PPI Confirms Hot Inflation

It comes as no surprise that PPI confirmed yesterday’s hot CPI print, coming in at a whopping 6.2%.

We’ve been beating the inflation drum for so long, it feels a bit anticlimactic to acknowledge that it’s finally here and even slightly greater than we anticipated.

As regular readers well know, I expected central bankers to preemptively head off the problem of higher inflation and higher interest rates by crashing oil/gas prices as they have many times before.

I was surprised to see them pass on this approach and roll the dice with inflation. But, it made more sense once it became apparent that they had essentially taken control of the bond market – the one market that had always “told the truth” about economic conditions. No more.

As strong as yesterday’s equity selloff was, the 10Y barely budged, rising from a high on Tuesday of 1.63% to a high on Wednesday (after CPI was announced) of 1.69%. Today, yields are actually dropping.  An orderly channel like the one below is all you need to confirm that yields are being carefully managed.

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Speaking of carefully managing things…I can only imagine the panic around the Fed, the Treasury and the White House when the Colonial Pipeline fiasco popped up the other day. Higher oil/gas prices had helped get stocks to their recent highs, but it was time for the market’s caretakers to take their feet off the gas lest inflation be even more alarming.

A shutdown of the nation’s largest fuel pipeline certainly wasn’t part of the plan – though I wouldn’t be surprised if the hackers had placed some well-timed bets on oil/gas prices in advance. With markets going crazy over inflation, something had to give.

I had the following conversation on this very topic with a very good friend who happens to be both brilliant and an excellent trader. But, he’s nowhere near as cynical as I am. We chatted just after the close.

Less than ten minutes later…

RBOB futures are off nearly 6% from Friday’s highs.

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With futures having already dipped below the SMA50 to tag a key target earlier this morning, the bounce should continue given the algo action focused on VIX.

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