Tuesday, April 12, 2022

Morning Note: Traders Buying the News...

The highly anticipated March CPI report delivered a slightly higher than anticipated headline number (8.5% year-on-year), however the core reading came in below expectations, flashing a .3% month-on-month reading, versus the .5% economists expected.

The latter has equity traders feeling it this morning. I.e., placing bets that inflation looks to be peaking.

Well, indeed, inflation is bound to ultimately come a bit off the short-term boil, so to speak (as demand wanes [our overall conditions read says growth is slowing] and bottlenecks ease -- and, not to mention, base-effects), but, nevertheless, at 6.5% (core rate year-on-year), we're still looking at a Fed determined to show its inflation-fighting mettle right here.

Interesting that commodities are catching a nice bid this morning as well... Suggesting perhaps that traders in that space have a different take... Or, they're playing the prospects for the dollar giving way to potentially lower than previously discounted interest rates going forward... But still, a commodity rally would clearly not support a significantly lower inflation narrative from here...

Economist Peter Boockvar points out that the BLS's method for calculating housing rent paints a perhaps less than real-world picture with regard to that month-on-month core CPI number (although used car prices declining no doubt helped as well):

"Headline CPI in March rose 1.2% m/o/m as expected. The core rate was up just .3% m/o/m (if only), 2 tenths less than expected and ‘if only’ because the BLS said owner’s equivalent rent in March rose just .4% m/o/m and 4.5% y/o/y. Rent of Primary Residence also showed a 4 tenths m/o/m increase and by 4.4% y/o/y. In reality if we combine new lease increases and rent rollover leases, rents are rising at around 10% so please don’t rely on today’s BLS data on this."

Stay tuned...

Asian equities got hammered overnight, with all but 2 of the 16 markets we track closing notably lower.

Europe's mostly lower this morning, with 12 of the 19 bourses we follow trading down as I type.

US stocks are green to start the session: Dow up 132 points (0.38%), SP500 up 0.64%, SP500 Equal Weight up 0.55%, Nasdaq 100 up 0.99%, Nasdaq Comp up 0.99%, Russell 2000 up 1.29%.

The VIX sits at 23.27, down 4.51%.

Oil futures are up 5.50%, gold's up 0.70%, silver's up 0.82%, copper futures are up 0.71% and the ag complex (DBA) is up 0.69%.

The 10-year treasury is up (yield down) and the dollar is up 0.08%.

Among our 38 core positions (excluding cash and short-term bond ETF), 35 -- led by energy companies, MP Materials, base metals miners, Albemarle and Latin American equities -- are in the green so far this morning. The losers are wind stocks, Warner Bros Discovery (AT&T spinoff) and Nokia, .

Like we've been saying:
"...globalisation in the guise of enhanced cross-border flows of goods and services, the migration of people, and capital flows is under increasing political threat as resurgent nationalism becomes politically more popular."
--Goodhart, C. A. E.. The Great Demographic Reversal

And that my friends is long-term inflationary... 

Have a great day!

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