Calendar Week 11-2023

 

Things are starting to get messy! Two US banks folded this week, one of them being the 2nd largest collapse in US history. On Wednesday the view was that the US economy was super strong, so strong that rates would be touching 6% to cool it and combat inflation. By close of business Friday, that view was very different.

 

Markets got smashed and panic set in, funds flew to Japanese and US Bonds and the trusty Gold bars. Interest rates fell and the pricing of rate rises through to December this year changed to barely one this year.

 

Powell is now stuck between an Inflation Crisis and a Banking Crisis.

The contagion risk is real as depositors and shareholders of bank and bank stocks head for the exits. Will the US bail out the banks, which is inflationary. Or will they let the banks and zombie companies die. Will they repeat 2009 basically. My vote is for the latter. As I have said, QE does not work.

 

I have been saying we will see a recession this year, and this is just the start of it. Even the US Payroll data indicated weakness with wage growth sliding. This week will give us the inflation numbers and highlight the corner Powell is backed into.

 

With VIX exploding higher it is clear that panic is starting – and a lot further to go – which will see funds flood US dollar and Yen as investors seek security in Government Bonds from USA and Japan (the two largest bond markets). Gold too will do well.

 

You might think crypto, but it was because of Silvergate Capital’s exposure to FTX and crypto that if folded this week. SVB was more due to credit as interest rate hikes squeezed their margins. End of the day, do not expect crypto be the safe haven this time.

 

Currency Guidance

 

USD – Initially sold off on the SVB news but bounced beautifully on support level 103.50. It is back to being bid just off safe haven now as US bond yields tumble in expectation of Treasury and Fed bailing out the banks. If they do not, and that should be know this week, then bond yields will resume the march north. Either way, happy to be a buyer of Greenbacks.

 

AUD – Daily is still oversold, and I am not a fan of selling something already oversold, reduces the probabilities of successful trades. However, I cannot see any reason why you would buy the Aussie. Tracked sideways for 3 days, but still heading to 0.62.

 

EUR – Getting chopped around between 1.07 and 1.05. Happy to be short at 1.07 as I do not thing 1.05 will hold for much longer.

 

GBP – The Cable is the same, between 1.20 and 1.19 and I am happy to be short from 1.20 if I were to trade this mess.

 

JPY – BOJ meeting did nothing, absolutely nothing and the yen weakened off it. Until the  SVB news hit headlines and then everyone wanted yen. The USDJPY will be tricky to trade as the battle of who gets the most flow. If you wanted to trade Yen, trade it against a weaker currency like the AUD or CAD or even GBP.