Market & Economic Recap
A week of low range moves and closing slightly lower than the previous week. Core consumer price index (CPI) jumps to 5.4%, the biggest gain in 13 years. The major contributors came from housing and used cars/trucks. However, people do NOT buy houses or used vehicles every month, do they? Since spending on housing and vehicles is a one-time event, the surging CPI is not sustainable and will fall quickly once demands are absorbed. This explains why Fed insists that inflation is temporary.
In response to the heating 5.4% CPI, the Fed chair Powell made his congressional testimony assuring that any tightening is a ways off. The Fed continues $120 billion per month in bond buying. Remaining low interest rates favors high tech, so Nasdaq continued with its rally.
Similar to CPI, producer price index (PPI) is on a surge as well, reaching 7.3% year-over-year. This number flashes a warning sign for me. PPI can be treated as overall material costs of all products, and CPI as sale prices. When products have higher costs than sale prices, manufactures’ profits narrow.
Credit Spreads Screening
Standard Volatility settings, due to a week of low range moves. As expected, earnings reports announced during past 10 days largely beat expectations. High tech giants will have their reports coming within the following 10 days: Netflix (NFLX) – Jul 20, 2021; Alphabet – Jul 25, 2021; Amazon – Jul 26, 2021; Apple – Jul 27; Facebook – July 28; Microsoft – Jul 28, 2021. You can resume the credit spreads trading after the release dates.