Rise and shine everyone.

What a market reversal yesterday! After the CPI, which came in hotter than expected at the core level, we saw the market slump. And then it made a violent reversal, with the SPX closing at +1.07% and Nasdaq at 2.17%.

A big reason was also Nvidia’s appearance at the GS Tech Conference. Whatever Jensen said seemed to have worked. He’s become a bit of a showman now and seems to be creating even more hype for the company.

Futures are trading higher this morning. And when I say futures… I mean everything. Look at the chart below. Even Crude Oil is seeing some respite after the last two days of selling off.

While the market doesn’t really care about inflation anymore, I think it may be a troubling sign that core inflation continues to remain sticky. I understand why people do not see a lot of alarm in these numbers - because we’ve been seeing broad-based disinflation at the headline level. If you look at the updated heatmap below, it’s quite apparent.

Shelter Inflation, however, seems to be moving the wrong way. Looking below the surface, we see the biggest jump was in hotels and tenant insurance. However, OER also inched higher MoM from 0.4% to 0.5%. Considering that this is the largest portion of CPI, it’s not something to take lightly.

One thing’s for sure, this likely settles the matter that the Fed will likely cut only 25bps in September, which is probably a good thing because we do think that there may be reasons for inflation to start to accelerate or at least remain sticky. Some of these include:

The ECB Rate decision is coming up at 8:15 am ET. It’s widely expected that they will decide to cut again by 25bps.

We also get the economic projections during today’s meeting and it’s quite likely that we will will see some changes there. While inflation projections may be reduced, growth projections may also be reduced, which will signal that the ECB may be getting worried about the state of the economy.

We’re unlikely to get any firm guidance on future rate cuts - with data-dependent being the theme, yet again. However, we know the story by now. The ECB speakers like to telegraph their view ahead of the meeting so we will probably hear about a cut ahead of the December meeting next.

We had started to see the market broadening out with the S&P 500 equal-weighted index leading compared to the market cap weighted index. Yesterday’s reversal may be the start of another move that changes that path.

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)