Let’s take a look at some indicators that can come together to let us know when the next inflationary bout is in the offing.
The spread between 10yr and 2yr yields (the most commonly watched yield spread/curve) is still steepening on the short-term. Live chart available here.
What’s more, it is doing this against a short-term bounce in yields (my TBT positions appreciate that) and that would be an inflationary indication. Not a trend, an early indication.
Indeed, the Continuum is once again climbing above the key 2.2% level.*
TIP/TLT and TIP/IEF, commonly thought of as inflation expectations gauges, are bouncing but not yet on a trend change to inflationary. Daily chart…
As Industrial Metals continue to bounce vs. Gold and Palladium continues to bull against Gold (as of yesterday; the chart would be even more constructive if updated as of today). As with the charts above, the signal is preliminary, however, as the major trends in Copper & Industrial Metals vs. Gold are still down.
Here is a curious one. The ratio of Canada’s speculative index vs. its senior index tends to go in line with US inflation expectations.
Yet the ratio is burrowing to new lows. Either the inflation bounce is going to fail or there are going to be some washout bull trades showing up out there in Canada’s speculative patch.
Finally, the Silver/Gold ratio holds its constructive stance on a daily chart. As Silver has more cyclical commodity-like characteristics than Gold, it would indicate toward inflation by rising.
The problem being that the larger trend (monthly chart) has not been turned up yet.
Bottom Line
Cyclical markets are rallying today and a happy presidential tweet explains why.
But if indeed the two super economic powers kiss and make up, cyclical inflationary forces gather, our positive readings on the leading Semiconductor sector prove to be real as they were in 2013, the negatives gathering in US manufacturing dissipate (which could be aided by a weaker US dollar, which itself could be instigated by a dovish Fed should it decide to go that route) the macro would transition inflationary.
Unfortunately, with the trade hype as fresh as ever the indications are not yet definitive. But a road map is in place.
* Unlike the thesis put forth in this post, I am not necessarily expecting a “great” inflation, if it materializes. A simple rise to the Continuum’s monthly EMA 100 (limiter) would do the trick.
Check back to see my next post!
Best,
Gary Tanashian
nftrh.com
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Trump is changing his mind about China and trades? Why? Because he's in hot water? Trying to right things up to make himself look better for the elections. I hope it's too late for him because this is just one of his tricks to get the majority of the public back on his side. Please don't believe this guy, he's nothing but a crook. he's stealing from the poor and giving to the rich.
Ruben, thanks for your opinion but you are deadly wrong. Perhaps, look at the people who come to see him (you cannot find it on CNN or MSNBC).
And stop hating rich. They give you the job, paying the biggest taxes and supply our Treasury, they create innovative products (including in the field of medicine) that rich and poor use every day. The unemployment is the lowest in 50 years. Open your eyes and mind and don't blindly believe in everything you see on TV.