1. Moving the markets

Following yesterday’s eye-popping Producer Price report, it came as no surprise to me that today’s soaring CPI release confirmed what I have been pouncing on all year, namely that inflation is here is to say and likely will get worse.

US Consumer prices soared at their fastest rate in 40 years, as ZH reported, by increasing 6.2% YoY in October, thereby blowing by expectations of 5.9% YoY and accelerating from September’s 5.4% YoY. The Core CPI spiked to its highest since August 1991, which confirms another non-transitory surge in inflation.

Added ZeroHedge:

Real weekly earnings are down 1.6% YoY.

The gap between PPI and CPI continues to run at record highs, meaning either consumers are about to be crushed or margins are going to collapse.

As a result, the markets retreated from their lofty levels, assisted by a spike in bond yields, with the 10-year exploding almost 12 basis points higher to end the session at 1.563%. Traders dumped the high-flying tech sector and rotated into bank stocks and gold, the latter of which closed at 5-month highs.

The precious metal surged and gained 1.27% on the day and is now moving towards the $1,900 level, while the US Dollar rallied almost 1%. It was crunch time on Wall Street, as neither spiking bond yields nor a rising dollar were able to prevent gold from levitating.   

The “clueless comment of the day” award goes to MSNBC, who lectures us as to why the inflation we are seeing is a good thing, as this picture tries to explain.

Go figure…

1. Moving the markets

The eagerly expected print of the current Producer Price Index (PPI) clearly showed the error of assuming that inflation will be transitory. For a change, analysts had forecast an eye popping 8.6% YoY rise in producer prices, and they nailed that number, which represents a new record high for YoY increases.

MoM, the expectation was 0.6%, which proved to be accurate as well, with ZeroHedge adding these details:

One-third of the October advance in the index for final demand goods can be traced to prices.

Over 80 percent of the October increase in prices for final demand services can be traced to margins for automobiles and automobile parts retailing, which rose 8.9 percent.

The gap between PPI and CPI continues to run at record highs, meaning either consumers are about to be crushed or margins are going to collapse.

With this record PPI print you would have expected bond yields to spike, but the opposite occurred with entire yield curve tumbling, as the 30-year got pushed down to levels last seen in July. Huh?

The major indexes only closed moderately in the red thanks to the usual last hour lift-a-thon, which prevented a worse outcome. Nevertheless, the S&P 500’s 8-day winning streak came to an end, in part induced by profit taking.

Tesla was in the news today, but with a negative slant, as the stock got slammed some 12% for no apparent reason other than rumors that Elon Musk may need to sell some of his personal holdings.

Even the “most shorted stocks,” which are usually manhandled to support the bullish meme and cause short sellers to cover, headed south and then got stuck in a sideways pattern thereby not affecting market direction.

The US Dollar wandered aimlessly and essentially closed unchanged, but Gold managed to keep its recent upward trajectory intact by gaining 0.34% and solidifying its position above the $1,800 level.   

With the earnings season coming to an end, new catalysts are needed to keep this market from slipping. I envision these to be solid economic data points and more re-openings, but given the current overall economic and political landscape, this may be just wishful thinking on my part.

1. Moving the markets

After Friday’s mid-day dump, which was followed by a pump into the close, the markets registered their best week in over 6 months not for equities but also for bonds and gold. This meme dominated today’s trading environment and was supported by Congress having passed the $ 1 trillion infrastructure spending package.

While the details are sketchy and preliminary analysis showing the amount of pork being part of it, traders saw it as a positive and pushed the major indexes to another green close, during which the Dow touched a new intraday high, while the Nasdaq and S&P 500 set new records.

Friday’s emotional high, caused by a better-than-expected jobs report showing that 531k jobs were added last month, still created a warm and fuzzy feeling for the bullish crowd to keep the momentum going.

On deck this week are the critical readings of the Producer and Consumer price indexes, both of which will likely confirm that inflation is here to stay and not “transitory,” as the Fed wants you to believe.

The US Dollar continued its downswing from Friday and lost 0.31% in the process. That helped Gold to resume its turnaround with the precious metal gaining 0.51% and solidifying its position above its $1,800 level. That was a solid rebound, especially in the face of rising bond yields, with the 10-year jumping back to the 1.5% level.