US INFLATION: Dallas Fed: Q1 Could Be Crucial In Assessing Price Pressures
Ahead of Wednesday's CPI report, the Dallas Fed has published a helpful primer on how to interpret the various seasonal effects seen in inflation at the start of the year, addressing residual seasonality - and why it should be taken seriously as an indicator of overall inflation pressures (Link here.)
- Their analysis, "Is inflation still slowing? Early 2025 data pivotal to outlook", points to "mildly elevated core PCE inflation in the first quarter of 2025, at around 2.7 percent annualized, as greater persistence in first-quarter inflation is somewhat offset by easing labor market tightness over the past year ... If the labor market remains stable at current conditions and long-run inflation expectations remain anchored, [our] regression would predict more muted inflation readings in the rest of the year and near 2 percent for 2025 as a whole."
- However, the early 2025 inflation readings - including of course this week's January data - could be telling, as their research suggests that Q1 inflation tends to be more sensitive to inflation persistence ("may be driven by a higher likelihood for firms to change prices at the start of the year") and changes in labor market slack, making it a bellwether for overall inflation pressures: "caution may still be warranted until early 2025 inflation readings are released. The regression underpredicted the first quarter of 2024, and there is uncertainty regarding how much the labor market has actually cooled. The greater sensitivity of first-quarter core PCE inflation to persistence and the state of the business cycle should render those months of data more informative about the underlying momentum of inflation."
- "If it turns out inflation is more persistent than previously thought or overall demand is too elevated for inflation to converge to 2 percent, the results suggest that such concerns would more likely manifest early in the year. Further, the slower monthly pace in the second half of the year is not necessarily as encouraging as similar readings would be early in the year. If instead early 2025 inflation data are subdued, similar to late 2024, 12-month inflation rates would make considerable progress toward the 2 percent goal in only a few months and signal economic conditions likely consistent with price stability."
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GBPUSD TECHS: Bearish Trend Sequence
- RES 4: 1.2672 50-day EMA
- RES 3: 1.2607 High Dec 30
- RES 2: 1.2533/2576 20-day EMA / High Jan 7
- RES 1: 1.2367 High Jan 9
- PRICE: 1.2208 @ 19:13 GMT Jan 10
- SUP 1: 1.2187 Low Nov 10 2023
- SUP 2: 1.2138 Low Nov 2 ‘23
- SUP 3: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
- SUP 4: 1.2037 Low Oct 4 ‘23 and a key support
The trend condition in GBPUSD remains bearish and last week’s sell-off reinforces the bear trend - the break lower confirms a resumption of the downtrend. The move down also marks an extension of the price sequence of lower lows and lower highs. Note too that moving average studies are in a bear-mode position highlighting a dominant bear trend. Sights are on 1.2187 next, the Nov 10 2023 low. Initial resistance is at 1.2367, the Jan 9 high.
EURUSD TECHS: Bearish Trend Sequence
- RES 4: 1.0630 High Dec 06
- RES 3: 1.0513 50-day EMA
- RES 2: 1.0437/58 High Jan 6 / High Dec 30
- RES 1: 1.0358 High Jan 8
- PRICE: 1.0239 @ 18:56 GMT Jan 10
- SUP 1: 1.0215 Intraday low
- SUP 2: 1.0201 61.8% of the Sep ‘22 - Jul ‘23 bull leg
- SUP 3: 1.0151 2.0% 10-dma envelope
- SUP 4: 1.0138 1.764 proj of the Sep 25 - Oct 23 - Nov 5 price swing
The trend condition in EURUSD remains bearish and recent short-term gains have proved to be a correction. Friday’s move lower resulted in a print below 1.0226, the Jan 2 low. A clear break of this level would confirm a resumption of the downtrend and mark an extension of the price sequence of lower lows and lower highs. Sights are on 1.0201 next, a Fibonacci retracement point. Resistance to watch is 1.0458, the Dec 30 high.
US TSYS: Strong Jobs & Unemployment Rate Dip Dashes Rate Cut Hopes
- Treasuries gapped lower after Friday morning's larger than expected December non-farm and private payroll gains while unemployment dipped slightly.
- The 256k in December leaves a strong recent trend, with 255k in Sep, an average of 128k for those two months (initially 132k) before surprisingly reaccelerating again. Unemployment rate: 4.086% in Dec after very small downward revisions in the prior two months, with 4.23% in Nov (initially 4.246%) and 4.14% in Oct (initially 4.15%).
- The Dec'24 10Y contract traded down to 107-12 low (-27) well through technical support of 107-19.5 (1.618 proj of the Oct 1 - 14 - 16 price swing) next level: 107-04 (Low Apr 25 ‘24 and a key support). Curves bear flattened but finished off lows, 2s10s -3.937 at 38.383 vs. 36.572 low, 5s30s -9.612 at 37.484. 10Y yield taps 4.7860 - highest since May 2022.
- Futures retreated towards post data lows late in the session while projected rate cuts through mid-2025 have retreated since this morning's data, current vs. morning levels* as follows: Jan'25 at -0.7bp (-1.7bp), Mar'25 -6.3bp (-10.1bp), May'25 -10.5bp (-15.9bp), Jun'25 -18.2bp (-25.6bp), Jul'25 -20.2bp (25.5bp).
- Next week brings CPI and PPI inflation measures on Wednesday and Thursday respectively, the scheduled Fed speaker docket rather muted with the Fed Blackout next Friday.
