This is an important week for the USD, since the FED meeting which will be on Wednesday afternoon, is expected to produce a 75 bps rate hike, but that might be the last one. The week kicked off with a Timiraos article in WJS, arguing for higher rates for longer. That’s a head-scratcher because a week earlier his article arguing that rates didn’t need to go above 5% helped to kick off a big rally in risk assets. His article today is also behind the rally in the US dollar.

S&P 500 futures are down 18 points and the more I think about it, the more Friday’s rally is non-sensical. It looks like funds covering long-FAANG, short SPX trades more than a fundamental bid. If so, we should start to see renewed selling. But it’s the end of the month and Fed week and US midterms are coming so that’s all mixed in together.

In any case, Morgan Stanley equity analysts believe the S&P 500 can rise from the current 3890 level to 4100 but say to put a stop at 3700.

“Spooky price action supports tactical call … Weak 3Q earnings hammered some of the biggest tech darlings [last week] , yet the S&P 500 and even the Nasdaq 100 ended the week up 4% and 2%, respectively … We think this jibes with our thesis that the index will hold up until NTM EPS estimates come down more meaningfully. This kind of price action isn’t unusual toward the end of the cycle particularly as the Fed moves closer to the end of its tightening campaign, something we think is approaching. 3M-10Y yield curve inversion, a negative y/y % change in the Duncan Leading Indicator, and M2 growth that is plummeting toward zero all support a Fed pivot sooner rather than later. Therefore, this week’s Fed meeting is critical for the rally to continue, pause or even end completely.”