US markets are being shaken by the Federal Reserve (Fed) hawks, as most FOMC members want to start dialing back the bond purchases before the end of this year.

Amazon slipped below the $3200 mark, as Facebook is testing an important support on the back of discouraging news, and deteriorating risk appetite.

Chinese stocks, on the other hand, are being hammered by additional Chinese crackdown news.

It looks like only worsening Covid news, soft economic data and deteriorating sentiment could convince the Fed members that removing support may not be a good idea and reverse the market mood.

FOMC minutes were hawkish, the market reaction was negative, but not alarmingly negative. But the VIX index jumped 20% as reaction to the latest FOMC minutes release. In this episode, I discuss why the VIX index is a good hedge for an eventual market turmoil.

The US dollar index advanced to the highest levels since November, and could further extend gains against its major counterparts on the back of a clear hawkish divergence from the Fed.

The question is, will the Fed walk to talk?

Elsewhere, oil prices push lower on the back of rising Covid worries, while in equities, the SMI hit fresh record, but the high concentration of a couple of stock sin the SMI index could be a turn-off for investors looking for a more diversified portfolio of Swiss businesses. This is where the Swiss Bliss comes in the picture!

US stocks tumbled the most in a month after the US retail sales declined more than analysts expected in July, and the rising Covid worries and images from Afghanistan dented the global risk appetite.

But it’s too early to call for a sustained market correction. The US equities doubled in value after the March 2020 plunge, and some profit-taking and a minor correction are only normal at this point.

The FOMC minutes is the major event on today’s economic calendar. Investors will be hunting for hints about the upcoming Federal Reserve (Fed) QE tapering. Yesterday, Fed Chair Jerome Powell said that the monetary policy has its limits. Yes, it’s called inflation: the major side-effect of boundless money injection.

Any hint on QE tapering could have a meaningful impact on the market sentiment as we are talking about a change in one of the major pillars of the US equity rally. But no panic just yet!

While in 2013 we saw a bad market reaction to the tapering announcement, it will certainly be different this time.

The S&P500 hit its fifth consecutive all-time high on Monday, regardless of the most recent inflation report confirming sticky and high inflationary pressures, and growing Covid worries, which threw the UoM’s sentiment index to a decade low level in August.

But there is no stopping the US equity rally and although it’s disquieting, strong corporate earnings, low US yields and a relatively soft US dollar are the major catalysts for the US market rally. But the cliff between the economic indicators and the equity prices is somewhat unreasonable, hinting that there is potential for a sizeable downside correction. But when?

What could possibly derail the equity rally?

Due today, the US retail sales are expected to have retreated by 0.2% m-o-m in July. A slightly negative read may not discourage investors, as the sales jumped 28% y-o-y in March, 51% in April, 28% in May and near 18% in June. Therefore, a minor slowdown in recovery shouldn’t dent the risk appetite. Unless we see a surprisingly negative number, which would point at a faster-than-expected slowdown in recovery, there is nothing that could stop the US stock bulls from flirting with new highs.

Except for Tesla, which must deal with a formal investigation against its autopilot function and the energy stocks, as oil prices remain under a decent selling pressure. We see solid resistance forming above the 100-day moving average, a touch below the $68 per barrel, on the back of worries that the rising Covid delta contagion will likely slow down the global economic recovery and dent prospects of a strong global demand.

The week has a soft economic calendar. The FOMC minutes will be the major event on the calendar. Investors are prepared to hear some tapering talk, but the expectations are mostly adjusted for seeing the Fed start tapering bond purchases sooner rather than later. Therefore, the FOMC minutes should not dent the risk appetite.

The softening US yields should keep appetite solid in risk assets, while gold should see solid offers approaching $1800 per ounce.

On the corporate calendar, US big retailers are due to announce earnings and investors won’t settle for anything less than better-than-expected.

In cryptocurrencies, Bitcoin purchases accelerate as the RSI index points at overbought market conditions. Could an overbought RSI keep the bulls back from buying more Bitcoin? Hardly.

China closes ports after spotting a worker with Covid, and the growing Covid fears seem to be weighing on Asian sentiment, but the US technology stocks remain on trac for further gains, as Apple prepares to test fresh highs, and Amazon attracts buyers after falling to its 200-day moving average.

On the supply front, Tesla’s Musk complains about disrupted chip supply, but the stock price remains on a positive trend for further gains.

Disney and Palantir gain on strong earnings, Moderna corrects lower after testing the $500 per share earlier this week.

The US dollar gains field against its major peers. The EURUSD is preparing to tip a toe below the 1.17 mark, while Cable is set to test its 200-day moving average on strengthening greenback.

Elsewhere, we shall see a further rally in major cryptocurrencies, but the late comers as Dogecoin may need to wait before catching up on BTC and ETH gains.

Inflation in the US steadies, but the market reaction hints that investors are preparing for a longer period of high inflation, and not necessarily pricing in the possibility of seeing a less hawkish Federal Reserve stance for the next couple of months.

Gold recovers fast but the bulls could hit a thick wall of resistance approaching the $1800 per ounce level.

In cryptocurrencies, Ethereum has been the most traded cryptocurrency on Coinbase last quarter, as a sign that crypto traders’ attention is now shifting towards Ethereum. Are they right? Could Ethereum overshadow the mother of all cryptocurrencies, Bitcoin?

On company level, Samsung unveils its new foldable phone, while Apple is set to make only minor changes to its iPhone this fall. Is it worth buying non-US tech stocks? And if yes, is it worth returning to Chinese tech stocks which are now trading near 40% discount due to the latest government crackdown on big Chinese tech companies?

US Senate approved Joe Biden’s $550 billion worth historical infrastructure plan, which will be submitted to a House vote along with a larger $3.5 trillion spending plan.

The Dow gained 0.46%, the S&P500 was flat, while Nasdaq fell on Biden’s infrastructure victory, as investors focused on the flip side of the coin: the huge infrastructure spending would boost the already-high inflationary pressures and may encourage the Federal Reserve (Fed) to dial back its massive bond purchases sooner and quicker to compensate for the massive half a trillion money that’s about to rain on the US economy.

The major event on today’s economic calendar is the US consumer price inflation report.

How would the market react to a softer or a stronger-than-expected inflation figure?

Gold missed its chance to shine over the past months. What would’ve made gold prices shine was soaring inflation expectations and falling US yields. But there is one more bullish exit for the gold bulls, and I talk about it in today’s episode!

And finally, there are some encouraging news for oil traders. Yesterday’s API data revealed that the oil inventories in the US fell 816’000 barrels last week. The more official EIA data is due today, and a decline in oil inventories could encourage oil bulls to test the $70 mark. But could the $70 resistance easy to break with a weekly fall in US oil inventories?

Not sure! The Covid delta crisis is gaining momentum, and here is the link to the Bloomberg’s Pret Index, as promised. Check it out, it’s a fun play! https://www.bloomberg.com/graphics/pret-index

We don’t need the UN’s panel to tell us that our planet is struggling with the climate change, it’s enough to watch the evening news to see that Turkey and Greece are fighting against the worst forest fires in their history due to extreme high temperatures, while Western Europe is inundated, with lakes overflowing and entire villages being swamped by flash floods. Add to that last years’ wildfires in Australia, fires in California, and so.

So, yesterday’s UN report came just as a scientific confirmation that all these events have to do with our huge CO2 emissions, and that the planet will warm by 1.5 degrees Celsius within the next two decades and by 2 degrees Celsius within the 21st century.

What does it have do with finance?

The US indices had a flat session on Monday. Nasdaq eked out small gains.

Investors are holding their breath before tomorrow’s US inflation data. There is a chance we see a stronger-than-expected easing in the July inflation numbers in the US, as we saw close to 20% retreat in oil prices during the same month. But even with softer inflation data, the progress in consumer prices will remain high compared to historical averages, and the Federal Reserve’s (Fed) average 2% target.

The US 10-year yield steadies a touch above the 1.30% mark, with prospects of further upside. That’s applying a positive pressure on the US dollar, and a negative pressure on the EURUSD, which is now down to 1.1730, approaching the next natural bearish target of 1.17.

Finally, gold consolidates near the $1730 per ounce after the post-NFP flash crash and should remain under the pressure of higher US yields into tomorrow’s US inflation report.

Asian stock markets kicked off the week on a positive note, although the US indices had nothing more exciting than mixed performance after the announcement of strong jobs data on Friday.

The US jobs data gave a small boost to the Dow and the S&P500 which closed Friday’s session 0.41% and 0.17% higher respectively. Yet Nasdaq slid 0.40% to the weekly closing bell, to my surprise, as I would expect the strong jobs data to boost the tech stocks to a certain extent as well, because even though the strong economic data and prospects of a tighter US policy are better for value stocks, the rising Covid cases should keep the tech stocks in demand, regardless of a tighter Fed policy. But apparently, and curiously, investors are not too concerned with the delta crisis just yet. They are, to some extent, as we see the stock markets somewhat moody time to time, but the S&P500 chart doesn’t necessarily hint that there is any kind of stress in the US big caps. Why is that?

In commodities, the prospect of higher yields is becoming a serious headache for gold. Gold is not doing well, and Friday’s strong US jobs figures has come as a slap on gold’s face. Moving forward, higher US yields will continue increasing the opportunity cost of holding the non-interest-bearing gold, which didn’t even fully benefit from the overshooting inflation and the ultra-low US yields recently. So, there were clear signs that the more likely scenario was a further selloff, but this week’s inflation figure could ease the pressure, at least for a while.

One industry that’s happy with rising rate expectations is the banks, especially those wo are more sensitive to the rates.

On earnings calendar, AMC Entertainment, Coinbase, Lordstown, Baidu, Disney, Airbnb and Wish are to report earnings.

Cryptocurrencies continue recovering and Bitcoin is now testing the 200-day moving average to the upside!