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EUR/USD shrugs as eurozone CPI rises to 2%The euro is flat on Thursday after three straight winning days. In the European session, EUR/USD is unchanged on the day, trading at 1.0854. Eurozone inflation rose to 2% y/y in October, up from 1.7% in September and above the market estimate of 1.9%. This was the fastest increase since April. The main drivers of the inflation increase were services and food prices. Services inflation continues to be a headache for the European Central Bank, unchanged at 3.9% and almost double the target. Monthly, CPI rose 0.3% after a 0.1% decline in September. Core CPI remained at 2.7% y/y, just above the market estimate of 2.6% and the lowest level since February 2022. How will the European Central Bank react to the inflation report? The central bank has been in the forefront of the rate-cutting trend, having lowered interest rates three times this year. The ECB is expected to trim rates at the December meeting, although the October inflation data indicates that inflation has not yet been fully contained. ECB President Lagarde said after the inflation release that she expects inflation will sustainably reach the 2% target in 2025. The eurozone labor market remains strong despite a sluggish economy. Thursday’s unemployment report showed the unemployment rate fell to 6.3% in September, down from 6.4% in August and the lowest level since the eurozone was establish in 1999. The ECB, like other major central banks, will have to balance a strong labor market against weakening inflation as it determines its rate path for the coming months. EUR/USD tested resistance at 1.0885 earlier. Above, there is resistance at 1.0913 1.0842 and 1.0814 are the next support levels
by OANDA
1
BTC - 9/24/2024Historically, unemployment and inflation tend to alternate each other- hence the Philips inversion curve and other trading philosophies. Inflation is not necessarily under check in my opinion, but retail and establishments are eyeing up entries here as central banks like the ECB, BOJ, and Fed start cutting their interest rates as job numbers have arguably seemed to look good. In any case, I see cash injections in the economy and eased lending leading to some faith for a bullish scenario. The last time inflation and unemployment alternated severity, it caused a pretty substantial drop in BTC prices before a super-cycle. I'm bullish on the cycle overall.
Long
by O_Positive
USD/JPY surges as Bank of Japan stays patThe US dollar has posted sharp gains on Friday. In the European session, USD/JPY is trading at 143.85, up 0.88% at the time of writing. The yen hit a 14-month high on Monday but the dollar has rebounded and is up 2.1% this week. It’s an unusually quiet Friday with no US events on the calendar. The Bank of Japan held its rate decision just after the Federal Reserve, but there was little drama at the BoJ meeting. The markets had expected that central bank to maintain rates at “around 0.25%” and the BoJ didn’t provide any clues about future hikes. The rate statement didn’t reveal much, stating that the economy had “recovered moderately” but some weakness remained. The statement noted concern over “developments in financial and foreign exchange market and their impact on Japan’s economic activity and prices”. Governor Ueda said last month that the BoJ would raise rate if the economy and inflation were in line with the Bank’s projections. If key data, particularly inflation, is stronger than expected in the coming weeks, we could see a rate hike at the October meeting. With inflation in the US largely under control, the Federal Reserve is keeping a worried eye on the labor market, as job growth as deteriorated quickly. That slide has unnerved financial markets and may have been a key factor in the Fed’s jumbo rate cut of 50 basis points this week. Thursday’s unemployment claims for the period ending Sept. 14 were better than expected, at 219 thousand. This was well below the revised 231 thousand reading a week earlier and beat the market estimate of 230 thousand. USD/JPY pushed above resistance at 142.41 earlier. The next resistance line is 144.55 There is support at 142.41 and 141.00
by OANDA
The 3-way of Economic Nightmares.I recently had a discussion on X, with regard to the Forecasting ability of High Yield Spreads. I was making the claim they do possess Leading Indicator qualities, while a gentleman took the other side of this debate. To illustrate my views, I've put together a chart of FedFunds Rate, Unemployment Rate, and said High Yield Spreads. This chart shows the last ~28yr of the above mentioned series, and how they "play" with one another. A) Shows the period leading into the "DotCom" Bubble. We see High Yield Spreads rise first - Leading the other two data series. In a Coincident fashion, FedFunds then rolls over, while Unemployment shoots higher. A successful "Forecast" by High Yield Spreads of the impending Downturn/Recession. A successful Leading Indicator. B) Shows the period leading into the "GFC". We once again see High Yield Spreads rise, this time SHARPLY, albeit with much less "lead time" than the previous example. As with example A), FedFunds and Unemployment then begin their inverse (to each other) dance. Once again showing High Yields Spread giving us that Advanced/Leading warning that things were getting fragile in the economy. A successful Leading Indicator - with admittedly less warning time. C) Shows us an outlier in this analysis, and for good reason. We see our 'significant' rise in High Yield Spreads, but what we do NOT see, is FedFunds and Unemployment doing their typical dance. Unemployment continues to head lower, while FedFunds begin to rise - the OPPOSITE of what they did in the prior 2 examples. D) Shows the period surrounding Covid. Once again High Yield Spreads shoot up in a dramatic fashion, warning bells should be going off in markets. Much like 2 of the previous 3 examples, FedFunds had also been in a "hiking" cycle. And right on cue, Unemployment skyrockets; completing our 3-way from Hell. We now find ourself in E). In the Oval we see our significant rise in High Yield Spreads, but this is accompanied by rising FedFunds, so we do not have our "danger" signal. Unemployment also remains low. We now however see High Yield Spreads beginning to turn up, with talks of Rate Cuts to FedFunds, as well as Unemployment rising. History may not repeat, but it does often rhyme. Are we starting to see warning signs flashing? Only time will tell, but as stated in previous posts... It's definitely not a time to be leveraged, or riding on large gains you haven't secured. TLDR; High Yield Spreads followed by Fallings FedFunds and Rising Unemployment = Market/Economic Stroke. As always, good luck, have fun, practice solid risk management. And thank you for your time.
FRED:BAMLH0A0HYM2
by mrjones2020
240812 Market OutlookLast two weeks adjustment was aligned with the rise in Unemployment Rate and associated worries about the possible US economic slowdown. A week ago gap was closed last Friday, but there still remain another gap on Aug-2, which slightly increase the probability of further rise in US stocks. The focus of this week is inflation data from US, including PPI on Tue, Inflation Rate on Wed and Retail Sales on Thu. Additionally, investors should pay attention to Initial Claims on Thu and Michigan Consumer Sentiment on Fri.
SP:SPXLong
by moncap2023
Is This the Start of a Recession? Why You Shouldn’t PanicMarkets have been selling off amid the latest fears of a recession, with the NASDAQ dropping over 10% and Bitcoin dropping over 20% in just a matter of days. Last Friday’s unemployment report further affirmed investors’ sentiment, exceeding expectations by 0.2% and sparking one of the biggest rotations of capital since the COVID crash. Investors are gearing up for tough times by flocking to bonds and panic-selling risky assets, but has a recession really begun? Should you panic? Understanding the Economic Data Recent unemployment numbers have triggered the Sahm Rule Recession Indicator, created by Claudia Sahm in 2019 to identify recessions as they start. This indicator is triggered when the three-month simple moving average (SMA) of the US unemployment rate rises by 0.5% above the lowest rate observed over the past year. Despite its growing popularity, it’s important to note that this tool has never actually identified any recessions in real time, except for the 2020 recession. In contrast, more established indicators like the Smoothed U.S. Recession Probabilities, developed by Marcelle Chauvet and James Hamilton in 1998, have not indicated that the economy is currently in a recession. Unlike the Sahm Rule, this nearly 26-year-old tool, which relies on complex calculations and various datasets, accurately identified the 2001 and 2008 recessions in real time. Moreover, recessions in the US typically occur when the US Composite Leading Indicator (CLI) is on a downward trend, which hasn’t happened yet. This further suggests that other indicators besides the unemployment rate aren’t currently showing signs of concern. Even though the unemployment rate has risen sharply, other leading unemployment indicators, such as initial claims and continued claims, remain at historically low levels. Typically, these leading indicators rise sharply before a substantial increase in the unemployment rate, not the other way around. With the market pricing in substantial rate cuts following the unemployment numbers, yields have dropped, increasing the spread between the short and long ends of the yield curve. Historically, recessions haven’t usually unfolded during inverted yield curves. Additionally, expected looser monetary policy from the Fed combined with surprisingly tighter monetary policy from the BOJ pushed the DXY substantially lower. This resulted in a breakout in global liquidity, which is inversely correlated with the DXY and serves as a helpful indicator of future trends in risk assets. Understanding the Market Trends While the real economy hints that we are likely not currently in a recession, it’s crucial to examine the charts to better understand the downside risks and how to position oneself in order to stay on the right side of market risk. The spike in the VIX and the put-to-call ratio on Monday indicated extremely fearful sentiment, which historically suggests limited downside risk and the potential for a short-term rebound. The sudden surge in fear was reflected in the sharp increase in bond prices as investors shifted from high-risk to low-risk assets. With bullish short-term and long-term trends since early June, bond prices have reached overbought conditions, suggesting they are likely to slow down in the short term but continue outperforming in the long term, aligning with market expectations of future rate cuts. The inverse can be observed in the equity markets, with US indices in oversold conditions and exhibiting recent bearish short-term and long-term trends. This suggests that equities are likely to experience a short-term bounce but will continue to decline in the long term, providing a potential opportunity to sell. The cryptocurrency market tells a similar but much more pronounced story, with bearish short-term and long-term trends evident since late June. Despite being oversold, the future outlook for the cryptomarket remains pessimistic and is likely to underperform equities, especially if investors continue to reduce risk. This flight to the relative safety of mega caps has been a recurring theme since March 2021, when both the small cap and mid cap to mega cap ratios turned bearish, a trend that remains unbroken and is likely to continue unless a recession materializes and forces a shift to looser monetary policy. Similar trends are likely to continue in the cryptocurrency markets, as evidenced by the breakout in Bitcoin dominance, which currently positions Bitcoin’s market cap at 62% of the entire cryptocurrency market when stable coins are excluded from the calculation. Concluding Thoughts While the market is starting to panic amid recessionary fears, the data does not yet confirm that the economy is currently entering a recession. Investors should avoid panic selling, as a rebound is likely to occur in the short term given the current overextended conditions. For the mid to long term, the situation calls for a cautious approach, focusing on managing risk and gradually shifting from riskier to less risky assets, as indicated by longer-term trends in asset markets. Disclaimer: This article is for informational and educational purposes only and should not be construed as investment advice.
AMEX:SPY
by ingeforberg
Differentiate between rate cut and low interest rateNo important economic data from US this week, only trade balance and initial claims to observe on Tue and Thu respectively. US stock market continued decline on Fri, following weakening labor market conditions and earnings from big tech companies last week. In expectations of rate cut, big shots are reducing portfolios. The situation may last until we actually see the first rate cut in the cycle and longer. The rise in stocks is usually associated with low interest rate, I would expect the adjustment in S&P to continue along the path of rate cut. So investors should differentiate between rate cut action and low interest rate, which are presented as two distinguished market conditions.
SP:SPXShort
by moncap2023
Thesis: slightly higher SP500, before crash due to unemployment12/9/2023 I - Issue: Yesterday, the latest unemployment rate for the USA were released. The current rate stands at 3.7, reflecting a decrease of 0.2. The key question now is whether this is merely a test of support or a signal for a potential invalidation of the bottom structure. R - Rule: Since 1950, we observe numerous instances where the unemployment rate proves to be a reliable indicator for determining the macro trend of the stock markets.The formation of a bottom signals a peak for the S&P 500, and the initiation of an upward trend is generally considered the least favorable time to invest in stocks. A - Application: As per the latest data, the unemployment rate stands at 3.7. As evident from the charts, this marks a breached resistance that is now expected to serve as support. Additionally, there is a current rejection of the upper band of the Bull Market Support Band, but the price remains above it, indicating potential support in this range as well. Furthermore, in accordance with the Phillips curve, there is a negative correlation between inflation and unemployment. This relationship suggests that the declining inflation, results in an rising unemployment. C - Conclusion: The lower unemployment rate currently appears to be a retest of the 3.7 level. It is highly likely that it will stay above this level, given the substantial support from the horizontal support and the Bull Market Support Band. Additionally, the Phillips curve provides an additional reason why unemployment may increase in the coming months. This suggests that, based on this scenario, the stock markets could be approaching a potential peak. Take this into consideration.
FRED:UNRATE
by FibonacciTheGreat
The Implications of the US Unemployment Rate - It Is Higher Now What is moving lately? The US unemployment rate has edged up. We can see from past cycles that when unemployment numbers started breaking above their downtrend, crisis occurred. Micro E-Mini Nasdaq Futures and Options Ticker: MNQ Minimum fluctuation: 0.25 index points = $0.50 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. 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
FRED:UNRATEShort
by konhow
UNEMPLOYMENT / FED FUNDS RATE - PLAY BOOKUNEMPLOYMENT / FED FUNDS RATE - PLAY BOOK This post I intend to explore with you the cyclic relationship we can observer between: 1) US Unemployment Rate (BLUE), 2) 21D SMA (Orange) based in unemployment data, and 3) Resultant Recessions (Gray Bars) Historically, the general play book / sequence of events suggest once we break the 21 Day SMA (orange line), it is the start of unemployment unwinding and we lead into a recession. As the 'FED FUNDs RATE' is the artificial tool used to 'Guide' the credit market (politically correct explination), the obvious question then is; "What is the relationship / behavior of interest rates historically with this trend? Are we experiencing similar behaviour to the last 30 - 40 years?" The Red line show the FED funds rate on the chart. The below sequence of events show how these variable play with each other: The story goes: the FED increases the 'FED FUNDS RATE' (aka interest rates) because low periods of interest rates is resulting in a 'HOT' economy and causing inflation (i.e. market forces the FEDs hand to raise interest rates as the return for lending money to credit markets does not match the current risks). At some point during interest rate rises: 1) FED rise in interest rates is held constant (the lagging effect of higher rates start to hit the economy resulting in slowing down economic activity - i.e. spending) 2) Record low unemployment starts to rise (Cross of 21D SMA historically has signaled a point of no return) 3) Fed start to drop rates due to employment increase, deflationary market disruption 4) Unemployment begins to rapidly increase 5) Recession WHERE ARE WE NOW? According to this play book, we are in currently in step 2 and approaching point 3 . If you find this post interesting, you may find my discussion around the 2 Year Treasury Bond Yield vs FED Funds Rate interesting. This relationship is what I was using to speculate interest rate rises before they happened, and that they would be higher than people were expecting when there was talk of rates rising... The Market in all cases will eventually win...
FRED:UNEMPLOY
by Brodie
1
Unemployment & The Coming RecessionOnce the Unemployment Rate crosses the 36 mo MA this has historically marked a period of a coming Recession. As you can tell from the RSI indicator we entered into this phase a few months ago. I'm posting this chart because tomorrow Biden is going to tell everyone how great the Economy is doing (wait for it), but the Unemployment Chart indicates we have officially moved into the "Recession" category and there is nothing on the horizon that says this situation is going to be improving, in fact, millions of illegal aliens now flooding into the country indicates the situation will be getting much worse. Banks will begin seizing a record number of properties in foreclosures and bankruptcies as the Unemployment Rate continues upward thanks to the plans they implemented. These periods of "Boom and Bust" are completely fabricated through the policies they implement. There is no reason why this chart shouldn't be mostly a steady line with minor hills and valleys in what would be considered a growing and healthy economy. Also note the Unemployment Rate has never returned back to it's 1972 levels following the removal of the Gold Standard in 1971 by Nixon.
FRED:UNEMPLOYShort
by cldx
GBP/USD shrugs as UK unemployment rises, GDP nextThe British pound is drifting on Tuesday. GBP/USD is trading at 1.2720 in the European session at the time of writing, down 0.08% on the day. The UK released the May employment report earlier today. Next up is GDP on Wednesday, with a market estimate of 0% m/m for April, following a 0.4% gain in March. Today’s UK employment report indicated that the labor market continues to cool down, with a notable rise in unemployment. Claimants for unemployment benefits jumped by 50.4 thousand in May, up sharply from a revised 8.4 thousand increase in April and higher than the market estimate of 10.2 thousand. The unemployment rate ticked up to 4.4% in the three months to April, up from 4.3% in the previous period and the market estimate of 4.3%. Job growth continued to slow, falling by 139,000. Wage growth in the private sector, a key gauge for the central bank, fell to 5.8%, its lowest level since mid-2022. The drop in wage growth was impressive as the government hiked the minimum wage by 9.8% in April and there were concerns that sharp increase would send wage growth higher. The job numbers will be a relief for the Bank of England, which needs to see a weaker labor market in order to start lowering rates. There won’t be a rate cut at the next meeting in June due to the national election on July 4th. The markets have fully priced a quarter-point cut by November and the employment report has raised the likelihood of a second cut before the end of the year to 40%, up from 20% on Monday, prior to the employment report. During the election campaign, BoE policy makers have cancelled all speeches and public appearances, which means there won’t be any feedback from the BoE about today’s inflation report and other key data over the next several weeks. GBP/USD is putting pressure on resistance at 1.2745. Above, there is resistance at 1.2795 1.2671 and 1.2621 are providing support
by OANDA
NZD/USD steady ahead of RBNZ rate announcementThe New Zealand dollar is almost unchanged on Tuesday. NZD/USD is down 0.06%, trading at 0.6102 in the European session at the time of writing. The Reserve Bank of New Zealand has shown it can be patient, having held the cash rate at 4.35% for six straight times. The central bank is expected to maintain rates yet again at Wednesday’s meeting as inflation has remained stubbornly high. Inflation has been moving lower and fell to 4% in the first quarter, down from 4.7% in the fourth quarter of 2023. However, this remains double the midpoint of the 1-3% target range and is too high for the RBNZ to start trimming rates in the near-term. At the same time, economic data for the first quarter was soft which should result in disinflation. The unemployment rate rose to 4.3% in the first quarter, private wage growth decelerated and GDP contracted by 0.1% q/q. The RBNZ had its mandate limited to inflation in December; previously, the central bank was mandated to maintain low inflation and full employment. Still, the strength of the labor market and wage growth will be eyed by the central bank as it determines its rate policy. The Federal Reserve continues to sound hawkish about rate policy and remains cautious about rate cuts. On Monday, Fed Vice Chair Philip Jefferson said that it was too early to tell if the downtrend in inflation would be “long lasting”. Fed Vice Chair of Supervision Michael Barr said that first-quarter inflation data was disappointing and was not supportive of easing monetary policy. For a second straight day, there are no US economic releases and we’ll hear from a host of FOMC members, which could provide insights about the Fed’s rate policy plans. NZD/USD is tested support at 0.6089 earlier . Below, there is support at 0.6039 0.6185 and 0.6235 are the next resistance lines
by OANDA