We‘re not done yet

Creeping deterioration gave way to early selling that took S&P 500 to 4,515, but no further. The bears fumbled again, and credit markets don‘t look like giving them another opportunity (judging by yesterday‘s close). VIX barely moved higher, and the shape of daily sectoral rotations doesn‘t favor a larger decline. Some meandering sideways to up as I wrote yesterday, for sure though.

Today‘s ADP employment change isn‘t likely to be favorable to the roaring economy story, but the deceleration of economic growth should still prove temporary – the credit spreads point to a revival that‘s coinciding with financial stress abating. As the Fed isn‘t likely to pull the rug from underneath, the slow grind higher in paper and real assets, is about to continue as financial markets remain the destination for the fresh money created.

And no shaddow tapering of M2 or debt ceiling is likely to change that. Moreover, look for inflation woes to keep gaining steam and prominence going into the year end – an ever bigger problem for 2022 and the years ahead. The dollar isn‘t in a position to take too much of the cost pressures off, and the job market isn‘t either:

(…) Crucially, the dollar isn‘t protesting, and remains subdued. Given the crosscurrent of real economy slowdown in incoming economic data, and inventories replenishment needs amid challenged supply chains, the USD price action hints at the world reserve currency getting ready to welcome lower values. Understandably, that has positive implications for emerging markets as these saw their valuations decline a bit too much.

Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

Yesterday‘s consolidation looks to have done the job thus far, and the bulls are likely to embrace even a poor jobs figure as that indicates the Fed wouldn‘t likely even think about taking the punchbowl away a little.

Credit markets

Credit markets are facing daily crossroads – either HYG consolidates without meaningful downside breaking below yesterday‘s lows while quality debt instruments rebound, or the high yield corporate bonds would show daily weakness and join LQD and TLT. An outcome closer to the first scenario is more likely in my view.

Gold, silver and miners

Gold and gold miners scored an upswing yesterday, and the price recovery is likely to go on. The headline risk is certainly to the upside these weeks.

Crude oil

Crude oil keeps consolidating without rolling to the downside. There isn‘t too much conviction behind yesterday‘s downswing, making the market positioned for an upside surprise.

Copper

CRB Index is pointing lower, but copper stubbornly held ground. That‘s not likely to stay that way, but I‘m looking for any dip to be reversed relatively soon, and not to take the red metal below the 50-day moving average for too long.

Bitcoin and Ethereum

If there is one thing that Ethereum performance shows, it‘s that there‘s a lot of life in cryptos, but Bitcoin isn‘t reaping the rewards at the moment. Look for the upswing to continue, and for Bitcoin to join in eventually.

Summary

Risk-on trades still appear to be questioned some more – yesterday‘s move didn‘t convince one way or the other. After the taper uncertainty got tapered, look for attention to shift to the real economy growth. Underneath the surface, the potential for precious metals to take cue from any hiccup and rebound, is increasing.