MARKETS
US stocks are trading a touch higher Friday. Still, they are on pace for a weekly decline even after what turned out to be a remarkably benign November PCE inflation report -- an event that may have elicited more Christmas cheer for all to hear. Still, Investors are not decking the halls this year.
The November PCE report corroborates what everyone sensed, US core inflation appears to have peaked. It is now slowing under the weight of decelerating growth driven by tighter monetary policy and a withering post-pandemic economy.
Although the slower monthly prints were welcome, there needs to be more progress here for investors to revel and cheer. Any feel-good vibes roused by November's in-line MoM readings were neutralized by the upward revisions to the monthly prints from October, both for headline and core.
All in all, it was challenging for traders to spin Friday's data as good news. Core inflation was higher than expected on a 12-month basis, revised October inflation prints higher, real spending flatlined but ticked up in services (where sticky inflation hangs out), housing costs remain burdensome, the savings rate is near a record low and higher private sector wages drove a modest beat for incomes, perhaps underscoring the wage-price spiral that Fed officials variously suggest doesn't exist.
While inflation may be receding, investors will likely remain sufficiently skeptical until we see a more sustained and pronounced deceleration.
Consumers are starting to pull back, and businesses likely will be close behind as the total weight of tighter monetary policy bears down on Corporate America.
Since it is a bad omen to sign off with a Grinch that stole Christmas note, I leave you with my best Cindy-Lou Who feel good view.
There is always a silver lining. If inflation continues to moderate, albeit slowly, and the Fed doesn't push policy rates much above 5%, the economy should sort itself out with a shallow downturn.
ASIA RECAP
Stocks in Asia traded lower Friday to close out a week in which the Nikkei lost almost 5% of its value, and the CSI 300 was down over 3% -- triggered by developments in Japan's monetary policy. And some horrific Covid case count numbers in China.
But Japan's inflation actually decelerated, leaving the FX world short USDJPY and contemplating why the Bank of Japan widened the 10-year band as a persistently low inflation rate is a crucial force behind why the BoJ was reluctant to abandon its longstanding yield curve control.
In a world struggling with persistently rising prices and concerns that inflation expectations could become unanchored, there is still Japan -- a country that has pushed against deflationary forces since its asset bubble burst way back in the late1980s and the population began to decline. And even in this elevated inflationary environment of today, prices in Japan march to a different beat.
Opmerkingen