Inversion, Charts and Events
We have an interesting week ahead of us:
Brexit: Depending what source you read, anything between PM May being ousted to the possibility of a third vote in the Commons, could occur.
Trump: Mueller report comes back positive for President Trump, not sure the report doesn’t hold something of interest for the Democrats, but maybe we get back to discussing the ideas and policies of the parties as we head to the 2020 elections. (Wishful thinking I know!)
Trade: Stay tuned as it will take some more time, it appears that China is not interested in agreeing to the last outstanding 20% of issues……
Yield Curve: The U.S. yield curve Inverted last week. The yield curve in the U.S. has inverted 7 times previously and each time a recession followed.
WHY DOES INVERSION MATTER?
Yield curve inversion is a classic signal that a recession is coming.
The U.S. curve has inverted before each recession in the past 50 years. It offered a false signal just once in that time.
When short-term yields climb above longer-dated ones, it signals short-term borrowing costs are more expensive than longer-term loan costs.
Under these circumstances, companies often find it more expensive to fund their operations and executives tend to temper or shelve investments. Consumer borrowing costs also rise and consumer spending, which accounts for more than two-thirds of U.S. economic activity, slows.
The economy eventually contracts and unemployment rises. Source (Reuters.com)
Bottom line is the market is focused on whether we are approaching slower growth which will rebound now that the global central banks are focused on helping economic growth, or a recession is unavoidable.
This is all interesting because it affects bond, equity, commodity markets as well as the currency markets.
Key market views:
U.S. equities: S&P looks to have rejected the 2850 level and will look to try the 2775, 2740 levels. A break above the high last week will propel us higher
Brent Crude: Has rallied all year and appears to be consolidating at the 67.25 level. Resistance at 68.40 and support at 66.02 on our charts.
Gold: We are positive to gold and have recommended a call spread to clients. We are wondering if there is another dip, perhaps forced by USD strength, before we head higher?
FX: Long USDMXN, USDTRY and USDRUB are all on our radar, as we follow the dollar index for clues on whether the greenback can rally further.
The USD index is in a range between 97.50 and 95.00. We see resistance above between 96.25 and 96.50 as being key for further developments.
Key economic events this week:
March 26th US consumer confidence
March 27th New Zealand Official Cash Rate (expected unchanged), but looking for input on Asian economic activity.
March 27th ECB president Mario Draghi speaks in Frankfurt.
March 28th USD Gross Domestic Product Q4: GDP focus on economic strength in the U.S.
March 28th EUR German consumer Price Index
March 28th Mexico Central bank overnight rate announcement
March 29th EUR German Unemployment report.
March 29th USD Inflation report.
March 29th USD Chicago Purchasing Manager report.
All of the above will help formulate a picture of growth, inflation and employment and could affect markets.
|Ticker||Date Opened||Entry Price||Stop||Target Price||Current Price||% Change|
|Long CAMECO (CCJ:xnys)||12/03||11.92||11.20||13.00||11.96||+0,33%|
|Long Call Option XAUUSD||18/03||13.09||16.91||+29.18%|
|Short Call Option XAUUSD||18/03||5.11||9.99||-95,50%|
– Mark W