Uncertainty brought out the bears yesterday as the market braces for the impacts of a hot inflation reading and the possible impacts of another China lockdown.  Bond yields continue to increase, adding selling pressure to the tech sector, with the DIA, SPY, QQQ, and IWM pushing below their 50-day averages.  Can we continue to ignore the impacts of rising rates and insidious tax of rapidly rising inflation on the consumer?  We will soon find out but prepare for some wild price volatility that may include head fakes, whipsaws, and reversals as the market reacts. 

Asian markets closed mixed as investors tried to measure the impacts of another widespread lockdown in China.   European markets see red across the board as a significant undisclosed investor sells German banks tanking Deutsche bank by 9.5%.  With a light day of earnings and pending CPI reading, the U.S. futures point to a flat open in the premarket, but anything is possible after the number comes out.  So, prepare for just about anything.

Economic Calendar

Earnings Calendar

We have 15 companies listed on the earnings calendar, most of them unconfirmed.  Notable reports include ACI & KMX.

News & Technicals’

Economists expect inflation to rise 1.1% in March from the prior month, but the year-over-year gain is 8.4%, the highest since December 1981.  The consumer price index will be reported Tuesday at 8:30 a.m. ET.  The main culprits behind the jump in headline inflation were food and energy, but the cost of housing has continued to rise.  “It’s going to be ugly,” said one economist of the March report.  “It’s a perfect storm.”  Japan’s health ministry said Monday that the new XE variant, first detected in the U.K., was found in a woman in her 30s who arrived at Narita Airport.  The XE subvariant is a so-called recombinant, or mix, of two earlier omicron strains, BA.1 and BA.2.  According to the latest statistics from the U.K, one hundred twenty-five cases of XE have been detected in the U.K., almost double the previous count.  Health Security Agency.  President Joe Biden is visiting corn-rich Iowa on Tuesday to announce he’ll suspend a federal rule preventing the sale of higher ethanol blend gasoline this summer as his administration tries to tamp down prices at the pump that have spiked during Russia’s war with Ukraine.  The Environmental Protection Agency will issue an emergency waiver to allow the widespread sale of 15% ethanol blend, usually prohibited between June 1 and Sept. 15 because of concerns that it adds to smog in high temperatures.  Senior Biden administration officials said the move would save drivers an average of 10 cents per gallon at 2,300 gas stations.  Members of Congress from both parties, as well as industry groups, had urged Biden to grant the E15 waiver.  Treasury Yields continued to rise in early Tuesday trading, with the 10-year trading up to 2.8250% and the 30-year slightly higher at 2.8353%.

A rapidly rising infection rate in China and fears of a hot inflation reading pushing bond yields higher kept the bears active on Monday, fearing economic impacts.  Add in the intensifying war in Ukraine, and uncertainty ruled the day though the fear registered by the VIX remained relatively modest.  This morning, investors will turn attention to the CPI, which could come in at levels not seen since 1981.  Overall the market has had an amazing ability to ignore the impacts of inflation, but the Fed, now willing to sacrifice market growth to fight rising costs, adds a new wrinkle for investors.  As a result, anything is possible, and traders will have to stay focused on price action with the possibility of intraday whipsaws or full-on reversals as the uncertainty unfolds.  So, fasten those seatbelts tightly as it could be a bumpy ride!

Trade Wisely,

Doug