The following originally appeared on Blue Line Futures
1. Record Highs
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The NASDAQ 100 has been lurking within 2 percent of its all-time high since late February and Fridays monster gain of 1.8 percent finally achieved the inevitable. While the lack of wage growth in Fridays jobs report provided the green light, the ground work had already been laid through the exacerbated selloff on tariff talk.
Fridays breakout above its previous high had strong leadership which is more reason to believe this new leg can run; Netflix, Inc. (NASDAQ:NFLX) +4.5 percent, Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) +3 percent, Microsoft Corporation (NASDAQ:MSFT) +2.2 percent,Amazon.com Inc (NASDAQ:AMZN) +1.75, Apple Inc (NASDAQ:AAPL) +1.7, and Facebook Inc (NASDAQ:FB) +1.6 percent. This weeks inflation data (CPI) will play a key role in next weeks FOMC Meeting, but the inconsistent and mundane wage growth will make it difficult for the Fed to bubble wrap their hike with a hawkish rhetoric.
This was the fear at the end of January and upon Fed Chair Powells first congressional hearing on February 27th where he was considered outspoken and hawkish. Without a hot read on CPI this week, we are likely to see a more neutral Fed. This would be a major catalyst for higher equity markets. With the macro-fundamentals now providing a tailwind, the next major upside target in the NQ is 7372-7384.
Furthermore, while the S&P lags its all-time high by 3.3 percent, the small cap and domestic focused Russell 2000 trails its by only 1.4 percent. A breakout above the old record high of 1619.2 opens the door for the next leg higher in the Russell 2000 which targets 1697-1700.
Februarys Consumer Price Index data is due out Tuesday at 7:30 am CT. The Core read that excludes food and energy is the most closely watched data point. Januarys Month-over-Month release on February 14th showed an increase of 0.3 percent for the second month in a row. This was the first time since January and February 2016. All things considered, those two months marked a peak in the rise in inflation.
Former Fed Chairwoman Yellen had recently expressed her concern that inflation was stalled due to the Fed hiking rates too quickly. However, new Fed Chair Powell surprised pundits with his hawkish and assertive tone during his congressional hearing and this reinvigorated the Dollar. Fridays Nonfarm Payroll already confirmed that there was no traction in Januarys wage inflation. If CPI misses on Tuesday, this would be lights out for the Dollar.
3. China data
Industrial Production, Fixed Asset investment, and Retail Sales are due out of China on Tuesday Evening. While many put the largest focus on industrial production, we tend to keep a closer eye on Fixed Asset Investment. Regardless of your preference, this data comes at a critical time for commodity prices. The Dollar Index is trading about 2 percent from its recent low, a jump that put pressure on commodities priced in Dollars. However, Fridays miss on wage growth will now provide a headwind for a further rise in the greenback. Lost in the noise last week was a very great on China CPI. A strong read on this trio of data points for the worlds second-largest economy combined with a weaker dollar is likely to spark tremendous broad-based commodity buying.
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