Month: March 2024

Power has been restored at Tesla’s German Gigafactory near Berlin after a far-left militant/environmental group attacked nearby electricity infrastructure, paralyzing vehicle production for about a week. 

Grid operator E.DIS wrote in a statement that the Gigafactory in Gruenheide was reconnected to the power grid late Monday night after weekend assembly work on a high-voltage tower.

Last Tuesday, the far-left militant/environmental group known as “Vulkangruppe” (Volcano Group) claimed responsibility for the attack on the nation’s grid. 

“We sabotaged Tesla today. Because Tesla in Grünau eats up earth, resources, people, labor and spits out 6,000 SUVs, killing machines and monster trucks per week,” Vulkangruppe said. 

On X, CEO Elon Musk responded to the incident by saying: 

“These are either the dumbest eco-terrorists on Earth or they’re puppets of those who don’t have good environmental goals. Stopping production of electric vehicles, rather than fossil fuel vehicles, ist extrem dumm.”

These are either the dumbest eco-terrorists on Earth or they’re puppets of those who don’t have good environmental goals.

Stopping production of electric vehicles, rather than fossil fuel vehicles, ist extrem dumm.

— Elon Musk (@elonmusk) March 5, 2024

Reuters says Tesla plans to “gradually start-up systems in the factory.” The massive factory, which produces 6,000 Model Ys per week, employs 12,500 workers. 

“It is not yet possible to say how long it will take until production can be fully resumed,” Tesla said in a statement.

Following the Gigafactory blackout, Ben Kallo, an analyst at Baird Equity Research, highlighted the need to lower the automaker’s vehicle deliveries for the quarter. He forecasted that Tesla would deliver around 421,100 vehicles in the first quarter, roughly 67,900 less than the Wall Street consensus. 

Kallo, who turned bearish on the stock in late January, said, “A series of one-time production disruptions have added further complexity to the setup” for the first quarter. 

Tesla is an original member of the Magnificent Seven, but it has fallen behind on the year, down nearly 30%, while its peers—Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, and Meta Platforms—have zoomed higher. 

Meanwhile, the eco-terroist group is still falling for a “complete destruction of the gigafactory.” 

The Israel Defense Forces (IDF) has announced the death of 19-year old Sgt. Itay Chen, a dual US-Israeli citizen who had been serving in the IDF.

Authorities have revealed for the first time that he was abducted and killed by Hamas on Oct. 7. His death had not been initially confirmed as Hamas had removed his body from the border outpost where he was killed.

“Chen served in the 7th Armored Brigade’s 75th Battalion, and his body was taken from the Gaza border, following a battle with terrorists during the Hamas onslaught,” writes Israel National News.

The publication additionally noted that “The body of Chen, a US citizen, was stolen from the Nahal Oz base in the Gaza envelope where he served.”

New undisclosed intelligence information reportedly came to light confirming his death, though his body still hasn’t been handed over by Hamas or retrieved from the Gaza Strip.

A statement has been issued by President Biden which reads in part, “Today, as we join Itay’s parents, brothers, and family in grieving this tragic loss, we keep this reminder close to our hearts. And I reaffirm my pledge to all the families of those still held hostage: we are with you. We will never stop working to bring your loved ones home.”

A statement by the Hostages and Missing Persons Families Forum said the following:

“We share in the profound grief of the Chen family. Itay Chen (19) was always surrounded by friends. A beloved individual who drew others to him with his warm presence. Itay loved the land, going on hikes, and was a senior instructor in youth movements – a salt of the earth person,” a statement in his memory read. 

Chen had reportedly contacted his family on the morning of the massacre and said a war had broken out, but contact was then lost. His family was told by the military that he was abducted with other troops, and his fate remained unknown. His family was among those who have met with President Biden early in the conflict.

An estimated 134 Israeli and foreign hostages remain in Gaza; however, it’s unknown how many among these are still alive as the grinding war continues, and as the IDF stands ready for a ground offensive against the southern city of Rafah. There have been reports that Israeli intelligence believes at least 30 of these are already deceased.

5 months after the October 7 massacre, families of victims and hostages march to remind Israel not to forget their loved ones

‘They have harsh words for the government; they feel very much abandoned,’ @mcauliffe_marym reports pic.twitter.com/toPxnEIkqw

— i24NEWS English (@i24NEWS_EN) March 7, 2024

Among these have been six Americans still held captive. With the confirmation of Chen’s death, this number is now tragically reduced to 5 US citizens believed to still possibly be alive and in captivity.

Family members of kidnapped victims continue to press the Netanyahu government to strike a deal with Hamas in order to get the rest of the hostages returned home, as they await in agony. 

Southwest Airlines released a new filing that warned it must trim its capacity and reassess financial forecasts. The airline attributed these adjustments to a decrease in Boeing 737 Max jet deliveries this year amid the aircraft manufacturer’s ongoing regulatory and criminal investigations. This news comes ahead of Chief Executive Officer Bob Jordan’s presentation at the JP Morgan Industrials Conference at 1000 ET. 

“To that end, and especially in light of further second half 2024 planned capacity reductions discussed below, the Company has halted hiring classes for multiple workgroups, including Pilots and Flight Attendants, and now intends to end the year with headcount down on a year-over-year basis, compared with its previous expectation of flat to down, year-over-year,” the filing said. 

Boeing informed the Dallas-based airline to expect only 46 Max model deliveries this year, down from 79: 

Boeing has advised the Company to expect 46 737-8 (“-8”) aircraft deliveries in 2024, a reduction from the Company’s previous expectation of 79 737 MAX aircraft deliveries, which included 58 -8 aircraft. Further, the Company now assumes no 737-7 (“-7”) aircraft deliveries and continues to assume no -7 aircraft are placed into service this year based on the current certification status.

As a result of Boeing’s continued challenges, the Company expects the delivery schedule to be fluid and, therefore, plans to reduce capacity and re-optimize schedules, primarily for the back half of 2024, which will likely result in at least a one point reduction to the Company’s full year 2024 capacity plans on a year-over-year basis.

Boeing’s troubles stem from a US Justice Department criminal investigation into the door plug that ripped off a 737 Max operated by Alaska Air Group. The Federal Aviation Administration also placed a production cap on the Max manufacturing program to ensure that the “incident must never happen again.” 

Southwest’s situation highlights how Boeing’s problems are rippling across the industry. The airline must “reevaluate all prior full-year 2024 guidance.” 

Shares of Boeing plunged 13% in the early cash session. 

Today’s decline is the largest since the early Covid panic. 

Last week, United Airlines said it would have to pause pilot hiring because of a delay in Boeing aircraft deliveries. 

Great job, Boeing. 

While it is possible that the market had priced in a hot print (as we previewed) and which explains the rise in futures after the hotter than expected CPI print, it is certain that – as Bloomberg’s Chris Anstey writes – this isn’t good news for the Fed: the second straight 0.4% reading for core CPI suggests that January wasn’t a one-off anomaly, contrary to what Goldman claimed with its bet on the “January effect.” 

And while this certainly isn’t good news for the Fed, it’s hardly good news for the Biden administration either. This year was meant to be one of dis-inflation but today’s data really lean into the idea that the last mile is the hardest. Still, Biden may take some solace from the fact that the food index was unchanged given his administration has been going hard on the theme of “shrinkflation” and that supercore inflation didn’t come in superhot, unlike last month. 

Still, overall inflation is looking stubborn.

With that in mind, here is a snapshot of the kneejerk reactions by a selection of Wall Street analysts, economists and strategists.

 Brian Coulton, chief economist at Fitch Ratings:

“That is not the direction the Fed wants to see.”

Derek Tang, economist with LH Meyer/Monetary Policy Analytics:

“CPI came in a touch higher than expected but not so high to stop them from cutting in June as we expect. Powell and others have warned inflation will come down in a bumpy way. There’s still a few more prints before they meet in June, and what matters if the whole path down. As Powell said, they’re ‘not far’ from gaining the confidence they need to start cutting, and this report alone doesn’t detract from that.”

Augusta Saraiva, Bloomberg:

“After a brisk January reading, the report adds to evidence that inflation is proving stubborn, which is keeping central bankers wary of easing policy too soon.”

Kathy Jones, Charles Schwab’s chief fixed-income strategist:

“This will probably be seen as a reason to keep policy on hold a while longer. Through the volatility, the downtrend in inflation seems to be leveling off and the Fed would like to see it continue to move lower before easing rates.”

Bloomberg Intelligence Rates Strategist Ira Jersey (who confirms what we said yesterday: a hot print was mostly priced in).

“The rates market looks to have been set up for an even worse inflation print. “But we don’t think this print warrants a sustained rally from these levels.”

to David Russell, Head of Market Strategy at TradeStation:

“Inflation came in a little hot but the bulls aren’t ready to throw in the towel yet. Investors remain optimistic that shelter costs will come down. We still have three more reports before that key Fed meeting in June to confirm or reverse that hope. Wall Street is keeping the faith for now but that could change if future prints don’t improve. Stocks are still climbing the wall of worry.”

Alan Detmeister, UBS Research:

“Overall, this report, while strong, was a good sign the elevated January pace is unlikely to persist into the spring, but, as we have noted before, today’s report is unlikely to have any effect on the upcoming FOMC meeting.”

Torsten Slok, Apollo:

“Fresh upward momentum is building in inflation. Inflation has started to move sideways and remains well above the Fed’s 2% inflation target. This means the Fed will keep rates higher for longer.”

Leo He, UBS Macro Sales:

“Markets are finding relief from the US inflation data as core CPI rose less than the CPI fixing market had expected (36bp versus 41bp priced). The US 2y yield rose more than 8bp in a knee-jerk reaction but is now falling back. The USD is slightly lower and equities are higher after the data release.”

Marvin Loh, State Street

“I think the real concerns were that we were going to get accelerating supercore and housing, and since that didn’t happen, we are off to the races again. The market wants to read into the positivity that the Fed will be able to start the rate-cutting process over the summer. It does not want to fret the details of what comes after that until after it starts.”

Ali Jaffery, CIBC Capital Markets:

“Labor market rebalancing and decelerating wage growth suggest softer service price gains down the road. The Fed will remain highly data-dependent, and we expect they will be more comfortable easing policy in the second half of the year.”

Rubeela Farooqi, chief US economist at High Frequency Econ:

“The latest data further reinforce the case for a patient and vigilant approach from Fed officials as they consider future policy decisions.”

Jay Hatfield, founder of Infrastructure Capital Management:

“The core print was only 3.6% without rounding and the components that drove the beat are likely to reverse in the future, particularly airline fares, up 3.6% for the month. PCE core should be below 0.3% which means core PCE will slowly decline over the next three months setting the stage for a June or July rate cut, with the ECB moving in June.”

Anna Wong, Bloomberg Economics:

“The hot core CPI reading won’t build Fed confidence to cut rates imminently — but it also doesn’t rule out the chance of a mid-year rate cut. More importantly, the reversal of the unusual spike in owners’ equivalent rent showed January’s reading was likely just an aberration, not a signal of stickier housing inflation. We still expect the Fed to gain enough confidence to cut rates as soon as May — our base case — as both inflation and the labor market cool further.”

Andrew Hollenhorst, Citi:

“We expect 0.20%MoM core PCE inflation for February based on details of CPI. We will further refine our projection following the release of PPI Thursday – with medical services prices particularly important.”

Authored by Lance Roberts via RealInvestmentAdvice.com,

Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution of the market into a “casino” following the pandemic, where retail traders have increased their speculative appetites.

“Such is unsurprising, given that retail investors often fall victim to the psychological behavior of the “fear of missing out.” The chart below shows the “dumb money index” versus the S&P 500. Once again, retail investors are very long equities relative to the institutional players ascribed to being the “smart money.””

“The difference between “smart” and “dumb money” investors shows that, more often than not, the “dumb money” invests near market tops and sells near market bottoms.”

That enthusiasm has increased sharply since last November as stocks surged in hopes that the Federal Reserve would cut interest rates. As noted by Sentiment Trader:

“Over the past 18 weeks, the straight-up rally has moved us to an interesting juncture in the Sentiment Cycle. For the past few weeks, the S&P 500 has demonstrated a high positive correlation to the ‘Enthusiasm’ part of the cycle and a highly negative correlation to the ‘Panic’ phase.”

That frenzy to chase the markets, driven by the psychological bias of the “fear of missing out,” has permeated the entirety of the market. As noted in “This Is Nuts:”

“Since then, the entire market has surged higher following last week’s earnings report from Nvidia (NVDA). The reason I say “this is nuts” is the assumption that all companies were going to grow earnings and revenue at Nvidia’s rate. There is little doubt about Nvidia’s earnings and revenue growth rates. However, to maintain that growth pace indefinitely, particularly at 32x price-to-sales, means others like AMD and Intel must lose market share.”

Of course, it is not just a speculative frenzy in the markets for stocks, specifically anything related to “artificial intelligence,” but that exuberance has spilled over into gold and cryptocurrencies.

Birds Of A Feather

There are a couple of ways to measure exuberance in the assets. While sentiment measures examine the broad market, technical indicators can reflect exuberance on individual asset levels. However, before we get to our charts, we need a brief explanation of statistics, specifically, standard deviation.

As I discussed in “Revisiting Bob Farrell’s 10 Investing Rules”:

“Like a rubber band that has been stretched too far – it must be relaxed in order to be stretched again. This is exactly the same for stock prices that are anchored to their moving averages. Trends that get overextended in one direction, or another, always return to their long-term average. Even during a strong uptrend or strong downtrend, prices often move back (revert) to a long-term moving average.”

The idea of “stretching the rubber band” can be measured in several ways, but I will limit our discussion this week to Standard Deviation and measuring deviation with “Bollinger Bands.”

“Standard Deviation” is defined as:

“A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of the variance.”

In plain English, this means that the further away from the average that an event occurs, the more unlikely it becomes. As shown below, out of 1000 occurrences, only three will fall outside the area of 3 standard deviations. 95.4% of the time, events will occur within two standard deviations.

A second measure of “exuberance” is “relative strength.”

“In technical analysis, the relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can read from 0 to 100.

Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.” – Investopedia

With those two measures, let’s look at Nvidia (NVDA), the poster child of speculative momentum trading in the markets. Nvidia trades more than 3 standard deviations above its moving average, and its RSI is 81. The last time this occurred was in July of 2023 when Nvidia consolidated and corrected prices through November.

Interestingly, gold also trades well into 3 standard deviation territory with an RSI reading of 75. Given that gold is supposed to be a “safe haven” or “risk off” asset, it is instead getting swept up in the current market exuberance.

The same is seen with digital currencies. Given the recent approval of spot, Bitcoin exchange-traded funds (ETFs), the panic bid to buy Bitcoin has pushed the price well into 3 standard deviation territory with an RSI of 73.

In other words, the stock market frenzy to “buy anything that is going up” has spread from just a handful of stocks related to artificial intelligence to gold and digital currencies.

It’s All Relative

We can see the correlation between stock market exuberance and gold and digital currency, which has risen since 2015 but accelerated following the post-pandemic, stimulus-fueled market frenzy. Since the market, gold and cryptocurrencies, or Bitcoin for our purposes, have disparate prices, we have rebased the performance to 100 in 2015.

Gold was supposed to be an inflation hedge. Yet, in 2022, gold prices fell as the market declined and inflation surged to 9%. However, as inflation has fallen and the stock market surged, so has gold. Notably, since 2015, gold and the market have moved in a more correlated pattern, which has reduced the hedging effect of gold in portfolios. In other words, during the subsequent market decline, gold will likely track stocks lower, failing to provide its “wealth preservation” status for investors.

The same goes for cryptocurrencies. Bitcoin is substantially more volatile than gold and tends to ebb and flow with the overall market. As sentiment surges in the S&P 500, Bitcoin and other cryptocurrencies follow suit as speculative appetites increase. Unfortunately, for individuals once again piling into Bitcoin to chase rising prices, if, or when, the market corrects, the decline in cryptocurrencies will likely substantially outpace the decline in market-based equities. This is particularly the case as Wall Street can now short the spot-Bitcoin ETFs, creating additional selling pressure on Bitcoin.

Just for added measure, here is Bitcoin versus gold.

Not A Recommendation

There are many narratives surrounding the markets, digital currency, and gold. However, in today’s market, more than in previous years, all assets are getting swept up into the investor-feeding frenzy.

Sure, this time could be different. I am only making an observation and not an investment recommendation.

However, from a portfolio management perspective, it will likely pay to remain attentive to the correlated risk between asset classes. If some event causes a reversal in bullish exuberance, cash and bonds may be the only place to hide.

The Federal Aviation Administration’s six-week audit of the clowns running Boeing and Spirit AeroSystems has found dozens of problems in the 737 Max manufacturing process, according to The New York Times, citing an FAA presentation.

During Boeing’s audit, the FAA conducted 89 product reviews, which evaluated the manufacturing process. Of the 89 audits, the planemaker passed 56 but did not meet specific standards in 33, resulting in 97 alleged noncompliance. 

The presentation comes two months after a door plug ripped off a 737 Max 9 during an Alaska Airlines flight. Since then, Boeing has come under intense scrutiny over its manufacturing process. The latest findings should concern airlines operating fleets of these planes and passengers. 

The audit then focused on Spirit AeroSystems, which makes fuselage or other parts for the 737 Max. According to the presentation, Spirit only passed six audits while failing seven. 

FAA investigators noticed mechanics at Spirit using a hotel key card to measure door seals. Some mechanics also used Dawn soap as a “lubricant” during the door fitting process. 

When asked about mechanics using hotel key cards or Dawn soap, Spirit spokesman Joe Buccino said the company was “reviewing all identified nonconformities for corrective action.”

Additionally, the Spirit audit found five problems with the door plug component. It shockingly failed the installation part. The audit also raised concerns about the technicians who carried out the work. 

Many of the problems found by auditors fell in the category of now following an “approved manufacturing process, procedure or instruction. Other issues include a lapse in quality control in the manufacturing processes. 

The FAA gave Boeing three months to develop a comprehensive plan for quality-control improvements. Boeing CEO Dave Calhoun said, “We have a clear picture of what needs to be done.” 

Meanwhile, Boeing and federal regulators have their hands full after several aircraft incidents last week. 

• ZeroHedge (Tuesday): “Plane Was Nosediving”: United Airlines Boeing 737 Engine Erupts In Flames Over Texas
• ZeroHedge (Friday): United’s Boeing 737 Max Jet Veers Off Runway In Houston, Marking Third Incident In Week
• ZeroHedge (Friday): Tire Separates From Boeing 777, Crushes Cars In San Francisco Parking 

But seriously, how is anyone still surprised https://t.co/pVA7GOXbix pic.twitter.com/6LlOU9kXX5

— zerohedge (@zerohedge) March 9, 2024

And there’s this from Monday evening: 

• Boeing Whistleblower Found Dead In A Truck From “Self-Inflicted Gunshot Wound”

All the chaos surrounding Boeing’s “death trap” planes has caused a boycott, as passengers are using online travel booking website Kayak’s plane filter to find Airbus flights only for their next trip. 

Oh, and there’s this. 

🇺🇸🚨‼️ Boeing investigated by Al Jazeera!

An Al Jazeera reporter armed himself with a hidden camera and visited a Boeing plant in South Carolina. I visited the department where “B-787 dreamliners” are assembled.

The journalist asked the employees whether they were ready to fly… pic.twitter.com/gtlxZyK2wC

— Lord Bebo (@MyLordBebo) March 11, 2024

What a disaster.

By Michael Msika, Bloomberg Markets Live reporter and strategist

In a market scaling record highs thanks to a steady stream of dovish central bank comments, investors are more concerned about catching the next leg higher rather than worrying over a pullback.

US and European stocks may be overbought, but the frenzied buying of large caps is pushing indexes to all-time highs. Comments from the Fed and ECB last week appeared very dovish, with the bond market indicating that June rate cuts are firmly on the agenda for both, even with another set of strong payroll data on Friday.

Technically, the picture is getting relatively stretched, and markets may not be able to go on like this without a pullback. “I am by no means bearish, but I think we will see some weakness in the coming weeks and months, even if we go a bit higher first,” says Thomas Hayes, chairman at Great Hill Capital.

Yet calling the top has become a very hard thing to do. The Euro Stoxx 50 has rarely been this overbought and is testing the 5,000 handle after hitting its highest since December 2000 last week.

As valuations expand, equity risk premia have continued to compress — not just in the US but also globally — making stocks less and less attractive versus bonds. For the MSCI World, that premium has slipped to near the lowest of a 24-year range.

An improving economy and a slowing rate of inflation are making the case for bears a little harder. Exuberant positioning, stretched technicals and shaky earnings forecasts are among the few arguments left.

In this case, traders have been looking to protect themselves from what UBS strategists call “an extreme risk scenario” instead of a correction, by buying VIX upside calls. “Investors have largely thrown in the towel when it comes to buying downside protection in the index space,” UBS strategists including Maxwell Grinacoff said in a note.

The UBS team recommends what they call “the upside hedge,” which involves buying calls on the S&P 500 Index. “Given suppressed put activity and increased call activity, we believe dealers should theoretically be shorter gamma on the upside in the index space, while downside deformation should also be lower on an absolute basis.”

For Bank of America strategist Michael Hartnett, 2024 is a year of abnormal times and abnormal gains. The 25% rally in the last five months is typically only seen when markets emerged from recession lows like in 2009 and 2020, or at the start of bubbles, like in 1999. While the strategist sees the market “stretched and extended,” a history of bubbles shows it can go further. “Fed causes bubbles and Fed pops bubbles and in 2024 Fed’s determination to cut rates means we’re not too far from it,” he says.

According to Hartnett, it paid to be a “cynical bull” into 2024, and those in this camp are determined to stay long until the day before the Fed cuts rates, BofA’s Bull & Bear Indicator shows a sell signal, 10-year real rates exceed 2.5%, and the forward P/E of the S&P 500 exceeds 25. Until then, only a negative US payroll reading would be “likely to melt this determination,” he adds.

“The momentum of equities continues unabated, with still very low realized volatilities,” says Natixis strategist Emilie Tetard. “Outside the main risk scenarios — a strong macro slowdown or an inflation rebound disrupting expected monetary easing — risky assets will continue to trend upwards by default, at least until the focus on the US elections from the third quarter onwards.”

After January’s surprised upside shift, expectations have been adjusted up over the last month for another sizable MoM move in headline CPI. But that was not enough as the 0.4% MoM rise in the headline (as expected – highest since August) lifted CPI YoY up to +3.2% (hotter than the 3.1% exp)…

Source: Bloomberg

The 3-month annualized CPI rate was rose to 2.8% from 1.9%. The 6-month annualized core rate dropped to 3.2% from 3.3%.

Energy costs surged MoM as Core Services inflation slowed MoM…

Source: Bloomberg

Full CPI MoM breakdown:

The index for all items less food and energy rose 0.4 percent in February, as it did the previous month.

• The shelter index increased 0.4 percent in February and was the largest factor in the monthly increase in the index for all items less food and energy.

• The index for rent rose 0.5 percent over the month, while the index for owners’ equivalent rent increased 0.4 percent.

• The lodging away from home index increased 0.1 percent in February, after rising 1.8 percent in January.

• The airline fares index rose 3.6 percent in February, following a 1.4-percent increase in January.

• The index for motor vehicle insurance increased 0.9 percent over the month.

• The medical care index was unchanged in February after rising 0.5 percent in January.

• The index for hospital services decreased 0.6 percent over the month and the index for physicians’ services decreased 0.2 percent.

• The prescription drugs index fell 0.1 percent in February.

• The index for dental services was among those that rose in February, increasing 0.4 percent.

• The index for personal care fell 0.5 percent in February, following a 0.6-percent increase in January.

• The household furnishings and operations index fell 0.1 percent over the month, as did the new vehicles index.

• Among other indexes that rose in February were apparel, recreation, and used cars and trucks.

Full CPI YoY breakdown:

The index for all items less food and energy rose 3.8 percent over the past 12 months.

• The shelter index increased 5.7 percent over the last year, accounting for roughly two thirds of the total 12-month increase in the core CPI index

  • Feb Shelter inflation: 5.74% down from 6.04% in Jan

  • Feb rent inflation: 5.77%, down from 6.09% in Jan

• Other indexes with notable increases over the last year include motor vehicle insurance (+20.6 percent), medical care (+1.4 percent), recreation (+2.1 percent), and personal care (+4.2 percent).

Core CPI rose 0.4% MoM (hotter than the +0.3% exp) and up 3.8% YoY (hotter than the +3.7% exp), but still the lowest since April 2021…

Source: Bloomberg

The 3-month annualized Core CPI rate was rose to 4.1% from 3.9%. The 6-month annualized core rate rose to 3.8% from 3.5%.

Core Goods actually rose MoM for the first time since June 2023…

Goods deflation continues (-0.3% YoY) but has flattened out, while services inflation remains stubbornly high at +5.2% YoY…

Source: Bloomberg

And one step deeper – the so-called SuperCore: Core CPI Services Ex-Shelter index – soared 0.5% MoM up to 4.5% YoY – the hottest since May 2023…

Source: Bloomberg

While SuperCore CPI slowed MoM, there was a large jump in Transportation Services MoM…

Source: Bloomberg

Finally, we note that consumer prices have not fallen in a single month since President Biden’s term began (July 2022 was the closest with ‘unchanged’), which leaves overall prices up 19% since Bidenomics was unleashed. And prices have never been more expensive…

Source: Bloomberg

That is an average of 5.6% per annum (more than triple the 1.9% average per annum rise in price during President Trump’s term).

So, about that shrinkflation – did companies only ‘get greedy’ when Biden took office?

But it gets worse, real wage growth has lagged significantly for the average joe in America…

Source: Bloomberg

Despite a very modest decline in Feb, Food costs are up over 21% since Biden’s term began, but non-supervisory wages are up only 18%.

Bidenomics for the win!

Are we going to see a replay on the ’70s?

Source: Bloomberg

The market narrative of slow and steady disinflation just broke harder.

…or are we still set for a massive wave of depressionary deflation?

Authored by Ven Ram, Bloomberg macro strategist,

With the US economy still proving to be largely resilient, investors don’t seem to be as optimistic about a chase for duration as they were around the start of the year.

Open positions on Treasury options that measure optimism about longer maturities have fallen sharply, underscoring conviction that neither the labor market nor inflation will crumble quickly.

Data today is forecast to show that headline consumer prices climbed a notch higher to 0.4% in February from a month earlier, while core inflation is expected to show a moderation to 0.3%. The last mile of the disinflation narrative may yet prove frustratingly long. So we may stay in a world of 3%-something annual headline inflation and core inflation that is closer to 4% for a while longer.

Juxtaposed against that view, longer-dated yields that are modestly above 4% look reasonable — meaning there is little room to drive those rates materially lower from here in the absence of further progress on disinflation.

Meanwhile, two-year yields are bobbing around 4.50% of late, failing to make any headway, consistent with the observation made here. If the inflation readings come in above forecast, the rate can go higher by some 10 basis points, while a softer-than-estimated reading has the potential to send it toward 4.45%.

Of course, a more definitive direction for front-end maturities will come from next week’s policy review from the Fed, with the revised dot plot being the key.

The longer end, though, may be more inure to a radical shift until investors build conviction that they can assign a lower inflation premium going forward.

US equity futures rose with European and Asian market ahead of the closely watched February CPI data which could have an impact on the decision and messaging delivered by the Fed next week. As of 7:50am, S&P futures are up 0.2% while Nasdaq futures add 0.5% as TMT sees support from Semis (NVDA +1.9%) and the balance of Mag7 names are up 50bp – 95bps pre-market. Treasuries also edge higher, with US 10-year yields falling 1bps to 4.09%. Gilts outperform, boosted by soft UK wage data and solid auction demand. UK 10-year yields fall 7bps to 3.90%. European stocks rise 0.4%, led by gains in mining and bank shares. The yen is the weakest of the G-10 currencies, falling 0.4% versus the greenback after BOJ Governor Ueda noted pockets of weakness in consumption. The Bloomberg Dollar Spot Index is little changed. Oil prices climb, with WTI rising 0.6% to trade near $78.40. Spot gold falls 0.3%.

In premarket trading, Oracle shares rose 14% after the infrastructure-software company reported third-quarter results that beat expectations on key metrics. It also said that “demand for our Gen2 AI infrastructure substantially exceeds supply.”
US-listed Chinese stocks trade broadly higher in Tuesday’s premarket session as a rebound from a February low gathers steam. Here are some other notable premarket movers:

• Acadia Pharmaceuticals shares slump after the biopharmaceutical company said it does not intend to conduct any more trials for pimavanserin after a Phase 3 study in schizophrenia failed to meet its primary endpoint.
• Porsche AG flagged weaker returns this year with a record four new model launches weighing on sales and profit. Operating margin is set to come in between 15% to 17%, weaker than analyst expectations and below the company’s mid-term goals.
• Asana (ASAN US) shares fall 2.9% after the application software company reported its fourth-quarter results. While revenue was better than expected, analysts flagged some causes for concern.
• Carvana (CVNA US) rose 3.9% as Jefferies raised the recommendation on the stock to hold from underperform. The broker says the online used-car dealer’s “operational adjustments may have driven sustainable improvements to unit economics.

As discussed in our CPI preview (full note here), CPI is likely to accelerate, while the core gauge should slow slightly, according to Bloomberg Economics. A monthly rate of 0.3% or lower  would be seen as a positive catalyst, according to Goldman.

“Today is another CPI day, we’ll have a lot of volatility around the data,” Claudia Panseri, UBS Global Wealth Management’s chief investment officer for France, said in an interview with Bloomberg TV. “What is important is the market has normalized expectations about interest rate cuts. We still expect inflation coming down, we still expect that the Fed cuts its rate in June.”

“Ultimately, we don’t expect the February CPI report to provide clear enough evidence of disinflation to boost the Fed’s confidence to cut rates,” Bloomberg economists Anna Wong and Stuart Paul wrote in a note. “However, they could have enough confidence as soon as May.”

The options market is more concerned about a big S&P 500 move after the inflation report than it is about the Fed’s interest rate decision next week, according to Citigroup Inc. Traders are hedging for moves of 0.9% in either direction, the biggest implied shift ahead of a consumer price index report since April 2023.

Elsewhere, the yen weakened for the first time in six days after Bank of Japan Governor Kazuo Ueda pointed to some weakness in consumption of nondurable goods, while also signaling the central bank remains on track to end its negative-interest-rate policy. The BOJ makes it next policy decision on March 19. Japan’s 10-year bond yield climbed to the highest level in three months following a Jiji report that said the BOJ will end negative interest rates at next week’s meeting if wage data comes out strong.

European stocks rise 0.4%, led by gains in mining and bank shares. Banks and basic resources are the best-performing sectors, while utilities lag. Here are some notable premarket movers:

• Wacker Chemie rises as much as 9.5%, the most since May, as the German chemicals company forecast first-quarter earnings above estimates, and issued full-year guidance that Baader analysts described as “better than feared.”
• Porsche shares gain as much as 3.4%, erasing earlier losses as Stifel says the German luxury carmaker’s fourth quarter earnings and cash flow “look good.” While analysts flag the disappointing 2024 outlook and see further consensus downgrades, Bernstein sees more opportunities being highlighted in the second half of the year and 2025.
• Synthomer shares jump as much as 27% after the British chemicals company signaled a “cautiously encouraging” start to this year’s trading, and said it expects earnings progress in 2024 — whether or not the macroeconomic backdrop improves.
• TP ICAP rises as much as 14% after announcing a new buyback after reporting full-year results boosted by record growth in its energy and commodities arm.
• Medartis shares soar as much as 9.9% after the Swiss orthopedic company’s sales beat estimates and it reported positive operating cash flow.
• PolyPeptide shares rise as much as 6.9% after the Swiss biotech firm reported sales that beat estimates and said it had signed three new large contracts in 2023. ZKB said the figures are good overall, but noted that the company is still in a transitional phase.
• Leonardo shares jumped as much as 6.8% in Milan after the Italian tech company announced a 2024-2028 plan that sees an increase in profitability and dividend.
• GEA Group rises as much as 3.1% after RBC double-upgrades to outperform from underperform, saying the farm machinery company’s shares look cheap and offer significant re-rating potential.
• Sensirion shares fall as much as 13% after the sensor maker reported results which fell short of expectations due to muted demand and customers holding high levels of inventory. Analysts said that the Swiss firm’s 2023 earnings were weak, blaming an impact from currency movements and investments.
• UK Pet Stocks slide after the UK Competition and Markets Authority said it provisionally decided to launch a formal investigation into the veterinary market. Jefferies expects the outcome of the investigation to be largely limited to transparency measures. Meanwhile, Liberum views Pets at Home as “relatively well positioned” in light of the regulator’s concerns, though sees this as “not great news” for CVS Group.
• Persimmon shares slide as much as 4.4% to a three-month low, with analysts saying that the UK homebuilder’s 2024 outlook was cautious as the company flagged an uncertain trading environment amid high interest rates and an upcoming UK general election. While Persimmon has already given a trading update earlier in the year, analysts were hoping for stronger guidance on margins in particular.
• Domino’s shares decline as much as 12% after the company reported full-year like-for-like sales that Shore Capital said were softer than expected. Meanwhile, Jefferies noted commentary on the company expecting growth to be lower in the first quarter due to holding back on marketing spend.

Earlier in the session, Asia-Pac stocks traded mixed following the tentative mood stateside and as participants await US CPI data.

• Hang Seng and Shanghai Comp. diverged with the former boosted by continued tech strength and as property developers showed resilience including Vanke despite being cut to junk by Moody’s, while the mainland was pressured by lingering headwinds including US-China frictions and economic concerns.
• Nikkei 225 slipped at the open after firmer-than-expected PPI data and the ongoing hawkish BoJ-related speculation, but then clawed back the majority of the losses after BoJ Governor Ueda refrained from any major hawkish commentary.
• ASX 200 notched slight gains but with upside capped by a lack of macro drivers and mixed business surveys.

In FX, the Bloomberg Dollar Spot Index is little changed; the yen is the weakest of the G-10 currencies, falling 0.4% versus the greenback after BOJ Governor Ueda noted pockets of weakness in consumption. Japanese OIS market is pricing about a 76% chance of a March rate hike. The yen had been stronger earlier in the session after Jiji reported that negative rates are seen ending if the first result of wage increases by businesses that the Japanese Trade Union Confederation, (Rengo), will provide on Friday “significantly” exceeds last year’s 3.8%. “We see the BOJ exiting the negative-interest-rate policy in April on the belief that the BOJ might want to digest more data,” strategists at Malayan Banking Bhd led by Saktiandi Supaat wrote in a research note.

In rates, treasuries edged higher, with US 10-year yields falling 1bps to 4.09%. Gilts outperform, boosted by soft UK wage data and solid auction demand. UK 10-year yields fall 7bps to 3.90%. gilts rallied after a rise in the UK unemployment rate and easing wage growth added to the view that the Bank of England may start cutting interest rates in coming months. Japan’s 10-year bond yield climbed to the highest level in three months following a Jiji report that said the BOJ will end negative interest rates at next week’s meeting if wage data comes out strong.

In commodities, oil edged higher as traders awaited OPEC’s monthly report and industry figures on US stockpiles. Gold eased from a record high.

Bitcoin held just above $72,000 after surpassing that level for the first time on Monday, with Ethereum also lower but remains above USD 4k.

Looking to the day ahead now, the main highlight will be the US CPI release for February. Other US releases include the NFIB’s small business optimism index for February, and the monthly budget statement for February. In the UK, there’s also the monthly labour market data. Central bank speakers include the ECB’s Holzmann and the BoE’s Mann. Lastly, there’s also a 10yr US Treasury auction.

Market Snapshot

• S&P 500 futures up 0.2% to 5,135.25
• MXAP up 0.3% to 176.85
• MXAPJ up 1.0% to 541.76
• Nikkei little changed at 38,797.51
• Topix down 0.4% to 2,657.24
• Hang Seng Index up 3.1% to 17,093.50
• Shanghai Composite down 0.4% to 3,055.94
• Sensex up 0.5% to 73,869.33
• Australia S&P/ASX 200 up 0.1% to 7,712.53
• Kospi up 0.8% to 2,681.81
• STOXX Europe 600 up 0.3% to 503.05
• German 10Y yield little changed at 2.30%
• Euro little changed at $1.0924
• Brent Futures up 0.5% to $82.63/bbl
• Gold spot down 0.3% to $2,176.94
• US Dollar Index little changed at 102.91

Top Overnight News

• The BOJ is mulling a March hike but the outcome’s too close to call, people familiar said. A final decision will come after the initial tally from spring wage talks is released Friday. The yen pared declines made earlier on comments from Kazuo Ueda that highlighted weakness in consumption. BBG
• Samsung and SK Hynix, the world’s leading memory chipmakers, have stopped selling used chipmaking equipment for fear of falling foul of US export controls on China and western sanctions on Russia. FT
• China’s exports are surging as the country’s factories seek int’l buyers amid weak domestic demand, but the rush of products is set to raise fresh tensions between Beijing and the world’s major economies. NYT  
• The United Steelworkers union will ask President Joe Biden to open a trade investigation into alleged Chinese unfair economic practices in the shipbuilding and maritime logistics sectors. FT
•  
• ECB leaning toward keeping the Minimum Reserve Requirement (MMR) at the current 1% level, a positive for banks given concerns the figure could rise. BBG
• UK jobs report for Jan is soft, with employment -21K (vs. the Street +5K and vs. +72K in Dec) while wage growth cools. RTRS
• President Vladimir Putin has sacked the commander of Russia’s navy after it suffered a series of humiliating losses in the Black Sea, according to Ukrainian officials with knowledge of the shake-up. FT
• Jamie Dimon said a US recession isn’t off the table, but the Fed should wait for more clarity before it cuts interest rates. “The worst case would be stagflation,” he warned. BBG
• ORCL +13% in pre mkt trading after it reported 3 cents of EPS upside for FQ3 thanks to higher op. margins, and mgmt. made very bullish comments on the call about its cloud infrastructure business. “Demand for our Gen2 AI infrastructure substantially exceeds supply—despite the fact we are opening new and expanding existing cloud datacenters very, very rapidly. Our Gen2 Cloud Infrastructure business will remain in a hypergrowth phase—up 53% in Q3—for the foreseeable future”. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the tentative mood stateside and as participants await US CPI data. ASX 200 notched slight gains but with upside capped by a lack of macro drivers and mixed business surveys. Nikkei 225 slipped at the open after firmer-than-expected PPI data and the ongoing hawkish BoJ-related speculation, but then clawed back the majority of the losses after BoJ Governor Ueda refrained from any major hawkish commentary. Hang Seng and Shanghai Comp. diverged with the former boosted by continued tech strength and as property developers showed resilience including Vanke despite being cut to junk by Moody’s, while the mainland was pressured by lingering headwinds including US-China frictions and economic concerns.

Top Asian News

• BoJ Governor Ueda said Japan’s economy is recovering moderately but with some weak data seen, while they see weakness in consumption of non-durable goods and need to see if a virtuous cycle is underway. Ueda also stated they have seen various data since January and more will come out this week which they will look at comprehensively in reaching an appropriate monetary policy decision, while they are focusing on whether a positive wage-inflation cycle is kicking off in judging whether a sustained and stable achievement of the price target is coming into sight. Furthermore, Ueda later commented that it is possible to control short-term rates at an appropriate level by paying interest on reserves parked with the BoJ and if inflation accelerates and warrants monetary tightening, it is possible to do so by raising rates without scaling back BoJ’s bond holdings.
• BoJ is reportedly mulling a March hike with the outcome too close to call, according to Bloomberg sources.
• BoJ will likely offer numerical guidance on how much government bonds it will buy upon ending NIRP and YCC to avoid causing market disruptions, according to Reuters sources. BoJ is likely to roughly maintain the current pace of bond buying after ditching YCC, and forgot shar cuts in the amount for the time being. BoJ is likely to forgo offering explicit guidance on how soon it will hike rates again amid uncertainties in the economic outlook. Any guidance on future policy path is likely to be in line with Ueda comments on maintaining accommodative monetary conditions even after ending negative interest rates. Note: The guidance on government bonds buying is in-fitting with recent sources.
• Former BoJ Official Kiuchi says the BoJ could potentially cancel YCC in March, via Bloomberg TV
• US State Department said the US must employ all the tools at its disposal to outcompete China wherever possible and it announced USD 2bln to create a new international infrastructure fund which will help compete with China by providing an alternative.
• US House is to vote on Wednesday on the bill which will give ByteDance six months to divest TikTok or face a ban, according to the majority leader’s spokesperson.
• US steel unions urge US President Biden to open a probe into Chinese shipbuilding, according to FT.
• South Korean chipmakers halt old equipment sales over fears of a US backlash, according to FT.
• Nissan (7201 JT) is reportedly mulling cutting China production by as much as 30%, according to Nikkei; Honda Motors (7267 JT) reportedly mulling cutting China production by some 20%.
• China Vanke in debt swap talks with banks to stave off default, via Bloomberg

European bourses, Stoxx600 (+0.3%) began the session on a firm footing, though edged lower throughout the European morning as sentiment waned. The FTSE100 (+0.8%) outperforms, lifted by the weaker Pound and its exposure to Mining/Energy names. European sectors hold a strong positive tilt; Banks continue to advance ahead of an ECB meeting regarding European banking policies, whilst Utilities is found at the foot of the pile. US equity futures (ES +0.1%, NQ +0.4%, RTY +0.2%) are mixed, with slight outperformance in the NQ, with the Tech sector benefitting from strong Oracle (+13.3% pre-market) earnings.

Top European News

• Morgan Stanley says chances of a UK rate cut in Q2 looks “severely under-priced”; the base case is for a cut in May
• European Parliament is reportedly to take the European Commission to court regarding the EUR 10.2bln payoff for Hungary, via Politico citing sources.
• Spanish Economy Minister is “optimistic” about agreement with other parties over approval of the 2024 budget. Sees latest economic data backing govt’s 2% GDP forecast.
• Irish Central Bank sees HICP in 2024 at +2.0 (prev. +2.3% in December), 2025 at +1.8% (prev. +2.1%) and 2026 at 1.4% (prev. +1.4%), while it sees GDP in 2024 at +2.8% (prev. +2.5%), 2025 at +3.5% (prev. +4.5%) and 2026 at +3.3%. Furthermore, it stated that risks to the economic growth outlook are tilted to the downside and risks to the inflation outlook are broadly balanced.
• Riksbank’s Jansson says the risk of high inflation becoming entrenched has diminished, demand-side activity suggests limited upside risk to inflation.
• Riksbank’s Thedeen says if inflation prospects remain favourable, we cannot rule out the possibility of a H1 cut. Inflation has fallen recently and is on firmer ground.

FX

• DXY is marginally firmer thanks to a softer JPY and GBP. DXY marginally eclipsed yesterday’s peak of 102.93 to print a high of 102.94.
• Uneventful trade for the EUR with EZ-wide updates lacking. EUR/USD sits in a tight 1.0922-39 range and is respecting yesterday’s 1.0914-48 parameters.
• GBP is on the backfoot vs. peers with Cable losing 1.28 status following jobs data which showed soft wages and an unexpected uptick in the unemployment rate. GBP/USD as low as 1.2777 with not much in the way of support until the 10DMA at 1.2732 and 7th March low at 1.2722.
• JPY the laggard across the majors as the Yen’s advances vs. the USD grind to a halt. “Non-hawkish” remarks from Ueda can be cited as the catalyst but it is fair to say the decline in USD/JPY had to wane at some point.
• Antipodeans are both steady vs. the USD with NZD faring marginally worse in quiet newsflow. AUD/USD holding above 0.66 and contained within yesterday’s 0.6596-0.6627 range.
• PBoC set USD/CNY mid-point at 7.0963 vs exp. 7.1885 (prev. 7.0969).

Fixed Income

• Gilts are bid after the morning’s labour market data. Action that took Gilts to a 99.98 high just a tick shy of Monday’s best and by extension a handful below last week’s 100.03 contract high. Thereafter, Gilts extended to a fresh contract peak of 100.17 following the strong auction.
• Bunds are a touch firmer given the above but much more contained as the pre-CPI lull and heavy supply docket holds greater sway than UK data; holding around the 133.56 peak which is 50 ticks below Monday’s best.
• USTs are holding marginally in the green ahead of US CPI, at the upper-end of narrow 111-18 to 111-22 bounds. Resistance at 111-31 & 112-04+ from the last two sessions, low point from those days also provides support at 111-16+ and 111-08.
• UK sells GBP 3.75bln 4.625% 2034 Gilt: b/c 3.61x (prev. 3.09x), average yield 3.927% (prev. 4.132%) & tail 0.2bps (prev. 1bps)
• Japan to issue JPY 350bln of climate transition bonds later in the month, via Reuters citing sources; targeting four issuances of this type a year.
• Netherlands sells EUR 2.05bln vs exp. EUR 2-2.5bln 2.50% 2030 DSL: average yield 2.481% (prev. 2.334%)

Commodities

• Crude is firmer but off best levels as the Dollar strengthened with newsflow light thus far ahead of US CPI, but geopolitical concerns linger; Brent holds around USD 82.75/bbl.
• Precious metals are mixed with spot gold hampered by the initial Dollar strength, while spot silver is slightly more resilient; XAU briefly dipped under yesterday’s low (2,174.86/oz).
• Base metals are mixed and lack firm direction ahead of the US CPI later today; 3M LME copper trades within a USD 8,628.00-8,675.50/t range.
• UBS says we continue to retain negative outlook for Palladium, expecting it to remain the laggard in precious metal sector this year.
• Commerzbank raises its gold price forecast for end of this year and end of next year to USD 2.2k/toz (prev. 2.1k)
• Russia’s Lukoil refinery work in Nizhny Novgorod region was temporarily stopped due to an “incident”, while it was later reported that the oil processing unit in Nizhny Novgorod was on fire after a drone attack, according to Russian agencies.
• Main crude distillation unit (AVT -6) at Russia’s Norsi refinery is damaged, via Reuters citing industry sources; the damage at Russia’s Norsi refinery means that at least half of Norsi production is halted.
• Morgan Stanley lowers TTF gas price forecast to USD 8/MMBtu (prev. USD 8.5/MMBtu) for Q2’24 and Q3’24; forecast to USD 10.00/MMBtu (prev. 10.5/MMBtu) for Q4’24.
• Iraq Basrah April OSPs: Asia -0.60/bbl vs Oman/Dubai (prev. -0.80/bbl); Europe -5.85/bbl vs Brent (prev. -5.45/bbl), Americas -0.95/bbl vs ASCI (prev. -1.00/bbl), according to SOMO.
• Kuwait sets April KEC Crude OSP for Asia at Oman/Dubai plus USD 0.55/bbl, USD +0.30/bbl M/M, according to Reuters citing traders

Geopolitics: Middle East

• Islamic Resistance said it targeted Ben Gurion Airport with drones on Monday evening, according to Al Jazeera.
• Four Israeli strikes targeted eastern Lebanon’s Baalbek, according to two security sources cited by Reuters
• Yemen’s Houthis said they targeted ‘American ship Pinocchio’ in the Red Sea and their operations are to escalate during Ramadan. However, US Central Command said Houthi forces targeted the merchant vessel Pinocchio on Monday which is a Singaporean-owned, Liberian-flagged ship although the missiles did not impact the vessel and there were no injuries or damage reported.
• EU leaders to urge Israel to refrain from ground operations in Rafah, via Reuters citing draft summit text; calls for “immediate humanitarian pause leading to sustainable ceasefire” in Gaza

Geopolitics: Other

• Ukrainian military intelligence said they are preparing to launch serious offensive operations in Crimea, according to Al Arabiya.
• Russian air defence systems destroyed Ukraine-launched drones near Moscow, according to Moscow’s Mayor.
• US President Biden responded there was no need for that when asked if he would support US troops at the Polish border.
• China Maritime Safety Administration announced live firing drills in some areas in the East China Sea from March 12th-14th.
• Russian Defence Ministry says Russia, China and Iran are to begin joint navy drills in the Gulf of Oman.
• European Commission Chief von der Leyen says considering new sanctions on Iran if reports of supplying Russia with missiles is true

US Event Calendar

• 08:30: Feb. CPI MoM, est. 0.4%, prior 0.3%
  • Feb. CPI YoY, est. 3.1%, prior 3.1%
  • Feb. CPI Ex Food and Energy MoM, est. 0.3%, prior 0.4%
  • Feb. CPI Ex Food and Energy YoY, est. 3.7%, prior 3.9%
  • Feb. Real Avg Hourly Earning YoY, prior 1.4%, revised 1.3%
  • Feb. Real Avg Weekly Earnings YoY, prior -0.1%, revised 0.1%
• 14:00: Feb. Monthly Budget Statement, est. -$298.5b, prior -$262.4b

DB’s Jim Reid concludes the overnight wrap

Today the roadshow has moved onto Melbourne after a hectic day in Sydney yesterday. Walking between meetings in the hot sun has got me a bit worried I’m going to come back to the office with a tan next week with my team a bit confused as to how hard I was actually working. Actually my wife might be a bit confused too!

Markets have drifted into the shade a little to start the week as we await today’s all-important CPI print. The S&P 500 (-0.11%) fell back for the second session running with the Magnificent 7 (-1.12%) underperforming and the VIX (+0.50pts) up to its highest level (15.22) in nearly three weeks. The bigger story was renewed fears about inflation pushing 2yr Treasuries (+6.1bps) back up to 4.54%.

Those inflation concerns were heightened by the New York Fed’s latest Survey of Consumer Expectations, which showed medium- and long-term expectations rising again in February. In particular, the 5yr inflation expectation was up to a 6-month high of +2.9%, which was a reversal from the downward trend over the preceding months. Separately, there were also signs of a weaker labour market, as the mean probability of losing one’s job in the next year was up to 14.5%, which was the highest since April 2021. Moreover, the mean probability of finding a job in 3 months if one lost their job was down to 52.5%, again the lowest since April 2021.

That sets us up for another CPI day, which is getting more attention than usual after last month surprised on the upside. In terms of what to expect this time round, our US economists think headline CPI will come in at a monthly +0.41%, which would keep the year-on-year measure at +3.1%. Then for core, they’re expecting it to be at +0.30%, taking the year-on-year measure down two-tenths to +3.7%. If that’s realised, it would also be the 4th consecutive month that core CPI has come in at +0.3% or +0.4%, which is still a bit too fast for the Fed to be comfortable. Indeed, last month’s surprise saw investors push out the likely timing of rate cuts, and futures are increasingly looking towards June as the most likely date for a first cut. However, risk assets did not really suffer from last month’s surprise, and since that release came out the S&P 500 is around 2% higher, the Magnificent 7 c.+1.2%, Bitcoin c.+45%, and US HY spreads c.-4bps tighter.

With all that to look forward to, US Treasuries lost ground across the curve, with the 2yr yield (+6.2bps) up to 4.54%, whilst the 10yr yield (+2.3bps) rose to 4.10%. That was echoed in Europe as well, where yields on 10yr bunds (+3.6bps), OATs (+4.2bps) and BTPs (+4.6bps) all moved higher. That came as investors slightly dialled back the amount of rate cuts priced in, with the Fed now expected to deliver 91bps of rate cuts by the December meeting, down -4.3bps on the day.

For equities it was also a weaker session, with the S&P 500 (-0.11%) clawing back some of its initial losses but still down marginally on the day. That was mostly due to losses among the Magnificent 7 (-1.12%), and Nvidia (-2.00%) continued to lose ground after its -5.55% decline on Frida y. It also marked the first time since the very start of the year that the Magnificent 7 has fallen by more than -1% for two consecutive days. Notable underperformers also included Meta (-4.42%) and Boeing (-3.02%), with the latter extending its YTD decline to -26% amid news that the Department of Justice opened a criminal investigation into January’s mid-flight blowout incident. That said, the equal-weighted version of the S&P 500 did rise +0.14%, with materials (+1.13%) and energy (+1.00%) stocks outperforming. Meanwhile in Europe, there was a mixed performance, as the STOXX 600 fell -0.35%, but there were still gains for the FTSE 100 (+0.12%) and the IBEX 35 (+0.19%), alongside losses for the CAC 40 (-0.10%) and the DAX (-0.38%).

In Asia, equity markets have put in a mixed this performance this morning. In Japan, the Nikkei (-0.41%) is on track to fall for a second day, and in China the Shanghai Composite (-0.24%) has also lost ground. But other indices have posted a better performance, with the Hang Seng (+2.23%) surging, whilst the KOSPI (+0.50%) and the CSI 300 (+0.40%) have also advanced. US equity futures are pointing higher as well, with those on the S&P 500 up +0.37%.

Otherwise this morning, the Japanese Yen has weakened -0.37% against the US Dollar after Bank of Japan Governor Ueda referred to “weakness in some household spending data”, even though he said “my view is that the gradual recovery continues.” That led to a bit more doubt about the prospect of a shift away from negative interest rates at next week’s meeting, and the 2yr JGB yield is down -0.1bps this morning at 0.19%. Overnight index swaps have also lowered the prospect of a shift by the April meeting from 87% to 84%. That said, the PPI inflation data for February came in a bit stronger than the consensus expected, with year-on-year PPI up to +0.6% (vs. +0.5% expected).

Whilst lots of assets struggled yesterday, Bitcoin (+3.87%) was an exception as it reached another all-time high, surpassing the $72,000 mark for the first time in trading. Remember that we’re still not quite at the all-time high in real terms though, as in November 2021, Bitcoin peaked at $68992, which is above $76,000 in today’s prices if you adjust for CPI inflation. As a reminder, Marion Laboure and Cassidy Ainsworth-Grace put out a report last week (link here) on why Bitcoin is trading at a record and why they expect prices to continue to go even higher this year.

To the day ahead now, and the main highlight will be the US CPI release for February. Other US releases include the NFIB’s small business optimism index for February, and the monthly budget statement for February. In the UK, there’s also the monthly labour market data. Central bank speakers include the ECB’s Holzmann and the BoE’s Mann. Lastly, there’s also a 10yr US Treasury auction.