Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Today we celebrate US inflation and tomorrow we think
Peter Garnry
Chief Investment Strategist
Summary: Nasdaq 100 futures are up 4% on a lower than estimated US inflation figure m/m across both headline and core (less energy and food) breathing fresh air into the 'Fed pivot' trade'. Looking deeper into the US inflation report we observe that the US services inflation less energy is up 0.5% m/m in October with the six month average at 0.6% m/m and unchanged over the past five months suggesting that inflation in the services sector is getting sticky at above 7% annualised rate. But today we celebrate the inflation and tomorrow we will think again about the deeper picture.
Nasdaq 100 futures rally 4% on weaker than estimated US CPI
Following a week of negative sentiment and the market almost giving up on its ‘Fed pivot’ trade and the ‘Xi pivot’ on Covid policy weakening due to rising cases in China, the market was at edge hoping for good inflation news out of the US. The newly releases US CPI report for October showed that headline inflation m/m was 0.4% vs est. 0.6% and CPI core m/m (less energy and food) was 0.3% vs est. 0.5%. The reaction is strong to the upside with Nasdaq 100 futures rallying 4.3% as the sector has the highest sensitivity to the Fed’s terminal rate and interest rate trajectory.
1-hour bars over 10 sessions on Nasdaq 100 futures
Inflation is getting sticky in the services sector
If one digs deeper into the US inflation report it might not be as rosy as the headlines suggest. The Services less Energy subcomponent is 57% of the inflation basket and came in at 0.5% m/m with the 6-month average at 0.6% unchanged over the past five months. This suggests that the US services sector is stabilising at a 7.4% annualised rate and with the US labour market still extremely tight wage pressures are likely to continue. This realisation might surface tomorrow when the inflation report is digested in its finer details. But today we celebrate the US inflation print and tomorrow we think again. 5-year chart on Nasdaq 100 futures
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