US OUTLOOK/OPINION: Seasonality At The Fore For Wednesday's CPI Release
The first few months of the year have historically seen an outsized share of eventual price increases for the year, although that pattern broke down in the early post-pandemic years as firms passed on cost increases at faster than usual rates. January accounted for an average 20% of eventual price rises in each year through 2017-19 (or 40% for Jan & Feb combined). That share plunged to just 3.5% in 2021 (10% for Jan & Feb) but since increased to 16% in 2023 and 17% in 2024 (35% for Jan & Feb). Wednesday’s annual revisions to seasonal adjustment factors could continue to see some normalization here, with the seasonal adjustment process essentially “looking” for larger relative increases this month compared to the past few years, but it’s very hard to know by how much.
Analysts are mixed on the extent to which “residual seasonality”, whereby the seasonally adjusted data still display a seasonal pattern, will play a role in January:
- Morgan Stanley: “We found an overall upward bias of 5bp to January core CPI, explained by acceleration in both core goods and services. We are adding that bias in our forecast.”
- Nomura: “We believe positive residual seasonality pushed up core CPI in January this year, but to a lesser extent than last year.”
- Wells Fargo: “We expect some lingering residual seasonality to buoy January’s core reading, but for this dynamic to be less pronounced than last year.
- JPM: “There is some risk that inflation will once again firm to start the year due to residual seasonality, but we think that many of the factors that boosted inflation readings during the first quarter of each of the past two years reflected either idiosyncratic factors or pressures that have since abated to some degree.”
- SocGen: “There is a significant contingent that believes the CPI is prone to seasonal biases favoring higher readings early in the year. However, we remain somewhat unconvinced, and if such a bias exists, revisions may serve to rectify it.”
- Barclays: "In The myth of residual seasonality, we argue that revisions to 2024 estimates will be minor, with little evidence that the strong January inflation prints in recent years can be attributed to residual seasonality.”
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
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.
