A Fresh Look at Inflation

It will come as no surprise to readers that St. Louis Fed President Jim Bullard (non-voter, über-dove) sees no threat of inflation and sees no reason to raise rates any further. In an interview with Steve Liesman of CNBC, he stated:

“If it was just me, I’d stand pat where we are and I’d try to react to data as it comes in. I just don’t see much inflation pressure. … I’m an inflation hawk, but I just don’t see that developing. … I just don’t think this is a situation where we have to be pre-emptive.”

With another disappointing Durable Goods Orders report this morning (-1.7% v -0.6 expected) I thought this would be a good time to refresh our views on inflation and the impact it has on a wide variety of official economic data.

Powell’s Jackson Hole speech is coming up at 10AM ET. Interestingly, Kuroda and Draghi (nor anyone from the ECB’s executive board) are not attending this year.

continued for members…

The USD continues to best the JPY but suffer against the EUR. Note that EURUSD has the opportunity to break out today and complete its channel backtest.

RB and CL continue higher, with CL testing its SMA100 and RB drawing closer to its. TNX’s bounce off its triangle bottom continues, creating a bit more spread against the 2Y.

Futures are, again, slightly higher going into the trading session – currently up about 6 points. They remain within striking distance of new highs, with the SMA10 being the nearest support. Ditto for SPX.

A reminder: the lower targets shown on SPX and ES do not reflect expectations, but the intersection of major channels with major support. They are therefore theoretical targets should stocks break down for whatever reason.

With SPX, for instance, 2703 is major support. The large yellow channel’s midline rises through it around Sep 5, meaning that if SPX manages to stay at current levels or higher for another couple of weeks, then 2703 is much less of a threat.

Likewise, I’m not calling for VIX to rise to 17.59 or 18.54. These are merely the targets that would come up next if VIX were to rise through its SMA200.

Fed-related events are almost always bullish for stocks, if for no other reason than the Fed is unlikely to say anything bearish. Even when they do, drops are unusual. It’s more common for algos to be goosed in order to reinforce the bullishness of whatever the Fed said. In other words, don’t be surprised if we get new highs on ES today.

I’m doing some work with databases as well as constructing some charts…will have the inflation discussion out later today.

UPDATE: 4:30 PM

Sorry folks, the phone kept ringing and the info I needed took longer to find than I expected. I’m going to work on it over the weekend. SPX rose above its Jan highs and held it for the rest of the day, while ES remains slightly below its.