Stock bulls take a step back as the latest Consumer Price Index indicates the decline in inflation may be slowing. The hotter than expected CPI report now gives many Wall Street bears reason to believe the Fed could make a third-rate hike by this summer.

The CPI showed headline inflation at an annual rate of +6.4%, a slight slowdown from +6.5% in December but above Wall Street expectations. Rising shelter costs accounted for about half the CPI's monthly increase. The shelter component, the largest contributor to CPI, was up +7.9% from a year ago.

Meanwhile, energy and food costs were up +8.7% and +10.1%, respectively. Egg prices alone are up a whopping +70% from last year. The Fed prefers the core inflation gauge that removes volatile energy and food costs but the data makes it clear that super-hot housing prices, along with elevated rents, continue to be one of the biggest drivers of inflation.

There is a significant lag in the CPI's shelter calculations, however, and it does not reflect real-time housing costs that have begun to decline. To account for this, the Fed has been tracking what's known as "super-core" inflation, which is core services inflation minus shelter prices. That rate is running considerably lower at +4% year-over-year, though that's still double the Fed's target of +2%.

Keep in mind, super-core inflation is not how the Fed is measuring overall inflation. They use it mostly as a way to track "sticky" inflation trends in an effort to determine where inflation is going and how fast. Though declining housing costs should begin to show up later this year, bears argue that inflation in other areas is likely to keep high prices underpinned. Dallas Fed President Lorie Logan on Tuesday warned that she is concerned about higher commodity inflation as China reopens from its Covid lockdowns.

Logan also believes the strong US labor market as another risk. Food prices could certainly remain elevated as the war in Ukraine continues and with Russia again threatening to abandon the Black Sea grain deal that has allowed the flow of critical agricultural exports.

Crops around the globe are also at risk from current weather trends, particularly drought, while the ongoing bird flu pandemic obviously threatens egg and poultry supplies. We also can't forget the change in weather patterns from La Niña to El Niño that is expected this year and could create a whole new range of threats to global food supples. South and Central America are particularly strongly influenced by El Niño.

Bottom line, it remains challenging to determine where the end point might be for the Fed's hiking campaign and so long as that remains a moving target, it will likely be tough for bulls to gain any meaningful traction.

Bulls are hoping economic data today might provide more positive proof that the US economy is indeed slowing. Retail Sales, Empire State Manufacturing, Industrial Production, Business Inventories, and the Housing Market Index are all due out this morning.

On the earnings front, American Water Works, Analog Devices, Biogen, Cisco, Invitation Homes, Kraft Heinz, Marathon Oil, Roblox, Shopify, Southern Copper, and Zillow are the highlights.

I continue to question the current bull rally... For what it's worth, I have heard several large architecture firms in big cities are starting to lay more people off as projects start to be put on the backburner as ground is not being broken. My experience in the past is when the architect firms start laying people off, count to 10-Mississippi, and a few months later we are seeing construction and service sector layoffs and sliding deeper into a recession.

Top Inflation Gauge Followed by Fed Looks Rosier in the Thorny CPI Report: If there was any good news in this week's CPI, the so-called "supercore inflation" barely rose. Supercore inflation refers to the rate of inflation in the services sector after stripping out energy and housing costs. It’s arguably the most important inflation gauge to Federal Reserve Chairman Jerome Powell, whose decisions could make or break the U.S. economy. Supercore inflation rose a scant 0.2% in January, the third such low reading in the last four months, based on calculations by Haver Analytics. What’s more, the yearly rate of increase in supercore inflation slowed again to 6.1% last month from a 22-year high of 6.7% in September. This number is important as it reflects the Fed’s biggest worry is that a recent surge in worker pay due to an extremely tight labor market will exacerbate inflation or make it harder to slow down. Source Marketwatch

Russian Warships Armed With Nuclear Weapons Deployed, First Time in Three Decades: Warships in the Russian navy's Northern Fleet have been deployed with tactical nuclear weapons, the Norwegian Intelligence Service said in a report released Monday. The intelligence agency noted the presence of the weapons on the vessels in its annual report. It is believed that this is the first time in 30 years the fleet has gone to sea with nuclear weapons on board. Norway's intelligence went on to describe the "particularly serious threat" that Russia's tactical nuclear weapons pose to NATO countries. The Soviet Union's Northern Fleet warships often went to sea equipped with nuclear weapons during the Cold War, Politico reported. But the latest development reportedly marks the first time the Russian Federation has deployed ships with nuclear weapons. Norway's report also detailed the increased importance of nuclear weapons for Russia now that the nation's defense budget is set to increase by 34% in 2023 Source Newsweek

Where Are Those Who Are Leaving CA, NY, and IL Going, What Areas Are Hot? Recent U.S. Census data underscore a shift from the biggest cities as more people are leaving California, New York, and Illinois. The exodus is real as California lost nearly -350,000 residents in 2022, and New York lost about -300,000, while Illinois saw more than -140,000 go elsewhere, per Census numbers. So where did everyone move to... Florida and Texas, saw large gains in population, with Florida adding an eye-popping +444,484 residents and Texas adding +470,708. Other population winners include North Carolina +99,796, South Carolina +84,030, Tennessee +81,646, and Georgia +81,406. The median price for single-family homes in the U.S. dropped by -$19,400 in the last three months of 2022, although prices for the year were up +4% overall, new data reveals. While home-price growth decreased, prices were still elevated in 90% of the 186 metro areas examined by the National Association of Realtors (NAR). Of those, almost a fifth had double-digit price increases, primarily in the South. Here’s a look at the top 15 hottest markets in the U.S. right now, in terms of price growth in 2022: Source CNBC

Elon Musk Says It's Highly Likely Man will Go to Mars Within 10 Years: Elon Musk has once again said that it's "highly likely" man will go to Mars within 10 years, putting his timeframe down to the fact he's "congenitally optimistic." Musk retweeted a video posted by his aerospace firm SpaceX showing a successful test fire of its Starship prototype's booster rocket and commenting that one day, Starship will take us to Mars. At its full capacity, Starship is the most powerful rocket ever developed. According to SpaceX's website, it will carry both crew and cargo to Earth orbit, the Moon, Mars and beyond. In 2020, he shared his vision of building a city of one million people on Mars by 2050, saying he hoped to build 1,000 Starships and launch an average of three a day so that anybody can make the trip to Mars. In an interview with TED Conference president Chris Anderson last year, however, Musk warned that life on Mars won't be luxurious. The sales pitch for going to Mars is, 'It's dangerous, it's cramped. You might not make it back. It's difficult, it's hard work Source Business Insider

Ford Halts Production and Shipments of F-150 Lightning Due to Potential Battery Issue: Ford spokeswoman Emma Bergg declined to disclose details of the possible battery issue, which is being investigated after a vehicle displayed a potential problem as part of the automaker’s pre-delivery quality inspections. The stop-shipment order and halt in production was issued at the beginning of last week, according to Bergg. It adds to ongoing “execution issues” detailed to investors earlier this month by Ford CEO Jim Farley that crippled the automaker’s fourth-quarter earnings. Ford has not established a timeline for when production and the shipments will resume, according to Bergg. There is no stop-sale for vehicles already on dealer lots, meaning dealers can continue to sell vehicles they have on hand. The F-150 Lightning is being closely watched by investors, as it’s the first mainstream electric pickup truck on the market and a major launch for Ford. Separate from the F-150 Lightning downtime, production of the traditional F-150 pickup trucks will also be down one shift Wednesday, Ford confirmed Tuesday. The production shift, as well as one for the company’s Transit vans, will be canceled to allow workers at the company’s Kansas City Assembly plant to attend the Super Bowl celebration for the Kansas City Chiefs. Source CNBC

Subway Confirms It Is Seeking Buyers: Subway’s shareholders are exploring a possible sale of the closely held sandwich chain, confirming an earlier report in The Wall Street Journal. The company said Tuesday that JPMorgan Chase & Co. is serving as an adviser as it looks for potential buyers, although it has no assurance of whether or when a sale might occur. The announcement follows the Journal’s report last month that Subway had retained advisers for a potential sale that could value the company at more than $10 billion. The company had about 37,000 sandwich shops worldwide as of 2021. About 21,000 of those were in the U.S. and netted $9.4 billion in sales that year. Subway is the largest restaurant chain by U.S. locations, a title it gained by aggressively building new locations. But sales have declined over the past decade after peaking at $18 billion in 2012. Source WSJ

Asia Will Account for Half the World's Energy Demand by 2025: In the year 2025, countries in Asia will use half of the electricity in the world. According to the International Energy Agency, Asia's share of global electricity consumption has been rising quickly from just around a quarter in the year 2000. China is the biggest factor in this transformation. While in 2000, it used just 10 percent of the world's energy, that share is predicted to be up to 33 percent in 2025. While Chinese population growth has now reversed, a rising standard of living is still driving rising electricity demand, for example in air conditioning. Other large countries in Asia are expected to be growing in population until the second half of the current century, meaning even more demand for electricity. Asia has been increasing its use of renewable electricity sources but, in part because of its giant demand, also relies on coal-fired electricity in many places. China, for example, has hugely grown both electricity sources in tandem. Source Statistica

American Drivers Have a Blinding Headlight Problem: Drivers in the US say they're routinely getting blinded by surrounding cars' headlights. This isn't because headlight regulations have shifted — they haven't changed in decades, according to Greg Brannon, AAA's director of automotive engineering. But the lights themselves have. According to experts, there are three primary factors that have shifted in the past few decades that caused headlights to appear brighter and cause more glare. First off, vehicles, especially in the US, are getting taller and taller. Adding to that, the color of many headlights has shifted from a warmer, yellow hue to a harsher, blue-white one. And finally, most cars have at least one headlight that's misaligned. This isn't a new problem, but other shifts have made it into a serious issue. There is a solution, called "adaptive driving beam headlights," but it's still years away and it isn't mandatory that automakers adopt the new headlight guidelines offered by the government. Source Insider

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