According to futures and talking heads, there’s a 94% chance that the Fed will pause its rate hikes this afternoon – though perhaps with a hawkish tilt. By our reckoning, equities have piled on at least 6% in the past few weeks in anticipation of this outcome.
Is it justified?
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Futures ramped up past a key Fib level overnight on hopes that the Fed will pause any further rate hikes this week. Will SPX follow suit?
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The prop job continues, with VIX reaching a lower low and the DXY still under pressure.
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Initial claims spiked to levels not seen since October 2021, another indication of a slowing economy. Applications rose by 28,000 to 261,000, well above the consensus of 237K.
So far, futures have ignored the print.
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Non-farm payrolls exploded higher in May, tallying 339K versus 190K consensus. On the other hand, unemployment rose from 3.4% to 3.7%.
Futures initially slumped, as blowout job gains argue for further Fed tightening. But, VIX was hammered to lows of 15.12, a level not seen since Nov 2021, and the overnight ramp was salvaged, for now.
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The meltup continues on yet another after-hour VIX dump.
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If you’re a retailer, you might be thrilled with the personal income and personal spending beat last month (0.4% vs 0.3% exp and 0.8% versus 0.4% expected.) If you’re a manufacturer, you might be pleased with durable goods coming in at a +1.1% versus the -1.3% expected.
But, if you’re a member of the FOMC, you have to be chagrined that those hot numbers, combined with hotter core and headline PCE and tightening credit conditions, will force tighter monetary conditions. 
The algos agreed for a few minutes, but were quickly reminded of the requirement to take their cues from VIX.
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Futures bounced off our 50-day MA target and are up sharply on NVDA‘s blowout earnings/forecast, egged on by Speaker McCarthy’s latest promise that a debt ceiling resolution is on the way.
Of course, this bullishness is unwarranted from a Fed rate hike perspective. Initial claims came in below expectations and Q2 GDP (the deflator was 4.2% vs 4.0 expected) was hotter than expected. Not exactly a scenario that supports a pause/drop.
Unless VIX plunges below 18.58, this ramp job should be faded.
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Futures are off about 0.5% in advance of the latest FOMC minutes. While these releases don’t often shed much light on what to expect, they can help us understand what the Fed fears the most. Based on recent comments, the fear of sticky inflation seems to be outweighing the fear of a recession.
With the debt ceiling crisis, banking crisis and recession still grabbing headlines, it’s clear that the Fed is still stuck between a rock and a hard place.
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Today marks the third day in a row that ES has backtested the former resistance at 4190ish. 
Just a reminder, these things don’t happen by accident.
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