Weekly: Return of The Plunge Protection Team
Flashback Silver Post from 2010 ZeroHedge
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SECTIONS
Market Summary— Vix, Bonds, and The PPT Returns
Research— GS, JPM, Merrill, Japan Anaysis, and TD CTA
Week’s Analysis/Podcasts— Special repost from 2010
Charts— Gc, Si, Dx, CL and GoSil
Technicals— S&P 500 Coverage Initiated
Calendar— Consumer Confidence, PCE, UMich, Powell Speaks 2x
Zen Moment—Sweet tooth
Full Analysis— Plunge Protection and more
1. Market Summary
The week started off barely recovering from last week's dramatic post-CPI plunge, the worst since June, and got even worse. Stocks tumbled a jarring 5% this week.
Zerohedge explains why this week turned even more sour for doves still clinging to hopes the Fed would pivot.
..it was all about the unexpectedly hawkish FOMC meeting on Wednesday where the 2024 dot came in at 4.6%, hotter than even the biggest hawks had expected - the result was a non-stop liquidation scramble as Powell finally made it clear that he will keep hiking well into the recession and beyond.
But relief is in sight, even if they do not pivot. First. what does a higher Dot Plot even mean? It means they raised the terminal rate target for stopping rate hikes.
THE FED WILL SELL PUTS IN A STOCK CRASH BEFORE THEY ACTUALLY PIVOT
Given the Fed does not want to publicly abandon its quest for 2% inflation but they needed to raise the terminal rate last week, we believe they will soon start selling options into the market to slow the fall in stocks. This will enable their current rate path to remain largely in place for now.
The Fed did not hike rates 100 bps (they hiked 75 as most believed they would) as some had feared, but they started gradually raising their terminal rate via Dot-Plot changes; the rate at which they are now targeting their hikes to stop at.
Hiking More for Longer
So instead of raising rates more quickly, they are going to raise rates for longer and harder. This was foreseeable and was said in JPM Says No 100 Basis Point Hike in which JPM argues for no 100 bp hike, but is right for the wrong reason. From last week pre-Fed:
Finally: It wouldn't be surprising for the Fed to raise 75 basis points AND move their target rate to above 5% either. Which means rate hikes for longer than we think.
Obviously 4.625% from 4.5% is nowhere near 5%. But they are starting to fade their target in this way. And this is how it will get done; Small raises to not panic markets. But even that tactic doesn’t seem to be working yet.
Terminal Rate Likely to Go to 5% or More
The market selloff was brutally pronounced in the realization (in our opinion) that the Fed wants to get to 5% or more. The Fed may actually be looking at its own pivot rules to see if we are close to one. Here is our own Pivot guide for reference again:
Inflation has to stabilize higher, unemployment must baseline above 5%, or GDP must go significantly lower (recession worse). Something has to give. Moving the terminal rate higher is a big sign that they will soon (1 to 5 months publicly, now privately) move the inflation target higher to 3% or more.
So, if speed of descent is as important as we think it is, and a pivot now ( before the Midterms) is a sign of mission fail, then they must slow the speed of the drop. How does the Fed do that materially? Buy selling volatility.
The Fed Admits Selling Volatility
The Fed sells puts/vol to funds in the open market as they did in the past. This is not speculation. Here is Powell in 2012 ( before he was Chair) describing how he would unwind QE.
They bring back the PPT (if it ever left..) and make puts available to market participants to pacify downside risk. They literally sell volatility as they had done many times since…
***Continues At Bottom: PDF entitled RETURN OF THE PPT***Commodities:
WTI tumble below $80 for the first time since January, and on pace to lose all of 2022's gains
Metals were hit hard as was everything else. Except Orange Juice
Bonds: A Big Deal is Brewing
More Inversion.
Friday backs attract buyers fleeing stocks even in the face of higher yields in shorter durations.
Implies fed tightening may be ending with much deeper protracted recession risk growing
The 2Y remains sticky, and is now trading around 4.20%, which means that the 2s10s is now inverted some -52bps
US long bonds also benefit heavily from Japan’s problems and The GBP collapse.
A detailed twitter thread with graphs can be viewed HERE
Crypto:
Bitcoin is getting a little volatile on the downside again
But that could be just be Ethereum taking a break while Bitcoin catches up on the downside.
H/t Zerohedge for data and some graphics.
2. Research:
GoldFix: Return of the PPT
Technical Trading Levels Moor Energy
JPM: “Higher unemployment is only natural”
Goldman: “Flush”- trader’s take of Friday
TD: CTA and CoT Analysis
Merrill: Not buying the dip yet
Soc Gen and MUFG on Japan’s problems
ICYMI: BOA on Bonds in Friday’s Monthly post
CONTINUES AT BOTTOM…3. Week’s Analysis/Podcasts
This week’s Precious Metals, Energy, and Economics pieces by GoldFix
2010 Zerohedge- A Deep Insider's Walkthru To Silver Market Manipulation- -200,000+ views (autobiographical)
The Next 10 Years: Who Benefits From Fixed Supply-Chains?
Even a Weaponized Dollar Won’t Stop Gold’s Historical Turning Point- Gold
Europe is in big trouble and Japan is Right Behind Them - Founders Friday
JPM and MS FOMC Reaction plus Moor Energy Podcast Excerpt (Beta)
What is Driving Oil Prices Now?- Brynne Kelly
EIA Inventory Recap - Week Ending 9/09/2022- Brynne Kelly
Sheldon Natenberg Option Volatility and Pricing- Educational
4. Charts:
Dollar:
Gold:
Silver:
Gold-Silver Ratio:
Oil:
Charts by GoldFix using TradingView.com
5. Technicals:
GoldFix Note: Do not attempt to use price levels without symbol explanations or context. Moor sends 2 reports daily on each commodity they cover. The attached are non-actionable summaries.
Gold:
TECHNICALLY BASED MARKET ANALYSIS AND ACTIONABLE TRADING SUGGESTIONS Moor Analytics produces technically based market analysis and actionable trading suggestions. These are sent to clients twice daily, pre-open and post close, and range from intra-day to multi-week trading suggestions.
S&P 500:
Oil:
Nat Gas:
Bitcoin:
Go to MoorAnalytics.com for 2 weeks Gold, Oil, and Bitcoin reports free
6. Calendar:
MONDAY, SEPT. 26
8:30 am Chicago Fed national activity index Aug. -- 0.27
10 am Boston Fed President Susan Collins speaks
12 noon Atlanta Fed President Raphael Bostic speaks on wealth inequality
12:30 pm Dallas Fed President Lorie Logan speaks
4 pm Cleveland Fed President Loretta Mester speaks
TUESDAY, SEPT. 27
6:15 am Chicago Fed President Charles Evans speaks
7:30 am Fed Chair Jerome Powell speaks on digital finance
8:30 am Durable goods orders Aug. -1.2% -0.1%
8:30 am Core capital goods orders Aug. -- 0.3%
8:35 am San Francisco Fed President Mary Daly speaks
9 am S&P Case Shiller U.S. home price index (SAAR) July -- 4.0%
9 am FHFA U.S. home price index (SAAR) July -- 1.0%
9:55 am St. Louis Fed President James Bullard speaks
10 am Consumer confidence index Sept. 104.5 103.2
10 am New home sales (SAAR) Aug. 505,000 511,000
WEDNESDAY, SEPT. 28
8:30 am Trade in goods, advance report Aug. -- -$89.1 billion
8:35 am Atlanta Fed President Raphael Bostic speaks
10 am Pending home sales index Aug. -- -1.0%
10:15 am Fed Chair Jerome Powell delivers opening remarks
11 am Fed Gov. Michelle Bowman speaks on bank competition
2 pm Chicago Fed President Charles Evans speaks
THURSDAY, SEPT. 29
8:30 am Initial jobless claims Sept. 24 -- 213,000
8:30 am Continuing jobless claims Sept. 17 -- 1.38 million
8:30 am Real gross domestic product revision (SAAR) Q2 -0.6% -0.6%
8:30 am Real gross domestic income revision (SAAR) Q2 -- 1.4%
8:30 am Real final sales to domestic purchasers (SAAR) Q2 -- -0.2%
9:30 am St. Louis Fed President James Bullard speaks
FRIDAY, SEPT. 30
8:30 am PCE price index Aug. -- -0.1%
8:30 am Core PCE price index Aug. 0.5% 0.1%
8:30 am PCE price index (year-on-year) Aug. -- 6.3%
8:30 am Core PCE price index (year-on-year) Aug. 4.7% 4.6%
8:30 am Real consumer spending Aug. -- 0.2%
8:30 am Real disposable incomes Aug. -- 0.3%
9 am Fed Vice Chair Lael Brainard speaks 9:45 am Chicago PMI Sept. 52.0 52.2
10 am UMich consumer sentiment index (late) Aug. 59.5 59.5
10 am UMich 5-year expected inflation (late) Aug. -- 2.8%
11 am Fed Gov. Michelle Bowman speaks on bank supervision
12:30 pm Richmond Fed President Tom Barkin speaks on what's driving inflation
4:15 pm New York Fed President John Williams speaks on financial stability
Main Source: MarketWatch
