U.S. Indices closed Wednesday mixed, but that only tells half the story, as a broad-based hawkish reaction was seen on the hot US CPI report, before paring. As such, after all major metrics in the release topped expectations, US equity futures and Treasuries saw notable downside, while the Dollar soared to session highs and money market pricing shifting the first Fed 25bps rate cut to December, vs. Sept pre-data. However, as the session progressed US indices pared the majority of their weakness, with the NASDAQ 100 even closing green, and DXY flat at the time of writing but Treasuries held on to their weakness which saw the Japanese Yen reside as the G10 FX laggard against the Dollar. The Euro outperformed. Potentially behind some of the reversal was the more positive Russia//Ukraine rhetoric, whereby Trump said he has spoken to both Putin and Zelenskiy (separately) about ending the war. At the time of writing, we await President Trump’s latest signing of executive orders, but White House Press Sec said she believes the reciprocal tariff announcement will come before the Indian PM’s visit tomorrow, and will let the President discuss details. Fed wise, Powell, Goolsbee, and Bostic all spoke post-CPI (details below), whereby the Chair offered a note of caution on yesterday’s CPI reading and target PCE inflation which is a better measure; will know what PCE readings are late today, after PPI data. Sectors are predominantly in the red, with only Consumer Staples in the green, while Energy is the underperformer and weighed on by weakness in the crude complex amid the aforementioned newsflow on Trump calls with Putin and Zelenskiy about ending the war. In addition, the US 10 Year Auction was soft. Headline CPI rose by 0.467% in January, above the 0.3% consensus and accelerating from the prior 0.393%. The Y/Y print rose 3.0%, despite expectations for it to maintain a 2.9% pace. Within the headline figure, the index for shelter rose 0.4% in January, accounting for nearly 30% of the monthly all items increase. Energy rose 1.1% with gasoline +1.8%. Prices for food increased 0.4%, with food at home +0.5% and food away from home +0.2%. The sharp increase in food at home was largely due to the recent surge in egg prices (sharpest increase since June 2015). The Core metric rose 0.446%, above the 0.3% forecast, up from the prior 0.225%. The Y/Y print rose by 3.3% from 3.2%, despite expectations from a dip to 3.1%. It is worth noting that prior to the release, JPM noted if core CPI is +0.4% M/M or greater is it likely to be driven by a spike in Shelter as well as seeing some parts of Core Goods flipping from deflationary to inflationary. The hot data saw a marked shift in money market pricing with the next 25bps rate cut no longer priced until December from September before the data. The date reinforces the Fed’s “no rush” approach to policy, with the data suggesting the fed will need to hold rates for longer in order for inflation to return to target. Regarding the January data, it is just one hot report and the Fed will likely not want to make decisions based on one release, especially with plenty of data still due between now and the March 19th FOMC. Pantheon highlights that seasonals are still failing to offset new year price rises but the February data will reassure the FOMC. In his second day of testifying, this time in front of the House, the Fed Chair said the Fed makes its decision based on what’s happening in the economy and is reserving judgment on likely effects of tariffs until it sees the policies. Powell added he wants reserves to be ample and all evidence suggests reserves are abundant, and expects will return to the issue of lowering SLR. On inflation, they said they are close but not there, and the January inflation print says that as well, and wants to keep policy restrictive for now. The Chair added they want to see more progress on inflation and did not see much progress on core inflation last year, and have the luxury of being able to wait for that, given the strong economy. Following yesterday’s CPI, he offered a note of caution and said target PCE inflation is a better measure, and they will know what PCE readings are late today, after PPI data. Powell said long rates went up but it was not about inflation and Fed holding rates, awaiting evidence of lower inflation. Fed Member Goolsbee said if they got multiple months like this on CPI inflation, then the job is clearly not done and stated the latest inflation read is “sobering” and further added inflation data today is concerning, but just one month. Ahead, the Chicago Fed President still sees rates settling ‘fair bit below’ today.
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Equities
The S&P 500 closed 0.27% lower at a price of 6051.
The Dow Jones Industrial Average closed 225 points lower for a 0.25% loss at a price of 44,368.
The NASDAQ 100 closed 0.12% higher at a price of 21,719.
The Stoxx Europe 600 Index closed 0.18% higher.
Yesterday, the MSCI Asia Pacific closed 0.4% higher.
Yesterday, the Nikkei closed 0.42% higher at a price of 38,963.
Currencies
The Bloomberg Dollar Spot Index closed 0.06% lower.
The Euro closed 0.33% higher at $1.0395.
The British Pound closed 0.03% higher at 124.50.
The Japanese Yen fell 1.24% closing at $154.38.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 2.48%.
Britain’s 10-year yield closed 3 basis points higher at 4.54%.
U.S.10 Year Treasury closed 11 basis points higher at 4.64%.
Commodities
West Texas Intermediate crude closed 2.69% lower at $71.35 a barrel.
Gold closed 0.1% higher at $2899.10 an ounce.
This morning on the Economic Front we have U.K. and Euro-Zone Industrial Production at 7.00 am and 10.00 am respectively. Next, we have U.S. PPI and Weekly Jobless Claims at 1.30 pm. Finally, we have a 30-Year Treasury Auction at 6.00 pm.
Cash S&P 500
Following a much higher than expected 3.3% print in headline CPI, the S&P fell 60 Handles before recovering most of these initial losses into the close as yet again retail proved to be aggressive buyers. If the S&P cannot fall on a day when Treasury Yields quite rightly rose 11 Basis Points on this news, then you have to ask what the catalyst will be for a sustainable move lower. Seasonally we are in a weak period which indicators like the $NYSI remain severely overbought. I just cannot justify a long position given the backdrop. Today, I will lower my S&P sell level to 6085/6103 while leaving my 6121 ‘’Closing Stop’’ unchanged. The S&P has strong support from 5965/5985. I will now raise my buy level to this area with a higher 5949 tight ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 6067. If I am taken long, I will have a T/P level at 6002. If any of these views change, I will be back with a new update for my Platinum Members.
EUR/USD
My Euro plan worked well as the market traded lower to my 1.0320 buy level before rallying to my 1.0385 T/P level and I am now flat. Today, I will again be a buyer on any dip lower to 1.0270/1.0340 with a higher 1.0205 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 1.0395. I still do not want to be short the Euro at this time.
Dollar Index
I am still flat the Dollar as the market never came close to yesterday’s buy range. Ahead of this afternoon’s key PPI inflation report, I will now lower my Dollar buy level to 106.70/107.30 while leaving my 106.15 ‘’Closing Stop’’ unchanged.
Russell 2000
Higher Treasury Yields on the back of Wednesday’s awful CPI print saw the Russell traded lower to my 2230 buy level. I am still long with the same 2270 T/P level. I will add to this position on any further move lower to 2170 while leaving my 2115 ‘’Closing Stop’’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash FTSE
I am still short the FTSE from Monday at a price of 8790. I will continue to look to add to this position on any further move higher to 8870 with the same 8945 ‘’Closing Stop’’. I will now raise my T/P level on this position to 8740. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dow Rolling Contract
My Dow plan worked well as the market traded lower to my 44120-buy level before rallying to my revised 44280 T/P level and I am still flat. Ahead of PPI, I will again look to buy any dip lower to 43850/44100 while leaving my 43695 ‘’Closing Stop’’ unchanged. If I am taken long, I will have a T/P level at 44280.
Cash NASDAQ 100
I am still flat. Today, I will continue to be a seller on any further rally to 21900/22050 with a higher 22205 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 21780.
December BUND
I am still flat the Bund as the market never came close to Wednesday’s sell range. This morning, the Bund is trading lower at 131.80. We have short-term support from 130.50/131.20 where I will be a small buyer with a 129.85 ‘’Closing Stop’’. If triggered, I will have a T/P level at 131.90.
Gold Rolling Contract
Gold traded in a narrow range yesterday and I am still flat. Gold has resistance from 2935/2951 where I will continue to be a small seller with the same 2965 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 2919. Given how severely overbought that Gold is trading I have no interest in buying the market at this time.
Silver Rolling Contract
No Change: Silver has support below from 30.10/30.90 where I will again be a buyer with the same 28.95 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 31.50.
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