The keenly awaited US inflation readings will be out tonight 21:30 SG time!
The core Consumer Price Index (CPI) in the US is expected to increase at a whooping annualised rate of 6.9% in November, up from a 6.2% recorded in the previous month.
Why this headline is important is because if it printed this high, it would be the fastest CPI growth rate gain we have seen in the last 31 years!
In fact, many economists, traders, analysts and investors are so worried about inflation, and the higher and more persistent inflation is, the worse it is for the stock market.
Primarily the logic resides in the fact that to combat high inflation, the Fed will have no choice but to curtail the level of money injected into the economy, which has thus far been highly accommodative to the economy and US stock market. Additionally, hiking interest rates (or at least providing a heads up) by the Fed is a classic move taken by the authorities to combat inflation historically.
So what do we know thus far, about what to expect? Joe Biden and his White House administration has been trying to be the complete opposite of his predecessor, Donald Trump, who liked to talk up the stock markets. Joe Biden, if everyone has observed, is completely muted thus far in this regard.
Therefore, if the Biden administration has anything to say about the financial market, it is better to listen, because there is a golden egg behind that closed mouth!
The Biden administration had basically signalled that Friday’s inflation data could be significantly high, and is bracing Americans for another jump in inflation!
The logical thing to do, will actually be to short US equities right? Since if high inflation is expected, surely that is bad for the US stock market as we have previously discussed?
But this is why we think the reverse might actually happen, because you really have to focus on the words within words, which is how traders like to operate.
This is actually what Brian Deese (Biden’s top economic advisor) has to say about inflation, which is what traders will largely focus on after the inflation headline results are released!
Brian Deese touted a drop in unemployment numbers to 1969 levels, a rise in real household income and what he called “encouraging signs” in labor force participation, while cautioning against over-interpreting Friday’s data.
“That data is by definition backward-looking and so it won’t capture some recent price movements, particularly in the areas of energy,” Deese said, citing a nine-cent drop in gasoline prices nationally.
Deese said 20 U.S. states have gasoline prices below the 20-year average, and more states should join their ranks in coming weeks. A “very dramatic decline” in natural gas prices would also help ahead of the winter heating season, he said.
Deese also noted declines in shipping costs and certain commodities, including wheat and pork, as well as a drop in wholesale used car prices that should push consumer prices lower.
Conclusion
In summary, the “highest inflation reading in 31 years” headline news could very well just be a head fake.
In reality, the professional traders, hedge funds and institutional funds may already be looking past current news, and are focusing on looking forward!
In looking forward, the signs are actually suggesting peak inflation is in, and inflation will only come down in the months ahead as Deese has articulated, which may very well be better for the stock market than many are expecting!
VIKI Seminar
11 Dec 2021, 10.00am – 12.00pm @ AlgoMerchant Studio
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Singapore 409051
Please note that all the information contained in this content is intended for illustration and educational purposes only. It does not constitute any financial advice/recommendation to buy/sell any investment products or services.
