🤯 Have you seen our AI stock pickers’ 2024 results? 84.62%! Grab November’s list now.Pick Stocks with AI

Stocks Week Ahead: Rate Cut Hopes Hang in Balance Amid Key Data, Hawkish Fed

Published 04/01/2024, 02:53 AM
NDX
-

A busy week lies ahead, with tons of data and much Fed speak. This will make for plenty of headlines and possibly a volatile week as the focus shifts back to the economy.

Powell will continue his West Coast tour with a visit to Stanford on Wednesday, where he will talk about the economic outlook and conduct a Q&A session. Of course, we will also be getting economic data this week, like the ISM manufacturing report on Monday, the JOLTS report on Tuesday, the ADP and ISM services report on Wednesday, and the Job report on Report.

So, robust economic data coupled with what I would imagine is pretty hawkish Fed speak should continue to trim the outlook for rate cuts in 2024. The first full rate cut is now expected in July, and the calendar setup of the FOMC meeting, more than three rate cuts, is probably all but ruled out at this point because I can’t imagine the Fed cutting in September in front of the election, barring some unforeseen event.Fed Fund Futures

(BLOOMBERG)

Meanwhile, this week, we saw the Fed’s Bank Term Funding Program facility drop to $133 billion from $152 billion. Through the first two weeks of the drain, about $34.7 billion has left the facility, while in the first two weeks of the program last year, $53.6 billion entered the program, and through the first four weeks, $80 billion entered. So we aren’t tracking 1-for-1 on the way out, but still the drain is underway.Reserve Balance on Wednesday Closing

Is it by chance that every significant pivot point in the NASDAQ 100 and the BTFP seemed to line up nicely? I don’t know. But the BTFP topped out last January, and the Nasdaq topped out, calling it in mid-February.

So, let’s say that the BTFP program is running two weeks ahead of the NASDAQ 100, and the BTFP started draining on March 13. Then, if this is right, the NASDAQ 100 should start giving back its gains over the next week; if this is right, of course.Reserve Balance on Wednesday Closing

(BLOOMBERG)

Indeed, changes in reserve balance seem to match up reasonably nicely to all of this, going back to the closing low set in December 2023 in the NDX. Reserves change daily, and now that we are past quarter end, they may rise slightly over the next week.

Still, I think, more generally speaking, with the draining of the BTFP and QT, we have likely seen peak reserves, which is why the Fed wants to change the pace of QT at this point because they know that reserves less BTFP puts real reserves somewhere close to $3.36 trillion and not $3.496 trillion, and with QT running at $95 billion per month, we are only about 3 to 4 months away, assuming all else is equal, to hitting the lower bound of what I think the Fed would consider being ample reserves around $3 trillion.

US Reserve Balances with Fed Reserve

(BLOOMBERG)

So, the ascending broaden wedge pattern we have been tracking certainly makes sense from the standpoint that if this is the case, the liquidity flow is shifting. It could even mean we are likely to see the lower bound of that pattern be tested in the too-distanced future at 17,850.

Nasdaq 100-Daily Chart

Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.