Futures are up modestly after mixed economic data further muddles the rate cut picture.

ADP reported that 32,000 jobs disappeared (versus est +10,000) in November. But, the losses were much worse for small businesses which lost 120,000 jobs (the largest one-month decline since May 2020) compared to a gain of 90,000 jobs at large employers (those with over 50 employees.)

The rest of the data was mixed, with some prints arguing for a rate cut and others against one. That’s the story of this market, right?  At least to hear the administration tell it. The economy is doing great thanks to the administration’s masterful trade policies and the big beautiful bill. But, it’s doing so poorly that we desperately need a rate cut.

Never mind that a 25 bps rate cut wouldn’t do anything stop the bleeding at the smaller companies who would never see any savings from a cut nor at the larger companies which already enjoy low rates. Not would it stimulate the economy other than to inject additional capital into an already frothy equity market.

What the economy really needs is an actual breather, not a 3-week, 5% slump like we just saw but one which can reset financial conditions and reduce inflation and asset prices back to trend.

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We’ll come back to the economic data after looking at some charts.

Stocks remain on the brink of a breakout, meaning also that the rebound might have run its course.

Closing the gap at 6776.4 looks like a gimme, but it should concern bears that a 10/20 cross is imminent. VIX’s bearish tea leaves depend on its RSI holding recent lows.  At this point, there’s enough reason to believe it will – contributing to a risk off picture.

VX offers bears less hope as it makes lower lows.

Currencies continue to waffle, with DXY – currently my favorite canary – again testing its SMA50 while USDJPY fails to rebound off its backtest. If it breaks down, it’s going to be very difficult for equities to break out. The 10Y is testing support yet again.But, the bigger concern for bulls remains the risk of the 2s10s breaking out. It’s currently pushing 58 bps again.

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Futures are moderately higher following yesterday’s failed attempt to notch higher highs.

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The falling white channel is still susceptible to a breakout, particularly in the lead up to an FOMC decision – not to mention the usually bullish year-end gallop to the barn.

Note that the 1.272 extension of the recent pullback is right on top of the 3.618 extension of the 2020-2023 correction (though the SMA200 is sneaking up on the December 2024 highs.)

Currencies continue where they left off yesterday, with USDJPY getting a slight bounce off yesterday’s backtest. DXY is flat.

Futures are off by about 0.60% as December gets under way.

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The strong month-end rally opens up the possibility of a breadth thrust.

But, SPX’s RSI will need to reverse first.

VIX and VX are again at cross purposes, with VIX back to broken out status.As we’ve discussed many times, Japan is facing very problematic inflation which, in turn, could unravel the very beneficial yen carry trade. The devaluation of the yen was predictable, with USDJPY rallying from 139 in April to 158 about a week ago.

Ueda’s comments last night suggest the BoJ is considering a rate hike in the Dec 18-19 meeting which, of course, strengthened the yen nicely.

The EURUSD has been less predictable. The pullback to the SMA200 at the intersection of the channel midline never materialized but, instead, has yielded a well-managed shuffle  which is patiently awaiting the arrival of the rising SMA200.

The DXY is following suit – breaking back below its SMA200 after the brief breakout. Keep an eye on 98.97 as we approach the FOMC decision on Dec 10.

There’s no question that Trump will select a very dovish Fed chair to replace Powell. NEC director Kevin Hassett is all but certain to get the nod – which might result in some of the FOMC members who don’t get the nod acting a little more responsibly with respect to US inflation.

CL and RB are both seemingly chomping at the bit, no doubt being suppressed by our Saudi friends in order to facilitate Trump’s agenda. It comes with a hefty price tag: America’s self respect. The fealty shown to MBS during his recent state visit was beyond the pale.

Meanwhile, the 10yr jumped back above the large white channel midline, suggesting that the momentary dip below 4% might have been a headfake. The charts still suggest a drop to as low as 3.25% in the next few months, particularly if equities hit the wall.

GLTA