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(Bloomberg) — Bitcoin slid as investors reacted to the US presidential debate between Democratic nominee Kamala Harris and Republican rival Donald Trump, who has embraced the crypto sector.Most Read from BloombergThe digital asset fell as much as 2.6% before paring some of the drop to trade at $56,490 as of 7:40 a.m. Wednesday in London. In wider markets, US equity futures, a dollar gauge and Treasury yields retreated, while the yen climbed.The original cryptocurrency is one of a number of so-called Trump trades because of the former president’s avowed support of the digital-asset industry. Bitcoin was thus in the spotlight as something that might provide clues on who gained the upper hand in the debate.Trump was often on the defensive in the discussion as Vice President Harris peppered in lines that appeared designed to needle the Republican nominee. Pop icon Taylor Swift announced her endorsement of Harris minutes after the debate wrapped up. The odds reflected by betting markets moved in Harris’s favor in the wake of the face off on Tuesday night in Philadelphia.Debate Assessment“The market assessed Kamala Harris won the debate, in particular in the early stages, which translated into a small move down for crypto,” said Caroline Mauron, co-founder of Orbit Markets, a provider of liquidity for trading in digital-asset derivatives.Harris has yet to detail a policy position on crypto. Last month, an adviser to her campaign said Harris will back measures to help grow the industry. The adviser also signaled ongoing interest in implementing safeguards.Trump has pivoted to courting the digital-asset sector in search of donations and votes amid a tight race for the White House, even vowing to make the US the “crypto capital of the planet.” His stance is an about-face given that the former president previously dubbed the sector a “scam.”Crypto ProjectsThe Republican nominee recently put out his fourth collection of nonfungible tokens. These NFTs, representing ownership of assets like images depicting Trump riding a motorcycle or as a boxer, have earned millions of dollars.Trump and his sons Eric and Don Jr. have also been promoting World Liberty Financial, a planned initiative in crypto’s niche decentralized finance sector. Details remain scarce, and hackers last week briefly compromised some Trump family social media accounts to issue a fake post about the project.The digital-asset industry has become an influential player in the presidential election through big donations to political action committees. Crypto businesses are seeking friendlier regulations, pushing back against the critical stance adopted by the Securities & Exchange Commission under Chair Gary Gensler.Bitcoin jumped to a record $73,798 in March, fueled by demand for dedicated US exchange-traded funds. The rally cooled but the gains have nonetheless dulled memories of a deep bear market in 2022 and a string of collapses, including the wipeout of the FTX exchange — one of the biggest financial frauds in US history.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

(Reuters) – U.S. stock index futures dipped on Wednesday, with investors pricing in greater odds of Democrat Kamala Harris prevailing in the upcoming presidential elections, while focus moved to a key inflation reading later in the day.Investors have for weeks been adjusting their expectations around the Federal Reserve’s policy meeting next week and the inflation data could feed into those. But the U.S. presidential debate, in which Harris put her Republican rival Donald Trump on the defensive late on Tuesday, was driving sentiment, analysts said.Wall Street remained on edge as the debate offered investors little clarity on key policy issues, even as betting markets swung in Harris’ favor after the event.”Relative to Trump, we see Harris’ policies as less fiscally expansionary, less focus on tax cuts,” noted Jefferies’ chief Europe economist Mohit Kumar.After the debate, pricing for a Trump victory slipped by 6 cents to 47 cents on online betting site PredictIt, while climbing to 57 cents from 53 cents for a Harris win.Shares of Trump Media & Technology Group, Trump’s media firm, slid 15.2% in premarket trading.Yields on U.S. government bonds fell across the curve, with the yield on the 10-year note last at 3.6068%, its lowest level in more than a year.Other traditional safe-haven assets such as the Japanese yen and Swiss franc also rose, while the dollar index came under pressure.Later in the day, focus will be on a reading of August consumer price inflation (CPI), with headline inflation expected to ease to 2.6% year-on-year, while the “core” figure, which excludes volatile components like food and energy, is expected to remain unchanged at 3.2% annually.This will be followed by the producer prices report on Thursday.Traders are all but convinced that the Fed will cut interest rates when it meets on Sept. 17-18, with 67% tilted toward a 25-basis point cut, according to CME’s FedWatch Tool.The S&P 500 and the Nasdaq closed higher in choppy trading on Tuesday, while the Dow ended lower as losses in big banks such as Goldman Sachs weighed.At 05:22 a.m. ET, Dow E-minis were down 186 points, or 0.46%, S&P 500 E-minis were down 20.75 points, or 0.38%, and Nasdaq 100 E-minis were down 80.75 points, or 0.42%.Among other stocks, GameStop dropped 10.8% after the videogame retailer, which has been at the center of a “meme stock” frenzy, said it had filed for an offering of up to 20 million shares and reported lower second-quarter revenue.Cryptocurrency and blockchain-related stocks slipped as bitcoin, the world’s largest cryptocurrency, fell more than 1%.Exchange operator Coinbase Global lost 2.7%, software firm MicroStrategy eased 3.9% and crypto miner Riot Platforms fell 2.1%.(Reporting by Shashwat Chauhan in Bengaluru; Editing by Shounak Dasgupta) Continue reading →

Gold has been on quite a bull run this year, but silver has lagged.

The wide gold-silver ratio tells us that silver is historically underpriced compared to gold, and it’s clear that the white metal isn’t priced for the supply and demand dynamics.

What gives?

In 1981, Roy Jastram wrote a book titled Silver: The Restless Metal. This perfectly captures the difficulty of nailing down the trajectory of silver.

One factor that complicates things is that silver serves two very different roles.

A little over 50 percent of silver demand comes from industrial offtake, and with the rapidly expanding “green economy,” this percentage will likely climb. Industrial metals are sensitive to a host of economic factors including the overall trajectory of the global economy. Recessions typically put downward price pressures on metals.

But at its core, silver is a monetary metal, and it tends to generally track with gold over time – albeit in a more volatile manner.

Untangling these various factors presents a significant challenge for silver investors.

Looking Into a Hazy Crystal Ball

Economic and market forecasting is a tricky business in any environment. We may have a crystal ball, but it is rather opaque and hazy.

At its core, economics is about causes and their predictable effects. For instance, we know that raising a price will lower demand all other things being equal.

Because causes and effects are at least somewhat predictable, we can identify patterns in markets. As an example, knowing that artificially low interest rates create inflationary pressures offers insight into how gold and silver will behave in a lower interest rate environment.

The challenge is untangling various factors and policies operating simultaneously in a complex economy. Causes and effects can cancel each other out, making market forecasting extremely difficult.

So, how do we predict the eventual outcome?

Humility demands we always remember we can’t. It’s impossible to know all that there is to know. However, there are tools that will provide insight and guidance.

History provides one way to help untangle the mess. This is why analysts often turn to technical charts. They reveal patterns that often repeat. By identifying patterns, we can gain insight into how things might be playing out.

What Can Price Charts Tell Us About Silver?

If we look at a 50-year price chart for silver, we see a very distinctive pattern known as a “secular cup and handle.”This is a long-term bullish pattern. You can see the “cup” with the twin highs of around $50 per ounce in 1980 and 2011. Following the 2011 peak, we see a sharp decline in the price followed by a consolidation “handle.”

A handle pattern on the chart of a stock or commodity often precedes a breakout.

This cup-and-handle pattern has played out over an extremely long timeframe. Historically, longer patterns portend bigger breakouts with a broader base signaling a bigger upside case.

Gold followed a similar long-term pattern, resolving with a breakout to new all-time highs last year.

Silver has lagged gold’s performance, but that is actually a common occurrence. Whatever silver lacks at the beginning of a precious metals bull market, it typically makes up for it at the end.

If history is any indication, silver may soon follow gold’s lead.

After gold’s recent breakout above $2,500 per ounce, gold’s continued strength above that key level should act like a magnet to pull silver toward the $50 level. Should it occur, a decisive break above $50 silver would complete an epic, 45-year cup-and-handle pattern, and market technicians would then look for a slingshot move higher from there.

Zooming into a five-year chart, we can clearly see silver breaking out from its post-pandemic consolidation wedge.

Putting It All Together

As the saying goes, history doesn’t always repeat, but it often rhymes. When we see these kinds of patterns emerge, one should sit up and take notice.

This is especially true when it coincides with the fundamentals.

As I already mentioned, the gold-silver ratio is historically wide at 87:1, meaning that it takes 87 ounces of silver to buy an ounce of gold. To put that into perspective, the average in the modern era has been between 40:1 and 60:1. 

In other words, from a historical perspective, silver is underpriced.

Historically, the ratio has always returned to the mean. And it has done so with a vengeance, overshooting that means. The ratio fell to 30:1 in 2011 and below 20:1 in 1979.

On the supply side, we’ve seen silver market deficits for the past three years, and Metals Focus projects demand to outstrip production again this year.

When you put the technical factors together with the fundamentals, there appears to be an extremely strong bullish case for silver with significant upside. Continue reading →

RHJOverview The US dollar (USDOLLAR, DXY) is mostly consolidating so far today with a slightly heavier bias against the G10 currencies and most emerging market currencies. The larger-than-expected Chinese trade surplus did not lift the yuan. The greenback is trading above its 20-day moving average against the Chinese yuan for the first time since late July. Sterling is rising for the first time in three sessions after a strong jobs report. The Canadian dollar is the laggard among the major currencies. Asia-Pacific equities were mixed, with Japan, South Korea, and Taiwan among the larger bourses unable to find traction. Europe’s STOXX 600 (STOXX) snapped a five-day drop yesterday but is trading with a heavier bias today. US index futures (SPX, SP500) are trading around 0.25%-0.40% lower, paring yesterday’s gains. Benchmark 10-year bond yields are mostly firmer in Europe, but mostly less than a single basis point. The US rates are also slightly higher. The US Treasury sells $58 bln of three-year notes today ($39 bln 10-year notes tomorrow and $22 bln 30-year bonds on Thursday). Gold is hovering in a narrow range above $2500. October WTI edged through yesterday’s high to poke above $69 a barrel before it was sold back to almost $67.50. The year’s low set at the end of last week was near $67.15. The Energy Information Agency, the International Energy Agency, and OPEC will update their monthly outlook this week. Asia-Pacific It is a light week for Japanese economic data. Tomorrow’s look at August machine tool orders may be the highlight outside of the MOF’s weekly portfolio investment report, which has shown Japanese investors have been consistent buyers of foreign bonds and stocks since the yen’s dramatic recovery from its lowest level since end of 1986. The Bank of Japan meets on September 20, and there is a little chance of a policy move. There is a somewhat greater chance of a move at the following meeting on October 31 (at which the BOJ will update its economic projections), but most expect at least a 10 bp rate hike at the last meeting of the year (December 19). Australia’s economic diary this week features several surveys. The central bank meets on September 24. The Reserve Bank of Australia has pushed against speculation of a rate cut, and only slowly is the futures market coming around. The probability of a rate cut by the end of the year has slipped below 80%. China reported a larger-than-expected August trade surplus of $91 bln, up from almost $84.7 bln in July. Exports are 8.7% higher year-over-year, which is the most since July 2022 (August 2023 were off 8.5%). Exports to the US were up 5.1%, which is the most since September 2022. Shipments to the EU rose 13.8% (21.5% to Germany, 24.2% to France). Imports slowed to 0.5% from the 7.2% year-over-year increase in July. Against the Japanese yen, the dollar peaked yesterday in early North American trading near JPY143.80. However, as US 10-year rates surrendered their early gains, the dollar pulled back toward JPY142.60. Still, the dollar spent Monday within last Friday’s range (~JPY141.80-144.00), and it is consolidating in a narrow range today (~JPY142.85-143.70). It may need to rise back above JPY144.50 to raise the prospect that a near-term low is in place. The Australian dollar found support yesterday in both the local session and again in North American dealings slightly in front of the (38.2%) retracement of the losses since the late August high (~$0.6825). That retracement is found near $0.6645, and it held today. A move above $0.6700-20 would lift the technical tone. The dollar rose to about CNH7.1255 yesterday, a four-day high, and teased the 20-day moving average (~CNH7.1250) for the first time in more than a month. It extended the gains today, despite China’s larger-than-expected trade surplus. The dollar rose to slightly above CNH7.1320. Against the onshore yuan, the dollar closed the gap created by last Thursday’s low opening. The PBOC set the dollar’s reference rate at CNY7.1136 (CNY7.0989 yesterday). This is the largest increase in the dollar fixing (~0.20%) since early January. Europe The jobs data reinforces the sense that economic momentum that allowed the British economy to lead the G7 in H1 ’24 is continuing into Q3, and this is expected to be confirmed by tomorrow’s July GDP and details. Earnings growth slowed. The unemployment rate dipped. Employment accelerated. The three-month year-over-year measure of average weekly earnings fell to 4.0% in July (from 4.5%). This is the slowest pace since November 2020. Excluding bonus payments, average weekly earnings slowed to 5.1% (from 5.4%), the lowest since June 2022. The 265k increase in employment over the past three months is the most since May 2022, and more than twice the median forecast in Bloomberg’s survey. The three-month unemployment rate slipped for the second consecutive month, and at 4.1%, it is the lowest since January. The unemployment claimant count surged in July by 135k (revised to 102k), the most since Covid, but moderated in August to nearly 24k. The Bank of England meets next week (September 19) and the market perceives little chance of a change in policy. Still, a cut is full discounted for the next meeting (November 7). Meanwhile, today’s Norwegian CPI will encourage the market to push against the hawkishness of Norges Bank that also meets next week (September 19). The 0.9% decline in headline CPI offsets the past two months of gain, and that means on a three-month annualized, Norway’s CPI has fallen by 0.8%. The underlying rate (adjusted for tax changes and excludes energy) fell by 0.7%. The underlying rate has risen 1.2% at an annualized rate over the past three months. The central bank has pushed back against market speculation of a rate cut, but the market sees roughly a 40% chance of a cut at the November 7 meeting and it is fully discounted at the December 19 meeting. After settling about 0.25% lower before the weekend, the euro fell by another 0.3% yesterday. It found support ahead of last week’s low (~$1.1025), which is held today too. The five-day moving average has more decisively broken below the 20-day moving average for the first time in a month and daily momentum indicators are still falling, warning that it may be early to pick a bottom. There are large options that expire at $1.10 today (~1.6 bln euros) and Thursday (2.35 bln). Sterling’s outside down day before the weekend saw follow-through selling yesterday that took it slightly below $1.3070. It slipped a little under $1.3060 today before steadying. Still, it took out the 20-day moving average on a closing basis yesterday for the first time since mid-August and mostly has remained below it today (~$1.3095). The $1.3035 area corresponds to the (38.2%) retracement of last month’s rally. The (50%) retracement is near $1.2965. The daily momentum indicators are trending lower, and depending on the price action, of course, the five-day moving average could cross below the 20-day moving average later this week. America What could be the only debate between the US presidential candidates will be held tonight. The national polls and developments in the swing states show a tight race. With delinquency rates rising and the labor market cooling, consumer credit was expected to slow in July, but instead, it jumped by $25.5 bln, the most since November 2022. The increase was greater than any economist in Bloomberg’s survey projected. Revolving credit increased by $10.6 bln, the most in five months, while non-revolving credit rose by $14.8 bln, the most in more than a year. This seemed to reflect the disruption of a computer system for auto sales in June and the recovery in July. Through July, consumer credit has risen by about $70 bln. In the same period last year, it had risen by almost $105 bln. With three FOMC meetings left this year, the Fed funds futures are pricing in 111 bp of cuts. This is equivalent to a 25 bp cut next week, more than an 80% chance of a 50 bp cut at the November 7 meeting, and about an 85% chance of another 50 bp cut. Unlike several other of the G10 currencies, there was no follow-through selling of the Canadian dollar after the pre-weekend sell-off. The pre-weekend US dollar high was a smidgeon above CAD1.3580, and yesterday’s pullback was limited to a little below CAD1.3550, in a consolidative session that saw stocks and oil rebound. Initial support is likely around CAD1.3540. The US dollar continues to butt against the CAD1.3580 area, and a break could target the CAD1.3600-20 area initially. The greenback posted an inside day against the Mexican peso yesterday. The rise in US equities after the pre-weekend sell-off may have helped steady the peso, which had posted its lowest settlement of the year. The first decline in Mexico’s headline inflation in six months did not weigh on the peso, even though it would seem to increase the chances of a rate cut when the central bank meets on September 26. Last week’s high was near MXN20.15, and it looks to be retested. Meanwhile, the Colombian peso remained on the defensive. The dollar rose by 1.65% against the Colombian peso, its biggest single-day advance in three months. The softer-than-expected CPI reported before the weekend took a toll. The dollar is at its best level since last October (~COP4256). The resolution of the truckers’ strike puts the government back at square one to address the fiscal hole. President Petro lacks a majority in congress. The central bank meets at the end of the month. Its easing cycle began last December, and through July it had cut its key repo rate by 250 bp to 10.75%. The swaps market is pricing in an aggressive 130 bp of cuts in the next three months and around 375 bp over the next 12 months. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

By Saqib Iqbal Ahmed and Laura MatthewsNEW YORK (Reuters) – Growing risks to the U.S. stock rally are spurring demand for portfolio hedging, options markets showed, as investors grapple with U.S. economic uncertainty, shifting Federal Reserve policy and a looming presidential election.As the spotlight turns toward Tuesday’s high-stakes televised debate between Democrat Kamala Harris and Republican Donald Trump, the Cboe Volatility Index is hovering around 20. That compares with a 2024 average of 14.8 for the index, which measures demand for protection against stock swings.The VIX typically rises around 25% between July and November in election years, as investors sharpen their focus on the market implications of candidates’ policy proposals, BofA data showed.This year, however, political concerns have coalesced with more pressing catalysts for volatility, such as worries over a potentially softening U.S. economy and uncertainty over how deeply the Fed will need to cut interest rates, investors said. The S&P 500 notched its worst weekly percentage loss since March 2023 last week after a second-straight underwhelming jobs report, though the index is still up nearly 15% this year.”This is an uncertain market,” said Matt Thompson, co-portfolio manager at Little Harbor Advisors. “The market is essentially saying, we know risk is elevated, but … we don’t know what the problem is going to be.”With volatility already elevated, the “election bump” in October VIX futures, which also encompass the Nov. 5 vote, is far smaller than in previous years. On Tuesday they traded at 19.55, less than 1 point above the September contracts. Moreover, the gap between the contracts with the highest and lowest volatilities is barely above 1 volatility point.In the 2020 and 2016 election cycles, the futures curve presented a 7.3 and 3.4 point gap, respectively, between the months with the highest and lowest volatility, a Reuters analysis of LSEG data showed.SPEED BUMPS AHEAD?The VIX has been in sharper-than-usual focus for investors in recent weeks after the index posted its largest ever one-day spike on Aug. 5, during a sharp market sell-off spurred by economic worries and an unwinding of the global yen carry trade.Though volatility took only days to subside, the index has crept up again as markets have grown choppy again in recent days. Societe Generale analysts advised investors on Monday to stay hedged for the next three to six months, warning of possible volatility from unpleasant economic surprises and geopolitical factors such as U.S. elections and conflict in the Middle East and Ukraine.Others, however, see reasons why investors are less nervous about election risks this time around.Stocks have done well under both Trump and President Joe Biden, noted Seth Hickle, managing partner at Mindset Wealth Management. With Harris’ policies seen as sticking close to Biden’s, either candidate’s victory does not present a major challenge to investors.”We don’t really have a whole lot of uncertainty when it comes to what’s going to change. I don’t think it really spooks the market because we have already been through it,” Hickle said.Still, Tuesday’s debate has the potential to jolt markets.”Since the last presidential debate literally ended in a brand-new Democratic candidate, I do expect this to be somewhat volatility generating,” Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, said in a note.(Reporting by Saqib Iqbal Ahmed and Laura Matthews; Editing by Ira Iosebashvili and Richard Chang) Continue reading →

(Bloomberg) — US Bitcoin exchange-traded funds have posted their longest run of daily net outflows since listing at the start of the year, part of a wider retreat from riskier assets in a challenging period for global markets.Most Read from BloombergInvestors pulled close to $1.2 billion in total from the group of 12 ETFs over the eight days through Sept. 6, data compiled by Bloomberg show. The drop comes amid a rocky period for shares and commodities on economic growth worries.Mixed US jobs data and deflationary pressure in China are both taking a toll on traders. The uncertainty is buffeting the cryptocurrency market, whose gyrations have become more closely tied to moves in stocks based on a rising short-term correlation between the two.Bitcoin has struggled in September, posting a loss of approximately 7%. But the largest digital asset eked out modest gains over the weekend and climbed roughly 1% to $54,870 as of 1 p.m. on Monday in Singapore.Hedging for Debate“The small relief rally seems to be driven in part by some prominent influencers closing out their shorts,” said Sean McNulty, director of trading at liquidity provider Arbelos Markets. He cited as an example a recent social media post from Arthur Hayes, co-founder of the BitMEX trading platform.An improved showing by Donald Trump, the pro-crypto Republican nominee for the US presidential election, in polls and prediction markets may also be playing a role, McNulty said. He reported greater demand for options hedges in case Tuesday’s debate between Trump and Democratic nominee Vice President Kamala Harris stirs volatility. Harris has yet to detail her stance on crypto.The US Bitcoin ETFs investing directly in the original cryptocurrency debuted in January with much fanfare. Unexpectedly strong demand for the funds helped to drive the token to a record high of $73,798 in March. The inflows subsequently moderated and Bitcoin’s year-to-date rally has cooled to about 30%.The token will likely trade in its recent $53,000 to $57,000 range until the US releases consumer-price data on Wednesday, said Caroline Mauron, co-founder of Orbit Markets, a provider of liquidity for trading in digital-asset derivatives. The inflation numbers may shape expectations for the pace of anticipated monetary easing by the Federal Reserve in the US.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

PM ImagesOverview After falling following the US jobs report before the weekend, US interest rates have come back firmer, helping to give the dollar a boost. A downward revision to Japan’s Q2 GDP, reflecting weaker consumption, business investment, and a little more inflation, has helped the greenback retrace the pre-weekend losses against the yen. Softer-than-expected price gauges, the setback of the yen, and the rise in US rates have seen the offshore yuan fall by the most in three weeks. The US dollar is firmer against all the G10 currencies but the Canadian dollar. Most emerging market currencies are also softer but the Mexican peso. After falling by 2.4% last week, the MSCI Asia Pacific has begun the new week on the defensive. All the large markets in the region fell except India. China (SHCOMP), Hong Kong (HSI), and Taiwan lost more than 1%. Europe’s Stoxx 600 (STOXX) is snapping a five-day drop. It is up nearly 0.75% in late morning turnover. Us index futures are recovering from the pre-weekend slide. The S&P 500 (SPX) is up around 0.7% and the Nasdaq is about 0.90%. Yields are broadly higher. The 10-year JGB yield rose nearly 5 bps (to ~0.89%). European benchmark yields are 4-6 bps higher. Gold is flat and consolidating at the lower end of last Friday’s range. It has been confined to a roughly $2485-$2500 range so far today. October WTI fell almost 8% last week, its fourth consecutive weekly loss, and to its lowest level of the year (~$67.15). It is trading quietly today (~$68.00-$68.85). Asia Pacific China’s consumer disinflation is ending, and it is not because consumer demand has improved. Unfavorable weather and a low base for pork prices appear to be the driver. At the same time, China’s intense domestic competition–which is closely related to the surplus capacity issue, also serves to weigh on price. China’s August CPI is 0.6% higher year-over-year, slightly higher than the 0.5% in July. The core rate, which excludes food and energy, rose 0.3% year-over-year, the slowest of the year. Consumer goods prices rose 0.7% over the past 12 months, the fastest of the year, while service prices edged up 0.5%, the least of the year. Producer prices deteriorated for the first time since March. After finishing 2023 at -2.7%, Chinese producer prices rose to -0.8% in June and July before falling to -1.8% in August. The output price index as China’s PMI fell to 42.0 in August (46.3 in July). It is the lowest since May 2023. The weakness in producer prices suggests profits will remain under pressure. We note that China reported that reserves rose by almost $31.85 bln in August to $3.29 trillion, the highest since the end of 2015. It appears to be largely accounted for by the valuation adjustments (decline in the dollar and interest rates). Meanwhile, revisions to Japan’s Q2 GDP were minor, and the focus is on inflation and Q3 data. The 3.1% growth in Q2 was revised to 2.9% as consumption and capex were revised lower. The growth was partly a payback for the 3.2% contraction. Growth this quarter looks to be 1.5%-2.0% at an annualized clip. The deflator was revised to 3.2% from 3.0%. Japan also reported its July current account. True to the seasonal pattern, it widened from June (JPY3.19 trillion vs. JPY1.53 trillion) as it has done without failure since 2002. It did so, however, even though the trade balance deteriorated. The JPY483 bln deficit compares with a JPY556 bln in June and JPY107 bln in July 2023. The dollar entered today with a four-day slide against the yen in tow and after a wobble at the start of the session it recovered. The yen’s rise does not appear to be the critical driver that it was in late July into early August. Through last Tuesday, speculators in the CME futures grew their net long yen position by 15.2k contracts to 41.1k. This was a function of new longs being established and shorts covered in roughly equal measures. Ahead of the weekend, the dollar posted its lowest close since early January slightly below JPY142.50, where $1.75 bln in options are to expire Wednesday. It slipped briefly below JPY142 and recovered toward JPY143.65, holding so far below the pre-weekend high (~JPY144). The greenback’s gains have been supported by a recovery in US yields (5-6 bps). The Australian dollar is weak from the technical perspective after the big outside down day before the weekend. The pre-weekend low was near $0.6660, and the losses have been marginally extended today to slightly below $0.6655. A possible head and shoulders topping pattern projects to a little below $0.6600. The five-day moving average is crossing below the 20-day moving average. The position adjustment around today’s expiry of almost A$315 mln options at $0.6700 may have contributed to the Aussie selling before the weekend. Still, the stretched intraday momentum indicators suggest it can recover toward $0.6670-80 area. The rise in US rates and the pullback in the yen put the yuan on its backfoot. The greenback, which tested the CNH7.0735 at the end of last week, reached a five-day high near CNH7.1245 today, near the 20-day moving average. Moreover, the offshore yuan is weaker than the onshore yuan, suggesting a near-term directional bias. Near-term potential appears to extend to CNH7.15. Last week’s less than 0.1% gain was sufficient for the dollar to snap a six-week drop against onshore yuan. The reference rate was set at CNY7.0989 (CNY7.0925 at the end of last week). Europe The eurozone highlight of the week is Thursday’s ECB meeting. The swaps market is fully discounting a 25 bp cut that will bring the deposit rate to 3.50%. It may also make a technical adjustment to narrow the spread between the deposit rate and the main refinancing rate to 15 bps from 50 bps. The staff will update its forecasts. The swaps market has another cut fully discounted this year (two meetings left) and almost a 50% chance of another. The Bank of England meets on September 19 and the swaps market has about a 25% chance of a cut. Assuming that is correct, there are about 45 bps in cuts discounting for the last two meetings of the year. Tomorrow’s employment data may have more sway than the July GDP data and details on Wednesday. The euro did not sustain the upside momentum that carried it to $1.1155 ahead of the weekend. It reversed to fall through Thursday’s low (~$1.1075), but the settlement was inside Thursday’s range. Follow-through selling today pushed it near $1.1045. A close below $1.1075 may boost the likelihood that the euro’s downside correction is intact. Last week’s low was near $1.1025. The next target is the $1.0990-$1.1000, but initially in North America, gains toward $1.1080 are reasonable given the positioning of the intraday momentum indicators. Sterling posted a bearish outside down day. Unlike the euro, it settled below Thursday’s low after taking out its high earlier. It has slipped through last week’s low (~$1.3090) and the next target is around $1.3035 on the way to maybe $1.2965. Still, the intraday momentum indicators suggest a bounce in the early North American turnover is likely. Initial resistance is seen around $1.3120. America The US employment was sufficiently mixed, especially if the 142k jobs growth is discounted by the average revision, and the Fed-speak sufficiently ambiguous as to encourage the market not to bet too heavily on 50 bp rate cuts. Officials signaled a series of rate cuts. No one shied away from that. The issue is pace. The underlying signal seems to be that the base case is for a 25 bp cut this month, but officials seem open to quicker moves if the labor market continues to weaken. One of the implications is that Wednesday’s CPI may not play a significant role in the Fed’s reaction function. Some are still critical of the Fed and believe it should have cut rates in July. Maybe. Two mitigating factors. First, given the lag times, a few weeks one way or the other is unlikely to make much of a difference. Second, it is not as if the market has stood still. In a little more than four months, the US 2-year yield has fallen by 140 bps. The average 30-year mortgage rate has fallen by around 75 bps to 6.75%, the lowest in around 18 months. For its part, Mexico will report its August CPI, today, a couple of days ahead of the US. The headline and core rates are expected to have moderated. The central bank meets on September 26 and a Fed rate cut could help persuade Banxico to cut as well. The US dollar posted a large outside up day against the Canadian dollar. After initially falling to a new low for the week near CAD1.3465, the greenback reversed course to rally to CAD1.3580. The US dollar’s 0.5% gain ahead of the weekend was the largest advance in three months. It approached the 200-day moving average (~CAD1.3585). There has been no follow-through US dollar buying today, and the greenback is consolidating in a narrow range above CAD1.3550. The range may be extended to the downside in North America, but consolidation is the most likely scenario. The US dollar settled at its highest level against the Mexican peso since October 2022 (~MXN19.97) ahead of the weekend. Still, the greenback has not settled above MN20.00 despite trading above it on an intraday basis. There are about $490 mln in options struck at MXN20.00 that expire today. Given the cost of being short the peso (interest rate differential), once it becomes clear that the momentum is stalling (and the momentum indicators are stretched), peso shorts will feel the pressure to cover. It, too, is consolidating today. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

LilliDayYou simply can’t raise rates the most in recent history at the fastest pace in recent history on the most debt outstanding in history and not face consequences.” – ZeroHedge There has been a noticeable change in the tone of the markets and the economy over the past few days as the drums of recession are starting to bang louder despite investors continued dreams of a ‘soft landing’. Here are some items I was watching that seem to be screaming that the probability of an upcoming recession is much higher than the current market is pricing in. Labor Market Is Rapidly Deteriorating: Let’s take a look at some of the recent data points showing rapid deterioration in the labor market. Today’s BLS Jobs report came at 142,000 positions added, some 20,000 lower than the consensus. In addition, both June and July BLS jobs numbers were revised lower by some 86,000 positions in total. Seeking Alpha The March 2023 through March 2024 job creation estimate was revised down late in August by the Bureau of Labor Statistics or BLS by 818,000 or 31% of their original estimation. Wednesday’s JOLTs report showed the fewest amount of job openings in the U.S. economy since January of 2021. Federal Reserve Bank Of St. Louis A miserable Fed Beige Book Wednesday as it related to its labor component. Julia Pollak – Chief Economist at ZipRecruiter Layoff announcements in August hit 15 year high for the month Hiring plans in August were down 21% from August 2023. YTD hiring plans of 80,000 lowest since 2005 Thursday’s August ADP jobs report shows only 99,000 positions, far below the 140,000 consensus. Finally, the unemployment rate in July BLS jobs report ticked up to 4.3% from 4.1% in June and just 3.5% in June of 2023. It did tick down to 4.2% in August, but we are still in violation of the Sahm Rule, which has reliably happened before previous recessions. Claudia Sahm/Goldman Sachs Global Investment Research Commodity Prices Falling: Oil price per barrel – WTI (MarketWatch) Commodity prices also appear to be signaling recession is dead ahead. Oil has sold off sharply recently and is now down for 2024, and right at its lows for the year. Not even a delayed in a planned OPEC production hike earlier in the week could bolster crude oil. And this is with continued tensions/conflict in Ukraine, Yemen and between Israel and Iran. Copper price per lb. (MarketWatch) ‘Dr. Copper’ is also signaling slowing economic growth, and the red metal is down some 20% from its recent highs in mid-May. Earlier this week, Goldman Sachs slashed its projection for the average FY2025 copper price by $5,000 a ton because of a slumping Chinese economy. Lumber prices have also tumbled. InvestingChannel Yield Curve Is Normalizing: Charlie Biello (09/04) – Chief Market Strategist @ Creative Planning Finally, earlier this week, the spread between the two and 10-year Treasury yield ‘normalized’ very briefly for the first time since June of 2022. This has been one of the longest yield inversions in U.S. history and this is something I am watching closely. It has signaled hard economic times are coming many times historically. One of the first articles I remember reading on Seeking Alpha back in early 2007 was around, warning how a prolonged inverted yield curve produces a subsequent recession. Let’s just say that observation was prescient and, unfortunately, largely ignored. In late August, I put out a piece entitled ‘Five Market Predictions For September’. One of these was that the Federal Reserve would be forced to cut the Fed Funds rate by 50bps because of a fast-deteriorating labor market. That was a bit of an outlier as far as predictions go at the time. However, according to futures this week, it is basically a coin flip whether Chairman Powell will cut 25bps or 50bps at the upcoming FOMC meeting. Hulbert Ratings In summary, the chances of a recession have grown significantly in recent weeks. And with the market trading at some of the same extreme valuation metrics it was at the beginning of 2022, before a huge whoosh down for equities that year, investors are not probably pricing in this potential scenario. Continue reading →

Martin Ruegner/DigitalVision via Getty Images 25bp or 50bp debate remains unresolved The jobs report provides a real mix of numbers that does little to resolve the debate over whether the Fed will cut rates by 25bp or 50bp on 18 September. We have a 50bp in our forecast, but it is a low conviction call made on the basis that inflation fears have receded, and the Fed will want to get ahead of labour market weakness, which we think will become increasingly apparent in the months ahead. US non-farm payrolls change including provisional downward revision line (000s) Source: Macrobond, ING Payrolls continue to soften, but remain positive In terms of the August numbers, headline non-farm payrolls rose 142k versus the 165k consensus, so a slight downside miss, but there were 86k of downward revisions to the past two months. We are seeing consistent downward revisions to the data now, and that doesn’t even include the provisional benchmark revisions released a few weeks back that showed the BLS overestimated payrolls growth by an average of 78k per month in the 12 months to March 2024. For example, June was initially reported at 206k, to be revised to 179k last month, and now is just 118k, while July was revised down to 89k to 114k. Given that, can we really trust today’s number? Do we need to knock 78k off the headline figure to take account of the error in the BLS model? – that would give payrolls growth of just 64k. On the positive side, we see that the unemployment rate has dipped back to 4.2% after rising from 4.1 to 4.3% last month. Yet the underemployment rate rose to 7.8% from 7.9% so there are a growing number of people that are working part-time, but want to work full time. In this regard, the details show manufacturing looking very weak (-24k). Retail and temporary jobs have fallen for three straight months, and IT jobs have fallen or been flat for five months. The strength continues to be government (+24k), leisure & hospitality (+46k) and private education and healthcare services (+47k). These are sectors that are typically lowered paid, less secure and more part-time. As such, I would argue that the details are weaker than suggested by the headline; the typical sectors I would associate with a strong, vibrant economy are not performing (business services, manufacturing, transport and logistics, tech, etc). Are we losing the “good jobs”? Moreover, the chart below does not look good. Full-time versus part-time employment is showing a big divergence, which tallies with the idea that the US is adding largely lower-paid, part-time jobs and is losing full-time, well-paid jobs, primarily through attrition – not replacing retiring or quitting workers. Every recession starts this way, unfortunately. The easiest way to cut costs is not to replace workers, but if everyone is doing that, then the economy slows, and companies start making actual cuts down the line. Full-time versus part-time employment YoY% With job weakness set to intensify we still hold onto a 50bp cut view In terms of the Fed decision, today’s readings on balance suggest a 25bp cut looks marginally more likely than 50bp (50bp is our forecast), meaning there’s no real urgency to go hard early. Still, the jobs market is always the last thing to turn in a cycle, and it is already clearly cooling. Given Fed Chair Powell’s warning that “we don’t seek or welcome further cooling in labor market conditions” there is a strong argument for getting out ahead of potential weakness and opting for 50bp. He will certainly propose it but is likely to get some pushback from some regional presidents. I strongly suspect this won’t be a unanimous decision – something we haven’t seen for a long time. The next stop is CPI, which, of course, could completely blow this out of the water should we get an upside surprise of 0.3%MoM on core inflation… the job of an economist is never dull. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Original Post Continue reading →

cemagraphicsBy Jim Iuorio At a Glance The U.S. dollar’s strength this year is partly due to its performance relative to other devalued currencies The dollar weakened to recent lows as the market anticipates rate cuts in September Since early 2020, the U.S. dollar defied economic expectations by appreciating against most of the world’s currencies. This trend is perplexing given the unprecedented rise in both national debt and the M2 money supply in the United States during this period. This year, the U.S. national debt has surged to $35 trillion, marking a 50% increase since the start of 2020. Simultaneously, the M2 money supply has expanded by nearly 40%. These figures prompt a crucial question: has the dollar been genuinely strong, or has this perceived strength merely been an illusion? Defining U.S. Dollar Strength According to basic monetarist theory, significant increases in debt and money supply should weaken a currency. With more dollars in circulation, each dollar theoretically holds less value, particularly when the supply of goods remains unchanged – leading to inflation. And indeed, inflation did rise. The crux of the matter may lie in how we measure the dollar’s strength. In finance, currency strength is often gauged relative to other global currencies, a critical concept that impacts global trade and interest rate policies. In response to the economic fallout from the COVID-19 pandemic, most countries, including the U.S., adopted similar measures to stave off deflationary pressures: cutting interest rates and increasing deficit spending to bolster demand. Initially, the U.S. was particularly aggressive, reducing rates to near zero and enacting massive debt-fueled stimulus packages. As expected, the dollar depreciated by roughly 10% against major currencies, hitting a low around June 2021. However, the narrative shifted in June 2021 when inflation emerged, signaling that the Federal Reserve would soon begin raising rates. Each month of delay heightened expectations of just how high rates could go. Beginning in February 2022, the Fed embarked on one of the most aggressive rate-hiking cycles in history, raising the federal funds rate from zero to 5.37% in just 18 months. U.S. rates soon outpaced those in most of the developed world. Recent comments by Fed Chair Jerome Powell have indicated that rate cuts are now imminent, which will likely shift global currency markets yet again. Alongside the Fed rate-hiking cycle, FX volatility increased materially and CME Group FX futures quarterly average daily volumes reached record levels in Q3 2022, trading over one million contracts per day. While FX volatility has normalized in 2024, open interest in FX futures has continued to grow, reaching record levels of over 2.8 million contracts on June 14. Carry Trade in Currency Markets To understand how rate differentials affect currency values, consider the U.S. dollar versus the Japanese yen. After battling deflation for nearly 30 years, the Bank of Japan (BOJ) was more tolerant of inflation than the U.S. The BOJ kept rates in negative territory well into 2024, trying to finally overcome deflation. As a result, the yen plummeted, losing 28% of its value against the dollar before bottoming out in July 2024. This rate differential has significant implications for currencies due to a phenomenon known as the carry trade. Essentially, entities borrow large amounts of yen from Japanese banks at low rates, sell the yen to buy dollars, and invest those dollars in higher-yielding assets. Over time, this process pushes the low-rate currency further down and the high-rate currency higher. However, the risk arises when the trade becomes overcrowded, making the market vulnerable to a sudden “unwind” as positions are liquidated. The Euro’s weakness against the dollar followed a similar pattern, compounded by economic concerns over the impact of Russian sanctions on regional economies. Hedging Potential Dollar Fluctuations In mid-August, the dollar weakened to recent lows after Powell’s remarks. If a trader believes that the dollar’s improbable run of relative strength is truly nearing its end, they could use CME Group FX futures to manage the risk. July ADV in the FX suite of products increased by 9% compared to July 2023 as more market participants used futures to manage risk. If a trader anticipates a reversal of the carry trade and a surge in the yen to continue, they could buy CME Japanese yen futures. Conversely, if they expect continued economic challenges in Europe, they might sell CME euro futures. Those concerned with ongoing weak currency policies globally, and their implications for continued higher inflation, might also consider traditional inflation hedges like Gold futures or newer alternatives like Bitcoin futures. As the potential for rate cuts look likely in September, potential fluctuations in the dollar will likely remain in focus for many market participants. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Nuthawut SomsukBy Seema Shah, Chief Global Strategist Federal Reserve (Fed) Chair Jerome Powell has all but confirmed that the rate-cutting cycle will commence at the next FOMC meeting on September 18. Financial markets are currently pricing in 100 basis points (bps) of cuts this year-potentially equivalent to a 50bps cut in September and 25bps cuts in both November and December-as the Fed gears up to ward off recession. Its success in piloting a soft versus hard landing will play a key role in dictating the path for U.S. equities. Equity market reactions over previous Fed cycles Popular belief appears to be that, historically, equities have struggled once the Fed begins to reduce interest rates. However, a closer look at the 23 Fed cutting cycles since 1970 reveals a more nuanced picture:(1) On seven occasions, Fed action sparked a market recovery within one month of the first cut. On two occasions, markets were already rallying in the run-up to the first cut as they started to price in imminent Fed action. On 16 occasions, markets were higher six months after the first Fed cut. On nine of those occasions, market gains were in double digits. On average, the market bottomed three months later and was 5% lower, after the first Fed cut. However, solely looking at the average can be misleading. There has been a wide range of equity market reactions, with performance largely contingent on whether or not recession was avoided. S&P 500 performance preceding and following the first Fed cuts across all cutting cycles since 1970 Month 0 = beginning of rate cutting cycle, rebased to 100 at month 0 Source: Bloomberg, Federal Reserve, Principal Asset Management. Data as of September 4, 2024. In the 2001 and 2007 cutting cycles, spiking recession risk prompted the Fed to cut policy rates aggressively. Yet, despite the significant monetary easing, the U.S. economy could not avoid recession. In the 2007 cycle, 12 months after the first Fed cut, S&P 500 earnings per share were down 15%, and the market was down 24%. It took the S&P 500 around 17 months from the time of the first Fed rate cut to bottom, a few months before the U.S. economy exited recession. By contrast, the 1995 cutting cycle was fairly shallow, with just 75 basis points of easing. The U.S. economy was beginning to show signs of cooling, but the unemployment rate was relatively low. Inflation pressures were contained, permitting the Fed to reduce the restrictiveness of monetary policy. One year after the first policy rate cut, the Fed had successfully navigated a soft landing and the U.S. economy had continued to expand. The S&P 500 earnings per share had risen just 6%, but this was enough to fuel a 14% gain in the overall S&P 500 Index. The 1985 cutting cycle followed a similar path, with the U.S. economy avoiding recession and the S&P 500 delivering a 32% gain within 12 months of the first Fed cut. S&P 500 performance preceding and following the first Fed cuts in four select cutting cycles Month 0 = beginning of rate cutting cycle, rebased to 100 at month 0 Source: Bloomberg, Federal Reserve, Principal Asset Management. Data as of September 4, 2024. These historic experiences suggest that, in Fed easing cycles where the economy continues to soften, unemployment rises, and earnings growth struggles, the market tends to struggle. Yet, during easing cycles where recession has been avoided and, as a result, earnings growth remains fairly robust, equity markets generally react positively. The imminent Fed cycle So far, the S&P 500 has responded fairly positively to expectations for imminent Fed rate cuts, supported by a recent stream of solid economic data, raising hopes that Fed action will be sufficient to ward off recession. However, a weak August payrolls report (released on September 6) could damage investor sentiment, leading markets to believe that the Fed has been too slow to ease monetary policy and has made a policy error. Our analysis confirms that both economic activity and the labor market are undoubtedly slowing, and recession risk has increased. Yet, without any glaring household or corporate balance sheet vulnerabilities, Fed easing should be enough to prevent recession-there does not seem to be anything intrinsically broken that policy stimulus cannot fix. If recession is avoided, history suggests that equities can extend their recent rally. Since 1985, five of the best 10 years for the S&P 500 came when the Fed was cutting interest rates without recession. The historical perspective should provide investors some optimism for the future of the market. Footnote [1] Only Fed cycles which lasted a minimum of four months were included. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →