Battered bonds and emerging market currencies enjoyed some respite on Thursday as the dollar took a breather from a post-U.S. election charge that has taken it to a 13-1/2 year high.

The financial market looked set for a quiet start and Europe’s main stock markets were shuffling sideways as the dip in global bond yields cooled bank stocks, which have been rising on hopes higher yields will led to better lending profits.

The dollar dropped a modest 0.1 % against other top world currencies after data showing the biggest increase in U.S. consumer prices in six months.

But the fact it hadn’t quite clawed back yet marked a change of direction after eight days of back-to-back gains that have seen it jump almost 4 %.

“The momentum of the Trump rally (in bond yields and the dollar) has faded a bit so we are all trying to recover,” said Rabobank strategist Philip Marey.

He said investors were mainly trying to get a handle on what U.S. President-elect Donald Trump is likely to do when he takes office in January, as well as position for what now looks almost certain to be a U.S. interest rate rise next month.

Trump was set for meeting with Japanese Prime Minister Shinzo Abe in New York while in her first comments since last week’s election, Federal Reserve chief Janet Yellen said the case for a rate hike has strengthened.

“Such an increase could well become appropriate relatively soon,” Yellen said in remarks due to be given to Washington politicians later.

Japanese yield cap 

For bond markets, which have taken the brunt of the Trump trade, the most significant event overnight was the Bank of Japan’s attempt to cap 10-year Japanese government bond yieldsand make good its recent promise to keep them pinned at zero.

That had pushed the yen as low as 109.30 yen per dollar and the Japanese currency was creeping around there again as the first flurries of U.S. trading began.

More broadly, Japan’s efforts will raise questions about how far central banks such as the ECB and others will be willing to tolerate steep and sudden rises in government borrowing costs.

The ECB published the minutes of its recent meeting showing Mario Draghi and his colleagues plan to lay out the next steps for their stimulus program next month.

Speaking in Frankfurt one of the ECB’s policymakers Yves Mersch said: “I believe that (talking about exiting stimulus) is probably still premature, given the fragility of the European growth path.”

The euro added 0.3 % from Wednesday to stand at $1.0722 after setting an 11-month low of $1.0666 overnight.

Germany’s benchmark 10-year Bund yield fell as much as 5 basis points to 0.26 %, moving away from a peak of 0.396 % hit on Monday—the highest level since late January. Other euro zone yields were 2-5 bps lower on the day.

“The BOJ’s move shows that there is a bit more of an effort to cap yields and, knowing that, other bond markets can be more stable from here,” said Mizuho strategist Peter Chatwell.

Mexico hike 

The rout in U.S. bond prices also halted, with Treasury yields pulling back to 2.15 % only to inch upwards again back towards an 11-month high above 2.3 % hit earlier in the week.

It came as crude oil prices kicked higher as Saudi Energy Minister Khalid al-Falih said he was optimistic that OPEC would formalize a preliminary output freeze deal reached in Algeria back in September.

Brent crude jumped 80 cents to 47.40 a barrel and U.S. light crude was up 75 cents at $46.32.

Gold nudged up slightly as the dollar consolidated. Spot gold inched up 0.2 % to $1,228 an ounce, moving further away from the five-month low of $1,211.08 set on Monday.

Gold had still lost roughly $100 an ounce from last Wednesday’s post-U.S. election high on the back of the sharp rise in bond yields and burgeoning appetite for risk.

Emerging markets, also battered by the jump in the dollar and borrowing costs and the prospect of a major shake-up in trade deals under Donald Trump, remained on edge.

The Malaysian ringgit hit a 10-month low on increasing fears that authorities could introduce capital controls, while Mexico’s peso inched away from recent all-time lows ahead of what was expected to be an interest rate hike later.

“The central bank needs to send a strong message,” said Carlos Serrano, an economist at BBVA Bancomer, who was expecting a 75-basis-point hike.

….also: 

Gold resuming the decline

0riginally published on Nov 15, 2016, 10:01 AM

Trading position (short-term; our opinion): Long positions (with a stop-loss order at $41.39 and initial upside target at $49.53) are justified from the risk/reward perspective.

Although crude oil moved lower after the markets open, oil bulls stopped further deterioration and triggered a rebound in the following hours. As a result, light crude erased most of earlier losses and closed the day above Friday’s low. What can we expect in the coming days?

Let’s examine the charts below and try to find out (charts courtesy of http://stockcharts.com).

Larger Image

Looking at the weekly chart, we see that although crude oil moved little lower this week, the 50-week moving average continues to keep declines in check.

Are there any other technical factors that could encourage oil bulls to act in the coming days? Let’s examine the day and find out.

Larger Image

Yesterday, we wrote the following:

(…) Today’s move lower in crude oil below $43 (to about $42.50) could be viewed as a breakdown below the September lows, but we don’t view it as such – at least not yet. The reason is that today’s session is far from being over and the move below $43 was almost invalidated. Depending on the closing price, we could see (…) a reversal and invalidation of the intra-day breakdown, which would be very bullish.

From today’s point of view, we see that the situation developed in line with the above scenario and crude oil rebounded, invalidating the intra-day breakdown below the September lows, which is a bullish signal that suggests further improvement.

Additionally the current situation in the non-USD (WTIC:UDN ratio) chart of crude oil also supports the pro-growth scenario. Why? Let’s take a closer look at the charts below and find out.

Larger Image

From the weekly perspective, we see that although the ratio moved lower and erased almost all of the last week’ gains, the green support zone (reinforced by the 50-week moving average) continues to keep declines in check, which is a positive signal.

Larger Image

On top of that, the first thing that catches the eye on the daily chart is a positive divergence between the ratio and the price of crude oil. As you see, although the black gold hit a fresh low yesterday, we didn’t see such price action in the case of the ratio, which is a bullish signal that suggests further improvement. Why we think so? When we take a closer look at the above chart, we can notice a similar situation in September (both cases we marked with green rectangles). Back then such event encouraged oil bulls to act, which resulted in a rebound that finally took the ratio (and also crude oil) to fresh 2016 highs. Additionally, a buy signal generated by the CCI remains in place, supporting oil bulls and another attempt to move higher.

Therefore, if we see such price action, the upside targets from our Thursday’s alert would be in play:

(…) If (…) light crude extends gains, we’ll likely see an upward move to (at least) (…) the previously-broken red and black resistance lines (…)

Summing up, crude oil moved higher and invalidated earlier breakdown under the September lows, which in combination with the current situation in the WTIC:UDN ratio suggests that higher prices of the black gold are just around the corner.

Very short-term outlook: bullish
Short-term outlook: bullish
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Long positions (with a stop-loss order at $41.39 and initial upside target at -$49.53) are justified from the risk/reward perspective.

Thank you.

….related:

Clive Maund’s Oil Market Update

BALTIMORE – “I couldn’t believe it,” said a friend with grandchildren in a private school in the Washington area. “Their school provided grief counseling!”

“Grief counseling?”

“Yes. Apparently, students were so upset by Donald Trump’s victory that the school thought it should provide psychologists to help them get over it.”

The New York Times, too, seemed to need therapy. 

Its weekend edition is full of blaming, scapegoating, and flagellation. Hillary blames FBI Director Comey for her defeat. One columnist says white Americans have become racists. 

Another says women are deplorable, too. They didn’t support Ms. Clinton as they should have. “Behind these angry white men are angry white women,” it points out.

Five days have passed since the election results were announced. Many people are still hysterical. They should calm down and take a closer look.

The System Works

Already, the dots are coming together. What we see is this: The system works! 

That is, the system whose main purpose is to protect the system continues to do so. 

“The Donald” may be getting ready to mount his throne. But the Deep State – America’s “shadow government” – stays in Heaven. 

First, Mr. Trump used his victory announcement to signal that easy credit – upon which the system depends for funding – will get even easier. 

To the easy monetary policy, he will add easy fiscal policy. As much as an additional $1 trillion will be spent on “infrastructure.” On credit, of course.

As one of Mr. Trump’s economic advisers, Anthony Scaramucci, wrote in the Financial Times this weekend:

While easy-money monetary policies have exacerbated the income divide, central bankers handcuffed by political dysfunction have had little choice but to provide extraordinary accommodation… [B]usiness people like Mr. Trump understand you can grow yourself out of excessive debt.

What we think he meant to say was that you can “inflate” your way out of excessive debt by spending more than you can afford – if you can get Congress to go along.

This new spending was just what President Obama asked Congress for and couldn’t get. It was what big-spending economists such as Larry Summers, Paul Krugman, and Joseph Stiglitz had urged. 

It’s what the Financial Times has called for from the get-go. And now the same Republicans who stopped President Obama’s infrastructure spending proposals are expected to come forward and approve Mr. Trump’s program.

Steel! Ships! Concrete! Woohoo!

All Hell Will Break Loose

Politically, this is a great move. It is what Mr. Trump will have to do anyway (there’s no monetary stimulus left). And it will come as honey to working-class men, big business, Wall Street, and the Establishment. Even better, it could take years before their teeth begin to rot. 

The Rooseveltian-Reaganesque agenda will come with tax cuts, too. 

We have never met a tax cut we didn’t like, especially when they are aimed in our direction. So we are pleased to see Team Trump pledging to lower taxes on the rich… and possibly get rid of the estate tax. 

You go, Donald!

In the long run, an easier fiscal policy will be catastrophic. The world economy now depends on ultra-low bond yields. And that depends on ultra-low inflation rates. You can get ultra-low inflation with easy monetary policies but not with easy fiscal policies. 

The Treasury market is already anticipating rising inflation. Bond prices are falling; yields are rising… exactly what you’d expect if investors were no longer worried about deflation. [See more below in today’s “Market Insight.”]

When consumer price inflation starts to spike in earnest… bonds will fall hard… and all Hell will break loose. 

What will the feds do? 

What could they do? The responsible thing would be to raise interest rates to head off the inflation. But that would bring on the correction that they’ve worked so hard to avoid. Instead, they will do what all irresponsible governments do. 

More spending… more stimulus… more inflation. Buenos Aires, here we come! Or maybe even Harare. 

Inflation could become hyperinflation. 

But that is still in the future… perhaps long in the future…

Hacks and Has-Beens

The third big dot we can connect is the rapid recovery of the stock market following its election-eve jitters. 

When it became clear that Mr. Trump would be the 45th president of the United States, the first reaction was panic. Then the market sat down. Took a drink. And quickly realized that he posed no threat to the cronies or their inflated asset prices. 

Au contraire – his program may give them a boost.

From an 800-point plunge in Dow futures following the Florida state returns… the index rebounded and then began a rally into a new all-time high. 

In short, Wall Street is confident that “The Donald” poses no real threat.

As though to underline the point, Goldman Sachs CEO Lloyd Blankfein appeared in the news. Trump could be a good thing, he hinted to employees.

By the end of the week, we also had a look at Trump’s transition team.

Where were the outsiders? Where were the bomb-throwing revolutionaries? 

Instead, the people entering the transition headquarters near the White House were the same hacks and has-beens who have been hanging around Washington for the last 40 years. 

They were insiders, not outsiders. 

Some were even veterans of the Reagan Revolution 36 years ago. Alas, they were the wrong veterans – the ones who stopped President Reagan from doing what he intended to do. 

Tomorrow… why we will have no Reagan-style boom. 

Regards,

Bill

….don’t miss Michael and: Don Vialoux on Fascinating Markets

Market Insight

Treasury yields have gone ballistic…

Since news of the Trump win broke on Tuesday, the yield on the 10-year Treasury note – a bellwether for borrowing costs throughout the economy – rose 21%.

That’s the biggest move in nearly two and a half years.

If Bill is right about Trump’s agenda, it’s not the last big move higher for Treasury yields.

and talking my book…

Quotable

“For Lasch, that great underlying problem was clear enough: that by the end of the twentieth century, the American left and right had ‘come to share so many of the same underlying convictions, including a belief in the desirability and inevitability of technical and economic development, that the conflict between them, shrill and acrimonious as it is, no longer speaks to the central issues of American politics’ (23). That is, by the end of the twentieth century the dominant figures in American politics had all become uncritical believers in, and proponents of, the idea of progress.

“Lasch suggests that there are two problems with all this elite genuflection at the altar of progress. First, it both demeans and is disconnected from the values of most Americans, who understand that you can’t have everything, who know that everything costs something, who want stable and satisfying lives for their children, and who have been on the losing end of enough programs of ‘improvement’ to be skeptical about the dogma of progress.”

–Susan McWilliams, “On The True and Only Heaven, 25 Years Later,” Modern Age

Commentary & Analysis

A new dollar view and talking my book…

Below is a chart with Black Swan’s new wave view [aka best guess] on the future path of the US dollar.  This chart shows a very broad wedge pattern and it suggests we could see many weeks, or months, of dollar weakness going forward before the final surge in this bull market rally which began back in March 2008—not coincidentally the same day our illustrious government officials decided to “save” Bear Stearns from meltdown.

US Dollar Index Daily:  Looking for sell-off into the 93-level before another major rally leg resumes. 

Maybe this is a bit of irrational rationales or just “talking my book,” but thinking this:

1. If Hillary wins, the dollar will likely catch a bit of a bid and go higher near-term.  But I believe it will be short-lived as general dissension in the country which will follow, as many rightfully disdain the Clinton Crime family.  Added to that, the realization among any person with a marginal pulse, the mainstream news media is nothing more than an extension of the Democratic National Committee and a strong arm of government propagandist, will leave the US quite divided for some time.  This is not the raw material for a strong dollar. 
2. If Trump wins, the elite will be in shock, similar to what we saw with the Brexit vote.  Months of hand-wringing and dire warnings of doom will follow; as we witnessed among the mainstream British press, especially from those “bright lights” at the Financial Timesand The Economist, who should have known better.  [For more on this, and why populism is such a dirty word for elites, I suggest an excellent piece which appeared in The New Criterion magazine; Populism, III: Insects of the hour, by Danial Hannan.]  Given the blow-back from the powers that be against the serf uprising, it may not be fertile ground for the US dollar for a while. 

Back to Lasch (from 1991, The True and Only Heaven):

…our obsession with sex, violence, and the pornography of “making it”; our addictive dependence on drugs, “entertainment,” and the evening news; our impatience with anything that limits our sovereign freedom of choice, especially with the constraints of marital and familial ties, our preference for “nonbinding commitments”; our third-rate educational system; our third-rate morality; our refusal to draw a distinction between right and wrong, lest we “impose” our morality on others and thus invite others to “impose” their morality on us; our reluctance to judge and be judged; our indifference to future generations, as evidenced by our willingness to saddle them with a huge national debt, an overgrown arsenal of destruction, and a deteriorating environment; our inhospitable attitude to the newcomers born into our midst; our unstated assumption, which underlies so much of the propaganda for unlimited abortion, that only those children born for success ought to be allowed to be born at all.

Enjoy the election, if you can.

….related from Larry Edelson: The Trump Win. What to do …

If you wish to consider Black Swan subscription-based services, you can do so at our website.  Please don’t hesitate to request samples or a free trial.

Jack Crooks

President, Black Swan Capital

jcrooks@blackswantrading.com

www.blackswantrading.com

Faber thinks that near term the market is oversold, and no matter who wins the election it will rally. He now considers that the breakout to the upside of the S&P was a false breakout and thus an extremel negative sign. More in the interview below: