Friday Chart Book

May 10, 2024

First, it was Switzerland, and then it was Sweden's turn. The Nordic country also reversed course and started cutting rates. On Wednesday, after eight years, the Swedish central bank lowered its key interest rate by 25 basis points from 4% to 3.75%.

The official words express moderation, realism and satisfaction: «Inflation is approaching the target, expectations remain firmly anchored, and wage increases are moderate, while economic activity remains weak».

The outlook for inflation remains far from certain, and (as in every other part of the world) the risks that could cause inflation to rise again in Sweden are closely linked to what is happening in the United States and to geopolitical developments.

Now it is the turn of the Bank of England, which, at its meeting on Thursday, 9 May, should not surprise the markets and leave the interest rate at 5.25%.

The BOE will emphasize (an accent synonymous with confidence) that inflation is taking a much-desired turn worldwide. A rate cut could happen immediately after the summer (in September), or you could also decide to wait for the moves that will be decided in Washington.

At this point, the number one candidate to take the big step is the ECB, with Christine Lagarde, in the guise of heroine, ready to leave behind this cost of money now at 4.5%, which weighs so heavily on it.

As for the FED, rates remain firmly anchored at 5-5.25%, and Jay, in his role as a psychologist of the monetary policy committee, stated that he and his colleagues have not yet acquired the necessary confidence, the one that would allow them to believe to inflation that is heading towards the much desired 2% area.

About the USA, now and then, the stainless Jamie Dimon gives me something to think about — goodness of him.

His latest outburst from a few weeks ago comes to my mind every week, and it cannot go unnoticed if only for the implications his words force me to have. What are the implications?

The usual ones encourage me to look for confirmation/denial of his words. Dimon talks about an American economy as strong as ever, and as a poor observer, all I have to do is get busy and muddle through trying to understand.

Maybe I'm wrong — it wouldn't be the first time, but when I hear about a "flying economy," I immediately run to see how the job market of that country is doing with such a healthy economy. I did it this time, too, and here's the thing — one fact above all.

During the third quarter, the survey estimate for the net change in employment was a staggering -192,000, a stark contrast to the CES figure of +494,000. This discrepancy suggests a potential loss of half a million jobs, a significant concern.

At this point, I was struck by a shiver born of pessimism, and I decided to look around before deciding which way to tip the scales. Since I imagined the worst possible picture immediately, my first step was to knock on an old acquaintance's door. The National Bureau of Economic Research (NBER) is an American non-profit research organization in the economic-financial field that sets itself up for a pretty good task: spotting a recession. The data researchers rely on to spot a recession must be truthful; otherwise, the process gets tricky.

But how can a recession be detected if the data used to detect it cannot remain in equilibrium?

Given the volatility of employment, income, and consumption data, I find it challenging to place full trust in the NBER's data. This is particularly concerning considering their task of detecting a recession, a task that is far from straightforward.

Source: St. Louis Fed

Source: NBER

After reviewing these graphs, I decided to settle down and go to a place with its own truth. Which truth? This one below.

Source: Truthflation

Therefore, real inflation would not be the 3.5% we usually are given, but 2.22%.

Who do we want to believe?

As far as I'm concerned, I believe everyone, but at the same time, I believe no one.

At this point, I convinced myself that the best thing to do was to reread some passages from the book Reminiscences of a Stock Operator; the company of the great Jesse has always helped me get back on my feet in times of difficulty.

A few hours have passed, but the central banks, their representatives, their meetings, and their drafts have all returned to visit me.

Australia's central bank held its key rate at 4.35% for the fourth consecutive meeting and said recent data showed that while inflation was easing, its pace of decline was not what the committee expected. Of monetary policy was expected.

In Japan, the grey eminence of the currency markets, Masato Kanda, said that "appropriate actions" could be taken if there were disorderly exchange rate movements, evidently driven by speculation and therefore capable of influencing the path of the yen in the long-term period. Kanda denied (and let alone the opposite) the alleged government intervention to support the Yen and reiterated that exchange rates should remain stable following the fundamentals. Staying in Japan, I was struck by the fact that the final PMI data from S&P Global openly showed that service sector activity in Japan grew in April at a rate not seen since the previous August. The main index of services business activity stood at 54.3 in April, compared to 54.1 in March, hitting an eight-month high. Since a figure above 50 is synonymous with expansion, I have the impression that the markets will not let this data go unnoticed in the coming days.

In short, we are in the middle of a week that behaves like that chicken that doesn't know where to lay an egg. In recent times, we have witnessed the vicissitudes of the Yen, a US employment figure last week that sent many of us to the psychologist's couch; we have seen bond yields collapse, the Yen strengthen and then fall again and in all this turmoil, I have asked myself:

“What if someone in Tokyo put US Treasuries up for sale to give oxygen to his crusade that should save the yen?”

I confess: the question died in the bud, and there are no answers to discuss.

So, I put the markets aside and looked at those who habitually influenced the markets. It could have been a pretty sight.

I saw that the Financial Times pointed the finger at possible Russian acts of sabotage in anticipation of the European elections in June, but this was the last shot in the pile. Once again, I found myself with my head in my hands and one last question that won't put you back on the doormat of my house. Where is the evidence?

Yep, the evidence, but how can you live without it?

Let’s 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. I have now also recorded a brief video tutorial, which you will find further below.

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.

Let’s go!