Wednesday's Close

E-mini S&P 500 (June): Settled at 4218.50, down 7.25

E-mini Nasdaq-100 (June): Settled at 13,814, up 2.75

Today’s CPI data is due at 7:30 a.m. CT and has haunted markets all week. With this in sight, the S&P, Nasdaq, and Dow have each struggled to carry bullish tailwinds from last Friday’s Goldilocks jobs report. 

For months, we’ve discussed the rise in real prices like lumber, the grocery bill, gas, and more. However, it’s the Core data from both CPI and PCE that matters most, and this excludes food and energy. Furthermore, Bloomberg reports that a 10% rise in the price of used cars alone brought YoY Core CPI for April from a meager +2.3% to +3.0%. As for the MoM read, used car sales helped lift it by +0.9%, the largest spike since May 1982.

What does this tell us? Such a pace of change is unsustainable. Expectations for today’s read are +3.4% YoY and +0.4% MoM. It’s our belief that portfolio managers and traders must prepare for a hot read because of the implications of such. However, if Core CPI is only slightly strong, it may impact markets in the same manner as a miss, as it simply doesn’t give credence to tightening the Federal Reserve’s timeline to taper their bond purchases.

Why? Well, this brings us to our discussion on Tuesday; higher base comparisons through July and August last year coupled with an unsustainable pace of change could be the recipe for deflation.

Let’s also not forget today’s ECB policy meeting and weekly Jobless Claims data. The ECB left policy unchanged and renewed their pledge for faster bond buying. ECB President Lagarde holds a press conference set to begin at 7:30 a.m. CT, just as CPI data and Jobless Claims are released.

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