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Economy

Market Analysis based on QT & FED Liquidity TrackerThis is intended to be an analysis and comparison of the effect that the FED's interest rates + QT have had on the stock market during the first half of 2022, in an attempt to forecast the the impact doubling QT will have over the 2nd half and into 2023. I am still very new to both Technical Analysis, as well as the deeply interconnected workings of the financial market, so I am sharing this with the wider community in hopes of receiving and growing through feedback and even correction - so please feel free to share (I'd rather learn and grow than be right). Thanks!
FRED:WALCLShort
by trenno
1
Inflation always comes fighting back..... NUKE IT. Inflation always comes fighting back. You hit it with a bat, it brings a knife. You Stab it with a knife, It pulls a gun. You pull a gun, It brings a tank... NUKE IT. In the early 1980's Fed Chair Paul Volker raised the federal fund rate to a high of 19%. The inflation rate at that time was well above 10% and had been on and off for almost a decade. As usual this killed confidence in the Fed's ability to keep price stability which led to more inflation. Raising the rate continuously and rapidly is the only way to stomp the nation killer, Inflation. Now we are in a similar position, only we have historical data to use and stop ourselves from creating a decade of higher prices and lack of money for those who need it most. The Fed must swiftly raise our rate above 5%. Swiftly meaning yesterday. Yes, this brings shorter term pain. Yes, this means recession or maybe worse. BUT... Nothing is worse than hyper inflation. Don't believe me? Ask the Germans, it was so bad they birthed Adolf Hitler.
ECONOMICS:USCCPIShort
by Hasbula
1
Fed funds rate chasing core inflationPrior to 2008 most of the time the FFR was above core inflation. We are now in a situation that we haven't been in decades where the fed is chasing inflation. The chance of the market breaking in this environment is very high. If you have the patience to wait out these macro indicators like the re-inversion of the yield curve and the catching up of the inflation rate by the FFR i think you will get amazing market deals in all asset classes. The thing is that no on knows how much time it will take. Might take 1 year might take 5 years.
ECONOMICS:USCCPI
by BGMind_Control
Qualitative Fundamental Analysis of US Economy Sep.2022Most important factor for the economy is how GPD behaves. Several economic indicators will be observed, in order to obtain the whole economical situation and GDP growth. Technical Recession is defined when Real GDP has 2 negative consecutive quarters. 2022,Q1: -1,6 % 2022,Q2: -0,6 % 2022,Q3: 2022,Q4: Inflation target: 2% Actual: 8,3 % Unemployment rate target: 3,7-4% Actual: 3,7% GDP Growth target: Actual: Yields From the chart above can be seen that Yield Curve 10-2 is going down and most importantly - the curve is already below zero. Last time, when the curve reached this level was back in 2000 and 1 year later the "The great Recession" happened. We can also seen that the 10Y Yields and 2Y Yields are going high, which is deflationary for the economy. The 2Y Yields already crossed up 10Y Yields and this means that investors are worried about the future economy situation. Yield Curve(all Yields) is inverted. This happens if the economy shrink or is going to contract. Since Jan.2022 the Yields are going high, but the Stock market and GDP are going down. At this moment there is no perspective for changes Corporate Bonds and Credit Spread There is a strong correlation between the spread and GDP. Spread go up - GDP contract. Money Supply M2 M2 is most important measure of money supply and is used as injection and withdraw to control inflation, growth and value of the currency. From the chart above we can see that in 2020 when there was the Covid crisis, the FED aggressively printed more money to avoid recession. But this time the inflation is too high and they can not print more money. This means that they can not inject money in the economy and it will deflate. Interest rates (FED Fund Rates) Last two crisis (2008 and 2020) the FED actually reduced the Interest Rates in order to fight with the recession. This time they could not do it, because the rates were already 0 %. In order to fight with the inflation they will increase the rates and this move will make the economy to shrink more. ISM PMI, NMI In Mar. 2021 the indexes peaked and since then they go down. These indexes are leading indicators about GDP growth. Right now they are above 50 level, but when they fall below 50 and then GDP will definitely contract a lot. Consumer Sentiment Index(UMCSI) The level of confidence that consumers have about the stability and future prospects can be used to understand the overall trend of the economy. As we can see there is no confidence about the future prospects - not at all. From this indicator we can suggest that the economy will shrink. Building Permits It seems that the Permits already peaked at dec.2021 and now are going down. Developers are bearish on the prospects of the future home sales. This indicator lead us, that GDP will contract. NFIB Business Optimism Index It seems that business are not optimistic about the future, so they will not hire people and not make new investments. Very soon the index will fall below 90 level and this will be very strong indication about the economy contraction. Trade weighted USD Index Generally the rising index is deflationary for the Cyclical commodities. Which are very good indicator about future Inflation. Cyclical Commodities It seems that some commodities like copper, Crude Oil, Lumber, Iron already peaked and started to fall. The logic here is, when the commodities prices are going down, the inflation should go down too. CPI/ Core CPI We know that current inflation is much more then the FED target of 2%. Increasing the Interest Rates make dollar more attractive for the investors, thats why all USD Indexes are going up, which makes commodities prices to go down. If we consider all these facts, we can predict that inflation will go down in future in future. PPI/ Core PPI It seems that PPI indexes already peaked and now are going down. Employment Situation Report The future expectations about economy are negative, this will lead the unemployment to grow, exactly as 2020 or may be more. Future deflation and unemployment growth will shrink the economy and GDP will go down. Balance Sheet , Debt, Deficit In Covid crisis, when GDP went down the FED printed more money, which increased the Balance Sheet and Debt. The big debt brought more deficit for USA. Higher debt means more pressure to inflate. The only choices are to deflate, default on debt or inflate further. In 2020 the debt was above 100% and the Government chose to inflate more and avoid recession. The debt rose to around 140%. Levels above 100% are very critical, the debt was never bigger then now. In this case I believe the Government will chose to deflate and GDP will fall. SUMMERY The economy is technically in recession and all economical indicators shows, that the deflation just started and GDP will go down for a while. Historically the FED just printed more money, inflate more and avoid a long period of GDP contraction or even recession. Right now the inflation is out of control and the hawkish FED already announced, that the priority is to bring the inflation back to normal, by increasing the Interest Rates. This aggressive move will make GDP to contract further and economy to shrink further. Indicator --Economy, GDP--Commenter Yields--contraction--Increasing the IR will move the Yields higher, 2Y Yields will increase rapidly Credit Spread--contraction--The spread, already started to go high M2 Money Supply---contraction---It seems that this time will be no injection, but withdraws. FED Fund Rates---contraction---The FED are very hawkish, that will increase the rates, no matter what. S&P 500 VIX Index -------------- not observed ISM PMI/NMI--- contraction---Already peaked. New orders predict PMI will go down further UMCSI---contraction---It is below 50 level, which is very bearish Building Permits---contraction---Near the peak level, may be already peaked. NFIB Business optimism index---contraction---Already reached level 90, below this level it is very bearish. Trade weighted US Dollar Index---deflation---Rising Dollar Index will deflate the Commodities. Cyclical Commodities---deflation---For now prices are going down. CPI/ Core CPI---deflation---It seems that Inflation peaked, Commodities are going down, IR are going up . PPI---deflation---Same as CPI. Employment--- deflation---If economy shrink, unemployment will rise, may be to the levels of 2020. Debt/Deficit/Balance sheet---deflation---Debt is already above the critical level (100%), probably the the Government will deflate this time. Stock market ---contraction---Stock market is leading indicator for GDP, since Jan.2020 stocks are falling.
FRED:T10Y2YShort
by SerpentForexClub
The Proper Perspective on InflationAs any true trader knows, the inflation rate DID NOT GO UP 8.3%. That is what some retail news outlets claimed "year-over-year," which is plain misinformation. The retail news was designed to trigger a panic dump among the less informed last week. FACT: The rise in inflation started in late 2020, not this year. FACT: The rise in 2021 went to 7%. But the news seldom mentioned it last year. Nope, it was all about vaccines and Covid, etc. The inflation rate went down. It has been trending downward at a sustainable rate. Anyone who thought it would be lower was not paying attention. There is a 3-month decline, and it is due to falling oil prices which were constantly boosted upward during August by the big banks trying to move more investors into buying oil stocks. So, with fluctuating prices of oil between 80 - 92, there was NO WAY inflation would tick down to 8.1%. In August of 2021, inflation had already risen to 5.3%. Now in 2022, it has dropped to 8.3% from the peak of 9.1% in June. So it's 3 points higher than a year ago, obviously not 8.3 points higher. During the pandemic of 2020, the news about the Federal Reserve Board was all lathered up about deflation, that deflation was about to happen, and the world was coming to an end!!!! Sigh. Some people just have to have bad news to feel good, I guess. Oil and the war in Ukraine, which appears to be settling down with the Ukrainians taking back what is rightly their country, has lowered oil prices from $125 to 80-90, fluctuating regularly. Oil needs to drop to 70-80 for inflation to move down more. Slow improvement is how it is going to be. To assume inflation would just drop back to 2% is irrational and illogical. What is an ideal rate? For an expanding economy: around 4-5%. See that red arrow? That should be the goal. It probably is not, but it should be. Inflation lower than that indicates a sluggish economy with a lack of raises for the workforce. When inflation is not in the economy, corporations use buybacks to boost their stock prices, which creates fake rallies.
ECONOMICS:USIRYY
by MarthaStokesCMT-TechniTrader
Master of MarketsIn 2008 the U.S. central bank purchased  $1.25 trillion in mortgage-backed securities $200 billion in agency debt $300 billion in long-term Treasury securities 2008 was named QE1 and would continue for the next 6 years before the FED paused and eventually began to tighten. During times of QE, banks, companies, markets all perform great. There is plenty of liquidity to operate, margin is cheap. When the fed tightens, markets get volatile. Margin becomes expensive. Most companies will survive this volatility. They just pass the cost on to the consumer. This creates inflation. Sticky inflation. Fed has to tighten more to fight inflation. At this point it’s all they can do. But they risk crashing the markets. The fed controls just how much air is let out and how fast. That’s why you saw Jay Powell start with easing, into light QT and now in September the amounts they will be selling are very likely to put more down pressure on the markets. Just realize the FED can manage the market pressure, it’s the unexpected events during times of low liquidity and high volatility that concerns me. See the effects of Net liquidity on VIX over the past 15 years. Never reaching above 30 except during extreme events like the flash crash and china crash.. You can see we’re in a time of extreme volatility as clusters of volatility reaching over 30 4 times since Nov 2021. What is Net liquidity? Net liquidity is a formula I found on Fintwit that is supposed to predict the markets movements 2 weeks in advance. I don’t know if I believe that, but I did some Covariance analysis and there are certainly times during QE with high bullish correlation and QT there is high bearish correlations. To determine Net Liquidity you need to take The total assets of the Federal Reserve Balance sheet at 8.8 Trillion. Subtract The Treasury General Account at 617 Billion Then Subtract the 2.1T Overnight Reverse Repo You get 5.9 Trillion in Net Liquidity. Changes in the level of Net Liquidity (step up or step down) are claimed to predict the S&P 500 direction 2 weeks in advance. The claim is that of a 95% correlation since the transitory quantitive easing and reverse repo were implemented. I was curious to see if the claims were true. More on that tomorrow.
FRED:RESPPANWW
by SPYvsGME
7