Macro: How CPI is reverberating across flows and positioning
Risk on
Every month there are multiple data releases that impact macro positioning. As you move through various macro regimes, different prints have different degrees of impact on the market depending on the dominant impulse. This week the main release was CPI.
I touched on what was likely to happen in the week ahead article here:
Week Ahead, Alpha Trades, and Macro Report
We are going to cover a lot in this article but I want to start on an important point. Over the weekend, I spent a lot of time reflecting on the risks in society as a whole and how they are specifically reflected through various sectors. This is one of the reasons I did the podcast on “
There are several things brewing under the surface of CPI that you need to connect with price action though.
First, CPI was released in line with expectations:
The issue is what people are missing under the surface. Notice that it was the goods line item that caused core CPI to come in line with expectations. Services actually accelerated!
The Fed is looking for a deceleration in Core CPI, specifically driven by the services component. Powell isn’t ignorant of how the CPI complex data works. He understands all of the random arguments people bring up for it. Powell has consistently decided to make decisions based on the data as it is.
This print comes in the context of the previous FOMC meeting and NFP print. All of these data prints occur in a context that needs to be weighed properly.
On the CPI print this morning, all risk assets rallied with bonds. We continue to see a positive stock-bond correlation. I broke down how these tensions are functioning on a cyclical basis in the macro report. Main idea is that we are moving between a goldilocks type regime and an inflation risk regime. A recession in 2024 is unlikely.
Comprehensive Macro Report
Hello everyone, There have been a lot of new subscribers lately so let me just start by saying welcome. When I started this Substack, I intentionally wrote A TON of educational primers on every aspect of macro you could think of. I did this because your ability to think clearly about the world is your greatest asset in markets.
This type of environment with an inverted yield curve means it is going to be incredibly difficult for TLT 0.00%↑ to rally significantly.
Now that this CPI print has been released, the tensions for trades are much clearer until NFP. If you are trying to track all of these calendar events in real-time, the CME tool is the best out there:
https://www.cmegroup.com/tools-information/quikstrike/treasury-watch.html
Let’s connect these tensions and insights with specific trade ideas.
Trades:
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