Fearless Traders Take On Inflation This Week

This week, all the stars were in place to propel indexes higher: strong corporate results, supportive comments from the Federal Reserve, and solid macroeconomic data. The rally is already underway as the year draws close, with equities showing a more robust risk appetite than ever before. US employment figures on Friday confirm these.

LastCHG %CHGHIGHLOWTREND
Dow36327.960.56%203.7236484.7536190.2Strong Bull
S&P 5004697.540.37%17.474718.54681.32Strong Bull
Crude (WTI)81.8480.63%0.51182.64281.01Bull
Gold1817-0.04%-0.791821.311812.28Neutral
10 Year148.10%1.79%0.0261.4911.462Neutral
Bitcoin/USD658644.01%25376647063337Bull
US Dollar Index94.186−0.03%−0.03294.37894.178Bull
VIX16.630.91%0.1517.2816.63Neutral

Key Drivers for the Week of Nov. 8th, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Rising Inflation (CPI Report on Wed.)
  • Covid Risk (China & Europe New Surge)

Key Events For 11/08/2021

Monday – Fed Powell Speaks (10:30 AM)
Monday – Fed Bowman Speaks (12 PM )
Tuesday – NFIB Small Business Index for October (6 AM)
Tuesday – Fed Powell Speaks (9 AM)
Wednesday – MBA Mortgage Applications (7 AM)
Wednesday – CPI for October (8:30 AM)
Wednesday – Final Wholesale Inventories for September (10 AM)
Wednesday – Energy Information Administration Crude Oil Inventory Data (10:30 AM)
Friday – Preliminary University of Michigan Sentiment (10 AM)
Friday – JOLTS Job Openings for September (10 AM)

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There are increasing cases of Covid in Europe and China. It could cause the markets to take a dip if there is a significant out-of-control increase that would cause shutdowns. Recent reports show that vaccines are much more ineffective in providing protection, but do greatly reduce deaths. We will continue to monitor the situation.

S&P 500 11-8

Investors and traders showed no “taper fear”!

Although central banks may be gradually reducing their asset purchases, the major indices of the stock market world do not seem to be affected by the announcements that have been made. Many of them, including the S&P 500 and Stoxx Europe 600, have taken advantage to set new records.

abs-adviso-reportr

After the Pfizer announcement about the effectiveness of its anti-Covid pill, the bullish acceleration continued into the final week. The markets are still in a risk-on mode for traders, and cyclical stocks seem to be benefitting. Next week’s US Producer Price Index and Consumer Price Index will be released Tuesday at 2:30 pm, respectively. The new weekly jobless claims indicator will also be released Wednesday at 2:30 pm.

This week, several central bank interventions were anticipated. Jerome Powell, chair of the institution, announced Wednesday that it would cut its asset purchase program by 15% per month to ease inflationary pressures.

This program must be ended by December 2022. The FED stated that it is willing to adjust this rate to reflect the economic evolution. The FED also decided not to raise interest rates, currently at 0 and 0.2%. Christine Lagarde, ECB’s Christine Lagarde, wants to continue providing unwavering support for European economies in fragile recovery. A 2022 interest rate increase is also unlikely, she stated.

Goldman Sachs has been fairly straightforward in its expectations. It revised its prediction for inflation to match what consumers expected. Recent notes to clients indicate that inflation will continue longer than expected and stay above 5% for the first quarter of 2022. However, inflation is predicted to fall to 3.1% next year. Goldman noted that the Fed’s consumer price index (which is used to measure inflation) will be at 4.3% by the close of the year, and possibly at 2.15% by 2022. All this assumes that tapering will end in Q2 next year.

ABS REPORT

The Fed has decided to exclude volatile economic groups from its inflation measure in order to obtain a “trimmed means.” This inflation rate is 2.3%. The Fed, in line with Goldman Sachs’s approach and possibly even more cautious than Goldman Sachs, doesn’t expect inflation to fall back below 2% until early 2023.

Surprisingly, the Bank of England decided to maintain its unchanged monetary policy. Andrew Bailey would rather wait for a more significant evolution of the labor markets, despite an inflation rate of around 5% next year.

10 Year 11-8

There is not much movement in the bond market as announcements by central banks have been known for years. The 10-year US debt rate fell 2.3% to 1.52%. The rates in France and Germany are 0.1% and -0.24%, respectively. Only Switzerland is affected by a more severe movement in its 10-year government debt interest rate. The interest rate climbed by +2900% over the week to reach -0.18% Friday evening.

The euro suffered a slight decline in foreign currency market value over the past week. It lost a few cents against the dollar. For 1 EUR, it now costs USD 1.1540. CHF 1.0560 is the current exchange rate for the EUR/CHF pair. This week, Forex has little news.

Next week, there are several indicators you should be paying attention to. On Tuesday, the US Core Producer Price Index (CPI) will be published. The ZEW indicator will be released for the Eurozone. On Wednesday, the CPI (October), which will allow us to track the development of inflation in the US, will be published.

Commodities (Gold, Oil, AG, AG)

This week, the expanded OPEC and producers met and decided to keep to their plan of gradually increasing their production. The 23 producers met by videoconference and decided to limit the production increase to 400,000 barrels per hour starting December, despite the Biden administration’s insistence for a more significant gesture to reduce energy price inflation. The US may tap into its strategic reserves to increase prices. Prices fell this week, with Brent trading at USD 81.3 and WTI trading at USD 79.8.

The Energy Supply Forum panelists gave an overview of current energy conditions and the outlook for the coming year. Dustin Meyer, American Petroleum Institute Vice President of Natural Gas Markets, says the current energy situation is “unprecedented.” On an international scale, the price of natural gas has risen so much that it “is about $200 per barrel of oil”. Although October is the slowest month for natural gasoline demand, the country saw a spike in demand last month. Meyer stated that it was “scary” because we are moving into the most demand time of year, when prices will increase.

The United States is the world’s largest natural gas producer and third-largest exporter of liquefied natural gases (LNG). The prices have risen from $1.50 per MBtu to nearly $6 per MBtu. Meyer warned that consumers will feel the increase in prices in their utility bills and power bills in the future. Because some countries pay as high as $35 per MMBtu, the U.S. benefits from domestic production. Americans could be paying much more if the Biden administration changes its environmental policies to favor imports instead of limiting domestic production. Meyer does not believe this is possible, but he does acknowledge the danger.

Energy market analysts warned over the summer that Russian natural gas shipments to Europe were not sufficient to meet winter demand. Green energy regulations and political pressure from climate change activists are preventing a rapid transition or return to coal for countries like Germany and the United Kingdom.

The resulting lack of energy availability from renewables leaves broad swaths of Europe’s energy sector vulnerable to Russian decisions to further decrease natural gas shipments. While some suspect the renewed gas problems will spark further invasions of Ukraine, it belies Putin’s strategic path toward a Neo-Soviet Russian Union and reunification with Belarus.

Russia uses natural gas shipments to Europe as a bargaining tool.

Precious Metals

The USD 1,800 barrier is holding gold back. This has so far impeded buying attacks. Despite the US’s rising dollar and positive job creation figures, the barbarian relic is now on a bullish path. Silver is also on the rise at USD 23.80 an ounce. Weekly developments in base metals are mixed as the weight of the greenback is weighing on them. This is evident in the fact that aluminum dropped to USD 2,640, and copper stabilized at USD 9,700. Nickel was at USD 1,500.

AG

Grain prices in agricultural commodities are consolidating, but they remain high due to a low supply and challenging weather.

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