"The Nightmare Returns!"

Hi There! In the words of the late great Brotha Bob, "One thing about music, when it hits you feel no pain!" This past weekend, I got to let my hair down a little (inside joke…😂😂) as I ventured to "Music at the Intersection" right here in St. Louis. It was two days of pure musical magic, a celebration that told the captivating story of St. Louis' rich musical, cultural, and artistic heritage. This event truly showcased the city's profound imprint on the American songbook and its unique relationship with its Mississippi River sister cities. From the moment I walked in, I was immersed in a symphony of genres that have been birthed and fostered locally, from blues and jazz to soul, R&B, hip-hop, and rock and roll. Imagine taking in the sweet sound of Herbie Hancock, Arrested Development, Tank and the Bangas, and Angela Winbush—all under one vibrant St. Louis sky. It was an unforgettable weekend of good times, where music truly hit us, and we felt nothing but mindless joy. 

Alright, let’s dig in!

Last week, the markets had a challenging time with a predominant downward trend, primarily due to Apple's troubles. The tech giant lost nearly $200 billion in market capitalization as China imposed stricter regulations on iPhone sales, causing concerns for investors. The Nasdaq, closely tied to Apple's performance, faced its fourth consecutive decline. Apple's vulnerability in China, a critical market and production hub, rattled investors. Despite a brief uptick in stocks, the overall week was marked by caution, as all major indexes ended in negative territory due to worries about potential Federal Reserve rate hikes. The S&P 500 and Nasdaq recorded losses of 1.3% and 1.9%, respectively, their first negative week in three, while the Dow slipped by about 0.8%. Adding to the financial landscape, the U.S. Dollar Index (DXY) extended its winning streak for an impressive eighth week, a rare feat attributed to data indicating the resilience of the U.S. economy amidst the week's challenges.

Here are other key highlights from last week:

• Oil prices rose to a 9-month high on worries of tight supply

• Bitcoin’s price has been ranging between $25,500 and $26,500

• Google will allow ads for NFT games starting on September 15, 2023

• Grab, Southeast Asia’s Uber, integrated NFTs into their business model

• South Korea Web3 spotlights

Here’s what to expect this week:

This week began with Apple's 'Wonderlust' event on Tuesday, unveiling the iPhone 15 Pro and Pro Max. The market has been closely monitoring developments regarding China's proposed iPhone restrictions, which could impact expected revenue. Looking ahead, investors are anticipating two crucial economic indicators: the U.S. CPI (Consumer Price Index) on Wednesday and the PPI (Producer Price Index) on Thursday. Both are expected to reflect rising inflation, mainly driven by increased crude oil prices. The outcome of the CPI report holds particular significance as it could influence expectations leading up to the FOMC (Federal Open Market Committee) meeting next week.

Thursday will be a busy day for investors, featuring not only the U.S. PPI inflation data but also U.S. Retail Sales figures. If the PPI data significantly deviates from consensus, it could complicate trading during this period, potentially causing increased market volatility. Similarly, substantial deviations from U.S. Retail Sales expectations may prompt market reactions, as investors selectively decide when to react to this data.

The most notable earnings for the week (September 11 - September 15) are outlined in red in the chart below.

This week’s Global Economic Data Highlights:

• UK Unemployment Rate (Tuesday) – Reported as expected.

• ECB meeting (Thursday) – Will there be a hawkish pause?

• Australia Employment Report (Thursday) – The consensus calls for 25.5k

• China August Industrial Production (Friday) – Consensus 3.9% vs. 3.7%

This week's anticipated bias (not financial or investment advice):

• Monday (09/11/23) - Every trader makes money today!

• Tuesday (09/12/23) - Bullish

• Wednesday (09/13/23) - Take Profits

• Thursday (09/14/23) - Whipsaw

• Friday (09/15/23) - Bearish

Trading Tip: Sell Rosh Hashanah. Buy Yom Kippur!

Week 09/03/23 - 09/09/23 Recap

Special Tools and Strategies

Have you ever wondered why the U.S. Dollar (USD or Dollar) seems to get stronger when things are both good and bad?

Well….

All economies go through ups and downs in a repeating cycle. When a country's economic outlook worsens, its currency tends to lose value. However, the U.S. Dollar is a bit special because it has two "types": one linked to the U.S. economy and another used in global trade and to buy U.S. government bonds. This "international" U.S. dollar becomes stronger when the world is uncertain, causing the overall dollar to rise during market turbulence.

This happens because, in times of global trouble, investors seek safety in U.S. assets like government bonds, and they need U.S. dollars to buy them. On the flip side, when the U.S. economy is performing very well or very poorly compared to the rest of the world, the dollar tends to strengthen. This idea is captured by the "Dollar Smile Theory".

The Dollar Smile Theory explained:

• The theory was developed by currency expert and now hedge fund manager Stephen Jen 20 years ago.

• The theory explains that the USD gets stronger in both good and bad markets but weakens when the rest of the world outperforms the U.S. economy.

• This concept helps us understand why the USD tends to rise when the U.S. economy is either performing exceptionally well or facing difficulties like a recession. In between these extremes, the currency faces pressure.

Here are the three parts of the "Smile" Theory:

1. USD as a Safe Haven in Global Recession:

   • During global recessions or uncertain times, people rush to buy "safer" assets like U.S. Government Bonds.

   • To buy these bonds, USD is needed, so there's more demand for the Dollar, making it stronger.

   • Investors choose the USD because they perceive the global economic situation as shaky and prefer safer assets.

2. USD Weakens When the Rest of the World Does Better Than the U.S. Economy:

   • When other countries outperform the U.S., the USD may weaken.

   • Factors include weak U.S. economic fundamentals, possible interest rate cuts, and relative performance compared to other countries.

   • For example, during the initial COVID crisis, the USD weakened as the U.S. faced economic challenges and the Fed printed more money.

3. USD Strengthens with Strong U.S. Economic Growth:

   • When the U.S. economy outperforms the global economy, the USD tends to strengthen.

   • Optimism and signs of economic recovery boost sentiment towards the Dollar.

   • This happens as the U.S. enjoys robust GDP growth and expectations of higher interest rates compared to other countries.

     

     Dollar Smile Theory. Source: Bloomberg, Federal Reserve

Disclaimer: This newsletter is strictly educational. The information this report provides does not constitute investment, financial, trading, or any other advice. You should not treat any of the report’s content as such. Please be careful and do your research.