Tag Archives: #preciousmetals

Up and Down

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The only things that really matter
Are stock prices frequently shatter
Their previous high
And rise to the sky
Like too much yeast got in the batter
 
And though prices move up and down
While traders both grin and they frown
The long term has shown
The ‘conomy’s grown
Though lately, tis gold’s worn the crown

As I wrote last week, markets have a difficult time maintaining excessively high levels of volatility for any extended period of time as traders simply get tired and effectively check out.  Now, we have had some impressive volatility lately, whether in stocks, silver or natural gas, to name three and as can be seen in the chart below.

Source: tradingeconomics.com

But a closer look at the chart tells an interesting story, despite a huge amount of movement in the past month, the net movement for the S&P 500, Silver, Natural Gas and the 10-year Treasury, has been essentially zero.  If you dig through this chart, the only net movement has been the dollar’s roughly 2% decline.

That is an interesting tale, I think.  Perhaps Macbeth said it best though, “It is a tale told by an idiot, full of sound and fury, signifying nothing.”  What exactly is the significance of the remarkable volatility we have seen over the past month across numerous markets?

If we review the past month’s activities, the most notable market event was the announcement of Kevin Warsh as the next Fed chair, and the initial assumption that he is much more hawkish than market participants had previously anticipated.  It remains to be seen if that is the case, especially since we are still months away from any confirmation hearings and his eventual swearing in, but that was certainly the initial narrative.  It was blamed for a sharp decline in equities as well as precious metals, although both are essentially unchanged over the past 30 days. 

At least NatGas made sense given the significant cold and winter storms that hit much of the US and northern Europe, but those, too, have passed, and prices are back to where they were prior to the more extreme weather.

Maybe the most interesting thing is that bond yields are basically unchanged despite the Warsh announcement.  It would not have been surprising to see a significant move there given Warsh’s ostensible hawkishness, but that was not the case.

My point is that markets move for many reasons.  Occasionally, there is a clear catalyst (Japan’s Nikkei responding positively to PM Takaichi’s landslide victory comes to mind), but more often than not, the narrative writers seek to explain price action after the fact while covering up their previous forecasting mistakes.  I, too, am guilty of this at times, which is the reason I try to step back and take a broader, longer-term view of market movement to get underlying causes.  As I no longer sit on a trading desk, I am not privy to the day-to-day tick activity, and frankly, even then, unless it was happening at my bank, I would still be in the dark.

To conclude, the strongest trends, which remain the precious metals, continue, although prices are back closer to the long-term trend than the parabolic heights seen 10 days ago as you can see in the below chart.  In fact, I don’t think we have had any changes in the underlying story, but the extreme market volatility is likely to be done for a while going forward.

Source: tradingeconomics.com

Which takes us to overnight market behavior.  While Tokyo (+2.3%) is still ripping higher on the Takaichi election news, only Taiwan (+2.1%) and the Philippines (+2.0%) are keeping pace with the rest of the region much less impressed, (China +0.1%, HK +0.6%, Australia 0.0%).  To my point, nothing has changed.  In Europe, too, price activity is fairly muted (France +0.4%, Germany +0.1%, Spain +0.2%, UK -0.2%) as there has been no news of note either economically or politically.  The most interesting data point was Norwegian inflation which came in much hotter than expected at 3.6% and has traders thinking the Norgesbank may be set to tighten again.  This has helped NOK (+0.6%) which is the leading gainer in the FX markets this morning.  As to US futures, at this hour (7:20), they are very modestly higher, just 0.15% or so across the board.

In the bond market, yields are backing off everywhere, with Treasury yields lower by -3bps, and European sovereigns lower by -1bp to -2bps across the board.  The exception, of course, is Norway (+8bps).  Perhaps, more interestingly JGB yields (-5bps) are slipping despite (because of?) Takaichi’s landslide victory.  Recall, heading into the election, expectations were for aggressive fiscal expansion and borrowing to pay for it.  However, Katayama-san, the FinMin has been explicit that they were going to be borrowing at the short end of the market, 1yr to 5yrs, so perhaps it is no surprise that the 10yr yield is slipping.  With that in mind, though 5yr JGB yields also fell last night, down -3bps, although shorter dated paper was unchanged.  I have not read of any analysts complaining that Japan is turning into an emerging market because they are funding themselves with short-dated paper, although when the US does it, apparently it is the end of the world.

Turning to commodities, oil (0.0%) continues to get tossed around on the Iran story, with no certainty as to whether a deal will be done or the US will attack.  Apparently, Israeli PM Netanyahu is meeting with President Trump tomorrow to register his opinions on the subject.  The interesting thing in this market is that the ‘peak oil demand’ narrative, which has been pushed by the climate set as occurring in the next year or two, has been pushed back to 2050 by the IEA as they take reality into account.  That may encourage more drilling, but that’s just my guess and as I’m an FX guy, what do I really know?

As to the precious metals, after a couple of days rebounding, this morning, the sector is modestly softer (Au -0.3%, Ag -1.6%, Pt -1.2%) although as per the chart above, the trend remains higher across all these metals.

Finally, the dollar, which has fallen the past two days, has stabilized and is mostly higher (save for NOK mentioned above) with most currencies softer by about -0.15 or -0.2%.  The other exception of note here is JPY (+0.5%) as there has been a lot of jawboning by the MOF there to prevent a rash of weakness.  However, it is difficult for me to look at the JPY chart below and discern a major reversal is coming.  I believe that the MOF wants to keep that 160 level as a dollar ceiling without spending any money if they can, but the problem with jawboning is that it loses its efficacy fairly quickly.  However, if they drive yields higher on shorter dated paper, perhaps that will attract more inflows, although given how low they currently are (2yr 1.29%, 5yr 1.69%) I think they have a long way to go before they become attractive to international investors.

Source: tradingeconomics.com

On the data front, NFIB Small Business Optimism fell to 99.3, a bit disappointing, and now we await the following: Retail Sales (exp 0.4%, 0.3% -ex autos) and the Employment Cost Index (0.8%).  We also hear from two more Fed speakers, Logan and Hammack, but I don’t see the Fed, other than Warsh, being that critical right now.  

And that’s really it for today.  My take is we are unlikely to see dramatic movement in any market so hedgers should take advantage of the reduced price volatility.  But otherwise, sometimes, there is just not that much to do.

Good luck

Adf

Gone Astray

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Though Friday will lack NFP
We still will have something to see
The States and Iran
Will meet in Oman
To talk about nuke strategy
 
But til they, in fact, do sit down
Be careful as crude moves around
And what if talks fail
To find holy grail
Beware oil shorts and their frowns
 
With that as the background today
The narrative has gone astray
’Cause all kinds of tech
Resemble a wreck
While metals are fading away

Sometimes it’s hard to determine which stories are really driving markets as there are so many that have potential conflicts between them.  With that in mind, I will start with oil this morning, which has seen a bit of choppiness during the past week on the back of on-again, off-again, on-again talks due to be held between the US and Iran.  See if you can guess where the worries about a US military strike gained ground, were quashed by news of potential talks, saw a military skirmish in the Strait of Hormuz and then when talks were reconfirmed.

Source: tradingeconomics.com

Net, there is still an underlying concern about the situation, which is why, I believe, the price of crude (-1.1%) is still above $64/bbl.  Remember, it was not that long ago when it had seemed to find a comfort zone below $60/bbl.  It strikes me that if some type of accommodation is reached at these talks, where Iran gives up its nuclear weapon dreams and stops funding terrorism (I believe these are the administration’s goals) then there is plenty of room for oil prices to slide back below $60/bbl and continue what had been a longer term down trend as per the below chart.  

Source: tradingeconomics.com

After all, given the fact that Venezuelan oil is going to be returning to the market, the continued expansion of production in Guyana, Brazil and Argentina, and now the idea of welcoming Iran back into the good graces of nations, that is a lot of potential supply that is currently not available.  My concern is if Iran agrees to those terms, it may be an existential threat to the theocracy, so I guess they need to weigh that risk vs. the risk that the US does escalate militarily, which could also be an existential risk to the theocracy.  Net, choppiness seems to be the likely road ahead.

Finishing commodities, precious metals have reversed the reversal and are down sharply this morning (Au -1.7%, Ag -11.0%, Pt -4.4%).  Volatility remains extremely high and given the competing narratives of a) it was a bubble, and b) the fundamentals remain in place, I expect we will continue to see price action like this for a while yet.  Although remember my strong belief that markets can only maintain volatility of this nature for a few weeks as at some point, all the participants simply become too tired to trade.  There was a very interesting chart I saw on X this morning that showed the price action in gold during the German hyperinflation of the Weimar Republic a bit over 100 years ago.  

I’m not implying we are heading to a hyperinflation, just that gold (and silver and platinum) prices can move very far in short order, as we’ve seen.  In the end, nothing has changed the fundamentals with demand for gold still price insensitive, demand for silver still greater than mining supply with the same true for platinum.  But it will be a rough ride for a little while yet.

So, let’s turn to the equity markets, where there are far more plugged-in analysts than me, but I want to take a higher-level look.  While yesterday’s price action was mixed (NASDAQ and S&P lower, DJIA higher) it seems to indicate that there is an ongoing rotation out of tech stocks into other areas, amongst them consumer staples, energy and defensives.  What I find so interesting about this, though, is that if I look at a chart of the three major US indices, they are all the same chart.

Source: tradingeconomics.com

Granted, the NASDAQ had the highest high back in November, but, in reality, they all move very much in sync.  This begs the question, what can we expect going forward?  At the end of the day, I still believe that stocks represent the value created in the economy.  As such, if the Trump administration’s plans to reduce regulations and encourage banks to lend more to the real economy, rather than purchase financial assets, can be implemented effectively, that is a very real positive for equity markets over time.  However, that probably means a much less steady climb, especially if the Fed is not explicitly supporting assets as the new Chair, Warsh, tries to shrink the balance sheet.  It is going to be messy and there are going to be a lot of cross narratives and claims, so at any given time, the only reality will be increased volatility.  But at least there’s a plan.

As to the rest of the world’s equity markets, it does appear as the bifurcation between those nations that are willing to work closely with the US and those working closely with China is likely to continue.  It remains to be seen which bloc will outperform, although I like the US odds given the legal structure and the demographics.  

With all that in mind, let’s look at the overnight price action.  Asia had a tough go of it given the high proportion of tech names there.  While Tokyo (-0.9%) slipped along with China (-0.6%) the real laggards were Korea (-3.9%) and Taiwan (-1.5%) and there were far more laggards (India, Australia, Malaysia, Indonesia) than gainers (Singapore, HK).  This is the tech story writ large.  In Europe, even though they largely lack tech, weakness is the norm (Spain -1.1%, Germany -0.2%, UK -0.3%) although the French (+0.3%) have managed to buck the trend.  It is not clear why Spain is lagging so badly, although perhaps PM Sanchez’s efforts to import 500K new people while unemployment remains at 10%, the highest in the EU, has some concerned.  As to US futures, at this hour (7:15), they are pointing higher by about 0.2%.

In the bond market, once again there is nothing going on.  Treasury yields are almost exactly unchanged since early Friday morning, although we did see a dip and rebound after the Warsh announcement.

Source: tradingeconomics.com

The US yield curve is steepening as 30-year yields edge higher although those remain below 5.0%, a level that many are watching closely as a signal of a bondmageddon.  On the continent, European sovereign yields have edged higher by 1bp to 2bps, but activity is muted ahead of the ECB meeting announcement (exp no change) scheduled later this morning.  UK yields have edged lower by -1bp after the BOE left rates on hold, as expected, with a 5/4 vote, the 4 looking for a cut.  I continue to believe that the odds are for the ECB to cut rates again far sooner than the market is pricing.  And JGB yields slipped -2bps overnight as market participants await Sunday’s election results.  Given PM Takaichi is forecast to win with an increased majority, it is hard for me to believe that if she does, JGB’s will sell off sharply on the idea she has promised more unfunded spending, they already know that.

Lastly, the dollar is firmer this morning, continuing to defy all the calls for its demise.  The pound (-0.8%) is the laggard after the BOE sounded a bit more dovish than expected, but we are seeing losses across the entire G10 bloc.  As to the EMG bloc, ZAR (-0.7%) is the laggard, but given the dramatic reversal in precious metals, that is no surprise.  Otherwise, losses on the order of -0.3% or so are the norm.

On the data front, Initial (exp 212K) and Continuing (1850K) Claims lead the way and later we see the JOLTs Job Openings Report (7.2M).  The word is that the NFP report will be released next Wednesday with CPI next Friday.  Atlanta Fed president Bostic speaks later this morning, but I continue to believe that until we hear from Mr Warsh, the Fed’s words have very little impact.  Arguably, the neutering of the Fed is why the bond market remains so quiet.  Traders have lost their cues.

Risk attitudes are getting revisited around the world as the seeming permanence of increased risk appetite is starting to be called into question.  There is no better signal of this than Bitcoin, which has broken back below $70K this morning to its lowest level since October 2024.  

Source: tradingeconomics.com

It was January 2024 when the ETF, IBIT, started trading and BTC was about $43K at that time.  As BTC is a pure risk asset/vehicle, it’s recent decline may well be the biggest signal that risk-off is coming.  That could well impede the Trump efforts to rebuild the US manufacturing base, but perhaps, it could also encourage it, as business risks are easier to understand than market risks.  The volatility is not over.

Good luck

Adf

Step Five?

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It takes seven steps
Ere intervention arrives
Was last night step five?

 

The yen continues to be in the crosshairs of traders as further weakness is anticipated based on several things I believe.  First, there had long been an assumption that the Fed was going to cut rates further, especially with President Trump haranguing Chairman Powell constantly on the subject.  In addition to that, there continues to be an underlying thesis amongst many pundits that the US economy is weakening dramatically to drive that rate decision.  Yet recent data belies those facts, notably the Atlanta Fed’s remarkable GDPNow jump, but also relative stability in other data, including employment.  The upshot is the futures market is now pricing a mere 3% probability of a cut at the end of this month and not pricing the next rate cut until June, after Chairman Powell is gone.  One key leg of the yen strength argument is weakened.

Source: cmegroup.com

Second, there continues to be a belief that the BOJ will continue to hike interest rates, and perhaps they will, but it appears that the pace of those hikes will be far slower than previously anticipated.  Currently, the market is pricing just 50bps of hikes for all of 2026.  At the same time, Takaichi-san is set to “run it hot” in Japan just like in the US, pumping up fiscal stimulus and forcing the BOJ to come along for the ride.  The implication here, which is what we are seeing in the markets right now, is that a larger fiscal deficit will lead to strength in equities but a weaker currency.  The second leg of the yen strength argument is failing here as well.

Which brings us to last night’s commentary from Satsuki Katayama, Japan’s FinMin, who explained, [emphasis added] “We won’t rule out any means and will respond appropriately to moves that are excessive, including those that are speculative. We’ve mentioned this to the prime minister today as well.”  The kind of sudden moves we saw on Jan. 9 have nothing to do with fundamentals, and are deeply concerning,” she added. Her message was soon backed up by Atsushi Mimura, the ministry’s top official in charge of the yen, who reiterated that no options were being ruled out.

The bolded words are all part of the Japanese seven-step plan toward intervention.  At this point, I feel like we have reached number five.  The market responded predictably, with the yen strengthening vs. the dollar (and all its counterparts), albeit not all that much.  Last night saw the yen trade at 159.45, its highest since July 2024 (the last time the BOJ intervened), before the comments helped bring it back a bit.

Source: tradingeconomics.com

But one other area which the MOF/BOJ follow closely is not just the USDJPY exchange rate, but also the yen’s rate vs. other major currencies.  If, for instance, the yen is only weakening vs. the dollar, that is one thing.  However, a look at the chart below showing USDJPY, EURJPY and GBPJPY shows us that the yen is weakening against all those currencies pretty much in sync.  In fact, this argues that the yen’s current weakness is a yen specific fundamental, not a speculative move, which should argue against intervention, as that will only be a temporary sop.  However, my take is when we get to 160 or 162, which I believe is coming, we will see the BOJ selling aggressively.

Source: tradingeconomics.com

Ironically, the one currency against which the yen has been weakening steadily that I’m sure delights the BOJ/MOF is the Chinese yuan.  Since Liberation Day in the US, the yen has fallen more than 17% and continues to slide vs. the yuan as it has been doing for the past five years.  It is not hard to believe there are voices in the Japanese government that see that move and recognize how much it helps the Japanese export sector and caution against trying to arrest the yen’s weakness too aggressively.

Source: tradingeconomics.com

I look forward to much more dialog on this subject and expect that soon, we will be hearing about the end of the carry trade, yet again.  To my eyes, until Japanese fundamentals change, or at least appear to be moving in the right direction, the yen will struggle.  So, let me know when the fiscal deficit shrinks, or GDP jumps to 4% or inflation slides back to 1%.  Until then, they yen is damaged goods.

As to the rest of the market, precious metals continue to be the shining stars with the whole sector higher this morning (Au +1.0%, Ag +4.2%, Pt +2.0%) and that move taking copper (+0.4%) along for the ride.  Last night the CME raised its margining requirement and changed its nature by requiring a percentage of the value, rather than a numeric amount per contract.  My friend JJ, who writes the Market Vibes substack wrote a brilliant piece last night explaining how the flows are evolving in the silver market.  To sum it up, at this point, there appears no end in sight for the demand as short positions are covered by new shorts.  Metal for delivery remains scarce and despite the extraordinary shape of the move, it appears to have more steam to drive it forward.  Markets like this are extremely difficult to trade, and history shows that movements in the shape seen below reverse very sharply.  But as Keynes explained 100 years ago, markets can remain wrong longer than you can remain solvent.  I am happy I have been long silver for quite a while but am having a hard time figuring out what to do now!

Source: tradingeconomics.com

Meanwhile, oil (+1.4%) continues to rally on concerns that the Iran situation will lead to one of two outcomes, either a substantial decline in production as the regime collapses, or an effort by the regime to close the Strait of Hormuz which will impede shipping and reduce supply as they try to inflict pain on the US and the rest of the world who are rooting for the uprising.

Heading back to paper markets, yesterday’s weakness in the US was followed by a more mixed picture in Asia with Japan (+1.5%) rallying on continuing hope for more fiscal stimulus.  HK (+0.6%) benefitted from news that China’s trade surplus hit a new record high of $1.2 trillion (remember when they were going to grow domestic demand?) but Chinese shares suffered (-0.4%) after the regulators there raised margin requirements to 100%.  As to the rest of the region, it was far more green than red, although India continues to be a laggard overall.  In Europe, mixed is also the best description with the DAX (-0.35%) lagging while we have seen modest gains in the UK (+0.3%) and France (+0.2%).  Otherwise, it is hard to get excited about activity here today.  There continue to be existential questions about the EU and which nations will enact EU directives given that Poland, Hungary, Italy and the Czech Republic seem to be ignoring the latest issues like the Digital Asset Tax.  As to US futures, at this hour (7:00) they are softer by about -0.25% across the board.

Bond markets (except Japanese ones) remain completely uninteresting.  Treasury yields have slipped -3bps this morning and European sovereign yields are lower by -1bp.  Despite all the sound and fury about specific issues in markets, fixed income investors remain nonplussed by everything for now.  If/when that changes, we will need to watch things carefully.

Finally, aside from the yen (+0.3%) there is little to discuss overall. The DXY is still trading right around 99 and there has been very little movement of note.  Relationships that we would expect (ZAR and Au, NOK and oil) remain intact, but despite the metals dramatic movement, the rand is just gradually appreciating.

On the data front, yesterday’s CPI printed slightly softer than market expectations, but it is hard to get excited that inflation is heading back to target anytime soon.  @inflation_guy, Mike Ashton, had an excellent write-up here explaining what is going on and why much lower inflation is unlikely.  Ultimately, despite a lot of discussion regarding rental rates, those figures are not representative of the rental market as a whole and shelter costs continue to climb.  Absent a serious decline in goods inflation, it will be virtually impossible to get back to 2.0% on any sustainable basis.

As to today, it is a hodge podge of current and old data with Existing Home Sales (exp 4.21M) the only December number.  We see November Retail Sales (0.4%, 0.4% ex-autos) and PPI for both October and November which seem unlikely to impact markets greatly.  We also see EIA oil inventory data where a small draw is expected for crude but a build for gasoline.  Last week saw a massive build in products which likely helped weigh on the price last week.  But this week, things are different.  

We also hear from five more Fed speakers including Steven Miran, who will undoubtedly make his case for aggressive rate cuts again.  Then at 2:00 we get the Fed’s Beige Book.

Drinking from a firehose seems an apt metaphor for market analysts trying to make sense of the current situation.  Stepping back, I have never understood the market pricing for more rate cuts given the economy’s resilience.  The twin stories, in my estimation, are a growing level of fear regarding the debasement of fiat currencies, hence the move in metals, and the fact that the US remains the cleanest dirty shirt in the laundry, hence my preference for the dollar vs. other fiat currencies.  But on any given day, be careful!

Good luck

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What Havoc it Wreaks

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Today, for the first time in weeks
Comes news that will thrill data geeks
It’s CPI Day
So, what will it say?
We’ll soon see what havoc it wreaks
 
The forecast is zero point three
Too high, almost all would agree
But Jay and the Fed
When looking ahead
Will cut rates despite what they see

 

Spare a thought for the ‘essential’ BLS employees who were called back to the office during the shutdown so that they could prepare this month’s CPI report.  The importance of this particular report is it helps define the COLA adjustments to Social Security for 2026, so they wanted a real number, not merely the interpolation that would have otherwise been used.  Expectations for the outcome are Headline (0.4% M/M, 3.1% Y/Y) and Core (0.3% M/M, 3.1% Y/Y) with both still well above the Fed’s 2% target.  As an aside, we are also due Michigan Sentiment (55.0), but I suspect that will have far less impact on markets.

If we consider the Fed and its stable prices mandate, one could fairly make the case that they have not done a very good job, on their own terms, when looking at the chart below which shows that the last time Core CPI was at or below their self-defined target of 2.0% was four and one-half years ago in March 2021.  And it’s not happening this month either.

Source: tradingeconomics.com

Now, when we consider the Fed and its toolkit, the primary monetary policy tool it uses is the adjustment of short-term interest rates.  The FOMC meets next Tuesday and Wednesday and will release its latest statement Wednesday afternoon followed by Chairman Powell’s press conference.  A quick look at the Fed funds futures market pricing shows us that despite the Fed’s singular inability to push inflation back toward its own target using its favorite tool, it is going to continue to cut interest rates and by the end of this year, Fed funds seem highly likely to be 50bps lower than their current level.

Source: cmegroup.com

The other tool that the Fed utilizes to address its monetary policy goals is the size of its balance sheet, as ever since the GFC and the first wave of ‘emergency’ QE, buying (policy ease) and selling (policy tightening) bonds has been a key part of their activities.  As you can see from the chart below, despite the 125bps of interest rate cuts since September of 2024 designed to ease policy, they continue to shrink the balance sheet (tighten policy) which may be why they have had net only a modest impact on things in the economy.  Driving with one foot on the gas and one on the brake tends to impede progress.

But now, the word is the Fed will completely stop balance sheet shrinkage by the end of the year, something we are likely to hear next Wednesday, as there has been much discussion amongst the pointy-head set about whether the Fed’s balance sheet now contains merely “ample” reserves rather than the previous description of “abundant” reserves.  And this is where it is important to understand Fedspeak, because on the surface, those two words seem awfully similar.  As I sought an official definition of each, I couldn’t help but notice that they both are synonyms of plentiful.

These are the sorts of things that, I believe, reduces the Fed’s credibility.  They sound far more like Humpty Dumpty (“When I use a word, it means just what I choose it to mean – neither more nor less.”) than like a group that analyses data to help in decision making.  

At any rate, no matter today’s result, it is pretty clear that Fed funds rates are going lower.  The thing is, the market has already priced for that outcome, so we will need to see some significant data surprises, either much weaker or stronger, to change views in interest rate sensitive markets like bonds and FX.

As to the shutdown, there is no indication that it is going to end anytime soon.  The irony is that the continuing resolution passed by the House was due to expire on November 21st.  it strikes me that even if they come back on Monday, they won’t have time to do the things that the CR was supposed to allow.  

Ok, let’s look at what happened overnight.  Yesterday’s rally in the US was followed by strength in Japan (+1.35%) after PM Takaichi indicated that they would spend more money but didn’t need to borrow any more (not sure how that works) while both China (+1.2%) and HK (+0.7%) also rallied on the confirmation that Presidents Trump and Xi will be meeting next week.  Elsewhere, Korea and Thailand had strong sessions while India, Taiwan and Australia all closed in the red.  And red is the color in Europe this morning with the CAC (-0.6%) the main laggard after weaker than forecast PMI data, while the rest of Europe and the UK all suffer very modest losses, around -0.1%.  US futures, though, are higher by 0.35% at this hour (7:20).

In the bond market, Treasury yields edged higher again overnight, up 1bp while European sovereigns have had a rougher go of things with yields climbing between 3bps and 4bps across the board.  While the French PMI data was weak, Germany and the rest of the continent showed resilience which, while it hasn’t seemed to help equities, has hurt bonds a bit.  Interestingly, despite the Takaichi comments about more spending, JGB yields slipped -1bp.

In the commodity space, oil (+0.7%) continues its rebound from the lows at the beginning of the week as the sanctions against the Russian oil majors clearly have the market nervous.  Of course, despite the sharp rally this week, oil remains in the middle of its trading range, and at about $62/bbl, cannot be considered rich.  Meanwhile, metals markets continue their recent extraordinary volatility, with pretty sharp declines (Au -1.7%, Ag -0.9%, Pt -2.1%) after sharp rallies yesterday.  There seems to be quite the battle ongoing here with positions being flushed out and delivery questions being raised for both futures and ETFs.  Nothing has changed my long-term view that fiat currencies will suffer vs. precious metals, but the trip can be quite volatile in the short run.

Finally, the dollar continues to creep higher vs. its fiat compatriots, with JPY (-.25%) pushing back toward recent lows (dollar highs) after the Takaichi spending plan announcements.  But, again, while the broad trend is clear, the largest movement is in PLN (-0.4%) hardly the sign of a major move.

And that’s all there is today.  We await the data and then go from there.  Even if the numbers are right at expectations, 0.3% annualizes to about 3.6%, far above the Fed’s target and much higher than we had all become accustomed to in the period between the GFC and Covid.  But remember, central bankers, almost to a wo(man) tend toward the dovish side, so I think we all need to be prepared for higher prices and weaker fiat currencies, although still, the dollar feels like the best of a bad lot.

There will be no poetry Monday as I will be heading to the AFP conference in Boston to present about a systematic way to more effectively utilize FX collars as a hedging tool.  But things will resume on Tuesday.

Good luck and good weekend

Adf