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Commodities Copper

Retail Data on Tuesday Will Be Key

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By Ryan Dinse, Monday, 15 May 2023

Non-official sources show inflation seems to be in the retreat. US retail data on Tuesday should confirm or deny that and will set the scene for interest rates going forward. Meanwhile, the copper-gold ratio is signalling weakness in the real economy.

We’re in a bit of an investment ‘no-man’s-land’ right now.

And I don’t see much conviction among the bulls or the bears.

Instead, everyone is waiting around trying to work out if the worst is behind us. Or if there’s another landmine about to go off.

Aside from the US banking crisis, the big risk everyone’s talking about is, of course, the imminent US debt ceiling.

While I think it extremely unlikely that this won’t be resolved — the consequences would be catastrophic for the global financial system and end US dollar hegemony — I do think we’ll see a few more weeks of grandstanding and bickering.

And that will weigh on markets.

But at the 11th hour, I reckon a deal will be done.

The other big risk on the table is stubborn inflation and, in turn, more rate hikes.

However, again, I think the worst is behind us on this front.

Check out this chart:


US Inflation

Source: Truflation

[Click to open in a new window]

This non-official source of inflation uses real-time prices across millions of data points. If it’s correct, we’re already almost back down to 3% inflation target.

We could get confirmation of this from a US retail data dump due on Tuesday…

Why you should watch this

Check out the charts:


US retail data

Source: Forex

[Click to open in a new window]

As Forex.com noted:

‘With cracks continuing to widen for some metrics of US employment, consumer trends will continue to garner greater interest.

‘But already we are seeing weakness in retail spending, with the annual rate falling to a post-pandemic 34-month low of 2.34% and contracting for the past two months.

‘If retail sales are to deteriorate further whilst coincident indicators such as industrial production disappoint, it could weigh on the US dollar as traders try to price in ‘higher for less’ or even cuts sooner than later.’

Interest rate cuts sooner than later?

That’s certainly a curveball few are predicting in the analyst community.

Though, as I noted last week, the traders of the bond markets are pricing in just such an outcome.

The yield on the key two-year US Treasury has fallen from a top of 5.05% on 8 March to finish last week at 3.92%.

Data Trek’s Nick Colas said on the move:

‘It is telling that their recent decline has had little effect on stock prices. Even though Fed Funds Futures are predicting rate cuts by the end of the year, equity markets are not quite sure if that’s good news or bad.

‘That is a break from the previous relationship between these 2 assets and therefore signals a change in market narrative.’

Like I said before, no one is quite sure what to make of anything yet.

Mainly because there are signs the real economy is softening fast too. And stock markets don’t like recessions.

Check out this chart of the copper-gold ratio:


copper-gold ratio

Source: Eurodollar University

[Click to open in a new window]

A falling copper-gold ratio says investors are positioning themselves defensively in gold opposed to the growth prospects of copper.

But my colleague James Cooper thinks this pullback in copper is a great buying opportunity in copper stocks, rather than the harbinger of doom.

And if you can take advantage of the general market fear, you can get set in some fantastic small-cap mining stocks poised to benefit.

You can read more on his underlying thesis here.

But like I said at the start, it’s a bit of no-man’s-land right now.

The doomsayers have plenty to harp on about. But the bulls are seeing the glass half-full side of things too.

Half full, half empty

My favourite perspective from last week probably came from legendary investor Stanley Druckenmiller.

He told the Sohn investment conference that a ‘hard landing would offer unbelievable opportunities’.

His glass is both half full and half empty at the same time!

Though, he noted he wasn’t forecasting one, just reflecting on the possibility.

This is a good way to think about markets.

Often, the biggest investing opportunities in history have come from the times of maximum panic.

So while I wouldn’t be out of the market completely right now, I think having a decent pot of cash at the ready for when opportunistic buying makes sense too.

Good investing,

Ryan Dinse Signature

Ryan Dinse,
Editor, Money Morning

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Ryan Dinse

Ryan is a former financial advisor who over seven years helped more than 600 clients and had more than $150 million under management. This experience taught him that the mainstream investment industry has no interest in helping clients strive for greatness. He was told to make ‘safe’ investment plays and settle for average returns. It wasn’t good enough for Ryan.

In 2016, he embarked on a renewed mission: to help ordinary people lock onto extraordinary trends before they go mainstream. He’s an experienced small-cap trader and an expert in cryptocurrencies. He first bought Bitcoin [BTC] in 2013, when it was around US$600.

His crypto advisory is a must for anyone looking to make digital assets a part of their long-term portfolio. Check it out here. His tech advisory Alpha Tech Trader aims to identify and latch onto strong emerging opportunities in the tech sector, wherever they are in the world. Get more info here.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

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