Two important macro indicators remain intact

Junk-related credit spreads and inflation expectations remain tame and aloft, respectively

Both of these indicators are intact to the inflation that the Fed created and by extension, the widespread speculation that the Fed also created and is trying to shove back in a box currently. As noted back December, the Fed is not directing markets but indicators like these are.

It is not only status unchanged for the risk-on crowd, it’s actually status ‘a little better’ by the credit spread view as junk bonds have not indicated the lurch to more liquid, less risky assets it seems like the Fed is trying to instigate (after it’s 2020 policy instigated market participants into full speculative froth mode). It’s still on the floor. Could freak out tomorrow (ref. 2008 & 2020) or it could amble along indefinitely. But the trend to this point is calm.

credit spreads

Inflation expectations are wobbling with the Fed’s hawkish stance, but remain well elevated as the Fed tries to shove the expectations Genie back in the bottle.

If you think that an amalgam of inflation sentiment bundled into an ETF can create valid chart patterns (I don’t, necessarily) maybe you are a little concerned, if you’re an inflationist, that the ‘Inflation Expectations’ ETF is in a short-term bearish pattern. But if you believe more in trends (I do), then they are still up. A break of the moving average trends could indicate a break of the inflation hysteria.

All the while, it’s ‘Fed hawk’ news in the media as the 30yr yield Continuum (long-term yields tend to rise with inflation as well) implies more upside headroom, should the inflation play continue per the trends of the indicators above. But if the speculation/inflation indicators do resume upward the Fed is not pretending. It has to get that thing back in the bottle by hook or by crook. If the 30yr were to get to 2.5%-plus, you watch how hawkish they get.

The yield hit our initial upside target (that same 2.5%) in H1 2021, signalling the expected emergent hawkish tone from the Fed and now so many months later the Continuum’s EMA limiters have declined to that area, which includes the pattern’s neckline. We call that convergence and what would be a real macro caution zone.

And you wonder why I make fun of the economic eggheads so feverishly trying to remote control the economy and associated financial markets?

The play will see one of two things happen. Either the markets will bow promptly to the Fed’s hawkish stance or what is a more favored view, that the inflation trades will continue to flip the bird to the Fed. Until the macro reaches a breaking point by several possibly convergent indicators.

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