Friday’s CPI reading crushed the hope that inflation had peaked, igniting uncertainty about the next FOMC decision.  Will they hold the course, or will the Fed act more aggressively to curb inflation?  Markets worldwide are under pressure as bond yields surge in speculation and recession fears grow.  Expect a very challenging week of price action with an economic calendar heavily laden with market-moving events.  Buy the dip buyers continue to get severely punished as they can no longer count on the Fed Put.  Prepare for a rough week that will likely favor only the most experienced day traders, so be willing to stand aside to protect your capital. 

Asian markets traded down across the board, with the Nikkei and HSI down more than 3% at the close.  European markets continue Friday’s selling seeing only red this morning as bond yields surge higher.   U.S. futures point to a substantial bearish open that will test 2022 market lows as support.  With all the uncertainty ahead, the question is, will the support hold?  Buckle up it’s going to be a wild day!

Economic Calendar

Earnings Calendar

We have a very light day on the Monday earnings calendar.  Notable reports include ORCL ZDGE.

News & Technicals’

U.S. President Joe Biden has repeatedly indicated the U.S. would defend Taiwan militarily upon attack, only to have the White House deny a shift in a decades-long “one-China policy.”  “We believe he is actually paying lip service to this one-China policy,” said Zhou Bo, a senior fellow at Tsinghua University’s Center for International Strategy and Security Studies.  Taiwan is a democratically self-ruled island 72-year-old government in Beijing considers part of its territory.  Beijing has maintained it seeks peaceful reunification with Taiwan.  Bitcoin tumbled below $24,000 late Monday, hitting its lowest level since December 2020, as investors dump crypto amid a broader sell-off in risk assets.  Meanwhile, a crypto lending company called Celsius has paused withdrawals for its customers, sparking fears of contagion into the broader market.  Macro factors are contributing to the bearishness in the crypto markets, with rampant inflation continuing and the Federal Reserve expected to hike interest rates this week to control rising prices.  Crypto lender Celsius said it pauses all account withdrawals and transfers, citing “extreme market conditions.”  As of May, the firm had more than $8 billion lent out to clients and almost $12 billion in assets under management.  Bitcoin and other tokens plunged, with the world’s biggest digital coin falling to lows not seen since December 2020.  Global stock markets are falling sharply after May’s U.S. inflation print reignited fears that central banks will be forced into aggressive monetary policy tightening.  The U.S. 2-year Treasury rate hit its highest level since 2007 on Monday morning and edged closer to an inversion with the benchmark 10-year rate – seen by many as a sign of an impending recession.  “While [the Fed] can’t sit there and say their job is to end job creation for the moment, that is basically what they need to do if they are going to get inflation back under control now,” TD Securities’ Richard Kelly said.  Treasury yields rose in early Monday trading, with the 10-year at 3.23% and the 10-year rising to 2.25.  Unfortutually, the 5-year is inverted at 3.37 while the 2-year rose sharply at 3.19%.

The log jam broke after the Friday CPI number that showed inflation continued to rise, bringing out the bears and igniting uncertainty for the week ahead.  We have a light day on the earnings and economic calendar, leaving us to ponder will the PPI number Tuesday improve or add to the inflation pressures.  As a result, anything is possible so expect some wild and challenging price action today.  With bond yields rising, speculation is growing that the FOMC may act more aggressively on Wednesday with more than a 50 basis point rate increase.  Markets around the world are under pressure, but the big question for today is whether the May lows will hold as price support to create a possible double bottom?  So, stay focused and be prepared for just about anything.

Trade Wisely,

Doug