pebblewriter

Tag: RSI

  • Japan’s Runaway Inflation

    Japan’s inflation hit a 40-year high in October, driven by a policy of placing stock market gains above all else.

    When Japan first adopted negative interest rates, the argument was that it would help end the country’s deflationary spiral and return inflation to a 2% goal. Now that inflation is nearly twice as high as the goal, one might expect rates to move at least a little higher.

    Although the BoJ has allowed the 10Y to rise to 0.24%… …they have held short-term rates at -0.1% since 2016.The BoJ’s utter lack of candor is nothing new.  Forget about FTX. Japan’s markets are the biggest Ponzi scheme on Earth. Since the Fukushima disaster in 2011, Japan’s stock market has been driven principally by the yen carry trade which relies on an ever-cheaper yen to attract capital into the stock market.The obvious limit to this scheme is that as the yen depreciates, imports become more expensive. And, since Japan imports all of its oil and most of its food, it was simply a matter of time before inflation bit Japan in the お尻.

    Luckily for Japan, they have no bond market per se. The entirety of Japan’s borrowings are purchased by the BoJ. This monetization of debt has gone on for years without repercussions – until now.

    The Nikkei was locked in a falling price channel between Feb 2021 and Mar 2022, when the decline finally reached -20.7%. At that point, it was less than 1% away from its pre-pandemic highs of 24,140.It was no coincidence, then, that USDJPY picked that specific moment to break above both the midline of a channel and a trend line at least 50 years old.Subsequent rises in the USDJPY (declines in the yen) have acted to lift NKD above its SMA200 and out of its falling channel. Everything’s going great – unless you consider rising taxes and plunging consumer confidence problematic.

    Come to think of it, the US faces similar problems.

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    In other news, VIX has sent the all-clear to algos to rally at least a little further – this being OPEX and all.continued for members… (more…)

  • PPI Lower Than Expected

    October PPI came in at 8% annually and 0.2% monthly versus expectations of 8.3% and 0.4%. Core PPI remained unchanged at 6.7%.

    Futures popped up to our 4050 IH&S target on the news, but had already ramped over 40 points prior to the print.

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  • Losses Accelerate

    Futures are off sharply this morning as important support for various instruments/indices/currencies begins to break down.

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  • FOMC Day: Jul 27, 2022

    Futures have ramped almost 1% overnight – a common occurrence lately, especially in advance of a Fed decision.

    Even the durable goods orders beat (a miss if you’re looking for the Fed to slow their rate hikes) did nothing to thwart the algo-driven meltup.

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  • Update on Currencies: Apr 28, 2022

    The dollar index continues its tear, surpassing both its 2017 and 2020 highs this morning. This is consistent with our forecast [see: Apr 11 Update on Currencies] that the Fed would need help from a rising dollar to attack inflation without having to resort to sky-high interest rates that would further accelerate the growth of the country’s national debt.At 103.928, DXY hasn’t seen these levels since 2002 in the midst of the 54% dot com crash. While beneficial to the inflation outlook, the dollar’s strength hasn’t been very healthy for alternatives such as silver, which just reached our next downside target.continued for members… (more…)

  • Charts I’m Watching: Feb 7, 2022

    Futures are up slightly as we approach the open – an extension of the bounce off recent lows.

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  • The 10Y’s Warning

    10Y yields briefly poked above the Mar 2021 highs, adding to the drama surrounding next week’s CPI report.

    Meanwhile, December NFP came in at +199K, less than half consensus, while the unemployment rate dipped to 3.9% and wages continued to strengthen.  Remember, this was all pre-omicron.

    Futures were not amused. While ES held its 50-DMA yet again, we get the sense it won’t be for long. continued for members… (more…)

  • Charts I’m Watching: Dec 6, 2021

    VIX tagged our 34.84 target on Friday – an important breakout in risk – before tumbling back into the safe zone.

    With other factors holding their ground and equities’ 100-DMAs still untagged, it’s not at all clear that the worst is over.

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  • DXY: Finally Breaking Out?

    Stocks tumbled yesterday on inflation numbers that call into question the pace of the Fed’s taper and rate increases. Then they rallied overnight on an 11.4% collapse in VIX. The most significant chart on my screens at the moment, though, is the US dollar. DXY has had great difficulty breaking out of a tightly controlled consolidation pattern that dates back to July 2020. It tried this past September, but was smacked down to support stocks’ recovery from that terrifying (sarc) 5.8% slump.Now, it’s making another bid for a breakout — one we’ve been expecting for months (a very lonely stance BTW) — which wouldn’t bode well for stocks. Is this one for real?

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  • CPI: Out of Control

    CPI soared to 6.24% YoY in October, well above the 5.9% expected and the highest since Nov 1990. The MoM print of 0.9% and the Core CPI print of 4.2% also came in hotter than expected and set multiyear records. Put simply, the Fed has lost control.As we’ve discussed, inflation continues to become more broad-based than the oil/gas-driven effect initially seen earlier this year.

    The chart below shows the divergence from May-September and illustrates the importance of oil/gas prices to future inflation prints. If gas prices were to level off at today’s levels, the direct effect on CPI would cease in November. However, even if the base effect were to roll off, the other categories are now equally problematic. Futures are off 20 points on the news, with several key factors indicating more to come.

    Today marks the point at which the Fed officially stops cheering on the reflation trade.

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