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Last Week Caught Many by Surprise, as Fed Looms Wednesday

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Last Week Caught Many by Surprise, as Fed Looms Wednesday

The ECB obviously decided to highlight how seriously they want to fight inflation last Thursday, when they increased their Main Refinancing Rate by a quarter of a point. The move was not only a surprise to many financial institutions, but displayed a large ‘miss’ by most analysts. While some point out the European Central Bank is powered by Germany who have a historically bad memory regarding inflation, it would also be correct to acknowledge the ECB is trying to protect their own currency against the potential volatility the Federal Reserve could cause with a rather aggressive monetary policy stance this coming Wednesday.

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WTI Crude Oil One Month Chart as 18th Sept. 2023

Another broad market influence as this week begins remains the high price of Crude Oil which has now surpassed 90.00 USD per barrel. The higher energy price will certainly not calm inflation anxiousness. Higher energy costs equate into costlier logistics, manufacturing, and agricultural production – this is not a problem central banks wished upon their plates as the final quarter of 2023 gets set to start in a couple of weeks.

Monday, 18th of September, Canada Housing Starts – the housing market in Canada is important to its economy and the nation has enjoyed a housing price bubble for a couple of decades. The past two months have produced higher than expected Housing Starts numbers which is intriguing because Canada is suffering from lackluster growth. The USD/CAD could move slightly on this result, but unless there is a profoundly surprising number from this report, the currency pair will remain focused on ‘other’ things to come.

Tuesday, 19th of September, Canada Consumer Price Index – last week’s CPI and PPI numbers from the U.S came in stronger than anticipated, and Canada’s projected estimates for Tuesday’s results nearly match the nation’s total from last month. Leaving the suspicious notion that inflation could possibly come in stronger in Canada like it did in the U.S last week since these two economies often mirror each other.

Wednesday, 20th of September, China One and Five Year Loan Prime Rates – China continues to be watched closely as investors point out potential dark shadows creating headwinds for the nation economically. The results regarding the loans taken by household and businesses are a solid barometer for outlook if the data is transparent.

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GBP/USD 3 Months Chart as of 18th Sept. 2023

Wednesday, 20th of September, U.K Consumer Price Index – the anticipated numbers expects an inflation result of 7.1%, which would be remarkably high and not treated kindly. The results will create havoc in the GBP/USD because not only is the Fed is waiting literally in the wings after this report, but the BoE is going to respond on Thursday.

Wednesday, 20th of September, U.S Federal Reserve Funds Rate – one week ago this day didn’t look like it would cause that much excitement. This all changed last Thursday when the ECB raised its borrowing costs and put financial institutions into a full state of alarm. Yes, the ECB may have acted on its own, but some suspect they know what the Fed is planning on doing already. The Fed is not expected to raise interest rates, but they will certainly sound aggressive and point out inflation remains a danger. Here’s the thing, the ECB sounded quite confident last Thursday, that it will not raise its interest rates again in the mid-term, essentially saying they were done. Did the ECB base this on knowledge that the Fed could do the same thing? What was perceived as a potentially sleepy and quiet Fed meeting and FOMC Statement has now taken on major importance. Forex, U.S Treasuries and global equities will move based on the Federal Reserve’s action and rhetoric. How will the Fed react to higher inflation data?

Thursday, 21st of September, U.K Bank of England Official Bank Rate – the BoE is widely expected to raise the borrowing rate by a quarter of a point. If the Fed did not raise rates the day before and the BoE acts as expected, this could in theory help the GBP/USD gain. However, it should be pointed out following the ECB’s interest rate hike last week, the EUR/USD traded into this past weekend weaker.

Friday, 22nd of September, E.U, U.K and U.S Services and Manufacturers PMI – Europe, Great Britain and the U.S will all release this data on Friday and all expect rather lackluster results. While this data is important, the broad financial markets will likely still be reacting to the actions of the major central banks and the credit crunch problems they are causing globally for consumers and businesses who are facing cash shortfalls and costlier loan expenditures.

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Forex, Interest Rates, the Fed and Conspiracy Politics

by with No Comment AMT MarketsAssetsFeatured Highlights

Forex, Interest Rates, the Fed and Conspiracy Politics

If you have been looking for road signs regarding what the U.S Federal Reserve is going to do next week and trying to get a feel for its rhetoric which will be delivered in the FOMC Statement on the 3rd of May, this week’s U.S data outcomes should be monitored. And as of now the data might be suggesting the Fed will remain aggressive in June.

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GBP/USD One Month Chart

A Fed Funds Rate hike is going to happen on the 3rd of May unless there is a financial catastrophe that suddenly emerges that is nearly cataclysmic. While First Republic Bank wobbling is certainly a problem (Mark Zuckerberg is supposedly a rather large client of the bank), if this entity fails completely it may not cause massive bedlam. The stock has dropped violently, so a collapse should not be a surprise. No, it will not be welcome, but it should not be an unexpected calamity.

The question is how much the U.S government will protect depositors? The large clients who are not insured above the standard 250k USD ratio will want the same benefits that clients of Silicon Valley Bank received in March. Should they be rewarded the same way? The American public may not like the idea of another bailout for the deep pocketed, but there may not be much they can do about it, except to vote the politicians out, but who do you exactly punish?

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First Republic Bank – One Month Chart as of 27th April 2023

What a collapse of First Republic Bank will do is hurt the corporate bond sector in banking again, because it is likely holders of these bonds will be put at the back of the line once again if the U.S government decides to protect big depositors of millions of dollars like Zuckerberg, before it protects bond holders.

U.S Data in Focus and the Allure of a Black Dress with Growth

But I digress, yesterday’s Core Durable Goods Orders statistics came in better than expected. Today Advance GDP will come from the U.S and if this number produces an increase instead of a downturn, the U.S Federal Reserve will have more ammunition to remain aggressive regarding interest rate hike rhetoric. An increase of 0.25% has been calculated into Forex for next week. The USD has done rather well recently, but what is of intrigue is the perception the USD is doing well after the financial markets have seemingly priced in a rate hike on the 3rd of May. Meaning, typically the USD would have started to ebb a bit lower after financial houses put their interest rate outlook into their Forex positions. Yesterday’s better than expected Core Durable Goods Orders leaves the door open for another hike on June the 14th to be precise.

While Core Durable Goods Orders isn’t a sexy statistic, GDP numbers frequently are, and if the growth numbers show up with a stunning black dress on with alluring ‘expansion’ it could send large speculators into a tizzy and make them believe the Fed could increase by another quarter of a point in June. The Fed during its FOMC Statement next week will certainly try to help financial institutions anticipate outlook. The Fed doesn’t need to hold the hand of investors, but it often treats them like children.

Financial houses had largely believed the Fed would hike in May and might raise in June. The notion that a June increase is certain would then put the focus back on the long-term again, and Forex could then break free of its rather consolidated incremental USD strength seen the past couple of weeks. Inflation remains a drum beat that is steady. And while today’s GDP numbers will be important. Tomorrow PCE inflation statistics will be the final nail in the coffin. If growth is stronger than expected today, and inflation numbers remain stubborn tomorrow, the Fed would certainly consider another June increase valid.

On the bright side for day traders is that the cautious choppy air which has circulated the past couple of weeks in Forex is almost done. While steady trends may not reappear for a while, at least near-term outlook will have more clarity by this time next week.

Big Institutions Have Long Term Outlooks and Treat Trading Conditions Differently

Long term outlook is another game as day traders should know and one they cannot easily participate. Long term investors have the money to specialize in assets which are not expecting profits today, but instead have a larger time frame for making money. Deep pockets, patience and the need for less leverage help financial institutions trade in a more stable manner, frequently putting the ‘odds’ in their favor.

The price of Crude Oil is actually behaving politely in recent trading, and its ability to find a mid 70.00’s USD price range is interesting and may help inflation move lower if it can be sustained. If supply of goods can adequately stabilize and global logistics costs come down, inflation could decrease. These factors are part of the long term perspective of financial institutions. Day traders may want to consider this because it could affect behavioral sentiment moving forward.

Higher interest rates from the Fed are causing other currencies to loss value and this has caused increased costs for international manufacturing companies located outside the U.S which frequently have to buy commodities in USD from their converted domestic currencies, this causes inflation. This is a factor not spoken about enough and traders need to consider this within their perspectives too.

The Fed and Perhaps a Conspiracy Theory

If the Fed actually starts to decrease its interest rates, it would help other currencies stabilize. And yes, if the Fed stops increasing interest rates it may actually help weaken global inflation. The Fed has caused import inflation to occur into the U.S. Are they aware of that? It is a good question. The likelihood is a yes, and it has been disregarded, but why? Perhaps there is another reason; does the U.S Fed and U.S government want to cause inflation globally to strike politically at some competitors? This is a different topic………kind of. Conspiracy theory.

While insight regarding the dialogues between the Federal Reserve and U.S government is certainly above my pay grade, one has to wonder about considerations regarding inflation and a stronger USD and its potential effect on China. The Fed increases may be a way of trying to inflict harm economically and in a subtle manner, but this cannot be proven. Perhaps the Fed is unaware of the global conflict being waged.

On another note, Gold remains near 2000.00 an ounce – almost steadily, displaying a certain amount of cautious behavior.

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Gold One Month Chart

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We Have Seen This Show Before Friends

by with No Comment Federal Reserve, Interest RatesMajor Global Equity IndicesWorld

We Have Seen This Show Before Friends

Another day, week, month and year – another financial crisis causing havoc. We have seen this show before, and experienced traders should make sure friends who are ‘newbies’ are prepared for what is going to happen next. And what is next is: unknown.

People who believe they can profit from the current mess in the markets need to have deep pockets to sustain choppy conditions and a time parameter that allows for volatile prices until the results targeted are achieved. Day traders need to have very narrow goals, because if they do not cash out of the market quickly, then they should expect to get burned by the price velocity which will ensue.

Sharks Eating the Minnows as Crony Capitalism Flourishes

The demise of Silicon Valley Bank and Signature Bank are unpleasant surprises, but not shocking, and not to sound too matter of fact or contradictory, but the handwriting has been on the wall. The aggressive stance by the Federal Reserve finally caused enough nervousness in the stock markets to make certain equities shake and the banking sector has proven vulnerable. It is easy for many corporations to make money when it is cheap, but when ‘and not so suddenly’ borrowing costs, inflation and bonds chaos combine and deliver mayhem then profitable outcomes become more difficult, and for some – impossible. Corporate investors do not look kindly on mid-term and long-term projections which hint of negative growth implications. Investors tend to punish these equities.

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Gold One Month Chart

What comes over the next week and month will likely anger many people. Capitalism is good, it is even great. However, a dark and evil shadow lurks when crony capitalism starts to have an upper hand. The insolvency of Silicon Valley Bank raises the prospect for crony capitalism to be witnessed by all. Suddenly the U.S Treasury, Federal Reserve and government have emerged to save the skin of depositors within a bank which up until last week was heralding its ability to be a ‘lone wolf’; merrily disregarding sound investment principles and saying they knew better. It is only my opinion, but it stinks of contradiction that both the U.S Federal Reserve and Silicon Valley Bank have made vast mistakes and now are being allowed to cover their tracks and protect members of their ‘club’. Both Fed and Silicon Valley Bank officers need to be held accountable, but do not count on this result producing more than scapegoats.

Rising interest rates which are causing ‘import inflation’ has been a worry expressed by some economists and they can still be heard, but obviously not given enough attention. The Fed has marched to its own drummer and disregarded ‘the street’ for its own ideals and statistics viewed from its ‘ivory tower’ where it could not be held accountable.

Inflation is stubborn, yes, but it is a result of chaos via global commerce from the effects of difficult supply and logistics problems caused by coronavirus. Inflation became problematic two years ago and it was essentially disregarded for about nine months, until the Fed and others admitted rising prices was a concern. Hopes of transitory inflation have faded into oblivion. But I digress…..

Nervous Financial Institutions Battling as Federal Reserve Wavers

A sin bin of mistakes has collected and is now being exposed. Many financial houses were surprised when the Fed came out on the 1st of February and sounded so aggressive talking about inflation while increasing the Federal Funds rate again. Then jobs numbers came out on the 3rd of February, along with Average Hourly Earnings and showed the U.S economy was stronger than expected. The USD began to find strength again, and inflation data then added an extra punch by coming in strong again in February via the CPI results.

Btw, Consumer Price Index will be published today too from the U.S, and this will cause a reverberation for those attempting to day trade among waters filled with nervous financial houses who have their programmed algos ready to take advantage of hectic markets. Volatility the next handful of trading days is set to be wild. The Fed is not likely to raise interest rates by half a basis point on the 22nd of March, but if CPI numbers are stronger than anticipated today, this could cause a tremor and fear. Even if the Fed pauses for the moment, the prospects of raising interest rates again in the near future unless the banking sector shows it cannot sustain another round of Federal Fund increases is troublesome. Nothing like a complete lack of clarity for short-term traders to cause bedlam and a complex gauntlet of inflation statistics to make the Federal Reserve squirm.

Traders have to understand that if they are going to attempt to wager on the markets in the near-term that they are taking a huge risk. The use of leverage could provide solid profits on a winning bets via Forex, commodities or CFD wagers, but it could also wipe a trader completely out if they are caught by a violent wave. And the U.S Federal Reserve is not here to protect small traders, they frankly do not consider your results very much and likely believe you should not be wagering.

What the U.S government and its institutions like the Fed, Treasury and FDIC want to do is guard against systemic risks for the larger speculators – corporate traders, banks, hedge funds, V.C’s, etc. to make sure they do not go belly up and cause a global financial sink hole and long-term ruptures. The financial crisis of 2007 and 2008, the coronavirus pandemic starting in 2020 and the ongoing Ukrainian war have tested the markets and were likely enough for most of us to voice troubles. Now the prospects of a far-reaching banking crisis and illiquidity adding fuel to the fire are quite a combination of risk events usable as costly teaching moments. Do we seriously need another teaching moment however?

We are the little people and nobody sees us. We may yell, we may bellow our angst towards the system, but the system treats us as an afterthought. Day traders should keep this in mind as they bet in the coming days, because more gyrations are likely as a metaphoric ‘country club for institutional risk takers’ is given sanctuary. This as we minnows look up, shaking our heads in disbelief while our trading accounts flounder.

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U.S Fed will raise Interest Rates this Week Once Again

by with No Comment Federal Reserve, Interest RatesMajor Global Equity Indices

U.S Fed will raise Interest Rates this Week Once Again

September Federal Reserve Pronouncements on the Calendar

The U.S Federal Reserve will raise their Federal Funds Rate by another 0.75% this coming Wednesday the 21st of September. If they do not it would send a shock wave through the markets, inflation data via Core CPI statistics, which were published nearly ten days ago in the U.S cemented the hike to come.

The hike has already been factored into the global markets. Forex has essentially gone ballistic via a strong USD, the GBP/USD is shown below as an example. The British Pound is now touching lows it has not seen since 1985 against the USD. Speculators may be tempted to trade this week believing they are smarter than the ‘crowd’, and that may be the case – congratulations if you are one of the few, but this may simply be an outcome of luck too. Many retail investors and speculators have been mauled in the current trading environment.

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GBP/USD 1 Year Chart showing new Lows

Investors are Struggling as Clarity is Sought

Indices are struggling, gold is sputtering, U.S Treasury bonds are inverted, cryptos are under scrutiny. The U.S Fed is between the proverbial rock and hard place. Economic conditions promise to stay stormy in the next month and a half too. U.S elections will have an affect on behavioral sentiment. Certainly the Fed’s outlook which will be delivered on the 21st of September will cause turbulence also. A long term view via dividends from the S&P 500 remains a benchmark for investors seeking returns. Short term traders on the other hand must fight through the ‘noise of the experts’.

  • The U.S Fed is nearly certain to raise their key interest rate by 0.75% this week.
  • The key clarity investment houses seek is outlook regarding potential interest rate hikes to come later this year and early in 2023.

Where have the Gurus Gone?

Many self proclaimed gurus who claimed enlightenment only a year and a half ago, and offered their ‘insights’ regarding investment promises to eagerly awaiting traders are now hiding in their safe places and eating their words. Very few assets have proven profitable in the past year. Many investors are not used to the idea of merely preserving money, they have worked on the premise of solid gains made with speculative decisions which have been carried upwards by positive sentiment. Dealing with actual bear markets has not been a shared experience for many in the world of investing the past 13 years and the fresh scars are visible.

The ability to make money in this environment is difficult. The inverted bond yields in the U.S are evidence that folks are putting their money into relatively short term assets and trying to secure some of their capital. Traders can certainly wager this coming week in a variety of ways, but short term positions need to be considered with the knowledge volatility will be part of the terrain. Risk management is essential.

U.S Federal Reserve is in a Difficult Position

The notion that the U.S Federal Reserve will not stop raising their interest rates after the September meeting pronouncements this Wednesday still needs to be digested in many investment spheres. A Fed Funds Rate later this week of 3.25% is almost a 100% certainty. Speculation about a borrowing rate at 4% later this year may be realistic. And the question about how long the ‘transient’ inflation remains – yes, please laugh out loud, is a tough consideration. The outlook remains chilling.

While higher fuel costs have simmered a bit and have come off their highs, energy remains problematic and is having an effect on the costs of logistics, food and manufacturing. Energy concerns will remain the devil within the details. Some may want to look at the ISM Manufacturing data from the States for clues, but its merits remain debated too.

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NASDAQ Composite: Bearish Trend Testing Trading Inexperience

by with No Comment Major Global Equity Indices

NASDAQ Composite: Bearish Trend Testing Trading Inexperience

The NASDAQ Composite has been within the grasp of a selling trend since late November of 2021, and traders who feel the urge to buy should understand their goals and time frames clearly.

The NASDAQ Composite has seen a strong wave of selling take hold of its equities since the later stage of 2021. Investors have likely been spooked by inflation and high PE ratios which correlate into questionable values and fears of over exuberance and reactions. The combination of U.S Federal Reserve policy which is certainly having an effect on behavioral sentiment is problematic too. Investors are not fans of unclear outlooks and current economic conditions are definitely causing nervous sentiment.

Many traders and investors have not experienced a sincere bear market during their financial careers. Indices and their equities have produced a rather steady upwards vehicle for years. The thought that an equity index can actually go down for a long duration, without significant reversals higher following is troubling and new for many people. Timing new trends is exceptionally hard. An investor who has a ten year outlook certainly brings a different perspective to buying the NASDAQ Composite compared to a day trader who is likely maneuvering in the index with short term wagers using CFDs.

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Current market conditions in the NASDAQ and other major global equity indices remain challenging and this will likely continue into early this summer. The U.S Federal Reserve will be conducting an FOMC meeting in mid-June and another interest rate hike is likely being considered. A potential rate hike of 0.50% may be seen. The potential of this additional hike to the current interest rate of 1.00% has likely been digested into the marketplace by financial institutions, but that is not the end of the troubling concerns.

Technical traders who watch the daily results of the NASDAQ Composite and other indices may attempt to speculate on the gyrations of their moves based on short term volatility. These traders should understand they are also battling large institutional traders who use complex algorithms to pursue their positions. The combination of nervous equity markets caused by uncertain economic outlooks, while it waits on the pronouncements of the U.S Federal Reserve are bound to deliver more nervous results in the NASDAQ Composite and other global equity indices.

While it may be accepted that the U.S Fed will raise interest rates again in June, the greater question that financial institutions want answered is what the U.S central bank’s outlook on additional interest rate hikes in the summer and fall will be. Inflation in the U.S remains troubling high. The rising costs of logistics, food and consumer goods are largely a manifestation of higher energy costs.

Yes, coronavirus has been a large ingredient too, regarding inflation and its current effect on employment and the resulting lack of workers is a component in the equation due to new perspectives among the workforce. The shortage of employable labor has also sparked concerns about demographics for the future. While the virus and its effects seem to have eroded in the West for the time being, unfortunately there are concerns regarding a potentially large problem in China if coronavirus infections continue to occur there. Shutdowns in China due to the virus can affect supply and commodities prices globally.

The costs of higher energy and commodity prices are something that companies and consumers will have to deal with in the months ahead. Disinflation is likely to come, but it may take a handful of months more. It is a complex puzzle and traders who want to bet on short term results will have to endure sudden storms of volatility which are likely to arise. Unanswered questions await and because of the shadows that hover over the economic landscape, clarity is not going to be delivered soon.