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Tomorrow is a pivotal day for the market, with the CPI report due and a large Treasury settlement—the first of three this week. The CPI swaps market may prove most important, as inflation expectations have risen sharply since the start of the year and are climbing again. An in-line CPI reading would likely keep those expectations trending higher, while a miss or beat could shift them.
Currently, CPI swaps are pricing July at 2.8% y/y, rising to 3.0% in August, and 3.2% by October. Today, the 1-year CPI swap reached 3.32%, while the 2-year moved back to 2.9%.
The 5-year CPI swap moved back above 2.6%. The technical patterns in CPI swap pricing appear bullish, suggesting expectations are likely to continue rising. Based on those patterns, tomorrow’s report would need to come in at or above expectations for that trend to continue.
Even the 5-year/5-year forward looks fairly bullish as it approaches the upper end of its trading range.
The same goes for the 10/2 spread on the yield curve—at some point, it has to move.
In the meantime, don’t tell the software names how bullish the market is. Stocks like ServiceNow, Workday, Salesforce, and Intuit have been getting absolutely slammed recently, reminding us that not all tech is created equal.
ServiceNow has broken support and is now in the process of filling the gap from its April earnings report. The stock has essentially gone straight down since reporting results a couple of weeks ago.
Workday is about 10 points away from key support at $203—a major level that has held on multiple occasions in the past. A break below that support could send the shares down into the $170s.
It’s not much different for Intuit, which has been hammered, closing below its 2021 and 2024 highs. There’s also a large open gap near $670 that could be at risk of being filled.
Anyway,
-Mike
Terms by ChatGPT
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CPI (Consumer Price Index): A measure of the average change in prices paid by consumers for goods and services over time, used to gauge inflation.
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CPI swaps: Financial derivatives that allow investors to trade fixed payments for payments linked to CPI inflation rates, reflecting market expectations for future inflation.
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Y/Y (Year-over-Year): A method of comparing a statistic for one period to the same period the previous year.
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5-year/5-year forward: A measure of expected inflation over a five-year period starting five years from now, often used by central banks and economists to assess long-term inflation expectations.
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Yield curve: A graph showing the relationship between interest rates and different maturities of debt, often used to gauge economic outlook.
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10/2 spread: The yield difference between the 10-year and 2-year U.S. Treasury bonds; a key indicator of economic expectations and potential recession risks.
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Technical patterns: Chart-based patterns in price data that traders use to predict future movements.
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Filling the gap: A technical analysis term referring to price movement back into a gap left on a chart from a previous sharp move.
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Support: A price level where an asset historically tends to stop falling and potentially reverses higher.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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