Sequencing the Turnaround
S&P 500 downswing continued, and two meek intraday rallies couldn‘t change that. Bond market pressure is very much on – yields rising relentlessly, forcing the Fed‘s hand. Or better said, disbelieving that a mere series of 50bp hikes is enough to tame inflation. While inflation is making a peak here (I wrote already that May / Jun data would mark the high point) and the real economy is in slowdown mode (i.e. some demand destruction ahead), Treasuries continue sliding as bonds are propelling the dollar higher. When I look at gold resilience vis-a-vis the greenback currently approaching 105, I smell a dollar top to be made over the coming weeks (and precious metals recovering from their shallow correction into a fresh upleg).
When inflation slows down, bonds would have an easier time to rally – especially when manufacturing PMI slows down some more. That‘s when the longer duration bonds would start to do better, reflecting worsening economic outlook – that‘s the credit cycle stage we‘re approaching. Stocks would remain under pressure, and capital would start flowing to bonds. The change of focus from inflation to economic growth would put pressure on the Fed to back off from tightening, and real assets would rally. We aren‘t there yet – the Fed‘s turn would come just in time to have an effect on midterms. As I wrote on Friday:
(…) The open profits would grow fastest in stocks, cryptos and oil – precious metals and copper would require most patience, but will be richly rewarded when sniffing out the coming Fed turn and growth worries outweighing inflation concerns. Yields topping would be a first sign that monetary policy shift is knocking on the door.
For now, the directional and spread bets alredy introduced, are bringing fruits, namely in stocks, cryptos and oil. Precious metals turning around would be finally followed by the troubled copper (this one requires most patience).
There won’t be a regular analysis featuring charts or Twitter activities today, but I’m keeping a close eye on the markets and will issue a sound commentary whenever required by the markets on my watch.
Thank you for your patience.
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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
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