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Stocks squeeze as FOMC drops forward guidance



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In this week's Macro Insight I discussed...

The main events last week were mega-cap tech earnings and FOMC which delivered the highly anticipated 75bps rate hike. Markets had been anticipating weak guidance at the very least but all the FANGS had positive moves except Meta taking US stocks higher to close out the best month since Nov2020.

INFLATION STICKY
The negative real GDP print last week was taken well by markets, suggesting that a pivot being priced in rates markets may be justified.
However, PCE data on Friday showed real consumer expenditures slowing but prices accelerating (median and sticky CPI) which might make said pivot a bit premature.

FINANCIAL CONDITIONS EASING AFTER HIKE
The latest risk on melt-up has eased financial conditions quite considerably, which is not what the FED wants to see to temper inflation. This is likely to lead to more hawkish FED speak if they are serious about bringing inflation back below target.

VOL RESETS LOWER AND SKEW STILL OFFERED
Our views around a VIX collapse post FOMC proved accurate although the SPX rally was a bit more than expected.
Index call buying was seen as highlighted by Spotgamma and the new call wall has shifted up to 4200.

ARE WE REALLY AT NEUTRAL RATES?
Last week when Powell said they were at neutral rates already, the market reacted.
One way to determine neutral rates is if you assume the long run level of inflation will be 2% and add 50 bps (according to Jim Bianco). He argues that there has been a structural shift in inflation since COVID and it’s not correct to assume that we will return to 2% anytime soon.

PRECIOUS METALS RALLY ON LOWER REAL YIELDS & DOLLAR
After holding key support at 1680 the previous week, Gold and especially Silver had a strong rally on the back of lower real yields and a weaker dollar.
We had flagged the Gold/Silver ratio at 2019 highs, which saw a strong reaction (7% outperformance from Silver post FOMC).

Filmed on on Tuesday 2nd August 2022.

Chapters:
00:00 Introduction
01:08 MARKET ACTION
04:10 INFLATION STICKY
09:06 FINANCIAL CONDITIONS EASING AFTER HIKE
12:27 VOL RESETS LOWER AND SKEW STILL OFFERED
15:08 ARE WE REALLY AT NEUTRAL RATES?
18:27 PRECIOUS METALS RALLY ON LOWER REAL YIELDS & DOLLAR

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