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NZ Dollar Unable to Maintain Rally, Fails to Get Support from Positive Sentiment & Macroeconomic Data

The New Zealand dollar performed the same way as its Australian counterpart today: rising initially but retreating later. That is despite the supportive market sentiment and positive domestic macroeconomic data. The Reserve Bank of New Zealand…

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The New Zealand dollar performed the same way as its Australian counterpart today: rising initially but retreating later. That is despite the supportive market sentiment and positive domestic macroeconomic data.

The Reserve Bank of New Zealand reported that inflation expectations for the next two years increased from 1.59% in the December quarter of 2020 to 1.89% in the March quarter of 2021. The inflation outlook was improving consistently since the June quarter of 2020.

Markets were trading in a risk-on mode during Tuesday’s session. The main reasons for the investors’ optimism were the news about coronavirus vaccines and the outlook for fiscal stimulus in the United States. The positive traders’ mood was supporting riskier commodity currencies initially but, for whatever reason, has stopped doing so after a while.

Going forward, the New Zealand currency will continue to react to shifts in the market sentiment. As for macroeconomic data, this week is extremely light in terms of macro releases. Tomorrow, China, New Zealand’s biggest trading partner, will release reports on consumer and producer prices. Experts predicted that the Consumer Price Index will show a flat reading for January, year-on-year, slowing from the previous month’s 0.2% rate of growth. The Producer Price Index is expected to show an increase of 0.3% after a drop of 0.4% registered in December.

NZD/USD rallied from 0.7217 to 0.7246 as of 8:53 GMT today. EUR/NZD opened at 1.6670, fell to the daily low of 1.6650 but bounced to 1.6687 later. NZD/CAD was up from 0.9191 to 0.9219 and its daily high was at 0.9232. NZD/CHF traded at 0.6487 after opening at 0.6482 and rising to the session maximum of 0.6503.


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Economics

Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

China’s factory-gate prices grew at the fastest pace in almost…

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Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

China’s factory-gate prices grew at the fastest pace in almost 26 years in September, adding to global inflation risks and putting pressure on local businesses to start passing on higher costs to consumers.  

The producer price index climbed 10.7% from a year earlier, the highest since November 1995, data from the National Bureau of Statistics showed Thursday, far higher than the 9.5% gain in August and hotter than the 10.5% expected.

On the other hand, consumer prices rose 0.7% last month from a year earlier, lower than a 0.8% gain in the previous month., but Bloomberg notes that for now consumer inflation remains in check because of falling pork prices, even though the removal of most virus controls by the end of September may have helped to boost household spending.

“The widened gap between PPI and CPI means greater pressure for upstream sectors to pass on rising costs to the downstream,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.

And, as we previously warned, the situation is about to get much, much more serious. If the historical correlation between Coal prices and PPI holds, were may be soon looking at a tripling of China's PPI, which from 10.7% Y/Y in September, is about to soar to 30% or more.

Needless to say, if Chinese PPI does hit 30%+, even if CPI somehow stay in the single digits, the results would be catastrophic: profit margins would collapse, the plunge in already thin cash flows would lead to even more defaults and supply chain bottlenecks, even as the scramble to obtain commodities "at any price" keeps pushing costs - and PPI - even higher.

Meanwhile, if producers do try to pass on some of the costs and CPI spikes (the gap between CPI and PPI was already at record wide before the recent surge in coal prices) as it did in the early 90s...

... then Beijing will have social unrest on its hands.

There are early signs that producers are starting to pass on higher costs to consumers: the largest soy sauce maker in the country said this week it plans to raise retail prices of its products. At least 13 companies listed on China’s A-share market have announced price hikes this year to address rising costs and tight supply, China Securities Journal reported Thursday.

And all this is happening as China's property sector desperately needs a massive liquidity infusion which is - you guessed it - inflationary.

And while China may be facing its first "galloping inflation" PPI print since the early 90s, it's only downhill from there, because as Citigroup wrote over the weekend, power cuts (with over 20 provinces, making up >2/3 of China’s GDP, have rolled out electricity-rationing measures since August) and contractionary PMI "seem to suggest China could enter into at least a short period of stagflation."

“We think the risk of stagflation is rising in China as well as the rest of the world,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

“Persistent inflationary pressure limits the potential scope of monetary policy easing.”

And so, Beijing is now trapped: if it eases, inflation - already at nosebleed levels - will soar further crushing margins and sparking a deep stagflationary recession; if it does not ease, the property market - already imploding - will crater.

Tyler Durden Wed, 10/13/2021 - 23:25
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Precious Metals

Bitcoin to $500K

Jamie Dimon bashes bitcoin while profiting from bitcoin … the case for bitcoin at $500K … a potential price catalyst to keep on your radar … is gold…

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Jamie Dimon bashes bitcoin while profiting from bitcoin … the case for bitcoin at $500K … a potential price catalyst to keep on your radar … is gold about to turn north?

Jamie Dimon is the CEO of JPMorgan.

He’s also a master marketer.

Earlier this week, he called bitcoin “worthless.” It’s far from the first time he’s slammed the cryptocurrency. Here’s a quick trip down memory lane featuring some of Dimon’s greatest hits:

2014: “terrible store of value”
2015: “will not survive” “will be stopped”
2016: “going nowhere”
2017: “a fraud”
2018: “don’t really give a shit”
2020: “not my cup of tea”
2021: “I have no interest in it” “fool’s gold” “worthless”

The press has pounced on Dimon’s latest “worthless” attack.

I’m seeing it covered by CNBC, Reuters, CNN, MarketWatch, Fortune, Bloomberg, Yahoo… Basically, everyone – not to mention all the social media talking heads.

So, why is Dimon a marketing genius?

Because the same articles/talk segments that trumpet Dimon’s disparaging remarks just happen to include the fact that JPMorgan now allows its customers to buy and sell bitcoin.

In other words, Dimon just racked up hundreds of millions of dollars’ worth of free advertising for JPMorgan’s crypto services…by being a crypto bear.

Bravo, Sir.

***At the same time Dimon has been slamming bitcoin, its price has been surging, pushing back toward its all-time-high

In April, bitcoin topped out at $64,863, then lost 53% over the next three months.

Source: StockCharts.com

Since then, the crypto has surged 87%, putting its all-time-high back into play.

As I write Wednesday morning, Bitcoin is roughly 16% beneath its record. As you’re likely aware, that’s not a huge distance to cover for an asset this explosive.

***Given the crypto’s surging momentum, financial pundits are increasingly asking where bitcoin’s price will end the year

Many are suggesting $100,000.

You can count our crypto expert, Luke Lango, amongst that group. But yesterday, in Luke’s issue of Hypergrowth Investing, he included a longer-term forecast that caught me off-guard…

$500,000.

From Luke:

A lot of folks think that Bitcoin is going to end the year at $100,000.

I’m one of those folks. But the other day, when one of my analysts said, “Bitcoin is going to $100K,” I responded by sarcastically joking, “Stop being so bearish!

Because while our year-end price target for Bitcoin is $100,000, we believe that Bitcoin prices will soar much, much higher in the long run.

Like 5X higher.

That’s right. We think Bitcoin is going to $500,000.

What’s the rationale behind this projection?

It has to do with a yellow rock that we recently profiled here in the Digest.

***Has bitcoin usurped gold as an inflation hedge? At least temporarily?

As we noted in our Monday Digest, gold’s price has been comatose over the last 14 months, despite jarring inflation numbers.

(It’s actually climbing today! We’ll touch on that shortly.)

But isn’t gold supposed to come alive in an inflationary environment?

Yes, it’s supposed to. But many things are “supposed” to happen that never do (I’m looking at you, “transitory” inflation).

Why isn’t gold responding to record inflation numbers?

It was back in April that our macro specialist, Eric Fry, provided a clue. From an interview Eric did with our CEO, Brian Hunt:

If you were to take past precedent and apply that to the current situation, you would have a current gold price that’s $4,000 an ounce, or at least something much higher than it is. That isn’t happening.

What is happening is bitcoin is going up…a lot…

Once that settles down, you might see a return to a more-traditional connection between monetary policy, fiscal policy, and the gold price…

I think gold still has a good shot at moving a lot higher over the next year or two. But if current trends continue, and bitcoin goes to $100,000 or $200,000, you probably won’t get a gold rally.

As part of the interview, Brian added a great line. He wondered if gold has been watching market prices, wondering “have investors broken up with me?” Is bitcoin the better-looking version of me?”

Is it?

What’s the case for bitcoin usurping gold as the new, younger and sexier inflation-hedge?

***Charting the relationship between yields, bitcoin, and gold

Let’s jump back to Luke. In his case for bitcoin at $500,000, he included the chart below.

I’ll let him describe it:

The blue line tracks Bitcoin prices.

The purple line tracks the 10-year Treasury yield, which is widely seen as the market’s dynamic proxy for inflation.

And the green line tracks the price of gold.

Chart showing the relationship between yields, bitcoin, and goldSource: TradingView

The blue and purple lines correlate strongly to one another. The green line doesn’t correlate to either.

That’s super interesting.

To us, it means that the market has already confirmed Bitcoin as the digital version of gold – and, indeed, as a superior version of gold.

Let’s use this to dovetail into the case for bitcoin at $500,000.

If bitcoin is turning into the new gold, then we basically just compare overall market sizes to arrive at a loose price projection.

Back to Luke for the quick math:

The gold market is an $11 trillion market.

If Bitcoin gets that big, you’re talking an $11 trillion market on 21 million tokens, which implies a price per token of about $500,000.

Of course, that back-of-the-envelope math rests on the huge assumption that Bitcoin is, indeed, the digital version of gold.

But as Luke’s chart illustrates, it’s increasingly looking like that may already be the case.

***One quick bullish note on gold before we move on

We’ve beaten up on the precious metal this week. But there’s one thing gold has going for it that might spur a rally. And we could be seeing the beginning of that rally today, as gold is up nearly 2%.

In short, the pessimism has reached an extreme – and by one indicator, it’s turning.

Below, we look at the Gold Miners Bullish Percent Index (BPGDM). This measures the extent to which gold miners (a proxy for gold) might be overbought or oversold, based on technical analysis.

As you can see below, it just bounced off the fourth-lowest reading in five years (far right side of the chart).

The Gold Miners Bullish Percent IndexSource: StockCharts.com

The last three times BPGDM bounced from such deep, oversold levels, the price of gold ripped, as you can see below.

The top line is the BPGDM while the bottom line is the price of gold.

The Gold Miners Bullish Percent Index and the price of goldSource: StockCharts.com

Even if bitcoin is replacing gold as an inflation hedge, that doesn’t mean gold can’t race higher from here.

For now, we’re long gold. Its long-term support level is $1,700. We’re above that and climbing. So, let’s give this turn in the BPGDM some time to play out.

If a rally doesn’t materialize and we drift back down toward $1,700, we’ll let you know.

***Back to bitcoin, keep your eye on this potential catalyst

The crypto community has been waiting for the SEC to approve – or not approve – a bitcoin ETF. And we’re getting close.

From Yahoo! Finance:

The U.S. Securities and Exchange Commission (SEC) is largely expected to approve a bitcoin ETF that invests in futures contracts later this month.

Applications from Proshares, Invesco, Vaneck and Valkyrie are primed to get the go ahead, according to a Bloomberg report.

The crypto market has long-awaited such an approval, believed to be behind bitcoin’s current bullish run.

Now, there’s no guarantee that SEC approval will send bitcoin’s price north. After all, many investors were expecting El Salvador’s official launch of bitcoin as legal currency to be a positive price catalyst for bitcoin, yet the opposite happened.

However, the bullish case is that an SEC approval would signal that regulators are willing to work with crypto investors, therein paving the way for broader adoption.

From Bloomberg:

It’s all raising hopes in the $6.7 trillion U.S. ETF industry and beyond that after years of delays, the world’s largest market may finally be ready to join the party…

In a move that further raised hopes among crypto advocates, the regulator asked two issuers to withdraw their Ethereum-futures ETF filings over the U.S. summer, but made no such demands on similar Bitcoin-based applications.

Either way, we’re unequivocally long bitcoin. If an SEC ETF approval does lead to a sell-off, we’d see that as a buying opportunity.

Before we wrap up, when might we hit that $500,000 mark if bitcoin plays out as Luke anticipates?

From Luke:

No one really knows. Our best guess is about 10 years – and if so, you’re talking about an asset that will increase 10X in value in 10 years.

That’s an amazing return.

It truly is.

At the same time, Luke and his team of blockchain experts are targeting not 10X returns, but 50X returns with their altcoin recommendations. To learn more, click here.

We’ll keep you up to speed on the SEC and its decision on a bitcoin ETF here in the Digest.

Have a good evening,

Jeff Remsburg

The post Bitcoin to $500K appeared first on InvestorPlace.

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Economics

Lira Crashes To Record Low After Turkey’s Erdogan Fires Three More Central Bankers

Lira Crashes To Record Low After Turkey’s Erdogan Fires Three More Central Bankers

At this point, we’ve lost count of how many central bankers…

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Lira Crashes To Record Low After Turkey's Erdogan Fires Three More Central Bankers

At this point, we've lost count of how many central bankers Turkey's authoritarian head Erdogan has fired, so a quick stroll down memory lane helped us remember:

One look at the headlines above reveals that Erdogan, who himself is technically the head of the central bank as he can replace any current central bank governor that does not do his bidding and swap in some figurehead, tends to have a short fuse when it comes to heads of TCMB when they don't follow the crackpot economic "theory" known as Erdoganomics according to which cutting interest rates is the way to lower inflation, not vice versa. It's also why back in June when the Turkish central bank kept rates unchanged despite Erdogan's prodding for a rate cut (even as Turkish inflation was well in the double digits), we predicted - jokingly - that Erdogan was about to fire everyone.

Well, he didn't "fire everyone", but he definitely sent a message and back in September, the central bank shocked the market when it cut rates by 100bps to 18% with consensus again expecting an unchanged decision. The move sent the lira plunging to an all time low.

Alas, it turns out that the pace of cuts was not to Erdogan's liking and earlier today when we noted a Bloomberg headline that Erdogan was meeting with his central bank puppet, Kavcioglu, we said it was "game over" as more heads were about to roll.

This time we were correct, and late on Wednesday evening, President Erdogan fired three members of the central bank’s interest-rate setting committee in a midnight decree after meeting with Governor Sahap Kavcioglu who was appointed by Erdogan to lead the central bank in March, replacing his hawkish predecessor Naci Agbal.

Erdogan removed deputy governors Semih Tumen and Ugur Namik Kucuk, along with Monetary Policy Committee member Abdullah Yavas, according to the decree. He appointed Taha Cakmak as deputy governor and Yusuf Tuna as an MPC member.

According to Bloomberg, the changes followed a meeting between Erdogan and Kavcioglu on Wednesday evening, where the two discussed changes to the committee. Kucuk was the only member of the committee who voted against Kavcioglu’s interest-rate cut last month, thus committing professional career suicide. Yavas didn’t vote because he had contracted Covid-19 in the U.S., where he lives, but that was enough to prompt Erdogan's ire and to get him sacked.

Erdogan probably wanted to fire the head as well, but just last week, Erdogan’s office refuted a Reuters report that said Erdogan is “cooling” on Kavcioglu in the job even though the central banker had cut rates just over a month ago - a move sure to make Erdogan happy - despite explosive inflation crushing Turkey's economy. The inflation rate was 19.6% in September, when Kavcioglu lowered the benchmark interest rate by 100 basis points to 18%.

Predictably, the lira - which has been hitting new all time lows almost daily - dropped to a record low against the dollar, and extended its losses to nearly 5% against the dollar since the governor delivered his surprise interest-rate cut on Sept. 23.

The Turkish presidency posted a picture of the two men together on Twitter after the meeting, and Erdogan’s office described the conversation as “positive.” The presidency also said the two men discussed the general economic situation.

The lira fell 1% to a fresh record low of 9.1883 per dollar...

... and by now it should have become clear to even the most die-hard EM fanatic desperate for carry that any long position in the lira is career suicide. Which is why very soon we may see a wholesale capital flight out of Turkey which leads to total economic catastrophe, not to mention hyperinflation, for the NATO member state.

Tyler Durden Wed, 10/13/2021 - 20:05
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