S&P 500 fulfilled my call for a tame retracement ahead of CPI, and so did precious metals swinging higher and outperforming commodities. The real question though remains whether headline CPI comes in at 2.7% expected, with core still at 3.3%, or not.

Quoting my yesterday‘s analysis in order to address what‘s new:

(…) CPI I just don‘t know how it can come in hot considering oil, gas being down during the reporting period, and probably rent, financial services and other won‘t make up for it. Disinflation has been stubbornly going nowhere for roughly half a year, and there was a modest uptick lately – not enough to call for a trend change, which is a bit more distinctly seen in PPI. Still, rate cut odds have continued in Friday‘s NFPs direction, ignoring strong data and clamoring for more cuts.

China‘s low inflation data though raise deflation worries, and latest CCP commitment to increase deficit financing is what will bare minimum propel China stocks up today (commodities doubt somewhat). It had already affected all real assets yesterday, changing the charts meaningfully (charts conform to significant macro changes, not the other way round) – that‘s a bullish factor across the board to count with.

Last but not least, Bitcoin is still struggling below $100K, a bit corrective bias (that bearish divergence on 4hr chart played out), and represented cautious trading ahead of CPI – ES 6,082 support turned resistance (I picked deliverately a bit lower figure in the 80s) though can be retested in today‘s session. The real test of bucking slightly underwhelming CPI data comes tomorrow.

Positive economic surprises in the US continue coming in, both manufacturing and services PMI are improving (services are hot), and that would tip the scales towards hot inflation. Yet, oil and gas prices haven‘t been exactly rising lately, and indirectly these prices are featured in practically everything. Still, the services component of CPI will be most resilient within the continued, and getting long in the tooth, disinflationary trend.

I favor data coming in exactly in line for both headline and core CPI. What that would do though with rate cutting odds? These have barely changed last couple of days, and Dec 25bp is looking certain while Jan not much really.

Part of the fear of hot CPI figure (2.8% and more) is the IWM underperformance of SPY last few days, and the same applies to financials, regional banks slightly more so. 2.7% figure can dial this back, and cause a Russell 2000 upswing similarly to the few hours‘ one during yesterday‘s regular session (2.6% would be a true stunner).

Gold and silver with copper are also trading as if the net result was the Fed cutting later than expected (no Jan really) while oil upswing I understand as hedging against a hotter inflation figure. Short-dated bonds aren‘t rallying either, while the dollar is – confirming the real assets‘ message.

Bitcoin and MSTR though are tipping the scales towards risk-on reaction overpowering the initial guarded (still risk-off) move – as I wrote yesterday, it‘s about whether the bulls step in, or not following the data release.

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