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"If the Fed gets any more hawkish (beyond 4 hikes), it will risk inverting the curve," writes Hedgeye CEO Keith McCullough. "The short-end of the US Treasury curve is clearly staring at a pending rate hike this week whereas the long-end of the curve is seeing inflation expectations roll over from their YTD highs."
Last week's February CPI report was a critical moment for our call on Reflation's Rollover. Here's the raw data:
- Headline CPI accelerated to 2.21% YoY in FEB from 2.1% in JAN;
- Core CPI was unchanged in FEB for the third consecutive month at 1.8% YoY;
- Core Services CPI was unchanged in FEB at 2.6% YoY;
- Core Goods CPI accelerated to -0.5% YoY in FEB from -0.7% in JAN;
- Breadth: Breadth – from a Rate of change perspective – still modestly negative (with less than 50% of the subcomponents registering a sequential acceleration)
- Energy CPI accelerated to 7.7% YoY in FEB from 5.5% in JAN; trending sideways
- Supports: Energy, Car Prices, Apparel, Wireless Services and Core Goods all rate of change better and supporting the headline
- Drags: Shelter, Food and medical decelerating with Core Services still doing a whole lotta nothing.
In other words, Core CPI is stuck at 1.8% and not breaking out.
Meanwhile, the Energy CPI component was up. But we’ve seen a selloff in Natural Gas and WTI. WTI is now making a series of lower highs whereas, in February, we saw fits and starts of WTI going back up again.
Translation: The March CPI reading might not be so kind to Fed hawks.
