INFLATION, CRB, Oil Cycle and Rates

[drbubb]

OIL & CRB Prices since 2022 - the Big Slowdown since June

TYX, etc. 3.895% at July.13th

Ratio: TYX-to-CRB : 38.95/ 270.74= R-14.4%. ( /xx = R-xx%)

From +30% yr-on-yr, to -10% in March.      ... FX-10d

End.Month:   Prev.  : Latest : change
USO/ Oil
Dec’21-22: $ 54.36: $ 70.11: +29.0%
Jan’22-23: $ 62.48: $69.32: +10.9%
Feb’22-23:  $67.48: $ 67.21: - 0.40%
Mar22-23:  $74.12:  ?67.21?: - 9.32%
YE>March: +36.4% - 4.14%
CRB/ Comms
Dec’21-22: $ 19.53: $24.83: +34.0%
Jan’22-23: $ 21.44: $24.16: + 12.7%
Feb’22-23:  $22.67: $22.84: +0.75%
Mar22-23:  $25.42: ?22.84? -10.15%
YE>March: +30.2% - 8.82%
=======

For the U.S., I expect FEB inflation to show a slowdown From JAN.  And then MAR. inflation, announced in April, may be a surprise at how Low it is; based on the Year-year comparisons.
Could it be negative?
Probably not, but we may see overall inflation slide quickly towards (or thru) the 2% target in the months to come. There are lag effects, so the inflation may not come down as quickly as the chart and raw numbers suggest.

Gap of TYX (over Unleaded) has stayed wide...

UNL/ Unleaded Gasoline. '21: Nov'21: Ytd: 10d/: $2.658,-39% v.Yr.H: $4.326

CRB.it/ Comm.RB Idx. 1/'21: 7/'21: YTD: 10d/: $22.84,-22.4% Yr.H: $29.52. 2.28.23

 

[drbubb]

Possible Island reversal in TLT today.

The Chance to buy TLT below $100.00 may be Gone?

Needs to trade above the gap down (xx) All day, friday

RATES COMING DOWN HARD in Friday's pre-market...
 2yr:  4.859% - 0.045
10yr: 4.006% - 0.056  
30yr: 3.939% - 0.057
Meantime:
TLT: 100.57 +1.09 (Pre-mkt. GAP Up!)
Gold : $1.847 +$11

FALSE PROPHETS?  
CNBC: ProEl-Erian says the Fed should go back to raising interest rates more aggressively

Mad Money's Jim Cramer warns that interest rates won’t peak until these 3 things happen

[drbubb]

A MAJOR TWIST, more inversion of the Curve, after Powell's latest remarks...

Name	Price Change	Yield
U.S. 1 Month Treasury Bill	0.0325	4.6979%
U.S. 3 Month Treasury Bill	0.055	4.917%
U.S. 6 Month Treasury Bill	0.073	5.204%
U.S. 1 Year Treasury Bill	0.0675	5.1838%
U.S. 3 Year Treasury Note	-0.0460	4.6743%
U.S. 5 Year Treasury Note	-0.0480	4.2866%
U.S. 7 Year Treasury Note	-0.0240	4.1573%
U.S. 10 Year Treasury Note	0.0100	3.9607%
U.S. 30 Year Treasury Bond	0.1580	3.8707%

=== and Later...

U.S. 30Yr Treasury: ^% 3.879 -0.021

Watchlist

Last Updated: Mar 7, 2023 11:24 a.m. EST

NEWS headline follows...

 

2-year Treasury yield ... jumps to highest since 2007 as Powell hints Fed may need to increase

[drbubb]

Yield Curve: 2yr vs. 10yr, 30yr, ... update: 10d: 30y: 3.878 -2y: 5.037 = -1.159%

TNX . 10 year Rate .... update: 10d: 39.76 / 10= 3.976% ... 2y: BX:TMUBMUSD02Y

MARCH RATE HIKE ODDS: 

According to the CME's FedWatch, the probability of a more aggressive rate hike of 50-BPS has increased since yesterday from 70.5% to 79.4% today, diminishing the  probability of a 25-BPS hike from 29.5% to 20.6%.

However, Powell stressed the fact that the Federal Reserve will not make any final decision about the size of a potential interest rate hike until data from Friday's jobs report and next Tuesday's CPI report have been released.   

/ > see: https://www.kitco.com/commentaries/2023-03-08/Powell-addresses-House-stressing-data-dependency-before-making-decisions.html?sitetype=fullsite

[drbubb]

"SURPRISE" DROP in INFLATION may be coming

I am still optimistic about Bond yields falling ; TLT / Bonds rising into May-June

Why? 

Because year-to-year comparisons on CRB/inflation will go negative starting

in April when Mar'23 vs. Apr'22 numbers come out.  You can see in the chart below that the CRB index (252d/ 1 yr. MA) peaked in mid-Feb.23 at about 26.

 

CRB.it / Commodity Research Bureau chart... ( update )

 

CRB index is mostly Energy and Agricultural commodities.  It peaked in mid-Feb.  And now year-on year comparisons will be negative.  Surely, this can have a big impact on global inflation rates, albeit with a lag.  And maybe with a longer lag in PHL.  The CRB in March, the latest month of 2023, will be about -10% below last year's level. So in annual average, the calculation will be replacing high month(s) in the 12 month's average with cheaper months in 2023 as we roll into mid-2023.  I look for "surprise" drops in reported inflation figures.  ( Haha. It may be NO surprise for those who have seen this chart.). I may be proven wrong about sliding General Inflation, if the Non-commodity component of inflation remains stubbornly higher - Nevermond, This Data  and this post will remain on my website, so you can see in hindsight how the call work outs.  Along with my previous comments, of course, to see how accurate and consistent I have been in my forecasts.

 

TYX / 30 Yr. Treasury Yield vs. CRB and XLE / Oil stock etf ( update )

 

However, the POSITIVE TREND WON'T PERSIST FOREVER.  After mid-year, the 12 month's inflation numbers may stop falling, and start rising again.  With the Fed given some leeway to CUT rates if inflation is less than forecast, I expect a "surprise" stock rally into May-June.  And then maybe a stock CRASH in the second half, because the "virtuous" comparisons may turn negative after mid-year.  There may be a nasty stock slide in Q3 or Q4.

 

BTW, History has shown a Global correlation in interest rates.   PHL 10 year rates, have tended to ride about 250-300 b.p. above the US 30 year Bond rate.  So long as the Philippines inflation rates tend to move in a similar trend with US and global inflation trends, I would expect to see the Correlation with US bond yields to continue, albeit with PHL rates at a fairly consistent premium.

 

[drbubb]

MY VIEW seems to be contrary to the Consensus View... in the Philippines

Higher interest rates to come to fight sticky inflation!

Summer months but wintry news

BY Diwa C. Guinigundo Mar 30, 2023

...

This year’s growth target of 6-7 percent and 6.5-8 percent in 2024 as well as the latest inflation forecasts of the BSP of 6 percent and 2.9 percent for the next two years must also hinge on the expected turnout of the weather this year and the next.

"Needless to say, this year’s growth target of 6-7 percent and 6.5-8 percent in 2024 as well as the latest inflation forecasts of the BSP of 6 percent and 2.9 percent for the next two years must also hinge on the expected turnout of the weather this year and the next. Admitting that “the balance of risks to the inflation outlook for 2023 and 2024 also continue to tilt heavily towards the upside,” the Board in its press statement last Thursday highlighted the impact of food supply shortages, higher transport fares, rising power rates and wage adjustments in 2023. A more explicit recognition of bad weather conditions could help prepare the public’s inflation expectations"

... The other wild card against growth and inflation is the risk of power interruption. With the summer months fast approaching, energy demand is expected to rise.

https://mb.com.ph/2023/3/30/article-298

[drbubb]

OPPORTUNITIES IN COMMERCIAL PROPERTY (Or too early)

The Next Stage Of The Banking Crisis, Commercial Real Estate

 

Rafael Mariscal. 4 hours ago

Many reits that specialize in commercial lending and properties are already down 30% to 50% from their recent highs. stwd and bxmt for example have had a huge drop in share price yet they are still growing their revenue. The fear in the sector is going to create some very good opportunities though somewhat risky. During the 2008 financial crisis BAC lost almost 90% of its stock value but eventually recovered completely. I imagine there will be similar opportunities.

xx

[drbubb]

STOCK MELT-UP AHEAD?  

If we are going to see a Melt-up in stocks, it begins NOW!  But No Gtee!

 

[drbubb]

CRB could be bottoming:  Last: 22.465 +0.245 ( Range: 21.515 to 29.52 )

[drbubb]

== TLT/ Bonds and TYX/ Long Bond yields are mirror images

Black and Blue lines are mirror images.  Blue TLT= US Treasury BondsBonds are GOING UP.  Rates down

CRB Historical chart - Lower inflation ahead?, starting Reports in April

CRB vs. TYX (10x 30yr TBond Yield: 3.59%) and XLE (Oil stocks: 84.98) :

CRB: 22.15 -0.10, Yr.Range: 21.515 to 29.52... now driving Long term Rates Lower?

[drbubb]

INFLATION DATA Coming Soon...

CPI Release: Mar. 2023 Release:  Apr. 12th, 2023, 8:30 am

What is the CPI prediction for March 2023?

Inflation Prediction as of March 2023 ---- Headline Inflation Headed to 3.3% Come Midsummer. INFLATION Forecast: The annual CPI total reported each month is a combined string of 12 months of data, think of it as being 12 dominoes, a new one comes on, and the oldest one drops off.

 

( compare with TNote, TBonds Yields: 2yr: 4.0%, 10yr: 3.42%. 30yr: 3.63% )

 

TYX / 30 yr: rate vs. CRB, US$ etf: Last: 3.63%

[drbubb]

CPI inflation was reported at 5%. Lower, but not a big surprise, w/ Core Rising

TIME  : NEWS....

03:09 U.S. oil prices log highest finish this year on signs of slowing inflation and potential SPR refill MarketWatch

02:58 Treasury I-Bond Rate Could Fall in May Due to Lower Inflation Barron's Online

02:57 U.S. budget deficit hits $1.1 trillion in first half of fiscal year, Treasury says MarketWatch

02:54 U.S. stock market ‘pretty expensive’ as investors parse inflation report in choppy trade MarketWatch

I bonds need to be held for 12 months, and holders lose a quarter’s interest if they redeem the bonds within five years. They mature in 30 years but can be redeemed before then. Semiannual interest is added to the principal value of the bond and compounds over the life of the bond. This differs from Treasury notes and bonds, which make cash interest payments. It’s a favorable feature because it eliminates interest reinvestment risk.

 

[drbubb]

Cross-Currents :

[drbubb]

TLT (104.10, 2.75% yield) has dropped > TIP (109.34, 5.55%), LTPZ (60.75, 6.63%)

From 2021:

[drbubb]

TYX, etc. 3.68% at end-April

[drbubb]

MARKETS could shoot UP if inflation comes down.

"Inflation is what this crisis has been about". 

Liquidity Cycle At A Key Turning Point That Will Now Push Markets Higher? | Michael Howell.     

 

TYX-etc : tue close: 38.48 +0.13

[drbubb]

CPI Inflation Eased... 5.0% > 4.9%, but under the surface is more encouraging...

:

April’s increase was driven by housing costs, which economists expect to cool in the coming months. Gasoline and used-car prices also rose last month.

Wednesday’s report makes it easier for the Fed to pause rate increases because it showed price pressures aren’t worsening and might soon be slowing. The Fed has aggressively raised rates for more than a year to try to tame inflation by slowing economic activity. The central bank is looking to see signs of inflation declining toward its 2% target.

LOOK at the Chart on the Right above...

When the High JUNE figure (+1.19% in one month) comes off the board, ie. is not included in 12 months numbers, the Yearly inflation numbers should show a big improvement.  We are are already in a downwards shift for Raw commodity prices, but there is a LAG factor going into consumer CPI numbers. Now I can see more clearly where that is.

> https://www.wsj.com/articles/us-inflation-april-2023-consumer-price-index-48f0eac5?mod=djemalertNEWS

[drbubb]

Slowing prices rises have set up TLT/ Bonds for a breakout over $109... :$105.15 +1.10 (tmf $8.49)

Latest: PPI near 0.2% replaces > 1.0%

PPI:

"The producer price index, which measures the cost of of goods and other items for companies, gained 2.3% year over year in April, a tick below estimates and below March’s 2.7% gain. That, on its own, is a positive signal. With lower cost increases, companies are less incentivized to lift selling prices.

“The PPI numbers solidly confirmed that inflation is in the rear-view mirror,” wrote Peter Essele, head of portfolio management for Commonwealth Financial Network."

[drbubb]

Received this chart in an email - Suggests a Bond Rally to me

[drbubb]

TYX / 30 year rates, have squirted top to a level (4.0%) I find surprising, in relation to sliding CRB. 

Probably a reflection of stress from the Debt Ceiling debates, that I see the GOP winning/

 

[drbubb]

FOLLOW the Bouncing Ball... Time to Buy Bonds?

TMF, update: 7.50 +0.15. +2.0%

Bellwether PHM / Pulte could be "toppy" at $70

[drbubb]

[drbubb]

BONDS Awaiting breakout, as Inflation continues to ease:

TLT: 103.33 +1.02 Range: 91.85 to 120.69

Viber comment:

"Look closely at the Charts, friends... I see a possible Head & Shoulders on the 2yr US Treasury chart. A drop in US rates could help lower PHL rates... And that could Rates REIT share prices."

Yield Curve: 2yr: 4.754% -TYX/ 30yr (3.821%) = Neg. 0.933%

Head & Shoulders? on the 2-Yr Yield? Big drop next?

TYX / 30Yr Yield (3.82%) vs. CRB (20.64)= R 18.5% ... update

Ratio pinpoints turns: 38.21 /263.0= R:14.5%; 3.821%/20.64 = R:18.5%

[drbubb]

Inflation rose just 0.2% in June, less than expected

Published Wed, Jul 12 2023

Key Points

• The consumer price index rose 0.2% in June and was up 3% from a year ago, the lowest level since March 2021.
• Excluding food and energy, core CPI increased 0.2% and 4.8%, respectively.

Stripping out volatile food and energy prices, core CPI rose 4.8% from a year ago and 0.2% on a monthly basis. Consensus estimates expected respective increases of 5% and 0.3%. The annual rate was the lowest since October 2021.

> https://www.cnbc.com/2023/07/12/inflation-rose-just-0point2percent-in-june-less-than-expected-as-consumers-get-a-break-from-price-increases.html

===

The INFLATION REPORT Brought Good news.

Why it might not Last.

July 13, 2023 at 6:48 a.m.

The slowest inflation in more than two years is undoubtedly good news.

The 3% annual rate of price increases in June was even lower than economists had expected. It keeps alive the thesis that the Federal Reserve may soon be able to stop increasing interest rates, as well as the idea of “immaculate disinflation”—in which inflation cools without the need for a recession or a spike in unemployment.

Of course, it doesn’t really change expectations for a quarter-point Fed hike on July 26. But it does make a follow-up hike on Sept. 20 less likely.

Given inflation’s rapid retreat from its 9.1% peak a year ago, it’s worth asking why Fed Chairman Jerome Powell said just last month that he doesn’t expect it to return all the way to the 2% target until 2025.

For one thing, core inflation remains elevated–the drop in the headline inflation rate is mainly due to the retreat of prices for things such as food and energy that were very high a year ago. Over the next few months, those effects will wear off.

More generally, one good data point doesn’t mean inflation has been conquered. We’re not going back to the low-inflation, low interest-rate world we lived in before the Covid-19 pandemic. As J.P. Morgan Asset Management wrote in its mid-year investment outlook, the world has moved from one of abundance to scarcity, be that in money supply, energy, or labor.

Make no mistake, interest rates aren’t going to come down as quickly as they rose...

> more: https://www.marketwatch.com/articles/what-to-know-today-fc7ede?siteid=bigcharts&dist=bigcharts

[drbubb]

TLT / Bonds Rising: Oct.22: 1/22: Jan.20: Ytd: 10d: 101.89 +1.06

From Jan.22:

from Jan.20:

==