After a brief respite, bank stocks are again under pressure with deposit flight and CDS both pointing to escalating concerns.
Neither the April CPI nor PPI prints support the notion that the Fed will lower rates any time soon – keeping the pressure on banks and an economy that depends on easy access to cheap credit.
Futures backed off the key 4166 threshold again yesterday, only to bounce back and test it again overnight.
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Futures are essentially flat ahead of today’s pivotal FOMC decision and press conference. This follows a day that saw stock prices plunge below our initial backtest target…
…as VIX actually broke out – at least for a few hours. 
The banking crisis obviously hasn’t gone away. How many more First Republics or Silicon Valley banks are out there – clicks away from a bank run? Even those banks which aren’t already in trouble will most certainly cut back on lending, which will certainly raise the odds of a (worse) recession.
Will the FOMC take that into account as they contemplate future actions?
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After establishing a well-formed falling channel and positioning for a bearish 10/20 cross, SPX soared last week on – what else? – another collapse in VIX.
In the process, the 10/20 cross was (at least) delayed and the channel busted. It’s normal activity for the lead up to a Fed meeting. Perhaps “price discovery” should be renamed “price setting.”
Perhaps we shouldn’t be surprised to see similar goings on in other “markets” such as silver.
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Futures are flat this morning after climbing back from a 20-pt overnight deficit. With scores of companies due to report earnings this week, we should be in for a wild ride.
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Futures are off about 30 points on disappointing earnings from stocks such as TSLA, AXP, KEY, etc. and a continuing slump in oil and gas.
VIX is even popping as we approach the open. If it holds, the rollover in equities will have officially begun.
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Futures are off moderately on light volume…
… and, surprise!, a rebound in VX futures, but not VIX itself. Oh yeah, Friday is OPEX.
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ES is up 1.3% in the past week. All it took was a 15% beatdown in VIX.
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VIX came within .01 of its previous lows on Friday…
…leaving plenty of doubt as to the algos’ next move. Today, we should see some resolution as moving averages start to roll over.
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March retail sales came in at -1.0% versus -0.4% expected and -0.2% previous. Core slipped 0.3%. Early reaction is that the drop wasn’t enough to forestall another rate hike in May. So far, the futures have taken the news in stride.
But, it remains to be seen whether the algos will view the setup as positively. VIX’s previous bounces off the TL from Jan 2018 have been tough on stocks.
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After closing below its 10-day SMA for the first time in a month, ES is backtesting it…
…on the back of PPI data that essentially echoed yesterday’s CPI print. Headline PPI crashed to 2.7% YoY and -0.5% MoM. Though stripping out food and energy, core PPI fell only 0.1% MoM and increased 3.4% YoY.
As we discussed yesterday, 80% of the MoM decline was due to the sharp drop in gasoline prices.
Also out this morning, credit portfolio managers agree with the Fed’s assessment that the economy is headed for recession. It’s a troubling backdrop as we enter earnings season in the midst of a credit crunch.
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