DXY is consolidating:
AUD is right at the edge of a cliff:
Oil is killing gold:
Copper is telling oil it is wrong:
Big miners are very soggy:
EM stocks funereal:
Junk wants no part of any “soft landing”:
The bear steepener returned:
Stocks meh:
Here is Steven Blitz at TS Lombard on US inflation:
No cloud to be found in the silver lining of July CPI data – the deceleration continues. How much reflects the comedown from the transitory boom in spending and concurrent difficulties in getting product to market, and how much reflects weakening growth is, from the Fed’s perspective, a moot point for now. I will look at the PPI data tomorrow for more guidance on that score. The large declines in airplane fares and two months of decline in hotel prices suggest that weakening demand is playing a role. If, however, recession fails to take hold, surging real consumer purchasing power (disinflation and strong labor markets do not go hand in hand) could accelerate growth – risk enough to keep Fed cuts at bay for longer than the market thinks (unless unemployment rises, which is what I expect).
More to the point, July core CPI increased 3.1% on an annualized 3M ROC basis, and similarly measured “super core” goods and services have effective dropped to 0 (Chart 1). By all accounts, given that the Fed has the funds rate right in line with a modified Taylor rule, July CPI takes the Sep rate hike off the board and given our perspective on CPI in the coming months (link takes you to our US Inflation Outlook dashboard), and the economy more broadly, current data confirm my view that July was the last hike – barring a reacceleration of growth (possible, not probable).
What could go wrong? Being an economist, I always need to show the other hand and that hand is accelerating real wages. While nominal is subsiding in line with narrowing profit margins, disinflation at the current pace is unusual in a full employment economy. In response, barring recession (still the base call), the Fed is going to be more reluctant to cut than what the market has priced in – absent a rise in the unemployment rate (which I expect). Today’s jump in unemployment claims narrowly ties to striking workers in Hollywood and the demise of Yellow Trucking, rather than broader unemployment.
In sum, the disinflation and recession calls remain in place, and July CPI data are confirming in that regard. There is always the risk of growth reaccelerating as real wages pick up, along with the real purchasing power of household liquidity amassed on the sidelines. The probability of this outcome is low, recessionary dynamics are very much in play, but the risk cannot be ignored until recession shows up in earnest.
I am still more focused on China and Europe as the source of global weakness than are securities markets. The stock rally and last night’s bear steepening are still a “no landing” play.
But FX is saying something else. CNY, EUR, and AUD are all screaming that something is wrong with global growth, and it is getting worse.
The firm DXY could reflect either US strength or global weakness.
Over the next few days, Chinese data could push one of these two narratives to the forefront.
