is transient. How will the Fed respond to the dramatic inflation report? There seems to be some split in opinion within the Fed, which means that the market will be monitoring every Fed utterance with a fine-tooth comb. Fed member Robert Kaplan made headlines recently when he publicly called on the Fed to have a discussion about tapering, warning that there were "excesses and imbalances" in the economy and that the recovery was taking place faster than anticipated. The opposite stance was expressed by Fed member Lael Bainbaird, just one day before the bombshell inflation report. Brainard argued that inflation risks are a "transitory surge" and urged the Fed to remain patient and continue its ultra-dovish monetary policy. She pointed to the weak nonfarm payrolls report last week as an indication that the US recovery still has a ways to go, saying that, "today, by any measure, employment remains far from our goals.” Any hint by the Fed that it could tighten policy by reducing its QE purchases would be bullish for the US dollar. This means that comments from Fed policymakers in the coming days and weeks could have a significant impact on the direction of the US dollar. NZD/USD faces resistance at 0.7350. Above, there is resistance at 0.7417. There is support at 0.7166 and 0.7049
by OANDA
Pound flat after GDP data, US CPI nextThe pound is showing limited movement in the Wednesday session. In European trade, GBP/USD is trading at 1.4132, down 0.07%. On the fundamental front, US CPI is projected to come in at 3.6% year-on-year in April, up from 2.6% in March. If CPI outperforms, it could raise expectations that the Fed will move sooner to tighten policy. UK GDP numbers were a mixed bag, as the economy contracted in the first quarter of 2o21. At the same time, The monthly GDP outperformed. Analysts had expected the British economy to shrink in Q1, and this was the case, with a GDP read of -1.5%. This was slightly better than the forecast of -1.7%, but pointed to a bruising quarter, as the economy was hampered by lockdown restrictions and trade disruptions due to Brexit, such as the buildup of containers in British ports. The GDP report was also a "cup half full", as March GDP was stronger than expected, with a healthy gain of 2.1%. This easily beat the estimate of 1.3% and was well up from the February reading of 0.4%. The March expansion reflected businesses preparing for the first stage of the reopening of the economy, which occurred in early April. There was more positive news from the manufacturing front, as Manufacturing Production rose 2.1% in March, up from 1.3% and easily beating the forecast of 1.0%. The British economy is still some 8.7% smaller than prior to the Covid pandemic, but the March reading is an indication that the economy is headed in the right direction, and that bodes well for the British pound, which has been on an impressive streak. GPB/USD is up 1.13% this week and has soared in May, with gains of 2.34%. The pound avoided a potential pitfall early in the week, as the results of the Scottish election showed that the pro-independence SNP failed to garner a majority in parliament. This means that investors can count on political stability, and the pound responded with gains of close to one per cent on Monday. GBP/USD continues to test resistance at 1.4137, followed by resistance at 1.4269. There are support lines at 1.3859 and 1.3727.
by OANDA