pebblewriter

Month: June 2022

  • No Pressure

    Futures are off about 2% following yesterday’s FOMC announcement and press conference – the closest we’ll probably ever get to a mea culpa – which was accompanied by the usual algo nonsense. Suffice it to say, traders have come to their senses and markets are once again reflecting the likelihood of the Fed tightening into a recession.

    Our algo remains on track, with much lower prices to come after whatever this bounce amounts to. Note that tomorrow is OPEX and Goldman estimates that options representing a huge $3.4 trillion in notional will expire ahead of a 3-day weekend. No pressure…

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  • Welcome to the Future

    Remember the post from last July [see: Time to Sell Your Home?] regarding the effect of rising interest rates on housing prices?

    With mortgage rates at 2.60% at the time, we did some simple calculations to show the impact of an increase in rates to as high as 6%. A $1 million house with a mortgage payment of $4,203, for instance, would need to drop to $667,733 in order for the payment to remain the same for a new buyer.

     

    With inflation spiking, we felt it was only a matter of time before interest rates shot higher too.Don’t look now, but the future is here. The pundits say that about one-fourth of all sales are to cash buyers, so higher rates won’t necessarily matter. Maybe. But, nearly every crash in the history of the markets has started with the words “this time is different.”

    Don’t say we didn’t warn you.

  • FOMC Day: Jun 15, 2022

    Algos have ramped almost 1% higher overnight on a modest but noticeable breakdown in VIX.

    All eyes are on the FOMC which is expected to announce a rate hike of anywhere from 50-100 bps at 2PM ET. Bulls are still clinging to the prospect of a soft landing, while bears see dark economic storm clouds approaching.

    Given this morning’s disappointing retail sales data, which saw spending slump 0.3% MoM in May (-0.7% exclulding gasoline sales), it is increasingly difficult to ignore the notion that the Fed is tightening into an economic slowdown.

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  • PPI Still Running Plenty Hot

    PPI dropped just a bit from last month, registering 10.8% YoY (unadjusted) for May versus 10.9% for April and 11.5% for March.  The MoM tally was +0.8% for May versus 0.4% for April.

    The very slight drop in the YoY data is unlikely to assuage the Fed’s fears about inflation being out of control. But, it’s enough to contribute to a slight bump in futures heading into the two-day FOMC meeting and OPEX.

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  • Charts I’m Watching: Jun 13, 2022

    ES dropped over 100 points overnight to tag our 3802 target.

    The other perhaps more significant target to be tagged is the 10Y. It topped our 3.248 target and is currently trading at 3.28.Our analog continues to perform beautifully.

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  • Inflation Reaches a New 40-Year High

    CPI soared to a new 40-year high: 8.6% YoY and 1.0% MoM. Core also exceeded consensus, coming in at 6.0%.

    Futures are not amused, as this takes anything less than a 50 bps rate hike next week off the table. A 75 bps hike is suddenly a real possibility.

    Needless to say, our analog remains very much on track.

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  • The ECB’s Fantasy World

    You can’t make this stuff up. With May inflation at 8.1% across the euro zone, the Governing Council is leaving rates unchanged with an increase of 25 bps to be unleashed in July to “ensure that inflation stabilizes toward its 2% target over the medium term.”

    Sigh…

    Futures continue forming their triangle with a denouement likely coming after US CPI tomorrow morning.

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  • The BoJ’s Gamble

    Futures are off modestly, a win versus what would be happening if not for the VIX smackdown and USDJPY breakout employed to keep the plates spinning just a little bit longer, until Friday’s CPI report.

    This is really an unconscionable move, even for the BoJ, which has bet its citizens’ futures on keeping the Ponzi scheme which is the Nikkei on the rise [see: the yen carry trade explained.]

    This is a self-inflicted wound, and the impact on oil prices alone is staggering.Food prices aren’t far behind.

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  • It’s Currencies’ Turn

    USDJPY finally tagged our 132.22 target overnight… …a target we set over six months ago [see: Update on Currencies Nov 17, 2021]:Ordinarily, this might be a good thing for stocks. Not this time, as it echos the dollar’s strength against the euro.

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  • Charts I’m Watching: Jun 6, 2022

    Futures have bounced about 1% overnight, retracing a Fibonacci 61.8% of the losses from Thursday’s highs.

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