Retail sales soared by 5.3% (vs 1.2% est.) in January. Stripping out auto sales, it was even higher at 5.9% (vs 1.0%.) The control number, which strips out food, auto sales, building material stores and gas stations, was up a whopping 6.0%.
Note that gas receipts’ 4% MoM increase was all price change: EIA data shows a 6.3% increase from December which, at current prices, will top 7% for February.
The PPI data was no less spectacular. January headline PPI rose 1.3% (vs. 0.4% est) and core (w/o food and energy) came in at 1.2% (vs 0.2%.)
Futures, which were up modestly overnight, have tumbled to a TL of support at a 19-pt loss, with the SMA10 just below at 3899.42 which would provide better support. Should it not hold, we’re still looking for a backtest of the previous high at 3862.
Consider that this spike in PPI has taken place with a relatively modest increase in oil and gas prices. As we’ve discussed for months now, the YoY increase will soar to over 30% in the next two months unless oil and gas prices collapse – something that is hard to fathom in the midst of the weather-related power shortages currently afflicting Texas.
With FOMC minutes coming out later today, it will be very interesting to see how they spin this data.
continued for members…
Note that ZN reached the bottom of its falling red channel and the 10Y has backed off yesterday’s (IMHO) overshoot.
A decline in yields is exactly opposite what the data would suggest, meaning the Fed has moved in to protect bonds from breaking down.
I believe this is likely the final straw for the reflation trade, as a breakout in inflation and rates would do more damage than the markets could withstand.
Likewise, this is likely the final straw for oil and gas. I would want to be full short at these prices.
The dollar continues its backtest on modest strength against the euro and weakness against the yen.
Gold, which is normally tied to a bouncing ZN, is not bouncing at this point. In fact, it is sitting dangerously close to a death cross. The SMA50 is at 1857.70 vs the SMA200 at 1858.30.
UPDATE: 5:00 PM
Pretty good stick save off the SMA10s, with SPX closing up for the day and still only a short ways to go if it still intends to test the 3.618.
Not surprisingly, VIX made a solid reversal. But, note the “breakdown” wasn’t much of one – not all that convincing.
Oil snuck a little higher, coming within a dime of its .786. 
Bitcoin was the big winner on the day. Unlike GC and SI, it responded nicely to the hot inflation data. Remember, as long as it remains above 46,433 it’s next upside target is 62,977. 
