Fellow investors & traders welcome to the macro report. Let's get Started!
Who's Trapped?
The S&P 500 is building momentum. Either the bulls are trapped, or the bears are trapped. With the Fed meeting and this month's inflation report out of the way, we should see the market decide the next direction.
As the market prices in debt ceiling uncertainty, we may see a breakdown and retest of the bull market trend.
Bitcoin is due for a pullback, with major support at 25k. If 25K holds while the macro improves, we will see a retest of 30k. The more we retest major resistance, the weaker it becomes.
Economic Activity
The economy is slowing, along with inflation. Everything points to the End of the Hiking Cycle.
Business ActivitySmall businesses are bracing for recession, which means less hiring, less investment, and less expansion. More evidence the Fed is within reach of ending rate hikes.
InflationHeadline CPi is now below Fed Funds. My guess is core drops below Fed Funds by July/August.
Producer Prices lead CPI inflation and well below Fed Funds both YoY and the annualized 3-month rate.
Super Core Inflation is also slowing. (Take out food, energy, and housing) The Month over Month read was ALMOST ZERO. I'd call that progress.
JobsJobless Claims are breaking to an 18-month high—more signs of a slowing economy and more pressure for the Fed to stop hiking.
ConsumerConsumers believe the U.S. Economy is headed for Crisis. This is why we see MoM Spending slow down and MoM Savings pick up. "Bracing for recession."
HousingRedfin data suggest rent growth is collapsing. This will soon factor into CPI, strengthening the case for a pause.
Median Asking rents are still falling.
PolicyThe Fed's balance sheet and lending rate are the two most powerful drivers of the economic cycle. I believe they are about to make a U-turn over the next 3-months. More banking turmoil means the Fed's balance sheet (liquidity) goes up, while a weakening economy and progress on inflation mean the Fed Funds rate can only go down from here.
Macro Forces
We should see these macro forces align with a risk-on appetite as we get closer to the end of the hiking cycle (I think we are there). As inflation cools, we should see the cost of money come down, and investors take on more risk, signaled through a weaker dollar.
U.S. 10y Treasury YieldsThe future cost of money looks to be headed lower.
U.S. DollarThe Denominator found some footing at 101, but the momentum remains on the downside as inflation cools and corporate earnings beat expectations. However, we could see the debt ceiling debacle fuel dollar strength as a safe haven.
Crude OilCrude oil is the largest and most volatile input to inflation. Last month it swung out of favor, but now it's rolling over as the lag effects of elevated Rates occur.
Closing Thoughts
- The Inflation and Growth trends piont lower, strengthening the case for a Fed Pause.
- The largest risk is "uncertainty" via Banking crisis and debt ceiling.
Earnings are recovering, with Big Tech leading the way and Global liquidity fueling crypto assets.
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The opinions expressed in the text below belong solely to the author and should not be used to make investment decisions. They should also not be considered as advice or a recommendation to participate in investment transactions.