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Why the CPI Report Matters and Could be a Bullish Catalyst As long as inflationary expectations remained low after Jerome's last speech where he spoke about softening the increase in interest rates, which may or may not be the case, there is a good chance that inflation ticks down. This would confirm a 50bp hike for December, easing monetary policy and providing room for equities to continue their rally. While I think a lower CPI report is more likely in the near-term than a tick up in inflation, with a possible higher than 50bp increase and a decline in equites, it could go either way. Later, when the lagging effects of QT are felt, I expect a further decline in the market as discussed in my previous thesis. It is also possible that inflation stays near its current 7.7%, in which case there may not be too large of a response in equity markets tomorrow. The bigger the move in CPI, the bigger the move in equites. VIX is inching up in anticipation of this binary event. I am linking this thesis with "long" because I believe the negative CPI trend will continue and result in a near-term rally, but this is only because I feel there is a higher probability of this occurring, not that it is by any means certain. InTheMoney
AMEX:SPYLong
by InTheMoneyAdam
8
Powell Time The past two weeks have been relatively calm as Bitcoin traded in the $16,000 to $17,500 range. It appeared that the contagion effects from the FTX collapse were slowly starting to fade, however in the past few days more information has surfaced surrounding Grayscale Bitcoin Trust (GBTC) and its potential insolvency. On Wednesday GBTC closed down -7.42%, giving prospective buyers a record 43% discount on Bitcoin. Many are hypothesising that a large institutional investor is dumping shares of the ETF in order to patch a hole in their balance sheet and maintain solvency. After all, it has since been revealed that many institutional players, such as Grayscale’s parent company (Digital Currency Group), had significant exposure to FTX and its associated companies. You would assume that investors would flock to buy at these discounted levels, however Grayscale is currently being sued by hedge fund Fir Tree in order to investigate potential mismanagement and conflicts of interest. It’s likely that many investors will wait for the outcome of this litigation before making a definitive decision. In other news, Jerome Powell, chair of the Federal Reserve (Fed), gave a speech on 30th of November where he detailed that a 50 bps rate hike was coming. Interestingly, this immediately caused a surge in risk assets and equities, the opposite from what macroeconomic theory would predict. This is likely due to markets reacting to the higher probability of a “pause” (a period where a central bank holds rates constant to assess if and how its policies are working) based on Powell indicating that future rate hikes might be less significant. However, it appears that the market overreacted to this news as the gain in equities following the speech has since been wiped out as the S&P500 has corrected to the levels it was at prior to the speech. From a technical perspective, bears will be hoping for a break below the $15,500 support level which would likely bring new market lows not seen since 2020. This support has held since our last market update however it is yet to be retested. Additionally, since our last update where the MACD initially crossed its signal line, the short term upwards momentum played out and the histogram has remained bullish. Another important point to note is that the Money Flow Index (MFI) has been trending upwards since it bounced off oversold levels in early November. If this trend continues to play out and the oscillator moves towards 80, traders may look to exit long positions and start to look for short entries. The two key events to watch in the coming weeks are the December 13th announcement on U.S CPI inflation and the Federal Reserve's December 14th announcement on rates. If inflation comes in soft, it’s likely that risk assets and equities markets will see at least a short term increase in bullish momentum. Inflation figures will likely dictate the Fed's decision on rates the following day and will determine if they stick to the 50 bps hike that Powell hinted at. These two events will have a major bearing on short run market direction. However, if GBTC continues to capitulate and the fund does indeed unwind, the short term future will be bleak for crypto.
by Coinrule
1
AUDNZD just a quick updateaudnzd might have some good bounce from current 1.06 area ..later on after AUD rate should have clearer indications.NZD could be weaker as compared to AUD. But of coz the other side of thing can happen where AUDNZD just break lower from this consolidation... *************************************************************************************** Hello there! If you like my analysis and it helped you ,do give me a thumbs ups on tradingview! 🙏 And if you would like to show further support for me, you can gift me some coins on tradingview! 😁 Thank you! Disclaimers: The analysis shared through this channel are purely for educational and entertainment purposes only. They are by no means professional advice for individual/s to enter trades for investment or trading purposes. The author/producer of these content shall not and will not be responsible for any form of financial/physical/assets losses incurred from trades executed from the derived conclusion of the individual from these content shared. Thank you, and please do your due diligence before any putting on any trades!
by Shadowing_The_Big_Boys
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
November FOMC preview – where the risk to markets resides Time – 3 Nov 5am AEDT / 6PM GMT (Jay Powell speaks at 05:30 AEDT) Central bank meetings are just so important to sentiment and market structure – when we’re trading a major market theme, such as inflation and rising interest rates, this is the market’s chance to mark-to-market policy changes and how the collective in the bank guide our expectations for future meetings ahead. For traders, notably for those who have exposures sensitive to policy changes, they simply must assess the potential for big volatility, which could affect their positions – our job is to recognise the propensity for sizeable movement, the skew in the outcome distribution and if our stop placement is too close/far from the market. Do we reduce, exit or in some cases even initiate positions? For others, the central bank meeting will shape the trading environment and the market structure they work in - not just for that trading session, but for the following days ahead. Consider day traders who work within a specific timeframe and need to assess if price action constitutes a trending day, and therefore they look more closely at momentum strategies. Or is it more of a choppy, sideways, range-bound day, and therefore looking more readily at intra-day mean reversion strategies? ‘Environment recognition’ is key for day traders and scalpers and edge comes from being able to identify the regime we’re in – perhaps through the application of market profile, VWAP, Bollinger Band strategies (to name a few), as well as good old fashion price action. An overview of the November FOMC meeting As we know event risk seldom gets more important than an FOMC meeting, so this is a risk we need to manage. Trading these tier 1 events takes skill like no other – we must react to the statement, but then 30 minutes later we react to individual words and nuance in the press conference from chair Jay Powell. It’s always the high frequency algo’s that recognise the keywords first and we mortals are left trying to react according. Even once the presser has finished and the dust has settled, quite often we see the ensuing Fed members speaking over the coming week giving their own personal view, and often when we’ve seen violent moves on the day, they will walk back any extreme reaction. The first move is not always the right move. To some, this lively backdrop, especially when we consider reduced liquidity can be nirvana-type conditions. To others, this is the environment where they have no edge and see it best to stand aside and let price do its thing. A hawkish ‘step down’ on the cards We’ve been treated to a roller coaster in Fed ‘pivot’ expectations - Ranging from a WSJ article of an impending ‘step down’ in the pace of hikes starting at the December meeting. To dovish turns from the RBA, ECB and BoC – however, the Fed are their own boss and they see US labour market data that has been solid (as donated by the Employment Cost Index and JOLTS report) – US 5-year inflation expectations are rising and next week’s US core CPI print will likely be close to unchanged at 6.6% YoY - it seems highly unlikely that the Fed will want to promote a positive reaction in risky assets, and the risks to markets in my mind are skewed to a hawkish reaction – equity up, bond yields and the USD lower. In the Fed’s view, putting the US into a recession is still a lesser evil than not tackling entrenched price pressures. While traders would fall off their chair if the Fed didn’t hike by 75bp at this meeting, it’s the guidance for future meetings which is where we get a reaction in markets. We are likely to hear that the pace of hikes in the future will fall to a more conventional pace – this is the ‘step down’ many have focused on. But this narrative will be accompanied by strong conditionality, and the statement will be about giving the Fed maximum flexibility and optionality for the December meeting – that call will be fully data-dependent. So, consider there is a lot of information between now and the 14 December FOMC meeting – we have 2 non-farm payrolls reports, the Oct CPI print (11 Oct) and the midterm elections. It’s no wonder the market is pricing 62bp of hikes for that meeting and hedging their bets of a 50 or 75bp hike – it's this pricing for the Dec FOMC meeting which I think is key for markets. Rates Review – we see market pricing for the Nov FOMC meeting at 75bp – then a step to 62bp in the Dec meeting. The holy trinity – the three markets to drive cross-asset volatility Pricing for the December FOMC meeting So part of the reaction will be seen in the pricing for the Dec FOMC meeting which currently sits at 4.41% – traders can see this on TradingView by typing ‘100-ZQF2023’ into the navigator. A dovish reaction would be to see this headed below 4.4%, where we would expect the USD to sell off and gold and equities to rally. A push towards 4.50% would see USDJPY push towards 150 and EURUSD through 0.9800. Terminal fed funds rates pricing We also look at the terminal rates pricing – this is the peak of market expectations for where the Fed can take rates, which currently sit in the May to June 2023 period at 5% – we can type in ‘100-ZQK2023’ into the navigator. A firm break above 5% would send risk lower. US 2-year Treasury I also look at US real rates and 2yr Treasuries (US02Y) closely as a driver for risk assets – If yields rise then we should see the NAS100 and gold fall and the USD spike, especially if we take out the 21 Oct high of 4.63% – conversely if yields fall/price rise then the USD will likely fall. As always around key events, the reaction in markets is a function of: • The outcome vs Expectations • Positioning • Hedging activity • Liquidity My own view is the risks are skewed for a hawkish reaction – USD higher, but I will recognise the moves in rates suggests the market is largely positioned for this outcome.
PEPPERSTONE:USDXEducation
by Pepperstone
2
The US midterm elections - assessing the prospect for volatilityAs we look ahead to the US midterms on 9 November, the question traders ask is whether it has the potential to be a risk event and promote increased cross-market volatility – as part of the risks assessment, the election has implications on whether to reduce trading exposures over the event. Anecdotally it feels like traders aren’t giving the elections too much importance and are looking far more intently at this week’s FOMC meeting and US CPI (11 Oct) – it’s hard to disagree with that stance as trading ‘peak rates’ is the dominant trading thematic - where bad news is good for risky assets, and good news (especially labour market data) is bad for risky assets. However, the makeup of Congress does matter for US economics, even more so given the US is increasingly headed towards a recession and could require fiscal support. As we move ever closer to the 2024 Presidential elections, there is little doubt a split Congress will increase the brinkmanship between the two parties. However, whether this leads to significant market volatility is debatable. When will we get a result? An important aspect of the midterms is timings and when exactly we will have a clear understanding of who will control the Senate and the House – the market naturally wants certainty and an immediate outcome – this is unlikely and trading the midterms means reacting to news as it comes in state by state. With so many choosing to vote by mail, we know that in some states it's only when the polls close on election night that the mail votes are counted. It may be too close to call in some states, and we must wait for the full mail vote to be counted – this suggests we may not actually get a firm result for the Senate and House on election night. The playbook We explain the dynamics of the US midterms in our recent piece - “Trading the midterm elections – what’s important for traders: - pepperstone.com - we can assess what seats are contestable and how many seats each party needs to obtain to win each chamber. The betting markets have Republicans winning both the House and Senate As it stands, PredicIt have the House and Senate going to the Republicans (REP) comfortably – betting markets have a 90% probability the REP claims the House and a 73% chance of controlling the Senate. In the eyes of the market, it’s not even a debate that the REPs claim the House, it’s a lock. The battle for the Senate is where we could see some uncertainty, and while the REPs are expected to be victorious it's not a done deal. So, the strong base case in the market’s eyes, is that we have Biden in the White House and REPs controlling both chambers of Congress. This outcome has implications that can affect markets, so let’s consider the following: Fiscal policy • In a world where inflation is very high governments are already constrained on future stimulus, especially if it leads to increased bond issuance. However, as the probability of a recession increases the need for government assistance also rises, so President Biden may propose a stimulus package, but the REPs would likely reject it in either the House or Senate. In theory, from a fiscal perspective, this scenario is a modest USD negative. • In the far less probable scenario where the DEMs maintain control of Congress and the White House - should the economy need it, then they would be able to pass a sizeable fiscal package – in a recessionary backdrop with rising unemployment, supporting deteriorating economics would soon take priority over inflation – this outcome would therefore be USD positive as it could lift US Treasury yields. Borrowing constraints • With REP potentially controlling Congress, we consider the possibility of another debt ceiling and govt shutdown debacle – in recent times the market has become quietly comfortable with both issues and a re-run of the volatility seen in 2011 seems highly unlikely. However, if the REPs tow a fiscal prudence line and push for reduced govt spending then we could easily be facing a brinkmanship event and a game of who blinks first. While most of the volatility will be centred on ultra-short-term US debt instruments (T-bills), a standoff on the debt ceiling would be USD positive, although the clearer trade would be shorting equities – and as we push close to the debt ceiling deadline the equity market would become ever more nervous and de-risk. Geopolitics • It's hard to draw a clear conclusion on this from a market perspective and while we can look at the US’s relationship with China and Russia, there doesn’t seem to be a clear market catalyst here. In theory, a REP-controlled Congress and Biden in the WH is a modest USD negative, while conversely, the debt ceiling debate is bullish for the USD. So with no dominant directional catalyst, traders will continue to trade the ‘peak rates’ theme but will keep a close eye on the midterms for voting trends and in case it does surprise and proves to be a volatility event. However, with a recession a rising probability and the government unlikely able to support through fiscal channels, it puts all the emphasis back on the Fed – that means their reaction function will need to be sharper and they will need to be ready to shift policy more aggressively if the economy is to rapidly go downhill. In some ways this politicises the Fed, with the economy shaping up to be the key agenda for the 2024 Presidential election.
PEPPERSTONE:USDX
by Pepperstone
A traders’ week ahead playbook – a week littered with landmines Key event risk summary: • FOMC meeting (3 Nov 5 am AEDT) and chair Jay Powell press conference – the Fed hike 75bp, but it’s all about the guidance • RBA meeting (1 Nov 14:30 AEDT) – A 25bp hike is expected, watch for the optionality of a bigger hike in the December meeting • BoE meeting (3 Nov 23:00 AEDT) – a 75bp expected – Comments from members Mann and Pill will also get a focus throughout the week • EU CPI estimate (31 Oct 21:00 AEDT)- the market expects inflation to rise to 10.3% from 10%. We also get 16 ECB speakers throughout the week • US Non-farm payrolls (4 Nov 23:30 AEDT) – The consensus is for 190k jobs, an unemployment rate of 3.6%, average hourly earnings of 4.7% • China manufacturing and services PMI (31 Oct 12:30 AEDT) – consensus is for the manufacturing index to fall to 49.8 (from 50.1) • US ISM manufacturing (2 Nov 01:00 AEDT) – The consensus is for this to print 50.0 • US services ISM (4 Nov 01:00 AEDT) – the market consensus is 55.1 (from 56.7) • US JOLTS report – 9,625,000 jobs openings expected (from 10.053m) Risk assets put on a show on Friday, but I can’t help but feel the improved sentiment may run into headwinds this week – an open mind to change in market structure is always advantageous and while we endeavour to assess risk and potential outcomes, the market will do what it wants to do, and we dynamically react to flow and price. The ‘peak rates’ trade - catalysed by the WSJ article, as well as dovish turns from the RBA, BoC, and ECB has been well traded, and despite poor earnings from several mega tech names, we see the US500, US30 and US2000 breaking strongly higher. The ECB’s dovish narrative helped EU equities put on a show and price momentum is strong - a significant 26bp (to 2.07%) tightening of the Italian 10yr BTP – German 10yr bund spread on the week has also assisted, as this one of the core gauges of sentiment to the region. That said, with various EU inflation prints coming in hot (German CPI printed 11.6% vs 10.9% eyed), and the wider EU region CPI print expected to increase to 10.3%, this may have some questioning whether the ECB went too early on its dovish turn. Another talking point is that despite the positive equity flow, we saw the USD supported, with tailwinds coming from the US Treasury market, with the US 2yr Treasury +14bp on Friday into 4.41% - we also see US 5yr real rates +8bp to 1.54% and holding the 1.50% range lows. If the USD builds, then one suspects goodwill towards equity will reverse. With US real rates and the DXY rising, gold has found sellers into $1645 and looks to revisit $1621 support, where a break would get real attention from clients. Month-end flows may be a factor in the equity move, and we know US corporate buybacks have ramped up to $5b a day – we’ve seen an insatiable bid in Apple and the buyers put in a powerful statement on Friday, showing real leadership in a sector that is in the doghouse. A central bank bonanza We watch and react to guidance from the FOMC, RBA, Norges Bank, and BoE – The Fed naturally commands our core attention as the sole entity that can move all markets, and everyone wants to understand what a “step down” in future rate hikes looks like – A 75bp hike at this meeting is a lock, but it’s the readiness to slow the future pace of hikes that could move rates pricing, and in turn, the USD, NAS100 and gold. With 59bp of additional hikes priced for the December FOMC meeting, market pricing feels fair, and the Fed will want to give themselves maximum flexibility, so they would be free to hike by 50bp or 75bp. That will be determined by the ongoing data and financial conditions. The market craves insight and definition from the Fed – I’m not sure we get it, so with USD positioning less stretched, at the margin, this favours a USD rally. USDCNH remains a key driver here, so watch for a re-test of 7.3000. USDJPY has bounced off 145.00 which is where we saw big volume in recent days, so that may be significant for a rally into 149.00. The FOMC meeting aside, it’s a monster week of US data. So consider we also get the JOLTS employment report, ISM manufacturing, ISM services and non-farm payrolls – we also gear up for the US Mid-Term elections and as we look at the potential outcomes could indeed drive broad market volatility - needless to say, this is a blockbuster week for event risk and portfolio landmines. For the US500 to break back above 4000 we’ll need to see clarity on easing back to 50bp in Dec, as well as a clear cooling of US labour markets – when it comes to US and global data bad news is good news for risk and vice versa. Copper and crude are worth putting on the radar, notably copper is consolidating with price trading in an ever-narrow range – on one hand, we watch China PMIs, but the US ISM manufacturing report is expected to print 50.0 on the diffusion index, so it wouldn’t surprise too intently if this fell below 50.0 – the line between growth and contraction. The RBA to hike 25bp The RBA should hike by 25bp, and while there are calls for 50bp, this seems a hero call driven by last week's above consensus CPI/PPI print. A 50bp hike, should it come, would shock the markets and we’d likely see big vol in the AUS200 and Aussie banks – consumer stocks would attract increased shorting flow. We see AUDUSD 1-week implied at 17.4%, which is the highest in G10 FX – so the market is looking here for movement. AUDNZD has been an interesting trade, falling from 1.1450 to 1.1000 – I expect this to chop around and consolidate here, with price back in the May to Sept range. Can GBPJPY kick on? The BoE should hike by 75bp, and again this is fully priced so a 50bp hike – a low probability, but not several economists have made compelling arguments why we could see a smaller hike. EURGBP looks heavy on the daily, but GBPJPY is one that has come on the radar and is an interesting tactical case study – consider price has broken out and I question if this can really kick and trend – what worries the potential negative divergence (price and the RSI) is, as well as running into another fight with the BoJ who could intervene once more. Another big week for traders – where the ability to be in front of the screens when the data drops is clearly advantageous. Position sizing will keep you in the game, but so will being humble and knowing when to hold and when to fold.
PEPPERSTONE:US500
by Pepperstone
US Dollar Index ForecastDemand for the dollar is usually high as it is the world's reserve currency. Other factors that influence whether or not the dollar rises in value in comparison to another currency include inflation rates, trade deficits, and political stability. The dollar has been gaining strength against the currencies of other major economies. The dollar is strong because the US economy is healthier than those of many other countries and because the Federal Reserve keeps raising interest rates. Does the dollar get stronger with higher interest rates? But the overriding reason for the strong dollar is the fight against inflation. The Federal Reserve is ratcheting up interest rates to attack the current near-constant rise in prices and said last week it expects more hikes this year. As it continues to raise rates, the dollar will strengthen. <-- https:// tradingeconomics.com/ united-states/ interest-rate ---> How do bond yields affect the dollar? Bond yields actually serve as an excellent indicator of the strength of a nation's stock market, which increases the demand for the nation's currency. For example, U.S. bond yields gauge the performance of the U.S. stock market, thereby reflecting the demand for the U.S. dollar. <--- https:// ycharts.com/indicators/ 10_2_year_treasury_yield_spread --->
TVC:DXYLong
by domotswiri
US 10 Year Treasury Yield: What's Next?Quick Analysis on 10 Year Treasury Yield on a 1M Linear Chart. 1) The US 10 Year Treasury Yield has been respecting a falling channel for multiple decades going back to the 1980s. 2) It is currently headed to the top trendline of the channel with a possibility to break in the coming months. 3) The measured move of the falling channel would bring it back to Pre-2008 ranges. 4) This may fall in line with the US Dollar strengthening (in the idea section below). 5) If US 10 Year Treasury Yield goes lower, there is not much more room for it to get to 0. What are your opinions on this? If you enjoy my ideas, feel free to like it and drop in a comment. I love reading your comments below. Disclosure: This is just my opinion and not any type of financial advice. I enjoy charting and discussing technical analysis. Don't trade based on my advice. Do your own research! #cryptopickk
TVC:TNX
by MillionaireEconomics
17
XAUUSD Bearish biasHello dear traders, I think gold will continue forming lower lows on its way to the weekly demand zone of 1590-1570 area. I have draw paths of possible impulse as break and retest areas. For bullish reversal, I want to see a clear break of 1660 zone with price action retest. Dollar is getting stronger and stronger with this solid and aggressive FED policy and the continuous rising yields. However, the global economy is not at the normal levels, so this USD strength might get exhausted after December. You can share your ideas on the comments!!! Good luck!
FX_IDC:XAUUSDShort
by The_Forex_Path
2
USD Focus Fed Minutes USD CPIHi, and welcome to Wednesday’s update. Today we are looking at the USD, and it’s hard not to focus on the dollar with all the key news that’s on the way. From tonight, 11:30 local time (AEDT), we have PPI followed by the Fed minutes at 5:00 am and US CPI data at 11:30 pm to cap it off. The CPI data being released will be both the M/M EXP 0.2% and the Y/Y EXP 8.1%. This could be an important period for the markets. The last Fed minutes shocked the markets, and CPI came in hotter than expected. These surprises led to extended moves lower on risk markets and solid a rally on the USD. Will we see a repeat this time? As noted, it is going to come down to what’s released. CPI beats expectations. Fed remains hawkish we see the USD rallying. If CPI misses and the Fed message is not as hard as we have seen, we could see some selling and a move higher from risk markets like we saw just over a week ago. Are we starting to see a small bull trap on the USD? Don't discount the chance of softer minutes or a CPI miss that rattles the cage. It is definitely going to be an interesting period to watch traders from now until Thursday night local time. We like to hear from you, so please feel free to drop us a comment. We also run weekly webinars with guest analysts. Good trading.
EIGHTCAP:USDX
by Eightcap
SPX500 is trying to find a bottomIn my opinion the market is trying to find a bottom. How far it will go down, Im not sure, but anything lower that 3450-ish, will take market to very oversold territory. Everyone is waiting for Thursday’s CPI, depending on the result this can go either way: 1. Inflation is rising - this means FED will be rise rates by 0.75 in November, strong move downside, but then it to go to oversold territory and we might stay there few days before slow recovery starts. I dont believe the earning season takes market above 4000. More realisticaly 3900-3950. 2. Inflation is going down- rising rates start to do the job, FED might slow down next month but we’re not out of the woods yet. Economies already slowed down, we might see recovery on the markets and USD to cool off a little. The only difference between 1 and 2 is when we start the recovery- this or next week. If you look at the VIX, it is pretty high, over 30. On a brick of being overbought. That makes me believe we can see some green candles in the next few weeks but after that I expect very red November. I can be wrong, the markets are unpredictable so dont treat it as trading advice. Im not a professional trader but I’ve been following indices closely in the last few months. Always do your own analisys
OANDA:SPX500USD
by Trinnisia_Trades
Thoughts on rates, bull markets, bear markets, and QEHey all, I wanted to post a few thoughts of the somewhat educational variety. Hopefully this will help with perspective on where we've been and why I continue to see equity market weakness for the extended and foreseeable future (1-3 years maybe). So starting with this chart, this is the 10 year US Treasury yield below and the S&P 500 index above going back to approx. 1980. It's log scale to make each asset more meaningfully represented. What we notice about the 10 year yield relative to equities throughout this ENTIRE 40+ year period is that it has been on a steady declining slope as the S&P has seen significant growth and gains. The numbers for each over this stretch are as follows. 10 Yr Yield High: 16% (nearly) in Sep '81 10 Yr Yield Low: .33% in March '20 S&P 500 Low: 100 (roughly) in March '80 S&P 500 High: 4820 in Jan '22 Actually this is really interesting and I didn't realize this till now running these numbers. The 10 year yield has contracted by 48x while the S&P 500 has gained 48x over the same period... A note on falling rate environments....they're bullish for stocks. We have been in this period of steadily lower rates over time to the tune of 48x and the stock market reflects this favorable environment with the exact same multiple in growth over the same period. Now, we all know that the FED is on a mission to tame inflation with higher interest rates..Take note of the 10 year low in Mar '20 of .33%. I believe that low will hold for the remainder of our trading careers as we see a period of steadily INCREASING rates to counter this 40 YEAR accommodative run. In the short-med term sure the FED is looking to boost into the 3-3.5% range for their target rate. Be advised that 3% is 6% shy of June CPI (9%) which puts us still in a REAL accommodative rate environment. They're gonna have to match inflation (with target rate) and then some to have it sustainably reverse course. CPI could come down as part of this process and I think it will. Let's say it fall to 6%. Better, right? We'd still need a fed target rate at 7% + to meaningfully throw water on inflationary forces. I guess what I'm saying is...3.5% is a neat target, but we'll have much higher to go beyond that. I see this as a give and take over the coming years as rates make new highs which puts equities in a tough position until this process plays out. I'm kind of looking at 2000-2003 period of multiple contraction post dot com bubble as a reference for this current environment. Sorry, the bottom is not in and it could take years to get there. Ok all that said I wanted to also clarify some things regarding Quantitative Easing and what it actually means when we say the Fed is "Printing" Money. The Fed engaged in QE first time around in November 2008. I remember pretty well as I was working in Midtown Manhattan for an asset management firm and we were in the thickest part of the financial crisis. CNBC was on perpetually for our desk of sales people...Anyway I see a lot of folks referencing FED printing and their balance sheet but often the context or implication of this concept is apparently misunderstood by many in TV chats and comments. Being a nerd, and having worked for the largest bond manager during the first QE, the firm was with was instrumental in helping guide the fed through that stretch...I'm gonna lay out how QE works for all to observe (if you are not clear already). Quantitative Easing (QE) is when the FED purchases US Treasuries and or US mortgage backed bonds from the open market. The real purpose of this strategy is to lower or maintain low borrowing rates for the US Gov, US mortgage borrowers (homeowners) and by extension bc the US Treasury is the benchmark, all debt and borrowing rates. QE is typically employed as a supplemental strategy once the actual FED target rate is at or near 0%...can't go lower right? Wrong, kinda....this is where the FED would likely utilize QE if rates at 0 but they still wanted to do more to stimulate growth/be accomodative. When the FED buys US treasuries or mortgage backs, it sends those yields lower. This rate influence impacts the entire bond and rates markets by extension as a lower benchmark bc there's a huge buyer of US bonds! the FED to the recent tune of $9 Trillion. I'll pose the question..."where'd they get the money?" They just kind of acted as if they had it....and bought the bonds...and held em. Without actually printing it, the impact of this is as if there were $9T more dollars in circulation and far more demand for treasuries than is reality.... They lowered interest rates without changing their target rate (which was already at 0%) and did so by theoretically "printing" the money to make the purchases. That's it, that's QE. Worth mentioning that we are now in QT (tightening) and they are selling those same bonds back effectively removing the "as if" $9T from circulation.....it never really was in circulation but QE simulates as if it were...This selling of US Treasuries and MBS is what they refer to as reducing or unwinding their balance sheet. $95 B/ month currently I believe.. Bear in mind that these sales will have the opposite impact on rates as the purchases so while the fed is raising their target rate 50-75bps per meeting, there is an additional impact on the bond market from QT.... If you read this far my hat's off to you. Hopefully someone learned something...thanks ~B
TVC:US10Y
by Alt-B
45