Important events happen in this week:
1. The U.S. Treasury is sitting on a near-record $1.5 trillion pile of cash, and what it does with it has become the biggest wild card for funding markets as quarter-end approaches.
2. S&P 500 Suffers an Island Reversal—Beware of Downside Risk
3. US Consumer Credit Crashes as Americans Repay a Record Amount of Credit Card Debt
Although the “island reversal” happen between June 5 and June 10 which was considered the sell signal for the stock market. There is still existing other variation to play an influence on the market. The U.S. treasury sitting on a 700 billion which make J.Powell headache is the uncertainty for the financial system. If US. Treasury Department did not inject these funds in the near future, it will drain reserves from the system on the liability side of the Fed’s balance sheet.
On the other hand, the saving rate was with the biggest spike in these three months as US consumer repaid the most on their credit cards ever instead of spending wildly. This atmosphere often happens after crashing down of the economic bubble. However, the cause of the breakdown on March is mainly the COVID-19 which hold back not only the private consumption but employment rate rather than the bubble.
Except for the saving rate, we can observe the confidence of personal investor from VIX value and the emotional index provided by The American Association of Individual Investors. All these data show the private investor is keeping conservative but the S&P index continue to grow up in the meanwhile. In my opinion, the current economy is at the deleveraging stage as the recession is still non-recovery and including many uncertainties. The main support of the economy is the monetary and fiscal stimulus offered from Fed. These financial tools make US dollars devalued at the highest level since 2019.
In the end, the most important event we have to care about is the movement of the Fed and American government. Second, how long the economy takes to recover the business activity also play the important role in the deleveraging stage.
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