MID-WEEK MARKETS UPDATE OVERVIEW:
- Fed charge hike odds began to maneuver up after the October US inflation report, giving a elevate to the US Dollar.
- Gold prices are surging on the again of falling US actual yields (nominal yields much less inflation).
- US inventory markets might even see a little bit of issue within the coming days forward of the November choices expiry.
US Inflation Presses Greater
On this Mid-Week Markets Updates session, we explored the ramifications of the October US inflation report (CPI) and the way it might affect numerous asset courses, together with the US Greenback (through the DXY Index), US equities, gold and oil costs, in addition to Bitcoin and Etherium.
Whereas Fed charge hike odds could also be urgent up a pure ceiling because of charges markets already pricing in June 2022 because the most probably interval for the primary charge transfer, the strongest US inflation studying since 1990 has markets speculating that the Fed will act sooner. If tapering should end earlier than tightening begins, then the market is successfully saying that the Fed will speed up its taper program over the approaching months.
US fairness markets could also be an excellent inflation hedge as companies preserve pricing energy to go on prices to US customers – who’re having fun with their lowest debt burdens in historical past – however markets are likely to act up round choices expiries every month. After a big rally over the previous few weeks, it could be the case that US shares face issue within the run-up to subsequent Friday’s choice expiry.
Excessive inflation additionally has ramifications for gold and silver prices, insofar as falling US actual yields makes treasured metals extra interesting on a relative foundation. The gold value breakout that we’ve been watching since late-October and discussed again yesterday seems to be beginning, as the important thing 1835 degree was breached after this morning’s US inflation report.
Elsewhere, with Bitcoin and Etherium retaining sturdy technical momentum setups, it’s price noting that each have a tendency to trace forward-looking measures of inflation expectations. With inflation expectations persevering with to run larger, cryptocurrency markets seem well-poised to proceed their bull run after among the majors simply broke out to recent yearly and all-time highs.
CHARTS OF THE WEEK
DXY INDEX TECHNICAL ANALYSIS: DAILY CHART (SEPTEMBER 2020 TO NOVEMBER 2021) (CHART 1)
GOLD PRICE TECHNICAL ANALYSIS: DAILY CHART (MAY 2020 TO NOVEMBER 2021) (CHART 2)
CRUDE OIL PRICE TECHNICAL ANALYSIS: DAILY CHART (NOVEMBER 2020 TO NOVEMBER 2021) (CHART 3)
— Written by Christopher Vecchio, CFA, Senior Strategist