Bespoke’s Morning Lineup – 4/11/24 – Stamp Inflation
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“The road to Easy Street goes through the sewer.” – John Madden
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures were higher heading into yesterday’s CPI report and reversed sharply lower once the data was released. This morning, we have the opposite backdrop ahead of the March PPI report. While the report is unlikely to be as big of a market mover as the CPI report, the results didn’t show as much inflation pressure in the producer sector and jobless claims were pretty much right in line with expectations. The ECB just announced its latest rate decision (no change, “inflation continues to fall”) which we break down in this morning’s report, and we’ll get further color during the press conference at 8:45 Eastern. Overall, futures have rallied a bit on the news as Nasdaq futures moved into positive territory while the S&P 500 is indicated to open just marginally lower. We’ll take it!
Yesterday’s CPI report was a disappointment on all fronts, and while the rate of inflation has slowed, it’s still firmly in positive territory which helps explain why consumers are so miserable. When you consider the cumulative impact of these price increases since the lockdowns in March 2020, it adds up. March’s CPI report reached an inauspicious milestone as it was the first time since March 1991 that the four-year rate of change in headline CPI exceeded 20%. We’re still nowhere near the levels from the 1970s and early 1980s, but 33 years is a long time.
If you show the chart above to any consumer and tell them that the cost of living has increased by 20% in the last four years, they’ll probably ask where you’ve been living the last four years and want to know if there’s any room to move in. What we have all experienced seems much larger. Take a bag of Doritos, a subject we have quite an expertise on. In 2019, a 9.75-ounce bag had a suggested retail price of $4.29, but today it costs about $1.50 more and is half an ounce smaller. Ignoring the change in size, that’s still an increase of 35%! These types of examples come up everywhere you look, and while there are some examples where prices haven’t increased by over 20% in the last four years, they aren’t nearly as apparent.
Getting back to the examples of price increases, one we noticed yesterday was postage. The US Postal Service just filed to increase the price of a stamp by 8% to 73 cents in July from 68 cents, The current price, it should be noted, only took effect in January when prices increased by 3%, so this would be the second increase this year and the fourth since the start of 2023! The chart below shows the monthly price levels of a first-class stamp since 1963, and you can see how the pace of increases has picked up steam in recent years. The last time a stamp cost 25 cents was in January 1991. The last time it was 50 cents or less was in late 2018.
In the chart below, we compare the four-year change in the price of a stamp to the four-year change in CPI. If the proposed postage increase takes effect in July, the four-year price change to mail a letter will reach 32.7%, the highest level since the mid-1980s. If CPI increases at a rate of 0.3% per month between now and June (a perfectly realistic, if not conservative rate based on recent CPI reports), the four-year change in CPI will reach 22.2% which would be the largest four-year increase since December 1984. To be fair, the rate of postage inflation still lags the rates from the 1970s, but it’s large and well above the Bureau of Labor Statistics’ official gauge. We should have loaded up on those Forever Stamps four years ago!
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The Closer – CPI Consequences, Treasury Spike, Terrible 10s – 4/10/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a rundown of the latest CPI data (pages 1 and 2) followed by a look at the big reactions from Treasuries and the dollar (page 2). We then provide an update on the FOMC minutes (page 3) and the latest EIA data (page 4). We close out with a recap of today’s horrible 10 year note reopening (page 5).
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Daily Sector Snapshot — 4/10/24
Chart of the Day – Rate Cut Dream Gets Dashed
Fixed Income Weekly — 4/10/24
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed-income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation, and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1-year return profiles for a cross-section of the fixed income world.
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Bespoke’s Morning Lineup – 4/10/24 – Here it Comes
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“The road to Easy Street goes through the sewer.” – John Madden
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Investors have taken an optimistic tone this morning heading into the release of March CPI, but that could all change in a big way based on the report. The last several weeks have seen increased concern that inflation will be stickier than previously thought. While the market remains near all-time highs, most investors would say a higher-than-expected report is more likely than a weaker-than-expected one.
The recent breakout in gold and other commodities we discussed yesterday is one reason for investors to position for a higher-than-expected report. After years of stalling below resistance, gold finally broke out in early March and has ripped higher ever since.
While it hasn’t been stuck below resistance for nearly as long as gold, the yen has been simmering in a historically tight trading range just below 152. It first tested the 152-level late last year before rallying sharply into the new year (shown as a falling line in the chart). That rally quickly fizzled, and it wasn’t long before it was back to the low 150s range.
Over the last 15 trading days, the daily settlement price for the yen relative to the dollar has been confined to a 0.33% range, the narrowest since the late 1970s! The intraday chart below shows how the yen weakened to just below 152 in late March and has flatlined there ever since. In the last few days, it has inched closer to that critical level but keeps coming up short. At this point, it seems like only a question of when the yen will break through 152. After that will the move be as dramatic as gold’s move over the last month, or will it fail to live up to expectations?
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The Closer – Stocks vs. Inflation – 4/9/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a look at the performance of the stocks most correlated to inflation (page 1) followed by a dive into S&P 500 performance on the days that CPI releases (pages 2 and 3). We finish with a recap of today’s massive tailing 2 year note auction (page 4).
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Daily Sector Snapshot — 4/9/24
Bespoke Stock Scores — 4/9/24
Inflation, Poor Sales, and Fewer Jobs
The US data calendar has been light to start the week. Today, the only release of note was the NFIB’s reading on small business sentiment. While the index was expected to tick up to 89.9 from 89.4 in February, it instead dropped down to 88.5. That is the weakest reading since December 2012.
Given the weak headline number, breadth in this month’s report was terrible. Of the inputs to the Optimism index, only two rose month-over-month. Of those falling categories, one of the more standout declines was an 8-point drop in expectations for real sales. While there have been even weaker readings over the past couple of years, that monthly decline ranks in the bottom 5% of all months on record.
The survey also questions small businesses on what they consider to be their largest problems. These results echoed the deterioration in expectations for higher real sales. As shown below, the percentage of respondents reporting poor sales as their biggest issue has been on the rise. While 8% is far from a historically elevated reading, it is up significantly from the past two years.
Poor sales are not the only concern that ticked higher. The first three months of 2024 have seen hotter-than-expected CPI prints (which we discuss market responses in tonight’s Closer), and small firms are increasingly concerned with higher prices. As shown in the first chart below, a quarter of firms noted inflation as their single biggest problem. That erases any improvement in the reading since last May. Additionally, while the increase was much less pronounced, the higher prices index likewise ticked up. That returns this index to the top decile of its historical range.
In today’s Morning Lineup, we discussed the labor market indicators’ weakness as well as the weakness in capex plans per this report’s data. As shown below, each of these categories deteriorated in March with the exception of compensation (both actual and planned). The most significant decline has been hiring plans which is now down to the lowest levels since the spring of 2020. Prior to 2020, the last time the index was this low occurred in late 2016. While small businesses have cut back on hiring plans, they are also reporting job openings as hard to fill at similar levels to before the pandemic.
