Live by the algo, die by the algo…so the saying goes. ES continues to make good progress toward our downside targets, with the usual assistance from currencies and commodities AWOL so far.
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Tag: DXY
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Live by the Algo…
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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.* * *
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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Blowout Inflation is Here
April CPI came in at 4.2%, a rate not seen since August 2008.
CPI has topped 4.2% only twelve months in the past 30 years, with the bulk of those instances during Jan-Sep 2008 when CPI pushed above 10Y yields.The Fed has managed (so far) to keep a lid on yields, providing additional evidence that the bond market remains broken and is no longer a valid source of price discovery.
The details indicate the actual number should be higher, even by the BLS’ deceptive standards. Gasoline, for instance, is listed as having experienced a 49.6% YoY increase…
…though the actual increase was 62%. Rent has risen 10%, well above the shelter increase of 2.1% cited by the BLS.The rise in both CPI and gas prices continued the high positive correlation seen over the past several years.
The effect on equities has also been muted so far. As with bonds, it has nothing to do with markets “shrugging off” data.
The bond market’s supposed reaction to the most significant economic data of the past 15 months.
Cue the Fed doves, who will continue to insist that rapidly rising prices are a good thing. Wouldn’t it be nice if, just once, the MSM would ask them to explain how spiking food, gas, rent and used car prices will benefit the average American – you know, the ones they claim to care so much about?By now, it should be obvious that the billlions being thrown at markets is intended to prop up stocks and keep interest rates from breaking out. Remember…when the 10Y broke above and then failed to hold the red TL in Sep 2018, SPX promptly began a 20% correction.
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Biggest Jobs Disappointment in Over 20 Years
Blockbuster jobs data? Not so much. At 266K versus over 1MM consensus, it was the worst miss since 1998.
The futures initially held the overnight ramp, taking their cues from VIX, which barely budged on the hugely disappointing print.
But, VIX also hasn’t (yet) broken down the way it normally would if a full-court press were on to preserve the rally – the kind we saw yesterday when Atlanta Fed President Bostic served up new all-time highs on Dow by insisting that tapering mustn’t even be discussed (lest Death Eaters be summoned!?)
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Charts I’m Watching: May 6, 2021
Futures are flat after tumbling to and holding our backtest target yesterday morning. But, pay no attention to stocks just yet. They should continue to be under pressure, with the real action in oil and gas.
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Yellen Goofs, Tells the Truth
Two quotes by Janet Yellen, only hours apart. The first clearly emphasizes the very real risk of rapidly rising inflation…
“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.”
…while the other clearly walks back the earlier assertion.
“I don’t think there’s going to be an inflationary problem. But if there is, the Fed will be counted on to address them.”
The reason for the second comment, of course, was the market’s reaction to the first – a tantrum, if you will.
Most of us remember when, in 2013, Bernanke spooked the markets with talk of a rollback in bond purchases. Yellen did the same thing a few years later as Fed chair. This one is slightly different, as it highlights the facts which, by now, should be clear to everyone: inflation is a very real danger to the economy and the markets.Yellen’s retraction won’t change that.
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Still Not Transitory
At some point – perhaps after six months of hot inflation data – the Fed will be forced to admit that inflation pressure are not transitory. This morning we saw evidence that March personal incomes spiked by 21.1%, the most since 1946. Personal spending for the month shot up 4.2%, the most since last June. And, PCE’s 2.3% is the biggest since 2018.
S&P futures are calling BS on the whole modest/transitory inflation story – off over 20 points so far.
And, VIX’s bullish (bearish for stocks) 10/20 cross hasn’t gone away.continued for members… (more…)
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What Inflation?
The Case-Shiller Home Price index rose 12% YoY – the fastest pace since February 2006 – meaning even fewer Americans have a shot at purchasing or renting a house. Ironically, the burden falls mostly on the low-income families that the Fed claims to be most concerned about. Thank goodness we don’t have an inflation problem.
In unrelated news (not), futures notched a new all-time high overnight and have essentially busted the little H&S Pattern that might have resulted in a massive (sarc) 1.8% selloff.
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Update on Oil & Gas: Apr 26, 2021
March durable goods orders disappointed this morning, coming in at 0.5% versus the 2.3% rebound expected after February’s -1.2% flop.
We couldn’t help wonder whether the data were somehow related to the first (tiny) breakdown in RBOB prices since the Mar 23 lows.
Given that oil and gas are poised to deliver a huge increase in CPI for April, this might be a good time to review where we are and where we’re headed.continued for members… (more…)
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Charts I’m Watching: Apr 21, 2021
Futures are backtesting the 10-day SMA this morning in the wake of the first two day decline since March.
Look for more to come.continued for members… (more…)
