Bonds, stocks, gold and cryptos rally following cooler-than-expected US inflation data.
May headline CPI slowed by 10bps to 3.3% YoY vs 3.4% expected. Core slowed 20bps to 3.4% vs 3.5% expected. Super Core CPI TURNED NEGATIVE (!) -0.05% MoM - its first drop since Sept 2021 (but that left the YoY level still above 5.0%). Details: CPI data for May 2024 • Inflation was softer than expected in May: headline 0.0% MoM vs +0.1% expected; “core” inflation +0.2% MoM (+0.163% unrounded) vs +0.3% expected • As a result, the yearly headline inflation rate is down to +3.3% (after +3.4% in April) and the “core” inflation rate is down to +3.4% (+3.6% in April), its lowest level in three years. • Inflation is still above the Fed’s target of 2% but the trend toward slower inflation has resumed, after the upside surprises of the first quarter of the year. - Housing (shelter) inflation remains firm, but CPI inflation excluding shelter (+2.1% YoY%) is now back (almost) at the level targeted by the Fed. - Inflation in services, that has been strong in the previous months, is finally slowing down (+0.2% in May vs +0.4% in April and +0.5% in March). - Prices of durable and nondurable goods have declined in May (-0.5% and -0.4% respectively). • Those data confirm our scenario of a gradual disinflationary trend at play in the US, as labor market tensions ease and consumer demand loses some momentum. Impact on the hashtag#Fed • Following the release, and ahead of the Fed’s meeting tonight, the probability of a Fed rate cut in September has increased to 62%, • A Fed rate cut at the November meeting (two days after the US Presidential elections) is now fully priced in. • Future markets also fully price a second rate cut at the December meeting. • After the FOMC meeting tonight (no rate cut expected), Fed’s members will update their economic and rate projections. • Those CPI data are probably a relief for the Fed and will likely prevent hawkish surprises and significant revisions to the upside on the expected path of Fed Fund rates in 2024 and 2025. Source: HolgerZ, Bloomberg
IMF warns the U.S. needs to reduce its debt burden or else....
Source: FT, Barchart
Austria’s hawkish central bank chief Robert Holzmann was the sole dissenter on ECB rate cut, BBG reports, citing a person familiar with the matter.
Source: HolgerZ, Bloomberg
As highlighted by Tavi Costa:
Despite quantitative tightening in most developed economies, their money supply continues to grow substantially, undermining their policies in a significant way. "Today's ECB decision to cut rates highlights how central banks are trapped and forced to reinstate financial repression even as inflation remains higher than historical norms. These policies act as a relief valve to alleviate financial stress, leading to a surge in prices of hard assets with limited supply". Source: Crescat Capital, Bloomberg
On June 6, the GDPNow model nowcast of real GDP growth in Q2 2024 is 2.6%
Source: Blue Chip Economic Indicators
US employment data are out - here we go again with jobs numbers that don't add up...
here we go again with jobs numbers that don't add up... The Establishment survey by BLS reports 272k new jobs for May, smashing estimates (+185K consensus) and much strong than April (+165K). The labor market continues to show signs of resiliency in the face of higher Fed interest rates. This seems to decrease the odds that the hashtag#Fed could cut rates in September... BUT: - Labor force shrank: This is why the US unemployment rate has risen from 3.9% to 4% (first month with 4.0%+ unemployment since February 2022) despite a lower labor participation rate (Indeed, the labor supply as week, and as Unemployment Rate = Number of unemployed / labor force, a weak labor force implies higher unemployment rate despite rise in job creation). - Wage growth surprised to the upside: this could be linked to a reduction in the supply of labor which might be causing some bottlenecks given the still-robust job creation. Wage growth continues to remain a sticky source of inflation, rising at a 4.1% pace, which is still way too hot for the Fed. - The Household survey shows a large drop in the number of employed, down 408k jobs (see white bar below). - Full time jobs actually SHRUNK by 625k (This is the biggest drop in full-time employment since December 2023) while part time jobs rose by 286k. - Between the household and establishment surveys, the numbers are retarded and unusable. This makes economic data analysis very difficult. Bottom-line: Key Takeaway: All things considered, the May jobs report does not point to imminent Fed rate cuts. The pickup in jobs growth supports the case that the resilient labor market remains strong, and the economy continues to hold up better than expected. Source: Bloomberg
*U.S. MAY ADP NONFARM PAYROLLS REPORT*
1. The U.S. economy added a lower-than-expected 152,000 jobs in May, as per ADP, missing forecasts for a gain of 173,000 (previous was 188,000). 2. This is the lowest number since February 3. The number of job gains for April was revised down from +192,000 to show a gain of +188,000. Key Takeaway: The weak ADP report adds to evidence of a slowing labour market. September rate cut bets will grow stronger as cracks begin to emerge in the economy. Source: www.investing.com
As economic data continues to underwhelm (ISM Manufacturing, JOLTs), the BBG US economic surprise index has plunged to its lowest level in 5 years.
Source: Bloomberg, HolgerZ
