Supercore CPI remains sticky

The Daily Shot: 12-Jan-24
The United States
The Eurozone
Europe
Japan
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The December headline CPI print was higher than expected. Progress toward the Fed’s 2% target will likely get more challenging from here.
 

 
Core inflation was in line with forecasts.
 

 
Below are the year-over-year trends.
 
Source: @axios   Read full article  
 
The core goods deflation is over, …
 
Source: Nomura Securities  
 
… as vehicle prices climb.
 

 
Shelter was over half of the US consumer price increase in December.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Housing inflation remains elevated, …
 

 
… but leading indicators point to some relief ahead.
 
Source: Oxford Economics  
 
Inflation in core services ex. housing (referred to as supercore CPI) remains sticky (2 charts). The Fed is watching this component of the CPI very closely, in part because of its sensitivity to wage growth.
 

 
Source: Nomura Securities  
 
Below are some additional CPI components.
 
Car insurance (up over 20% year-over-year):
 

 
Medical care services:
 

 
Gym memberships:
 

 
Finally, here is a look at inflation by region.
 
Source: @economics   Read full article  

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2. The market reaction to the CPI report was muted. Treasury yields declined.
 

 
Futures signal 150 bps of Fed rate cuts this year.
 

 
A March rate cut is still in play, according to the market, …
 

 
… even as Fed officials push back.
 
Source: Reuters   Read full article  
 
Short-term market-based inflation expectations remain near 2%.
 

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3. Initial jobless claims started 2024 at multi-year lows. The labor market remains robust for now.
 

 
Here is a look at continuing claims going into the year-end.
 

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4. Last month’s budget deficit was wider than expected.
 

 
Source: CNBC   Read full article  


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The Eurozone

1. Spain’s industrial production climbed in November, …
 

 
… but Italy’s factory output is tanking. Industrial production trends across euro-area economies have been uneven in recent months.
 

 
Here is a look at industrial production changes relative to pre-COVID levels.
 
Source: @skhanniche  

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2. Euro-area rent inflation has been elevated.
 
Source: ECB  
 
3. The euro is (roughly) fairly valued based on its real effective exchange rate.
 
Source: Deutsche Bank Research  


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Europe

1. Asia-to-Europe container shipping costs continue to climb.
 

 
2. Czech inflation surprised to the downside.
 

 
3. Here is a look at digital skills across the EU.
 
Source: Eurostat   Read full article  


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Japan

1. Economists see sub-1% GDP growth this year.
 

 
2. The trade deficit was wider than expected in November.
 

 
3. Corporate profitability has been strengthening as compensation costs remain subdued.
 
Source: BofA Global Research  
 
4. Stocks continue to surge.
 

 
Chinese investors have been loading up on a China-listed Japan ETF as Chinese stocks slump.
 
Source: @markets   Read full article  

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5. A shift in the BoJ’s policy stance could cause the US-Japan interest rate gap to narrow, which may benefit the yen.
 
Source: Numera Analytics (@NumeraAnalytics)  


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China

1. The headline CPI remains in negative territory on a year-over-year basis.
 

 
Source: @markets   Read full article  
 
Here are some additional CPI trends.
 
Core CPI (stable):
 

 
Services CPI:
 

 
Clothing:
 

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2. The PPI remains well below last year’s levels.
 

 
3. Exports exceeded 2022 levels in December, …
 

 
Source: South China Morning Post   Read full article  
 
… but were down for the full year (2 charts).
 

 
Source: @economics   Read full article  
 
Imports have been running in line with 2022 levels.
 

 
Here is the trade deficit.
 

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4. This chart compares earnings momentum and valuation by sector.
 
Source: MRB Partners  
 
5. Chinese government bonds have outperformed Treasuries over the past three years.
 
Source: Gavekal Research  


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Emerging Markets

1. The Turkish lira continues to sink, breaching 30 to the dollar.
 

 
Source: CNBC   Read full article  

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2. South Africa’s manufacturing output edged higher in November.
 

 
3. Mexican manufacturing production is coming off the highs.
 

 
Mining output has been trending lower.
 

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4. Brazil’s inflation is back inside the central bank’s target range.
 
Source: @economics   Read full article  
 
Source: Barron’s   Read full article  

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5. Argentina’s CPI breached 200% in December.
 

 
Source: Reuters   Read full article  

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6. In dollar terms, EM government bonds have outperformed developed market bonds over the past few years.
 
Source: Gavekal Research  
 
7. Here is a look at GDP growth forecasts from Capital Economics.
 
Source: Capital Economics  


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Cryptocurrency

1. Most major cryptos are up so far this year, with ether (ETH) outperforming and XRP underperforming top peers.
 
Source: FinViz  
 
2. The ETH/BTC price ratio bounced from the lower bound of its two-year long range.
 

 
Could we see a US spot-ether ETF soon?
 
Source: CoinTelegraph   Read full article  

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3. Trading volumes surged for US spot-bitcoin ETFs on Thursday.
 
Source: @EricBalchunas  
 
But the new cash bitcoin ETFs sold off on their debut day of trading.
 

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4. Here is a look at crypto liquidity rankings by Kaiko over the past quarter.
 
Source: @KaikoData  


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Commodities

The selloff in iron ore has accelerated.
 


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Energy

1. Crude oil jumped, with Brent reaching its 50-day moving average, …
 

 
… amid tensions in the Middle East.
 
Source: Reuters   Read full article  

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2. US inventories of natural gas in storage remain at elevated levels.
 

 
3. Here is a look at wind and solar contributions to the global power mix.
 
Source: @financialtimes   Read full article  


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Equities

1. It has been a rough start of the year for mid-cap and small-cap stocks.
 

 
2. Investor sentiment/positioning remains bullish.
 
Retail investors:
 

 
CTAs:
 
Source: Goldman Sachs; @dailychartbook  
 
BNP Paribas’ equity positioning indicator:
 
Source: BNP Paribas; @WallStJesus  
 
3. Bullish positioning tends to cap the upside for stocks.
 
Source: Goldman Sachs; @WallStJesus  

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4. Valuation spreads in the Russell 3000 Index (broad market index) are back at recessionary extremes, driven by small and mid-caps.
 
Source: Denise Chisholm; Fidelity Investments¬†  
 
The S&P 500 typically outperforms bonds when stock valuation spreads are wide and falling.
 
Source: Denise Chisholm; Fidelity Investments¬†  

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5. The S&P 500 return dispersion has been climbing.
 

 
6. Fed liquidity (reserves) has been a tailwind for stocks.
 

 
7. Consensus earnings estimates for Q4 are modest.
 
Source: Goldman Sachs; @carlquintanilla  
 
The dollar weakness tends to signal a higher frequency of sales beats.
 
Source: Goldman Sachs; @dailychartbook  

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8. Real estate fund flows have turned positive.
 
Source: BofA Global Research  


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Credit

1. Investment-grade bond funds are seeing massive inflows.
 
Source: BofA Global Research  
 

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2. Corporate credit pricing is not attractive, according to BCA Research.
 
Source: BCA Research  
 
3. Leveraged loan borrowers’ interest coverage ratios are stretched.
 
Source: Deutsche Bank Research  


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Rates

1. Open interest in fed funds futures has been surging amid rising bets on Fed rate cuts.
 
Source: @markets   Read full article  
 
2. Treasury yield forecasts have diverged sharply.
 
Source: Torsten Slok,¬†Apollo  


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Global Developments

1. Most major bond markets shifted lower this year except China.
 
Source: Macrobond  
 
2. Bab el-Mandeb Strait transit volumes have collapsed.
 
Source: BofA Global Research  
 
Panama Canal transit volumes have been deteriorating as well.
 
Source: The Economist   Read full article  
 
As a result, global freight rates are up sharply.
 
Source: BofA Global Research  

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3. There is no consistent dollar pattern around Fed easing cycles.
 
Source: Macrobond  
 
Even with the market pricing in large Fed rate cuts, the dollar is still a “high-yielder” relative to other major currencies.
 
Source: Deutsche Bank Research  


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Food for Thought

1. Air travel complaints:
 
Source: @WSJ   Read full article  
 
2. EVs are becoming harder to sell.
 
Source: @WSJ   Read full article  
 
3. Nvidia’s revenue components:
 
Source: @WSJ   Read full article  
 
4. Top TV advertisers:
 
Source: Visual Capitalist   Read full article  
 
5. Population changes since 1990 (Europe, North Africa, and the Middle East):
 
Source: @MichaelAArouet, @mmjukic  
 
US population changes by state:
 
Source: Census Bureau   Read full article  

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6. Obesity rates (2 charts):
 
Source: @financialtimes   Read full article  
 
Source: Gallup   Read full article  

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7. Climate-related events with damages totaling more than $1 billion:
 
Source: BlackRock Investment Institute  
 
Natural catastrophes:
 
Source: @WSJ   Read full article  

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8. New England’s winning percentage under Bill Belichick:
 
Source: @TheAthletic   Read full article  
 

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Have a great weekend!


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