Inflationary Illusions!
Markets believe that the inflation issue has been solved without causing a recession - fabulously executed tightrope act.
Market sentiment can gradually shift towards a narrative of a more persistent and pernicious inflation - a path that requires no great shock or catalyst to materialise - admit its significantly under-priced. After all, who is predicting that next move from Fed would be a rate hike?
Today's CPI would certainly not be high enough to call the downward trend into question but would also not indicate any clear progress- year-on-year rates will fall, with practical certainty because of base effect but It's the size of the month-on-month increases that matter.
Cipollon says it would be best to slow (?) economy to fight inflation-German & EZ ZEW today. Expectations for Germany are expected at 17.5 vs 15.2 while current situation is expected at -79.0 vs. -77.3. Italian 3y, 6y & 20y auctions (EUR 8.5 bn) causing nervousness. Speculation of SNB intervention to weaken CHF in this week. Should see 1.0712/23 - Dec low & 61.8% of Oct/Dec rise.
It’s always easy to find one or two things that can go wrong for an economy, but it’s seldom easy to find this many - news this time about China’s hard-hit private sector 60 % of China’s GDP - more than 80 % of urban jobs - surge in number of failed companies -unstable environment.
Labour market data today. ONS says the reweighted estimates suggest that over last five months to Nov 23, unemployment rate may have fallen more quickly than experimental indicator suggested (3.9% vs. 4.2%). Bearish bias for breaking 1.2607 NY low &Thurs 1.2572 base for 1.2518.
PPI 0.0% m/m (exp +0.1%)- to the extent these feeds into consumer prices, no sign of imminent BOJ tightening. Successive closes above 149.17 Fibo - 76.4% of 151.92-140.27 drop signals imminent 151.93 test.