Do we need to be worried about hyperinflation? - The Macro Setup
THE MACRO SETUP OVERVIEW:
• US earnings continue with tech stocks
• USD/JPY tracking US yields higher
• Bitcoin consolidates further bullish momentum
Focus this week is on tech earnings, with the 5 top stocks (AAPL, MSFT, GOOGL, AMZN, FB) in the S&P 500 representing 22.1% of the index, and all 5 of them are reporting this week. A tweet from Carter Braxton suggested that the previous times when all 5 stocks reported in the same week, the SPX ended the week down. Looking at the current chart you wouldn’t necessarily think that would be the case this time, but we may be in for a correction after these stocks report given the index has gotten a little ahead of itself.
There is also talk about hyperinflation and whether we should be concerned about it. The fact that inflation is looking less transitory than originally expected is causing concern in markets as stagflation warning bells go off. Looking at the USD and US10Y chart we could continue to see yields pushing higher and what this means for stocks if rates are hiked higher is a cause for debate, given it could be a signal of underlying economic strength and therefore a boost for economically-sensitive stocks, but on the other hand, excessive valuations and growth scares could see stocks struggle to rally in this environment.
Bitcoin, on the other hand, continues to attract investors that are looking for higher returns given stocks remain at all-time highs with uncertain short-term outlooks. The recent consolidation has allowed for a healthy gathering of bullish momentum as traders continue to buy the dip, and with this push higher seeing to be more sustainable than previous occasions, momentum is likely to gather further.
Another big focus point ahead is central bank meetings, with a host of them occurring both this week and next. We looked at what the Bank of Canada meeting tomorrow could mean for USD/CAD, as well as Bank of England and Reserve Bank of Australia meetings next week on GBP/JPY and AUD/USD.
CHARTS OF THE WEEK
USD/JPY vs US10Y TECHNICAL ANALYSIS: DAILY CHART (CHART 1)
GBP/JPY ANALYSIS: DAILY CHART (CHART 2)
AUD/USD TECHNICAL ANALYSIS: DAILY CHART (CHART 3)
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.