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Dollar Breakout, and TINA Brings Peace

CPI inflation is on the way back, with oil apparently heading up towards triple-digits once again.  US field production is almost back to pre-pandemic levels, but commercial oil stocks have been dropping hard for the past month or so, and not by a little bit either.  Something is going on, I’m not sure what it is. There are also hints of another government shutdown. 

user profile picture davefairtex Sep 10, 2023
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I keep adding more reports – this week I pulled the SPR up to the top, because the price of oil is really beginning to matter again:

  • Durable Goods (DGORDER): -15.7B (-5.51% m/m); retreat from last-month’s all time high.
  • ISM Services: 54.4 actual, 52.7 prior; expansionary.
  • Strategic Petroleum Reserve (WCSSTUS1): +798k (+0.23% w/w), with oil at $87/bbl.
  • Fed Balance Sheet (WALCL): -20B (-0.25% w/w); deflationary.
  • Total Bank Credit (TOTBKCR): -16.4B (-0.10% w/w). Contractionary.

Declining bank credit is still a thing; banks remain in trouble, and they appear scared to lend. While bank credit didn’t make new lows this week, the y/y change remains in negative territory: -0.41%. Last time it was y/y negative was back in 2008. The Fed continues to dump its Treasury collection (either via roll-off, or sales), and that decrease in demand probably pushes yields for the Treasury bonds higher, or at least higher than it would have been otherwise.  This week, the 10-year rate rose, while the very short rates fell.  They continue to converge on the Fed Funds Rate.  Plus of course there’s all those interest payments they now have to make.  I predict: likely, higher rates ahead.

The buck climbed 0.88 [+0.84%] to 105.07, breaking out to a new 7-month high.  While most of the move happened on Tuesday, the dollar did manage to end the week at the high. The buck is in a strong uptrend, in spite of the mildly bearish candle print.  How much higher will it go?  That’s an interesting question.

De-Dollarization: the RMB rose 0.08 [+1.13%] to 7.34 per USD, which is bad if you own RMB. This is the highest level since (checks notes) 2007.  Yikes, that’s a 16-year low for RMB. Or high, if you own dollars and want to buy the RMB. So the “de-dollarization” thing doesn’t seem to be happening yet. In fact, its exactly the opposite.  And this is with Bank-o-China working overtime to stop RMB holders from selling RMB – along with China’s closed capital account.

My guess: money wants to flee the mainland  That, or, the buck is screaming higher, right before it detonates?  Definitely a rallying dollar will threaten to bankrupt people and companies overseas that borrowed in dollars because the rates were so low, for so long. 

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