Attack the Week (ATW)
Monday Thoughts
Markets are built to maximise frustration within the playing field. Last week was no different, as a great head-fake of anticipated softer data was then dramatically denied amidst Friday’s employment data. This is a tough environment meant for range-bound markets and increasingly higher noise-to-signal ratios. What is one to do under such conditions? You have various options. Big Macro guys simply stay away as they're not trained in the range trading business. Short-term investors, meanwhile, welcome the “range-ness” in markets and play mean-reversion to their best ability. The models have been on a tear all year, but they are also finding frustration in the recent choppiness, especially in bonds. This should act as a signal in itself, as it would tell us that conditions are simply not present for a firm narrative to take hold.
As for me, I think a gameplan has to fade a narrative build until it’s fully affirmed in a string of data prints to manifest the new narrative. Friday’s employment report, for example, threw a bit of cold water on the narrative that the economy is rapidly slowing. It’s reasonable to think that the Fed needs to see 2-3 consecutive good inflation reports before easing. As such, the rather unfriendly jobs/earnings report resets the count to zero once again.
This week’s FOMC meeting will clearly be the focus. It is interesting to note that in five out of the last seven meetings with a dot plot, the 2-year yield moved more during the statement period (1:59 pm to 2:25 pm EST) than the press conference period (2:25 pm to 4:00 pm EST). In the eight meetings that did not feature a new and improved Summary of Economic Projections, the 2-year yield moved more during the press conference on each occasion (in absolute terms). See the table below.
We also obviously have to tackle incoming CPI data. I have no strong view. Consensus estimates a 0.1% rise in headline CPI and a 0.3% rise in core. Meanwhile, last week’s dispersion in equity performance was quite noteworthy. The equal-weighted SPX underperformed the SPX index by almost 2% in a week, which is the widest since March 2023 and signifies a 2-sigma move. More on dispersion and other useful risk measures, please read the following.
Before we go and see what’s in store elsewhere for the week in our Quick Run and Charts for the week, let’s also invite Macro D to share his latest thoughts with us from his perch.
Let’s go!