The war news is no help at all

Outlook

The war news is no help at all. The job market/employment data is taking away the last vestige of excuses for a rate cut, as shown in the last dot-plot. Tomorrow’s nonfarm payrolls may be the final nail in that coffin.

New Fed chief Warsh dislikes the dot-plot but we are getting one in June anyway. Futures indicate a nearly 50% probability of a rate cut as soon as October. See the clever charts from Reuters. Each of them takes a minute to absorb. Anyone still seeing a cut is delusional.

Others will still be raising rates before the US, but the growing consensus of a Fed hike does deliver some tailwind to the dollar. 

For the markets to have found solace in the Israel-Lebanon ceasefire is ridiculous. Lebanon has tried for years (and failed) to root out Hezbollah. Israel has the right to defend itself against Hezbollah attacks. If Canada were lobbing missiles at Chicago and Albany, the US would fight back, too. In any event, the ceasefire is a fiction and a ruse to calm markets. 

The Trump status is entirely unclear. We won, we will bomb again, I don’t care, I’m bored, Iran is coming back with a response, and so on. We had thought something would break, even this week, but that seems unrealistic now. There is a tiny chance Trump will call off the whole thing, blaming Congress, although that would mean swallowing a bucket of pride and that’s not been seen before.

And it’s still the Strait that counts. The oil company execs and energy industry analysts are starting to sound alarm bells. We could have gasoline prices at $6-7.50 in the US. For a normal politician/leader, that would drive action. But Trump is not normal.

Forecast

The normal cycle in FX is broken. Volatility has to be measured in hours, not days. They show traders are squirrelly. Another sign of high uncertainty is the dueling channels. We name dueling channels “Las Vegas.” The “house” is the big names who drive the herd to the cliff-edge and then reverse, as we saw at the US close yesterday.

As we wrote nearly 100 days ago when the war started, the only solution for a trend-follower is to pare the timeframe down to hours, not days. The volatility charts validate that idea. Another idea is to follow the correlation of oil with the dollar. Oil down, dollar follows. This one is unreliable. Bottom line, get out of Dodge.

Food for Thought: A TV analyst said something the other night that should stop you in your tracks—index funds must include the AI/high-tech names to be accurate to the index principle. That means IRA savings accounts and ETF’s. Nvidia, okay, maybe, but as with every new technology launch, starting with railroads, there will be losers.

Then there’s SpaceX, due to launch next week (June 12). The only clear winner in this is Musk, the guy who chainsawed a big chunk of the US government back office, lied about it, and then walked away. As the biggest IPO ever, it automatically becomes a component of the Nasdaq index. We wouldn’t touch it with a bargepole.