• CPI was hot…how hot will PPI be today?
• Earnings have begun…BLK beats (no surprise) while JPM misses slightly but sees trading revs surge amongst the chaos
• Oil up 8.5% in 3 days…now trading at $102/barrel and going higher
• Bitcoin fails to hold $40k….is $35k next?
• Try the Farfalle w/Sausage, Peas, Tomatoes and Cream

Inflation accelerated to 8.5% – levels not seen in 40 yrs.….

The CPI (Consumer Price Index) comes in HOT….CPI m/m coming in at 1.2% up from 0.8% but when you stripped out food and energy (why they strip out food and energy is the first question) – then CPI m/m only rose by 0.3% – vs. the expectation of 0.5% – so you say – ok..that’s better…..but when you look at the CPI y/y – the top line came in at 8.5% – up from 7.9% and when you strip out food and energy – it was up 6.5% – vs last month’s 6.4%….so you say – that’s not better….…..and you would be right….so yes, it is HOT yet the administration is trying hard to downplay it.  The other data points we got were Real Avg Hourly Earnings y/y and they were down 2.7% and Avg Weekly Earnings y/y were down 3.6%……..  So – hourly and weekly earnings are going down while consumer prices are going up…Sounds like this is moving in the WRONG direction.

Now – the initial reaction in the markets was for the algo’s to try and take stocks higher – considering that stocks have gotten slammed here in the past couple of weeks….….and that kind of made some sense…since they were focusing on the lower ‘core’ number of 0.3%. So, a swift move higher led by bargain hunters and aided by massive, short covering only sent the indexes up the moment the opening bell rang…. the reasoning being that this small decline suggests that the worst is over…– causing some analysts to suggest that today’s inflation data indicates that we are peaking or at least near the peak (a very premature argument)…..– what became clear is that – CPI is not only HOT but is likely to remain so in the months ahead – bolstering the argument for a hawkish fed…..and stocks began to weaken….finding their lows at about 3:30 pm before ending the day just off those lows.  As the 4 pm bell rang – we found the Dow down 90 pts or 0.3%, the S&P off 15 pts or 0.4%, the Nasdaq down 40 pts or 0.3%.  Both the Russell and Transports managed to end the day slightly higher – with the Russell up 7 pts or 0.3% and the Transports up 31 pts or 0.2%.

In addition we heard from 2 Fed officials – Jimmy B (St. Louis) who is always vocal and always a hawk and said that the Fed must move rates to 3% by yr. end (this is not a new statement by him) and he was joined by Richmond’s Tommy Barkin – now we don’t usually hear that much from Tommy so, like Lael Brainard, when he speaks up – people listen…and he spoke up – saying that the FED should quickly raise interest rates to a level where borrowing costs NO longer stimulate the economy AND should raise them further if high inflation persists……That’s fairly aggressive – and just to be clear and Tommy is a voting member of the FOMC (Fed Open Market Committee) – so he does have a vote in policy and it sounds like you know how he is going to vote.

[Just a quickie here…there are 7 Federal Reserve Governors and 12 Federal Reserve Presidents plus the Chair – so a total of 20 people at the FED.  The FOMC (Fed Open Market Committee) – a subcommittee of the FED – consists of the 7 governors and 5 of the 12 presidents for a total of 12 voting FOMC members. (The presidential spots rotate every year on a rolling basis – which gives everyone a shot at a policy vote at some point]

Now what is comical here is that the FED is now in a position to fight a fight that THEY created….They left rates too low for too long – feeding the inflation monster and now as a result of their policy they are charged with trying to tamp it down, by raising rates….sounds kind of conflicted to me, but it is what it is….So sit back and watch as they move to raise rates by 50 bps at the next 4 meetings…getting us to 3% by year end….a rate that is higher than they originally predicted but one that is now the norm.

10 yr. treasuries are yielding 2.74% this morning after teasing 2.85% yesterday as some traders pared back their expectations on how aggressive the FED will be (again I think that is premature)…..But watch out – because today we are getting wholesale prices – the PPI (Producer Price Index) and that is expected to show prices rising by 10.6% y/y and if you strip out food and energy – it is up 8.4% – again – rates not seen in 40 yrs. so the argument is expected to remain on the front burner.

Yesterday Oil surged by more than 7% taking WTI (West Texas Intermediate) to $101/barrel…..up 8.5% in 3 days….and this morning oil is up another 1%  at $102/barrel as the supply story continues to suggest tightening…..after Vlad vows to fight until he wipes Ukraine off the face of the earth….Remember – two days ago – OPEC warned of tightening supplies due to the inability to replace lost Russian oil anytime soon and the release of reserves from the SPR (Strategic Petroleum Reserve) doing little to calm markets.

We are now above all 3 trendlines – suggesting that a challenge of the March highs of $120/barrel are within sight.

On a side note – Joey announced that he will allow ‘high-ethanol’ E15 gas to be sold this summer in an effort to lower prices at the pump while also paying big political dividends to farm states. (Ethanol is made from corn).   What is interesting here is that ‘high-ethanol’ E15 gasoline contributes to MORE air pollution, climate change and global warming…. but those issues are not important right now to the Dems – funny how that works…. especially with the mid-term election only months away. Just sayin’….

The VIX – remains a bit elevated at 23.75.  Watch how it reacts once we get the PPI report at 8:30. A surge higher will suggest fear while a pullback will suggest a bit of complacency.

Today is also the official beginning of the beauty pageant…. Earnings season – and we already heard from Delta – they missed while Blackrock handily BEAT the estimate reporting $9.52/sh vs. the expected $8.80/sh.  Recall my comments about BLK last week.  Next up is JPM – what did Jamie report…. $2.63 vs. $2.69 – Top line Revenues beat, while Jamie tells us that he sees significant geo-political and economic challenges ahead…. but consumer balance sheets remain at healthy levels, and he authorizes a $30 billion share buyback plan effective May 1.  And while Russia could cost him $1 billion dollars the volatility created by the crisis helped trading revenues surge to $3.06 bil vs. the estimate of $2.56 billion….and that is a theme we are sure to see as the week progresses and we get reports from GS, C, WFC, MS, etc….

This morning – US futures are up…. The Dow futures now up 165 pts, the S&P’s up 21, the Nasdaq up 85 pts and the Russell is ahead by 14 pts….It once again feels like a short term bounce after the recent weakness – no matter what the PPI report says…because if it comes in at 10.6% as expected – then they will argue that it wasn’t a surprise and that it’s all priced in and that stocks are short term oversold…and that the economy can handle the interest rate increases blah, blah, blah…..

European markets are mixed….UK inflation running at 7% – fed by soaring food and energy prices…. the ECB is set to announce a policy decision tomorrow – what will they say?  All eyes on today’s PPI report and what that will cause the Fed to do next.

Bitcoin has broken $40k again and is trading at $39,500 while Ethereum is struggling to hold onto $3k.  And while they should not trade in tandem with stocks they will react to a more aggressive FED…..Bitcoin is now below all 3 trendlines and a test of the February lows ($35,000) is not out of the question……Ethereum is sitting right on the trendline….a fail here will see that also test lower…..maybe $2500…..

The S&P closed at 4397 – failing to break up and thru resistance which is now 4430.  Expect to test it this morning….as the S&Ps are up 25 pts right now…. Again, we might get a bit of bounce today…. but the path of least resistance feels lower….so patience is a virtue.

Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Farfalle w/Sausage, Peas, Tomato & Cream

This makes you feel like you are in Nonna’s house… comfort food – read on.

For this you need: Farfalle Pasta, Vidalia onion, can of plum tomatoes, garlic, s&p, heavy cream, frozen peas and sweet Italian sausage (out of the casing) and some white wine.

Heat olive oil in a pot… add crushed garlic and one diced onion (Vidalia if you can get it). Sauté until soft and sweet, next add the sausage meat – which you have removed from the casing – until brown. Next add 2 cups of dry white wine and let the alcohol burn off… open 28 oz. can of plum tomatoes and rough crush – so that it is a bit lumpy.  Add to the sausage and let simmer for 20 mins… season with s&p…

Now add 1 cup plus a little more of heavy cream (you can use lite cream if you prefer – but heavy cream gives it a richer taste). Let simmer until thickens… only about 4 or 5 mins…. Now add in the frozen peas… stir and simmer.

In a separate pot bring salted water to a boil and add pasta – cook until aldente – 8 / 10 mins… strain – reserving a mugful of the pasta water… Add the pasta directly into the sauce and stir – making sure to coat well. Add a handful or two of parmegiana cheese and mix. If it looks like it needs some more liquid, add a bit of the pasta water to moisten. Serve immediately – offering more grated cheese to your guests.

It does not get any better than this…

Buon Appetito.