Core CPI

Confused where all the inflation that the Fed is either unable, or simply refuses to measure, is hiding? The answer: right under your roof.

European shares remain higher, close to intraday highs, with the autos and travel & leisure sectors outperforming and basic resources, utilities underperforming. Meeting of finance officials to reach a deal over Greek aid ended in frustration, forcing leaders to call for an emergency summit for Monday. ECB plans to hold an emergency session of its Governing Council on Friday to discuss a deterioration in liquidity at Greek banks, three people familiar said. German airwave auction raises $5.7b to top 2010 sale. Bank of Japan leaves monetary policy unchanged as forecast. Shanghai Composite Index capped its worst weekly decline in seven years.

In conclusion: another month in which the Fed's trillions in reserves end up almost entirely in the stock market and NYC penthouses, with little trickling down into clothes and other "core" items, even as beef prices and asking rent hit record highs month after month.

With a small possibility that later today the Fed may hike rates for the first time in nearly a decade, and if not today then in 65 days (per the Bank of America countdown to the repeat of the "Ghost of 1937") at the September 17 meeting on which consensus has congregated as the historic rate hike day, there is one particular chart that if not readers, then certainly the Fed, should focus on: the near historic difference between the two primary inflation measures, core CPI and the Fed's preferred, core PCE which is now at the lowest level since the financial crisis.

Over the weekend, we first reported that none other than Nobel prize winner Robert Shiller said that in his opinion, unlike 1929, this time everything - stocks, bonds and housing - was overvalued. Curiously, none other than Goldman's chief equity strategist, David Kostin echoed this sentiment when in his latest weekly note to clients he said that "by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us."

When the "very serious people" start to admit that the entire house of cards was held together with nothing but bullshit and propaganda, it may be a time to panic...

The euro-19 area is now close to having a 100% debt to GDP ratio, and that’s flattered by German surpluses from an export boom that is rapidly cooling, and the fact the for a few quarters Mario’s printing press has conferred huge interest rate subsidies on their depleted fiscal accounts. The pending Graccident will puncture that illusion, tipping most of Europe into acute fiscal crisis and political upheaval of the type that has already roiled Greece and was starkly evident in Spain’s elections last weekend. The odds that the European superstate and the ECB’s Keynesian monetary regime will survive the resulting upheaval are, thankfully, somewhere between slim and none.

With US markets closed for the Memorial Day holiday, and some of the key European markets likewise shuttered for public holiday including the UK, Germany and Switzerland, it is difficult to find where one can observe or trade the weekend's newsflow, which is once again centered on developments in Europe, where on Sunday Spanish Prime Minister Mariano Rajoy’s People’s Party suffered its worst result in a municipal election in 24 years while Greece continues to threaten with default 5 some years after it should have officially pulled the plug.

It looks like US dollar's two-month downside correction ended.  Is the bull market resuming?

Traders looking to get an early start on the holiday weekend will have to wait a bit longer today, as Janet Yellen is set to speak to a sold-out audience at the Providence, Rhode Island Chamber of Commerce’s Economic Outlook Luncheon today.... *YELLEN SAYS RATE RISE AT SOME POINT THIS YEAR IS APPROPRIATE

For the past three years, the biggest argument supporters of Obamacare would trot out every single time when faced with opposition to the mandatory tax, would be that despite widespread predictions of soaring prices, US medical care service costs had remained low and even, on occasion, declined.  All that changed moments ago when core US inflation finally spiked the most since 2013 driven by a 0.7% monthly surge in medical care service costs: the highest since 2007!

The market appears to have chosen the hotter-than-expected Core CPI print (as opposed to weakest headline CPI YoY print since Oct 2009 of -0.2%) as key. Core CPI rose 0.3% MoM in April - the most since March 2006; and 1.8% YoY - the most since Jan 2013. The biggest driver of the surge in consumer prices is medical care costs - which rose 0.7% - the biggest increase since January 2007 (thanks Obamacare).

"The Q1 US GDP data was a major disappointment to the market as business investment declined due to the intensifying US profits recession. Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire. The US economy is struggling and the Fed will ultimately re-engage the QE spigot. Talk is growing that China will soon be doing the same as local authorities struggle to issue debt. But this week we want to focus on Japan, having just made my fist visit to that fine nation for over a decade! Japan, the third largest economy in the world, is also in trouble (see chart below) and will soon be increasing its off-the-scale QE programme to an out-of-this-world QE programme." - Albert Edwards

A look at the next week's events that could impact the global capital markets.

"If the BoJ persists with its current pace of JGB purchases, then the incentive for investors to reduce their holdings any further is likely to dwindle away within the next 18–24 months, at which point liquidity may evaporate altogether," Morgan Stanley says, calling liquidity the "major theme" in the JGB market. Meanwhile, a former MoF official claims the BoJ is now in so far over its head that an exit from stimulus is "out of the question."