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20.12.2021 – Build Back Better (BBB) is history for now: Democratic Senator Joe Manchin refuses to follow the Democrats. This means the Dems no longer have a majority in the Senate. U.S. futures dive.

Goldman downgrades GDP forecast

Goldman Sachs reacted immediately, cutting its forecast for U.S. gross domestic product after the no vote on BBB: 2 percent in Q1 (versus 3 percent previously), 3 percent in Q2 (versus 3.5 percent) and 2.75 percent in Q3 (versus 3 percent previously).
Manchin cross-posted yesterday to, of all places, Fox News television, the nemesis of the left-wing cultural chic. The man hails from West Virginia, we mean: in this lonely, remote state in the Appalachians, people have no sympathy for expensive government programs that primarily benefit the woken middle class on the East and West coasts. Official reading in our truth press: The planned $1.75 trillion for “Build Back Better” was intended to expand the social sector, the health and education systems, and climate protection. And a cross-reference: coal is mined in West Virginia and Manchin is said to have a stake in an energy company.

Boost for inflation

Now the rather less illuminated interpretation in this country: Manchin judged the actual cost of Build Back Better would be more like $4.5 trillion, citing the Congressional Budget Office. Proponents of the spending would obscure those numbers. The University of Pennsylvania also concludes in its Wharton Budget Model that the cost over a decade is $4.6 trillion. And the conservative nonprofit Citizens for Self-Governance sees even closer to $5 trillion. Manchin and opposition Republicans argue that the government money will further fuel inflation and also increase the tax burden precisely because the thing is not soundly financed. Incidentally, the U.S. Internal Revenue Service (IRS) is currently looking for thousands of new tax investigators.

Gifts for the eco-industry

Some details: The deal includes a maximum subsidy of $12,500 for the purchase of an e-car – which only the green middle class can afford anyway. Car manufacturers are likely to raise their prices in a hurry. There will also be a $320 billion tax break for companies and individuals who install solar panels. Here, too, prices are likely to rise and, as always, a government stimulus will fizzle out. Further, a so-called Civilian Climate Corps is to be created, employing some 300,000 people to take care of the environment.

Stoking inflation

Manchin, for one, opposes the woken program, saying, “I cannot take that risk with a staggering debt of more than $29 trillion and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores and utility bills with no end in sight.” He also pointed to energy dependence on foreign countries if all the green programs were enforced.
Our conclusion: the stock market is taking cover for now. However, nothing is ever ruled out forever in the Washington, D.C., quagmire – it’s quite possible that Manchin will be swayed in parts. Moreover, Wall Street could quickly come to the conclusion that bad news is good news – and that the Federal Reserve did not have the failure of BBB on its radar. In which case the Fed would have to pump more money into the market. Bernstein Bank keeps an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.

16.12.2021 – A topsy-turvy world on the financial market: The Federal Reserve announces tighter tapering. As well as three interest rate hikes. And share prices are rising. The reason is likely to be Fed Chairman Jerome Powell’s double-speak: While the press release was quite hawkish, he was rather dovish in the press conference. Here, the focus was on the labor market, not on the fight against inflation. We attempt an analysis of the unfathomable oracle.

Three Possible Interest Rate Steps

That was the starting position before the big event yesterday: more than two interest rate steps in the coming year were considered hawkish by the analyst consensus. And lo and behold, the Fed indirectly announced three rate hikes for the coming year. Initially, there will be no change to the key interest rate of 0.0 to 0.25 percent. But in 2022, it could rise to 0.9 percent. In the September preview, the Fed had still assumed a level of 0.3 percent. An interest rate level of 1.6 percent is now forecast for 2023. That would be 0.6 percentage points higher than in the previous forecast.

Tighter Tapering

In addition, the U.S. Federal Reserve wants to wind down the massive securities purchases of the past few years twice as fast as recently expected. This could be over by the end of March. Until October, the Fed had still been collecting papers worth $120 billion a month. In November it was still 105 billion dollars. In December, it is expected to be $90 billion. From January, only 60 billion dollars. So far so bearish for stocks and co.

Powell wax soft

But Powell immediately softened the announcements. First, he explained that tapering is not tightening. What does that mean now? Then, at the press conference, he qualified this by saying that political flexibility must be shown before tapering – i.e. the throttling of the flood of money – is tightened. He also denied the need for immediate rate hikes – the conditions for which are far more stringent than tapering. And even inflation – which is still at 9.6 percent for producer prices in November – was talked down by the Fed chief: The Fed would have to analyze the issue of economic bottlenecks carefully before making a decision. Moreover, extremely long economic cycles are needed to keep unemployment low.

Focus on the job market

Peter Tchir of Academy Securities commented that tapering through March was more or less priced into the market. And, “The press conference seemed a bit stilted to me, but Powell did seem to straddle the line between fighting inflation and wanting growth. To me, and I’m biased, I found him addressing the nation rather than financial markets in a way he hasn’t done in the past. Maybe he is trying to appease D.C., while sticking to his guns? Plausible, and I’d appreciate that, but not sure that is how it played out. I think the most powerful thing he said was his view that you need very long growth cycles to really drive unemployment lower (with increased labor participation).” In summary, this means: Powell was apparently trying to quiet the Washington, D.C., power apparatus on the one hand. However, the hint that it would take a long time to lower unemployment had been the most important statement.

Our conclusion: The Fed has calmed investors’ nerves for the time being – if the focus is on economic growth, which may need government stimulus for quite a while, then tapering can’t be that bad. Especially since Powell has now put inflation back into perspective. Only recently, the Fed had admitted that inflation was not a transitional phenomenon.

So that’s why investors celebrated. It is quite possible that the Fed is talking the market down slowly in order to prevent a crash via shock therapy. So sometimes up, sometimes down. And another news for crypto disciples: Powell also said yesterday “cryptos are not a threat to financial stability”. The matter remains exciting, any statement from the Fed can turn the prices around again – Bernstein Bank keeps an eye on the matter for you.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.

14.12.2021 – Interest rate fears are back: Wall Street and the rest of the world’s stock markets are playing it safe. Tapering or not – containment of the flood of money or more cheap money? We will know more on Wednesday, when the Federal Reserve will have its say. Until then, the market is likely to dig in nervously. And Morgan Stanley already sees chaos from a stronger than previously suspected turnaround in monetary policy.

Inflation Expectations Pick Up

Investors got a small taste of the Federal Reserve’s influence yesterday: the New York Fed released a survey on inflation expectations in November. It surveyed 1,300 households. And in the short term, the figure is higher than ever at 6 percent. The medium-term outlook fell slightly. But, “measures of disagreement across respondents…increased at both horizons to new series highs.” What’s more, the majority of respondents believe prices for all goods and services will continue to rise: Gold, rent, college tuition, food, etc.
The study put a damper on Wall Street. Researchers believe that inflation expectations accurately predict real price increases. Quite simply because consumers are the most likely to notice whether dinner in a restaurant is getting more expensive or whether the bottles in the supermarket are getting smaller for the same price. And already a lot of traders have moved back into the camp of those who now believe in a massive tapering – i.e. the throttling of the flood of money – by the Fed.

Bearing turnaround

Fittingly, Morgan Stanley made an interesting about-face: Until last week, MS economists had thought it possible that the Fed would not raise rates. Now, chief economist Michael Wilson warned of two possible rate hikes in 2022. Ergo, the S&P 500 would slide to 4,400 points at the end of 2022. The stock market is in for trouble on a three- to four-month horizon, he said: “the Fed’s pivot to a more aggressive tapering schedule poses a greater risk for asset prices than most investors believe.” The analyst’s bottom line: “the Fed put still exists but the strike price is much lower now, in our view. If we had to guess, it’s down 20% rather than down 10% unless credit markets or economic data really start to wobble.”

Everything is different this time

The current tapering will be far more severe than the tightening in 2014, Morgan Stanley further explained. The differences to then: The Fed is currently saying goodbye to quantitative easing twice as fast. Asste prices are much higher. And growth is flattening out. Wilson also said that the current U.S. government is not focusing much on the performance of the stock market as an indicator of its success.
To which we add: This Biden administration has not a single success to show for it – the border is open, illegal migrants are flooding the country; the Afghanistan withdrawal was a disaster because Joe Biden abandoned the Bagram base that would have kept ISIS and Taliban at bay – Donald Trump would never have left billions of dollars worth of weapons behind either. Corona deaths are higher under Biden than under Trump. And inflation, at 6.8 percent, is the highest it’s been in about 40 years.

Turbo Taper Looms

Like Goldman Sachs, Morgan Stanley now believes the Fed will end its asset-buying program at the end of March. The brilliant financial blog ZeroHedge warned of a “turbo taper.” Our conclusion from all this is that, on the one hand, inflation is pushing up stock prices. Investors are fleeing into tangible assets; companies – for now – have no problem passing on higher purchase prices to consumers, which boosts profits. But will the Fed stand idly by and watch all this happen? We’ll know more on Wednesday night. Bernstein Bank wishes successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.

13.12.2021 – Here’s how it can happen: The S&P 500 has risen to lofty heights despite horrendous U.S. inflation. Yet many investors were afraid of the Federal Reserve’s tapering. The fact that the Dow Jones, Nasdaq and also the DAX are rather lagging behind shows that traders are not yet in complete agreement. We highlight the pros and cons of a year-end rally.

Consistently strong December

First, let’s take a look back: According to the U.S. investment firm LPL Financial, the term Santa Rally dates back to 1972, when Yale Hirsch published the Stock Trader’s Almanac. And today? Let’s let a British expert have his say: Capital.com recently quoted Jason Hollands, managing director of Bestinvest in London. In his opinion, there is “compelling evidence” for the closing spurt: “Looking at 40 years of monthly market data, December has the highest incidence of any month in providing investors with positive returns both globally and in the UK.” Globally, equities delivered positive returns 80 percent of the time, he said.
Investment bank Schroders is also following suit: U.S. equities have delivered positive returns 77.9 percent of the time in December since 1926, according to Morningstar Direct data. Even if it was only plus 1.6 percent on average – but that’s what leveraged products like CFDs are for. Schroder, of course, qualifies that looking back says nothing about the future – and that things went quite differently in December 2018.
Either way, the Santa rally is one of the most persistent myths on Wall Street. Especially since fund managers like to stock up on winning stocks when window dressing at the end of the year so they don’t have to be told they missed the best price rockets.

Steep inflation in the U.S.

But isn’t everything different this time? Just now, inflation in America offered a bearish argument for the Federal Reserve’s tapering – that is, scaling back bond purchases and possibly even raising interest rates. Tagesschau.de reported, “Inflation in the U.S. climbed to 6.8 percent in November, the highest level since June 1982. Economists had expected this boost after inflation hit 6.2 percent in October. Supply problems, material shortages and skyrocketing energy costs are the cause of the inflation.”
What the hacks forgot: Money supply is a key factor behind inflation. And indeed, after Friday’s numbers, speculation was already circulating again about whether the Federal Reserve and the other central banks can even curb the flood of money without risking a systemic collapse. Especially since the omicron variant also speaks in favor of new government programs. So, as is often the case, a negative factor in the real economy would be a boost for the stock market.

Masses of capital waiting

Be that as it may, there is plenty of money waiting on the sidelines. Here are two appropriate reports from the “Wall Street Journal”: In November, the inflow of capital into exchange-traded funds exceeded $1 trillion for the first time. According to data from fund rating company Morningstar, the total was $735 billion worldwide a year earlier. And according to data from S&P Dow Jones Indices, firms in the S&P 500 bought back about $235 billion in shares in the third quarter – putting the new record above the previous high of $223 billion set in the fourth quarter of 2018.
Our conclusion: the masses of cash would indeed argue for a year-end price run; especially as Omikron counters the inflation factor. We hope we have been able to provide you with some clarity on this mixed bag. Whether long or short – Bernstein Bank wishes you good luck!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.

10.12.2021 – It can happen that quickly: Wall Street has recovered its losses built up since Thanksgiving. Despite yesterday’s setback. If Scott Rubner, trader at Goldman Sachs, has his way, that was just the beginning. Omicron, tapering – it doesn’t matter. A mountain of investor money wants to be invested. In his opinion, the stock market lights have recently jumped to green. We shed light on the background.

Buy the dip

Rubner has been right so far: last Sunday he wrote to his clients that the small correction was over, he was buying the dip. In his December newsletter “Tactical Flow-of-Funds” he explained: “the #1 incoming question from investors this week: Does the selloff change the supply and demand picture for the rest of the year? Is this December 2018? What inning is it? Do you have hands made from diamonds or paper?” He went on to predict, “We have seen the lows for the year.
Then Rubner listed more than two dozen hard-to-digest macro theses in cryptic stock market-speak abbreviations, the essence of which we reproduce here. Bottom line: the red light has turned to green. The past few days have reinforced it. And earlier this week, heavily shorted stocks in particular pulled sharply higher. Tuesday brought the biggest short squeeze in six months, according to Goldman Sachs.

Buybacks and massive liquidity

Maga factor for a December rally are for the goldman first buybacks and an enormously bearish sentiment. The market still needs one to two weeks to switch completely to green, it was said last weekend. So that would be these days – perhaps the bulls can look forward to a Santa rally. Especially since the usual window-dressing of fund managers should speak in favor of it, i.e. the fact that the lords of money quickly stock up at the end of the year with those stocks that have done particularly well. Otherwise, they will say that they have overlooked the best stocks.
Biggest bull factor according to the Goldman Sachs expert: Enormous amounts of cash waiting on the sidelines. A total of $5.5 trillion in assets wanted to be invested in the financial industry. We remember: Rubner had already predicted a meltup shortly before Thanksgiving, resulting from a daily inflow of 15 billion dollars.

Go with the flow

Maybe trading is really quite easy at the moment. Money will be invested. Already about three weeks ago, Jonathan Wolf of the blog “Dealbreaker” wondered: “Has anyone considered that we might not be in a stock market bubble?” Wolf’s essence: “Are we in a stock market bubble? Possibly. Or maybe we’re just in an economy where companies are doing well because Americans are sitting on a big pile of cash that they accumulated over the course of the pandemic and are now doing everything they can to spend it. My money is on the latter.”

The fear for inflation

And now comes the big caveat: if the Consumer Price Index in the US this afternoon turns out to be more catastrophic than analysts had expected, then the hoped-for bull market is likely to come to a halt for now. If, for example, we get year-on-year inflation somewhere in the neighbourhood of 7 per cent, then fears of a heavy tapering and possible interest rate hikes will immediately start to circulate. So we are curious to see if we really do see a year-end rally. Bernstein Bank is keeping an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.

7.12.2021 – Special Report. Is the correction over now? Bitcoin crashed to around $46,000 in just a few days. Now the recovery is underway. As it looks, the crash had its origins overseas. The reason was probably a misinterpretation of the unusual US labor market report. We shed light on the background.

Looking back ahead: On Friday, the world still seemed fine for the BTC bulls and Bitcoin remained calm at around $57,000. Then it took off. A whopping flash crash of around 20 percent. A quick look at the chart analysis basics: the asset briefly pierced the 200-day line, then shot back up.

Margin call massacre  

Early Saturday morning in the normally quiet hours of Asian trading, momentum chasers en masse imploded – and BTC roared lower. Vijay Ayyar, head of Asia-Pacific at crypto exchange Luno, speaking to Bloomberg, said heavily leveraged buyers were flushed out of the market. And data collectors at Coinglass reported Saturday that more than 400,000 crypto accounts worth $2.6 trillion were liquidated in the past 24 hours. That compares with the current figure of just over 60,000 closed accounts.

Curious US jobs report

The culprit was Friday’s bizarre U.S. jobs report: for one, U.S. employers had added only 210,000 jobs in November, while analysts had expected 550,000. Seemingly a disaster. Those who only looked at this number may have mentally said goodbye to tapering – more cheap money, more inflation. And they probably took more long positions on credit.

But the official unemployment rate fell from 4.6 to 4.2 percent. Strong economy, then, closing the money floodgates. Bearish factor for cryptos. Bull Trap.

The puzzle’s solution: the US Labor Department produces TWO studies – one with data from employers, one directly from households. And the latter tells a positive story about the economy. Apparently, more people have been making a living as freelancers and self-employed. While companies – perhaps because of all the discussion about the Corona vaccination requirement – are not yet hiring as hoped.

Buy the dip

The conclusion: we suspect that the bizarre U.S. jobs report killed a lot of traders who had built up highly leveraged long positions on the cheap. The slow countermovement suggests that now more bargain hunters have entered again. All tapering notwithstanding. According to research by UBS, especially very small traders, crypto exchanges and also large whales stocked up to buy the dip.

Grayscale Investments of New York contributed another pertinent figure: It said 55 percent of its investors surveyed invested in bitcoin for the first time in the past 12 months. Did some of these newbies lose their nerve? Who knows. Yet the majority of newcomers are long-term investors, according to Grayscale. Perhaps some have now bought the dip. Fittingly, a prominent buyer came forward: Nayib Bukele, President of El Salvador, quickly stocked up and managed to buy almost at the intermediate low. We are keeping an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

6.12.2021 – Special Report. This week should be really exciting: The negative factors for the stock market are piling up. First, last weekend, the warning of the Omikron variant. Then the indirect announcement of a faster tapering by Fed Chairman Jerome Powell. And just now, Evergrande has come forward again: The teetering property developer has warned of a default.

Evergrande teeters on the precipice  

There it is again, the ailing Chinese developer that has been churning out vacant prefab buildings en masse: Evergrande said late Friday night that after a review of its financial resources, it could give no guarantee that the real estate giant has sufficient funds to meet its financial obligations. Oops…. Evergrande’s penny stock lost another 20 percent or so Monday, while the Hang Seng slid about 2 percent.

With debts of about $300 billion, Evergrande is one of the most indebted real estate companies on the globe. Half a Lehman Brothers, so to speak. But that’s not all: If Evergrande topples, some banks that had lent money to the giant will fall over. And municipalities that had done the same. This would be joined by the collapse of many construction companies.

Red alert for politicians  

The government of China’s Guangdong province, where Evergrande is based, said it had sent a task force to the group to “mitigate risks and protect the interests of all parties involved.” In addition, Xu Jiayin, Evergrande’s chief executive, had been cited for talking to authorities. Further, the provincial government said China’s stock market regulator was trying to allay fears about a spreading crisis. It said the impact of Evergrande’s operations could be controlled. Well then…

Impending construction infarction

As early as a week and a half ago, Premier Li Keqiang called on the State Council, which is the cabinet, to get regional governments to build more, the state news agency Xinhua reported. Since it needs money to do so, local governments should issue new bonds. The problem: There is no longer a need for new construction. How could there be, with all the vacancies and ghost towns? Still, according to a Citibank analysis, bond volume is expected to rise from 3.65 to 4 trillion yuan (about $630 billion) next year. Goldman Sachs also reported that many cities had relaxed mortgage regulations.

The market is trembling

It remains to be noted that in addition to Evergrande, Turkey could also slide into insolvency quite quickly – and it has reached about the debt level of Lehman Brothers. Thus, it may well be that the bears are having a real feeding fiesta. And that the recent correction is far from over.

But perhaps Beijing will step in to save the day. It may also be that the overall market is supported because the Federal Reserve changes course, since it should not be over yet with all the cheap money in view of the crises. The overall situation remains – as always – exciting, that’s the beauty of the stock market. Bernstein Bank keeps you up to date!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

2.12.2021 – Special Report. Now the cat is out of the bag: inflation is unlikely to be a transitory phenomenon. What anyone in their right mind suspected is being confirmed by the Federal Reserve. The question is whether the Fed will taper monetary policy sooner than expected. Because there are factors like Omicron. And also political considerations. 

Bringing tapering forward  

Jerome Powell, the most powerful central banker in the world, spoke unusual plain language on Tuesday. He said it was time “to retire that word”, meaning “transitory”. The high inflation could easily last until mid-2022, he told the Senate Banking Committee. Powell went on to say: “At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner. I expect we will discuss that at our upcoming meeting.”  

The markets immediately fell out of bed, and for several days now a correction has been underway that is crying out for a countermovement. So much plain language is indeed unheard of. Most of the time, the Fed speaks like an impenetrable oracle. In addition, the discussion about the Corona variant Omicron is raging. It could further damage supply chains and cause prices to rise. This is exactly what the OECD has just warned against.  

Catastrophic ratings for Biden  

Moreover, the statement has to be seen in political terms: Next November, Joe Biden’s Democrats will have to face the voters in the midterms. And “Sleepy Joe” is almost as unpopular as Donald Trump. RealClearPolitics has Biden at minus 9.4 points. The adorable but incompetent Vice President Kamala Harris, who bravely ignores her job of curbing illegal immigration, comes in at minus 11.2. And Trump is at minus 11.3 points. What’s interesting, then the leftist mainstream media continues to cozy up to the presumptive senile leader and the Dems despite a wave of violence (defund the police) and the Afghanistan withdrawal disaster. In contrast, Trump is met with the usual hate-filled media barrage.  

Career killer inflation 

Powell may be a Republican – but he owes Biden a small favor for recently confirming him as Fed chairman. Moreover, this time the interests run parallel. Lael Brainard, who was tipped as Powell’s successor – she’s now his deputy – advocates an even tighter loose monetary policy. That would mean even more inflation. The decline in purchasing power – currently around 6 percent inflation in the U.S. – has shot down politicians before. Among them Jimmy Carter, arguably the worst American president ever (a Democrat, of course). Now gasoline prices are rising, food is getting more expensive, houses anyway. Ergo, Biden needs a success against inflation.  

Our conclusion: on the one hand, sustained inflation would be a massive bullish factor for stocks, cryptos and precious metals. However, a throttling of monetary policy would sustainably stall the bull market that has lasted until recently. The market is partially anticipating the move. The most interesting indicator for the further development seems to us currently the Nasdaq Composite: It has touched down exactly on the 50-day line at 15,254. Bernstein Bank is keeping an eye on the topic for you! 

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

A new strain of coronavirus Omicron, which sent market participants fleeing risk en masse on Friday, collapsed the dollar index. But not for long. Already on Monday some of the losses were bought back. Does this mean that the Dollar Index (DXY) will now return to growth?

DXY

This time, running away from risk, investors have chosen gold and the Japanese yen as safe haven assets. The dollar has been abandoned. However, already today there is a redemption of the bottom on all fronts.
It is still difficult to say how durable the current recovery will be. The fundamental backdrop looks very turbulent due to the fact that little is yet known about the new Covid-19 Omicron.
Many countries have now restricted flights and are prepared to impose stricter containment measures if necessary. This, in turn, threatens the global economy with a slower recovery.
In such a situation, the Fed is likely to postpone plans to tighten monetary policy. It is these expectations that have sustained the month-and-a-half rally of the US currency. If the tone of the central bankers begins to soften, the dollar will come under pressure.
From a technical point of view, the dollar index reached a strong mirror resistance level at 96.50. If the fundamental background remains unfavourable now, it will be difficult to break this level and the DXY is likely to correct. The downside target would be the 95.50 area, and if it is broken, 94.50.
If, however, the incoming data on the new strain shows that it does not pose a new level of danger, all of Friday’s fall could be bought back and the rally will continue.
On the subject of the Omicron strain virus, it is worth remembering that the US labour market report is due this week. We remember that the Fed members relied on it in assessing their willingness to tighten monetary policy.
There is no telling what will happen with the coronavirus, but it may come back to Friday’s jobs report and play either plus or minus for the dollar.
What are the possible outcomes here? Bad news on the threat of a new strain and a weak report will lead to a collapse of the American currency. A strong report and relatively neutral news on Omicron, on the other hand, might support the DXY. And what if the news are mixed? It will depend on what investors keep in focus here.

14.30 Canada’s third quarter GDP
16.00 Conference Board US Consumer Confidence Index for November

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

WTI crude futures lost almost 13% on Friday. The WHO’s news that a new strain of coronavirus with a large number of mutations has been found in South Africa “of concern” has crashed markets and triggered a wave of risk aversion. How low can oil go now?

OIL.WTI

WTI ended Friday’s trading session near $86 a barrel, having fallen from $78 for the day. Technically, the double-top reversal pattern was thus more than worked out.
At the same time, the floating support line formed by the 200-day moving average has been reached. Moreover, we are now seeing its breakdown and it is not yet clear whether it will be a false-break.
Technically, we might see further declines in the WTI once it reaches the SMA200. This is not out of the question if concerns carry over into the new trading week. The nearest target to the south would be the support level of $60/bbl.
Let’s see how worrisome the fundamental backdrop looks. A new and more dangerous strain of coronavirus has triggered a wave of fear about a slowing economy.
On the oil side, energy demand will fall if connectivity between countries is cut and countries close on new lockdowns. EU countries, the UK and India, announced stricter border controls as recently as Friday. This comes amid a supply expansion amid a release of US strategic reserves.
OPEC+ has also been concerned about the issue, as the cartel of exporting countries is due to meet on December 2 to decide on production levels. The organisation will now assess whether the new strain is dangerous to the market.
The fall in prices on Friday was mainly due to an expectation factor. It is possible that it was partly exacerbated by a thin market effect as major US players celebrated Thanksgiving.
The future fate of both WTI and risk assets will depend on how high the current threat is recognised. A new week is likely to clarify and perhaps stabilise the situation. Perhaps things will not turn out to be so dire.

16.00 speech by Fed chief Jerome Powell
16.00 Unfinished home sales in the US for October

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.