The Morning Hark - 10 Aug 2023
Today’s focus... Core CPI = Sept skip or hike?
Following on from the 3yr, the 10yr Auction saw decent demand with investors settling for a clearing rate sub 4% ... 3.999% (BBG). A decent recovery in yields following last week's blow out north of 4.2%.
This fed into a naturally positive overnight session, with slightly softer USD, but with CPI looming on the horizon, moves have been limited as traders keep their powder dry until the big release.
Oil still sits at a 9-month high as supply risks (raising tensions Russia/Ukraine) are offset by US stockpile increase (more from The Blind Squirrel on Crude-ilocks!)
Clearly today's CPI is extremely important for short term price action, but as we head into the autumn and the back-to-school trades, there is a new narrative forming on Harkster.com around food supply price shocks and market price measures of inflation expectations drifting back higher...
CPI, CPI, CPI... to skip or to hike?
Upside Risks: Re-engage pricing for Sept hike if Core > 0.3% MoM
Gas prices leading energy higher which brings natural upside risk or bias to 0.2% headline print and 3.3% annual (up from 3.0%)
Falling annual prices last summer have been accounted for and why YoY headline is expected to pop from 3% to 3.3%
MoM reading in core (0.2%) will be the focal point for investors. There is a sense we may be approaching a local low in inflation, with a potential reacceleration from base effects into year end. Annual Core figure expected to remain stable at 4.8%.
Cleveland Fed Nowcast Model estimates core CPI coming in at 0.4% which has the potential to rekindle last week's rate sell off as there is just a ~20% chance of a Sept hike in the curve.
Downside Risks: Inline to softer core MoM number and the Fed can skip Sept...
June Inflation report was softer as airfares, hotel lodging, energy prices, used cars and trucks all compressed. If Core CPI conforms today to economist base case, the FOMC's Sept SEP forecasts may well need to be marked down.. = Fed done? Will JPow discuss 2024 cuts at Jackson Hole?
But with the RoW struggling, what do you want to own if you sell your USD, as per ING's morning piece ... Is disinflation enough to get the dollar lower?
Sources for todays preview and some further reading discovered on Harkster.com "US Inflation" channel:
Employ America: July Inflation Preview - Used Car Downside Can Hasten The Path To 2% Core PCE Outcomes
FT: US inflation expected to have remained steady at 3% in July
San Fran Fed: Where is Shelter Inflation Headed?
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All times in British Summer Time (BST)
US (13:30): CPI
US (13:30): Initial claims
US (18:00): 30yr Auction
US (20:00): Fed's Bostic (non-voter)
US (21:15): Fed's Harker (voter)
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