Translation: If you exclude everything you need in life, inflation has been vanquished!
Source: Barchart
Hard landing vs. Soft landing assets
Source: BofA
From Wall Street to Main Street (aka workers want a bigger piece of the cake) => UAW members go on strike at three key auto plants after deal deadline passes
Half of US auto production is going offline tomorrow. - Thousands of United Auto Workers members went on strike at three key plants, after Detroit automakers failed to reach deals with the union by a Thursday night deadline. - The selected plants produce highly profitable vehicles for the automakers that largely continue to be in high-demand. About 12,700 workers – 5,800 at Stellantis, 3,600 at GM and 3,300 at Ford – will be on strike at the plants in total, the union said. The UAW represents about 146,000 workers across Ford, GM and Stellantis. Source: Goldman, CNBC
Goldman expects the resumption of student loan payments, a potential temporary federal government shutdown, and reduced auto production from a potential UAW strike to slow US GDP growth in 4Q23
Source graphic: GS
US CORE CPI LITTLE HOTTER THAN EXPECTED => A FED PAUSE IS LIKELY BUT NO RATE CUT ANYTIME SOON
Consensus expected a reacceleration of Headline inflation (+0.6% MoM after +0.2% in July) and a stabilisation of “core” inflation (+0.2% MoM after +0.16% in July). Key actual numbers are the following: ON A SEQUENTIAL BASIS (MoM) Headline inflation numbers are in-line with expectations (+0.6%). That is the biggest MoM since June 2022 and the second straight monthly increase in CPI...The energy index rose 5.6% in August after increasing 0.1% in July. There was a big turn-around in airline fares. They rose 4.9% after dropping 8.1% in each of the previous two months. But the gasoline index dominated with an increase of 10.6 percent in August, following a 0.2% increase in the previous month.
Egypt inflation soars to 37.4% y/y in August as higher food costs add to currency angst
Another month, another record inflation number. Consumer prices in Egypt rose 37.4% in August compared with a year earlier. This is the highest number since 2010 -- higher than even the levels reached after the 2016 currency crisis. Note that food costs were up 71.4%
In case you missed it...
The credit default swap (CDS) prices for the US rose sharply during the small banks crisis back in spring, and then went down as the crisis subsided quickly. These prices have been rising steadily since early summer. US CDS are now above Spain, which is considered a higher risk country from a sovereign credit risk perspective. Source: Bloomberg
One key development of the week (beyond brent hitting $90) has been stronger than expected macroeconomic data - e.g the ISM services (see data table below from Markets & Mayhem)
Indeed what we are seeing in the last ISM Services PMI reading may not be the best news for the inflation situation: 1) New orders growing faster 2) Employment growing faster (from being nearly flat m/m) 3) Prices rising faster And the market reaction - stocks pulling back - means that good macro news is bad news for the market again. Indeed, while a growing economy supports rising corporate profits (which is a positive), a too strong economy would imply a more hawkish FED than it is currently anticipated by the market.
