Filter by Categories
Watch Series
The Great Game
Daily Post
Steno Signals
Free Content
Emerging Markets
Video

Week at a Glance – A hot inflation report is the last thing markets need

Reflation is roaring across global economies, and higher inflation on a trend basis is the last thing markets need - but it might be what they get. While that’s not overly bearish for risk assets in the medium term, it might be the final nail in the coffin for equities short-term.
2025-01-13

Morning from Copenhagen. 

We are seeing a continuation of Friday’s price action in equity futures, rates, and FX markets, with the USD and bond yields on the rise while equities are selling off slightly.

The initial reaction of equities to a reflating economy is less than ideal. Our models have recently turned net-negative on both equities and bonds, as markets appear to dislike the combination of higher growth and inflation ahead of the FOMC meeting in late January. Positive economic surprises are likely to trigger further equity selloffs as fears of Fed rate hikes resurface. However, if the Fed maintains a semi-dovish stance (e.g., cutting or ruling out hikes) while inflation and growth rise, equities could perform strongly in 2025. Let’s not forget that the problem in 2022 was weaker growth combined with higher inflation.

Heading into this week, we lean bearish on both equities and bonds. We anticipate stronger-than-expected prints for both the US CPI and retail sales reports. Interestingly, economic consensus for December has been surprisingly soft, which presents potential opportunities.

So, without further ado, let’s quickly run through some of the more important releases this week!

NFIB (Tuesday)

This week brings several inflation-related releases that will shape the trajectory of the USD, bond yields, and markets overall. Let´s kick off with the NFIB report, which has regained prominence as a key forward-looking indicator for inflation, helping to assess the Fed’s path.

Reflationary signals have been visible in the NFIB report for the past 1–2 months. However, it will be interesting to see how participants react now that reflationary trends are confirmed in broader economic data. With price, wage, and earnings expectations on the rise, it’s safe to say that the US economic cycle is expanding once again. 

We are in for a ride in 2025 friends.

Chart 1.a: Forward-looking wage expectations are rising 

Reflation is roaring across global economies, and higher inflation on a trend basis is the last thing markets need – but it might be what they get. While that’s not overly bearish for risk assets in the medium term, it might be the final nail in the coffin for equities short-term.

To read the full article, sign up for a 14-day FREE trial of the The Macro Connoisseur, Professional or Crypto plan.

0 Comments