Is Inflation Over?

What CPI Tells Us

After a few stops and starts, the markets are off and running in 2023.

YTD check-in:

Nasdaq + 4.1%

S&P500 + 3.5%

Dow Jones + 3.2%

Bitcoin 14.4%

Today’s inflation prints show a continued trend in the right direction for headline and core readings, although jobless claims were a little disappointing for the pivot bros:

James Bullard, President and CEO of the St. Louis Fed, had some things to say:

Bullard also notes that there’s probably too much optimism that inflation is easily going to come back to 2%.

These are hawkish comments. However, the market seems to be shaking it off just fine. Could we be turning a corner? Maybe, but you know that I like to take a look at the good AND the bad in the data.

Highlights from December CPI

Consumer Price Index for all urban consumers declined 0.1 percent in December (seasonally adjusted), after increasing 0.1 percent in November.
Gasoline index declined 9.5 percent and was the single largest contributor to the MoM net decrease.
Energy index decreased 4.5 percent MoM.
Fuel oil index declined 16.5 percent but energy services increased slightly.
Food index increased 0.3 percent MoM (food at home was +0.2 percent).
Shelter index rose 0.8 percent.

From this breakdown, we can determine that the highly volatile energy sector accounted for most of the inflation downtick. That’s not the best news for consumers as it can wildly swing in either direction.

FedWatch is now predicting 92% likelihood of a 25bps rate increase on Feb 1 and 72% probability of 25bps in March as well. That’s a lot more accommodative than the 50-75bps hikes we’ve been getting over the past 6 months, and the markets are loving it.

Technical Analysis Corner

BTC 12H Chart:

I’m not seeing any divergences here yet, but we’re approaching the heaviest area on the volume profile around 19.1k. RSI is also close to 90. Next area above here is low-20ks. I’d be surprised if we get there on this impulse without cooling off a bit first.

ETH Daily Chart

Ethereum is at daily resistance here. Flip it and I’d expect continuation toward $1580. Can we get a throwback to the blue box first? It might be too easy, but that’s where I’d be bidding if looking for a pullback.

S&P500 Daily Chart

Long as 3900 area holds, I don’t see any trouble in it getting up to the 4070-4100 range and eventually the gap near 4220. This is the kind of market structure that makes bulls very comfortable.

Jay Charles

Editor in Chief, The Trading Tank.

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