Friday, 11 November, 2022

Banks’ Views post CPI:

Banks’ Views Post CPI:

JPM: Overall, Oct CPI supports the idea that we are moving past the firmest period for inflation and that a decent amount of the inflation we have seen over the past year will prove to be temporary or transitory in nature.”
For Fed, the latest inflation news should increase FOMC’s comfort with the idea of slowing the pace of tightening at Dec meeting, and we continue to look for a 50bp hike from FOMC at that upcoming meeting.

BoA: CPI inflation came in below expectations. Core inflation was 0.3% m/m resulting in y/y inflation falling from 6.6% to 6.2%.

• Core goods fell by 0.4% m/m, and there are signs that goods deflation is broadening. Core services was sticky at 0.5% m/m.
• The report is consistent with our view that the Fed will slow the pace of rate hikes to 50bps in December from 75bps.

MS: Headline came in at 0.44% m/m (MSe: 0.66%; C: 0.6%; P: 0.39%) while Core rose 0.27% m/m (MSe: 0.47%; C: 0.5%; P: 0.58%). The deceleration in core inflation is a welcome sight for the Fed, as policymakers have stated their preferred next move would be to reduce the size of the December hike to 50bp. Although signs of a deceleration in inflation would help the Fed moderate the pace of tightening, a stronger than expected December payroll print could complicate the situation

GS: October core CPI rose by 0.27% month-over-month and the year-on-year rate fell three tenths to 6.3%, both below expectations. Services inflation also slowed a bit more than we expected, with shelter categories rising at their slowest pace since May and moderation in some wage-sensitive services categories including hospital services, daycare, and personal care. The 2.4% drop in used car prices was similar to our expectations, and we expect additional declines going forward. We continue to expect the Fed to slow the pace of funds rate increase, with a 50bp hike in December and 25bp hikes in both February and March. Initial jobless claims increased slightly more than expected, and continuing claims were in line with consensus expectations.

Wells Fargo: US “CPI day delivers the vol, yet again. The moves across markets have been staggering. USD/JPY has fallen more than 3%, the largest decline since the Brexit vote in June 2016. The 5y Treasury yield fell 30 bps, the S&P 500 is up 4.5% and vol is crashing down across markets. In essence, all the winning trades this year (USD, yields and vol higher, risk lower) are moving the other way, and in dramatic fashion. Regardless of what you think of today’s CPI print, the technicals and cross-asset price action point to more follow-through at least heading into the long U.S. holiday weekend.”

– “Shifting gears to the details of today’s CPI print, it was some long overdue and welcome good news for the Fed on the inflation front,” he added. The less than expected CPI reading “gives the Fed cover to shift down to a 50-bp hike in Dec, should they choose to. Services CPI less rent of shelter declined on a monthly basis for the first time since mid-2020 and is clearly slowing on trend. However, our Economics colleagues note that a quirk in the healthcare services data likely artificially depressed the services inflation figures.”

– “The key here in our view is that the Fed will likely take nothing for granted at this point,” he added. “Daly’s comments in the wake of CPI are instructive – she emphasized that much more labor market slowing was needed and that she wanted to see more positive traction on getting back to 2% inflation. Figure 1 also reminds us of the much-slower-than-expected CPI print just a few months ago, which was followed by two huge back-to-back prints that blew past expectations. It is far too early for the Fed to let up its inflation fight, even if it downshifts to a slower pace of hikes.”

NWM: As we expected, the October report included some big moves in the medical care (-0.5%) and used car (-2.4%) prices, although both components fell more than expected. The swing in medical care shaved 0.06 from the core CPI in October versus last month when it added 0.09 to the core; and used cars subtracted twice as much as it did in the previous report (subtracting 0.12 pct pts in October after it cut 0.06 pct pts in September). Admittedly, taken together that doesn’t sound like that big of a deal but when we are parsing monthly moves in core CPI to the third decimal place when considering potential sizes of Fed rate hikes it matters! Our Fed call continues to be a 50 basis point hike in December and 50bps more in H123.