Extremes
We always have doubts and concerns when markets approach key levels that break multi-year, even all-time, trends....
Can the Federal Reserve really justify buying $40bn MBS mortgage bonds per month, when the US NAHB Home Sales index has now been above 80 for more consecutive months than the sum total of times it had previously been above that level? The National Home Builders Association has commented that, if lumber prices don't continue to fall, ‘you will see the homebuilding sector slow down and grind to a halt’.
We highlighted Dollar weakness in our April 22 report, entitled, ‘A positive for the global economy: Biden’s wind of change for the Dollar may have come to an end’, commenting, ‘The Dollar’s depreciation, which began post-Trump election, was temporarily arrested by the Biden election, but now there are signs of a resumption, which will have impacts across asset classes. But not all currencies are benefiting, and this will have consequences for their economies’ recovery’.
….a break will have significant implications for inflation, growth, debt, central bank policies globally and USD pegs. This is a risk that all asset classes and central bankers should already be concerned about; the signs have been there…when USDCNH again dropped below 6.50.
As bonds continue to trade in a range, we have recently commented, ‘Commodity markets are filled with consensus trades, and look ready for a sharp correction’.
Despite this, the VIX Volatility Index is now back below 20%, having been as high as 27.5% last week, which was the first extended spike since March, but this does highlight how vulnerable equities are to a sell off.
We are therefore currently considering…
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