Breakfast Bites - US PCE Inflation to be released

Rise and shine everyone.

It’s PCE inflation day. Until the Fed actually announces when they will cut rates, the “data” in the data-dependency continues to move markets. The estimates for today are:

So the expectation is already for a slight increase. Last month, however, we were surprised to the downside with inflation numbers. Yesterday, we got the Real GDP growth numbers that surprised quite a bit to the upside. Real GDP growth came in at 3.3% QoQ vs. 2% est. This brings full year GDP to 2.5% vs. 1.9% for 2022. Digging into the numbers however, we see that consumption has slowed from last quarter, but services consumption actually accelerated.

US Equity Futures are lower this morning, other than the Russell 2000 futures. Yesterday, all the broad market indices closed in the green. Interestingly enough, we were just talking about breadth in yesterday’s note, only to see the equal-weighted S&P 500 catch up and close +1% vs. the SPX that closed +0.5%.

Oil was a winner yesterday, crossing $77/bbl for a big move of +3%. It’s giving up some of its gains in early trading this morning. The US Dollar is flat. Gold is marginally higher and Bitcoin also made a strong move of +3%. Yields are lower, led by the long end.

Asia and Australia 

• Asian markets mixed: Chinese markets take a breather after recent gains; Japan closes lower; JGB yields decline amid Japan macro releases; South Korea close higher; India and Australia on holiday.

• January's Tokyo Consumer Price Index (CPI) in Japan fell significantly below expectations. However, analysts believe that the focus for the Japanese Yen (JPY) and Bank of Japan (BOJ) policy is primarily on the imminent wage negotiations.

• Chinese Property Developer, Evergrande, faces hearings Mon, Jan 29th in Hong Kong including a rare ‘regulating order’ session that could result in the court appointing a liquidator

Europe, Middle East, Africa 

• European Market mixed: FTSE100 lifted by highest GfK consumer confidence reading since Jan 2022 (-19 vs. -21est). French CAC40 outperforming due to LVMH rally from earnings. Tech heavy DAX weighed on by read across from Intel’s downbeat earnings and after-market fall >10%.

• ECB speakers step into the spotlight, providing clarity on the timing of cuts, diverging from market expectations for the first half of the year. While the statement from yesterday was expected, post-fact sources reveal a willingness to consider rate cuts in March and potential actions in June.

• EU Earnings Recap: Remy Cointreau rev in line, narrows low end FY23 rev guidance, Cognac sales over +30% y/y, will comply with China anti-dumping investigation; Volvo Q4 bottom line miss, top line beat, extra dividend, strong truck demand from China, weak from EU; LVMH healthy FY results after close yesterday saw particularly good growth in perfumes, lifting luxury stocks; Signify Q4 miss, sees challenging conditions persisting.

The Americas 

• President Biden has temporarily halted the pending approvals for exports from new liquefied natural gas (LNG) projects. However, exemptions for national security are included. The Department of Energy (DOE) will undertake a review during this pause to assess the economic and environmental implications of these projects. Officials from the Biden administration assure that the pause will not adversely affect allies and emphasize the availability of exemptions for national security if there is a demand for additional LNG.

• US new home sales activity increased in December, bolstered by a drop in mortgage rates and a sizable drop in selling prices. New home sales increased 8.0% MoM in December to a seasonally adjusted annual rate of 664,000 units

BofA’s Flow Show

Chart of the Day: The Wealth Effect is something that we’ve been talking about and this chart represents it very well. One of the issues that we were worried about last year was that rates increasing would cause pressure on home valuations. We could’ve ended up with a situation where prices fall such that the debt becomes a much higher portion of the mix.

That did not happen. Home prices continued to be buoyed by the lack of housing, and home ownership gave rise to the wealth effect - people feel like they are wealthy because they are sitting in homes that have still retained or increased in value. This in turn has also led to higher consumer spending.

 Calendars

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

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