(Justin Vaughn, Editor, Options Trading Report)
Tuesday’s ‘jack rabbit’ rise in the Dow Jones Industrial Average of 754 points is a huge boast of investor confidence amid flat showings by the indices over the past month. Investors and traders alike were swayed by a new release of earnings. Both the Nasdaq Composite and the S&P 500 sported significant gains of 353 and 105 points respectively. Investors are buoyed by positive news that suggests the general economic outlook is not nearly as bad as many economists have indicated. Bruce Van Saum, chief executive of Citizen’s Financial Group commented , “when you look at what’s happening in the real economy, through the lens of our customers, I’d say it’s less than 50/50 that we end up with a recession at this point. The yield on the 10-year Treasury note inched up to 3.017% from 2.959% Monday. As previously noted, its yields and prices move inversely. As the dollar marches higher commodities markets have fallen. Nearly all commodities are valued in dollars. As the dollar appreciates in value commodities cost more, slowing demand in almost all countries. The Federal Reserve’s tightening of interest rates has bumped the dollar to its hightest level in many years, and, with more interest rate hikes expected in the next 12 months, the dollar will continue to add value.
Euro versus the Dollar…The U.S. dollar for the first time in 20 years is nearly equal to the euro. ($1.00 = E0.98). As the dollar has soared in recent months, affected by the Ukraine War, surging oil and gasoline, natural gas and a disorientating supply chain and the euro has lost major value against the dollar. As U.S. goods get more expensive, manufacturers profit margins shrink. On the other hand American tourists in Europe (19 Countries live by the euro) are having a field day, as values abound on all products. The U.S. dollar has accelerated this past year, up against the euro over 12%. Presently the euro is hovering at $1.02. Pushing the U.S. dollar, is the Federal Reserve interest increases, as the European Central Bank struggles to per 1000-keep up. Facing much the same economics as the U.S., the European sector has taken a much softer stance on euro control. As world-wide investors seek higher Treasury yields, the buys are U.S. based. The heavy demand for U.S. dollar securities shoves the dollar’s value higher and higher. Rebecca Farooq, of High Frequency Economics notes that, “the U.S. economy is on a firmer footing compared to Europe.”
Laboring Lumber…one commodity that continues to ‘labor,’ with over supply for slow budding home starts at a crawl. And if interest rates stay strong, lumber might be fighting to remain mired in the $400 to $450 per thousand board feet. From highs in 2021 of $1,100 to $1.150 per thousand board feet to lows dipping in the $350-$375 per thousand board feet. In the first half of this year lumber prices have dropped 40%. Housing starts were off 14% in May and all signs indicate significant drops in June and July. “Lumber truly has its Ph.D in trading and is the ultimate canary in the coal mine when it comes to being a leading indicator for all other commodities,” say Greg Kuta, president and CEO of lumber broker Westline Capital Strategies. He predicts for the remainder of the year lumber prices in th $$400 to $450 range on the low end and $600 to $800 at the high end.
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RUMBLINGS ON THE STREET
Lara Rhame, chief U.S. economist for FS Investments, WSJ “Inflation makes everything difficult,” said Ms. Rhame. “It erodes your savings, your wages, your profits. It’s punishing everybody.”
Konstaninos Venetis, TS Lombard, Barron’s “The mix of sustained U.S. dollar strength and CNY (China Yuan) weakness reinforces the pincer movement between Fed hawkishness and slowing global growth. That is squeezing asset prices,”
Loretta Mester, Federal Reserve Bank of Cleveland President. On the June Inflation numbers, Barron’s “There was no good news in the report at all.”
Amy Barsanti, of Williams Pitt Sotheby’s International Reality in Darien, Conn. Barron’s “The environment has changed,” said Ms. Barsanti, “Houses are no longer selling with multiple offers the first weekend.”
James Knightley, ING’s chief international economist, WSJ “People are starting to feel inflation in their pockets, their dollars not going as far as they did,” said Mr. Knightley