The Fed's 50 bp rate hike is behind us.  Another 50 bp hike is expected next month. The April employment report will do little to calm the anxiety about the "too tight" labor market.  The decline in the participation rate was disappointing and this coupled with decline in Q1 productivity raies questions about the economy's non-inflationary speed limit.     One of the fascinating things about the markets is that sometimes the cause take place after the effect.  This is an interesting way to express the observation that investors anticipate, discount, futures scenarios.  The dollar has been bought and fixed income sold on ideas that the Fed had taken a hawkish turn.  The market now accepts that the Federal Reserve will bring it Fed funds target rate within the range regarded as neutral before the end of the year.  The hikes will be front-loaded with the next 50 bp hikes discounted for the next two meetings (June and July) and a strong leaning for the same in September (~66%).  The balance sheet will begin shrinking next month at roughly the same pace that it peaked in the 2017-2019 experience before ramping up to twice the pace ($95 bln). The week ahead is important because it may be the first signs that may be peak inflation is at hand.  For the first time since April 2020, the headline reading of consumer prices and producer prices are expected to have fallen on a year-over-year basis.  To be sure, it may not be a large move.  By any measure price pressures remain elevated, but the direction is important.  It would be the first decline in headline CPI since last August.  Core CPI will also likely ease as well.  Recall that after the March report, many economists suggested that could be the high-water mark. - Producer prices, both the headline and core, are also expected to have softened a little. In April 2021, they had increased by 1.0%.  The composition of inflation may also be changing.  Used car prices spurred a great deal of discussion last year.  Prices are falling, like Powell suggested would happen when a year ago he drew attention to used car prices and lumber.  The unusual rise in durable goods prices may be stalling.  Shelter costs may pick up the slack.   One of the most important developments last week was the surge in the swaps market to price in a terminal Fed funds rate near 3.75%.  Some, like the noted economist and former chief economist for the IMF, Kenneth Rogoff, believes that a considerably higher rate (5%) may be necessary to break the price spiral.  However, most observers think that the economic conditions will warrant the end of the tightening cycle before then.  Before the Fed gets the funds rate into the 3.75% area, the pockets of economic weakness, that already appear below the surface, will likely have broadened and deepened.   It is not just the domestic economy either.  Headwinds will emerge globally. Although Europe's April PMI readings continue to show resilience, the deterioration of consumer and business confidence is alarming.  Germany and French industrial output fell and by more than expected in March.  National governments are cutting growth forecasts. The ECB has not moved. It continues to expand its balance sheet.  The hawks are pushing for a July hike and the swaps market is taking the bait.  We are less convinced that a consensus for this crystalized among ECB members. The Bank of England warned that the UK's output could contract by 1% in Q4 as the cost-of-living bites as energy price cap is lifted by another 40% in October.  The BOE sees the economy contracting by 0.25% in 2023.   Japan does not report Q1 22 GDP until May 18, but that it contracted will not be a surprise given the extended Covid restrictions and the earthquake.  It is old news in many respects.  Arguably more important is that the recovery is already underway, and it will be aided by new stimulus measures.  The preliminary April composite PMI rose for a second month, and if confirmed (May 9), it will stand at a four-month high.   Arguably, Japan's March current account figures due on May 12 will be noteworthy.  First, the first trade surplus in five months is expected.  To be sure though, the trade balance, as we have noted, does not drive the current account surplus.  The capital flows associated with past investments, such as interest, dividends, profits, royalties, ad licensing fees, drive Japan's current account surplus.   Second, with the current account report, Japan also reports portfolio capital flows.  The MOF publishes weekly figures, but the monthly figures include a country breakdown.  Recall that the February report showed Japanese investors sold about JPY3.1 trillion (~$25 bln) of US sovereign bonds.  Some observers have been emphasizing the Japanese selling of US Treasuries.  Often the cost of hedging is cited.  The general flattening...

The Fed's 50 bp rate hike is behind us.  Another 50 bp hike is expected next month. The April employment report will do little to calm the anxiety about the "too tight" labor market.  The decline in the participation rate was disappointing and this coupled with decline in Q1 productivity raies questions about the economy's non-inflationary speed limit.     One of the fascinating things about the markets is that sometimes the cause take place after the effect.  This is an interesting way to express the observation that investors anticipate, discount, futures scenarios.  The dollar has been bought and fixed income sold on ideas that the Fed had taken a hawkish turn.  The market now accepts that the Federal Reserve will bring it Fed funds target rate within the range regarded as neutral before the end of the year.  The hikes will be front-loaded with the next 50 bp hikes discounted for the next two meetings (June and July) and a strong leaning for the same in September (~66%).  The balance sheet will begin shrinking next month at roughly the same pace that it peaked in the 2017-2019 experience before ramping up to twice the pace ($95 bln). The week ahead is important because it may be the first signs that may be peak inflation is at hand.  For the first time since April 2020, the headline reading of consumer prices and producer prices are expected to have fallen on a year-over-year basis.  To be sure, it may not be a large move.  By any measure price pressures remain elevated, but the direction is important.  It would be the first decline in headline CPI since last August.  Core CPI will also likely ease as well.  Recall that after the March report, many economists suggested that could be the high-water mark. - Producer prices, both the headline and core, are also expected to have softened a little. In April 2021, they had increased by 1.0%.  The composition of inflation may also be changing.  Used car prices spurred a great deal of discussion last year.  Prices are falling, like Powell suggested would happen when a year ago he drew attention to used car prices and lumber.  The unusual rise in durable goods prices may be stalling.  Shelter costs may pick up the slack.   One of the most important developments last week was the surge in the swaps market to price in a terminal Fed funds rate near 3.75%.  Some, like the noted economist and former chief economist for the IMF, Kenneth Rogoff, believes that a considerably higher rate (5%) may be necessary to break the price spiral.  However, most observers think that the economic conditions will warrant the end of the tightening cycle before then.  Before the Fed gets the funds rate into the 3.75% area, the pockets of economic weakness, that already appear below the surface, will likely have broadened and deepened.   It is not just the domestic economy either.  Headwinds will emerge globally. Although Europe's April PMI readings continue to show resilience, the deterioration of consumer and business confidence is alarming.  Germany and French industrial output fell and by more than expected in March.  National governments are cutting growth forecasts. The ECB has not moved. It continues to expand its balance sheet.  The hawks are pushing for a July hike and the swaps market is taking the bait.  We are less convinced that a consensus for this crystalized among ECB members. The Bank of England warned that the UK's output could contract by 1% in Q4 as the cost-of-living bites as energy price cap is lifted by another 40% in October.  The BOE sees the economy contracting by 0.25% in 2023.   Japan does not report Q1 22 GDP until May 18, but that it contracted will not be a surprise given the extended Covid restrictions and the earthquake.  It is old news in many respects.  Arguably more important is that the recovery is already underway, and it will be aided by new stimulus measures.  The preliminary April composite PMI rose for a second month, and if confirmed (May 9), it will stand at a four-month high.   Arguably, Japan's March current account figures due on May 12 will be noteworthy.  First, the first trade surplus in five months is expected.  To be sure though, the trade balance, as we have noted, does not drive the current account surplus.  The capital flows associated with past investments, such as interest, dividends, profits, royalties, ad licensing fees, drive Japan's current account surplus.   Second, with the current account report, Japan also reports portfolio capital flows.  The MOF publishes weekly figures, but the monthly figures include a country breakdown.  Recall that the February report showed Japanese investors sold about JPY3.1 trillion (~$25 bln) of US sovereign bonds.  Some observers have been emphasizing the Japanese selling of US Treasuries.  Often the cost of hedging is cited.  The general flattening...

S&P 500 finishes the week moderately lower despite wild swings. SPY -0.34% for the week. Nasdaq finishes lower as high growth tech still not favored. QQQ -1.44%. S&P closes off intra-day lows as some position squaring evident. A lot to get through this week. The equity market had looked to put the worst behind it by midweek when a dovish Powell looked after his equity friends by taking a 75bps hike off the table. This set equities on a charge. It was actually up to the plain-speaking Bank of England to set things straight when they talked in strongly bearish terms about the possibility of a recession. Yields had already begun spiking in the US and the resultant collapse in the pound sterling sent the dollar charging and yields again spiked up. Equities went into full panic mode and have not yet fully recovered. This is despite Friday's employment report coming more or less as good as can be for equities. Earnings (wages) were below forecast while the jobs number showed the still healthy employment market in the US. But at the time of writing the major US indices are down again. Sentiment is terrible, it will take a bit more than an average to good employment report to wash this out. But after it all the S&P 500 and Dow were actually little changed on the week. The Dow only lost 0.19% for the week so things may not be as bad as they seem. Energy remains the sector in demand as it was up a whopping 10% for the week, utilities were also positive for the week that was. Real estate and consumer discretionary were some of the worst-performing sectors with both down over 3%. Real estate was hit as pandemic darling Zillow (Z) was bearish in its outlook for the housing market. Higher rates are seeing a noted slowdown here.  Things get more interesting next week with US CPI up on Wednesday. Unlikely to show much decline there but by then the market may have priced in as much bad news as it can take.  Investors remain highly nervous and pessimistic with sentiment readings from CNN Fear and Greed and AAII both showing extreme bearish readings.  Source: CNN.com Equity Fund flow The latest Refinitive Lipper Alpha data shows inflows for equity ETF's up to Wednesday. Interesting to see how Thursday may have impacted that. But $2.3 billion was drawn into equity ETF's, the first net inflow in four weeks. Equity income, growth, and utility funds performed well. Banking and technology sectors continued to see outflows. S&P 500 (SPY) forecast We remain with our sub $400 forecast. As mentioned CNN fear and greed index, AAII sentiment and Goldman Sachs sentiment are at peak fear or oversold levels. However to prevent everyone front running these metrics we called for a waiting game until the SPY really flushed everyone out. That is below $400 in our view and we are more or less there now. Then time for a hard and fast bear market rally. We do have a potential double bottom to watch at $405 but for now we stick with a bit more selling to really flush things out.  SPY stock chart, daily Nasdaq (QQQ) forecast $297.45 is the low from March 2021 so nearly a year of hyper gains later and we are back where we started. Let's see if that can stop the rot. The Nasdaq is naturally more bearish than the S&P 500 but the S&P 500 will be the leader here when it finally rallies (sub $400 anyone!) then it will drag the Nasdaq kicking and screaming higher.  Earnings week ahead The main grouping of S&P 500 companies has reported, but next week still sees a lot of names with strong interest. So far 413 companies from the S&P 500 have reported and  79.9% of them have beaten estimates according to Refinitive Lipper Alpha.  Retail favorites such as AMC, Rivian (RIVN), Lordstown Motors (LORD)and Buffet favorite Occidental (OXY) are up next week. Source: Benzinga Pro Economic releases After the relative relief of Friday's employment report next week turns back to inflation concerns with Wednesday's CPI number the highlight. All eyes will be on bond yields to guide equity investment.

The EURUSD pair moved lower from its daily highs but remained somewhat higher on the day, trading at 1.0560 shortly after the US labor market figures. US jobs market remains strong Earlier today, data showed the US economy posted 428,000 new jobs for April, precisely at the March level and higher than the 391,000 expected. As a result, the unemployment rate stayed at 3.6%. However, wage growth slowed monthly, down to 0.3% from 0.5% previously, while the yearly change slipped a notch from 5.6% to 5.5%.  Since the numbers came somewhat in line with expectations, there was no initial volatility. However, the market's medium-term trends are expected to continue since today's numbers have reinforced the Fed's hawkish stance on monetary policy.  However, recent improvements in payrolls and earnings and a lower unemployment rate have not translated into a similar gain in many Americans' financial situations. Consumer price rises have outpaced earnings growth as inflation has reached 40-year highs. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) in the United States climbed at an annual pace of 8.5 percent in March, the quickest since 1981. Still above 1.05 The key support for the following days seems to be at the 1.05 level. Once it is broken, the euro could quickly decline to 1.035 - the 2016/2017 lows.  On the other hand, the resistance could be found at Wednesday's lows near 1.063. But as long as the euro trades below 1.08, the medium and long-term bearish outlooks remain intact. 

Outlook: The big story today is supposed to be nonfarm payrolls, with critics already saying a low number will encourage the Fed to back down. Morgan Stanley has a forecast of 475,000, higher participation, the unemployment rate at 3.5% and average hourly earnings up to 5.7% y/y. Bloomberg has a forecast of 380,000, almost 100,000 lower, and the same unemployment rate. The WSJ has 400,000 and the same unemployment rate. It was 431,000 in March, by the way. It looks like the unemployment rate is the thing to watch, along with average hourly earnings. We will soon be getting guesses about how high unemployment can go before the Fed feels the heat. Since we have surplus of jobs and a shortage of labor, that seems unlikely. If average hourly wages are up 5.7% but inflation is closer to 8%, what can draw the worker? It’s important to keep remembering that the Fed can do nothing about supply chain disruptions or the price of oil, both heavy influencers of input prices and hiring decisions, so we are not so sure even bad numbers will stay its hand—0and we don’t expect bad jobs numbers. About those those disruptions: The NY Fed updated the Global Supply Chain Pressure Index for March. See the chart, which is not prices but the standard deviation from the prices over time. Contraction means a dip. To get prices themselves, one of the NY Feds’ components is our old friend the Baltic Dry Index, which is a little less encouraging. Former Fed Clarida gets the WSJ front page with the remark that even if the inflation overshoot fades away, Fed funds still has to be raised into restrictive territory, by which he means 3.5%--at least.  He is speaking this afternoon at the Hoover Institute.  Several other actually serving Feds also speak today. As usual on payrolls Friday, we advise against trying to trade the news. It’s not a system-based trading regime—it’s betting at the dog track. The probability is high that a surprise will take the price right through your stop or target without stopping. This may be nice when it’s your target but can be catastrophic if it’s your stop. And how to set a stop? Presumably someone has looked at the history of “maximum excursions” on payrolls day and you could use that, but what is the spread of outcomes--and have you got that data? Do those advisors luring you into gambling have it? The commentary today is messier than usual. Everyone is trying to figure out how such a terrible day for equities yesterday could follow such a good one, and why the dollar is up, commodities are mostly flattish, and the 10-year yield rose by far more than the 2-year, which is not supposed to happen if we are headed into recession. After all that chatter about inverted yield curves, you’d think de-inverting would get a headline or two, but that doesn’t match the current narrative, so let’s ignore it. On the commodities front, US nat gas prices rose but European ones fell. Gold is wobbly at $1880 from $2043 on March 8 when gold is supposed to go up as inflation news scares everyone. Nobody seems surprised by this except us. The one thing that does make sense today is the drop in the pound after the BoE came across as cack-handed and indecisive. Loss of confidence in the top financial institution is critical, and we doubt sterling is responding to the Tory party’s woes instead. Bottom line, instances of contradictory developments and frightening developments (China) lead to the same deduction—the dollar is the safe haven. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

USD/JPY The USDJPY returned to bullish mode, after shallow pullback from new 20-year high found firm ground at 129 zone, contained by rising 10DMA and Fibo 23.6% of 121.27/131.24 upleg. Bulls are establishing above 130 level, but need weekly close above here to confirm bullish signal, after last week’s spike to 131.24 was short-lived and failed to register close above 130. Thursday’s rebound left a double-bottom and formed bullish engulfing pattern that underpins near-term action and adds to positive signals. However, traders remain cautious despite the dollar regained traction, awaiting fresh signals from the US labor report, while daily studies show weakening bullish momentum, which warns bulls may lose steam on renewed probe through 120 pivot. Near-term action is expected to keep bullish bias above rising 10DMA (129.42) with sustained break above 130.00 and 130.65 (Fibo 76.4% of 147.68/75.55) to open way for retest of new peak at 131.24 and unmask 2002 peak at 135.16. Res: 130.47; 130.65; 130.80; 131.24. Sup: 130.00; 129.42; 128.89; 128.62. Interested in USD/JPY technicals? Check out the key levels