Thursday, June 13, 2024

A macro edition today: CPI, the Fed’s projections, and the market reaction

“You can drive a car by looking in the rear view mirror as long as nothing is ahead of you.” – Bill Joy  ||

Hi all! I love seeing new places (this week, Warsaw), but damn is it good to be home. I do want to share some of the takeaways from the tradfi conference, but today’s newsletter got really long with the macro commentary and a lot of charts, so I’ll push that until tomorrow.

Also tomorrow, I’ll be able to finally share some details of another project I’ve been working on. 😉

If you find this newsletter useful, would you mind sharing it with your friends and colleagues? ❤

IN THIS NEWSLETTER:

• A CPI windfall

• Persistent but confusing caution from the Fed

• A divergent market reaction

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links. And there’s a free trial!

WHAT I’M WATCHING:

A CPI windfall

Well, that was unexpected. Headline US inflation for May on a month-on-month basis came in at 0.0%, which was predicted by pretty much no-one. This is notably lower than April’s 0.3%.

On a year-on-year basis, the headline increase came in at 3.3%, lower than the consensus forecast for 3.4%, which would have been the same as April’s growth.

(chart via Reuters)

It looks like most of the sectoral price increases that had been keeping inflation sticky in recent months finally started easing, with lower energy prices pulling the headline figure down further.

This is very good news, since the headline figure appears, as its name suggests, in headlines. These impact consumer sentiment which in turn affects spending, inflation and expectations of further price moves. Indeed, the expected inflation rate five years out, as priced by 5-year TIPS bonds, dropped to 2.17%, the lowest level since early February, and not far from the official 2% target.

(chart via TradingView)