Core CPI excludes the volatile food and energy component. We’ve heard that expression countless times. It’s intended to calm everybody down — inflation isn’t as bad as it seems if we back out rapidly rising prices in food and energy.
The BLS is even conditioned to explain the monthly data in the same way every month. From this morning’s report:
Increases in the indexes for gasoline and shelter were the major factors in the seasonally adjusted all items monthly increase. The energy index rose in July as the gasoline and electricity indexes increased…
BLS’ underlying data shows a 2.5% MoM increase in gasoline prices and a 3.3% decline YoY. But, does this look like rapidly rising energy prices? Inflation has been ticking higher even though the trend is clearly to the downside.
As we can clearly see, Core CPI has been outpacing CPI that includes food and energy ever since Nov 2018 — the result of an administration trying desperately to keep inflation, and thus interest rates, low enough to keep the bull market going (at least until election day.)
The 2s10s plunged on the news to .0329 — the lowest level since Jun 2007. And, the futures are struggling with the realization that a rate cut is going to be difficult to justify with inflation that exceeds the long-held target.
Our analog remains on course, with tomorrow being a critical day in determining any adjustments which need to be made.
continued for members…
The analog currently calls for tomorrow to be a cycle low, though as we discussed yesterday, there are a couple of different price levels that make sense.
Here are the charts I was in the process of posting before the news hit that the Sep 1 additional tariffs would be delayed until December 15. CL was still backtesting the .236 channel line and CL was going nowhere, positioning itself for the next leg down.
Here are the charts after the positive trade war release. 
RB and CL are both backtesting their SMA200s.
TNX is getting a little bump. 
And, VIX has collapsed — though without breaking trend. If it drops through 18.25, it could break down.
Even DB bounced.
Jim Cramer called it right: Trump watches TV, was tired of seeing the stock market tank on his watch. With a phone call or two, the market is suddenly rallying sharply.
Has the macro picture really changed? Of course not. ES is back to the same resistance it faced last Thursday.
I’d be surprised if this represents any real change in the economic picture at all. The bond market seems to agree. I would stick with the analog and fade this nonsense rally unless VIX breaks down, ES breaks out, and RB and CL pop above their SMA200s.
UPDATE: 10:00 PM
The 2s10s got all the way down to 1 bps before bouncing to its current 4.44. Otherwise, ES never broke out, SPX never exceeded its white .618, CL closed right at its SMA200 (RB slightly above its) and VIX got bodyslammed. All in all, not very convincing. But, we’ll find out tomorrow. 
Even the Dow never climbed back above resistance.