Good morning! 12.30pm: we're finished for today, cheers!
Macro comment
This afternoon (at 13:30 GMT) we'll have the monthly US inflation rate, and it's expected to come in at an annual rate of 2.7%.
If true, that would be a slight increase on the 2.6% recorded in October.
With thanks to TradingEconomics.com, here is the trend in CPI over the past year:
If November does come in at 2.7%, it will be seen as a short-term blow by many commentators. On the long-term, however, I think the progress in reducing inflation in the post-Covid era has been nothing short of remarkable - and while I hoped that it would happen, I had little conviction that it would.
I don't think I'm alone in the naive belief that money supply feeds through to inflation. On that basis, with both US government debt (now $36 trillion) and M2 money supply soaring a few years ago, I had a genuine concern that it might not be possible to get inflation back under control in a reasonable timeframe. But that is what has happened.
Again courtesy of TradingEconomics.com, here is the US M2 money supply. Note that as soon as the rate hiking cycle began in March 2022, its growth did come to a halt. Perhaps this is still a relevant metric for inflation:
Turning back to the short-term, a CPI rate of 2.7% today is expected to accompany an annual "core" inflation rate (excluding food and energy) of 3.3%.
With the Fed's preferred measure, the PCE (Personal Consumption Expenditure) rate, also running above its 2% target, there do remain some lingering concerns that US inflation is not fully under control.
Nevertheless, 90% of economists polled by Reuters believe that another 25 basis points interest rate cut is on its way in December, reducing the Federal Funds Rate to 4.25%-4.5%.
That's not something that would be on the cards if the Fed was very concerned about inflation, so I interpret this as a sign that they think it's "good enough" at c. 2.7%.
What does it all mean for equities? I suspect it means more of the same: more all-time highs in the US equity market.
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