pebblewriter

Tag: forecast

  • Not Transitory, Not Even Close

    If gasoline prices remain where they are or continue to rise, Powell will be just plain wrong about inflation being transitory. This is what to expect if gas prices were to flatline at this level through December. Unless most of the other components of inflation were to nosedive, CPI will remain well above 2% for the remainder of the year.

    Persistent enough for you, Mr. Powell?

    But it doesn’t matter. At least not yet. Although the (flawed) CPI data is more relevant to almost everybody, the Fed focuses on PCE, which mutes the reported inflation even more than CPI.  March PCE is due out tomorrow, and should continue not to alarm anyone.

    In addition, the blowout 3%+ April CPI won’t be reported until May 12. The Fed might roll the dice and leave prices where they are, hoping that they can control the fallout from truly alarming numbers.

    Or, we could see some preventative price action in the futures starting as soon as Sunday. The third option, of course, is the good old “miscalculation” of oil/gas prices, resulting in a CPI print that’s not so scary. They’ve done it plenty of times before.

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  • What Inflation?

    The Case-Shiller Home Price index rose 12% YoY – the fastest pace since February 2006 – meaning even fewer Americans have a shot at purchasing or renting a house. Ironically, the burden falls mostly on the low-income families that the Fed claims to be most concerned about. Thank goodness we don’t have an inflation problem.

    In unrelated news (not), futures notched a new all-time high overnight and have essentially busted the little H&S Pattern that might have resulted in a massive (sarc) 1.8% selloff.

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  • Update on Bitcoin: Apr 13, 2021

    It is fitting that BTC chose the day the latest CPI data is released to reach our next upside target.  From Bonds Not Buying It on Feb 23:

    BTC even managed a proper backtest of the last major Fib level, opening the door to the next upside target at the purple 3.618 extension at 62,977.

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  • USDJPY’s Turn

    Members will recall that one critical component of our oil/gas decline scenario is USDJPY’s breakout from the falling channel from 2017 shown below.  Guess what?

    The yen carry trade is a tried and true method of goading the algos into buying equities – even overpriced ones. It works especially well as a counterweight to falling oil/gas prices as we first observed in 2015 [see: Did TPTB Crash Oil?]

    So, it’s absolutely no surprise to see central banks pull it out of the playbook at a time when folks are suddenly curious about hidden, systemic risks and oil/gas prices are in the midst of a healthy reset.

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  • The Usual Suspects

    There’s a well-known scene at the end of the classic film Casablanca where Captain Renault (Claude Reins), having seen Rick (Humphrey Bogart) shoot a Nazi in order to enable Ilsa and Lazlo to escape, tells his men to “round up the usual suspects.” It saves Rick, Ilsa and Lazlo’s collective bacon (though I suspect it sucks for the usual suspects.)

    click to play

    So it is with the algos driving equities lately. With oil/gas prices on their back heels and VIX being bid up every day by nervous carbon-based investors, it falls to the the usual suspects in the currency markets to provide algos with the proper “motivation.”

    Think of USDJPY’s breakout not so much as a bug, but a feature of the modern market — one of the many quiddities which allows futures to ramp higher on, say, disappointing economic news.

    While it is sometimes difficult to know when stocks will get much-needed support, these tools have been fairly predictable and have provided excellent trading opportunities.

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  • The Bond Market Finally Woke Up

    For months we’ve been warning about the coming inflation problem, wondering when the bond market would notice and/or care.  The immediate problem in a nutshell:

    One of the most highly correlated components of CPI with the headline rate is the price of energy, and gasoline in particular.  If prices were to remain where they are now, the base effect will result in a 40% increase YoY in April.  Historically, this has produced headline CPI in excess of 2.5%.The Fed points out this base effect bump will be transitory and should be ignored, but the recent rise in interest rates tells us that the bond market is not ignoring it. In fact, recent beats in economic data and sharp price increases across the commodity complex underscore the notion that the rise in inflation will not be transitory. The pop we could see in April would be only the beginning.

    As we approach $30 trillion in debt with more stimulus on the way, markets have to wonder what to make of CPI of 2.5-3.0% or higher. In our opinion, the US has no choice but to follow in the BoJ’s and ECB’s footsteps and repudiate higher rates until the end of time.

    10Y note futures reached a level at which we have felt would represent critical support. A drop below this level, we reasoned, would sound loud alarm bells. As we wrote yesterday: “This is quite possibly the Fed’s last chance to avoid a real mess in the bond market.”

    Bottom line, don’t be fooled by the Fed’s ability to repeatedly bail out equities at the last minute.

    The algos have learned well to respond to moves in VIX, currencies and oil/gas when they are so instructed. It’s no surprise that yesterday’s plunge was arrested at our previous SMA downside target.

    The problem is bigger and more difficult to cope with than most – including, apparently, the Fed – can imagine.

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  • Update on Energy Markets: Feb 16, 2021

    Texas, the energy capital of the US, is running short of energy. The cold snap is breaking records throughout the state, with temperatures so low that many wind and water turbines are frozen and not able to produce energy. Refineries are shut down. As of last night, over 3.5 million Texans are without power.

    Not surprisingly, oil, gasoline and especially natural gas prices have shot higher.

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  • Charts I’m Watching: Feb 9, 2021

    Futures are off modestly as the algos have backed off their assorted breakouts and breakdowns now that the bearish H&S Pattern has been busted.continued for members… (more…)

  • Mission Accomplished

    In another obvious show of how easily this market can be manipulated, ES’ final bearish Head & Shoulders Pattern was busted in the final five minutes of trading yesterday. This morning, SPX’s H&S Pattern will also be busted with a burst higher in the wake of another disappointing jobs report.

    And all it took was for the “Bad News is Good News” algo to pin futures to their ramp job highs until 9:31. The BN=GN algo, of course, has nothing to do with additional stimulus.

    We already know $1.9 trillion is on the way to some who desperately need it and countless more who don’t. It also has nothing to do with additional QE. That’s an ongoing $120 billion per month, rain or shine.

    No, it is about the usual tricks employed by central banks and their proxies: shorting VIX… …shorting bond futures……ramping WTI futures……and shorting the yen. They have all been employed over the past week just to make sure that any lingering bearish patterns were undeniably busted. Just another day in the “markets.”

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  • VIX: Just a Flesh Wound?

    In Friday’s post VIX: Back From the Dead we noted that VIX had recovered from the breakdown below trend dating back to Nov 27. This morning, it’s testing overhead resistance from Jan 4 and, if it’s able to break through, will likely take on resistance from Dec 21 or even Oct 29. Bears might want to hold off on the champagne just a bit longer, though. One of VIX’s favorite tricks is to race up to resistance in the pre-market so it has someplace to reverse lower from.

    The FOMC will issue its latest pearls of wisdom on Wednesday. And, as ES’s chart aptly illustrates, they are loathe to allow a significant decline in the lead-up to these exercises in obfuscation.

    Here’s the chart we posted Friday evening. continued for members… (more…)