Morning Brief – US Inflation

US Inflation

When the news came out of a lower than expected monthly CPI figure yesterday afternoon at 0.4% up versus the expected 0.60%, the market went mad sending Equities up and USD down sharply. That means that annual inflation is up 7.7% and so below 8% for the first time since the inflation fears spread across the markets. This may sound still to be a problem to some, but the fact that it came in lower has dispelled all doubts in the mind of the market: inflation is over.

The logic goes that if indeed inflation has been capped and is on the way back down, then the Federal Reserve will not have to put interest rates up so much in December. So welcome news indeed although at odds with the message given by Chairman Powell which should give pause for thought. For example, without wishing to pour cold water on all this cheer, energy prices remain much higher than they were both for cars and also for homes and offices.

Sifting through the tea leaves of market psychology, the reaction is based on the assumption that if the Federal Reserve was slow to act on the way up in the rise in inflation, it is entirely credible to believe it can be equally slow and wrong footed not to have already spotted the inflection point and the consequent downward turn in the inflation rate. Never mind whether this is indeed the case, US interest rates lower with 2 year Treasuries at 4.39% and 10 Years at 3.91% and USD considerably weaker with EUR/USD 1.0220.

UK

With the FTSE up 0.9% while the DAX managed an increase of 2.7%, the Nasdaq roared up 4%. New UK Prime Minister Rishi Sunak will be relieved on all this relief and the accompanying rally with 2 Year Gilts at 3.08% and 10 Year Gilts at 3.33%. This will allow him and his slightly less new Chancellor breathing space to work on the package measures for the Financial Statement that will be released next Thursday.

GBP/USD 1.1705.

A First

It’s official: Amazon has become the first company ever to lose USD 1 Trillion in market value. With a share price of $86.14 that gives Amazon a market cap of USD 879M versus in July 2021 USD1.9 Trillion. Sobering given that that represents a reduction almost exactly equivalent to the market cap of Alphabet parent of Google.

Baby One More Time

This day in 1999 a teenaged Britney Spears won a clutch of prizes at the MTV Europe Music Awards in Dublin including Best Female, Best Pop and Best Breakthrough Artist and of course Best Song for this number that established her as a force of nature as well as a huge commercial success:

Oh baby, baby, how was I supposed to know
That something wasn’t right here?
Oh baby, baby, I shouldn’t have let you go
And now you’re out of sight, yeah
Show me how you want it to be
Tell me, baby, ’cause I need to know now, oh because

My loneliness is killing me (and I)
I must confess I still believe (still believe)
When I’m not with you I lose my mind
Give me a sign
Hit me, baby, one more time

Oh baby, baby
The reason I breathe is you
Boy, you got me blinded
Oh, pretty baby
There’s nothing that I wouldn’t do
It’s not the way I planned it
Show me how you want it to be
Tell me, baby, ’cause I need to know now, oh because

My loneliness is killing me (and I)
I must confess I still believe (still believe)
When I’m not with you I lose my mind
Give me a sign
Hit me, baby, one more time

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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