1/ Markets wanted a clear report to lean on, in the sense that it was either right (that the 📉disinflation process is continuing) or that the Fed may threaten to run rates higher (the supposed 💀"6% trade"). I would say it didn't get any of that in today's 🇺🇸US #CPI data.
2/ The optimists will argue that inflation is still coming down on an annual basis. They are not wrong but the pace of the decline has slowed significantly with the headline reading dropping from 6.45% in December to 6.41% in January. That's a minute difference, if you ask me. 🤏
3/ Meanwhile, the other side of the argument relies on looking into the details. While goods inflation has come back down below 2%, services inflation continues to accelerate higher. (h/t @johnauthers )
4/ We can drill into the nitty gritty but markets will never dive too deep into the details when it comes to reacting to economic data. I'd rather take the more on-the-surface numbers and in that sense, the monthly figures show that core inflation is still on the rise. 🆙
5/ In other words, there is definitely some disinflation in the pipeline - especially if you want to strip housing from the calculations. But the question remains, is it enough to get inflation back to 2%? It might but the issue is timing. ⏳
6/ What exactly is afforded to the 🏛️#Fed and do policymakers have the flexibility and patience to keep playing this "wait and see" game? Inflation is slowing, there is no doubt. But there is no guarantee of falling back towards the 2% target. 🎯
7/ For now, markets are also going to start feeling more torn. A 🇺🇸US economy that continues to stay upbeat will afford the 🏛️#Fed the flexibility and ammunition to keep hiking rates, IF inflation remains stubbornly high and above the 2% target.
8/ But IF the data continues to show signs that price pressures are abating, then MAYBE there's a chance this disinflation process could see inflation return towards the 2% target. 🙏
9/ That is pretty much where we are now and a bang on estimates sort of inflation report isn't going to provide markets with a straightforward way of reacting. Thus, leaving everyone in the same conundrum as it did before the data was released essentially. ↔️
10/ My own thoughts: Given the push and pull in recent weeks, we're still largely caught in a bind. This is arguably the one of the more complicated periods in markets, as we have gotten over the early/initial optimism that inflation is coming down or has peaked. ⛰️
11/ If anything, perhaps the 💀"6% trade" may win out in the short-term (until the next key trigger that is). I mean, who doesn't like a squeeze? But be reminded, this is a market that is still ever so desperate for anything risk positive. ✅
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