Forget a Federal Reserve "pause." The peak inflation narrative was dealt a setback with the May consumer price index report : Year over year CPI was up 8.6%, above the 8.3% expected by Dow Jones, a new high. Core CPI, which excludes food and energy, up 6.0% year over year vs. 5.9% expected. S & P 500 futures fell after the announcement. Shelter, food and gasoline make up half of the components of the CPI, and there are no signs at all that they are showing significant declines. Quite the opposite. The S & P 500 rallied nearly 10% from its intraday low on May 20 to its recent closing high on June 1. The rally was predicated on two beliefs: that the China lockdown was slowly easing, and the Fed would consider a "pause" after two 50-basis-point hikes in June and July. Unfortunately, these narratives have proven to be difficult to sustain. Fed futures for the end of the year are hitting a new high, which means market participants are no longer anticipating a Fed "pause." Michael O'Rourke from JonesTrading summarized the dilemma for the Fed in a note to clients last night: "The market is not upset about the ECB being hawkish, it recognizes the central bank has been way too dovish and is even further behind the curve than the Federal Reserve. With neither central bank willing to take decisive action to move policy closer to neutral quickly, investors recognize the policymakers will be chasing inflation and tightening policy for longer than is necessary. Such mismatched policy also increases the odds of additional policy errors." The other major market mover – the China reopening story – has been slipping and sliding, as Shanghai and Beijing both reimposed restrictions. Still, hope springs eternal. China stocks have staged a notable rally in the last month as the country has begun a fitful process toward reopening. The Shanghai market closed near its highest level since March, though Hong Kong was down fractionally. A broad basket of Chinese stocks, the iShares MSCI China ETF (MCHI) was outperforming the S & P 500 this year, and up nearly 15% in the past month, while the S & P 500 has been flat.