Santander | It is one of the first headlines from last night’s FOMC minutes. Fed staff members go from assigning a near 50% probability, to now forecasting a mild recession. With the Fed also nearing the end of the cycle, it is no surprise that some dissenting voices are beginning to appear, opening the door to new bouts of volatility that have not favoured the credit market (MOVE/Main correlation of…
Renta 4 : European stock markets open almost flat (Eurostoxx futures -0.2%, S&P futures 0%), on a day in which the main reference will be the US March inflation data (2:30pm). The market expects further moderation in headline CPI (5.1%e vs 6% year-on-year), but a rebound in core CPI (5.6%e vs 5.5% previously) after five consecutive months of decline from a peak of 6.6%. We will see its impact on…
Bankinter | The US inflation published today is for February, so we should not expect it to ease because it still compares with months in 2022 before the invasion of Ukraine and, therefore, before the sharp price rises. That means that the real litmus test for inflation (both American and European) will take place between April and July, when the March-June records are published. It was in those months that…
Simon Harvey, Head of FX Market Analysis at Monex Europe | On the one hand, core inflation moderated in March with a sequential slowdown from 0.5% m-o-m to 0.3% m-o-m, while on the other hand, headline inflation beat expectations. Headline inflation rose by 1.2% month-on-month, in line with expectations, while the annualised rate exceeded expectations by 0.1 percentage point to 8.5%. The slowdown in the month-on-month core CPI to the…
Keith Wade (Schroeders) | Headline CPI inflation rose to 4.2% year-on-year in April the highest level since September 2008. Meanwhile the core measure, which strips out food and energy prices, rose to 3%, a level last seen in 2006. It is unlikely that the inflation figures will spook the Federal Reserve, although they will mean an upward revision to its forecasts. More importantly, when combined with strong growth in GDP, it will have to start to think about slowing its asset purchases.
Benjamin Cole | Fed Chair Jerome Powell has stated the Fed’s 2% target is symmetric, which may be code words for “inflation a little above 2% is tolerable.” The US central bank may find fighting inflation resembles heart surgery with a chainsaw.
Just a couple of years ago, deflation was a concern for US economists. And, although it’s true that this threat has almost disappeared, rises in prices have shown themselves to be surprisingly elusive.
“If we analyse the data from the last 25 years, there is very little inflation. Underlying inflation in the US has never really fallen below 1% which means that the secular dynamism in the labour market is reducing inflation, via technology and globalisation,” explains Bruce Kasman, chief economist at JP Morgan.
After US inflation beat estimates in January, it’s likely the market will end up putting even more emphasis on the possibility of seeing inflation rates higher-than-expected months ago, or even stagflation. And, unfortunately, this will continue to spark potential over-reactions which would give way to strong, quick movements.
The minutes released by the FED and the ECB last week shared concern about how to inform about their monetary stance. They fear unsettling the markets should investors wrongly interpret the messages conveyed to them. When you lack a clear policy perspective, the best thing you can do is to manage communication in a fairly tight way.