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The annual inflation rate in the US soared to 4.2% in April of 2021 from 2.6% in March and well above market forecasts of 3.6%. It is the highest reading since September of 2008, amid a surge in demand as the economy reopens, soaring commodity prices, supply constraints. There is also a base effect weighing as the coronavirus pandemic dented economic activity bringing the inflation rate to 0.3% in April 2020. The biggest increases were recorded for gasoline (49.6% vs 22.5% in March), fuel oil (37.3% vs 20.2%) and used cars and trucks (21% vs 9.4%). Inflation also accelerated for shelter (2.1% vs 1.7%) and new vehicles (2% vs 1.5%) and rebounded for apparel (1.9% vs -2.5%), but slowed for medical care services (2.2% vs 2.7%) and food (2.4% vs 3.5%). Meanwhile, compared to March, prices rose 0.8%, the most since 2009 while monthly core consumer inflation increased 0.9%, the most since 1996. source: U.S. Bureau of Labor Statistics
Chart of the Day
S&P 500 and Positive Weekly May Expiration Stats
We don’t know for sure, nor does anyone else, what the S&P 500 is going to do next. Is it going up this week or down this week? Is it going to be slower? Is volume going to drop after more than doubling the daily average? The ES has rallied 160 handles from last week’s 4029 low to last night’s 4189 early Globex high.
In terms of the ES’s overall tone, it was ‘extremely’ firm. Every little downtick was bought. In terms of the ES’s overall trade, total volume was lower at 1.4 million contracts.
This week, several big retailers report first-quarter earnings. Target, Walmart Inc., and Macy’s Inc. are among the larger retailers that will update investors on how much consumers are spending this spring and how they are finding workers. My guess is the retailers report strong earnings.
The other part of this is Ned Davis’ S&P cash study for this week’s May options expiration. As you can see the stats are the strongest of the week today, up 26/down 11 of the last 37 occasions and then weaken Tuesday and Wednesday and improve Thursday and Friday. The potential for a rip late this week is strong.
Our view: the ES rallied sharply at the end of last week. It’s due for a pullback. Our lean is to sell a higher open and buy any 20+ point drops. Then come back and try and figure out the last hour.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
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