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“The punishment of every disordered mind is its own disorder.” – St Augustine
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Asian stocks closed with notable declines for the second day in a row, as Japan, India, and South Korea all fell at least 1%. However, China bucked the trend, with the Shanghai Composite rallying 0.5%. The region’s key data point was the October PPI in Japan, which rose 0.2% m/m and took the y/y reading up to 3.4%. Both readings were higher than expected.
In Europe, this morning’s trading remains much more subdued relative to Asia and the STOXX 600 is down a relatively modest 0.4%. News in the region has been on the quiet side as French Unemployment was right in line with expectations. In Germany, the country’s ECB governing council member Joachim Nagel warned that potential tariffs under the incoming Trump Administration could cut overall growth by 1%, warning that “If the new tariffs actually materialize, we could even slip into negative territory”.
With global markets trading lower, US futures have also seen a downside bias, and US Treasuries have caught a modest bid as the iShares 20+ Year Treasury Bond ETF (TLT) trades modestly higher in the pre-market (0.36%). That does little, however, to put a dent into the 10.2% decline that the ETF has seen since mid-September shortly after the Harris-Trump Presidential debate when the President-elect’s odds in the betting markets bottomed out.
For this morning’s gain in TLT to have legs, this morning’s CPI report will need to cooperate, and we have seen less of that in recent months. While overall trends in inflation continue to move in the right direction, in recent months we have started to see an uptick in the number of higher-than-expected CPI reports.
Starting with headline CPI, after bottoming out at 1 late last year, the 12-month rolling total of higher-than-expected monthly readings has ratcheted up to 5. While that is well off the record-high readings of nine that we saw in 2022 and below the long-term average of 5.4, it’s still higher than it was.
Looking at core CPI, we’ve seen the same trend. After surging to a record high of 8 in October 2020, the 12-month rolling total of higher-than-expected core CPI prints dropped down as low as 2 earlier this year but has since rebounded back up to 5, and that’s higher than the long-term average of 4.8. In both cases, these rolling 12-month totals are nothing out of the ordinary, but if you want bonds to rally, you’re going to need the pace of higher-than-expected inflation prints to slow down.
