Inflation is mainly an Energy issue but, conditions are so stimulative/inflationary.That inflation has broadened out. Inflation for the past weeks/months has only been about food/energy but, the fed thinks that Core Inflation also needs to be controlled. The Housing market and the Labor market signify a "roaring" economy.... A big labor force with good wages WILL lead to high demand, discretionary spending, higher production and many home buyers. Powell has definitely turned hawkish. The fed is looking to shift from its accommodative stance to a neutral stance. He will look to raise the FedFundsRate to neutral. The fed needs ammo for the next impending recession. Long term yields will remain the feds biggest pain for they will be really fickle to raise. Yield curves are on their way to inversion US10Y/US02Y, US07Y/US05Y, US10Y/US05Y. These yield curves will invert to foreshadow a recession but, a recession can take months/years to occur when these curves invert. Its best to look at the US30Y-US03MY spread at 1.93%. When that yield curve inverts a recession will occur very soon.
CPI increases occur when XLE outperforms SPY. Energy companies profit more during inflationary environments. Energy prices rise when there is ample demand. The crucial relationship to notice on the chart is the formation of local maximums in XLE/SPY correspond to peaks in CPI. In the past couple week Energy prices have relaxed a bit and that has been reflected in XLE. This will lead to a slight pull back in CPI. For CPI, to rocket higher it will need outperformance from XLE relative to SPY.
The current economic landscape has so many crazy dynamics it can be hard to determine which factors are affecting Inflation. The Consumer is strong and people have jobs. The economy is not in a recession in fact, it is quite booming. The fed is hiking rates in response. Core inflation has been increasing and things like housing are getting expensive. Imagine this: you bought a house in 2020-2021 and you have a 2.5%, 30 year mortgage, no loop holes..... That's great for consumers!! They can go buy other stuff due to such a low mortgage. The fed has no other move but to tighten. US03MY is still at ~0.5%, US30Y is ~2.5% and real rates are still negative. Inflation has room to run until the latter part of the year. But, the higher price cure is coming due, to America boosting production. Dollar strength is expected. Watch for XLE/SPY to move towards a local max that, will propel CPI even higher. Or has XLE topped??
CPI increases occur when XLE outperforms SPY. Energy companies profit more during inflationary environments. Energy prices rise when there is ample demand. The crucial relationship to notice on the chart is the formation of local maximums in XLE/SPY correspond to peaks in CPI. In the past couple week Energy prices have relaxed a bit and that has been reflected in XLE. This will lead to a slight pull back in CPI. For CPI, to rocket higher it will need outperformance from XLE relative to SPY.
The current economic landscape has so many crazy dynamics it can be hard to determine which factors are affecting Inflation. The Consumer is strong and people have jobs. The economy is not in a recession in fact, it is quite booming. The fed is hiking rates in response. Core inflation has been increasing and things like housing are getting expensive. Imagine this: you bought a house in 2020-2021 and you have a 2.5%, 30 year mortgage, no loop holes..... That's great for consumers!! They can go buy other stuff due to such a low mortgage. The fed has no other move but to tighten. US03MY is still at ~0.5%, US30Y is ~2.5% and real rates are still negative. Inflation has room to run until the latter part of the year. But, the higher price cure is coming due, to America boosting production. Dollar strength is expected. Watch for XLE/SPY to move towards a local max that, will propel CPI even higher. Or has XLE topped??
Comment:
Inflation will peak in a few months
Consolidation Zone Accumulation or Distribution:
Keep an eye on Real Rates: