(Justin Vaughn, Editor, Options Trading Report)
Inflation looms, interest rates rise and markets churn, turning negative…All battling the ‘conflagration’ of inflation. As the indices reveal weaknesses, investors and traders continue to hedge, moving into safe havens, with bonds a target. While the Federal Reserve Chairman Jerome Powell maintains the tightening course of deflating inflation, apprehension grips the markets roiling and disrupting long-term goals. Indices are squamish as the frustrated investor seeks to safeguard capital. As the week unfolded, traders and investors were implementing ‘new’ strategies to combat the present conditions. The Nasdaq Composite, home of the ‘high tech’ superstars, that has led a tremendous two-year surge has become a ‘not-so-popular destination in these ‘tightening times.’ As the ‘fat’ is being shed, with more possibilities to follow, the ‘bull’ is weakening. Nearly every day this week, inflation-agitation has sparked negative movements in all indices, as investors maneuvered their investments. After weeks of anticipation of tightening, the reality is setting in and investors and traders are accepting the resolve. It seems, finally, that “Jerome’ has convinced all that conditions are severe, and inflation needs to be curbed at all costs. Mr. Powell is on a mission, totally committed to total success…bringing inflation down to the 2%-3% range.
Let The Good Times Roll…Again…Americans are getting back to the ‘swing of things,’ reveling in cruises, amusement parks, car travel, air travel, and enjoying the reinventing of pre- pandemic pleasures. Airbnb and Vrbo are running at near capacity, not just in vacation areas, but in all areas of the country and Europe. Bookings are setting records. Gasoline prices have dropped, giving car travel a nudge, and in turn the motel and hotel industry a strong boast. Restaurants are seeing customers return, with in house sales surging, and carryout and delivery sales at near peaks. After being locked-down for nearly two and a half years, the American consumer is finally free, free of the restrictive restrictions. Credit cards are filling and savings accounts are dipping, all for the good of ‘getting’ out and enjoying freedoms. Keith Barr, chief executive of InterContinental Hotels Group PLC, added, “consumers might be cutting spending elsewhere to afford their long-awaited summer vacations.” People want to get back out there, doing what they were doing before Covid. Even Las Vegas is thriving again, setting occupancy and gambling records, and experiencing pre-pandemic numbers.
Brent crude (the world-wide benchmark of oil prices) closed Wednesday as futures closed at $89.55 a barrel, slipping down all week from $97.01 on Monday. Throughout August, oil showed weakness, losing 12% for the month. The turnaround on Russian oil has been surprising. Turkey, India are major users of oil and are now buying large amounts of Russian oil, as they and many other Asian countries have shown uncommon loyalty to Russia and their intentions in Ukraine. Stepping up buying a vast array of products by countries such as Turkey, India, Indonesia and others has helped Russia stabilize their ruble, and amass a treasure chest of cash.
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RUMBLINGS ON THE STREET
Vincent DeLuard, director of global macro at StoneX Financial Barron’s He estimates that the U.S. labor market has durably lost about 12% of its workforce due to early retirements, Covid-related conditions, and the gig economy-leaving the remaining 88% to do more to achieve the same output at a time.
Tae Kim, writer of TECH TRADER in Barron’s, “The market has looked past the broader deterioration over the past few weeks. Why? Because we might just be in the middle of a bear-market bounce in which fundamentals have been temporarily cast aside.”
Jerome Powell, Federal Reserve Chairman, at Jackson Hole, Barron’s “We will keep at it until we’re confident the job is done.”
Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, in London, WSJ “The euphoria has really fizzled out for equities. The clamor of voices has become louder, central bank policy makers saying, ‘Hold on, we aren’t out of the woods yet.'” She added, “inflation is still a real challenge, and the Fed has to be extremely vigilant and keep monetary policy tight.”
Fahad Kamal, chief investment officer of Kleinwort Hambro, WSJ “Growth is falling quite precipitously everywhere. We’ve had a pretty big signal of weakening economic conditions,” he said. “But I think we’ll see Powell stick to his hawkish tone: he has to keep talking tough on inflation.”