Futures are off modestly this morning on bearish rumblings in the currency space.
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Category: Charts I’m Watching
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Retail Sales: More Grist for the Stagflation Mill
Retail sales came in at 0.3%, lighter than expected and lower than last month’s 0.5%. Combined with soaring CPI and PPI, the stagflation assessment is gathering momentum. Futures are off modestly on the news and ahead of the market holiday.
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PPI Accelerates to New Highs
Mar PPI soared 11.2% YoY and 1.4% MoM – both an acceleration of gains in the past several months.
No rally this morning, as futures experienced a bearish 10/20 crosses overnight…
…and VIX is about to. 
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New Highs for CPI
March CPI rose at a new 41 year high: 8.5% YoY (8.4% expected) and 1.2% MoM (highest since 2005.)
Algos spiked higher on the news…
…as VIX was crushed.
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Update on Currencies: Apr 11, 2022
In last month’s update on currencies [see: Mar 7 Update] we noted that DXY was closing in on our upside targets but would require some consolidation first, USDJPY was due to breakout and rally to its next H&S target, and EURUSD’s bounce would not persist.
A month later, each of these has unfolded almost exactly as expected, with DXY tagging its 100.042 target on Friday after spending the past year in an exceptionally well-formed channel.
We expect the trend to continue for a number of reasons.continued for members… (more…)
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They’ve Still Got It
Sure, the Fed is tightening…but that doesn’t mean all market propping activities have ceased. Far from it. At 12:50 yesterday, as ES’ little white channel was breaking down, certain someones hammered VIX.
The algos promptly forgot all about bearish Fed minutes and Fed speakers and stagflation. The little white channel was saved and ES was back above its 200-DMA.
This morning, that pesky news cycle has reasserted itself. With SPX’s gap closed, the battle begins again.
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Fed Speakers on Deck
Waiting for Fed members to issue their big per nostram culpam? Don’t hold your breath. While they might acknowledge that inflation is way too high, interest rates are way too low, and the balance sheet is much too large, they’ll likely continue to blame supply chain imbalances due to the pandemic.
It matters from the standpoint of a cure. Supply chain matters can’t be resolved via monetary policy, while excessive liquidity most surely can. Whether they’ll have the stomach for doing so is another matter – especially once markets start to really tumble.
Futures are off modestly.
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Fed Minutes on Deck
Futures are off sharply as we approach the open. Algos are responding to VIX’s pop back above its 200-DMA and the prospect of increasing Fed hawkishness.
As we pointed out yesterday, the 10Y has again reached the top of a well-formed channel dating back over 30 years. Its ongoing decline has provided much of the fuel for increasing stock, bond and real estate prices, though, reversals at the channel top have marked severe downturns.
If the Fed prevents the 10Y from breaking out while continuing to raise short-term rates, the 2s10s will become even more inverted, validating recession forecasts. And, as we discussed last week [see: Should We Fear a Yield Curve Inversion?] the aftermath of these inversions has never been good for stocks.
Bottom line, the Fed is damned if they do and damned if they don’t. The real question surrounding today’s minutes is whether members will sound as bewildered on paper as they have in person.continued for members… (more…)
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A Moment of Truth for the Bond Market
The Fed is supposedly reducing its “involvement” in the bond market. So, will they really sit on their hands now that the 10Y is testing the top of a channel dating back over 30 years?
The charts suggest that if today’s high is taken out, the 10Y could easily reach 3.2%.
If it reverses instead, stocks will be in for a world of hurt… -
Because
Just because we’re seeing an economic slowdown amidst very high inflation in a Fed tightening cycle against the backdrop of a war that could draw the US into armed conflict…doesn’t mean the market has to react rationally.
Stocks were up sharply yesterday because they’re still driven largely by algorithms. And, yesterday, the algos were focused on the fact that VIX broke down. In fact, if you invested according to VIX’s gyrations, you’d think there’s absolutely nothing to be concerned about in the investing world.
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