Only 2 trillion to borrow! Market update
In this update, we'll be covering some important news and data that have significant implications for various sectors.
Economic Indicators
Job openings came in as expected, while ISM Manufacturing fell short of projections, indicating a decrease in manufacturing activity due to rising interest rates. It's worth noting that many are yet to recognize the severity of the ongoing recession, and we may have to endure further challenges before any future potential recovery takes place. There will likely be a “headline event” that will bring this all into everyday peoples consciousness, and create the headlines to justify and mitigate new initiatives.
Fitch downgrades US credit rating from
AAA to AA+
Fitch's recent downgrade of the US government's credit rating from AAA to AA+ was influenced by the Treasury's plans to borrow up to $2 trillion in the second half of the year to support expenditures and wars. This downgrade is likely to drive up the costs of goods and services and has had a dampening effect on the emerging strength of the Dollar.
Our current scenario for DXY predicts a downside target of 97; however, the Dollar's recent retracement back to our funnel puts this projection at risk. We'll keep a close eye on the developments in the Dollar market as they unfold. NFP Friday may bring new directions, either an invalidation of our set up as shown below, or a roll over in the dollar and re-assertion.
DXY 1D Possible invalidation or resume downside?
Employment Numbers
The ADP number, a precursor to the NFP (Non-Farm Payrolls) report, exceeded expectations, indicating the possibility of Dollar strength. However, we should remain cautious, as an undershoot in the NFP report could lead to a softening of the Dollar.
Income Tax Revenues: Tavi Costa's tweet highlights that 2023 has been the worst year on record for income tax revenues, which could be an additional factor influencing the markets. This means deficits and more borrowing, which could drive rates on debt markets higher as demand falls away.
Worst year on record for income tax revenues
Bond Markets
The bond markets have been showing weakness, with rates now above the 4,1% level on the US 10 year and through 4,3% on the 30 year debt instruments. If this continues, bonds may move towards our projected target of 4.92%. Higher volatility is expected in the bond markets, as TLT [A long dated US Bond ETF] looks set to break to the downside after a period of consolidation around the 100 level.
Equity markets are diverging from bond markets as US10Y treasuries are breaking lower, the NASDAQ has climbed with relative low volatility. In the long run we expect debt developments to impact all asset classes.
A concerning indicator is the corporate bond yields versus the Fed Funds rate, which is currently lower than after the crises post the dot-com boom, GFC of 2008, and the events of 2020. This could signal a potential collapse in the equities markets, which could also have adverse effects on cryptocurrencies. We should remember the decline of BTC back in 2020 from highs of 10-11K to 4K, following the events of that year if a real Demand Destroying Event [DDE] is afoot.
It's clearly "not a recession"
Palladium Analysis reveals economic recessions:
Our analysis suggests that palladium is a good indicator of recessions over the previous decades. The chart indicates the impact of the $6 trillion stimulus in 2020, which propelled the world out of a shutdown. However, the decline in palladium prices since 2021 points to the presence of an ongoing recession we are already in.
Palladium's correlation to recessions
Cryptocurrencies
Bitcoin's price action remains at a point of decision, as it has only reached the halfway point of a rising channel. This stagnant movement may signal possible weakness and the risk of a selloff, particularly if the Dollar gains strength. BTC needs substantial momentum to break and hold above the 30K level, and the upcoming NFP report may act as a trigger.
However if the NFP number on Friday provides fresh impetus and direction to the upside the bullish targets from $40K & above remain possible. This would likely involve an undershoot on the labour number.
Given the heavy data and uncertain market signals, adopting a cautious approach and remaining out of the market might be prudent until we gain better clarity after Friday's NFP report. We also urge attention to the USDT Dominance chart, which indicates a potential upside pattern structure that could put pressure on BTC and the overall crypto market.
USDT dominance versus TOTAL market cap. Head & Shoulders threat
A USDT.D climb is not a crypto supportive event.
In the month ahead, BRICS will be discussing the potential launch of their own currency, which could further impact the Dollar's status. As always, Dollar strength and developments in the debt markets will play pivotal roles in influencing all markets. Including Gold, that often commences macro moves near the end of August month.
Join us this Friday for our in-depth analysis of the markets' reaction to the NFP number to better understand the market direction and adjust our positions accordingly:
Join our Live Trading Day, this Friday to see how
the HVF Method can work for you.
Our Live Trading Day consists of one traditional markets session (90 minutes) where we will analyse the incoming Non Farm Payroll numbers and one Crypto Markets session (90 minutes) where we will analyse the next Bitcoin movement and the current state of Altcoins.
This Friday at 11:30 - 15:00 UTC+0
All attendees will receive a recording of the event
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