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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Futures are moderately higher on the eve of the CPI print that will likely determine the rate cut picture for the next few months.
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Futures are up modestly as traders look ahead to this week’s important data dumps: FOMC minutes and CPI on Wednesday, initial claims and PPI on Thursday, and Friday’s U of Michigan consumer sentiment.
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NFP came in at 303K vs 200K estimates, a huge beat which, combined with a decline in the unemployment rate, argues against any near term rate cuts.
ES is all over the map this morning, but has given up much of its overnight ramp and is approaching our next downside target. With CPI coming out next week and a likely military escalation in the Middle East, ES will do well to hold its 50-day moving average.
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