Damned if they print, damned if they don't… | Technical Outlook
It's that time for your fresh Monday Alpha! Get it while it's hot and read on to learn about the world's most PAINFUL game of Mouse Trap as the UK prepares to play with its pension funds. 👇
Monday Market Wrap: Technical Outlook
Rumours of Credit Suisse bankruptcy
BoE begins printing. Again
US FOMC & CPI
Oil Price Cap... will it work?
Technical Wrap: $BTC, $ETH
US30, US100, SPX,
Featured Spotlight: CREDIT (SUISSE) CRISIS
Rumour has it that a major bank has more holes in off-balance sheets than Swiss cheese.
Suggestions of potential insolvency circulate, weighing heavy on its company stock valuation.
Credit Suisse (C.S.) has reached a "critical moment" despite having a "strong capital base and liquidity" from the mouth of CEO Ulrich Koerner.
Credit Suisse Group, NYSE: CS - 1 Month (M1)
The day-to-day stock price performance says otherwise; over the past 15 years, it has fallen by approximately 95%.
Speculators are cruel and unforgiving.
It will not be surprising if C.S. is now in talks over raising capital to stop the company from collapsing into a penny stock.
After a US$5.5 billion loss following the Archegos Capital default, the investment bank still has roughly US$860 billion in leveraged exposure…
If just 1% of the position goes wrong, its market capitalization could be decimated.
Government bailouts from the 2008 Global Financial Crisis (GFC) have conditioned the market into harboring an addiction to cheap debt and a tailwind of low-interest rates.
But the chickens must come home to roost at some time.
It is the perfect storm; central banks are raising rates while bond yields continue melting higher; at what point do other banks start defaulting?
BoE takes a Pounding (pun intended)
The GBP crumbles to record lows and flirts around U.S. dollar parity for the first time in nearly forty years.
For context, inflation has been savaging throughout the United Kingdom; the GBP has lost 20% of its value this year alone.
Pound-Stirling, GBP/USD - Monthly (M1)
Misdirected policy measures to stabilise the pound have only hastened the pound's rapid decay against the greenback; raising rates, unwinding the BoE balance sheet, lowering corporate taxes, slashing stamp duty, and a proposed energy bill relief all taking place simultaneously.
As a result, the U.K. bond market finally caved when yields on 30-year Gilts soared past 5%, causing a devastating amount of margin calls for many pension funds invested.
U.K. 30-Year Government Bonds, GB30Y - Weekly (W1)
When investors become uncertain, they start demanding higher yields on the bonds to compensate for the risk.
This demand for higher yield makes credit more expensive, creating funding issues for governments, insurance markets begin stressing, and pension funds collapse.
If you've ever played mouse trap, imagine that but with pension funds instead of a mouse at the end.
This liquidation engine can be devastating as funds scramble to sell assets before one another to meet margin calls.
The market crumbles as so many players are forced to sell, causing further margin calls that eventually lead to a stream of defaults.
As a result, the BoE bailed out pension funds by injecting £65 billion into the long-term bond market and restoring orderly market conditions.
The Bank of England is trapped. And now, the market knows precisely what will break the camel's back.
At 5%, the money printer will likely always remain on.
After conceding that Britain is now in recession, it probably won't be coming off anytime soon.
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US FOMC & CPI: Pivot Pretty Please!
The World Bank, IMF, and U.N. are all begging for a Fed pivot in the upcoming FOMC minutes this week, followed by U.S. CPI the day after.
Aggressive rate hikes have stretched the U.S. dollar too far, and now the Financial System is on the edge of a knife as debt becomes too expensive to service.
Chairman of the Federal Reserve, Jerome Powell (JPow), is maintaining his hawkish posture until inflation levels in the U.S. no longer threaten economic stability despite how necessarily painful the journey may be in getting there.
As a result, markets and other global currencies continue collapsing into the U.S. dollar's immense gravitational force, only sped up by countries now relying on U.S. energy exports.
W1 U.S. Dollar Currency Index (DXY):
Ultimately, if JPow remains hawkish or inflation figures come in hotter than expected, the market will likely react negatively and continue selling into the dollar.
Technical Rap: Correlations collide
The descending triangle, usually bearish in formation, is getting very close to completion and an impulse break up or break down is imminent.
A neutral wedge forms as Ethereum consolidates at support and prepares to follow which direction Bitcoin takes with the incoming impulse break
U.S. Indices are all mirroring one another and cling to their respective major support levels ahead of FOMIC and U.S. CPI which is no coincidence.
These support levels will either hold and head upwards as the Fed pivots or break down as policy continues strengthening the U.S. Dollar until inflation is sustainable.
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It's been days since the sabotage of the critical undersea gas pipelines powering European industry and homes.
The Nordstream pipeline funnelled 170 million cubic metres from Russia to Germany, a crucial resource driving the economic engine of the E.U.
While some media headlines point to Russia's involvement in the sabotage, the intentional destruction of Nordstream has achieved two clear outcomes.
Member states of the E.U. arguing against Russian energy sanctions have no choice but to comply.
Russia loses key strategic leverage over E.U. member states (namely Germany).
E.U. President Ursula Von der leyen plan to ease the pain is a gas price cap, but the challenge now is to convince industries and consumers to reduce demand for the resource.
With the E.U. staring down a harsh winter ahead without Russian gas, its severity will likely decide the success or failure of a proposed cap on gas prices.
But wait, the house of cards is stacked higher.
International support for an oil price cap appears to falter as OPEC nations refused President Biden's pleas to lower production.
While U.S. strategic oil reserves have depleted steadily to historic lows, the oil producers cartel headed up by its de-facto leader Saudia Arabia seems unwilling to foot the bill for US-led foreign policy.
The decision to lower production by 1 million barrels per day sent prices soaring as oil traders moved quickly to take advantage.
Once again, we reach the most unpleasant part of the report, the end! Thanks again for your time valued readers. See you again for the next update.
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