The fourth of December’s five gasoline price readings hit EIA’s website yesterday. The average stands at 2.47, 9.1% above 2018’s December reading.  Unless another large component of CPI takes a nosedive this month, CPI could top 2.3 or even 2.5%.  This is a level not seen since Oct 2018 (the shaded area below) when the 10Y averaged 3.15%.  It’s currently at 1.95%, so something is clearly out of sync.The Fed has been saying they’re going to allow inflation to run a little hot.  And, it has, with Core CPI running 2.3-2.4% since August. The 10Y has responded, rallying from 1.43% in September to its current 1.95%.

All year long, YoY declines in oil and gas prices have kept headline CPI below 2%.  It finally crept above 2% in November.  December will represent a very substantial departure, with a YoY increase adding to rather than throttling back Core CPI.  Is the bond market ready?  Are investors listening?

continued for members…

First, a quick look at equity markets. Today would be a logical time for a pullback to the purple 1.618 and red midline for ES at 3212.69.  The white channel goes to 3315 by Dec 31 and there’s a white 1.618 at 3336.49 if it breaks out of that.  I don’t necessarily expect such a move, merely showing what the potential is if everything continues as is.

SPX’s version:

VIX is angling higher after a modest breakout on Friday.And, USDJPY is failing to come to the rescue.

In fact, the one solid ray of hope for bulls today is oil and gas.

At current prices, the YoY gas price change problem will resolve itself by March when the year-ago prices catch up with current prices.  This implies that whatever dip we get now will be short-lived.  But, given the strength of RB’s bounce in December, I wonder if there isn’t something else going on.

Note the rapid price increase between December and April.  I’ve been working on a big-picture study of oil and gas price cycles and what to expect in terms of inflation, debt, interest rates and Fed policy. I think we’re looking at an important regime change that will have 2020 looking quite different from 2019. I plan to publish it by late next week.

I’m also going to be working on some website issues that could mean intermittent downtime in the interest of speeding the site up.

I’ll sign off for now, but will post more later if anything interesting happens.  GLTA.