Bottom line, a 50 bps rate hike is back on the table. We got the backtest we expected, and even a little bit more. 
This morning’s ADP employment report further underscores the need to put the brakes on the economy. It will be interesting to see whether Powell’s tone becomes any less hawkish in light of yesterday’s sell off.
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According to Reuters, Microsoft’s Chief Executive Officer, Satya Nadella, and other Microsoft executives used the words “caution” and “cautious” at least six times during yesterday’s call.
The stock, already locked into a falling channel from last November…
…reversed its initial pop and is leading the broader indices lower this morning. 
Remember, MSFT is the second largest component of the S&P 500. Futures are off over 1% as we approach the open.
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What the algos giveth, David Tepper (bearish) and Q3 GDP (+3.2% vs 2.9% est. and -0.6% last) taketh away. Futures are off sharply as we approach the open.
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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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Futures are again backtesting the 200-day moving average as we approach the open.
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Futures are flat following yesterday’s sharp selloff credited to the economic slowdown in China and hawkish Fedspeak. SPX closed below its 10-day moving average for the first time in 3 weeks, but is clinging to an important Fib level.
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This morning is essentially the mirror image of yesterday, with futures up modestly on the usual algo drivers: VIX, USDJPY and CL.
This is the 8th session in a row of treading water, making it the longest “stall” of the year so far.
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Japan’s inflation hit a 40-year high in October, driven by a policy of placing stock market gains above all else.
When Japan first adopted negative interest rates, the argument was that it would help end the country’s deflationary spiral and return inflation to a 2% goal. Now that inflation is nearly twice as high as the goal, one might expect rates to move at least a little higher.
Although the BoJ has allowed the 10Y to rise to 0.24%…
…they have held short-term rates at -0.1% since 2016.
The BoJ’s utter lack of candor is nothing new. Forget about FTX. Japan’s markets are the biggest Ponzi scheme on Earth. Since the Fukushima disaster in 2011, Japan’s stock market has been driven principally by the yen carry trade which relies on an ever-cheaper yen to attract capital into the stock market.
The obvious limit to this scheme is that as the yen depreciates, imports become more expensive. And, since Japan imports all of its oil and most of its food, it was simply a matter of time before inflation bit Japan in the お尻.
Luckily for Japan, they have no bond market per se. The entirety of Japan’s borrowings are purchased by the BoJ. This monetization of debt has gone on for years without repercussions – until now.
The Nikkei was locked in a falling price channel between Feb 2021 and Mar 2022, when the decline finally reached -20.7%. At that point, it was less than 1% away from its pre-pandemic highs of 24,140.
It was no coincidence, then, that USDJPY picked that specific moment to break above both the midline of a channel and a trend line at least 50 years old.
Subsequent rises in the USDJPY (declines in the yen) have acted to lift NKD above its SMA200 and out of its falling channel. Everything’s going great – unless you consider rising taxes and plunging consumer confidence problematic.
Come to think of it, the US faces similar problems.
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In other news, VIX has sent the all-clear to algos to rally at least a little further – this being OPEX and all.
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Economic data came in as expected except for Philly Fed – a huge miss at -19.4 versus -5.0 consensus and -8.7 prior. But, it was the former dove turned chief hawk Jim Bullard who decided enough is enough, suggesting rates could reach as high as 7% before inflation is tamed. Futures were not amused.
It’s almost inconceivable that ES/SPX won’t tag their SMA200 or channel tops this time. But, even though OPEX is tomorrow, it’s looking that way at the moment.
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October PPI came in at 8% annually and 0.2% monthly versus expectations of 8.3% and 0.4%. Core PPI remained unchanged at 6.7%.
Futures popped up to our 4050 IH&S target on the news, but had already ramped over 40 points prior to the print.
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