Risk-on sentiment indeed ruled yesterday and also overnight as stocks, bonds and real assets are positioning for declining CPI – just as I wrote in yesterday‘s analysis would happen:
(…) Not only that bonds turned decidedly risk-on yesterday, but crucially market breadth and sectoral posture (at relative expense of tech, which I also told you about) including the speed with which gold downswing was rejected, provided more confirmatory clues as to the CPI positioning – the market expects disinflation to continue, and is willing to yet again front run Powell in its Fed pause bets.
Sectorally and otherwise, yesterday‘s session turned out to the letter, and I reviewed it for you in a video published shortly before yesterday‘s close. Do check it out for pre and post CPI expectations – the Youtube channel is as integral part of what I‘m bringing you as much as Twitter is.
Lot more ground is covered in the individual chart section below. My next analysis would come on Monday only as I‘m taking a little break till then, and will serve you chiefly with occasional tweets whenever markets merit so.
As for upcoming data, I‘m looking for tomorrow‘s PPI to underscore even more the disinflationary period the economy is still in, with unemployment claims not delivering a stunning upside surprise equals more room for the Fed to tighten as the economy isn‘t imploding (similar message what BoC policy statement would deliver), and finally Friday‘s consumer sentiment still coming in positive around 64-65 with consumer inflation expectations around 3.5%.
All in all, nothing that would signal green light for the Fed to refrain from hiking in Jul, and Jul pause is what markets are leaning towards this week as their reactions tell (but not Fed futures).
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.
Not only that 4,432 didn‘t come into any jeopardy, but 4,450s held intraday during the regular session as the rush to still buy and buy more, is alive and well – with improving equal weighted index, market breadth characteristics and also Russell 2000. That‘s the kind of magic a little bond yields retreat delivers – all talked lately also in extended format.
The spike into 4,490 / even 4,500 – 4,510s discussed in another video, is still very much possible, and I‘m not looking for CPI kneejerk reaction to sink this scenario. As per today‘s opening analytcal part, the same applies to PPI.
Precious metals participated in the prepositioning run higher, and their upcoming performance would reveal just how close we are to the end of long basing period. True, could have risen more given dollar weakness, therefore the upcoming yields path and Fed tightening conviction would determine the short-term prospects.
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