Uncertainty abounds as traders and investors await the tidal wave of market-moving data coming ashore today.  The first impact comes with a reading on Retail Sales and grows higher by the afternoon with the expectation of a more aggressively hawkish Fed decision.  How the market responds is anyone’s guess but expects the price action to be dangerously volatile.  Price gaps, lighting fast whipsaws, punishing reversals with periods of frustrating directionless chop are all possible today so plan carefully with consideration to capital preservation. 

Overnight Asian markets closed mixed after better than expected Chinese economic data.  This morning, European markets trade green across the board as the ECB holds an emergency meeting due to rising risks.  U.S. futures point to a bullish open trying to put on a brave face and encourage a relief rally despite the market-moving data and the wild volatility it could create.  Prepare for just about anything!

Economic Calendar

Earnings Calendar

Wednesday is a light day on the earnings calendar, with only a handful of confirmed reports.  The only particularly notable of them is WLY. 

News & Technicals’

Borrowing costs for many governments have risen in recent days.  In fact, a measure known as Europe’s fear gauge has hit its highest level since early 2020.  The ECB’s decision to meet Wednesday also comes just hours ahead of a rate decision by the U.S. Federal Reserve.  In the wake of Wednesday’s announcement, bond yields have come down, and the euro moved higher against the U.S. dollar.  Wednesday’s meeting announcement also followed a speech by one of the central bank’s members that looked to address some of the recent market fears over financial fragmentation.  A 100 basis point rate hike by the Federal Reserve on Wednesday will be “medicine to stop this inflation,” said Wharton professor Jeremy Siegel.  “If [Powell] only does 50 [basis points], I think there is going to be a big disappointment.  Then [markets] are going to say he doesn’t have control, he isn’t going fast enough,” he said.  With annual inflation hitting a 40-year high of 8.6% annual inflation in May, the likelihood of sharper aggressive rate hikes has sent markets into a tailspin amid fears of a recession.  Microsoft co-founder Bill Gates said he thinks cryptocurrencies and NFTs are “100% based on greater fool theory.”  “Expensive digital images of monkeys” will “improve the world immensely,” Gates joked, referring to Bored Ape NFTs.  The tech billionaire said he’s “not involved” in crypto: “I’m not long or short any of those things.”  According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage rose 10 basis points to 6.28% Tuesday.  The rate was 5.55% one week ago.  Rising rates have caused a sharp turnaround in the housing market.  According to the National Association of Realtors, home sales have fallen for six straight months.  Treasury yields pulled back slightly in early Wednesday trading, with the 12-month @ 3.07%, 2-year @ 3.30%, 5-year @ 3.48%, 10-year @3.38%, and the 30-year priced at 3.38%. 

 Index charts remained deeply oversold as the world waited on the tidal wave of market-moving data coming ashore today.  It begins with a reading on Retail Sales figures and ends with an FOMC rate decision where most expect the committee to act more aggressively hawkish than initially planned.  The T2122 indicator suggests we should watch for a potential relief rally to occur at any time.  Still, if the data continues to inspire the bears, there is no reason to believe sellers can’t continue to dominate.   We should plan for a wild day of price volatility that could be very punishing to inexperienced traders.  Remember, cash is a position, and the discipline to wait for a better trading edge can save your account from significant damage.  This will pass, and better days lie ahead, so be willing to stand aside and protect your capital as the drama unfolds.

Trade Wisely,

Doug