Yen Tracking Yield Spreads again?
During yesterday's sleepy markets, I highlighted in this tweet the rally in bund futures (rising prices, falling yields) may signal similar price action at the subsequent session, when US bond yields/prices return from Memorial Day Weekend. Today's bond price action did not disappoint, as the homogenous asset class moved in concert, delivering gap ups in prices and falling yields. This was a desperately needed development for yen bulls (particularly USDJPY shorts). Interpret what you wish from the chart below as to which is the dependent and independent variable (USDJPY or yield spread). Who leads whom? Shorting USDJPY has been the "pain trade" for our WhatsApp Broadcast Group, as we await Wednesday's debt ceiling vote and the JOLTs survey. Hanging in there.
Charts' Year to Date Performance
As the focus falls on AI, Tech and yields, cryptos are making a solid comeback. Aside from Wednesday's Congressional vote on the debt ceiling, keep your eye on the ball, namely the crucial JOLTS report, ISM and the all important NFP +AHE. What used to be +50% odds of 3 rate cuts in H2 is shifting to a possible rate hike in June careful.
What's a Cycle Completing Trade?
Powell highlighted today the challenges of monetary policy in terms of tools and outlook, pointing to the banking turmoil along with the effects of the sharpest monetary tightening in the history of the Fed and the threat of sticky inflation. Not to mention an unmovable debt ceiling in the face of staunch congressional dissent (even more than during the 2011 budget standoff).
As far as policy signaling from today's speech, Powell re-affirmed the message from this month's FOMC meeting: They will pause rates in June, with an emphasis that pausing does not mean cutting rates. The banking stress is far from over. Deposits flight may stabilize, but credit contraction is just starting. Add to that the jump in unemployment rate the Fed is forecasting from currently 3.40% to 4.5% in Q4 and you get an economic standstill. The latter ought to take care of the inflation part, but will it require cutting interest rates as is curently priced in by the market? Not too fast according to the latest data. This week's release of stronger than expected gain in US retail sales, industrial production and falling jobless claims suggest that a June pause is suitable, but an autumn rate cut is far from certain.
This week's unusual combination of rising US dollar alongside equity indices could be viewed as an exception, attributing it to the reported bi-partisan progress in debt ceiling negotiations. But that all changed about two hours ago among a breakdown in talks when Republican negotiators abruptly exited the room. The resulting rally in gold and Japanese yen was amplified by Yellen and Powell remarks indicating: i) more bank stress would mean a pause in rate hikes and; ii) more bank mergers are likely ahead (translation more bailouts).
Gold surely needed Powell's caution as the Chairman shifts from inflation-centric rhetoric to warning about banking stress. The barbarous relic is the only metal in the green this year, up 9% YTD. All energy commodities are down except for gasoline, while agricultural commodities are mainly higher, led by Sugar, save for soybeans and corn. Note that gold's 9% YTD gain is net of a 5% decline off its high. (Keep the +9% and -5% in mind for my next post).
This week's XAUUSD close around 1980 was a crucial rebound off its 1950 support. Gold bulls, however, ought to beware of complacency regarding the debt-ceiling impasse as we approach the latest release of core PCE on Friday. Keep an open mind with respect to fundamentals, cyclical shifts and intermarket technical inflection points.
Debt Ceiling negotiations remain ongoing into next week. Both parties are fully aware that the deadline is June 1st, which means pushing and pulling will go on into next week and onto the following week. We will hear a series of conflicting news as these can hit at any time of the trading day, even at nighttime in the US while Europe and Mideast are asleep. It can hit anytime. So BUCKLE UP
Complete-the-Cycle TradeOne of the longest-ranging profitable trades (lasted for 2 months) I took in my career was from autumn 2015 til spring 2016. Earlier today, I realized this same pair is revealing a similar cycle turn from 7 years ago. I will be sharing this trade idea with our WhatsApp Broadcast Group early next week, highlighting its cycle attributes and the potential for 700 pips claim from the market. Hint: It is a non-USD cross.
الذهب: نهاية أو استراحة؟
يبقى الذهب أفضل المعادن أداءً للسنة بصعود 9%. فهل يعتبر الانخفاض الحالي مجرد استراحة أو نهاية الصعود لهذا العام؟ المزيد من التفاصيل في هذا التقرير مع أشرف العايدي
First Republic, Debt Ceiling, CDS & Bitcoin
Bitcoin's status as the best candidate for replacin fractional reserve baking is resurfacing, following another 30% plunge in First Republic Bank's (FR) shares after announcing an additional loss of $72b in deposits, including the $30bn in emergency deposits provided by 11 banks. FR's latest bleed is captured in Wednesday's pre-market action (chart below), plotted against Bitcoin's swift jump back to $30000. Meanwhile, the ongoing bipartisan impasse over the US debt ceiling negotiations, is driving US CDS to a new 22-year high. No, we will not need to post a gold chart, showing rapid gains, but you can guess what's happening to metals. But you can bet that odds of post-May Fed tightening are increasingly inverse with XAUUSD.