Stocks ended last week in a very defensive manner as prices gapped down and closed near the lows of the day on Friday. This occurred on tremendous selling pressure, which is often a sign that momentum has shifted. Even so, we still need to close below the key support levels outline in the Mercator Letter. Unless that happens, we view this as a corrective decline in the face of a very strong uptrend. Complacency was rising, but fear spiked quickly. This could serve to put a cap on any further major declines in the short-term.
Bond markets saw a strong bid on Friday off the back of a flight-to-safety trade. It's worth noting that the last time the Fed began to taper in 2014, it marked a low and multi-month rally in bonds. This is something we are observing closely again now. The inflationary case isn't helped by the fact that Crude Oil prices were crushed on Friday as well, especially since it is the main driver of inflation expectations. This may give the Fed the cover to refrain from tightening monetary policy so quickly next year, which seems to be the market's current expectation.
The dollar pulled back from multi-month highs, and in theory, this should act as a tailwind for commodity markets. Grains and livestock had strong weeks, which will likely continue to put pressure on inflation data. Cryptocurrencies continued their pullback last week too, but are trying to solidify another higher-low with respect to their very strong uptrends. We will update our outlook on Bitcoin, Ethereum, and BinanceCoin tomorrow in our monthly-published Mercator Crypto report.
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