Intraday Market Thoughts Archives

Ultimately, the world has the best kind of problem right -- not too much demand. That's the crux of post-covid supply chain problems and the inflation threat. It's been a long time since developed markets have faced an economy that's simply too hot and it's worth remembering that the solutions are relatively simple, but with one big risk.  Commodity currencies pare losses vs USD, while metals push higher after US UMich consumer sentiment hit 10-year lows. Bitcoin added to losses after the SEC rejected VanEck application for the 1st ever Bitcoin Spot ETF. Below is the correlation chart between DXY and gold, highlighting the cycles when both strengthen in tandem. Before Ashraf sheds more detail on it next week, try to distinguish each of those 3 rare cycles on the chart.  But for now, Ashraf urges you to re-read the Gold Comex net long charts and what today's latest release may mean.

It's increasingly well-understood that supply chain bottlenecks outside of chip production aren't due to covid-imposed snags. Rather, they're due to demand for goods that well above pre-covid levels. The shifts in consumption have exposed the lack of spare capacity, particularly in a world of on-time shipping. Combine that with companies running lean inventories and we have a demand shock at a time when consumer balance sheets are in extraordinarily good shape.

Inflation may escalate or it may fall back in the way central bankers outline. If it runs, hiking rates or cutting government spending are relatively easy and well-understood solutions. The threat of a runaway wage-price spiral while central banks remain paralyzed is remote.

In all likelihood, the future will unfold with ongoing strong demand or some level less due to central banks tightening. Some asset prices are undoubtedly high but there's no visible path to an outright reversal.

China is certainly a risk as it continues to try to engineer a soft landing in the property sector but the real global risk is in bonds, which are the greatest bubble in human history. The amount of debt that's trading with a negative nominal or real return is terrifying. This week we've seen volatility in Treasuries rise to the highest since April 2020, including the largest 30-year auction tail in at least 20 years.

So while the unfolding paradigm of better growth, low rates and fiscal largess can keep the party going for years, it will ultimately end. The shape of the reverberations from a doubling or tripling of borrowing rates is tough to see but it's undoubtedly catastrophic.

The Fed spent the past week pushing back on inflationary concerns and rate hike expectations but a sizzling CPI report might have flipped the script. The US dollar broke out on a number of fronts afterwards. A US holiday will close the bond market today (Thursday). Gold is having its 2nd biggest percentage weekly gain of the year, while DXY hits 15-month highs. Whatsapp Broadcast Group members who entered long XAUUSD last Wednesday (after the Fed) at 1770/73 had the final target of 1865 yesterday--that is a $90 move in gold. Premium Insights members got a new trade yesterday. Here is the last gold chart Ashraf gave yesterday to the WBG when it reached 1845. 

US CPI rose 6.2% y/y compared to 5.8% expected. It was the highest pace since 1990 and just two ticks from the highest pace since the early 1980s. Core measures were similarly strong as housing inflation picked up.

The US dollar surged on the headlines and legged even higher after a US 30-year bond auction tailed by a stunning 5.2 basis points. The moves in bonds are reminiscent of the pops in UK, Canadian and Australian markets after the recent central bank surprises. US 5s rose 16 bps to 1.225%, which is the largest one-day move since the dawn of the pandemic.

Technically, the biggest moves were range breaks in EUR/USD and GBP/USD. The fall in the euro below 1.1500 puts it at the worst level since July 2020 while cable erased the 2021 gain.

The moves threaten a US dollar breakout more broadly. We would only caution that inflation is a global phenomenon. If the Fed shifts more hawkishly, so will other global central banks. That will add considerable volatility.

At the same time, the shift higher in rate expectations caused a second day of selling in US equities, particularly in tech. If that continues to unfold, risk aversion will offer more of a bid for the dollar, yen, Swiss franc and euro against the rest of the field.

With markets being steered by bonds, Thursday will offer an interesting dynamic. It's Veteran's Day in the US but the only market closed for it is bonds. That will leave the rest of the market to fly blind and the US economic calendar is bare.

Let's get ready for the Oct release of US CPI along with jobless claims (out 1 day earlier than usual due to Veterans Day tomorrow). One of the great puzzles in markets at the moment is the ongoing drop in inflation-adjusted bond yields and how it points to trouble ahead. The trade has the potential to blow up and reverberate through markets. US CPI is due up next (more on it below). On Tuesday, the WhatsApp Broadcast Group had a few "quick" daytrading trades in XAUUSD (long at 1821 for 1830), DOW30 (long/short inside 36170/230) and DAX40 (15990-16050). 

The yen was the top performer on Monday while the Australian dollar lagged. The theme in the FX market continues to be yield-spread compression as central banks push back on inflationary concerns.

What's concerning is that US real yields in 10s and 30s are at all-time lows. In 30s, TIPS hit a record low of 0.578% on Tuesday while nominals trade at 1.82%. That difference reflect average inflation of 2.4% over that timeline and signals that owning either asset will result in a substantially negative real return.

It also makes a compelling argument that the bond market is the greatest bubble in human history with $22.1 trillion in Treasuries outstanding and an order of magnitude globally priced against it.

Should inflation normalize at 2.4% it should prompt a Fed normalization over time, crunching long-dated bonds and quickly threatening to invert the yield curve. That's something that would imply lower inflation and boost real yields. Alternatively, long-end nominal rates could push higher on sustained high inflation and crush outright bond longs.

That's something to ponder over the longer term but in the days ahead, volatility in the bond market remains elevated and that's something that could spill over. The calm and enthusiasm in the equity market is masking deep issues in bonds. As usual, bonds will win out.

A potential breaking point is only hours ahead with October CPI due at 1330 GMT. There were no clues in Tuesday's PPI report, which was largely in line. The CPI data is expected up 5.3% y/y, a slowing from 5.4% in September. Core m/m inflation is expected at 0.3%.

 

 

A measure of the extent of market uncertainty about inflation is revealed in just how receptive markets have been to recent central bank messages. A heavy dose of Fedspeak on Monday delivered a consistent message about transitory inflation and it's one markets are listening to. With PPI coming up next and CPI on Wednesday, the debate is just getting started. Bond bulls are also cheering the possibility that the dovish Lail Brainard was interviewed at the White House for the top job at the Fed. Not that Powell is hawkish, but Brainard is as rates friendly as central banner can get. And most importantly, real yields are hitting lows everywhere, as inflation elevates and central bankers stay back. The WhatsApp Broadcast Group were informed to restart gold longs near $1760s right after Wednesday's Fed and reinforced them after NFP as shown here.   Ashraf began highlighiting the importance of real yields for gold over the past 11 months in the videos here, here and here  

Markets turned last week after Powell and other top global central bankers offered a consistent and cohesive view on high prices – that they will dissipate in time.

Many market participants disagree but middling levels of conviction are revealed by how easily the market is moved by talking points we've heard before. The reason that traders have been saying 'don't fight the Fed' for generations is because it's difficult.

The stakes in the inflation debate are enormous and it will ultimately be the data that leads, not the Fed. With that in mind, PPI and CPI in the next two days loom large. PPI can at times offer clues to the PPI report so we'll be watching closely on Tuesday.

Other signals come from markets, where yields have moved back into a range showing lower inflation and a slower path of rate hikes. A potential is also in play above the series of summer tops stretching to $1833.

بالإضافة إلى هبوط العوائد وصعود التضخم، هناك إشارة إيجابية أخرى للذهب؛ فما هي؟ يركّز أشرف العايدي في هذا الفيديو على تطوّرات هامة في صافي عدد عقود شراء الذهب ناقص عدد عقود بيع المعدن في سوق العقود الآجلة في شيكاغو. فما هي أهمية كسر مثلث صافي تمركز العقود؟ الإجابة في هذا الفيديو مع أشرف العايدي.