CPI Data Reignites Fears of Inflation and Market Risks

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Commentary

  • Summary Analysis: Anyone who subscribes to TechnicallyMacro.com’s weekly SPY Report should not be surprised by the current market correction of which I have been forewarning. Today’s CPI data reignited fears of inflation and its economic ramifications. Truth be told, this market has been overbought and technically overextended on decelerating momentum. Now we are witnessing early signs of capitulation. This is healthy and creates the ideal environment for a relief rally. On another positive note, the Eurozone provided further confirmation of improvement in the global economy by raising its GDP estimates to 4.3% vs previous forecasts @ 3.8%.
  • Equities:
    • US Markets: Key support levels at the 50-day moving average have failed for all the major indexes and the Nasdaq-100 (QQQ) and Russell-2000 (IWM) are suffering the worst of it.
    • Leading Sectors: Energy (XLE); Consumer Staples (XLP); and Healthcare (XLV).
    • Lagging Sectors: Consumer Discretionary (XLY); Technology (XLK); and Materials (XLB).
    • Int’l Markets: Weakness in Latin America 40 (ILF); Brazil (EWZ); and Japan (EWJ).
    • Volatility: VIX (VXX) exploded +17.45% to make a new YTD high and break the resistance of its downtrend it initated in Mar-2020. Week-to-date, it has gained +31.72%.
  • Large-Cap Volume Surgers:
    • Array Technologies (ARRY): -46.05% on 1048% volume surge
    • Lemonade (;MND): -18.52% on 361% volume surge
    • Nortonlifelock Inc (NLOK): +7.19% on 314% volume surge
    • Upstart Holdings (UPST) +2.66% on 292% volume surge
    • Hanesbrands Inc (HBI) -2.70% on 178% volume surge
  • Small-Cap Volume Surgers:
    • Sonus Inc (SONO): -9.69% on 200% volume surge
    • 3D Systems Corp (DDD) -12.53% on 195% volume surge
    • Peabody Energy (BTU): +2.45% on 112% volume surge
    • Two Harbors Invt Corp (TWO): -1.30% on 102% volume surge
  • Market Moving Events:
    • Economy/ Inflation: Apr-2021 CPI y/y (Consumer Price Inflation) @ 4.2% vs estimates @ 3.6% and prior @ 2.6%; and CPI m/m @ 0.8% vs estimates @ 0.2% and prior @ 0.6%. Core CPI (ex-food & energy) y/y @ 3.0% vs estimates @ 2.3% and prior @ 1.6%; and Core CPI m/m @ 0.9% vs estimates @ 0.3% and prior @ 0.3%. The above data needs to be considered in the context of year/year comparisons to an economy abruptly shut down due to the pandemic. However, the strong monthly gains do and should raise eyebrows as more time and data will be needed to determine if it merely reflects the transitory inflation side effects of monetary stimulus and vaccine coordination being implemented to induce economic recovery.
    • Central Banks / US: Fed Vice Chair Clarida responded hawkishly to today’s unexpectedly higher CPI data by stating that the Fed “would not hesitate to act” if necessary to bring inflation down to its target levels. (Let’s see how the bond market takes this over the next few weeks. Look for the 10-year treasury note to cross above the 2% yield.)
    • Commodities / Energy: EIA US weekly Crude Oil Inventories @ -0.427mm vs estimates @ -2.817mm and prior @ 7.990mm.
    • Fiscal Status / US Treasury: The Federal Budget Balance for Apr-2021 reflected a deficit @ -226.0bn vs estimates @ -349bn and prior @ -660.0bn.
    • Earnings / Positive Surprises: n/a.
    • Earnings / Negative Surprises: n/a.
  • Bond Rates: The 10-Year Treasury yield closed @ 1.69 (+0.07bps / +4.32%). The 20-Yr+ Treasury ETF (TLT) has declined -2.61% week-to-date and is testing double bottom support levels established in Dec-2019 and Mar-2021.
  • Currencies: As mentioned yesterday, the latest CPI data proved to be a catalyst for interest rates and the US Dollar (UUP) which significantly outperformed the Euro (FXE) and Yen (FXY) today.
  • Cryptocurrencies: Consolidation in Grayscale Bitcoin (GBTC) continues and it has ceded -10.47% week-to-date while maintaining support levels established in Feb-2021. The uptrends for Ethereum (ETHE) and Litecoin (LTCN) remain intact but face resistance and respectively have gained +5.79% and +7.92% week-to-date.
  • Commodities: The advance in Gold (GLD) has paused but is still bullish. US Oil (USO) incrementally advances and prepares to test resistance @ the Apr-2020 highs.
  • Real Estate: This asset class is also succumbing to profit taking. Real Estate Index (IYR) has initiated a key bearish reversal and the Homebuilders ETF (ITB) is challenged by soaring prices for building materials under supply constraints, most especially lumber prices. In terms of relative strength, Residential (REZ) is the strongest but testing support at the lower range of its bullish channel and vulnerable.

ETF Daily Market Performance Summary: 12-May-2021

etf daily market summary for stocks, bonds, currencies, cryptocurrencies, commodities, real estate, and equity sectors
Click to enlarge

Market Diary: 12-May-2021

market diary summary for NYSE and Nasdaq exchanges: advancers, decliners, new highs and new lows, plus mega-cap market breadth
(Click table to enlarge)

Covid19 Global Status Update: Deaths and Death Ratios

For a different insight, today’s update looks at the top 3 countries within various continents in terms of deaths and death ratios. Fortunately, with the exception of India, most of the countries listed are improving with lower infection rates. India, a global hotspot, remains the exception. However, it also has one of the lowest death ratios due to its disproportionately large youthful population. (Technically, Oceania is mentioned only because it is a region, but the impacts of Covid have been remarkably neglible.)

CountryCountryDeathsDeath Ratio
North AmericaMexico219,5909.26%
North AmericaUSA597,7851.78%
North AmericaCanada24,7661.90%
EuropeUK127,6402.87%
EuropeItaly123,5442.99%
EuropeRussia114,7232.33%
AsiaIndia258,3511.09%
AsiaIran75,9342.80%
AsiaIndonesia47,6172.76%
South AmericaBrazil428,2562.79%
South AmericaColombia79,2612.60%
South AmericaArgentina68,8072.14%
AfricaSouth Africa54,9683.43%
AfricaEgypt14,0915.85%
AfricaTunisia11,6373.59%
OceaniaAustralia9103.04%
OceaniaFrench Polynesia1410.75%
OceaniaPapua New Guinea1331.00%

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