pebblewriter

Tag: PPI

  • PPI Confirms Inflation Troubles

    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.)

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  • The Art of Hat Holding

    One nice thing about patterns is that they give you something to hang your hat on.  When we drew the Inverted Head & Shoulders Pattern on Jul 3 [see: Holiday Headfake] there was nothing in the news to suggest a 100-pt rally in the ensuing week.

    Yet, SPX and ES landed within a point or two or their IH&S targets yesterday all the same.  Likewise, all the news was rosy yesterday — incessant talk of renewed buyout fever and imminent, glowing earnings reports.Yet, completion of the pattern, combined with a channel midline, put a pause on the rally right where expected.  With its SMA200 now a mere 30 points below its 2.24 extension, SPX can backtest any time it likes with plenty of support around 2700.

    In fact, if ES is able to hold the (formerly broken) channel into which it reinserted itself, the damage would be limited to 20-30 points.

    One key: VIX.  So far, it has put the brakes on at a backtest of the recently broken straw-man trend line.  If it can remain below the red TL and the SMA200, and USDJPY keeps ramping, stocks will suffer a mild pullback.  If the coming drops in oil and gas get going, then SPX will do well to hold 2750 and, depending on the PPI/CPI numbers due out today and tomorrow, could test 2700 again.

    If we should dip below the SMA200 and 2.24 extension again, then it’s time to hold on to your hat.

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