The Morning Call
9/19/22
The
Market
Technical
As you are all too
aware, the S&P did not have a good week. It is nearing a challenge of the
lower boundary of its intermediate term uptrend (~3831). Note that it has tested
this boundary twice before---unsuccessfully. So, I am making no bets on success
this time. Let’s be patience and see how it plays out. However, if it does push
through that barrier, the next support levels are the 6/13 low (~3631) and the initial
50% Fibonacci retracement level (~3507).
Patience remains a
virtue.
OK, I have given
up on the long bond holding its intermediate term trading range. It is now in a
downtrend, in a short term downtrend and below both DMA’s. And it is not that
far from challenging the lower boundary of its long term uptrend. So, it is
perilously close to reversing a fifteen year bull market. Stay tuned.
Gold’s chart does
not look much better—as it blew through the lower boundary of an eighteen month
trading range and like TLT is now approaching the lower boundary of its long
term uptrend. With bonds cratering and dollar on a sizz, I can’t come up with a
good reason to assume higher gold prices.
Gold dips to two year lows.
https://www.ft.com/content/9657e5e1-63fe-490d-8b07-69b89e6dc6d4
It did not take
long for the dollar to fill those two big gap down opens and resume its
relentless journey higher.
Friday in the charts.
Fundamental
Headlines
The
Economy
Review last week
The
US data last week were slightly negative though the primary indicator were more
so (two neutral, two negative). The international stats were also slightly
negative. The principal headline of the week came late Thursday when FedEx (as
a key global transportation company, it is an indicator of pace of economic transactions)
downgraded its earnings outlook and the CEO said that the world’s economy was
not looking good. With the universe expecting a 75 bp rise in the Fed Funds
rate coming this week, it raises the fear that the Fed will stay too tight for
too long and precipitate a worse than anticipated recession---which clearly
zeroes in on the issues I have been focused on for the last month or so:
1. how
deeply embedded is inflation in our economy?
2. given
the answer to one., how firm will the Fed remain in its policy decisions to
bring the inflation rate back to acceptable levels?
As I noted previously,
I think that there is general agreement that inflation has peaked. However, as
I have also noted, that really doesn’t address the answer to how deeply
embedded it is. The issue is not peak inflation, the issue is what has to occur
to return to a ~2% regime.
In other words,
what is the answer to #2 above. That will be the $64,000 question on investors’
minds as we go into the upcoming FOMC meeting.
I await the action/narrative. However, I have been clear that I don’t think
that the Fed has the fortitude to hold firm in the face of a faltering economy
and plunging asset prices.
With so much
uncertainty I remain of the opinion the patience is the better part of valor.
.
US
International
Other
The
Fed
Monetary policy and nominal GDP.
https://www.themoneyillusion.com/its-services-i-e-its-ngdp-i-e-its-monetary-policy/
Recession
World Bank sees risk of global recession
increasing.
Bottom line
BofA sees more
downside.
A lot going on the
week (must read).
https://www.zerohedge.com/markets/treasury-european-rates-traders-have-their-hands-full-week
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