Government printers go brrr...
Pre-FOMC thoughts
With the FOMC a few hours a way, I’m not going waste ink discussing my views on whether cutting and how much cutting is the right decision to make. Or the political pressures or machinations going on with the decision. Markets care not about my opinion, I care about the probabilities and possibilities that such decisions have on markets.
Spend, spend, spend
Regardless of who wins the US election in November the fiscal taps fire hose will remain firmly open. Governments around the world are trapped. With 17c of every USD in US Government revenue going to service interest payments (USD 3bn per day), the options facing the US government are stark. The easiest (read politically palpable) way to keep the show in the road is to keep monetary and fiscal conditions easy.
The same applies to most Western countries who are all mired in debt and just digging an even deeper hole to be dealt with somewhere down the line. No hard choices will be made until they are forced upon them. For now the most populist path of least resistance if Government profligacy in spending and monetary easing despite the continuing threat of a new surge in inflation, particularly if commodities enter a structural bull cycle.
China the darkhorse?
China has the potential to be further tailwind for commodities. China have resisted stimulating this time round in the way they have in previous cycles. But perhaps they were just biding their time. Waiting for domestic pressures at home to build (i.e. sufficient economic and deflationary slowdown) and the Fed to start easing to create the most amount of bang for their stimulative buck. Not many are forecasting that.
Trade updates going in to (the most important EVER /s) FOMC
Regardless of if we see a 50bps cut or a dovish 25bps, the medium-term outlook for commodities looks the same though the path to get there will have some bumps along the way.
Some commodities look ripe for a surge, sitting just below breakout levels with fairly depressed sentiment and light positioning. Others such as gold exhibit the opposite credentials.
PALLADIUM is one of my trades that has begun working well as price has now broken out above the 200 dma and the yearly high and shorts are being squeezed. I think this has further to go but in the very ST we could be setting up for a pullback or consolidation.
CORN sits just below a key breakout level with most of the negative news priced in and unable to push price lower. This looks ripe to breakout soon.
SILVER may well follow gold in the ST and positioning and sentiment is quite extended. If we were to get a decent pullback I would be a buyer.
I continue to like NATGAS over the MT to LT but am currently side lined having exited on this recent rise and would like to get back in at lower levels.
#skininthegame
NONE OF THIS IS TRADING ADVICE THIS IS FOR MY PURPOSES ONLY. TO PROVIDE CLARITY AROUND MY INVESTMENT THINKING. EVERYONE SHOULD DO THEIR OWN WORK BEFORE PUTTING ON ANY POSITIONS. NEVER RELY ON ANYONE ELSE.