pebblewriter

Month: February 2024

  • Retail Sales Warn of Economic Woes

    Retail sales plunged 0.8% in January, far below estimates of -0.2% and last month’s +0.4%. The miss can’t be attributed solely to seasonality, as the Jan 2023 print was a massive +3.7% gain. The annual gain from Jan 2024 was a meager 0.6%.

    It has been a tough week for economic data. Inflation higher than expected and retail sales much lower than expected – sounds like a recipe for stagflation. With the UK officially sliding into recession, can the US be far behind?

    Futures have given up some of their slight overnight gains.

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  • A Technical Recovery

    Thanks to VIX being hammered by 20% from yesterday’s highs, futures have recovered almost .50% – just enough to reach the bottom of the channel from which they broke down. SPX experienced a similar recovery late in the day, preserving (for now) the integrity of the channel that has produced a stunning 23% return since Oct 27.

    Stock prices almost always melt up into OPEX days. When they don’t, however, they often perform a nosedive instead. SPX remains long overdue. A lasting breakdown of the channel, such as we almost saw yesterday, would be the first sign.

    Another would be the 10Y shooting up past our 200-DMA target, which it came within 0.19% of yesterday. The bulls really need rates to settle back down – which will be very unlikely if oil/gas don’t reverse lower.

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  • Hot CPI Dashes Rate Cut Hopes

    January CPI came in hotter than expected, taking a March rate cut off the table and casting serious doubts on a May rate cut.

    Futures are off sharply, shedding over 1% to reach the bottom of the rising green channel from Oct 2023.

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  • All Eyes on CPI

    CPI, due out tomorrow morning, always plays an important role in driving interest rates and economic forecasts. This one is especially important given the extent to which the market has already rallied in anticipation of lower rates.

    Our gas price model for CPI shows inflation settling lower after a slight bump up over the last several months. But, what happens if events in the Middle East begin to affect oil/gas prices?

    At current prices, our model suggests CPI should continue to moderate – remaining around 3-3.25%.  Again, this is if gas prices were to remain steady around 3.02 for regular conventional gas prices as reported by the EIA. This would result in the current -9.13% delta rising very slightly to -8.57% in February, then widening to as much as -19% by August before rising back toward 0% by January 2025.

    In the past, these large negative deltas have correlated with CPI readings of 2% or less. Ceteris paribus, this would suggest a CPI in the 2% range by election time. But, what happens if hostilities in the Middle East expand and gas prices revert to 4.0? It’s a very different picture.

    Bottom line, the Fed and the Biden administration are likely of one mind on the topic of Middle East affairs. A broader war that sends prices higher would be disastrous for both.

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  • December CPI Revised Lower

    CPI rose 0.2% in December instead of the 0.3% previously reported according to BLS revisions released this morning. YoY CPI remained unchanged at 3.35% (3.9% for Core CPI.)

    Algos moved higher on the news, with SPX poised to push above 5,000 on the open.

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  • Oh So Close…

    The S&P 500 came within 11 cents of 5,000 yesterday, marking a remarkable 43% run since the October 2022 lows and 22% return since the October 2023 lows.

    The month of February has a mixed track record over the past 10 years, with gains and losses evenly split. Stocks frequently pause at big, round numbers – which conflicts somewhat with the fact that stocks usually melt up into CPI prints.

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  • Algos Scoff at Hawks

    No matter how often neo-hawk Fed speakers repeat it, the algos are unconcerned about the “higher rates for longer” warning. Futures are poised to make a new all-time high this morning… …because VIX has broken down (-11.4% since Monday) and is threatening to break down again.Algos are also seemingly unconcerned with rising credit card and car loan delinquencies, hot PMI readings and the latest banking crisis.

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  • Charts I’m Watching: Feb 6, 2024

    Futures are slightly higher on the heels of VIX’s 7% collapse from yesterday’s highs (on a day when stocks were broadly lower.)

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  • Charts I’m Watching: Feb 5, 2024

    Futures are a little soft this morning in the wake of Jay Powell’s interview on 60 Minutes over the weekend. Notably, he didn’t retract any of the hawkish comments made after the last FOMC meeting.

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  • NFP Soars

    Nonfarm payrolls soared by 353,000, more than twice the 175,000 expected. Average hourly wages also beat at +0.6% (+4.5% YoY) versus +0.3% expected. Unemployment remained at 3.7%. Forget about a March rate cut. Bulls will be lucky to get one in May.

    The overnight ramp job has completely disappeared, with futures struggling to remain positive.  AAPL‘s meltdown hasn’t helped.

    Factory orders and Michigan consumer sentiment are due out at 10ET.

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