Another mild inflation number from the US - this time the PPI! 😅🐮

Inflation is heading lower, but watch out!

A thread 1/n
PPI now clearly hints of lower CPI readings around 6-7% within a couple of months from now.. Good news and it adds to a series of downwards pointing indicators for inflation

Freight rates for example hint of SHARP goods disinflation in coming months.. Supply chains are softening up, which ought to bring prices of goods down ultimately..

Also food prices are bound for a correction lower in the CPI index due to 1) lower energy prices and 2) lower transportation costs

But.. we need to look at what it means for the Fed and for markets as well ..

Using historical parallels, the market will likely try and chase equities higher on lower CPI prints in search of a Fed pivot on rates AND QT

This happened in 1974 as well

The problem is just that an early pivot risks refueling inflation pressures (as it did in the 1970s) when the Fed pivoted alongside weakening CPI momentum

Powell has been pretty firm that he does not want to repeat the mistakes of the 1970s, why a pivot on BOTH rates AND the balance sheet seems a bit farfetched to hope for already. At best we get a slowdown in the pace of hikes

Remember that we need a pivot in both rates and QT to truly turn positive on equities, not least as a recession / slowing economy is the main reason why the CPI is disinflating

A falling PPI (year over year) usually corresponds to an EARNINGS RECESSION as it is a symptom of weak demand.. So even if it is good medium-term news, it is not necessarily something to celebrate short-term

h/t @MikaelSarwe

So even if the market is chasing equities higher short-term on milder inflation news, do not miss the forest for the trees here.

Inflation is slowing as that the economy is edging closer to a recession

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More from @AndreasSteno

Nov 16
🇨🇳 Is China reopening? Probably not

A thread 1/n
A China reopening is maybe THE hottest macro story outside of the US disinflation euphoria (suddenly I don't get a ton of trolls in my feed, when I tell that inflation has peaked for now)

Lower global inflation INCREASES the chance of a reopening in China

2/n Image
HARD lock-downs have brought Chinese inflation under control relative to EU and US inflation and the Chinese politburo knows

Inflation dissipating in Europe and US will increase the chance of a reopening in China, but we are still far from comfortable global inflation

Read 9 tweets
Nov 12
The CPI report came in Thursday with headline at 7.7% and core at 6.3%, both lower than expected. And boy oh boy did risk assets like that. Everything was partying like there was no tomorrow.

Let’s have a quick look at what F happened here?

Firstly, yields in the US and Europe collapsed, which saw the dollar weakening given Europe a bit more breathing room. China was the only country to see yields rise on a weekly basis properly reflecting the reopening story.

Everyone and their mother suddenly celebrated inflation at 7.7% and that saw the largest daily move up in the SPY since the spring of 2020. You know .. back when rates and inflation were near zero. I don’t quite get the rush to suddenly turn uber bullish risk assets.

Read 9 tweets
Nov 11
Serious technical damage has been done to the long USD bet 🐻

A thread 1/n
A move from 0.95 to 1.035 is quite a reversal and the trend-channel is clearly broken in the short EURUSD bet now

Let's look at the reasons why

2/n Image
1) The energy bet has been reversed. Nat Gas priced are down materially, which helps the German (and European) current account balance regain its footing and consequently helped the EUR

Disclaimer: Nat Gas prices are RISING again

3/n Image
Read 6 tweets
Nov 10
This was probably the first of SEVERAL downside surprises to inflation over the coming months, but inflation will not go back to 2%

Here is what my models are telling me

A thread 1/n
The next inflation theme will be goods DEFLATION vs. Services INFLATION

The supply chain issues are fading due to a weakening demand across the globe

A good example is car prices. They are now FALLING, which is the outright definition of deflation

A bit of deflation in these bizarrely inflated goods from the pandemic is actually GOOD and something that we should cheer on

Read 8 tweets
Nov 10
So, I doubt you have missed the MAYHEM unfolding in Crypto these past days

Are we witnessing a Bear Stearns / Lehman 2.0 in Crypto space in real-time here on Twitter?

Here is a boomers ‘executive summary’ if you will…

The saga took its beginning on Nov. 2nd after a leaked balance sheet from Alameda Research, the Sam Bankman-Fried founded trading firm, showed significant holdings of the FTX-native token FTT. This rightly concerned the crypto community.

Alameda's CEO tried to pour oil on troubled waters with the statement on Nov 6
“The BS breaks out a few of our biggest long positions; we obviously have hedges that aren’t listed … given the tightening in the crypto credit space this year we’ve returned most of our loans”

Read 15 tweets
Nov 9
Natural gas prices have bottomed and will likely SPIKE again now 🐻

Let's have a look at commodity market dynamics, shall we? A thread 1/n
While grains have softened, pretty much any other commodity has risen last week.

Besides energy lead by heating oil (de facto diesel) and natural gas, metals have surged – industrials as well as precious. The move likely has to do with speculations of a China reopening

With European storages near max capacity, LNG-mail-orders still in que to unload and a historically mild autumn, natural gas was briefly down 50% from June 1st

As temperatures decline and Europe enters heating season, prices has regained momentum – exactly as I predicted

Read 11 tweets

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