Fears Mount About Inflation Returning With a Vengeance (But No Signs Of Inflation Yet)

Given the reaction of The Federal Reserve to the Covid-19 virus, it is understandable for investors to freak-out about possible Weimar Republic / Venezuela-like hyperinflation.

(Bloomberg) — Even a calamity of disease, death and economic destruction afflicting the world all at once isn’t enough to suppress the notion in some quarters that inflation could return with a vengeance.

The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions — prompting policy makers to fear a deflation spiral reminiscent of the Great Depression. But economists including former Bank of England official Charles Goodhart, and investors such as BNP Paribas Asset Management, are asking if a different phenomenon lurks in the wreckage of global growth.

Muted Price Growth

IMF predictions for inflation rate at end of 2021

Screen Shot 2020-05-03 at 10.53.12 AM

Yes, inflation rates are muted in the short-run, but the surge in government spending and The Fed balance sheet is scaring some people about “inevitable” hyperinflation.

fedbalfedeff

And the surge in M2 Money Supply YoY is leading some to panic.

corecpim2

But like the Titanic that sank after striking an iceberg in calm seas, there are calm seas on the inflation front. The EUR Inflation Swap Forward 5Y5Y is less than 1%.

5yinf

The USD Inflation Swap Forward 5Y5Y rate is 1.7944%.

usdswap5y5y

But USD Swaption volatility remains calm after a jolt upwards in March.

swapvol

And the US Treasury Inflation Indexed curve is negative beyond 3 years.

infindede

So, the data is showing calm inflation seas, not gut-wrenching Venezuelan-like inflation.

mnuchin

Gold Contango? Gold Futures Price SOARS Above Spot Price

The COVID-19 virus sweeping the globe is having dramatic impact on asset and commodity prices. Particularly gold.

Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the spot price of the contract today. Such is the case for gold futures where the futures price for gold exceeds the spot price.

goldspread

This will not be the Last Contango for Gold.

And good luck finding physical gold in the form of gold bars. Gold coins, on the other hand, are available.

RIP, Honor Blackman.

goldfinger_spanish-poster artwork

 

Gold Trading Hits Record High As Treasury 10 Yield Near All-time Low (Swaption Vol Escalates, Fannie’s 30Y Current Coupon Falls Below 2%)

Its a wonderful day in the financial neighborhood! … NOT!

Gold trading hits record high.

goldtrading

As gold keeps on rising.

goldflu

S&P 500 futures are down 3.201%.

spxfut

USD Swaption vol is escalating.

swaptionvol

The US Treasury 10-year yield is down another 20 bps.

ust10frid

Fannie Mae’s 30-year current coupon just fell below 2%.

fnanniecc

What up with that?

The Night Before: US Equities Down 1%, Oil Down 2%, Gold Up 1% (Coronavirus Fear Again)

It is the night before Monday opening.

And it is ugly.

The Dow Jones mini is down 346 points as of 7:30pm EST on Sunday evening.

wefdd

Bond market futures are up, meaning yields are down.

wbmf

Oil futures are down 2.55%.  And GOLD is up 1%!

wcommod

Yes, it is the coronavirus impact global supply chains.

Screen Shot 2020-02-23 at 4.53.36 PM

Or it was Tyson Fury licking Deontay Wilder’s neck in their rematch fight on Saturday night.

fury

 

Dollar Bop! US Dollar Index Approaches 100 (Golden Cross) As Coronavirus Fears Mount (Gold Rising Too!)

The US is experiencing the Dollar Bop!

The Dollar Index looks poised for a run at the 100 level for the first time since 2017 as investors seek out the safety of American assets amid the ongoing coronavirus spread.

The U.S. currency has benefited this week from a narrowing in haven options, with the yen slumping to a nine-month low on fears the outbreak could push an already struggling Japanese economy into recession. In contrast, U.S. stocks closed at a fresh record Wednesday, Treasuries are seeing continued demand and a bullish golden cross pattern is set to form in the dollar gauge, suggesting further upside is possible.

goldencross

The golden cross is a candlestick pattern that is a bullish signal in which a relatively short-term moving average crosses above a long-term moving average. The golden cross is a bullish breakout pattern formed from a crossover involving a security’s short-term moving average (such as the 15-day moving average) breaking above its long-term moving average (such as the 50-day moving average) or resistance level.

The US dollar index follows President Trump’s approval rating. Or is it that Trump’s approval rating mirrors the US economy?

trumpdollar

Gold is also flashing a technical buy!

goldbuy

Gold surpassed $1,600 an ounce this week and its climb may not be over yet. The GTI Vera Convergence Divergence Indicator, a technical measure which detects trend exhaustion, triggered a buy signal on Tuesday, its first since the end of January. Growing concern over the potential impact of the coronavirus on the global economy is boosting haven demand for the metal, which is now closing in on a seven-year high.

Gold, US Dollar Inverse Correlation Weakens Due To Coronavirus Fears

The coronavirus is ravishing China … and may soon ravish the USA as well. As a result, the inverse correlation between gold and the US dollar is weakening and resembles the weakening that occurred during the financial crisis.

mycorona

Yes, gold is rising again in the face of coronavirus fears ravaging the Chinese economy.

goldfed

The CFTC’s Gold Non-commercial long contracts/futures remains near an all-time high.

cftcgoldfutures

Here is the gold/US dollar volatility surface.

goldvolsurf