Calendar Week 21-2023

 

Debt Ceiling talks failed on Friday and still no closer to an agreement over the weekend. End date, according to Yellen, is June 1st. They have 10 days to figure it out until they run out of money. This uncertainty hit stocks into the close on Friday and the week ahead will undoubtedly be volatile conditions.

 

A lot of FOMC members speaking up last week, trying to convince the market that rate cuts are not on the agenda anytime soon. The market has not priced in the risk of higher rates as they are pricing in a pause in rates, then cuts. So that could be the surprise move. That the Fed has to raise further after the pause in June. With stocks getting over heated – particularly tech stocks – the biggest risk is the market tanking, no FOMO trading now.

 

The third issue in the risk triangle is the banking crisis. Aunty Janet Yellen came out last week and told the big boys that they might have to buy/merge with more regional banks in the near term. This, despite regionals having a good week is a nervous sign of more banks defaulting in the future.

 

With all this in play, it is a difficult balance for investors. The idea of stocks rising for sustained period seems unlikely and the sale of long dated corporate bonds (30year) is up 26% compared to last year as investors look for safety in an uncertain time.

 

Looking ahead this week we get UK CPI and US PCE as the key figures. RBNZ also looking to raise rates mid-week and the usual talking heads.

 

Currency Guidance

 

USD – Turned at our expected 103 level on Friday to take some heat out of the trend. But we like the pull back and expect this to find support here, or 102.30 to then rally towards next major resistance at 105.30.

 

AUD – Some buyers came in at 0.6606 keeping the Aussie in the 4 month range. I still do not think 0.66 will hold for too long. It will have a 0.65 handle by the end of the week, even testing 0.6500 I suspect.

 

EUR – Found buyers at minor support of 1.0750, but it is a weak level. Resistance at 1.0850 now and would be ideal to fade that if sellers kick in there.

 

GBP – Cable looks tricky as a lot of clutter here at 1.2450 and 1.25. My preference would be to sell it, purely on the back of the strengthening US dollar.

 

JPY – Broke through the resistance and now back testing it. Looking to bounce this into the 142 area.