Closing changes for the main European bourses:
- German DAX -0.1%
- UK FTSE 100 +0.5%
- French CAC +0.1%
- Spain IBEX -0.8%
- Italy MIB -0.6%
A week ago, German stocks looked like they might spring back but it’s treading water near the lows now. In today’s trade it found some life late as US equities improved but there’s no follow through from last Thursday’s rally, which was the biggest in months.
A lesson in what happens when something can’t go down
Bitcoin is up $3200, or 6%, since Friday and has broken above $57,000 for the first time since May.
On Friday, I was highlighting the mounting case for buying it. We’ve seen a barrage of negative news lately including a(nother) ban from China and it became increasingly clear the White House has also taking aim at crypto.
Yet none of those headlines even dented bitcoin. When something can’t fall on bad news, it’s not going to fall at all.
Future’s markets really pricing in extra rate hikes rapidly
- December 2021 futures pricing in 20bps hike
- June 2022 futures pricing in 0.50bps hike
- Sep 2022 futures pricing in 0.64bps hike
How far is too far? Uncertain, but GBP buying dips makes sense for sure on BoE inflation fears.
Close correlation – How can you know unless you are told?
If you are trading the USDJPY pair you will want to have a US10 year yield overlay on your chart. Why? Because the pair tracks the US 10 year yield vey closely.
So, the recent break of 1.60 on the US10 year is opening up a retest of 1.800 ish. This means that USDJPY could have a 130+ point run up higher this week towards 114. All of this on Fed taper hopes for November + inflation fears forcing central banker’s hands.
Germany has a problem
Energy will be in focus for the near term as China, India and Lebanon all face shortages.
A cold winter in Europe could be a real concern. Here are the current gas storage levels in Germany. Notice how low they are.
Natural gas till holding near term daily support. This is a key level for now marked on the chart. That will need to break lower to give confidence in last week’s ‘blow off’ top actually being a blow off top.
An extract from ABN Amro on gold, analysts looking for USD1700 by the end of this year and USD1500 at end 2022.
Citing 3 reasons.
1. Tighter global monetary policy ahead:
- Fed to start hiking early 2023
- Bank of England and Bank of Canada to probably hike before then
- ECB, Bank of Japan, Reserve Bank of Australia, Riksbank and the Swiss National Bank will likely hike later
- Only in China has the central bank been easing in piecemeal steps to support the economy.
If you are unfamiliar with the transmission of monetary policy into gold pricing ABN Amro go on:
- Tighter monetary policy is in general negative for gold prices, also because yields on government bonds have a tendency to rise
What that means is that gold does not pay ‘interest’ (it does not pay anything and indeed holders of physical gold can be charged storage fees). Hence rising rates on fiat diminish the attractiveness of gold.
2. 2-year UST real yields to rise:
- “There are two dynamics at play here. First, we expect the 2yr US treasury yields to rise a bit more than what markets are now expecting. Moreover, we think that inflationary pressures will ease. This results in higher 2y US real yields and that will weigh on gold prices going forward.”
3. ABN Amro see the USD as rising further ahead.
- “This will likely be a modest increase. Higher US dollar is generally negative for gold prices.”
Gold chart …
Strap in for another week of dire news of China’s property development sector.
As background, ICYMI, the firm has missed payments on a number of coupons and bonds it has guaranteed.
report on expectations of default on offshore bond payment obligations imminently from investment bank Moelis & Co, which has been selected as an advisor by a group of the developer’s bondholders.
The vote in the Senate on Friday (Asia time) cemented a raised debt limit for the US until December.
There is still a House vote to come this week but that should pass easily.
Over the weekend Senate Republican Leader McConnell wrote a letter to President Joe Biden:
- said he would not aid in raising the debt limit again
The relevant part of the letter is here via Reuters
, long story short is McConnell has spit the dummy because he was upset by comments made by Senate leader Schumer.