while WE slept: USTs touch cheaper after CPI-inspired (relief)BID; CPI rounding exercise, "...Was the S&P 500 just 0.002% away from an unchanged day?" -Bianco
Some spell it R-O-L-A-I-D-S and others spell it C-P-I … when it printed, bonds went BID … despite or because of devils in details … here are a few links representing a variety of views and most all contain worthwhile visuals for visual / context …
Core CPI was 3.248%, rounded to 3.2%. If Core CPI were 0.002% higher, it would have been 3.250%, rounded to 3.3%. As I write, the S&P 500 is up 2%, or 116 points. Was the S&P 500 just 0.002% away from an unchanged day? 3:42 PM · Jan 15, 2025
sandbox: A mixed bag for December's inflation report
WolfST: Beneath the Skin of CPI Inflation: YoY CPI +2.9%, Worst since July, MoM CPI +0.39%, Worst since February. Core CPI Stuck for 7th Month at 3.1%-3.3% … Categories that helped power the cooling of CPI are U-Turning – used & new vehicles, food, energy – just as housing seems to be coming in line.
NEWSQUAWK: European equities lifted by Tech/Luxury updates, JPY bid as BoJ hike bets mount, US Retail Sales due … Gilts gap lower despite soft GDP, USTs await data and Treasury Secretary nominee Bessent’s confirmation hearing … USTs are currently trading in-line with peers ahead of another busy data docket with Retail Sales and weekly Claims due before Treasury Secretary nominee Bessent’s confirmation hearing and the announcement for 20yr supply. At a 108-05 trough with yields firmer across the curve, the short end leading and as such the curve itself is flattening.
Opening Bell Daily: Market-moving inflation … Multiple Fed rate cuts are back in play for 2025. It may not matter for investors … Traders ramped up bets for additional Fed moves following a cooler core CPI report.
Core CPI inflation slowed to 0.23% m/m (3.2% y/y) in December, snapping the streak of 0.3% m/m increases, helped by core goods disinflation. After factoring in yesterday's PPI estimates, we forecast core PCE inflation at 0.18% m/m (2.8% y/y) for December.
BARCAP: US CPI Inflation Monitor (December CPI): On the right path
Core CPI inflation slowed to 0.23% m/m in December, snapping its streak of 0.3% increases. This was led primarily by weaker core goods prices, as we had forecast. The data translate into a benign 0.18% m/m (2.8% y/y) core PCE print for December.
December’s core inflation profile offered a respite to the selling pressure and solace to monetary policymakers. CoreCPI came in at +0.225% on a monthly basis which, after four consecutive +0.3% prints, represented a downshift and was the smallest gain since July…
Core CPI rose a rounded 0.2% m/m in December, stepping down somewhat after four straight monthly 0.3% prints. Unrounded, the release was very close to our estimate (0.23% versus 0.25% est).
The details were consistent with continued, if slow, disinflation. Non-shelter services and non-vehicle core goods drove the bulk of moderation compared to the prior month.
Taking on board data from both PPI and CPI, we continue to expect 0.2% for December core PCE. Unrounded, our estimate moved from 0.20% to 0.15%, suggesting significant odds of a rounded 0.1% print.
We continue to expect no cuts in 2025, based on an inflationary upsurge from the new administration’s policies, and see a 0.02% inflation surprise as unimpactful.
After four consecutive 0.3% MoM prints, December's core inflation figure posted an improved 0.2% outcome. Nonetheless, the trend remains too hot for comfort and the Fed is likely to extend its well telegraphed pause in rate cuts beyond March. The run-up in Treasury yields and the stronger dollar will provide headwinds to growth and we still look for three 25bp rate cuts in 2025
The December CPI report was mostly in line with expectations … That being noted, we'd be a bit wary of extrapolating the December moderation just yet. Many components tend to register their firmest gains at the start of the year reflecting a multitude of factors such as annual resetting of contracts, introduction of new merchandise after the discount-heavy holiday shopping season etc… In 2024, those price gains lasted well into the first quarter with the core CPI averaging 0.4%m/m in Q1(24), well above the 0.2%m/m average gains registered in the next nine (April-December) months …
RBC: U.S. core CPI growth edged lower in December, but still too high for the Fed
The Bottom Line:
The tick lower in core price growth in December follows a string of upside surprises and shouldn't be enough to justify another Federal Reserve rate cut later this month. Inflation has still slowed from where it was a year ago, but evidence has mounted that the persistent run of U.S. economic growth outperformance is also limiting the pace of slowing in inflation.
We continue to expect the Fed will need to keep interest rates higher for longer than other regions to offset the inflationary impact of a resilient economy and large government budget deficit for this point in the economic cycle, and do not expect the Fed to cut the fed funds target range further this year.
Headline CPI +0.39%: 12-month inflation rises to 2.89% …
Core CPI +0.23%: 12-month core inflation edges down to 3.24% …
Components: slowing OER, strength in more volatile categories …
… Weaker headline CPI, stronger core, next month
WELLS FARGO: December CPI: Hotter Headline, but Healthier Core
… That said, when looking through the month-to-month noise, the inflation data have been fairly stubborn in recent months, neither gathering nor losing speed. The 12-month change in the core CPI (+3.2%) is more or less the same as the three-month annualized rate (3.3%). The picture looks a bit better for the Fed's preferred inflation metric, the core PCE deflator, where we project December inflation to be 0.2% month-over-month and 2.8% year-over-year. But, this marks only a modest slowdown relative to the 3.0% core PCE inflation registered in December 2023, and it is still well above the central bank's 2% inflation target.
Accordingly, and given the more resilient labor market data seen over the past couple months, we have revised our expectations for the federal funds rate outlook. We now expect two 25 bps rate cuts by the FOMC this year, in September and December, down from the three cuts we anticipated coming into the year. If realized, the target range for the federal funds rate would be 3.75%-4.00% at year-end 2025. We will publish additional details and a full economic forecast update tomorrow in our flagship Monthly Economic Outlook publication.
This one is on ALL our minds and in our hearts, whatever ‘team’ (rate cut or otherwise) you may be on …
BNP: US: Sizing up wildfire effects on economic data
KEY MESSAGES
The ongoing California wildfires could subtract 0.1-0.3pp from annualized GDP growth in Q1. For now, we maintain our forecast (1.9% saar) ahead of key data to come on 16-17 January and will reassess in our preview of Q4 2024 GDP (to be published next week).
We estimate a drag of 14k to 27k on nonfarm payrolls in January, but effects are likely to be transitory.
The disaster does not affect our thinking on Fed policy given likely minor effects on inflation and the labor market.
…Minimal impact on the Fed: While devastating, the wildfires’ impact on the Fed’s policy course is likely to be minimal. We expect policymakers to acknowledge the human impact of the disaster in their communications and to keep an eye out for potential short-term swings in the data flow emanating from the event, but long-term effects on the Fed’s mandated goals – employment and prices – are likely to be small.
Back to how you / one spells RELIEF …
ING: Rates Spark: Don't expect the relief to last long
The US CPI number was okay, as it was better than expected. But it was not a good report. US CPI inflation is still running at around 3%. It is, however, providing Treasuries with an excuse to do some downside testing for yields. We doubt it goes too far, as there is not the ammunition for it. But the bond bulls are overdue a period of positivity
This one, while NOT directly CPI related (could easily have been positioned above with others) does suggest a call to action ahead of the MARCH FOMC meeting …
MS: Position for a rate cut at the March FOMC meeting | US Rates Strategy
The US CPI report for December increased our willingness to position for the March rate cut our economists expect. The flurry of executive orders expected after the Presidential inauguration are a risk, but one we think prices already reflect.
Key takeaways
We suggest investors receive the March FOMC OIS rate at 4.27%.
We suggest investors buy the April fed funds futures contract (FFJ5 ) at 95.74.
While CPI may very well have been benign, we’ll look ahead (always) TO this mornings ReSale TALES report …
Yesterday’s US consumer price inflation data was benign. Consumer durable goods prices fell for a majority of the Biden administration. Although consumers do not focus on such prices when considering inflation, this deflation did boost consumer spending power. The abrupt market response reflects the problem with Federal Reserve Chair Powell’s “data dependency” mantra: any data release (however dodgy) prompts an extreme market response.
US retail sales data is due today , only partly capturing US consumers’ spending on fun. Rising real incomes mean consumers have more spending power, and if a US consumer has spare cash at the end of the month there is an almost constitutional obligation to spend it. The Fed’s Beige Book of economic anecdote suggested stronger-than-expected spending into year-end…
… And from the Global Wall Street inbox TO the WWW … a few curated links …
A (BBG, Authers)VIEW …
BLOOMBERG: Trump gets a break from final Biden inflation data Wall Street finds fresh exuberance, while any doubt that living became more expensive under the outgoing administration is dispelled.
Time to Exhale
And, breathe. Wednesday’s US inflation data showed that the rate of price rises was falling, and that pressure was a bit milder. That it led to a massive “risk-on” rally is testament to the amount of nerves that had developed. While the numbers did indeed show inflation coming under control a slightly greater deal than had been expected, they left no clarity about the way ahead.
Breaking down the CPI into its four main elements reveals that ongoing inflation is more or less entirely about services, as has been the case for a while.Food prices are still edging upward, but nowhere nearly as fast as in 2022; energy and goods prices are largely quiescent:
More detailed statistical measures confirm that inflation is coming down, but very slowly and it remains above target. Both the trimmed mean (excluding outliers on either side) and median versions produced by the Cleveland Fed show very slight declines in an ongoing, painfully slow progress toward the Federal Reserve’s 2% target. Disinflation is petering out, but at least hasn’t reversed:
The Atlanta Fed’s measure of sticky prices that are particularly difficult to change shows a more encouraging fall, particularly in the last three months, but again is still uncomfortably above target:
As for the “Supercore” measure of services inflation excluding shelter, a favorite of the Fed itself, a slight decline last month still leavesthe overall annual increase unacceptably high at a little above 4%:
All of this followed producer price inflation announced Tuesday, which was lower than expected but still ticked upward…
…The massively positive reaction was driven by the preceding trepidation. In the last few weeks, the resumption of rate hikes has begun to look a real possibility. It’s still plenty possible, but made less likely at the margin by the latest data. The rally in stocks testifies to just how scared investors in risk assets were about hikes, and how dependent risk markets remain on continuing cheap money. The rally was close to universal, but one of the most interesting tells came in the way that consumer discretionary stocks far outpaced staples, a classic sign of risk appetite and a belief in a cyclical recovery:
Bond yields dipped worldwide. But everywhere the fall looked like a correction after a big advance — not, yet, a turning point:
Stocks and Bonds gapped higher today, fueled by a cooler-than-expected inflation report. The +20yr Treasury Bond ETF ($TLT) had its best session since the election, rising +1.7%.
@SubuTrades points out that sentiment and positioning are ripe enough for Bonds to form a meaningful bottom. Short interest for $TLT is highly elevated while experiencing massive outflows over the past 2-months.
The Takeaway: After exhibiting signs of capitulation, the +20yr Treasury Bond ETF ($TLT) had its best day since the election today.
Chris Kimble offered some bearish views on 30yr USTs HERE YEST and today he turns attention across the pond …
KIMBLE: Are German Government Bond Yields Changing 44 Year Trend?
Interest rates continue to dominate our recent research. And rightfully so. Big swings in interest rates have ramifications for the domestic and global economy.
Whether it is falling bond yields / interest rates in China (as we highlighted last week) or rising bond yields / interest rates in the U.S. (as we highlighted this week), it is important for investors to follow the bond market.
Today, we look at elevated German government bond yields (on a long-term “monthly” basis).
As you can see, German interest rates are trading at the top of a 44-year falling channel.
This falling channel has held at resistance for more than 40-years.
For bond bulls, this would be an excellent place for yields to peak!
If not, a new bullish trend for yields would be in play.
In my humble opinion, it might be important what happens here. Stay tuned!
Somehow I doubt that Powell & the FOMC are true Inflation fighters....read an interesting quote that the Fed & all Central Banks true job is to 'carefully manage the depreciation of their currencies'....
Somehow I doubt that Powell & the FOMC are true Inflation fighters....read an interesting quote that the Fed & all Central Banks true job is to 'carefully manage the depreciation of their currencies'....