Hinging on 'If Data Permits' Language

  • Stock market doesn't buy into June rate hike story
  • Investors don't believe economic data will permit hike
  • Thursday economic data will be important to watch

STOCKS STILL NOT BELIEVING - Thursday should be an important day for the market, at least in theory. Over the past several days, the Fed has made it abundantly clear the market is underestimating its ability to raise rates, even going so far as to call for a rate hike next month if data permits. While the US Dollar has responded favorably in the face of these developments, with the currency market perhaps buying into the Fed message, the equity market has shrugged it off, seemingly not convinced the Fed will actually raise rates. 

IF DATA PERMITS - Stock market participants may have been reading more into the 'if data permits' part of the Fed's language when discussing the possibility of raising rates in June. And with the focus on that part of the language, the belief is probably that Fed will be able to use any softness in data as an excuse to appease investors and hold off on a June or even July rate hike. And so, with today's economic data releases out of the US being the first batch with some teeth since last week's Fed Minutes, it will be interesting to see the net result of initial jobless claims, durable goods and pending home sales and its impact on investor mentality. 

DURABLE GOODS - If the data is well received overall, this could get stocks thinking a little more seriously about an imminent rate hike, which in turn will open the door for another topside failure and liquidation. Of the three releases, durable goods will be most important to watch. US GDP is also out on Friday, so the market will be looking to that reading as well. But in the interim, the Thursday data will be important to watch. I continue to believe stocks are exceptionally vulnerable up at these lofty heights and any additional upside is only another rally that should be sold aggressively. 

Thursday's data is the first important batch since last week's Fed Minutes surprise. Via @joelkruger

STRATEGY - As far as strategy goes, I am now sitting on positions in markets that I feel very strongly about over the medium and longer term. As per the above, I have sold back into the SPX500 rally and will be looking for another topside failure. I am very small here and will happily add further up. I am long GOLD into this latest pullback from above $1300 and will be looking for the market to base out and push back above $1300 over the coming days as risk comes off. Finally, I am long AUDNZD, looking for this market to carve out a major inverse head & shoulders formation. 

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