Daily Report (November 10, 2022)
Market Recap and Analysis
Apologies for the lack of posts, been very sick for the past week…
It seems like CPI on Wednesday showed that inflation is moderating a bit and plays into the narrative of peak inflation as it came under expectations. If it came above 8% Y/Y then that would have been seen as stubborn. But still the Fed wants to see data to support slowing down in rate hikes in December.
Fed terminal rate expectations coming down to 4.7% from 5.1%. Fed funds bets for December FOMC are: 0% odds of 75 bps, 100% odds of 50bps. For Feb FOMC 33% of 50 bps.
OER is the metric to calculate housing inflation has come down significantly and we see real time inflation have dropped over the months but finally being reflected in the CPI which lags. CPI shelter component has come down which has the market pricing that in.
We see Fed terminal rate expectations come down but it is still not significant enough unless it continues. The Fed is making sure the financial conditions do not loosen. Just because cpi has come better than expected does not mean he will change his plan.
They must not let up or else risk 70s style stagflation.
At the Fed there is not an agreement with policy as some members worry that the Fed has gone too far… but Powell remains the chairman so he is the leader.
We see that CTA’s buying this rally…
Semi conductors rallied hard today..
