- Broad equity price action is likely to remain choppy at the top until the election unless the national polling averages start to reflect what prediction markets have already decided: a Trump victory with high probability of a Republican sweep. This is the max bullish scenario for risk assets.
- Long dated treasuries and the DXY remain high. I do not see the rising dollar as a major risk in the face of global liquidity injections and a strong US economy. However, if commodities rise without a coincident fall in rates I would begin to raise concerns about a drawdown in equities.
- The continuing jobless claims of last Thursday were additionally concerning despite the relatively low initial claims. I suspect the Household Survey could revert back to 4.2% or even 4.3%, subsequently reigniting recession fears. I continue to believe the U6 rate must stay below 8% as well.
- Interestingly YoY PCE and Core PCE come into this month with relatively high base effects, .4% and .3% MoM respectively for last year’s release. A lower reading this month would bring down the YoY rate and provide further evidence to the Fed that inflation is on a consistent path back to 2%. Thus, if employment data disappoints, a surprise 50 basis point cut could be in the cards. Truthfully this is unlikely, but it could encourage the Fed to hint at further rate cuts than are currently priced in.
