Mkt Rundown | CTAs Cover Silver Shorts Again and "Back to School" Chart Book
GS, DB, and JPM on Oil
Housekeeping: Have a good weekend!
Market Rundown:
Good Morning. As of this writing, The dollar is down 67. Bonds are mixed after being very strong early on. Stocks were strong and getting stronger with the Nasdaq up 2.4% at the top of the three indices. Gold has had a sizable range and started the day strong with stocks, and while it remains positive, has backed well off its highs currently up $6.70. Silver has had a good move too, but remains closer to the top of its trading range at up 23 cents. Oil is strong and staying that way for now, up $2.50. Grains are also up again. Early on they were stable, but once again Wheat has moved ahead up 4% now. Crypto is very strong. Bitcoin is up 9.86% and Ethereum is up “only” 4.3%
Gold and Silver:
No constructive Gold info right now. Please remember it is the season for selling on top of everything else. Some are reccomending clients sell gold after it dropped $300. Even the Silver EFP bears this out as the buyers of silver are once again shorts covering, not physical guys paying up. It stands to reason that unless there is news, rallies will fizzle until November. Maybe less so for Silver (we pray)
Why The Rally Today?
Markets started the day as if economic relief was in sight and perhaps it is. Of note last night was friendly Chinese economic news for starters. Speculatively speaking, the market may now be beginning to discount a higher tolerance for inflation by global central banks even in light of Powell’s tough-love speech at Jackson hole. Why? Lots of little anecdotal data points show this, but yesterday, the WSJ posted an opinion piece based on a Brookings Institute that asserts either the Fed must tolerate more inflation, or cause significantly worse unemployment.
"To get the inflation rate to the Fed’s target of 2% by then would require an average unemployment rate of about 6.5% in 2023 and 2024"- Brookings/ WSJ
Of course we agree:
July 28th: Either inflation normalizes at a significantly higher baseline, unemployment normalizes as being “full employment” closer to 5 or 6%, or we get a torrid stagflationary recession worse3 than the 1970s as the market resets itself- Two Percent Inflation is a Fairy Tale
Anyway, it is possible today’s behavior is somehow tied to the WSJ article. it sounds far-fetched we know, but given that the WSJ is now the new Fed leaker of rate decisions it makes more sense.
It also makes sense given that unless the Dollar weakens versus the Euro, they are in for a much bigger problem than the US. If the winter is cold the EU could have the mother of all stagflationary cycles. So taking these together it is possible the markets are looking at some relief from this. But let’s just look at the flow facts today.
Keeping it Simple
Of course the other more practical flow analysis is simple: The Fed raised 75 bps, and Powell talked tough yesterday, and stocks bounced hard. Therefore there are a bunch of shorts that are for some reason spooked again. These are most likely the same CTA types panic covering Silver the last few days. Zerohedge’s comments bear this out as well:
The bad news: CTA one week net change in positioning is one of the largest net selling in US equities over the last 5 years. The good news: if stocks can keep it above 4,000, they start buying aggressively next week- ZeroHedge
In thinly traded markets like metals and stocks now, CTA orders matter very, very much.
Podcasts & Posts:
Excerpts:
Stocks: Goldman on Apple. No price increases, Satellite connectivity in all iPhones free for 2 years, Rugged Apple Watch Ultra priced at $799 and other new product related info.
Commodities: JPM Believes more OPEC supply cuts are coming. With updated analysis from/on European Energy firms. They like TOTAL, BP, and NESTE to name three.
Macro: DB "Back to School" Chart Book
More at bottom 