Mandatory Action Verbs

“Nobody actually has a very good handle on where near-term inflation prints will land, and it’s thrown everyone off their game,” one managing partner at a New York-based hedge fund told Bloomberg, for a piece published over the weekend.

The financial pages are sure to be dominated (littered?) by more inflation headlines this week, but the data stateside is relatively sparse. There’s plenty to chew on if you’re a housing market aficionado, though. And because housing is germane (to say the least) to both the inflation story and various “bubble” narratives, new data will be parsed for whatever can be extracted.

Speaking of laborious extraction efforts, the Fed minutes are due. The usual fruitless efforts at tasseography should prove especially futile. The CPI print means the minutes are far past their use-by date. Usually, they’re just stale. This time, they’re antiquated. If anything, they’ll be fodder for derisive chirping from finance-focused social media — Twitter’s legions of day-traders masquerading as PMs will get to juxtapose passages about price pressures with the CPI numbers. They’ll post memes and retweet each other while giggling away a Wednesday afternoon they can’t get back.

The Empire and Philly Fed surveys are on deck too — it’ll be all about the color on prices and the read-through for margins.

You might suggest that Friday’s University of Michigan sentiment survey encapsulated the current dilemma in the US. “In the week ahead, the Treasury market will continue to digest the recent series of fundamental inputs that are best characterized as choppy crosscurrents,” BMO’s Ian Lyngen and Ben Jeffery wrote. “We’ll argue the essence of the competing macro narratives is well represented in the University of Michigan survey results – higher inflation is undermining sentiment,” they added.

Read more: Inflation Expectations Skyrocket, Knee-Capping Sentiment

Equities will look to rebound from what counted as a “bad” week. “Choppy” or “confused” are probably the better adjectives. It was hardly a “crash” and stocks didn’t really “plunge,” contrary to the mandatory action verbs editors compel journalists to use at financial outlets.

Note that stocks rarely “fall,” in the media. They “crash” all the time, though. Equities are almost never “down” for journalists. But they “plunge” every other week. (It’s ironic: Modern market structure is turning that silly exercise in hyperbole into a reality, as stocks do tend to swing from “crash down” to “crash up” scenarios depending on the setup.)

Obviously, multiples are still wildly elevated, especially in the US. But earnings are robust. Whether stocks can “grow into” their valuations is an open question.

Positioning came off a bit last week, both for discretionary investors and the systematic universe (figures, below, from Deutsche Bank).

This week’s marquee data will come from China, where officials are walking the usual tightrope between deleveraging and guarding against the kind of destabilizing unwinds that can accompany broad-based de-risking campaigns.

Credit growth slowed materially in April as Beijing attempts to rein in speculation. Officials are also grappling with the country’s role in surging prices globally. April activity data will likely show China’s recovery on solid ground, although, as has been the case for the last two months, the numbers remain very difficult to parse due to the comp with last year.

Writing Friday, Goldman boosted their core PCE inflation forecasts to reflect the vagaries of the incoming data in the US. The bank now sees core peaking at 2.8% this month and ending 2021 at 2.25%.

After that, though, the bank expects things to calm down. “But while uncertainty about the timing and magnitude of reopening effects has increased from already-high levels, the implications for core inflation in 2022 and beyond haven’t changed nearly as much,” Spencer Hill said. Goldman upped their year-end 2022 core PCE forecast to 2.1% — all the way from 2.0%.