Summary

Stock Indices Sentiment was at bearish extremes towards the end of last month when the majority of investors were expecting more downside progress in stocks/equities. Pundits were predicting more declines but have since turned around, as the CNN Fear/Greed index recovers from a low of 11 rising up to 32 today – the majority of those pundits are now suggesting this rally is a counter-trend – the uncomfortable truth is that it certainly seems so, but being on the same side of the majority whom are mostly bullish at tops, bearish at bottoms is of concern. The only explanation is that once more upside progress takes place, they’ll change opinion, turning more bullish at the next juncture of a top. It’ll take another several weeks for that to happen, which is a perfect amount of time to unwind that extreme oversold condition of last month. In the meantime, the benchmark S&P 500 is trading inside a short-term trading-range corrective pattern but is expected to resume higher before the week finishes. Interim upside targets towards 4300.00+/-. European indices are awaiting the ECB’s policy statement Thursday but remain within impulse upside progress – in Asia, Hong Kong’s Hang Seng and China’s Shanghai Composite remain bullish.  

Currencies (FX) The US$ dollar index has had a quiet trading week so far but has been generally firmer, running higher from last week’s low of 101.30 which ended a five wave declining impulse patter from May’s high of 105.00. The current advance is simply a short-term counter-trend rally, heading towards 103.28+/-. Once completed, the dollar is expected to begin 3rd wave downside acceleration – at that point, the realisation the dollar is in a downtrend will hit the consciousness of the market, amplifying the decline through the next couple of months. Exactly what turns the dollar lower is debateable – investment banks are still expecting dollar strength on the back of rising inflation and central bank monetary policy tightening. One casualty of that is the Yen – Japan’s Cabinet Office announced the economy shrank an annualised -0.5% in January-March although that was a smaller drop than the preliminary reading of a -1.0% fall released last month. But yesterday, the Bank of Japan Governor promised support for the economy and easy monetary policy even as prices start to rise. Consequently, the US$/Yen surged higher to 134.47 to a new 20-year high although there’s inherent risk this is approaching the end of an a-b-c zig zag advance that began from the June ’16 low of 99.01 – should it turn lower soon, then it will signal a new multi-year decline has begun. 

Bonds (Interest Rates) Central Banks are keeping the bond markets on edge as the Reserve Bank of Australia surprised with a 50bps rate hike on Tuesday to 0.85% whilst the Reserve Bank of India also hiked rates by 50bps to 4.90% per cent. Both released statements saying this was the first of similar rate hikes down the road. This comes ahead of Thursday’s European Central Bank meeting and on the back of rising energy prices which are still having an impact on inflationary pressures. The US10yr yield is still trading below the early-May high of 3.203% which is labelled as ending the post-pandemic five wave diagonal uptrend. So far, there’s a distinct lack of downside acceleration which would confirm a multi-month correction has begun – any break below the late-May low of 2.705 would be enough though. The more sensitive US2yr yield has tested overhead resistance traded last back in November 2018 at 2.989% to last month’s high of 2.854% so there’s little upside left in this post-pandemic uptrend. In Europe, the DE10yr yield will be watch closely Thursday as the ECB stamen comes through ahead of an upside test for the yield to resistance at 1.368+/-. Any strong, persistent thrust above would otherwise confirm next levels towards 1.673%.

Commodities  The precious metals outlook remains bullish as gold, silver and platinum all ended important corrective lows last month. When we take a look at the gold/silver ratio, it’s clear that this next uptrend will see silver outperform gold – and basis the platinum/silver ratio, platinum is forecast to outperform silver during the next several months. Shorter-term, gold is completing a corrective downswing from last week’s high of 1874.30 into Tuesday’s low of 1836.85 and is set to trend higher – silver completed a corrective downswing from last week’s high of 22.56 to today’s low of 21.79 and is expected to resume higher now. Sentiment seems to be more bearish than bullish which from a contrarian standpoint is providing bullish background – among many others, Credit Suisse says gold to ‘suffer renewed downside pressure on a dip below $1,787’ whilst on silver, they say silver is ready to ‘decline towards $18.95/40’. The World Gold Council (WGC) published figures yesterday for the gold ETFs it tracks. They show outflows of 53 tons in May, bringing a series of four consecutive monthly inflows to an end. There’s political pressure for Saudi Arabia to produce more oil to alleviate rising inflationary pressures but so far, statements suggest the Saudi’s won’t be coerced. Western governments could release more supplies from strategic stockpiles but that programme is already underway. The Organization for Economic Cooperation and Development (OECD) cut its global economic growth forecast for this year to 3% from 4.5%, and predicted growth would slow to 2.8% in 2023 – this could turn sentiment from bullish to bearish should weakening data arrive later this month – Crude and Brent oil are testing upside limits into today’s price levels – awaiting a reversal-signature decline.