While inflation is cooling down, The Fed might need to keep tightening
While US inflation is materially lower from its peak, the chart below from Trahan Research shows why the Fed's job is probably NOT over. This chart shows the contribution of both Services and Goods inflation. Even if Goods CPI goes to 0% , Services inflation alone would still leave Core inflation above 5%. As long as core inflation stays above 5%, the Fed is unlikely to pivot.
US CPI has moved down from a peak of 9.1% last June to 6.5% in December
What's driving that decline? Lower rates of inflation in New/Used Cars, Gasoline, Apparel, Medical Care, Food at Home, Gas Utilities, and Fuel Oil. Source: Charlie Bilello
Metals have been on fire since China pivoted on Covid policy.
Source: Bloomberg | David Ingles
The gold stocks-to-S&P 500 ratio just broke out from key resistance
Source: Crescat Capital, Bloomberg
Why investing into the "next big thing" can be dangerous
Source: Compounding Quality
Italy's 10y risk spread over Germany narrows to the lowest level since April 2022
Source: Bloomberg
New all-time highs for industrial stocks Deere & Caterpillar
Are industrial stocks the new tech? Source charts: All Star Charts
Bond market in Germany sounds the recession alarm
German bond curve – measured by 2s/10s yield spread – inverts most in 30yrs. Typically, 10 year bonds pay investors more than 2 year to compensate for uncertainty that future holds. The anomaly often precedes a recession. Source: HolgerZ, Bloomberg
