Friday Chart Book
This month has brought many dull trading days and only a few sessions of head-scratching “bum-clenchers” for those with reflationary consensus positions. It’s a market in transition. The fact that policymakers are now becoming increasingly vocal about the possibility that their policy setting is not tight enough raises major questions for the months ahead. For me, there is no reason whatsoever to contemplate rate cuts. It also makes absolutely no sense just to cut and then hold for an extended period, rendering the cut basically meaningless. Markets don’t tolerate half-action. Any seasoned emerging market central banker can tell you a few stories about this. Listen up, you people at the ECB.
We are firmly in reflationary territory, and there is not much that can derail this mode until rates get to where they belong. They can’t really cut with the current trend of data, and they can’t hike either without their inherent bias. They need to feel convinced that rate hikes should be back on the table without losing face. We are talking months here. Until then, I am expecting choppy markets, which are great for traders but have a decaying hit ratio for your longer-term views. No wonder every broker I interact with pushes me to some short-vol or carry trade. No thanks. I would rather be out of the market than be in low-risk-reward trades.
Let’s now hear what Macro D is contemplating. Let’s go.
"The great advantage of playing with fire is that you never get burned. Only those who don't know how to play it get completely burned out."
- Oscar Wilde
I continue to believe that when any movement produces a repetitive up-and-down, up-and-down, it is highly probable that behind it is not a hand with its head on its shoulders but the spirit of a ghost who enjoys confusing everyone he happens to meet on his path.
How does it work? Simple.
Let's imagine that before going to sleep, we place our T-shirt on the chair in front of the bed, but when we reopen our eyes, the T-shirt is on the sofa.
Who pulled this prank?
The financial markets are having fun with this kind of prank; their speciality is not changing the layout of our t-shirts but changing the layout of prices. Last week, it happened again.
Stocks and bond yields were up (but only slightly). Gold was also trading at a new all-time high of around $2,435 an ounce, and Bitcoin briefly topped $70,000, but then something happened —something always happens.
While the market may seem mysterious, it's not a ghost-moving t-shirt based on his bravado. It's a complex system of numbers and words influenced by the beliefs and actions of those participating in its game.
But let's pause for a moment and ask ourselves: Are these movements really as significant as they seem? Or are they just part of the game that the market plays with us?
How long will this inevitable come and go? How long will market participants continue to treat all numbers and words in the market as newsworthy numbers and words?
This situation will continue until every investor finds one's forward guidance (based on the sincerity of one's inner relief and not on the falsity of one's obsessions). Still, I have to be honest: I, too, am trying to find mine. In an attempt to be successful in the task I have set myself to, I find myself forced to recognize every single T-shirt that the market persists in overturning and confusing (moving it from its usual place).
But now, how many T-shirts are there on the floor?
“In every chaos, there is a cosmos; in every disorder, a secret order.”
- Carl Gustav Jung
The death of the Iranian president and the Iranian Foreign Minister certainly did not leave me indifferent.
Ayatollah Ali Khamenei has always been the greatest Iranian political power. Still, I fear that now, a house of cards too fragile to support the weight of a country called to extricate itself from the ongoing war in the Middle East may collapse under his feet.China implemented the expected measures to "save" the real estate market, extracting 1,000 billion yuan (about 140 billion dollars) from the bedside table and then quietly cutting the reference rate to 3.95%. It initiated a "looser" monetary policy based on the prime minister's demands for "pragmatic and vigorous" action to increase the Chinese population's confidence in the domestic economy.
Xi knows perfectly well the consequences of carrying out his requests, but he doesn't care; after all, inflation is the main consequence. By now, they know this everywhere, from Rotterdam to New Delhi, from Perth to the Horn of Africa, that Chinese inflation only arises in China, but after the first cry, it moves to live elsewhere.Central banks are buying more gold than at any time in human history. And also, at the fastest pace, we can remember.
A statement from the Federal Reserve of New York forced me into unconditional silence for about two minutes. My state of mind was the same as that of the interested observer who looks at the workaholic worker who continues to postpone the moment in which he goes to take a shower because you say to yourself, "Tomorrow I'll have to go to work again, so what's the point of taking a shower now if I have to get dirty again tomorrow?"
“Missed federal student loan payments will not be reported to credit bureaus until 2024Q4. Because of these policies, less than 1% of aggregate student debt was reported 90+ days delinquent/default in 2024Q1 & will remain low until at least 2024Q4.”
It's important to note that "Missed federal student loan payments will not be reported to credit bureaus until the fourth quarter of 2024…"
Perhaps someone realizes that this dust we leave under the carpet has all it takes to unleash the Apocalypse?
But what is the terrible t-shirt that has yet to be thrown to the ground but is on the launch pad? It is represented by sensationally stable INFLATION even during an economic slowdown or a weakening labour market.
It is clear that if inflation kicks in and explosively raises its head, many will say that the Fed has stopped hiking too soon. Most likely, all those who, in unsuspecting times, have accused the FOMC will open their mouths that they first started raising rates too late and then kept them high for too long. The truth is that no matter how you look at it, the Fed is always wrong.
Jay will have to put his soul at rest. Today, inflation doesn't have to suffer too much to find something to eat: plenty of free meals are out there: the arms race, the green economy, the fiscal deficit, and the sensational development of artificial intelligence. Everywhere I turn, I see nothing but inflation seeds sticking their heads in the ground to turn into yet another inflationary plant. If inflation were to confirm its strong recovery, the central banks, while waiting to decide what to do, would begin to throw away t-shirts with a certain continuity, once on the ground and once upwards. Up and down. History repeating itself. Once again.
But where do we come from? We are coming off a fluctuating time for the financial markets, frightened by the hypothesis that there could even be a rise in interest rates when, at the beginning of the year, investors were prophesying as many as six/seven rate cuts, the compression of volatility and the latent indecision of investors make the market as slippery as a soapy cloth.
And what happens elsewhere? Here we go again; you delude yourself that you have defeated the enemy, but as soon as a new dawn breaks, you discover that the enemy is still behind the borderline. In this case, the enemy is called INFLATION.
Australia received a painful slap from the consumer price index, which, contrary to expectations, returned to its tantrums in April. The figure rose by 3.6% annually, above +3.4% and accelerating compared to +3.5% in March. It would seem that there is no disinflationary process underway; therefore, the long-awaited rate cut in Australia (which was scheduled for the end of 2024) is postponed to a later date, but there is something new (not just any news); if the CPI continues to point towards the stars, then the RBA will start to consider raising rates again.
Even in the “Land of Albion”, the chances of seeing the same film shown in open-air cinemas in the United States are high. The long-awaited rate cut is postponed monthly, pending more favourable underlying conditions. The chances of a reduction in June have now collapsed from 50% the day before to 18%. At the beginning of May, the Bank of England left UK rates unchanged for the sixth consecutive meeting, at 5.25%, and a few days ago, data on British inflation were confirmed to be higher than forecast. Services inflation also remained more than solid, rising at an annual rate of 5.9%, compared to +6% in March, well above the +5.5% estimated by the Bank of England. But what worries Andrew Bailey? The wage increase represents a large part of the inflation rate in the services sector and could support prices throughout the English economy. Well, Madame Lagarde decided (like it or not) not to have this concern, as she promised that she would lower rates a few weeks before the data on European wages wrote a number on the blackboard that would probably have caused the French lady a terrible headache. But after all, if you compete with those with more up-to-date tools and a more extended history than yours, these are the results. And they can hit hard.
The lesson? Never open your mouth if the words you intend to express are not a bomb-proof.
"There is no favourable wind for the sailor who does not know where to go."
- LUCIO ANNEO SENECA
Speaking of words (don't throw them away). Treasury Secretary Janet Yellen said the prospect of higher long-term interest rates makes it harder to contain U.S. borrowing needs.
Verbatim words: “We’ve raised the interest-rate forecast”. “That does make a difference. It makes it somewhat more challenging to keep deficits and interest expense under control.”
To conclude, there is a lot of fear out there, and a lot more t-shirts are thrown on the floor than I have described here. But life is made of choices (and t-shirts to choose). Everyone has their sensitivity; everyone makes their calculations; everyone has their P/L to look after; everyone has their own financial culture, little garden to water, and view to insinuate towards the horizon. My vision is certainly not the widest, and I do not have Cassandra [1]'s talents. However, it is still the vision (partial and destined to change as events change) of a market lover who tells himself what the shadows are (the t-shirts), which in this historical moment (on this day and at this moment of the day) scare him the most.
In short, we need to be on our guard everywhere. Why?. Look at this graph.
Given the less-than-ideal conditions for lowering interest rates and the potential risks of a monetary policy experiment, as evidenced in nations like Sweden, it is crucial to ponder: what could be the far-reaching consequences of such a move?
Let's hope for the best and prepare for the worst.
We now turn our attention to the charts. By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published.
The full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.