Hawkish Surprise
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S&P 500 suffered on more bad banking news, but the bears couldn‘t keep the selling going – I correctly didn‘t trust bonds to send ES through 4,115. Overall, the yield curve reflected renewed Fed easing calls yesterday – and stocks attempted and attempt to front run the Fed pause notion as much as precious metals love banking woes and declining yields combined with more recessionary signs.
Take only the USD gyrations mirroring those in the bond market. All are ultimately a bet on Fed policy stance, but I continue to think we would get 25bp hike, and no promise (really no promise) of a pause or anything that would make any Fed rate cutting a distinct more than possible certainty in the near future (by autumn, in autumn).
Of course, it doesn‘t help the greenback that ECB is ready to hike 50bp still, but a good debt ceiling showdown till risk-off rears its head very properly again, is in the cards still. See for yourselves the TGA drawdowns of late...
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Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Latest employment data allow the Fed to maintain hawkish stance, and the only question is how much the bulls would try to convince everyone that the sky is clear on any 4,188 resistance break – and whether more banking news (it‘s impossible to viably compete with money market funds through paying out depositors better rates) hits before they muster the strength and overcome ever poorer market breadth metrics.
4,115 break which I ruled out yesterday, is out of the question unless Powell is very clear today during the conference.
Credit Markets
No risk-on here in the least– I doubt HYG would be able to make a solid comeback today. The risks are heavily skewed to the downside (risk-off) even if 25bp hike is virtually baked into the cake – look at oil and copper illustrating the subpar growth case...
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