The Markets Need a Gift From Above (... Or at Least a Trade Deal)
Even a just a win from a couple big trade partners could go a long way, checking on the CPI print, charting the S&P, and DoD cuts the fat (and likely some Booz Allen Hamilton).
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We had been out in the desert for quite a while. How many days? I don't remember. Not because it was so long, but because it had been too long without being resupplied with water and because it was so long ago. We had not seen another human being in close to a week. We had some rations, but as I said, we were conserving water and trying not to move a whole lot while the sun was up. This was before GPS, so we were navigating by map and compass. This was before night vision, so we were dependent upon moonlight.
Suddenly, a Huey (predecessor to the Black Hawk) showed up at our location, What the heck was it doing here? Someone must have known where we were. Command knew that we were thirsty. The chopper did not land but hovered just about 15 or 20 feet above the ground. The door gunner and another Marine pushed a wooden crate overboard, which crashed to the earth and broke open as it did. Oranges. The crate was full of oranges. It was like a party of joy just sort of happened that afternoon in the desert.
Everyone present had an orange in both hands. Everyone was eating and sucking the juice out of those oranges just about as fast as they could. I think, should I be fortunate enough to live to a ripe old age, that I will never forget just how wonderful and how delicious those oranges were. I cannot possibly tell you how many I scarfed down, but there was enough for everyone present. We were re-supplied with water that night. We would not have died of thirst if we had to wait for that resupply. Someone knew though, that we were tired and thirsty, and a little miserable. Someone knew exactly how to boost our morale. Perfect timing.
Trade War Escalates
U.S. equity index futures had been moving higher overnight. European equities had opened higher. Both suddenly turned sharply lower. What happened? Early Friday, Beijing announced a further retaliation against the Trump administration's tariffs (currently 145%) on Chinese imports by increasing tariffs on US exports to China from 84% to 125%.
In a statement, China's Finance Ministry commented: "The U.S. imposition of abnormally high tariffs on China seriously violates international and economic trade rules, basic economic laws and common sense and is completely unilateral bullying and coercion."
The Chinese Customs Tariff Commission of the State Council also commented; according to a CNBC translation, that statement reads: “With tariff rates at the current level, there is no longer a market for U.S. goods imported into China, if the U.S. government continues to increase tariffs on Chinese goods exported to the U.S., China will ignore.”
So, apparently the Chinese side is done raising tariffs at least for now? Interestingly, Treasury yields have come in a bit overnight. After seeming to have lost some of their perceived value as a safe haven asset this week, the U.S. Ten Year Note paid as much as 4.48% overnight. I see that yield at 4.41% as I work on this morning note.
U.S. Dollar strength, though, is another story. The U.S. Dollar Index has literally crashed, falling to 99.6 (where I now see it) from more than 103 as recently as Wednesday. The Euro, British Pound, Japanese Yen, Swiss Franc, and Canadian Dollar are all trading at or close to their highest levels year-to-date against the greenback, with the Euro approaching a two-year high.
On dollar weakness, and perceived value as a safe haven asset, gold is back at all-time highs, trading around $3,236 per troy ounce, up from $2,977 earlier this week. The SPDR Gold Shares ETF GLD is up 1.4% overnight (also trading at an all-time high) after trading 2.4% higher on Thursday and is up 4.5% for the week.
What Markets Could Use...
If the Trump administration could announce a completed deal with a major trading partner going into the weekend, say Japan or South Korea, that would change the picture, and change investor sentiment ahead of the weekend. That would be like a crate of oranges falling from the sky on another hot, sunny day in the desert. Without something like that, markets will have to rely upon banking earnings and March producer price index backing up the deceleration experienced in March CPI. I have not all that much confidence in this happening. I'd rather have the oranges, and the trade deals.
Oh, Look...
U.S. equity index futures have gone green while I've been typing. Breaking news.... Apparently the EU trade commissioner is headed to D.C. to open trade negotiations with the U.S. on Sunday. Nearly simultaneously, South Korea has put out a statement that a deal with the U.S. will be a priority.
About Those Banks...
What matters today (and next week)?
- Net Interest Margin / Net Interest Income
- Investment Banking
- Trading Equities / Fixed Income
- Commentary on the state of the economy
- Commentary on tariffs
- Credit expansion / contraction
- Expansion of Loan Loss Reserves
Inflation
The March consumer price index surprised to the downside on Thursday. On a month-over-month basis, headline CPI printed at -0.1% vs. expectations for growth of 0.1%. At the core, monthly CPI hit the tape at growth of 0.1% vs. expectations for growth of 0.3%. Extreme weakness was seen in gasoline, fuel oil, used vehicles, transportation services and medical care commodities. Above trend growth in pricing was seen in food, both at home and out, electricity, piped gas, medical care services and apparel.
On a year-over-year basis, this put March CPI at growth of 2.4%, down from 2.8% in February and well below the consensus view that was for growth of 2.6%. At the core, March CPI printed at growth of 2.8%, down from 3.1% in February and well below expectations for growth of 3%.
Yet again, Hedgeye Macro was closer on the data than were Wall Street's economists. Hedgeye had projected March CPI growth of 2.49%, within a range that spanned as low as 2.38%. Anyone wondering why I, a former Wall Street economist / trader / investment banker, would pay these guys for their services, just has to look at the results. They are simply more accurate than what has been the consensus view when it comes to CPI and gross domestic product. In our business, and to the algos that control the point of sale in 2025, that's the macro that matters.
How Tough Was Thursday?
Actually, Thursday's selloff was on the necessary side if you know what you're doing. Remember, Wednesday was identified as a "Day One" bullish reversal of trend. There must be a discernible break or pause between a Day One and a Day of Confirmation when there is a change in trend. I don't know anything for sure any better than many of you do. I do know that leaving a change in trend unconfirmed often shortens that trend.
The change in trend remains in effect until the low from the "Island Bottom" we talked about earlier this week has been taken out. That low came at 4835 for the S&P 500 on Monday. (Dang, we've been accurate). This came after the "two-day Day One" bearish reversal that went unconfirmed and the bear flag that ended in late March.
Cutting Costs
Defense Sec. Pete Hegseth has signed a memo directing the termination of $5.1 billion in "wasteful" Department of Defense contracts for things like consulting services and other nonessential services. Contracts with Accenture ACN, Booz Allen Hamilton BAH and Deloitte are known to be on the chopping block. Goldman Sachs downgraded BAH overnight from "Buy" to "Hold."
Economics (All Times Eastern)
08:30 - PPI (Mar): Expecting 0.2% m/m, Last 0.0% m/m.
08:30 - PPI (Mar): Expecting 3.3% y/y, Last 3.2% y/y.
08:30 - Core PPI (Mar): Expecting 0.3% m/m, Last -0.1% m/m.
08:30 - Core PPI (Mar): Expecting 3.6% y/y, Last 3.4% y/y.
10:00 - U of M Consumer Sentiment (Apr-adv): Expecting 54.3, Last 57.0.
10:00 - U of M One Year Inflation Expectations (Apr-adv): Expecting 5.0%, Last 5.0%.
10:00 - U of M Five Year Inflation Expectations (Apr-adv): Expecting 4.1%, Last 4.1%.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 590.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 489.
The Fed (All Times Eastern)
10:00 - Speaker: St. Louis Fed Pres. Alberto Musalem.
11:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BLK (10.52), BK (1.49), FAST (.52), JPM (4.65), MS (2.20), WFC (1.22)
At the time of publication, Guilfoyle was long WFC, GLD.
