Hey There Income Hunter,
Make sure you’re signed up to join me for today’s live Fed Focus event. It is the last publicly available live session I will be hosting ahead of Wednesday’s crucial Fed meeting.
Sign up here and join me at 1 p.m. ET.
The European Central Bank (ECB) surprised the market by hiking 0.50% yesterday before the US market opened …
Then they confused everyone when the president of the ECB Christine Lagarde tried to explain their defragmentation tool in an attempt to keep Italian bond spreads from exploding higher.
The tool is called Transmissions Protection Mechanism (TPI) but that is about all the information that was given.
The ECB knows that the bond vigilantes will be out in full force pushing yields higher so I am sure they want to hush about how they deploy TPI.
Nothing they come up with will work however, as Europe is an absolute disaster with an energy crisis and a recession hitting them as they hike rates.
Today, we’ll take a look at the data and what may be a top short in the Euro area …
Not Learning From The Fed’s Mistakes
On the day the ECB hiked rates the worst consumer confidence number in history came out.
Hard to believe the ECB is making the same mistake as the Fed after seeing the sharp fall off in the economic numbers in the US.
Check this chart out:
How in the world do you deliver a rate-hike under these economic conditions … Especially when your country is in danger of having to ration energy?
Plus, they have to deal with an Italian debt crisis, as their yields are now above Greece:
A Euro Trade to Consider
France is another country who has a debt burden that restricts any chance for economic growth.
I am forever talking about how a level of debt higher than 100% of income limits your ability to allow rates to rise, because it could put a government into insolvency.
Well, France is also there:
Sell the iShares MSCI France Index ETF (Ticker: EWQ)
EWQ is liquid enough to apply simple put spread or buy outright puts out to September, which I think is when we could see a capitulation trade in global equities.
I don’t think central banks will flip to quantitative easing (QE) by then, but I do think a capitulation trade in stocks and corporate bonds will force them back to QE.
Notice the chart below showing a rally up near the 50-day moving average (DMA). This is a good location to enter into a bearish strategy with a stop loss on a close above the 50 DMA.
Bring It Home
It will be very interesting to hear what Powell has to say next week with the constant disappointing economic news the US is reporting.
The worst news came from AT&T (Ticker: T), which saw its biggest crash in 20 years after unpaid bills contributed to the reduction in cash flow forecasts.
Hmm, what happened to the “strong consumer” that Powell has been raving about?
Looks like Powell has some explaining to do …
Good luck today and have a super weekend and as always …
Live and Trade With Passion My Friend,
Griff