Your inflation roadmap

How long that higher pricing lasts, could be anywhere from a snowflake in a desert to a hibernating bear?

With bated breath, the investment Universe awaits the arrival of US Inflation data.

The market expectation is 6.5%.

My own view is 6.8%. Does it really matter? Perhaps.

Market participants are largely already positioned for an improvement in the inflation number.

The previous was 7.1%. The degree of the drop from that alarming, to a still alarming, but lower number, will largely determine the degree of immediate response in market pricing. This instantaneous re-pricing will occur across all global financial markets. Such is the understandably real, but also story telling sentiment build up to this one single data release.

When we consider all such data is a mere survey, an approximation or some indication, this is all quite remarkable. People seem to have simplified life to one single data release at a time. Is it up or down on this number? That is how we will trade the relevant market on the day. In this case every market.

We should always be seeking to determine the overall shift occurring the economy for a guide on what should be reasonable pricing in the future of relevant markets.

The markets of the day seem to have lost that nuanced approach however. Having miraculously determined that the inflation number will force a Fed response, and that that response will determine the economy, and therefore earnings, and finally stock prices. It is a very long chain in fact, and one of highly inaccurate and complex sub-relationships. But there you have it. Keep it simple and binary is the nature of the world today.

The financial markets of today, like life in general, take an approach of it is all too hard so let’s come up with a simple rule that we all will follow?

Extremely high inflation, but less so, is apparently a reason to aggressively buy stocks. My, that is a stretch, but here we go.

The world expects and will get a lower inflation number that sees an instant re-pricing higher of stocks. Similarly other markets.

How long that higher pricing lasts could be anywhere from a snowflake in a desert to hibernating bear?

6.8% to 6.5% is bullish to the herd.

6.4% to 6.2% is nothing short of SpaceX moon shot stuff.

6.8% is more of a stunned deer in the headlights.

6.9%+ would generate absolute panic and free-fall.

The actual number is most probably in the 6.4% to 6.8% range. Which provides a range of bullish response from fantastic to slightly. This is where the value add is. At 6.7%, 6.8%, the rally may not last much longer than a few minutes to a few hours. An even lower inflation outcome means a further rally of 1-3 days.

6.9%, and markets begin to fall. 7.0%, they crash.

Have a great day.