There has been a shift in the markets.
- US yields have seen a move to the downside. The 10 year is now back below the 3.0% level at 2.97%. The high yield reached 3.062% earlier today
- US stocks have seen the NASDAQ and the S&P erase earlier declines. The NASDAQ index is now up 89.59 points or 0.74% at 12150.52. The price of the index traded as low as 11888.61. The S&P index is up 17.36 points or 0.43% at 4139. It traded as low as 4080.19
- The US dollar is lower as well. The EURUSD back testing its key 100 hour moving average 1.07048 after trading as low as 1.0651 earlier in the US session. The USDJPY has moved below the midpoint of the day’s range and the 200 bar MA on the 5 minute chart. The price is still higher on the day but showing some signs that short term traders are trying to take back some control (see post here).
- Spot gold is now up $11.50 or 0.63% at $1851.90. It traded as low as $1837.10.
- Crude oil is kind of an outlier as it was back above $120 at him $120.12. It traded as low as $117.75
Although earlier, the market reacted negatively to the Target news on excess inventories, and the need to lower prices, that type of news could also be deflationary and help break the inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term spiral if it is also an issue for other good suppliers.
Car prices and crude oil
Crude Oil
Crude oil is the most popular tradable instrument in the energy sector, offering exposure to global market conditions, geopolitical risk, and economics. The instrument is strategically relied upon and situated in the global economy. Crude oil has proven to be a unique option for traders given volatility and the efficacy of both swing trading and longer-term strategies. Despite its popularity, crude oil is a very complex investing instrument, given the litany of fluctuations in oil prices, risk, and impact of politics stemming from OPEC. Short for the Organization of the Petroleum Exporting Countries, OPEC operates as an intergovernmental organization of 13 countries, helping set and dictate the global oil market.How to Trade Crude Oil Crude oil is most commonly traded as an exchange-traded fund (ETF) or through other instruments with exposure to it. This includes energy stocks, the USD/CAD, and other investing options. Crude oil itself is traded across a duality of markets, including the West Texas Intermediate Crude (WTI) and Brent crude. Brent is the more relied upon index in recent years, while WTI is more heavily traded across futures trading at the time of writing. Other than geopolitical events or decisions by OPEC, crude oil can move due to a variety of different ways. The most basic is through simple supply and demand, which is affected by global output. Increased industrial output, economic prosperity, and other factors all play a role in crude prices. By extension, recessions, lockdowns, or other stifling factors can also influence crude prices. For example, an oversupply or mitigated demand due to the aforementioned factors would result in lower crude prices. This is due to traders selling crude oil futures or other instruments. Should demand rise or production plateau, traders will bid increasingly on crude, whereby driving prices up.
Crude oil is the most popular tradable instrument in the energy sector, offering exposure to global market conditions, geopolitical risk, and economics. The instrument is strategically relied upon and situated in the global economy. Crude oil has proven to be a unique option for traders given volatility and the efficacy of both swing trading and longer-term strategies. Despite its popularity, crude oil is a very complex investing instrument, given the litany of fluctuations in oil prices, risk, and impact of politics stemming from OPEC. Short for the Organization of the Petroleum Exporting Countries, OPEC operates as an intergovernmental organization of 13 countries, helping set and dictate the global oil market.How to Trade Crude Oil Crude oil is most commonly traded as an exchange-traded fund (ETF) or through other instruments with exposure to it. This includes energy stocks, the USD/CAD, and other investing options. Crude oil itself is traded across a duality of markets, including the West Texas Intermediate Crude (WTI) and Brent crude. Brent is the more relied upon index in recent years, while WTI is more heavily traded across futures trading at the time of writing. Other than geopolitical events or decisions by OPEC, crude oil can move due to a variety of different ways. The most basic is through simple supply and demand, which is affected by global output. Increased industrial output, economic prosperity, and other factors all play a role in crude prices. By extension, recessions, lockdowns, or other stifling factors can also influence crude prices. For example, an oversupply or mitigated demand due to the aforementioned factors would result in lower crude prices. This is due to traders selling crude oil futures or other instruments. Should demand rise or production plateau, traders will bid increasingly on crude, whereby driving prices up.
Read this Term remain a headwind however.
For car prices, many buyers put off buying as result of the chip shortage and increasing pricing as a result. Will prices come down in that sector? Already car buyers are stretching out payments in order to afford a car – new or used. However one can argue that if you spending more on a car, you may not be able to afford other goods.
Oil prices going higher is inflationary, but will also slowdown purchasing power for some of the economy. The price of a a gallon of gas in the US is approaching $5 and and its highest level ever.
Housing is another issue that interest rate policy has made a impact according to anecdotal stories.
Strength remains in travel as the pent-up demand to get-away is moving funds into that service sector. What happens when the vacations are over? Do we see a decline in services and goods spending as result of higher payments for cars, oil, housing?
Perhaps the hopes have started to swing in favor of lower inflation and less stringent Fed policy. That will not stop the Fed from hiking rates by 50 basis points at the next 2 meetings as they still are behind the curve in getting back to neutral.
Other central banks (sans the BOJ) are looking to raise rates more toward neutral as well. The Reserve Bank and Australia increase rates by 50 basis points last night – higher than expectations. The ECB is expected to raise rates for the 1st time in July and continued that process into the end of the year.
At some point, there will be a point where the slowing occurs, and inflation does come down. That may be the story driving the market bounce at least for the day.
ADVERTISEMENT – CONTINUE READING BELOW
