As expected, inflation perked up last month – registering 2.05% on an annual, non-adjusted basis. All things being equal, oil/gas prices alone would have added at least 0.10%  to CPI.  There wasn’t a big YoY drop as we’ve seen in the previous six months. But, all things weren’t equal.

Core inflation remains elevated at 2.3%, meaning the Fed will have a hard time justifying any further rate cuts any time soon.  As we discussed yesterday [see: Inflation Games], the tailwind of lower YoY oil/gas price drops will turn into a strong headwind in December.  At current prices, gas is positioned for a 9.8% increase YoY versus the 6.8% decreases it has averaged YTD.

Yes, oil and gas prices could plunge in the next couple of weeks.  In fact, I’m betting on it.  Typically, plunging oil and gas prices mean plunging stock prices which would, in turn, prompt more Fed easing (Not-QE or QE4.)  In short, things are about to get very interesting very quickly.

continued for members…

Thing remain on track for a decline that could test SPX 3047.

The usual potential hitches are still present: VIX being crushed……and/or USDJPY suddenly popping higher.  Neither has shown any inclination along those lines just yet.

But, we should find out around 10:30 this morning when the EIA inventory data come out.  API showed a 1.4 MM build versus the previous 3.7MM draw.  If my theory about keeping inflation under control is correct, Trump and/or the Fed will put their fat fingers on the scales and the EIA will show a large build.

This is where things stand now… stay tuned…

UPDATE:  10:32 AM

Slight build in oil but a large build in gasoline.

We’ll know stocks are on board the decline if/when ES breaks below this little trend line and SMA5 200 at 3135ish.The market is betting the Fed won’t say anything surprising today…

UPDATE:  6:00 PM

The market was right.  The Fed essentially said nothing other than hinting at QE4 — what with the market being at all time highs and what not.

FWIW ES did not break out.  At least not yet. RB reclaimed a good portion of its early losses.  But, I still don’t see any way but down. VIX is being uncharacteristically quiet.