April Consumer Price Inflation (CPI) headline came in at 4.9% – its lowest level since Feb 21. However, Core CPI was 5.5%. As we know the Fed are more focused on Core. Here’s what the Fed will be watching – it’s all about labor and shelter.
"Inflation"
Pop then Drop! Green Light for Fed Hike
Investors cheered the news of a slightly lower than expected CPI print from March. However, Core Inflation exceeded expectations and actually increased. That’s important – as that’s what the Fed are focused on. Here’s the thing: with Core inflation running at 5.6% YoY – don’t expect cuts anytime soon. It’s almost 3x the Fed’s target. Yes inflation is cooling – slowly – but not where the Fed need it to be. From mine, you can lock in another 25 bps for May 2nd. Bond markets see that. Equities are yet to get the memo
Yields Plunge – The Signal It’s Sending
Bond yields are falling. And fast. The question is why? In short, the bond market is now pricing in a recession. It sees growth stalling… and believes the Fed will embark on rate cuts in the second half. But have equities got the memo? Not yet. They are trading at close to 19x forward earnings… as big tech drags it higher. From mine, I think the market feels vulnerable here.
Oil: Headed Back to $100?
November last year I felt there could be an oil supply shock in 2023 – sending the price back over $100. This week OPEC+ surprised the market by announcing cuts of 3.7M barrels of oil per day – around 4% of global supply. The price of WTI surged back above $80. I think we go higher from here… which won’t help Jay Powell’s fight with inflation.
For a full list of posts from 2017…