The State of Zen returns

Fed Chairman Powell did what he had to do last night, beat the transitory inflation drum and dampen rate hike expectation. Although the reaction in markets was not spectacular, it was enough to let markets move back into their happy place. Stocks rallied, notably technology, the US dollar eased a little, as did US yields. Business as usual. Even oil finally saw some profit-taking ahead of next week’s monthly OPEC+ meeting.

The process was helped along by US Existing Home Sales edging lower again, albeit from a very high base. New mortgages and home sales have been easing for a while in the US, where I believe selling prices are now meeting buyer resistance. Japan and Australia PMIs also eased this morning, again from elevated levels and still in expansionary mode. The pan-European and US PMI releases tonight may tell the same story as the northern hemisphere reopening boom slows somewhat. It is important to note that the recovery remains on track, perhaps just at more sane levels.

A softer Durable Goods and PCE Prices from the US tomorrow may also dampen the taper-tantrum nerves.

That should support US equities, especially big-tech once again, which are, for now, ignoring the threat of proposed antitrust legislation to reel them in that is brewing in Congress. That may be a story for Q4, but as I have stated before, the main threat to US big-tech’s hegemony is the US Congress and antitrust legislation. Their Standard Oil moment could well arrive later this year, and they have upset enough politicians on both sides of the political divide to potentially make it happen. The evolution of this story is well worth investors monitoring closely.

In Asia, the calendar is quiet once again. The Bank of Thailand announces its latest policy decision today, and it will leave rates unchanged at a record low of 0.50%. As Thailand grapples with Covid-19 and a delayed vaccination rollout, and with the tourism sector still in deep freeze, any change in stance from the BoT is a 2022 story.

PMIs from around the world aside, the data calendar is quiet still; the start of a new month next week will ramp up the volume on that front. In the meantime, I still believe it is a day traders’ market this week. We are at the mercy of Federal Reserve speakers and headline bombs, meaning today’s business as usual rally could be tomorrow’s taper tantrum. Investors should watch from the sidelines this week or stay nimble intra-day; it isn’t the week for big directional calls.

On the subject of directional calls, bitcoin slumped briefly below USD29,000.00 yesterday, making me look very clever briefly. That 12% slump quickly turned into a similar-sized rally though that continues in Asia today. Given the amount of focus on the USD30,000.00 digital Armageddon level, I suspect the smart money moved their stop losses lower. When we didn’t see a meltdown, the FOMO-nistas did the rest.

Sitting just shy of USD34,000.00 now, it has probably weathered the storm in the near term, and I’ll pick some numbers out of the matrix and say USD30,000.00 to USD40,000.00 will cover the rest of the week/weekend. Bitcoin may even be benefiting from a flight to safety from other virtual Dutch tulips. But, like other asset classes, the whipsaw intra-day sentiment means it’s not out of the woods yet either, and USD28,000.00 is my new line in the sand to spark an exit trade.

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