Futures are up moderately as we approach the open. A House bill that would broaden sanctions against Iran’s oil exports adds to the threat of geopolitical-driven price increases and, thus, higher inflation and interest rates.
With jobs data due out on Thursday and PCE and income/spending due out on Friday, this is the sort of uncertainty that rightfully worries investors.
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Futures have regained about 30 points after last week’s drubbing.
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Futures tanked overnight on news of Israel’s rocket attack on Iran, only to recover all their losses as we go to press. The latest retaliation is being characterized as a tit for tat.
But it’s easy to imagine the Plunge Protection Team working overtime to calm markets by hammering VIX and WTI back down from their overnight highs.
Meanwhile, SPX came within 1.89 of our 5,000 target yesterday, testing support that continues to be quite important.
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Stocks are approaching an important inflection point at SPX 5000.
Not only is it an important round number, but SPX 5000 is the bottom of the rising white channel and the target of the H&S Pattern we identified last week.
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Gold and silver both came within 1% of our upside targets for them earlier this week. With inflationary pressures once again top of mind, have they exhausted their upside potential? We’ll update our long-term forecasts this morning.
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Futures are up modestly this morning on weaker than expected housing starts – an issue the Fed can’t really do much about after having created the problem in the first place.
Note that ES reached our next downside target well ahead of schedule after yesterday’s head fake which likely shook more than a few bears’ confidence.
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Retail sales came in roughly double the Street’s estimates at 0.7% versus consensus of 0.3-0.4%. Ex-auto was just as strong: 1.1% versus 0.5% consensus. Combined with an Empire State Manufacturing index disappointment of -14.3 versus -6.0 expected, futures sold off for all of 30 seconds or so before rebounding to higher highs.
The retail sales print, like much of the recent data, further reduces the odds of substantial rate cuts in 2024. Yet, as is often the case, the algos ignored the data and focused instead on several of their favorite factors: VIX, currencies and SPX’s bounce off its 50-day moving average.
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As we suspected, Wednesday’s lows weren’t enough to generate a sustainable bounce. We’re seeing the aftermath of that premature technical bounce this morning.
Our long held bearish position on EURUSD, for instance, is finally gathering a little momentum.
The challenge for bears remains SPX’s 50-day moving average, currently at 5105. If VIX can remain below 18.50, then we could see more meaningful support for equities. If VIX surges past that long term trend line, then the bears could finally have something to celebrate.
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In contrast to yesterday’s CPI print, PPI came in below estimates at 0.2% headline and core. Futures erased their sharp overnight losses which saw them nail our next downside target and now point to modest gains.
A bounce here would be more convincing if SPX were to also reach its 50-day moving average.
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March CPI came in at 0.4% MoM for both headline and core (versus 0.3% expectations for both), hotter than expected for the second month in a row. YoY headline registered at 3.5% versus expectations of 3.4% and 3.2% in February and core came in at 3.8% (unchanged from February) versus expectations of 3.7%.
As we expected, inflation continues to be buttressed by strong YoY energy, shelter and services prices. Our gas vs inflation model remains on track.
Futures came within a few points of our next downside target on the print.
And, algos are finally recognizing that a string of 0.4% monthly prints can turn into an annual print much closer to 5% than 2%.
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