PPI just confirmed what CPI declared yesterday: Despite official White House discourse, there is inflation.Of course, it’s very clear that food, energy and trade services are the primary drivers.  Without them, PPI is as low as it was in Aug 2017.As a reminder, when Aug 2017 PPI was announced, the 10Y was about 2.1% versus the current 2.5%.  WTI, shown below in purple, had doubled in the previous year and was on its way to a near tripling in price, eventually driving the 10Y to 3.248% as CPI topped 3%.We were reminded yesterday that the deficit has ballooned since then.  We’re on pace to top $1.1 trillion in fiscal 2019, putting the new total public debt around $22.7 trillion.  This is obviously not a great time to be ramping up interest rates.

Yet, if oil and gas prices were to continue rising, this is exactly what would happen.

While the algos are happy to track rising oil and gas prices, the handful of carbon-based traders out there who have done the math know that this is not a sustainable path.

The Fed can pretend that food and energy prices aren’t relevant to their policy decisions.  But, they know full well that the consumers who are expected to keep the economy humming have to buy food, gas up their cars, and fork over their soaring rent payments (not owner’s equivalent rent.)

continued for members…

Meanwhile, the algo games continue. USDJPY is threatening to break out again – despite having broken down yesterday. VIX’s rising TL broke down and it’s plumbing new lows.And, CL has barely budged despite a big build in the EIA inventory data.This leaves stocks pretty much where they’ve been for the past week — sitting atop their .886 Fibs but not breaking out to new highs. It’s a little difficult to judge the timing until we get some solid channel points on the downside.  But, the whole exercise continues to feel like a delaying tactic, with the worst likely to come shortly before the 2020 US elections.

It explains why we’re not seeing new highs and why currencies have been going sideways for months. I have a meeting outside the office and will continue posting around 2:30 ET.

UPDATE:  3:30 PM

Wow, another day of watching paint dry – 7 sessions in a row above the .886 but below the prospective channel top.  If the falling channels are legit, we could see a drop to the SMA200 — currently 2761.62 — around 4/16, which is next Tuesday.  The way things are going, it would likely be a big whoosh as opposed to a slow, steady drip.

USDJPY has pushed above its channel top and SMA200 yet again. While CL has backtested its .618.And, VIX is still threatening to break down.Bottom line, it’s a lot of firepower just to prop things up.  It feels very much like the 2015 top.