President Joe Biden has withdrawn his nomination for re-election in November and endorsed vice-president Kamala Harris as his replacement. No matter your politics, you have to respect the man for putting the needs of his country first.
Bitcoin welcomed the news by rallying to $68K.
Bitcoin is headed for a test of resistance at $72K, signaling risk-on for financial markets.
Sprott Physical Uranium Trust (SRUUF) broke support at 18.50 and is now retracing to test the new resistance level. Respect is likely and would signal a bear market for uranium.
The bear market is related to short- to medium-term demand and supply. Long-term demand for U308 is projected to grow by more than 50% by 2040, whereas supply — including restarted idle capacity and new mines planned and under development — is forecast to shrink to less than 50% of supply over the same time frame.
Respect of resistance at 18.50 by the Sprott Physical Uranium Trust (SRUUF) would confirm a bear market for uranium.
As with copper, we are long-term bulls on uranium and other resources required for the transition to low CO2 energy. A bear market in uranium would provide an opportunity to build a long-term position at low prices.
Stocks are retreating across the board after climbing to dizzy heights in recent weeks. They continue to enjoy support, however, from falling Treasury yields and robust financial market liquidity. Support from crude oil is less certain, with a potential up-trend that could delay interest rate cuts.
Gold and silver are also retreating after strong gains in recent weeks. The correction appears to be a secondary movement. Base metals copper and aluminum are also weakening but the sell-off appears far stronger.
Three out of seven mega-caps in the S&P 500 (Nvidia, Tesla, and Meta Platforms) show gains on Thursday, while four declined.
The S&P 500 as a whole declined steeply, headed for a test of support at 5500.
The equal-weighted index ($IQX) took a similar pounding, breaking support at 6900. Retracement that respects the new resistance level would confirm a target of 6600.
The retreat is across the board, with the Russell 2000 Small Cap ETF (IWM) [pink] falling faster than Russell 1000 Large Caps ETF (IWB) [blue] after spectacular gains earlier in the week.
Ten-year Treasury yields are retracing to test resistance at 4.2%. Respect is likely and would confirm our short-term target of 4.0%. Declining Trend Index peaks below zero continue to warn of downward pressure on yields. The low inflation outlook is bullish for bonds.
Commercial bank reserves at the Fed finished largely unchanged for the week ended Wednesday, July 17, suggesting stable liquidity levels.
Bitcoin is retracing to test support at $60K; respect would signal rising liquidity in financial markets.
Initial claims climbed to 243K for the week ended July 13. This still well below levels normally seen leading up to a recession.
Continued unemployment below 2.0m indicate a tight labor market.
The Conference Board Leading Economic Indicator shows signs of a recovery after initially warning of a recession with a fall below -5.0%.
The Dollar index reversed its sharp fall from Wednesday. Penetration of the descending trendline would warn of another test of 105 but we think this is unlikely considering the fall in Treasury yields.
Gold retreated below support at $2,450 per ounce, indicating another test of $2,400. Respect of $2,400 would signal another attempt at $2,500, while breach would warn of a correction to $2,300.
Silver followed through below $30, headed for a test of primary support at $29.
Declining Trend Index peaks warn of medium-term selling pressure. But respect of support at $29 per ounce would suggest a target of $35 per ounce.
Nymex WTI crude steadied at close to $83 per barrel. Respect of resistance at $84 would be a strong bear signal.
Brent crude is similarly testing resistance at $86 per barrel. Breach of support at $84 would be a strong bear signal.
Copper broke support at $9,400 per metric ton. Expect retracement to test the new resistance level but respect is likely and would confirm the long-term target of $8,000.
Copper and aluminum track each other closely. The down-trend below has a likely target of $2,200 and is bearish for copper.
Stocks and precious metals appear headed for a much-needed correction after climbing to dizzy heights in recent weeks.
Of the three pillars, falling Treasury yields and robust financial market liquidity continue to support stocks. But crude oil is less certain, with a potential up-trend that would threaten higher inflation and could delay interest rate cuts.
Gold and silver are also retreating, after strong gains in recent weeks, in what appears to be a secondary correction. Support would provide a base for further gains.
But weakness in copper and aluminum is more concerning, signaling slowing demand from China which could easily trigger a global recession.
Australian jobs grew by a surprising 50.2K, compared to consensus estimates of 20K, with total employment reaching 14.4 million.
But employment per capita remains steady at 64% because of the huge swell in immigration.
The unemployment rate ticked up to 4.1%, while trend remained steady at 4.0%, as the participation rate grew.
Total hours worked increased to 1.97 billion, a 1.3% increase in the trend since June 2023.
Average hours worked (trend) declined to 136.6 hours in June, from 138.6 hours 12 months ago, reflecting slowing demand growth.
Westpac believe that the strong June labor report points to a soft landing ahead. We are more skeptical. Soft landings are often promised and seldom materialize.
China has reported deflation for the fifth quarter in a row. When your biggest trading partner suffers from deflation, it generally is bad news for you as well.
Falling Treasury yields and a surge in liquidity in financial markets is bullish for stocks, bonds and precious metals. The rotation from growth to value has slowed, while increased interest in small caps signals risk on for stocks.
Crude and base metals are weakening as demand from China slows. Uranium prices are also testing support, despite long-term growth prospects.
Bitcoin rebounded from $56K to $64K, confirming a resurgence of liquidity in financial markets. Retracement that respects support at $60K would strengthen the bull signal.
Ten-year Treasury yields are testing support at 4.2%, reflecting optimism over an early rate cut. Breach of support is likely and would offer a target of 4.0%.
The sector rotation between growth and value has slowed, with both the Russell 1000 Growth ETF (green) and Value (blue) advancing at a similar rate.
The S&P 500 made a small gain but the weak close and declining Trend Index warn of selling pressure.
The equal-weighted index ($IQX) shows a similar weak close, retracing to test support at 6800.
But the rotation into small caps continues, with the Russell 2000 Small Caps ETF (Pink) closing the gap with the large cap Russell 1000 ETF (blue).
Gold respected support at $2,400 per ounce, signaling another test of $2,450. Rising Trend Index troughs continue to signal buying pressure.
Silver remains below resistance at $31 per ounce, with a lower Trend Index peak warning of secondary selling pressure. Another test of $30 is likely.
Nymex WTI crude continues to test support at $82 per barrel. Breach of $80 would be a strong bear signal.
Brent crude retreated below support at $86 per barrel. Breach of $84 would offer a similar strong bear signal.
Falling crude prices would ease the prospect of resurgent inflation and increase the likelihood of an early Fed rate cut.
Aluminum broke support at $2,420 per metric ton, warning of another decline. Retracement that respects the new resistance level would strengthen the bear signal.
Copper and aluminum tend to track each other closely, so the breach is bearish for copper as well.
The Sprott Physical Uranium Trust (SRUUF) respected resistance at $20.50, signaling another test of support at $18.50. Breach of $18.50 would signal a down-trend for uranium prices.
Several uranium stocks, apart from Canadian miner Cameco (red), are testing support levels. 
Treasury yields are declining as prospects for an early rate cut grow. Stock prices are also supported by rising liquidity in financial markets.
The rotation from growth to value sectors has slowed but the move to small caps is accelerating, signaling a more aggressive risk on stance from investors.
Weak crude prices are also bullish for stocks and bonds. The prospect of lower inflation is likely to result in lower Treasury yields.
Gold respected support at $2,400 per ounce, indicating another test of $2,450, boosted by the prospect of falling Treasury yields and a weaker Dollar. Silver lags behind, encountering stronger selling pressure and less domestic demand from China.
Aluminum broke support, signaling a down-trend. This is a bear signal for copper which tends to track closely.
Uranium is also looking bearish, with several stocks testing support levels.
A reader asked me to please explain why liquidity is rising despite the Fed hiking rates and shrinking its balance sheet (QT) by more than $1.7 trillion.
We will try to avoid the technical jargon and stick to the basics. But it’s not always an easy concept to explain or grasp.
Liquidity is not the same as money. It is more closely related to other side of the balance sheet and is best described as the “ease of financing” or availability of credit in financial markets. It includes access to credit from the domestic banking system and bond markets, as well as international financial markets.
In Reminiscences of a Stock Operator Jesse Livermore describes the operation of the Money Post on the floor of the exchange, where brokers borrowed money overnight to finance their stock operations. We have included an excerpt where he describes the impact of tight liquidity leading up to the crash of 1907. It is worth reading: The Money Tree | Jesse Livermore
We use several indicators to measure liquidity in financial markets. These include:
Commercial bank reserves spiked up in March 2023 after the Silicon Valley Bank (SVB) debacle, when the Fed introduced the Bank Term Funding Program (BTFP). Reserves continued to climb steeply until February 2024, when inflation reared its head, before falling sharply in March and April during the tax payment season.
The Chicago Fed Financial Conditions Index is an excellent measure of financial market liquidity, though data is normally a week behind that of bank reserves.
Moody’s Baa corporate bond spreads are a good indicator of credit availability in bond markets. The spread measures the premium that low investment grade corporate borrowers have to pay over the risk-free Treasury rate.
We even use Bitcoin as the “canary in the coal mine”. Cryptocurrencies are the most liquidity-sensitive assets in financial markets and normally the first to show signs of stress.
Bitcoin climbed steeply from November ’23 until early March ’24 before stalling in March-April. Its rise in May heralded a recovery in financial market liquidity.
The most obvious way that the Fed influences liquidity is by purchasing or selling Treasury and Agency securities in financial markets.
In April 2020, the Fed purchased almost $3 trillion in securities, expanding its balance sheet (blue below). We can also see that Treasury took advantage of these Fed purchases, issuing $1.4 trillion more in securities than it needed to fund current expenditure. The surplus shows in the TGA account at the Fed (red below) and had the effect of partially offsetting the Fed’s injection of liquidity.
In 2021, Treasury slowed their issuance of securities, as they neared the debt ceiling, and started to draw down on their TGA account at the Fed (red above). This amplified Fed QE (blue) as it also injected liquidity into financial markets. The Fed did their best to offset this by borrowing in financial markets through overnight reverse repo operations (green above) mainly from money market funds which normally invest in T-Bills and other short-dated securities.
In late 2022, the Fed announced it was going to gradually reduce its balance sheet as securities matured. The blue area below zero is referred to as quantitative tightening, or “QT”. Since then, total assets at the Fed have shrunk by roughly $1.7 trillion. Treasury also increased net issuance and started to rebuild their TGA account balance (red) above. But the Fed was again able to offset this by lowering rates offered on reverse repo and running its RRP liabilities (green) down from almost $2.4 trillion to just $371 billion at present.
The net impact of the combined operations is shown by the blue line below. The massive combined monetary easing lasted until early 2022, when tightening commenced. But tightening ended after the March ’23 banking (SVB) crisis, with the Fed injecting liquidity to prop up financial markets until March ’24. By March, inflation was starting to rebound and the Fed may have realized that they had over-egged the pudding.
The abrupt fall in liquidity in March-April was evident not only in bank reserves but in Bitcoin and in the stock market.
Liquidity is again rising — as shown by the the rise in Bitcoin and the fall in Chicago Fed Financial Conditions Index. Stocks and bonds are likely to rise as a result.
There are further factors that affect financial market liquidity in the US. This can include monetary easing by foreign central banks. The PBOC may inject liquidity into financial markets in Beijing or Hong Kong but the net result may ease financial conditions in New York if US T-Bills offer higher rates of return than the equivalent security in China.
We have also seen Treasury Secretary Janet Yellen change the mix of Treasury issuance in order to reduce the impact on financial market liquidity. Reducing the amount of longer maturity Treasury notes and bonds and increasing issuance of shorter-term T-Bills also helped to boost liquidity. T-Bills are the most liquid asset on the planet, with almost infinite demand. Holding a 3-month T-Bill is like holding Dollars — they have no default or rate risk — but you get a 5.0% return on top. So issuing more T-Bills has limited impact on short-term rates, while issuing less 10-year Notes , for example, will lower long-term yields when demand exceeds supply.
Jesse Livermore made several million Dollars by shorting stocks ahead of the crash of October 1907. In Reminiscences of a Stock Operator he describes the impact on financial markets when liquidity dries up:
From the latter part of September on, the money market was megaphoning warnings to the entire world. But a belief in miracles kept people from selling what remained of their speculative holdings. Why a broker told me a story the first week of October that made me feel almost ashamed of my moderation.
You remember that money loans used to be made on the floor of the Exchange around the Money Post. Those brokers who had received notice from their banks to pay call loans knew in a general way how much money they would have to borrow afresh. And of course the banks knew their position so far as loanable funds were concerned, and those which had money to loan would send it to the Exchange. This bank money was handled by a few brokers whose principal business was time loans. At about noon the renewal rate for the day was posted. Usually this represented a fair average of the loans made up to that time. Business was as a rule transacted openly by bids and offers, so that everyone knew what was going on. Between noon and about two o’clock there was ordinarily not much business done in money, but after delivery time—namely, 2:15 p.m.—brokers would know exactly what their cash position for the day would be, and they were able either to go to the Money Post and lend the balances that they had over or to borrow what they required. This business also was done openly.
Well, sometime early in October the broker I was telling you about came to me and told me that brokers were getting so they didn’t go to the Money Post when they had money to loan. The reason was that members of a couple of well known commission houses were on watch there, ready to snap up any offerings of money. Of course no lender who offered money publicly could refuse to lend to these firms. They were solvent and the collateral was good enough. But the trouble was that once these firms borrowed money on call there was no prospect of the lender getting that money back. They simply said they couldn’t pay it back and the lender would willy-nilly have to renew the loan. So any Stock Exchange house that had money to loan to its fellows used to send its men about the floor instead of to the Post, and they would whisper to good friends, “Want a hundred?” meaning, “Do you wish to borrow a hundred thousand dollars?” The money brokers who acted for the banks presently adopted the same plan, and it was a dismal sight to watch the Money Post. Think of it!
Why, he also told me that it was a matter of Stock Exchange etiquette in those October days for the borrower to make his own rate of interest. You see, it fluctuated between 100 and 150 per cent per annum. I suppose by letting the borrower fix the rate the lender in some strange way didn’t feel so much like a usurer. But you bet he got as much as the rest. The lender naturally did not dream of not paying a high rate. He played fair and paid whatever the others did. What he needed was the money and was glad to get it.
Things got worse and worse. Finally there came the awful day of reckoning for the bulls and the optimists and the wishful thinkers and those vast hordes that, dreading the pain of a small loss at the beginning, were now about to suffer total amputation—without anaesthetic. A day I shall never forget, October 24, 1907.
Reports from the money crowd early indicated that borrowers would have to pay whatever the lenders saw fit to ask. There wouldn’t be enough to go around. That day the money crowd was much larger than usual. When delivery time came that afternoon there must have been a hundred brokers around the Money Post, each hoping to borrow the money that his firm urgently needed. Without money they must sell what stocks they were carrying on margin—sell at any price they could get in a market where buyers were as scarce as money—and just then there was not a dollar in sight.
My friend’s partner was as bearish as I was. The firm therefore did not have to borrow, but my friend, the broker I told you about, fresh from seeing the haggard faces around the Money Post, came to me. He knew I was heavily short of the entire market.
He said, “My God, Larry! I don’t know what’s going to happen. I never saw anything like it. It can’t go on. Something has got to give. It looks to me as if everybody is busted right now. You can’t sell stocks, and there is absolutely no money in there.”
“How do you mean?” I asked.
But what he answered was, “Did you ever hear of the classroom experiment of the mouse in a glass-bell when they begin to pump the air out of the bell? You can see the poor mouse breathe faster and faster, its sides heaving like overworked bellows, trying to get enough oxygen out of the decreasing supply in the bell. You watch it suffocate till its eyes almost pop out of their sockets, gasping, dying. Well, that is what I think of when I see the crowd at the Money Post! No money anywhere, and you can’t liquidate stocks because there is nobody to buy them. The whole Street is broke at this very moment, if you ask me!”
It made me think. I had seen a smash coming, but not, I admit, the worst panic in our history. It might not be profitable to anybody—if it went much further.
Finally it became plain that there was no use in waiting at the Post for money. There wasn’t going to be any. Then hell broke loose.
The president of the Stock Exchange, Mr. R. H. Thomas, so I heard later in the day, knowing that every house in the Street was headed for disaster, went out in search of succour. He called on James Stillman, president of the National City Bank, the richest bank in the United States. Its boast was that it never loaned money at a higher rate than 6 per cent.
Stillman heard what the president of the New York Stock Exchange had to say. Then he said, “Mr. Thomas, we’ll have to go and see Mr. Morgan about this.”
The two men, hoping to stave off the most disastrous panic in our financial history, went together to the office of J. P. Morgan & Co. and saw Mr. Morgan. Mr. Thomas laid the case before him. The moment he got through speaking Mr. Morgan said, “Go back to the Exchange and tell them that there will be money for them.”
“Where?”
“At the banks!”
So strong was the faith of all men in Mr. Morgan in those critical times that Thomas didn’t wait for further details but rushed back to the floor of the Exchange to announce the reprieve to his death-sentenced fellow members.
Then, before half past two in the afternoon, J. P. Morgan sent John T. Atterbury, of Van Emburgh & Atterbury, who was known to have close relations with J. P. Morgan & Co., into the money crowd. My friend said that the old broker walked quickly to the Money Post. He raised his hand like an exhorter at a revival meeting. The crowd, that at first had been calmed down somewhat by President Thomas’ announcement, was beginning to fear that the relief plans had miscarried and the worst was still to come. But when they looked at Mr. Atterbury’s face and saw him raise his hand they promptly petrified themselves.
In the dead silence that followed, Mr. Atterbury said, “I am authorized to lend ten million dollars. Take it easy! There will be enough for everybody!”
Then he began. Instead of giving to each borrower the name of the lender he simply jotted down the name of the borrower and the amount of the loan and told the borrower, “You will be told where your money is.” He meant the name of the bank from which the borrower would get the money later.
I heard a day or two later that Mr. Morgan simply sent word to the frightened bankers of New York that they must provide the money the Stock Exchange needed.
“But we haven’t got any. We’re loaned up to the hilt,” the banks protested.
“You’ve got your reserves,” snapped J.P.
“But we’re already below the legal limit,” they howled.
“Use them! That’s what reserves are for!” And the banks obeyed and invaded the reserves to the extent of about twenty million dollars. It saved the stock market. The bank panic didn’t come until the following week. He was a man, J. P. Morgan was. They don’t come much bigger.
Archive.com: Reminiscences of a Stock Operator, Edwin Lefevre
Central banks are too much under the sway of government and not doing enough to contain inflation. None worse than the RBA which is holding rates lower than they should be. The last time that we had inflation at 4.0% in 2008, the cash rate was 7.25%. Now the cash rate is only 4.35%.
RBNZ is far more independent and hiked their official cash rate to 5.5%. The NZ economy is in recession but they still face the threat of stagflation, with low growth and high inflation.
In Australia we have a negative output gap, where demand exceeds production capacity, far worse than in most other major economies. The only solution is to raise unemployment to lower demand. But RBA governor Michelle Bullock has publicly stated that the RBA is not looking to reduce employment.
The latest Australian government budget is highly stimulatory and likely to fuel further inflation.
The outcome is likely to be long-term inflation and higher long-term interest rates.
We expect strong inflationary pressures in the next decade as governments run large fiscal deficits. Additional government spending is needed to:
Long-term interest rates are expected to rise over the next decade, fueled by higher inflation.
Central banks may attempt to suppress interest rates by further expanding their balance sheets to buy long-term fiscal debt but that is short-sighted. Inflation would accelerate even higher.
Apart from the hardship to wage-earners, and the subsequent political chaos, high inflation would threaten bond market stability. Bond market investors would be reluctant to fund deficits when interest earned is below the inflation rate. Unless there are no alternatives.
That is why the long-term outlook for gold and silver is so bullish.
Eric Cinnamond on the trials and rewards of not following the herd:
I grew up in a small town outside of Louisville, Kentucky. I’m not even sure I’d call it a town – more like a zip code. We lived in a subdivision with five acre lots and gravel roads. Growing up on a gravel road had its challenges. Falling off your bike was painful! Walking or running on gravel can also be uncomfortable, with rocks often finding their way into your shoes. Dust is an issue too, along with bumpy rides and potholes. But there were some benefits.…. more
Treasury yields are trending upwards, as inflation proves persistent, but also driven by the scarcity of foreign buyers in the UST market. Rising Japanese long-term yields, the result of a weak Yen and higher inflation, make Treasuries less attractive to Japanese institutional investors. Geopolitical tensions have also motivated the BRICS, led by China, and the Saudis, to reduce exposure to the Dollar and increase their gold reserves.
10-Year Treasury yields are retracing to test support at 4.5%. Rising Trend Index troughs indicate upward pressure and respect of support would confirm another test of 4.7%.
Liquidity in financial markets is improving, however, with commercial bank reserves restoring almost half of the amount lost during the April tax payment season.
The S&P 500 is undergoing a retracement, likely to test support at 5200. Declining Trend Index peaks warn of secondary selling pressure, with the strong primary up-trend unlikely to be threatened.
The equal-weighted S&P 500 fared slightly better, finding short-term support at 6600. But a steeper Trend Index decline warns of stronger selling pressure. Breach of 6600 would warn of a test of primary support at 6450.
The Dollar index twice respected resistance at 105 and another test of the key 104 level is likely. Breach of 104 and the rising trendline would warn of a reversal to test the band of primary support (red) between 100 and 101.
Gold made a weak recovery above support at $2330 per ounce. The Trend Index warns of significant selling pressure and another test of primary support at $2280 is likely. Domestic Chinese demand remains strong, however, with the Shanghai Gold Exchange Au99.99 contract trading at an equivalent of $2373 per ounce.
Silver also shows selling pressure, with a lower peak on the Trend Index. Another test of support at $30 per ounce is likely.
Nymex light crude is again testing support at $78 per barrel after a strong inventory build reported by the EIA. Follow-through below $77 would signal another decline, with a likely test of primary support at $68.
Crude oil and petroleum inventories are rebuilding after a decline in early 2024.
The managed money short position in Brent Crude futures is at its highest level since 2020, suggesting a bearish outlook for crude oil. But beware of a surprise OPEC+ production cut in the lead-up to the November US elections.
The key variable in our short-term outlook is financial market liquidity. That is improving and should support stock prices.
In the long-term, lower crude oil prices are expected to ease inflationary pressures and allow the Fed to maintain easy monetary policies. But the Treasury market is susceptible to selling by foreign investors — which should maintain upward pressure on long-term yields.
Lower inflation and higher long-term yields are bearish for precious metals. But these are outweighed by increased central bank buying due to geopolitical tensions and collapse of the Chinese real estate market. This has left domestic investors shifting to Gold as an alternative store of value.
We remain short-term bullish on stocks. Long-term, we prefer critical materials needed for the energy transition — especially lithium, copper and uranium; heavy electrical industry; and defensive sectors with strong dividends.
