S&P 500 staged a modest recovery, attempting to close the opening gap, which it did before retreating. Bonds mirrored the late day hesitation as well, and VIX didn‘t stage a true break lower. Simply put, yesterday does qualify as a start of a dead cat bounce – on that can be still resurrected. Overall though, the bulls would struggle first at 4,065 and then in the 4,130s should they even get this far, which I doubt today. Bears remain in control, and the environment is risk-off, no matter the little rips that are to be sold into.
As stated yesterday:
(…) Powell indeed delivered credibly, and the markets were surprised even though his speech merely confirmed the known positions – albeit using strong and direct language such as bringing some pain to households and businesses, or mentioning the necessity of acting with resolve regardess of the employment costs of bringing down inflation, the goal which Powell even mentioned as being unconditional. This should put to rest all the fantasies about pivot and soft landing – the U.S. economy remains on course to enter recession late 2022 / early 2023 while sticky inflation and restrictive Fed are here to stay. Yes, I stand by the 5-6% year end CPI call of long ago.
How about the Fed funds rate? It‘s about to rise to 4% and possibly beyond – it doesn‘t matter that Treasuries had been doing the tightening for the Fed. The inflation rate and danger of inflation expectations becoming entrenched, requires hiking the Fed funds rate well, well beyond its natural rate, and keeping it there. So much had been broadly acknowledged by many Fed speakers – and Mester even sees no rate cuts next year. That‘s quite a resolve – and it paints a clear road for the markets ahead. As a new downleg in the S&P 500 bear market has been rubberstamped by Powell, Treasury yields will reflect the worsening economic outlook (LEIs are essentially falling for 5 months in a row) in declining yields before these move higher again. Yes, it‘s a paradigm shift – secular bear market in bonds is upon us in this decade, accomplanied by persistent inflation in necessities of life, and a commodities superbull run.
I hope you‘re enjoying the very lively Twitter feed, which comes on top of getting the key analytics right into your mailbox. Plenty gets addressed there, but the analyses over email are the bedrock.
Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article features good 6 ones.
Gold, Silver and Miners
- Precious metals are still to remain under pressure – they are grappling with the tightening headwinds to a good degree. The outlook is still bearish as gold faces the double whammy of rising yields on the short end, and dollar upswing that‘s set to continue.
Crude Oil
- Crude oil is turning up, and dips remain to be bought – the area talked about in the caption is likely to hold. The outlook is brightening, the Saudi put helped turn black gold around mightily.
Copper
Copper seems to want to go to the downside after all – all that‘s missing is a modest rise in volume and steady intraday decline to confirm. $3.50 will turn out an tougher area to crack.
Bitcoin and Ethereum
Cryptos are pointing to an upswing, but rather hesitantly – challenge is arriving soon.
