pebblewriter

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  • BoJ Rolls the Dice

    The Bank of Japan has kept interest rates at or below zero for years. Their bet was that the suppression of interest rates (by purchasing Japan’s net issuance, the BoJ now owns over 50%) would offer sufficient protection against both inflation and the 263% debt:GDP – exacerbated by the rapid depreciation of the yen.

    Investors, including yours truly, have had their doubts. While effective at propping up equity prices [see: The Yen Carry Trade Explained], the yen’s plunge greatly amplified food and energy price increases. Inflation reached 3.6% in October.  It seemed as though something would eventually have to give.

    It just did.

    The BoJ just announced that they would allow rates to move to as high as 0.5%, sending the 10Y soaring from 25 to 42 bps…

    …and the USDJPY plunging (yen strengthening) by 3.3% – below its 200-day moving average for the first time since Feb 2021.

    The BoJ is essentially betting that the small increase in rates will

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  • Charts I’m Watching: Dec 19, 2022

    Futures passed on an opportunity to break out this morning, perhaps weighing the potential for a Santa Claus rally against the implications of a slew of important economic data later this week.

    Speaking of passing, how about that match between France and Argentina? I’m not a football nut, more of a rugby and basketball fan.  But, that was one of the more exciting games I’ve seen in any sport in ages…

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  • Mixed Messages

    The confusion isn’t over whether the market will continue selling off. It will. The question is how far it can sell off before it’s “rescued.”  Different indices indicate anywhere from 2.2% to 20%. And, it totally depends on which index gets to call the shots.

    If the Dow has its way, the market is in for another 2.2% decline (our target at its 200-day moving average), at which point Powell would call a press conference and declare “just kidding.”

    But, the Dow has already backtested its Feb 2020 highs.

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  • Bulls: Throwing in the Towel?

    As expected, Powell and Co. were not amused by the market’s recent exuberance and decided to take things down a notch.

    The algos haven’t yet given up, though, with VIX still under pressure and DXY remaining oversold.The reversal is working just fine so far. But, with OPEX tomorrow and two weeks left in the year, we’re left to wonder whether the bulls are ready to throw in the towel.

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  • FOMC Day: Dec 14, 2022

    They’re all important, but this one carries extra significance due to the potential for a slowdown in rate hikes, or at least the commentary regarding one.

    Futures almost backtested the 200-day moving average overnight, but are now essentially flat.

    After all the excitement yesterday, our targets remain the same across the board. If anything, the hoopla complicated the Fed’s task by aptly demonstrating the persistent froth in the markets.

    I believe this practically guarantees that Powell will pull another Jackson Hole and scold investors for their irrational exuberance. Whether it will be enough to counteract the OPEX effect is anyone’s guess.

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  • Crisis Averted

    Based on how the market is reacting, inflation is no longer a concern. The Fed will pivot and easy money will be back in no time. Except, as we’ve been discussing, this is one of those weeks which almost always overreacts to the upside: FOMC meeting, OPEX, end of year, etc.

    As noted yesterday, the dreaded bearish signals such as a simple 10/20 cross have been averted – at least for now – and the algos are throwing a party.

    Yesterday’s gap higher in VIX (in conjunction with a 1.4% rally in stocks) was indeed a massive head fake in light of this morning’s 13% smackdown.  Talk about closing a gap…From where I sit, however, the Fed’s job just got tougher. While monthly CPI came in slightly lighter than expected, we still have problematic wage and rent inflation, and financial conditions are getting looser, not tighter.Remember Jackson Hole?  Maybe it’s VIX’s 13% plunge which is the headfake…

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  • All In a Day’s Work

    Mystified by the fact that futures ramped higher overnight even though VIX is up over 6%? It’s all in a day’s work for the algos, especially on the eve of a critical Fed decision in an OPEX week at the end of the year when the S&P 500 is facing a bearish 10/20 cross.

    The point, of course, is to prevent that 10/20 cross which (as the futures demonstrate) is child’s play.

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  • PPI Tops Estimates

    PPI came in hotter than expected on a monthly and annual basis in headline and core. Futures, which were up modestly heading into the print, are now down modestly – clinging to the 100-day SMA, 21 sessions after first topping it on rate hike taper hopes a month ago.continued for members… (more…)

  • Charts I’m Watching: Dec 8, 2022

    Futures ramped up modestly overnight in anticipation of tomorrow’s PPI print.

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  • Charts I’m Watching: Dec 7, 2022

    Futures have rebounded from the worst of their overnight losses, but are still on the wrong side of the tracks following yesterday’s breakdown of the rising wedge.

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