Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Where Next In The Taper Drama

By Monica KingsleyStock MarketsJun 07, 2021 06:41AM ET
www.investing.com/analysis/where-next-in-the-taper-drama-200584585
Where Next In The Taper Drama
By Monica Kingsley   |  Jun 07, 2021 06:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The S&P 500 duly rose on the weaker than expected nonfarm payrolls as the taper theme (start of discussions moving to serious contemplation) was dialed back. The Fed‘s forward guidance manouevers can continue, and inflation trades breathed a sigh of relief. Encouragingly for the S&P 500, reflation trades weren‘t affected as evidenced by value stocks rising again, regardless of the long-dated Treasuries action.

Of course, volatility welcomed the retreat in yields as much as technology did – but the option traders aren‘t buying into the upswing nearly as much. Practically speaking, Friday‘s moves in the dollar, some commodities and precious metals, reversed a great chunk of the preceding day‘s bigger swings. The guessing game on the Fed‘s taper goes on, and the upcoming CPI readings won‘t add to the markets‘ peace, fuelling the sense of taper urgency as the inflation figures won‘t be on the low side. Add in that the job market is slowly catching fire, and you will understand why I have been calling for months for elevated inflation readings.

It‘s the market reaction that matters – what is at stake, is how much the Fed is still expected to fight inflation. As I wrote previously:

(…) Should the transition into a higher inflation environment be appreciated for what it is, the dive in gold, silver and copper wouldn‘t have been that steep. On the other hand, the sharpest moves tend to be the countertrend ones – yes, I‘m still of the opinion that the current reflationary period with reopening rush (more juice left in value over growth trades) is conducive to higher stock market and commodity prices. Including precious metals, naturally.

Moreover, the taper talk (...is…) exposing a key vulnerability in the Treasury market. The Fed is well aware that its ample support is a condition sine qua non, and that rising yields (rising real rates) aren‘t in the largest borrower and real economy‘s interests. Financial repression has to come into the picture, and that‘s one of the reasons why precious metals have been on a tear lately. We‘re also a long way from inflation breaking the back of stock market bulls.

So stocks have taken the risk-on cue, amply reversing Thursday‘s losses – but the same can‘t be said about gold, silver or copper. Precious metals pared Thursday‘s setback, as did miners. Conducive conditions to facilitate additional gains have been in place for some time, but the optimism over Fed moves being dialed back is more guarded. Understandably so when Janet Yellen would welcome higher inflation and higher rates as per her G7 meeting proclamation. The bulls aren‘t out of the woods – all eyes on nominal yields, inflation expectations and the dollar now.

Oil is refusing to budge, and the oil index doesn‘t favor too much downside. Should commodities stall again though, oil would be no exception – in spite of its next upleg getting underway after the long sideways consolidation (with a bullish slant, however).

Cryptos can‘t get their mojo, but aren‘t falling through the floor either. The consolidation goes on, and bulls better step in and overcome Thursday‘s highs for the recovery to continue. That‘s not unimaginable for Ethereum or Cardano, though – it‘s only that Bitcoin is acting really weak relatively speaking.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

Gold, Silver and Miners

Gold Daily Chart
Gold Daily Chart

It‘s nice that gold recovered from yet another dive but, its white candle could have closed nearer to the daily highs – it‘s concerning that it didn‘t, and the same applies to miners. The return of strength has been suboptimal when nominal rates solely are assessed. Of course, that ties in to the retreat in inflation expectations, coupled with rising rates expectation underpinning the dollar.

Gold Daily Chart
Gold Daily Chart

Silver recovered more stongly than copper, but the red metal‘s ratio enriched with 10-year Treasury yield view, could have driven stronger gold gains. However, silver‘s outperformance isn‘t worrying here.

Crude Oil

Crude Oil Daily Chart
Crude Oil Daily Chart

Crude oil is continuing its low volatility rise, volume isn‘t drying up, and the oil index supports the upleg to proceed.

Summary

S&P 500 bears got on the defensive again, and credit markets give the bulls benefit of the doubt. How another attempt at all time highs unfolds is to be closely observed for signs of strength/weakness.

Gold and silver remarkably rebounded, but could have recouped even more of Thursday‘s losses. It remains a (short-term) red flag they didn‘t. The bulls haven‘t proved themselves entirely, which can be explained by yields, inflation and dollar.dynamics.

Crude oil bullish chart message didn't weaken one iota on Friday, and oil‘s upleg remains underway – while a meaningful correction isn‘t favored, taking a breather would be healthy.

Bitcoin and Ethereum's meek recovery, bottom searching after Elon Musk‘s broken heart emoji tweet goes on, and the Miami show didn‘t help much. The longer prices stay this low without steadily attempting a march higher, the more vulnerable they are.

Where Next In The Taper Drama
 

Related Articles

Lance Roberts
Is The Omicron Selloff Over Yet? By Lance Roberts - Dec 05, 2021 4

What’s Really Driving The Omicron Market SelloffWhile the media is running around trying to pin headlines on the market moves from the Fed to the Omicron variant, the reality...

Where Next In The Taper Drama

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Paul Barron
Paul Barron Jun 07, 2021 7:11PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tks
Monica Kingsley
Monica Kingsley Jun 07, 2021 7:11PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you Paul...
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email