Calendar Week 27-2023

 

“What we learn from history is that people do not learn from history” W.E.Buffett.

 

And so as US CPE comes in as expected and short dated bonds rallied 15 basis points, yet the Nasdaq produced the best 1st half year returns since the 1983 and Apple soars to $3T valuation.

 

Whilst US macro data remains hot (and rates will continue to rise), Eurozone is going the other direction fast. Will this divergence snap back, and which way? Will US tank or Euro run hard? I believe it will be the former that stumbles rather than the Euro turning into a hotbed of economic growth and activity.

 

Commodities certainly are not indicating an global growth any time soon with all the majors in well established down trends.

 

With data still hot and inflation still high, the US Fed will keep rates rising in a bid to export that inflation and cool the cost of living. That has to hit the US economy at some point and we note from the Financial Times that Pimco is prepping for a crash landing, not a soft one.

 

But the market is short sighted as the 2yr bonds rallied 15 basis points to 4.9%, the 10yr tracked sideways at 3.8% and USD finished the week where it started circa 103. If there is a crash landing, the longer bonds will be higher as will USD. Keep an eye on them, as that will be the signal when 10year bonds push into the mid 4%’s.

 

Meanwhile, short term, we learn from history (Equity Clock) that the Nasdaq adds 4% during July and the broader S&P500 adds 2.9%.

 

Week ahead we have the Australian RBA on Tuesday with the Commonwealth the only bank tipping no change and the Futures market (based on Thursday close) showing just a 28% chance of an increase. Personally I think the RBA will. Only the EU and Japan are lower with NZ @ 5.5%, US @ 5.25%, UK @ 5%, Canada @ 4.75%, leaving Australia well behind the curve.

Other important data points this week to note is OPEC meeting, FOMC minutes and USA/Canadian unemployment numbers.

 

Currency Guidance

 

USD – Whilst the USD finished the week weakly thanks to risk on and a miniscule dip in inflation, I am seeing this as a buying opportunity, particularly on the 4hr chart.

 

AUD – Ahhh ranges…not a fan of range trading, never been particularly good at it. However, the Aussie bounced nicely off 0.66 and faltered at resistance of 0.6670. Again the 4hr here looks to be a great selling opportunity as it cycles lower. The risk is being in the trade when RBA meets tomorrow, that is something you need to work out.

 

EUR – Technically in a down trend with not only the daily bars producing lower highs and lower lows the last 4 sessions but it also failed to make a higher high on the June bull run. So my preference is to keep fading this one.

 

GBP – This one is my bug bear, because as I wrote last week, technically we should find buyers at 1.26 and we have. Technically this looks like a great buying opportunity. I just do not feel the same way fundamentally so am in a quandary. I have a saying though: “If in doubt, stay the hell out!”

 

JPY – Tagged the BOJ’s defence line of 145 and faded. Not that I am bearish USD but think the BOJs intervention here (if it is happening) will see this pair rotate lower, back to 140.