U.S. Equity Markets closed lower on Tuesday with the surprise rise in the Q1 Employment Cost Index ramping the hawkish pressure on the Fed ahead of this evening’s Fed Meeting Statement and Fed Chair Powell’s press conference at 7.30 pm. There were kneejerk losses to the release, and then an extension lower through the US session, with the rate-sensitive small caps (Russell 2k) leading the losses. Amazon reported after the close with their share price currently +3% in afterhours trading. The Dollar Index saw strong gains, with USD/JPY back to testing 158 to the upside to little fresh signs of intervention. Treasuries bear-flattened after the hot ECI print, not to mention a Wall Street Journal article from well-known Fed watcher Timiraos titled “Fed to Signal It Has Stomach to Keep Rates High for Longer”. Fed pricing now sees under 30bps of cuts this year vs 35bps before the data today. Wednesday is action-packed, with FOMC, JOLTS, ADP, ISM Manufacturing, and the Quarterly Refunding Announcement all due in the lead-up to Friday’s NFP. Bunds saw particularly heavy losses with EUREX closed for the May Day holiday on Wednesday and after the mixed European inflation figures earlier in the session. Elsewhere, the strong Dollar weighed on commodities, with notable losses in EMFX. Gold has hit its lowest levels since early April at c. USD 2290/oz. Headline Employment Costs rose in Q1 to 1.2% from 0.9% Q/Q, above the 1.2% forecast. Within the report, employment wages rose 1.1%, matching the prior revised pace. Employment benefits ticked up to 1.1% from 0.7%. Ahead of the FOMC due tomorrow, WSJ’s Timiraos wrote a hawkish pivot (i.e, suggesting a a hike is more likely than a cut), appears unlikely for now but signs that wage growth was reaccelerating, alongside new, nasty supply shocks, and evidence the public was expecting higher inflation well into the future, could be a trigger. Given the ECI data is what Fed officials consider the most comprehensive measure of pay growth, it may be of concern, particularly some of the hawks. Nonetheless, Pantheon Macroeconomics takes the data with a pinch of salt, writing, “unfavorable rounding appears to be responsible for the 1.2% headline print. This is the third straight Q1 overshoot relative to the prior trend, hinting at – but not proving – residual seasonality in the data.” The consultancy adds, “This likely will prove temporary, given the very clear message from the low and falling quits rate, but the Fed is uninterested in forecasts and this report will be deeply unwelcome.” Pantheon believes there would need to be “a spectacular rollover in payrolls in May and June and equally spectacular inflation numbers in order to cut rates in June” and has pushed back its first rate cut forecast to September from June. Concluding, the consultancy writes, “we expect much better core inflation prints as recent idiosyncratic factors – including unfavorable residual seasonality in Q1 – fade away. For now, though, the ECI data will embolden the Fed’s hawks.” Headline Consumer Confidence fell in April to 97.0 from 104.7, a deeper fall than the expected 104. Within the report, it noted that average 12-month inflation expectations remained stable at 5.3% despite concerns about food and energy prices. Meanwhile, on the labour market, 40.2% of consumers said jobs were “plentiful,” down from 41.7% in March and 14.9% of consumers said jobs were “hard to get,” up from 12.2%. The differential between the two shrank to 25.3 from 29.5, Oxford Economics highlights this may indicate further softening in the labour market and an uptick in the unemployment rate ahead. There was a slight improvement in the consumers view of current business conditions, meanwhile expectations that stock prices will increase over the year-ahead declined and the share of those expecting higher rates rose. On a six-month basis, buying plans for homes and big-ticket appliances, which are interest-rate sensitive, continued to soften. Despite the headline drop, analysts at OxEco note that “this does not alter our forecast for real consumer spending. Near-term changes in confidence explain little of the fluctuations in real consumption, as the labour market, real disposable income, and household net worth matter more.” OxEco also noted that consumers became more pessimistic due to elevated retail gasoline and food prices, weak performance of equity markets, rising global political conflicts and concerns about job availability and future income. Elsewhere, oil ended Tuesday with a loss of 0.85% while Gold was sold, closing lower by 1.8%.
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For anyone following my Platinum Service it lost 50 points yesterday, to finish April with a gain of 4010 points after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 points, after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.57% lower at a price of 5035.
The Dow Jones Industrial Average closed 570 points lower for a 1.49% loss at a price of 37,815.
The NASDAQ 100 closed 1.92% lower at a price of 17,440.
The Stoxx Europe 600 Index closed 0.68% lower.
This Morning, the MSCI Asia Pacific closed 0.8% lower.
This Morning, the Nikkei closed 0.34% lower at a price of 38,274.
Currencies
The Bloomberg Dollar Spot Index closed 0.56% higher.
The Euro closed 0.3% lower at $1.0680.
The British Pound closed 0.4% lower at 1.2508.
The Japanese Yen fell 0.8% closing at $157.55.
Bonds
Germany’s 10-year yield closed 6 basis points higher at 2.59%.
Britain’s 10-year yield closed 6 basis points higher at 4.35%.
U.S.10 Year Treasury closed 5 basis points higher at 4.67%.
Commodities
West Texas Intermediate crude closed 0.85% lower at $81.93 a barrel.
Gold closed 1.8% lower at $2292.10 an ounce.
This morning on the Economic Front we have U.K. Manufacturing PMI at 9.30 am, followed by U.S. MBA Mortgage Applications at 12.00 pm. Next, we have the ADP Employment Change at 1.15 pm and Manufacturing PMI at 2.45 pm. This is followed by JOLTS Job Openings, ISM Manufacturing PMI and Construction Spending at 3.00 pm. Finally, we have the FOMC Statement at 7.00 pm and Fed Chair Powell’s press conference at 7.30 pm.
Cash S&P 500
Much to my aghast the S&P got hit hard yesterday following reports showing the Employment Cost Index signalling inflation, the PMI signalling recession leading to severe selling from 3.00 pm accentuated by a flush into the close. It was a pretty ugly day in markets with the 10-Year Treasury Yield trading at 4.68%. Following the rejection of the 50-Day Moving Average one could make the case for a ‘’Bear Flag’’ as many Moving Averages were lost including the key Weekly 14 EMA (5042). It is fair to say that markets are approaching the FOMC Meeting with a sense of exuberance. It was interesting that Treasury Secretary Yellen was all over the news yesterday. ‘’Concerned’’ about the deficit. A day before the Fed meeting and a day before the Treasury she runs will outline how they will finance the funding requirements. I do not believe in coincidences. None of us know what is going on behind the scenes but clearly there are problems mounting and they are trying to figure how to manage all of this, and she is concerned enough to publicly send signals. I have a hard time believing Yellen will choose a path that makes it even more difficult for her and risks a meltdown, especially now that Consumer Confidence is already plummeting. Yellen needs yield relief; the market needs yields relief and the economy needs yield relief as the fear in markets is palpable. Hence, I would not be surprised that they will do their best to design the funding in a way that minimises the impact on yields. Don’t doubt for a second that Yellen and Powell are in close touch on all of this. If the Treasury drains the RRP then Powell will have little choice but to end QT. Given all of the above and the severely oversold technical signals that I follow I have no interest in shorting the S&P. Yesterday after the S&P hit my 5091 buy level we rallied to an afternoon high at 5110. This move higher saw my 5100 revised T/P level triggered. That was the end of the good news as I bought the S&P again at 5074 before getting stopped out of this trade at 5055 and I am now flat. The S&P has support from 4998/5013 where I will again be a buyer with a 4985 ‘’Closing Stop’’. If triggered, I will have a T/P level at 5031. The FOMC is expected to hold rates at 5.25-5.50% at its May meeting announcement on Wednesday at 7.00 pm. There are no new SEPs due at this meeting. Strong incoming data, which alludes to sticky inflation and a largely robust growth trend, are likely to keep the central bank cautious in rushing towards easing policy. That said, the recent meeting minutes stated that almost all participants judged it would be appropriate to pivot to a less restrictive policy stance at some point this year, though there has been a notable shift in tone in recent weeks’ Fed Speak from officials to the hawkish side. Accordingly, traders will be attentive to the degree to which Chair Powell – whose presser begins at 7.30 pm– looks through recent upside in inflation data to gauge when it may begin its rate-cutting cycle. There are also expectations for the Fed to confirm its QT taper plans, although there are some tail risks that may be delayed given the data. Buckle in as this promises to be a wild trading session this evening.
EUR/USD
Late yesterday, the EURO hit my buy range for a now 1.0670 long position. I will add to this position on any further move lower to 1.0600 while leaving my 1.0535 ‘’Closing Stop’’ unchanged. I will now lower my T/P level to 1.0720. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dollar Index
Tuesday’s spike in Dollar/Yen saw the Dollar rally to my 106.15 sell level. This morning, the Dollar is trading higher at 106.45. I will continue to look to add to this short position on any further move higher to 106.75 while leaving my 107.15 ‘’Closing Stop’’ unchanged. Meanwhile I will leave my 105.60 T/P level unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash DAX
The DAX got bit hard yesterday, trading the whole of my buy range for a now 17930 average long position. I will leave my tight 17825 ‘’Closing Stop’’ unchanged, while lowering my T/P level to 17980. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash FTSE
The FTSE traded in a narrow range yesterday and I am still flat. We have short-term support from 8020/8090 where I will continue to be a buyer with the same 7955 tight ‘’’Closing Stop’’. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Thankfully we had no buy level in the Dow with the market trading over 600 points lower from where I marked prices yesterday morning. The Dow is short-term oversold. We have support from 37450/37700 where I will be a buyer with a tight 37295 ‘’Closing Stop’’. Given how oversold the Dow is trading, I no longer want to be short the market at this time.
Cash NASDAQ 100
Incredible sell-off in the NDX with the market now trading over 2% lower from where I marked prices 24 hours ago. Just like the Dow above, thankfully we had no buy level in this market, and I am still flat. The NDX has short-term from 17160/17310 where I will be a strong buyer with a 16995 wider ‘’Closing Stop’’. I no longer want to be short the NDX at this time despite Friday’s huge reversal. If this view changes, I will be back with a new update for my Platinum Members.
March BUND
Higher Treasury Yields saw the Bund hit my second buy level at 129.75 for a now 130.15 average long position. The Bund Market is closed today for the Mayday holiday. I will have a stop and T/P level for this position in tomorrow’s DC.
Gold Rolling Contract
Gold was hit hard yesterday, trading lower to my 2294 buy level. As I am still long Silver, I emailed my Platinum Members to exit any long Gold position at my revised 2299 T/P level and I am now flat. Gold has further support below from 2260/2275 where I will again be a buyer with a lower 2249 ‘’Closing Stop’’.
Silver Rolling Contract
Silver fell over 2.5% yesterday. I am still long at 27.30. I will continue to hold this position with no stop for now. I will now lower my T/P level to 27.70. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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