The hidden surprise in the benign PPI report

The Daily Shot: 15-Jan-25
The United States
The United Kingdom
The Eurozone
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. Let’s begin with some updates on inflation.
 
Producer price gains in December came in well below expectations, with core PPI nearly flat for the month.
 

 
Source: Reuters   Read full article  
 
However, wholesale passenger transportation prices spiked, …
 

 
… indicating the potential for faster core PCE inflation, the Fed’s preferred measure. This chart signals a sharp increase in the PCE air transport price index.
 
Source: @RenMacLLC  
 
Below are two core PCE inflation forecasts.
 
Nomura:
 
Source: Nomura Securities  
 
Pantheon Macroeconomics:
 
Source: Pantheon Macroeconomics  
 
Wildfire disasters often drive inflation higher, primarily by increasing vehicle prices.
 
Source: Morgan Stanley Research  
 
The rise in ISM services prices paid suggests an upturn in CPI.
 
Source: Deutsche Bank Research  
 
Nomura anticipates a modest slowdown in December’s core CPI (released today).
 
Source: Nomura Securities  
 
Here is their projection for the supercore CPI.
 
Source: Nomura Securities  

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2. Investors increasingly anticipate tighter financial conditions as the Fed maintains its restrictive stance amid persistent inflation.
 
Source: 22V Research; @markets   Read full article  
 
3. The NFIB small business sentiment has surged following the elections, …
 

 
… with the sales expectations index rising to pre-COVID levels.
 

 
Credit conditions are expected to improve sharply.
 

 
Here are the compensation indicators.
 

 
Hiring plans improved further.
 

 
Despite all this optimism, small businesses, on average, cut employment levels in December by the largest margin since the Global Financial Crisis. It’s difficult to reconcile significant improvements in outlook with substantial reductions in staffing.
 

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4. Treasury yields continue to rise, with the long-bond yield nearing 5%.
 


 
Real yields are also rising.
 

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5. The Fed’s broad US dollar index hit a record high.
 


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The United Kingdom

1. The December UK CPI report indicated slowing inflation, falling short of forecasts.
 

 
Source: CNBC   Read full article  
 
Services inflation declined sharply.
 

 
While rent inflation remains high, …
 

 
… travel and transportation services CPI eased significantly last month.
 

 
Retail inflation was also below forecasts.
 

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2. Swap rates and gilt yields fell sharply, …
 

 
… as the market now anticipates a BoE rate cut next month, …
 

 
… with 50 bps priced in for 2025.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Here we go again …
 
Source: @YouGov   Read full article  


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The Eurozone

1. Italian industrial production edged higher in November.
 

 
2. Germany is likely in recession.
 
Source: Capital Economics  
 
3. Next, we have the latest political polls from Germany.
 
Source: Barclays Research  
 
4. European cyclicals’ profit forecasts are diverging from the weakening Ifo business climate index, highlighting growing skepticism about the region’s economic growth and corporate earnings prospects.
 
Source: @markets   Read full article  
 
5. Here is a look at sovereign yield changes.
 
Source: Capital Economics  


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Japan

1. The BoJ is hinting at the possibility of a rate hike in January.
 
Source: @economics   Read full article  
 
The market boosted rate hike expectations.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
JGB yields keep rising.
 

 
The yen strengthened.
 

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2. The Economy Watchers Expectations index declined last month.
 


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Asia-Pacific

1. South Korea’s unemployment rate jumped in December.
 

 
Source: @economics   Read full article  
 
Lending to households slowed.
 

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2. Australian consumer confidence ticked lower this month.
 

 
3. New Zealand bond yields are surging.
 

 
4. The US dollar rally has been a drag on Asia Pacific shares.
 
Source: @markets   Read full article  


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China

1. Growth in bank loan balances continued to decelerate, with new lending slowing in 2024.
 

 
Source: @markets   Read full article  
 
This chart shows new medium and long-term loans.
 

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2. Improvements in the money supply growth are a tailwind for stocks.
 
Source: Simon White, Mark Cranfield, Bloomberg Markets Live Blog  
 
3. The RMB has depreciated against the dollar but recently appreciated against the euro and EM Asia currencies.
 
Source: BCA Research  
 
A higher trade-weighted RMB may hinder China’s export competitiveness.
 
Source: BCA Research  

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4. Despite Beijing’s attempts to halt the bond rally, yields are falling again.
 


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Emerging Markets

1. Argentina’s inflation continues to moderate, …
 

 
… allowing the government to slow the pace of the peso depreciation.
 
Source: @economics   Read full article  
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Hungarian inflation accelerated in December, topping forecasts.
 

 
3. The Indian rupee implied volatility has been rising.
 


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Cryptocurrency

1. Selling pressure from long-term bitcoin holders reached the highest level since April 2024.
 
Source: @glassnode  
 
2. Realized losses have spiked in recent days as traders began selling BTC positions that were accumulated at higher prices.
 
Source: @glassnode  
 
3. The chart below shows the main factors contributing to the recent bitcoin rally, according to Bloomberg’s model.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Crypto funds saw modest inflows last week, led by Bitcoin and XRP products, although Ethereum-focused products saw large outflows.
 
Source: CoinShares   Read full article  
 
Here is a look at fund flows by provider.
 
Source: CoinShares   Read full article  


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Commodities

1. Sugar futures tumbled in recent months.
 

 
Source: barchart.com   Read full article  

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2. Chicago hog futures are rising amid higher wholesale pork prices.
 

 
3. Traders continue to boost their bets on organge juice futures.
 


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Energy

1. Crude oil shipping prices surged after the latest US sanctions.
 

 
Source: Reuters   Read full article  

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2. Arab light premium to WTI has eased recently but remains elevated.
 

 
3. Here is a look at Iran’s oil production.
 
Source: Capital Economics  
 
4. Amid cold weather, Europe’s natural gas consumers are finding relief as mild weather in Asia frees up more LNG supply for Europe.
 
Source: @JKempEnergy   Read full article  
 
5. We are starting to see US renewable diesel consumption on the East Coast.
 
Source: @EIAgov  


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Equities

1. Implied EPS growth for 2025 is set at an ambitious 23.5%, far exceeding bottom-up consensus and macro estimates. Elevated market expectations could challenge valuations if earnings disappoint.
 
Source: @markets   Read full article  
 
2. Here is a look at the distribution of S&P 500 annual returns.
 
Source: Truist Advisory Services  
 
Post-election year S&P 500 returns have historically shown a bimodal distribution, highlighting heightened uncertainty.
 
Source: @GinaMartinAdams  

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3. Tech positioning appears aggressive relative to earnings growth (2 charts).
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

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4. Generally, negative stock/bond correlations provide more opportunities to obtain higher potential return despite a drop in expected volatility (2 charts).
 
Source: PIMCO   Read full article  
 
Source: PIMCO   Read full article  

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5. The recent dollar surge could ease import costs, but it risks pressuring multinational earnings by reducing export demand and the value of overseas revenues.
 
Source: @markets   Read full article  
 
Here is an overview of sector sales growth sensitivity to fluctuations in the US dollar.
 
Source: Goldman Sachs; @MikeZaccardi  
 
Companies are likely to raise concerns about US dollar strength during earnings calls.
 
Source: Morgan Stanley Research; @WallStJesus  

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6. US small-cap earnings estimates have been in a pronounced downgrade cycle, …
 
Source: MRB Partners  
 
… diverging from large caps.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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7. Higher Treasury yields have tampered with the breadth expansion that began in Q3 2024.
 
Source: Alpine Macro  
 
Cyclical sectors tend to exhibit a steeper negative correlation with Treasury yields.
 
Source: Alpine Macro  


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Credit

1. Investment-grade bond spreads as a percentage of yield are at multi-year lows.
 

 
2. Repeat bankruptcies were elevated in 2023 and 2024, reflecting persistent challenges in sectors like retail and real estate, even as the broader economy showed resilience. Elevated interest rates and structural shifts continue to strain vulnerable industries.
 
Source: @markets   Read full article  


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Rates

1. TLT is down 16% from the September high.
 

 
2. Treasury term premium continues to climb.
 


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Food for Thought

1. Prices for secondhand luxury watches:
 
Source: WatchEnthusiasts  
 
2. US federal government workers:
 
Source: J.P. Morgan Asset Management  
 
Federal employment as a share of civilian jobs:
 
Source: USAFacts  
 
Federal government employment peaked in 1990.
 
Source: USAFacts  

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3. 2024 was a warm year:
 
Source: Statista  
 
4. From 2020 to 2024, Florida led domestic migration, with New York, New Jersey, and California as the top-origin states.
 
Source: Placer.ai  
 
5. NFL kicker accuracy improved significantly over time, especially for long-distance field goals.
 
Source: r/DataIsBeautiful  
 

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