After Jackson Hole, a flood of macro data ahead

After Jackson Hole, a flood of macro data ahead

30. august 2021 fra CarlsquareLæsetid: 8 minutter

Toll Brothers is a hugely successful company that builds high-end catalogue houses in the US market. The lots above with houses are available from USD 1.7 million. A detached house (which it probably isn’t if the picture had been accurate) with no people in sight but with an eternity pool to reflect in. Is the image above a picture of a life in Covid 19 anno 2021?

Toll Brothers’ interim report last week showed continued peak demand. They were also pleased that lumber prices have come back down to more reasonable levels. This should lift the company´s margins further and reignite demand.

Toll Brothers share price graph from January 4th to August 27th, 2021

Note: Past performance is not a reliable indicator of future results.

The share price of Toll Brothers can therefore be seen as a good parameter for the US economy.

Lumber prices surged on shortages of raw materials and the ravage of bark beetles. This created a rapid transitional wave and is an illustration of “transitionary effects”.

Lumber price graph from August 30th, 2019 to August 27th, 2021

Note: Past performance is not a reliable indicator of future results.

But inflation is now showing up in a variety of places in the US economy, so there is no shortage of concerns for the market. It will continue to oscillate between new supports and concerns that the economic supports will have to be withdrawn for the Fed to have to raise interest rates to reduce inflation.

Inflation on various US goods and services

The interesting thing is that you can start to read into a new kind of path at the Fed. Perhaps they will raise rates at the same time as they increase support purchases. That would be a new way to kick the can down the road.

Fed Chief Jerome Powell’s speech in Jackson Hole was an anticlimax. This was because he stuck strictly to already well-rehearsed phrases and thus refrained from delivering any news. Tapering was barely mentioned in the speech. Most of the time was devoted to explaining why inflation is transitory, i.e., why the upticks that exist right now will soon blow over. Some commentators interpreted the speech almost as a speech by Powell to get re-elected as Fed chief. Recently he received support from Treasury Secretary Janet Yellen, but he lacks the continued support of President Biden.

We see it as highly likely that Powell will be re-elected. Yellen and Biden will need a tame dove at the helm of the Fed to stimulate the finances in the coming years. Next year are already the midterm elections in the US, and without help from the Fed things look challenging for the ruling Democrats. It will take time to roll out the major infrastructure programmes in the US. They are currently stuck in the budget.

If worse come to worse, the vote on these could be linked to the US Congress having to raise the budget ceiling in a few weeks. This is a circus that recurs from time to time and always ends with the ceiling being raised. However, it is always preceded by a public wrestling match between various special interests where a motorway here or a school there is traded for a vote. In this case, the size of the infrastructure package may become the focal point of the whole debate. It is good to keep an eye on this development since it can also be used as a reason to push up interest rates and bring down the stock market.

But right now, it´s up, up, up! The chart below shows that the S&P 500 index again set a new all-time-high on Friday, August 27. Note that the index is at the top of the gently challenging the ceiling of the small rising wedge. A short rebound downwards may be in the cards. But if the index is trading above MA20, the short-term trend can be considered as rising. MA50 has historically been good opportunities to buy in.

The S&P500 index from January 4th to August 27th, 2021

In the weekly five-year graph below, no technical signs can be seen that could put an end to the upwards sloping trends. Perhaps, with the pessimistic glasses on, one can point out that MACD has started to fade.

The S&P 500, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Nasdaq did also set a new all-time-high on Friday. In line with S&P 500, Nasdaq is also trading close to the ceiling but of a short rising trend. MACD has generated a weak buy signal, which is clearly positive. With this, Nasdaq may also look a little more attractive than S&P 500 from a technical point of view. Nasdaq is also still lagging S&P 500, but only by about 70 basis points. However, RSI is getting close to being overbought for Nasdaq. Perhaps a short term downwards rebound may be in the cards even for Nasdaq.

Nasdaq 100 graph from January 4th to August 27th, 2021

In the weekly five-year graph, no technical signs can be seen that could be interpreted as a warning flag. Perhaps the negative divergence between the index and MACD should be pointed out. But so far, we have also learnt that rising wedges as well as negative divergence is of little signal value these days when the Fed is out there.

Nasdaq, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Interest in tech stocks have, as we have written before, returned. Google shares continues to be strong. Now it will be particularly interesting when the stock puts in an overdrive tries to push up above the ceiling of the rising trend? Are the bears about to throw in the towel?

Google share price graph from January 4th to August 27th, 2021

Nevertheless, in the five-year weekly graph, Google is overbought in terms of RSI as never before. But this is as mentioned many times not a sell signal stand alone.

Google five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Another tech-star is the famous Facebook. Below is Facebook that is lagging both Nasdaq and S&P 500. But only by little. Perhaps a new all-time-high can be set this week? MACD is fading and perhaps a rebound back to the rising EMA9 and MA20 will be needed before previous high can be challenged for real.

Facebook share price graph from January 4th to August 27th, 2021

Facebook five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Another positive sign come from the junk-bond market. HYG, which tracks the market for high-risk corporate bonds, rose sharply on Friday 27 August as interest rates fell and the stock market rose.

HYG graph from 4 January to 27 August 2021

Note: Past performance is not a reliable indicator of future results.

A positive sign for Nasdaq 100 (with a larger number of growth companies included in the index compared to S&P 500) is that the interest in growth stocks is back. The ETF for growth stock has closed the gap to the ETF for value stocks as shown in the graph below.

US Growth versus Value stocks graph from 19 January to 27 August 2021

However, there is a warning sign - the rising prices caught by the indices is concentrated in a small number of companies. The chart below shows that there is a downward trend in the number of companies reaching all-time highs while the S&P500 index is reaching all-time highs!

NYSE graph from August 2020 to August 2021

Internationally, there is again divergence between stock market indices, which provides excellent opportunities for pair trading, i.e., buying one and selling the other. Over time, the indices tend to converge again. What’s lagging the most is China and SSEC (Shanghai). But also, the Swedish OMXS30 is lagging somewhat to the US indices.

As shown in the graph below, OMXS30 is trading below the falling EMA9 as well as MA20. MACD doesn’t look happy either. But worth noticing is that Fed Powell’s speech was after close of trading hours in Sweden on Friday 27 August. Maybe some of the difference can be closed already today (Monday 30 August)?

OMXS30 index graph from January 4th to August 27th, 2021

In the weekly five-year graph below, EMA9 has been tested several times but held. Note that MACD has generated a weak sell signal.

OMXS30 five-year share price graph

Note: Past performance is not a reliable indicator of future results.

The German DAX is consolidating in a neutral wedge-formation, calling for a larger move, up or down. MACD has recently generated a weak sell signal. As in Sweden, markets were closed in Germany as Powell’s speech started. Will we se a little bit of a catch up today (Monday 30 August)?

DAX index graph from January 4th to August 27th, 2021

DAX index five-year graph

Note: Past performance is not a reliable indicator of future results.

The USD weakened against the euro on Friday 27 August. MA50 at 1.181 is the next level on the upside for the currency pair EUR/USD. This is followed by Fibonacci 23.6 meeting up just above the 1.182-level. MACD is negative but rising giving support for further upticks. In case of a break, up above MA50 and Fibonacci 23.6, one will start to look for the currency pair to reach levels around 1.19. See graph below:

EUR/USD graph from January 4th to August 27th, 2021

In the weekly five-year graph below, one can see how the currency pair bounced nicely of Fibonacci 38.2. MACD is a little scary though as is just crossed the signaling line:

EUR/USD five-year graph

Note: Past performance is not a reliable indicator of future results.

A weaker USD is good news for commodities. A break for EUR/USD of EMA9 in the graph above and things would be even better. Below is brent oil that is testing MA50. MACD has just generated a weak buy signal and in case of a break, the falling trend line (just below the 75 USD per barrel-level) may be next:

Brent oil price graph

(USD per barrel) from January 4th to August 27th, 2021

In the weekly five-year graph, brent oil just closed last week back above EMA9 and the rising MA20. That is good news. MACD o the other hand has just recently signaled for a weak sell signal. Will the bears, or the bulls turn out as winners in the next move?

Brent oil (USD per barrel) five-year price graph

Note: Past performance is not a reliable indicator of future results.

This week, a broadside of macro statistics will focus on the US jobs figure for August, to be released on Friday 3 September. This is the figure that the Fed is currently focusing on in terms of economic stimulus. If unemployment remains high, so long will the Fed continue with its economic support.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

26-10-2021 07:27:21

 

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