Breakfast Bites - It's CPI Tuesday!

Rise and shine everyone.

It’s the big day everyone’s been talking about - it’s US CPI day. But, along with that we a have a number of important data points out today and lots to cover.

But first, the CPI which will be released at 8:30am ET. The major point of discussion for the CPI this time around is - Will it be a reason for the Fed to hike again? It’s not that simple. But, what we really want to see is where the trend is heading. Are we looking at a re-acceleration or not?

The consensus is for Headline to decline because Gasoline prices have been down -5.9% in October, which banks are modelling as a -2.5% decline in energy prices. While we think that this is definitely a factor, we’re leaning towards the higher and expecting some of the decline to play out next month. So the transmission is not uniform.

The other factor remains Health Insurance, which is expected to increase by 0.8% to 1% every month starting from October compared to the -4% monthly decrease it was contributing for the last 12 months. This is because the BLS will incorporate new retained earnings data to estimate health insurance inflation.

Our concern continues to be food inflation, shelter inflation and now, perhaps vehicles as well.

The other important data points for today are NFIB Small Business Optimism Index, Wage data in the UK, Employment and Sentiment data for the Euro Area.

US Equity Futures are trading marginally higher this morning after a relatively flat day yesterday. Yields are lower with the Yield Curve at -0.41%. Gold, the US Dollar and Bitcoin are all relatively flat with Oil trading marginally higher, on news of a possible SPR refill.

Asia and Australia

• Asian equities ended mostly higher in a quiet session Tuesday. Japan led the gainers, followed closely by mainland China markets. Hong Kong lagged and closed slightly lower. Corporate action drove Kospi higher. Taiex higher, Southeast Asia saw some losses, India closed for a holiday.

• News of another 1 trillion Yuan (~$137B) in stimulus is hitting the wires. to boost housing market; PBOC said to inject cheap funds in phases through banks with the money ultimately trickling down to households for home purchases. Action could be taken as soon as this month. Late last month, China had announced a 1T Yuan package in the form of additional sovereign debt. This likely provided some boost to markets in early trading.

• Yesterday, the Yen briefly strengthened during US market hours on speculation of intervention. No confirmed reports, however. In other news, fiscal stimulus continues with the Japan government considering offering corporate tax breaks for companies that provide 8%+ wage hikes.

• South Korea Import Price Growth (YoY) declined to -10.2% in October from previous -9.6%; Export Price Growth (YoY) fell from previous -8.9% to -9.5% in October

Europe, Middle East, Africa

• European equity markets higher, with the DAX leading. UK’s FTSE down after wage data.

• UK Wage Data came in mixed. This is an important data point for inflation. While overall wages saw a decline, total wages came in higher than consensus. Average pay including bonus came in at 7.9% YoY vs. 8.2% last month and higher than the consensus of 7.4%. Basic pay came in at 7.7% vs. 7.9% last month. 54k jobs were created compared to a decline last month and the unemployment rate remained stable at 4.2%. While on a downtrend, wages growth still remains far too high to confirm that inflation has been conquered. We get UK CPI tomorrow.

• The second reading for the Euro Area GDP growth came in without any surprises at -0.1%, unchanged from the preliminary reading.

• ZEW Sentiment data from the Euro Area and Germany both came in much higher compared to last month and the consensus. EA Sentiment came in at 13.8 vs. 2.3 last month while Germany’s reading came in at 9.8 vs. -1.1 for last month.

The Americas

• Inflation Rate in Argentina increased to 142.70 percent in October from 138.30 percent in September of 2023.

• Bank of Mexico Gov Rodriguez said in a statement - The easing inflation outlook means we could start discussing potential rate cuts at future meetings- Any rate cuts would be gradual and would not necessarily imply a cycle of continuous reductions

• The NFIB Small Business Optimism Index in the United States edged down for a third consecutive month to 90.7 in October 2023, the lowest since May, from 90.8 in September, but beating forecasts of 90.5. A few highlights:

  • 22% of owners reported that inflation was their single most important problem in operating their business, down one point from last month.

  • 43% of owners reported job openings that were hard to fill, unchanged from September and remains historically very high.

  • The frequency of reports of positive profit trends was a net negative 32%, down eight points from September.

• Home Depot beats by $0.06, reports revs in-line; guides FY24 EPS in-line, revs below consensus. Same-store sales were down -3.1% slightly better than expected. Customer transactions were down -2.4% YoY. Company discussed pressure in certain big-ticket, discretionary categories similar to Q2.

Chart of the Day

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)