Commodities Versus S&P 500 And The New World Order (Crashing Currencies And Flight To Commodities) The End Of US Dollar Hegemony?

Here is Dvorak’s New World Symphony, an appropriate piece the global turmoil that has taken place after Russia’s invasion of Ukraine.

Here is the ratio of the S&P 500 index against the Bloomberg Commodity Price Index. This ratio is plotted against The Federal Reserve’s balance sheet of assets. Notice the decline in the Commodity Ratio in 2022, even ahead of the Russian invasion of Ukraine.

Global currencies, on the other hand, have been really crushed since the Russian invasion of Ukraine. The Japanese Yen, China’s Renminbi and Europe’s Euro relative to the US Dollar are falling due to a variety of reasons. Covid lockdown in China, Japan’s insistence on monetary easing while other Central Banks are tightening and the Euro with Russia threatening nuclear war.

WTI Crude is back to $100 a barrel. Critical metals are down today related to a slowing global economy and wheat is up 2.75%.

Could it be that US Dollar hegemony is nearly over and commodity-backed currencies are the way of the future?

Weekend Update: Oil, Commodities, Wheat, Soaring In Price, Mortgage Rates Down (Inflation Forecast To Worsen)

This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).

Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.

The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”

On Friday, the US Treasury 10-year yield declined 11 bps.

And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.

The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.

But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).

And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.

And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.

Its anyone’s guess as to whether The Fed will actually tighten monetary policy.

New US Foreign Policy: Exporting Inflation Around The Globe As The Fed Keeps Printing (US Export Prices UP 15.1% YoY, Import Prices UP 10.8% YoY)

Another effect of The Federal Reserve’s reckless monetary policy coupled with Biden/Congress reckless spending is bad foreign policy. The US is exporting inflation around the globe.

US export price YoY is at 15.1%. The US is importing less inflation at 10.8% YoY.

Here is the export/import stack.

Things are not well in the US either. The misery index keeps rising under Biden’s Reign of Error.

The Federal Reserve keeps on printing!

Federal Reserve Bitcoin Meme GIF

PIGS Facing The Fire (Again)! Portugal, Italy, Greece, Spain Seeing Surge In Sovereign Debt Yields

European PIGS must face the fire … again.

Once upon a time, European PIGS (Portugal, Italy, Greece and Spain) saw incredible spikes in their sovereign yields related to Greek credit default contagion. But the European Central Bank (ECB), World Bank (WB), International Money Fund (IMF) rose to the rescue.

But here we go again! Thanks to rising inflation, the ECB is threatening to remove the massive monetary stimulus. Sound familiar??

Here are the Eurozone 10-year sovereign yields as of this morning. Greece is up a whopping 27.4 basis points, Italy is up 11.7 BPS, Portugal is up 9.3 BPS and Spain is up 9.2 BPS. The core of the Eurozone, France and Germany, are up 4.3 and 3.0 BPS, respectively.

Germany has REAL 10Y Bunds yields of -4.7%.

Like the USA, the Eurozone Taylor Rule is much higher than the ECB’s Main Refinancing rate of 0%..

Here is ECB’s Christine Lagarde saying “What, me worry??”

Turkish Lira Freefall Accelerates Despite Central Bank Intervention (Turkey’s 10Y Yield At 21.50%, Very Venezuela-Like With Inflation At 21.31%)

Turkey (the nation, not the bird) is now the Venezuela of Europe/Middle East, where insane government policies are destroying both nations.

(Dow Jones) — Turkey’s central bank intervened to arrest the plunge in the country’s currency, which lost as much as 8% of its value against the dollar on Friday in an ongoing crisis that is straining the country’s financial system.

The crash followed another decision by the central bank on Thursday to cut interest rates under pressure from President Recep Tayyip Erdogan, who favors lower rates as a part of a vision to grow the Turkish economy. Mainstream economists have urged the government to raise interest rates to control Turkey’s rising inflation, which reached more than 21% last month, according to official statistics.

The ongoing plunge is putting increasing pressure on ordinary Turks who have seen their savings evaporate, and adding to pressure on the banking system which has high levels of foreign-currency-denominated loans to repay within the next 12 months.

Wow. Turkey’s 10-year sovereign yield rose 42 BPS today to 21.590%. Turkey is looking like the Venezuela of Europe and the Middle East.

The Turkish sovereign curve in their home currency is humped.

But the Turkish yield curve (in US Dollars) looks more like the US Treasury actives curve.

The Turkish Lira is crashing against the US Dollar.

Meanwhile, the Central Bank of Turkey is cutting their repo rate as inflation soars. WTF???

I love this ZeroHedge headline: “Turkey Halts All Stock Trading As Currency Disintegrates, Central Bank Powerless To Halt Collapse.” Yes, it would help if Turkey’s Central Bank was RAISING rates rather than cutting them in order to stem the tide of inflation. It is like Turkey’s Central Bank is steering their ship of state INTO an F5 tornado.

Then again, US Fed chair Powell seems to be taking his time in cooling US inflation by … doing nothing.

Here is Turkish President Erdogan meeting with Venezuelan President Nicholas Maduro. “Together we can destroy both economies!”

Powell Says Foreign Buyers Distorting Yield-Curve Readings (Gold Rises On Powell Head Fake As US Dollar Declines)

Like John Belushi from The Blues Brothers, Fed Chair Jerome Powell is saying that the markets lackluster response in terms of bond yields to his “hawkish” announcement yesterday “isn’t his fault.”

(Bloomberg) Federal Reserve boss Jerome Powell appears unperturbed by the fact that longer-term bond yields remain low even as officials lay the ground work for tighter policy and inflation is ticking higher.

While the drop in longer-term rates may be viewed by some as indicative of where so-called terminal rates for U.S. policy might ultimately lie, Powell on Wednesday emphasized the impact of ultra-low yields in places like Japan and Germany in helping to keep them anchored. 

“A lot of things go into the long rates and the place I would start is just look at global sovereign yields around the world,” Powell said at a news conference following the Fed’s final scheduled policy meeting for the year, which saw officials ramp up the pace of stimulus withdrawal and boost predictions for rate hikes in 2022. The Fed Chair noted that rates on Japanese and German government bonds are “so much lower” than those on Treasuries and that with currency hedging taken into account American debt provides investors with a higher yield. “I’m not troubled by where the long bond is,” he said. 

This stands as something of a contrast to the view expressed back in 2005 by one of Powell’s predecessors. Back then, Fed chief Alan Greenspan described a decline in long-term bond yields even in the face of six policy rate increases as a “conundrum.” 

Or it could be that no one REALLY believes that Central Banks will ever cut interest rates, despite surging inflation.

The US Treasury 10-year yield dropped 7 basis points overnight and remains just south of 1.50%. The Eurozone remains below 1% (with Germany at -0.358% and France at -0.009% at the 10-year mark). Japan is at 0.039%. This is what Powell means by low global rates keeping US long-term rates down.

The 10-year Treasury term premium (measured before Powell’s head fake on raising rates) has returned to pre-Biden levels.

Meanwhile, global equities futures are up across the board (well, except for Mexico).

Gold rose on Powell’s “Tomorrow” talk while the US Dollar fell.

The Fed could have raised their target rate if they were REALLY interested in cooling inflation. The Taylor Rule remains at 14.94% while The Fed is stalled at 0.25%. Even if you don’t like the Taylor Rule, it still highlights how ridiculous Fed Stimulypto is.

Well, we do have a government-propelled economic recovery, but at a cost of declining REAL wages thanks to the highest inflation rate in 40 years.

U.S. Bonds Sink as Yields Spike Higher (Treasury And Dollar Swap Curves Steepen As European 10Y Sovereign Yields Range Breach)

U.S. 10-year yields are spiking upwards in what was supposed to be a sleepy day before the Fed’s Jackson Hole conference. The 2s10s curve is the steepest in two weeks. Eurodollar yields too have risen sharply and are up 6-7 bps in the blue and gold packs.

Over the last week, we have seen a steepening in the US Treasury Actives curve and the US Dollar Swaps curve.

This may be linked to the range breach in German 10-years and Italian 10-years. In fact, France, Spain, Portugal, Netherlands and Greece has all seen 6 bps leaps in 10-year sovereign yields today.

Does this mean that Chairman Mao Powell is likely to announce the paring-back of Fed monetary stimulus at J-Hole?