PRICES: US inflation is still the most important number in markets. It drives everything from the Fed outlook to recession risks. The Fed’s NOWCast for today’s March report see’s an upside surprise. This could drive one final ‘insurance’ hike from the Fed on May 3rd. But it may be just a bump in the road ahead of a quicker inflation fall later this year driven by the weaker economy. Under the weight of the lagged 5% rate hike impacts and now tightening bank lending. This could set markets up for a quicker V-shaped recovery as investors look to interest rate cuts later this year. This boosts our focus on long duration assets like big-tech, traditional defensives, and bonds. Vs growth-sensitive cyclicals, small caps and commodities. See our Q2 outlook video.
PRESSURE: Consensus for today’s report for an encouraging 9th fall in headline US inflation to 5.2%. But focus will be on any worrying stall in core inflation at around 5.5%. This could come from rising used car prices and a gradual slow-down in lagging housing. Our real-time inflation tracker (see below) shows these near-term rises, but against the broader long term backdrop of less pressures. 5 of our 12 price measures are up in recent weeks, including the ISM forward looking jobs and prices paid indicators, alongside more transitory used car and gasoline prices.
FALLS: But most of our indicators are still falling, just at a slower rate. The median indicator is down 31% from peak and a further 4% in the past month. Near term declines are led by supply chain indicators, observed rents, JOLTS and – encouragingly – inflation expectations. We track 6 segments: labour (employment ISM, JOLTS), housing (Zillow rent, NAHB index), goods (Used cars, Manufacturing ISM prices), commodities (Gasoline, broad commodities), supply chains (supply chain index, container rates), and inflation expectations (Michigan survey, Break-evens).
All data, figures & charts are valid as of 11/04/2023