Hi Folks.

Before I get to this week's forecast, a quick word about last Monday. I mentioned in last week's forecast that things were setting up for a big selloff, based on the previous price action on Thursday and Friday, and that we could be on the cusp of that major correction we've been waiting for for 20 years or so (I don't count the 2020 selloff since it was 6 weeks down, 6 weeks back up and then business as usual...I mean a serious correction that takes a few years to work through).

So Monday comes, the bottom falls out of the market and I look like someone with a actual working crystal ball.

For 24 hours.

Then Tuesday rolls around, the market pumps the brakes, and before you can ask "what the hell just happened?" everything was all better again.

Theories abound why we saw this quick down-n-back selloff. And they are all wrong, in my opinion.

I think what we saw was the financial equivalent to the market putting a knife to Jerome Powell's neck and saying "That's a nice economy you have here. Shame if something bad happened to it."

The market really really really wants lower interest rates, and Powell really really really doesn't want to start cutting just yet because he knows how inflation really works (and if you haven't heard this before, here it is: in every economy where inflation rose above 5% for 9 months or more, it takes approximately 8 years to work it back out of the economy and get interest rates back to normal).

Cut too soon, the market slams into overdrive and heats up like a pair of jumper cables at a Mojave Desert picnic, causing interest rates to skyrocket and putting the Fed (and the rest of us, by default) in an even worse position than where we were when inflation was at 8.3%.

The market does not care. They want a rate cut and are willing to crash the market just before the election in order to get it (at least that was the threat they just made).

But if that spurs higher inflation it means the debt service we have to pay on the national debt will also skyrocket, and we honestly can't afford to keep paying it even when rates are low. Consistently high rates could put us in a position where our only option is to default on the bonds (just like most other 3rd world countries).

So the next Fed meeting is on September 18th. You might want to pay attention to this one. It could be monumental.

Now on to the forecast.

MONDAY: Second Monday in a row we actually have news. Or at least, we might have news. A floater calling itself the Cleveland Fed Inflation Expectations. If I've seen this report before I honestly don't remember it. It's a q/q report and my charts won't let me go back 3 months so I have no idea if this report had any impact previously (but I seriously doubt it). All previous reports (5 of them) came out at 9:45 a.m. eastern. Maybe this one will too. But I doubt it will matter. Fed Budget Balance comes out at 2 p.m. (I didn't know we still bothered drawing up bedgets...no one in Washington follows one, so what's the point?)

TUESDAY: Oddball Tuesday as we have PPI numbers at 8:30. Typically we get CPI first and the market spazzes out over it, then PPI comes in the next day to little or no fanfare. But we saw this happen a few months back and the PPI actually generated some real price action (it helped that the number missed significantly). The CPI the next day was active, but not like what we see when the release dates are reversed. Oh, and Bostic from the Fed speaks at 1:15 about who knows what. Just be here for the PPI at 8:30 and again at 9:30 when the Indices open.

WEDNESDAY: If you read Tuesday's forecast, this will come as no shock: CPI at 8:30 (Core, m/m and y/y). If yesterday's number hit the target we might not have seen a lot of price action, which means if this number misses we might still see something worth trading. It all hinges on how the market reacted to the PPI 24 hours ago. Crude Oil at 10:30.

THURSDAY: I've been dragging my feet on doing today's forecast, and if you've looked at the calendar you probably know why. 14 entries on the calendar today for the USD. We kick off at 8:30 with Retail Sales (Core and Overall), Unemployment numbers for the week, Empire State AND Philly Fed Manufacturing Indexes, and Import Prices. Retail Sales usually doesn't cause much of a ruckus, nor does Unemployment, unless the latter comes in around 250k first time claimants, which happened a couple of weeks back and scared the hell out of the market. The Manufacturing Indexes have been bad for the most part for a long time, but the Philly number has been the best of the bad lot, clocking in above Zero most months lately. The Empire number has been mired below zero for months now. And no one cares about Import prices, so don't even bother looking at that one. Just the sheer mass of 8:30 numbers might move prices around enough to make it worth trading at 8:30. Two Fed clowns speak today: Musalem at 9:10 and Harker at 1:10. Can't do anything with either of those. Capacity Utilization Rate and Industrial Production at 9:15 (normally a yawner) Business Inventories and the NAHB Housing Market Index (more yawns) at 10:00. Mortgage Delinquencies is a floater and thus can be safely ignored. NatGas at 10:30 and TIC Long Term Purchases at 4 p.m. Nothing is worth trading at 4 p.m. on a Thursday and after the day we've likely had already probably a good time to be not trading.

FRIDAY: 8:30 brings Housing Starts and Building Permits which are kind of important these days since we allegedly have more people in country than we have housing for. But the market rarely acknowledges either of these numbers when they drop. At 10 we have the UofM Preliminary Consumer Sentiment and Inflation Expectations numbers. Occasionally these two numbers fuel at least a little price action, but it has never been consistent.

Back next week.

Jeff