pebblewriter

Tag: economics

  • A Technical Recovery

    Thanks to VIX being hammered by 20% from yesterday’s highs, futures have recovered almost .50% – just enough to reach the bottom of the channel from which they broke down. SPX experienced a similar recovery late in the day, preserving (for now) the integrity of the channel that has produced a stunning 23% return since Oct 27.

    Stock prices almost always melt up into OPEX days. When they don’t, however, they often perform a nosedive instead. SPX remains long overdue. A lasting breakdown of the channel, such as we almost saw yesterday, would be the first sign.

    Another would be the 10Y shooting up past our 200-DMA target, which it came within 0.19% of yesterday. The bulls really need rates to settle back down – which will be very unlikely if oil/gas don’t reverse lower.

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  • Hot CPI Dashes Rate Cut Hopes

    January CPI came in hotter than expected, taking a March rate cut off the table and casting serious doubts on a May rate cut.

    Futures are off sharply, shedding over 1% to reach the bottom of the rising green channel from Oct 2023.

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  • All Eyes on CPI

    CPI, due out tomorrow morning, always plays an important role in driving interest rates and economic forecasts. This one is especially important given the extent to which the market has already rallied in anticipation of lower rates.

    Our gas price model for CPI shows inflation settling lower after a slight bump up over the last several months. But, what happens if events in the Middle East begin to affect oil/gas prices?

    At current prices, our model suggests CPI should continue to moderate – remaining around 3-3.25%.  Again, this is if gas prices were to remain steady around 3.02 for regular conventional gas prices as reported by the EIA. This would result in the current -9.13% delta rising very slightly to -8.57% in February, then widening to as much as -19% by August before rising back toward 0% by January 2025.

    In the past, these large negative deltas have correlated with CPI readings of 2% or less. Ceteris paribus, this would suggest a CPI in the 2% range by election time. But, what happens if hostilities in the Middle East expand and gas prices revert to 4.0? It’s a very different picture.

    Bottom line, the Fed and the Biden administration are likely of one mind on the topic of Middle East affairs. A broader war that sends prices higher would be disastrous for both.

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  • Oh So Close…

    The S&P 500 came within 11 cents of 5,000 yesterday, marking a remarkable 43% run since the October 2022 lows and 22% return since the October 2023 lows.

    The month of February has a mixed track record over the past 10 years, with gains and losses evenly split. Stocks frequently pause at big, round numbers – which conflicts somewhat with the fact that stocks usually melt up into CPI prints.

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  • NFP Soars

    Nonfarm payrolls soared by 353,000, more than twice the 175,000 expected. Average hourly wages also beat at +0.6% (+4.5% YoY) versus +0.3% expected. Unemployment remained at 3.7%. Forget about a March rate cut. Bulls will be lucky to get one in May.

    The overnight ramp job has completely disappeared, with futures struggling to remain positive.  AAPL‘s meltdown hasn’t helped.

    Factory orders and Michigan consumer sentiment are due out at 10ET.

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  • No Pivot, No Punch Bowl

    Powell said what many of us have been thinking: There’s no reason to rush into a rate cut. The part he didn’t say (but implied) was that there was a clear risk to cutting rates at this time.

    The market, which has been fueled for months by rate cut expectations, was quite disappointed. SPX shed 1.5% and closed at the bottom of the acceleration channel it’s been in since October. It was only a little bit scary.

    Futures fell to slightly below our initial downside target before rebounding overnight on the usual algo nonsense.

    Does yesterday’s action change the overall picture?  Maybe.

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  • FOMC Day: Jan 31, 2024

    It has been a long time coming, with expectations of a rate cut ranging from “certainly” to “not a chance in hell.”

    Futures are taking their cues more from GOOGL and MSFT than the FOMC at the moment.

    Will we finally get a real backtest? Our potential downside targets are getting very lonely.

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  • Will They or Won’t They?

    Futures are off moderately as investors place their bets on tomorrow’s FOMC rate decision. This follows yesterday’s pop in prices which was reported as motivated by a better than expected treasury report, but was in reality driven by [drumroll please] more algo funny business in VIX.

    In any case, SPX was finally pried off its 2.24 Fib extension just in time for tomorrow’s FOMC decision.

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  • Charts I’m Watching: Jan 29, 2024

    Futures are flat as we enter a data-laden week accented by Wednesday’s FOMC interest rate decision.continued for members… (more…)

  • Economic Data Tempers Rate Cut Odds

    Futures pared their overnight gains after beats in initial claims, housing starts, and building permits.

    So far, it has been enough to backtest the little H&S neckline that was topped overnight.

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