Inflation expectations spiked this month in anticipation of upcoming tariffs

The Daily Shot: 13-Jan-25
The United States
Canada
The United Kingdom
The Eurozone
Asia-Pacific
China
India
Emerging Markets
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. December job gains significantly exceeded economists’ forecasts, casting doubt on the anticipated Fed rate cuts this year.
 

 
Source: @WSJ   Read full article  
 
Healthcare, Leisure & Hospitality, and state and local government continue to make up a substantial portion of job gains.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 

 
Job growth has been much slower when these sectors are excluded.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Nonetheless, the payrolls diffusion index climbed (most sectors registered job gains).
 

 
According to Pantheon Macroeconomics, December payrolls benefited from one of the most generous seasonal adjustments on record, likely inflating the reported figures. A recalibration of seasonal factors could result in downward revisions to employment data.
 
Source: Pantheon Macroeconomics  
 
The unemployment rate declined.
 

 
Here is the underemployment rate.
 

 
Wage growth slowed in December.
 

 
We will have more data on the labor market in the coming days.

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2. The University of Michigan’s consumer sentiment index edged lower this month, with the current conditions indicator rising while the expectations subindex fell.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Durables buying conditions (frontrunning tariffs):
 

 
Expected business conditions:
 

 
Consumers are not optimistic about growth in personal income.
 

 
Inflation expectations spiked in anticipation of upcoming tariffs.
 

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3. The strong employment report and higher inflation expectations boosted Treasury yields and the dollar.
 

 

 
Mortgage rates rose further.
 
Source: Mortgage News Daily  
 
Equities sold off.
 

 
Market-based inflation expectations increased again.
 

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4. Rate cut expectations have been scaled back substantially.
 

 
The market-implied fed funds rate trajectory has been repriced sharply.
 

 
The market is now pricing in only 29 bps of rate reductions this year, …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… and 46 bps in total (for this cycle).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The probability of a rate hike over the next 12 months has been rising.
 
Source: Goldman Sachs; @MikeZaccardi  

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5. Financial conditions tightened last week.
 


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Canada

1. Canada’s jobs report also topped expectations.
 

 
Unemployment (lower than expected):
 

 
Labor force participation (unchanged):
 

 
Wage growth (moderating):
 

 
Separately, as of October, the job vacancy rate remained well below pre-COVID levels.
 

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2. The market reduced BoC rate cut expectations following Canada’s employment report …
 
Source: Reuters   Read full article  
 

 
… and is pricing in 46 bps of BoC rate cuts this year.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Bond yields climbed.
 

 
CAD/USD is holding short-term support.
 


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The United Kingdom

1. The pound remains under pressure (2 charts),
 

 

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2. Here is a look at the UK’s energy sources.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. EUR/USD is nearing parity.
 

 
2. Eurozone bond yields have been rising.
 

 
3. French household consumption is starting to recover.
 

 
4. European cyclicals are trading at a valuation premium relative to defensives. According to Barclays, investors hoped that economic activity levels would improve owing to the ongoing rate-cutting cycle.
 
Source: Barclays Research  


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Asia-Pacific

1. Most of the yen’s selloff has occurred outside Tokyo trading hours.
 
Source: Masaki Kondo, @TheTerminal, Bloomberg Finance L.P.  
 
2. Next, we have some updates on Australia.
 
Inflation eased in December.
 

 
Job openings edged lower in November.
 

 
Bond yields are climbing.
 

 
The Aussie dollar hit its lowest level since the 2020 COVID shock.
 


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China

1. Exports were stronger than expected last month, …
 

 
… sending the trade surplus to a record high.
 

 
Source: @economics   Read full article  
 
Trade was a substantial portion of the GDP growth last year.
 
Source: Reuters   Read full article  
 
Source: Reuters   Read full article  

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2. Stocks continue to trend lower.
 

 
3. Massive investment in the manufacturing sector accelerated overcapacity and exacerbated disinflationary pressures.
 
Source: @WSJ   Read full article  


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India

1. Industrial production strengthened in November relative to 2023.
 

 
2. The rupee continues to hit record lows vs. the US dollar.
 

 
3. The stock market has been selling off (2 charts).
 

 


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Emerging Markets

1. Brazil’s inflation remains above the central bank’s target.
 

 
Source: Reuters   Read full article  

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2. Here is Mexico’s factory output.
 

 
3. Turkey’s industrial production jumped in November.
 

 
4. Lebanon’s deeply distressed bonds surged last week following the election results.
 
Source: @bpolitics   Read full article  
 
5. Next, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Commodities

1. US corn and soybeans rallied last week.
 

 

 
Source: Farm Journal   Read full article  
 
Traders are boosting their bets on corn futures.
 

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2. Cattle futures are hitting record highs.
 

 
3. Gold has been moving higher despite higher real yields and the US dollar rally. A breakout ahead?
 

 
4. Here is a look at last week’s performance.
 


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Energy

1. Crude oil futures jumped in response to new US sanctions.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: Reuters   Read full article  
 
Traders are boosting their bets on Brent crude.
 
Source: @markets   Read full article  

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2. US natural gas futures have been surging.
 


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Equities

1. S&P 500 breadth continues to weaken (2 charts).
 
Source: SentimenTrader  
 

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2. Small caps have struggled in recent weeks as bond yields climb.
 

 
3. Retail investors are turning more cautious on the market.
 

 
4. The relative performance of cyclical sectors has broken below its uptrend channel.
 

 
5. The US dollar’s ongoing rally will be a drag on corporate revenues.
 
Source: Goldman Sachs; @MikeZaccardi  
 
6. Analyst price targets for the S&P 500 are typically far off.
 
Source: Truist Advisory Services  
 
7. US equity valuations are in a league of their own.
 
Source: Goldman Sachs; @MikeZaccardi  
 
8. Rising credit spreads and Treasury yields could be a risk to the equity market rally. (2 charts)
 
Source: MRB Partners  
 
Source: MRB Partners  

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9. Next, we have some performance data from last week.
 
Sectors:
 

 
Equity factors/styles:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech firms:
 


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Credit

1. Bank loan funds continue to see inflows.
 
Source: Deutsche Bank Research  
 
2. Here is a look at last week’s performance.
 


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Global Developments

1. US consumers have spent pandemic-era savings, but Europeans have not.
 
Source: J.P. Morgan Asset Management  
 
2. This chart shows current market valuation percentiles vs. history.
 
Source: J.P. Morgan Asset Management  
 
3. Here is a look at currency futures positioning.
 
Source: Deutsche Bank Research  
 
4. Finally, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity indices:
 

 
USD-denominated equity ETFs:
 


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Food for Thought

1. Percent of each state’s imports from China in 2013 and 2023:
 
Source: @M_McDonough  
 
2. US 2024 cumulative electricity capacity additions:
 
Source: Canary Media   Read full article  
 
3. Cases of bacterial STIs:
 
Source: @business   Read full article  
 
4. Math scores:
 
Source: @WSJ   Read full article  
 
5. AI problem-solving ability vs. cost per task:
 
Source: J.P. Morgan Asset Management  
 
6. Countries with visa-free or transit visa-free access to China:
 
Source: @business   Read full article  

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