CPI rose 0.2% MoM in September, half the August rate. It rose 1.4% YoY, slightly higher than September’s 1.3%. Without the outsized gains in used cars and the minor gains in energy (conflicting with the official EIA data), MoM CPI would likely have been negative.
This is hardly supportive of the reflation narrative driving equity prices lately. This should be the last straw for the 10Y’s bounce, with the resulting breakdown a significant headwind for stocks.
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VIX’s beatdown continues to nudge algos higher, finally dropping through its Sep 16 lows.
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More gimmicks, higher highs. It’s getting to be an old story. But, as long as voters and algos don’t know or care, it will continue.
Futures were in danger of giving up Tuesday’s 3421.75 highs when VIX suddenly collapsed by 7% in a matter of seconds.
When that didn’t immediately result in a sufficient boost, it happened again, this time around the jobless claims miss at 8:32 and yet again at 9:02 (by 9.8%) for good measure.
Higher highs, no problem.
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If you don’t like the headlines, just wait. Sure enough, someone in the White House noticed the market wasn’t so keen on breaking off stimulus talks, and Trump followed up with a great big JK before the overnight session continued the carnage of the last hour of trading.
The breakout which became a breakdown is, again, threatening to break out.
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The trade deal: the gift that keeps on giving.
The August trade deficit came in at $67.1 billion, the largest since 2006 – partly a reflection of the pandemic but exacerbated by a 9.3% collapse in the value of the DXY since its March highs.
At the same time, oil and gas prices have spiked sharply higher since reaching our downside targets on Oct 2. So, bond traders can be forgiven for bidding up the 10Y to nearly 0.80%.
If the past is any indication, DXY has much further to go and trade deficits will continue to rise – hardly the outcome the White House promised amid the destructive trade talks in 2018. Remember when the market rallied on every rumored breakthrough?
No worries, though, as VIX “coincidentally” collapsed by 10% in a matter of seconds, thus preserving a positive open.
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It’s not Trump, it’s the algos. While the mainstream media focuses on rumors regarding Trump’s return to office, the algos are zeroed in on VIX’s latest failure push above its 200-DMA.
This is a kitchen sink moment. Oil and gas are pitching in, with 4.5% and 5.5% pops respectively in the pre-market. And, even USDJPY is threatening a bullish 10/20 cross.
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This morning’s news that Trump had contracted COVID-19 brought a rash of messages from many friends with whom I had shared my tin foil hat political theories over the past year. I posted my favorite theory on this site almost four months ago. From the June 17 post:
Given that Trump’s poll numbers are slumping, I wonder at what point the establishment Republican party will start to distance themselves (losing the White House would be a blow, but losing the Senate would in many ways be worse.) Trump is clearly a polarizing figure, with most people either loving him or hating him.
The third group, those who have found it advantageous to cozy up to him and his base, include many powerful party figures who would cut and run if it would save their jobs. If we get closer to November and it looks like he’s going to lose – and take them down with him – will they perhaps approach him with a deal?
To wit: Trump would resign and pull out of the election over health issues, allowing him to save face and permitting Pence to step into the lead. Pence is popular enough with the MAGA crowd that he would retain all of their votes and just central enough that he would be at least slightly less objectionable to centrists and never-Trumpers.
If Pence won the general election, he could protect Trump from likely criminal prosecution with a pardon. If he lost, well…no harm done. Naturally, the whole scenario would rely on Trump’s falling further in the polls to the point where even an electoral college victory is beyond reach. Food for thought.
I’m certainly not suggested that Trump is faking being sick with COVID-19. God knows he has flirted with contracting the disease countless times over the past eight months and it shouldn’t surprise anyone that he became sick. But, the net outcome is the same. Stand by for Pence vs. Biden polls…
Most of our forecasts (oil, gas, USDJPY, EURUSD, etc.) are falling into place, with VIX jumping up to tag the SMA200 for the sixth time since Sep 21.
This is important overhead resistance, with a major tumble for stocks just ahead if it isn’t held.
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Futures ramped higher overnight, continuing to dance to the tune of VIX’s smackdown and ongoing rumors of a fiscal stimulus deal…
…and ignoring troubling pandemic facts.
But, we’re finally into October and Q4. And, as we discussed yesterday, things are about to get very interesting.
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If our charts are to be believed, we are on the cusp of a significant move in currency pairs and the bond yields.
10Y yields plunged back in March, then began rebounding via a long, drawn-out flag pattern that broke down in late June. Since then, it has been tracing out an equally long, drawn-out triangle pattern that has also broken down.
It has correlated nicely with DXY, albeit with a 2-3 day lead. If TNX’s latest breakdown holds, we might finally see the next leg down in DXY and the long-awaited, significant moves in USDJPY and EURUSD.
Needless to say, the dollar’s demise hasn’t helped the trade deficit, which just reached all-time highs despite White House’s claims to have strengthen the trade picture.
It also doesn’t bode well for stocks. If the past is any indication, October could be a very difficult month.
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