Futures are moderately higher, but off their overnight highs following a backtest of the 10-day moving average as expected yesterday.

Initial claims came in lower than expected, meaning the Fed’s 25 bps cut yesterday was in line with conditions.

The main story continues to be the steady, daily decline in VIX, seen here in the daily futures chart. Averaging about 2% per session, it has done more to enable the equity meltup than anything else.As David Tepper stated this morning, a 25 or even 50 bps rate cut might help equity markets but will do little to boost the economy.

continued for members… (more…)

The Fed’s big day has finally arrived, with housing permits and starts taking a nose dive just in case the FOMC hasn’t recognized the economy’s weakness.

Our model suggests that CPI is still on the rise and financial conditions are still quite frothy. So, the FOMC really shouldn’t cut more than 25 bps. But, with so many vying for Trump’s favor, there will likely be more dissents than usual and a 50 bps cut can’t be ruled out.

Unless oil and gas prices break down (which we don’t expect) or tariffs are postponed or reduced (quite likely) CPI will remain high and/or continue to increase, giving rise to an increasing risk of stagflation.

Futures are flat ahead of the open.

continued for members… (more…)

Futures are flat ahead of tomorrow’s FOMC rate decision and a hot retail sales print.

Lisa Cook remains a voting FOMC member, while CEA head Stephen Miran was rushed through Congressional approval in order to counter her vote.

Meanwhile, the list of prospective Fed chairmen continues to expand. The way onto the list is simply to profess a desire for large rate cuts, thus increasing the ranks of those supporting Trump’s wishes.

He has done a good job of delaying tariffs just to dampen their impact on inflation. And, the recent huge employment revision (blamed on Biden) has subtly shifted the FOMC’s emphasis toward jobs. A 25 bps rate cut is therefore fairly certain, with some calling for a 50 bps cut.

FWIW, we continue to see an elevated risk of inflation, particularly as the beneficial base effect of oil/gas prices unwinds. Don’t be surprised if the FOMC dot plot reflects a wide dispersion of viewpoints and the vote is anything but unanimous.

continued for members… (more…)

Futures are up moderately in advance of this week’s FOMC rate decision.

Of course, it hasn’t hurt that Elon Musk recently bought over $1 billion of TSLA. From Bloomberg:

The purchase amounts to a show of confidence in Tesla’s prospects after a challenging first half of the year in which vehicle sales slumped 13% worldwide. While Musk has talked up Tesla’s pursuit of robotaxis and humanoid robots, he’s also cautioned that the company could be in for “a few rough quarters” after the US phases out electric-car purchase incentives at the end of this month.

Note that we haven’t had a 3% pullback since May.

continued for members… (more…)

Futures are flat following a strong advance yesterday and ahead of important UMich consumer sentiment.continued for members… (more…)

Inflation was a little higher than expected, but initial claims were also higher than expected. Since the Fed’s emphasis has seemingly shifted to the employment side of the dual mandate question, this morning’s economic data supports the likelihood of a 50 bps rate cut either all at once next week or spread over the next two FOMC meetings.

A rate cut into a bull market pushing to all-time highs might seem odd. Especially when the index for all items less food and energy rose 3.1% again and services remain quite sticky at 3.6%.But, the correlation with YoY gas changes is still holding……and sagging energy prices (-6.6% for gasoline!) are keeping headline inflation in check. It’s not so much that gas prices are much lower lately, just that the base effect is so strong. And, the tailwinds from the base effect are coming to an end.

Unless prices nosedive this is the last month when YoY price drop will be very substantial. Next month we should see a small drop, followed by increases.

Considering a 3.2% increase in food prices, steady commodity prices (subject to tariffs) and a 3.6% increase in services, CPI will likely rise for September. The only question is whether the BLS will report it truthfully…

But, let’s examine how the Fed might respond. First, the 10Y just tested 4%. So, the bond market is already doing the Fed’s job for it. Would a lower fed funds rate cause firms to fire fewer or hire more employees to offset the impact of AI? It’s clearly different this time.

For now, algos are responded as expected, following the dovish data and, of course, the VIX smackdown.

continued for members… (more…)

Not surprisingly, PPI came in at a level which bolstered the administration’s case for a 50 bps rate cut: -0.1% versus +0.3% expected and 0.7% prior. In our opinion, each of these data points must now feature an asterisk meaning “consider the source.”

When Trump fired the head of the Bureau of Labor Statistics for reporting disappointing jobs data in August, it put all of Wall Street and every federal government employee on notice that no negative news would be tolerated. The move was met with a chorus of negative comments, with one of the exceptions being Lori Chavez-DeRemer, who loudly praised Trump’s move.

“I agree wholeheartedly with @POTUS that our jobs numbers must be fair, accurate, and never manipulated for political purposes,” Chavez-DeRemer wrote without offering any evidence to support Trump’s claim.

For those unfamiliar, Chavez-DeRemer is the head of the Department of Labor which houses the Bureau of Labor Statistics which, of course, publishes the PPI. She is also one of several Trump cabinet members who, per Trump’s definition, committed mortgage fraud by claiming more than one home as her principal residence. For some reason, no one is demanding she resign.

Futures, already up nearly 0.5% on Oracle’s earnings, pushed higher on the print.

continued for members… (more…)

Futures are flat ahead of the open as markets await important inflation data coming out the next two days.

continued for members… (more…)

Recent very disappointing employment reports have provided the “stag-” in stagflation. This week, we’ll see whether PPI and CPI prints provide the “-flation” part.  While a rate cut next week could certainly goose the markets, would it induce employers to turn on the hiring spigot?

Futures are up modestly ahead of the open.

continued for members… (more…)

Only 22,000 jobs were added in August, well below the 78K expected and 79K in July. The unemployment rate ticked higher, from 4.2% to 4.3%. Futures are higher on the news, however, as the slowdown bolsters the case for a rate cut when the FOMC meets on Sep 17.

continued for members… (more…)