He could have gone full hawk, but he didn’t. Even in the face of economic data (that the rest of us can now see) which was uniformly positive and a coming bump in inflation, Powell chose the route that best supported stocks. ES bounced at its SMA10 and is surging toward its .886 Fib retracement.
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Equities have ramped almost 12% since the last Fed meeting – ignoring the prospect of higher interest rates for a longer period of time. Given the oil market’s recent breakout and the obvious base effect on inflation, we see a good chance of Powell presenting a more hawkish stance than the overbought market is prepared for…
…raising the prospect of spike in the 10Y to 4.76% by mid-August. One of the few developments that could prevent it: a collapse in oil/gas prices.
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The recent breakout in oil/gas prices has now inspired a breakout in the 10Y.
It’s an important headwind for the Fed, which had relied on falling energy prices to keep inflation and interest rates at an acceptable level.
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We might be done with inflation, but judging by the oil/gas markets, it’s not done with us. Both CL and RB have now broken out of channels dating back to early 2022 – with CL pushing above its 200-day moving average this morning.
The Fed has its work cut out for it this week – and for the next several months.
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Just saw that the great Tony Bennett passed early this morning. It was always a thrill to see him perform. He was one of the last great ones, and will be missed.
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Futures are leaking higher on this OPEX Friday following SPX’s bounce off its .786 Fib.
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EURUSD tagged our 1.1273 target overnight. It came a little earlier than expected, but it’s a significant development given the pair’s correlation with stocks.
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Futures are off slightly on low volume on a slow news day.
Some significant Fibonacci levels have been reached, however, setting up potential large moves in equities.
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With CPI due out tomorrow, we should see confirmation of how behind the curve the FOMC continues to be. Whether or not the data comes in above estimates, it will still be well above the Fed’s professed target of 2% – meaning the pause was yet another mistake served up in the interest of propping up equity markets.
Just a reminder: with CPI around 4% and GDP below 2%, we’ve got stagflation. And, the Fed has no answer for that.
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Futures are off modestly after the usual overnight VIX slump. Markets are focused on this week’s economic data, with CPI coming out Wednesday and PPI and initial claims on Thursday.
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The Fed will release its June minutes this afternoon, potentially shedding some light on why they paused their rate hikes. But, thanks to plenty of Fedspeak – including Jay Powell’s testimony – we already know that they are as confused and conflicted as everyone else. As always, they are more concerned about markets than anything else.
Futures are off about 0.50% as we approach the open.
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