S&P 500 continued merely digesting Thursday gains thanks to weak cyclicals, instead of keeping up and outdoing tech inspired by retreating yields. Anticipated weak finish to Thursday‘s session continued a day longer, and two good intraday upswings were sold into. Energy and materials of course continued standing out, and gold with silver breakout attempts were dialed back. Oil, though, is preparing to take on $82.50 via stabilizing above $80.50. The common denominator is China fears – will they devalue, inject liquidity via lowering reserve requirement ratio etc.

June rate cut odds even rose to 67% – there is market conviction about Powell having his way over more hesitant FOMC members via the job market upcoming weakness countering. The stock market rally is though tired in its rotations going into Monday, and the days following would be more favorable to fresh gains and to return of volatility – core PCE wouldn‘t be taken lightly, and will probably come in at 0.4%, which is above expectations. It‘s the day before though when unemployment claims not below the expected 214K would reinforce rate cut bets, acting risk-on.

All in all, no sizable setback to risk taking is ahead, and the respite in rally continuation that I see as likely Monday and perhaps Tuesday would help strengthen the rally internals, e.g. by giving better traction to financials (they‘ll come back strong from Friday). The winning sectors would remain industrials, energy, materials and tech – the bulls want to see discretionaries do better than communications in the near term.

As I said Friday:

(…) While the immediate post FOMC conclusion was that of dovish Fed, the array of other central banks (notably SNB, and continuing of course with PBOC) proves there is willingness to err on the side of economic growth support vs. inflation that I had been vocal lately about bottoming out too high. Liquidity is still positive, and neither the yesterday discussed slowdown in Fed balance sheet runoff can be ignored.

This makes for a stagflationary environment a couple of quarters down the road, but for now we‘re still in waning disinflation, earnings growth and wage growth (forget not that job market support mentions are what ignited the risk-on run during Powell‘s conference), and that‘s positive for equities, commodities and precious metals (LEIs aren‘t as negative as they used to be either).

Back to data, it‘ll be manufacturing that delivers the first surprise, in the economic recovery sense. USD won‘t stop at 104, but its rise is driven by other central banks not being really hawkish, and will meet resistance before 105.50.

This is how I summed it in our intraday channel.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

Gold, Silver and Miners

Gold technical posture deteriorated in the short-term, and volume hints at possibility to revisit high $2,140s. Retreating yields and rising inflation expectations aren‘t surprisingly helping it, but there is not much willingness to sell into the failure to clear $2,200. Following the early Mar run, there hasn‘t really been readiness to sell into the advance, therefore I consider last two days as corrective woes, and not as a reversal.

Crude Oil

Oil didn‘t really move much Friday, and the declining volume favors upswing in real assets (precious and base metals alike) starting next week. It‘ll be happening alongside the dollar not yet rolling over to the downside.

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