STIR FUTURES: Fed Rate Path Close To Full Reversal Of CPI Hawkish Shift

For CPI, the softer-than-expected-overall PPI report (which more often than not comes out after and not before CPI) appears to have been muted - we have seen no changes to CPI forecasts as a result (most analysts have said as much explicitly). Pre-PPI consensus for CPI per MNI medians were 0.38% M/M for headline, and 0.24% for core. 

• Some analysts noted that sequential food prices were low in PPI (-0.2% M/M), which could on the margins have bring some softer implications for headline CPI (consensus is for CPI food prices to rise 0.4% for a 2nd month).
• But if anything, we could see a slight upside bias to core PCE vs pre-PPI consensus on account of airfares coming in much higher than expected in PPI than analysts had expected (up 7%) which may be reflected to some degree in airfares (CPI consensus was for a little above 1% after 0.4%). See chart.
• On another note, upward revisions to PPI in prior months could marginally upwardly bias prior month PCE revisions.

• In the equity space, a bear threat in the S&P E-Minis contract remains present and short-term gains are considered corrective - for now. 5866.00, the Dec 20 low and a key short-term support, has been breached. This strengthens a bearish theme and sights are on 5784.00, the Nov 4 low and an important short-term support. Initial pivot resistance is seen at 5987.43, the 50-day EMA.
• A bull cycle in the EUROSTOXX 50 futures contract remains intact and the latest pullback appears corrective. Initial support is at 4939.33, the 50-day EMA. It has been pierced, a clear break of this EMA would undermine a bullish theme and signal scope for a deeper retracement. For bulls, resistance at 5040.00, Dec 9 high, has recently been pierced. Clearance of it would resume the bull cycle that started on Nov 21 and open 5068.13, the 0.764 projection of the Nov 21 - Dec 9 - 20 price swing.

Some revisions to pre-PPI estimates of core PCE that we have seen are understandably to the upside, on the order of about 0.03pp (almost entirely due to the outsized increase in airfare PPI, offset at least partially by other PCE-relevant components, as we had flagged yesterday). Pre-PPI, core PCE consensus was 0.20% M/M, and if that is correct, now it looks like the gap between core CPI (0.24% consensus) and PCE will be closer to zero. 

Post-PPI release core PCE M/M estimates include:

• Goldman Sachs: 0.22% (0.18% pre-PPI)
• ING: 0.3% (only a rounded forecast provided)
• Nomura: 0.272% (0.242% pre-PPI)
• Wrightson ICAP: 0.2% ((only a rounded forecast provided; notes the PPI components did not change their estimates).