Weekly: Great Week for Silver, Bad Week for Stocks

What Triggers a Fed Pivot, GS on Stocks, DB on Oil, TD on Gold, GoldFix on Silver

Sep 17, 2022

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Housekeeping:   Have a good weekend all. This report is meant to be enjoyed like a Saturday Barrons. Pick what you want to read, then feel free to share (some of it)

SECTIONS

Market Summary— Higher unemployment, stable Silver
Research— 100 bp hikes, Gold capitulation, Oil and Russian Price Caps
Week’s Analysis/Podcasts— Silver and JPMorgan
Charts— They wanted Silver, not Gold
Technicals— Gc, CL, Ng, Btc
Calendar— Fed Day, LEI
Zen Moment— Good dog, Confused dog
Full Analysis

1. Market Summaries

Bad Week for Stocks. Good Week for Silver.

Stocks

While some 'soft' survey data provided opportunities for the narrative-writers to suggest hope remains, 'hard data' this week was not pretty. CPI wrecked the 'Fed Pivot' narrative, and given Powell's reiterated position that inflation is the priority even if a recession is enabled - that sent inflation-fighting rate-hike expectations soaring this week1

Then the FedEx CEO Thursday night confirmed a global recession was underway. So between Starwood Real estate’s chairman and FedEx, the Fed now is fighting against much more than independent financial blogs like Zero Hedge in their denial of recession. We are in one, make no mistake about it. It was a mild recession back then. Now it may be morphing into a much bigger one.

We have no opinion on how bad it is, only that it exists and has existed since April. The denial of its existence and subsequent lack of action to stop it (for understandable reasons, even if it is Fed fault to begin with) only makes it worse.

Goldman Turns Bearish

Goldman discussed on Friday the possibility2 that the Fed will continue hiking until unemployment breaks above 5% unless something breaks first. That report is included at bottom. They laid out 2 scenarios if this happened for stocks

Unemployment Rises to 5% - In this situation, the S&P 500 falls below 3400 (15% from current levels), US-5 year bond yields rise by roughly 90bp relative to our own forecast to 4.5%, and the trade-weighted USD gains 4%
Unemployment Rises to 6% - In this situation, the S&P 500 falls below 2900 (27% from current levels), US-5 year bond yields rise by roughly 180bp relative to our own forecast to 5.4%, and the trade-weighted USD to gain 8%.

We think this is very possible and note they put stock targets on the market should those things happen. For our part on July 28th we said this:

Inflation has to stabilize higher, unemployment must baseline above 5%, or GDP must go significantly lower (recession worse). Something has to give.

Here is some analysis from August 21st unlocked (downloadable PDF)

What Triggers A Fed Pivot Aug 21

123KB ∙ PDF file

Download

In May after reading Pozsar’s missive (he is their current darling) we opined: It (the recession) could get bad, very bad. The alternative (inflation) may be much much worse. So far the recession itself is bifurcated and not affecting employment, although that will change. Therefore it is smart to revisit our “Fed Pivot Matrix”. We reiterate and consolidate our 4 reference points presently.The Fed will consider reversing if...

Download

Nasdaq ended the worst on the week, down almost 6%
The Nasdaq is down over 14% from its mid-August highs,

S&P and Dow are down over 10% from those highs
The S&P 500 has now closed below the 200-day for the longest time since the Financial Crisis
Next CPI is released on October 13th

Silver Week

On the week Silver fared very well, especially compared to its weaker brother Gold which had an abhorrent week. The Gold/Silver ratio plunged on the week after silver hit its cheapest relative to the barbarous relic since the COVID crisis. The last two weeks have seen Silver's biggest gains relative to gold since August 2020.

Our own fascination/interest in the Gold/Silver ratio is known, and also traded. Gold had been ramping up relative to Silver for months. We feel but cannot prove that this was related to the Gold position-squaring from Basel 3 and the JPM derivative book disclosure. But two weeks ago the ratio turned sharply lower (Silver got strong relative to Gold) in combination with CTA covering and EFP explosiveness. Somebody wanted Silver and not Gold in a big way. So what happened?

We wrote a lot on Silver this past week as it was in play to our minds. This will probably be the last of it for a while unless Gold turns.Why? Because…

PDF AT BOTTOM

Sectors

Tesla acted very strangely finishing up on the week, Possibly China related?

Healthcare was a mixed bag on the week holding up well.

Commodities:

Most notable was the fact that Silver rallied on the week, dramatically outperforming Gold and everything else we looked at
Spot Gold ended back below $1700 - its lowest since April 2020
Copper & Crude both slid lower this week on global growth concerns (though some comeback overnight after China's macro data miraculously beat)Dollar surged higher this week,. extending gains after Tuesday morning's hot CPI print.

Bonds:

Treasury yields were up across the entire curve this week but the short-end was the big underperformer
The yield curve (2s30s in this case) inverted hard this week, to its most since Sept 2000.

Note in the graph below: While rates were most definitely up, as you go further out on the curve, the longer dated Bond yields were volatile but undecided if they wanted to rise. This is a battle out there of different opinions based directly on Fed activity.

We are now at the point in the hiking cycle where some people believe that the hiking has slowed inflation down, but is causing a bigger recession than originally feared. Behaviorally this is stock investors fleeing to bonds.

If it continues assume the Fed is actually being viewed as successfully stopping inflation and the hiking cycle is close to over. If it accelerates, that means stocks are getting destroyed. If it reverses, then assume the market does not think the Fed is controlling inflation. We cover/ warn of this in several pieces a couple months ago. Admittedly some of this is good old fashioned longer dated volatility, but not all of it.

Crypto:

Cryptos were all weaker on the week with Ethereum - having successfully transitioned through the Merge to a PoS protocol - the worst performer.

H/t Zerohedge for data and some graphics.

2. Research:

GoldFix: Silver
ANZ Bank: Gold charts.
TD Bank : Gold bears
Nomura: 100 bp hike thesis- what provoked JPM to counter this week
Goldman: 5-6% unemployment
DB: Russian retaliation on Oil Price caps

CONTINUES AT BOTTOM…

3. Week’s Analysis/Podcasts

This week’s Precious Metals, Energy, and Economics pieces by GoldFix

4. Charts:

ANZ Chart Book Sample:

Dollar:

Gold:

Silver:

Gold-Silver Ratio:

Charts by GoldFix using TradingView.com

5. Technicals:

GoldFix Note: Do not attempt to use price levels without symbol explanations or context. Moor sends 2 reports daily on each commodity they cover. The attached are non-actionable summaries.

Gold: new 2 year lows bring focus

If a Gold person, strongly recommend listening to Friday’s Special Podcast

TECHNICALLY BASED MARKET ANALYSIS AND ACTIONABLE TRADING SUGGESTIONS Moor Analytics produces technically based market analysis and actionable trading suggestions. These are sent to clients twice daily, pre-open and post close, and range from intra-day to multi-week trading suggestions.