Inflation Bets – Squaring Or Not

S&P 500 shook off another record-making inflation reading, and bond markets couldn‘t be happier. Volatility is back down, but the option traders turned cautious – that‘s fodder for the next upswing eventually. Many signs are pointing towards it – emerging markets rising with the dollar on the defensive, for example. Yes, the dollar with yields are key to watch now.

S&P 500 was led higher by Nasdaq, which more than welcomed further retreat in yields. The tech-led rally is here, and value while not down and out, is taking a breather. Especially financials don‘t like the move in yields, and we aren‘t at the 1.40% mark on 10-year Treasury bond yet. The summer lull in bonds is here, and my views on inflation getting permanently elevated, Fed‘s taper plays, bond yields retreat, inflation rearing its ugly head later this year before a growth scare strikes, can be found in the Latest Highlights and this week‘s articles amply discussed.

So, stocks don‘t look like retreating, as the bond market momentum doesn‘t favor many downsides, and tech would likely overpower that.

Let‘s briefly check the reactions of other markets to yesterday‘s well-telegraphed CPI springboard theme in stocks and precious metals.

Gold moves better be viewed through the leading miners – these recovered from their prior underperformance. The yellow metal‘s swings best be viewed now through the optics of how much inflation is perceived as burning, declining TIP:TLT ratio notwithstanding. And the premarket moves throughout commodities mean that the marketplace isn‘t convinced about the Fed‘s seriousness in tackling inflation, justifying my earlier deep skepticism on the taper smoke and mirrors games.

Crude oil chart is about decreasing upside momentum, and rising volume smacking of distribution as the lower knots show. I‘m looking for relatively shallow drop maximum, and a correction in time rather than in price.

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