News over the weekend broke that Theresa May’s Brexit deal is unlikely to pass through parliament. This announcement sent the USD screaming higher vs other world currencies. Highlighting one currency that is not selling off on the news is the Japanese Yen. As we’ve mentioned before, we do think the Yen will outperform outside currencies IF the dollar suffers a corrective setback (which we still think the odds are very high into year-end). The USD has been the flight to safety trade for most investors fleeing the foreign space over the past year, which makes total sense with market crashes in China, EM, and Europe and their respective currencies over the past year. However, as we move thru Q4 and into Q1 ’19, the U.S. data is likely to slow both on headline growth/inflation and we believe its highly likely dollar investors begin to sniff that out ahead of time. And if you haven’t noticed, our call in treasuries, gold, and equities all correlates with the direction of the USD vs outside currencies.
US Equities- We’re still bearish, and another retest of the lows (2600) is probable – But we likely will not head down in a straight line, we expect 30-40 range chop with the potential for a rally headed into year-end.
Oil- News of production cuts over the weekend by OPEC to soften the bludgeoning to the Crude Oil market (just after the Saudi’s said that they were in “pump as much as we can mode” just ahead of the elections. So if you didn’t know before, know now that OPEC and Saudi Arabia are nothing more than a manipulative drug cartel on a worldwide scale. The Iranian sanctions did very little to throw off production, and I think Oil’s problem is more so on the demand side, than supply side.
Gold- We’re in the “accumulation” zone for gold. Bw present levels back to 1195-90. We still love gold headed into next year especially due to its correlation to our call on the USD and US interest rates.
Bonds- rates are falling, bonds rising, headed into CPI on Wed. We believe that number is likely to take a hit with the drop in energy prices, but anything’s possible.
That should get us off on the right foot for the week. Back again soon.
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