CPI Fuel And The Smoldering Inflation Fire

For all the CPI hoopla, remember that this is a monthly figure – all data tend to fluctuate, especially those heavily massaged ones (substitution, hedonistic adjustments, owners equivalent rent coupled with exclusion of certain essentials for their prices are deemed too volatile).

The Fed keeps walking a very fine line, and it‘s a success that the market isn‘t revolting – given the infrastructure bill passing Senate, calls on OPEC+ to increase production, it‘s clear to me that whatever today‘s figure, inflation will keep being a thorn in its side for a long time – as simple as putting 2 + 2 together.

Again, today’s report will be shorter than usual and focus on select charts so as to drive position details of all five publications.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

S&P 500 keeps holding up but Nasdaq not very much so – quoting from yesterday‘s analysis:

(…) Yes, Nasdaq is in a precarious short-term position as the 500-strong index – about to fall steeply just as gold did? Probably not, but vulnerable to a corrective move that could easily reach a few percent. The infrastructure bill is rather factored into the expectations, and similarly to the Fed taper looming, any surprise could serve as a selling catalyst. The drying up volume may not be a sign of no more sellers here, but rather of a combination of timid sellers and drying up pool of buyers. With the strong CPI data likely to be announced tomorrow, the bears would likely try their luck.

Credit Markets

HYG, LQD and TLT

Credit market weakness is catching up ever more with high yield corporate bonds as they are getting under the same kind of pressure as quality debt instruments. Credit spreads are likely to start widening again as we‘re still in an economic expansion, and that would lift stock market spreads such as financials to utilities. Anyway, with rising yields look for the ride in equities to get rockier, and for tech to be diverging – yesterday was a preview of things to come.

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