May 31, 2022
Good morning,
Overnight Futures began their Sunday night session in the green, perhaps a carryover from last week’s strong equity market rebound (S&P 500 was +6.58% on the week). However, as Europe opened for trading, the world was reminded that inflation is not simply a U.S. issue. Eurozone CPI surged to an above-consensus all-time high of 8.1%. On top of that, the EU agreed on a Russian oil embargo that sent crude to its highest level since early March (>$115/brl).
Needless to say, Futures could not hold their gains against this news backdrop and are off – 0.6% about an hour before the U.S. open.
No days off in Frankfort, Germany yesterday where U.S. Fed Governor, Chris Waller spoke. A renowned Hawk, his comments were a reminder that more tightening is coming. His year-end target range of 2.50% – 2.75% implies the Fed will go 50,50,25,25,25bps increases at their remaining meetings this year. Interestingly enough, that appears to be a reasonable base case for the market already and is slightly less than what is priced into money markets at this time. Still a formidable headwind for risk assets, but in the search for how much of the Unwind is priced in – this is a modestly positive data point.
Last week’s rally was a good one and fired two positive short term breadth signals. Without showing you 3-pages of charts and boring you to tears, let’s summarize last week’s equity market from a technical perspective as A+ for short term improvement. We will simply need more of the same to gain any confidence that last week was the beginning of a change in trend. So far, that remains unconfirmed.
Be well,
Mike