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Is a recession coming? U.S. Treasury yields are inverted again
US Dollar Index, index, Is a recession coming? U.S. Treasury yields are inverted again The inversion of the U.S. Treasury yield curve is considered the most accurate sign that a recession is near. The norm is that yields on long-term bonds are higher than those on short-term bonds. When it is the other way around, that is the inversion. That is the case right now: the yield on two-year U.S. Treasuries is higher than the yield on ten-years.It looks like this on the chart. The difference between long and short bond yields is below zero. Gray lines indicate recessionary periods.The difference in the yield of 10- and 2-year treasuries. SourceWhy is the inversion happening?An investor thinks like this: "Soon there will be a crisis. The Fed will cut rates to support the economy. That means bond prices will rise. Long-term bonds will go up the most. So should I buy 10-year Treasuries?"That said, if the capital is substantial, the decision should be made well in advance - say, six months in advance. And so, when there are a lot of these investors in the market, a paradox happens: short bonds are still waiting for the next Fed rate hike, while long bonds are already starting to wager on a future rate cut.Inversion = recession?This indicator does not always predict it correctly. Also, historically, the time from inversion to recession varies greatly, from half a year to 2 years. If you spread out the maps, even that prediction is more accurate. And the recession is already "predicted" by macrostatistics and company reports.Rather, an inversion would only foretell the end of the Fed's rate hike cycle. That said, the first 2022 inversion happened earlier in the year, and now it has worsened - a record for the last 40 years.However, we are now living in the era of QE (quantitative easing) - which means long treasuries may be bought not by investors but by the Fed and/or the U.S. Treasury itself. In that case, "guessing on an inversion" might not work at all.So what about the recession?Without treasuries, it is clear that one is on the horizon:Business activity and consumer demand are falling;major companies are downsizing;the cost of refinancing is rising;the energy crisis adds to the problem;China "closed" on the covid.When will the Fed cut rates?On December 13-14 it will probably be raised by at least another 0.5%. And that's not the limit: the market is laying down an increase of up to 5%. The Rothschilds are even hinting at 6.789%. So, if your capital is small, it's too early to get into U.S. ...
DXY: Does the dollar still have a chance to strengthen?
US Dollar Index, index, DXY: Does the dollar still have a chance to strengthen? Trading idea for the dollar index (DXY) from November 24, 2022In Thursday's Asian session, the dollar index is now trading near 105.80. The day before, the DXY got caught in a wave of sell-offs and rolled back to local lows. The volatility of currency pairs is low, as the USA is celebrating Thanksgiving today.The reason for the dollar index decline was the yesterday's publication of the FOMC meeting minutes, from which investors found out that the overwhelming majority of the FOMC members find it necessary to slow down the monetary restriction rate. On this news, 10-year bond yields fell below 3.7%.According to CME Group FedWatch Tool, there is a 76% chance of a 50 basis point rate hike in December, although inflation remains at 7.7%, well above the 2% target.Despite unanimity on the issue of slowing the pace of monetary tightening, FOMC members are undecided on a rate hike ceiling. According to the head of Fed of San Francisco Mary Daly, the rate should be raised to 4.75%-5.25%. Experts think that the markets are overly optimistic about the imminent end of the tightening period of the monetary policy. In any case, there is no fundamental reason for this. As soon as investors realize the reality of what is happening, the dollar will return to strengthening According to Goldman Sachs, DXY expects another wave of growth.Some support for the DXY was provided by yesterday's US statistics - the report on durable goods orders and the data on new home sales.We suppose that the US Dollar index keeps the potential for growth and we place the sell orderBuy-stop 106.00 take-profit 108.00 stop-loss ...
Forex. EUR/USD: dollar is in no hurry to cede the lead
US Dollar Index, index, Forex. EUR/USD: dollar is in no hurry to cede the lead FOREX Fundamental analysis for EUR/USD on November 22, 2022Three main trumps - American exceptionalism, a tight Fed rate and demand for protective assets continue to strengthen the U.S. dollar, so it is premature, in my opinion, to talk about a reversal of the "bullish" trend on the DXY.Certainly the Fed can slow down the rate of monetary tightening but it can't give up further monetary policy tightening, even though the rate has already risen 375 basis points in 9 months. This is the most aggressive rate hike cycle in forty years. It is clear that the dollar index has recently tested the twenty-year high, holding the lead among other indices of currencies on forex.The Fed needs more evidence of slowing consumer prices. And, if there is none, the buying of the dollar will resume with renewed vigor. In addition, investors forget that Central Banks are moving in the same fairway, and if the Fed starts to slow the rate hike cycle, then other central banks will not rush into monetary restriction either.Deutsche Bank, however, believes that the main driver of the greenback's strength this year has been an increase in demand for protective assets. The Bank is not sure there will be as much turmoil in 2023 as there has been this year, and believes the DXY has peaked. However, how can we dismiss the very serious risks of a global economic recession, a war in Ukraine, tensions around Taiwan and other hot spots? All of these could shoot up at any moment and lead to losses for optimist traders.The trumps of the dollar remain in force, so we should not count on a rapid growth of EUR/USD. If the pair could not consolidate above 1.0265, the probability of decline to 1.015 is growing. We continue to hold the sales formed from 1.033.Read more: About the US Dollar Index ...
Forex. DXY: selling the dollar too long
US Dollar Index, index, Forex. DXY: selling the dollar too long Trade idea on the dollar index (DXY) from November 17, 2022The dollar index remains slightly above the 106.0 level, working off a corrective decline after last Friday's U.S. inflation report.This week the DXY bears were supported by the producer price index data, which confirmed the reduction of inflation pressure. In October, the U.S. producer price growth rate fell to 8.0% from 8.4%. The statistics reinforced speculation that the Fed would slow the pace of rate hikes in order to reduce the risks of an economic recession.At the same time, central bank officials are once again warning markets against ephemeral hopes, saying that the fight against inflation is ongoing and will not be stopped until stable results emerge. "It is wrong to be guided by a single report," the FOMC members said. Moreover, Rafael Bostic, head of the Atlanta Fed, noted that despite slowing price growth, inflation is at very high levels, far from the 2% target.The Fed says that monetary tightening will continue and that its key rate range of 4.75%-5.25% is still a priority for the regulatorAccording to the CME, there is an 85% chance of a 50 basis point hike in December.With the Fed continuing to fight inflation, dollar selling could very quickly be replaced by buying. Some kind of driver is needed for that to happen. This could be the growth of political uncertainty after the parliamentary elections in the U.S., dividing Congress roughly in half. Republicans retained control of the House of Representatives, while the Democrats will rule in the Senate. In 2011, a similar setup sent the dollar in a bullish trend after the party representatives failed to reach an agreement on the national debt ceiling, putting the economy on the verge of default.We believe that it is time to look out for buying the dollar and offer to place a forex order on the DXYBuy-stop 106.50 take-profit 108.00 stop-loss 106.00Read more: About the US Dollar Index ...

Articles about financial markets

Remuneration of American CEOs has reached a record
S&P 500, index, Remuneration of American CEOs has reached a record The annual compensation of CEOs in the United States is breaking records, despite a shortage of workers and inflation. According to MyLogIQ (a provider of analytical products of the U.S. Securities and Exchange Commission), the median salary of executives from the S&P 500 companies reached $14.2 million last year. The salary growth of the majority of company executives was at least 11%.Half of the companies also said that the salary of ordinary employees increased by 3.1% last year, and a third of the companies reported that employee compensation, on the contrary, decreased between 2020 and ...
Updating drivers - looking for landmarks
S&P 500, index, Updating drivers - looking for landmarks The past year ended very successfully for the American market: the S&P 500 rose by 26.9%, although initially a more modest increase was expected. So, our optimistic (!) scenario included an increase in the broad market index to only 10%. However, the US stock markets got off to a good start and remained on top with the support of the adoption of infrastructure reform. The economic recovery also turned out to be more active than we expected, and this helped companies to increase revenue and profit more intensively. At the same time, the development of all these trends contributed to the acceleration of inflation, which went far beyond the expectations of the Fed, the market and our forecasts. It was inflation that became the most discussed topic last year and will absolutely remain at the top of the agenda in the first half of 2022.To bring inflation under control, the Fed thought about reducing the balance sheet only at the beginning of this year: even in December 2021, there was no talk about it. The reduction of the balance sheet, combined with a sharper than originally planned increase in rates, can act as a reliable way to curb inflation expectations. These expectations are formed mainly on stock exchanges, which excludes their negative impact on the economy in general and on the labor market in particular. A steady positive trend in the labor market is indicated by data for October, when the number of open vacancies reached a record 11.03 million, 1.5 times exceeding the number of applicants. This ratio was last observed 50 years ago. Together with an increase in logistics efficiency, the restoration of production capacities and the gradual opening of the economy, this will lead to a gradual decrease in inflation. Of course, we have repeatedly talked about the upcoming opening of the economy after the pandemic during the second half of 2021, but this event is delayed due to the appearance of new COVID-19 strains. And yet, the longer the pandemic continues, the closer its end is.After a negative start to the year for most securities in the technology sector and a general correction, investors should consider closing hedging positions that I advised opening at the end of last year. Now is the time to buy a wide range of stocks with a focus on "value" and "quality" companies. The intensive growth of the economy serves as the basis for optimistic expectations regarding revenue and profit. That is why the upcoming reporting season is the strongest driver of the growth of quotations of representatives of the real sector of the economy. Of course, there is also a trend to reduce the cash flows of companies, since there is no effect of a low base and economic growth begins to slow down. However, it is predicted that the S&P 500 companies will increase sales by almost 15%, and their earnings per share will increase by 21.5%. Among the leaders will be the energy, raw materials and industrial sectors, as well as the segment of secondary necessities. The momentum for an upward movement in their quotes will be provided by strong results for the fourth quarter and optimistic forecasts for January-March. Separately, I would like to note the financial sector, which will not be able to demonstrate a record increase in revenue and profit, but industry forecasts for 2022 may become one of the most optimistic, taking into account the plans of the Federal Reserve to actively raise the key ...
Weekly review. January 10, 2022
EUR/USD, currency, US Dollar Index, index, Brent Crude Oil, commodities, Gold, mineral, Weekly review. January 10, 2022 The year 2022 on world markets will largely be determined by the tightening of monetary policy in the United States, and the first week of the new year confirmed this. The minutes of the Fed's December meeting published last week showed a significant tightening of the position of the regulator's representatives – Fed members believe that the rate can be raised as early as March, and also see a faster reduction in the balance sheet as appropriate. Representatives of the regulator believe that the current economic conditions are already in many ways conducive to tightening the labor market, some even noted the recovery of the labor market already sufficient for such actions, although the majority still expects further improvement in the labor situation. Against this background, it is worth noting the publication of December labor data in the United States, which came out ambiguous. On the one hand, employment in December increased by only 200 thousand. The Bloomberg consensus forecast assumed an employment growth of 450 thousand, and the actual growth rate of the indicator was the lowest since the beginning of 2021. Nevertheless, in many respects such weak employment growth is explained by seasonal adjustment, and the unemployment rate in December fell more than expected. Thus, the indicator has updated the next lows since the beginning of the pandemic, dropping to 3.90% against the expected 4.10%. The unemployment rate continues to approach a historic low of 3.40%, and labor statistics have further increased fears in the market of an imminent tightening of the PREP in the United States. As a result, on Friday, the yields of ten-year US treasuries at the moment exceeded 1.80% per annum - the maximum since the beginning of the pandemic. Today they have returned to these levels again.This week, the dynamics in the market will continue to be determined by expectations for the actions of regulators - investors will follow the statements of representatives of the Fed and the ECB, as well as the publication of price data in the United States for December. Statistics published last week showed an increase in inflation in the EU to 5.00% YoY. As a result, the topics of price growth in December updated the historical maximum, while analysts expected a slight slowdown in price growth. The situation on the supply side also has high inflation in the United States. The December business activity indices indicated a slight easing of logistical problems, however, the further deterioration of the epidemiological situation again intensified disruptions in logistics chains, which does not lead to a significant slowdown in price growth. The FAO World Food Price index fell in December for the first time since July, but food inflation remains at elevated levels. Against this background, US inflation data is likely to continue to bring the Fed rate hike closer, intensifying the negative in the markets.The main event for the oil market in early 2022 was the OPEC+ meeting. However, as expected, it was decided to stick to the current plan to increase production. Nevertheless, the cartel lowered its forecasts for a surplus in the oil market, which allowed Brent crude futures to exceed the level of $80/bbl. Moreover, against the background of interruptions in the supply of black gold from Kazakhstan and Libya, quotations were close to $83/bbl. However, at the end of the week they declined from these levels, today Brent futures are growing by 0.35% and are trading around $82.05/bbl. The main negative for oil this week may be related to the potential strengthening of the dollar amid expectations of a tightening of the PREP in the United States. However, in the absence of a significant strengthening of the dollar, Brent futures may still exceed the levels of $83/bbl– - the quotes may be supported by another weekly decline in oil ...
Inflation is rising in Germany
DAX, index, Inflation is rising in Germany The German Statistical Office published the final data on the dynamics of consumer prices in October in accordance with European reporting standards. They indicate an acceleration of inflation to 4.6%. The indicator is calculated in relation to the prices that were fixed a year earlier. In monthly terms, consumer prices showed an increase of 0.5%. For comparison: in September, inflation in annual and monthly terms was 4.1% and 0.3%, respectively. The calculation of indicators according to German standards showed an increase in the inflation rate in Germany to a maximum for the period since 1993. It amounted to 4.5% in annual terms. Compared to September, prices rose by 0.5%. Both indicators correspond to the forecasts of the surveyed analysts. By the end of September, inflation was 4.1% compared to the same month last year. In monthly terms, it showed zero dynamics. The largest contribution to the growth of October inflation was made by energy carriers. They have risen in price by 18.6%. The cost of food increased by 4.4%. Prices for services increased by ...
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