I am not sure the S&P PMI is a game changer. NVDA tonight is hotly anticipated. Silver and gold are breaking out.
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Nervously Skeptical
Current Views
One trade, four components
Long AUDUSD 0.6435
Stop 0.6344
Long NZDUSD 0.5945
Stop 0.5884
Short USDJPY 145.95
Stop 146.86
Short USDSEK 10.92
Stop 11.0610
August 23, 2023
Killing me softly
At the risk of sounding biased, or like someone who is covering their ears and saying “la la la la la la”… I’m not sure today’s S&P PMIs are a game changer for Europe. This feels like déjà vu as we were going through the same angst dealing with abysmal German PMIs late last year during the EU energy crisis and that was the low.
There is an ongoing issue where soft data doesn’t seem to jibe that well with hard data. While Germany did go into technical recession in 2023, it was far from cataclysmic. And this time there is no energy crisis.
Today’s first chart shows ZEW (which we got last week) and the S&P PMI (out overnight). 2020 is clipped out in order to keep the y-axis within the boundaries of the pdf. You can see that we are at the same levels now as we were late last year as far as the current outlook. Both the S&P PMI and ZEW Current Assessment were right here last October when The Economist was proclaiming the end of Europe and all that.
A big difference this time is that expectations remain anchored around -10, whereas they went to -62 at the peak of the energy crisis. Obviously, these PMI readings are not good, and I don’t want to be the “fade everything” guy, but they are not as bad as they look, and soft data has generally been close to useless throughout this cycle.
In mid-2022, the soft US data like Philly Fed, ISM New Orders, University of Michigan Sentiment, and Empire State pointed to US weakness that never showed up in hard data, for example. Maybe this time is different, but I wouldn’t be surprised if Friday’s IFO looks more like ZEW: Weak current view, OK expectations. And given the poor record of soft data as a predictor of late… Maybe… Who cares? I am nervously skeptical.
ZEW current and expectations vs. S&P Composite PMI for Germany
The smell of it. The taste of it.
I created some confusion yesterday with a poorly-labelled chart. It just said “gold” but it was December 2023 gold futures and thus the basis created some confusion because my chart showed gold at 1930 (GCZ3) while spot gold is closer to 1900. Here is the chart of spot gold.
Spot gold is breaking out
There has now been a strong confirming breakout in silver, too. While there was no falling wedge in silver, so the chart is quite a bit uglier, the speed and clarity of the breakout are encouraging for my bullish gold and bearish USD view. One month gold and silver vol are both still near the lows.
Silver has broken out
And the reversal in US 10-year yields is also mildly encouraging.
NVDA
It feels like the last time traders were this excited about a tech earnings report was a Yahoo! release in 2000. NVDA has been absolutely flying around and while I’m skeptical that medium-term investors will make money at 40X sales on a $1 trillion market cap… Earnings day isn’t a day to be whipping out your DCF models. The stock is going to do whatever it’s going to do. The earnings report will be released after the close tonight. The last one came out at exactly 4pm NY time.
2-day $500 calls closed at $10 yesterday.
NVDA 25AUG $500 calls
Final Thoughts
If bonds ever turn, cross/JPY lower is going to be one heck of a trade.
GBPJPY vs. UK 5-year yields. It has been quite a year so far.
Have a wheely high-yield day.
