Inflation Is At Risk Of Roaring Back To Life

Independent macro and options research, published every trading day — $85/mo or $750/yr

#Stocks –

#Macro – $NDX, #VOLATILITY, #Rates, #copper, #gas, #oil

Mike’s Reading The Markets Macro Subscription Service on Seeking Alpha

https://youtu.be/5nYqZQT3iRk

Stocks finished mostly lower on the day, with the S&P 500 dropping 19 bps and the NASDAQ 100 falling by 83 bps. Tomorrow, we get PPI and Retail sales, and based on the VIX 1-Day, the market doesn’t seem as concerned, with the implied volatility gauge closing at 11.9 and well below the 19 level seen ahead of the CPI print. So, it seems unlikely that we see a volatility crush tomorrow.

In the meantime, one-year inflation swaps closed today at their highest levels since October 2023 (white line), and one-year breakevens (blue line) closed at their highest since the summer of 2022.

But today was a big day for things like gasoline, which broke out and surged 3% above reistsnace and probably has room to run to around $2.70.

It was a big day for copper which rose almost 3.5%, and appears to have broken out.

It is no wonder why inflation expectations are surging. The things that have helped suppress and tell the disinflationary tale are now coming back to life. When you look at the CPI index, the only thing that is actually accounting for inflation is core services. Food, energy, and core goods are all non-existent. But suddenly, this can start to look much different if oil, copper, and gasoline breaks and starts to pick up steam. I haven’t mentioned the shipping rate surge seen since the start of the year.

(Bloomberg)

Why shouldn’t risk assets be rising? Financial conditions, as measured by the Chicago Fed, are in the same spot as they were in February 2022, before the Fed Funds rate was 535 bps lower, and the balance sheet was more than $1 trillion larger.

At the end of the day, stocks are risk assets, and you know what: copper, gasoline, and oil are risk assets. So why should stocks go higher and other risk assets not go higher? This is really the same exact reason that gold is going higher. They are saying the same thing: financial conditions are too easy, and inflation is now at risk of coming back.

The only good news is that rates are slowly waking up to the idea that rate cuts may not manifest this year as this inflation risk is starting to build. Today, we had 10-year rates move back above the 4.19% level, which potentially opens the door for a rise back to the 4.35% region if the data tomorrow is supportive.

That’s it.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks. For research syndication, licensing, or consulting inquiries, visit michaeljkramer.com.

Charts used with the permission of Bloomberg Finance L.P. 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.

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.