Us inflation still at large
Producer Price Index (PPI) exceeded forecasts in January – Highlights sticky nature of inflation – No cuts on the (near) horizon
- PPI Ex-Food & Energy (YoY) in January +2.0% (+1.6 expected)
- Treasuries extended their selloff – 2 year yields rose to highest levels since mid December
- • Traders pared expectations for cut in May – now priced at just 25%!
A psychological threshold
The Standard & Poors 500 index broke the 5.000 points level and then stabilized
- After a notable +21% run from October 27, the S&P 500 emerged unscathed from stronger than expected inflation figures and the re-pricing occurred in the bond market
- A pause looks normal from a technical perspective. The US equity market waits for positive catalysts, namely more disinflation, a contained activity slowdown and the Fed to begin rate cuts
the largest ever cut
The People Bank of China (PBOC) lowered its 5 year loan prime rate from 4.20% to 3.95% (4.10% was expected). The one year rate was kept unchanged
- With this unusual move, the PBOB puts a cap on mortgage rates in order to support the failing housing market
- More to come: governor Pan Gongsheng signaled last month the PBOB willingness to fight deflation and guide down mortgage rates
Consumption slowdown
While economic activity is proving resilient, consumer spending in the US is losing some of its momentum
- Excess savings dissipated, tighter credit, rising delinquencies, negative real income growth. However, the labor market remains tight and consumer confidence gauges are holding well
- Sellers of consumer staples are signalling caution. Yet, whether a recession ultimately materializes will depend largely on the behaviour of corporate profit margins
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