July fifteenth, two thousand twenty-five
《Timing and Tempo》
“Investing: Fast and Slow”
Preface: In Thinking, Fast and Slow, Daniel Kahneman divides human cognition into two systems: fast thinking and slow thinking. The former is intuitive and automatic, operating quickly, but is often vulnerable to cognitive biases that lead to errors; the latter emphasizes rational analysis, requires deliberate engagement, and consumes more cognitive resources. The brain tends to process problems with the least energy expenditure, so 97% decisions are dominated by fast thinking rather than careful evaluation and verification...
After the U.S. June CPI results were released, The first news reports and institutional commentaries concluded that inflation was “below expectations.” Soon afterward, pricing reversed, and the market used real money to reject all the fast-thinking judgments：Within 30 minutes, nearly all major assets—the dollar index, the U.S. dollar, U.S. Treasuries, gold, and crypto markets—underwent a pricing correction from fast thinking to slow thinking...
Chart: S&P 500 futures surged in a straight line after the data release, fluctuated, then moved lower
Chart: the dollar index fell sharply after the data release, fluctuated, then surged aggressively, squeezing short sellers
Chart: the crypto market rose sharply after the data release, fluctuated, then moved lower
Chart: gold rose sharply after the data release, fluctuated, then moved lower
Chart: the ten-year U.S. Treasury yield fell sharply after the data release, fluctuated, then rose
Similar charts and pricing reversals occurred simultaneously across countless markets, as we have said before, research and markets often become a race to “see who could post his latest thoughts first.” In this respect, the behavior of commodity and macro traders, and even crypto traders, is no different from that of ARKK followers, Whether in institutional or retail markets, and whatever the circle, people display remarkably similar herd behavior and top-seeking behavior; only the scale and the field differ. Human nature, as a common underlying trait, remains constant.
And this kind of “speed” is a major pitfall for traders trying to survive in the market.
...
After the initial judgments that inflation was below expectations comes slow thinking about the data details and the many stories beyond the data:
1. First, the data results: headline CPI rose 0.29% month over month, and core CPI rose 0.23% month over month. The chart below shows the final distribution of market expectations before the data were released:
Chart:Headline CPI
Chart: Core CPI
If according to the so-called median expectations, that is, looking at the figures shown on the Bloomberg terminal (and all data platforms)(These figures are the actual reference point for most analysts writing reports, while only a very, very small number of people are willing to put in the extra effort to actually look at the data details.) The June report was therefore clearly a dovish result that came in below “market expectations,” and that is how the market initially priced it.
However, on closer inspection, forecasts from the various institutions were essentially evenly split; Bloomberg’s final median expectation was settled by almost a single vote (36 versus 35), meaning The mean is more meaningful than the median... and judged by the mean, this data result was actually mixed...
Closely aligned data expectations also mean little divergence in bettors’ positions; drawing too much attention means market pricing of this data will tend toward an “efficient market”,This meant that the data result, which had been eagerly anticipated and was theoretically expected to bring a significant expansion in volatility, ultimately moved toward mean reversion rather than a one-way trending price path.
2. Concerns beyond the data
Although the inflation data itself can indeed be said to be not bad, but The market is clearly far more concerned about inflation than the data’s surface appearance would suggest, and pricing has reacted very strongly to these concerns.
The dollar’s price reversal across currency pairs is the simplest and most compelling explanation; the view that the dollar’s decline will slow in the second half of the year is also, to some extent, a judgment that inflation will persist After the data shock, the euro against the U.S. dollar looks very weak, fully consistent with our previous assessment:
Chart: We took profit and exited at 1.18 earlier; as of this writing, it has plunged straight to 1.159
Note: For more discussion of this section, see Notes 250708 “THE ONLY WAY TO BE RIGHT IS TO BE RIGHT ON TIME” and “WEEKLY WRAP250713”
3. How did pricing shift from below expectations to an inflation harbinger?
In fact, The pass-through of tariffs from narrative to CPI data showed clear signs of accelerating in the 6 monthly data, the pass-through coefficient in this data rose from 0.20 to 0.28, while this time the pass-through from CPI to core PCE fell between 0.30 and 0.35; in other words, From a component-level perspective, this is already a high pass-through value:
Chart: Signs of accelerating pass-through
Furthermore, With the right perspective, it is clear that the product categories most affected by tariffs are accumulating inflationary pressure:
Chart: Month-over-month prices for household furnishings and supplies rose nearly 6 in 1%, the largest monthly increase for this category since the pandemic drove inflation to its peak at the start of 2022
Chart: Another category that makes up a large share of the tariff-sensitive goods list is recreational goods; its month-over-month increase in 6 also approached 0.8%. This is likewise the category’s largest monthly increase since the pandemic drove inflation sharply higher in 2022
Chart: Among recreational goods, audio and video products are one of the key subcategories most affected by tariffs; they have clearly shifted from persistent deflation to a monthly inflation rate above 1%
One noteworthy point is automobiles: the relative moderation in core CPI is largely due to the persistent drag from automobile prices on demand. In 6, automobile prices contributed a negative -14 basis points to core goods inflation; the ongoing drag from automobile prices recently offset a considerable portion of the sharp price increases in the other tariff-affected goods mentioned above.
Automobiles are among the most closely watched tariff-sensitive goods, but so far there has been no clear tariff impact...
Chart: Car prices are actually offsetting inflation
One possible explanation is that prices can be attributed in part to front-running of expected tariffs:
Chart: U.S. auto sales surged shortly before Liberation Day, then plunged. Clearly, the earlier surge represented demand pulled forward, so automakers made profits while demand was strong, but the recent slowdown is putting downward pressure on prices.
Overall, two things are happening at the same time:
1）Prices of tariff-affected goods have indeed risen significantly;
2) In the broader economy, disinflation is underway, and this means slowing growth and a material weakening of the economy...
Finally, The chart below compares the price level index for all CPI core goods components as of 6 with the trend for 2023-24; clothing prices overall remain below trend, while prices for other household and electronic goods are clearly above trend.
Chart: As noted, tariffs are delayed until 8, which means we will have to wait until 10/11 for actual data to formally assess the inflationary effects of tariffs and a weaker dollar; until then, goods that were rushed in will remain in the supply chain longer...
Deflation in services is offsetting inflation in tariff-affected areas; ultimately, the effect of tariffs is essentially to create a redistribution in price levels between goods and services.
Finally, here are a few fun charts.
1) GS surveyed nearly 700 institutional clients about their expectations for the next Fed chair:
Chart: Fed Chair Poll Results
2）Strong Supply Growth Outside and in OPEC8+ ..
Chart: Fundamentals behind the oil price decline remain solid
A quick plug: we ask the traders in our own trading room to produce a single-market note roughly every 2 days, covering U.S. stocks, A-shares and Hong Kong stocks, and commodities. We select the better ones for the corresponding “little planets”,
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U.S. stocks:https://www.meridianresearch.app/home?product=us-strategies
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Commodities:https://www.meridianresearch.app/home?product=commodity-strategies
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Wishing you all the best.
2025.07.15
Note: All content in this article is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.