US Inflation Reading May Hand Lemons To Rates Traders
Authored by Ven Ram, Bloomberg Markets Live Commentator and analyst,
When just about everyone and their uncle in the market is convinced that all apples this month look like oranges and that oranges are but lemons, you know you have a problem right away.
And so it happens that there is an uncomfortable clustering around the central forecast number for December annual inflation in the U.S. While the median estimate is for a reading of 7%, the scatter of dispersion is just 0.1%.
In other words, pretty much everyone is convinced the needle will be there or thereabouts without too much of a variation.
While a reading of, say, 7% makes for colorful headlines and bated-breath prose — I can conjure up “the fastest inflation since Manchester United lost a Saturday game that lasted more than 90 minutes” — it’s the less-alluring country cousin of the monthly change that may inform us more about the true inflation momentum in the economy. After all, the base over which the on-year reading is calculated was decidedly weak, so quelle est la grande surprise ici?
That means any on-month number of 0.6% or more, and 0.7% or more on the ex-food and energy component would cause some frantic typing on traders’ keyboards immediately after the release of the data. It may also prompt the market to build on conviction that there will be “four for 22” (I know that reads like the scoreboard for England in what has been a miserable Ashes season so far).
Still, it may be useful to remember that the Fed will have two more prints of the data to look at before policy makers huddle for their important March meeting.
Meanwhile, nominal rates, which were threatening a storm with an imperious build-up just a couple of days ago, have been let down yet again by real rates that have taken more than a step back.
That is also the reason the dollar is struggling to make headway, but that’s a discussion for another day.
Wed, 01/12/2022 – 08:20