Blake Young pulled up the Fed Watch tool today. A rate hike at the September 16th meeting now prices in at 71.4% probability.
That number sat at 50/50 a week ago. Yesterday it jumped to 61%. Today it’s 71%.
Crude oil was behind all of it. Today, it’s trading past $100 a barrel.
PPI printed 0.4% month over month, right in line with expectations. Blake zeroed in on a detail nobody headlined. That 0.4% is four times last month’s number after revisions.
Core PPI actually slipped from 0.3 to 0.2. Almost all of the producer inflation traces back to oil and energy.
Oil and energy feed 17% of CPI directly.
Oil added another 10% in the last three days. None of that appears in today’s report.
At minimum, Blake expects next month’s PPI to climb 0.2%. He sees a path toward 1% or even 1.5%.
Bonds are already voting on it. The 10-year note broke its year-long channel yesterday and pushed lower today on heavy volume.
Blake mapped where it lands next. The three-year low sits just underneath, and that level has held as support for two decades.
Clearing it drops price toward 2007 territory. He named that year on purpose. Borrowing costs spiked right before the housing market cracked.
Lenders don’t earn more when yields spike. They earn roughly a 2% spread, so they simply lend less.
That’s why Blake is selling the lenders and rotating into cash-rich consumer staples.
In tonight’s video, Blake walks through every position:
- KRE rejected its three-year high and pulled back. Blake wants to sell premium into a bounce toward 75, then hold bearish positions for the longer term.
- Ally bounced off support with pressure still pointing down. Blake targets 36 for an 18% to 20% decline using long puts or a short stock position.
- Capital One broke its low and gave a bearish Bollinger Band signal. Blake sees 196 and 192 within a month, then 177 for a 15% drop.
- Kroger reports tomorrow morning. The October 55 put pays a 3% return with a 6% safety net, putting the cushion near 53.30.
- Philip Morris bounced today off a widening candle. The 185 put pays 2.6% on risk with a 5.3% cushion, plus a 3% dividend if he gets assigned.
Blake also flagged Procter Gamble as a straight buy signal at these lows. It pays a 3% yield, and he’d rather own that than reach for 3.5% in bonds breaking to three-year lows.
The ECB raised its main refinancing rate from 2.4% to 2.65% today to fight the same inflation. The euro dropped from 116.85 to 116.35 anyway.
The dollar bounced off 99 instead. Blake sees 101 on a confirmed break, which is a sizable move in currencies.
Rates are climbing. The safest money is already moving.
