S&P 500, Volatility and Dollar Move from Midterms to CPI Anticipation While Crypto Shudders

S&P 500, VVIX, Bitcoin, Gold, Dollar and CPI Talking Points:

• The Market Perspective: USDJPY Bearish Below 146; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,680
• We are moving through the US mid-term elections which generated great anticipation among risk-leaning assets but are unlikely to offer great clarity
• Anticipation for Thursday’s CPI release is likely to take over the market’s focus, but that doesn’t preclude volatility from popping up…just look at the crypto markets after the FTX run

US Midterms Will Pass without a Clear Signal for the S&P 500 and Risk

We are passing through an abstract event risk that is concentrated on the US but ultimately has global reach. The US midterm elections have certainly commanded interest in the political arena, but these events have a very spotty historical record for shaping global sentiment. Through the early transition from Tuesday into Wednesday trade, there is limited conviction to draw from in establishing conviction. The results of various elections were unclear and the complication through the market’s interpretation for how speculative interpretation was yet another step removed. From the S&P 500 – as a benchmark for ‘risk trends’ – the third consecutive daily advance hardly secures any sense of conviction. For traction, I’m looking for a fundamental theme that can anchor conviction, but recession risks and monetary policy perspective are still open-ended matters. What I’m looking for from the passing of the US midterm elections is the removal of a certain curb on market conviction but the subsequent anticipation for Thursday’s CPI release will present an immediate follow-on for attention.

Chart of S&P 500 with Volume Overlaid with the VVIX Index (Daily)

Chart Created on Tradingview Platform

How market moving are US elections? Given that we are attempting to assess the mid-term’s potential impact on the capital markets, I looks back into history to see how the market responded to previous Presidential and mid-term election periods. For the 2020 and 2016 elections, the reticence leading into the tally was clear, but the follow through after the results were tallied was also blatant. That said, the mid-term market performance, whereby Congress control is up for grabs, has rendered very different market response. The tropes that one party’s win in elections is good for markets while another’s are not are just that – tropes. I’m keeping close tabs on the market for conviction, but I don’t expect much of that traction until we see systemic matters like recession risks and financial stability wrest control once again.

Chart of the S&P 500 Around Last Three US Elections – Presidential and Midterms (Daily)

Chart Created on Tradingview Platform

Crypto Market Anxiety and Dollar Leans Into its ‘Bullish’ Market Backdrop

In a session that was largely defined as a period of anticipation for speculative leaders – as with the performance of US inflation forecasts – it would seem that we were destined for a quiet transition from US elections headlines to the scheduled price figures. The Greenback sidled lower for a third consecutive session through Tuesday, but there seems limited conviction to the move with systemic matters on pause in recent week. Meanwhile, we have seen a distinct flare up in volatility for the crypto market. Reports that FTX was under severe liquidity pressure and was subsequently selling key assets to Binance reflects less confidence in the industry consolidation than it does free genuine confidence in the inverse relationship between the crypto currency and alternative anti-fiats like gold prices. Notably, the plunge in bitcoin this past session happened to coincide with the charge higher for gold prices. The new guard anti-fiat seems to be giving way to the old.

Chart of Gold Futures Overlaid with an Inverted BTCUSD (60 Min)

Chart Created on Tradingview Platform

While I will remain dubious on the intent of risk trends through the near future, it is worth mentioning both the restrictions around anticipation for the upcoming inflation figure, it is also worth evaluating the technical boundaries for the likes of the US Dollar index. The currency has played a rotation role as an leading yield candidate, a more favorable growth backdrop and ultimate safe haven charge. Yet, despite at least one of these metrics maintaining support for the benchmark currency, the DXY index slipped a third consecutive session through Tuesday. We are on the verge of the 100-day simple moving average (SMA) which represents the tipping point for the strongest bull trend (spot consistently above the 100-day SMA) that I have on records stretching back 5-decades. Perhaps US CPI will change that tack, but there are a number of tailwinds behind the greenback – so my assumptions will not be so easily swayed.

Chart of US Dollar (Daily)

Chart Created on Tradingview Platform

Top Event Risk Ahead: US CPI and More

When the speculative backdrop is struggling for traction, it is naturally to view the market’s leaders as once-capable drivers that have since moved to the backdrop. When it comes to the US consumer inflation report – the US CPI – I believe the market will be projecting serious anticipation upon the scheduled event risk. In the interim, it may prove difficult for serious trends to develop given that one of the most important aspects of the financial system – US central bank largesse – is up in the air until they commit to a change in operations activity, the interest is upon those market measures that could reasonably tap speculative volatility. The Fed speak aside, the Mexican CPI release may be the most interesting event for the time being given the Central Bank’s expected 75 bp hike Thursday morning.

Critical Macro Event Risk on Global Economic Calendar for Next Week

Calendar Created by John Kicklighter