No respite to inflation fears in sight

Abraham George Macro View

The Fed is notoriously famous for changing their narrative. Their skills are mainly geared towards fire fighting. At the moment, they are very adamant that the inflation fears are temporary and transitory. I think we have come to a point where we cannot trust the Fed fully. Last Friday, the April inflation report showed the biggest monthly percentage point jump on record.

We are seeing inflation running at a pace we haven’t seen for at least forty years. But this is just the beginning. Wait until the May data will start to roll in. The price of crude oil alone rose 13%.

What’s a key contributor to the inflation picture? It’s OIL! The Fed will never admit it. But they always have a history of acting when oil moves, because material adjustments in oil prices matter whether up or down. Currently we are having a material adjustment in prices and that’s up. Oil has almost touched $ 70 and it has much more to go up.

OPEC responded with a gradual production increase. Considering the demand that is ahead, their actions will be cosmetic. Their actions will not be able to compensate the globally coordinated clean energy revolution. The path for oil in the current environment is only higher.

Speaking of other data, the ISM manufacturing report for May picks up from the April data. Supply shortages, labor shortages, overwhelming demand and rising input prices continue to rise. It should be no surprise that the price index has expanded for the last 12 consecutive months.

Equities

Over the last five trading days the S&P has closed within a tight 12 to 13 point range. This sideways trading could be a pause that can lead to more higher levels or it signals an exhaustive move as it happens in an upward correction. Sentiment such as the CBOE put/call ratio, indicates the next major move could be to the downside.

A decline below 4156 from the close of May 21 would be the first indication that we could have seen the high at 4234 the intraday high on Jun 01. Until then both scenarios are possible.

Bonds

There is no change to the bond markets from the last report .

Euro

As long as the low at 1.2132 holds the Euro could be set to challenge 1.2350.

Gold

Gold is caught between a 100 point range. A move below 1850 will reignite the bearish outlook while a move above 1950 to 1965 will force the bullish structure to be played out.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.