pebblewriter

Posts

  • All Eyes on CPI

    CPI, due out tomorrow morning, always plays an important role in driving interest rates and economic forecasts. This one is especially important given the extent to which the market has already rallied in anticipation of lower rates.

    Our gas price model for CPI shows inflation settling lower after a slight bump up over the last several months. But, what happens if events in the Middle East begin to affect oil/gas prices?

    At current prices, our model suggests CPI should continue to moderate – remaining around 3-3.25%.  Again, this is if gas prices were to remain steady around 3.02 for regular conventional gas prices as reported by the EIA. This would result in the current -9.13% delta rising very slightly to -8.57% in February, then widening to as much as -19% by August before rising back toward 0% by January 2025.

    In the past, these large negative deltas have correlated with CPI readings of 2% or less. Ceteris paribus, this would suggest a CPI in the 2% range by election time. But, what happens if hostilities in the Middle East expand and gas prices revert to 4.0? It’s a very different picture.

    Bottom line, the Fed and the Biden administration are likely of one mind on the topic of Middle East affairs. A broader war that sends prices higher would be disastrous for both.

    continued for members… (more…)

  • December CPI Revised Lower

    CPI rose 0.2% in December instead of the 0.3% previously reported according to BLS revisions released this morning. YoY CPI remained unchanged at 3.35% (3.9% for Core CPI.)

    Algos moved higher on the news, with SPX poised to push above 5,000 on the open.

    continued for members… (more…)

  • Oh So Close…

    The S&P 500 came within 11 cents of 5,000 yesterday, marking a remarkable 43% run since the October 2022 lows and 22% return since the October 2023 lows.

    The month of February has a mixed track record over the past 10 years, with gains and losses evenly split. Stocks frequently pause at big, round numbers – which conflicts somewhat with the fact that stocks usually melt up into CPI prints.

    continued for members… (more…)

  • Algos Scoff at Hawks

    No matter how often neo-hawk Fed speakers repeat it, the algos are unconcerned about the “higher rates for longer” warning. Futures are poised to make a new all-time high this morning… …because VIX has broken down (-11.4% since Monday) and is threatening to break down again.Algos are also seemingly unconcerned with rising credit card and car loan delinquencies, hot PMI readings and the latest banking crisis.

    continued for members… (more…)

  • Charts I’m Watching: Feb 6, 2024

    Futures are slightly higher on the heels of VIX’s 7% collapse from yesterday’s highs (on a day when stocks were broadly lower.)

    continued for members… (more…)

  • Charts I’m Watching: Feb 5, 2024

    Futures are a little soft this morning in the wake of Jay Powell’s interview on 60 Minutes over the weekend. Notably, he didn’t retract any of the hawkish comments made after the last FOMC meeting.

    continued for members… (more…)

  • NFP Soars

    Nonfarm payrolls soared by 353,000, more than twice the 175,000 expected. Average hourly wages also beat at +0.6% (+4.5% YoY) versus +0.3% expected. Unemployment remained at 3.7%. Forget about a March rate cut. Bulls will be lucky to get one in May.

    The overnight ramp job has completely disappeared, with futures struggling to remain positive.  AAPL‘s meltdown hasn’t helped.

    Factory orders and Michigan consumer sentiment are due out at 10ET.

    continued for members… (more…)

  • No Pivot, No Punch Bowl

    Powell said what many of us have been thinking: There’s no reason to rush into a rate cut. The part he didn’t say (but implied) was that there was a clear risk to cutting rates at this time.

    The market, which has been fueled for months by rate cut expectations, was quite disappointed. SPX shed 1.5% and closed at the bottom of the acceleration channel it’s been in since October. It was only a little bit scary.

    Futures fell to slightly below our initial downside target before rebounding overnight on the usual algo nonsense.

    Does yesterday’s action change the overall picture?  Maybe.

    continued for members… (more…)

  • FOMC Day: Jan 31, 2024

    It has been a long time coming, with expectations of a rate cut ranging from “certainly” to “not a chance in hell.”

    Futures are taking their cues more from GOOGL and MSFT than the FOMC at the moment.

    Will we finally get a real backtest? Our potential downside targets are getting very lonely.

    continued for members… (more…)

  • Will They or Won’t They?

    Futures are off moderately as investors place their bets on tomorrow’s FOMC rate decision. This follows yesterday’s pop in prices which was reported as motivated by a better than expected treasury report, but was in reality driven by [drumroll please] more algo funny business in VIX.

    In any case, SPX was finally pried off its 2.24 Fib extension just in time for tomorrow’s FOMC decision.

    continued for members… (more…)