US inflationunder the lens
Consumer Price Index (CPI) in January disappointed – Disinflation on a bumpy path – The market adapts and has priced no Fed cuts in March and May
- CPI Ex-Food & Energy in January +3.9% (+3.7 expected)
- Further goods disinflation is unlikely as supply chains have already relaxed
- Services inflation remains above 3%, growth in rents has room to moderate markedly, but services disinflation ex-rents needs a softer labor market. Some patience is required
Reporting season tracker
Q4 earnings keep tracking ahead of expectations, albeit much more in US than Europe:
US: 322 of S&P500 companies reported (01.01.-12.02.):
- 69% revenue beats vs. 5-year average of 68% and 10 year average of 64%
- 82% Earnings Per Share beats vs. 5-year average of 77% and 10-year average of 74%
Europe: surprise summary (29% of Bloomberg Europe 600 index as of 9.2.2024)
Bitcoin «halving»
- According to Nakamoto’s algorithm, supply of bitcoin halves at regular intervals
- Given the existing stock, “stock-to-flow” goes to 118. Gold, for contrast, has a ratio of only 56. Bitcoin is far more scarce
- Miners will earn half their remuneration. Cantor Fitzgerald estimates that half of the major ones will not break even: consolidation ahead
Bonds looking for signals
- Yields continue their correction higher as there are no new signals in favour of the imminent cut scenario
- Investors have further reduced the number of expected rate cuts in the next 12 months (now expecting around 5 cuts for both, the Fed and the ECB)
- After the US CPI data and German ZEW, the focus will be on the US Retail Sales and GDP data at the end of the month
Commercial Real Estate
- Commercial Real Estate (CRE) markets have been in a sharp decline as last year’s spike in interest rates compounded challenges from the shift to work-from-home and changing retail behavior
- US CRE contagion is now moving to Europe
- The ECB is signaling to lenders that they may face higher capital requirements if they have an insufficient handle on risks they face from commercial real estate
- CRE risks remain, but are unlikely to cause a major shock to the markets and will remain a concern for some time
- Overall scenario for spreads remains constructive, with volatility expected to increase only in more leveraged names
- Market appetite still high after record issuance in January
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