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April 28, 2024

#Stocks –

#Macro – $SPX, #Rate, #Dollar, #QRA

Mike's Leading the Market Macro Subscription Service, Seeking Alpha

This will be one of the busiest weeks of the year with earnings releases, the Fed, tons of data, and the Treasury's quarterly redemption announcement. There are mixed opinions on the quarterly redemption, and it's likely to be a no-event. More details will emerge starting Monday afternoon, with the official announcement coming Wednesday morning.

I know there are people on social media suggesting that the TGA will shrink and send a wave of liquidity into the market. I have my doubts about that. Could it go down from the current $900 billion to around $750 billion? Yes. But could it go down to $100 billion? Probably not. After all, if the Treasury prints fewer notes, some of the money that has flowed out of the reverse repo facility over the past few months could start to flow back into the reverse repo facility. If there is too much cash in the overnight funding market, the overnight interest rate will fall all the way to the 5.3% reverse repo rate. So if interest rates fall too much, that money will go back into the RRP and liquidity could dry up from the system, especially if the reverse repo facility rises faster than the TGA falls.

Overnight rates have generally been trending downwards since the end of March, while cash in repo facilities has been trending upwards in general, so details emerging over the next few days could be important, especially if bill issuance is net negative.

Meanwhile, this week's Fed meeting is probably more important for credit spreads than anything else. We all know that financial conditions eased dramatically when the Fed reversed course in December and signaled rate cuts. That said, that process began in November when Chairman Powell indicated that rate hikes were essentially over. If Chairman Powell indicated that the number of rate cuts he signaled in March would be fewer and likely reversed altogether at the June meeting, will this be the meeting to start tightening financial conditions again? Possibly.

So far, the bottom in the spread has occurred around the March FOMC meeting.

One reason the Fed may eliminate all interest rates by June is that the April CPI swap is expected to show an increase of 0.34% month-on-month and 3.4% year-on-year. Frankly, 0.34% is only 0.01% away from 0.35%, which is rounded up to 0.4%. If the April CPI records 0.4% for the third consecutive month, that would not bode well for the prospects for rate cuts.

In fact, based on current CPI prices, it will be hard to get below 3.0% between now and February 2025. So if you want to see a string of positive reports between now and when the Fed starts cutting rates, you may have to wait until May 2025, at least if current trends continue and swaps are priced appropriately.

This means that 2-year Treasury rates will continue to rise, topping out the bull market.

The 10-year Treasury note has also risen, climbing to around 5% after surpassing resistance of 4.65% late last week.

Perhaps this is why the dollar continues to rise and exit the bull market.

Meanwhile, the S&P 500 has risen this week to reach its 20-day moving average and is very close to its 50-day moving average and approaching the downtrend line. Therefore, this week will likely be a key week to see if the downtrend continues. If all of the above holds, the downtrend in SPX should continue.

Have a nice Sunday.

-microphone

Chart used with permission from Bloomberg Finance LP This report contains independent commentary used for informational and educational purposes only. Michael Cramer is a member of Mott Capital Management and a representative of the investment advisor. Mr. Cramer is not affiliated with this firm and does not serve on the board of directors of the affiliate that issued this stock. All opinions and analysis presented by Michael Cramer in this analysis or market report are Michael Cramer's views alone. Readers should not treat the opinions, viewpoints or forecasts expressed by Michael Cramer as a specific solicitation or recommendation to purchase or sell any particular securities or to follow any particular strategy. Michael Cramer's analysis is based on information and independent research that he believes to be reliable, but neither Michael Cramer nor Mott Capital Management guarantees its completeness or accuracy and it should not be relied upon as such. Michael Cramer assumes no obligation to update or revise the information presented in the analysis. Mr. Cramer's statements, guidance and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any particular results or profits. You should be aware that there is a risk of incurring actual losses by following any strategy or investment commentary presented in this analysis. The strategies and investments discussed may fluctuate in price and value. Any investments or strategies mentioned in this analysis may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as a recommendation that may be suitable for you. You should make your own independent decisions regarding any investments or strategies in this analysis. Upon request, the Advisor will provide you with a list of all recommendations made in the past 12 months. Before acting on any information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment advisor to determine the suitability of the investment.

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