Inflation Trades – Rebounding or Sinking
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Again, today’s report will be shorter than usual, and focus on select charts so as to drive position details of all the five publications.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Yesterday‘s S&P 500 downswing was driven by tech, and it wasn‘t the heavyweights that pulled it down. Yes, Nasdaq is in as precarious short-term position as the 500-strong index – about to fall steeply just as gold did? Probably not, but vulnerable to a corrective move that could easily reach a few percent. The infrastructure bill is rather factored into the expectations, and similarly to Fed taper looming, any surprise could serve as a selling catalyst. The drying up volume may not be a sign of no more sellers here, but rather of combination of timid sellers and drying up pool of buyers. With the strong CPI data likely to be announced tomorrow, the bears would likely try their luck.
Credit Markets
- High yield corporate bonds are only relatively resilient – they are under the same kind of pressure as quality debt instruments. Credit spreads are likely to start widening again in confirmation of the continued albeit doubted economic expansion – as yields start their (slow) march higher again, look for the ride in equities to get rockier, and for tech to start diverging. Last but not least, the market breadth indicators aren‘t exactly at their strongest – signs of weakening (warranting caution in stocks) are impossible to miss.
Gold, Silver and Miners
Weekly gold chart shows just how overdone the plunge has been – and that it went at odds with both TIPS and (understandably once again) rising inflation expectations. The chart also reveals the success of Fed‘s June actions in i.a. driving gold down. Does the market seriously believe that the Fed would turn into an inflation fighter? That they wouldn‘t lag behind both the incoming forward looking and lagging inflation metrics? Make no mistake, the June ISM services PMIs were the highest ever – there is plenty of inflation in the pipeline, and you‘re in essence making a bet whether the central bank will duly mop up the excesses, or not. I‘m in the latter camp, and that means the current gold and silver values are highly interesting to the medium-term investor and trader.
Crude Oil
Oil has rebounded off the premarket lows, and is likely to turn higher from here. Note the oil sector resilience vs. what would likely turn out as overdone selling before yesterday‘s regular session kicked in.
Copper
Copper has likewise stabilized in the PMs induced selloff hitting commodities as well. On one hand the volume doesn‘t indicate local low being reached already, on the other the 4.20s zone is likely to hold unless a game changer strikes. That‘s unlikely at the moment – the inflation data this week are more than likely to support real assets, even if they give the Fed an excuse / justification to indicate improving economy conditions in Jackson Hole, and announce taper in September. Look for commodities to recover then fast, faster than precious metals.
Bitcoin and Ethereum
The crypto upswing goes on, without respite, with every dip promptly bought. As the $48-50K resistance in Bitcoin approaches, look for air to become a little thinner – it would take time to overcome it, and Ethereum can be relied upon in showing the direction. It‘s also positive to see both leading cryptos rebound almost as strongly off the capitulation July lows.
Summary
In place of summary today, please see the above chart descriptions for my take.
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