FOMC Caves, Powell Looked Defeated
Technical Charts and New Subscription Tiers
Powell was an absolute dove today and he looked admittedly defeated. He knows that they must bow to the pressure from the US treasury who obviously do not want to be paying $1T in interest payments.
To be honest, I don’t want to be to hard on Powell, they actually did a stellar job with raising rates so fast, yes they were very late to the party, but better late than never! Nobody not even us would have suspected 500bp in hikes and fathom the Nasdaq up 50% on the year, nobody. Just over a month or so ago the bond market was panic selling to get rates above 5%, well now panic buying to get them back below 4%.
We have to say, the markets are trading as if the short rate doesn’t matter, Fed Funds, who cares, we will price in 150bp of cuts next year! Will the bond market be right? The FOMC dot plots increased the call to 4 rate cuts next year from 3. Honestly who knows if they will cut that much, at all or if they cut even more if things turn south.
As we said we will await the first negative non farm payroll print, until then, we suspect that risk markets are all lit green and we will not get in the way of something like that! Bonds were bid led by 2s, equities were bid led by the Russell 2k and Dow and the dollar was slammed!
Let’s take a look at the settles for today as the front end of the US rate curve has turned positive on the year, absolutely amazing, the Russell2k was +67 points or 3.51% :
When we look at the US govt 2Y note it had its largest 1 day decline in yields since May, dropping 25.5bp today hitting 4.481%. Less than 2 months ago it was 5.22%:
When we look at the US yield curve it was a massive steepening day with the 2s30 blowing out by 13.4bp:
When we look at the US Govt 10Y vs the Fed Funds rate, we are witnessing a move back out to historic inversions as the bond market front runs the dovish FOMC. How much staying power does this move have? Will the bond market continue to push yields down with Fed Funds firmly in place for now, I suppose we are about to find out:
When we look at the Magnelibra Futures Model Tracker, today’s moves triggered a bunch of action so we listed the additions and subtractions below as the Tracker has moved again into the Hedged Long Model:
Let’s take a look at the MEGA8s Tracker next where Nvidia was the stand out today, but its obvious the diversification out of this group and into the broader markets continues as we have said for a week or so now:
Apple and Amazon hit fresh market cap highs today:
Another group we are keeping an eye on now are the cyber and network security guys, with the future battlefront going digital, this group seems to be in play so start to add these guys into your watch lists. We know PaloAlto has been in play for some time but we like to look at things from a group perspective:
Ok lets move on to some technical charts starting with the Nasdaq, SP500 and Russell2k futures:
That red down arrow marks the end of 2023 and the obvious top of the channel target up near 17500. As far as the SP500 our arrow that we drew a few weeks ago continues to trace the move perfectly and the path to 5000 by year end:
The Russell2k has to play catch up and is still 20% below its ATH:
With risk fully on now, we expect the US dollar to weaken and thus we prefer the Euro Currency future here with the target being 111-30 area for now:
We also believe Crude Oil has hit some major supports and we suspect buyers to continue to support these levels for now as we look for a trade back up above $70:
Ok that is all, be on the look out for the ECB tonight, expectations are for rates to remain unchanged, but the market is expecting the ECB to move to a more dovish stance, last week,
ECB board member Isabel Schnabel, widely seen as a hawk, had told Reuters that the bank can take further hikes off the table and policymakers should not guide for steady rates through mid-2024. -Reuters
So it seems we are about to see a massive global coordinated central bank bonanza led by rate cuts and future easy monetary policy…What could go wrong?
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