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1. World Charges
This previous week was loopy, particularly with what was taking place in bond and the foreign money markets. Charges for the Australian rose by 50 bps, 50 bps! They shot as much as 60 bps. That may be a a number of commonplace deviation transfer, one thing that ought to by no means occur. However this occurs when a central financial institution with yield curve management doesn’t purchase the bonds they’re speculated to. It seems the Australian market is difficult the RBA in a big approach, or worse, shedding confidence of their capability to manage inflation.
2. Fed
The FOMC is this week, and as we have talked for months, I expect the Fed to announce the start of tapering its asset purchases at this meeting. At this point, if they don’t, the bond market’s current position of uncertainty could become an outright loss of confidence if the Fed doesn’t act.
The spreads on the yield curve are already contracting, with the short end of the curve rising and the long end of the curve falling. It is a sign that the market is getting worried about an economic slowdown or a Fed policy error. Whatever the case, it is not a good sign.
The market is also pricing in rate hikes starting this coming June and potentially five rate hikes by the end of 2023.
3. Dollar
Additionally, the surged on Friday, especially against the . The move higher against the euro was not a surprise; it should have started on Thursday, but it didn’t. In the meantime, key support levels held, and I think this is the start of a massive move higher for the dollar. I know plenty of people believe the dollar will not rise, but I have a great deal of confidence it will.
There are plenty of countries facing the same inflationary pressures as the US. Plus, the Fed will be ending QE well ahead of the ECB or the BOJ, and at least for now, as noted above, Fed Fund Futures believe the Fed will start raising rates ahead of the ECB. So this will help to push the dollar higher against the euro while Japan is still trying to figure out how to get its economy growing.
Additionally, bond yields in the US are much higher than in many developed countries, luring buyers of US debt and forcing them to buy dollars.
4. Tighter Financial Conditions
Combining a Fed taper and a stronger dollar will cause financial conditions to tighten; how quickly they tighten depends on how fast the market moves. Those tighter conditions almost always lead to equity market volatility.
Financial Conditions Index Chart
It seems that tighter conditions, especially in leverage, have a direct impact on margin balances. Even recently, when those conditions began to increase in August, that negatively impacted margin balances. If those conditions should continue to rise or, worse, stay persistently high, it is likely to result in margin balance contracting.
Chart: Mott Capital
Falling margin balances are higher correlated to weak equity markets.
Chart: Mott Capital
5. S&P 500
The had a solid finish to the week, and from what I read all week, the inflows were robust because of month-end and rebalancing that was taking place. So I will leave my pattern for the wave B top for now since the index finished just 8 points above the prior higher, which is a rounding error at today’s level. If so, then Friday was the high for now, with a meaningful reversion to come. We will know pretty quickly on Monday what the outcome will be.
On Saturday I shared this on Twitter. It reveals the S&P 500 coming off the 1987 and the 2009 lows, and it’s extremely correlated, at 0.95. The 2009 model of the S&P 500 (black line) rose sooner than the 1987 model (Blue line). However each then met and lined up beginning in 1998/2018 timeframe. If this seems to be as correct because it has been, the rally within the S&P 500 is nearly completed, and the highs are in, with any dip and rally from this level not producing a significant new excessive. This chart presently locations the S&P 500 within the Apr. 30, 2000 timeframe.
6. Amazon
I believed Amazon (NASDAQ:) reported a The corporate is now seeing increased prices and slower progress, which is the worst type of information potential for a progress inventory. If not for AWS, the corporate would have had a destructive working revenue. AWS accounted for 100% of Amazon’s working revenue. It’s the purpose Amazon won’t ever spin off AWS; it merely can’t afford to. Perhaps the inventory fills the hole again as much as $3,440. It actually shouldn’t, nevertheless it might. I nonetheless assume it heads to $3,000 over time and doubtless decrease. (Must be free to learn – Amazon’s Inventory Is Now Lifeless Cash)
7. Apple
Apple (NASDAQ:) outcomes have been acceptable, although they missed expectations on . They didn’t give any steerage when it comes to income, and from listening to the decision, provide chain points will persist, so it appears like Apple isn’t going to have a straightforward time of getting all the provision it wants, in what’s their most vital quarter of the 12 months. I’ve been in search of the inventory to fall to the mid-130’s since July. I’m nonetheless ready.
8. Tesla
Tesla (NASDAQ:) remains to be squeezing, and the important thing at this level is ready for that decision quantity to come back down. Name quantity seems to have peaked, however the quantity nonetheless appears wholesome, which implies that IV must rise a little bit bit additional nonetheless. I nonetheless assume it reverts to the $760ish vary.
9. Caterpillar
Iron ore costs are dropping like a stone, and so are transport charges. I’m unsure why Caterpillar (NYSE:) has not began to see the consequences of what seems to be stalling progress in China. The inventory tried to overshoot resistance on Friday round $204 and closed proper there. At this level, it seems like a failed escape, with a superb probability the inventory drops again to $192.
10. Transports
The seems to have a few 32 day lead over the , which might point out the highs for the transports are in.
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