Let’s take a look at some indicators that can come together to let us know when the next inflationary bout is in the offing.

The spread between 10yr and 2yr yields (the most commonly watched yield spread/curve) is still steepening in the short-term. Live chart available here.

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What’s more, it is doing this against a short-term bounce in yields (my TBT positions appreciate that) and that would be an inflationary indication. Not a trend, an early indication.

Indeed, the Continuum is once again climbing above the key 2.2% level.*

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TIP/TLT and TIP/IEF, commonly thought of as inflation expectations gauges, are bouncing but not yet on a trend change to inflationary. Daily chart…

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As Industrial Metals continue to bounce vs. Gold and Palladium continues to bull against Gold (as of yesterday; the chart would be even more constructive if updated as of today). As with the charts above, the signal is preliminary, however, as the major trends in Copper & Industrial Metals vs. Gold are still down.

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Here is a curious one. The ratio of Canada’s speculative index vs. its senior index tends to go in line with US inflation expectations.

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Yet the ratio is burrowing to new lows. Either the inflation bounce is going to fail or there are going to be some washed-out bull trades showing up out there in Canada’s speculative patch.

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Finally, the Silver/Gold ratio holds its constructive stance on a daily chart. As Silver has more cyclical commodity-like characteristics than Gold, it would indicate toward inflation by rising.

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The problem being that the larger trend (monthly chart) has not been turned up yet.

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Bottom Line

Cyclical markets are rallying today and a happy presidential tweet explains why.

Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!

— Donald J. Trump (@realDonaldTrump) October 11, 2019

Now, are markets being driven on the ability of the US and China to reach lasting agreements on trade? In the short-term, sure, this is among the drivers.

But if indeed the two super economic powers kiss and makeup, cyclical inflationary forces gather, our positive readings on the leading Semiconductor sector prove to be real as they were in 2013, the negatives gathering in US manufacturing dissipate (which could be aided by a weaker US dollar, which itself could be instigated by a dovish Fed should it decide to go that route) the macro would transition inflationary.

Unfortunately, with the trade hype as fresh as ever, the indications are not yet definitive. But a road map is in place.

* Unlike the thesis put forth in this post, I am not necessarily expecting a “great” inflation, if it materializes. A simple rise to the Continuum’s monthly EMA 100 (limiter) would do the trick.