June consumer price index (CPI) jumped to 2.8% but forward estimates of inflation, represented by the 5-Year breakeven rate (5-year Treasury yield minus TIPS) remain subdued at 2.06%.
Core CPI (excluding food and energy) is at 2.2% while average hourly earnings (total private: production and non-supervisory employees) annual growth, representing underlying inflationary pressure, is higher at 2.7%.
Credit and broad money supply (MZM plus time deposits) growth remain steady, tracking nominal GDP growth at around 5.0%. A spike in credit growth often precedes a similar spike in broad money supply by several quarters.
And a surge in broad money supply growth, ahead of nominal GDP, flagged rising inflationary pressures ahead of the last two recessions, prompting the Fed to step on the brakes.
Overall, the inflation outlook appears subdued, with little urgency to hike interest rates at present.
The market is also getting more comfortable with the idea of trade tariffs. The S&P 500 is testing resistance at 2800. Breakout is likely and would suggest a primary advance to 3000.
The Nasdaq 100 followed through above 7300, confirming the primary advance, with a target of 7700.
This is the final stage of a bull market but there is no sign of it ending. I am wary of the impact of a trade war on individual stocks and have reduced exposure to multinationals that make a sizable percentage of their sales in China.
Financial markets are supposed to swing like a pendulum: They may fluctuate wildly in response to exogenous shocks, but eventually they are supposed to come to rest at an equilibrium point…. Instead, as I told Congress, financial markets behaved more like a wrecking ball, swinging from country to country and knocking over the weaker ones. It is difficult to escape the conclusion that the international financial system itself constituted the main ingredient in the meltdown process.
~ George Soros on the 1997 Asian Financial Crisis and the need for greater regulation of global financial markets