Greer: Markets Are Starting To Telegraph The Onset Of Inflation
Your Real Vision Daily Briefing for August 25, 2020
Senior editor, Ash Bennington, hosts Tony Greer, editor of The Morning Navigator, to continue their discussion of the wild inflation trade.
- ExxonMobil being kicked out of the Dow Jones reflects a weak energy sector while tech stocks continue their rotation upward across subsectors.
- The baton has been passed over to commodities as they continue exploding and a sell-off in bonds will sustain the commodities’ rally while denoting a rise in inflation.
- Dollar weakness is a part of the commodities bull case and it and the Fed QE may be driving the rally in the Aussie dollar.
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The news that the Dow dropped ExxonMobil (XOM), its oldest member, underscores theme of weakness in the energy sector as tech stocks continue their march higher, Tony Greer, editor of The Morning Navigator, told Real Vision during today’s Daily Briefing.
Greer said that while energy sags, semiconductors, software, and internet stocks continue to rotate up and to the right to make new highs. He’s watching the FANG stocks as well as subsectors like cloud storage (SKYY), software (IGV), internet (FDN), and cybersecurity (HACK), and said that their movements give him a lot of confidence that the tech rally can continue despite some companies being overvalued and overpriced.
In addition to paying attention to tech stocks, Greer also said he is focused on what the bond market is telling him this week. He believes activity in the bond market is still a direct reaction to the commodity breakout we are seeing and he’s looking for commodities to go even higher, so he’s watching how the bond market behaves very closely.
Greer said he thinks markets are starting to telegraph the onset of inflation, including the bond market, and expects inflation to cause bonds to sell off. He noted that the bond market is discounting the energy rally, which is being driven by the dual hurricanes heading for the Gulf coast, and reacting to commodity rally like it is sustainable, so he’s paying close attention that important dynamic right now.
Finally, Greer wrapped up the discussion with his thoughts on the DXY. He said the weakness in dollar last week is a big part of the commodity bull case. This week, the dollar stopped going down but we’re seeing huge rallies in the Aussie dollar.
Greer said he went into the pandemic incredibly bearish on the Aussie dollar, but it continues to rally off the lows due to the strength in metals, which is being driven by Fed QE. There are lots of moving parts, he said; the Fed easing is weakening the dollar, which is strengthening metals and strengthening the Aussie against the dollar and the yen. The Aussie is like a freight train going higher and putting a lot of wind in commodity sales so that’s one avenue outside the dollar to look, he said.