Having reached an interim high, ES is content to remain there…for now.
continued for members… (more…)
Tag: CL
-
Charts I’m Watching: Dec 27, 2021
Algos are eyeing new all-time highs for the third session in a row, a combination of low volume…
…and VIX’s continuing flirtation with its 200-DMA.
continued for members… (more…) -
Charts I’m Watching: Dec 21, 2021
Futures bounced sharply after plunging nearly to the 100-day moving average yesterday, ping-ponging up to backtest the 50-DMA.
SPX should have a decent shot at closing yesterday’s gap before the action resumes.continued for members… (more…)
-
No More Free Lunch
The Fed’s experiment of pouring trillions of dollars into the markets is coming to an inglorious end. Even though an accelerated taper will still results in hundreds of billions in additional liquidity over the next several months, the writing is on the wall.
Allianz Chief Economic Advisor Mohamed El-Erian said it well yesterday on CBS’ “Face the Nation.”
“The characterization of inflation as transitory is probably the worst inflation call in the history of the Federal Reserve, and it results in a high probability of a policy mistake. So, the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility. Otherwise, it will become a driver of higher inflation expectations that feed onto themselves.”
I agree wholeheartedly, though we might differ on whether the Fed’s actions to date have been a “mistake.” In my view, they were taken with the certain knowledge that inflation would be driven much higher – an outcome the Fed must have deemed acceptable even though the brunt of it would obviously fall on the poor and middle class.
The correction in oil & gas prices is a good start, but it will take much more. Higher oil and gas prices, a weaker dollar, ludicrously low interest rates – all contributed to the stock market being where it is today. Without those factors, major indices, commodities and housing prices would be far lower.
Years from now, economists might debate whether inflating another huge asset price bubble was worth it. But, for now at least, the Fed must figure out how to tap the brakes without causing a pileup among all those tailgating investors.
Futures are flat as we approach the open.
But, this week should see substantial moves in equities, currencies, commodities and yields.continued for members… (more…)
-
Inflation Highest in Nearly 40 Years
At 6.81%, headline inflation is now the highest it has been since March 1982 (6.78%.) Originally driven by sharply rising oil and gas prices…
…it is now broad-based and anything but transitory, with medical commodities the only category below the Fed’s original 2% target.
Algos responded with the usual VIX smackdown which, not surprisingly, began one minute before the BLS release.
It remains to be seen, once the market opens, whether carbon-based investors will be so enthusiastic about the prospects of a quicker Fed taper.
For history buffs and those with fond memories of price discovery, note that the Mar 1982 CPI of 6.8% saw the 10Y yielding 14.2%, a far cry from today’s 1.5%. It’s a testament to just how broken the bond market is.
continued for members… (more…)
-
Charts I’m Watching: Dec 6, 2021
VIX tagged our 34.84 target on Friday – an important breakout in risk – before tumbling back into the safe zone.
With other factors holding their ground and equities’ 100-DMAs still untagged, it’s not at all clear that the worst is over.continued for members… (more…)
-
The House That Jay Built
You know things are getting real when ES closes below its 50-day moving average. It has bounced at that support 9 times in the past year. When the 50-DMA fails, the 100-DMA has provided support 6 times since Jun 2020.
With ES closing below its 50-DMA yesterday and likely to reach its 100-DMA today, is it finally time for a test of the 200-DMA?
The stakes are high, as VIX pulled back after reaching important resistance at our 32.50 target yesterday.
Meanwhile…inflation, the Fed policy choice that pundits are mistakenly calling a “mistake.” Sure, it delivered a body blow to the have-nots, but It provided record high stock and real estate prices to the rest of us.November CPI is due out next Friday, and we are still looking for it to mark a turning point in this cycle. WTI is off 23% from its highs – technically a bear market. And agricultural commodities have backed off their breakout and are eyeing a potential breakdown.
Our assumption remains that CPI will be back below 3% by the time the taper is complete. Sorry savers, but there probably won’t be any need to raise rates any time soon, if ever.
continued for members…
-
Charts I’m Watching: Dec 1, 2021
The algos have been busy overnight again, driving futures up 50+ points as we head into the open. Omicron shutdowns, botched responses and Powell’s admission that the Fed might accelerate the taper seem to have been forgotten.
ES came close to our next downside target, but whiffed. Is the correction over?continued for members… (more…)
-
This is Not Going to Be Good
Futures are off sharply on comments by Moderna CEO Stéphane Bancel on the effectiveness of existing vaccines against the omicron variant:
“I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to . . . are like, ‘This is not going to be good’.”
Bancel’s comments might also apply to this morning’s testimony from Jay Powell and Janet Yellen who head to Capitol Hill to explain why 6.5 inflation is nothing to be concerned about.BTW, WTI made it official overnight, tagging our 66.81 target.
continued for members… -
Update on Oil & Gas: Nov 29, 2021
Almost a year ago we noted that the rapidly rising price of oil and gas would contribute to alarming CPI prints [see: Don’t Ignore Inflation.]
Punch line? Oil and gas will have to fall significantly by April or we’re looking at a 20%+ YoY increase in gas prices – which has historically produced 2.4-2.7% annual inflation and a 2%+ 10Y.
At the time, it was clear that the base effect would ultimately generate YoY deltas in gasoline that would exceed 40% and, if the correlation held, generate CPI over 3.5%. We were being too conservative. November’s delta should be around 62% and October CPI reached 6.22%.
Then…
…and now.
When inflation spilled over into stickier categories such as food, shelter and wages, CPI accelerated more than the rise in oil/gas prices alone would justify. As the chart above illustrates, CPI’s rate of change outpaced that of gasoline alone.Investors finally began to notice. Maybe inflation wasn’t transitory after all. Rising interest rates suddenly became a concern rather than a bullish confirmation of the reflation trade.
In our last update on oil and gas [see: Nov 19 Update] we reiterated the fact that oil and gas deltas would need to be held in check if inflation and interest rates were to stabilize.
Regardless of where this correction peters out, November should mark a turning point in CPI, with December and future months declining back towards an “acceptable” level. The trick is to keep interest rates from breaking out, which means the Fed must put the brakes on inflation right here and now.
Friday’s plunge was a good start. CL came within 0.8% of our downside target, shedding nearly 14% on the day and over 21% from its October highs.
It’s too early to say whether the omicron variant will feature the sort of transmission and mortality rates that could send the global economy into another tailspin. But, one thing is clear: non-OPEC+ countries are breathing a sigh of relief at the correction in energy prices – even if it means more downside for equities.
continued for members… (more…)
