Tuesday, June 7, 2022

Morning Note: Rate hikes, QT, no more QE, yada yada...

Events in Asia -- specifically, the Australian central bank surprising with twice the anticipate rate hike, and a pledge to maintain diametrically-opposed to that policy in Japan (seeing the yen to a 20-year low) -- the former in particular, was felt in the overnight trading action, inspiring a notable dip in global equity futures.

As we know, the Fed's bloated balance sheet gets constrained to the tune of $47 billion this month, the same the next 2 months, then $95 billion per month thereafter... That's referred to as QT (quantitative tightening). 

The uber/ever-dovish European Central Bank (ECB), while not engaging in QT, is ceasing its QE (E for "easing"; i.e., bond buying) campaign officially this Thursday. Although the FT reports that, well, like I said. the "ever-dovish" ECB -- per Peter Boockvar this morning:
"The ECB on Thursday will officially announce the end of QE but as with checking out of Hotel California, they will never leave.
The FT is reporting today that “the ECB is this week set to strengthen its commitment to prop up vulnerable eurozone countries’ debt markets if they are hit by a sell-off, as policymakers prepare to raise rates for the first time in more than a decade.”
How would they do this? Create an entirely new bond buying program “if needed to counter borrowing costs for member states, such as Italy, spiraling out of control, according to several people involved in the talks,” said the FT. So QE is only ending temporarily it seems and we’ll see if they can even get out of zero rates this year.
But, we know the market hasn’t waited around and has sharply hiked rates for them, particularly in Italy where its 10 yr yield is up 220 bps this year alone. The bottom line is that price stability is not the ECB’s number 1 priority, it is 2nd. Financing the debts and deficits of the Eurozone is now number one. The Italian 10 yr yield is down 5 bps today on this story and the euro is lower for a 3rd day. I’m amazed at how little talk there has been about the European bond sell off over the past month."

So. all of the above, and the plethora of other stuff we could ponder this morning, aside, remember, you regular video watchers, while the daily chart of the S&P still offers short-term hope for the bulls,

the 60-minute chart's been flashing a serious loss of momentum:

So, while the jury's still out with regard to our 4,300 near-term upside target for the S&P, the longer-term charts (as I'll report in tomorrow's video) still support our lower-before-this-is-over view.

Asian equities struggled overnight, with 10 of the 16 markets we track closing lower.

Europe's a mess this morning, with 16 of the 19 bourses we follow trading down as I type.

US stocks are lower as well to start the session: Dow down 162 points (0.50%), SP500 down 0.47%, SP500 Equal Weight down 0.55%, Nasdaq 100 down 0.67%, Nasdaq Comp down 0.67%, Russell 2000 down 0.19%.

The VIX sits at 25.73, up 2.63%.

Oil futures are up 1.20%, gold's up 0.49%, silver's up 0.07%, copper futures are down 0.55% and the ag complex (DBA) is down 0.45%.

The 10-year treasury is down (yield up) and the dollar is up 0.15%.

Among our 38 core positions (excluding cash and short-term bond ETF), 10 -- led by energy stocks, Dutch Bros, base metals miners, MP materials and treasury bonds -- are in the green so far this morning. The losers are being led lower by Latin American equities, uranium miners, base metals futures, solar stocks and AMD.

Plain and simply:
"...as people get used to doing well, they increasingly bet on the good times continuing— and borrow money to do that—which leads to financial bubbles."

--Dalio, Ray. Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail 

Have a great day!

1 comment:

  1. Thanks Marty. Mark and I are glad that we are hedging with this volatile market.