Daily Brief Macro: Global Liquidity And The US Fed Pivot and more

• Global Liquidity Cycle bottomed in October 2022.  Cycle set to expand further to a peak in late-2025
• Federal Reserve liquidity already rising and driven over medium-term by need to monetize mandatory fiscal spending
• Global Liquidity set to rise by US$12-15 trillion in 2024

• The higher civilian workforce participation rate imparted disinflation in 2023. These influences may now be retreating. Skilled labour shortages in manufacturing have produced higher wages that could undermine inflation trends.
• Bipartisan agreement on government spending enhances depletion prospects for the Treasury’s General Account, boosting financial accommodation.  Fed could exit quantitative tightening due to rapid drawdown on its reverse repo programme.
• Deploying greater pressure, the Biden Administration will seek to avoid a repeat of 1992 when the Fed was accused of easing too slowly to the detriment of the incumbent President.   

• The global disinflation trend is continuing in an uneven manner and both the macro trend and Fed speakers are pointing toward a dovish Fed pivot.
• This argues for a bull steepening of the yield curve and a bullish backdrop for stock prices.
• However, investors should be aware that the lurking risk is the re-emergence of the transitory disinflation narrative, which could derail the bullish scenario.

• The short-term outlook can be characterized as a riptide market. Everything looks good, but risks are lurking beneath the surface,
• Negative technical warnings and several sources of volatility are weighing on the short-term outlook.
• Expect the rest of January to be choppy to down, which argues for a buy the dip and sell the rip posture in trading.

• Financial majors – Goldman, Morgan, HDFC, and Interactive Brokers announce results. Charles Schwab reports on 17/Jan and Schlumberger reports on 19/Jan.
• On economic data, data from USA, China, and Japan will provide strong insight into the health of consumers and businesses there.
• An iPhone that got sucked out of Alaskan Air when the door of a Boeing jet came unstuck fell 5,000m but landed without a single crack on the screen.

• Happy Sunday and welcome to our flagship editorial on the Coronation day of King Frederik in Copenhagen.
• I guess it is somewhat telling for my lack of enthusiasm around the event that I am sitting here spitting out research instead of watching the Crowning.
• The US CPI report printed a tad hotter than expected last week, but smack dab at our expectations of a 3.9% YoY level in core terms.

• Core PCE rose 0.3% on the month and 3.9% over a year ago, showing signs of stickiness since last year.
• The yield curve has steepened and two-year yields have fallen dramatically, indicating market response to the softer implications for core PCE.
• Differences in calculation methods and components of CPI and PCE contribute to the wedge between the two measures, with shelter inflation and medical insurance costs being key factors. Non-market prices, particularly in services, are running below market prices for core PCE.

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