New York, NY, InfraCap Market Update - CPI printed slightly hot at .36% vs. Expectations of .30%. The higher-than-expected number was driven by medical care services up .6% vs. -.1% last month and by a huge 1.7% move in vehicle maintenance and a 2.6% increase in vehicle insurance. Shelter remained elevated at .4% which continues to overstate inflation.
We continue to believe that the overly rigid Fed will not cut rates until July and believe that the ECB and other global central banks will cut in June which should cause the dollar to strengthen dramatically. A stronger dollar is likely to bring down energy prices and overall inflation as energy inflation bleeds through to core at a rate of approximately 5%. In addition, white hot vehicle-related inflation is likely to cool off over the next couple of months, and, eventually, the massively lagged shelter component will reflect the deflation reflected in real-time market prices of rents. These dynamics should cause core PCE to cool slightly over the next 3 months before the July Fed meeting and give the Fed adequate reason to cut in July.
We expect earnings this quarter to be strong reflecting a very strong US economy, which should cause the stock market to stabilize with summer rate cuts from global central banks likely to cause a summer rally.