Markets today: inflation is not going away

Autumn Statement blues: I repeat, in a world of stagflation, there are no good policy choices… nevertheless, a 23% hike in fuel taxes is, during a cost of living crisis, when people are struggling to pay basic bills, to say the least. , odd. It is clearly inflationary, just as the budget was supposed to work closely with the Bank of England to reduce inflation. Driving up the cost of fuel is obviously not only inflationary, but also bad for growth. It is a pro-stagflation policy totally at odds with restoring not only the credibility but also the sustainability of growth and inflation projections.

Read all of our fall statement coverage here.

Cleveland, we have a problem. A new gauge of inflation expectations suggests that the Federal Reserve still has a lot to do. The Indirect Consumer Inflation Expectations Index (ICIE), a weekly survey of consumer opinions on prices from the Cleveland Fed and Morning Consult, is not easy for Fed officials to read. It is now a new system, but one that probably reflects consumer opinion better than the usual indexes since inflation is a rather difficult concept for most people to grasp. Instead of asking consumers directly to report what they expect to happen to inflation, they are asked to report the required change in income over the next 12 months that they think they will need to be so well off. You can read more about this survey here.

Meanwhile, the Atlanta Fed’s bullish growth outlook is confusing everyone.

Doomsters and gloomsters: Rising retail sales, improving consumer confidence… not the pessimistic outlook depicted in yesterday’s fall report. Maybe things aren’t so bad? UK consumer confidence rose slightly to -44 from -47 in October, but is still barely above the record high of -49 in September. Meanwhile, retail sales in Britain rose 0.6% in October from the previous month, although below pre-pandemic levels. Which goes to show that while things are getting a bit better month over month, you have to remember that it’s from a pretty low level in the first place.

Stocks in Europe are trading a little firmer this morning after declines on Wall Street for a second day showed signs that the pivotal bulls were showing weariness. St Louis Fed President James Bullard, a hawk, said “the policy rate is not yet in an area that can be considered tight enough,” adding that “the shift in policy stance monetary policy seems to have had only limited effects on observed inflation, but market prices suggest that disinflation is expected in 2023”. Short-term Treasury yields jumped, pushing stocks lower.

The rate of disinflation is the key here. It’s the old peak versus plateau argument. BNP Paribas in a note this week said: “What matters now…is the speed of disinflation as this will influence Fed policy…When fears of further large rate hikes have subsided, fears of recession will become the dominant subject. ”

Today we hear from MPC members Mann and Haskell, while US existing home sales are the only release of major economic data.

Japan still a hopeless case? Inflation hit a 40-year high, with core CPI rising 3.6%. Of course, the Bank of Japan can’t stop relaxing. Governor Kuroda said “the Bank will continue monetary easing, aimed at…achieving the 2% price stability objective in a sustainable and stable manner, accompanied by wage increases.” USDJPY weekly rejection from 137.50 area.

Dollar index – weekly rejection from the 105 area we talked about.

Neil Wilson is the Chief Market Analyst at Finalto

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