Sept. 4, 2016, Weekly Summary: Rates Maintain Their Upward Bias

Rates Maintain Their Upward Bias

The employment numbers for August came out this Friday and they were lower than had been anticipated:

• Nonfarm payrolls increased by 151,000 (consensus 180,000). The last three months have averaged 232k.

• Private sector payrolls increased by 126,000 (consensus 175,000).

• Unemployment rate was 4.9% (consensus 4.8%) versus 4.9% in July.
• August average hourly earnings were up 0.1% (consensus 0.2%) after being up 0.3% in July.

Not a stellar report, for sure, but considering that these numbers are always revised and, although lower than the three-month average, it really is not a disaster.  The market sort-of agreed; after running off in the direction of the “no rate hike hi-way,” it had second thoughts and back-tracked for much of the day.

As we have stated, the FED has used rate cuts to create this bubble-monster, and the FED will kill this monster using rate hikes; it just isn’t going to do it at this September’s meeting.  This weaker employment report simply gives it reason not to raise rates immediately.  As long as the numbers weren’t ‘crazy good’, the FED had no intention of raising rates before the election anyway.  All they really want to do over the next few months is talk about raising rates so that the market will absorb it ahead of time and not blow-up all at once.  Chances are they won’t succeed on that count, but in any case, that seems to be their plan.  As we stated last week, “there is an upward bias to rates”, which for the moment, is all the FED wants.

GOLD

{This section is for paid subscribers only.}

The chart below shows the strong inverse correlation that exists between gold and the US dollar/ Japanese yen FOREX pair.

{This section is for paid subscribers only.}

We see it as very likely that over the next week or two, the US dollar will rise vis-à-vis the Yen, and that gold will drop in response.

The following chart shows gold verses the 30-year Treasury bond.  Notice the strong positive correlation and how when there is a divergence (green rectangles), gold changes direction immediately after.  The last divergence was in May, and since then, gold has followed the 30-year bond.  With the upward bias in rates being in place for the next several months, it is likely that the bond will continue to drop and take gold with it.

{This section is for paid subscribers only.}

We continue to calculate that gold is likely to resume its slide down to test the lows.

Equities

Our equity positions reflect our Price Modelling System’s {This section is for paid subscribers only.}

The put to call ratio (chart below) continues to carve-out a topping pattern.

While the above patterns imply a topping process, the chart below shows that the Rydex Bear/Bull asset ratio is pointing to a rising market.

{This section is for paid subscribers only.}

The conflicting signals produce an overall neutral reading, which makes us comfortable with our hedged positions; we are set to profit regardless of the direction of the market.

{This section is for paid subscribers only.}

We are almost finished re-coding our website which will include a chart of the profits since inception, as well as enhanced Trade Alerts sent direct to mobile devices (for yearly subscribers).

Please monitor your email for Trade Alerts.

We wish our subscribers a profitable week ahead.

Source: Nicholas Gomez