Stagflation Shadows, Miners Shine, and a Markets Theory of Everything

Consumer Economy

Retail Sales (RSAFS) $726B +3.7B (+0.51% m/m)
Industrial Production (INDPRO) 104.0 -0.13 (-0.12% m/m)
Producer Price Index (PPIACO) 262.5 +1.88 (+0.72% m/m)
CPI All Urban (CPIAUCSL) 322.13 +0.63 (+0.20% m/m)

Retail Sales rose 0.51% m/m (6% annualized), which is a new all-time high, but it is probably not keeping up with inflation. There was a plunge in May (Trump Tariff Terror?), but things have recovered since then. The chart below shows a 12-month increase of about 4%.  Not exactly “booming”, especially in 2025.

Industrial Production is down slightly from the new all-time high set last month. It’s too soon to say it is topping ou,t but it is not expansionary.  Not “booming.”

While grossly understated CPI rose 0.2% (2.4% annualized) – did I mention it is grossly understated – producer prices (all commodities) jumped 0.72% m/m (8.64% annualized), and if you look at PPI/services (PPIFDS), it rose by 0.96% (11.5% annualized).  Ouch.  PPI-inflation.

The surprisingly low CPI inflation caused a big SPX rally at 08:30 Tuesday (because – rate cuts!), and then the inflationary PPI release caused a brief SPX sell-off (08:30 Thursday), but then SPX recovered.  TLT sold off following both events.

Rising retail sales, slightly declining industrial production, alongside a large increase in PPI, suggest stagflation.

Credit & Rates

Fed Balance Sheet (WALCL) 6.64T +2.8B (+0.04% w/w) (prior -0.03% w/w)
Total Bank Credit (TOTBKCR) 18.63T +17.8B (+0.10% w/w)
30 Year Mortgage Rate (MORTGAGE30US) 6.58% -5 bp w/w
10 Year Treasury (DGS10) 4.32% +5 bp w/w
20 Year ETF (TLT) 86.40 -0.89 (-1.02% w/w)

There was a minor increase on the Fed balance sheet, while bank credit saw a modest expansion (5% annualized).

Both the CPI and the PPI releases caused TLT to sell off – the 10-year rates rose, but not too dramatically. The low CPI release (rate cuts!) caused some dollar-confetti.  Money raced into the short end of the Treasury curve, and away from the long end, especially that 3-month rate, which saw an 11 bp decline.  That suggests “rate cut” plus “all is well”.  If all wasn’t well, I suspect the 10-year (and TLT) would see some inflows (rate declines), but we aren’t there yet.

CME Fedwatch Tool is projecting:
+ Sep 17: One cut: 92%
+ Oct 29: One cut: 97%, Two cuts: 55%
+ Dec 10: