Is Inflation Finally Tamed?

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1:09is inflation finally tamed hi everyone welcome to the real vision daily briefing with me today is steve miley co-founder and chief analyst at trade day hi steve how are you great to have you back on yeah hey maggie i'm doing very well thank you for having me back on so we're a couple minutes It's late because we've been struggling. You know, we just ask a lot of technology and sometimes it gets pissed off at us, I guess. So poor Steve has been gamely trying to, we've been trying to deal with some audio issues. So we realize he's a little low, but hopefully you can understand it. And we felt it was worth moving forward.

1:44And it was a lot better than what we were dealing with a moment ago. So thank you for being such a trooper, Steve, and hang on with us. But, you know, we need to talk about these markets because there's been a heck of a lot going on. We had another subdued reading on inflation that helped stocks extend Tuesday's monster rally. I mean, extend is being a little generous. It was back and forth all day, but we did see an advance, a nice advance by the Dow. S &P up about a 10th. NASDAQ was the one who just kind of inched over, but the Russell up a quarter. So still in the green, given the gains we saw yesterday, which I think is saying something.

2:20Treasury yields didn't see the same sort of follow through. We did have the 10-year back up above 4.5%, 4.53%, but that is after a really big move yesterday. So I'm just wondering what you're making of this market action and the fact that we did see stocks seem to shake off a little bit of early wobbles and once again stay in the green. What are your thoughts about this market? Well, let's just address today, I think, first of all. First of all, we get PPI retail sales reinforcing the fact that the economy is holding in there and inflation is pushing down. One thing we didn't add in there was on your recap, and obviously appreciate there's a US focus, is you also had that UK print today on the CPI, the inflation data, which is also moving in the right direction.

3:07And the UK, I'm sitting here in the UK, and that UK data has been very slow to move lower. So I think the global picture on inflation is looking better. We did get these mammoth lows yesterday in both bonds and in stops. And then what we've really seen is just a consolidation of that in the last 24 hours, which is, from a technical analyst perspective, that's good enough. That's what I want to see. I want to see the market holding on. And I think what's really significant when it comes to the stock indices, there was that resilience. You said we kind of nudged into the green, kind of finished the day kind of flat, which is fine, particularly given that the Treasury yields backed up to higher yields today, having had their significant plunge lowering yields yesterday.

3:55And that's been the tail of the tape, actually. There's been this slight dislocation between, you know, I've been talking to our users at Trade Day now for the past two months about, and most of them are index traders, and I'm saying you have to watch the bonds. The bonds have been the dog that's wagging the towel of the index markets. And that is, you know, you've been around for a while, Maggie, and you know that's not usually the case, right? It's usually the other way around, or bonds are insignificant, or they've got less of a correlation. That correlation has been super high and it's been bonds driving it.

4:29And that's kind of broken down. Even though the correlation is still very positive, i.e. it's in the same direction, you haven't really seen it correlate as well, particularly when bonds have gone back down to lower prices and higher yields. Equities have kind of marked time and consolidated. And again, I just think that underpins the equity market. It shows that if we're going to go to lower yields, we'll take that and we'll go higher. That's what stocks are telling me. And then if we don't go to lower yields, then we're kind of a bit okay with that as well. We'll just hold it. We won't do anything.

5:04Yeah, which is really interesting. And I'm so glad you brought that point up about bonds. Absolutely true, especially here in the US. We are very equity focused. But I guess that's the byproduct of having a super low negative interest rate environment for so long. And now you're back to what is, you know, traditionally more of a normal situation where you do have to watch what's happening with interest rates. I mean, you do have to look across assets. You know, we never talk about FX, but that's a that's a big deal, too. So we certainly try to do that. And thank you for bringing up the UK data.

5:35Super important to see that happening on a global, you know, scale as well. That inflation, that matters a lot. So interesting. A lot of the market watchers yesterday, Tony Greer made a point of this when he was on with us. We're talking about the breadth of the move we've seen this week as being really noticeable and, again, a bullish signal to them. I saw something today, 40 names in the S &P 500 hit 52-week highs, 40 names. Walmart and Microsoft traded back to levels that they haven't seen since they first listed in the 70s and 80s. I mean, that's pretty extraordinary and addresses this issue, which has been a problem for so many people, that it was really limited to the MAG-7, the Magnificent 7.

6:21Does this breadth that we've seen suggest that this rally has staying power? Yeah, I've been asked the question, you know, is this the Santa come early this year? We always talk about the Santa rally, you know, it's a bit of a kind of a misnomer, whether it's seasonal or whether it's just, you know, just just so to talk about if the market goes up in December. Right. But, you know, has it come early? I think, yes, he has. But I think he's coming again. That's my view. I think we can see this this stock index rally run. I think breadth is important. Yes. If you look at momentum indicators, you know, I'm a technical analyst at heart.

6:55You know, I can talk macro all day as well. But, you know, if I look at momentum indicators, they are getting a little stretched. They could get a little more stretched before we get into truly overbought conditions. But, you know, those indicators don't take much to kind of, you know, we've got a long way to the end of the year yet. We're not at Thanksgiving yet. So, you know, we've got plenty of time for us to make not only back to the highs of the S &P or the Nasdaq. they're ready for the highs of the year. But I mean, the S &P could easily be hitting those highs from earlier on in the summer.

7:24And then I think there's even potential, maybe not for Christmas, but certainly going into January, for us to be hitting the all-time highs. We're closer to the recent lows. Sorry, we're closer to the all-time highs than we are to the recent lows that we put in October. So we've come a long way, but there's potentially less distance to go to those highs. and there's no reason we can't get there. Consider, again, a significant shift in CPI, which then the key question is, does that lead to a shift in the Fed, right? Yeah, yeah, absolutely. Before we get to that question, you sent over, we have a chart of the S &P.

8:03So what are you looking at in terms of levels, next levels that are important that are either going to confirm that we are in this shorter term bullish trend or give you reason for pause? What are you looking at from a level perspective? Yeah, we've kind of blitzed through pretty much all the retracements, the sell-off that we saw from late summer and then accelerated lower through October and then just into November. But you've got some key peaks and retracement levels. 45.66 is there on the chart. And then we've got 45.97 and a half above there. That's going to be critical from September. And then ultimately above there, we're focusing in on that high.

8:46This is on the futures market based up at 46.85. So I think all of those are easily attainable potentially in November, early December. The question mark then is, does the market have the legs to go on the all-time high, which is up close to the 4 ,800? That's going to be a big ask, I think, this year. But as I say, if you have any kind of dovish view on the Fed, You know, we could easily be hitting those kind of levels. Yeah, well, which is why the Fed is going to be super important, right? And there is some concern that the speed of this rally, right? We've seen this big move in stocks. We've seen this big drop in yields.

9:23It's kind of going to undo the work of the Fed. You know, will the Fed be comfortable with this rally? And does that sort of, you know, release of animal spirits kind of counter that restrictive policy that they've been trying to pursue? What do you make of that? Or is that something that you're concerned about? The short answer is no. I mean, I think, you know, yes, the Fed do keep an eye on the frothiness of the market. But, you know, we're not at all-time highs. You know, we're not making new all-time highs. We're far from that. You can hardly say it's been a stellar year. You know, depending when you're in, you could be either offside or onside, you know, in this year so far, right?

10:03It's hardly been a right home about kind of year for stocks, you know, the kind of stuff. It's been very choppy. you'd say more sideways than anything else in a broader range. So I don't think they're particularly worried about that. And then what's going to be more in their focus is going to be the potential for us to tip into recession. That's their remit. We know they're keeping an eye on the stock market, right? But equally, unless it's getting to some kind of irrational exuberance to coin Greenspan's base, so we're a long way from that, right? And then I think there's potential for this further upside.

10:37And I think you make a really good point on the breadth. You know, if it was just running away from it with itself and wasn't any kind of solidity to it and breadth to this rally, then maybe that kind of tweaks a little bit more of concern if it's all in those magnificent seven. But, you know, we haven't seen that this time. So, you know, if the broader market is rallying, if the broader market is up, if, you know, stocks across the board, you know, you spoke about Walmart. We had those target numbers today, which were great, right? You know, all of that points to me that, you know, we can go higher without it being a major concern to the Fed, you know.

11:11And I think it's going to be really interesting, super interesting to see the pivots from it's going to be watching the Hawks, you know, how those Hawks pivot, really, you know, because the likes of Kashkari has been out there on the wires just saying it's too soon, it's too soon. It's not dead yet. Right. You know, what's it going to take for someone like Kashkari to kind of to have a shift? And if there's any kind of hint that someone like you has kind of steps, it only needs to be a moderate step. You know, he's not going to give up his hawkish view, but a moderate step away from that view.

11:42Then, you know, you could just see a very quick move from the markets and from the Fed to, you know, rate cuts coming even earlier than what we're pricing in right now, I think. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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13:06It's so interesting because that interplay between the recession and do we get a pivot to cuts is something that Steve McGlurgo, Valkyrie, was talking about. He and Ash had the opportunity to sit down and talk on the platform a little earlier this week. And he definitely had some sort of concerns about how that interplay was going to work. work. Let's have a listen and we'll talk on the other side. Yeah, sure. We're entering into a new election cycle. And even though the Fed isn't supposed to be political, it has become political over the last six to eight years. And when we have an economy where inflation is still pretty high on the things that matter, inflation is lower on things that don't matter.

13:50And at the same time, you're starting to see job losses and lack of job growth and general signs of a recession, including an inverse curve. So all of those factors are going to force the Fed to begin to think about lowering rates again. It probably won't happen until May or June of this coming year, but I do expect to see the Fed begin to lower rates at about a 25 basis point clip all the way into the election cycle, which really will be in October. That full discussion, you can see there's a whole panel there, is available on our platform. It included, it wasn't just on macro, it also crossed over and included a conversation about crypto, digital space, whether or not we're going to see that Bitcoin spot ETF.

14:41Really interesting conversation. If you're watching on YouTube and you are not a full member, jump on a trial and head over to app.realvision.com so you can get access to all of that. Worth asking perhaps here, Steve, before we continue, I want to talk about treasuries, but are you trading in or watching Bitcoin, Ether, Solana right now? They've been on fire. It's not something that I have a real focus on, no, but I mean, I have been watching the fact that we're seeing some significant moves in those. And I think it kind of sits with that risk-on move, right? And given that you've got that correlation going now, I was looking at the correlation last week.

15:21And given that you've got that positive correlation going on, with my view here on stocks, I couldn't be anything but bullish and continue to be bullish on the kind of breakouts you're seeing in the whole crypto space and particularly those. Yeah, it's piqued a lot of people's attention. We're going to talk a little bit, the Crypto Academy dropped today, folks. We'll talk a little bit more about it at the end, but Artur is in the chat on the platform. If you have any questions, you can hit them up there. really important time to sort of plug in and pay attention. If you went through the last cycle, a lot of lessons to be learned and maybe corrected on this one.

15:55And if you're new to the space, sat it out last time, but want to get involved and know more, now's the time. I'll tell you how you can get to that crypto academy in just a little bit. So Steve, treasuries, you mentioned before they have been key. We have the sense here they're going to continue to be. Where do you see treasury yields moving from here? Yeah, well, obviously, we had that big rejection up at 5 % on the 10-year, right? And then we kind of went into a consolidation phase up until about a week or so ago. But then we broke down through some really significant levels. From yield terms, we put in a topping pattern when you're not from a technical analysis perspective.

16:33You know, and you look on the prices, it's almost like an inverse head and shoulders you've got down on the US 10-year on the futures. So it's interesting that that that bottoming pattern and price and topping pattern on yield is very much in place. And as you said earlier, we're sitting around the four and a half percent level. We're kind of just backed up above there. Right. We're talking about the 10 year here, correct? 10 year. Yeah. I think we might have a chart. I don't know if they can pull it up. I don't know if it'll mess with our signal. But so where do you see? So, right. We had a big rejection, the patterns shaping up.

17:07What do you see happening from here? Yeah, so then all the risk is then on the 10-year is like for an acceleration still lower. You know, we've kind of had the like consolidation phase. We signaled that higher yield top. And then for me, it's pointing, you know, if we're seeing a 4.5 and you've got the 5 % peak and now where are the risks? The risk is closer for me to 4%. I'm like 65%, 35%. You'll see 4 % before 5%. Wow. What part of the curve, I know you look across the curve. What part of the curve do you think offers the most opportunity? From a technical perspective, you know, from here, you'd have to say, really, the twos to play catch up, you know, and that sits with the kind of view of, you know, they've all got basing patterns on price or topping patterns on yield, you know, across twos, fives, tens, is wherever you look.

17:57Right. People have had the, you know, the bigger moves, you know, arguably been in thirties and tens. And it's maybe the time for the short end to play catch up. And that's going to need a hint, right? It's going to need a hint. And it sits well from a technical set with my macro view that the Fed take this kind of dovish shift. And I'm not talking about dovish shift. I know you've watched the sound bite there talking about rate cuts coming in May. But that's pretty much what the curve's pricing in. You look at Fed funds and on the futures market, that's where it's pricing in. But it's May, June.

18:30That's when the cut's coming. I think there's risk that the yield curve, the interest rate, the short-term interest rate curve, and then in turn the stock indices get ahead of themselves. The market's always further than they should, right? And there's a good chance 10 years are down at 4%. We get some kind of explosion up in price on two years. They play catch up. And I think that's triggered by any kind of signal that the Fed is stepping away from hawkishness to dovishness. I think you could see a real exposure, particularly in the short end, where now we had a lot of big players in the last two, three months who have advocated, you know, aggressive short positioning.

19:10You know, I think the last time we were on, that that was just starting. Last time I was on, that was just starting. And I think, Rose, we need to back away from our long bond view for now. Right. Well, I think, you know, what we're seeing now is that there's a real risk that we could get that that long bond view for me is about to come into fruition. and some of those have been in for the last three or four months. Most of them have probably been, a lot of them have probably been squeezed out the longer end, but I don't think they're out on the short end. And that's where the potential tension point is.

19:37And that short end is obviously driven, again, on back to the Fed, right? Yeah, great point that maybe they're not out of the short end. Everybody who's going to roll up, Raoul's going to be doing an AMA, it would be worth asking him about that because he did, he's been bullish bonds, but he was frustrated by the timing. So be interested to see on the short end, because we did have that divergence. We still have people, by the way, who believe that inflation is going to be sticky, that the market is overshooting and has got the macro theme wrong. So it's going to be really interesting to see how this plays out.

20:12When you're talking about overshooting, they're talking about from a fundamental. They just think that this is sort of probably a bear trap. But when you're looking at this, Steve, do you think that in the short term, it sounds like you're very bullish and there's a lot of momentum, but in the more intermediate term, you feel like there might be a correction coming because this is happening so fast that they're going to have to sort of have a consolidation phase, stocks and possibly bonds. I think I'd have to come back. It's what I always used to do. And I'm an analyst at R. I have to sort of just ask a question on that one is where's your intermediate term?

20:46I mean, For me, I've said there, from now through to December, for me, it's bond prices up, stock prices up, lower yields. That's where we're going. And incidentally, we haven't even spoken about the dollar. I think the dollars are getting crushed. But then equally, I think there is a gut check on all of this. The gut check, for me, doesn't come from until the early part of next year. And I think that'll be then, I think we could easily see, you know, some recessionary pressures coming through. That's more my view, rather than the stickiness of inflation and then the potential for the Fed to go more hawkish.

21:23It's like, well, actually, have we done too much damage? Has not just global central banks, you know, put the brakes on too hard and we are going to, you know, head into recession? Because you have to remember, like, if you look in Europe, we've been teetering on the edge. The US is some ways away. But in Europe, UK, Germany, we've been teetering on the edge of recession on and off in the last 9, 12 months. We've had flat quarters of growth, slightly negative, and then just then maybe had a slightly positive quarter of growth. So we're in sort of de facto, like a hard, soft landing at the moment in Europe.

22:02But it's whether the US can get through that. And I think we will have a wobble. We will have a gut check. We will have a consolidation phase maybe in the beginning of next year. But then we could easily see, you know, the Fed's got a lot of bullets in the gun. And that's where then we could even see a signal that they're going to be even more, an even more rapid shift. And that's why I think we could see the first rate cut as early as March. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

22:38It's interesting. I'm glad you brought that up because this pivot and the very bullish reaction from stocks is great, except that if it's happening and there's a recession, then everything depends on how steep that recession is. I mean, it's like, you know, that weakness is good news until it's really bad news, because then we're seeing that lag effect happen. And what does that mean for the economy and earnings? That part of it is sort of, you know, not in the discussion at the moment because we're at this transition period. Want to get your thoughts on oil. I know you're looking at that, too.

23:12The pullback in oil is part of what's been helping, presumably, take some of the pressure off the inflation story. Yeah. And, you know, again, you know, look at the technicals. First of all, you know, we broke a key trend line that goes all the way back to May on the oil chart. Also, a topping pattern went in there, you know. So, yeah, there you see it. You've got the trend line. We went and held kind of the kind of final retracement and important final retracement level. That retracement level, just looking at my charts here, comes in around, yeah, where are we? 73 bucks. We bounced off of pretty much around 75.

23:44But, you know, if you look at the chart, it doesn't take a great technical analyst to be able to see. We were in a succession of lower lows and lower highs. We've just had a rebound. I think the most interesting thing for me here, and as sad and as awful as everything is going on in the Middle East is, when we got that breakout in the tensions of the war broke out effectively, the October rally failed way below where we'd already been in September. That's September high. And then we only rallied to 89, 85. And that tells me that, you know, on one of the kind of worst fundamental events that should have seen oil flying higher, the market had no appetite to be up there, you know, pushing it back above 90.

24:28And we fell back misery down from there. Given we don't get anything escalating within the broader region. Now, my view, if I just look at the technical chart, we're in a downtrend now. All the risk is break through 75 and we're closer to 70. And as you point out there, right, you know, sometimes oil is seen as a goes with risk on risk off. But at the moment, you know, in an inflationary phase, you know, we want oil lower. And I might point out as well, you know, I cover the natural gas charts for some clients here in Europe and in the UK. And those charts are still very much in a downtrend. So that's going to help that whole inflationary picture, particularly in Europe where the natural gas problem is far more acute than it is in the US.