It’s been a long time coming. But, the Fed’s favored measure of inflation finally topped its long-stated target of 2%. 
Of course, they prefer the “core PCE” which excludes food and energy price changes. Why? It’s lower, and at 1.8%, puts less pressure on them to normalize rates. Either one of them is preferable to the also understated CPI which, at 2.7% YoY last month (before another month of 28% gasoline price increases) comes closer to an accurate measure of inflation.
But, for accuracy, we have to look to alternative measures such as that of economist John Williams, who runs ShadowStats.com. For his primer on why actual inflation is so much greater than the BLS reports, CLICK HERE.
Nevertheless, futures aren’t loving the news, as it hints at a more hawkish pattern of rate hikes this year. But, with this being the end of the quarter, we’ll have to see what sort of follow through we actually get.
continued for members…
ES is off about 4 points…
…but has been in a consolidation pattern, a pennant, since the rising purple channel broke “down” yesterday. This is typical of month-end and quarter-end sessions when the goal is to preserve gains. Note it is struggling to remain above its SMA20.
SPX nearly reached the white .618, signaling a possibly reversal even before this news hit. It also saw its purple channel break down, and is also trying to remain above its SMA20.
It has a decent chance of breaking down, but we’d be looking for USDJPY to lead the way. Note that the SMA200 is gradually working higher, and is now reachable on a backtest of the broken red channel. It just needs to drop through the small purple TL and the SMA10 at 111.396 — which would be unlikely on the last day of the quarter.
CL is showing no signs of helping — growth in the rig count coming out at 1PM EST might knock it back a bit.
Last, note that VIX advanced almost to its SMA10, but has retreated to an internal trend line (purple) that has limited previous moves.
UPDATE: 10:42 AM
ES has broken out of its little pennant pattern and is essentially back to even. USDJPY and CL are moving mostly sideways and VIX is edging slightly higher.
Since ES’ purple channel broke down (but higher) I’ve been struggling to come up with a new channel that would make sense. The red one shown below works reasonably well, as it intersects with the red .786 on Monday.
But, we still need a backtest of both the white and red midlines. So, I see this as an excellent day to stay on the sidelines. If you must play along on the long side because of the break out and rising VIX, please do so with very tight stops. 
Although I don’t think they will perform those backtests today, both ES and SPX could plunge 10 points in a hurry if they drop through their SMA5 200s (2360.89 and 2363.26.)
We’ll know it’s at least a possibility if USDJPY loses the purple TL and, preferably, the SMA10 too.
And, of course, it would be nice if CL played along. Maybe with the rig count coming out in a while…
As I mentioned Wednesday, I have to take off early today for a brief business trip. I’ll post the currency charts I’ve been working on before I leave.
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