True doubts are better than a false certainty .
Out of risk
Central Banks have turned hawkish after over ten years of low or zero rates , whose effects in economies were much lower than those on markets, complying to big finance needs of zero cost money. Now that big finance exits from markets , Central banks are free to move up rates . As for currencies: speculation doesn’t need anymore a lowering yen to finance their buys, so BOJ can intervene on markets and try to support its belaguered yen . Exit from risk markets has been decided; would you stay in because you have to look at “long term”? And what’s about next years with big finance out ? Will you win? Can you afford an half of portfolio loss , after doubling it (if so) in last decade ? Think carefully .
New indexes on Homepage strategies’ results detail .
As for other indexes and assets , you’ll find on Emas Strategy page the dates and levels of intervention (long and short start positions ) .
09/18/2022 New page
A new page has been added to menu : Macro Indicators , where you’ll find an analysis of some Macro Indicators for USA , the most observed by market actors , based on their trends and correlations . Further studies will follow on that page .
09/16/2022 New charts
On Selection strategy page , new charts show high/low beta and ratio selected stocks percentages , and their interpretation .
A not surprising surprise
CPI data today surprised markets with an upside of core data (excluding volatile energy and food) . Core CPI is the best item to measure the gauge of inflation . People asked themselves : why in august , when Oil prices went down , inflation has gone up ? Because the correlation between CPI and WTI is positive , has grown in last 2Y , but the most correlated data to CPI are House prices .Let’s see 10years chart :
Let’s see now 1Y chart :
Data correlation at 1Y and 10y :
As said , WTI correlation has grown , but Housing prices have remained steadily increasing and highly correlated to CPI . That’s why CPI didn’t slow in August , supported by record housing data . Higher interest rates will shake mortgages and prices , as is already happening in last weeks , but we’ll see later their effect on consumer prices . Nor Oil , nor Job market set the inflation trend : housing do . Remembering economic basic principles , a dollar poured in construction spending is multiplied much more than in others sectors : and less dollars in housing markets (because of higher rates) will reverse ongoing inflation , or at least limit its growth .
A vaccine for headache .
As widely awaited , today ECB hiked rates by 0,75 . Inflation is too high , ECB president said , and they need to block it and go back to 2% target . Now we don’t want to bore you with a lesson of economy ; lifting rates in this environment is the wrong therapy for illness : it’s like to use a Covid-19 vaccine for a common headache . Demand-driven inflation has to be fighted by higher rates : it’s not actual kind of : it’s driven by a shortage of basic materials , so is the offer , not the demand , the real guilty . If Russia stops to export grains , adding to global shortage caused by droughts ,and bread and pasta prices will skyrocket , could a new rate hike work against price surge ? Certainly not . The medicine is wrong . The doctor is wrong .
Holding back the y…en .
Thinking of recent evolution of Usd/Jpy cross , let’s go back to our post on this page , dated 03/28/2022 , when we wrote about it . Multi-years trends are roaring back . Japanese authorities today said that an open market intervention to counter the Yen weakening wouldn’t be useful , because of dollar strenght , a trend that is difficult to fight . But do they really want to counterfight Yen weakness ? Let’s imagine we were a Japanese manufacturer. A year ago we bought the raw material for $ 1 (100 yen), produced the good and sold it for $ 1.5 (revenue 150 yen); margin of 50 yen . One year after , the exchange rate is at 140 yen/dollar and we assume that the cost of raw materials had risen by 50%. To buy at $1.50 the price-increased by 50% commodity, it now costs us 210 yen (1.50 x 140). To keep our margin of 50 yen, we have to sell at 260 yen, i.e. at $1.85 (1.85 x140 = 260). It means that, faced with a cost of production increased by 50% (for the whole world), our selling price is 23% higher (1,85-1,50) . If those who produce at dollar costs (at the initial and highest actual same costs) and sell in dollars our same (or similar) items want to be competitive with us, i.e. mantaining the same margin of 0,50 usd ,they have to give up a part of the profit, or raise prices by more than our 23% on the common market . Within certain limits, it is not such a bad scenario for jap exporters , we suppose .
p.s. (post scriptum) : will European producers and exporters start think and behave in the same way ?
To hike or not to hike : this is the question
On Thursday , ECB will decide its interest rate move . As ECB’s prime target is fighting inflation , last data would point to a rates hike , but actual dilemma is that the dynamic of prices in Euro area depends on external factors , i.e. it’s not a demand-driven inflation , or only in part . Economies have rebounded after pandemic , but energy and commodities prices (an external factor , as Europe import most of its needs) are now the most notable cause of prices increase . Many firms will borrow money to cover energy costs ; lifting rates will traduce in more costs : the risk is now that an hawkish ECB stance would deepen inflation , as firms (if survive) rebate on customers their costs . The other way could be to rise rates (75 basis points) , together with a price cap on energy prices ( and/or a massive public help to buy energy) to limit further inflation . Today a strict coordination between monetary policy and European political decisions is needed as never before . And never as today monetary policy shows its inadequacy to face issues .
Do we need another hero ?
In today’s speech from Wyoming , Fed’s governor Powell confirmed the hawkish stance on inflation fighting : pains , he said ,would be bigger if he doesn’t do … “whatever it takes” (not the same words, but the same meaning ) … to get the 2% objective . In the past , that sentence marked the Euro defence , when Ecb’s president gave the start to a qualitative easing , addressed to save the most indebted European countries . But central banks can address and advice , the dark job is in the governments’ hands , is a political question , not only financial . Social and fiscal imbalances make difficult to pour monetary moves into credible targets ; it can work for some time , then reality , before or after , comes back . However the big finance’s message , as per today’s stocks markets trends , is the same as usual : we need low rates to enhance our gains , not heroes .
08/25/2022 Strategies operations
On Futures page , now are shown intervention levels for yesterday’s signalled operations ; on Long-Short strategy page , you’ll find detailed daily operations .
S&P last corrections and recoveries : Golden Rule?
08/19/2022 New futures chart
On Futures Page , a new asset : Natural Gas (Henry Hub) futures !
08/18/2022 New Strategy !
08/14/2022 New page !
A new page on site : what’s behind , a strategy background.
07/23/2022 19:46 Gmt
07/21/2022 15:25 Gmt
The Transmission Protection Instrument , friendly TPI ; means maybe TPI also Too Personal Interpretation ? Or P is for “Political” ?
Today , ECB revealed TPI headlines . What it is , you can read on related ECB page . What it really is , you can understand by its details , where often , as people say , devil stands .
Well , 4 criterias are defined for such type of intervention , a series of compliances with Eu fiscal framework , the absebce of an outstandig excessive imbalance procedure , and so on , to fix the borders of countries eligibility to instrument . All that criterias are rooted in a sound economic and financial environment of a country as a prerequisite for its use . But as said , the devil is in the details : under “Activation” paragraph , few rows below , the statement says : Purchases would be terminated either upon a durable improvement in transmission, or based on an assessment that persistent tensions are due to country fundamentals. So , let me understand : can a country with weak fundamentals has been compliant with EU fiscal framework ? Can such a country has been compliant with commitments of Recovery and Resilience Facility , and so on ? The judgement on “fundamentals” , this way , appears very difficult . The real is that such compliances are easy to be determined , and easier can be doubted , more today than before .
07/21/2022 Selection Strategy results
On Selection Strategy page , a new chart shows strategy’s results , starting from mid-April 2022 (last 3 months) . Results are net of dividends but gross of trading fees .
A busy week
This week will be important for micro and macro reasons . The earning season , with results of II quarter , is kicking-off , starting from financials ; the focus will be on outlooks for next period . American Price Indexes and Retail Sales will drive attention on macro environment , the former about inflation standing by core data , the latter to show reaction of consumers to rising prices . Stronger than expected data could enforce US dollar through parity quote vs. Euro , but European stock markets are in a better shape , due to expectations of a more dovish stance from ECB , and financing positions is getting cheaper , due to rates differentials and Euro weakening too .
Today , the chief of an european national central bank marked some important points for incoming new instrument anti-fragmentation by ECB . Among these , the precondition that , if a spread could depend by speculation and not by FUNDAMENTALS of each issuing country , the instrument wouldn’t be activated . Everyone knows that speculations bet on fundamental differences , widening the yield spreads in risk-off markets trend . The real problem is that a monetary union , and a monetary common policy , will work only between countries which have similar fundamentals , i.e. fiscal policies , cost of labour , debt/gdp ratio , pro capita domestic product etc. Different countries do have different fundamentals ; only an effective convergence to a common economic policy (if really wanted) could be the precondition to an effective monetary policy . Finally , when Euro parities were fixed among euro currencies , was the criteria of fundamentals followed ? Or some currency , in fixing euro parities , was undervalued to let its country more competitive in exports (someone said : to cover reunification costs) ? Probably , the same ex-euro country currency , whose central bank chief spoke today. Sometimes fundamentals aren’t important , sometimes (as today) they are .
Trilussa docet (docet = teachs) .
Trilussa was a famous Italian popular poet , born near Rome at the end of 19th century . One of his most known sentence speaks of statistics . He said : “If I ate two chickens , and you ate no one , then we ate a chicken each one” . Numbers can be very useful , but sometimes their use can show curious results . Let’s consider now recent administrative elections in Italy : at last ballot round , two millions people were called to vote their candidates. Only 40% did , so about 800.000 . About 60% of them voted for a party coalition that won some city majors , as to say about 500.000 voters , i.e. , considering Italian population is about 60 millions , less than 1% . The coalition that won proclamed it a victory , and said it was an event that strenghtened their power and consequentially the actual goverment they support . Well , numbers speak : a “wide” and political victory . Conceding that the remaining 99% of population thinks and would have been voting the same way . A little hazard , in my view . Trilussa docet .
On Currency trends page , algorithm that monitors currency crosses of Gbp,Cad and Aud vs.Jpy has been modified to take in account a surge in Jpy volatility ; strategies performance have been corrected accordingly .
New currency cross added
On Currency trends page , a new currency cross has been added for analysis : Bitcoin vs. Usd
Multi-year trends .
One of the most exciting works , for a market analyst , is trying to discover levels of markets’ change of trends . But it is also very difficult , because historicals are not a guarantee of repeate in the future , can only show the correlations , considering all factors behaving as before . The difficult exercise in these weeks is trying to examine the possible levels of stock indexes , that entered the so-said bearish zone , having their loss from tops below 20% , as S&P .
As sometimes I wrote on this page , interest rates are the economic indicators that have very long , the most of all others , trends . If you consider gold, for example , its price is treated as a zero-coupon bond , because gold doesn’t bear a coupon , or any form of periodic gain ; it’s a kind of cross-yield between two disposable asset . Coming back to S&P , let’s give a look to its trend , related with its 12 months trailing yield , i.e. the difference between last quotes and those of 1 year ago . The chart is the following :
The recent downside held trailing yield near a decade – bottom . Looking at this , the room to an end of bearish phase seems now little , we would see a rebound , not so far . The difficult will be enter a new multi-annual uptrend , if we consider the following charts .
Premium at risk , the difference between the index earnings (i.e. earnings of its stock components) and 10 year bond yields , is strictly correlated to the latter . In some years , the p/e ratio has quickly surged following a deep in markets, as in 2001 (after internet bubble) , in 2008 (Lehman crisis) and in 2020 (the pandemic) . Apart of these swift movements , multi-annual trends show something very interesting , as in the chart below :
A decade of lower yields has inverted its path in 2020 . The trend in premium at risk (the purple line) has moved in synchro , because of swift upward move of stock earnings after pandemic , confirming the uptrend in recent months .
All said , seen that stock indexes and premium at risk move in opposite direction in periods of growing economies , when indexes direct upward , but when it happens in periods of slowing economies , indexes go down , the present time is not necessarly a prelude to a multi annual downtrend in stocks , but economy must find support in growth policies (i.e. fiscal) , not only in monetary moves . And when monetary policies are tightening , the recent and actual opposite directions of index and yield curves could continue for some time .
Yesterday , …all the trouble is here to stay
Yesterday 06/15 Usa and Euro central banks dominated the scene . FED raised rates by 0,75% ; ECB said that is studying an instrument to avoid that excessive bonds spreads put at risk its main duty , the control of inflation , via a “fragmentation” of financial market conditions .
Let’s start from FED . The most interesting was the economic scenario predictions : inflation is seen still high till next year , but then it will go down , approaching Fed target of 2% in 2024 . Again , as six months ago , inflation is considered temporary : and what happened after , anyone can see : labor market and commodities prices are structurally sending it higher . But , differently from six months ago , now FED tightens by a gauge not seen since 1994 . Why , if actual situation is temporary?
Let’s end with ECB . The plan to reduce spreads ( ECB actual chief said , not many time ago, that isn’t ECB’s duty to control spreads…) , by flexibility in reinvesting PEPP money , is a symptomatic cure , doesn’t resolve illness .Giving a look on data , Greece 10y yields , about 1,50% at 2022 start , are now 4,26 % (+2,76%) ; Italy , from 1,22% to 3,98% (+ 2,76%) , as to confirm popular (about similarity between Greece and Italy) greek sentence “one face , one race” (also if, from 2022 start , Italian variation is wider: 2,76/1,22 vs. 2,76/1,50) . Spreads are consequences of different fiscal policies and structural finance (im)balances . Buying more or less bonds won’t change the issue .
The harbinger’s herald .
Yesterday ECB made an announcement , it will tighten monetary policy starting from next council . Heralding monetary policy moves , largely anticipated from markets , opened the door to a bearish day (and won’t be the last) for risk markets . Why , if everyone knew about inflation dynamics ? Because one thing is tighten , another is announce to do it . What is then happening ? Big finance , as did when Federal Reserve started its hawkish stance , will batter indexes and risk markets , opening a crisis scenario, trying to advice central banks not to tighten , because the cost of money (and speculation) must stay near zero , to enhance its gains . The more markets will be shutted down , the more doubts about tightening will grow , in policymakers minds , or at least someone hopes . Tightening or announcing to do is different , with different consequences . Fasten seat belts for next weeks . Finally , Japan’s govermnet and central bank today have expressed their worries about the excessive depreciation of Yen : don’t worry , I suggest , closing risk positions and yen shorts to finance them , will drive yen away from its 20-years lows .
Next week event
On Currency Trends page , you’ll find a survey on next week’s macro (economics) and micro (financials) events that could influence markets . The survey is updated weekly on Sundays , and relates to following five days .
On EMAs strategy page, you’ll find new charts on Aluminium , Copper and Nickel .
The ends justify the means (N.Machiavelli , 1469-1527)
This evening , the football champions league has been not attributed to the team that played the most attractive football , but to a team that was seeking the final result playing in a more concrete and practical way , remebering that the winner isn’t who scores more goals , but who undergoes less . This strategy , applied to asset allocation , and investing , means defending assets in bearish phases first , when the fews mark the difference , and then if possible gaining in bullish scenarios , when everybody is smart , and results are flashy .
Alpha strategy is now complete .
On Alpha strategy page , all 7 stock selections are displayed with respective benchmarks and results .
New currency charts
On Currency trends page , you’ll find three new charts , showing TRY (Turkish Lira) , BRL (Brazilian Real) and ZAR (South African Rand) crosses (per 100 units) vs. USD ; USD always second currency as usual .
On EMAs Strategy page , below Bonds 10y chart , you’ll find two new graphs , Investment Grade Corporate Bonds , and High Yield Bonds . Note that Bonds 10y tends to anticipate the following two (as in/out signals , green and red arrows , show ) .
The “one million dollar” question .
The stock markets rebound has vanished , and now ? The question is : correction or trend inversion ? Where (and when) actual negative phase will end ? A million dollar question . Let’s try to find an aswer giving a look to charts . As per charts page , recall the trailing yield S&P graph :
this chart shows 12m trailing yield of S&P index . Now, let’s draw a new line (green) : it’s P/E ratio (price/earnings) .
Then, being the ratio between prices and earnings not different from a yield , let’s draw (purple color) its reciprocal , i.e. 100 / P/E :
rescale the graph and add a new line (light green) , official Usd Interest Rates :
and now highlight three periods :
note as in two previous negative times (2000: internet bubble ; 2008: financial crisis, both shadowed in green) ) , the growth of S&P index went with a rise of implicit stock yields , and , in parallel , a tightening of monetary policy from Fed : then the peak of market , and interest rates , were followed by a correction ; stocks yield went down , and monetary policy became expansive . A new peak occurred in 2011 on implicit stock yield : the market had soared to new tops , but monetary policy stayed expansive , rates remained near lows . In 2018 , in the last quarter , S&P corrected and implicit stocks yield too , but , differently from previous phases , official rates were always below yield ; this situation lasts since 2009 (last years in red shadowed area) , not casually , the start of S&P run to 2021 tops . A run not accompanied by a real growth in economy ( or far from levels hystorically high) , and not even by a correspondent tightening of monetary policy . This time the upward move didn’t go with raising rates : it was caused by low rates . And now ? Looking at a shorter period of time ,
room for continuing downtrend seems not wide ; looking at last 50 years , as chart below,
that room could be well ampler . Which will be the right one ? Who can decide it , will take in account interest rates levels : and their message to FED is clear : don’t raise rates , don’t let our gains drawn down . And finally , geopoliticals will mark the sentiment , too .
New growth & value chart , on charts page , updated daily .
Fifty and no more .
As widely expected , Fed raises rates by 50 points , and Powell says that 75 points tightening is not matter of discussion ; better for risk markets , let’s have a rebound . Us dollar slows to 1,06 vs.Euro , selling the news .
New graphs added .
On futures page , Fibonacci levels of retracements have been added and will be now displayed for eight contracts , daily updated.
A global viewpoint on war .
Paper power and basic power : the today’s law of large numbers .
Financial power based on central banks’ monetary policies and derivative products have been , in the last decades, the most powerful instruments to address the wealth between nations and continents , under various pretexts, such as fighting inflation and financial crisis ; but was it a real power ? Or , rather , a power made in paper ? Yes , finance has very large numbers , but , as every economist is conscious , demography is the real factor that , in the long run , has the power to address economics . Now , let’s sum inhabitants of China , India , Russia , Africa : more than half of world population live there , and this proportion is growing , due to demographic balance , largely positive in those areas ; in the future , their need of basics resources , mainly food resources , will grow too . The actual war in Ukraine is a mirror , a consequence of this environment . Russia invades Ukraine , known as “the Europe’s barn” , after a meeting with China . Donbass region is rich in basic resources ; and rare earths , whose actual main producer , China , is securing , with Russia’s help , its status of most important , if not exclusive ,seller . The invasion of southern Ukraine , on Black Sea shores , blocks the water way to export grains to west . Africa is rapidly becoming a China’s colony , after buying everything it could by large amounts of cash , being so granted the access to basics ; Brazil is the next most important partner . Those situations , if correctly red , show the direction of next Earth’s power balance : because humans survive eating food , not paper . And factories need basic materials ,and low cost energy , not only zero cost liquidity or interest rate swaps . Not to be misunderstood , we don’t justify in any way Ukraine invasion . Innocent people do suffer , do die . But , having a clear view of objectives , can help to better know what is really happening : large numbers’ countries want others to be dependent from them. That seriously risks ( risky from a western viewpoint ) to be the new global order .
Give a look to following table :
Risk markets oversold?
As S&P (48m) graph on chart page , the 12 months trailing yield is now still positive , but single digit : last time it happened was on 2018 las quarter and in 2020 october . It has entered an oversold area , but could well deepen , as in previous periods ; in short term , a rebound is likely , but won’t defy the weakening trend . In this phase , time is all , don’t fight the trend . Fed decisions , geopoliticals and corporate earnings will confimr or change the direction.
Currency trends page charts
On Currency trends page , when a signal of buy or sell occurs , the relevant chart is highlighted in black or red , to better detect the day of intervention .
Message in a bottle
Yesterday stock indexes went down on Fed’s chair remarks about the stance of monetary policy tightening , that could be faster than previously to fight inflation . But in a recent speech he said that a strong Us economy can face a rate increase . Economy could , but stocks prices ? And price/earnings ratios ? So the yesterday’s message from finance to Fed is : don’t run too fast , don’t squeeze our margins (their earnings less the cost of money they borrow and invest in stocks ) .
The day after ECB
As written in my 04/06 update , ECB is forced to a dovish stance .
What a difference a vote makes .
French presidential elections’first round , in many comments , would signify the passing of traditional difference between left and right parties , shifting to pros Eu and cons . That is true in terms where people can’t feel european istitutions close to their interests , and when social differences are widening and middle-classes , who still represent the majority , are losing economic power . The real message is : difference among nations’interest can’t let them forget the most important challenge : to make people better , and evidence shows that this target is not percieved as a priority from supra-national institutions . Deepening differences are dangerous in perspective of a real union , because fight against it . Political shifts are mirroring this scenario .
Long-short portfolio composition
On Long-short Strategy page, a new chart “Current composition” shows daily current long-short portfolio percentages : longs, shorts, and cash , allowing , from another viewpoint, a focus on current stock markets environment and its mood .
Inflation as sanction .
Euro weakness depends on geopoliticals events ; sanctions against Russia have disruptive effects on Europe , because the uptrend of energy prices (energy from Russia indispensable for Europe) raises inflationary pressure and has negative implication on economic growth too. Markets’ idea is : FED can rise interest rates , ECB can’t (or not enough) , not to deepen economics , and so Euro currency’s purchasing power will weaken , due to inflation , and consequently the Euro slides under round figure of 1,10 against Usd , nearing parity with CHF . Interest rates curves clearly show the difference of inflation expectations between Euro and Usd , better than reflecting a different awaited economic growth speed .
New trailing yield charts
On site Charts page , you’ll find two new charts ; the first shows trailing 12 months yield on S&P index , dating back to 1969 , the second shows the same yield for last 4 years to date .
Homepage has been added with three summary charts , to give a look at actual market sentiment , applying Ema’s Strategy to main assets and indicators .
How is “Whatever it takes” in Japanese ?
March has always been a month when Japanese Yen strenghtened , as corporates close their balances and usually buy back yen. In the following table , I checked the cross USD/JPY in last 8 years , looking at previous december – march performance of every year , and comparing it with june-december performance of same year . In 2014 ans 2015 , trends were opposite , but june trend was confirmed in following three months ; the cross definitively went up .Then , in 2016 and 2017 , a breakout changed those relations, and , since 2018 , trend reversed as for the table .The cross went down . A new trend reversal occurred in 2021, since june-december was followed by the same sign of (2021)december -(2022)march (till today 28/3) performance (both up) . Cross turned to go up , and , if past repeates , it would further appreciate . This scenario is getting more likely today , after Bank of Japan offered to buy unlimited quantity of Yen govt. bonds to prevent yields from raising above 0,25 , a move that would weaken further their currency , since hawkish stances of other central banks worldwide . But Japan must import its energy needs , and pay those in USD (or AUD) , then inflation risks seriously to spike up in coming months , posing a serious threat to a loose monetary policy . So , maybe the sentence is not “whatever it takes ” but “whenever it will last” .
Today , someone noted that when Fed started to hike interest rates and the curve flattened and then inverted (negative spread among short and long rates) , a recession followed in a short time . Try to guess what’s the job of these guys … banks ? Yes of course . An inverted curve doesn’t bode well for banks balance sheets , then the question is : a recession cuts earnings in financial sectors , or restricted credit policies cause a recession ? The answer is in the title of this post .
New bonds analysis
At Interest rates page , you’ll find a new analysis of bond rates curves for Euro and Usd government bonds .
If you remember my 03/04 post (below on this page) , scenario is now different : Euro curve is steepening (awaiting next Ecb steps) , USD flattens instead (pricing in a more hawkish Fed stance , lifting short term), betting on the resilience of european financial sector amid geopoliticals . Is Usa tech sector fashionable again ?
Calling for Ukraine war end.
Today Pope Francis defined the war a “sacrilege” . Ukrainian president , in his speech to Israelian parliament , invoking a help , appealed to their common Jewish roots . Will now religion , in whose name were fighted wars , be a peace factor ?
A new page on site : Selection strategy . Take a look ! Please select page from site menu .
Central Banks time-tables
reduction of asset purchase : done
first rate increase : done
balance sheet reduction : scheduled from may
reduction of asset purchases : just started
first rate increase : scheduled for may-june 2022
balance sheet reduction : after rate increase (but PEPP still ongoing since at least 2023).
Someone comments : Fed may be behind the curve (acting with delay); if true , then ECB is twice behind , also taking in account the most direct influence of geopoliticals.
A busy week for Central Banks and futures traders .
Starting from wednesday, march 16, central banks of USA , Brazil , England , Japan and Russia will decide about monetary policy : last but not least , march futures expirations are scheduled for friday ,18 . Did you miss some market movers ? You’re served . And Euro ? ECB last move was reducing bonds purchasing , letting unmoved interest rates , following FED similar steps (since now) . Now, let’s see what has happened in Usa : considering inflation as temporary , today price indexes are around 8% higher than last year ; and remenber , Usa tend to precede Europe of 6-9 months . Reducing tapering has only an objective , let the curves steepen , advantaging financial sector , and of course , protect central bank’s balance sheet before rate increase . When tightening monetary policies must be acted together with tapering reduction , not after , if you really want reduce inflation risks .
Opening Interest rates page , you’ll find a new couple of charts , displaying the yields and prices evolution of a fixed rate notional bond , 10y maturity, within three scenarios of rates increase .
03/10/2022 11:50 am
How long can last “special operation” in Ukraine ? Nobody could say , but probably a solution will be next when we’ll hear that a meeting will be held in the presence of russian President , (at a proper distancing , as usual) who will assume the crisis resolution thanks to him .
Reversing previous action , Euro curve is steepening , Usd one flattening a little . Today’s mover , ECB council , will show evolution of monetary policy in Eurozone . Notably , Euro curve is inverting after 15y , while Usd’s long end is flatter .
Short covering or trend inversion ?
Gold is a part of the answer : in spite of awaited inflation , and rising bond yields today , it isn’t moving so much , holding 2k figure . Tomorrow’s ECB council and next week’s futures expire will give the second part . And , of course , geopoliticals developments in eastern Europe . Grains and basic resources are retreating , coming back from an “overwhelming overbought” phase . A building spike in indexes , if confirmed , will favour Europe and most beaten sectors , as financials in that area , such as Euro currency , gaining ground versus defensives as CHF and Japanese Yen .
No fly zone .
Actually , in financial terms , that zone is stock markets , and commodities too . Buying the deeps , or the tops , is dangerous ; deeps can be deeper , tops can hardly reverse . Awaiting trends inversion could be the right move.
A new kid in town .
Today you’ll find , in Futures page , a new study .
Big figures in play .
Eur/Usd crossed 1,10 , Eur/Chf approaching 1,00 , Eur/Cad near 1,40 . High volatility until next ECB meeting on 03/10 , then 03/18 futures expiration . Two weeks which can make the difference .
Flattening the Euro curve , steepening Usd .
Be careful on bank and financial european sector .
Geopoliticals have invited The Fed to a more dovish stance . That’s what speculation wanted , a gradual path to raising interest rates . Will be enough ? Longer bond futures prelude to a more inclinated curve , discounting inflation expectations , still alive , but less kicking .
Don’t stop the dance .
As the famous song . WTI over 100 , gold longer dated futures over 2K. Bonds are soaring , forgetting inflation , or discounting a stagflation ? Signs of overbought markets , till speculation will decide it’s enough .
The costs of democracy .
Actual situation of war in Ukraine has deep roots in political and economic developments of last decades. Globalization has linked the world together as never before , but energy and agricultural materials , not saying rare earths , are produced and exported mainly from countries where demo-cracy is still an issue .
If democracy stands for sharing the decisions with all the participants , the commercial ties with those countries let open many questions , such as the dependence for gas, oil and basic materials .
When we speak about fossil fuels , for example, or about grains , we need a very higher quantity of energy and food than before , as demography shows . Inflation today is not only demand-driven , after pandemic ,but is coming also from the lack of coordination and agreement among countries , and from resilience of old energy politics (and interests connected) to adopt new sources of basics . Many say that to counter global warming has high costs , but being unready to tackle those political issues , is the real problem now , as costs to pull together different minds , ideas and concepts of a modern state , is becoming , day by day , the first trouble . The awareness of common , worldwide interest as an absolute priority , is the only way to start to resolve it . Guns have never solved anything .
Black Thursday ?
Futures are in red zone , updates are no favourable to risk markets ; can past help ? March month 2000, internet bubble bursts ; 2008 , financial crisis starts ; 2009 , always march , stocks start the positive decade which is still ongoing ; march 2020 , the covid deep . Often , spring season changes scenarios . Will we have a swift spike (down, then a rapid recovery) as 2020 or is this a start of a longer phase ? Too soon to make a judgement . But the message is : watch carefully markets developments , looking at next Fed moves . As said in last comment below (02/22) , would a rate increase be decided while swords are clashing (Ukraine) ? Hopefully not , says speculation . Inflation will spike if basic materials continue to grow, but now we can say it’s temporary : we hope .
Actual geopolitics news are dominating the scene . But are they very new? Putin’s “make Russia great again” is going on , reinforcing ties with China . After Krimea , the Donbass : and next? Let’s go to the West : mid-term elections propaganda is going on : more are Biden’s difficulties , the best for President’s opposition party , the best for China and Russia too . And Interest rates ? Could the Fed raise interest rates in a war environment ? People says : not . The best for global speculators ,too . Too many are gaining from this scenario . Let’s wait and see , but be careful about your risk profile . Last but not least , basic materials were the last resort in gaining perspectives : and they’re going up , as desired . Is it a plot ? Probably not ,but, when many can make gains , apart from wars, deaths and peoples escaping , nothing really new under the sun .