Read on the Trading Floor - 12 Oct 2023
Today’s focus… Super Core Inflation, Energy Supply and more…
Theme 1: Inflation - a lot done more to do...
A market that was looking for confirmation that the Fed was finally done, simply did not receive it today. Along with last week's strong labour data, rent rises and high core service prices has once again forced a repricing of another hike by yr end. This is still unlikely to occur in Nov (~10% chance priced) but Dec pricing continues to rise on the CME FedWatch Tool with a 34% chance this evening.
Scotiabank focused on "core services inflation accelerating again. It was up by 0.6% m/m SA CPI on a CPI core services ex-housing and ex-energy services basis. That is the hottest reading since a year ago and equates to 7.6% m/m SAAR (chart 3). Such a hot core services inflation reading matters because it goes back to the measure Powell said they would be watching very closely in terms of core PCE."
Super Core is of course JPow's favourite indicator and it has certainly disappointed equity bulls and USD bears looking for the disinflationary trend to continue and for FinTwit to be dominated by Rally Monkey memes. As a result, USDJPY is back knocking on 150, EURUSD on a 1.05 handle and US2s / US10s have sold off ~5bps and ~10bps respectively. We can all see the leading activity indicators turning lower (looking at you housing) but the fiscally fuelled economy is just too strong and the labour market too resilient for the Fed not to worry about re-igniting inflation and wages pressures. Today's data set does not give a high degree of confidence or project with comfort to a return to 2% inflation target.
The pop in rents was clearly a key driver of core inflation, again we all know it is a lagging indicator but SEB make an excellent point that must worry the Fed ... "declining affordability for own homes (because of sky-rocketing mortgage rates) will spill over into demand for rentals and higher rents"
Post release, content of note on Harkster.com
MacroVisor - The Inflation Story is Not Over
Scotiabank - It Ain't Over Yet
Advisor Perspectives - Inside the Consumer Price Index
Not to be forgotten, IMF is still occurring in Marrakech with it's own inflation warning ... ZeroHedge - IMF warns inflation remain elevated until 2025
Theme 2: Global Risks to Energy Supply...
Finland - EUR under pressure as Dutch Nat Gas ticks higher, a 30% increase on the week to north of 50 euro per megawatt hour. This however is still some way from the post invasion high of 300 euro but concerns remain as Israel have also turned off their pipeline to Europe via Egypt.
FT - European gas prices soar on global supply disruption fears | Financial Times
Natural Gas Intelligence - Israel Natural Gas Operations Said Less Secure as Hamas War Escalates
Bloomberg - Fear Grips Global Gas Market Facing Winter Supply Threats
LNG Global - Fear Grips Global Gas Market
Australia - LNG strike is still rolling but some positive talks (Yahoo)
OIL - has retraced Sundays move, but the known unknown is if the Hamas-Israel conflict morphs into a regional one with Lebanon and/or Iran.
Steno Research - CPI Rises More Than Expected as Rent Jumps Another 0.6%
FT - Border clashes prompt fears of Hizbollah joining Israel-Hamas war
Oil Price - Europe Cuts Dependency On Russian Gas By 21%
Oil Price - OPEC Leaves Oil Demand Growth Forecast Unchanged Despite Economic Uncertainty
Theme 3: UK Real Estate
It's a national pastime to focus on the price of a pint and a house. This week the latter is dominating the news cycle as the post Covid price euphoria starts to correct. It's a natural correction after the excesses of the past few years, but with mortgage rates at decade highs, affordability a concern for millennial renters, and still north of 500k households to refi in the coming year on their 2yr fixed from covid lows .. maturity wall lies ahead not behind for the UK economy ...
Telegraph - Desperate developers offer to pay buyers’ mortgages
Bloomberg - UK Housing Market Shows Signs of Improving After BOE Holds Rates
Theme 4: Not much change on the domestic front in the US....
US House: Scalise in "pole" position but it's clearly going to be a fight to get him through as Reps fracture into more divisive factions. The house is split 221-212, so very little margin for error... just 9 Rep votes is little comfort as he struggles to get the numbers today ....
UBS ON-Air: Paul Donovan Daily Audio 'US politicians at play'
ZeroHedge - Scalise Faces Uphill Battle For Speaker Amid Divided Republican Caucus
US UAW: The strikes are expanding not contracting, rolling impact on US gdp should not be forgotten as we look at the impending data and the market reprices a Fed Dec hike .
Axios - UAW strike Ford Kentucky Plant
WSJ - High UAW Wages Shrink Detroit’s Room to Manoeuvre
👍 If you found this piece helpful, please give it a ‘Like’ at the bottom of the page. It only takes a few seconds and helps our free commentary reach a wider audience.
Some further reading of note from Man Group, BNP AM,
FT - Central Banks still need to justify the case for 'higher for longer' rates
Unchained Crypto - SBF Trial, Day 6: Caroline Ellison Recalls 'The Worst Week of My Life - Unchained Crypto
NY Fed via Liberty Street Economics - Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon
Stay informed throughout the day with our new commentary feed (‘Intraday Market Colour’) highlighting key notes, topics du jour, and HarksterHQ’s market updates around key data points and headlines.
Available on the Harkster Research Platform.
ㅤㅤㅤ
ㅤㅤㅤ
ㅤㅤㅤ
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.