Is Wednesday’s protest real? Bond yields are rising again this morning, and futures are lower. The Bank of England intervention is one of the few bullish news since Jackson Hole, but does it matter? The real problem for the market is 1) fear that the Fed rate hikes so far will trigger a recession, and 2) earnings will crash and turn negative. The BOE’s actions did nothing to address those concerns. But are inflation and income the only worries? Chris Harvey, head of equity strategy at Wells Fargo Securities, said the market welcomed the move because there was an extra fear in the market. “Income is a fear but not a fear,” Harvey said in a note to clients. “We see the real fear as waning confidence in central banks’ ability to negotiate in these difficult times (and frankly the smell of despair).” Others have agreed. Citadel CEO Ken Griffin told CNBC’s Scott Wapner at the Delivering Alpha conference: “I’m worried about what the loss of confidence in the UK represents. “It represents the first time we’ve seen a large developed market that, in a very long time, lose confidence from investors. And it represents the challenges a country faces. when policymakers have created a poor foundation.” Bottom line: If fears that central banks’ inability to respond to the crisis are a factor in recessions, especially in Europe, then the BOE’s intervention is helpful. Regardless of this being anything more than a “dead cat return,” investors will need to watch for signs of cooling off inflation. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said: “We suspect that the calmer mood in the markets on Wednesday marks the end of the recent period of increased volatility or sentiment. Likes to take risks,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said on Thursday. “For a more sustained rally, investors will need to see compelling evidence that inflation is under control, allowing central banks to become less hawkish.” The next inflation data point is personal consumption spending for August, which is due to be reported on Friday. Inside the Fed, it has always been the central bank’s favorite measure of inflation. After rising 6.3% year-on-year in July, August PCE is expected to stay at 6.0%, with core prices (excluding food and energy) rising 4.7. %. Monthly is expected to increase 0.1% for headline and 0.5% for core. If Friday’s PCE falls even slightly below consensus, the stock could easily bounce back. Otherwise, bond yields go up one notch, stocks fall another leg. The macro economy is still leading the story, but we’ll also need to see signs in the coming weeks that earnings won’t fall. We’ll get a small data point from Nike, reporting on Thursday after the market closes. Like FedEx, Nike accounts for a large percentage of its sales overseas (25% from Europe, 20% from China). Is 2% even a reasonable target for inflation? The chorus against the Fed raising rates until inflation to 2% gets bigger and bigger. Chris Harvey at Wells Fargo exemplifies this argument. “There’s a growing chorus that 2% is just a number, and may not be an appropriate inflation target for the next few years due to emerging trends and regionalization; countries put security first. than prices; and as China’s development will no longer act as a deflationary force,” he said. “…Customers have indicated that they want stable 3-4% inflation and no recession than 2% inflation with a recession.”