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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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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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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In a week fraught with geopolitical danger, the market has managed to thread the needle thus far – holding support when it counted. Even if it manages to shrug off tomorrow’s nonfarm payroll print, it still faces CPI and PPI next week.

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Futures are trading near yesterday’s lows, with tensions still high after Iran’s attack on Israel yesterday. Iran says the flareup is over, but Israel says otherwise.

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Futures are flat on the first day of Q4. There’s no critical data due out today other than manufacturing ISM (10am ET) which has lately been tracking the economic slowdown.continued for members… (more…)