Hey There Income Hunter,

 

Volatility fueled by the Federal Reserve and the fear of missing out (FOMO) will be a recurring theme this year as the market continues to price in more rate hikes each week.

 

Yesterday’s rise in interest rates was due to continued tough talk by Fed chairman Jerome Powell for weeks … 

 

And the insane reaction led to the market pricing in a fourth 50 basis point (.5%) point rate hike out in September! 

 

Then, Japanese financial holding company Nomura (Ticker: NMR) announced expectations of 75 basis point increases in June and July.

 

Know this: 150 basis points in two months would trigger a total economic collapse not seen since 2008.

 

It’s unclear what Nomura based this prediction on, but the economic signposts show earnings, manufacturing and consumer spending slowdown – and the Fed hasn’t even raised rates 50 basis points yet.

 

Today we’ll take a look at the critical data to watch so you can get an edge on when the Fed will have to flip back to quantitative easing. That will trigger a massive stagflation move back into stocks and commodities.

 

Get prepped to profit.

 

Early Release

 

Before we get going, here’s a handy schedule of next week’s data releases …

 

 

Take a Hike

 

First let’s take a look at the current pricing of rate hikes.

 

Notice the graph below showing just shy of 10 rate hikes priced in after Powell's speech Thursday at the International Monetary Fund (IMF) conference … 

 

That is four rate hikes more than the number right after the last rate hike.

 

It’s almost as if there is a complete disregard for what rate hikes will do to the financial system and the economy …

 

Let’s look at real data for signs of economic weakness heading into the May 4th FOMC meeting …

 

Gross Domestic Product (GDP) 

 

The Atlanta Fed puts out an objective – hard to believe, I know – nowcast of GDP that includes forward-looking economic data like advanced manufacturing indicators and consumer and purchasing manager surveys.

 

The Atlanta Fed’s latest nowcast for Q1 2022 GDP is 1%. One percent would be half the GDP recorded prior to COVID … 

 

 

The initial estimate of GDP comes out on April 28. It will be a reality check for how much the Fed can tighten throughout the year.

 

Consumer Surveys 

 

The Organization of Economic Cooperation and Development releases two forward looking consumer surveys. The include:

 

• The University of Michigan: Consumer sentiment index
• OECD Consumer Opinion Survey

 

These are critical signposts for future economic activity because the consumer accounts for two thirds of economic activity as measured by the GDP.  

 

Here are the current consumer confidence trends

 

Consumers are also bearing the brunt of inflation, but the problem is they are also burdened by very high debt levels. So raising interest rates will only make it harder for them to spend because their interest costs on their debt will rise. 

 

Note: The consumer surveys are released on the last Tuesday of the month 

 

Inflation Indicators

 

We certainly know from listening to Powell that inflation is all the Fed can focus on right now … Price stability has been one of the central bank’s mandates since its inception in 1913. (The other is full employment.)

 

The two reports to follow for indications of inflation trends are:

 

• Consumer Price Index (CPI), which comes out the second week of the month. The next one is May 11, the week after the FOMC (May 4).
• Personal Consumption Expenditures (PCE), released by the Bureau of Economic Analysis (BEA). PCE comes out the last week of the month and the next report is April 29. 

Employment Report

Finally, as noted, the Fed’s other mandate is full employment. That has not been hard to meet in the past few years because the participation rate has declined so the rate is naturally lower historically.

 

Nevertheless, it is a critical input for the Fed so a must to pay attention to.

 

 

The employment report comes out the first Friday of every month. The next report is Friday May 6. 

 

Bring It Home

 

These next two months are absolutely critical for new information on financial conditions and economic reports. 

 

These signposts will determine whether the Fed will come close to the tightening now priced into the market or whether they waited too long and the economy and inflation are out of their control.

 

The bottom line is this … Probabilities of past performance favor that the market has gotten too far ahead of itself and the Fed will make a mistake by tightening too far into an economic slowdown … 

 

They will then have to shift back to QE and the market will scramble to get back on the side of stagflation, which is very good for the precious metals, energy and the utility sectors. 

 

Have a great weekend and as always …

 

Live and Trade With Passion My Friend,

Griff