A series of charts from The Daily Shot shows why markets are so dovish on tomorrow’s US CPI print. Australia is 1-2 quarters behind.
1. The NFIB small business index surprised to the downside in December.
• CapEx plans are trending lower.
• Hiring plans sank further.
• Fewer firms had trouble filling job openings.
• The percentage of small businesses planning to boost compensation remains elevated.
• The share of companies planning to increase prices is tumbling.
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2. The NFIB report points to further weakness in US manufacturing activity, …
Source: Simon White, Bloomberg Markets Live Blog
… as fewer industries experience growth, …
Source: Economics and Strategy Group, National Bank of Canada
… and factory orders slow.
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3. Next, we have some updates on inflation.
• Nomura expects a softer core CPI print for December, …
Source: Nomura Securities
… dragged lower by core goods.
Source: Nomura Securities
– Morgan Stanley, on the rather hand, sees an increase (similar to consensus).
Source: Morgan Stanley Research
• The NFIB price expectations index (above) points to rapid moderation in the CPI this year. Below are some additional indications.
Source: Chart and data provided by Macrobond
– Nordea’s CPI model:
Source: @MikaelSarwe
– Variant Perception’s model:
Source: Variant Perception
– Forecast from Piper Sandler:
Source: Piper Sandler
• Here is how the current CPI trend compares to previous spikes.
Source: Longview Economics
• Inflation reports have been surprising to the downside.
• The decline in sticky inflation could come at a lag.
Source: Numera Analytics (@NumeraAnalytics)
• Rent inflation continues to ease (2 charts).
Source: Apartment List
Source: Capital Economics
• Wholesale used vehicle prices are down almost 15% from a year ago.
• Weaker fertilizer prices signal lower food inflation ahead.
• Consumer inflation expectations have been easing, …
Source: Arcano Economics
… with remarkably similar trends across income categories.
Source: Federal Reserve Bank of New York
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4. The inventories-to-sales ratio continues to rise.
Source: Reuters Read full article
Below are some inventories-to-sales trends by sector.
• Housing-related:
– Lumber/construction materials:
– Hardware and plumbing/heating equipment:
• Vehicles:
• Machinery/equipment:
• Paper (no more toilet paper shortages?):
• Farm product:
• Apparel:
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5. The market expects some 50 bps of Fed rate cuts in the second half of this year.
• Easing financial conditions is not what the Fed wants to see now.
• The Fed has never completed its hiking cycle while the real fed funds rate was negative.
