Trading Plan – Monday 13th June 2022: US CPI causes market tizzy

Mark NugentDaily Alert, June 2022

Trading Plan – Monday 13th June 2022: US CPI causes market tizzy

Good morning.

Last week was supposed to be all about the European Central Bank and their Damascene conversion to a hawkish interest rate policy. But then along came US inflation on Friday which may have been leaked on Thursday. The figures beat expectations, i.e., were higher, which spun the markets into a tizzy of recessionary fears. Equities plunged on Thursday and Friday as the US 10-year yield, the USD and the JPY all rose. Classic “oh-no!-inflation-interest-rates-recession-end-of-world” behaviour. The S&P500 is down 7 percent from Thursday morning. Which of course does not reflect the fundamentals. I smell a reversal coming.

Incidentally, the ECB signalled a 25 basis-point hike in July, maintaining Lagarde’s “we’ll be gentle with you, at first” narrative but clearly hinted at more aggressive measures if the inflation outlook remains as it is. So, inflation doesn’t have to get worse for more aggressive measures. It just has to stay the same. So why not be more aggressive now? Because then Lagarde would lose face. It takes a second for the ECB to decide their prior dovish position on hikes was wrong and to become hawkish. However, it takes around three months for the narrative from the central bank to reflect that change so that nobody can be accused of maybe not really knowing what they are doing. And of course, the actions must reflect the narrative. So, 25 basis-points in July and not the 50 basis-points that the ECB clearly thinks the economy needs. To save face. I tell you; I’d do their jobs for half the money.

This week sees more central bank shenanigans from the Bank of Japan, Fed and Bank of England.

Right now, the equities slide from last week is continuing into this week, with a gap down and move down at last night’s open.

As always, I go through my trading themes for the week in the video.

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