In today’s briefing:
- USD inflation review: Powell has to invent a new measure..
- Elections Likely to Hand a Decisive Mandate to Strongman Prabowo
- Great Game – Why Gaza Ceasefire is Coming Within 2 Weeks
- UK: Labour Market In Rude Health
- Ugly CPI Report Leaves Powell Less Room to Sound Dovish
USD inflation review: Powell has to invent a new measure..
- This is another heavy-hitting US inflation report and frankly the worst in a while.
- The stickier components of the basket, including rents and transportation services came in smoking hot, and without substantial deflation in various core goods categories such as cars and apparel, this would have been an outright disastrous report for the Federal Reserve.
- While we had the core goods part of the equation right, we had the re-acceleration of core services wrong.
Elections Likely to Hand a Decisive Mandate to Strongman Prabowo
- Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto’s era, looks likely to win the presidential election, with Jokowi’s son Gibran as running-mate.
- Gibran’s presence has shifted the parliamentary polls by 10pp in favour of Prabowo’s party, Gerindra, likely making it the largest at the expense of PDI-P– winner of all previous elections.
- Post-Oct’24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution.
Great Game – Why Gaza Ceasefire is Coming Within 2 Weeks
- Welcome to this week’s Great Game, where we cover the geopolitical topics of the hour.
- We’re gradually changing the format of the Great Game series to cover more topics and give you direct advice and projections as well as clear directions on which geopolitical issues matter for your portfolio and which don’t.
- This week we’re still focused on the Middle East – most notably the Gaza conflict which is at the center of everything.
UK: Labour Market In Rude Health
- UK unemployment confounded market expectations by falling to 3.8% from the lowered profile in the reintroduced LFS data. It is 0.5pp less than the BoE forecast for Q4.
- Residual seasonality may unwind some of this strength in the Spring, and labour demand appears to have softened slightly despite rebounding weekly vacancies data.
- Wage growth also exceeded expectations. Underpinned by high settlements, it may persist near 6%. Strength in pay and jobs suggests the labour market is in rude health.
Ugly CPI Report Leaves Powell Less Room to Sound Dovish
- Both US headline and core inflation came in higher than expected in January. Core inflation rose by 0.4% month-on-month, the strongest increase since last May.
- The real shocker, however, came from the Core Services excluding Housing CPI. The three-month annualized inflation rate spiked to 6.7%.
- Although we have one more CPI report before the next FOMC meeting, the chance of a (temporary) correction in risky assets has increased.
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