Futures are up moderately ahead of housing data on a continuing pullback in interest rates.
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Tag: Yen
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Charts I’m Watching: Jan 17, 2025
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Charts I’m Watching: Sep 30, 2024
Futures are slightly lower on the last day of a pretty impressive Q3 at +8.7%.
Can the rally keep going in October?continued for members… (more…)
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Powell Shows His Stripes
In a speech that was essentially a mashup of all his other recent speeches, Powell reiterated at Jackson Hole on Friday that the pandemic – not historically dovish monetary policy – caused the recent huge spike in inflation. In fact, the Fed should be congratulated for putting out the inflationary fire that they started.
He did mention by way of a little joke that the Fed’s assessment of inflation being transitory was wrong, but that the Fed had plenty of company. Essentially, no harm, no foul.
Now, the Fed is apparently ready to lower interest rates. This view will ideally be underscored by Friday’s core PCE print. The market expects it and, in fact, needs it. But, anything more than 50 bps could be seen as the Fed panicking and could unravel the current rally as it stumbles merrily along.
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Inflation Heads Higher: Apr 10, 2024
March CPI came in at 0.4% MoM for both headline and core (versus 0.3% expectations for both), hotter than expected for the second month in a row. YoY headline registered at 3.5% versus expectations of 3.4% and 3.2% in February and core came in at 3.8% (unchanged from February) versus expectations of 3.7%.
As we expected, inflation continues to be buttressed by strong YoY energy, shelter and services prices. Our gas vs inflation model remains on track.
Futures came within a few points of our next downside target on the print.
And, algos are finally recognizing that a string of 0.4% monthly prints can turn into an annual print much closer to 5% than 2%.
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Another Blowout Jobs Report
NFP came in at 303K vs 200K estimates, a huge beat which, combined with a decline in the unemployment rate, argues against any near term rate cuts.
ES is all over the map this morning, but has given up much of its overnight ramp and is approaching our next downside target. With CPI coming out next week and a likely military escalation in the Middle East, ES will do well to hold its 50-day moving average.continued for members…. (more…)
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Update on Currencies: Apr 2, 2024
We’ve seen this movie before. For years, the yen carry trade has been a critical element of the equity price support toolbox. But, all good things must come to an end. When the yen gets too cheap, Japanese inflation becomes problematic as the cost of importing food and energy soars.
Aside from exposing the ludicrousness of its monetary policy, Japan’s recently unveiled 0.0-0.1% interest rate regime speaks volumes to the pressures of trying to balance economic reality with the desire for ever higher stock prices.
Slamming the yen’s value works fine – to a point. But, as rising food and energy costs pressure the real economy, something has to give.
Enter the euro.continued for members… (more…)
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Breakdown/Breakout
In a repeat of the most effective algo move of the past 10+ years, VIX broke down following the Fed’s no-news rate decision and press conference yesterday.
As always, this allowed equities to leapfrog an area of stubborn overhead resistance. 
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Hey Fed: You Break It, You Fix It
In his January press conference, Fed Chief Jay Powell accepted some responsibility for the sharp rise in housing prices during the pandemic.
“We’re also well aware that when we cut rates at the beginning of the pandemic, for example, the … housing industry was helped more than any other industry.”
This statement implies that, were it not for the pandemic, the current inflation picture wouldn’t be burdened by sticky, elevated housing prices.
But, that’s just not true. The problem developed long before anyone heard of COVID-19. During both the 2000-2003 recession and (especially) the 2007-2009 recession, the Fed slashed interest rates in order to save the housing market from steep price slumps. 
The Fed’s belief that it could eliminate the natural cycles which have always existed in our economy ultimately led to even worse fluctuations. The current housing crisis was brought on by fifteen years of historically low interest rates – not just the pandemic rescue.
Now, the Fed says they don’t have the tools to fix the problem they created. That much is probably true. Runaway prices usually require a recession to bring them back to trend. But, the least the Fed could do is own up to the problem that they themselves created.Futures are off moderately, testing the 10-DMA as we approach the open. But, of course, VIX hasn’t been hammered back below its 200-DMA yet.
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PCE in Line
January headline PCE registered a 0.3% increase MoM (0.4% Core) which was in line with most estimates. YoY, headline PCE rose 2.4% versus 2.6% in December, while core PCE rose 2.8%, down from 2.9% in December.
In other economic data, personal income rose to 1.0% MoM from 0.3% in December and personal spending rose at a 0.2% rate versus 0.7% in December.
Algos cheered the data, with futures swinging from a moderate loss to a moderate gain in seconds.
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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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