Friday evening printed two nasty inflation outcomes. Europe is still getting worse:
With winter approaching, markets really need to ask if they want to bet on Vladimir Putin’s generosity:
Given his supply to Europe is already stuffed long-term why wouldn’t he go for a little scorched earth on the way out? Surely this makes EUR investable.
Second, the Fed’s preferred inflation measure, PCE, came in much stronger than expected. Goldman:
The June core PCE price index rose by 0.59% month-over-month, above consensus expectations, and the year-over-year rate increased to 4.79%. Personal income and spending both increased a bit more than expected, and the saving rate dropped to 5.1% in June. The Employment Cost Index rose 1.3% in Q2(not annualized), with firm underlying details. Our composition-corrected wage tracker stands at +5.5% year-over-year in Q2 (vs. +5.4% in Q1), and our quarterly annualized composition-corrected wage tracker based on average hourly earnings and the Employment Cost Index stands at +5.3% in Q2 (vs. +5.6% in Q1).
The notion that the Fed is about to pivot strongly and reflate everything with oil above $100 and PCE still rising strikes me as wishful thinking.
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The Fed turned data dependent this week and the data is unequivocal. Its job is not done.
The AUD short squeeze has been fueled by falling yields. Beware.
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