Week of Nov 6: CPI Report

CPI Report came in slightly cooler (lower) than estimates projected. The one I rely most on is the Cleveland FED which had forecasted:

CPI 8.09% Y/Y, .76% M/M

CORE 6.58% Y/Y, .54% M/M

The actual CPI Report was:

CPI 7.7% Y/Y, +.4% M/M

CORE 6.3% Y/Y, +.3% M/M

I will go over the details of the CPI Report in the Audio.

Now, what does this mean for rate hikes?

Inflation is still INCREASING and still highly elevated!

Per FED Watch Tool, the estimates are as follows (subject to change daily):

83% for 50bps in Dec (425-450 bps)

48% for 25bps in Feb (450-475)

47% for 25bps in Mar (475-500)

Between now and Dec 14 FOMC rate decision we still have more data incoming. PCE Dec 1 and more labor data which may still show its tightness.

Per Powell we need to see a consistent pattern of inflation coming down (not there yet) and a softening labor market (not there yet). Therefore rate hikes continue and slowing down could be Dec (per FED Watch Tool) or Feb. Powell did say in his speech Dec or following for “slowing down”. No PAUSE and certainly NO pivot.

I have been consistent on that point. No pause. And to quote Powell, “too premature to even speak of a pause.”

Rosanna Analysis

We will not know if this is a BMR or reversal until it is in hindsight, however, my opinion is that the rate hikes continue with slowing near term but there could be more downside.

We need a consistent pattern of Inflation coming down before FED feels it is under control and right now it is still going UP although slightly lower Y/Y.

Avoid emotion in trading. Price changes sentiment quite rapidly. Avoid FOMO.

Lots of data lags. Employment, Nominal GDP, Earnings, etc.

Rate hikes slow growth in time plus diminish future valuations

Margins compressed already. Dilution of value.

Unemployment issues may be next. Lots of imbalances in labor market. Once unemployment creeps up, it is difficult to stop. Layoffs occurring for some time already.

Growth continues slowing down. Further challenges incoming.

PMI tends to lead CPI by about 24 months so mid next year could be an inflection point.

Housing is also another challenge and historically we should see a reversal in housing sentiment before we can claim a recovery.

I am still trading, holding my cash, holding my longs, etc.

Market reaction involved expectations vs surprises so we need to assess why market rallied and what can happen next when it may not get what it may have assumed.