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"While Powell may indeed come off tough tomorrow, his tenure thus far has been synonymous with the term “pivot.” And, make no mistake, pivot he will (but not tomorrow mind you) when he and his crew are staring down whatever breaks first..."
In terms of that "whatever" breaking; while one would think it'd be the credit markets the Fed fears the most, when we're talking investor opinion, suffice to say that all eyes are presently on the equity market.
Video viewers have heard me repeatedly pronounce that, in my humble view, despite the tough talk, Jerome Powell and company do not aim to purposely wreck the economy and the financial markets (as unavoidable as that may be) in order to halt the wrecking ball that is present day inflation.
Mexico is benefitting from policies that seem so utterly obvious, yet, when it comes to the developed world.. well... let's just say that the fiscal response to Covid and the monetary response to the ensuing inflation has been utterly blundered:
"CPI inflation in Mexico is still surprisingly below US and Canadian inflation on a YoY basis. Banxico's head start to the tightening cycle and the government's fiscal restraint are two factors contributing to this lower inflation profile."
"Growth is resilient despite deteriorating global growth and liquidity. The peso is one of the top performing currencies this year."
--Variant Perception
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JPMorgan notes that there's some not-small money making some not-small bets that volatility's going to be rising in not-small fashion over the coming months:
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Wow! What a rally yesterday! Clearly, investors are beginning to see blue skies ahead, right?
Well, while we're not ready to sound the all-clear right here, I will say that the latest data that instruct our views are offering up some legitimate less-bearish signaling that we need to not hastily dismiss.
Per yesterday morning's essay, there may be emerging developments that could have the most ardent bear reexamining his/her dire thesis right here.
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Some interesting, if not encouraging, data out this morning...
Retail Sales for June came in better than expected, with net positive revisions to the May numbers:
I'm thinking about what folks are thinking about this morning.
Rewind two or three months and, as I recall, the sentiment vibes I was picking up during discussions with clients and acquaintances leaned somewhere between sanguine and optimistic. I.e., "It's ugly out there, but the market always comes back." And/or "Is it time to buy?"
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In Monday's morning note I suggested the following:
"...when it comes to "headline" CPI, we may see very little, if any, relief, even in the monthly number, given that energy prices ramped higher in June. The "core" number, which excludes energy, is more likely to reflect any recent letup in inflation."
Well, suffice to say, we did not see "any relief" in the headline number. In fact quite the opposite:
Well, folks, earnings season is upon us. And as we, and many others, have pointed out, margins have to be getting majorly squeezed due to significantly higher input costs. More so, perhaps, than what Wall Street has priced into their still optimistic earnings expectations.
Now, that said, it's never that easy. Here are a couple things to consider:
As I reviewed today's video before sending, it occurred to me that I left out a few factors with regard to market probabilities that could move the needle in either direction. As you'll see, I attempted to answer the "when" question for stocks by drawing trendlines on the weekly and monthly SP500 charts.
For starters, I want to make very clear that there'll likely be nothing linear about the path between here and the ultimate low (assuming we've not reached it yet) for the current bear market in stocks, despite the drawings I offered up.
With regard to potentially needle-moving factors, there are of course always more than we could possibly know (i.e., anything can happen), but we're aware of a number that would likely be measurably impactful -- such as, for example, a Russia/Ukraine cease fire, China abandoning (or claiming victory over the virus due to) its Zero-Covid policy, and the passing of the pending US "stimulus" package -- at least when we're talking short-term moves in global financial markets...
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This morning's jobs number was certainly not a whiff! Coming in at 372k (vs 265k expected), although the prior two months were revised down by 74k. The unemployment rate remained at 3.6%, average hourly earnings bumped up .3% on the month and labor force participation dipped .1% to 62.2.
The 2-year treasury yield jumped on the news, signaling that it's a go for another .75% rate hike come this month's Fed meeting.
We tackled copper a bit in yesterday's video commentary. Bottom line, while the correction the metal's seen of late certainly makes sense, we maintain our long-term bullish view.
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7/5/2022
An overnight rally in futures gave way to a sharp selloff in the cash session which gave way to a rally that took the SP500 back to the green (albeit barely) by the end of the session.
Bespoke Investment Group began their latest weekly report with a riff:
“Been dazed and confused for so long, it’s not true...Lotsa people talkin’, few of them know...Don’t know where you’re going, only know just where you’ve been…” - Dazed and Confused, Led Zeppelin
While we remain very much in the inflation-will-be-higher-for-longer camp, we also see it coming off the boil a bit over the next few months.
At first blush, support for the latter is found in the latest data.
Note below that the only increase in consumer spending in May for goods (dark bars) occurred in energy and food. On a real basis (inflation adjusted), only household durables saw an increase in the goods space (HT BCA Research):
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