Market Has an Ugly Tone Waiting for CPI... Will Risk Off Continue
We said at the beginning of the week that we expected to see fear and risk off trading as we enter Thursday and Friday... Today we have CPI. While we think inflation has peaked, today's numbers will be awful... YoY CPI expectation is back to 8.3%, which it was last month... and while the expectation of ex Food and Energy is supposed to go down, the big inflation fears will remain with us..While the ECB did not raise rates yesterday they could not have been more hawkish in their outlook... July will be a 25 raise followed by 50 in September... The markets are building 150 of rate hikes this year and 250 by the end of 2023... The end of the stupid negative rates will finally be over.. A complete failure in its experiment...
Yesterday we saw a huge risk off in equities in the last hour of trading, which gave bonds a marginal bid... We expect today's CPI to give the Fed ammunition to be very hawkish in their outlook next week... While we still think September will be a reduction in the 50 mantra for rate hikes, it won't stop the 50 and even 75 talk from expanding... We have three employment numbers before then and three CPI numbers...and as we pointed out that the M2 money supply is started to reverse... First time in many years we have seen that... Rates hikes take time to make it through the economy... And slowdowns are happening... But it does not mean we will not have another ugly run through next Thursday...strap in, it will be bumpy... We are making this short and sweet....