CPI Prep | Market Rundown
CPI Prep | Market Rundown
Gold and Silver Comment
Today:
Market Rundown.
CPI Prep
Zen Moment
1- Market Rundown:
Good morning. The dollar is up 15. Bonds are slightly softer after a torrid rally yesterday. Stocks are up 40-60 bps. Gold is down $9. Silver Fu. are down 20c. Oil is down another $2.00 (this is key if Powell does want to ease we think). Crypto remains strong. Grains are all down somewhat.
Banking Crisis coverage:
Gold and Silver Comment:
Great day for these assets yesterday. There is plenty more to come because with inflation still in the markets mind, we now have insolvency of banks newly born.
While there will be dips from here, there will be almost no natural selling anymore except by Russia. No-one wants to play this short. They’d sooner sell puts on stocks than short Gold and Silver. A new younger generation is now aware that return of capital is far more important than return on capital.
Cheers
2- CPI Prep
Before we run this down, the events of the last few days have made this less the focus for investors today. The events do not change the CPI numbers, but they do put the Fed in a bad spot. Whereas all were calling for at least a 25 bp hike and some were calling for more a few days ago; Almost all are calling for zero hikes now and one (Nomura) is calling for an ease of 25 bps.
One thing we want to emphasize, if oil prices keep dropping that gives Powell some cover for easing. If oil pops again, however, he will almost definitely not ease unless something worsens even more on the banking side.
Goldman: Skewed Stress
Keeping is simple, Goldman warns that the situation is very digital. If the number is soft, no problem.. or should we say a good problem for the Fed. Then you can start seeing talk of a pivot or easing .
Goldman’s Trading Desk:
Just 1 week ago it would have been hard to imagine anyone asking if the CPI print even matters. Oh how quickly things change. This makes me believe risk is skewed meaningfully to the downside tomorrow. Unless we get a shockingly hot number mkt will remain more focused on unfolding banks drama ( a soft print will be disregarded as not relevant).
If however, the number comes in hot again, then you have a major issue. Does the Fed abandon its inflation fight at least temporarily to tackle the banking crisis or not.
Politics
Politically the problem is the inverse of this. If inflation comes in soft, the pressure from the Liz Warrens of Congress will get much louder to ease rates. If CPI comes in hot, even the politicians will be confused a little more than usual. So, low CPI makes Powell’s job easier but the screams from the pols louder. High CPI means major conflicts for him, but less complaints from the cheap seats.
Rock and Hard Place
We are not sure at all, but we do not think an ease is coming unless something else breaks now. Why? Because as long as the Treasury is handling this, the Fed wants to back off more. Goods inflation is picking up again as energy costs work their way through the system and rent disinflation is still lagging. Things are very out of sync
Short summary of below: Goods inflation is picking up again. Services is expected to go sideways. Net-net a pick up in CPI is expected today by the Big Three.
CPI Analysis
This month there will be much focus on the components of Core CPI. Goods inflation had been coming in, but is now upticking again. Of particular interest are changes in used cars, and Jet fuel (air travel). The changes could exceed what the Fed has calculated in their baseline trends.
Consensus:
For the headline print, Wall Street is looking for +0.4% MoM (vs +0.5% prior) and +6% YoY (vs +6.4% prior).
For core MoM, Wall Street is looking for 0.4% (vs +0.4% prior) and YoY of +5.5% (vs 5.6% prior).
Services inflation is not expected to be a big factor in this month’s changes in either direction. High rental inflation is not likely to move the needle unless it accelerates much further from current levels.
Given the CPI methodology for these indices, it will take another couple of quarters before the recent softening in private estimates of rents fully percolates through into the CPI.
more below…