Calendar Week 37-2022

 

The Central Banks raise rates with the Aussies dragging its heels stubbornly. Both the BOC and ECB raised by 75% with hawkish commentary signalling higher rates to come, whilst the RBA raised by 50% with Lowe hinting that the next move will be smaller and slower, putting him out of line with the majors. Powell and a handful of Fed heads also reiterated during the week that the battle on inflation is only just starting and they are prepared to weather economic (read recession) to beat it.

 

With all this added expense and cost of financing to business to stock market boys thought it a good idea to buy. Smart money though will fade this bear market rally as notable (Michael Bury amongst them) economists think the bottom has not been seen yet.

 

Over in bond land, yields are rising fast, apart from Australia thanks to Lowe’s jaw boning. Across the 10-year government bonds, rates and moves over last 4 weeks are:

America 3.3% (+53)

UK 3.1% (+114)

Germany 1.7% (+81)

Australia 3.5% (+20)

 

There are of course other leading economies lower and slower than Australia, Japan stands out in particular, but Japan has a particular import/export economy that continues to struggle with international shipping delays.

 

On this note, commodities ticked higher at weeks end but finished weaker overall. With central banks trying to crimp inflation, I suspect that this weakness will continue in the week(s) ahead.

 

With all of this in mind, stock and commodity sell off along with bond yields up, we continue to look for USD strength from both safe haven flow and attractive yield. Note the average 12 month yield on the S&P500 is only 1.62% compared to the more secure asset of US Treasuries at 3.3%.

 

Currency Guidance

 

USD – We got what we asked for with a minor retracement, million dollar question is will we get more. Technically it looks like it should and could get down to the low 107’s, but sentiment might not let it. This might be the extent of the dip, but post inflation numbers (Tuesday) will have a clearer picture and would be the time to jump on the bandwagon if buyers come in.

 

AUD – Looks kind of stuck. Double bottom off 0.67 and failed at resistance circa 0.6860. Same position as last week in that I think it is a sellers market but the chart is starting to show indifference so I suggest caution.

 

EUR – Also failed at resistance, being 1.01. Any sellers show up, the pattern will repeat and I would be looking for it to leg down to 0.95 on this run.

 

GBP – Hasn’t quite done enough of a relief rally yet, falling short of resistance 1.1750. Like the US Dollar Index, it might not tag the resistance although technically it should and I would prefer it to.

 

JPY – And same again, two days of selling not quite enough to suggest the retracement is complete. Support is down at 139 but again, it might not see that.