I Cannot Lead You Into Battle.
I Do Not Give You Laws or Administer Justice.
But I Can Do Something Else:
I Can Give You My Heart and My Devotion To These Old Islands.
And To All The Peoples of Our Brotherhood of Nations.
Queen Elizabeth II
21 April 1926 - 08 September 2022
Markets are beginning to position for Tuesday's release of the August inflation report.
It should come in weaker, which would be a positive catalyst for stocks. For reasons why this inflation report should be soft, let's revisit my Macro Perspectives note from 01 Sep 22 - Did August Form an Inflation Top?...
“This gas price input has been a huge predictor of the month-over-month CPI number for much of the year.
We looked at this in July, ahead of the June inflation data - gas prices had exploded 11% higher, and CPI came in scorching hot (+1.3% monthly change).
We saw the opposite in the July data - gas prices were down 7%, and the monthly change in CPI was flat.
So, what did gas prices do in August?
The Energy Information Administration (EIA) does a weekly survey of gas stations across the country - those survey results show a fall in gas prices of 12% in August.”
So with a big drop in August gas prices, the inflation data should be soft. In fact, as I said in this August note, "if it weren't for the clues on rising food prices (for the month), I'd say this August number could even be negative."
To be sure, these Tuesday numbers will be a huge driver in the Fed's decision on rates, which will come a week later (21 Sept). A soft August inflation number could give the Fed the cover to raise by 50 basis points, rather than 75. That would be a positive surprise for markets (i.e. stocks higher).