Fed officials are growing increasingly cautious about rate cuts

The Daily Shot: 09-Jan-25
The United States
The United Kingdom
The Eurozone
Japan
Asia-Pacific
China
India
Emerging Markets
Commodities
Energy
Equities
Rates
Food for Thought



 

The United States

1. The FOMC minutes indicated that Fed officials are growing increasingly cautious about rate cuts.
 
Source: @economics   Read full article  

FOMC: – In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing. …
 
… many participants suggested that a variety of factors underlined the need for a careful approach to monetary policy decisions over coming quarters. These factors included recent elevated inflation readings, the continuing strength of spending, reduced downside risks to the outlook for the labor market and economic activity, and increased upside risks to the outlook for inflation.

Bloomberg’s Fed minutes indicator shifted into hawkish territory.
 

 
Here is Bloomberg’s broad indicator of Fed officials’ sentiment, derived from their language usage.
 

 
FOMC participants sharply shifted their views on inflation risks (to the upside).
 

 
The word count in the FOMC minutes suggests that the committee does not see current monetary policy as very restrictive.
 

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2. Market-based inflation expectations are rising.
 

 
3. Consumer credit unexpectedly fell in November, …
 

 
… marked by the steepest drop in credit card debt since the 2020 COVID shock.
 

 
Maintaining credit card balances remains extraordinarily expensive.
 

 
Here is a look at nominal and real credit card balances.
 

 
Credit card debt as a percentage of disposable personal income has plateaued well below pre-COVID levels.
 

 
Total consumer credit as a percentage of disposable personal income continues to decline, indicating ongoing consumer deleveraging.
 

 
The overall US credit application rejection rates are at the highest level in a decade.
 

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4. Mortgage applications began the year at depressed levels …
 

 
… as rates continue to rise.
 
Source: Mortgage News Daily  
 
Refi activity was also soft.
 

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5. Checking and savings deposits have declined but remain above pre-pandemic levels, according to BofA customer data.
 
Source: Bank of America Institute  
 
The rate of deposit balance declines has slowed.
 
Source: Bank of America Institute  


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The United Kingdom

1. The pound continues to weaken against the dollar.
 

 
2. Gilt yields are hitting multi-year highs.
 

 

 
Source: Reuters   Read full article  

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3. The market sees about a 70% probability of a BoE rate cut in February.
 

 
4. The decline in UK recruiters’ permanent placements has intensified, while billings for temp workers are also contracting.
 
Source: S&P Global PMI  
 
5. Retail stores continue to cut prices.
 


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The Eurozone

1. Let’s begin with Germany.
 
Factory orders declined sharply in November, …
 

 
Source: @WSJ   Read full article  
 
… but industrial production bounced from the recent lows.
 

 
The rebound in retail sales has been fading.
 

 
Source: Reuters   Read full article  
 
Germany’s trade surplus jumped in November.
 

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2. Euro-area orders minus inventories signal downside risks for industrial production.
 
Source: @DanielKral1, @OxfordEconomics  
 
3. Euro-area services confidence edged higher last month, …
 

 
… but industrial sentiment deteriorated further.
 

 
Here is the overall economic sentiment indicator, which includes business and consumer sentiment.
 

 
Source: @WSJ   Read full article  

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4. Capital spending has weakened alongside greater economic uncertainty.
 
Source: BCA Research  


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Japan

1. Wage growth has accelerated.
 

 
Source: @economics   Read full article  
 
The market sees BoJ rate hikes ahead.
 

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2. JGB yields keep climbing.
 

 
3. The yen continues to weaken.
 

 
4. Tokyo office vacancies are still moving lower.
 


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Asia-Pacific

1. Economists have further lowered their forecasts for South Korea’s consumer spending growth this year amid political uncertainty.
 

 
Economists now expect 75 bps of BoK rate reductions in 2025.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
South Korea’s 10-year bond yields are approaching a level 2% lower than their US counterpart.
 
Source: @markets   Read full article  

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2. Australia’s retail sales jumped in November.
 

 
The trade surplus surprised to the upside.
 

 
AUD/USD is holding support.
 


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China

1. Disinflationary pressures persist, with consumer prices increasing just 0.1% year-over-year.
 

 
Source: Reuters   Read full article  
 
Here are the contributions.
 
Source: Pantheon Macroeconomics  
 
Core inflation increased to 0.4%.
 

 
Producer prices remained below 2023 levels.
 

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2. Beijing is tightening the offshore yuan market by restricting supply to curb the currency’s decline.
 
Source: @markets   Read full article  
 
3. China’s net purchases of USD securities turned negative.
 
Source: Deutsche Bank Research  


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India

1. Economic growth is moderating.
 
Source: @economics   Read full article  
 
2. The trade deficit has widened sharply.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Emerging Markets

1. Brazil’s industrial production declined in November.
 

 
Auto sales softened relative to 2023.
 

 
The broad inflation indicator continues to grind higher.
 

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2. South Africa’s manufacturing sector is back in contraction.
 

 
3. Indonesia’s consumer confidence is nearing multi-year highs.
 

 
4. Inflation in Iran remains exceptionally high.
 
Source: Gavekal Research  


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Commodities

1. The copper/gold price ratio appears to be at a four-year cycle low.
 
Source: Aazan Habib, Paradigm Capital  
 
2. US egg prices are at record highs.
 

 
3. Olive oil prices have been falling.
 


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Energy

US crude oil inventories declined last week, but refined product stockpiles surged again.
 

 
Here are the inventory levels.
 

 
Crude oil inventories at Cushing, OK are very low.
 
Source: Gavekal Research  


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Equities

1. The S&P 500 has been holding support.
 

 
2. The rebound in the global stock/bond ratio suggests markets are starting to discount improving economic growth.
 
Source: MRB Partners  
 
However, according to MRB Partners, the global stock/bond price ratio appears stretched, which could signal more modest returns ahead for balanced portfolios.
 
Source: MRB Partners  

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3. The UBS Early Warning Signal points to downside risk for stocks.
 
Source: UBS; @WallStJesus  
 
4. Companies are increasingly delaying earnings announcements, signaling rising corporate uncertainty.
 
Source: Wall Street Horizon   Read full article  
 
5. Consumer staples continue to widen their underperformance.
 

 
6. The S&P 1500 homebuilding index has been testing support.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
7. Based on some measures, the S&P 500’s concentration has reached its highest level on record.
 
Source: Goldman Sachs  
 
8. US households’ equity exposure as a percentage of total financial assets has reached a record high.
 

 
9. Leveraged funds added equity positions last year, but their overall exposure is not stretched.
 
Source: Barclays Research  


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Rates

1. Treasury yields continue to diverge for the copper-to-gold ratio.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. The Treasury term premium has reached its highest level in a decade.
 

 
3. The composition of foreign holdings of Treasuries shows a bias toward 1-5 year maturities.
 
Source: Deutsche Bank Research  


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Food for Thought

1. US electricity consumption growth by decade:
 
Source: J.P. Morgan Asset Management  
 
2. CEO departures:
 
Source: @chartrdaily  
 
3. Average monthly car loan payments in the US:
 
Source: @WSJ   Read full article  
 
4. Projected US federal deficit and debt:
 
Source: J.P. Morgan Asset Management  
 
5. Cancer rates have been rising among younger Americans, driven by gastrointestinal cancers.
 
Source: @WSJ   Read full article  
 
6. Jimmy Carter’s life has spanned 17 presidencies.
 
Source: The Washington Post   Read full article  
 
Source: A-Z Quotes   
 

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