#HFLUR In A Nutshell
CLUB/EDGE client post Sunday April 28th; Focus on "Bounce Call" still in play.
» CLUB/EDGE client post Sunday April 28th 6:25 PM
The Week Ahead
This week is busy on both macro and micro fronts.
Wednesday is Fed Day. I will run my morning trading room and then open it up again 2-3PM for FOMC statement and Powell presser.
Craig and I will meet back at the close to offer up a Macro-to-Micro Power Hour.
We are sandwiched with Yellen's QRA at beginning of week and NFP at end of week.
In between, 175 S&P 500 companies report this week including Amazon & Apple.
Below is an earnings heatmap and a list of the economic data hitting markets. Pace Yourself.
The big USD & 10Y market-moving macro-event risks include:
U.S. Treasury Quarterly Refunding
Fed Meeting
BOJ Minutes (Intervention)
OECD Economic Outlook
U.S. Employment Report
We even have Chinese PMIs and Central Banks’ Speeches, so keep all in mind as you protect and position.
FOMC & QRA
Obviously, we aren't expecting Fed to announce a cut or hike. Market expectations for Fed rate cuts have been priced out to December if at all. That's a big shift since December when Fed intonated they might cut and pulled forward 3 rate cuts in 2024. Suffice it to say, stronger economic growth and hotter-than-expected inflation have dashed hopes of any cuts, and yet, equities have still held in there.
Back in November, SPX was $4100 not $5100, so market is largely expecting Yellen to hold the liquidity-line in her Quarterly Refunding Announcement while expecting a continued accommodative (read: political) Fed and Treasury policy.
Given Powell's recent comments April 16th, signaling Fed could make a hawkish turn, some are expecting a "hawkish pivot".
Right now, given the strength of the labor market and progress on inflation so far, it's appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us. If higher inflation does persist, we can maintain the current level of restriction for as long as needed.
Queue The Inflation Bump
PCE (ex energy and shelter) shows that core services inflation seems to have bottomed out at 3.28% in December of 2023, and now it looks like it's rising again, currently at 3.50%.
The overall PCE price index rose by 3.9% annualized in March from February, nearly double the Fed’s 2% target. Wolf Richter
This core services inflation rise is due to tight labor market and wage growth. The March PCE report showed that wages increased at an inflationary 0.7% monthly rate. This "inflation bump" has many expecting Fed will have to hike at some point this year. Market - both equities and bonds - aren't buying it.
Translation: Maybe he talks tougher than last FOMC, where he was more dovish than many on his own committee, but given it is an election year, it is also not not believed fed will adopt a more hawkish policy stand.
Nonetheless, this communication change would signal a return to a "higher for longer" regime - or what I would dub: #HFLUR: Higher-For-Longer-Until-Recession.
In a nutshell, history shows that the Fed needs to hold interest rates higher until the labor market weakens and/or the equity market corrects - both of which signal recession.
QRA & Term Premia
QRA will matter more to markets, as this is how Yellen not only finances US government deficits but does so with either liquidity-providing bills or liquidity-sucking longer-duration notes/bonds.
@DannyDayan5 sums up succinctly:
The QRA this week will dictate the supply of debt sold in the next 3 months.
There are societal needs that will require massive spending in the years to come.
More military spending.
Huge investments in electric grid.
Social security reform.
Term premium needs to rise.
Do follow Craig's channel as he will be all over this treasury report, its composition and the TBAC recommendations - which he discussed at length in our MacroAdvisor EDGE Roundup for EDGE clients last Thursday.
EARNINGS -"As Good As It Gets"?
Let's see what AMZN has to say Tues after the close and AAPL Thursday after the close.
For now, I still have a BOUNCE CALL in play since last week for SPY 5192 and QQQ $445.
But then I think we reverse lower. In a nutshell, I agree, again, with Danny Dayan:
The equity market went up 28% in 5 months in a parabolic fashion, with no material pullback.
It started with expectations of a big easing cycle, and for a growth reacceleration.
With the former off the table for now, we are left with the latter.
Market Timing Calls & My Macro Tells
Lucky or Good:
Friday the 19th: I said "Bounce Monday" plus I warned: "gold & silver about to have a big move - likely lower - which would set up tech to bounce."
Mon: "expecting a Turnaround Tuesday"
Tues: "VIX just needs to get/stay below 17.77"
Wed: "VIX 14.85 by Friday"
Thurs: "SPX support is 4993 with potential to get back above 5019 for higher into 5111."
Fri: It all happened.
This week will be much more difficult to predict given all the macro & micro moves expected.
Generally I am watching:
LIQUIDITY - all eyes on April 30 QRA as predictor of July 30th QRA
OIL - range-bound to lower from intervention collar into the election
GOLD/SILVER - continuation higher even if sloppy. Gold higher, bonds lower is the new risk parity trade.
USD - higher in DXY terms, but falling relative to hard assets
YIELDS - 10Y above 4.7 is risk off + Fed/Yellen/White House/BOJ know it, so below is supportive of stocks and bonds. #HFLUR
USDJPY - moving higher with EURUSD is good for Japan but not yen carry trade unwind. Bears watching.
VOLATILITY - Stalking a US Market Top & China Equity Bottom
News You Can Use
Monday, I will update my INTERMARKET REVIEW from my trading room then upload to my #intermarket-tells channel.
Tuesday, I will be interviewed at 2PM for SpotGamma's PNL for a Purpose Charity Day to benefit Susan G Komen cancer research.
Tuesday after market close, Geoffrey and I will do our MacroEDGE Roundup.
Wednesday, I will run 2 live trading room sessions: 9-11 and 2-3 for FOMC) then our 4-5 Macro-To-Micro Power Hour Webinar with Craig!
Speaking of webinars, Craig was interviewed three times last week - including one with famed Larry McDonald. All recordings are posted in his slack channel and soon on our YouTube channel under Featured Presentations.
Check them all out!!
