14 May Inflation Transitory?
Retail Sales were flat last month, contradicting all that seems to be believed about the strength of the US economy. This seems to be logical following the massive stimulus checks that were sent out to US tax payers the month prior. Further, the scare of inflation was rebutted by a detailed look into what actually drove the most recent consumer inflation report to highs not seen in decades. Airlines, Sporting Events, Used Cars, Hotels and Personal Computer categories were substantially to blame for the sharp rise. Given that some of these categories went through many months of shutdown, it make sense that as they open back up we will see a sharp jump in usage. When you subtract these 5 categories, the monthly growth rate drops to .3%. Although still high, it is well below the .8% reported overall.
Both stock and bond prices are moving higher in early morning trading. However, bonds are nearing an important ceiling provided by the 25 day moving average. This could prove to be too tough a ceiling to overcome, which would mean bond prices will shortly after fall. If a fall does happen, we will likely see the 50 day moving average be tested once more. It is critical that bonds hold that floor; otherwise, we will see a far more dramatic move higher in mortgage interest rates.
Given the risks associated with the technical picture, we will have a locking bias.