Disinflation from China, NatGas, tightened lending standards. BUT…Feb 9 CPI revisions
February 8, 2024
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–The backdrop continues to be weakness in regional banks, but KRE (regional bank ETF) came back from lows to close nearly unchanged. US yields rose slightly, but the ten year auction went surprisingly well; WI was 4.105 and actual was 4.093%. TYH4 settled 111-06, down just 3 on the day. SOFR contracts from March’25 to March’28 were down 2 to 3 bps. Probably the cleanest expression for rates a year from now is the FFG4/FFG5 calendar, which settled -135.75 (9467.75/9603.5). So Fed Funds for Feb of next year pricing right around 4% (First meeting in 2025 should be Jan 29).
–US news today includes Jobless Claims, expected 220k and the 30y auction. Every financial news site this morning has a clip about deflation in China. This is from NikkeiAsia:
Figures released by the National Bureau of Statistics on Thursday showed that prices for consumer goods slipped 0.8% [expected -0.5%] from the same month a year earlier, the biggest such drop since September 2009 and steeper than the 0.3% decline in December. It was the fourth straight month of falls in China’s consumer price index (CPI).
–In the US, yesterday the Nat Gas contract hit a new low sub- $2; it was around $5 at the end of 2022. Biden admin’s suspension of LNG exports is, of course, adding downward pressure. Also, Consumer Credit figures for December were in stark contrast to November’s surge. In Nov, Revolving Credit grew $17.9b. In Dec it grew $1.1b. At annualized rates, Revolving was up only 1.0% in Dec and Non-revolving +0.2%.
–Even though Powell poured cold water on a March rate cut, the market is still assigning small odds. For example, a buyer yesterday of 25k SFRH4 9481.25/9487.5cs for 1.25. April FF settled 9472.5 or 5.275% vs current Fed Effective 5.33%. CPI is released on Tuesday, though the Fed’s Waller mentioned in his last speech that he was circling the date of Feb 9, tomorrow, to study the impact of annual seasonal revisions made to CPI. From Waller’s Jan 16th speech:
One piece of data I will be watching closely is the scheduled revisions to CPI inflation due next month. Recall that a year ago, when it looked like inflation was coming down quickly, the annual update to the seasonal factors erased those gains. In mid-February, we will get the January CPI report and revisions for 2023, potentially changing the picture on inflation. My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope.
Nat Gas below:
