[Chart courtesy of MarketWatch.com]

1. Moving the markets

A hotter-than expected inflation report showed that the CPI rose 9.1% YoY in June, which was higher than May’s 8.6% reading, that had been the biggest increase since 1981. Economists expected an 8.8% print.

Even the Core CPI, which excludes food and energy, came in at 5.9% and topped the 5.7% estimate. On a monthly basis, the CPI was up 1.3% compared to hopes of 1.1%. Finally, some traders and investors are waking up to the fact that inflation has not yet reached its peak—far from it, in my opinion.

Initial market reaction was fast and furious with the Dow dropping over 400 points before staging a comeback. The reason for that sudden rebound was a report in the WSJ by Fed leaker Timiraos that a suddenly much feared 100bps rate hike in two weeks may not be realistic but a 75bps was.

That sent equities almost into a vertical ascent with the S&P 500 and the Nasdaq briefly seeing green numbers. However, Atlanta Fed President Bostic pulled the rug out from under this rally with quotes like this:

“Everything is in play.”

Asked if that included by raising rates by a full percentage point, he replied:

“it would mean everything.”

That destroyed any hope or confidence the WSJ article had created, so the major indexes headed back south but closed off their worst levels for the session.

It means rate hike expectations are rising this year, with subsequent rate cuts virtually guaranteed in 2023, as the Fed will bail us out of a deep recession, as ZeroHedge put it.

Bond yields spiked following the release of the CPI report, then dropped with only the 2-year yield closing higher. Gold rode its own roller coaster. The precious metal first puked then spiked and closed with modest gains.

ZH summed up the current environment like this:

• Stocks are still bipolar, and squeeze driven, as well as hoping beyond hope that the subsequent easing, after The Fed pushes the economy into recession, will save the day…

 Hmm…

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After hesitantly spending some time above their respective unchanged lines, bullish momentum, as insignificant as it was, disappeared, and the major indexes staged a turnaround and dumped into the close.

It was a lackluster session with the same old standby worry, namely economic growth, as Wall Street braced itself for tomorrows key inflation data via the release of the CPI. It’s no secret that growth is slowing, and Central Banks remain in inflation-fighting mode, which means more rate hikes.

The earnings season started well with PepsiCo’s report card and forward guidance turning out better than expected. Keep in mind though, that those businesses which do not pass on their higher input costs will have deal with squeezed profit margins, which will negatively affect their stock prices.

So far, the case for Stagflation remains on deck, as inflation is consistently hotter than expected and economic growth weaker than expected, according to ZeroHedge.

Bond yields dumped and pumped, but the 10-year remained below its 3% level. The biggest sell program in 2 weeks kicked in today, and those already were among the biggest in history.

The loser of the day was Crude Oil, which tumbled over 8% to close at under $96.    

All eyes are on tomorrow’s CPI report, which has exceeded expectations for the past 5 months, with the S&P 500 having fallen by an average of -0.78% on CPI-day, as ZH reported.

Will tomorrow be different?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

With uncertainty about the upcoming earnings season taking center stage, and traders having more questions than answers, the markets simply took the path of least resistance, which was down.

The major indexes never saw any green numbers and vacillated below their respective unchanged lines, as the Nasdaq fared the worst by dropping -2.26%.

We have now reached an economic environment where past earnings are taking a backseat to future guidance and expectations, as companies tried to wrestle with rising prices, slowing growth and inflationary pressures, with the Fed appearing to be more aggressive in its interest rate hiking plans as traders had hoped for.

Analyst Peter Tchir called the overall confusion this way:

• Recession risk is real versus the economy is doing okay and a soft landing is on the table.
• Recession risk is bad for risky assets versus recession risk keeps rates lower which is good for risky assets.

After having had time to digest Friday’s jobs report, ZeroHedge reported that the realization dawned that the labor market was in fact not as strong as talking heads had proclaimed.

The futures markets started things in the red and that negative sentiment set the tone for the entire session. Not helping matters was the absence of a short squeeze, which seemed to have run out of ammo.

Even a drop in bond yields across the board did not make a difference, despite the 10-year dipping below its 3% level again. The US dollar rallied, Crude Oil dropped, and Gold drifted lower.  

A variety of critical data releases are on deck this week, with the most watched being the CPI and the PPI, either one of which can have market moving effects.