CPI soared to a new 40-year high: 8.6% YoY and 1.0% MoM. Core also exceeded consensus, coming in at 6.0%.
Futures are not amused, as this takes anything less than a 50 bps rate hike next week off the table. A 75 bps hike is suddenly a real possibility.
Needless to say, our analog remains very much on track.
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You can’t make this stuff up. With May inflation at 8.1% across the euro zone, the Governing Council is leaving rates unchanged with an increase of 25 bps to be unleashed in July to “ensure that inflation stabilizes toward its 2% target over the medium term.”
Sigh…
Futures continue forming their triangle with a denouement likely coming after US CPI tomorrow morning.
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Futures are off modestly, a win versus what would be happening if not for the VIX smackdown and USDJPY breakout employed to keep the plates spinning just a little bit longer, until Friday’s CPI report.
This is really an unconscionable move, even for the BoJ, which has bet its citizens’ futures on keeping the Ponzi scheme which is the Nikkei on the rise [see: the yen carry trade explained.]
This is a self-inflicted wound, and the impact on oil prices alone is staggering.
Food prices aren’t far behind.
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USDJPY finally tagged our 132.22 target overnight…
…a target we set over six months ago [see: Update on Currencies Nov 17, 2021]:
Ordinarily, this might be a good thing for stocks. Not this time, as it echos the dollar’s strength against the euro.
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Futures have bounced about 1% overnight, retracing a Fibonacci 61.8% of the losses from Thursday’s highs.
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Per our analog, today is the next significant turning point – important in terms of confirming the direction and distance of the market’s next move. It has done an excellent job of forecasting the reversals, rallies and drops since we first posted it on May 13 [see: Analog Watch.] 
The first time I came across one of these, it worked out spectacularly. I started noticing in May 2011 that the turning points and rallies/declines which had been occurring at that time very closely matched those of the 2007 top.
Just after Day 32 in late June [see: Deja Vu All Over Again] I began laying the entire roadmap which would presumably end with a very sharp drop of around 20% by Day 70. As it turned out, the S&P 500 plunged 19.6% by Day 69. Details are available HERE.
The current analog is different in terms of how quickly things will play out. If it plays out, however, the market is in for much greater losses in the months ahead.
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The first quarter decline in non-farm productivity was the largest since 1947. The chart below from briefing.com shows the 7.5% plunge, contrasted with an 11.6% increase in unit labor costs. If the country had locked down during this time, you might be able to make an argument that a recession isn’t necessarily coming. 
But, this slowdown came courtesy of a 2.4% output decrease. In other words, it’s another reason to believe a recession is here and a soft landing ain’t in the cards.
Futures have been all over the map overnight, but are currently hanging on to the channel bottom from May 20. Note that we finally got that 10/20 cross and are nearing a backtest of the 50-day moving average – just in time to set up a nice trap.
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Futures are moderately higher this morning as algos respond enthusiastically to Salesforce’s earnings and ignore the ongoing meltdown in mortgage applications and uptick in COVID cases. Here’s a snapshot of testing results at my daughter’s college, which finally reinstated a mask mandate after the positivity rate reached 10%.
I think they could use a primer on chart reading…
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It’s been a little over two weeks since our analog was unveiled [see: Analog Watch.] So far, so good. Friday’s high came within 6 points of the next upside target – just a few days ahead of schedule.
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PCE comes out later this morning, providing the most up-to-date picture of the challenge facing the Fed. Judging from yesterday’s 2% pop, investors are hopeful that inflation might be leveling off. 
Futures are off very slightly.
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