AUD ground it out:
Oil has lost its geopolitical premium.Gold is whatevs:
Dirt was firm:
And miners:
EM is poised:
Junk is poised:
Treasuries are bid:
Stocks loved it:
Two points to make. US jobless claims rose, making everybody happy:
- Weekly jobless claims increase 22,000 to 231,000
- Continuing claims rise 17,000 to 1.785 million
And the whisper number coming out about OER is catching on. Standard Chartered:
The rent here may be low,but we have it on very hard terms
We were struck by Fed Chair Powell’s confidence at the 1 May FOMC press conference that lower housing costs would likely lower core inflation over time. When we looked closely at shelter costs, particularly at the owner equivalent rent (OER) component, we found reason for optimism that shelter inflation could fall soon and bring down core inflation.
Asset price moves are heavily dependent on whether disinflation resumes and allows the Fed to cut rates.
Our baseline is for 25bp cuts in July and November, slightly more than the 43bps of cuts now priced into fed funds futures through end-2024.
But if we are right that the FOMC cuts rates in July, there could be a good case for cutting in September as well.
If a July cut is not justified, the risk of a token cut or no cut rises.
Our regression analysis suggests that Powell’s optimism may be justified. It points to a sharp decline in OER in coming months based on a regression that has proved stable in recent years (Figure 1).
It runs off experimental series on new tenant rents and all tenant rents constructed by Federal Reserve and Bureau of Labor Statistics (BLS) researchers.
Even if estimated over 2012-19, the regression gives good out-of-sample forecasts of OER.
The regression indicates that the Q1 uptick was an aberration and downward pressure will resume in coming months, perhaps sharply.
AUD will launch off such an outcome, ironically owing to rents.
