[Chart courtesy of MarketWatch.com]

1. Moving the markets

The roller coaster ride continued, as yesterday’s rebound vanished in a hurry, with the major indexes giving back more than they gained in the prior session. Bonds reversed Tuesday’s yield slippage with yields rising and the 10-year reclaiming its 3% level by closing at 3.03%.

Updates and warnings from major companies (Credit Suisse, Intel) contributed to equity weakness amid signs that economic growth is not what it was cracked up to be. In other words, we are slowing down with the Stagflation scenario becoming more real every day.

Things are starting to affect the housing market, because mortgage demand hit its lowest level in 22 years, as per the Mortgage Bankers Association. A rally in Crude Oil to over $122 only created more anxiety, but Natural Gas plunged due to a small terminal explosion. ZH explained that less exports means more domestic supply, hence the sell off. The reverse happened in Europe, as their supplies were cut and prices subsequently rose.

On deck for Friday is the highly anticipated CPI number for May. It’s reading could influence the path of Fed policy in terms of frequency (a potential pause) and magnitude (0.5% increments) and therefore affect market direction as well.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes were subdued early in the session, because Target’s profit warning sent equities into the red. After some bobbing and weaving, momentum turned positive, as dip buyers and a short squeeze combined forces to produce a green close to.

A big assist came from the bond market, after yields retreated with the 10-year losing 5.6 basis points and closing a tad below the much-feared 3% level. Any close above it appears to wreak havoc with equities, while any close below it supports bullish sentiment.

Traders are still anxiously debating whether the recent bounce is a bear market rally, or if we have seen the bottom of this year’s sell-off with a new bullish run now on deck. Personally, I think we may see a little more push to the upside, yet in limited fashion, after which new lows for the year will be made.

Econ data painted a different reality picture then that of equities. First, as ZH reported, the World Bank downgraded global economic growth and warned of stagflationary pressures building.

This was followed by the Atlanta Fed downgrading US economic growth to 0.9% from a 1.3% level just seven days ago. Way to go! Quipped ZeroHedge: Finally, today was a great day for buying stocks…   

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Another head fake session saw the Dow gaining over 300-points early on, but the rally quickly lost steam with the major indexes briefly dipping into the red, before a late push saved the day. The Dow settled at about unchanged, but the S&P 500 eked out a modest 0.31% advance.

The early boost was a result of China rolling back some of its Covid restriction, which traders interpreted as their economy returning to near capacity within a month. That should be a boon to the global economy and would hopefully ease the supply chain issues.

Still, uncertainty abounds that the Fed might raise interest rates too fast and too much creating a recession in the process. Well, you can’t have it both ways, as the Fed has only limited options. Either fight inflation fast and furious and risk a recession, or be too easy and watch hyper inflation create havoc. Take your poison.  

Rate hike expectations climbed to its highest level since the May Fed meeting with bond yields ripping higher, as the 10-year added over 10 basis points to recapture the 3% level to close at 3.045%.

That helped the US Dollar to reverse its downtrend and wipe out early losses. Gold dropped on dollar strength and gave back its $1,850 level in the process. Unfortunately, gasoline prices hit another record high, as ZH reported, which appears to be now an almost daily occurrence.