Outlook: The geopolitical tensions between Israel and Iran provided the perfect excuse for derisking in the face of rising inflation, rates, and dollar. The subsequent hawkish stance out of the Fed and Federal Government has added fuel to the fire. It seems Biden is more concerned with how rising inflation will affect his reelection campaign versus falling asset prices. A review of Core CPI shows that risk markets are primarily concerned with a sustained rise in this metric which has coincided with the last several selloffs. With April Core CPI in 2023 coming in month over month at .4% followed by two additional .4% prints, any inability for this metric to come in lower over the coming months will likely suppress risk.
Equities: The confluence of risk-on headwinds make equities a tough purchase to argue for. There will be relief rallies that can provide exit opportunities if the macro situation fails to improve, but my stance is neither bullish nor bearish as the dollar and rates sit at oversold levels. Today’s FOMC will provide some guidance over the interim. Neutral.
Dollar: The DXY is repeating a pattern that has led to a 5% sell-off on each of the last three occasions. Though the technical action is on our side over the short term, we will need some help from Jay Powell to prevent the longer-term saucer pattern from breaking out to the upside. Bearish.
Fixed Income: The long end is showing signs of exhaustion however it is not beyond a reasonable doubt that an extra leg up in yields is in the cards. A continuation of the “higher for longer” narrative out of the FOMC could provide the necessary fuel, however I remain skeptical the Fed is willing to swing so aggressively hawkish when Yellen is doing that work for them. Bearish yields.
Commodities: Oil is plummeting and dragging the rest of the commodity complex with it. This is a good sign that the return of inflation will remain a blip on the radar in the grand scheme of things while higher for longer keeps a lid on rising prices. Bearish.
Crypto: The pain trade for crypto finally arrived on the day of Iran’s attack on Israel and after a meager bounce, assets have continued to sell off. This is not unusual price action surrounding a halving event and will likely lead to a several month-long period of consolidation before a return of the bull market. I have a floor of $52,000 for BTC and will buy around that level. With prices having substantially sold off already, I am presently neutral.
