Futures are flat this morning, but this comes on the heels of a 206-pt rally since ES tagged the 2.24 Fib extension at 2728 on Jun 3.  We’re used to seeing markets ramp higher before FOMC decisions.  When the Fed disappoints, the ramp provides a bigger buffer for the subsequent fall.  When the Fed delivers, it provides an easier point from which to break out.

We’ll find out in a few hours which we’re facing today.  But, it seems to me that Trump dashed any hopes of an imminent rate cut when he announced yesterday that trade negotiations have taken a positive turn.

With nominal employment looking strong and coincident economic indicators whispering but not yet screaming “recession” we might get a less dovish statement than many observers are expecting. And, does the Fed really want to give in to the latest tantrum from the White House?  I’ve raised four children, and I can tell you this is almost always a really bad idea.

Regardless of the FOMC’s decision, rates should continue to drop.  TNX made a new intraday low on Monday, and the charts indicate it’s still not done. Both it and the 2Y have broken trend.  If the past is any indication, the 2Y will drop faster than the 10Y and the spread will blow out — which is bearish for stocks.In any case, many of our factors are indicating lower equity prices lie ahead.

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It’s the bulls’ favorite broken record, more easing from the ECB:

“The (European) Treaty requires that our actions are both necessary and proportionate to fulfil our mandate and achieve our objective, which implies that the limits we establish on our tools are specific to the contingencies we face. If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfill our mandate — and we will do so again to answer any challenges to price stability in the future…”

The euro’s response was minimal.But, Trump’s response was plenty loud.

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.

You’d think that since S&P futures ramped nearly 20 points, he’d be pleased. Perhaps no one has explained how algos work.

More important than ES ramp job, the 10Y dropped through its former lows from Sep 2017, opening the door to our 17.45 target.We’ve seen many instances in the past where a Draghi-inspired ramp job fell apart shortly after the markets opened.  A strong move in the bond market, however, should not be ignored. Stay tuned.

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We went long gold at 1286 back on Mar 6 with the expectation that we’d get a bounce up to 1346, but recognizing that there was more potential downside.  From The Trade War: A Year Later:

GC has reached the 1286 target we laid out on Feb 21. It has clearly overshot its channel backtest, so more downside is warranted. However, DXY’s uncertainty is weighing on it. I’d take profits here and try a long position with tight stops. A bounce up to the purple channel top at 1346 (yes, again) wouldn’t surprise me.

The initial bounce only reached 1325.  Gold tripped our stops on Apr 16, tagging our next lower target (1267.90 versus our target of 1268.40) on April 23.  It liked that target so much it tagged it twice more before finally lifting off on May 21.  On Friday, it finally reached our 1346.70 target. We’ll take a fresh look, and evaluate the potential for a breakout.

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The “Iranian attack” on two oil tankers is looking sketchier by the minute.  Overnight, the president of the company which owns one of the tankers cast more doubt on the official narrative that the tankers were damaged by Iranian mines:

…in remarks to Japanese media, the president of the company that owns the ship said the vessel wasn’t damaged by a mine. “A mine doesn’t damage a ship above sea level,” said Yutaka Katada, president of Kokuka Sangyo, the owner and operator of the vessel. “We aren’t sure exactly what hit, but it was something flying towards the ship,” he said.

WTI never broke out yesterday, and it continues to tread water this morning — leaving equities to fend for themselves.

Speaking of treading water, futures have yet to show their hand even as we approach what our model shows to be an important downturn.  It’s not unusual for markets to go sideways or pile on a little extra cushion in the days leading up to an FOMC meeting. But, this is getting a bit tiresome.

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WTI has regained its losses of the past two sessions, jumping 4% after news of two tankers being attacked in the Gulf of Oman.  This is happening on the eve of another leg down in the price of WTI and RBOB.

This is problematic for many reasons.  As a major driver of equity prices, a rise in the price of oil has reversed futures fortunes — from a sharp overnight loss to a 10-pt overnight gain.Many believe Trump is itching for a fight with Iran — the better to satisfy the neocons and earn Trump an opportunistic bump in the polls.

But, an increase in oil prices would put a serious dent in Trump’s campaign to lower interest rates.  Higher oil and gas prices means higher inflation which makes it that much less likely the Fed will reduce rates any time soon.

It was one thing for Trump to threaten Iran on Twitter. It’s quite another for him to give Pompeo and Bolton free rein to retaliate for an Iranian provocation — whether real or Tonkinesque.

Stay tuned.

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CPI came in at 1.8%, down from 2.0% in April.  Core CPI registered 2.0%, down from 2.1%.  For the month, CPI rose 0.1% in May versus 0.3% in April.  Core rose 0.1% for the fourth straight month.

A slew of categories fell in May, with the big drops coming in energy and vehicles offsetting increases in food and shelter.  Had gasoline prices not dropped substantially over the past month, we’d probably be looking at 2.0% CPI again.

All in all, the results simply don’t scream “rate cut.”  This should disappoint the market.  So far, the futures are taking things in stride.  But, there’s a big potential downdraft if ES drops through 2872.continued for members… (more…)

So said Trump regarding the FOMC in a tweet this morning.

This is because the Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage. The Fed Interest rate way to high, added to ridiculous quantitative tightening! They don’t have a clue! https://t.co/0CpnUzJqB9

With oil and gas having tanked noticeably over the past six weeks, we’ll soon find out how low inflation has sunk.  In the meantime, the possibility of Fed easing is fueling a continuing meltup — with the futures currently indicating a 17-pt gain.

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Fireman Trump has snuffed out the flames that pyromaniac Trump set last week. The futures are melting up in appreciation — and, because nearly every one of our factors is supporting them this morning.

Perhaps the two biggest moves in the after-hours: AAPL has pushed through its SMA200……and, BA is waking up to the specter of a potential death cross. continued for members… (more…)

It’s been a while since we dedicated a post to all the currencies we follow.  Since USDJPY, EURUSD and DXY are closing in on our targets, it seems like a good time to remedy that situation.

Lately, the driver has been interest rates or, more specifically, interest rate expectations.  Note that TNX finally officially tagged our 20.34 target.But, there are other factors at work.  Just yesterday, JPM opined that the BoJ will likely drop short-term interest rates from -0.1% to -0.3% and the 10Y to -0.2%  Why?  They want to stay well ahead of the US in debasing their currency.

Another story which caught my eye was this one about a Danish bank offering negative interest rates on mortgages.  Imagine taking out a mortgage and having the bank pay you interest.

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The best part of being a chartist is discovering a pattern that promises a big move and then seeing that move play out.  The worst part of being a chartist is waiting for the move to play out.  These days, those waits can last forever.  But, they’re worth it.

A case in point is the 10Y, which came within 3bps of our next downside target earlier this week……or the e-minis — which nailed our interim downside target on May 31.  Since then, we’ve been waiting for the next shoe to drop.  The sharp bounce in equities over the past two days has tested the patience of those of us looking for much more downside.

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