‘Santa Married Goldilocks’ – Soft CPI Sparks Big Week Of Buying For Bonds, Stocks, & Gold

Image Source: PixabayThe ‘higher-for-longer’ soft landing economy may be transitioning back to a ‘Goldilocks’ economy of not-too-hot/not-too-cold activity and inflation, that this week, at least, created a particularly attractive backdrop for stocks, but realistically everything just traded together like the ‘QE trade’ – stock sup, bonds (prices) up, gold up, dollar down…Source: BloombergIn fact, as one traders was overheard commenting on the ease with which the markets shrugged off geopolitical fears, a clearly retracting US consumer, and cracks in the labor market, “it’s as if Santa married Goldilocks… everyone’s drinking that kool-aid…”The ‘seasonal’ ramp arrived right on time…Source: Goldman SachsAs Goldman’s Chris Hussey noted, the principal concern of a successfully soft landing economy is that growth takes off again, triggers renewed inflation, and the Fed is compelled to respond with more rate hikes. But this week, that scenario began to look less likely as the latest CPI inflation reading dipped, suggesting that the trajectory for inflation remains benign.Additionally, on the growth side,

  • Housing Starts came in stronger than expected;

  • the Philly Fed improved from a month earlier;

  • retail sales declined by less than expected;

  • weekly jobless claims edged up but remain far from any level of pressure; and

  • Congress passed measures to avert a government shutdown.

  • All of which saw the macro surprise index trending down…Source: Bloomberg…and at the same time, financial conditions getting dramatically looser…Source: BloombergThis helped lift stocks dramatically higher on the week with most of the majors moving systemically higher (S&P, Nasdaq, Dow all up around 2% on the week – but notice basically unch since the CPI spike). Small Caps (Russell 2000) were big winners on the week amid a major squeeze, up over 5% on the week (it second best week of the year)…The gains – especially in Small Caps – were helped by a massive short-squeeze. ‘Most Shorted’ stocks exploded higher on the CPI print but have faded a biut since in a pattern that looks very familiar…Source: BloombergWe do note that the CPI ramp lifted the Russell above its 50DMA and the the follow-thru pushed it up to its 200DMA which acted as resistance and the index faded from there…Source: BloombergThe Magnificent 7 stocks soared this week breaking out of their down-trending range…Source: BloombergIt was a very mixed week for sectors with Energy swinging around. Everything was higher on the week but Real Estate led while Staples were the ugliest horse in the glue factory…Source: BloombergIt will come as no surprise given the extremely high correlation regime we are in…Source: Bloomberg…that bonds were also bid this week with TSY yields tumbling around 20bps as the belly outperformed the wings (notice that today saw a big pivot/curve flattener with 2Y+7bps and 30Y -2bps)…Source: Bloomberg2Y yields plunged back below 5.00%…Source: BloombergThe dollar plunged on the week (2nd biggest weekly drop of the year), extending Tuesday’s losses today, and falling into the red for 2023…Source: BloombergBitcoin ended the week lower (by around 2%) after once again testing $38,000 ad failing to holdSource: BloombergWTI ripped higher today after an ugly week (today was the 5th biggest rally day for crude this year as it tried to get back up to its 200DMA), but could not stop oil being down (albeit only modestly) for the 4th straight week (and closing in a bear market, down over 20% from its recent highs)…After the ramp, Bloomberg headlined that a 1mm barrel production cut is on the table for next week’s meeting. This raises the question – who was front-running that news (and leaked the comment to the FT)?Gold jumped over 2% higher this week, bouncing perfectly off its 200DMA…Source: BloombergFinally, could we be heading towards this?Source: BloombergSqueeze and Seasonals support it, but OpEx gamma unclench could delay the ramp.More By This Author:Bear Market Confirmed In Used Vehicle Prices’Big Banks’ See $63BN Deposit Outflows Last Week, Loan Volumes Continue To ContractOPEC+ Considering Additional 1 Million Barrel Oil Production Cut Amid Outrage Over Gaza War


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