S&P Resistance

The S&P 500 is trying to push past a key resistance point at 1165. The Consumer Price Index was unchanged for February. The lack of pricing pressure supports the Fed’s monetary stance. As the Nomura Securities chief economist David Resler told Bloomberg, “Inflation is certainly no imminent threat to the U.S. economy…We see the Fed on hold through this year.”   

Resler’s expectation for interest rates is a bit of a departure. Most economists think rates will rise later in the year. But any interest rate hikes will be dependent on jobs growth. Unemployment claims fell by 5,000 last week. That’s an improvement, but we still need to see payrolls increases. We won’t get that number for a couple of weeks.   

The dollar is stronger against the euro today as the bailout plan for Greece takes another turn. An agreement seemed to have been made a couple days ago. Greece was even taken of credit watch by ratings agencies. 

But now Greece is demanding a lending facility be added to the bailout plan. And it may turn to the IMF to accomplish this.  

I’m not sure how Greece is in any position to make demands. Still, it seems clear that something will be finalized soon. I expect the weakness in the euro to be temporary.  

Another voice has joined the “China bubble” chorus. Former legal counsel for the infamous Long-Term Capital Management (LTCM) James Rickards is calling China “the greatest bubble in history.” 

I’m not sure about Rickards’ credentials here. After all, he was involved with one of the most colossal hedge-fund failures in history.  

As for me, the growing dispute between the U.S. and China about currency and trade is the threat to pay attention to. The Obama administration is stepping up the pressure on China to revalue the yuan. And China is becoming increasingly belligerent about its currency.   

There’s clearly posturing going on here. But that doesn’t mean it’s not a dangerous situation. It appears to me that some of the pressure on Chinese stocks lately is coming from investors that fear the current conflict could escalate. 

Right now, there’s a movement in Congress to label China as currency manipulators. Such a designation comes with across-the-board trade sanctions. That, in turn, would be bad for U.S. and Chinese stocks.   

It’s not time to panic about this situation. But keep it on your radar.