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Pre-FOMC Shuffling

By MarketPulse (Kenny Fisher)Market OverviewJun 15, 2021 05:32AM ET
Pre-FOMC Shuffling
By MarketPulse (Kenny Fisher)   |  Jun 15, 2021 05:32AM ET
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Some pre-FOMC position shuffling is occurring across asset classes at the moment. Equities continue on their merry way higher, with the S&P 500 and NASDAQ tracing new record highs overnight. The Dow Jones is lagging, perhaps as its components could be perceived as more vulnerable to the rising inflation data being seen across the world. US yields moved higher across the curve overnight, notably in the 30-year tenor. Given the recent gains in bond prices, though, the price action looks more corrective and cautious, with US Retail Sales and PPI to come today before the main event tomorrow.

Currency markets held steady, having had their US dollar rally day in the sun on Friday, but gold’s woes continued. Gold fell over USD30 an ounce at one stage yesterday before recovering somewhat, with the price action highly suggestive of stop-loss selling, culling the herd of heavy speculative long positioning. Notably, the USD1840.00 to USD1845.00 an ounce support zone, containing the 200-day moving (DMA) average held for now.

Bitcoin’s rally maintained momentum, boosted by that most fundamental of economic indicators, an Elon Musk tweet. Bitcoin rose around 4.0% yesterday, hovering around USD40,000.00. Paul Tudor Jones said he liked having a bit of virtual in his portfolio as well, boosting sentiment, and Goldman Sachs (NYSE:GS) have announced they will offer Ether futures and options. All meat and three veg for the virtual currency bugs and bitcoin looks like it will target the 200 DMA near USD42,500.00 sooner rather than later.

India dodged a bullet yesterday as its WPI Inflation hit an above-consensus 6.30% YoY in May. It was saved by the food sub-component falling unexpectedly to 4.31% YoY even as the other components rose above consensus.

The RBI can’t do much but sit on its hands from here, boxed into a stagflation canyon, but needing to do its part to assist in the recovery from India’s COVID-19 tragedy. Even as it is effectively forced by opposing forces to sit on the side-lines, it likely means we have seen the highs for the Indian rupee for now unless the US dollar collapses.

This morning’s RBA minutes were as dovish as expected, with AUD/USD heading 10 points lower in sympathy. Indonesia’s Balance of Trade should rise above USD2.0 bio today, taking some pressure off the rupiah as exports continue to increase.

Last night’s one-month delay to phase 4 reopening made barely a ripple, having been well telegraphed over the weekend.

The US releases May Retail Sales, New York Empire State Manufacturing and PPI and Core PPI. Retail Sales should ease from the post-reopening jump, but the Empire data should outperform, with the PPIs of most interest. Both headline and core could rise well north of 0.50% MoM, mainly as US PPI includes services sector costs and not just factory gate prices.

Although it won’t move the needle materially on the transitory inflation wagon financial markets have glued themselves to, it could see the pre-FOMC bond market correction gain some momentum. Higher yields are likely to push the US dollar higher, and mute equities, likely leaving gold vulnerable to a deeper correction lower.

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Pre-FOMC Shuffling

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Comments (1)
P N Rajagopal
P N Rajagopal Jun 15, 2021 1:14PM ET
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Yes market needs a healthy correction for sustained growth. If pumping in unwarranted liquidity in the name of covid suppoer in the future course of time the market participants will have to pay for it.
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