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The Treasury curve is a bath of blood. This is unequivocally signaling US recession ahead:
Village idiot stocks whipped in the town square again:
The US inflation report that “didn’t matter” because traders were trading each other suddenly matters a lot. BofA:
Core goods prices rebound while services remain firm
Headline CPI prices rose 0.1% in August, compared to our expectation for a 0.1% decline. Developments in food and energy prices came with few surprises. Energy prices fell 5.0% mom, with gasoline prices down 10.5%, and food prices rose 0.8%. Both numbers were in line with our expectation (BofA:-5.2% and 0.9%, respectively).Yoy headline CPI inflation slipped to 8.3%from 8.5%.
Out turns on core goods and core services were stronger than anticipated. Core CPI rose 0.6% mom versus our expectation of a 0.3%rise, and the yoy rate rose to 6.3% from 5.9% previously. Core commodities prices surged 0.5% on gains in a number of categories including apparel (0.2%), new vehicles (0.8%), medical care commodities(0.2%), and alcoholic beverages (0.4%).We had expected a small decline in apparel and a smaller increase in new car prices. Used car prices did fall 0.1% on the month, though this decline was less than the four-tenths drop we forecasted, based on the large declines observed in wholesale prices recently. Our outlook for inflation includes moderation in the rate of increase in core goods prices through year-end and stable goods prices in 2023. This month, however, strength in core goods prices came as a surprise and suggests that further easing of supply chain pressures and inventory rebuilding, particularly in autos, is needed before good price pressures can moderate.
Meanwhile core services were up 0.6%, two-tenths above our forecast. The surprise came in transportation services, which rose 0.5% against our outlook for a 0.5% decline. Airline fares did drop 4.6%, in line with our expectation (BofA:-7.8%), but other transportation costs surprised to the high side. Elsewhere, medical care services rose 0.8%on a 0.7%gain in hospital services, while shelter inflation rose 0.7%. Rents (0.7%) and OER (0.7%) were in line with our expectation (BofA: 0.7% and 0.6%, respectively).
Altogether, the solid reading on core CPI and core goods prices, in particular, suggeststhat underlying price pressures remain firm and, in our view, suggests the Fed’s work isonly just beginning. We continue to expect a 75bp rate hike in September andfor aterminal funds rate of 4.0-4.25% early next year.Solid employment gains alongside firmcore inflation readings, in our view, point to additional monetary policy tightening andhard landing risks. Our outlook for the US economy includes a mild downturn in 1H 2023and a restoration of price stability in 2024. We look for GDP growth in 2023 to fall 0.5%4Q/4Q and for the unemployment rate to rise to 5.0%.
Without putting too fine a point on it, the Fed has more work to do. New highs for DXY ahead and new lows for everything else, including AUD.
Written By:
David Llewellyn-Smith
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