Greetings from Anegada, British Virgin Islands. We continue in vacation mode, with the next post planned for Thursday, May 16.
The markets continue to track our forecast, with breakouts in equities and currencies and a breakdown in VIX. Oil and gas continue to hint at a breakdown, buy this remains a wild card.
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This is the fourth time in a row that ES has pushed back into the rising channel from which it previously broke down. This one is more important, however, as it has the 50-day moving average in its sights.
As we discussed last week, all the stars are aligned should the algos wish to pursue our upside targets.
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Already elevated on AAPL’s announcement of a historic buyback, futures popped on a weaker than expected jobs report.
The only problem is that this ramp puts them right back at the top of the channel which has prompted three previous tumbles. Will this one be any different?
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Futures are off sharply on a very stagflationary offering of economic data. Q1 GDP rose at only 1.6% versus expectations of 2.4%, while core PCE prices rose 3.7% against expectations of 3.4%. The PCE index itself is due out tomorrow.
Meanwhile, the Labor Department reported that unemployment claims for the week ended April 20 came in at 207,000 versus 215,000 expected and the 212,000-222,000 which have been reported in the past 6 weeks.
Weaker than expected economic data, combined with stronger than expected inflation and employment, places the FOMC in a difficult position and a market which has been counting on lower interest rates downright bearish.
Despite a strong showing in March, the SPX is right back where it was the last time we wrote about stagflation in February [see: Stagflation Fears Renewed.]
About the only silver lining in our charts is the 10Y, which has reached our 4.738 target several weeks earlier than expected. The resistance at this level could make a difference for stocks.
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Futures have regained about 30 points after last week’s drubbing.
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Futures tanked overnight on news of Israel’s rocket attack on Iran, only to recover all their losses as we go to press. The latest retaliation is being characterized as a tit for tat.
But it’s easy to imagine the Plunge Protection Team working overtime to calm markets by hammering VIX and WTI back down from their overnight highs.
Meanwhile, SPX came within 1.89 of our 5,000 target yesterday, testing support that continues to be quite important.
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Gold and silver both came within 1% of our upside targets for them earlier this week. With inflationary pressures once again top of mind, have they exhausted their upside potential? We’ll update our long-term forecasts this morning.
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Retail sales came in roughly double the Street’s estimates at 0.7% versus consensus of 0.3-0.4%. Ex-auto was just as strong: 1.1% versus 0.5% consensus. Combined with an Empire State Manufacturing index disappointment of -14.3 versus -6.0 expected, futures sold off for all of 30 seconds or so before rebounding to higher highs.
The retail sales print, like much of the recent data, further reduces the odds of substantial rate cuts in 2024. Yet, as is often the case, the algos ignored the data and focused instead on several of their favorite factors: VIX, currencies and SPX’s bounce off its 50-day moving average.
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As we suspected, Wednesday’s lows weren’t enough to generate a sustainable bounce. We’re seeing the aftermath of that premature technical bounce this morning.
Our long held bearish position on EURUSD, for instance, is finally gathering a little momentum.
The challenge for bears remains SPX’s 50-day moving average, currently at 5105. If VIX can remain below 18.50, then we could see more meaningful support for equities. If VIX surges past that long term trend line, then the bears could finally have something to celebrate.
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In contrast to yesterday’s CPI print, PPI came in below estimates at 0.2% headline and core. Futures erased their sharp overnight losses which saw them nail our next downside target and now point to modest gains.
A bounce here would be more convincing if SPX were to also reach its 50-day moving average.
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