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Wall Street Awaits Wholesale Inflation Data

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It looked like a stroke of genius at the time, but… pre-market futures continue the latest bearish tilt after Friday’s losses kept the weekly losing streak intact following the Fed meeting press conference last Wednesday with Fed Chair Jay Powell. While the markets slipped on the 50 basis-point (bps) rate hike, by the time Powell was done speaking, indices were roaring higher — as much as +3% on the day.

The impetus for the bullishness was Powell’s comment that a 75 bps interest rate raise was not in the cards for the foreseeable future. (This mostly was understood to mean at neither of the next two Fed meetings would a 3/4-point hike be installed, with the following month off for the Fed. This would put the Fed funds rate between 1.75-2.00% by Labor Day — much higher than it has been for years, but not draconian in level. Market participants took this as a very positive sign.

Yet once everyone started doing the math and comparing notes, fear crept back in. Would a 2% bank-to-bank interest rate be enough to staunch inflation, which is now raging hotter than 4x that forward interest rate? The 10-year Treasury bond yield has now firmly grown past 3% to 3.185%, and “stagflation” is the old/new dirty word being bandied about: it refers to inflation continuing to stream through the economy while productivity and monetary gains stay flat. Aside from deflation, stagflation is about the least desirable place for an economy to be.

A telling metric on inflation levels comes mid-week of this week: new Consumer Price Index (CPI) numbers for April. Expectations are for the year-over-year headline to come down half a percentage point — that’s the good news. The bad news is it would only come down to 8.1% from 8.6% in March. And that’s if we down see a hotter inflation surprise. This week’s CPI numbers are arguably more important than last week’s jobs reports were.

After today’s opening bell, we’ll see what Wholesale Inflation for March was. Analysts expect to see a headline of +2.3%, down marginally from the +2.5% posted a month ago. We’ll also get inflation expectations for the next year and the next three years. The last read on these measures were +6.6% and +3.7%, respectively. Again, still far higher from where the Fed promises to take nominal interest rates — through the end of summer.

Meanwhile, the Dow remains down -9.5% year to date; the S&P 500 is now trading at a 13-month low, -13.5%; and the Nasdaq is down a whopping -25% from its all-time closing highs set just last November. The Dow carries a six-week losing streak into this Monday morning, while the S&P and Nasdaq are down five straight. Right now, the Dow is -350 points ahead of the open, the S&P 500 -60 points and the Nasdaq -250 points. Maybe the volatility we’ve seen in the market will start working in portfolios’ favor, but the proof will have to be in the pudding.