S&P 500 could still be building a bull flag on the daily chart, followed by an upswing tomorrow on non-farm payrolls. Who knows what kinds of adjustments would show that the real economy isn‘t decelerating all that badly? Markets might even conclude the contraction bullet would be avoided, and that the Fed won‘t need to go all in against inflation consequences be damned. Wrong, because if you look at Treasuries, the pressure on the Fed to raise (and dramatically so), is on – the dollar is turning up already on the prospect of higher yields. CPI inflation might have (temporarily) peaked, but inflation expectations (as measured by both the bond market and the respective ETF) haven‘t yet.
After the current lull in the stock market, the shrinking liquidity pressures would return – for now though, both tech and value could still eke out quite some gains as the broader risk-on rally hasn‘t yet run its course. This would nicely fit in with the tough Powell talk eventually breaking this rally off very oversold readings. The Russell 2000 with semiconductors also show we have further to run in the short term before the risk-on rally rolls over again.
Precious metals have nicely turned – and miners together with copper agree. In such a case, Tuesday would be a fake breakdown attempt that we would see convincingly invalidated before the week is over. The move comes somewhat at the expense of crude oil – regardless of how well oil stocks are holding up. The best price gains are to be found in gasoline, heating oil – the oil products. The WTI-Brent spread is too narrow as well. Crude oil price reaction to EU moves couple of days ago, is disappointing – after $120 rejection, I looked for $118 to be captured, with the following price action around this level to show the short-term strength of the bulls. And there isn‘t too much of it – not even the $115 provided much support - prices are now kind of midpoint inside the rising channel of late.
Finally, cryptos are sending a mixed message but I‘m looking for Bitcoin and Ethereum to ever so modestly catch up to the brightening risk sentiment, however short in the large scheme of things this period would turn out to be.
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