There has been a shift in the markets.

  • US yields have seen a move to the downside. The 10 year is now back below the 3.0% level at 2.97%. The high yield reached 3.062% earlier today
  • US stocks have seen the NASDAQ and the S&P erase earlier declines. The NASDAQ index is now up 89.59 points or 0.74% at 12150.52. The price of the index traded as low as 11888.61. The S&P index is up 17.36 points or 0.43% at 4139. It traded as low as 4080.19
  • The US dollar is lower as well. The EURUSD back testing its key 100 hour moving average 1.07048 after trading as low as 1.0651 earlier in the US session. The USDJPY has moved below the midpoint of the day's range and the 200 bar MA on the 5 minute chart. The price is still higher on the day but showing some signs that short term traders are trying to take back some control (see post here).
  • Spot gold is now up $11.50 or 0.63% at $1851.90. It traded as low as $1837.10.
  • Crude oil is kind of an outlier as it was back above $120 at him $120.12. It traded as low as $117.75

Although earlier, the market reacted negatively to the Target news on excess inventories, and the need to lower prices, that type of news could also be deflationary and help break the inflation spiral if it is also an issue for other good suppliers.

Car prices and crude oil remain a headwind however.

For car prices, many buyers put off buying as result of the chip shortage and increasing pricing as a result. Will prices come down in that sector? Already car buyers are stretching out payments in order to afford a car - new or used. However one can argue that if you spending more on a car, you may not be able to afford other goods.

Oil prices going higher is inflationary, but will also slowdown purchasing power for some of the economy. The price of a a gallon of gas in the US is approaching $5 and and its highest level ever.

Housing is another issue that interest rate policy has made a impact according to anecdotal stories.

Strength remains in travel as the pent-up demand to get-away is moving funds into that service sector. What happens when the vacations are over? Do we see a decline in services and goods spending as result of higher payments for cars, oil, housing?

Perhaps the hopes have started to swing in favor of lower inflation and less stringent Fed policy. That will not stop the Fed from hiking rates by 50 basis points at the next 2 meetings as they still are behind the curve in getting back to neutral.

Other central banks (sans the BOJ) are looking to raise rates more toward neutral as well. The Reserve Bank and Australia increase rates by 50 basis points last night - higher than expectations. The ECB is expected to raise rates for the 1st time in July and continued that process into the end of the year.

At some point, there will be a point where the slowing occurs, and inflation does come down. That may be the story driving the market bounce at least for the day.