The whole market is waiting with bated breath! Tonight’s inflation or is there something big?
The U.S. Department of Labor will release the Consumer Price Index (CPI) for January, and this data will visually present the latest changes in the U.S. price level at the beginning of the New Year. Currently, as concerns about high inflation continue to grow, the Federal Reserve has released signals at the January meeting that it will take multiple rate hikes and even start tapering during the year.
Currently, the median survey of economists interviewed by Bloomberg and Reuters both expect the U.S. CPI to grow at a year-over-year rate of 7.3% in January, continuing a 40-year high since February 1982. At the same time, CPI growth in January is expected to reach 0.5% YoY, unchanged from the previous month.
Excluding volatile food and energy prices, the core CPI is expected to rise 5.9% year-on-year in January, up from 5.5%, and 0.5% sequentially, down from 0.6%.
From the above market expectations, it is expected that tonight’s CPI growth will probably break 7 for the second consecutive month – as shown in the chart below, the highest forecast in the Bloomberg survey is 7.6%, and the lowest forecast is 7.0%. In the past half year, the upper and lower range of this forecast has only once failed to “count” (last October’s data was higher than the highest forecast).
Thus, as long as there are no major mistakes in this month’s survey, tonight’s CPI data release – “U.S. inflation is high for the second consecutive month in the 7 era”, “U.S. CPI in January hit another 40-year high”, will probably become the cut-off point for the global financial media coverage ……
Interestingly, however, the White House does not seem to want the focus to remain on the climb in year-over-year data ……
White House spokesman personally “teaches you how to interpret CPI”
On Wednesday, White House spokesman Jen Psaki was asked for her thoughts on the U.S. government’s upcoming January CPI data on Thursday during her regular daily press briefing. A reporter asked, “Economists are forecasting a reading that the CPI will rise 7.3 percent year-over-year in January. I want to ask: Do you see any signs in the current data that would suggest that inflation will decline rapidly this year? How confident are you that inflation will fall without hurting demand in the economy?”
To which Psaki responded, “Well, we don’t know the exact data yet; I know there will be forecasts. But first, when we look at tomorrow’s data, we’re looking at recent inflation trends. In both November and December of last year, price increases showed a slowdown relative to the previous month. In January, the year-over-year rate of increase is expected to be almost half of what it was in October of last year.”
“This is a sign of progress that the rate of inflation (chain) growth is falling back – especially as it has done in recent months. We will also refer to payroll growth and see how it compares to January’s inflation data.” Psaki said.
In response to reporters’ mention of the 7.3 percent year-over-year CPI growth estimate for January, Psaki said with a slight understatement, “Given what we know about price performance over the past year, we do have a sense that tomorrow’s data will show a higher year-over-year rate of growth, and that’s because the year-over-year data largely reflects last year’s price increases, as we’ve discussed and have known for a long time of, but it’s not reflecting about recent trends.”
Psaki emphasized that CPI is divided into month-over-month and year-over-year data. Given what we’ve seen over the past year, one should focus on the monthly data. “Even if, as some are predicting, the year-over-year figure reaches 7% or more, it would not be surprising, even though we don’t yet know exactly how the data will perform.”
In fact, from a deeper reading of the economic data, Psaki’s “sermon” on Wednesday was actually not without merit.
Some industry insiders pointed out that, although the U.S. CPI data in January year-on-year growth again “broken 7”, in the visual impact may indeed seem more eye-catching, but in recent months the U.S. CPI growth rate has indeed fallen for many months: in October rose 0.9%, in November rose 0.8%, in December rose 0.5% in December. If the January CPI growth rate is lower than the current market expectation of 0.5%, it will be the third consecutive month of growth rate decline.
Adam Button, an analyst at the financial website Forexlive, also wrote that Thursday’s U.S. CPI report is one of the highlights of this week’s U.S. economic calendar. The White House has already taken the precaution of saying that the year-over-year figure will be “high”. But Button said, “It would be a mistake to think the White House is suggesting it will be above consensus.”
Button noted, “As our friends at Newsweek pointed out: last year, Biden also warned of high inflation ahead of the CPI report, but the report was actually below consensus.” Button believes that the market will pay more attention to the monthly rate data and that the composition of the report will be key.
Rare early market speculation on less-than-expected data?
It is worth mentioning that just before the release of the U.S. CPI in January, the trading sentiment of market participants in the financial markets, it seems that there was also a subtle change on Wednesday: the U.S. indicator 10-year U.S. bond yields were once off more than 2 years highs in the session fell sharply, while the Nasdaq rose sharply by more than 2% throughout the day, many insiders attributed these changes in the market to some institutions speculation that tonight’s CPI data may be less than market expectations.
At present, although the media survey on Thursday’s CPI data overall forecast high, but some analysts said that some areas of price growth will slow down, especially in core commodities such as clothing and used cars.
Michael Gapen, chief U.S. analyst at Barclays (Barclays), then noted that “apparel, new and used cars and alcoholic beverages – these are all components of core CPI, and the pace of price increases in these areas should be lower than in December and lower than the the recent peak in October.”
While prices for used cars continued to rise in January, momentum is stalling (and actually even reversing), according to the latest data from industry body Manheim. The Manheim Used Car Value Index climbed only slightly last month to 236.3, and while it still jumped 45 percent year-over-year, the year-over-year increase was only 0.04 percent. In addition the unadjusted price change fell by about 1 percentage point compared to December.
National Securities chief market strategist Art Hogan also noted that the U.S. inflation data may show some improvement. Hogan expects the U.S. CPI to rise 0.4 percent in January, below the prior and market consensus expectations, although the year-over-year figure will likely remain at 7.2 percent. Hogan also noted that inflation moving in the right direction would be illuminating, which could Will remove some of the Fed’s hawkish tone.
In addition, Jefferies (Jefferies) economist Tom Simons is expected to core CPI growth in January will be recorded at 0.3%, lower than the market’s general expectations. He noted that “when the data is slightly lower than expected, people will especially want to know how the Federal Reserve will view the situation. At the end of the day, I don’t think this number will be so important as to change anyone’s opinion, but I think the subconscious reaction of people will be this.”
The whole market is holding its breath
For financial markets, as high inflation has previously been seen as a direct trigger for people to bet heavily on the Fed to raise interest rates aggressively, so tonight’s CPI data performance will undoubtedly also become a key factor directly affecting the movement of various assets such as U.S. stocks, U.S. bonds, the dollar and gold.
Fed Chairman Jerome Powell hinted last month that the Fed would not rule out the possibility of a 50 basis point direct rate hike in the future, and traders have become more convinced that the Fed will make aggressive moves after the surprisingly strong January nonfarm payrolls report released last Friday and showed significant payroll growth. Federal funds rate futures show that the market now expects the Fed to raise rates in March by 50 basis points of the chances of one-third, higher than the one-fifth before the release of the non-farm payrolls data, the Fed raised rates six times during the year (25 basis points each) probability is also close to fifty percent.
In this regard, Alvise Marino, head of foreign exchange strategy at Credit Suisse, said that the market may react more strongly if Thursday’s CPI data is unexpectedly weaker than expected than inflation again: a data pointing in the opposite direction would represent a big change.
Morgan Stanley strategist Matthew Hornbach said in a research note, if the U.S. January CPI data can make the market feel “surprise” (lower than expected), it will become the only opportunity to save the U.S. Treasury bonds in the short term. But he also pointed out that if the January inflation data continue to deteriorate, then the subsequent series of conditions may lead to a continued decline in U.S. bond prices.
Submitted February 10, 2022 at 08:39AM by abigaillv700
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