(Bull) Market June 2021

[qldfrog]

Part quatre:

View attachment 125821View attachment 125822


Mr flippe-floppe-flye:

View attachment 125823


So those are essentially the 2 arguments. Neither one mentions the DXY. Odd? Commodities are mentioned, as having no correlation to inflation at all, therefore, a non-event. I'll post up those charts later with some discussion.

Whichever way you lean, I think you'll need to decide as positioning for the longer term (short term traders don't really need to worry) could and probably will, make quite a difference. I'm thinking gold, silver, BTC, etc. as opposed to growth stocks, Tech et al.

More later, off to work!


jog on
duc

Well, mister Duc, this was quite a piece of (great )work again today and a lesson in french counting?
Only missing part: btc jumping higher at +9%..yeap..9 years of term deposit returns overnight..no wonder the tiktok generation is not opening saving accounts?

 

[ducati916]

Roundup:

Start with this: https://www.bloomberg.com/news/vide...bout-the-s-p-500-10-year-treasury-yield-video

So this is commodities charted against DXY:

DXY:

10yr

So re. inflation, it is there. Commodities are rising faster than just the decline in DXY would suggest. Now that may well be 'speculation', but it doesn't really make any difference what the reason is: the fact is that input prices are pretty much rising across the board. That will eventually flow through to consumer prices either as higher prices or smaller serving sizes for the same price (grocery trick).

With yields falling (Operation Twist) and no buyers other than the Fed. money supply on the Fed Balance Sheet will continue to rise, driving if nothing else the continued speculation and falling DXY, which will drive PPI inflationary pressures.

The argument in this morning's post was essentially an argument about CPI inflation and whether it will catch fire as it did in the 1970's. The 1970's had both, CPI and PPI. If and it is an if, we catch a pernicious CPI inflation, then the market will have issues. ATM it seems willing enough to (for the most part) simply ignore the PPI issues.

VIX

Creeping higher. It is not at a critical point to explode higher, but neither is it falling. Therefore I would expect continued weakness in the indices.

NYMO

Pretty much confirms the VIX. Weak to meh. No big bull rallies higher tomorrow. Just more chop.

A catalyst is probably underway but simply isn't visible yet. Now that could be a catalyst in either direction. The thing with directionless markets is that when they make a move, it tends to be substantial. Given the macro conditions, that move is likely to be higher, but not tomorrow methinks.

jog on
duc

 

[barney]

More later, off to work!

Lol ... That actually made me smile @ducati916

Amongst all these incredible postings on ASF ... You still have time to "work" lol.

Your content is nothing short of excellent and much appreciated

 

[ducati916]

So the market at time of posting +/-

Today was the CPI data. First the % month change.

And less relevant due to COVID, the YoY:

Commodities (PPI inflation) with falling yields, moving higher:

So we have increasing PPI & CPI inflation. We also have rising wages. Nothing outrageous currently, but they can never be taken back. So the situation is on all fronts inflationary. Debt is at all time highs. The leverage inherent in debt, the money multiplier effect, is not working as it once did and GDP growth is not sufficient to grow out of the debt load.

DXY is stalled atm:

But only a matter of time before it breaks lower. A weaker DXY, obviously accelerates PPI inflationary pressures, which will at some point impact on companies COG reducing cash-flow and profits. The impact on cash-flow is actually more important as highly leveraged companies can write down depreciation and lower profits, but as depreciation is a non-cash cost, cash-flow is unaffected. Rising COG however are a cash cost and reduce cash-flow, which, makes debt servicing and coverage higher risk.

The alarm bells in stocks are obviously on mute:

Junk continues to sell-off and move into Treasury, which is a guaranteed loss. Why? Because of the risks to cash-flow. This, unless it reverses, will become an issue at some point. The 'when' is the question.

Energy, one of the really big PPI components.

Oil continues to move higher, 3 steps higher 1 step lower. Currently the Arabs & Russia seem to have things under control. As yesterday's chart demonstrated, green energy, the market is not yet a believer.

Mr flippe-floppe-flye:

On cryptos and meme stocks...

As yesterday's video amply evidenced.


jog on
duc

 

[ducati916]

Week end.

Another meh day.

Sectors:

For the week.

Doesn't really require too much comment.

DXY:

Still fighting the breakdown. I remain steadfastly short.

BTC:

Another fighting the same war to stay above lower levels. Technically, an equilateral triangle is developing, especially when you look at the weekly chart. Technically, it could break either way. When it arrives, vol. will pick up significantly again and the move (higher/lower) will be substantial.

You don't want to be on the wrong side of it.

Mr flippe-floppe-flye:

Junk Bonds.

Apart from being an 'indicator' for risk-on/risk-off, as an asset class:

They (Junk Bonds) correlate reasonably closely to stocks (risk on).

Lower vol. than stocks, which, can be a good thing.

Especially when you talk about drawdowns:

Of course you give up some of the upside.

to be continued....

jog on
duc

 

[ducati916]

Part deux:


Some historical returns:

The next chart is interesting because it demonstrates that Junk can be up when stocks are down (55%) and when stocks are up, Junk is also up (88%).

Last but not least: Junk in an environment of increasing yield, do not fall as much as Treasury paper. Essentially a higher coupon and shorter maturity, provides a lower duration which makes them less sensitive to rising rates.

So how would you play the Junk market?

First you have to hold a lot of them. Individual issues are very risky and can blow-up. You hold them as an ETF (HYG) or some-such. A ladder structure would be even better and further mitigate the risk of rising rates. HYG might already do this (not sure).


Energy:

Will likely remain a hot sector (but volatile) for a while. OPEC does not seem to be flooding the market having achieved the (pretty much) destruction of the US shale industry (certainly in the short term) they are now manipulating prices higher. I (way back) speculated mid-70's was about it. That may turn out to be too conservative. We may see $100 oil again.

The low wage group are all day trading. Not interested (as long as UBI persists) in going back to work.

Inflation hurting small businesses.

Some inflation quotes:

Looking forward to next week:

Not overly optimistic.

We are in a bit (indices) of a holding pattern. Meh. As such, we need to be very careful moving forward. Chop and short trends will likely continue to dominate until they don't.


jog on
duc

 

[bsnews]

From what I have seen yesterday it looked a like like the smarties shorted the bond market at opening punting the the Fed would buy up big. And they did and they made a lot on money. Where would the Fed be at now 10 Trillion?
And how do they stop QE? China looks like it has a handle on inflation while the US?
Not looking good ATM for US in my opinion.

 

[ducati916]

Oil news:

Friday, June 11th, 2021

Oil prices showed modest gains on Friday, after a selloff on Thursday.

Oil prices drop after U.S. lifting sanctions on Iranian officials. The U.S. Department of the Treasury said on Thursday it is removing several Iranian officials from its list of designated persons, including three directors of the National Iranian Oil Company (NIOC). Oil prices declined on the news.

Rystad: OPEC+ will have to loosen output limits. In early trading Friday, oil was back up, on positive economic news in the U.S. and accelerating global vaccination campaigns, according to Rystad Energy. But the firm warned that there is going to be rising pressure on OPEC+ to loosen production constraints in order to avoid the oil market overheating.

IEA: OPEC+ should “open the taps.” The IEA said that global oil demand will rebound past pre-pandemic levels by the end of 2022. After declining by 8.6 mb/d in 2020, oil demand will rebound by 5.4 mb/d this year, and by another 3.1 mb/d next year. The agency reiterated that OPEC and its allies needed to “open the taps” to boost oil production and keep the world well supplied.

High-profile EV SPAC running out of cash. Lordstown Motors (NASDAQ: RIDE), a SPAC aimed at manufacturing EV pickups out of an old GE plant in Ohio, disclosed that it does not have sufficient cash to start commercial production and issued a going concern warning through the end of the year. Lordstown was one of several EV SPACs that went public in the last year.

Biden looks at offshore wind in Gulf of Mexico. The Interior Department said on Tuesday that it will examine potential areas of the Gulf of Mexico that are suitable for offshore wind.

Solar industry’s costs are rising. Rising costs for labor, freight, steel and aluminum are pushing up the cost of solar power, ending more than a decade of steady cost declines, at least temporarily. Contract prices for solar were already up 15% in the United States in the first quarter compared with last year due to higher interconnection and permitting costs. There is uncertainty over how long the cost increase will last.

First Solar to build Ohio plant. First Solar (NASDAQ: FSLR) said it would build a $680 million factory in Ohio to manufacture solar panels. The move is highly significant as the U.S. has largely ceded manufacturing capabilities to China – the U.S. relies on imports for 85% of the panels used in domestic projects.

U.S. LNG set for export record. U.S. exports of liquefied natural gas (LNG) are set to surge this year from the already record levels in 2020 as demand in Asia and Europe is high, even in the off-peak season.

ExxonMobil announces another Guyana discovery. Exxon has made yet another in a long string of discoveries offshore Guyana in the Stabroek block, the company said this week.

Can oil sands be banned? The oil sands of Athabasca seem to be at an especially vulnerable crossroads – just when oil sands production could finally surge unimpeded with new pipelines allowing for higher exports abroad.

Oil could hit $80 this summer, but there’s a catch. There is more room to run for oil. “There's an incredible case where the oil price could get to $80, but there would be a reaction to that. That would start to affect demand, and also there would be a political reaction to that.”

Board shakeup could result in capex changes for Exxon. Investors want a “fundamental rethink on strategy,” Anne Simpson, investment director at shareholder California Public Employees' Retirement System, told Reuters “The big measure” being its $16 billion-$19 billion annual project spending, she added.

European banks face huge financial threats from energy transition. A rapid and chaotic energy transition would leave Europe’s biggest banks in financial peril comparable to the subprime crisis that U.S. lenders faced in 2008, according to Bloomberg.

RBC downgrades Callon Petroleum, upgrades Marathon. RBC downgraded Callon Petroleum (NYSE: CPE) and Continental Resources (NYSE: CLR), saying their stock has strengthened far enough. The bank upgraded Marathon Oil (NYSE: MRO) and Range Resources (NYSE: RRC) on a more bullish outlook for crude oil and natural gas, respectively.

Gas pipeline building spree at an end. The years-long building spree of long distance natural gas pipelines in the U.S. is coming to an end, as political and financial barriers turn against the industry, according to S&P Global Platts.

Biden considers relief for refiners on biofuels. Under pressure from labor unions, the Biden administration is considering providing relief to oil refiners related to their biofuels blending requirements.

Permian basin gas pipeline connections increase. The recent completion of a handful of gas pipelines has connected Permian basin gas to the Gulf Coast, and also to Mexico, boosting Waha Hub prices.

LNG prices see upside. LNG prices could continue to rise due to strong demand in China. Spot prices have already posted strong gains in recent weeks. We believe this has been driven by a tightening of Asian LNG balances led by strong generation demand in southern China at the same time that South Korea reached peak nuclear maintenance, while Covid-hit India LNG demand has stabilized,” analysts from Goldman Sachs said in a note earlier this week.

Market roundup:

ARKK short:

BTC in VWAP squeeze:

Bitcoin is caught in a giant VWAP squeeze: Getting Technical

Brian Shannon, founder of AlphaTrends.net joins Yahoo Finance's Jared Blikre to break down the powerful anchored volume weighted average price indicator and what it's revealing for bitcoin traders.

finance.yahoo.com

jog on
duc

 

[ducati916]

Odds and Sods:

Inflation:

A guaranteed loss currently.

Meme stocks other than the other 2:

VIX at lows:

Just makes everything that little more dangerous.

The generations:

How they think:

Oil Reserves in Billions/barrels and as a % of world reserves:

Steel production:

Its uses:

And Art:

With the VIX at lows and the market at highs, the risk of entering new positions becomes much increased. Shorter term trades have to have this increased risk factored into the strategy. Either position size, iSL, target profit taking or all of the above.

Advancing issues are at 74% which is sufficient to move the market higher, but it has been, like the index, stuck at that level for several days. Consolidations can move in either direction.

NYMO is now showing a divergence, which is or should be cautionary. NYSI is bullish and quite strongly so.

Therefore the overall message is bullish...but be prepared to bail out very quickly.


jog on
duc

 

[ducati916]

Start of the new week, pretty much the same as last week, meh.

Tech. continues its run higher or rather bounce higher. The 'commodities' areas have come off the boil, XLB, XLE, along with XLF (Financials) reflecting the weakening (although bouncing) yields from Operation Twist.

All the indices are (pretty much) in the overbought range. Hence we have a chop sideways while they correct in time rather than a price correction, although that cannot be ruled out as VIX is very low, but again threatening to have a bit of a bounce itself.

Sectors:

XLRE is (currently) a beast. Relentless. Shrugging off everything.

So breaking down XLRE:

The top handful weekly and intraday:

The bottom handful:

VIX:

Mr flippe-floppe-flye:

Which brings me nicely onto BTC.

Ignoring Mr Musk, Mr Saylor has issued another $400M in debt via MSTR and bought more BTC. Essentially he is treating MSTR as a perpetual, which in theory a company actually is. In reality, companies go bust all of the time and disappear from the firmament. The issue for MSTR will be: will the volatility and potential drawdown coincide (at some point in the future) with a loss of cash-flow (earnings) of MSTR? If yes, then, to service the debt, currently at $1B (in BTC) MSTR would have to sell some BTC in a falling market. MSTR is now pretty much a Hedge Fund holding BTC, its capitalisation is based on BTC.

El Salvador. These guys.

So, they have a domestic currency but also use a tremendous amount of DXY. They are buying BTC and making it legal tender, which one must suppose becomes exchangeable into currency. This is essentially a true GOLD STANDARD, which governments abolished finally with the watered down version being closed by Nixon in 1971. These chaps have unilaterally chosen to go back on. It is fairly unimportant given the size (small) of their economy, but odd nonetheless.

Needless to say, with all of the recent machinations, BTC is and by extension all of the junk, having a good day and bouncing back into a $40 handle.

PPI Inflation continues to move higher as measured by $TNX & DXY. This is the dangerous one for the market. CPI inflation, which if it starts to change consumer behaviour, could also become dangerous. Asset price inflation is resting near all-time highs to see how the other 2 make out.

Commodities are having a sell-off today. It is mostly in the agricultural sector. Energy, the big one, is pretty much unchanged. Now the Arabs & Russia are unlikely to turn on the taps to bring price down. After destroying the US shale production, which cost them significant money, they are looking to recoup. Russia for all intents and purposes is probably at war with the US and is applying the economic squeeze. Meanwhile the West has gone all 'green'. BP, Shell, Exxon, etc are all cutting back on oil everything and investing in green. The result being that the ability going forward, is an inability to cover an energy war with the East.

With the Fed. 'Twisting' the 10yr lower, I don't see commodities lower over time. Hence inflation could be far stickier than expected. If it is, psychologically the consumer will be conditioned and even CPI inflation could become a real issue. I see that Bill Gates has put huge sums into farmland.

Here is Rosenberg arguing that it will be transitory:




jog on
duc

 

[ducati916]

Monday round-up:

So markets rallied into the close. All about the Fed.? Possibly, although if the Fed. starts talking about tapering, the Bond market could well have a spazzie, which does not bode well for stocks.

Stocks are in a funny position:

With as you can see weakness in and around that 50 EMA.

NYMO is diverging. New entries will be at risk from chop.

Tech. was the leading sector earlier today. ARKK moving higher.

And AAPL:

Lots on BTC:

Mr flippe-floppe-flye:

So the Fed. will be sitting again tomorrow. Therefore we can probably expect a bullish day. The issue will be on Wednesday when the Fed. speaks. That could turn into a really volatile day as if markets are pricing in 'nothing changes' and something changes, positions could flippe-floppe faster than Mr flye.

If the message is 'nothing changes' commodities, gold and probably BTC will likely move higher as the 'inflation' trade is back on. The question is what will stocks do? I guess we'll find out Wednesday. It will likely be one of the more interesting Fed. announcements for a while, they have been pretty dull recently.


jog on
duc

 

[ducati916]

More mindless chop and rotation ahead of the Fed. tomorrow.

Sectors just rotating through. Yesterday's high, today's low.

Oil news:

New Mexico’s oil production hit a record high in March 2021, averaging 1.16 mb/d, and natural gas output hit 6.19 Bcf/d.

- The March increases were the largest monthly increases on record (although some of the gains came from restarted wells that shuttered during the February blackouts).

- In 2020, New Mexico’s oil production rose by 133,000 bpd, or 15%.

Market Movers

• BP (NYSE: BP) is aiming to enter offshore wind in Norway.

• Earthstone Energy (NYSE: ESTE) announced that it has acquired working interests in Eagle Ford assets for $48 million in cash.

• Six oil majors are vying to partner with Qatar to develop the country’s natural gas fields and LNG projects. The list includes ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS.A), Total Energies SE (NYSE: TOT), ConocoPhillips (NYSE: COP), Eni (NYSE: E), and Chevron (NYSE: CVX).

Tuesday, June 15, 2021

Oil prices are up at the start of the week on growing demand optimism. “Oil prices really are in a positive June upswing as demand and supply are recovering in an unequal speed,” Rystad’s Louise Dickson said in a statement.

Oil prices hit 32-month high. Oil prices rose early on Monday, with the U.S. benchmark hitting a 32-month high and Brent rising above $73 per barrel as the market is growing increasingly bullish on demand while the return of Iranian oil looks more distant than initially thought.

Shell considers selling Permian assets. Royal Dutch Shell (NYSE: RDS.A) is considering a sale of its Permian assets, hoping to rase $10 billion. Shell’s Permian operations produced 193,000 barrels of oil equivalent per day in 2020, or about 6% of the company’s total output.

Shipping costs driving up prices. The skyrocketing costs of shipping are driving up prices for commodities across the globe. Shipping costs are up 547% relative to the seasonal average for the last five years.

Investors see green push leaving oil market short on supply. Bets from hedge funds and money managers are becoming more bullish, and analysts say that a growing number of investors see a supply shortage coming as a global push for energy transition leaves the world short on oil supply in the years ahead. “This is the basis for the next oil crisis,” Leigh Goehring, managing partner at commodities-focused investment firm Goehring & Rozencwajg Associates, told the WSJ. “We’re in uncharted territory.”

RBC: U.S. shale might be needed. RBC argues that OPEC+ may not have enough spare capacity to satiate the market next year, and more U.S. shale supply might be needed. “In the event that the U.S. remains status quo and does not grow next year, global stocks could be nearly 400 million barrels lower, from entry to exit in 2022,” wrote Michael Tran, commodity strategist at RBC Capital Markets. “Put another way, market balances only begin to reach a state of equilibrium if U.S. production grows by 1.2 million bpd next year. Anything short of that and balances will remain tight. And this comes after virtually all of OPEC+ spare capacity has returned to the market.”

G-7 call for end of coal finance. G-7 countries did not agree on a full phaseout of coal, but agreed to cut off government-backed financing for new coal projects that lack carbon capture. G-7 countries also agreed on a goal to cut emissions in half by 2030.

G-7 backs away from EV target. The G7 nations failed to set targets for EV sales in their push towards the electrification of transport at their latest meeting, pledging only to “intensify efforts in enhancing the offer of more sustainable transport modes”, the group said in its final communiqué today.

Nevada lithium project delayed. Lithium Americas Corp (NYSE: LAC) delayed a highly-anticipated lithium mining project in Nevada while a court reviews whether the project was hastily approved during the Trump administration.

Commodity traders bet on Russian oil. Two commodity trading giants are betting big on a Russian oil project in a rare move that could make or break the oil traders’ fates - and oil market observers should be paying close attention.

Equinor ups renewables investment. Equinor (NYSE: EQNR) outlined a strategy to ramp up renewables, setting a goal of having 50% of capex go to renewables by 2030, compared to 4% last year. It aims to have 12-16GW of renewables installed by that date. But the company declined to set declining targets for oil and gas production.

Natural gas prices shoot up. A heatwave in multiple parts of the U.S. has pushed up natural gas futures, with July Nymex contracts rising to $3.35/MMBtu.

Europe turns to coal as gas grows scarce. Coal use in Europe is up 10-15% this year due to cold weather and low natural gas inventories.

Lumber prices falling. Lumber prices staged a historic rally in recent months, but prices are now crashing, down by 42% since early May. “The rapid decline suggests a bubble that has burst and the question now is how low lumber prices will fall,” the Wall Street Journal wrote.

BofA: Exxon probably will raise its dividend. Bank of America believes shareholders who voted in favor of the board shake-up were likely focused on one thing: the dividend.

Japan bets on hydrogen. Japan is making a long-term bet on hydrogen, which critics view as unrealistic, but if it succeeds, could help build out a global supply chain.

Saudi Aramco borrows to fund its dividend. Saudi Aramco (TADAWUL: 2222) returned to the global debt market to raise cash despite higher oil prices, raising $6 billion in Islamic bonds. Aramco generated $18.3 billion in free cash flow in the first quarter, just short of the $18.75 billion in dividends it shelled out.

Biden administration looks to auction offshore wind tracts in NJ. The Biden administration on Friday announced that it would begin the formal process of selling leases to develop offshore wind farms in shallow waters between Long Island and New Jersey as part of its push to transition the nation to renewable energy.

Oil demand could surge by 8 mb/d. S&P Global Platts Analytics expects global oil demand to surge by 8.2 million b/d from May to August as major economies continue to recover from the pandemic.

Renewable energy’s employment problem. As the world reopens and the global and national economies begin to return to normal, the clean energy industry has run into the same problem as so many other economic sectors--there just aren’t enough workers.

The biggest threat to Europe’s battery boom. Weak carbon dioxide (CO2) emission rules for car sales across the European Union and the UK in the near term risk undermining what is shaping up to be a booming battery manufacturing industry in Europe, a clean transport campaign group has warned.

BTC:

Astrological analysis: https://www.washingtonpost.com/technology/2021/06/13/maren-altman-tiktok-astrology-bitcoin/

Mr flippe-floppe-flye:

Essentially the market is rangebound in this chop awaiting direction from the Fed. tomorrow. If the message is inflation is transitory and we continue the monetary policy, inflation assets will move: commodities, gold, BTC and Tech. stocks. If there is a mention of a Taper of thinking about a Taper, the Bond market will likely puke and stocks across the board (initially) will sell-off and probably quite hard. Value will recover, but after how much damage?

So you have to ask yourself:



jog on
duc

 

[ducati916]

As I am writing this post, the Fed. announcement is only 30mins or so away. Meh.

The basis of any discussion will be inflation, too hot, too cold or just right.

A number of prices. Most if not all have a constrained supply. Some of those supply issues are transitory, car rentals, some less so, building of new homes. The point: supply side driven inflation is transitory, for the most part.

Expansion of the money & credit is not (generally) but it is not enough on its own to trigger a hyper-inflation, which is the fear.

A hyper-inflation requires that there be a significant expansion of money & credit AND a political manifestation: ie. all confidence is lost in the currency. That is not yet an issue.

So then we have the garden variety inflation:

Where are we?

On the way, but still a long way to go, assuming that we get there. Having said that, DXY is headed down. Once we hit, if we hit, a 70 handle, then we will have some serious inflation and depending on the political situation, potential could then exist for a hyper-inflation, but that is still a ways off.

No one is expecting a Bear.

DXY falling against the Russian currency. Russia is all about commodities.

to be continued....

 

[ducati916]

Part deux:

Sectors:

The 'Skew'

Ratio:

Recently, the Options market has been quite a leading indicator. Both the skew (spread between PUT and CALL prices at the same strike) confirms the PUT:CALL ratio.

Add in very low vol. and we have a bit of a heady mix.

Energy, set to continue its run higher.

Dr. Copper. A blip or a warning?

Post Fed. action:

Mr flippe-floppe-flye:

And the Fed. just spoke:

Obviously not exactly what the market wanted to hear.

Often the initial move reverses. We'll see if that is the case today.

jog on
duc

 

[ducati916]

Part trois:

So Mr Powell has started to think about a the 'Taper'.....

Will the bounce take hold?

jog on
duc

 

[peter2]

Perfect report from the Fed for me. Perfectly predictable reaction from the market. Thank you. I bought the VIX (via UVXY) before the news and sold it after the news.

The only bummer was one of my MT4 providers had server problems right about the time was due to report. I was unable to buy the index off the lows. Very disappointing and just a little sus.

 

[ducati916]

Perfect report from the Fed for me. Perfectly predictable reaction from the market. Thank you. I bought the VIX (via UVXY) before the news and sold it after the news.

The only bummer was one of my MT4 providers had server problems right about the time was due to report. I was unable to buy the index off the lows. Very disappointing and just a little sus.

For those day trading, the index vol. is obviously a very tradable event.

The issue longer term for the market will be Bonds:

They spiked as stocks fell. While stocks have bounced from the lows, Bonds have pretty much held onto their spike as has DXY:

Neither is good for stocks if those trends take hold and continue.

We will get a better idea tomorrow and into the w/e as to the more sustainable nature of the various moves in TNX, DXY and their impact on SPY.


jog on
duc

 

[ducati916]

Roundup:


So today the Fed. essentially reaffirmed that they will continue Operation Twist, QE and other programmes designed to elevate risk assets through to 2023. Hence yields will come back down, DXY will resume its trend lower, commodities will trend higher as will inflation. How far and how fast might be an issue for stocks. Other than a correction, the Bull market in stocks looks set to continue.

I would expect yields to fall into the EOW.

Secular, yes. That does not however prevent a ramp up in volatility.

We have definitely lost momo. in the SPY. Which means, we will probably have an uptick in vol. and some market weakness. This is pretty much confirmed by the internals:

I would expect a bounce in copper. Ready to snap back into trending higher.

Lots of inexperienced investors/traders in there.

Mr flippe-floppe-flye:

Gold/Silver:

From Mr Rederob:

PMs are (of course) correlated with real interest rates. Real interest rates are significantly negative (-4%) by CPI numbers and even more negative if the true rate of inflation, probably 9% +/- is used. As yields fall (again) due to Fed. intervention, so PMs regain their mojo.

Second, Basel III approaches. Now this may turn out to be a bit of a non-event, but I don't think so. The Bullion Banks will probably choose to comply and close their trading desks as the Balance Sheet penalties to non-compliance, make the trades hardly profitable. If and it is still an if, the BB do close down their trading desks on (paper, unallocated) gold, then the contraction of liquidity in COMEX will be profound, allowing the trading of allocated physical to dominate. The current imbalances will require significantly higher prices.

So why the dip today? In part due to $TNX and DXY bounces higher, which are unlikely to be sustained.

Second, if the BB are still short, which by definition they have to be: then today with the confusion of a Fed. announcement, which was always going to be taken as a stand on policy re. inflation, which is a primary driver for POG, this was a short term opportunity to drive POG lower, prior to 28 June and Basel III.

Tomorrow looks bad for stocks. I am expecting short term weakness and a continued move lower in the indices, which may well run into next week.


jog on
duc

 

[Beaches]

In regard to commodities and the recent sell off

China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs.​

​

State-owned enterprises were ordered to control risks and limit their exposure to overseas commodities markets by the State-owned Assets Supervision and Administration Commission, according to people with knowledge of the matter. The companies have been asked to report their futures positions for Sasac to review, said the people, who asked not to be identified because the information is confidential.​

​

In a second development, the National Food and Strategic Reserves Administration will soon release state stockpiles of metals including copper, aluminum and zinc, the agency said in a statement Wednesday. The metals will be sold in batches to fabricators and manufacturers, it said, without giving the volumes to be released. ...​

​

“We haven’t seen the country release state reserves for years,” said Jia Zheng, a commodity trader with Shanghai Dongwu Jiuying Investment Management Co. “This will boost short-term supply, sending a bearish signal to the market.” ...​

​

While China has accelerated its efforts to curb inflationary pressures, the moves have had mixed results. Chinese Premier Li Keqiang stepped up the rhetoric on May 12, urging the country to deal with soaring prices. Iron ore slumped in the latter part of May following his comments, though it’s since rebounded, and base metals prices remain much higher than last year despite a recent retreat.​

​

Goldman Sachs Group Inc. said last month the country’s efforts are likely to be in vain as China is no longer the buyer dictating pricing, with the price dip a clear buying opportunity.​

China’s Campaign to Control Commodities Goes Into Overdrive

(Bloomberg) -- China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs.State-owned enterprises were ordered to control risks and limit their exposure to overseas commodities markets...

au.finance.yahoo.com

Despite the best efforts of China to date, Iron Ore remains sticky at over US$200/t.

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[ducati916]

Post Fed. we look like this:

Pretty meh.

Sectors:

DXY:

And the effect on commodities:

Carnage.


Mr flippe-floppe-flye:

So some questions:

(a) Is the DXY rally sustainable; and
(b) Where to with TNX;
(c) Where to with commodities;
(d) Where to with stocks.


The Fed. will continue to buy $120B/month of Treasury & Mortgage Bonds. Rates will not rise appreciably (add in Twist to that) in the near term. The TNX is back down already.

What other catalyst remains for DXY?

Well nothing. The huge move is probably: (a) short covering, (b) algos chasing short term moves. Of course we cannot discount fully (c) DXY is entering a new uptrend. Time will reveal all. I remain short and bearish DXY.

So if I am correct on DXY and TNX, then commodities would be expected to recover. Commodities and DXY (TNX) are all quite tightly correlated.

Same chart, 1 without lines, 1 with.

Resolution could be expected reasonably quickly. There may well be false moves that break down, but reasonably soon it will become apparent pari passu, what the situation actually is.

Stocks by contrast are out on their own currently. The sectors continue to rotate through. Tech. with the drop in TNX is strong, XLE with strength in DXY is weak. At the moment most of the internals are signalling weakness. Not a major collapse type of weakness, just a meh weakness. If Tech. can continue to rally and it looks that it will, it will exert a disproportionate effect due to the number of mega-caps contained FAANGMA. With low rates going forward for 1yr+, they continue their march higher.

For the moment, the Bull looks safe.

jog on
duc