Long

I Smell a Santa Claus Rally

Updated

With inflationary expectations low, a decrease in CPI and Core CPI, a likely slowing in interest rate hikes, there's too much positive news in the short term to ignore the likelihood of a near-term rally. Still, some hinges on Jerome Powell's outlook tomorrow, but I expect him to keep language as soft as his last speech. Last month, he was still very domineering in his tone on inflation, but the last FOMC meeting was much softer. I expect that again with inflation ticking down as proof of low inflationary expectations.

I mean, you can hear people freaking out about the economy everywhere. I don't think inflationary expectations are high lol. Listen to his last speech and you can hear a dramatic tone shift.

Here's last FOMC Press Meeting After rate hike in mid November: brookings.edu/events/federal-reserve-chair-jerome-powell-the-economic-outlook-and-the-labor-market/ HARD LANGUAGE

Here's his "Inflation and the Labor Market" speech on 11/30: youtube.com/watch?v=MjjtGqYBKfE&ab_channel=WallStreetJournal SOFT LANGUAGE

Long term? You'll have to look at my first post to see that.

Enjoy, and you can find a link to an Economic Release calendar down below for you to save.

InTheMoney

Note

Economic Calendar: marketwatch.com/economy-politics/calendar

Note

Want to clarify that you can hear his change in outlook because his anticipation of high inflationary expectations, and therefore upward pressure on inflation, has softened. It is evident between his aggressive tone in mid-November and his soft tone in late November. I expect with the positive recent inflation report, and his soft language at his most recent speech, he will continue with the soft language and stick with a 50bp hike. All this and what I talked about above leans towards a continued rally, even with today's sell-off after an initial jump because HOIYPE.

Note

With the current FOMC now taking place, an unexpected Hawkish stance is coming from Powell, and echoes that of his last speech at the FOMC meeting.

Target range of the target range has been increased since the last release of economic projections.

Much of what he is saying is almost identical to what he's said previously. I view it as a bluff to keep inflationary expectations low. Regardless, it's overall much more hawkish.

Projected target rate 5.1% for 2023, which is increased over his last projection in September, implying increased hawkishness.

Even when he speaks about 50bp increase being lower, he reiterates that it is still historically high, reinforcing his focus on keeping inflationary expectations low.

He says he does not view them being at a restrictive enough stance, and further hikes will be needed.

"To bring price stability, we will require a sustained period of below-trend long-term growth"

"History warns about loosening policy too early, and we will continue until the job is done".

He's closed with these statements before.

His tone is MUCH harsher than his last speech on 11/30, which makes me a little suspicious that they are overdoing it intentionally to keep inflationary expectations low.

He literally repeated what his said in the past word-for-word, particularly in his closing statement. Can't risk increasing inflationary expectations? Will the market see through this?

Note

He says in his press meeting (happening now):

"One thing is to say is, I think our policies are getting to a pretty good place now; they're restrictive. We're getting close to that level of sufficient, we think, uh, sufficiently restrictive"

This seems to go directly against his firm stance in his pre-written speech, and to me it seems that he's having a difficult time answering questions. I feel the whole purpose of this meeting is to keep inflationary expectations down.

Note

Powell hates Christmas and is personally responsible for me only getting socks this year at best.

Rally dead, idea dead. Bluff or not, the market believes Powell and Santa Claus got 360 no-scoped by the FOMC.

Note

The bond market doesn't buy it. No sell-off even though future rate hikes would mean higher yields. Why wouldn't bond traders sell now to capture the higher yield later and avoid depreciation of their current bonds?

Listen, a good bluff is still a successful bluff. But that will all change when we see the fed move doveish quickly in 2023 even if they continue to hold the line for now.

InTheMoneyAdam

Also on:

Related publications

Why the CPI Report Matters and Could be a Bullish Catalyst

by InTheMoneyAdam

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.