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CPI SHOCKS MARKETS - NO JUNE RATE CUTS!

INFLATION A PROBELM THAT IS NOT GOING AWAY QUICKLY

Click All Charts to Enlarge

MAJOR RESET ON INFLATION EXPECTATIONS: 10Y Treasury sees the biggest yield jump since Sept 2022.

1 - SITUATIONAL ANALYSIS

Three pieces of news rattled the markets on Wednesday

1. A hotter than expected March CPI
2. An extremely disappointing Treasury Auction
3. Release of FOMC Minutes

1- CPI

• The fourth hotter-than-expected core inflation report in a row got investors reevaluating expectations around the Fed's first rate cut.
• Analysts generally pushed their first rate cut forecast to July from June with the market consensus now pricing in just 38bps (1.5 rate-cuts) in 2024.

2- TREASURY AUCTION

• The highest "tail" since the 3.7bps in Dec 2022 and the third largest tail on record!
• This resulted in the biggest yield jump for the 10Y since Sept 2022.
• 2 year's biggest absolute jump since March 2023

3- FOMC MINUTES

• .FOMC Minutes from the March 19th-20th meeting stated almost all participants judged it would be appropriate to pivot to a less restrictive policy stance at some point this year.
• Participants generally noted recent data had not increased confidence that inflation was moving sustainably down to 2%.

CHART BELOW: The gaping wide "crocodile's mouth" appears to be getting ready to snap shut again?

CHART ABOVE: Inflation expectations surged to a new cycle high (its highest since June 2022).

CHART ABOVE: Surging retail & wholesale gasoline prices.

REMEMBER WHAT WE SAID ON THE WEEKEND

US TAX DAY April 15th: Seasonality will likely come into play here as the retail community tends to sell stocks into 4/15 to raise cash for these payments. Post payments we have historically seen a bullish trend develop.

Seasonality Says: 

LONG until April 9th - Then SELL - LONG Again After April 15th

CHART TOP RIGHT: April is normally considered the most favorable month in the world for equities!

CHART BOTTOM RIGHT: The first two weeks and the last two weeks of April have historically been seasonality quite strong

CHART BELOW: Tax Day could Trigger some tradable volatility? Remember the market moving CPI is Wednesday 04/10 proceeding Tax Day on 04/15.

2 - FUNDAMENTAL ANALYSIS

The 10 largest S&P 500 companies are expected to grow sales by 15% y/y and post EPS growth of 32%. In contrast, the remaining 490 firms are expected to grow topline by just 2% y/y and deliver EPS growth of -4%.

CHART RIGHT: A move towards 4.80% is where things could get tricky for stocks". We could be looking at a golden cross soon (50 crossing the 200 day).

CHART BELOW: S&P 500 v Inverted 10Y Treasury Yield

Yet another gaping wide "crocodile's mouth" appearing to be getting ready to snap shut again?

3 - TECHNICAL ANALYSIS

THE HEADLINE MARKET: MAGNIFICENT 7

• We are reaching the vertical lift part of the parabolic (geometric) lift shown by the dashed red line.
• We have intermediate term Divergence with momentum (bottom pane).
• In the short term Momentum appears to be rolling over (bottom pane).

MATASII CROSS: WEEKLY - CONTINUES TO SIGNAL A MAG-7 BUY

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

"CURRENCY" MARKET (Currency, Gold, Black Gold (Oil) & Bitcoin)

CONTROL PACKAGE

There are EIGHT charts we have outlined in prior chart packages which we will continue to watch closely as a CURRENT "control set".

1. US DOLLAR -DXY - MONTHLY (CHART LINK)
2. US DOLLAR - DXY - DAILY (CHART LINK)
3. GOLD - DAILY (CHART LINK)
4. GOLD cfd's - DAILY (CHART LINK)
5. GOLD - Integrated - Barrick Gold (CHART LINK)
6. OIL - XLE - MONTHLY (CHART LINK)
7. OIL - WTIC - MONTHLY - (CHART LINK)
8. BITCOIN - BTCUSD -WEEKLY (CHART LINK)

Another "Crocodile Mouth"! .

CHART ABOVE RIGHT

As gold pushes to higher & higher record highs (in USD terms), Real yields refuse to play along?? I side with BoAML's Michael Hartnett and believe that what we are seeing is Gold aggressively discounting a coming collapse in Real Rates.

GOLD cfd's - DAILY

The 3 Std Deviation band for Gold has gone almost vertical with Gold prices tracking it!! Frankly, in over 40 years I don't believe I have seen this technically occur with a 3 Std Dev in Gold? Something is either broken, panic has set in somewhere or there is an "elephant(s)" now playing the market?

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

INTEGRATED GOLD MINERS

We have a close eye on Gold and the INTEGRATED GOLD MINERS as represented by Barrick Gold. Barrick which broken out of its long term declining overhead resistance trend. It is likely time to be adding to your Gold and Silver positions on pullback opportunities.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

US EQUITY MARKETS

CONTROL PACKAGE

There have FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set".

1. The S&P 500 (CHART LINK)
2. The DJIA (CHART LINK)
3. The Russell 2000 through the IWM ETF (CHART LINK),
4. The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
5. Nvidia (NVDA) (CHART LINK)

S&P 500 CFD DAILY

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Daily - Our Though Experiment

Our Though Experiment, which we have discussed previously, suggests we have put in a near term top (or very close to it) and will now consolidate before possibly completing one final small impulse higher or put in a 1-2 Wave of a much higher degree.

NOTE: To reiterate what I previously wrote - "the black labeled activity shown below, between now and July, looks like a "Killing Field" where the algos take Day Traders, "Dip Buyers", "Gamma Guys" and FOMO's all out on stretchers!"

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

STOCK MONITOR: What We Spotted

MONDAY

• It was calm before the storm on Monday as participants await key risk events, namely US CPI on Wednesday, but also several Central Bank decisions, including from the ECB, BoC and RBNZ, while the FOMC Minutes will also be released post-CPI.
• Earnings season also starts at the tail end of this week.
• Stocks finished little changed but the Russell 2000 outperformed. In FX, the Dollar was sold and the Euro bid but Antipodes outperformed and Swissy lagged.
• JPY was ultimately little changed but it did test 152.00 to the upside with traders cognizant of any intervention on a move above this level, particularly with CPI on Wednesday which could have a large sway in the pair.
• Crude prices saw choppy price action on mixed geopolitics report regarding a ceasefire which was ultimately rejected by Hamas while Iran was punchy on retaliatory language against Israel following the attack on its consulate, it also was pointing responsibility towards the US.
• Elsewhere, modest pressure was seen in oil on the Reuters report that Iraq has completed the first stage of repairing oil export pipeline to Turkey.
• Treasuries were firmer across the curve ahead of supply and the aforementioned risk events.

INFLATION BREAKEVENS: 5yr BEI +1.0bps at 2.442%, 10yr BEI +1.3bps at 2.396%, 30yr BEI +0.9bps at 2.333%

REAL RATES: 10Y -- 2.0139%

STOCK SPECIFIC

• Alibaba (BABA) flat: Alibaba Cloud announces price cuts.
• United Airlines (UAL) +0.5%: Postponed its investor day planned for next month due to a US FAA review following safety incidents.
• Tesla (TSLA) +5%: CEO Musk said the EV-maker would unveil its "Robotaxi" on August 8th.
• TSMC (TSM) +1%: Has agreed to a USD 6.6bln subsidy for TSMC Arizona chip production; and up to USD 5bln in low-cost government loans.
• Perion Network (PERI) -41%: Cuts FY24 revenue and adj. EBITDA outlook citing Microsoft Bing modifications.
• Boeing (BA) -1%: FAA to investigate the loss of engine cover on Southwest Boeing 737-800.
• Apartment Income REIT (AIRC) +22.5%: Agreed to be acquired by Blackstone (BX) for about USD 10bln or USD 39.12/shr. Note, AIRC closed Friday at USD 31.35/shr.
• Model N (MODN) +10%: To be acquired by Vista Equity Partners for USD 1.25bln or USD 30/shr. Note, MODN closed Friday at USD 27.09/shr.
• Micron (MU) -0.5%: Intends to sequentially increase its DRAM module and SSD prices by more than 25% during Q2, according to DigiTimes citing sources.
• Global Foundries (GFS) -0.5%: Downgraded at Cantor amid 2024 fundamentals.

TUESDAY

• Stocks ultimately saw slight gains despite a choppy session.
• Strength in the futures was seen pre-market after reports Google (GOOGL) is expanding its in-house chip efforts and a slew of cloud deals amid the start of the Google Cloud event.
• Nonetheless, a sharp-sell off in Nvidia (NVDA) hit sentiment after the open through to the European close before a late trade reversal in stocks was observed.
• The upside was supported by commentary from Fed's Bostic who suggested it would be good news for the Fed if US CPI is in line with expectations on Wednesday, noting if the disinflation progress continues, the Fed could bring forward rate cuts.
• Elsewhere, Treasuries were bid across the curve in a lack of catalysts ahead of CPI on Wednesday while the weak 3yr auction did little to prevent the upside.
• Crude prices slid on a lack of geopolitical escalation while Israel Defense Minister appeared to contradict PM Netanyahu noting there is still no date for the Rafah operation.
• FX was largely flat ahead of key risk events but the NZD outperformed ahead of the RBNZ rate decision tonight. All eyes on US CPI on Wednesday.

INFLATION BREAKEVENS: 5yr BEI -2.9bps at 2.418%, 10yr BEI -2.0bps at 2.380%, 30yr BEI -1.7bps at 2.320%.

REAL RATES: 10Y -- 2.0006%

STOCK SPECIFIC

• Google (GOOGL) +1%: Expands in-house chip efforts and is to roll out new hardware in costly AI battle. In addition, with Google’s Cloud event over the coming days, there has been a slew of deals announced. One of the highlights, Broadcom (AVGO) is to migrate VMware workloads to Google Cloud.
• NetEase (NTES) +4%: Reportedly to revive partnership with Microsoft’s Blizzard.
• Netflix (NFLX) -1.5%: Initiated a significant restructure in its film department.
• General Motors (GM) +1%: Self-driving car unit, Cruise, plans to resume testing robotaxis.
• Microsoft (MSFT) +0.5%: To reportedly invest USD 2.9bln in Japanese data centers amid AI boom.
• Pfizer (PFE) +0.5%: Abrysvo meets primary Phase 3 endpoint in RSV disease.
• InMode (INMD) -7%: Lowers Q1 and FY24 revenue outlook.
• BP ADR (BP) +1%: Sees higher oil and gas production.
• Freeport-McMoRan (FCX) +2.5%: Upgraded at BofA saying it has “blue chip copper exposure.”
• Nvidia (NVDA) -2%: UBS analyst note was doing the rounds, and it had some cautious comments on Nvidia's (NVDA) October/Q3 report, also saying sentiment on semis is as optimistic as "I can ever remember".
• Intel (INTC) +1%: Reveals details of new AI chip to fight Nvidia (NVDA) dominance.
• Boeing (BA) -2%: FAA investigates claims by Boeing (BA) whistle-blower about flaws in the 787 Dreamliner, according to New York Times.

BOND MARKET

CONTROL PACKAGE

There have FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set".

NOTE: Our data supplier is currently having issues with their Bond Market pricing feeds.

1. The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
2. The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
3. The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
4. The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
5. REAL RATES (CHART LINK)
6. FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% +REAL % = 2.382% + 1.976% = 4.358%

As rate-cut expectations fell from 6 this year to 3, Treasury yields rose... non-stop... all week with the belly of the curve underperforming (5Y yields up 28bps on the week). Yields all ended back up near their year-to-date highs.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

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