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Friday Barometer Regarding the BoE Decision and Gold Prices

by with No Comment AMT MarketsAssetsFeatured Highlights

Friday Barometer Regarding the BoE Decision and Gold Prices

The Bank of England’s rate hike of 0.50% cements the notion that global central banks remain steadfastly locked on inflation, and understand politically the implications on the public regarding higher consumer prices which are being experienced. The Bank of England ‘met’ before its Official Bank Rate announcement with corporate bank executives it was whispered, to discuss their concerns regarding the knock on affects of higher mortgage rates to come. However, this did not stop the BoE from being aggressive.

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GBP/USD Three Month Chart as of 23rd June 2023

Is the BoE Move a Sign Regarding the Fed’s Next Decision?

The move by the BoE also is intriguing because the larger than expected hike puts into play the notion the U.S Fed may be raising the Federal Funds Rate in July. The reasoning is based on the idea the Bank of England wants to protect the British Pound from another interest rate hike from the Fed, thus ‘securing’ the value of GBP/USD Forex mechanics.

The U.S Federal Reserve, the BoE and ECB finally seem to have a grasp on import inflation implications. Although higher costs and dynamic pressures on exporting countries like China, India and others that face the gauntlet of these challenges remains critical, because these nations need to raise the costs of manufactured goods internationally when they sell.

Smart Money and the Value of Gold

Let’s talk about ‘smart money’ for a moment surrounding Gold – and please try to hold down your laughter – but the price of the precious metal is interesting and should be monitored even by folks who do not trade the commodity. Gold as of this morning is near the 1915.00 USD ratio.

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Gold Six Month Chart as of 23rd June 2022

On the 4th of May the price of the precious metal momentarily challenged the 2080.00 level. On the 1st of June the price of the commodity was near 1985.00. Do you see a trend here? Please note, Gold isn’t going to zero.

The point to be made is that the build up in the price of the precious metal from the 22nd of November 2022 when Gold was around the 1625.00 USD per ounce level, until early May anticipated the U.S Federal Reserve was going to become more dovish regarding their interest rate polkicy. For consideration look at the price of the USD during this time too, against many major currencies – the value of the USD also started to come down.

‘Smart money’ is showing signs of nervousness certainly since the start of June that more hikes are feared from the Federal Reserve. However, the price of Gold and the USD are not correlating well at this moment. This is a potential sign that Gold and the USD are both within speculative trading zones in which financial institutions are seeking ‘true’ equilibrium and are not comfortable. Fragility in the financial marketplace is likely to be seen until the Federal Reserve Federal Funds Rate announcement late in July. Expect financial institutions to price in their outlooks respectively depending on their outlooks.

Gold and U.S Treasuries: Inverted Interest Rate Implications

Gold definitely fluctuates within daily trading conditions, it is a speculative commodity, but it is also a solid barometer of risk management among the elite. If financial institutions are in favor of buying items like U.S bonds because of their guaranteed short term interest payments (look at the fact U.S Treasuries are mostly inverted – meaning shorter term bond interest rates are paying higher returns compared to longer term bonds) instead of buying Gold as an investment tool.

The Gold and USD Forex dynamics tells us that investment institutions are still very nervous about the Fed potentially raising interest rates a couple of more times this year. July and late this year appear to be reasonable bets. This Fed consideration and concern remains legitimate while looking forward as long as inflation remains elevated in the U.S. However, the Federal Reserve must also feel comfortable they will not kill mid and small sized banks, which by now should have shifted their business practices allowing for slightly higher interest rates to be delivered.

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Broader Alliances: Sustaining Economic and Political Power

by with No Comment Featured HighlightsRisk AnalysisRisk Management

Broader Alliances: Sustaining Economic and Political Power

The following article is commentary and its views are solely those of the author.

If the United States decides to abandon its role as the premier global superpower and shall only be a Pacific and Atlantic power, withdrawing as defender of free seas, free trade and freedom in general, its democratic allies will have to start looking elsewhere for broader military alliances. This large group of nations would have to defend their interests against a revanchist China tied to Iran, Russia, North Korea and many of the Latin American countries – possibly including Brazil, and South Africa who have questionable politics and outlooks.

Eastern Mediterranean Alliance: A Strong Sea Power

Here is a speculative, yet reasonable look at the future of the free world. Let’s start with the Eastern Mediterranean where the two major powers are Israel and Turkey. One cannot deny that both these countries outclass all others regarding military might in the region. Israel’s air force is second to none and its navy is becoming a strategic necessity as it needs to defend its natural gas fields miles offshore. It now has six submarines that are capable of projecting power anywhere in the Mediterranean and even into the Indian Ocean and Persian Gulf. Turkey is currently a NATO member, but it is not clear that this will outlast the first half of the 21st century.

There is currently an informal alliance among Israel, Greece and Cyprus (both NATO countries) via joint military exercises and intelligence sharing. The Israeli navy and air force train regularly with Greece and its special forces train in the Cyprian mountains with its army. It would be in all three countries interests to formalize a treaty – if not of mutual defense, at least of mutual aid during times of war. All three of these countries are democracies and all three have mutual economic interests.

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A formalization of this alliance makes sense now and if there is a NATO collapse it turns into a necessity for Greece and Cyprus. Adding Egypt (although it would be the only non-democracy) to this group would only strengthen the alliance and keep Turkey at bay. A post-Erdogan Turkey that is comfortable with its Islamic character and its modern society could even join this grouping with Israel as a potential peacemaker between the historic Greek-Turkish rivalry.

This alliance without Turkey is a powerful force in the eastern Mediterranean, and this alliance with Turkey could neutralize a nuclear Iran. A Post-Hezbollah Lebanon which is in the interests of all of these alliance members (including Turkey and Egypt), could become a reality and another member.

A New Alignment: The United Border Nations

What about Eastern and Central Europe? Poland is rapidly becoming the major non-nuclear European military power. Within the next few years it will outshine Germany and the U.K and rival France. It is quite clear, nuclear weapons aside, Poland would probably defeat Russia in a number of weeks, if not days if a conflict were to ignite.

Whether the Russian-Ukrainian war ends in a Russian defeat or in some sort of face saving armistice, Russia will not lose its aggressive nature or nuclear capabilities and it will inevitably become aligned more closely with China and Iran because of its current political nature.

The important new alignment will be categorization of ‘countries bordering Russia’. A new alliance of Poland, Finland, Sweden, Norway and the Baltic states – Lithuania, Estonia and Latvia together would have the land, sea and air power necessary to deter and defeat, if necessary, any Russian imperialist expansion. Even with closer ties to China it would be difficult to imagine that, over the next 50 years, Russia would be a threat to this alliance. Adding Ukraine to this grouping would make a powerful force. Its joint population of over 100 million people, while not quite Russia’s 150 million – would be a formidable adversary, especially as the technological skills of these countries is first world and continuing to improve. Adding the other former Warsaw Pact countries like Czech, Slovakia, Romania, Moldova and Bulgaria can only increase its potency.

Unlike the Eastern Mediterranean alliance mentioned above, this would have to be based on a mutual defense treaty in order to properly deter any Russian-Chinese-Iranian attack. Linking up, informally with the ‘new’ Eastern Mediterranean Alliance would create a powerful grouping of free countries against any attempt by authoritarian adversaries. Adding an economic aspect to these border nations and an alliance with the Eastern Med group with free trade zones would create a strong challenge to any attempted Chinese hegemony.

Asian Border Nations Group: Potential Look Ahead at Potential

If we were to unite the Eastern Mediterranean and Border Alliances to an admittedly non-democratic Asian ‘stans nations, including Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan with a joint population of around 80 million, we are beginning to see the creation of a multi-cultural alliance that extends from the Arctic Ocean through Central Europe, Northern Africa and into Asia.

The Crucial Partner in Order to Balance Power: India

Which leads us to the Indian Ocean; a dominant India can help control the sea lanes from the Persian Gulf to the Bay of Bengal and down to Australia. An Indian-Australian alliance, along with Israel would create a democratic economic and military force that would keep China and Iran from dominating the region. This would require an Indian navy that is not only large, but effective also because it would hold a main responsibility for patrolling the seas from the Persian Gulf up to Australia strongholds.

As India also reaches its potential as a global manufacturing giant, it will be a force to be reckoned with. Including into this potent mix of nations, is the possibility of adding authoritarian countries like Saudi Arabia and the other Gulf states; along with Thailand, Myanmar, Malaysia and Indonesia who have strong ‘western’ economic interests and would create a formidable bulwark against China’s imperialist Belt and Road project.

Without the need to project naval power worldwide the Unites States could use it massive naval, air and ground forces to take better control of the Pacific Ocean along with Japan, South Korea and Australia.

If we add countries like the Philippines and Vietnam, then China would be deterred from further aggression. The only other region that would fall under American responsibility would be the Atlantic Ocean – the shipping lanes to Europe, West Africa and the Mediterranean. Along with the UK and France there would be no challenger to the control of the Atlantic. This could also lead to a revival of the old Monroe Doctrine and maybe free South America from the destructive influences of Iran, China and Russia.

The Global Economy and Free Trade Zones with a Stable USD as Reserve Currency

What does all this mean for the global economy? The free world along with its less than free allies who fear China, Russia and Iran could still maintain a U.S dollar based world. Free trade zones amongst and between the various alliances along with a revival of manufacturing led by a technology revolution using AI, quantum computing, renewable energy and space exploration could lead to a global resurgence of free countries that could stop the authoritarian appetites of Russia, China and Iran in its tracks. This can only happen with a stable reserve currency the ‘West’ can rely upon which is the USD.

Potentially a U.S freed from being the sole defender of freedom in the world, would help get America’s fiscal house in order and allow it to focus on being a dominant economic power. Is there a future for the ‘free world’ without a United States that projects power globally? Currently, a U.S withdrawal from global military assertion would certainly cause the end of freedom (economic and political) in the world for many nations. However, with the new alliances described above and a fiscally responsible United States, freedom could yet make a comeback.

Disclaimer: the views expressed in this article are solely those of the author, and not necessarily the opinions reflected by angrymetatraders.com or its associated parties.

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Returning to the Roots of Commerce and Positive Contribution

by with No Comment AssetsBusinessFeatured Highlights

Returning to the Roots of Commerce and Positive Contribution

This article was originally written in September of 2009 when the U.S national debt was 3 trillion , as of June 2023 it is above 32 trillion USD. Mr. Jeremy Blatch suggests current economic conditions warrant further reflection.

As the bloodletting continues in an attempt to cure the banking disease, we are no closer to resolving the root cause of the problem of the financial crisis. Unlike the proletariat in France before the revolution, the masses have not been offered cake to chew on, but a diet of more indebtedness. The chosen elite have distributed billions of other people’s money leaving the silent majority to choke in anger and incredulity.

The Chairman of the U.S Federal Reserve, when challenged by Congress as to the authority which allowed him to give away billions of tax payer’s dollars, nervously sighted the Federal Reserve Act of 1913. The total capitalization of the USA at that time was perhaps USD 500b. The current Public Account Deficit of the USA is around 3 trillion USD (3,000,000,000,000). Where is the money coming from to repay this?

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The Dominance of Central Bank Policy and Government Mismanagement

For the first time in history, we have witnessed central banks and governments acting in unison to give away huge sums, seemingly daily to banks and the capital markets. In the press and media, figures in billions and even trillions have become common place. Governments are not companies. They cannot manufacture anything except perhaps lies. Or misspeak if you prefer to be politically correct. What they can do is print money, as they own and control the printing presses. They can then distribute the paper. In this case swallowed up by a banking system, drowning in its own sea of corruption, deception, mismanagement and greed.

We are told that the banking system is now stable again. But for how long and at what cost? The Damocles sword for failure in times of plenty, has yet to fall and will do so as a crippling tax burden on future generations. This at a time when Western governments are unable to guarantee their own elderly a life of dignity in their final years. The great champion of freedom and equality – the USA, cannot even guarantee its people a basic level of free health care at point of need.

The last decade has ended on a sad but predictable note, proving that we have sown the wind of increasing wealth at any cost, and have reaped the whirlwind. In the process we have singularly failed to distribute that wealth and resources equitably to where it’s needed.

Ironically one if the trends to emerge over the past decade of plenty are the development of socially responsible funds. The concept is to allow investors to direct their money into companies whose activities and ‘modus operandi’ are contributing positively to society. This is of course is selective, but at least the investor knows what their money is buying.

The Rise of Sovereign Wealth Funds as a ‘Caretaker’

Governments, especially with oil revenues have joined the band wagon creating Sovereign Wealth Funds. Norway the third largest oil producer, has formed a fund aimed at being socially responsible. In a global economy, ownership of companies is the most important way to have influence claims the Norwegian Foreign Minister. More humanitarian than an oil baron, the Norwegian government was key in gaining the International Land Mines Treaty, and also hosted the historic meeting in Oslo between Israel and Palestine. With the wisdom of Joseph they established a Petroleum Fund, in 1996, now renamed the Pension Fund to take care of the future generations. What a comparison to the arrogant ineptness of the USA, UK and Europe, who have burdened their future generations. The Norwegian government pension fund excludes companies that it believes are failing ethically. Interestingly, there are as many companies who are blacklisted abusing their employees as there are failings in other areas.

Whilst Norway has unambiguously laid out its outline addressing the needs of its own people before the needs of society at large, not the same can be said of Sovereign Wealth Funds which in general are about gaining political and strategic power by buying into the economy and owning strategic assets in the western industrialised nations. As we witness a shift in the balance of world economic power, ownership of strategic assets and the ability to guard and maintain trade routes will dominate the next decade’s macro economic strategy.

The concept of allowing investors choices consistent with their ethical beliefs is nothing new. But is it possible to combine successful business practices while looking after the disadvantaged.

The Impact of the Quakers in the Business World

The first funds to allow investors to direct their money into companies whose activities they approved of were pioneered by the Life Assurance Group Friends Provident in the 1980’s. This pioneering move was typical of the Quakers who were the founders of the Life Assurance Company. The Religious Society of Friends was a Christian movement founded in England in the 17th Century by George Fox. Puritans and non-conformist, they were given the name Quakers’ a term of derision, as they would often quake in the presence of God. They gained a reputation for social activism and were instrumental in the campaign against the transatlantic slave trade of the 18th and 19th centuries. Many were imprisoned for their faith and beliefs.

The Quakers flourished in business and due to both their success and religious beliefs made more enemies than friends. Persecuted and unable to gain insurance, they formed their own company. One of the overriding concerns of the Friendly Society, was to care for the poor and disadvantaged in their own communities.

Many captains of commerce and industry, in the 1800’s were Quakers, who founded and managed their businesses on biblical principals. Joseph Fry who started the famous Fry’s chocolates built a small town for his employees of his factories, with all amenities, schools, hospitals and recreation facilities. Work was scare, and many had to leave their home towns to find employment. Fry’s were bought by the Cadbury company. John Cadbury, himself, also being a Quaker. Edward Pease, owner and pioneer of the first railway in England from Stockton to Darlington housed his own employees, and Joseph Rowntree founder of the famous Rowntree Chocolates was the first person to develop low cost housing for the poor.

Barclays Bank had its roots in the Quaker movement. Unable to obtain loans the Quakers decided to form their own bank. True to their faith and beliefs employees were well housed and looked after.

In spite of being persecuted for their beliefs, through their success in business they were able to alleviate much poverty in serve the wider community. They didn’t need to wait for governments to bankrupt their future generations, they used what they had wisely, and gave something back. The bottom line in any business must be to make money. But as we have seen with the banking and financial crisis of today at what cost?

Originally published in www.ehh.gi in September 2009. Jeremy Blatch is the Founder and Consultant of Ein Harod Family Office.

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USD/INR: Elevated Range as Questions about Values Persists

by with No Comment AMT MarketsCentral BanksFeatured Highlights

USD/INR: Elevated Range as Questions about Values Persists

The USD/INR has traded the past week approximately between the 82.2200 and 82.7000 ratios. Plenty of discussion regarding what the Reserve Bank of India has been doing as they battle the strong USD has been whispered openly, and is being questioned from financial institutions and speculators. Day traders who have been trying to wager on the value of the Indian Rupee have likely found the waters difficult to swim. As of this writing the USD/INR is near 82.5200.

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USD/INR Three Month Chart as of 8th June 2023

Last Wednesday’s sudden rhetoric, from two U.S Federal Reserve officials caused mayhem briefly within the USD/INR. The currency pair got hit after India’s official trading hours closed, and essentially moved in overseas accounts based on the spoken words from the two Fed members stating the U.S central bank should not raise the Federal Funds Rate on the 14th of June. These sudden Forex moves hurt many USD/INR speculators. After this rhetoric from the two well-regarded FOMC members, like clockwork U.S economic data provided a counter punch last Friday with better than anticipated Non-Farm Employment Change numbers, this while inflation results also remained persistent.

Three Month View of the USD/INR offers Sentiment Insights and perhaps Clues

The past three months of trading in the USD/INR have produced a rather rocky price trend. A low of nearly 81.5200 was seen on the 14th of April, which turned into a high of approximately 82.9000 on the 19th of May. Intriguingly while many USD/INR speculators may be looking at the U.S Federal Reserve and casting blame, questioning the potential interventions by the Reserve Bank of India remains relevant. The Reserve Bank of India has actually been rather tranquil regarding its use of interest rate hikes; it has not raised the key lending rate aggressively in India like many of its major global counterparts. Why is this?

Is there a potential the Reserve Bank of India and the government has wanted the Indian Rupee to get weaker? Deflating the Indian Rupee’s value in order to potentially create an unseen tax is considered an old trick by economists. This because some believe inflation is a way to tax people without actually raising interest rates, the deflated value of a currency makes it easier for governments to sometimes repay debt, based on the notion the money they are now using is cheaper compared to when the Indian Rupee’s value was better.

Where is the USD/INR Going to Go Next?

I am no economist; my specialty tends to be risk analysis. There is an old joke, ‘why did god create economists? To make weathermen look good.’ The point is that economists often get their outlooks wrong, but we cannot blame only economists for getting their outlooks wrong, many of us do. The USD/INR has a tough few days ahead, it must deal with nervous market sentiment generated from a lack of clarity via the U.S Federal Reserve. Looking for correlations in the Forex market is proving difficult for the moment for all short-term speculators. Choppy trading in the USD/INR has been noticeable the past few days, this Monday’s upwards trend has turned into near-term consolidated day trading. Other major currency pairs are turning in rather turbulent results also without a firm technical stance.

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Gold Three Month Chart as of 8th of June 2023

After speaking with many associates in the financial sector the past week, it appears many people believe the Fed should stop raising interest rates for the time being. Some financial institutions seem to be leaning in this direction, but there are caution signs all over that warn about potential surprises from the U.S Federal Reserve.

Yesterday the Bank of Canada raised its Overnight Rate by another 0.25%, when most analysts believed they would pause. Another interesting sign is the current price of Gold near 1950.00. The recent lower price could indicate some financial houses believe the Federal Reserve may actually remain active regarding further interest rate hikes, this because the price of Gold has tended to rise when the perception existed the Federal Reserve is going to be dovish. Gold’s downward price action should raise suspicious eyebrows.

But then again, I am not an economist; I am merely a risk analyst. So my words to you are, be careful if you are wagering on the USD/INR before the U.S Federal Reserve’s pronouncements next Wednesday on the 14th of June.

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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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The Yuan’s Slip is Showing and Troublesome

by with No Comment Uncategorized

The Yuan’s Slip is Showing and Troublesome

Two and a half weeks from Xi Jinping’s expected and unprecedented 3rd term coronation as China’s president, the country is trying hard to tamp down any distractions in a year that has provided plenty of them: pandemic lockdowns; faltering economy; supply chain headaches; a reeling real estate bubble; you know the list.

We can now add plunging currency to the usual suspects, as China’s Yuan — also known as renminbi (literally translated as the peoples’ currency) or simply RMB — weakened a further 3.7% against the dollar in the past month, and over 11% so far this year. That’s trending for its worst annual performance against the Greenback since 1994, which is the year China unified its currency market in an effort to modernize it. Not great for a basket currency its promotors aspire to be the world’s finest.

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Monday’s mark of 7.1738 RMB to dollar is also its worst since 2008, back when global markets were collapsing. This is a psychologically meaningful level that all but guarantees aggressive pushback by the People’s Bank of China (PBOC). On Monday, the bank announced the imposition of a risk reserve requirement of 20% on currency forward sales by banks, starting on September 28.

China has adjusted the FX risk reserve ratio on occasion in recent years, starting in 2015, but stopped doing so in 2020. The goal is to deter short sellers betting on further depreciation, something government spokesmen have even come out and warned investors against in the past several weeks, including PBOC deputy governor Liu Guoqiang.

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USD/CNY 5 Day Chart

It’s not the only move we’ll see. Other steps we can expect in the long term are delays in easing of monetary policy (a recent tool against recession); further cuts to foreign exchange reserve ratios; and pumping central bank bills into Hong Kong or elsewhere to stave off RMB liquidity. You can bet on a lot more firmer than usual midpoint fixings going forward as well.

Of course there’s not much they can do against the prime driver of the dollar’s recent surge: that would be the Federal Reserve, which has been aggressively raising rates to pump the brakes on inflation, resulting in part in bringing the trading strength of the dollar to a 20 year high, with all indications the policy will continue into next year. Other currencies, including the British pound and the South Korean won, have also struggled of late; the pound reaching a historic record low against the currency this week.

Look for more PBOC efforts to keep a lid on the problem, especially as the calendar draws nearer to the opening of the 20th Party Congress on October 16. While it has so far avoided more direct intervention, such moves are not off the table, should the slide persist or worsen significantly. Time will tell.

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Escalation of Rhetoric doesn’t create Calm Investors

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

Escalation of Rhetoric doesn't create Calm Investors

Putin and U.S Federal Reserve will Stir U.S Markets Today

An escalation of rhetoric via Russian President Vladimir Putin regarding his nation’s war with Ukraine took place this morning via a televised address to the Russian people. Putin has said Russia will call upon those with previous military training, and use a ‘limited’ call up of potential new troops. A claim of nearly 300,000 additional soldiers to be readied has been made by senior Russian officials shortly after Putin’s speech.

Making matters more intense, Putin said all military options are possible while Russia protects its sovereign territory. The land he was speaking about however, is not recognized Russian territory, it is Ukrainian soil. Putin’s ‘talk’ to Russia has firmly put him in a position which shows that results from the Ukrainian war have not had favorable results and that he is showing signs of frustration. An anxious Vladimir Putin is not about to calm down what are already nervous global markets.

China Urges a De-escalation in Ukraine while not naming Russia

China has already reacted to Putin’s speech by urging all sides active in the Ukrainian conflict to de-escalate the situation. China has its own economic worries presently and certainly doesn’t need another bad ingredient thrown into its midst as it deals with weaker demand for export products and a shaky real estate market as the global economy reacts to inflation and recessionary concerns.

International traders will hardly hear what China had to say today, not because it isn’t important, but because their attention will be on Putin and the U.S Federal Reserve. However, it is important to point out China did not condemn Russia, instead it asked that all sides involved in the Ukrainian sphere to lessen the dangers. China and its relationship with Russia remains an important aspect of global politics.

The U.S Federal Reserve will raise Interest Rates Today

The U.S Fed will raise its interest rate by 0.75% today according to most financial houses which have already acted accordingly within Forex per interpreted price action. The USD has made new long term highs within the USD/ZAR and the USD/CAD. The EUR is below par as of this writing against the USD, and the JPY and GBP also continue to struggle near long term lows versus the USD.

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USD/CAD One Month Chart

U.S equity indices which have been struggling are not showing a massive promise of a reversal upwards which will alleviate losses seen this year. Investors need to remain patient if they are invested in indices such as the S&P 500. Day traders looking to profit from the volatility ripping through the markets will continue to be challenged by choppy conditions, difficult perceptions of short term technical charts and a lack of positive behavioral sentiment among the larger players in the marketplace who actually drive the markets most of the time.

  • USD remains stronger against many major and emerging market currencies, day traders need to be very careful if they pursue Forex positions in the short term.

  • U.S equity indices traded lower yesterday, and if the Federal Reserve falters and doesn’t offer solid clarity regarding interest rates today, this could create more nervousness.

Optimism is not being heard far and wide. While it is always interesting to be a contrarian and sometimes the correct avenue to engage thinking, the notion that upwards trajectories will suddenly occur may be wishful thinking in the near and mid term. Many asset classes are under stress.

Today’s upcoming pronouncements from the Fed will be important for institutional investors as they try to gauge the U.S central bank’s outlook until early 2023. If the Fed gives clues they will remain hawkish into the winter and a Funds rate around 4.50 to 5.00%is a possibility, this could shake investors and cause more capitulation – meaning a stronger selloff via equity indices could ensue. Short term traders will need to be prepared for violent conditions if they are day traders of stocks or CFDs. The inverted U.S bond yields remains a sign investors are seeking short and mid-term safety via interest rates to preserve money.

The fact that most traders are typically buyers first, not sellers first makes trading in bear markets difficult. Psychologically humans want to be optimistic. Today’s speech by Vladimir Putin while it doesn’t change the conditions on the ground in the Ukraine immediately, will shake the confidence of some financial houses which may have become accustomed to a ‘polite war’ they could ‘forget’ about and make believe would not get loud again. Nervous behavior is likely to be seen later today as early risers in the States awake to the news of Putin’s speech and react.

In short global markets will be dynamic today and tomorrow, as financial houses position their portfolios according to their foresight regarding developments the next few months. Day traders are urged to be cautious, and the prospect of sitting on the sidelines and watching ‘the show’ may prove to be a solid choice.