Morning Roundup

By Mark Masterson on August 23, 2022

Good morning,

Below are the news items moving markets today

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Executive Summary:

Well – not much to add this morning.

Markets were volatile yesterday – as expected.

The wedges all broke down – as expected.

Now what?  We wait for Friday.  It seems we are at a point where everything hinges on Powell’s comments.

Again – these are the first words we have heard from Powell since the FOMC that launched the bear market rally.

Will he tilt dovish?  If so – dollar falls, and most assets rise.

Will he tilt hawkish?  If so, dollar rips higher and everything sells off.

Here are the talking points from Bloomberg…..

• No real change in the narrative as market remains concerned about a more hawkish leaning speech from Powell later this week, albeit one that has already been telegraphed by a flurry of Fedspeak pushing back against the policy pivot narrative.
• At the same time, Powell not expected to settle the 50 vs 75 bp debate for the September FOMC meeting given the wait for the August inflation data.
• Also worries the short covering and depressed sentiment and positioning dynamics that helped drive the recent market bounce may be largely exhausted, while strategists have flagged looming negative seasonality and a mid-September closing of the corporate buyback window as well.
• Recent global bond yield backup, fueled by hotter European inflation data and a continued surge in gas prices, another overhang.
• In addition, some strategists have suggested a heightened pace of QT could be a headwind.
• While falling oil prices play into the peak inflation narrative, they may also eventually feed into broader concerns about negative earnings revision momentum.

More on the dollar below…..

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Articles of Interest:

• Markets:
  • Hedge funds ramp up net short positioning ahead of Jackson Hole on bet of hawkish Fed (Bloomberg, Reuters)
  • Market momentum fizzles as ARKK, Bitcoin, meme stocks, and profitless tech firms sustain heavy losses on Monday (Bloomberg)
  • Shrinking federal deficit enabling Treasury Department to cut longer-term debt issuance, blunting QT’s impact on markets (Mint)
  • IPO market on pace for its worst year in decades as inflation, rising interest rates, Ukraine crisis discourages companies (J News)
• Economy:
  • Housing markets that saw biggest pandemic booms among those with most prices cuts in July (Bloomberg)
• Energy:
  • Saudi energy minister says OPEC+ may be forced to cut production, citing disconnect between futures and physical market (Bloomberg)

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Charts of the day:

Look at the rally in the dollar.

It touched that uptrend line (red) and just ripped higher.

It is now at a point where it could put in a double top.  Yet – I think it will wait for Powell on Friday to decide if it wants to break out higher – or sell off lower and break that uptrend line.

Again – that longer term look at the dollar does hint that it wants to move higher.

We had a breakout, then a backtest of the breakout, now a resumption of the uptrend.

If so, be careful out there as a much stronger dollar could rattle some markets.

Saw this from Monopoly rules…..

Seems to sum up the current central bank control of markets.  Bank uses slips of paper until hit has enough money to operate again…..The banker may also issue “new” money on slips of ordinary paper.  Pretty funny if it wasn’t so realistic….

Monopoly

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Quote of the day

“Some ideas are so stupid only intellectuals believe them.” George Orwell