Inside Markets — Technical Support and CPI Preview

The SPX is trading below its 200-day average, which tends to trigger more CTA selling. From a purely technical perspective, the 200-day average is less significant than a break below the September breakout range at 5648. While closing levels below 5648 challenge the bullish trend for the SPX, the broad equity market remains far more resilient with the equal weight S&P down just ~4% from the 2/19 SPX ATH.

The ~40bp decline in 10-year yields over the last three weeks is part of a painful risk-off trade for US equity markets, but it clearly helps the government roll ~$3.1T of US Treasuries this year. In looking for beneficial side effects, we note that US mortgage rates have now declined in each of the past six weeks. Taking a step back, it seems the new administration has already achieved some of its stated policy ambitions including lower bond yields, lower crude prices, fewer illegal border crossings and getting Europe to pay a greater share for their own defense.

Wednesday’s CPI report will be an important catalyst for equity markets and the stage is set for a relief rally with positioning metrics now below neutral and bearish sentiment near record extremes. Consensus is looking for a headline print of +0.32% MoM with the core rate expected to be +0.26%. This equates to +2.9% YoY for the headline and +3.2% YoY for core CPI. If consensus is correct, that core CPI print would be the lowest since April ‘21. Unfortunately, TIPS breakeven yields are currently priced for a ~0.22% core CPI print, which means an inline report will be received negatively by the market.