Thoughts For The Week

Written by Tom Fitzpatrick | August 12, 2024

A relatively calm start after the weekend but still a lot of moving parts as noted in Diary Week 44: It's Not Over till It's Over-READ MORE

Fixed income yields remain close to their recent highs in both 2- and 5-year yields but off a bit in 10's and 30's causing some curve flattening to re-emerge and like we saw when 2's 5's got to the same peak at minus 19 in Oct 2023 and at minus 21 before that in March 2023.

Ultimately in both instances that flattening was a bull-flattening

Clearly, the inflation numbers this week, and in particular CPI on Wednesday, will likely be important in that respect. The 4.12-4.13% level on 2's is likely very important in that setup

Equity markets look set to continue higher very much along the lines of what we saw in both 2000 and 2007 (The 2 analogs that I am watching very closely for Equities and Fixed Income respectively)

How high and for how long is a work in progress but for now a move towards 5,433-5.467 looks a reasonable target and above there 5,487-5.493.

Commodities

WTI still looks set to "close the gap" created at $78.88-$79.18. A move through that gap, IF seen, would open up for further gains towards good resistance at $80.60-$80.95

Gold continues to look perky, BUT, we still need a break of the top of what looks like a double bottom within a triangle at $2,475-$2,478 that would signal renewed gains towards $2,600.

Copper continues to trade since May in a fashion identical to that seen in May-August 2008 falling 24.6% from the highs (identical to the May-Aug 2008 fall before an 8-day 10.7% bounce) A similar bounce this time (before potentially lower again) would take us towards $434 this month.

USDJPY is bid again this morning with a move ultimately as high as 151.86-151.95 still a danger.

In that respect the recent high at 147.90 needs to be watched and today 147.82. A close above there today, if seen, would be a bullish outside day and suggest renewed gains.

A move back below 145.44 support would question further upside potential.

Back in 1990 (Our analog for this move) USDJPY fell sharply from above 160 to a low of 149.05 before a sharp bounce close to the 61.8% pullback albeit that bounce was only 6 big figures (this bounce is already 6.2 big figures).

If we overcome 147.90 then the 50% pullback area is actually 151.82.

Bottom line, this area could still be the top (147.80-90) but is clearly an important pivot now.

It is also worth noting that the other "bona fide" low yielder- The Swiss Franc is also under pressure this morning. A close over .8672 on USDCHF today would be a bullish outside day as would a close over .9476 on EURCHF and .5229 on NZDCHF.

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