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Societe Generale Research expects a choppy price action in the near-term,

"Thanksgiving and the World Cup are removing both liquidity and energy from markets this week. In FX, Tuesday is the mirror image of Monday, the Dollar falling against all the other G10 currencies today, having gone up against all of them yesterday. Overall, the dollar’s turning, equity markets are trying to find a base, even if that’s temporary, and bond yields overall are close to their peaks, if not already there," SocGen notes.

"The huge elephant in the room – that a prolonged European gas shortage slows growth and raises inflation far more in Europe than it does in other areas (particularly the US), is just one reason why the euro’s revival (and the dollar’s turn lower) won’t be in a straight line. But we’ll take the positive of an improving balance of payment as what it is – good news at the margin," SocGen adds. 

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Last week Bitcoin lost over 20% in two days only, from 21000 to 15700. Other broader crypto markets were also sold off heavily: Ethereum dropped 15% touching 1330$, also Dogecoin, Cardano, Ripple which lost double digit percent. FTX’s native token, plummeted about 75% last week to record lows, as the crypto exchange faced a bank run amid increasing doubts over its finances. Binance CEO Changpeng Zhao said that the world’s largest crypto exchange signed a deal to buy FTX operations outside the U.S, only a few hours after FTX suspended client withdrawals.

FTX’s bankruptcy is the most important crash this year, because of the growing pressure from rising interest rates. The exchange follows of Celsius and Voyager Digital in suspending withdrawals due to a severe liquidity crunch.

Crypto market capitalization is situated now below 1Trilion$, from 3Trilion$ two years ago.

Why I don’t like to trade Bitcoin or Crypto right now instead of lower valuation?

• The economic situation in the world continues to deteriorate due to the rising inflation, which involve an increase in the cost of mining equipment.
• China economic growth, which is the second largest bitcoin mining country, is at multi-year low levels. As a result, this will lead to an accelerated decline in investment interest in high-risk assets, which include also cryptocurrencies.
• Competition among miners is at multi-year high. Just check the chart of Total Hash rate (Th/s) below compared to BTC 
  
• Mining Hash rate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty.
• Mining Pulse (monitor activity of miners), the most important metric to predict the price of Bitcoin, is at record low levels which adds a lot of pressure for block chain stocks like RIOT or HIVE.
• FED Interest Hike is a major negative catalyst to the price of Bitcoin and the situation will not change until the end of rate hike cycle. Maybe at the end of 2023 we will see the prices over 30K.
• Bitcoin capitalization is too low, is under 50% from Apple Stock right now.
• Volatility is too high for my risk appetite. High Leverage need a lot of money to trade 5 to 10 contracts to make a sound money management strategy. For small Investors, the minimum capital is 100K to trade 5 Contracts.

After the bankruptcy of FTX, many investors moved to Gold that touched to 1776 in one day, right now nobody can claim that BTC is Gold, BTC is nothing. I will start to invest in Bitcoin when all the central banks and large commercial banks will put their money into BTC. I really appreciate Block Chain technology because it will revolution many economic sectors like banking, medicine, auto but this is not enough to put your money into BTC. Maybe BTC was developed to experiment a new form of money in society and we will not be surprised to find that, in the future, FED will adopt a new money standard.

Just check Powel statement below in January:

"We look forward to engaging with the public & paper not intended to signal it will make any imminent decision about the appropriateness of issuing CBDC"

and read our article from 21 January: Russia will ban Bitcoin & FED will launch his own Crypto at https://topfxinvest.com/blog/bitcoin-crash-russia-ban

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The US dollar hit fresh lows during Powell's conference but reversed when he said that “the ultimate level of rates will be higher” than previously anticipated. That means the +5% rate is back on the table. The statement “We have a ways to go on rates” probably most important statement from speech  changed market sentiment, stocks shifted to downside and USD was higher in the day

Below most important statements from Powell

• We're saying we will hike to a level that's sufficiently restrictive to tame inflation
• The ultimate top is 'very uncertain' but CPI and labor data suggests to me it will be higher than previously thought
• The time to slow the pace of hikes could be at the next meeting or the one after that. It will be discussed at the next meeting
• I don't think we've overtightened
• We had a discussion at this meeting about slowing rate hikes
• Long term inflation expectations have moved back down
• We don't have a lot of data on how quickly rate hikes hit an economy in a modern economy
• If we were to over-tighten, we could use our tools to support the economy
• It is very premature to think about pausing
• "We have a ways to go" on rates

Read all statement here 

Markets saw 50 basis points in December vs. 75. They could see the finish line for the tightening cycle after two Feed Meetings.

In conclusion inflation is not dead & employment remains strong that means we will not see a policy pivot point next two FED sessions. Negative for stocks positive for the Dollar
Read more about a pivot point 

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The Good

Stimulus and a looser monetary policy help China to have a solid COVID-19 recovery with moderate inflation, much lower than the European and US nations. China's interest rate is on a long-term downtrend, which could create attractive opportunities for fixed-income investors.

China markets have extremely low valuations, just think that Hang Seng lost more than 50% from all time high, and its price is similar with the 1997 levels.

Valuations are attractive and they are poised for a rebound if China’s growth recovers.

In a Twitter post, the hedge fund manager Michael Burry said:

“The Hang Seng recently hit 1997 levels. 25 years. Yet GDP multiplied 18 times during that time. 1997 valuations were 20 Earnings, 10x EV/Sales, 3x Tangible book. Now 7/1/1.”

Most of the global investors are underexposed to China, while China's communist party makes efforts to access foreign capital markets. The Chinese economy represents approximately 18% of the global GDP, but China A-share market only comprises 1% of the global MSCI index.

China’s economy is green energy-efficient oriented.

Efforts in seeking to achieve carbon neutrality and energy reform have the potential to create additional investment opportunities, given China's leading position in wind and solar components and materials. China is a global leader in the renewable power industry and has established a clear policy commitment in support of climate transition and the protection of natural capital.

China is on track to meet its 33% electricity consumption target from renewables by 2025 and could comfortably exceed it amid ongoing efforts to debottleneck the power grid to accommodate more renewables, analysts and clean energy project developers said.

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/092322-china-could-exceed-renewables-generation-target-of-33-by-2025

The Ugly Part

97% of Chinese provinces are spending more than they are receiving back in tax revenue.

The Chinese real estate market is in collapse. Real Estate Market was a major source of revenue for government few years ago. Land sale revenues are down 29% relative to last year while roughly 7.1 billion square feet of housing has been sold this year, the lowest amount since 2015.

China Budget freefall. Just check below the chart of Budget balance in relation with GDP.

Regarding the consequences, companies are fined for nonsense and illusive reasons because the China government look for ways to create cash flow through taxes and fines at the civilian level.

A vegetable vendor was fined 66,000 (9538 Euro)Yuan for selling subpar celery.

Source

http://global.chinadaily.com.cn/a/202208/30/WS630d561da310fd2b29e74de0.html

The Bad

Economic Growth for 2022 is revised down from 5.3% to 3.5%.

Taiwan Tensions with the US. War between Russia and Ukraine it’s catalyst for Chinese Communist party to invade Taiwan and that is a major concern for investors. Government bet that it will be difficult for US to economically sustain two fronts. Putin met with Xi Jinping multiple times before war with Ukraine. I personally don’t think China will invade Taiwan because the risk it’s simply too high for China.

Trade tensions & restrictions: The trade tensions and the tech war has expanded to semiconductors, as the US government imposed hard export restrictions on US chip technology.

Tech & Internet Collapse. All Chinese giant tech companies suffer from strong regulatory climate and difficult economically context.

Entrepreneurship and freedom of action for the technology market helped giants like Alibaba, Tencent or Baidu become what they are today, but last year’s climate was changed because of the US sanctions & government intervention.

Conclusion: Is China a buy?

Investment in China is very risky but is coming with huge opportunities, and we prefer small allocation of assets to Hang Seng and preferably just take high convictions stock like DQ (Daqo Energy).

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We think today that Fed and Mr. Powell will search sooner rather than later for a pivot point policy to change things because we already have a higher restrictive economic environment. We should remember that, when Fed suggested last time in 2018 that “future course of policy was predetermined on autopilot”, the stocks collapsed and Fed backtracked. Now they are trying right to introduce “data depending” on their speech, just check what they have said on Sept 30:

“Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely. Fed will proceed in a data-dependent manner.”

Fed will keep hiking until something will break up. Just check the Bank of England (BOE) intervention because of illiquidity on gilt markets, also the Bank of Japan which have announced their first intervention to support Yen against a stronger Dollar. These interventions calmed down the market but nothing is done to solve the major fundamental issues.

Just check the chart below for Pound ADR (Average Daily Range) of 500 pips. This is not a common sense movement.

But when will we see an inflection point for Fed?!

It’s all about the last Jobs Report which shows that is much stronger than expected, with a 263,000 monthly job gain while the Unemployment Rate had a major drop to 3.5% versus a consensus forecast of 3.7%.

Average Hourly Earnings is at the lowest point since December 2021.  Stock market Futures are decreasing and bond yields are rising in the wake of a stronger than expected NFP. Inflation expectations have been on the retreat, but Mr. Powell still needs a lower job report next month to start change the monetary policy.

If we get a hot CPI tomorrow, while considering an improving job report in November, it could mean that we can’t expect a 125-bps worth of Fed hiking starting now, until the end of the year, but a 150-bps hike on December 2022. This scenario will be very bearish for S&P with another minimum of 300 points down from here.

If we will see a lower Job Report in November and December, therefore we could expect a stronger S&P from here.

Which Sectors Are Still Performing Better than S&P and What Are Our Exposure Today?

I don’t want to dig much further on this article.

We like the Energy Sector and we still have some good stocks like: CWEN, PIF, SU, VLO, TGA. Energy sector is the only branch on green this year. I think it’s too late to take new positions on energy right now, and if we see good news about the war in Ukraine, we will close some of our positions. Clean energy solutions will not solve this crisis, but it will be a part of the longer-term solution for improving the energy independence.

We have a great exposure on precious metals Silver & Gold, meaning 30% from our Portfolio. I’m still optimistic about Gold and I recommend to buy it after Fed will start changing its policy. Gold will be the first instrument that will start to grow. Gold registers a minus 8 percent year to date, but outperformed S&P with over 15 percent. We bought Gold between 1700 and 1800 and we expect a target price of 2000-2200 in the next year.

We are very bullish on Uranium, Lithium and Silicon because of EV market catalyst. We bought CYDVF (Cypress Development Corp), SQM (Sociedad Química y Minera de Chile S.A.), and bought again DQ (Daqo Energy).

The Financial sector it’s also one of our bets and will outperform S&P 500 because of the Rate Hike. Financial is in red year to date but emergent markets will outperform the US financial sector. We acquired Banco do Brasil (BDORY) because of a strong balance sheet and a good perspective on growth.

We have few opportunities to follow in a bear market and for us it’s an option to be exposed with 30% on cash until things will change from the FED side, maybe in the end of the first quarter next year it will be good time to acquire risk assets. What is your opinion regarding Stocks? Looking forward to hear your opinions in the comment section below.

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"The UK rate market is expecting the BoE to deliver a larger 125bps or 150bps hike at their next policy meeting on 3rd November, and then to keep raising rates to a peak next year of closer to 5.75% which would be around 100bps higher than expected for the Fed. At the same time, the pound is still vulnerable to the ongoing tightening in global financial conditions given the UK runs a sizeable current account deficit. The ONS revealed at the end of last week that the UK’s underlying current account deficit when one strips out precious metals averaged around 5.7% of GDP during the first half of this year," MUFG notes. 

"In these circumstances, we are happy to fade the current rebound and continue to look for cable to head lower again heading into year-end," MUFG adds. 

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Fundamental it's expected rate hike in Switzerland and persistent risk-Off sentiment it's a good framework to take a short position

Comercial Banks Positions

-> Credit Suisse discusses its expectations for next week's policy SNB September policy meeting. "For the upcoming SNB meeting on Sep 22, we see a risk that the central bank might surprise the market with a larger-than-expected interest rate hike. SNB President Jordan's speech at Jackson Hole struck a hawkish tone as he voiced concerns about long-term inflation upside risks," CS notes. "Therefore, we stick with our 0.9400 EURCHF target and would consider our view incorrect at levels above 1.0060,"

->Danske Research discusses its expectations for next week's SNB policy meeting. "EUR/CHF moved sharply lower yesterday afternoon, briefly dropping below 0.9550, reaching the lowest level since the removal of the floor in January 2015. We continue to expect the SNB to follow the ECB in terms of rate hikes to curb underlying inflation pressures," Danske notes. "We expect SNB to hike rates by 75bp on Thursday 22 September followed by a 50bp hike in December. Markets are currently pricing 58 and we acknowledge that it is a close call between 50bp and 75bp. In our base case, we expect EUR/CHF to move lower on announcement," Danske adds.

->Barclays comments "We expect the SNB to deliver a 100bp hike, more than the consensus forecast (50bp) and market pricing (75bp). President Jordan has been hawkish. His Jackson Hole speech outlined reasons for structural risks to a higher inflation . He made further hawkish comments after the ECB meeting. We remain short EURCHF (target 0.95) as the SNB out-hawks the ECB," Barclays adds. 3 minutes ago

Also technically we just have a breakout with growing bearish volumes SL 0.965 TP 0.933

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• Fortinet's GAAP profit margins are higher than peers .
• Margins remain in line with the prior year.
• Fortinet reported a good quarter that saw revenue grow 29% and operating margin around 25%.
• Technically  we have growing volumes Good Support level 

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Energy sector it’s the best performing market sector in 2022 instead of the latest evolution of Oil. Evolution of energy sector its close correlated with war between Russia & Ukraine. But we need to recap last week’s events:

Russia shut down its Nord Stream 1 natural gas pipeline last week for “maintenance” and will thereby provide Europe with a preview of how will looks winter this year. Instead of opening terminal in Estonia from Norway and new delivery from Spain, or imports from Canada & Qatar Europe can’t replace completely Russian energy and Europeans will have higher bills for energy-related products. Its expected price caps but this will result in more shortage of Gas & Oil.

There is a growing possibility in the case of a regime change in Russia that could disrupt the crude oil and natural gas markets. We support this idea because of latest development of war, Ukrainian soldiers regain 6000 KM². Also, six of Putin’s allies have been shot or blown up, so Putin’s inner circle is becoming increasingly isolated. “Special operation” support is lowering because of Europe sanctions from 85% to 68% according to Levada.ru.

In the event that there is a ceasefire between Russia and Ukraine, post-Putin, the stock market could explode 40% to the upside. However, as long as Putin remains in power, the Ukrainian war is expected to persist in a long, and we will have high price of energy. We reduce our profitable positions this week in anticipation of pervious scenario.
After last days of Ukrainian Army advance we can see already a turning point of conflict. Just take a look of yesterday map
  

We closed some energy positions like Alvopetro (Alvof) with +40% and Petroleo Brasil (PBA) +30% opened in March because we had important gains from price appreciation and large dividends, with higher risk of president Jair Bolsonaro intervention in companies’ administration.
We anticipate Corporate Earnings to decline except Energy. We remain skeptical that a new Iranian nuclear deal will be announced in the upcoming weeks because this will affect Bidden administration and relationship between USA and Israel.

What About US Inflation

U.S. inflation may have peaked, but at high levels thus forcing the Fed to remain restrictive. Strong dollar, high mortgage rates, lower commodity prices, lower demand, and reduced supply chain pressures are likely to help reduce inflation over the next year. The U.S. dollar should stabilize over the medium-term amid hawkishness from other central banks and slowing economic data this is positive for growth stocks in short term. Right now, CPI was published and is above expected values but market overreacted this bad news. Today’s CPI report wasn’t a game changer. A “better balance” in the labor market would be a game changer for CPI next months because higher vacancies-to-unemployment ratio fuels inflation.

Just read Societe Generale opinion below:

Societe Generale Research discusses the USD outlook and sees the currency rally close to its peak. "Aggressive fiscal reaction to higher energy prices encourages our belief that while the euro and pound won’t stage significant rallies until the we’re closer to the end of the energy crisis (and the end of the war in Ukraine), the dollar’s peak isn’t very far away," SocGen notes. "A period of EUR/USD and GBP/USD trading in low ranges is more likely than fresh 10% fall from here and it’s much more likely the next 10% move in USD/JPY is down, rather than up, too," SocGen adds.

We can see at the end of the year decline in USD and we acquired new positions on Gold, Silver and Banks European Index (EXX1), also new positions in Citi (C) Societe Generale Bank (GLE).

Right now, we have a late cycle development and we prefer equities instead of fixed income like bonds. Not all equities are good to own right now, we select just strong companies with large cash flow from sectors like Healthcare, Consumer Samples and Utilities, Renewable Energy. We favor commodity and companies that mine uranium and lithium for green Energy Industry.

Good green Companies:

Best Lithium Producers

Albemarle Corporation (NYSE:ALB:US)

Jiangxi Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460)

Lithium America Corp (LAC)

Sociedad Quimica y Minera S.A. (NYSE:SQM:US)

Allkem (ASX:AKE, OTC Pink:OROCF)

Some of the problems that markets will have to face in the near future:

• Increased food and energy prices are causing acute trade imbalances and civil disorder in the most vulnerable countries. Europe will enter to recession.
• China, COVID pandemic continues, massively affecting its economy. Simultaneously, the Chinese property complex – key to Chinese economic growth – is now under dire stress.
• Greatest fiscal tightening in history as governments withdraw COVID stimulus will impact companies’ margins and profitability.
• Population decline will pose threats to economic growths. No single G7 country’s is producing new born at replacement rate.
• Climate problems, higher temperatures, on all continents will have a major impact for agriculture next years.

We see now all vectors for an epic super-bubble because all of the assets, stocks, bonds, houses are overvalued. Right now we experience first stages with inflation and interest’s rates surge but will have sooner than later lower corporate margins and unemployment.

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US July CPI +8.5% y/y vs +8.7% expected it's the first good sign about inflation's
But let's analyze data below:

• CPI energy -4.6% vs +7.5% prior
• Gasoline -7.7% vs +11.2% prior
• New vehicles +0.6% vs +0.7% prior
• Used vehicles -0.4% vs +1.6% m/m prior
• Owners' equivalent rent +0.6% m/m vs +0.6% prior
• Food +1.1% vs +1.0% prior
• Real weekly earnings +0.5% vs -1.0% m/m prior

Stocks   are up with large gains SPX over 2.13% and Nasdaq NDQ over 3% Dollar down DXY over 2%. Instead of  this small bounce in market  Sentiment we don't think will last more than few days.

Goldman Sachs not expect inflation to drop too far from here!

Inflation will not go too much lower because:

• The price of cars (main component of core CPI) will stay high for months because production problems and distribution chains problems
• Retailer excess inventory will not have any impact on prices. GS estimates currently $20 bn—this translates to 3% of annual retail spending and 0.5% of total core goods spending. That only translate to 0.1% of downward pressure on inflation  
• We do, however, continue to expect the strong dollar and easing supply-chain constraints to weigh on import prices later this year, and in turn on consumer goods prices by the first half of 2023
• Consumers have made changes in their shopping behaviors, like switching to cheaper brands or pivoting to dollar stores to get their essentials.
• Covid Cases are surging in China that will affect distribution Chains

On others investment front investors must seek exposure to green Energy and Electric Vehicles (EV) because the Senate's deal targets clean energy and electric vehicles. The Senate has passed the Inflation Reduction Act; amid its multifaceted, approximately $370b of energy-related spending, both the clean energy theme and the electric vehicle theme are key components of the bill and the primary focuses of this commentary.

Electric vehicles and the broader EV value chain could experience accelerated demand from tax credits, government EV purchases, loans and grants.
Symbols like TSLA NIO RIVN QS BLNK HYILN VLDR Plug HASI NEEE will benefits from this law

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After big rates hike by FED and ECB, investors are hoping that in the following year, central banks will start to normalize rates, therefore Stock market show a bounce back (SPX is near 4.000).

We think it’s a short-lived bounce but a good opportunity for a Risk-Off trade. We see volatility ahead, after rate hikes, because central banks (FED & ECB) are captive to higher inflation. But inflation is caused by production constraints, wars - and rate rises don’t fix these. If inflation was caused by higher demand, than a rate hike, normally, will have a better outcome.

Getting inflation down to the magical number of 2% would mean recession without any doubt and first half year is showing us that GDP is crushed with a 1.6% contraction. Monetary policy is working with delays and the economy is just feeling the effects of one of the most aggressive hiking cycles in history. Stocks rallied 2-4% each of the last four times, the FED hiked interest rates only to fall in the following weeks. Stocks are still expensive and financial results are disappointing, but investors are thinking that this is the bottom, but we cannot embrace this idea. We will face ugly consequences because interest rates were kept too low for too long time (over a decade), central bankers are responsible for the fact that right now we have a bubble on each economy branch.

Mr. Powel must act in same way as Volcker did few decades ago in 1979 and hike until inflation will land to normal values. His last speech was a hint to more rate hikes.

Do you believe that we will face a soft landing as Powell said few weeks ago?

We believe that we will face a soft landing in the same way that inflation “was transitory” last year, according to Powell (just read our January 2022 article at: https://topfxinvest.com/blog/thoughts-about-the-2022-bear-market). Mr. Powell also opined that we aren’t in a recession, demonstrating again that the leader of the most powerful central bank in the world is the last person you would want to ask about the economy. Last week, economy suffered its second consecutive quarter of negative real growth and there is little reason to expect the third quarter will be any better.

Natixis Investments Managers see higher risks of a recession in the last survey. 64% said that recession is a distinct probability, and 24% said that recession it’s inevitable. Almost six in ten (58%) believe value will continue to outperform growth for at least a few more months, while nearly one-quarter (24%) think value will be on top for a few more years.

“The End of an Era

Strategists see a world that has changed dramatically in the past six months. After a decade in which the easy money provided by quantitative easing, low rates, and low inflation propelled markets to positive gains in seven out of ten years, the world is moving on. This next normal is marked with greater volatility and greater uncertainty. The big question for most investors may well be: How long will it last?”

If you want to read more about the survey: https://www.im.natixis.com/us/markets/the-end-of-easy-money

Inflation is a brutal and merciless way of resolving structural debt & imbalances of corrupted governments. We see potentially multiple series of inflation & deflationary cycles within short time frames (six month & two years) that will cause huge volatility.

According to CNBC, inflation is a top problem in US.

Traditional investing style (60% stocks + 40% bonds) it’s not a solution today, because bond’s market is underperforming and stocks are crushed.

How to protect your portfolio during these times?!

We can protect from the financial storm that is arriving by choosing the best stocks & ETFs from few market segments that will perform in difficult times:

Commodities: since prices already dropped off and would be a good hedge against risk-off tone. Symbols: CRN, DCUSAS, WY

Carbon Emission: KRBN, CARB, GRN, NETZ

Consumer Staples Funds: WCOS, XLP, VDC, FSTA, YI 111, INC, IBA, IMB

Real Estate REIT: STOR, O, NNN, SRC, UBA, ID.UN, APR.UN

Precious METALS: ZGLDUS, ZSILUS

Low debt & Cash flow Green Energy Stocks

You must avoid at any price Growth Stocks & Crypto Markets.

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The vote was unanimous because FOMC is “strongly committed to returning inflation to its 2 percent objective”. Spending and Productions have softened but job gains was robust recent months. Balance sheet reduction ongoing as planned.

Summary from Powel

• Inflation is much too high
• There is still additional upward pressure on inflation
• We're highly attentive to inflation risks
• We are looking for compelling evidence of inflation coming down
• Although prices for some commodities have turned down, earlier surge has boosted prices and inflation pressure
• Inflation has surprised to the upside in the past year so we will need to be nimble
• Will watch PCE and CPI but think PCE is the best measure of inflation
• We need to see inflation coming down
• Labor market is extremely tight
• Wage growth is elevated
• Business fixed investment looks to have declined in Q2
• We want to see demand running below potential for a sustained period
• The pace of hikes will continue to depend on incoming data and evolving outlook

You can read full statement here https://www.federalreserve.gov/newsevents/pressreleases/monetary20220727a1.htm

Some Good news instead of inflation is Atlanta Fed GDPNow final Q2 reading -1.2% vs -1.6% prior

IMF Cuts Growth forecast from 2022 & 2023 again.

Germany August Consumers Sentiment dropped to lowest levels -27.7 vs -27.4

Germany Rethink Nuclear Power Exit https://www.ft.com/content/cc422ece-92b3-41fa-a05c-900270bfe824

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Global growth fears are growing immensely this week and recession fears are at top levels, it seems that bust is coming shortly. According to our last market view, an economic hurricane is coming, and the last week economic outlook is worsening.

Just read some title news from Reuters:

“U.S. retailers tumble after Walmart cuts profit forecast … Walmart cut its forecast for full-year profit, saying it expects its adjusted earnings per share to drop as much as 13%”

“Logitech's quarterly profit slumps 38% as pandemic demand wanes … reported a 38% fall in first-quarter adjusted profit and cut its full-year 2023 outlook on Tuesday”

“some tech companies firing workers in an attempt to reduce costs: OneTrust fired 900 employees, Stitch Fix cuts 330 ID.me dismissed 330 according to CBSNews https://www.cbsnews.com/news/tech-companies-layoffs-stock-market-cryptocurrency/”

JP Morgan CEO Jamie Dimon is telling us that an economic hurricane is coming: “Things are doing fine. Everyone thinks the FED can handle this. That hurricane is right out there down the road, coming our way. We just don’t know if it's a minor one or Superstorm Sandy.”

Other macroeconomic vectors are pointing to a recession, below you will find just a couple of them:

• Credit default swaps have nearly doubled so far in 2022
• High yield bond market is pointing to a recession because spread between junk bonds and treasuries surge from 300 to 500 points in 2022

• US consumers Sentiment is pointing down to a level similar to levels of Great Recession

• Atlanta GDP is now pointing to an annualized real GDP growth of just 0% for the second quarter

In the past, the increase in the money supply and the low policy interests of FED resulted in a credit boost, while the increased interest rates at the present moment will force many contractors to abandon their projects.

We prefer keeping defensive stocks and, first of all, precious metals. Our portfolio is holding 40% from total assets in Gold & Silver.

Gold will rocket because of factors mentioned above, and 1710 it’s a good price to add to your portfolio.

How to store Gold Best and Safest way?

Because many of our readers asked how to store Gold, I’ll beat the horses on that subject.

The safest way to store Gold is to buy physical Gold and to store it on offshore companies like https://hardassetsalliance.com/. While being safest premium, it’s not too economically because prices are not cheap and it’s suitable for large long-term investor with over 500K. For small investors, the best way to invest in Gold is to buy GOLD ETF in safest jurisdictions like Switzerland and Singapore. Largest Gold ETF have some disadvantages that are not always easy to identify but, for the moment, we will show our requirements on how to choose the best GOLD ETF:

• It must be placed in the safest jurisdiction and in a safe location
• The Gold ETF must be 100% backed by physical Gold, and investors ultimately should own a share of the stored gold bullion
• The Gold ETF must have a decent size and liquidity
• Must have reasonably fees
• Must have low tracking errors with Gold market price

I have to mention that the most important factor is a safe jurisdictions because, in time of crisis, governments will impose Gold holding restrictions. Some governments have even previously confiscated Gold from citizens, just check these history facts:

• In 1933, the U.S. issued Executive Order 6102 requiring everyone living the U.S. to turn in gold coins, bullion and certificates.
• During World War II, the British Government ordered all citizens to sell their gold to the treasury.
• In Australia, Part IV of the Banking Act 1959 allowed for the government to seize private citizen’s gold for fiat currency. It has since been repealed.
• In Germany, as of the 1st of January of 2020, the limit to buy gold anonymously dropped from €10,000 to €2,000

You may be tempted to start owning Gold ETF with names like Invesco, Xetra, Gold Ishares Physical Gold, SPDR Gold Trust GLD with a low commission of 0.15% or 0.2% because these are big names on markets, but I don’t recommend them, as these ETFs are actually an obligation, or a debt note against a commodity.

Instead of having shares in a fund that directly owns the asset, such as gold, you essentially have a contract with a 3rd party Bank that guarantees your exposure to the asset. Generally, this should be a NO WAY TO INVEST IN GOLD because it would expose you to unnecessary counterparty or issuer risk.

We prefer to pay the doubled commissions to hold ETFs which own the physical bars of Gold and after a long time of research, I found that the only options are ZKB GOLD ETF and UBS GOLD ETF from Switzerland.

Just read the fund prospects below:

ZKB

The total expense ratio amounts to 0.40% p.a.. The ETF replicates the performance of the underlying index with a collateralised debt obligation which is backed by physical holdings of the precious metal. The ZKB Gold ETF A (CHF) is a very large ETF with 3,225m GBP assets under management. The ETF is older than 5 years and is domiciled in Switzerland.

UBS

The UBS ETF (CH) Gold (USD) A-dis invests in gold.

The total expense ratio is 0.23% pa ​​Index performance is tracked by a bearer bond backed by physical precious metal holdings. The UBS ETF (CH) Gold (USD) A-dis is a very large ETF with a fund volume of CHF 1,700 million. The ETF is more than 5 years old and set up in Switzerland.

Between ZKB and UBS, we prefer to invest with ZKB (Zürcher Kantonalbank) because is the largest cantonal bank and the fourth largest bank in Switzerland owned by the Canton of Zurich.

Thanks for reading, and please share your other options to own Gold on Facebook page or Comment section of the blog!

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We analyzed the last week's performance on each asset class and found that the most resilient category from year to date is Energy, REITs and precious metals (instead of the last rally down of Gold). It’s difficult to find a place to park the money 💵 in this economic and financial outlook. According to Warren Buffet, in a recession environment everyone loses, but some of the people have a small loss and others have high loss.

Even traditional safe heavens offered little protection in the first half of 2022:

• Bonds have historically grown when stocks have plunged, but Treasuries and municipals Bonds sold off in the first six months with -7%, S&P500 Corporate Bond Index is down 15%
• S&P500 is 19% down today, Nasdaq100 with 28% in red, Down Jones 14,5 % in red
• Crypto Markets Bitcoin & Ethereum have lost over 70% from high
• Commodities without energy-related doctor Copper have lost 23% and Cotton 17%
• Precious metals are best performers today with only 3,8 % loss
• Few REITs that have contracts related to interest rates also performed very well: VICI +8.5%, O -3.5%, UBA -0.8%
• Dollar outperformed marked DXY with +12%

So how did we get here?

We get here because of the high Inflation, rising interest Rates, record Energy Prices, war in Ukraine, Covid 19 pandemic and FED easy money printing in this decade. Everything seems to be a bubble.

How long will it last?

Risk off mode will persist this year and also at the beginning of 2023. History of bear markets from '49 tells us that we can stay in the red between three months and 39 months.

How much will the markets drop from Here?

S&P has fallen from 30% to 60% in 13 bear markets. We are reasonable to accept a minimum of 10% draw down from here, but because of amplitudes of the factors that generate this financial cataclysm, we must see a much more loss in Equities. We must understand the psychology of markets and individuals to know how to act.

We think we are before of the Panic stage of the markets right now (see first image). What is your opinion on this current stage? Will appreciate your opinion on the TopfxInvest Facebook Page.
Many analysts that we consulted seem to indicate that a peak of inflation will determine a bottom for stocks. We don’t think that is a true scenario because of the magnitude of the factors that start this bear market. I would be extra cautious before making any big bets on stocks and I’m a big fan right now of high dividend stocks that are resilient to interest rates hikes.

How to act right now, do we have a place to invest?

We prefer to consolidate the Gold & Silver positions, also we started selling Energy & Commodities Stocks that outperformed the market (like Daco Energy DQ, CNQ). We think that Gold will rise after the FED will finish with rate hikes and the Dollar will lose some peace of growth. We also studied the history chart of EUR/USD and when the Dollar is on Parity with Euro, will have some correction on the Dollar Index.

Chuck Berry inspired this article with “No Particular Place to Go”

An interesting topic for a future article will be: How to identify fundamentals of a market bottom or how to store Gold in efficient & safe ways?

Thanks for reading, and I’m waiting your feedback for our articles on our Facebook Page.

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Prospects of Recessions and GDP Growth

We estimate that there will be two quarters with negative growth for the next 15 months. Inflation will exceed wage gains and will reduce real spending. However, a few negative quarters are not enough to claim that we have a recession.

What stops us from announcing a recession is:

• The US strong labor market
• Remarkably stable retail spending
• Services sector that is surprisingly immune to interest rate changes.

JP Morgan says recession is not its base case, risky asset classes could recover:

• we do not see (a recession) as base case over the next 12 months
• In fact, we see global growth accelerating ... to 3.1% in the second half
• and inflation declining to 4.2%
• which would allow central banks to pivot and avoid producing an economic downturn

Prospects of Inflation

Powell will probably raise rates to 4%, a mere 300 basis point increase. Higher rates will be a more important matter to Wall Street, not to the Main Street. Inflation will fall back to 3%-4% once current shortage in energy and supply chains will be over. We estimated that inflation will curb in the beginning of 2023, all that is needed is prices to stop rising and an equilibrium between demand and offers.

History, indicates that long-term real rates ought to be in the neighborhood of the economy’s long-term real growth rate potential.

Stock Market Forecast

Regrettably, this long-term bull market is now over because interest rates will not fall in the short term and second, we will see lower earnings per share. The resulting decline in the earnings per share growth rate will shock markets. We will have a lot of companies with negative earnings growth surprises. Last decade companies have delighted investors with impressive earnings per share, but that scenario will not be repeated in the future. Investors must have a proactive investing style or to invest in instruments with large dividends. Passively investing style is dead, you can forget index style investing.

When we read our Reuters terminal last week, we were negatively surprised to see how food supply and princes affected the people of developing countries. Unfortunately, our prediction from last year has come true and we have a food crisis (just read article from November 2021 https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 )

Last Month we had protests in emergent countries.

Greece

Thousands of Greeks protested in Athens against the surge in energy and food prices. Greece's annual CPI Surged to 8.9% in March, hitting its highest level in 30 years.

Cyprus

Protesters throw the milk in presidential palace because of high prices and production issues.

Chile

Students rallied against the government because of high food prices demanding price control.

Tunisia

Basic food (Milk Eggs Poultry) prices were raised in May and were followed by large protests.

Argentina

Thousands of farmers protested in Buenos Aires against President Alberto Fernandez, because of policies to contain food prices. Farmers need to pay more for animal feed and to sell at a lower price.

Kenya

May 17 in Nairobi was held a demonstration against the government because of cost of living and high prices of basic products

Iran

2000 Pensioners protest peacefully in June against soaring living costs, according to Aljazeera and social media reports. The government raised prices of some basic goods such as cooking oil, floor and meat.

Peru

Peru ruling class sent an army in the streets to clear road blockades of activists. Protests were launched because of rising costs of food and fuel prices.

Indonesia

Indonesian farmers have rallied against palm oil export ban that caused a price drop of 75% on palm oil.

Guinea & Sudan

Protesters were killed by the armies according to Reuter’s reporters in May. Sudan Currency lost more than 30% last year and prices for fuel and food are growing at 20%.

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The FOMC (Federal Open Market Committee) meeting consensus was for 50bp rate increase because of this week's worst CPI reading, but Fed hiked with 75bp, and market consensus agreed for other future rate increase this year, and also a 10% inflation which is on the cards right now. Markets are hit hard this week, a Risk-OFF tone was the main trading sentiment among traders.

How Dot Plot was changed:

• June 2022 shows the median rate at the end of 2022 at 3.4%, up from 1.9% in March 2022
• For 2023, the median Fed funds target rate is up to 3.8%, up from 2.8% in March 2022
• In 2024, the Fed projects a Fed funds target rate of 3.4%, down 40 basis points from the end of year 2023

10 to 1 votes for 75 bp hike and Powel opening statement “Inflation is much too high” reveal large consensus and fear from actual economic environment.

Jerome Powel other key statements from yesterday meeting:

• Consumption spending is strong
• Housing Market is slowing
• Tightening in financial conditions could continue to temper growth
• Growth in business fixed investment is softening
• Labor market is extremely tight
• Wage growth is elevated
• We'd been expecting to see signs of inflation at least flattening
• We're seeing inflationary forces everywhere
• We don't know what will happen with supply shocks and how long they will last
• Pace of hikes will depend on incoming data
• Does not expect 75 bps moves to be common. Either 50 or 75 bps seems most likely at the next meeting.

SP500 are at the worst levels for this year, and inflation is at the highest levels because of the Covid-19 outbreak and the war between Russia & Ukraine.

Beijing and Shanghai (China) are experiencing a "strongly explosive" COVID-19 outbreak right now and this will add fuel to the fire of the Recession. Even Chinese Communist Party Media disclose some information on this new Covid-19 wave (https://www.globaltimes.cn/page/202206/1267831.shtml) but you can read more unbiased opinion at Voanews: https://www.voanews.com/a/beijing-sees-explosive-covid-outbreak-shanghai-conducts-mass-testing-/6613499.html. Authorities ordered PCR testing for all residents in 15 of Shanghai's 16 districts this weekend, and five districts have restricted residents from leaving home during the testing period.

What about recession?

Goldman Sachs SP500 forecast SP500 to 3150 according to David Kostin only if the EPS estimate moves to $225.

Morgan Stanley is looking for a "tradeable low" in the SP500 suggesting price 3,400 because "growing evidence of slowing growth and the risk to earnings”.

Our Portfolio Recommendations

Regarding our Portfolio we added some Gold this week at the price 1815 and also ZIM stock instead of Economic tailwinds. We like ZIM because they have signed new charter agreements on eco-friendly vessels to expand its services. ZIM is extremely undervalued at PER 1.83 and also, it’s a company with low debts. Company has huge cash in bank accounts of 2.8 billion $ that is equivalent to 40$ per share price. We bought at 49$ and we have a target of 75$ per share, without taking into consideration the past dividends.

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Few days ago, most influential people in the world (managers of Big Companies, top academics, leaders in main stream media, central bankers) are gathering to find paths to solve the issues on humanity crisis. Between 22 May and 26 May, Davos hosted World Economic Forum. Davos is an "invitation only" event for the "elite”. Davos it’s in essence a festivity of the ruling class. Here, the new macroeconomic trend will be set for this world, trend that will last for decades from now.

I’m not a big fan of conspiracies, but the discussions at Davos will become policies next years and we can check few strong examples:

• “Zero interest rates policy”
• “Mass people migration”
• “The Abolition of Cash”
• “Launching Electronic Currencies”

What is it about at Davos this year?

One of the main topics discussed was population migration between continents. Today, the main threat for the European Economies is the population decline, while the main issue for African continent is overpopulation & famine. Migrants coming to Europe today are not attracted by opportunities, like Golds Rush few centuries ago in US, but are attracted by: free medical services, free food for social cases, exceptional living expenses, Social Houses.

Food crisis that is coming in the next year because of the Russia conflicts with Ukraine, will determine a Mass Migration from Africa to Europe. Food shortage and how to solve this was the main topic discussed this year at Davos.

There was a massive surge of migrants to Europe in 2015. But that was just the beginning of what’s coming the next years. What we’re talking about here is the migration of millions of people of different languages, different races, different religions, different cultures, and different modes of living. Such a migration can only destroy the European culture and you can check the history back of what happened 1600 years ago in the Roman Empire, considering the migration of Germanic tribes.

A snapshot of food prices today, price are at all time high

I don’t want to beat the horses to much with people migration because other topics are also interesting, like MMT (Modern Monetary Theories). MMT means unlimited creation of paper cash to finance what governments want. This new modern economic theory must be implemented because Governments are bankrupted. Just check the US, UK, France, Spain balance sheets and debt to GDP ratio to understand how things are working now.

The Elite State (Davos participants) prefer to finance governments bail-out via inflation instead of imposing new taxes (it was the stock heaven in the last years).

For this reason, inflation is surging all around the Globe but they can hide this very well behind the conflict between Russia & Ukraine. Our countries economics problems are more profound than we think they are!

How to hedge against inflation?

Our options are:

• Carbon Emissions Contracts
• Precious Metals (good option right now)
• Grains (too late)
• REIT Stock’s
• Energy Stocks (too late)
• Other commodities like: Coffee, Cocoa, Sugar, Uranium

These days we find some options for stocks that are not in the sectors mentioned above and we want to bring you some examples here:

• <DQ> DAQO NEW ENERGY CORP: Main producer of polysilicon to photovoltaic product manufactures in China. They have large clients in Europe, they also will open new factory in Mongolia, and the stock is extremely undervalued. 9 analysts revised their recommendations regarding this stock last month to upside.
• <FSZ> Fiera Capital Corporation: The main investment Company in Canada that grow their AUM through acquisitions and offer 9% dividend yield.
• <NRIM> Northrim BanCorp is the main bank in Alaska; we choose it because they have: low competition, 0 debts and Alaska will grow very much with the current Oil price.

Germany decision to stop Oil & Gas imports until the end of 2022 was in our opinion the main news at Davos and a BIG HIT to Russia. If Russia will not stop their “special operation” soon, we see this country evolving like the Nord Korea. India engagement to migrate on green energy is also a real big news that put a lot of pressure on China to change their policy also. India will change side to US-UK-EU alliance next years.

Job Market Evolution in years to come and how technology will change workers’ habits was also a good subject to meditate for the illuminated minds. Today, workers need to be more open to technologies, also work from home will be adopted by large companies. The main threat of productivity is the ability of workers to be self-organized, and discussions at Davos, was oriented on how to grow productivity in these new paradigm launched by COVID 19 disease.

Things are not going well and this was in agreement with all of the Davos participants, just to remind you some these week headlines:

• UBS have cut their 2022 GDP forecast for China to 3% y/y, from 4.2%. Reminder, the official forecast out of China is for around 5.5%
• JP Morgan downgrade China economic growth forecast, again. Project large contraction from -1.5% to -5.4%.
• ECB President Lagarde has indicated July is likely lift off for rate hike
• Fed's George says while inflation is clearly decelerating it could jump again

“With dedication to your freedom TopfxInvest”

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• All participant voted for 50 basis point hike
• 50 basis point increase is likely appropriate to the next couple of meetings
• concerned about the risks from higher income commodity prices
• inflation remained elevated, reflecting continued supply and demand imbalances, higher energy prices, and broader price pressures. Inflation risk being skewed to the upside
• restrictive stance on monetary policy may well become appropriate
• Fed should move expeditiously to neutral
• China lockdowns and Ukraine increased risks. New inflation pressures received from China as well as the Ukraine war, and were likely to weigh on economic activity
• several thought the potential for unanticipated effects in the financial markets from the run off of the balance sheet
• many expect tight labor market and wage pressures to continue for some time
• Members judged that the implications of the war for the U.S. economy were highly uncertain
• Higher wages and input prices were being passed on to consumers. Of course that will always happen
• COVID-related lockdowns in China were likely to exacerbate supply chain disruptions
• although overall economic activity had edged down in the first quarter, household spending and business fixed investment had remained strong
• Job gains had been robust in recent months, and the unemployment rate had declined substantially.
• should assess the risk the economy later this year after the rate hikes

You can read all from FED website : May FOMC Meeting 2022

Stocks Are up with 1%, because members of FOMC avoid risks of recessionary environment

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"We expect EUR/USD to continue softening in the near term, falling to 1.03 by 3Q22 and perhaps even overshooting to parity as concerns about local geopolitics and commodities intensify meaningfully further," MS notes.

However, we expect EUR/USD to begin rebounding modestly in 4Q22and into 2023, with upside driven by reduced fixed income outflows and a weaker USD on the one hand, but limited by continued geopolitical risk premium, relatively tepid growth numbers, and low relative local returns on the other hand. Further optimism on EU integration and an accelerated ECB normalization could bring EUR/USD toward our bull case of 1.14, while sub-expectations growth may keep EUR/USD under 1.10,

TopFxInvest want to take this sell trade from 1.8 because we have a confluence of resistances 0.6 Fibonacci from last swing, Horizontal line of  Resistance also diagonal trendline. Take this trade only with Risk Off sentiment or USD Strength day and manage it according to news Flow.

Alway combine Fundamental Analyses with Technically Analyses

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EU inflation is 6.1% and rate hike is mandatory. From the previously forecasted values of 3%, we have a deviation of 3% which is caused by multiple factors:

• Russia & Ukraine conflict
• Energy Price
• Supply Chains disruption

Goldman Sachs also cut their US economic growth forecasts from 2.6% to 2.4% this weekend.

Slowdown in growth should help lower job openings, it is also likely to raise the unemployment rate a bit.

Blankfein former chief executive of Goldman Sachs and currently senior chairman of Goldman Sachs says "firms should be prepared for a recession this year" and also:

"We're certainly heading - it's certainly a very, very high risk factor. And there's - but, you know, there's a path. It's a narrow path. But I - I think the FED has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it."

https://www.cbsnews.com/news/lloyd-blankfein-face-the-nation-transcript-05-15-2022/

FITCH says that the global recovery is to slow down in 2022 and 2023. Policy interest rates are rising, and FITCH believes that this marks an end to an era of very low borrowing costs for governments.

Remarks from Powel has changed a lot from the last year when he considered that the inflation was transitory and some pain is needed.

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control. The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

This week, CPI is lowering from 8.3% to 6% (Core CPI). This means that inflation will not decrease, it will slow the pace of growth, and the price of goods are not going to decline. The price of goods will grow with a moderate pace.

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Fed Loretta Mester:

• Inflation might be back to around 2.5% in 2023
• It all depends on inflation's path
• We need to get mon pol at more neutral stance and then evaluate how much further is needed
• We might see a couple months of unemployment rate rising but it won't be sustained
• There's a lot of positive momentum in the economy
• Unemployment may need to rise, may get another negative GDP print
• I will need compelling evidence that inflation is moving down
• We need to consider selling MBS
• Fed's task is not going to be smooth, unemployment may need to rise to bring inflation down
• After have point increases in June and July, Fed will have to see what more is needed based on a data in the meantime
• I don't want to rule anything out on hikes for the second half of the year
• Challenge for Fed is a large one

Fed's Williams

• If inflation is higher an interest rate that adjusts for higher inflation is needed
• Resolutely focused on restoring price stability
• We have a hot labour market
• Fed task is difficult but not insurmountable
• Fed actions will cool demand and factors contributing to supply shortages will be resolved
• Fed needs to be data dependent, adjust policy actions as circumstances warrant
• As long as demand is very strong, it's difficult to resolve supply chain issues
• You can imagine circumstances where we don't need to go much above neutral but that will be decided, we will learn on the way

Fed's Barkin:

• Fed's path will not necessarily cause a recession
• Fed needs to get inflation under control
• Inflation is high, persistent and broad based
• Getting inflation close to Fed's goal creates certainty that enables growth and supports maximum employment
• Demand is strong and looks to remain robust
• A number of pandemic-era inflation pressures will eventually settle
• Rising borrowing rates will dampen investment levels and spending on interest-rate sensitive items like housing and cars

Fed's Waller:

• We are trying to get the jobs market back to equilibrium, right now it's out of whack
• If we get some help from supply chain resolution, that's fantastic, but won't count on it
• Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy
• Inflation is too high, my job is to get it down
• This is the time to hit with rate increases, because the economy can take it

Today CPI will be a hot reading, but FED policies are changed according to data from the Economy. If will have next month's some issues with supply chains solved then it's possible to see some positive's Risk Tones in Markets  

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FOMC Lift rates with only 0.50 % as expected

0.5% increased rates were taken by Markets with lots of optimism because Powell announced 75 BP hikes off the table for next two meetings. Sentiment was RISK-ON, instead of rate increases because trader's already priced in 0.5%.

Market Evolution NY Closed: 

• S&P 500 up 122 points to 4298, or 2.9%
• Nasdaq +3.1%
• DJIA +2.8%
• DXY 0.15%
• VIX -13%  

Taking out of the table 75 BP hike, for next two meetings, Powel will sustain a new bounce into risk assets but I think it's short-term (1-2 weeks) until it will have new inputs from economies. Anyways, FOMC meeting, it's a fundamental shift for Risk instruments.

In the currency markets we see movement according to the risk sentiment: AUD & NZD UP and JPY & CHF down.

Some important remarks from Powell press conference regarding economic statement:

• Inflation is much too high
• It's essential we bring inflation down to keep a strong labor market
• Price pressures have spread to a broader range of goods and services
• Wages are rising at the fastest pace in many years
• The labor market is 'extremely' tight
• There is a broad consensus that 50 bps hikes should be on the table at the next couple meetings
• We are prepared to adjust any of the details or our approach
• Lockdowns in China are likely to further snarl supply chains

You can read all here 

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BoA (Bank of America) 
Perhaps the most interesting moment at the press conference will be his response to a question about whether a 75bp hike is on the table.

Barclay's 

"At this week's May FOMC meeting,we expect the Fed to lift the target range for the federal funds rate by 50bp to 0.75%-1.00%.May's hike has already been signaled to markets,with FOMC participants becoming increasingly receptive to front-loaded rate hikes amid resilient data on activity and intensified cost-push price pressures since the March meeting ... Given the broad parameters for balance sheet normalization laid out in the March meeting minutes,we expect the monthly run-off caps to ramp up from$35bn in June($20bn for treasuries,$15bn for agency MBS),to$65bn in July ($40bn/$25bn)and then to the maximum pace of$95bn/month from August.

 In the press conference,we expect much of the discussion to revolve around the speed at which the committee is prepared to lift its policy rate to neutral,with markets now pricing in 50 bp hikes in every meeting through September.We continue to expect 50 bp hikes in May and June,with the committee slowing the pace to 25bp per meeting from July onward as it sees signs of slowing inflation,"

Morgan Stanley  see rate hike by 50bp and SPX down to  3800 near term and 3400 long term

Former FED according to Wallstreet Journal "Rates May Need to Rise Quite a Bit to Get to Neutral" , he see rates to 5% 

Read entire article on Wall Street Journal

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Yesterday  European markets news pave the road for an EU recession in the second half of the year

Eurozone April final consumer confidence -22.0 vs -16.9 prelim

• Economic confidence 105.0 VS Prior 108.5; revised to 106.7
• Industrial confidence 7.9 VS or 10.4; revised to 9.0 (Heavy Hit)
• Services confidence 13.5 VS r 14.4; revised to 13.6 

Euro area economic sentiment continues to fall further as the Russia-Ukraine conflict is not seems to stop

Sales are also down in Germany, March retail sales -0.1% vs +0.3% m/m expected prior was 7

Selling price expectations rose to an all-time high of 60.8 - up from 57.2 from (that is not good for inflation)

How we would expect to protect ourselves from this possible recession:

• Bought Precious Metals Silver & Gold (Yesterday we added some silver because was a good price)
• Bought Defensive Stocks like Gilead's, Philip Morris, Imperial Brands, TeamViewer
• Bought some REIT stocks 
• Bought Energy Stocks like: CNQ, PBA, ALVOF  (too late to act now on these areas)
• Bought some stocks exposed to Agricultural land & Soils like ALCO. 

Fear is growing at Highest levels since 2008, just take a look  on CNN Business FEARS picture above 

Our real time RIsk ON/OFF indicator

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Yesterday, Advanced GDP was published and we saw horrible  values with -2.4% deviation from expected values. All branches of the GDB were in red.   

• Q4 final was 6.9% annualized
• Consumer spending +2.7% vs +2.5% prior
• Consumer spending on durables -4.1% vs +2.5% in Q4
• GDP deflator +8.0% vs +7.3% expected
• Core PCE +5.2% vs +5.4% expected
• GDP final sales -0.6% vs +1.5% in Q4
• Nominal GDP vs up 14.3% annualized in Q4
• Business investment +9.2% vs +2.9% in Q4
• Home investment +2.1% vs +2.2% in Q4
• GDP ex motor vehicles -1.3%

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.

The Real problem for the US Economy it's not that GDP is an inflation of 8%.

Economic growth returned in the years after the 2008 recession. The US entered an era of low growth but well below previous recovery phases. That sluggish economy is why the Fed kept rates low and launched QE (quantitative Ease).Fed officials talked of letting the economy “run hot,” and tolerate a period of high inflation in order to restore long-term averages.

Covid 19 and Ukraine-Russia war is threatening to change this high inflation with hiper-inflation (over 10%).That suggests recession might be coming anyway in 2022-2023, even if the Fed weren’t tightening policy.

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The wall street Journal announced  yesterday that Germany will drop opposition to russian oil embargo https://www.wsj.com/articles/germany-drops-opposition-to-russian-oil-embargo-11651155915?mod=Searchresults_pos1&page=1

That will have a huge effect on oil prices.Oil will surge if the ban will be effective this year.After the news oil climbed from 95 to 105. 

Would be interesting if the Russian refinery (Rosneft) will process oil from Arabia. The Germany Government threatened Rosneft with sanctions if it did not process oil from other sources.

 "Should Rosneft refuse to process non-Russian oil imports, Germany could put the refinery under state management under laws protecting strategic assets," (German ministry's) 

German economy min on yesterday brief: 

 "Higher inflation and slower growth is the price to support Ukraine"

• Confirms reports of 2.2% GDP growth forecast this year and 2.5% in 2023 without embargo
• Expects 6.1% inflation in 2022 and 2.8% in 2023

How much economic disruption are Europeans ready to tolerate for Ukrainian people ?

Euro is already at lowest levels against the US dollar 

The EU expects to remain dependent on imports of Russian gas for years (two three years at least). Russia’s move to halt gas flows to Poland followed Berlin’s decision to supply Ukraine with air-defense weaponry.  Russia will cut off Germany’s gas supplies if Berlin continues to ship arms. If supplies of gas were to be cut off tomorrow, Western European economies including Germany and Italy would face a severe energy deficit and a -2% on GDP. The economic effects would be catastrophic.

A sudden stop in the flows of Russian gas would mean industrial shut-downs and chains supply disruption because of economic shutdown. Southern European governments would demand more mutual EU debt issuance to relieve the economic pain. This is exactly what Germany has spent years trying to avoid. So, expect Berlin to do everything it can to keep Russia’s gas flowing in the near term, including dragging its feet over arms shipments to Ukraine, and paying for its gas in rubles, if that is what Moscow demands. Longer terms, Eu cut-off  russian gas, will be able to colapse & disintegrate Russia. War is already lost by Russian army, because you can't subjugate a free people and a country of the Ukraine dimensions with just 250K soldiers. When blitzkrieg is lost by Russia actually russian army lost the war.

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I have never seen in 20 years of investing such a confluence of fundamental factors pointing to a bear market scenario for stocks like this year.

First, it was the Covid19 pandemic outbreak that disrupted the supply chains, then it was the conflict between Ukraine and Russia. We’ve seen the Oil price ranging from 0 to 150$ starting with the middle of 2020 and up to 2022.

FED Chairman Jerome Powel finds that inflation it's non-transitory anymore and the EU representatives expect 7.8% inflation this year.

The war between Russia & Ukraine also fuelled the inflationary pressure. The FED already hiked the interest rate, but The European Central Bank kept its benchmark interest rates unchanged, Australia & UK also will hike it in the following months.

Stagflation is our base expectation for this year and we’re avoiding buying Growth Stocks. We’re looking forward to start investing at lower prices.

Our recommendation for January to keep the Dividends Stocks and sell the Growth Stocks was beneficial: from year to date: 

• Vanguard High Dividend Yield Index Fund ETF (VYM) it's up with 0.9%
• Large Caps Ishares ETF (IVW) it's worst performing in red with -14%
• SPDR SPX 500 (SPY) registers -7% from 1 January
• Small Caps CORE (IJR) in red with -11,4
• Large Cap Value Stocks (IVE) -1% near to Dividend stocks
• Mid-Cap Value Stocks (IJJ) -3%
• SPHB (high Beta) -9%

What is the thesis behind this evolution?

The theory is that elevated risk of high inflation and slower economic growth favour the shares with relatively rich payouts.

In a recent letter to JP Morgan Chase (JPM) shareholders, Chairman and CEO Jamie Dimon warned that the war in Ukraine could collide with rising inflation to slow the domestic economic recovery and alter global alliances for decades to come.

"They (referencing Ukraine and inflation) present completely different circumstances than what we've experienced in the past-and their confluence may dramatically increase the risks ahead. While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes."

What are our expectations for this year:

• 50 points rate hike in the EU in May, maybe 75 points if the Energy Sector and food prices will grow much more from now.
• The global economy, even before the rate hikes, is deteriorating far faster than the consensus expects.
• We expect consumer confidence to suffer in the months ahead and we will continue monitoring the indices.
• Food shortages and rising food prices can converge to a possible global food crisis in 2023 and social uprisings.
• Globalization is dead, and also the global cooperation between the major actors: USA, Russia and China for decades from now.
• European inflation is at the worst levels in the last 75 years - and the ECB will have no choice but to raise rates faster than the consensus expects.
• Europe will be in Recession from the middle of 2022.

In a recession environment nobody wins but what counts is who loses the least.

According to what we mentioned above, we prefer to invest in bank Indexes in Europe, because the banks are likely to benefit from a rate increase scenario that will happen this and in the next year, and we will avoid investment banks. We acquired the EXX ETF this month.

Also, we maintain our bullish view on grains and we consider now that it was a mistake to close some of our positions in March https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

We want to close some Energy positions with profits this year on CNQ, PBR, TPZ, PIF, ALVOF.

I see carbon Emissions contracts as a very good hedge against inflation and we acquired last month CARB ETF & NETZ stock in Canada.

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 The S&P 500 is down 0.97% and the Nasdaq down 2.17%, both sliding further after the report's release of FOMC which see 0.5 hike until 4 May. Inflationary Risks have grown greatly because of Ukraine War and Shanghai lockdowns'

"Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified"

Some conclusions after March Meeting

• Participants agreed Fed was ell placed to begin balance sheet reduction as early as the May FOMC meeting
• All participants underscored the need to remain attentive to the risks of further inflation
• 'Many' participants noted they would have preferred a 50 bps hike
• Many noted that one or more 509 bps increases in the target range could be appropriate at future meetings, particularly if  inflation  pressure s remained
• Participants noted that -- depending on developments -- a move to tighter policy stance could be warranted
• Participants generally agreed that after balance sheet runoff well underway, would be appropriate to consider sales of MBS
• Participants generally agreed to monthly caps of about $60B for Treasury securities and $35B for MBS

if you want to read all monetary policy's  please click  https://www.federalreserve.gov/monetarypolicy/fomcminutes20220316.htm

More comments from treasury sec Yellen about economy and Russia Sanctions 

• US economy enjoying strongest job market in decades
• Americans financial conditions overall are very strong
• People are concerned about  inflation  and that's understandable
• Inflation erodes ability of households to make purchases
• Russian economy is reeling from sanctions
• We are put in place sanctions every weekend I do believe they are working
• It could see sky rocketing prices for oil and gas from a complete Russian export ban

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•  I am carefully monitoring rotation from demand for goods back to services and whether that occurs without sparking inflation
•  Expects balance sheet to shrink significantly faster than the last cycle
•  Most low wage workers have seen wage growth that exceeds avg inflation
•  War and covid lockdowns in China likely to extend supply chain bottlenecks and hurt growth
•  After policy is more neutral, extent of additional tightening depends on the evolving outlook
•  Fed will tighten 'methodically' through a series of rate hikes

Another Fed Speaks Fed's Daly: We'll be able to get inflation moving down by year-end

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The rate hike was priced in and the market was on RISK-ON mode yesterday. Main question for the FED yesterday was, what percent will be the hike?  

To stop inflation 0.5% was a better idea to hike but voters don't want to risk a recession with actual conflict between Ukraine-Russia. The surprise is 7 hikes in the dot plot instead of 5 hikes. The 10 years yield is now lower versus pre-rate decision level. Regarding the war in Ukraine, Powell said “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”

Regarding the US Economy, we have below stances: “Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” You can read full press release here:

Surveying the FOMC's 18 members, the dot-plot showed that 12 FED officials predicted at least seven total rate hikes in 2022. On the high end, one FED official expects the central bank to raise rates above 3% during the year, from the level around 0.25% currently in force.

Please check below the dot plot below:

12 of 18 saw 0.9% in 2022, 11 of 18 saw 1,9% into 2023 annual median at 1.6%. Median interest rates for 2024 is 2.1%

Macroeconomic implications:

Energy Financials Sectors will outperform, we consider that it's a good time to buy bank's stocks and sell High growth stocks like tech. Instead of a short term rebound for Nasdaq's & S&P500, we see down in the long run. I can't see inflation slowing down in the long term and 0.25 it's not enough to calm but the FED was forced by the actual Geopolitical climate.

Euro will be much weaker in the long run than the dollar. Unfortunately for the EU, in the Eurozone there are plenty of headwind that affect growth: price of energy, war between Ukraine & Russia.

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Today ECB meeting, The tone was somber, with repeated risks on lower growth and higher inflation. Risk apetite is down 👇 because Russia-Ukraine war. 

Inflation forecast:

1.  2022 Inflation 5.1% instead 3.2% in december 
2.  2023 2.1% vs 1.8%
3.  2024 1.9% vs 1.8%

Most important conclusions from Lagarde meeting are:

• Growth to remain weak in Q1
• Growth revised down in near term
• Energy costs pushed up Feb inflation 31% and prices have risen further
• How long high prices will last is uncertain
• Risks to the economic outlook have increased substantially and are tilted to the downside
• We have risk of a loss of economic confidence
• Path for rates will be determined by forward guidance

Conclusion according to Lagarde is  'highly uncertain'

Rate hike could come 'months after' or 'weeks after' the end of QE. Euro is forecast to be down in short term.

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After high Inflation in US and Europe, the Covid-19 pandemic outbreak, a new event like war between two major countries affected the markets. War between Ukraine and Russia pushed this morning Gold over 2000$, Oil to 124$, Soybeans 1686$ and Corn to 775$. During war times precious metals, Oil and Grains perform well instead of risk assets like stocks.

High level of sanctions from the Western Economies will destroy the Russian economy in the medium term. The Putin regime will fall in the near future because you can't win a war completely isolated from western world and you can't govern with terror and mass-media censorship.

According to the last Russian laws, you can get 15 years in jail if you transmit information from the battlefield that is not what the regime wants. All social media are closed, also internet websites like BBC, CNN, The Guardian etc. If the Putin regime it's not quickly removed, the Russian people will live like in the North Korea.

Also, some important brands like Toyota, Ford, BMW, Mercedes, VW, Oracle, SAP, Mazda, Nike, PayPal, Apple, IBM, DELL, Mitsubishi have closed the doors to the Putin regime. The Russian currency is moving down by over 30%, and the Moscow stock market is closed for three days in a row.

With the US & EU already facing the highest inflation in over four decades, triggered by the Covid lockdowns and restrictions, and the February CPI release this week anticipated to show an escalation during the previous month, the real possibility of an economic recession is even larger.

Therefore, the Federal Reserve's upcoming policy meeting on Mar. 15-16, will start a new interest rate hike cycle and it's not advisable to be exposed on the growth stocks. We still own high dividend stocks in the energy and finance sectors and also, we are keeping our Gold & Silver positions. We anticipate further weaknesses in stocks this month.

The United States and European allies are exploring banning imports of Russian oil, Blinken said on Sunday, and the White House coordinated with key Congressional committees moving forward with their own ban.

"A boycott would put enormous pressure on oil and gas supply that has already felt the impact of increasing demand. Prices are likely to rise in the short term, with a move toward $150 a barrel not out of the question Such a move will put further pressure on global economies, pushing inflation higher, leaving central banks debating how quickly rate hikes should be implemented." according to some analysts from CMC Markets.

"The war has clearly increased the risk of a stagflation scenario for the euro zone, where you will have a stagnating economy and much higher inflation on the back of high energy prices," said Carsten Brzeski, global head of macro at ING.

We stand with the Ukrainian people that fight for their freedom and we want to help mothers with children that are refugees. Right now, we are facing a real drama on the Ukrainian border as the refugee and their children are staying over three nights on -15°C without food and water.

It's estimated that there will be over 10 million refugees this year, if the conflict does not stop soon. 

If you want to help refugees, you can donate on these links:

https://www.unicef.org.uk/donate/donate-now-to-protect-children-in-ukraine/ 

https://donation.dec.org.uk/ukraine-humanitarian-appeal

https://donate.unrefugees.org.uk/ukraine-emergency/~my-donation

https://donate.redcross.org.uk/appeal/ukraine-crisis-appeal

https://www.icrc.org/en/where-we-work/europe-central-asia/ukraine

https://www.savethechildren.org.uk/

https://donate.careinternational.org.uk/page/100263/donate/1?ea.tracking.id=e75_orgsocial

https://www.peopleinneed.net/

https://msf.org.uk/

https://donate.unhcr.org/int/en/ukraine-emergency

You can help Ukraine Army here:

https://savelife.in.ua/donate/        

https://www.portmone.com.ua/r3/uk/terminal/index/index/id/118103/

Слава Україні! (Slava Ukraini!)

Glory to Ukraine!

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• The decision on rate hikes is not needed before June meeting
• Any speculation about calendar of future lift-off is at this stage premature
• We will retain our full optionality about pace of normalization
• Its calendar will remain a gradual, state-dependent and open in moving from one stage to the other
• Keeping net asset purchases open ended from October would not be appropriate
• APP purchases would end in Q3
• another way to enhance optionality could be to remove the word "shortly" from the forward guidance on asset purchases
• Optionality would mean that lift-off could possibly take more time if warranted

Decision on partial troop withdrawal has been taken added some optimism on markets (SP500 +1,58% NDQ +2,58) but we still have questions about inflation and growth

Oil & gold come back to previous levels

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Yesterday was a special day for trading markets because of rising in CPI. Stocks were up with over 2% percent at the start of the US session but reversed sharply with over 5%. Inflation surprised markets expectations but more interesting was FED Bullard (a voter in monetary Policy's) reaction to CPI:

He sees a 100-basis point increase by July 1.

50 BPs in March but will defer to Powell.

Would favour changing rates between meetings.

FED balance sheet reduction may require asset sales.

What is in CPI to justify the reaction above?!

Highest reading in 40 years

m/m CPI 0.6% vs 0.5%

Real weekly earnings -0.5% vs +0.1%

Core inflation:

• Ex food and energy +6.0% vs +5.9% y/y expected
• Prior ex food and energy +5.5%
• Core m/m +0.6% vs +0.5% exp
• Prior core m/m +0.6%

1. Housing +0.7%
2. Owners rent +0.4%
3. Food +0.9%
4. Energy +0.9%
5. Gasoline -0.8%
6. Medical care +0.6%
7. Apparel +1.1%
8. Services +0.4%

Only Ice scream is 👇

You can read detailed report here 

What are the reasons for these readings?

First Supply chain bottlenecks because Covid outbreak and accelerated economic growing from 2015 just look at SPX500

Citi Bank now sees 50 basis point Fed

What will happen from here?

I'm expecting inflation to peak in April-May and rates to go near to 4% in the future. Are we at the starting point of a depression?!

We intend to grow up our exposure on Gold & defensive stocks.

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After the meeting between Putin and Macron, the markets have regained some losses from the first month of the year.

Macron: "Putin told me that he would not be behind any escalation in Ukraine". Instead, the meeting is not solving the problem between the Russia and Ukraine, but markets have anticipated a lower narrative tone in the future.

Better than expected, Atlanta FED GDP now rises to 0,7 from 0.1 also fuels a positive Risk tone.

Some good news from the inflation front announced by ECB Villeroy also helps stocks. Villeroy said:

 “Inflation hump should be temporary.

French inflation is to gradually diminish within a month.

I guarantee we will do what is needed for inflation to return to around 2% over time.”

Stocks are up SPX500 0,84%, NDQ 1,21% DJI +1% and VIX -5.67%.

Instead of some support in stocks, investors are concerned about the tightening announced in March from FED.

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 The ADP job data surprised to the downside this month: - 301K versus +200K estimate.

All economic branches were down this month:

• Goods -27K
• Manufacturing -21K
• Services -274K
• Transportation and Utilities -62K
• Leisure and Hospitality -154K
• Construction -10 K (Also Canadian Building Permit felt -0.3 over estimate)
• Education & Health Services -15 K
• Small firms -144K decline
• Medium firms -59K decline
• Large firms -98K decline

The fell was the largest since April 2020 because Omicron outbreak, according to FED officials.

BOE has increased official bank rate by 0.25 points to 0.5%, today.

Eurozone inflation hits new record 5,1% CPI versus 4,4% expected (Highest since 30 years), that will put more pressure on ECB today.

Bidden sent 3k US Soldiers to Romania Poland and Bulgaria.

IMF Chief Georgieva: Geopolitical tensions make uncertain outlook for global economy.

Regarding our portfolio, we shrink our exposure to growth stocks and closed some losing positions on companies that have large debts or lower growth expectation (ASAN, BILL, W, NVCR, RDFN), and further, we closed two days ago our grains exposure with 20% percent profits in three months. We expect to 💪 our dividend stock's exposure's and add to precious metal positions if we see another 2k points decrease in Gold and Silver after FED rate increases. We think market will retest soon, lower point from January and US Dollar 💵 will stay in upper zone. US dollar speculative positioning and bullish sentiment are surging. SP500 Retest Of January Lows  is about to begin.

You can check real-time  our risk-on/off tone indicator .

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No surprise yesterday Fed leaves rates unchanged, as expected. Bank of Canada
also holds rates at 0.25%. Stocks have no major Impact on Fed rate decisions.  Before the news SPX500  growth was 2%, but closed at the end of the session in negative territory. Negative sentiment  prevails on stock Markets  but Dollar (DXY) is up according to our yesterday article regarding Bank of America. Grains are up with important gains.

 
Summary of FED  announcement:

Market pricing suggests a 90% chance of a March hike

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Bank of America Research announce  another rally for USD after today FOMC policy meeting 

"The Fed will announce the last round of asset purchases at the Jan FOMC meeting, and we see risk for a further hawkish pivot...Chair Powell is likely to signal the first hike at the March meeting and note that every meeting is live,"

"In our view, a hawkish FOMC this week should serve as a key catalyst for another leg of US dollar appreciation against lower beta FX . Our forecasts for EUR/USD and USD/JPY this year remain 1.10 and 118, respectively, and we see the risks of attaining that sooner" BofA adds.

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Bitcoin breaks below 40K, and we can't see any positive sign after having the Bitcoin banned by the Russia. Russia follows China’s policy; therefore, it has blocked the Bitcoin payments and also prohibited the Bitcoin mining. While a ban on trading and transacting with cryptos in the country is also on the cards, simply owning or holding Bitcoin and other tokens may be allowed: “the growth of cryptocurrencies use creates threats for Russian retail investors, financial stability and threats associated with the use of cryptocurrencies for illicit activities”, according to Bank of Russia. More here. Bitcoin transactions are very popular in Russia with volumes of approx. $5 billions / year. Russia is following China's policy because the government wants to control the money supply in the economy.

On the other meridian, FED wants to impose his own crypto and launched yesterday a new project. "This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies". More on this Here

Some key benefits:

"It could provide households and businesses a convenient, electronic form of central bank money, with the safety and liquidity that would entail; give entrepreneurs a platform on which to create new financial products and services; support faster and cheaper payments (including cross-border payments), and expand consumer access to the financial system".

Any CBDC would best serve US interests by being privacy-protected, intermediated, widely transferable and identity-protected.

According to Powel: "We look forward to engaging with the public & paper not intended to signal it will make any imminent decision about the appropriateness of issuing CBDC"

This new sentiment catalyst pushed Bitcoin below 40K yesterday, and according to charts, the first level of support is 30K, then 12K.

What is your opinion on Crypto? How much will it go down from here Bitcoin?

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SPX gave back the gains at the end of the day, because investors lost conviction that an early rally had legs. Risk-On sentiment didn't last after China decreased rates. Fears of inflation and higher interest rates in accordance with Geo-Political conflict between Ukraine & Russia have sent markets in red at end of the session.

Concern that the Federal Reserve will aggressively move to raise rates this year is a much more powerful catalyst than Chinese bank intervention and stocks Earnings. Investors have been concerned about rising rates because they raise borrowing costs and could dent global growth prospects and douse the earnings outlook for companies.

Analysts at ING said geopolitical risks, notably the possibility of Russia invading Ukraine, could continue to add to pressure on rising rates concerns.

Gold & Silver touched new highs lifted by worries surrounding inflation and Russia-Ukraine tensions. Gold 1,842 & Silver 24.63 gains were unexpected in the short term when bonds are up and Interest rates are expected to grow but geopolitical context is also an important catalyst.

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We maintain our bearish bias on CHF.

Our expectation for four Fed rate hikes in 2022 means we now see US 10yr yields at 2.20% by 2Q22. The SNB remains one of the most dovish central banks in the G10, and we think widening yield differentials should keep putting downward pressure on CHF. We expect the further upside momentum in German Bunds yields should also weigh on CHF. Positioning in EUR/CHF has normalised somewhat compared to the beginning of the year but remains net short.

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China cuts Loan Prime Rates: 1 year to 3.7% (from 3.8%) & 5 year to 4.6% (from 4.65%)

The People's Bank of China cut its Medium-Term Lending Facility rate to 2.85%

• from 2.95%
• injected 700bn yuan with 500bn maturing
• 1 year MLF
• first cut since April of 2020

On the 7-day reverse repo today, rate cut to 2.1% from 2.2%

• 100bn yuan injected today
• 10bn yuan matured today

On Thursday this week, 20 January, we get 1 year and 5 year Loan Prime Rates set. 

A cut to the MLF will be seen as an indication the LPR rates too could see a cut.

Asian stock go higher after this Bank of China Move Nikkei +1% , Topix +0,89, Kospi +0,49, Hang Seng +2,38% 

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Yesterday markets were down with over 2% because disappointing Earning Results from banks like JPMorgan & Citi Bank. We are still waiting results of other big banks like Goldman Sachs, Bank of America. Morgan Stanley, to see if the lower trend will continue this week. The key driver to the current action in the stock market remains the spike in bond yields and announced Increased Rates. This Year stocks will be dealing with the highest inflation rate since the late 1970s, excessively high valuations, and an aggressive policy change by the Fed. 

2022 it's a year of challenge for stocks because we have to deal with:

• Lower Profit margin 
• To high valuations
• Less liquidity in the economy 
• Higher inflation 
• Weaker economic growth
• Weak consumer confidence due to inflation
• Flattening yield curve
• Lower earnings growth
• Weaker economic data than 2021
• Tighter monetary policy
• Reduced consumption

 
Technically, Stocks broke below yesterday Trend Support Line with momentum and also Vix is UP. Tech Stock was affected badly losing over 3,3% 

Stocks still have room to move lower from here. We have recommended to buy Agricultural commodities in November and Soybean it's up with 6%.

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• Goldman Sachs change their growth forecast for US  from  5%-6% in 2021 to 3,4% in 2022 because of two factors:
  spread of Omicron Variant 
• diminishing expectations for fiscal stimulus

Deloitte projects 4% GDP instead of Reserve Bank of Australia 5,5% 

Deloitte Access Economics says the Omicron variant manes the RBA forecast is too optimistic because omicron is Spreading at a rapid rate and half the workforce would likely miss an extra week of work in H1 of 2022.

But with optimism Deloitte inform us that Omicron would not cause the same economic problems as the first two waves.

Will economy drop into 2022 what is your opinion?! 

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“Based on rhetoric from the Bank of Canada in December, it was clear that labour market dynamics and outperforming economic data had created heightened concerns at the Bank that the output gap was closing more rapidly than expected,” wrote Silvana Dimino, a New York-based economist at J.P. Morgan, in a report to clients Tuesday

Dimino sees the Bank raising its benchmark rate by 25 basis points to 0.5 per cent in January; her team previously called for the first move in April. She expects there will be five rate hikes this year, which would push the benchmark rate to 1.5 per cent by year-end.  

She also expects the Bank to begin a modest run off of its balance sheet in the second half of this year.

As of mid-day Wednesday, overnight index swaps pegged the probability of a January rate hike in Canada at 46 per cent.

In October, Bank of Canada Governor Tiff Macklem indicated he would not tighten policy until the economic recovery was complete – something he expected to happen in the “middle quarters” of this year. But data since then suggest the economy has been outperforming.

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Prior was 6.2%

m/m CPI +0.5% vs +0.4% expected

Prior m/m reading was +0.8%

Real weekly earnings +0.1% vs -0.2% prior (prior revised to -0.4%)

Full report

Core inflation:

Ex food and energy +5.5% vs +5.4% y/y expected

Prior ex food and energy +4.9%

Core m/m +0.6% vs +0.5% exp

Prior core m/m +0.5%

Some notable categories:

New vehicles +1.0% m/m

Used cars and trucks +3.5% m/m (and +37.3% y/y)

Apparel +1.7%

Shelter +0.4%

Gasoline -0.5%

Food +0.5%

Gold is UP 

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Ayhan Kose, director of the World Bank's said "There is a pronounced slowdown underway, ..... Policy support is being withdrawn and there is a multitude of risks ahead of us." 

The World Bank is out with its latest economic forecasts: 

• Sees developed economies growing 3.8% vs 4.0% in June forecasts
• 2021 global GDP forecast 5.5% vs 5.7% in June
• Sees 2021 Japan GDP at 1.7% vs 2.9% in June
• Sees 2022 Japan GDP at +2.9%
• China forecast of 5.1% vs 5.4% prior
• Sees 2022 US GDP +3.7% +4.2% prior
• Sees 2023 global GDP at 3.2%
• A surge in omicron that overwhelms healthcare systems could trim another 0.7 pp from growth

Stocks grow consistent  SPX +0.92 Nasdaq 1,47 after optimistic Powel discourse

• The main thing we can do is foster a strong employment market, consistent with our inflation mandate
• In order to get a long expansion, we need price stability
• We will use our tools to bring inflation back down
• There are great benefits of a tight labor market
• It is really time for us to move away from emergency settings
• Doing so should not have a negative impact on labor market
• We're not seeing the progress on supply-side issues that we thought -- that all forecasters thought
• Over time inflation will subside, but the question is how fast
• Inflation will last until the middle of this year
• Fed has not made any decisions on the timing of normalization
• This year I expect the Fed will raise rates, end asset purchases and perhaps later this year allow the balance sheet to shrink
• We're going to learn a lot about the path of inflation
• It will take 2-4 meetings to work through balance sheet decision (4th meeting is June 15)
• Expects to see some relief on supply side later this year; if not there's a risk of inflation becoming entrenched
• We believed we would see material relief on the supply side

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As we started a new year 2022, we want to present you our conclusions on markets and an analysis of our managed portfolio. In this article, we will analyse four major assets: Stocks, Gold, Oil and Commodities.

After stellar gains registered in 2021, in 2022 markets are expected to grow at a moderate peace, due to the rising risks.

We are bullish on Gold and Silver, and we are also confident on a future increasing in agricultural commodities, as we also presented in our article: https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

Now let’s take a look on some factors that can influence stock markets in 2022:

Bullish Factors:

• The domestic economy is growing
• Consumer spending overall is strong
• Employment is expanding, and the unemployment rate fell to 4.1% from 4.2%.
• Corporate earnings are growing by 27% (Apple it's $3 trillion company & Tesla deliveries grow by 87%)
• Covid-19 Pandemic new variant Omicron is decreases in death rates

Bearish Factors:

• Rising interest rates: FED official announced this week that they see this year three, instead of two interest rates increase
• Some stocks are extremely overvalued, like FTNT (over 100%: yesterday we closed our position on FTNT) or MRNA. Also, almost 100 stocks from S&P500 index are up over 50%, which is too much in our opinion. If US interest rate will hit 5%, stocks will go down badly, similar to the 1987 crisis.
• Continuing inflationary pressures because of transportations issues. We already discussed this topic in our article Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley
• Global tensions between Russia and US on Ukraine / Kazakhstan, also China and US on Taiwan, which are possible to extend into some major conflicts.
• Covid-19 Omicron it's still here, and we cannot anticipate the implications of other virus mutations. If we have other lockdowns because of new pandemic outbreaks, stocks will be badly hit.

Other opinions regarding stocks:

JPMorgan Kolanovic says to buy the dip:

“Higher bond yields should not be disruptive for equities, but rather support our call for a growth to value rotation. […] We stay positive on equities and expect Omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll. As this wave fades, it will likely mark the end of the pandemic Omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity”.

On congested supply lines: “signs of supply constraints potentially passing their worst point”

BlackRock's largest fund asset has an optimistic view, but they raise concerns over China Covid19 policy: 

“The Fed has signalled three rate rises this year – more than we expected. Markets seem primed to equate higher rates as being negative for equities. We’ve seen this before and don’t agree. What really matters is that the Fed has kept signalling a low sum total of rate hikes, and that didn’t change last week. This historically muted response to inflation should keep real policy rates low, in our view, supporting equities.” 

“And not all spikes in long term yields are the same. Last week’s jump in U.S. Treasury yields was about the Fed signalling a readiness to start shrinking its balance sheet. This could result in a return of the term premium that investors typically demand for the risk of holding long-term bonds. This is not necessarily negative for risk assets as it can reflect an investor preference for equities over government bonds.”

Regarding China slows growth rate: “The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain the policy – at least optically – in this politically important year. This raises the spectre of more restrictions on activity, from targeted measures that keep the economy humming (Shanghai) to full-scale lockdowns (Xi’an). As a result, we believe downside risks to China’s growth have risen, even as Beijing appears bent on achieving its growth target this year by loosening policy.”

We think it's reasonable for Gold to push a higher price to 2500 after a huge stimulus amount, but it will happen only after the FED finishes raising the interest rates. Oil will slow down only after the inflation will also slow down, probably in the second part of the year according to Citi Bank Forecast 

We added to our portfolio some agricultural commodities and precious metals (Gold and Silver). and we sold some positions like: Tesla, Fortinet, Shopify, DocuSIgn, Disney, TradeDesk. In 2022 we plan to add more dividend stocks because we have a more neutral view on this year’s growth.

Further, I'm not a big fan of Crypto currencies. 40K for Bitcoin is a good price, but if it goes further under 30K, it's a good to buy and hold bet.

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Tech stock -3,5% and Bitcoin -5%  S&P -2% was hard hit yesterday buy Fed minute.

The minutes revealed that committee members think inflation risks were more persistent to the upside, and there was general agreement that the taper should be accelerated with three tentative rate hikes. News of new rate hike it's nothing new was announced by Chairman Powell, only factor that surprise the market was that some members felt that the Fed should commence running down its balance sheet soon after its first hike selling $8.50 trillion of bonds.

Negative sentiment was also sustained by Russia intervention in Kazakhstan and Omicron outbreak in Europe. 
We waiting another wave of selling today without a positive news catalyst   

Find below complete statement if you want to read all details

https://www.federalreserve.gov/monetarypolicy/fomcminutes20211215.htm

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Bellow will find a short fragment from interview 

• I think we're moving from a period that's been over a year in which we've had inventories drawing down not enough supply to meet demand to a period in which we're going to see, starting no later than the second quarter we believe, inventory is starting to grow around the world in an accelerated basis.
• So we think this is going to be a year where prices are going to go down rather than up. And we're looking at Brent going from an average of over $75 a barrel this past quarter to maybe $10 or $12 or $15 lower than that by the fourth quarter of this current year.

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Where are we today?!

Today, markets are in a recessionary stage because of more than a decade of financial bad investments; we are witnessing a process of money creation (Helicopter Money) to a scale that a few years ago was unimaginable for the financial world.

Money creation from nothing by the FED was growing with approx. 22% in 2020 because of the Covid19 pandemic outbreak, but if we have a look over the past 50 years, we have few times only 10 percent money increase from one year to another. To give you an idea about the magnitude of this move, it's a must to say that in WW2 money creation was only 15%, and it was further followed by a two digits inflation.

This process of money creation is happening at a global scale, including FED, European Central Banks and Japanese Central Bank.

What is Inflation?!

Inflation represents increases in the money supply, as a consequence of monetary inflation. If the FED will print more money, than a larger amount of money will chase the same amount of goods and services. Inflation it's happening also when production can't keep the pace, or when we have disruptions on transports of goods. Central Banks consider a small inflation as a good thing, as this will stimulate people to spend more money, therefore it also works as a catalyst for economy. It's famous that 2% represents a very good target for inflation.

When we have two digits inflation, we call it Hyperinflation, or inflation it's out of control, this being the worst scenario that could happen for an economy. There are many examples in the history, with hyperinflation that carried a huge negative impact over countries like Germany before WW2, Zimbabwe, Yugoslavia and Greece - more on this, at: https://www.cnbc.com/2011/02/14/The-Worst-Hyperinflation-Situations-of-All-Time.html

We talk about Deflation as the opposite process of inflation, when the money supply shrinks. In a Deflation scenario, a smaller amount of money targets the same amount of goods and services. As we mentioned earlier, a small inflation is considered good for economy, and this is also valid for a small deflation.

With little deflation, prudent investors are rewarded because their money are more valuable, but if we have an aggressive deflation (like 2008 scenario) the debtors are punished. High rates of deflation imply a high rate of defaults and further, shrinking in the assets value.

At the present moment, we are witnessing a deflation scenario because we register low discretionary spending. People changed their habits during the Covid19 pandemic, they now prefer low budget activities like watching Netflix with home-made popcorn, instead of going to the IMAX movie theatre. Very few from the middle class will celebrate anniversary birthdays on expensive restaurants with $250 champagne and Taxis.

Risk appetite will continue to slow down during 2022, a year that will be marked probably by more bankruptcies and lower corporate spending. Deflation is everywhere to be seen in 2022 and Governments will have to play a more decisive role for economies in the following years, as some sectors in the economies will start to collapse under the pressure of Inflation, while some others will be relieved under Deflation, thus creating a concurrent mixing Inflation / Deflation scenario, which emerged into a new concept: Crossflation.

What Is Stagflation?

Stagflation (economic stagnation) is characterized by slow economic growth, high unemployment rates, and a continuous pressure of the rising prices. Stagflation can be alternatively defined as a period of inflation combined with a decline in the Gross Domestic Product (GDP).

A challenging 2022 will bring more insecurity, but also new opportunities for informed investors that are willing to take risks.

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The major international indices rebounded on Wednesday, despite the concerns about the Covid variant and the Federal Reserve is hinting an early departure of its accommodative monetary policy.

However, the tone has quickly turned negative with the news that the United States became on Wednesday the latest country to identify a case within its borders.

The World Health Organisation stated that at least 23 countries from five of six regions have reported cases of omicron, “and we expect that number to grow.”

The UN agency expects to have more information on the transmissibility of the new variant of the coronavirus within days, but noted that hospitalizations were rising across South Africa, where the new variant was first discovered, and omicron is rapidly becoming the dominant variant there.

More important are studies that will be delivered next days from Pharma companies BioNTech & Moderna about vaccine efficiency on new covid variant Omicron.

If there will be bad news on vaccine field, we can expect a drop on SPX to 4200 - 4250 area in short time, and to 3600 in case of new lockdowns around the world.

If news on vaccine efficiency is very good, we will pass over lockdowns and we anticipate a rebound over 4500 pts.

It's possible to have a good opportunity to buy when infections will slow down after Omicron Outbreak.

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The news about higher prices of food abounds in online stream media. Agricultural prices will go higher in 2022 and will have a significant impact on CPI. The main reason of higher agricultural prices in 2022 are Shortage of Fertilizers. Fertilizers prices have grown up this year because of the higher prices of gas and transportation disruptions.

Crops benefit more from fertilizer treatments in the early phases of the planting season. Delayed or missed application during the cycle will almost certainly result in lower yields, which tightens the food supply and drives the prices up.

Transportation disruptions because of Covid19 outbreak has affected also delivery of parts for agricultural machinery. Many farmers acquired some agricultural machinery components from over 1000 km distance. Farmers from Ukraine – the main corn producer in Europe – bought agricultural machinery parts from Austria or Germany with considerable time delays (over three months). Many farmers are purchasing parts in advance for safekeeping.

U.S. farmers appear pessimistic. Agricultural producer sentiment has started to decline in recent months. The sentiment for future conditions is now nearly as low as it was in the peak economic closure of the 2020 pandemic. Farmers have expressed concern over high input costs – i.e., fertilizer prices – weakening their operating margins.

We play this trade idea to buy Agricultural Funds like:

• Invesco DB Agriculture Fund (DBA)
• Elements Linked to the Rogers International Commodity Index — Agriculture Total Return ETN (RJA)
• Teucrium Corn Fund (CORN)

For European traders, we have limited opportunities via Lyxor Commodities Refinitiv / CoreCommodity CRB EX-Energy TR UCITS ETF – Acc (CRN). Lyxor is a fund with over 56% exposure on agricultural products, and also precious metals (11.78%) and commodities stocks (11.35%).

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We have taken a Gold & Silver Position two weeks ago, at 1.710, and respectively 22.4 because we consider that Gold & Silver are the best bet against inflation, to add it at a portfolio: https://www.tipranks.com/investors/907783/topfxinvest.

We placed our funds via ZSILUS & ZGLDUS from Switzerland (Cantobank) considering primarily the safety of the funds, but in the TIPRANKS platform we added AAAU ETF and SLV ETF, as the aforementioned funds were not available.

Why do we like Silver & Gold in the long run, from a Fundamental point of view?

• Gold & Silver are growing with fast peace because of the inflation pressure, CPI m/m numbers are much higher than expected: 9% versus 6%.
• More than 50% of Silver’s demand originates from the industrial use. Also, being a malleable metal, Silver is just as good as Gold for jewelry making. It is also a good conductor of electricity, and it is used extensively in the manufacture of electronic components.
• The transition to clean energy is expected to drive physical demand for Silver in the coming years, particularly for using it for connections in electric vehicles and for components in solar panels.
• Growing of the Fifth Generation (5G) Telecom Networks will also fuel the demand for Silver in the next years.
• Mining companies are worst performing in the last decade because of poor investments in this area.

Why don’t we like Silver & Gold in the long run, from a Fundamental point of view?

• Monthly manufacturing PMI, or Purchasing Managers’ Index figures from around the world are losing the momentum. We have some decline in summer (55.6 to 54) but it's still above 50, that means we are still in the expansion cycle. If trend will continue, it will drag lower especially on Silver, but Gold also. JP Morgan’s global PMI reading steadied at 54.1 in September, and we see some flat readings.
• Speculation since June, that the Federal Reserve will roll back its generous monthly stimulus of up to $120 billion that it has provided to the US economy since March 2020. That speculation weighed on Gold and Silver prices in the earlier months. On the stimulus end, the FED announced last week it would conclude its asset purchases in mid 2022 by tapering $15 billion each month from the program over the next eight months. FED Chair Jerome Powell also assured markets that the central bank will be “patient” in executing the first post-pandemic rate hike, which will likely take place at the end of next year. Possibility of a rate hike is dragging lower Gold, but in the long run Gold will continue to grow because of the huge amount of dollars printing in the pandemic outbreak. We have recommended buying Gold from 1.32 two years ago. Gold will enter in the second wave of growth if it breaks the Flag Formation next months.

From the Technical point of view, Gold & Silver is breaking resistance this week and it's still a good moment to add them to the portfolio, for the next years. We consider that Gold will reach the 2500$-3000$ area. Gold is breaking from a Flag Formation and Silver is bouncing from Range area. Please consider the charts below:

Gold Chart

Silver Chart

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Shipping congestions will continually to persist long time from now, until end of 2022. Also, transportation prices will still remain high. After Covid19 that is “the perfect storm” for this, other factors influenced transportation further:

• Semiconductor chip crunch affected trucks production;
• Shortage in containers;
• Shortage in trucks drivers (most of them have changed their job since pandemic outbreak).

Instead of transportation bottlenecks, companies in this segment performed better than SPX. Companies like AP Moeller Maersk (MAERSKa) or Silo Maritime Perdana Tbk (SHIP) have grown over 150% in just one year.

The Freights Baltic Index, which measures global container prices, currently stands at an average $10,321 per 40-foot container, with over 400% price increase before pandemic Covid19 Outbreak.

Investment Bank Morgan Stanley, according to a research sent to investors last week, expects shipping revenues to stay high at least through the second quarter of 2022. All ports in US are opened 24h day but instead of that, we still have congestions since we don’t have enough trucks and drivers to deliver goods to consumers.

We find difficult and risky to invest just now in this field after 150% growth, momentum is too late, but who invested in this area will have some time horizon to cash out some profits.

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Do we have the opportunity to buy Palladium and Platinum right now, since the price dropped over 22% from all time high?!?

Prices are very attractive if we look on the charts below, but Fundamental Analysis tells another story:

• Palladium is used primarily as an emissions purifier for gasoline engines cars
• Platinum is used in the same way for diesel cars    
• Auto sector is continuing facing challenges due to micro-chip shortage
• Electric cars & hybrid technology are on the wave

We, personally, don not like to take trades without a fundamental catalyst or in opposition to Fundamental Outlook. From a technical point of view, we have interest in this trade but just for a very short time (a few days trade duration).

It's wise to wait a recovery in car sales and, after that, just take this trade.

What is your opinion regarding rebounding in Platinum or Palladium, or it is only a fake move?!

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Watch Here

China Evergrande main unit Hengda Real Estate will make coupon payments for onshore bonds due tomorrow

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They say short and long-run inflation expectations are now well above their pre-pandemic range. The Citi/YouGov survey showed 12 month expectations at 4.1% (prior 3.1%) and 5-10 year inflation at 3.8% (prior 3.4%).

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Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.

The Dollar's correlation with Treasury yields tends to vary over time, and depends on the underlying macroeconomic fundamentals driving rates and FX markets

In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness

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The ECB has a monetary policy announcement on Thursday and many investors are wondering if euro will fall as the CAD or AUD.ECB was one of the most dovish central bank because of COVID spread and low performance economy.

What we need to watch today:

• Consensus looks for a slowdown in the pace of PEPP purchases during Q4
• A decision on the future of PEPP is not expected to take place at the upcoming meeting
• Economic forecasts are set to see upgrades to 2021 growth and inflation. 2023 inflation is set to remain sub-target

Focus for PEPP will instead fall on the Q4 pace of purchases which is set to be lowered from the current "significantly higher" level of EUR 80bln/month

The press conference will likely see President Lagarde caution that any slowing in the pace of purchases for PEPP will not be regarded as a "taper" as purchases are not on track to reach zero and policymakers will vow to maintain favorable financing conditions.

Policymakers were not expecting to make a decision on the future of PEPP bond purchases in September given the persistent uncertainty posed by the pandemic but. , a decision in October or December was seen as more likely.

Chart below you can see nomura forecast on PEPP

What about Rates

Rates according to Lagarde will “remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term."

Ing case scenario on ECB Forecast

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• We still remain slightly supportive in the near-term as we expect monetary and fiscal policy to remain highly accommodative but our conviction levels are simply pinned to our expectation that ETF outflows do not continue and we have some moderate inflows by the end of the year.
• With positive economic readings and in particular, positive jobs data market participants appear to be focused on the prospect of an earlier than anticipated interest rate hike. While real rates are still expected to be negative, any expectation that this could turn positive faster would really dampen investment flows.
• Our base case scenario is for gold prices to average $1,750 on average in 2022 as investment flows drop further.
• In the upside price scenario (which is the downside economic scenario), we forecast prices rising to $2,100/oz whereas the downside risk to prices (on the upside economic scenario) is limited and prices could fall to $1,600/oz.

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BoE's Broadbent says he thinks conditions for a rate rise have been met, but need to focus on medium term

BoE's Ramsden says necessary but not sufficient condition for a rate rise have been met

BoE's Bailey says he thinks minimum conditions for a rate rise have been met, but not sufficient for one

BoE's Tenreyro says she does not think guidance conditions for a rate rise have been met

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BoE's Bailey says persistence of COVID means there has not been expected rebalancing of demand between goods and services, pushing inflation higher than expected

• Semiconductor shortage has led to shortage of new cars and pushing up second than car prices as well in UK.
• Higher than anticipated inflation underlines persistence of COVID.
• Overall economic impact of COVID in UK has attenuated.
• Seeing some short-term levelling off of recovery.
• Do not think inflation will be persistent.
• Think it is unlikely commodity prices will continue to rise.
• Expect supply bottlenecks to sort themselves out.
• Large concern is getting labour market vacancies filled.
• End of furlough scheme should help fill vaccines.
• He has a bit more concern regarding persistence of labour market pressures.
• Risks on both sides to inflation returning to target over medium term.
• Market curve does point to some increase in interest rates.

GBP Going UP 20 pips on news reaction

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• The Bank continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.
• Reiterates "The Governing Council judges that the Canadian economy still has considerable excess capacity"
• "We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective."
• "In Canada, GDP contracted by about 1 percent in the second quarter, weaker than anticipated in the Bank’s July Monetary Policy Report (MPR)."
  Cad Is going in red worst performance from all currencies with -0.29% today

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Fed's Bullard (2022 voter) says Fed should proceed with tapering despite the weak US jobs data, while he dismissed concerns the rebound in the labour market was faltering and said there is plenty of demand for workers. USD strength after comments

• Note Bullard is the first Fed official to speak following Friday's NFPs.
• Headline nonfarm payrolls disappointed expectations in August, printing 235k (exp. 750k); the unemployment rate fell by 0.2ppts, in line with the consensus, to 5.2%. Other measures of slack improved in the month, with the U6 rate of underemployment falling to 8.8% from 9.2%, the employment-population ratio, which is a metric that is closely watched Fed officials, rose to 58.5% from 58.4% (vs pre-pandemic 61.1%), although the participation rate, which the Fed also factors into its deliberations, was unchanged at 61.7%. The wages data saw average hourly earnings rising +0.6% M/M (exp. +0.3%), lifting the annual rate to 4.3% (from 4.1%); average workweek hours declined a little to 34.7hrs from 34.8hrs. Analysts noted that the lower than consensus headline was hinted at by several proxies, including the Homebase Survey, the ISM survey data (only manufacturing was available ahead of the NFP report), as well as the Conference Board's gauge of consumer confidence, which all gave the impression that Delta fears were contributing to labour market tightness. Ahead, Pantheon Macroeconomics is expecting further weakness in the September data too, and is also flagging concerns over the prospects of an October revival, given that labour market behaviour lags cases, and PM says cases are yet to peak. "Before Delta, we were looking for 1M-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labor market picture so uncertain," Pantheon writes, "we think the announcement comes in December, but the FOMC could easily be forced to wait until January." Meanwhile, many have been looking for evidence that the inflation upside in recent months was more persistent than the Fed was acknowledging, and were looking for this evidence within the wages metrics (the idea is that Americans would begin to demand higher compensation amid rising price pressures, which could feed into a loop of inflation becoming more persistent). While this month's data may allude to that theme, Pantheon warns that while the +0.6% M/M jump is startling, "it overstates the trend because the data are not mix-adjusted, so a month with no net job gains in the low-paid leisure and hospitality sector will see a bigger increase in AHE than a month with more even payroll growth." Even so, the consultancy notes that wage gains have averaged +5.8% Y/Y in the three-months to August vs the previous three months, and while it is high, PM argues that "this ignores the idea the faster productivity growth potentially raises the Fed’s tolerance for faster wage growth; ultimately, what matters is unit labour costs, which remain contained."

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Goldman Sachs lowers Q4 2021 GDP growth forecast to 5.5% from 6.5% and sees 2021 GDP growth at 5.7%, while it raised Q4 2022 GDP to 3.7% from 3.0% and sees 2022 GDP growth at 4.6%

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The NFP US jobs report covering August was down too much below expectation. Most Affected domain was retail and leisure/hospitalitysectors.COVID fear is again keeping people home but also another cause is laborsupply issue because wages are up.·  Payrolls grew just 235,000 in August &unemployment rate fell to 5.2%.·  The leisure/hospitality sector had no net jobincrease and retail employment fell, yet businesses in those segments are stilltrying to hire.  ·  Similarly, construction lost jobs because ofmaterials shortages and increased price in transports ·  Strong wage growth and rising participation are notrelevant since labor demand is lower.·  The labor force participation rate was unchangedat 61.7DollarINDEX is DOWN, Stocks down and, Gold Up

Stocks open subdued across the board as August failed to follow up from July’s solid NFP report – note a recent uptick in the NDX. The below forecast range 250k US jobs added in August has hit risk sentiment, seeing stock futures reverse earlier strength (particularly Russell 2k), with a pause in jobs added in the Hospitality and Leisure sector suggestive of some Delta-induced reopening roadblocks, although one could argue that is “transitory”   Stock Markets are all time high this week ignoring the danger of Tapering this Year.  Monday markets are closed and we expect reactions on Tuesday  

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Business Summary

Upstart Holdings, Inc. is a cloud-based artificial intelligence (AI) lending platform. The Company’s platform aggregates consumer demand for loans and connects it to its network of Upstart AI-enabled bank partners. The Company’s AI models are provided to bank partners within a consumer-facing cloud application that streamlines the end-to-end process of originating and servicing a loan. It has built a configurable, multi-tenant cloud application designed to integrate seamlessly into a bank’s existing technology systems. Its configurable platform allows each bank to define its own credit policy and determine the parameters of its lending program. The AI models use and analyze data from all of its bank partners. Consumers can discover Upstart-powered loans in one of two ways: either via Upstart.com or through a white-labeled product on its bank partners’ Websites.

Financial Summary

BRIEF: For the six months ended 30 June 2021, UpstartHoldings Inc revenues increased from $81.3M to $303.5M. Net income totaled $47.4M vs. loss of $4.7M. Revenues reflectan increase in demand for the Company's products and services due to favorable market conditions. Basic Earnings per Share excluding Extraordinary Items increased from-$0.07 to $0.62.

Why we think it’s a good bet
The company helps banking partners originate loans through its proprietary AI platform and takes a fee for their services. Today, more than 90% of its revenue comes from fees from banks or servicing with no credit exposure. Upstart claims it can secure loans and banks will have with 75% fewer defaults at the same approval rates. That is amazing number for banks and we thinks this company instead of expensive price will add over 25% per year growth in long term because their business model and few competitor UPST have a disruptive technology on AI field. Last months company acquired a new market segment auto-loans like auto lending (more than a billion dollars flowed through its auto software in the quarter).

They have a visionary founders. Upstart was founded by Dave Girouard, Anna Counselman, and Paul Gu in 2012. Girouard was the former President of Enterprise, while Counselam was a Senior Vice President for People and Product. Gu was a Thiel Fellow and had been featured in Forbes 30 Under 30.

The company was raised funds from First Round Capital, Kleiner Perkins Caufield & Byers, Google Ventures, and Mark Cuban. A series A round included former Google CEO Eric Schmidt, Salesforce CEO Marc Benioff, the Founders Fund, and the Collaborative Fund.

They have very Good ratings on platforms most of analysts offers very good rating perspective

Also Fundamental Analyse Looks Good

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China's Cabinet says China will accelerate measures to attract overseas investors in domestic futures trading; China will establish international Yuan-denominated commodity futures market; China will launch pilot schemes for IP rights securitisation

Who will invest in a market with companies controlled by Govern take a look  ?!  
https://www.bloomberg.com/news/articles/2021-03-21/china-s-crusade-against-risk-is-tormenting-financial-markets

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Japanese PM Suga is to step down as PM, according to Kyodo

• As a reminder, there were comments yesterday from Japanese LDP leadership contender Kishida that they need to swiftly conduct economic measures worth tens of trillions of yen to cope with the virus pain and that they need to implement business continuation support including payouts to households and businesses. Furthermore, he said they will provide cash payouts to non-regular workers, women and households with children that are facing a difficult situation due to the virus. (Newswires)
  JPY UP with 15 pips

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Australia's New South Wales reports 1,431 locally transmitted COVID-19 cases and the state Premier says expects next two weeks to be the worst for COVID infections

New Zealand reports 28 new COVID-19 cases much lower than Australia

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Asian equity markets traded cautiously as participants digested disappointing Chinese PMI data and with a non-committal tone seen at month-end following the mixed handover from US, where the S&P 500 and Nasdaq extended on record highs led by growth and tech although cyclicals and financials lagged amid a lower yield environment

• Chinese NBS Manufacturing PMI (Aug) 50.1 vs. Exp. 50.2 (Prev. 50.4)
• Chinese Non-Manufacturing PMI (Aug) 47.5 vs. Exp. 52.0 (Prev. 53.3)
• Chinese Composite PMI (Aug) 48.8 (Prev. 52.4)

China's securities regulator is planning to impose more control regarding private equity funds and will not permit public offerings masked as private equity, while China is also reportedly to curb unordered capital expansion in entertainment.

(NEWSWIRE)

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Australia's Victoria State Premier says it is too soon to open up from the COVID-19 lockdown and would need a low number of cases to ease restrictions, adds reopening plan to be announced tomorrow but it is not freedom day and will only be modest changes

Australia's capital of Canberra will extend lockdown through September 17th

The EU voted to approve fresh restrictions on US travellers coming into the bloc. US State Department raised the travel alert for Germany and Canada to level 3, while the US also issued COVID-19 "Do Not Travel" advisories for Switzerland and Estonia.

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USD has gained vs. peers, sending the DXY to session highs of 92.791 without fundamental catalyst, however, it is worth noting that month-end factors could be the reason

Credit Agricole suggests that its corporate flow model is pointing towards EUR/USD selling; and Barclays suggests the UST month-end extension at 0.12yrs

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ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

• No risk of higher inflation at this stage
• PEPP will remain until at least March 2022; not urgent to decide on it at the September gathering
• Financing conditions have improved since June 

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Oil producers have shut-in 95.65% of US Gulf of Mexico crude output totalling 1.74mln bpd and 93.75% of natgas production, while the Colonial Pipeline announced it will temporarily shut fuel lines from Houston, Texas to Greensboro, North Carolina and Marathon Petroleum's Garyville, Louisiana refinery (556k bpd) was also shut down over the weekend. US President Biden said Hurricane Ida is life threatening with the devastation likely to be immense and beyond the coasts, while he added they are planning for the worst from the hurricane and that it would take weeks for some places to restore power following the hurricane. Furthermore, President Biden later declared a major disaster for Louisiana and Entergy announced that all of New Orleans had lost power due to catastrophic transmission damage from Hurricane Ida.

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Fed Vice Chair Clarida (voter) stated there has been clear progress on the labour market which is in agreement with Fed Chair Powell and he would support a taper if the labour market gains continue as expected, while he added that we will get a better read on the labour market this fall. (Newswires)

Fed's Waller (voter) said we have definitely made progress on inflation and that one more good jobs report will be sufficient to be able to start tapering. Waller added that he would like to start to taper early this fall and does not see a reason to wait, while he definitely would like to see MBS taped faster and would like to finish taper by mid-2022 to have the space to raise rates if required. (Newswires)

Fed's Mester (2022, 2024 voter) reiterated the Fed has basically met the criteria for tapering asset purchases and believes the Fed should use the September meeting to lay out thinking about the pace and timing of tapering and looks to end taper by mid-2022. Mester also noted that whether they start tapering in November or December, it is not going to make a material difference for the economy and reiterated that even if there is some pullback, she thinks the economy will remain strong. (Newswires)

Fed's Bullard (2022 voter) said he favours tapering treasuries by USD 20bln a month and MBS by USD 10bln a month. (Newswires)

White House forecasts budget deficit to reduce by USD 684bln in the next decade, while there were separate comments from White House Economic Adviser Bernstein that they need to keep pushing a robust recovery in the US. (Newswires)

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US Secretary of State Blinken held a phone call with Chinese Foreign Minister Wang in which they discussed Afghanistan and US-China relations, while Wang stated that China will engage with the US based on its attitude towards China. In relevant news, it was also reported that a senior Pentagon official held a discussion last week with the Chinese military for the first time under the Biden administration.

China began a two-month campaign to crack down on commercial platforms and social media accounts that post finance-related information deemed harmful to its economy. Furthermore, WeChat, Douyin, Kuaishou and Sina Weibo will begin rectifying irregular practices involving publishing financial information on their platforms in response to the latest crackdown by Beijing.

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US President Biden said Chinese officials have worked to prevent investigators from assessing origins of COVID-19 and that the US will work with partners to press China to share information. The US probe of COVID origins was reportedly inconclusive without help from China and found some evidence the origin could be from animals or a lab, while the intelligence community in US remained divided on the most likely origin.

US President Biden said they are considering starting booster shots earlier and he discussed a booster shot timeline with NIH's Fauci in which an additional shot after five months was reportedly being discussed, while the NIH launched a study of an extra COVID vaccine dose in people with autoimmune disease. However, the White House later stated that official guidance for a COVID booster shot remains eight months and that nothing has changed regarding the eight-month timeline.

New Zealand PM Arden confirmed that Auckland will remain on level 4 for another two weeks and all areas outside of Auckland will move to level 3 from a level 4 lockdown with the level 3 to be in effect for a week.

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