US politicians show reluctance in resolving debt ceiling, impacting global liquidity and markets.
US inflation report signals a downward trend with core services decline, retail gasoline prices, and used cars influencing rates.
Deep dives
US Inflation Trends and Impact of Core Components
The latest US inflation report highlights a significant decline in core services ex housing, a component closely monitored by Powell. This segment has seen a rapid decrease down to around 4% annually from a previous 8%, indicating a trend that Powell was deeply concerned about. Even though core services ex housing only makes up a portion of the CPI basket, central bankers prioritize these sub-components, reflecting a general downward trend in inflation pressures.
Impact of Retail Gasoline Prices and Used Cars on Inflation
The US inflation report for the month, particularly in April, was influenced by a few key components like retail gasoline prices and used cars. These elements played a crucial role in preventing the inflation report from showing outright deflation. However, a closer examination reveals that the details within the report suggest a forthcoming decrease in these components, indicating a potentially lower inflation rate in the upcoming releases.
Housing Inflation Outlook and Leading Indicators
The discussion also delved into housing inflation and the influence of rent prices on overall inflation trends. With rent of shelter lagging negotiated rents on the ground, a decline in negotiated rents could foresee a corresponding decrease in rent of shelter. Furthermore, an intriguing chart presented a relationship between median asking rent and subsequent rent growth indicators, hinting at a possible upturn in leading indicators for rents.
Global Inflation Dynamics and Implications of Producer Prices
The podcast explored global inflation dynamics by analyzing producer prices in China and the US. While China witnessed a significant decline of -3.6% in producer prices on a yearly basis, indicating a potential spillover effect on Western inflation, concerns were raised about the muted rebound in China's economy post the housing market implications. The implications of global inflation, particularly influenced by Chinese factors, were discussed in relation to international trade and financial markets.
The X-Date for the debt ceiling is approaching and US politicians don't seem keen in finding a swift resolution. This will impact global liquidity, the bond markets and the US Dollar. Alf and Andreas discuss this theme, reflect over US inflation and present some actionable trade ideas. If you enjoyed this episode and you want to read more macro analysis and investment strategy from Alf and Andreas you can do so here! - Alf's website: https://www.themacrocompass.com/ - Andreas' website: https://stenoresearch.com/ Disclaimer: Nothing discussed on The Macro Trading Floor should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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