September retail sales increased more than expected, rising 0.4% versus 0.2% expected. Ex-auto, they increased 0.5%. At the same time, initial unemployment claims came in below expectations: 241K versus 273K and 260K prior.
These data further support the notion of smaller rate cuts going forward – if not an outright pause.
For now, however, the futures added to their overnight gains on the prints, with ES approaching our 5942 target.
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Futures are flat after a turbulent day yesterday and ahead of tomorrow’s retail sales.
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Stocks reached new record highs yesterday and are slated to move even higher.
Note that ES is approaching our Fibonacci 5942 target from several months ago.
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Futures have crept higher in this quiet, semi-holiday pre-market.
The week ahead features several important data points: initial claims and retail sales on Thursday and housing starts on Friday.
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PPI came in at 0.0% MoM and 1.8% YoY, supporting expectations of a 25 bps rate cut in November. Algos approved and are holding yesterday’s trading range. These expectations, however, are probably wrong.
As we’ve discussed often over the past few months, the decline in goods prices from 0.6% in Jul to 0.0% in Aug and -0.2% in Sept was driven primarily by energy prices (-2.7% in Sept), a trend which will reverse in October.
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Is it warm in here or is it me? CPI came in a little hotter than most expected: 0.2% versus 0.1% MoM and 2.4% versus 2.3% YoY. While still down sharply from 9.1% in June 2022, the pace of the decline has many wondering about the Fed’s pace of lowering interest rates.
Futures are off moderately.
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Futures are flat ahead of tomorrow’s CPI print.
Yesterday’s price action put ES in the most ambiguous position possible: poised for a reversal or a breakout.
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Futures have rebounded almost .50% after testing recent lows yesterday.
Traders remain focused on tomorrow’s FOMC minutes and Thursday’s CPI print.
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While Friday’s jobs report hinted at a soft landing, it also strongly suggested a more modest rate cutting path than the Fed’s initial 50 bps cut had indicated. After all, Powell has gone out of his way to Fedsplain how employment is the most important mandate now that inflation is licked. But, what if the recent runup in oil/gas brings inflation fears back into vogue?
As the chart below shows, the warning signs were already there even before Iran fired a single missile.
The bond market certainly seems to recognize the shifting tides, with the 10Y back over 4% for the first time since Aug 8. 
Can equities hold their recent support in the face of a more complicated rate environment? The answer lies in the timing of the price increases.
The recent increases in RB and CL futures haven’t shown up in the retail market just yet. So, they won’t be reflected in CPI until the October print which (conveniently) won’t be released until Nov 13 – after the election.
This is also conveniently after the next Fed meeting occurs (Nov 6-7.) Bottom line, Powell will be able to say – with a straight face – that the FOMC is waiting on the data before altering their rate cut plans.
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NFP came in a nearly double expectations: 254k versus 130k expected. The unemployment rate dropped from 4.2% to 4.1%. Altogether, it was a very hot report that might have been expected to dampen expectations regarding the next FOMC rate cut. But, the algos are currently in a “good news is good news” mood, so futures are up sharply.
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