Softer housing inflation cements Fed rate cut this month

The Daily Shot: 12-Dec-24
• The United States
• Canada
• The United Kingdom
• Europe
• Japan
• Asia-Pacific
• Emerging Markets
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

The United States

1. The November CPI report aligned closely with expectations, …

… showing core inflation rising by 0.3% (annualized at 3.7%) for the fourth consecutive month.

Source: @economics Read full article

• The core goods CPI posted its largest increase since mid-2023, …

… boosted by an increase in vehicle prices.

• The core services CPI softened …

… as housing inflation eased.

• The supercore CPI remains elevated.

• Below are some additional CPI components (monthly changes).

– Groceries:

– Medical care services:

– Hotels:

• The CPI diffusion indices continue to show sticky inflation.

• Nonetheless, the November core PCE inflation measure is projected to slow.

Source: Nomura Securities

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2. The market welcomed the CPI report, which aligned with forecasts and showed softer housing inflation. A Fed rate cut this month is now nearly a certainty.

Following the December cut, will the next rate reduction come in March?

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3. Mortgage applications increased in the week following Thanksgiving.

The rate lock count jumped.

Source: AEI Housing Center

• Refi activity also improved.

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4. The Federal budget deficit widened more than expected last month.

Source: Reuters Read full article

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5. Business applications remain elevated.

Source: USAFacts

6. Here is Morgan Stanley’s quarterly GDP growth forecast over the next couple of years.

Source: Morgan Stanley Research

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Canada

1. The BoC delivered another 50 bps rate cut but signaled an end to jumbo reductions.

Source: Reuters Read full article

• The market sees a 25 bps rate cut in January.

• Economists anticipate a total of 75 bps of BoC rate cuts next year.

Source: @TheTerminal, Bloomberg Finance L.P.

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2. The BoC’s signal to halt jumbo rate cuts pushed the loonie and bond yields higher.

Stocks gained.

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The United Kingdom

1. The RICS report indicated faster home price appreciation in the UK, …

… but challenges loom on the horizon.

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2. Business leaders’ views on Labour’s impact on business and the economy have shifted significantly lower.

Source: @financialtimes Read full article

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Europe

1. Germany’s debt-to-GDP ratio remains the lowest among the G7 countries.

Source: Deutsche Bank Research

2. The EU’s trade volume has fallen significantly below its multi-year trend.

Source: @DanielKral1, @OxfordEconomics

3. Here is a look at long-term unemployment rates in Europe.

Source: Eurostat Read full article

4. The downtrend in European equities vs. the US appears stretched.

Source: BCA Research

• European equities have a higher risk premium than the US.

Source: BCA Research

• Loose US fiscal policy has supported the outperformance of US stocks compared to Europe. Could this trend reverse?

Source: BCA Research

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Japan

1. The market share of Japanese carmakers has been declining across key markets.

Source: @bbgvisualdata Read full article

2. Tokyo office vacancies continue to fall.

3. Morgan Stanley expects real employee compensation growth to remain positive next year, boosted by wage negotiations. (2 charts)

Source: Morgan Stanley Research

Source: Morgan Stanley Research

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Asia-Pacific

1. Economists have been lowering their forecasts for South Korea’s GDP growth next year.

They have also significantly reduced their projections for the BoK rate at the end of 2025 due to slower growth and increased political uncertainty.

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2. Australia’s employment report exceeded expectations, …

… highlighting a remarkably strong labor market.

• The unemployment rate dipped below 4%, surprising to the downside.

• Labor force participation eased.

• The market scaled back rate cut expectations after the employment report, sending the Aussie dollar and bond yields higher.

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Emerging Markets

1. Brazil’s central bank raised the benchmark rate by 100 bps, exceeding expectations, …

… as economic activity gains momentum.

Source: @economics Read full article

• The real and Brazil’s stocks outperformed EM peers on Wednesday (3 charts).

• Bonds and short-term rate futures rallied on expectations of slower rate hikes ahead.

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2. Argentina’s inflation slowed to its lowest monthly increase since 2020.

Source: @economics Read full article

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3. South Africa’s inflation surprised to the downside again (2 charts).

Source: @economics Read full article

• Retail sales surged in October.

• South Africa’s bonds and the rand rallied in response to the CPI report.

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Commodities

1. Here are Goldman’s scenarios for gold prices over the next year, contingent on Fed rate decisions.

Source: Goldman Sachs; @MikeZaccardi

2. Chicago cattle futures surged this week.

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Energy

1. US crude oil production hit a record high.

2. US crude oil inventories eased again last week, but refined product stockpiles continued to rise.

Here are the inventory levels.

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3. OPEC continues to cut its projections for global oil demand.

Source: @markets Read full article

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Equities

1. Tech mega-caps surged this week, …

… leaving the rest of the market in the dust.

• The Nasdaq Composite breached 20k, hitting its 37th record high of the year.

• Here is the performance of US market segments on CPI release day.

• Alphabet shares surged, …

Source: Barron’s Read full article

… with demand for put options relative to calls hitting the lowest level in years.

Source: @TheTerminal, Bloomberg Finance L.P.

• On the other hand, the healthcare sector remains under pressure.

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2. The S&P 500 tech mega-cap concentration makes it difficult to outperform the index.

Source: @DayHagan_Invest

3. The VanEck semiconductor ETF is holding support at the 200-day moving average.

4. Various measures continue to signal frothy valuations for the US stock market.

Source: @financialtimes Read full article

5. US consumers are bullish on stocks, sharply diverging from their income expectations.

Source: Deutsche Bank Research

6. Global stock/bond price ratios have diverged.

Source: MRB Partners

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Rates

1. Treasury yields have been climbing.

2. The Treasury market implied volatility hit its lowest level since early 2022 after the US CPI report.

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Food for Thought

1. Types of offshore rigs and platforms categorized by operating depths:

Source: @financialtimes Read full article

2. Average credit card debt by state:

Source: Visual Capitalist Read full article

3. Share of mortgage-free homes in the US:

Source: Torsten Slok, Apollo

4. NATO members’ defense spending:

Source: The Economist Read full article

5. Evolution of occupational roles in the US labor market:

Source: The Aspen Institute Economic Strategy Group Read full article

6. Alpacas by county:

Source: @haydendking

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