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Inflation

The USD Outlook- Elliott WavePCE was out, seems like Inflation is stable. Powell noted they will slow down the hike, so even if data is strong they will probably stick to the plan. If data is bad, which is not impossible, considering that economy is slowing down, then the DXY will fall further. So I see win-win for the bears on DXY going forward. But there will be pullbacks of course. Here is another count I am looking at; potential impulse from a monthly channel top. I will turn back bullish if I see strong bounce from 103.80 and back to 109.
TVC:DXY
by ew-forecast
1
How I see BitcoinHello everyone, this is how I see Bitcoin in the long run. Looking at the weekly timeframe, I am still bearish on Bitcoin right now as it is still trading below the 200-EMA since June 16th, 2022. Also, we're currently in a technical recession after the FED of Atlanta has estimated a negative -2.1% for Quarter 2 of 2022. We already had a negative -1.6% decline for Quarter 1 and now after the FED of Atlanta released their estimates, we're definitely in the technicalities of a recession. If you don't believe we're in a recession right now, just look awful the big retailers did for their Quarter 1 earnings. Walmart and Target did terrible as their revenue went down from consumers cutting their spending due to inflation and of course the cost of gas/diesel, affecting truckers and consumers. Look at Target, when their Q1 earnings were released on May 18th, 2022; they had an excessive inventory as Target highlighted that there is less customer traffic in their stores, meaning that consumers are not spending as much simply because everything is getting too damn expensive, due to inflation! As consumers cut back on their spending, it will obviously affect the GDP. Just look at the consumer sentiment from the University of Michigan. It's at the lowest it has ever been recorded. It's not just consumer spending, look at how many times the 2-year and 10-year treasury yields have inverted this year. The 2-year and 10-year treasury yields have inverted multiple times in February, March, April, May, and today, as of typing this right now. Many tech companies like Coinbase, Meta, Tesla, etc., have all stopped hiring people since May of 2022, in order to cut back on Salaries and Wages Expenses, due to inflation and bad market sentiment. I could keep going on and on as there are many indicators of a recession. Obviously, we still have to wait for an official announcement from the U.S. Bureau of Economic Analysis on July 28th, 2022; whether we're in a recession or not. How does this all relate to Bitcoin? Well, for the past 4 months, every time the CPI data was released, Bitcoin always had a negative reaction to it. As inflation increases, this will cause the markets to dip even further, meaning that investors will draw away from their investments and will be on cash instead during a recession. Since we are in technicalities of a recession due to the FED of Atlanta, expect the stock market to have a negative reaction, causing the price of shares to go down, which in result, will cause a negative reaction to the crypto market in the short-term. So July 13th (CPI Data Release) and July 28th (Real GDP Data Release) will be two important days for July 2022. In the meantime, just because I am bearish on Bitcoin doesn't necessarily mean it's the end of the world. I am still bullish on Bitcoin for the long run. Just zoom-out and relax. Disclaimer: (I am not a financial advisor! Always conduct your own research before investing.)
BITSTAMP:BTCUSD
by brandonreymejia
Inflation slowdown for the AussiesToday, the Australian CPI y/y was released at 6.9% (Forecast: 7.6% Previous: 7.3%) which signaled a slowdown in the overall inflation growth. Although 6.9% is still higher than the target level of 2-3%, could this lead to a slowdown in the future interest rate hikes from the RBA? On the release of the economic data, the AUDUSD traded slightly higher from the 0.6680 price level toward the 0.67 round number resistance level. Look for the price to break above 0.67 to signal a stronger reversal higher, with the next key resistance level at 0.6780.
Long
by JinDao_Tai
6
Fed vs. Inflation 4:6CME: SOFR Futures ( CME:SR31! ), E-Micro S&P 500 ( CME_MINI:MES1! ) While football fans are fervently following the 2022 World Cup, we analogize the Federal Reserve’s year-long battle with surging inflation to a football match. In this game, the Core CPI had an early advantage over the Fed Funds Rate, at 6.00% vs. 0.25% in January. The Fed mounted decisive offense, raising rates to 4.00% and bringing the deficit down to 2 points. But make no mistake – we are still trailing in the game. The Fed would not accept defeat. With stoppage time and overtime, the fight against inflation could drag on well into 2023. When could the Fed declare victory? Its stated goal is to keep inflation at 2%. Most of us think this is unrealistic. In my opinion, the Fed needs to bring Core CPI below the Fed Funds rate at a bare minimum. The Fed has been known to be data-driven. Unless there is conclusive data showing the inflation is on the way down and the economy is cooling, the Fed is unlikely to end its monetary tightening policy. The talk of Fed Pivot is very misleading. Slowing the pace of rate hikes doesn’t mean an overhaul of monetary policy. The Fed simply needs time to collect more data and evaluate if previous rate hikes are working. A lot depends on how quickly Core CPI comes down. It peaked at 6.6% in September and lowered to 6.3% in October. But one data point doesn’t make a trend. • In 2022, Core CPI ranges from 5.9% to 6.6%. • In 2021, it was between 1.3% and 5.5%. • The last time Core CPI fell below 4% was in May 2021. • Before 2022, it was 40 years ago (August 1982) when Core CPI went above 6.0%. In the past 1-1/2 years, Core CPI ran up very quickly and then stabilized at a very high level. Any projection of 4% Core CPI is not supported by data. I don’t see Fed would take such hypothesis into consideration. Statistically speaking, bringing Core CPI down below Fed Funds rate could only be achieved by raising rates. The BLS will release November CPI data on December 13th, and the next FOMC meeting is scheduled on December 13th-14th. The Fed would have the most recent inflation data available in voting for its December rate decision. Short-term: Fed Pivot Trade Current market expectation is for the Fed to break its consecutive 75-point hikes. Any rate increase below 75 bp would give a big boost to market morale. Expect the stock market to rally, and the US dollar and bond yield to retreat. CPI data release and Fed decision are the “one-two-punch” ideal for short-term event driven strategies. There are good candidates I like for potential trade setup, from a risk-reward standpoint: • Call Options for CME E-Micro S&P 500 Futures (MES) • Call Options for E-Micro NASDAQ 100 (MNQ) • Call Options for CME Euro FX (M6E) • Call Options for CME 30-day Fed Funds Futures (ZQ) • Call Options for Three-Month SOFR Futures (SR3) For a rate increase below 75 bp, stock market is expected to rally, so it is bullish for MES and MNQ. US dollar will pull back, so it is bullish for Euro/USD exchange rate. Short-term interest rate futures are quoted as discounted instrument, 100 – Rate. Lowered expected interest rates translate into higher futures prices. Therefore, it is also bullish for ZQ and SR3. Medium-term: Recession The world runs on credit. Fed monetary tightening policies have made it more costly for businesses and households to obtain credit. The run-up in cost happened very quickly and the impacts are profound. Below are comparisons of interest rates between December 2021 and November 2022, taken from various sources: • 30-year-fixed mortgage: from 3.646% to 7.296% • 60-month auto loan rate: from 3.85% to 5.29% • Average credit card rate: from 14.91% to 19.20% • AAA corporate bond rate: from 2.06% to 4.64% • BBB corporate bond rate: from 2.53% to 5.88% • SBA loan rate: from 6%-8% to 11.5%-13.5% Even if the Fed stops raising rates now, financing costs are not likely to return to previous levels. The unwinding of Fed policy takes time. There is no indication that the Fed would lower rates after the terminal rate is reached. More likely than not, businesses and households would bear high interest cost well into 2024. While Core CPI excludes food and energy, their impacts are felt everywhere. Take diesel as an example, the national retail average price is $5.228/gallon on November 27th, according to the American Automobile Association (AAA). • This is 58.8 cents (-10.1%) below its all-time high of $5.816 set on June 19th. However, it is still 69.7% higher than a year ago. • Comparing to gasoline, at $3.555/gallon, it is $1.461 or 29.1% below its record high of $5.016. But it is a modest increase of 4.7% year over year. Diesel price is a tax on all products requiring highway transportation. Fed rate hikes are not likely to lower diesel production cost. In addition, higher wages, higher rents, and higher borrowing cost would stick, long after the Fed stop hiking rates. In my view, the US could not avoid a recession in 2023. Weakening corporate profit and elevated unemployment will eventually take a toll on stock prices. We have witnessed a strong Black Friday sales season. But worrisome signs emerge that US consumers are increasingly constrained by their budget. According to a CNBC report, Walmart is the most visited shopping destination. Higher priced Bloomingdale and Nordstrom reported a lull in sales earlier this month. The downgrade from premium department stores to discount stores is a leading indicator, a classic economic example that inferior products thrive during a recession. Another warning sign, “Buy Now Pay Later” payments increased by 78% compared with the past week, according to the CNBC report. Consumers still want to get the great deals for holidays, but they need help with financing. If the market rallies after the November CPI data and December FOMC decision, it’s a good time to set up a 3–6-month trade shorting the stock market. Investor sentiment has significant impacts in the short term. But fundamental factors will win over in the medium/long term. If inflation fails to decline materially, the Fed will stay on its tightening course. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CBOT:ZQ1!Long
by JimHuangChicago
5
Crypto/Gold AnalysisCurrent economic and political general dismay impacts the valuation of different fiat currencies, specifically the USD(DXY). This is due to: Lower global trade activity (recession) = lower dollar supply = USD price increase Demand for USD increases for the safe haven currency = USD price increase Worldwide investors' stakes in equities and cryptocurrencies have been shortened. The price of Bitcoin is declining further with the US dollar substantially rallying. Nevertheless, its arguable intrinsic value may be better approximated through spread graphs, particularly - BTC/GOLD; as it omits the mentioned political and economic supply/demand effects for a more precise analysis. This may be recognised through technical analysis of past prices The main graph presents GOLD/BTC breaking out its long-term resistance; which logically makes sense. history reminds us: The upcoming recession doesn't look promising for such volatile securities with (arguably) no intrinsic value Inflation = Gold is Bullish Potential Trade Short BTC: Entry Price:16,700 TP:15,515 SL:16,920
TVC:GOLDShort
by Sanzhar_m
4
NZD/USD higher ahead of retail salesThe New Zealand dollar continues to gain ground this week. In the North American session, NZD/USD is trading at 0.6267, up 0.35%. New Zealand will release retail sales for Q3 later in the day. The markets are expecting a small gain of 0.5%, which would be a turnaround from a disappointing -2.2% in Q2. Consumers continue to struggle with high inflation and rising interest rates, and after back-to-back declines, a gain in retail sales would be welcome news. The Reserve Bank of New Zealand delivered a huge 75-bp hike on Wednesday, which raised the cash rate to 4.25%. The move had been priced in by the markets, but the New Zealand dollar jumped 1.5%, thanks to the oversize move and a broadly-lower US dollar. The cash rate is the highest among major central banks, but there's more to come. The RBNZ has projected a terminal rate of 5.5% in 2023, which means more rate hikes in 2023. Inflation has been stickier than the RBNZ anticipated, and the bank's Monetary Policy Statement was decidedly hawkish, noting that “core consumer price inflation is too high" and "near-term inflation expectations have risen.” The statement said that inflation is expected to accelerate to 7.5% in Q4 and would not fall to the midpoint of the 1%-3% target until 2025. The RBNZ is ready for a long fight with inflation, but it remains to be seen if the bank can guide the economy to a soft landing. The Fed minutes reiterated that lower rates are on the way, which we've been hearing from a stream of Federal members over the past two weeks. The minutes were vague as far as a timeline, noting that smaller rate increases would happen "soon", as the Fed continues to evaluate the impact of the current policy on the economy. Members also voiced concern that inflation was yet to show any signs of peaking. Still, the markets viewed the minutes as dovish, which is weighing on the US dollar today. NZD/USD is testing resistance at 0.6283. Above, there is resistance at 0.6361 There is support at 0.6217 and 0.6139
by OANDA
Equity outlook Restrictive policy and geopolitical risks raise the odds of a global recession What a difference a year makes. 2022 saw the ‘reopening’ of markets from the COVID pandemic evolve into a ‘recession’. Margaret Thatcher put it succinctly on 27 February 1981 – “The lesson is clear. Inflation devalues us all.” Monetary policy has been on the most pronounced tightening campaign in decades as inflation progressed from being transitory to potentially permanent due to the energy crisis. Politics is driving economics, not the other way around In the pre-war global economy, globalisation was an important source of low inflation. A large amount of global savings had nowhere to be deployed, rendering interest rates lower on a global basis. However, post-war, global defence spending has risen to a level not seen in decades as national security consumes government’s agendas. There will be vast opportunity costs involved, tied to the increase in world military spending. We expect the rate of globalisation to take a back seat, as Europe would never want to be as dependent on Russian energy as it is today. In a similar vein, the US does not want to fall privy to the same mistake Europe made and will aim to strengthen ties with Taiwan in order to ensure the smooth flow of chips. National security is inflationary We are in the midst of a war in Europe, owing to the brutal battle being waged by Russia in Ukraine. While the war is centred in Ukraine, the reality is we are all paying the price of this war by allowing it to continue. There is another war brewing in the background that we must not fail to ignore. The United States’ deepening ties with Taiwan is aggravating China. The Taiwan issue remains sticky. Taiwan’s role in the world economy largely existed below the radar, until it came to prominence as the semiconductor supply chain was impacted by disruptions to Taiwanese chip manufacturing. Companies in Taiwan were responsible for more than 60 percent of revenue generated by the world’s semiconductor contract manufacturers in 20201. Tensions between Taiwan and China could have a big impact on global semiconductor supply chains. The United States’ dependence on Taiwanese chip firms heightens its motivation to defend Taiwan from a Chinese attack. The desire for control of technologies, commodities, and straits is paving the way for economic wars ahead. China needs to get its house in order The economic headwinds that China faces are multifaceted. Unfortunately, policy easing from China in H1 2022 has been insufficient to arrest the extent of the slowdown. Of late, China’s State Council stepped up its economic stimulus further by announcing a 19-point stimulus package worth $146 billion (under 1% of GDP) to boost economic growth2. The property markets continue to deteriorate. The problem stems from a lack of financing among many developers that is needed for construction of their residential projects. All of this came about from the central government’s decision in 2020 to introduce the ‘three red lines’ policy to rein in excessive borrowing in the real estate sector. Vulnerable property developers are struggling to secure capital to sustain their businesses. Alongside, demand for housing has deteriorated due to intermittent COVID lockdowns, weakening economy, and doubts over developers’ ability to deliver completed housing units. However, the weakness in China’s economy extends beyond the property sector with rising unemployment and energy shortages. Chinese earnings growth since Q3 2019 has lagged the rest of the world. China has also suffered significant capital outflows, owing to its adherence to COVID-zero. This has set back its rebalancing towards a consumption-driven economy, rendering China to remain more addicted to export-led growth. However, export demand has begun to weaken as the rest of the world slows. US is in the early innings of a recession The US economy appears a safe haven amidst the ongoing energy crisis as it is less exposed to the vagaries of Russian oil supply. It also recovered faster from the pandemic compared to the rest of the world. The labour market remains strong as jobs continue to be added, wages accelerate, consumption has continued to grow (albeit more slowly), and unemployment remains at a five-decade low. Despite the recent upswing in GDP growth, caused by noise in the foreign trade numbers and technicalities in inventory data, the big picture of a slowing economy in the face of aggressive monetary tightening remains intact. There are mounting signs of slowing too, especially in the housing sector owing to the rapid rise in mortgage rates. Earnings in 2022 have reflected the challenging environment being faced by US corporates with earnings growth for companies grinding down to 3.17%3.The more value-oriented sectors such as energy, industrials, and materials continue to outperform. Looking ahead, earnings revision breadth for the S&P 500 Index are in deeply negative territory suggesting downside is coming from an earnings growth standpoint. Core inflationary pressures remain concerning, especially housing rents and medical inflation – components that are typically much stickier compared to goods and transport inflation. The stickier high services inflation reflects strong labour market dynamics as services are labour intensive and housed domestically. The Federal Reserve (Fed) appears unwilling to declare victory in its war against inflation. As we look ahead, it’s clear that the Fed’s role in quelling inflation without tipping the economy into recession will take centre stage. Harsh winter ahead for Europe Europe is heading for a recession in response to a strong external shock. Gas flows from Russia to Europe have declined substantially to 10% of their levels in 2021, causing gas prices to spike. The Russian war in Ukraine is showing no signs of abating, with Russia deciding on a partial mobilisation after a rather successful Ukrainian counter-offensive. These higher energy prices are squeezing real disposable income out of consumers and raising costs higher for corporates, causing further curtailment of output. The energy driven surge in headline inflation to 10.7% year on year4 has sent consumer confidence to a record low, leaving Europe in a bind. Fiscal policy in focus The European Union (EU) aims to define the direction and speed of Europe’s energy policy restructuring through REPowerEU strategy. However, crucial energy policy decisions have been taken by EU countries at national level. In an effort to shield European consumers from rising energy costs, EU governments have ear marked €573 billion, of which €264 billion has been set aside by Germany alone. In most European countries, both energy regulation and levies are set at the national level. The chart below illustrates the funding allocated by selected EU countries to shield households and firms from rising energy prices and their consequences on the cost of living. No pivot yet from the ECB We experienced a decade of almost no inflation and quantitative easing in Europe. We have now entered a phase in which the European Central Bank (ECB) has gone ahead with its third major policy rate5 increase in a row this year, thereby making substantial progress in withdrawing monetary policy accommodation. The ECB remains eager to have policy choices dominated by risks, rather than the base case, owing to which more rate hikes are coming. If Eurozone inflation continues surprising to the upside, the ECB will have to continue raising rates and determine when to activate the Transmission Protection Instrument (TPI) to support the periphery. We expect the ECB to take the deposit rate to 2.5% by March, as it continues to see risks to inflation tilted to the upside both in the short and long term. A tightening cycle into a slower-growth macro landscape has never been helpful for equities. European equities are faced with an extremely challenging backdrop ranging from high energy prices, growing cost pressures, negative earnings revisions estimates, and cooling growth. Amid the sell-off in equity markets in the first half of this year, European equities currently trade at a price-to-earnings ratio of 14.3x, marking the steepest discount versus its long-term average of 21x compared to other major markets. The risk of a recession to a certain degree is being priced into European equity markets. Conclusion In our view, the global economy is projected to avoid a full-blown downturn; however, we expect to see a series of individual country recessions take shape at different points in time. Evident from recent data, the downturn in the US is expected in the second half of 2023 whilst the Eurozone and United Kingdom will enter a recession by Q4 this year. Contrary to the rest of the world’s key central banks, China and Japan are expected to keep monetary policy accommodative which should help buffer some of the slowdown. Given the highly uncertain environment, investors may look to consider US and Chinese equities, whilst potentially reducing weighting towards European equities. Across factors, we continue to tilt to the value, dividend, and quality factors given the expectations for weak economic growth, higher rates, and elevated inflation.
ICEUS:MWL1!
by aneekaguptaWTE
During high inflation focus on high pricing power equities2022 continues to prove difficult for investors around the globe. The conjunction of heightened geopolitical risks, increasingly hawkish central banks, and runaway inflation has forced many investors to change tack and modify their asset allocation significantly over the last 12 months. Duration has been lowered across asset classes, and a survey we commissioned1 recently revealed that 77% of European professional investors use equities to hedge against inflation. Fighting inflation by wielding Pricing Power Not all equity investments are equal in the face of inflation. The key differentiator is their ‘Pricing Power’. Pricing Power describes the ability of a company to increase its price without impacting demand or losing market share to competitors. In an inflationary environment, margins are under pressure because companies ‘import’ inflation, whether they want it or not. Overall costs for the companies increase through labour, supply, or energy. The only tool to mitigate the impact of inflation on margin is to increase prices. Companies with Pricing Power will be able to do so the most efficiently. Certain types of companies tend to have higher Pricing Power: Companies that deliver essential services tend to wield a lot of Pricing Power as they have somewhat captive clients. This is the case for many companies in the Consumer Staples, Healthcare, Utility, or Energy sectors. Companies that deliver high-quality products or services and possess a distinct competitive advantage can also increase prices efficiently. Luxury goods companies benefit from their clientele's relatively low price sensitivity. Some companies can benefit from favourable supply-demand dynamics at a particular point in time. This is, for example, the case of semiconductors in 2021 or energy companies this year. History is the best guide to the future As is our habit when trying to assess the future, we turn to the past for guidance. The below graph focuses on US-listed stocks since the 1960s. It assesses the average outperformance or underperformance of different groupings of stocks, since the 1960s, when inflation is higher than the last five-year average. We observe that, on average: High Quality stocks weathered inflation better than Low Quality stocks Value stocks beat Growth stocks High Dividend stocks outperformed Low Dividend stocks Small Cap and Low Volatility did better than Large Cap or High Volatility companies Overall, High Quality, High Dividend and cheap stocks appeared to fare better in high inflation environments. The same analysis on sectors shows that Value-orientated, High Dividend sectors also tend to do better against inflation. Energy, Healthcare, Consumer Non-Durables (Food, Tobacco, Textiles), and Utilities exhibit the strongest average outperformance during high inflation. It is clear here that the quantitative data aligns with our qualitative assessment. The factors and sectors that historically outperformed when inflation was high are those that have the greatest chance to harbour high Pricing Power companies. This should give investors indications on how they could tilt their portfolio to fight inflation. Quality and Dividend Growth to fight inflation In light of the unique challenges equity investors face, High Quality companies focusing on Dividend Growth could help strengthen portfolios. High Quality companies exhibit an 'all-weather' behaviour that tends to deliver a balance between building wealth over the long term whilst protecting the portfolio during economic downturns. Dividend-paying, highly profitable companies tend to: Exhibit higher pricing power allowing them to defend their margins by passing cost inflation to their customer. Exhibit lower implied duration, protecting them in a rate-tightening environment, thanks to a focus on short-term cash flows. Provide a defensive tilt and an enhanced capacity to weather uncertainty.
NASDAQ:NQFFUSQ
by aneekaguptaWTE
Endgame for central banks far from doneThis week the UK economy posted its highest inflation reading in 41 years rising 11.1% year on year (yoy) in October. The recent jump is largely the result of the uprating of the household energy price cap in October. Core inflation moved sideways at 6.5% yoy. We expect this to represent the peak for UK inflation. As the base effects of high energy prices begin to factor in, headline inflation in the UK is likely to fall. At the same time, the ongoing recession is likely to strip away the underlying price pressures. This has been evident in lacklustre consumer demand alongside waning housing market activity. UK Government claws back its credibility with the Autumn Statement Meanwhile the UK Government’s fiscal statement released this week1, confirmed significant fiscal austerity with spending cuts and widening of the tax base amounting to around 2% of Gross Domestic Product (GDP) after five years, although its mainly backloaded. The energy price guarantee will now have its cap for average household dual tariff annual bill lifted from £2500 to £3000 from April 2023 and remain in place for a further 12 moths. This is less generous than the original plan to cap bills at £2500 for two years. The Office for Budget Responsibility’s (OBR) analysis suggests that the measures announced in the Autumn statement reduce the depth and length of the recession this year and next but leave the economy on a similar growth trajectory over the medium term. We expect real GDP to contract by 1.3% next year followed by growth of 2% in 2024. With this is mind, we expect the Bank of England (BOE) to pause its tightening cycle once rates get to 3.5% in December followed by 50Bps of cuts in H2 2023. Eurozone to endure a short recession Owing to the external supply shock, Eurozone has faced a similar inflation narrative as the UK. In October Eurozone inflation reached 10.6% yoy. We expect inflation to remain high in the next few months, however starting early next year, the annual rates should decline aided by the base effects from the surge in energy prices in 2022. Owing to which we expect European Central Bank to continue to tighten monetary policy until Q1 2023. On the positive side, while Eurozone will endure a recession in Q4 2022 and Q1 2023, we expect the recession to be less deep than previously expected owing to the less dire gas situation. This was evident in the November ZEW survey, which showed expectations gauge for the economy in the six months ahead improve significantly to -38.7 in November from -59.2 in October. This remains in line with our view that in six months’ time the Eurozone economy should be on its way out of a recession. Federal Reserve (Fed) speakers singing from the same hymn book Fed officials backed expectations they will moderate interest-rate increases to 50 basis points next month, while stressing the need to keep hiking into 2023. St. Louis Fed President James Bullard said policy makers should increase interest rates to at least 5% to 5.25% to curb inflation. He also warned of further financial stress ahead. Bullard’s comments came a day after San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table.” Fed Governor Waller (one of the more hawkish Fed officials) emphasized that while rate hikes will likely slow to 50bp in December, the ultimate destination or “cruising altitude” will depend on labour market and inflation data. Waller echoed Atlanta Fed President Bostic’s concerns about labour costs pushing up service sector prices which in our view remains the key upside risk to inflation even as core goods prices have slowed. Fears are mounting that relentless rates increases will hit economic growth, with a critical segment of the Treasury yield curve at the most steeply inverted in four decades, historically such an inversion has tied in with a US recession. Maintaining a value bias within equities Amidst the challenging backdrop for global equities, we have observed the value factor outperforming the growth factor by 17.3%2 in 2022. Across global markets, European equities are trading at the deepest discount (32%) from price to earnings (p/e) ratio to their 15-year average owing to fears of the energy crisis being detrimental to the economy. The recent 3Q 2022 earnings season provided evidence that European earnings have remained stubbornly resilient despite the broader macro turmoil. A deeper dive into the sector level suggest that energy, transport, utilities and healthcare have seen some of the biggest increases to their Earnings Per Share (EPS) estimates in 2022. The WisdomTree Europe Equity Income Index outperformed the MSCI Europe Index in 2022. The performance attribution highlighted below illustrates that the higher exposure to value sectors such as materials, financials, healthcare, industrials, and energy contributed to the outperformance.
FRED:T5YIE
by aneekaguptaWTE
1
USD/CAD rises as retail sales slipThe Canadian dollar is in positive territory on Tuesday. In the North American session, USD/CAD is trading at 1.3400, down 0.39%. The Canadian consumer was not in a spending mood in September, as retail sales declined by 0.5%, following a 0.4% gain a month earlier. The forecast stood at -0.4%. Core retail sales fell by 0.7%, worse than the consensus of -0.4% and the prior reading of 0.5%. Despite the weak data, the Canadian dollar has managed to post gains today, thanks to a broad US dollar pullback. The drop in retail sales will put a damper on expectations of a 50-basis point hike at the December meeting, as the Bank of Canada will likely deliver a modest 25-bp hike. Inflation, the bank's number one priority, remains very high at 6.9%, as the BoC's aggressive rate-hike cycle is yet to show results. The benchmark rate is currently at 3.75%, and like the Federal Reserve, there's more life remaining in the current rate-tightening cycle. The BoC is closely monitoring employment and retail sales data, as strong numbers will make it easier for the bank to continue hiking as policy makers look for that elusive peak in inflation. The recent US inflation report triggered a wave of exuberance, sending equity markets higher and the US dollar on a nasty slide. Investors became more confident that Fed was close to a pivot in its aggressive policy and risk sentiment soared. The Fed has pushed back hard, with Fed members delivering hawkish statements and projections, which has chilled risk appetite and stabilized the US dollar. Fed member Mary Daly weighed in on Monday, stating that inflation remained unacceptably high and projecting that the fed funds rate will peak at 4.75%-5.00%. USD/CAD tested resistance at 1.3455 earlier in the day. Next, there is resistance at 1.3523 There is support at 1.3341 and 1.3218
by OANDA
Ok, here comes the Fed Pivot, what's next?With all the chatter on the Fed Pivot, we think it’s worth exploring, what happens after a Fed Pivot or Fed Pause. Let’s break down the discussion into two camps, a Fed Pause, defined as a pause in policy rate hikes, and a Fed Pivot, loosely defined as reversal of policy rates aka rate cuts. To keep things in context, we will look at the effect of the Fed’s Pause/ Pivots on Major Indices, the Dollar and Inflation rates. First let’s review where we are at now. The recent release of the October CPI numbers has spurred 3 notable things: 1) It knocked the dollars off its unprecedented rally since the start of the year. 2) It has given a little more credibility to the slight downward shift in inflation, with 2 consecutive lower readings. 3) It marked a local low in major equities indices Naturally, the question is, have we bottomed? Or is this a slight breather on the elevator down… To answer this question, we look at 2 similar periods in the past, where the fed pauses, then cut rates after. These past examples could be useful in providing some clues as to where markets might be headed next. Dot Com Period in 2000 Between June 1999 and May 2000, rates were raised before taking a 7-month pause, following which rate cuts ensued in Jan 2001. During this period, equities turned lower, with the DJI falling another 30% while the S&P & Nasdaq another 40% before finding the bottom. The bottom was only in when the dollar clearly broke its uptrend, inflation peaked & turned lower and after rounds of rate cuts. In fact, and somewhat eerily, the dollar broke close to the 108 level, almost exactly where the dollar broke its current uptrend. The Great Inflation of the 1970s In the 1970s episode, rate hikes were paused from Aug 1973 to Feb 1974 before a cut in 1974. Untamed inflation forced the fed into another hiking cycle from March 1974 before the final onslaught of cuts from July 1974 onwards. This rate pause was then followed by another over 30% decline in equities. Again, we find that the bottom was only in after Inflation peaked and the Dollar clearly broke its uptrend, while the Fed cut rates. If this framework of using the Dollar, Peak Inflation & Rate levels holds, a keen observer might note the similarities with what we are looking at now. So, if the current dollar break holds and Inflation truly peaks, then the Fed Pivot will be the last piece of the puzzle to mark the bottom. So, when will the Fed Pivot you might ask? Using the CME FedWatch Tool, we see the market implied probability of a fed pause starting in May 2023, followed by a pivot in September 2023. In our view, this is still quite far away and if historical precedence holds, there are still ways to go before we are close to call the bottom. Additionally, market timing and expectation of a rate pause and cut have continually been re-priced higher and further over the past year. We will not be surprised if the timing and level of pause and cut get repriced unfavorably again after the FOMC minutes release this week. From a price action perspective, the S&P seems to be near the upper band of the channel in which it has been trading since the downtrend started. This could once again prove to be an area of resistance, which could present an attractive short compared with the other 2 indices. The average of the past 3 declines from the upper to lower band range, took roughly 54 days and 700 points. Taking that as a benchmark, we set our stops at 4150 index points, close to the previous levels of resistance, and a profit target at 3500 index points, close to the average of the past declines and lower band of the channel. Each Index point is 50$ on the CME E-Mini S&P500 Futures contract and $5 on the CME Micro E-Mini S&P500 Futures. We will watch with keen eyes if the Dollar breakdown holds and listen for any change in the Fed’s timeline. If history is any guide, we remain bearish on equities, given the uncanny level of dollar index, inflation peak and Fed's policy path as we see now. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Sources: www.forbes.com www.thebalancemoney.com
TVC:SPXShort
by inspirante
34
US Inflation Rate, YoY, Double Top? - Long-term ViewPresently, the inflation rate in the US has started falling, which increases expectations for a pivot - end of interest rate hikes. And factually, we can actually expect it. The supply of M2 Money Stock (M2SL) and its annual growth rate are decreasing. The global economy is shifting, as leading economic index (LEI) indicate. This will undoubtedly put pressure on the Federal Reserve to cut interest rates. However, after the current crisis, the economic recovery will cause a recurrence of inflation. So, if that is the case, the next decade will be marked by tight monetary policy and high inflation. This situation will let the central banks introduce a new monetary system based on CBDCs using incentives such as cheaper credit. Check also my related ideas. Enjoy
ECONOMICS:USIRYY
by MichaelFX_ICT
US interest rate, and exchange rate of Japan Yen and Korean WonThe trend of Japanese Yen and Korean Won within most of year 2022, as can be observed when reading together with the chart of USinterest rate, show how closely linked their relationship are. Recently government of relevant countries have been attempting to change this situation by putting money into the foreign currency exchange market, but as long as interest rate of each of those countries aren't increasing accordingly, and US interest rate still keeping up, no change in this trend is expected.
by PhakeNick
2
OIL & INFLATION peaked, expect bearish Dollar long termWeekly chart, pointing out Oil's peaks since 2000. Oil is displayed in black, Inflation in red and the U.S. Dollar in green. Excluding the one this year, Oil has had another three major market peaks, during all of which inflation followed suit and fell along. The USD tends to lag in these instances but after a multi month period of volatility, it also falls significantly. In our opinion this is the start of a long term ranged trade on the DXY where investors can buy low on the support that will be soon formed and sell the rebounds near the yearly resistance. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ## ## Also DONATIONS through TradingView coins help our cause of increasing the daily ideas put here for free and reach out more traders like you. ##
TVC:DXY
by InvestingScope
Year end Trade Inflation peak / Long YTD losers Short Winners- USD has probably peaked for 2022 post US CPI important release. - Into year end Trade - Contrarian Play is to Buy Losers (Coppers, NDX, US Equities, Gold), Sell Inflation winners (WTI, USD, Financial sector, Energy Equities). - In Commodities I chose WTI as a good proxy Technicals Long term Trend is negative on crude since the top in June 2022, we broke decisively on 50-week MA and trading under Systematic / CTA Positioning is still Long. Into year end with only 5 weeks left, it's highly likely that the Trend Trade will be unwound, based on very large Standard deviations moves that happened yesterday in macro Space (US10Y, USD, Crude, Equities)
MATBAROFEX:WTI1!Short
by ArisopeCapital