The YoY change in gas prices is highly correlated with CPI which, in turn, is highly correlated with interest rates. If December’s headline CPI (due out at 8:30 AM tomorrow) continues to track the YoY increase in gas prices, it could easily top 2.3-2.4%.
What would the impact be on bond yields? And, how would stocks respond? The last time CPI topped 2.5% was in October 2018, marking the beginning of the 20% correction.
continued for members…First, a quick look at futures this morning. ES is up 7.5 points, primarily on the new highs in USDJPY. Note that ES has already backtested its broken purple channel top…
…but SPX has not yet done so.
USDJPY is approaching important overhead resistance.
A breakout would be quite significant. 
Remember, the BoJ had no problem letting the USDJPY break out in 2014 when oil/gas broke down. Inflation is much lower now.
And, as we’ve discussed, a breakout in USDJPY might be necessary given the likely continued decline in oil/gas.
More after the break.
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