The effects of a rising TGA due to tax payments this week, increased repo usage heading into quarter-end, and higher overnight funding costs are likely to reduce overall market liquidity. This combination could make trading conditions challenging over the final two weeks of June, potentially placing significant downward pressure on stock prices.
Mott Capital Management, LLC
73 posts
When you take seven assets from various parts of the market, and six of them say one thing while one says something different, you wonder what that one asset knows that the others don’t.
The primary focus this coming week will remain on the bond market, with the Treasury auctions drawing significant attention. These auctions should fare better than last week’s poorly received 20-year auction.
Given the technical and fundamental backdrop, any initial gains could quickly fade, underscoring the importance of caution as markets navigate this significant technical and macroeconomic inflection point.
The economic data for April sheds light on the potential fallout from the tariff announcements, while earnings results from the mega-cap stocks offers further insights into how severe that fallout might become.
When you go from big, impulsive moves to these sideways, blah periods of time, it is a warning message that we are just consolidating sideways here.
No one will know for sure, but I could imagine that if the end-of-quarter activity drove today’s gains, the rally likely won’t last and, more importantly, could be given back pretty fast.
The S&P 500 is not often down for five consecutive weeks, so one has to think this might be the week the market attempts a rebound. There’s a good chance of a bounce, but whether it happens is another question.
The cooler-than-expected CPI report initially pushed equities higher after the news, but once implied volatility reset, the rally fizzled, and choppy price action took over.
We could forget about inflation for now because more pressing matters are at hand—namely, the most important stock in the world, Nvidia, and its earnings report.
Today’s CPI came in much hotter than expected, and the impacts were felt throughout the bond market and the dollar complex.
With tightening liquidity, low implied correlations, and potential for a more hawkish Fed outlook, the upside for equities seems limited compared to the downside risks.