Friday, Feb 10, 2023

Staking-as-a-security, inflation complacency, Bitcoin Ordinals, misinterpreting yield curve signals...

Dimitri: “This happens a lot. Nine times out of ten, no problem.” - Howard: “What happens on the tenth time?” - Dimitri: “Problem.” – from ‘The Big Bang’ ||

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MARKETS

A harder fight ahead

Yesterday I shared some recent signs that consumption was still strong in the US and elsewhere, and suggested that the inflation upticks we’re seeing in Europe were largely due to corporates succumbing to margin pressure and raising prices. Today, I’m afraid, we have more of the same:

• Yesterday, Ralph Lauren revealed that it will be raising prices – it’s not exactly a mainstream brand, but it could end up being representative of boardroom discussions across the consumer sector.

• Inditex – one of the world’s largest fast fashion businesses – has announced an average 20% pay increase for all store workers in Spain (where the company is based), with some groups receiving as much as a 40% bump.

• Russia has announced production cuts in retaliation for the G7 price cap, giving the oil price a further boost. Prices had been rising anyway in anticipation of greater demand from China.  

• Earlier today, Norway reported inflation data for January that came in much stronger than December and than consensus expectations: headline CPI grew by 7.0% vs the previous month’s 5.9%, while core inflation reached a record high of 6.4%. Notable CPI increases were also reported today in Hungary and the Czech Republic, which join Spain, France, Estonia, the Philippines and perhaps others I have missed in the club of inflation surprises in the wrong direction.

• Bloomberg carried a sombre report this morning on the toll of rising energy costs for households. This hints at the coming wage increases many workers will need just to be able to afford heat and electricity. Given the tight jobs market, many will get them. Energy cost increases also impact companies, who eventually have to pass input costs on to clients and consumers.

None of this means that next week’s US CPI data will definitely deliver a negative surprise – it might not. But we should accept that, from here, inflation will be much harder to bring down further. We can’t assume that the recent good news will continue.

False messaging from yields

Growing concern around the sustainability of the recent inflation deceleration is pushing yields up again, with the US 10yr erasing most of January’s correction.

(chart via TradingView)