No Jumbo Cuts Please
Markets rallied to new all time highs last week, closing up 1.37%.
However, on Friday after attempting to continue into new highs, markets failed and closed back inside of Thursday’s range.
This doesn’t guarantee a pullback, but it would be nice to see the market slightly lower headed into the FOMC meeting on Wednesday to minimize pullback risk, where price would move to reference points like the 20 DMA (orange).
Inflation – Not Bad, Not Good
On Wednesday, PPI inflation beat expectations coming in at a -0.1% (vs. 0.3% est.) month over month and 2.6% (vs. 3.3% est.) year over year.
This cooler than expected print would seem to indicate that peak “one-time” price shocks due to tariffs could be behind us. If that’s the case, CPI should be lower next month as a confirmation signal.
On Thursday, CPI inflation met expectations coming in at a 0.3% month over month and 2.9% year over year. This is up marginally from the 2.7% year over year reading last month.
A major component leading to the increase was shelter inflation moving from a month over month 0.2% to 0.4%. Shelter is roughly 35% of the read.
A valid concern here is that housing which has acted as an anchor for inflation especially through the tariff debacle, is starting to lift.
If the Fed cuts more than 25bps in a surprise this Wednesday, it would seem that housing inflation will continue, causing CPI to remain elevated or continue its uptrend over 3%.
Labor Continues To Crack…
Thursday also brought us one of the worst jobless claims reports in months.
Estimates were for 235k and the actual print was at 263k, well above the threshold level we use at 250k.
Add this to Tuesday’s annual revision of the Non Farm Payroll which was -911k, and suddenly the labor situation seems to be spiraling out of control.
FOMC – A Guaranteed Cut
Markets have priced in 100% odds of a cut this Wednesday, with 93% odds of it being a single 25bps cut.
This would seem the most logical to attempt slowing the deterioration of the labor market while also not pushing shelter inflation higher.
A 50bps jumbo rate cut likely wouldn’t go over well with the market as it would likely instill more of a panic rather than an appropriate easing of rates in response to “early signs.” Therefore:
- 25bps cut = likely bullish for markets
- 50bps cut = likely bearish for markets
The more telling aspect of Wednesday will be in the updated Summary of Economic Projections document where the Fed reveals the distribution of forecasts for rates in the dot plot, as well as the balance of risks to the dual mandate.
Note that in the last SEP there was a wide division between those thinking rates shouldn’t get cut, remaining at 450-425, and those thinking that rates would get cut twice, lowering to 400-375.
Do we see a stronger consensus now that the labor data has become more clear? Does that show up in how Fed members assign the balance or risks between inflation and unemployment?
Last SEP both unemployment and inflation risks were weighted to the upside. Given the sticky situation with inflation coming in at 3% (Feds target is 2%…) and initial jobless claims starting to lift off, this will tell us a lot about probability of recession headed into year end.
Trade Brigade Live Squawk is here!
Make the most of the final trading quarter with live intra-day commentary on breaking opportunities.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Weekly
Strong candle close that makes a HH, HL, and closes over prior week range. No signs of pullback imminent, but higher lows over 637 are most bullish and 613 prior high would start to become HL LiS.
SPY – Daily
Trend here remains up with a brand new ATH made on Friday. Note the inverted hammer though starts to indicate a failure to go higher. Staying below 658.5 should look for daily HL pullbacks over 652.25 or 647.5 which has confluence with lower edge of EM and daily 20 SMA.
SPY – Hourly
Brigade Bolt over the ATH takes care of itself. Under Friday low could initiate the pullback noting the overhead supply. Considering weekly and daily trend, green and white paths are base case, red is possible but seemingly lower odds. This holds true ahead of FOMC.
Market Internals
On Thursday internals confirm the move higher with bulls getting exchange level participation. On Friday the internals are much more mixed, hence the opportunity for pullback early this week.
Market Profile
Value does not progress higher on Friday and is inside Thursday. PoC actually moves lower. great excess high on the K period session. Below Thursday VAL unlocks the post of Thursday’s ‘P’ profile.
/BTC
Bitcoin is back over the neckline of the double top helping to suggest that generally risk appetite is improving not deteriorating.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
FOMC on Wednesday will have everyone’s attention.
Top watches: BLSH (new IPO), FDX, LEN
Swing Stock Scans
AFRM – Daily
Daily hammer off of the 20 SMA (orange) and prior breakout level. Long the high, stop on the low, look for IPO open as a target. Simple.
HD – Daily
Breaking out of a wedge over the daily 20 SMA (orange). Bullish 3 bar play from Friday gives us a possible entry over 425.8 area looking for the ATH target at 438.85 area. Think in terms of rate cuts and pricing in what that should do to housing and remodeling.
OTIS – Daily
Basing double bottom with neckline to break at 90.15. To get into the overhead gap need to clear 91.90. From there, lots of room until the gap close at 98.3. Not interested if it never breaks, or offers a look above and fail.
RCAT – Daily
Another bullish 3 bar play setting up over prior resistance highs and in an uptrend. Looking for the pivot high to target and then 14.75 prior highs from way off to our left.
RKLB – Daily
Breaking out of a weekly bull flag and daily consolidation. New highs await price above… watch for the hold and acceptance over 51.25 else this will be a failed attempt.