Rise and shine everyone.

The big news today - US Inflation data. Markets are ready and we saw a little bit of a preview of what they’re thinking yesterday. Yields spiked and the markets pulled back. The 10Y reached 4.43%. As we’ve said before, crossing 4.5% would put pressure on equities and that’s what we’re seeing.

The expectation is for a slightly firmer print. Headline is expected to come in marginally higher than last month while, core is expected to remain flat. So the progress on inflation is stalling here and with outlook that Trump’s policy’s are potentially inflationary, the Fed should be on high alert. The market is certainly questioning the cut in Dec. Even Fed Chair Powell was wishy washy about that. And now, the market is pricing in two cuts for 2025, so I hear.

Digging into the inflation report, let’s see what the previous month brought us.

Clearly, not great. While energy costs subsided, Food inflation remained firm, and core inflation showed a spike. The heat map is helpful, and we don’t need to dig too deep to see where the problem lies.

The only solace was Shelter Inflation. But, yesterday’s Redfin report showed us that market rents are not moving much. “The median asking rent rose 0.2% year over year in October to $1,619, but was down 0.6% month over month.” - Redfin

In other news, President-elect Trump continues to shape his incoming administration creating a lot of excitement. Former Trade Representative Robert Lighthizer has been appointed resume the role signaling a renewed focus on assertive trade policy.

Elon Musk and Vivek Ramaswamy are set to lead the new Department of Government Efficiency (DOGE), while China hawk Pete Hegseth has been nominated as Secretary of Defense.

South Dakota Governor Kristi Noem is set to serve as Secretary of Homeland Security, and former Director of National Intelligence John Ratcliffe returns as CIA Director.

Global yields are on the rise, with Japan’s 5-year JGB yield reaching its highest level since 2009. USD/JPY approached the 155 handle. The USD Index climbed to 106.00, its highest point since May 2024.

On the technology front, Nvidia has announced that SoftBank will develop the first supercomputer using Nvidia’s Blackwell chips on the Grace Hopper platform, a major advancement in AI.

European markets remain steady, with French assets largely unaffected despite French lawmakers’ rejection of the latest budget bill. French unemployment matched expectations at 7.4% for Q3, showing stability for now. However, ECB’s Villeroy anticipates a short-term rise in French unemployment to 8% before it declines to around 7%.

Calendars

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