Mid-Week Update

Same Old & UK CPI

Unsurprisingly, post-FOMC trends are continuing almost unabated, with a festive cheer already visible in markets, and some key equity indices are rolling onto new all-time highs.

Key signal data showed up today in the UK’s CPI, which showed a significant fall following a broad-based decline in price pressures, which should give the BoE now something to think about. Only last week, the bank’s minutes and MPC member comments pointed to a more balanced approach, waiting to see the impact of April's National Living Wage increase on pay growth before cutting rates. Risks have now tilted towards earlier rate cuts.

CPI inflation fell to 3.9% in November from 4.6% in October. Food price inflation continued to soften due to base effects caused by last year's strong rises. This is in line with Paper Alfa’s personal food basket, which has declined nearly 25% now from its Q2 highs!

Source: Haver Analytics

UK 10y yields are obviously liking this disinflationary trend. Paper Alfa’s proprietary momentum model caught this trend lower on November 3rd at around 4.30% yield. We are now likely facing a consolidation phase where a bit of a bounce in yields is on the cards.

Source: TW / Paper Alfa Engine Room

The global inflation picture is still yet bifurcated with Canadian CPI, where the headline measure beat expectations by 0.2%, with core measures coming in 0.1% higher. BoC Governor Macklem said yesterday that “a number of months” of deceleration in underlying inflation is needed before they would consider cutting rates.

Canadian 10-year rates halted their recent descent after the recent 100+ bps rally. Again, our model took most of those gains after it flipped to short (lower yields) in line with the UK above on November 3rd at around 3.80% yield.

Source: TW / Paper Alfa Engine Room

Let’s now explore what other chart alerts have been popping up on my screen since Monday.