Forex: Latest Market News

Markets are too Optimistic about the FED - Is Gold a viable bet?

Markets are too Optimistic about the FED -  Is Gold a viable bet?

Yesterday FED hiked rates by the expected 50 basis points to 4.50%, but surprised by hiking also the terminal rate to 5.1% at their last dot plot in September. They also raised the inflation forecast for the end of 2023 to 3.1% from 2.8% and the core PCE to 3.5% from 3.1%. They don’t see inflation moving toward the 2% target until 2025.That was extremely bearish for Stocks, S&P lost from +1,2% to -0.6% on market close, yesterday was an important sentiment change.

What to expect from this point?

U.S. stocks were higher last week, having rallied 15% from October lows. U.S. Treasury yields fell, causing the yield curve to invert by the most since the early 1980s. I don’t think stocks are fully pricing in the recession we see from the FED over tightening policy. The FED will eventually stop its rate hikes next year, but we’re not expecting large & successive rate cuts that the market is pricing in.

Economic activity is continuing to slow in the U.S. & Euro Zone, according to the flash Purchasing Managers’ Index for November.

EURO ZONE PMI

Euro Zone PMI december 2022

US PMI

US PMI December 2022

In the U.S., services activity has been contracting for some time, but manufacturing also contracted last month for the first time. Readings for manufacturing are at the same levels with readings during recessions in 2009 & 1991, we’ve had a fifth month of factory activity decline in a row.

It’s evident that rate hikes from major central banks, especially FED it’s a major catalyst to lowering economic activity but the size of the damage will depend on how much it will hike in 2023. We expect that the FED will stop hiking at the beginning of 2023 but will not curb inflation to 2%. In the next year, we’ll register persistent above the target inflation and lower economic activities. Major spending shifts and production constraints are driving inflation higher. We don’t expect that the FED will start to lower rates next year.

Greater Volatility it’s our main expectation next year because production constraints triggered by the pandemic (China Lock-downs) and the war in Ukraine are pressuring the economy and inflation. It's a higher risk to own stocks and bonds investors need to have short time frames between market cycles.

It will be difficult to fight with inflation for FED because of the aging population and bad demographics in the US.

Why We are Positive on Gold?

Because Gold it’s the best way to preserve value and right now it’s started to climb higher from 1600 to 1800. Gold it’s the ultimate way to hedge against these complicated macroeconomic environments. Traditionally 40-60 stock/bonds portfolios allocation is not recommended because we have a direct correlation between stocks and bonds.

Economic consensus is for weaker growth, small recession (soft landing according to Powell) and ending rate hike cycle. How does this economic outlook influence Gold?

  • Further weakening of the dollar as inflation recedes it’s positive for Gold
  • Geopolitical conflicts are good catalyst for Gold
  • Economic growth in China, after two years and half of lockdown, next year will improve Gold
  • Further weakening of the dollar as inflation recedes would provide support for Gold

Downside risks also exist for Gold via a soft landing scenario, where business confidence is restored and spending rebounds. Risk assets would likely benefit and bond yields remain high – a challenging environment for Gold.

Gold Stock Miners ETF (GDX) already bounced and offers leveraged exposure conservative investors could try our ETF with Gold backed (ZKB GOLD & UBS ETF GOLD). Read more in article Why to invest in Gold and how to store it from 26 July.

One of our best bet stock last month was IAUX i-80 Gold Corp with 35% upside because of incredible result from Ruby Hill Nevada Project.

Our worst performer was SHWZ Medicine Man Technologies with -5% but we are still positive about this company. 

To your future success!

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When SocGen talks about the Elephant 🐘 in the room !!

When SocGen talks about the Elephant 🐘 in the room !!

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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Fed Powell hike as expected 75bps but sentiment is 💪 Risk-OFF

Fed Powell hike as expected 75bps but sentiment is 💪 Risk-OFF

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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How Close Are We to a Pivot Point on Fed Policy & Stock Markets?

How Close Are We to a Pivot Point on Fed Policy & Stock Markets?

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.

GBP-USD Gilt Markets

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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MUFG Research maintains a bearish and short exposure on GBP/USD targeting a move towards 1.0450.

MUFG Research maintains a bearish and short exposure on GBP/USD targeting a move towards 1.0450.

"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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SELL EURCHF before rate announcement

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 added 3 minutes ago.

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

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Is still the Energy Sector a Good Bet from Now in perspective of a Market Recessions and the Current Superbuble?

Is still the Energy Sector a Good Bet from Now in perspective of a Market Recessions and the Current Superbuble?

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.

Putin support in percent

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:

Ukraina russia war 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:

ENPH

Enphase Energy, Inc.

SEDG

SolarEdge Technologies, Inc.

VWS

Vestas Wind Systems A/S

PLUG

Plug Power Inc.

FSLR

First Solar, Inc.

ED

Consolidated Edison, Inc.

ORSTED

Orsted

RUN

Sunrun Inc.

EDP

EDP-Energias de Portugal SA

968

Xinyi Solar Holdings Ltd.

541450

Adani Green Energy Limited

9502

Chubu Electric Power Company,Incorporated

BE

Bloom Energy Corporation Class A

SGRE

Siemens Gamesa Renewable Energy, S.A.

DQ

Daqo New Energy Corp Sponsored ADR

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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Risk On -> US CPI Peak yesterday but we don't think will go too far from this value

Risk On -> US CPI Peak yesterday but we don't think will go too far from this value

US July CPI +8.5% y/y vs +8.7% expected it's the first good sign about inflation

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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How to Protect against Strong Inflationary Environment and Higher Interest Rates?

How to Protect against Strong Inflationary Environment and Higher Interest Rates?

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?”

Natixis Managers Survey

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.

CNBC Inflation is a top problem

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

Wall street Journal investing style bonds and stocks

Market crush

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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FED Hikes Rates with another 75 bp as expected

FED Hikes Rates with another 75 bp as expected

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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No Place to Hide from the Financial Storm?!

No Place to Hide from the Financial Storm?!

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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FOMC Members are seeing Inflationary Risks on Upside, in May

FOMC Members are seeing Inflationary Risks on Upside, in May
  • 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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Morgan Stanley recommend SELL EUR/USD to 1.03

Morgan Stanley recommend SELL EUR/USD to 1.03

"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.

Always combine Fundamental Analyses with Technically Analyses.

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Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

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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Today CPI is a Hot Reading - Fed Officials Comment's

Today CPI is a Hot Reading - Fed Officials Comment's

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

FOMC Lift rates with only 0.50 % as expected

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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Tomorrow FOMC Expectations from Commercial Banks & former FED official's

Tomorrow FOMC Expectations from Commercial Banks & former FED official's

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 $95 bn/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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Risk OFF tone persists, Fear is Growing & US Dollar is in Control

Risk OFF tone persists, Fear is Growing & US Dollar is in Control

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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US Q1 advance GDP Terrible values -1.4% vs +1.1% expected

US Q1 advance GDP  Terrible  values -1.4% vs +1.1% expected

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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Germany will ban Russian Gas after drops opposition to embargo ?

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.

Oil climb after Germany announce Russian Embargo

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 

EURUSD Chart 29-04-2022

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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