The Morning Call
8/17/26
The
Market
Technical
The S&P resumed
its ascent---though very gradually. It remains above all three DMAs as well as
being in uptrends across all timeframes. The next visible resistance points are
(1) the upper boundary of its short term uptrend [~7876] and (2) the
convergence of the upper boundaries of its intermediate and long term uptrends [~9167].
The long bond continued
its dismal performance, despite lower inflation readings and poor retail sales
readings. I assume that it is because of (1) the wars/oil/destroyed refining infrastructure,
(2) more tariffs and (3) the abundance of financing needs from both a fiscally
inept ruling class as well as the voracious appetite of the hyperscalers. Which all suggests that the bond crowd is focused
on the numbers rather than the happy talk from the resident economic ‘experts’. Bottom line, the technicals haven’t changed: TLT
is below all three DMAs and in downtrends across all timeframes;… for the long
bond to rise enough to even challenge the upper boundary of its very short term
downtrend is going to take a series of very positive developments.
GLD had another
good week, negating that very short term downtrend. It also unsuccessfully challenged its 100
DMA. It clearly needs to overcome that
barrier to sustain its upward momentum---which I am betting it will do. That being no guarantee.
The dollar continued its poor performance.
On a long term basis, the dollar remains in no man’s land and at this point I
see like prospect of its breaking out of even its short term trading range. Technicals
aside, a spendthrift ruling class, higher oil prices and a weak kneed Fed is
all the explanation one needs to understand where it is trading.
Friday in the charts.
https://www.zerohedge.com/markets/goldilocks-stocks-treasury-bears-schizophrenic-cross-asset-chaos-spread-week?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTIxNTY2Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4Njc0MDAxOSwiZXhwIjoxNzg5MzMyMDE5LCJhdWQiOiJ6aC1naWZ0In0.yM_FJbOQeAAOSQlgYwhyC2zWSf-pmbemZD4-50ldBFg
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Monday morning
setup: Futures are higher again, just a few basis points away from a new all-time
high, led by Tech as the week starts with Semis / Memory / AI themes bid
globally, as small-caps are fractionally in the red. As of 8:00am ET, S&P
futures are 0.1% higher, while Nasdaq futures climb 0.5% after strong revenue
growth at Anthropic helped boost optimism around artificial intelligence and
bolstered the view that massive spending on artificial intelligence will be
sustained. Semis, Memory, and Mag7 are all higher with Software down. Cyclicals
are mixed with Indu / Mats leading Fins / Discretionary, but the cohort is lead
Defensives, which are dragged by HC and Staples. It is a light macro week so
the positive Tech inertia may continue into NVDA earnings next week. Bond
yields are flat to down 2bp as the yield curve bull steepens; higher yields
remain a risk with Fed Minutes this week and Jackson Hole next week. USD
continues to its decline touching a three-month low as rate hike odds faded,
while commodities are bid up with strength across the 3 complexes. Crude prices
appear to be holding in a range on increased cover flows in the MidEast and
weaker Chinese demand. In metals, copper, silver, and palladium are the
standouts. US economic data calendar includes August Empire manufacturing
(8:30am), NAHB housing market index (10am) and June TIC flows (4pm). No Fed
speakers scheduled for the session.
Fundamental
Headlines
The
Economy
Last
week, the US stats, while sparse, were again disappointing last week---now the third
week in a row. They included two negative primary indicators and one positive
and one neutral price measure. Overseas, the data was upbeat with one two
positive and one neutral inflation datapoint.
Three
weeks of lousy numbers (1) are starting to make a trend but (2) don’t fit the
current consensus narrative. That said, one
of last week’s surprising standout stats was the negative retail sales figures which
like the prior week’s employment data had some goofy adjustments that made that
number appear worse than it otherwise would have been,
https://bonddad.blogspot.com/2026/08/july-retail-sales-lay-en-egg-hangover.html
On
the other hand, if the economy really is slowing, that could explain the unexpectedly
positive CPI and PPI reports.
For
the moment, I am not making any adjustments to either my growth or inflation
forecasts. But another week of poor
economic stats will likely prompt me to push the yellow flashing light on growth.
However,
I am a bit more hesitant regarding inflation because…
(1)
the bond market isn’t buying it---which is not
shocking given the continued unwillingness of our ruling class to curb its
enthusiasm for spending your and my money. [as you know, I place a lot of
weight on the bond market’s message],
Investors’ waring to Bessent.
Summary: The US government sold 30-year bonds
at a 5.216% interest rate, the highest since 2001, due to investors' demand for
greater compensation to finance the nation's growing deficit. The high interest
rate is a concern for the government ahead of midterm elections, as lofty
government financing costs are feeding through to the broader economy.
Investors are demanding higher yields due to inflation uncertainty, fiscal
risks, and the Federal Reserve no longer being a major buyer, which could lead
to long-term yields moving higher.
Ten year yield premium rises on inflation fears and
Fed uncertainty.
(2)
neither the Iranian or Ukrainian wars are any closer
to being over, the destruction of the oil refining infrastructure in both cases
continues, the Strait of Hormuz is no closer to being open and oil reserves are
near rock bottom. So, I have a tough
time seeing oil/oil product prices meaningfully lower,
(3)
tariffs. True, the Donald could put an end to this
nonsense in a nanosecond. The question is, will he?
Inflation is still a problem.
PPI inflation is in the revisions.
This
whole scenario leaves alive the prospect of stagflation---an issue I raised in
last week’s note. It remains at the
present just speculation on my part. But it is an alternative scenario whose
probability I soon may have to start to evaluate.
Bottom
line: the prospect for a slowing in the rate of economic growth has appeared on
the horizon as well as the increasing odds of a lower inflation rate than I have
been forecasting. Not near enough to warrant a change in my outlook for either
but enough to be a factor to consider.
US
The August NY Fed manufacturing
index was reported at 20.6 versus forecasts of 11.0.
International
June Japanese industrial
production grew 1.9% versus predictions of +1.3%.
July YoY Chinese
industrial production was up 4.5% versus consensus of +5.0%; July YoY retail sales
were up 0.6% versus +1.5%; July YTD fixed asset investments fell 6.7% versus
-6.2%; the July unemployment rate was 5.3% versus 5.1%.
Other
Monetary
Policy
Fed cuts Reserve Management Purchases.
Inflation
There is no one inflation rate.
https://trendlabs.com/there-is-no-one-inflation-rate/
3.4% is not a good inflation rate.
https://www.nationalreview.com/corner/3-4-percent-is-not-a-good-inflation-rate/
AI
Hyperscalers’ borrowing binge shakes foreign
credit markets.
https://giftarticle.ft.com/giftarticle/actions/redeem/9574d5d2-835a-46df-903c-eceac1889ab0
More
than 2/3rds of the power sought by US datacenters will never materialize
(absolute must read).
https://www.zerohedge.com/energy/most-two-thirds-power-sought-us-data-centers-will-never-materialize
Investing
We lost the war game.
The latest from BofA.
Everyone wants to buy the dip.
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