Category Archives: Silver

U.S. wholesale price increases mostly slowed last month, the latest evidence that inflation pressures are cooling enough for the Federal Reserve to begin cutting interest rates next week.The Labor Department said Thursday that its producer price index — which tracks inflation before it reaches consumers — rose 0.2% from July to August. That was up from an unchanged reading a month earlier. But measured from a year ago, prices were up 1.7% in August, the smallest such rise since February and down from a 2.1% annual increase in July.Excluding food and energy prices, which tend to fluctuate from month to month, so-called core wholesale prices moved up 0.3% from July and have risen 2.3% from August 2023.Taken as a whole, last month’s wholesale price figures suggest that inflation is moving back toward the Fed’s 2% target level. After peaking at a four-decade high in mid-2022, the prices of gas, groceries and autos are either falling or rising at slower pre-pandemic rates. On Wednesday, the government reported that its main inflation measure, the consumer price index, rose just 2.5% in August from a year earlier, the mildest 12-month increase in three years.The latest inflation figures follow a presidential debate Tuesday night in which former President Donald Trump attacked Vice President Kamala Harris for the price spikes that began a few months after the Biden-Harris administration took office, when global supply chains seized up and caused severe shortages of parts and labor.During the debate, Trump falsely characterized the scope of the inflation surge when he claimed that inflation during the Biden-Harris administration was the highest “perhaps in the history of our country.” In 1980, inflation reached 14.6% — much higher than the 2022 peak of 9.1%.The producer price index can provide an early sign of where consumer inflation is headed. Economists also watch it because some of its components, notably healthcare and financial services, flow into the Fed’s preferred inflation gauge — the personal consumption expenditures, or PCE, index.In its fight against high inflation, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. With inflation now close to their target level, the Fed’s policymakers are poised to begin cutting their key rate from its 23-year high in hopes of bolstering growth and hiring.A modest quarter-point cut is widely expected to be announced after the central bank meets next week. Over time, a series of rate cuts should reduce the cost of borrowing across the economy, including for mortgages, auto loans and credit cards. Continue reading →

manassanant pamaiBy Kelvin Wong Since our last publication, the price actions of Gold (XAU/USD) have managed to stage a rebound above the US$2,353 bullish reversal level and resumed its impulsive upmove sequence to print a recent fresh all-time level of US$2,352 on 20 August. Considering the upcoming key US inflation data release later today, where the core inflation rate for August is expected to show signs of a deceleration trend continuation of the inflationary conditions in the US, coming in at 3.2% y/y, a similar pace to 3.2% recorded in July, which was a three-month low. Through the lens of technical analysis, several positive elements have emerged that may support a potential bullish breakout for Gold (XAU/USD) after four weeks of tight-range trading. 10-year US Treasury real yield has staged a major bearish breakdown Fig 1: US 10-YR Treasury real yield major & medium-term trends as of 11 Sep 2024 (Source:TradingView) The 10-year US Treasury real yield is measured by subtracting the 10-year breakeven inflation rate derived from 10-year US Treasury Inflation-Protected Securities (TIPS) from the nominal 10-year US Treasury yield. If the 10-year US Treasury real yield is trending downwards, it implies that the long-term real opportunity cost of holding Gold (XAU/USD) is reduced as Gold is a non-income bearing asset, and vice versa when the 10-year US Treasury real yield trends upwards (see Fig 1). Right now, the 10-year US Treasury real yield has just breached below major support at 1.62% (in place since late December 2023) which suggests that Gold (XAU/USD) has become more valuable as its associated long-term opportunity costs may be further reduced given the next medium-term support of the 10-year US Treasury real yield rests at 1.38%. Hence, it may propel more demand for Gold (XAU/USD) which in turn is likely to drive up its price. Medium-term momentum remains positive for Gold Fig 2: Gold (XAU/USD) major & medium-term trends as of 11 Sep 2024 (Source:TradingView) The price actions of Gold (XAU/USD) have continued to oscillate within its medium-term ascending channel in place since the 6 October 2023 low of US$1,810 and are supported by a rising 50-day moving average that is also confluences closely with its key medium-term pivotal support at US$2,435. In addition, the daily RSI momentum indicator has continued to display a series of “higher lows” above its 50 level and has not reached an overbought condition. These positive technical elements suggest that upside momentum may be building up for a potential bullish breakout for Gold XAU/USD, a clearance above US$2,532 may see the next medium-term resistance zone coming in at US2,640/715 in the first step (see Fig 2). On the other hand, a break below US$2,435 negates the bullish scenario to kickstart a potential multi-week corrective decline sequence within its medium-term and major uptrend phases to expose the next support at US$2,359, and below it sees an increased risk for an extension of the corrective decline towards the US$2,285 long-term pivotal support (also close to the 200-day moving average). Original Post Continue reading →

uschoolsHistorically, September is the worst month for the stock market and this year is no exception. The first week of September was quite negative. In fact, the S&P500 (SP500) dropped 4.25%, the worst performance since 1953. A recovery has been in sight for a few days now, but investors remain doubtful about the future. In particular, September 18 will be a key date for understanding new monetary policy decisions, and this is likely to be the main market mover in the coming weeks. Typically, when the Fed meeting is this close, analysts almost all agree on what the next move will be, but in this case, it is different. Everyone agrees on the first cut in September (later than other central banks), but not everyone agrees on the amount of the cut. It is the latter issue that this article will mainly focus on, since a 25 basis points cut would fuel the soft-landing scenario; a 50 basis points cut would increase the chances of a hard landing. What to expect on September 18 As mentioned, at present the probability of rates remaining unchanged is 0%. No one expects monetary policy to remain tight, which is why I will not specifically discuss this scenario. Currently, there are too many red flags that have historically predicted past recessions, so it is important to loosen the grip on the cost of borrowing. The Sahm Recession Indicator is pointing above 0.50, while the yield on 10-year T-Bonds is back above 2-year T-Bonds. Powell himself was clear during the Jackson Hole Symposium about a rate cut starting in September: The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability. Rejecting the scenario that involves no rate cut, the most likely ones remain either a 25 basis points cut or a 50 basis points cut. While the difference between these two scenarios is minimal in numerical terms, the implications they may have on financial markets are potentially very different. First scenario: a 25 basis points cut At the time I am writing this article (Sept. 11 03:00 CT), the probability of a 25 basis points cut is 67%: compared to last month there has been an increase of 18%. CME Group The market is increasingly discounting this scenario and considers a 50 basis points cut less likely. The reason is attributed to the recent labor market data, which is slightly positive when compared to recent months. Investing.com From May to August, expectations for the unemployment rate were always too optimistic, but in September analysts’ estimates proved correct. The unemployment rate today is 4.20%, still higher than May’s 3.90% but slightly down from August. This figure was enough to trigger a burst of enthusiasm in the financial markets and make the hard landing scenario less likely. If the unemployment rate does not rise, there cannot be a recession, but it is worth noting that the Sahm Rule Indicator still signals a potential deterioration of the economy in the coming months. The September figure may have been only a short-term improvement, and starting in October the negative trend of recent months may continue. Personally, I also consider a 25 basis point cut the most likely scenario. Inflation is headed toward the 2% target, but it has not yet been fully beaten, which is why I don’t think the Fed will venture a 50 basis points cut. Federal Reserve Bank of St. Louis Typically, inflation cycles have several rebounds over the years, and to avoid what happened in the 1980s I think the Fed wants to reduce rates gradually: Inflation is now much closer to our objective, with prices having risen 2.50% over the past 12 months. After a pause earlier this year, progress toward our 2% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%. Chair Jerome H. Powell, Jackson Hole Economic Symposium. Overall, the scenario of a 25 bps cut is both the most likely and the most positive. In fact, the Fed would give the market a signal that it has everything under control, both in terms of inflation and the labor market. Gradual approaches are always the best, but at the same time, they are very difficult to implement. Historically, the rate cut is a complicated period because mistakes are not allowed, even in communication. A more alarming tone during conference calls may suggest an out-of-control situation and potential panic-cutting. From this point of view, I expect that on Sept. 18 the tone will be very calm and the 25 basis point cut will be intended as a precautionary measure to avoid the economy weakening too much. Monetary policy is done more with words than actions, so every single statement Powell makes will be immediately discounted by the market. The rate cut will probably not have a linear pattern, so I expect the Fed to follow the ECB from this point of view: there may be meetings with no cuts. TradingView This statement is supported by the futures market: by the end of 2025, the Fed Funds Rate is expected to be 2.78%, about 10 cuts of 25 basis points each. Typically, the FOMC holds 8 meetings a year, so we are talking about 10 cuts of 25 basis points each over the next 11 meetings. Finally, what will happen to the S&P500 should this scenario materialize? I don’t have a crystal ball, but I think a strong rally is unlikely since the market has already discounted much of this optimism in current prices. Second scenario: a 50 basis points cut The scenario of a 50 basis points cut is less likely, about a 33% chance. This is 18% lower than in the previous month. CME Group At first glance, this scenario could be intended as the more optimistic, after all, cutting rates more means giving a bigger boost to economic growth. In reality, it is exactly the opposite, and we noticed this in the disastrous early days of August when this scenario was the more likely of the two. The problem with cutting rates so much in September lies in the underlying message the Fed would give to the market: a 25 basis point cut is meant to be precautionary, and a 50 basis point cut is meant to be curative. There is an abysmal difference between the two concepts because the former does not shift the equilibrium, while the latter does. To better grasp the concept, you can compare restrictive monetary policy to a car about to run into an obstacle. If the braking is done gradually and well in advance, there will be no harm to the passengers, but if the braking happens at the last second someone will be hurt. When a central bank cuts rates quickly it means that something is broken in the economy and an immediate change of direction is needed. At that point, the problem of inflation would be put on the back burner and the main economic indicators such as GDP and unemployment rate would be the main aspects influencing market performance. Although the probability of this scenario is not that low, I, personally, consider it highly improbable. I do not think the Fed will make the mistake of starting the restrictive monetary policy with a 50 basis point cut, as this would complicate this month even more. As mentioned in one of my previous articles, I still hold the view that the first cut is coming a little too late, and we risk panic cutting in early 2025. Overall, should this scenario play out, I expect a negative reaction from the market and we may touch early August levels. Of course, this is just my expectation and not an encouragement to sell everything before September 18. My strategy remains unchanged no matter what: hold great companies in the portfolio for the long term. Conclusion In my view, the Fed Funds Rate will be cut by 25 basis points on September 18 and the market reaction will be flat/slightly positive. No rate cut is out of the question, while a 50 basis point cut would fuel market concerns in a month that is already off to a bad start. What is certain is that the Fed will follow the other central banks and start cutting rates, but interestingly, the bond market is already far ahead. By the end of 2025 futures expect total cuts of 250 basis points, which is quite controversial. To date, the stock market valuation discounts primarily a soft landing scenario, but the bond market thinks differently. An overall rate cut of 250 basis points in just over a year I think coincides more with a recessionary period rather than a soft landing, yet this does not worry investors. We are all hoping for a solid and growing economy in the coming months, but there are some issues to be clarified, many of which will be the subject of the September 18 meeting. I expect Powell to give more guidance on the change in monetary policy, so as to give the market something to believe in. At that point, the challenge will be to fulfill the promises. Finally, I conclude this article with an interesting statistic. Before long there will be the first rate cut, but how has the S&P500 performed in similar periods? As already stated, it depends on the speed with which the rate cut took place. Charles Schwab, Bloomberg, Federal Reserve, Ned Davis Research Inc. When it was slow and gradual, the average maximum drawdown was 5.50% and 7.40%, respectively in the 6 months and 12 months following the first cut. When there was panic-cutting, the average maximum drawdown was 10.90% and 20.70%, respectively in the 6 months and 12 months following the first cut. Should there be a 50 basis points cut on September 18, it would increase the chances of a double-digit collapse over the following months. In all this, however, there is good news: the S&P500 tends to perform positively in the 12 months following the rate cut. Charles Schwab, Bloomberg, and the Federal Reserve. So, there might be a drawdown, but in the past, the S&P500 (except in 2001 and 2007) has always recovered its losses within the year. This may not necessarily be the case this time as well, but it is certainly a statistic in favor of the most optimistic. Continue reading →

WASHINGTON (Reuters) – U.S. consumer prices rose marginally in August, but underlying inflation showed some stickiness, which could discourage the Federal Reserve from delivering a half-point interest rate cut next week.The consumer price index increased 0.2% last month after climbing 0.2% in July, the Labor Department’s Bureau of Labor Statistics said on Wednesday. In the 12 months through August, the CPI advanced 2.5%. That was the smallest year-on-year rise since February 2021 and followed a 2.9% increase in July.Economists polled by Reuters had forecast the CPI gaining 0.2% and rising 2.6% year-on-year. Though inflation remains above the U.S. central bank’s 2% target, it has slowed considerably, allowing policymakers to focus more on the labor market in their quest to sustain the economic expansion.Government data last week showed nonfarm payrolls increasing below expectations in August but the unemployment rate falling to 4.2% from near a three-year high of 4.3% in July, reducing the odds of a 50 basis point rate cut and boosting the chances of a quarter-point reduction.The labor is cooling amid a significant moderation in hiring, reducing the risks of inflation reigniting.Early on Wednesday, financial markets saw a roughly 29% probability of a 50 basis points rate cut at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch Tool. The odds of a quarter-point rate reduction were around 71%.The central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023.Annual consumer price growth has slowed considerably from a peak of 9.1% in June 2022 as higher borrowing costs curb demand.Excluding the volatile food and energy components, the CPI climbed 0.3% in August after rising 0.2% in July. In the 12 months through August, the so-called core CPI increased 3.2%. That followed a 3.2% gain in July.Some economists cautioned that lingering stickiness in core inflation argued against a half-point rate cut next Wednesday.(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama) Continue reading →

(Bloomberg) — Bitcoin slid as investors reacted to the US presidential debate between Democratic nominee Kamala Harris and Republican rival … 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 →