Morning Brief – Inflation

Inflation

Following on from Friday’s US inflation release which came as an unwelcome surprise to markets, there was further evidence of stubborn inflation data releases in both France and Spain yesterday. All this adds up to implied  peak policy rates rising by 0.5% in February, the US to 5.4% and Europe to 3.9%. That compares to current rates of 4.50-4.75% and 2.5% respectively and has effectively nixed sunny predictions of rate cuts in 2023. The other forecast that is now firmly in the waste paper basket is the expectation of US inflation rates returning to sub 2% in the next 2 years (that has been revised up to 2.8%). EUR/USD 1.0610

British Pound

A lot riding on Rishi Sunak landing the Windsor Agreement with the DUP and his own Conservative Party. So called Blue on Blue risk rather higher than on His Majesty’s Opposition given that their leader has rowed in in support of the Agreement. Stakes getting higher as PM Sunak has suggested that he will push ahead with the Agreement even if the DUP do not support it. GBP firm with more potential for a rise assuming Sunak success with GBP/USD 1.2100.

Fuzzy Data?

When the US market gets concerned that the Federal Reserve is not following the script that has been adopted by the market, typically a rash of stories start to appear suggesting that the Federal Reserve does not have access to correct data and therefore is basing its decisions on incorrect data. Yesterday this started and an example of how the economy is in fact performing much less well than the Fed believes: in 2019 there were 702,000 restaurants in the USA and now there are 631,000.

More compelling evidence required than that!

Lithium

After the mad dash to secure supplies of lithium by EV manufacturers in the past 2 years which has seen lithium carbonate rise by a factor of 6 times and spodumene ( lithium aluminium inosilicate) up by 10 times, the market has become vastly over supplied with prices falling sharply and due to fall up to 25% more. The reason for the over supply is due to the fall in demand and consequently production of EVs particularly in China due to the economic slowdown prompted in large part by LockDown.

Hong Kong

Yesterday evening Hong Kong time after 945 days, the mask wearing rule was lifted. Here’s wishing all of Hong Kong better times after nearly 4 years of civil unrest, political tension and one of the longest compulsory mask wearing regimes globally.

Blinded by the Light

It was this day in 1977 that Manfred Mann’s Earth Band had their first Gold hit with this number written and sung in 1973 by Bruce Springsteen. Formed from the original Manfred Mann which had enjoyed success in the 1960’s, the band enjoyed success between 1971 and 1987 before splitting up and then reforming in 1991. Amazingly despite a number of members departing this world, the band is still playing -on Earth.

Blinded by the light, 

revved up like a deuce, 

another runner in the night

Blinded by the light, 

revved up like a deuce, 

another runner in the night

Blinded by the light, 

revved up like a deuce, 

another runner in the night

Madman drummers bummers, 

Indians in the summer with a teenage diplomat

In the dumps with the mumps as the adolescent pumps his way into his hat

With a boulder on my shoulder, feelin’ kinda older, 

I tripped the merry-go-round

With this very unpleasin’, sneezin’ and wheezin, 

the calliope crashed to the ground

The calliope crashed to the ground

But she was…

Blinded by the light, 

revved up like a deuce, 

runner in the night

Blinded by the light, 

revved up like a deuce, 

another runner in the night

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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