Recalibration: Can Powell Pull It Off?
9/23/2024
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9/23 morning notes
The market gives me the vibe of “I don’t care, wait until who gets into White House, what congress looks like, then I will see (or panic).” For now, music is on. Every blip proves to be an opportunity to rotate/buy. The market is still having a post FOMC drifting effect.
The week kicked off on China stimulus hope as PBoC cuts rate, fueling speculation of officials are ramping up effort to revive growth with a planed Tuesday press briefing. SPX future was up more than 20 pts in earlier Asian hours.
Then the Markets tanked on a cautious note as weak economic data spurred ECB rate cuts speculation. Euro Zone/ Germany /France September PMIs Flash were all under 50, entering technical recession territory. SPX slowly rebounded throughout US early morning session. As long as 5600 holds, gamma exposure is saying: BTFD.
The Week Ahead
One must be surprised (or not) Utilities is best performing sector YTD?
and as we go, follow the Momentum…
Summary
There are no major US economic releases this week but the week will be filled with Fed speakers and how they talk the narratives of 50bps cut. I view the 50bp jumbo move as risk management around the job market as I noted months earlier, “all eyes on employment going forward, inflation is much less important.” Obviously, official job number has been weakened, but wages are again back to outpacing prices. And as long as unemployment rate does not go above 4.5%, the economy would be fine albeit the Fed is running high risk of inflation rebounding if they continue to cut based on current market pricing.
What did Powell mean by recalibration? The fact that he came back to it time and time again. I tend to think he tried too hard to market the cut size and ignored the lagging effect of accelerated inflation on wages. Time will tell if he is right but as we progress next few weeks, I would like to pivot back to delta neutral and take what the markets give to us, i.e. take advantage of extreme moves and mean reversion at this high price level.
Economic Data and Treasury Auction:
Monday: US PMI, 3M and 6M bill; Bostic speaks 8AM, Goolsbee speaks 10:15am, and Kashkari Speaks 1PM.
Tuesday: $69 Billion 2Y Note Auction; Bowman Speaks 9AM.
Wednesday: New home sales; $70 Billion 5Y Note Auction; Kugler speaks 4PM.
Thursday: Jobless claims, PCE, GDP; $44 Billion 7Y Note; LOTS of Speakers!
Friday: Personal Income, Michigan Inflation Expectations; Bowman speaks 1PM.
Charts I am watching
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