Morning Roundup

By Mark Masterson on October 11, 2024

Good morning,

Below are the news items moving markets today:

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Executive Summary:

Happy Friday!

I’ll keep it short and sweet as we continue to navigate through hurricane Milton.  We fared better than many places in Florida – but power remains elusive for many.  Our office is without power again so we are working remotely.

The main data point today is inflation related. 

Headline PPI slightly higher than expected:

• September headline Producer Price Index was unchanged m/m vs consensus for a 0.1% rise.
• August’s reading unrevised at 0.2%. Core PPI (ex-food and energy) was up 0.2% m/m vs consensus 0.2% and August’s unrevised 0.3%.
• On an annualized basis, headline PPI came in at 1.8% vs consensus 1.6%.
• Annualized core came in at 2.8% vs consensus 2.7%.

So – let me see…..

1. Core CPI inflation is now rising for the first time in 18 months

2. Headline PPI inflation is now rising for the first time since June

3. Last month’s PPI inflation number was revised HIGHER

4. Core PPI inflation is now up for 2 straight months

5. Last month’s Core PPI inflation number was revised HIGHER

Yet the Fed remains confident it did the right thing by cutting .5%?

I’m not so sure about that – especially with China now stimulating, and global central banks also in rate cutting mode. 

Time will tell if we have just kick-started another wave of inflation.   More below on that.

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Articles of Interest:

• Central banks:
  • Fed officials downplay hotter-than-expected US CPI, though Bostic open to pause (Bloomberg)
  • Chicago Fed’s Goolsbee says he doesn’t see convincing evidence economy overheating despite strong payrolls report (Bloomberg)
• Hurricane:
  • Hurricane Milton leaves millions without power, though officials optimistic on initial damage assessment (link, Axios, Reuters)
• Economy:
  • China expected to announce up to CNY2.0T fiscal stimulus on Saturday (Bloomberg)
• Markets:
  • Mainland China equities continue volatile week with risk of stimulus disappointment looming over markets (Bloomberg, CNBC)
  • China market volatility triggering major fund shifts, including rapid drawdown of WMPs (Bloomberg); retail traders pile-in (FT)
  • Fresh record of $6.47T floods US money market funds as investors seek out lofty yields amid Fed rate cut (Bloomberg)
  • Rise in overnight repurchase agreements overwhelming banks and will likely exacerbate funding pressures (Reuters)
  • BofA notes record $39B flowed into Chinese equities last week, recommends buying and China dips (Bloomberg )
• Geopolitics:
  • Biden and Netanyahu converge on view over Israel’s plan to attack Iran (Axios); Iran said to warn US-allies to not join (link)
  • Gulf states lobbying Washington to stop Israeli strikes on Iran oil assets due to fear of retaliation on their own (Reuters)
  • US said to believe Iran has not built nuclear weapons (Reuters); Iran warns strike could prompt change in its nuclear doctrine (FT)
  • Israel launches deadliest strike in Lebanon since start of war, Hezbollah says senior official survived assassination attempt (Reuters )
  • Zelensky pitches victory plan by seeking to garner military support to put himself in a position for eventual peace talks (Reuters)
• Washington:
  • Trump to propose making car loan interest tax deductible at upcoming speech, vows to ban Chinese EVs (Reuters, Bloomberg)
  • Trump’s bid for an independent Fed and lack of cooperation from other countries could thwart plan to weaken the dollar (Bloomberg)

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Charts of the day:

About that potential second wave of inflation…..

The potential challenge for the Fed will show up if inflation begins to hook higher – like it did in the 1970’s.

I saw several notable experts worried about a second round of inflation after the Fed cut rates – and BEFORE the China news.  Chinese stimulus puts that risk higher of course.

Here is the US CPI overlay on the 1970’s CPI.

Of course we saw a second wave in the 1970’s – the red line.

The blue line is where we stand today.  

Zerohedge 9 3 24

Remember – it will show up in the commodity markets….

Here is the CRB (commodity index) below…..

It has been basing, and perhaps now wants to push higher.

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Quote of the day:

“Concentrate every minute on doing what’s in front of you.”

 — Marcus Aurelius