One more time for the back row:
We’re trying to land inflation. We are not trying to land growth. ~ Mark Dow
In this week’s Dirty Dozen [CHART PACK] we cover a major pattern completion in the SPX, go through our internals, look at the recent macro data, talk Chinese stimulus, and pitch a long DXY trade, plus more…
1. The SPX has completed a large cup-n-handle. It’s trading firmly in a Bull Quiet regime (remember, markets tend to top in Bull Volatiles, not Bull Qs…). This continues to be a market you want to buy.
2. Our favored market internal measures the relative performance of credit (LQD/IEF). It led the divergence lower before the July selloff, and now it’s leading the group higher, closing the week at new highs for this cycle. We expect the negative divergences in semis and high vs. low beta to play catch-up soon. If they continue to lag, then it’s unlikely this bull leg will have much-staying power.
3. Last week, we pointed out the elevated (97 %tile) reading in our Trend Fragility indicator, suggesting that we should look for short-term shakeouts. But BofA’s Bull & Bear continues to track neutral and support the bullish trend.
4. The BLS will issue its CPI report on Thursday. BBG Economics writes, “We expect a subdued headline CPI in September, though a more robust core reading. Mapped into PCE inflation — the Fed-preferred price gauge — core inflation likely grew at a pace consistent with the 2% target. Altogether, we don’t think the report will do much to sway the FOMC’s confidence that inflation is on a durable downtrend.”
I concur.
5. The MO Inflation Lead (orange line) continues to carve a path lower below the Fed’s target.
6. The job numbers surprised to the upside last week. The report was overall solid news and an indication that the recessionistas were once again premature in their doom and glooming.
@IrvingSwisher, Executive Director of Employ America, gave a good breakdown of the report on X (link here), writing:
“Revisions make for messy business on Jobs Day. It’s better to compare what we see in real-time today vs what we saw after the last month’s report
“On a quarterly basis, real-time job growth ticked up to 162k/month
+27k vs. real-time growth in Aug”
Encouraging sign
7. Despite the strong job numbers, the report showed a continued decline in real wage growth. Thus, Skanda concludes that “even with strong job growth this month, real-time aggregate paycheck growth continues to cool for rank-and-file workers.”
“Annualized real-time labor income growth:
1-Qtr: 5.04% (+.02% vs Aug)
2-Qtr: 4.94% (-.28% vs Aug)
“Still respectable but another sign of normalization.”
8. US yields are rising on the positive surprise, but BBG’s Fedspeak index (an NLP model index of FOMC member remarks with zero or below indicating dovish) crossed back into dovish territory last week for the first time since 21’.
9. One of the bigger events this week is China’s press conference on Tuesday, where senior officials from the NDRC will be providing an update on their fiscal plans. But one of the sharper China commentators, Lingling Wei, the WSJ’s Chief China correspondent, reported last week that a source told her not to expect a bazooka as many have hoped.
10. Selfishly, I hope China throws the whole fiscal sink at its economy because it’ll be great for our portfolio, which is packed to the gills with metal miners and crude futures.
BBG’s Simon White notes the relationship between China’s M1 growth and oil imports, with real M1 growth leading by roughly six months.
11. Speculative sentiment in the DXY hit its 0%tile recently. Historically, that sets a condition for quite a durable rally.
12. The DXY is in a major compression regime. It’s reversing off of its lower band at long-term support. Keep an eye on this chart. It suggests a BIG move is coming soon.
Thanks for reading.
