Stocks Hit Record High. Can the Fed Minutes Keep the Party Going?

The S&P 500 has pushed to a record high. So too has the NASDAQ. But the markets are waiting for a bit of macro news now to drive the next move. We're going to try to figure out what's happening next and whether the optimism is as encouraging as it might seem. This is Macro Money. I'm Ilas Spac, head of Global Macro here at Tasty Live. And as ever, we are going to begin our conversation with a look at the price action. Here's the S&P 500. We can see there's the breakout. It is attempting to secure here. It looks like we're almost certainly going to get there by the end of the day. We can see on the 8 hour we've already secured the close. So it looks like it'll be a push higher here. Now when we look at the actual running contract here, the December contract, we can see it's a little bit tentative still. So the actual tradable contract here as opposed to the continuous gives us a little bit more to think about. But if we look at the benchmark ETF, it seems to have made the turn. We can see that right here. And so for sort of general sentiment gauge type of uh purposes here, it looks like the uh risk on switch is getting flipped. And it's uh the same story for the NASDAQ. We can see that continues to look well supported. Uh and in fact was a good lead on where this was going. Uh ultimately when we started yesterday, the S&P hadn't made the break the NASDAQ did. And today we see continuation. Uh the interesting story is as ever what's going on in the Russell where things continue to look much worse. Uh the rejection here at former support become resistance also at the bounds of the trend down since the hawkish performance by uh Fed chair WH Jackson Hole put in this break right here. That's Jackson Hole right there. uh this uh doubles as the peak in the two-year bond uh and of course then the low in the two-year rate. So this is the rise in interest rates we've been watching in stock market reflection. Uh and we can see here that is very much still in play. So, uh, we had to take off the spy put vertical we had on, but the put vertical in IWM, the Russell ETF, that continues to work quite well here. And I'm going to be looking to see if maybe we're going to add to this position. But more on that later because the more interesting part here is that the risk on tone may be echoing into some of these other markets reflective of recent worries about rising yields where things might be unclenching a little bit. So, gold here um was early to find some kind of a a bottom over the past several days and it is holding at these levels and maybe making a bid to put in a base. Silver likewise trying to maybe round some kind of a bottom here. Bitcoin uh continues to hold quite well and is trying to see what it's going to do with its swing high from late September, but the overall structure here still very well uh supported and uh looking like uh it's biased to the top side. The other interesting thing uh today that despite all of the ongoing concerns in Europe, in fact u it seems like uh there was a round of protests building with hundreds of students taken to the streets in Paris. You'd think that's the kind of thing that might amplify recent uh sovereign market stress there, but no. the euro actually higher on the day despite that news flow and seemingly attempting to undo the breakout uh here uh over the past day or two. We have very clean positive RSI divergence as we get this sharp wick lower and so the dollar more generally seems to be in a weaker state that of course would comport with gold and silver trying to find a bottom. Here's the Aussie. It is extending higher. Here is the Canadian dollar. It seems to be feeling much uh more of a um pep here. Um as relative uh and I've exited the short Canadian dollar position I've been sitting in uh here. This has been a relentless selloff, but it looks like there's been a change in course. I am likewise looking here very closely at what's going on in the pound because it seems to be late to a lot of these moves but it seems to be trying to cultivate a turn at these critical levels. Uh I'm a little bit long. We'll see how that is going to uh continue here. For now, it seems like the range is broadly holding, but we have a critical piece of news that is going to be coming our way here. And that of course uh will be by way of minutes from the Fed meeting uh most recently in September. Uh we can see the odds have shifted materially. So, we're now looking at an almost 81% chance of no rate hike in October, although the markets are still quite certain, almost 98 uh% that they're going to get the move uh in December. The Fed, of course, as we know, has endorsed that version of events. Um maybe not necessarily the timing of when the hike is coming. Certainly the Fed doesn't get into that kind of minutia, but uh if we take a look at what came out in the summary of economic projections for that September meeting, we can see there's the two rate hikes for this year right there. Now, what's interesting is that for next year, we see the Fed expects rates to remain steady, no changes, and from there we get cuts. Moreover, we can see here that the actual shape of the dot uh matrix here, the dot plot that Fed officials uh give us and of course Kevin Walsh doesn't participate in this because he is a u a non-believer in these types of exercises. But nevertheless, it does give us an important window and we can see that there was very strong consensus in favor of the forecast. It was very lopsided in favor of at least one hike and going to two. Now we can see that the standstill consensus for next year is likewise overwhelming. Only four policy makers are lower. No policy makers are higher and then and then from here we get the cuts. So here we can see only uh a minority expect to hold rates where they're going to end up this year. Most see rates coming down. That's of course against a a backdrop where inflation at least looking at the Fed's PCE measure, the favored measure for the central bank still um we already have reached the 2% mark, the Fed's target on the three-month annualized rate. And that's after this thing peaked back in May and has been declining since. In fact, you might even say um it peaked in April, but these numbers look um like they're about the same for april and May. So, let's be conservative. In May, then we get the start of a decline where now the 3-month annualized PCE is at 2% and essentially giving us the sense that nearterm dynamics though this might not be showing up yet in year-on-year numbers. Clearly uh we can see that much uh we're still well north of target here but the dynamics seem to be turning. Moreover, the six-month rate a smoother, slower uh later to move um indicator that seems to have peaked in May and started to decline as of June. And so there's a broadening of the downward move here. And so seemingly the argument might go, well, why does the Fed need to aggressively hike if inflation is already bending to its will? Moreover, the story for the Atlanta Fed GDP now growth model, which is just a tracker of where GDP influencing data is trending. We'll see where the actual numbers are by the end of this month. The actual third quarter GDP number is due on the 29th of October. But we've still got plenty of time for this model to evolve. And really the story here is less about the level and more about the direction which is pointed lower as the incoming data has come out over the past two months or so. And so we're looking at a situation here where seemingly the Fed doesn't want to do more than just one more hike. the minutes are going to probably make that case. We'll see to what extent the Fed lines that case up with nearterm concerns and uncertainties. Uh in the statement, of course, they mentioned um geopolitical developments, domestic uh domestic spending um and all of these kinds of um things surrounding the outlook. But what's interesting uh is they seem to think economic activity is expanding at a solid pace but uncertainty remains elevated. So it seems like if what we're saying here is we don't need more rate hikes because we don't want to over commit. That's one thing. If we're saying we don't need rate hikes because the economy seems to be actually turning into a more disinflationary state, that's a weightier statement. And so we'll see what the minutes ultimately telegraph. But if this is the drill down that Fed officials end up with, it's a very different story than what the markets have priced in. And so that's what creates surprise risk and then volatility risk across markets. We've got at least one more rate hike on the menu for March and then another one fully discounted pretty much uh by the time we get to June July. And so the markets and the Fed are 50 basis points apart here for what's going to happen in 2027. If these minutes signal in a more lasting not just we're trying to manage geopolitical uncertainty terms but maybe the economy is starting to turn kind of uh language that the Fed's scope for rate hikes isn't as extensive as the markets imply. Well, then there is all sorts of repricing that needs to happen. And in particular, of course, that points to gold, that points to silver, that points to the bonds where we've pointedly stopped falling even at the long end. And so the way that my positioning here has evolved, uh, I'm still sitting long gold, which is starting to work, and I'm looking very closely at adding if we can clear some of these near-term levels. I've started to add to the long Aussie dollar position. I'm long the pound. I am newly, once again, long the euro, which seems to be showing impressive resilience uh, even in the face of these gathering protests. uh the spreads between French and German 10-year bonds has narrowed showing less uh dislocation risk in those markets. Um and again the euro is up and uh in fact so are European stocks. So it seems like the price action is saying that the news flow is one thing and the level of worry in markets is another. I'm still long Brazil here. There's plenty of time on this. I've been holding exposure here for the better part of a year, a little bit more, and just scaling and rolling. Uh, and so obviously there was a massive gap, uh, in the trade's favor at the start of this week. We're going to stick with that. A little bit short European stocks, uh, which have been trying to break down with a put vertical, long Bitcoin with a bunch of call verticals and ample time left in those. short the Russell through a put vertical that's increasingly working today. Long silver with only 10 days to expiration. This thing hasn't gone anywhere. It might fall off the board and if it does start move uh moving higher, we might have to add it back on. Still long the bonds with a call vertical in TLT. Looking for this thing to bottom. Still long crude oil with a call vertical. It shrugged off losses overnight and is basically at the bottom of its range. We'll see if it actually starts to go somewhere. And newly short XBI. Uh this is the biotech uh ETF. It seems to have taken a big hit today after trade balance data for the US showed that exports of biotech and pharmaceuticals uh fell last month and big selloff here. Looks like it broke a big range. So we'll take an exploratory short here. And that is macro money for today. We are here Monday through Thursday. So, we we'll be back tomorrow. I'm also writing for the news and insights portion of uh tasty.com and commenting at Ilaspac on former Twitter and on Blue Sky. 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