The much-awaited CPI print presented itself to us yesterday, coming in stronger than forecasts, while initial claims remained low. Unrounded core CPI comes in at 0.309% MoM vs. a consensus of 0.2%. The headline also exceeded expectations at 3.9% (3.8% consensus), with OER up 0.47% MoM. I highlighted the upside risks due to the shelter components earlier this week.
Looking ahead, the Zillow rent numbers point to a sustained slowing in the rate of increase of CPI rents this year. Elsewhere, used vehicle prices rose 0.5%, which was notable. Core goods prices were unchanged, with declines in furnishings, computers, and prescription drugs offsetting the increase in vehicle prices. Ex-autos, core goods prices fell 0.2%, the third outright decline in the past four months.
These numbers shouldn’t change the big picture. Core goods prices are flat or falling, rent gains are slowing but remain elevated, and core services inflation is still sticky. Note, though, that the Fed cares more about the core PCE than the core CPI, and the two numbers often diverge month-to-month. In November, the core PCE deflator rose only 0.06% despite the 0.29% jump in the core CPI.
The initial reaction was countering the trend we had witnessed throughout the week, although bonds didn’t trade outside the range it established last Friday post-NFP. Later afternoon trading provided some weakness in equities and a renewed strength in USD. Then, without any news really appearing, we saw the US front end leading a rally, which dragged equities higher, the curve steeper, and the USD weaker. I can not see any tangible rationale for such a move, but it impacted the model, as you will see further below.
This week, I launched another Macro Book article outlining various risk measures I think anyone should familiarise themselves with. I am breaking down Average True Range (ATR), Standard Deviation, VAR (parametric, non-parametric, Monte Carlo), CVaR (Conditional VaR) and EVT (Extreme Value Theory). This should present a good toolbox and a guide readers can return to anytime.
I have also posted the 11th instalment of “Stories of the Institutional Past”, where I am talking about the notion of saying “no” in a corporate environment. It’s all fun, and I hope useful.
Let’s now put our heads straight into the updated 100+ charts, ready to enlighten us with new ideas (hopefully) and some context as to where we are likely headed. As always, we are covering the world of Equity indices, Sector ETFs, Single Stocks, Cross-Market ETFs, Rates, Curves, FX, Commodities and Crypto (which might also feature in the ETF section soon!).
As a reminder to all new subscribers and those needing a refresher, check out a comprehensive full model guide here.
Let’s go!
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