📈CPI Shocks the Markets.

CPI inflation data come in better than expected and considerably lower than all estimates. Core CPI stood out as it was cut in half month over month.The .3% increase was considerably lower than the .5% estimate and half of the previous .6%

Core CPI (MoM) (Oct) 0.3% 0.5% 0.6%

Core CPI (YoY) (Oct)6.3% 6.5% 6.6%

CPI (MoM) (Oct)0.4% 0.6% 0.4%

CPI (YoY) (Oct)7.7% 8.0% 8.2%

This led the indexes to rocket to the upside. The SP500 (green) gained over 8% in two days and the nasdaq was up double digits.

There are several investors that would say that this is simply a short covering rally and we will roll back down. There are two graphs that show this might not be the case. For a while now we have shown the high correlation between falling equity prices and the U.S. dollar. Look below at the breakdown of the long term trend below. The $DXY is not a small market to be manipulated by Algos and high frequency traders. It is governments and sovereignty funds that are the primary buyers and sellers. They can not turn fast so when they turn they usually commit.

The 10 year treasury rallied substantially. We had a 7% move in a day with the yield now being 3.81% Now the fund managers can use the hedge of bonds against equity exposure. Side note this benefits stodgy high yield stocks. Utilities especially benefit as the yields are higher. One of the names we bought in the trading community was DUK in the 80s.

With the bond market rallying and the dollar falling Equity prices need to readjust. As we have seen for the past two days buyers are stepping in. We continue to have one foot out the door but this is not just a short covering rally. I go over what stock to look at in greater detail for next week in the video below.

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