Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
U.S. PPI for January : Pipeline inflationary pressures are still building
Christopher Dembik
Head of Macroeconomic Research
Summary: Inflation in the United States is running hot. Both the CPI and the PPI report for January are above expectations. There is no sign that inflation is slowing down or that it has approached its peak. On the contrary, it is now strong and broad-based. The U.S. Federal Reserve has certainly been too complacent regarding the inflation dynamics. Expect the central bank to act aggressively at the upcoming March FOMC meeting (consensus : 50bp interest rate hike).
· The U.S. Producer Price Index (PPI) for final demand rose by 1.0 % in January. This is a strong acceleration following an increase of 0.9 % in November and 0.4 % in December 2021. On a year-over-year basis, final demand prices jumped by 9.7 %. This is uncomfortably high.
· Core PPI (excludes food, energy and trade services) for final demand rose by 0.9 % in January. This is the largest increase since January 2021 (1.0 %). On a year-over-year basis, core PPI is up by 6.9 %.
· Pipeline inflationary pressures are building. Higher commodity prices, global trade disruptions and increases in key inputs to production are pushing overall prices higher. This is the clear signal that inflation is not transitory but structural in the United States, in our view. In these circumstances, the U.S. Federal Reserve will have no other option but to respond aggressively at the next FOMC meeting in March. This implies that a 50bp interest rate hike is likely.
The personal consumption component of the PPI – a proxy for the Consumer Price Index (CPI) – is up by 0.7 % month-over-month after 0.5 % in December 2021. This suggests the headline CPI for February is likely to remain elevated and that inflationary pressures will not decrease. We don’t exclude that headline CPI could reach 8 % in February or in March. The release of the first estimate of the February CPI is scheduled for 10 March.
Pipeline inflationary pressures are high. Inflation for processed goods rose 1.7 % MoM, inflation for services used as inputs to production moved up 0.3% MoM and inflation for unprocessed foods excluding energy was up 0.1% MoM. Inflationary pressures will remain a headache for much longer than initially expected.
The underlying inflation trend appears to be around 8% - the three-month annualized change in core PPI jumped to 8.2 % versus prior 7.8 %. This is unprecedented in recent history.
Inflation is broad-based : services +0.7 % month-over-month, goods +1,3% month-over-month, energy +2,5 % and food +1,6 %. There are strong increases in hospital outpatient care, apparel, jewelry, travel accommodation, truck transport, autos, diesel, beef/veal, dairy, jet fuel etc. U.S. Inflation is now structural.
We see two options to fight inflation : tightened monetary policy (on the way) and removal of tariffs barriers, notably those implemented under the Trump administration (this is rarely mentioned).
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
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)