A Few Things that Make Sense

Looking at what is going on in the markets as we await the U.S. inflation data in an hour, there are a few things that make sense to me.

  1. U.S. bond yields are starting to trade up from levels that made little sense.

Reasons:

Huge stimulus package passed Senate and will, in some form pass House and will need to be funded.

The U.S. government ran a deficit of 3.2 trillion in fiscal year 2020, 3x that of 2019.  15.2% of GDP.  https://bipartisanpolicy.org/report/deficit-tracker/#:~:text=The%20federal%20government%20ran%20a%20deficit%20of%20%243.1%20trillion%20in,share%20of%20the%20economy%20grew.

Several Fed board members have been out lately stating that the bond buying should be reduced sooner rather than later.

Latest inflation numbers make it difficult to see bond investments as attractive.

2. Would expect to see renewable investments recoup some of the recent poor performance.

Reasons:

On back of latest report from the Intergovernmental Panel on Climate Change, the bad news will force the U.S. and other governments to increase spending.

The recent onslaught of weather events such as floods in Germany and China, Wildfires in southern Europe, Canada and the U.S. 50 degree weather in southern Europe will also have an affect.

The correction we have seen after a big push in 2020 is an opportunity to find solid companies to buy.

A sampling of some of the Clean energy ETFs shows there has been a retracement since early February. With all of the five below down 20% to 36%

3. The USD may well continue to confound traders by not trading higher.

Reasons:

Rising U.S. yields.

Relatively stronger growth and inflation compared to other major economies.

The Fed may well begin to signal tapering in September, while the ECB and BOJ are on hold.

Sentiment is negative and positioning may lead to a squeeze higher in the months to come.

Global tensions ranging from the Middle East, China and Russia, may lead to events that would cause the USD to strengthen.

The technical picture looks positive for the USD Index with a break above 93.50 opening for a move higher.

4. Oil is down but is it out?

It is being reported that the White House has asked OPEC+ to increase production to combat rising gas prices in the U.S. (haven’t we seen this before?)

The market narrative between the global reopening and the Delta variant spread has the market uncertain how to price growth and energy needs.

Brent Crude has pulled back from the $70 to $80 range and is currently resting at $69.25.

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TickerDate OpenedEntry PriceStopTarget PriceCurrent Price% Change
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