Tomorrow December’s CPI is released. Will it support the disinflationary thesis? Rate cut bets have ramped up in the past month even as economic data has demonstrated solid fundamentals. Tomorrow’s data, which may indicate stubborn price pressures, could cool speculation of a rate cut in March.
Generally speaking, either the economic outlook or the rate outlook needs to be corrected. If the rate outlook becomes more hawkish—defined as the first-rate cut may not occur until summer which is the Federal Reserve’s view—market volatility may increase. Most will accept the markets have already priced in a rate cut in late winter.
Yesterday JP Morgan wrote the obvious…the longer Red Sea shipping is hampered, the greater the probability of increased shipping costs that may boost inflation. These fears are confounded if oil rebounds because of these shipping threats. As noted yesterday and as also mentioned by JP Morgan, the oil market [and the rest of economy] is devoid of any geopolitical premium. Will this suddenly change?
It is widely accepted the world is facing its greatest upheaval in forty years, an upheaval that is not remotely discounted in risked based assets. Writing it differently, the market believes the collapse of global trade and the tectonic changes occurring geopolitically are a non-event.
Is this complacency mis placed? JP Morgan’s Jamie Dimon states today is more akin to the 1970s than the 1990s.
Markets were relatively quiet yesterday. Treasuries were essentially unchanged. The Dow declined about 0.4% while the NASDAQ was almost unchanged.
Last night the foreign markets were down. London was down 0.33%, Paris down 0.09% and Frankfurt down 0.01%. China was Japan up 2.07% and Hang Seng down 0.57%.
Japan finally made a new high, eclipsing the closing level last achieved in March 1990 when it was then believed that Japan was going to become the preeminent economic power.
Futures are flat. The 10-year is up 3/32 to yield 4.0%.
