With futures off another 1% this morning, in advance of Wednesday’s tariff announcements, it’s hard to think of a reason to buy.  Sure, ES tagged a potential H&S neckline, but it takes a certain amount of bravado to risk more losses on that particular chart pattern.

Only a few weeks ago, of course, the bet was that Trump would blink as stocks’ losses reached 10%. Seemingly, he did.

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PCE came in hotter than expected, falling squarely into the category of “good news is bad news.”

Core prices rose 0.4% MoM and 2.8% YoY, while personal spending fell short of expectations at 0.4% versus 0.6% and personal income far exceeded consensus at 0.8% versus 0.4%. Anyone expecting the Fed to cut rates anytime soon will be disappointed with these data.

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Futures are off moderately following yesterday’s ugly self-inflicted wound which saw the S&P 500 give up its hard-fought 200-day moving average. Trump’s efforts to mollify the markets by downplaying tariff reciprocity were defeated by….Trump’s earlier-than-expected announcement of steep tariff’s targeting foreign auto manufacturers. If you’re unnerved by the all the chaos and uncertainty, join the crowd.

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Futures are flat as algos weigh positive durable goods orders against tariffs to be announced next Wednesday and PCE due out this Friday.

One thing for certain: Trump is hyper focused on the markets, with the second tariff clawback in as many days just 30 minutes ago – this one suggesting that tariffs will be “more lenient than reciprocal” as SPX tries to hang on to its 200-day moving average.

Funny how the softer tone began at about the same time that SPX had dropped 10% from all-time highs.

The financial press seems to be gradually coming around to the point of view we first espoused months ago: tariffs will be a headwind to both the real economy and the markets.

There is no question that consumers will suffer under tariffs as prices on affected goods will increase. Some tariffs will induce consumers to switch to domestic producers. But, we’ve seen in the past that domestic producers use the price increases of foreign producers as an opportunity to raise their own prices. Either way, consumers pay more.

Trump’s argument is that corporations with foreign production as well as foreign producers will bring manufacturing to the US in order to avoid paying tariffs. This is nonsense. It’s incredibly expensive and time consuming to build new production facilities which will have to be staffed by employees who must be paid multiples of their foreign counterparts.

There are exceptions, of course. But, by and large, consumers will pay the price – especially those on the economic margins for whom inflation is the most damaging. Inflation will remain above the Fed’s target 2% and likely increase; interest rates will remain elevated (forget about rate cuts); and, the risk of stagflation will increase.

The Fed will be boxed in, unable to lower interest rates to support a slowing economy while unable to raise them to combat rising inflation. Even wealthy Americans who aren’t very impacted by rising prices will surely notice the impact on their equity portfolios.

Theoretically, an increase in productivity could revive an economy mired in stagflation. But, in reality, the usual cure is a recession – meaning a reset of real and financial asset prices. No joy. This is why Wall Street is crossing its collective fingers that Trump will announce limited, targeted tariffs and use the threat of deeper, broader tariffs to force trade concessions from our trade partners.

The threat of effectively losing access to the US market might be significant enough to force their hands. But, Canada, Mexico, China, Japan and the EU couldn’t be blamed for responding as a parent might to a tantruming child. When deprived of his cookie (a rising stock market) it’s possible that Trump will quit kicking and screaming.

Stay tuned.

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Futures are up modestly ahead of the open, with consumer confidence due at 10AM.

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Futures are up sharply after Trump took stock of the tanking market’s reaction to tariff developments and suggested that they might not be as pervasive as he had previously insisted.

It’s just the latest effort to ramp futures in the after hours using the 2017-21 playbook: start a fire and then brag about putting the fire out.

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Six weeks ago [see: Gold’s Inflation Warning] we noted that GC was approaching the 3012.80 target we set in April 2024. Its ascent was an indication not only that inflation prints were likely to be worse than expected, but that the equity market faced rough times ahead.

SPX’s very obvious negative divergence strongly suggests that the index had no business making its recent new highs.

As it happened, SPX proceeded to tumble over 10% from those highs. It’s troubling, then, that GC soared right through its 3012.80 target and is approaching our next upside target.

It’s even more troubling that this is happening at a time when many equity investors have taken Powell’s soothing tone as a signal to jump back on the permabull bandwagon – despite the downright scary charts we’re seeing in equities.

Dovish Chicago Fed president Austen Goolsbee said the quiet part out loud this morning on CNBC. Stagflation is a very real concern, and one that the FOMC has little chance of mitigating.

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The market’s reaction to yesterday’s FOMC decision was, quite simply, overdone. Equity indices were initially firm, but popped on a swift drop in vol.  Did lowering the amount of QT help? Perhaps.

But, Powell readily admitted that FOMC members have no idea where employment and inflation are headed. Inflation estimates are higher and growth is expected to slow. So, we’ll stick with our own assessment: stagflation.

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Futures are modestly higher as we approach the open and an FOMC decision which will hopefully shed light on the Fed’s thoughts about the economy.

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Futures are off moderately on the eve of the next FOMC rate decision.

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