Global Macro Monitor

Summary Bullet Points

• U.S. 10-year yield up 2 bps
• Brazil 10-year up 23 bps, closes over 10 percent for first time since January
• Indonesia 10-year up 25 bps
• Junk credit tighter
• Euro periphery spreads tighter x/ Italy, though showed some improvement  on Friday
• Argentina peso hammered another 6 percent
• Dollar index rally backs up — 94 looks formidable resistance
• S&P500 cleared several key levels after three weeks of indecisiveness
• Crude continues rise, up 3.6 percent.
• JFK-Trump analog diverges to widest level. We will give it another week or two before shelving it.
• Norway and Portugal Country ETFs move into double-digit YTD return territory
• Italy and France stock markets have fully recovered sell-off

In our Monday post on Bull and Bear Traps we noted the bulls had to do three things, and we also noted the bullish pennant technical formation.

It is imperative the S&P bulls:  1)  hold the 20-day moving average at 2,663.04;  2) bust and close above the 50-day at 2,679.56.   The slope of the 50-day is now negative and in a downtrend, which, on its own, is bearish,  and 3) take out, close , and stay above the recent high at 2,717.49 

…Pennant Forming

It looks like a pennant is forming here, which is bullish if you ignore rising interest rates and oil prices, tighter money, rising inflation, and geopolitics.   Macro traders cannot adhere solely to technical patterns but must consider them.  Just another arrow in the global quiver. – GMM,  May 7

Check, check, and semi–check.   That was fast.

Trading Range

The MoMo bulls are touting the pennant breakout and the close above the recent higher low, but six green candlesticks does not make a new uptrend, in our book.   We are in a trading range until the recent low breaks or the January 26th all-time high is taken out.

We still maintain stocks are in a bear market and will see much lower prices before year-end based on the macro environment.  The Fed is on schedule to reduce its balance sheet by another $330 billion by year end,  including a reduction of $198 billion in Treasuries and $132 billion in MBS.   Moreover, more rate hikes are coming.

That’s tighter than me trying to fit into a pair of skinny jeans.

Mr. Market, with a nanosecond attention span, may not think or believe the unprecedented Fed tightening is an issue as significant as we do.  Come October, however,  the Fed will be in full tightening mode, reducing the balance sheet by $50 billion per month, and still in rate hike mode.

We don’t fight the market and we don’t fight the Fed.  ‘Nuff said.