True doubts are better than a false certainty . Maybe .
03/24/2023 15:08 GMT
MT , BT , RT
Monetary Tightening => Banks Turmoil => Recession Trades .
T is common , T as Treasury bonds . Let’s give a look to Treasury bonds medium- and short-term as per related site page :
Resistance is under pressure (left chart , green horizontal line) . If broken , fasten your belts .
03/13/2023 07:45 GMT
“Whatever it takes” Usa style
How is “whatever it takes” in Usa ? BTFP . Federal Reserve as last resort for battled banks , a liquidity assistance with no limits to avoid Treasury sales and related losses . An implicit admission that monetary policy was wrong and late , and a cover for regulators who didn’t regulate . In its assesment , the Fed wrote that the intervention is there to show that deposits are sure and financial system is working well . Two banks truncated , and balance sheets full of bonds “held to maturity” is not properly a fair working of a sound system . As for a sick man , saved by his doctor just when he was going to die , who says : I saved you , am I a clever physician , or not ? Maybe , the previous therapy was not apt , if the man risked his life .
03/10/2023 08:55 GMT
Too much , too swift ?
Awaiting for this afternoon labor data , risk markets went down , because of fears that incoming Payrolls numbers could fuel inflation expectations . But, how Payrolls went out last years ? In the following table , you’ll see last 7 years Payrolls data in December , January and February months :
Most frequently , when data surged between December and January , then retraced from January to February ; and vice-versa. Could be today the case ? If February data is going out , for example , around 300k , it would confirm labor strenght but would be lower than last January spike . Looking back to markets , yesterday stocks went down and bonds yields followed suit as a typical risk-off action . But , if you are a market actor that move billions , would you have bought yesterday fixed-rate Bonds in the perspective of higher , and so , very inflationary , today Payrolls data ? Probably not (otherwise to rebuild margins , and this wouldn’t be a good new for markets) . And the swift closing of long risk positions caused an overbought situation of risk gauges . In conclusion , labor market surely is still strong , but being risk so anticipated by markets , a “sell on news ” (in this case , buy on news) can’t be excluded at all . In the case of data less inflationary , odds of an action reverse will tick higher .
03/08/2023 07:32 GMT
In his testimony, FED chairman Powell was hawkish , confirming the duty to fight inflation , that will be harder than before and expected top rates probably will be higher than forecast . Risk markets reacted and expectations of next official rates swifted 50 bps higher , as charts below :
That happened following Powell’s speech . What he said , we know . What he didn’t , and couldn’t , say , (but he knows it very well) is that higher rates have always effects on economies by a time delay . Why he couldn’t ? If so, someone would have asked him : if you know this time delay , why were you so late in lifting rates when inflation took off last year ? You should have been swift in your first actions , not late . Coming back to markets reaction , note that T-Note futures went south , but ultra-10y T-note was a little positive . Markets know the matter of time delay too , and they don’t speak , they do act . A yield curve flattening , when macro data will start to weaken , could be a credible scenario .
03/07/2023 09:20 GMT
Today markets’actors will be looking at Powell testimony before the Joint Economic Committee . In the first part , he will read a prepared statement. Arguments are monetary policy and macro trends , mainly economic scenario and inflation ; about the former , monetary policy will be data driven , looking at indicators development . Labor market is still strong , particularly in services sectors , because of high percentage of human labor force ; consumers willing to spend has been resilient to higher rates , retail sales are about stable ; house prices are weaker because of higher mortgage rates . A soft landing in the second half of 2023 would be the preferred scenario , driving south overall inflation ; prices pressure has been stronger in food and staples , due to external factors too, and will require time to weaken . Top rates before summer will reach 5,50% area , accompanied by a tightening in bond buying ; energy prices went down in last six months , but international political issues and the incoming driving season will support WTI oil prices around 70-80 dollars . The second part of testimony is a question and answer session ; questioned about next monetary policy decisions , Powell will confirm the main duty , to fight inflation , that carries social and economic risks . Gauge of next decisions won’t be specified ; markets are discounting two quarter of points rate increase in next Fed meetings ; if any , answers about a tighter FED stance will be negative for risk markets , but a reassuring speech tone will feed markets trust in positive developments . Vix index didn’t slow below 20 mark , if not for a short period , since march 2021 ; a quiet quarter could follow , accompanied by a further recovery of 2022 losses , half of it by the summer would be a good result .
02/01/2023 09:50 GMT
A Children Play : follow up .
Let’s give a look at last 01/18 post , after month’s end update :
Five of best YTD performers were among last year’s ten worst ; seven of worst YTD performers were among last year’s ten best . 50% (5 of 10) are bottom fishing , 70% (7 of 10) are profit-taking .
Conversely , cryptos :
Among cryptos , all negative last year , no profit taking , but the five worst 2022 performers are the best YTD . 100% (5 of 5) bottom fishing . Crypto’s is a younger market vs. traditional assets : more adapt to children play , then .
But when profit-taking moves are prevailing , as per first table (70% vs.50%) , it depends by bets on this evening FED move ; a softening stance is awaited (+0,25% vs. last +0,50% move) : markets , as usual , tend to anticipate news . If FED’s stance confirms expectations , markets could monetize YTD bottom-fishing gains ; if Powell instead says : “today +0,50% , but next moves will be lower” , softening expectations will be postponed ,and bottom-fishing will go on .
01/18/2023 17:00 GMT
A Children Play ?
Let’s give a look at 2022 best and worst , and 2023 year-to-date …
And about Cryptos ?
The worst in 2022 are the best year-to-date , and vice versa . Market gyration , or a piece of cake ?
01/12/2023 15:24 GMT
As it turned out…
December CPI : -0,1% m/m , less than 0,0% awaited , down from 0,1% previous ; core CPI (ex food and energy) + 0,3% m/m , as awaited , but up from +0,2% previous . Just goes to show .
01/12/2023 10:00 GMT
The Fantastic Four
On January, 01 on this page we wrote that being “prudent” in 2023 allocation choices was excessive , because after a -30% on stock indexes as Nasdaq last year , a rebound and a positive mood was the most probable outcome for current year , being aware of volatility . The first development , as seen in these first ten days , is positive , awaiting the CPI data for this afternoon that would confirm a receding inflation . Maybe core inflation variation , i.e. without food and energy (volatile data) , won’t be so positive , but markets have already bought the best probable outcome : “sell on news” could well happen after data . If you have cash to invest , a lot of proposals are on the desk : offered interest rates are up to 4% , a very interesting level , after years of zero per cent , but is only the half of stock indexes performance year-to date (about 8% in average ) , a sole week against a yield for twelve months . Your liquidity is needed , they pay a good price for it : then , liquidity will be lent to professional investors to make gains in stock markets . Four is fantastic , but not for you .
The higher performance since year start , +214,29% , belongs to ONXEO , a French clinical-stage biotechnology company ; recently it’s testing a new treatment for solid tumors .
Below its chart , modelled on Charts site’s page (where is as an example , 3M stock) .
2022 : Missing in (FED’s) action .
Dear users , after a 2022 very difficult for risk markets , the big part of financial actors suggest to be “prudent” for new year 2023 , avoiding further damages for portflios , because volatility is expected to stand high. Now we all know that volatility means ample oscillations for indexes and bonds , and your performance will depend by the moment of calculation . But we also know that volatility means opportunity ; if you can catch it , damage could turn in profit ; of course , waiting for long period , as advised from they who don’t know how to read markets and their dynamics , but know well that long time means much money (for them) , is never the best way to afford markets’ environments . Looking at site’s strategies performances in 2022 makes all clearer for smart investors. People look closely FED actions and their effects on risk markets to decide their own risk level and consequently how to act . Then , I gave a look to last 40 years of monetary policies , and relevant yearly performance of worst Us index in 2022 : Nasdaq . The chart below says some interesting .
In Horizontal line , the FED yearly actions , i.e. difference between start and year ends ; in Vertical , Nasdaq yearly performance . Curiously , green dots ( positive Nasdaq years) are near vertical axis , meaning that when FED didn’t act , or moved by a little interest rates , markets liked it . Worst performances were in 2008 (Lehman crisis) and in 2022 (Inflation roaring) : more curiously , two years opposite as monetary policy : the former saw a – 4,25 (january/december) , the latter a +4,08 . Clearly are not FED moves , but WHY Fed moves that matters ; 2022 was (and 2023 will be too , at least first half) a continuous running to macro data , trying to understand if US were sliding in recession ( and awaited , or hoped , rate cuts) , or economy will sustain inflation , with labor market closely watched . This fatigue is not very useful : who can , has already decided what year 2023 will be for world finance. Markets will follow . And we’ll follow markets too , using market instruments that best fit , whatever direction will be , whatever the trend . Standing was the worst choice for last year , and probably will reveal the same in 2023 .
Target2 : a(n) (in)balance
Periodically Target2 ( the gross system payment of Euro Monetary Union) balances return as an argument of discussion , and every time “balances” are always more “imbalances” , the countries that are debtors vs. the system become more indebted and those who have a credit position see their active growing . Something doesn’t work , as an evidence : one of the reasons of such differences has its roots in fixation of parities among currencies , when Euro became the sole currency of the union . Countries with strong economies and constant trade balance in positive , (Germany) , so as countries with a constant capital flux (Luxembourg) see their active growing month by month . The parity of their currency had to be fixed higher to reflect that condition ; weak countries (negative capital flux , high public debt , weak trade balance) were fixed at an excessive parity , unsustainable by their economies (Italy , Spain , Greece) . Moreover , interest rates are common : Germany standing alone would pay a lower interest on its public debt , while Italy would see it spreads skyrocketing . This situation contributes to imbalances . Strong nations pay a cost in terms of higher interest rates to export and attract capitals ; weak ones pay less on their debt , but their situation on imbalance in Target2 become higher and higher . In few words , weak countries are getting weaker , strong ones are getting stronger , as demonstrated by data evolution . In a single country , weaker zones can be helped by more progressed regions , a strategy based on fiscal policy and wealth redistribution, to support an organic growth : at common level , fiscal policies are not coordinated , but debts give the scepter of power in strong hands , and them won’t renounce to this , calling for weak countries’ inadequacy to face a serious economic policy . PNRR will enhance imbalances . An instrument to confirm the status quo , apart from declarations . A serious monetary and fiscal reform would be needed . Parities where inadequate 20 years ago , nothing has changed , apart from growing imbalances as a logical consequence .
A busy week
Next week will be very busy : future expirations , macro data and central banks actions will pave the way to year-end values . Monetary decisions : FED , Swiss National Bank, Bank of England, European Central Bank , Mexican and Russian central banks actions are awaited . Macro data : USA Consumer price index on Tuesday , one day before FED decision , and then Retail sales on Thursday ; Euro area inflation data on Thursday . Equity indexes futures expire on Friday , followed on Monday by currency futures on major crosses . All market movers, in few days, close to an holiday period and year-end (and consequent low liquidity) : wide markets swing expected . Someone will enhance 2022 performance (a few) , others (the most part) will confirm a negative one , and will prepare the relevant arguments to justify it with relative customers : pandemic, politicals, inflation and so on … calling for a “long term” view and forgetting that long terms results (where all are in a “waiting-mode”, much more comfortable for advisors) are made by short terms sum (when a fews make the difference, working hard in de-correlating from negative markets) . Definitively , 2022 confirms the base reasons for an active stance on markets , rather than a passive one . For further details , please see Currency Trends page for incoming weekly events .