Wednesday, August 10, 2022

Morning Note: Inflation, and Our Messaging, Highlights

July's CPI confirms that inflation remains at consumer-crushing levels. However, for a kneejerk market (SP500 futures up 1.75% as I type [45 minutes before the open]), it's all about expectations, and this morning's report came in a bit lower than consensus:

Year-on-year July headline CPI: 8.5%, core (ex food/energy): 5.9%
Month-on-month headline: 0%, core 0.3%

No surprises here. Per our July 13 note:
"...the trend for the second half of June strongly suggests July's month-on-month headline number is going to come substantially off the boil."

And be sure to watch yesterday's brief video if you haven't already. In it I address market prospects relative to this morning's inflation print. 

Given how the Fedheads responded to last week's jobs number, we look for them to issue the same critique of traders. Essentially, if traders think the Fed is remotely thinking that they can ease off the brakes right here, they've another think coming...

Here are some key highlights (the first one being most pertinent to this morning's action) from a week's worth of messaging herein:


"...any evidence that inflation is seriously coming off the boil will surely inspire rallies in global equities. But, again, rallies in equities are essentially a loosening of financial conditions. I.e., such rallies will likely turn out to be the short-lived victims of fed quashings."


"...the resiliency in equities of late smacks more of positioning than it does some sustainable sea change that would have us turning net bullish on the market's go-forward prospects from here."

Last Friday: 

"...what gives is either (as depicted above) a fundamental belief that, come hell or high inflation, the Fed will forever have the equity market's back, or, it's that market actors have grown so smart over the years (and/or the Fed so dumb), that they know the economy better than does the Fed.

I.e., in the latter context, the market sees a notable economic, and, thus, inflation, slowdown coming sooner than later that will catch the Fed off-guard and have them pivoting to a dovish stance earlier than they themselves currently anticipate."

Last Thursday: 

"We appear to be in the early stages of structural, inflationary (relative to the past 40 years) trends that will play out over many years to come -- although not linearly, mind you... Trends that simply will not allow for what had become a bottomless pit of central bank pump-priming of financial markets... Trends, therefore, that virtually assure that the path to investment success will veer, perhaps widely, from that of the past several decades...

I.e., while we remain forever open to all possibilities, we believe we're staring into a macro environment that demands a re-thinking of how money is to be invested, and how risks are to be managed, well beyond the foreseeable future..."

Last Tuesday: 

"...while the market was no doubt keyed last week on slowing inflation, and a relatively market-friendly J. Powell during Wednesday's presser, the notion that the coast is clear may be dangerously premature, if not entirely ill-conceived, at this juncture..."

Asian equities tanked overnight, with 14 of the 16 markets we track closing lower.

Europe, responding (initially) to the US inflation data, is in rally mode, with all 19 of the bourses we follow trading up as I type.

US stocks are rallying to start the session: Dow up 452 points (1.38%), SP500 up 1.63%, SP500 Equal Weight up 1.64%, Nasdaq 100 up 2.02%, Nasdaq Comp up 2.03%, Russell 2000 up 1.84%.

The VIX sits at 20.54, down 5.65%.

Oil futures are down 0.92%, gold's down 0.10%, silver's flat, copper futures are up 1.28% and the ag complex (DBA) is down 1.09%.

The 10-year treasury is up (yield down) and the dollar is down a big 1.04%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 33 -- led by Sweden equities, communications stocks, materials stocks, Brazil equities and Albemarle -- are in the green so far this morning. Gold and oil services stocks are the only losers so far this morning.

Shameless plug alert!
" the mercy of a few very bright, academically gifted appointees who’ve proven to be most adept at test-taking and, alas, mess-making."
--Mazorra, Martin. Leaving Liberty? Essays on Politics and Free-Market Thinking  

Have a great day!

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