Morning Notes — Copper/Gold Ratio Testing Highs

FOMC: Powell pushed back on expectations for QE tapering during the press conference, saying it’s not yet appropriate to “think about thinking about” reduced asset purchases. He reiterated expectations for higher inflation this year to be ‘transitory’ and below the threshold for tighter policy. Next Friday’s April Jobs Report will likely be the next catalyst that could challenge the Fed’s dovish message with consensus looking for nonfarm payrolls up +875,000.  An incomplete jobs recovery would be the single biggest rationale for holding asset purchases at current levels.  By the time we get to the next Fed meeting on June 16, markets will have seen April and May BLS jobs data with bond yields edging higher on improved conditions.  The March Jobs Report posted adds of +916,000.  Equivalent job gains in April and May will make topic of tapering impossible to dismiss.

Bond yields: Ten-year yields traded above our near-term ~1.65% resistance level earlier this morning, but closing levels matter most. Levels above ~1.65% would likely lead to some acceleration in the nominal yield back-up and multiple compression for the highest multiple growth stocks.

NDX: The performance of the Nasdaq 100 (NDX) is most negatively correlated to real yields (nominal yields-headline inflation), which are also drifting higher following yesterday’s dovish FOMC message.  Overnight results from FB and AAPL were extremely strong, but both trade off best levels on higher real yields.  AMZN is the last of the FAAMNG names to report Q1 earnings with results due after the close. Q1 doesn’t have to be peak earnings growth for these companies, but we expect the NDX to struggle in the months ahead.

SVX: The relative performance of the S&P 500 Value Index (SVX) is positively correlated to the copper/gold ratio (proxy for global economic growth), which is waking up from a two-month nap and currently testing double top highs from December 2017 and June 2018.  A breakout would accelerate relative outperformance in the SVX.

Anecdote: Retail foot traffic in Israel rapidly accelerated once the country hit a 40% vaccination level (both shots).  The US is currently sitting at 36.5% with retail getting a tailwind from a child tax care credit beginning in July and the first ‘real’ back-to-school cycle in almost two years.