Market Update Preview
Inflation continues to heat up, the April CPI came in at 3.8% annual, beating expectations. That matters a lot in this framework, because the model has been telling us late-cycle CPI surprises are the marker that the long chain of price hikes needed to defend balance-sheet expansion is finally working through the system. Today's print isn't a one-off. I think it kicks off a trend of hotter-than-expected inflation reads through the summer, with oil, the Iran supply shock, and lingering tariff effects all stacking on top of each other.
Equities sold off on the print, then bounced and held. Rates pushed higher, with the 10-year continuing the climb — and I want to walk through why rates are doing what they're doing even with the Trump administration jawboning the Fed. This is the late-cycle market function I've been watching for, and it's holding so far.
The bigger picture: in nominal terms flows are actually re-accelerating into summer, but in real terms the deficit impulse is deteriorating fast. There's a tension here that resolves one of two ways by end of summer, and the bank credit data is doing something that needs explaining. Full breakdown below, including why I'm still not looking to short and what the actual inflection point would have to look like.
(Note: Below is a summary of the Market Update Video for 05/12/2026, click here to watch the video update)