Broad based Deceleration in CPI || FFR pricing - 98% Prob. of a Rate Cut & Bull Steepening || Constructive Technical Set on US2s - Yields at 3.50% ??? || SPX Correction ???

"I fear not the man that has practiced 10,000 Kicks once, but I fear the man that has practiced one kick 10,000 times." ~ Bruce Lee

Morning Everyone ,

This Week gave us a sense of how the prices or inflation has evolved and we had benign readings across CPI and PPI and the updated PCE estimates are now for a reading of 0.01% mom on the headline PCE and -0.01% on Core PCE Prices which translates to an annual reading of 2.4% yoy and 2.4% on Core PCE Prices.

The Implied pricing off Fed Fund Futures is now pricing in one full 25 bps of rate cut into the September Policy and 61 bps of cumulative rate cuts for 2024. If you go further out the curve, 100 bps is priced in until March 2025 and 138 odd bps until June 2025.

In the 23rd June Wrap, I had written On the DXY, 106.25 is a crucial resistance zone for DXY bears and an important point of reversal. So keep a watch on the levels with SL above 106.75. DXY declined over the last 2 weeks from 106.05 to close the week at 104.08. 104.00 offers support to the DXY, decisive break below the 104 handle can take the DXY closer to 102 levels.

S&P 500 touched a high of 5664 through the week. 5642 coincides with the 1.618% of the correction move from 4820 to 3492 and is a level worth watching to see if prices stall here for a corrective move lower.

After US2s gave a strong closing below the channel post payroll, this week's CPI release accentuated the move lower in yields. Early part of the week saw consolidation in a narrow 4.60% - 4.65% range in the backdrop of Chair Powell's dovish testimony and latter part of the week saw sharp gains accrue in US2s with yields closing down at 4.456%. I wrote last week, that the set up is looking constructive for a sharp rally in yields down to 3.25% - 3.50% levels. The Chart below is a weekly chart with a H&S formation and this week prices closed below the neckline. I continue to be a better receiver on upticks.

Repricing in the FFR and PCE / PPI data saw the front end of the curve outperform the long end with US2s10s bull steepening by 5.70 bps to -26.90 bps.

CPI release showed broad based deceleration with mom change in Shelter Prices / OER and Rent measures lowest since first half of 2021 and Super Core Services i.e. CPI less Food, Energy and Shelter rose at 0.13% mom, 1.55% yoy.

PPI Prices rose 0.22% mom with Core PPI up 0.44% but PPI excl Food, Energy and the volatile Trade Services sector rose 0.04% mom.

The Jobless claims didn't offer much in the way of a catalyst.

Consumer sentiment in July remained largely unchanged, with a slight 2-point dip from last month, though still over 30% above June 2022's low. Despite falling year-ahead inflation expectations to 2.9% and stable long-run expectations, nearly half of consumers are concerned about high prices amid economic uncertainty ahead of the election. There was little indication the first presidential debate has influenced economic views.

This week the Economic Data Calendar includes Retail Sales data and Export Import Prices data on Tuesday followed by Housing Starts, Building Permits, Industrial Production on Wednesday. Thursday we have the Jobless Claims data and Existing Home Sales data along side Fed Speak.

Have a good week !!

Comments

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