Key Market Trends
Tip: This can be used as a guide to the short-term direction for key markets. A client of mine used to call me almost daily asking about the direction the markets were going. This is a cheat sheet that will give you a good idea of the current market trend.
Key drivers for the week of July 12, 2020
TIP – Here is a one-minute bullet-point summary. This tool gives investors and financial professionals a quick and simple list on what to look out for, and the main talking points of the week.
- Lagarde is expected to give a more dovish approach amid ECB’s new strategy
- Earnings highlights the U.S. Calendar, spanning key industries of the economy
- U.S. Data includes NIFB data, housing starts, existing homes sales, and jobless benefits
- Teranet/National Bank HPI reports Canada retail sales
- Olympics July 23 – August 8, without spectators
- Japan CPI and trade BoJ minutes, holidays on Thursday and Friday
- Bank Indonesia stable; Korea PPI, Malaysia CPI and HK unemployment
- Consumer confidence and current accounts, European preliminary PMIs
- Retail sales, CBI Industrial Trends and UK preliminary PMIs
Inflation spikes in the coming week
The dollar and the yen continue to be popular safe-haven assets A backdrop of falling equity markets is a common theme. Not surprisingly, the biggest decliners have been dollar bloc and other currencies that are cyclical, such as many developing-world currencies.
Today, the sharp increase in Covid D cases in Asia is the main spoiler of the mood. Many nations in the region are experiencing their worst outbreaks ever since the pandemic began.
Delta is responsible for the rapid spread. In many parts of the region, lockdowns are necessary due to low vaccination levels. There is another wave sweeping across other regions. This includes nations in the EU.
The Covid D is not a big threat to the economic system.
Inflation was all the talk last week and will remain a focal point near term—this week. Even though the price pressures in the U.S. are higher than expected, the Fed, ECB and BoJ have maintained their accommodative stances. “transitory” Nature of the increase in prices
The Fed expects the inflation rate to rise.
Treasury Secretary Janet Yellen stated that she expected “several more months of rapid inflation” The onset of the senescence will be gradual “medium term.” Some people believe that the increase in inflation is largely due to the openness of the economy, and supply chain problems.
Jay Powell, the Federal Reserve chair, attempted to calm inflation fears last Wednesday in Congress. “I know people are very worried about inflation. We hear that loud and clear from everybody.. it is really going through the economy and through every business,” He said.
Powell told lawmakers that, while he believes that inflation is temporary, the Fed will act swiftly to prevent a sustained rise in inflation.
But I disagree and believe that inflation will continue to rise as waves, not in a straight line. As both Jeff Gundlach, and Ray Dalio, predict for this summer’s peak, I believe that we will be heading to a runaway situation of inflation similar to 1970.
This week, Congress will pass two major new spending bills.
This week the focus is on passing the “infrastructure bill” Because the Senate Budget Committee reached a consensus on a spending plan of $3.5 trillion. Senate Majority leader Chuck Schumer made this his priority and is planning to use “reconciliation” The bill must be passed.
Republicans will likely oppose it and put up a big fight. Lindsey Graham said Republicans could take a leaf out of the Democrats’ book and pass the bill with no quorum.
Graham argued the bill was unconstitutional “got nothing to do with infrastructure” It is “a tax and spend dream of the socialist left.”
The debt ceiling must be raised by the end of the first week of August, in addition to the Infrastructure Bill. This could be a big fight but neither side wants a shutdown.
What does this mean exactly?
Amid the CPI numbers from last week and the rising inflation rate, I believe that there is less than a 50/50 chance for Congress to pass any new spending. Sen. Joe Manchin could broker a $900 billion deal, which would be less than one-third of what Democrats want.
Any increase in government expenditure will lead to massive long-term borrowing and currency devaluation. The inflation rate will increase if more government spending is passed.
For those who do not know or remember, in the 1970s the Fed could not control double-digit rates of inflation. It was only by increasing interest rates to 20 percent that it managed to get the situation under control.
A light calendar will make earnings a priority. Last week, banks reported mixed results to kick off the second quarter. This week, we have airlines, tech and drug companies.
The bar is set high for reopenings. Netflix highlights Tuesday, J&J and Coke are due Wednesday, with Intel and AT&T Thursday, while AmEx and Honeywell complete action on Friday.
For today’s report, the NAHB housing index for July is expected to remain at 81. In the coming week, we will see housing starts, home sales (new and existing), as well as leading indicators. Fedspeak turns dark before the July 27, 28 FOMC.
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You can also find out more about the following: Advisor Market Intelligence Report Includes:
- Key Market Drivers – What is directly affecting markets?
- Index & Sector Trends – You can use this information to determine which areas or sectors are experiencing an upward or downward trend.
- Global Market Analysis – Get a high level picture of US and global economies.
- Stocks to Watch – Watch out for stocks with high dividend yields and quality blue-chip stocks.
- Economic Calendar – What’s happening this week?
- Specials Reports – Get critical insider insight on key market movers such as inflationTax bills and unique events