Markets shrug off hotter-than-expected US CPI report

The Daily Shot: 11-Oct-24
The United States
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. The inflation report came in stronger than anticipated, …
 

 
… with core CPI accelerating in September (3 charts).
 

 
Source: Nomura Securities  
 

 
However, Fed officials didn’t seem particularly concerned.
 
Source: @economics   Read full article  
 
The components of the CPI that saw substantial increases have no impact on the core PCE, the Fed’s preferred measure.

Pantheon Macroeconomics: – The pick-up in the core CPI in September was driven by components that are often volatile and do not influence the core PCE deflator. Both  airline fares, which leapt by 3.2% and contributed 0.03pp to the increase in the core CPI, and  auto insurance prices, which rose 1.2% and contributed 0.04pp, will not feed into the core PCE calculation, as PPI data are used instead.


 

 
The core goods CPI increased for the first time in seven months, …
 

 
… boosted by apparel prices.
 

Pantheon Macroeconomics: – Apparel prices provided the only other major upside surprise, rising by 1.1% and contributing 0.04pp to the core CPI. This looks like a one-time jump, probably mirroring the pick-up in import prices at the start of this year and the rise in shipping costs, which has substantially reversed over the last two months. Excluding apparel, core goods prices fell by 0.06%, with small rises in new and used autos prices of 0.2% and 0.3%, respectively, offset by broad-based weakness elsewhere.

The core services CPI slowed a bit, …
 

 
… due to softer gains in housing inflation measures.
 

 
Source: Nomura Securities  
 
Leading indicators continue to signal weaker rental inflation ahead.
 
Source: Oxford Economics  
 
The supercore CPI accelerated, …
 
Source: Nomura Securities  
 
… boosted auto insurance, airline fares (see above), and medical care inflation.
 
Source: Nomura Securities  
 
Vehicle prices increased slightly in September.
 

 
Grocery prices jumped by most since January of 2023.
 

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2. The market reaction was minimal, with the expected fed funds rate trajectory for 2025 dipping slightly.
 

 
3. Real wage growth improved.
 

 
4. Initial jobless claims surged last week, driven by the effects of Hurricane Helene.
 

 
Source: Reuters   Read full article  
 
Here is the seasonally adjusted index.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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5. The US trade deficit narrowed in August …
 

 
… as exports improved further while imports saw a pullback.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Leading indicators point to export gains being short-lived.
 
Source: @RenMacLLC  
 
Below are some key trends in US international trade.
 
Trade balance with Mexico and China:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Top trading partners:
 
Source: Deutsche Bank Research  
 
The breakdown of US goods imports by source:
 
Source: Deutsche Bank Research  


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The Eurozone

1. The market is pricing in another 50 bps of ECB rate cuts this year.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Barclays anticipates inflation will decelerate more quickly than the ECB’s current forecast.
 
Source: Barclays Research  
 
3. The pullback in EUR/USD has closely tracked the decline in interest rate differentials.
 
Source: Deutsche Bank Research  
 
Deutsche Bank expects further declines in EUR/USD. Here are some scenarios.
 
Source: Deutsche Bank Research  
 
EUR/USD is testing short-term support, although the exchange rate has been range-bound within a broader downtrend.
 

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4. German retail sales strengthened further in August.
 

 
5. Dutch industrial production improved.
 

 
6. Italian industrial production remains depressed.
 


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Europe

1. Sweden’s economic activity strengthened in August.
 
Industrial production:
 

 
Industrial orders:
 

 
Services output:
 

 
Household consumption:
 

 
GDP estimate (exceeding forecasts):
 

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2. Norway’s inflation continues to ease.
 


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Japan

1. Growth in Japan’s broad money supply continues to ease.
 

 
2. Investors have been exiting Japanese stocks.
 
Source: BofA Global Research  
 
3. Household disposable income growth has accelerated.
 
Source: Capital Economics  


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Asia-Pacific

1. South Korea’s central bank finally delivered a rate cut.
 

 
Source: Reuters   Read full article  

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2. Here is a look at Australia’s capital city dwelling price growth.
 
Source: @ANZ_Research  


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China

1. China’s equities are experiencing a pullback following the recent massive gains.
 

 
Stocks have rallied despite weak earnings. (3 charts)
 
Source: MRB Partners  
 
Source: MRB Partners  
 
Source: MRB Partners  
 
Inflows into China-focused equity funds have been remarkable.
 
Source: BofA Global Research  

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2. Leading indicators point to an expansion in money supply.
 
Source: Schroders  
 
Weak private-sector borrowing has been a drag on the credit impulse.
 
Source: Schroders  
 
Government bond issuance has risen, mostly for infrastructure projects.
 
Source: Schroders  

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3. Here is a comparison of Beijing’s current fiscal stimulus to the measures implemented in 2008 and 2015.
 
Source: TS Lombard  
 
Investors are anticipating a major stimulus announcement from Beijing this weekend.
 
Source: @markets   Read full article  


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Emerging Markets

1. Brazil’s retail sales eased slightly in August but remained robust.
 

 
2. Argentina’s CPI continues to moderate.
 

 
3. The Indian rupee reached a new low against the US dollar …
 

 
… after the RBI adopted a neutral stance.
 
Source: Mint   Read full article  

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4. Turkey’s industrial production is contracting.
 

 
5. EM equity fund flows surged in recent days.
 
Source: BofA Global Research  


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Cryptocurrency

1. It has been a mixed week for cryptos with BTC and LTC underperforming and XRP outperforming top peers.
 
Source: FinViz  
 
Here is the month-to-date performance.
 

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2. Bitcoin is holding support at $60k.
 

 
3. The Crypto Fear & Greed Index moved deeper into “fear” territory.
 
Source: Alternative.me  
 
4. BTC/JPY volatility surged in August.
 
Source: @KaikoData  
 
5. The percent of BTC long-term holders experiencing a loss has increased (price vs. average cost-basis based on blockchain data).
 
Source: @glassnode  
 
6. Here is a look at BTC drawdowns across bull cycles.
 
Source: @glassnode  


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Commodities

1. Coffee is holding short-term support within a strong uptrend.
 

 
However, price momentum has faded during the recent rally.
 

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2. Palm oil futures are surging.
 


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Energy

Traders are increasingly bullish on crude oil.
 
Brent positioning:
 
Source: @markets   Read full article  
 
Call option volume:
 
Source: @markets   Read full article  


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Equities

1. Retail investors are increasingly bullish.
 

 
Investment managers are also constructive on stocks.
 

 
Macro hedge funds are very long equities.
 
Source: Simon White, Bloomberg Markets Live Blog  

——————–

 
2. Here’s a look at the S&P 500 consensus earnings growth estimate. Too optimistic?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
This chart shows value versus growth based on relative forward earnings estimates.
 
Source: Truist Advisory Services  

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3. REITs have been underperforming in recent weeks, …
 

 
… but BofA’s clients have been buying.
 
Source: BofA Global Research  

——————–

 
4. Here is the income contribution by sector to the S&P 500.
 
Source: Goldman Sachs; @MikeZaccardi  
 
5. VIX and credit spreads have diverged.
 

 
6. How much of the retail money market fund holdings will flow into stocks as the Fed continues to cut rates? So far, retail money market fund assets keep reaching record highs.
 

 
7. The chart below illustrates the growth of global ETF assets.
 
Source: J.P. Morgan Asset Management  


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Rates

1. The percentage of indirect bidders accepted in the October 2024 US 30-year bond auction surged to 80.5%, marking a new high. This reflects growing interest in longer-dated Treasuries among foreign investors.
 

 
The overall demand was strong.
 

 
Foreigners also liked the 10-year note.
 

——————–

 
2. BofA’s clients have accelerated their exit from Treasury bills.
 
Source: BofA Global Research  
 
3. The Fed’s terminal rate has risen substantially this month.
 


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Global Developments

1. PMI indicators point to weak industrial production globally.
 
Source: Capital Economics  
 
2. US productivity growth is projected to outpace that of its global peers.
 
Source: Oxford Economics  


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Food for Thought

1. OpenAI’s projected costs and revenue for 2024:
 
Source: @jessefelder   Read full article  
 
2. Historical comparison of US soybean, corn, and wheat yields:
 
Source: Visual Capitalist   Read full article  
 
3. Generational breakdown of race, ethnicity, and LGBTQ identity in the US:
 
Source: PRRI   Read full article  
 
4. Hamas and Hezbollah missile ranges:
 
Source: The Economist   Read full article  
 
5. Billion-dollar natural disasters by state from 1980 to 2024:
 
Source: USAFacts  
 
7. The 2024 US presidential election betting markets probabilities:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
8. The most searched forms of contraception:
 
Source: High Rise Legal Funding  
 
9. A 1.4 ton pumpkin:
 
Source: @axios   Read full article  

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Have a great weekend!


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