Official core PCE came in at 3.5% YoY (0.2% MoM) which was high enough to knock fuutres off their overnight highs but not enough to drive VIX above its 10-day moving average.
We pay a lot of attention to VIX as it’s perhaps the most important daily driver of algo behaviour. After poking up above its SMA10 in October for all of nine sessions, it has now spent an entire month ducking below it – stymieing any equity pullbacks…until now.
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October CPI came in unchanged following a 0.4% increase in September. For the year, CPI dropped to 3.2% from 3.7% in September. Core came in at 4.0% YoY and 0.2% MoM.
Futures soared on the print.
As we have anticipated for the past several months, it was a sharp drop in gas prices which produced the equity-friendly print. From CPI Continues Falling on July 12:
As we discussed last month, the benefit from YoY price declines in oil/gas has maxed out unless prices continue to fall. In other words, central bankers might need to drive oil/gas prices even lower.
From June’s No Surprise:
It’s important to note that oil/gas mustn’t rally any further. If gas were to level out at current levels, the strong positive correlation between YoY gas prices and CPI indicate that inflation would be on the rise from now through the end of the year.
And, Powell: Inflation Not Over:
… there is little chance of inflation not bouncing back up unless oil and gas prices collapse from current levels.
The breakout in July following OPEC’s production cut was followed by an incredible increase in geopolitical risks related to the Israel-Hamas war. Yet oil and gas prices are lower than they have been in almost two years.
It might not be a big enough drop to help Americans forget the 6.7% annual increase in shelter expenses. But, it’s certainly enough to break stocks out of their latest swoon.
Mission accomplished.
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This is one of the biggest weeks for economic data in quite some time. We get October CPI tomorrow, PPI and retail sales on Wednesday, initial claims on Thursday, and housing starts and permits on Friday. Of all these data, CPI looms largest for the markets.
Recall that September core CPI came in at 4.1% YoY, with shelter (+7.2% YoY) accounting for over 70% of the increase. With the recent sharp drop in mortgage rates, shelter could remain stubbornly high, complicating the Fed’s inflation fighting efforts and thus paring the market’s optimism.
Futures are off moderately in advance of tomorrow’s data after nailing our channel top target.
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VIX and the 10Y have both reached key chart pattern support.
It’s a little early for a sprint to the barn. Will the algos take a breather?
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Futures have bounced back from moderate overnight losses in advance of this afternoon’s FOMC decision.
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Futures are up slightly on as investors look ahead to tomorrow’s FOMC decision.
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Futures are up moderately on positive earnings reports from several key equities.
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Futures have bounced back from overnight lows in advance of Jay Powell’s comments at 12pm ET at the Economic Club of NY.
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Futures are up modestly following establishment of a new rising channel.
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