Macro Economy Weekly | Bitmidas
2022–11–12
CPI peaks, core inflation remains high
The annual rate of the U.S. CPI, not seasonally adjusted in October, is recorded at 7.7%, which is significantly lower than the market expectation of 8% and bottomed out by 0.5% compared with the previous value. In line with the data, the downtrend is obvious, falling from the high level and continuing to decline.
The annual rate of the US core CPI, which is not seasonally adjusted in October, also falls sharply from the previous value of 6.6%, which is lower than the market expectation of 6.5%, but core inflation remains high.
Through data research, it is found that the inflation of energy in the United States has been greatly reduced, and the inflation of goods and services has also declined. The stubborn inflation lies in housing and rent, which are still climbing.
Market Performance
Despite the high-level housing and rent inflation, the overall inflation downtrend is obvious, far lower than the previous value, and the market has strengthened the expectation of the Fed to slow down interest rate hikes. Biden even flaunts his achievements in depressing inflation. Affected by this, the US index falls, and US stocks and non-US markets rebound.
Bond Market & Debt
In the last week, the yield of U.S. Treasury bonds rise sharply, with 2/10 inversion seriously, and the market falls into a liquidity crisis. The U.S. Treasury Department adopts bond purchases to activate liquidity. The Fed does not shrink its debt on the 9th but carries out a 2 billion bond purchase instead.
After the release of the US October CPI data, the US 2/10-year Treasury bond yield falls sharply, and market confidence increases, but the inversion is still 50 basis points, indicating that the market is not convinced that the US could avoid recession.
However, compared with last week’s data, the market is relatively optimistic this week, and the Fed’s next interest rate hike of 20~50bp is expected to be of a high probability.
Summary
The US CPI in October is significantly lower than market expectations and the previous value, which is a major boost for the market. The non-US market rebounds violently, and the rebound is expected to continue based on the expectation of slowing interest rate hikes.
The Federal Reserve has made certain achievements in reducing inflation. Under the pressure of economic slowdown and reduced liquidity of government bonds, it has actually suspended debt reduction and carried out bond purchases. The sharp decline in US bond yields also reflects the Market sentiment and the Fed’s actual actions.
The overall pace of interest rate hikes is slowing down, but through the detailed data on the composition of inflation, we can see that not all inflation factors have declined, so the tightening policy will continue for a while. The inflection point has not yet come, but it is approaching. Most financial markets will gradually enter a stage of bottoming out.
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