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WHAT YOU NEED TO KNOW!

ARE COMMODITIES UNDERPRICED??

It isn't so much that commodities are underpriced to an unprecedented level, but rather both the S&P 500 and US$ together are excessively over-valued!

When the dollar starts weakening along with the Equity markets it will be time to buy Commodities aggressively. The first wave of this occurring is already signaling with Gold, Silver, Copper, Cocoa and a few others. All indicate where we are headed.

RESEARCH

THE TAX PAYER COST FOR UNCONTROLLED IMMIGRATON

• As of March 2024, border security is routinely experiencing daily encounters of over 7,000 with a cumulative total of that during an April 10 press conference. House Speaker Mike Johnson (R-La.) said he estimates that nearly 16 million illegal immigrants entered the United States under the Biden administration.
• Adjusted for inflation, the lifetime cost to taxpayers of each illegal immigrant is over $80,000 according to reporting by the Center for Immigration Studies.
• Using Speaker Mike Johnson's April 10th update of 16M Illegal Immigrants, the Tax Payer cost of Illegal Immigration is $1.28 TRILLION.

2024 Q1 EARNINGS

• Bank stocks, though initially weak on earnings release, have been trending up while the overall market weakened.
• The Financials appear to be trying to follow the Banking stocks higher against the overall trend of the market.
• Earnings are at or near all-time highs in Europe and US. Historically when Earnings surge a Recession follows. The surge this time is parabolic! Does this fit with the current "No-Landing" - "No Recession" narrative?
• Small Business hiring plans are plunging - does this correlate with a strong earnings outlook? Maybe for the major global corporations, but not for America that historically has been built on small business.

DEVELOPMENTS TO WATCH

CHINA: IS CHINA CONTRIBUTING TO RISING US TREASURY YIELDS?

• In 2013 China held around $1.3T of US Treasury Debt. When China's holdings fell to ~0.9T, it was an obvious problem. The latest TICs report was a real eye opener with China plummeting to $0.775T.
• The correlation with rising US Treasury Yields is readily apparent (chart right - Top pane).
• It is also clear (chart right - bottom pane) that China is using the sales to buy Gold.

SERVICE INFLATION: EXPLODING CHILD CARE INFLATION

• Parents are drowning in childcare costs, and high inflation is adding to their laundry list of daily expenses.
• According to a recent survey from childcare platform Care.com:
• The average cost to enroll a child in a licensed day care can set you back $16,692 annually in 2024, or $321 a week for just one child. Infant care in a home day care costs $230 a week, or $11,960 a year.
• The price of a full-time nanny stood at an average of $766 per week, tallying up to $39,832 annually.
• A typical family with an income of $69,651 in New York could spend 22.1% of their annual income on childcare, while minimum-wage earners, making about $24,544, would spend 62.7% of their annual income on infant care.

GLOBAL ECONOMIC REPORTING

• LEADING ECONOMIC INDICATOR (LEI)
• The LEI’s six-month and annual growth rates remain negative, but the pace of contraction has slowed.
• Overall, the Index points to a fragile—even if not recessionary—outlook for the U.S. economy.
• According to the Conference Board: "rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024."

• HOUSING STARTS/BUILDING PERMITS
• “The drop in permits and the spike in mortgage rates following the release of the March CPI report lend some downside risk to our forecast for a modest rise in housing starts over the rest of 2024.”

• RETAIL SALES
• "that the retail sales number is a nominal dollar growth rate and with inflation running so hot this is accounting for much of the growth. Real retail sales, i.e. retail sales adjusted for inflation, are much weaker and essentially have been flat for the past three years". 

• EMPIRE SURVEY
• The report summarizes that business activity continued to decline in New York.
• The headline general business conditions index rose but remained below zero.

In this week's "Current Market Perspectives", we focus on what the Credit Markets (CDX) are telling us versus the MOVE (Bond Volatility)) and VIX (Equity Volatility) along with the current level of Real Rates.

=========

THE TAX PAYER COST FOR UNCONTROLLED IMMIGRATON

The anticipated annual expense related to handling illegal immigration in the United States is substantial. As of 2023, American taxpayers bear a significant financial burden due to various costs associated with illegal immigration.

As of March 2024 border security is routinely experiencing daily encounters of over 7,000 with a cumulative total of that. During an April 10 press conference, House Speaker Mike Johnson (R-La.) said he estimates that nearly 16 million illegal immigrants entered the United States under the Biden administration.

Financial data is extremely limited as many government agencies simply don't report and therefore it is difficult to assemble. This is what we have sourced (sources are as indicated).

• U.S. Department of Homeland Security (DHS) is distributing $300 million to sanctuary cities that provide services like shelter and food to illegal immigrants. (1)
• The $300 million in grants will be provided through the Shelter and Services Program (SSP), according to an April 12 press release. SSP offers funding to non-federal entities like NGOs and local governments that provide support to illegal immigrants released into the United States by the DHS. Out of the $300 million, $275 million will be distributed in the first allocation, with the remaining $25 million to be allocated later this year to meet operational requirements.
• In addition to the $300 million funding, the DHS also announced $340.9 million for the SSP competitive grant program. (1)
• Last year, over $780 million was distributed through SSP and another program that went to organizations and sanctuary cities across the country that provided services to illegal immigrants. Well-known sanctuary cities include Los Angeles, Chicago, New Orleans, New York City and San Francisco.
• CHNV PROGRAM: In January 2023, the Biden administration announced the Cubans, Haitians, Nicaraguans, and Venezuelans (CHNV) program that allows people from the four nations the right to live and work lawfully in the United States for a period of two years under a legal mechanism called “humanitarian parole.” In an April 12 press release, CBP said that more than 404,000 individuals from these four nations who arrived via commercial flights “were granted parole under these processes.” According to a Freedom of Information Act (FOIA) lawsuit filed by the Center for Immigration Studies (CIS), “hundreds of thousands of inadmissible aliens from foreign airports” were ferried into some 43 American airports in the past year through CBP-approved secretive flights. CBP did not reveal the names of the 43 American airports that received 320,000 illegal immigrants last year. Instead, the agency admitted that the process was creating law enforcement vulnerabilities.(1) COSTS: UNREPORTED
• Sources such as Newsweek hint that the true cost may be even higher, possibly reaching $150 billion annually, an amount shared by both federal and state governments. In all actuality, the financial impact could be much worse.(2)
• Estimates suggest that illegal immigrants cost each household about $1,000, adding up to more than $120 billion a year.
• Border Crisis Costs Municipalities $202 Billion - and at least another $159 million per day. (3)
• Adjusted for inflation, the lifetime cost to taxpayers of each illegal immigrant is over $80,000.(4)
• Under Biden’s orders, Homeland Security has released into the United States nearly 2 million illegal border-crossers (so far!), meaning their lifetime cost to taxpayers will be close to $150 billion. Add in another 1 million got-aways — border infiltrators who were detected (by cameras or ground sensors or other means) but not apprehended because the Border Patrol had its hands full dealing with all the illegal immigrants turning themselves in knowing they’d be released — and the lifetime cost for taxpayers soars past $200 billion.(4)

Using Speaker Mike Johnson's April 10th update of 16M this number would be $1.28 TRILLION .

SOURCES:

1. Epoch Times: Authored by Naveen Athrappully via The Epoch Times,
2. Epoch Times: Authored by Chadwick Hagan via The Epoch Times,
3. Center for Immigration Studies - 02-03-2023
4. Center for Immigration Studies - 02-10-2023

BACKGROUND ON CHART ABOVE: As the chart above shows, the peak of the first wave of migrants occurred in 2014. President Obama correctly called it a humanitarian crisis and his Homeland Security secretary said it was a "bad day" when apprehensions exceeded 1,000.

Responding to the second wave in 2018 and 2019, President Trump enacted policies and entered into agreements with Mexico and Guatemala that greatly reduced the migration of children and families. Under Senator Johnson's leadership as Chairman of the Homeland Security and Governmental Affairs Committee from 2015-2020, Senator Johnson's committee was able to the following:

• Established quantifiable, objective metrics for DHS to use to measure border security (Border Security Metrics Act of 2015, included in the NDAA).
• Held more than 30 hearings and released two staff reports examining the factors that have led to our failure to secure our borders, including one examining lessons we can learn from Israel’s approach to border security, aviation security and cybersecurity.
• During the humanitarian crisis at the border in 2018, the committee held more than 20 bipartisan staff briefings, several member briefings, and also took staff delegation trips to the border, culminating in a majority staff report in 2018 examining the staggering increase in family unit illegal border crossings from 2015-2019, and providing recommendations to address the problem.
• Developed a proposal in 2019 for a streamlined process called Operation Safe Return that became the basis for two DHS expedited processing programs at our border that have helped reduce holding time for illegal crossings and make the process more effective and efficient.
• Unfortunately, under the Biden Administration, or the third wave, border security is routinely experiencing daily apprehensions over 4,000. This is a direct result of the Biden Administration's policies. Biden transition officials asked Trump Homeland Security officials how to prevent a border crisis. They were explicitly told to keep the Migrant Protection Protocols (a.k.a. Remain in Mexico) and other agreements with Mexico and Central American countries in place. Upon assuming office, instead of heeding that advice, President Biden completely dismantled the very policies that had ended the surge. The border is now in a crisis that far exceeds anything during the previous administrations and the media is silent. 

SOURCE: Senator Ron Johnson's August 16, 2021 Border Security Round Table - Participants included: Mark Morgan - Former Commissioner of U.S. Customs and Border Protection Brandon Judd - President of the National Border Patrol Council, Laurie Badura - Mother of Fentanyl victim and founder of Saving Others For Archie, Mark Podoll - Green Lake County Sheriff, Martin Schulteis - Washington County Sheriff, Ryan Waldschmidt - Fond du Lac County Sheriff.

FOR FULL AND BALANCED COVERAGE WE SUBMIT THE FOLLOWING:

1- GENERALLY ACCEPTED MAINSTEAM MEDIA "CONSENSUS" DATA POSITION (NOT OURS WHICH IS NEARLY 10X LARGER)

• Net Cost of Illegal Immigration:
• At the federal, state, and local levels, the net cost of illegal immigration is at least $150.7 billion.
• This figure is derived by subtracting the tax revenue paid by illegal aliens (approximately $32 billion) from the gross negative economic impact of illegal immigration ($182 billion).
• In 2017, the estimated net cost was around $116 billion, indicating an increase of nearly $35 billion in just five years¹.
• Cost Breakdown:
• Taxpayers pay $182 billion annually to provide services and benefits to illegal aliens and their dependents.
• Tax payments by illegal aliens cover only around a sixth of the costs they create at all levels in the country.
• Evidence shows that many illegal aliens work in the underground economy and frequently avoid paying income tax altogether.
• Some even receive net cash profits through refundable tax credit programs¹.
• Individual Impact:
• Each American taxpayer bears an annual cost of $1,156 due to illegal immigration (or $957 after factoring in taxes paid by illegal aliens).
• Each illegal alien or U.S.-born child of illegal aliens costs the U.S$8,776 annually¹.
• Comprehensive Examination:
• This cost study report provides a comprehensive examination of the financial impact of illegal immigration.
• Costs range from emergency medical care to in-state tuition, incarceration, and welfare programs.
• The burden falls on American citizens and legal immigrants, as only a fraction of these costs is recouped from taxes paid by illegal aliens¹.

In summary, the annual expense related to handling illegal immigration includes a wide range of costs, impacting taxpayers, public services, and various aspects of life in the United States¹.

2- MAINSTREAM REASON WHY THE RECENT IMMIGRATION BILL WAS NOT APPROVED BY CONGRESS? (NOT OUR OPINION WHICH IS THAT THE BILL DIDN'T HALT ILLEGAL IMMIGRATION BUT RATHER WAS AIMED AT PRIMARILY FINANCING & FACILITATING FASTER BORDER CLEARING & DISBURSEMENT OF "EARMARKS")

The recent Immigration Bill faced significant opposition and ultimately failed in the Senate. Here are some key points about the bill and the reasons behind its failure:

• Bill Overview:
• The bill, known as the Emergency National Security Supplemental Appropriations Act, is aimed to address border policy and foreign aid.
• It included provisions related to border barriers, detention facilities, and hiring more immigration officers and judges.
• The bill sought to expedite the asylum process and increase the standard of evidence needed for asylum status.
• It also allocated funds for interdicting fentanyl and human trafficking, as well as providing aid to Ukraine and Israel¹.
• Opposition and Distortions:
• Former President Donald Trump and other Republican leaders opposed the bill even before its release.
• Some Republicans distorted the bill’s provisions, claiming it would allow up to 5,000 illegal entries per day.
• Controversy centered on emergency authority to “summarily remove” people crossing illegally, even if seeking asylum.
• Critics argued that presidents already had such authority, but courts had blocked Trump’s attempts¹.
• Senate Vote:
• On February 7, the bill failed in the Senate.
• All but four Republicans and a few Democrats opposed it.
• Despite bipartisan efforts, political considerations influenced the outcome¹².
• Complexity and Political Landscape:
• Immigration bills face challenges due to ideological differences, partisan politics and competing priorities.
• Balancing security, humanitarian concerns and economic needs remains difficult.
• The bill’s failure reflects broader divisions within Congress¹³.

In summary, the recent immigration bill encountered opposition, distortions and political dynamics, leading to its failure in the Senate¹².

2024 Q1 EARNINGS



KEY METRICS

Earnings Scorecard: For Q1 2024 (with 14% of S&P 500 companies reporting actual results), 74% of S&P 500 companies have reported a positive EPS surprise and 58% of S&P 500 companies have reported a positive revenue surprise.

Earnings Growth: For Q1 2024, the blended (year-over-year) earnings growth rate for the S&P 500 is 0.5%. If 0.5% is the actual growth rate for the quarter, it will mark the third-straight quarter of year-over-year earnings growth for the index.

Earnings Revisions: On March 31, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q1 2024 was 3.4%. Six sectors are reporting (or are expected to report) lower earnings today (compared to March 31) due to negative EPS surprises and downward revisions to EPS estimates.

Earnings Guidance: For Q2 2024, 7 S&P 500 companies have issued negative EPS guidance and 5 S&P 500 companies have issued positive EPS guidance.

Valuation: The forward 12-month P/E ratio for the S&P 500 is 19.9. This P/E ratio is above the 5-year average (19.1) and above the 10-year average (17.8).  

REPORTING THIS WEEK

MONDAY

• Ericsson (ERICB SS) Q1 (SEK): Net Sales 53.325bln (exp. 54.140bln). Adj. EBIT 4.305bln (exp. 2.807bln). Adj. gross margin 42.7% (exp. 40.2%). Network gross margin 44.3% (prev. 40.6% Y/Y); Sees sales stabilizing in H2 2024.

TUESDAY

• Bank of America (BAC) -3.5%: Was very choppy post-earnings; EPS, revenue, NII, and NIM beat with strong revenue breakdown, although CRE charge-offs rose to USD 304mln (prev. 115mln in Q4 and 39mln in Q3), albeit still at a low level. Post-earnings, next quarter NII view surpassed expectations.
• Morgan Stanley (MS) +2.5%: Strong earnings; EPS, revenue beat with strong Wealth Management revenue.
• Bank of New York Mellon (BK) -2%: Top and bottom line surpassed Wall St. expectations alongside a new USD 6bln buyback program. But, forecasts lower-than-expected NII for 2024.
• United Health (UNH) +5%: Better-than-expected results.
• PNC Financial Services (PNC) -2%: Mixed earnings; bottom line and NII beat, but top line missed and said soft demand weighed on loan growth.

WEDNESDAY

• ASML ADR (ASML) -7%: Revenue and bookings missed, with next quarter top-line guidance light.
• ASML (ASML NA) Q1 (EUR): Revenue 5.29bln (exp. 5.39bln). Bookings 3.61bln (exp. 4.63bln). Adj. EPS 3.11 (exp. 2.68). 2024 outlook unchanged; Guides Q2 revenue between 5.7-6.2bln (exp. 6.62bln)
• United Airlines (UAL) +17%: Posted a much shallower loss per share than expected and beat on revenue, while for the FY adj. EPS was light but revenue midpoint topped forecasts.
• United Airlines Holdings Inc (UAL) - Q1 2024 (USD): Adj. EPS -0.15 (exp. -0.57), Revenue 12.50bln (exp. 12.45bln). PRASM USD 15.79 (exp. 15.68)Revenue passenger miles 57.43bln (exp. 57.36bln). Available seat miles 71.67bln (exp. 71.19bln). Load factor 80.1% (exp. 80.7%). Co. said the demand environment remained strong. (PR Newswire) Shares rose 5.2% pre-market. +5.3% in pre-market trade
• J.B. Hunt (JBHT) -8%: Metrics disappointed with underwhelming commentary.
• Citizens Financial (CFG) +2%: EPS and net income beat.
• US Bancorp (USB) -3.5%: Total avg. deposits, loans, NII, and NIM were light, although do note top and bottom line marginally beat.
• Travelers (TRV) -7.5%: Fell short on EPS and net premiums written.
• Prologis (PLD) -7%: Lowers FY24 core FFO ex-items guidance.
• Omnicom (OMC) +1.5%: EPS and revenue surpassed Wall St. expectations alongside positive commentary.

THURSDAY

• Netflix Inc (NFLX) Q1 2024 (USD): EPS 5.28 (exp. 4.52), Revenue 9.37bln (exp. 9.28bln), Q1 Subscriber Additions 9.33mln (exp. 5.11mln). Guides Q2 EPS USD 4.68 (exp. 4.54). Guides Q2 revenue USD 9.49bln (exp. 9.51bln). Guides Q2 Subscriber Additions to be lower in Q2 vs Q1 due to typical seasonality (exp. 3.51mln). Guides Q2 operating margin 26.6% (exp. 25.4%).Will stop reporting quarterly member ship number and ARM starting from Q1 2025 earnings. Shares -6.1% pre-market
• L'Oreal shares gained as much as 4.2% in the European session after strong results and making note of strong growth in China.

Earnings are at or near all-time highs in Europe and US. Historically when Earnings surge a Recession follows. The surge this time is parabolic! Does this fit with the current "No-Landing" - "No Recession" narrative?

Small Business hiring plans are plunging - does this correlate with a strong earnings outlook? Maybe for the major global corporations but not for America that historically has been built on small business.

BANKING STOCKS

Bank stocks though initially weak on earnings release have been trending up since while overall market weakened.

FINANCIALS STOCKS

The Financials appear to be trying to follow the Banking stocks higher against the overall trend of the market.

DEVELOPMENTS TO WATCH

CHINA: IS CHINA CONTRIBUTING TO RISING US TREASURY YIELDS?

I recall not long ago (it seems) checking the TICS report on US Treasury Holdings and seeing Japan and China as the dominant holders, with China holding around $1.3T. When China's holdings fell to ~0.9T it was an obvious problem. The latest TICs report was a real eye opener with China now down to $0.775T.

A little less than half of what they held as recently as 2013! (Chart below - top pane)

Yes China's FX reserves are not growing as fast, but when I look at the rate of China's buying of Gold (chart below - bottom pane) there is no other conclusion than China is getting out of US Debt as fast as is possible, and doing it in a fashion to not completely destabilize the global system.

US Treasury Yields are not rising simply because of Inflation and then end of the Great Moderation. They are rising because China is selling and there is now too few buyers to pick up the magnitude of the selling. It makes you wonder just how much China's selling has had to do with the end of the Great Moderation and the Inflation shock since Covid?

SERVICE INFLATION: EXPLODING CHILD CARE INFLATION

Parents are drowning in childcare costs, and high inflation is adding to their laundry list of daily expenses.

According to a recent survey from childcare platform Care.com:

• The average cost to enroll a child in a licensed day care can set you back $16,692 annually in 2024, or $321 a week for just one child. Infant care in a home day care costs $230 a week, or $11,960 a year.
• The price of a full-time nanny stood at an average of $766 per week, tallying up to $39,832 annually.
• A typical family with an income of $69,651 in New York could spend 22.1% of their annual income on childcare, while minimum-wage earners, making about $24,544, would spend 62.7% of their annual income on infant care.
• In New York, the average cost of infant care is $15,394 annually per child, or $1,283 per month, according to the Economic Policy Institute. For a four-year-old, those expenses average $12,358 a year, or $1,030 each month.CO
• The cost of day care and preschool rose 4.4% in March compared to a year ago. While that’s slightly down from the 5.5% year-over-year increase reported in February, it’s still a struggle for millions of families.
• The problem has worsened as some childcare centers have been forced to shut down or are at risk of closing following the expiration of pandemic-era funds. The cost of childcare accelerated during the pandemic.

COMPARED TO COLLEGE (Which Biden wants to Forgive - Is Child Care next?)

• In-state tuition for a four-year public college in New York is just $7,938.
• Across the US, there are 33 states where childcare is more expensive than college, the Economic Policy Institute found. In some areas, infant care can set you back tens of thousands of dollars more than a college education.
• In Washington, D.C., childcare costs $18,487 more than in-state tuition for a four-year college.

“To think that … paying for childcare costs more than it would to send your kid to college is wild” .

GLOBAL ECONOMIC INDICATORS: What This Week's Key Global Economic Releases Tell Us

LEADING ECONOMIC INDICATOR (LEI)

The Conference Board Leading Economic Index® (LEI) for the U.S. decreased by 0.3 percent in March 2024 to 102.4.

Over the six-month period between September 2023 and March 2024, the LEI contracted by 2.2 percent—a smaller decrease than the 3.4 percent decline over the previous six months.

As Reported by the Conference Board (LINK)

• "Negative contributions from:
• The yield spread
• New building permits
• Consumers’ outlook on business conditions
• New orders and
• Initial unemployment insurance claims drove March’s decline.
• The LEI’s six-month and annual growth rates remain negative, but the pace of contraction has slowed.
• Overall, the Index points to a fragile—even if not recessionary—outlook for the U.S. economy.
• Indeed, rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024.
• The Conference Board forecasts GDP growth to cool after the rapid expansion in the second half of 2023.
• As consumer spending slows, US GDP growth is expected to moderate over Q2 and Q3 of this year.”

HOUSING STARTS/BUILDING PERMITS

Building permits, the more forward-looking gauge of housing activity, fell 4.3% in March to 1.458mln from 1.523mln, and shy of the expected 1.515mln, while Housing starts tumbled 14.7% to 1.321mln (prev. 1.549mln), well short of the expected 1.487mln and outside the lower bound of the forecast range of 1.487mln.

As Oxford Economics states:

“The drop in permits and the spike in mortgage rates following the release of the March CPI report lend some downside risk to our forecast for a modest rise in housing starts over the rest of 2024.”

• Nonetheless, the consultancy adds their current baseline assumes housing starts will rise to an annual pace of about 1.5mln in the second half from 1.42mln in Q1.
• In addition, Oxford expect single-family starts, where there continues to be a shortage of supply, to drive the gains in housing starts in 2024.

RETAIL SALES

Headline retail sales rose by 0.7%, above the 0.3% forecast but down from the prior (upwardly revised) 0.9%.

The ex-autos measure surged 1.1% from the prior 0.6%, above the 0.3% forecast, while ex-gas and autos rose by 1.0% from the prior 0.5% - showing widespread gains across consumer spending.

The control group, which feeds into US GDP, rose by 1.1%, accelerating from the prior 0.3% and above the 0.4% forecast.

Overall, a very strong report with the economy still showing resilience in the wake of Fed rate hikes.

LOOKING INTO THE REPORT

• Upside in gas stations (+2.1%), miscellaneous store retailers (+2.1%), non-store retailers (+2.7%), and general merchandise stores (+1.1%) led the upside.
• Underperforming areas of business included Sporting goods, hobby/musical instruments and book stores (-1.8%), Clothing (-1.6%), Electronics (-1.2% and Motor vehicle and parts dealers (-0.7%). Despite the overall hot report with revisions higher, ING highlights:

"that the retail sales number is a nominal dollar growth rate and with inflation running so hot this is accounting for much of the growth. Real retail sales, i.e. retail sales adjusted for inflation, are much weaker and essentially have been flat for the past three years".

Nonetheless, the Atlanta Fed GDPNow Q1 tracker has been bumped up to 2.8% from 2.4%.

EMPIRE SURVEY

• Headline NY Fed Manufacturing activity index in April rose to -14.3 from -20.9, but not as much vs expectations of -7.5.
• New orders remained well in contractionary territory at -16.2, but saw a slight improvement from -17.2 in March.
• The Prices Paid component increased to 33.7 from 28.7 while employment saw a slight rise to -5.1 from -7.1.
• Looking ahead, the six-month conditions eased to 16.7 from 21.6.
• The report summarizes that business activity continued to decline in New York.
• The headline general business conditions index rose but remained below zero.

"New orders and shipments both declined significantly, and unfilled orders continued to shrink. Delivery times shortened, and inventories edged higher. Labor market conditions remained weak, with employment and hours worked moving lower. The pace of input price increases picked up somewhat, while the pace of selling price increases held steady. Though firms expect conditions to improve over the next six months, optimism remained subdued".

Despite a weak headline print, analysts at Pantheon highlight it is probably not a cause for concern and recently it has been a woeful guide to the national ISM manufacturing index.

GLOBAL MACRO

WHAT DOES YOUR SCAN OF THE DATA BELOW TELL YOU? - THE MEDIA AVOIDS BAD NEWS!

We present the data in a way you can quickly see what is happening.

THIS WEEK WE SAW

Exp=Expectations, Rev=Revision, Prev=Previous

"YOU MEAN A DOWN WEEK IS STILL POSSIBLE??"

A CORRECTIVE / CONSOLIDATION IS THE BEST THING THAT COULD HAPPEN!

(IF YOU WANT HIGHER EQUITY MARKETS!)

Click All Charts to Enlarge

HISTORICAL ELECTION YEAR PERFORMANCE: 2024 was the 3rd best Election Q1 since 1950. Chop continues up ~2.5% April-October. Only 2 losses in the last 7 months of election years since 1950: 2000 (Dotcom Bubble bursts) & 2008 (Financial Crisis).

1 - SITUATIONAL ANALYSIS

This was a week characterized by:

• Data supporting 'No Landing' from a Growth perspective and
• Disappointment from a Disinflation perspective.

FedSpeak was without exception hawkish as they suddenly realized that all that 'pivot' optimism did nothing but dramatically ease financial conditions and interfere with their 'best laid plans' for a rate-cut and soft landing.

Friday, Nasdaq was down over 2% while The Dow managed to gain 0.5%. Small Caps were almost unchanged by the end of the day with the S&P lagging.

We are moving further into fear territory. This sell-off feels, so far, very well behaved. (Chart Right).

CHART BELOW: A lot of fear across various indicators, but things haven't fully spilled over to equities...yet?

WEEK'S RECAP

• INDEXES: Technically we are now in bear market since we are down over 22% from the prior highs.
• All the majors ended the week red (with The Dow desperately trying to get back to even).
• Nasdaq was down over 5.5% on the week! S&P and Small Caps down around 3%.
• Nasdaq is down for six straight days for its biggest weekly drop since Nov 2022, breaking below its 100DMA as CTA 'sell threshold's' were crossed.
• The Russell 2000, Nasdaq, and Dow are all back below their 100DMA, and the S&P 500 is pushing down towards its 100DMA (having blow thru the CTA 'sell' thresholds).
• The NDX is now pacing for its worst week in over a year (down 6 of 7 weeks) as a complicated technical backdrop (CTAs, lower retail participation, NDX now testing 100-dma, seasonality), sideways earnings revisions thus far (ASML, TSM and even Sheridan’s NFLX EPS revisions were only 1-2% last night), a tense geopolitical backdrop (overnight headlines) and elevated positioning are testing conviction into a busy week of earnings.
• VIX: Soared this week to six-month highs, and credit markets also finally started to crack.
• MAG7: basket broke below its 50DMA this week - the first time since October, when The Fed 'pivoted' and save the world. The market cap of the MAG7 is now down over $1 Trillion from its highs a week ago.
• AI LEADERS: crashed relative to firms 'at risk from AI', plunging to their lowest in two months.
• Of note is that the AI Leaders are perfectly back to their prior peak in 2021 (which was driven by chip demand for crypto mining and COVID disruptions), breaking down to the 100DMA and through the medium-term uptrend.
• NVDA plunged 10% Friday back to two month lows, closing below its 50DMA for the first time since Nov 2023.
• SEMIS: were basically brutally beaten down this week.
• BANKS: had a decent week with Wells Fargo and Morgan Stanley outperforming. JP Morgan is still lagging from the drop on its last Friday's earnings.
• TREASURY YIELDS: Ended the week higher, but not before plunging overnight on a flight-to-quality bid as initial Israeli missiles hit Iran, taking yields lower on the week.
• By the close of the week, the belly slightly underperformed but yields were all up by around 8-10bps.
• 5.00% remains a key level for the 2Y Yield.
• US DOLLAR: Rallied for the second straight week, hitting its highest since early Nov 2023 last night on the mid-east attacks before sliding back.
• PRECIOUS METALS:
• Spot Gold prices spiked overnight Thursday on the Israel attack, pulled back, then rallied up to $2400 once again to close at the highs. Gold closed the week at a new record high...
• Silver soared 3% on the week to new cycle highs (its highest since Feb 2021)..
• Silver has been broadly speaking outperforming gold in recent weeks after peaking at a gold-to-silver ratio of around 92x in January, it is ow down to 83 (still well above the 65x average since 1980, implying silver remains 'cheap' to gold.
• OIL: Despite two major attacks in the Middle East, oil prices ended lower for the second week in a row (well WW3 hasn't started yet). Some knock-on effects from an evaporation of hope for demand-sponsoring rate-cuts also weighed on sentiment as WTI

NOTES:

• CTA group sold $25B globally this week ($9B in SPX) with next week expected to bring another $27B globally (and $10B SPX) in a flat tape scenario. As a reminder the medium term threshold (aka most important) level is 4886 – less than 100 handles away from spot.
• Next week brings 43% of SPX set to report earnings highlighted by META/MSFT/GOOGL (aka $6.1T of mkt cap) reporting on Thurs night...on the macro front, key reports include 1Q GDP on Thurs & March PCE on Fri.

CHART TOP RIGHT: NASDAQ and SOX RSI hitting lowest levels in a while, but as we all know, oversold can stay in oversold mode for longer than most think possible.

CHART BOTTOM RIGHT: The market has seen more Hindenburg Omens than in any year since the peak

CHART BELOW: CSCO analog doesn't look so crazy anymore.

2 - FUNDAMENTAL ANALYSIS

CREDIT MARKETS LEAD

As you are well aware, we are strong believers that Credit Markets LEAD and Equity & Bond Markets FOLLOW.

In the way of a reminder let's revisit what we previously outlined in the Mid-Week Subscribers update for those that might be new subscribers.

The Bond Market (MOVE) and the Equity Market (VIX) before we look at the Credit Markets (CDX) to see what the signals are.

VOLATILITY - MOVE & VIX

It took bond volatility, MOVE, three months to reach more "normal" levels of volatility. This has basically been reversed in a few sessions. The latest move in the MOVE has been huge (CHART ABOVE)

CHART BELOW

Remembering that you don't compare mean reverting to trending assets, the gap between bond volatility and SPX is now simply huge.

The reaction in VIX has been extreme.

Last time we had a similar pick up in VIX was in Sep/Oct. The initial move higher in VIX was accompanied with a 5.5% sell off in SPX.

The VIX eventually surged even higher during the autumn, and the total SPX sell off reached around 8%.

SORTING OUT VOLATILITY v CREDIT MARKETS

Credit protection is up, but far from panic.

While the VIX has exploded to the upside, credit protection, CDX IG, is showing much less panic (chart right)

Compare SPX to the CDX IG and you realize this appears at this stage to be nothing more than just a normal sell off, with little panic.

(Chart Right shows SPX vs CDX IG inverted.

CHART BELOW: The High Yield Credit sector as represented by the "JNK" is currently reflecting nothing more than a consolidation to the 200 DMA before completing a potential final leg up.

This is normally good for the equity markets.

Note below that we bounced off the 200 DMA on Friday which matches the "Hammer Candlestick" in the S&P 500 (see S&P chart later).

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above: SUBSCRIBER LINK

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 has rolled over but hasn't yet decisively broken the Momentum trend line support. (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)

CHART RIGHT: As gold pushes to higher & higher record highs (in USD terms), Real yields have so far refused to play along (right)?? Normally Gold falls when real yields rise and are historically negatively correlated. 

What we believe is that what we are seeing is Gold aggressively discounting a coming collapse in Real Rates which we expect between 2.25% - 2.5%.

CONTROL PACKAGE

There are NINE 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)
9. 10y TIPS - Real Rates - Daily (CHART LINK)

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?

NOTE: Gold CFD's have not corrected (below) whereas Gold Bullion has.(GOLD - DAILY (CHART LINK))

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

INTEGRATED GOLD MINERS

We continue to have a close eye on Gold and the INTEGRATED GOLD MINERS as represented by Barrick Gold. Barrick has broken out of its long term declining overhead resistance trend.

It has been pulling back this week as Gold Bullion has. It may be a good opportunity to be adding to your Gold and Silver positions on any real pullbacks.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

US EQUITY MARKETS

Are bank reserves at The Fed still the driving force for reality? (Chart Right)

We saw the reality check from Aug-Oct last year; are we about to get another?

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

The S&P 500 cfd aggressively led the S&P 500 to its cfd 100 DMA but not yet the S&P 500 cash index (see "Thought Experiment")

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Daily - Our Though Experiment

The SPX put in a massive "Hammer Candle" overnight Friday, touching the 100 day at intraday lows. These are very rare candles when it comes to indexes. When occurring, post sell offs, they tend to mark that the price decline is over and prices will rise from there (See chart right)

Our Though Experiment, which we have discussed many times previously in the way of a projection, 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 final Wave 5 of a 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", the "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

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".

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)

FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% +REAL % = 2.414% + 2.193% = 4.607%

WEDNESDAY TREASURY AUCTION

Another super strong demand showing for 20yr Treasuries with the USD 13bln reopening stopping through the WI by 2.5bps, the largest stop-through since 2023, better than March's 2bp stop-through and the six-auction avg. 0.2bps. The auction was covered 2.82x, above the prior 2.79x and avg. 2.57x, Dealers were left with 9.1%, beneath the prior 9.3% and avg. 13.7%, with Indirects taking a chunky 74.7%, above the prior 73.5% and avg. 68.0%. After recent heavy selling, the auction was seen as a litmus test for dip-buying appetite, and it has clearly passed with flying colors.

Yields fell on the 10Y TNX (below)

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

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