Can You Handle the Drama and Chaos?

Markets are whipping around again today amid swirling geopolitical headlines, as many traders are beginning to become exasperated by all of the drama and chaos. Of course, it is a natural reaction--We are human, after all (well, at least most of us, with exception of the algos). As I write this, we are seeing a late-afternoon squeeze in the Nasdaq in front of tomorrow morning's CPI print. 

On that note, with expectations for year-over-year inflation to come in around 2.9%, it raises some interesting issues as to what, exactly, the market would cheer versus jeer.

Clearly, the White House wants inflation lower. So, a cool print should be cheered, in theory. But, then again, the market may construe a cool inflation print on the CPI as a sign of an economy rapidly deteriorating and headed into recession, as seen by the commentary on the Delta earnings call and stock selloff. And The Fed is still on hold, at least for now, rather than hinting at imminent rate cuts. 

On the other hand, if inflation comes in hot it could mean that the economy is not cratering. However, it will be make Treasury Secretary Bessent's job even more difficult for him to get the long end of the curve down. Thus, the White House will keep focused on austerity, perhaps even raising the stakes to get the job done early in Trump's term. 

Taking this all in, we can surmise that risks are heightened all the way around for tomorrow's CPI, which makes the wild price swings fairly logical, in that respect. 

Interestingly, gold, silver, and their miners continue to act well even when they had a chance to sell off aggressively with risk assets yesterday and earlier today. It is a bit tricky to trade the sector aggressively with the FOMC next week. But I am still interested in them on the long side pending their reaction to tomorrow's CPI.