Markets are most sensitive at economic turning points. That's because they have a tendency to linearly extrapolate trends. But when the data unexpectedly turns, the market is wrong-footed and has to quickly readjust.

We may not see it in July's US inflation data due out today, but we are on the cusp of one of these turning points. Markets are linearly extrapolating the disinflation trend and are not priced for an inflation revival. Financial assets – stocks and bonds – will be vulnerable when it is clear a turning point is approaching.

What markets are anticipating for inflation's path is a subjective exercise. But we do have one very good guide in CPI fixing swaps. These fix to monthly year-on-year CPI prints and are traded by inflation dealers who are highly incentivized to study the minutiae of the inflation basket and come up with a precise estimate for each month's CPI – skin in the game.

Over the next 6-12 months fixing swaps are the most reliable read on the path of CPI, and they currently expect CPI to fall back to 2-2.5% over the next year.

Fixing swaps are in theory tradable by anyone with enough capital, so if the market in aggregate expected inflation to significantly deviate from the current expected downwards trend, it's reasonable to expect it would show up here.

It doesn't; but the market is quite possibly missing an approaching turning point. To see this we have to understand the reasons why inflation slowed in the first place. Surprisingly, the Fed has had little direct impact on declining price growth since its tightening cycle began last year (and there are plausible reasons why, discussed here and here).

Instead, outside of the idiosyncrasy of used cars, most of the net fall in the headline and core inflation rate has been driven by commodity prices, and by global disinflationary pressures, principally from China.

But after a year of falling, commodities have started to climb, especially oil. It is benefiting from a number of tailwinds, foremost among them buoyant liquidity conditions. Global real M1 growth is one of the simplest measures of liquidity and it continues to rise; oil and other commodities should do likewise.