Friday Chart Book

October 11, 2024

First of I wanted to mention that I will be releasing the Asset Allocation model in the coming days. This is part of the Macroscope series. On a weekly basis, I will update the charts and the signals, and you can track them for your own purposes. It’s built using separate bond and equity models (SPX & US 10-year Treasuries). I have used a long history to test it for robustness. I will leave it to you all to judge for yourself when it gets released. I think it adds tremendously to the value added to this place. As such, I would urge anyone who is interested in becoming a paying member of this pack, as prices will adjust higher with the release of the allocation model. I think that alone will hopefully be worth the relatively modest subscription fee.

Let’s now dive into this week and see what’s likely further ahead. Our chart indicators have warned to be short bonds over the past few weeks, and we nailed this move (I hope you did). Our reversal model also is currently highlighting that a trend reversal is building. There are a lot of moving parts but these are the turning points and setups where one has to be especially vigilant.

Thursday’s CPI print came in hotter than expected. I noted in a quick message to my readers that the hedge fund consensus was already around the 0.3% m-o-m core inflation mark, and we were not disappointed. Bonds came in rather nervous, with equities also feeling the increased risk of a double-whammy after last week’s strong payrolls report. The market reaction was somewhat surprising as we bull steepened the curve. Some of this was the reaction of higher initial claims that were only partially affected by Hurricane Helene. This suggests that the rise in claims is not just a temporary weather-driven increase but could reflect some genuine economic weakness in other parts of the country.

Real rates dropped significantly on the day, which helped oil and other commodities while also supporting equities. The US Dollar was a bit mixed overall. The focus now firmly shifts to the weekend and geopolitical events. As said multiple times, I am no expert, but I find it more worrying that no retaliation by Israel has yet materialised. This, to me, signals an even more violent response potentially. Oil is again on the ascent as we are closing in on the weekend, and the call option skew will be insanely expensive over the next few weeks.

STIR flow this week has shown some interest in playing for a skip in the November 7th meeting, which is scheduled 2 days after the election (on a Thursday). It’s now pricing in 21 bps of cuts coming in. The CPI report hasn’t moved the needle on this. I would find it very strange if the Fed would decide not to cut in this upcoming meeting after they started with a 50 bps cut. This would be a huge surprise and a pretty nasty event for bond markets. It would smell of indecisiveness, especially when there is no updated economic forecast.

As of now, I think they will go 25 bps in November, and then the incoming data will show the way for December. From there onwards, I can see them angling for a quarterly cutting pace, but only if labour market conditions and growth stabilize or pick up. Until then, I don’t see any “homerun” in bonds at the current juncture also with an eye to the run up to the election.

More on the election and financial market implications will be provided soon.

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By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published. I would highly recommend you go through these notes and guides if you are new to the pack.

Further below, the full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX, and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.

A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions. It’s taking time to set everyone up so I will limit the amount of users going forward.

Let’s also read my friend Macro D’s recent thoughts on markets before engaging our scanning eyes across the multitude of charts that I have updated for you below.