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US02Y As we have seen in recent weeks, equities and commodities have moved inversely to yields. I expect these correlations to strengthen as yields climb higher. The only lasting solution to this energy-driven pressure on yields remains a peace deal that restores normal shipping through the Strait of Hormuz. So far, I see no meaningful progress toward one.
SOXX SOX
I first shared this comparison of SOX with its dot-com-era price action in Tactical Positioning | Week of 06.29. Since then, SOX has closely followed that path. If it continues to do so, we would very likely see a retest of SOXX=533 or even SOXX+560 in the coming weeks, which should take SPX and NDX back to their ATHs.
XAGUSDTechnical: 63.1 remains support after the rejection at 70. Holding 63.1 keeps another test of 70 in play. A sustained break above 70 opens further upside; a break below 63.1 puts the ascending trendline back in play.
DBA
A tariff increase could produce a one-off rise in the price level as the higher cost is passed through. Once absorbed, it stops adding to inflation.
A prolonged energy supply shock can keep delivering fresh cost pressure before the previous increases have even been absorbed. Crude reprices immediately, but the full impact takes months to work through the economy. Diesel, freight and processing costs rise. Higher natural gas prices feed into fertilizer. Inventories, contracts and crop cycles stagger the transmission into agriculture and food prices. The shock keeps working its way downstream long after the initial jump in crude.
The longer those cost increases keep arriving, the greater the risk that they feed into inflation expectations, wage demands and repeated price increases. That is how a supply shock can turn into persistent inflation. Once those expectations become embedded in wage and price setting, bringing inflation down becomes harder.
This is why I have said Warsh cannot keep rates unchanged indefinitely. The past two weeks have brought that constraint back into focus. His Jackson Hole speech put inflation at the center of the Fed's agenda. Friday's strong payrolls then pushed Treasury yields higher and strengthened expectations for another hike.
28.4 remains breakout support. While it holds, further upside remains in play. A sustained move back below 28.4 invalidates the breakout and returns DBA to its prior range.
KOSPI remains an important asset to monitor, especially after spending the past few weeks trapped in a narrow range. AI continues to advance at a stunning pace. Should the index resolve higher, we will very likely see new ATHs in SPX and NDX soon. A downside break, however, would usher in a new wave lower to retest the previous low.
DXY As I mentioned before, the dollar is unlikely to weaken against a backdrop of higher yields.
US30Y US10Y printed a new YTD high this week. US2Y, US10Y, and US30Y have been taking turns printing new highs week after week. US Treasury yields remain the single most important asset to monitor.
HG1! Exchange inventories outside the U.S. continued to fall, with SHFE stocks down 13% this week.
Copper continues to trade around the upper boundary of its multi-year ascending channel. The wedge is tightening. I expect an explosive move in either direction soon.
Both outcomes could hit the broader market hard. A vertical move higher would add another wave of inflation pressure. A violent break lower would likely be part of a liquidation across assets, triggered by higher rates or a steep equity drawdown.
US10Y printed a new YTD high this week. US2Y, US10Y, and US30Y have been taking turns printing new highs week after week. US Treasury yields remain the single most important asset to monitor.
BZ1! CL1!
Talks to resolve the Middle East conflict remain stalled. The SPR fell by another 3.1 million barrels to 286.6 million.
Both BZ and CL have broken above intermediate resistance. If prices don't fall back below support in the coming sessions, the likelihood of an explosive move higher in crude increases exponentially.
Technical
The descending channel midpoint is now the support to hold. Above it, the upper boundary remains in play, with a sustained break opening further upside.. Above 100, we have 120.
USDJPY The yen strengthened this week as traders priced in a more hawkish BOJ following Takata's call for a more flexible pace of hikes. Waller's comments also weighed on the dollar, so the move had support from both sides of the rate differential.155.55 remains the key level to watch.
00700.HK
601899
NVDA faces strong resistance around 230. A break above it opens further upside toward the ascending trendline.
NIFTY drifted lower as crude prices continued to weigh on the index. Unless it recaptures the ascending trendline over the next few sessions, the path of least resistance remains to the downside.
XAUUSD I have said for months that the explosive move in gold begins only when it decouples from yields and the dollar. We are not there yet.
Higher oil -> higher inflation and inflation expectations -> higher yields -> lower gold. That chain remains intact. Friday made it obvious. Strong payrolls put another Fed hike back on the table, pushed yields and the dollar higher, and sent gold lower.
As long as the Iran war keeps oil elevated, it remains a headwind for gold, not a reason to chase it. Gold must start rising through higher yields and a stronger dollar before the next phase begins. Until then, do not front-run a decoupling that has not happened.
Technical
4.4K remains the support to hold. Reclaiming the broken ascending trendline puts the recent high back in play. A sustained break below 4.4K opens 4K, followed by 3.9K.
