Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of FX Strategy
Summary: The US inflation was a mixed bag, as headline and core prints rising month-on-month but headline YoY came down and core YoY was unchanged. Details and long run trends suggest disinflation continues, but today’s announcement may be the Fed’s final chance to push back on market’s rate cut pricing. We consider three scenarios for Fed’s 2024 dot plot and the market impact that could bring.
US November CPI was a mixed bag. Headline CPI came in above expectations at 0.1% MoM vs. flat previous and expected, while the YoY cooled to 3.1% from 3.2% previously. Core measure was as-expected at 0.3% MoM (prev: 0.2%) and 4.0% YoY (prev: 4.0%).
While some could say the disinflation has made further progress (as headline YoY was down), others could say that core is rather sticky at 4% YoY.
The breakdown suggests that the cooling in core goods inflation is broadening, which suggests that the decline could be sustainable. Core services was a key problem area, and it appears that only a few categories, particularly shelter, drove much of the upside. Long run trends continue to suggest that the disinflation momentum is extending. Meanwhile, with oil prices near their recent floor of sub-$70/barrel for WTI, there will be little reason for the Fed to panic about anything seen in the latest inflation report.
The December meeting is the Fed’s last chance to pushback on rate cut expectations. It remains clear that the rate hike cycle has ended, and investors are now focused on when the rate cuts could begin. That will make the dot plot very relevant today, although the ability of the dot plot to predict the future has been poor.
The September dot plot, as shown above, had a median 2023 projection of 5.6% as another rate hike was in the forecast. That will be removed and 2023 dot will be at 5.4% now. As for 2024, there are three scenarios:
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)