Calendar Week 24 – 2022

 

The USA CPI print was higher than expected and the 14th consecutive rise. The print came in at 1% putting the annual figure up to 8.6%. The market reaction was swift and aggressive, stocks were smashed, and bond yields were aggressively bid.

 

Global Interest Rates

 

Market pricing has the USA raising rates by a further 250 basis points this year, then a drop of 75 basis points in the first quarter of 2023. The US 10yr jumped 3% higher on the day to close at 3.15%. European bonds were a bloodbath, particularly the PIGS. Portugal at 2.7%, Italy 3.6%, Spain 2.7%, Greece 4.3%. Even German bunds spiked over 4% to close at 1.51%, the highest since 2014. Asian bonds not so much but still bid with Japan at 0.2%, Australia 3.6%, NZ 4%, S Korea 3.5% and India 7.5%.

 

The moves across the globe were heavy as was volume traded. Friday was cataclysmic. It behaved as if participants were hoping for good news when all the data was pointing the other way, so it caught them by surprise. I am surprised by that. With the size of the move and volumes traded there will be more to come in that direction. We are not at panic stations yet, but that will come in time. I am reminded of Justin Mamis’ Sentiment Cycle. Overlay that on the S&P500 and we are heading into the panic stage of the cycle. A break below 3800 will see the speed of the selloff increase. And so, on Friday, finally, the safe haven of gold also took off.

 

Safe Haven

 

The safe haven flows will certainly continue into the US dollar but as the panic deepens, we might see the safe haven flow widen to include Gold and others such as the AUD and NZD too. They are both high yielding with stable political arenas and economies (reasonably).

 

That said, going through the technical charts of the majors and jumping on the Greenback bandwagon is a tricky scenario right now. All of the majors are well into the cycle and far from support or exhaustion. To trade them this week you will need to go down to the lower timeframe charts such as 1 hour or 5 minutes and look to buy any dips on the USD.

 

Looking ahead for the fundamentals and we have a busy week with both the Bank of England and the FOMC meeting Thursday (Australia time). Both will be raising rates. On top of that the Swiss National Bank will also meet Thursday but unlikely to move rates at all. Further to the mix is Australia’s unemployment numbers, also on Thursday. The week will finish with a speech from Fed Chair Powell, although there is no question time so volatility should be muted.

 

Best of luck this week, it will be a notable one.