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And today’s special is…

Inflation apparently. Today’s special’s key ingredients are earnings from US retail heavyweights. Those earnings lifted fears that inflation was on the rise and the Fed might tighten sooner; best we sell equities then and a few bonds then. Oddly, the US dollar fell overnight, having risen on the prospects of higher rates when the inflation special was the dish of the day. However, gold continues to joyously dance in the sun as the inflation hedge of choice after so long in the darkness, rising even when the inflation special is not on the menu.


Such is the state of play in the financial markets now, with conflicting themes and galactic bull runs sowing confusion and fear amongst the retail momentum-driven buy-everything mafia. The data calendar is light this week, with only the FOMC minutes to relieve the tedium this evening. With nothing material to sink their teeth into, I fully expect the headless chicken tail-chasing to continue, as will the desperate attempts to find news headlines to fit the price action.


Of course, Wall Street is not alone in this respect. Tokyo, Seoul and Hong Kong, and to a lesser extent, Sydney, are all dominated by similar flows. Unsurprisingly, after Wall Street’s 5th handbrake turn in as many sessions, Tokyo is burning the drifting rubber and heading lower this morning as well. Thankfully, Seoul and Hong Kong are on holiday today, sparing investors there another day of elevated pulse rates.


Equities are not alone amongst asset classes in the tail-chasing stakes. Still, they do naturally attract much of the “newly democratised” 2020 class of empowered investors, who have only experienced bull markets and have very short spans of attention (I blame the little portable devices they trade on for that, iPhones have turned our ability to think for ourselves into iMush) The only equivalent is the crypto-space, which runs on Elon Musk tweets and where a 30% correction is justified as “healthy” for a “newly mainstream” financial asset and “hedge” against currency debasement, inflation, ………insert investment thesis here.


Such markets can be fatiguing and are certainly fatiguing to write about without sounding like a broken record (a sound reproduction and broadcast medium used to play music when I grew up, Millennials. It came before compact discs and tapes. Oh, never mind…) I am experiencing a lot of Emperor’s New Clothes Deja-vu at the moment, as there appear to be many asset classes wearing little to no clothes. Parts of the equity market, and all of the crypto space, is looking like a Roman orgy.


From my perspective, the market’s price action, especially in the equity space, indicates either the last rites of a massive bull market or a noisy consolidation before a new directional move higher. Readers will unsurprisingly know that I am in the former camp, and not the latter, as the risks of a material move higher in US longer-dated bond yields increase. That, I believe, will be the spark for a long-overdue correction lower by equity markets. I would emphasise correction, though, as the ocean of central bank money distorting asset prices will not go away, nor will the high global savings rate, and the global economy should continue to recover. Like MacArthur, asset price appreciation will return. I cannot see that changing until the world’s major central banks taper and start hiking rates, although I am dreading the inevitable taper tantrum’s scale when it finally occurs.


Returning to my beloved crypto-space, the governmental wolves are circling. Late yesterday in Asia, the PBOC issued a warning about a rebound in speculation in virtual currencies. China announced that financial and payment institutions are banned from pricing or conducting business in virtual currencies. The story did not get much traction overnight but seems to be picking up steam this morning. Recently, Square announced they would not be buying any more bitcoin. Elon Musk has halted receiving payment in bitcoins for his electric cars, powered by electricity made from coal and gas.


I am not sure what Jack and Elon know, but I believe the regulatory risk has ratcheted up tremendously since Colonial paid their ransom in bitcoin. China’s actions raise the mercury on that front, and the Colonial situation may finally spur the US into action. I suspect they will not be alone. Poking a sleeping bear with a stick may not elicit much response initially, but you had better be prepared to run fast when it fully wakes up.


As for bitcoin, it has fallen 5.0% to USD40,600.00 this morning, continuing a gruesome run lower over the past five sessions, and with the early April highs at USD65,000.00 now a distant memory. The USD40,000.00 level is looming as a critical make-or-break pivot level. The 200-day moving average is just below, at USD39,825.00 of US fiat currency. Failure may open the floodgates for a capitulation trade lower. The knucklebones on my charts suggest a fall to just below USD30,000.00 is not out of the question.


The rest of the day’s calendar features only Japan Industrial Production and British Inflation and PPI. Both will be of only passing interest as the street awaits the FOMC Minutes tonight. Any signs of dissent amongst the members on tapering schedules are likely negative for equities as the street is already suffering inflation wobbles today. Otherwise, the long week of flip-flopping back and forth trading is set to continue.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley [4]

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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