2.

Short-term yields “are no longer leading the 10-year yield higher .. is this signaling the 10-year yield is also likely to soon terminate its recent rout?” - @LeutholdGroup pic.twitter.com/h1o6qBStZh

— Carl Quintanilla (@carlquintanilla) May 10, 2022

3.

“.. the collapse of industrial commodity prices has occurred only since April 21st, and perhaps many bond investors haven’t fully discounted the meaning of that shift.” pic.twitter.com/ftqSvfbPtc

— Carl Quintanilla (@carlquintanilla) May 10, 2022

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An interesting meme has taken hold of the crowd's mind is financial markets in recent weeks: The Peak Inflation Narrative. It started when Powell signaled a 50 basis point hike on Thursday, April 21, and has gained momentum since. The idea is that since the Fed is pivoting hard to tackle inflation, the inflation trade is now over. This can be seen most clearly in the nasty retrenchment that has taken place in commodities and precious metals.

If CPI print tomorrow is <8.5%, the peak inflation narrative may spur the next bear mkt rally much like "A 75 basis point increase is not something that the (Fed) committee is actively considering," did on 5/4. But we believe the ultimate low & a recession is still ahead.

— Dan Niles (@DanielTNiles) May 10, 2022

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(Click on image to enlarge)

If the April CPI Report Wednesday morning comes in below March’s 8.5%, my guess is that the market will take it as confirmation of The Peak Inflation Narrative. And while commodities and the precious metals have likely priced this in already, stocks and bonds are now due for a relief rally after being crushed in recent weeks.

Is The Peak Inflation Narrative right?

This is where things get interesting. While the market has started to run with the idea that inflation has peaked, I have my doubts. With all the stimulus the Fed – and global central banks – have unleashed over the last decade-plus, I find it hard to believe that a couple of 50 basis point hikes will be sufficient to reign it in. My guess is that the Fed will have to go full Volcker to do so – and I have my doubts that Powell is up to the task. If this is correct, the vicious sell-off in commodities and the precious metals is a head fake – and the commodities bull market will resume shortly.