Tuesday morning at 8:30 Eastern, the government is going to hand the market a gift. June CPI is expected to fall to around 3.8 percent from 4.2, with core easing to 2.8. Headlines will say inflation is moderating. Somebody on financial television will use the word encouraging with a straight face.
Here is the problem. That number is a photograph of June. And June was a world where the MOU had just been signed, the Strait of Hormuz was reopening, and oil fell more than twenty percent in a single month. That world no longer exists. The ceasefire is officially dead as of Wednesday, the Strait is a shooting gallery, and Brent is back pushing $78. Tuesday’s CPI measures a peace that already ended.
Keep that thought in your pocket. Everything about this week hangs off it.
Tuesday: The Number at 8:30, The Man at 10
This is the densest morning of the month. CPI drops at 8:30, and ninety minutes later Kevin Warsh sits down in front of the House Financial Services Committee for his first testimony to Congress as Fed Chair. He is back Wednesday for the Senate. This is the semi annual monetary policy report, the same ritual Powell used to perform, except Warsh has made a point of communicating less than any of his predecessors, which makes the words he does say carry more weight, not less.
Warsh himself has described his committee as being in a family fight over whether to hike this year, and the minutes last week showed just how even that fight is, with the committee split nearly down the middle and inflation forecasts revised sharply higher. Markets are currently pricing a quarter point hike as soon as September and roughly two in three odds of at least one hike by year end. This week is also the last window before the blackout period ahead of the July 28 and 29 meeting. Whatever signal the Fed wants you to have before that decision, it arrives in the next five days.
Now put the two events together. A soft CPI at 8:30 followed by Warsh at 10 refusing to take a hike off the table is exactly the sequence that whipsaws every dollar pair and gold in the same session. Expect the algorithms to trade the number and the humans to trade the testimony, and expect those two trades to point in opposite directions.
The Iran Overhang
Since Wednesday in Ankara, the official position of the White House is that the ceasefire is over while talks somehow continue. Iran struck the mediator’s own LNG tanker two weeks into the truce. The US is striking back and has revoked the Iranian oil waiver. The 60 day MOU clock still runs toward mid August, but nobody is pretending the document is holding the peace anymore.
For traders the transmission is mechanical. Every Hormuz headline is an oil headline. Every oil headline is an inflation headline. Every inflation headline moves Fed hike odds, and hike odds are currently running the dollar and running gold. One escalation tweet can reprice the whole complex in minutes, at any hour, on any day. This is not a week to leave positions unattended overnight without stops you actually believe in.
Gold: Trading the Wrong Story, For Now
Gold enters the week around $4,100 after closing Friday at $4,103. The floor everyone is watching remains $4,000, held on every test since November. The ceiling is the descending structure of lower highs that has defined this decline since January.
The uncomfortable near term truth: a hot CPI surprise on Tuesday is probably bearish gold, because the market is trading the rate channel. Higher inflation, higher hike odds, higher yields, gold down. A soft print as expected likely gives gold a modest relief bid. Twisted, yes. That inversion is the defining feature of this market and I wrote about it at length in Friday’s wrap.
But remember what Tuesday’s number actually is. A photograph of June. The oil spike from last week lands in the July data, which prints in August. Supply shock inflation is already in the pipeline and no rate hike reopens a shipping lane. The market has not connected that wire yet. When it does, gold stops trading the rate math and starts trading the purchasing power math, and that is a very different chart. My job, and yours, is to be positioned before the crowd figures out which story is the real one.
The Rest of the Calendar
Tuesday is CPI, Warsh at the House, and the big banks kick off earnings season with JPMorgan, Citi and Wells Fargo. Wednesday brings PPI, the Beige Book, a Bank of Canada decision, Warsh at the Senate, and Goldman results. Thursday is June retail sales, jobless claims and the Philly Fed, plus Bank of America and Morgan Stanley. Friday closes with consumer sentiment and industrial production.
The bank earnings matter more than usual this quarter. If the consumer is cracking under four percent inflation and a soft jobs market, it shows up in credit card delinquencies and loan loss provisions before it shows up anywhere else. Watch what the banks reserve, not what they report.
And keep one eye on retail sales Thursday. The June jobs report was ugly at 57 thousand. If the consumer data confirms a slowdown while oil pushes inflation back up, congratulations, we are officially having the stagflation conversation, and that is the single worst policy corner a central bank can be painted into.
How I Am Trading It
EUR/USD comes in near 1.1400 after failing at 1.1458 Friday. The pair is caught between two hawkish central banks, with the ECB now expected to hike again in September. Above 1.1460 the summer squeeze higher is on. Below 1.1360 the dollar is back in charge. Between those levels I have no interest in forcing anything before Tuesday.
My rules for a week like this do not change, they just matter more. Levels set before the open, not scrambled for at 8:29. News plays that fail to follow through in the same session get closed, no exceptions, because in this tape a stalled breakout is information. And nothing gets held into the weekend with a live shooting war in the Gulf, because Sunday night gaps do not care about your thesis.
The Week Ahead in One Paragraph
CPI Tuesday, expected soft. Warsh Tuesday and Wednesday, expected hawkish. Bank earnings all week, watch the reserves. Retail sales Thursday, watch the consumer. Iran hanging over all of it, able to reprice everything with one headline. Last Fed signal window before the July 29 decision.
And through all of it, remember what that Tuesday number really is. A photograph of a world that no longer exists, a month when the Strait was open and oil was falling. The market will trade the photograph. The inflation that is actually coming is being written in the oil market right now, in real time, in a Strait full of smoke. Trade the windshield, not the rearview mirror. Good luck everyone and be careful.