The Past Week, In A Nutshell
What Happened: After auctioning to new all-time highs, U.S. index futures moved back into balance.
Remember This: â€œWith Global Liquidity jumping by some US $20 trillion in 2020, or some 25% of World GDP, there is a lot to spend… Consider that following the 1930s Depression, it took roughly a decade to retain previous economic heights. After the 2008/9 GFC, the World economy clambered back after around two years. But it seems from latest data that it has taken barely six months to recover from the COVID Crisis,â€ said Michael Howell of Crossborder Capital said in reference to money being used to buoy the real economy.
â€œ[T]he stark warning from history is that â€˜â€¦ strong economies do not have strong financial markets.â€™ In other words, if money is being spent in the (virtual) high street, it is not being invested in stocks. Our bullishness about economies forces us to become bearish about stocks.â€
Pictured: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures
After participants established an all-time rally high in Wednesdayâ€™s session, the S&P 500 liquidated in regular trading, down to the micro-composite high-volume node near $3,667.75, a valuable price level. Thereafter, participants accepted lower prices.
Given the mechanical trade (i.e., minimal excess at Fridayâ€™s lows) and poor structure (e.g., low-volume areas), it’s very likely that the selling was the result of weak-handed, short-term buyers liquidating positions in panic.
Given that the higher-timeframe breakout remains intact, participants must monitor whether buyers surface at the $3,654.75 low-volume node and extend the range up to the high-volume node at $3,667.75. At that point, an initiative drive through that high-volume node — the most positive outcome — would portend a move to the $3,690.75 high-volume node, and then the prior all-time rally high.
Spending any considerable amount of time below Fridayâ€™s range puts the entire rally on hold.
In a Bloomberg commentary, Larry Dwyer of HSBC Holdings PLC (NYSE: HSBC) was cited in a statement on his bankâ€™s mildly bullish take on Treasuries, which puts the 10-year yield at 0.75% at the end of next year.
The Fed would have tightened only once in the past 22 years… or perhaps not at all. Under and AIT rule, the Fed should be dovish until inflation averages more than 2% for a period of years. In contrast, the consensus forecast implies the Fed is likely to be endorsing future tightening moves next year, or that the bond market will ignore the Fed.
Simply put, the notion that the Federal Reserveâ€™s average inflation-targeting strategy will keep rates lower, for longer than expected, remains intact, drawing talk of inflationary expectations in the system. Still, the note comes ahead of the Fedâ€™s upcoming meeting this week. Itâ€™s most likely that the marketâ€™s reaction to the event will be muted, absent a material change in policy (e.g., guidance on easing).
Tuesday: Industrial Production, Foreign Bond Investment, Overall Net Capital Flows. Wednesday: MBA Mortgage Applications, Retail Sales, Markit Manufacturing PMI, Business Inventories, NAHB Housing Market Index, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, FOMC Economic Projections, Fed Interest Rate Decision, Fed Press Conference. Thursday: Building Permits, Initial and Continuing Jobless Claims, Housing Starts, Philadelphia Fed Manufacturing Index. Friday: CB Leading Index, Fed Brainard Speech, Fed Bank Stress Test Results 2nd Round.
EUâ€™s deal with Britain unacceptable, prompting plans for stores to stockpile, bailouts. Despite risks and high CAPE ratios, stock-market valuations may not be that absurd. China finalizes assessment methodology for domestic, systemically important banks. Bank for International Settlements issues warning about detachment of equity prices. The European Central Bank (ECB) has extended its pandemic bond buying program. State Street Corp (NYSE: STT), UBS Group AG (NYSE: UBS) in talks over merger. Unpacked: Coming war on the hidden algorithms that trap people in perpetual poverty. Trump signs bill averting government shutdown while fight on pandemic aid drags on. U.S. producer prices rose moderately; COVID-19 is taming inflation in the near term. Zurich and Farmers to buy MetLife Inc (NYSE: MET) motorhome insurance business. Technology firms could face fines of up to 6% of turnover if they donâ€™t follow EU rules. AMC Entertainment Holdings Inc (NYSE: AMC) to get $100M from Mudrick Capital. Hyundai Motor Company (OTC: HYMTF) agreed to buy stake in Boston Dynamics. Canada faces off COVID-19 contagion heading into Christmas, considers restrictions. The U.S. FDA has authorized Pfizer COVID-19 vaccine for emergency use on Friday. A U.K. Court enables $18.5 billion class action against Mastercard Inc (NYSE: MA). SPACs are increasingly becoming a thing, and a lot of unicorns are getting on board. The U.S. sues Facebook Inc (NASDAQ: FB) for monopolistic practices, gets a reply. Equity and corporate debt rallies withstand record COVID-19 hospitalizations for now. Housing market and remodeling boom hasnâ€™t cooled, a positive for the lumber prices. General Electric Companyâ€™s (NYSE: GE) debt reduction, commitment to de-risking. Stripeâ€™s launch of Stripe Treasury, a commercial banking service, is bad for US banks. Deutsche Bank AGâ€™s (NYSE: DB) franchise stability, cost cuts to buoy credit profiles. Tesla Inc (NASDAQ: TSLA) raising capital to firm up growing cash position, dent debt.
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