Inflation narrative now two-sided and central banks noticing, even as markets push back. We show 3 more drivers CPI services to ease

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Inflation narrative now two-sided and central banks noticing, even as markets push back

Equities have staged a pretty impressive rise in the past 2 weeks, gaining 10% and up 10 of the last 12 sessions. This even as corporate earnings have been OK (some big misses) and September CPI (released 10/13) was a massive disappointment. In conversation after conversation, many of our clients tell us "nothing has changed" and this is just another short bear market rally that will fail.

But we believe there are supportive drivers and substance for this change in market tone:

inflation narrative has become more two-sided (vs "black hole of pain")we highlight below 3 drivers why CPI services are set to materially ease soonglobal central banks are making modest dovish pivots: first, Fed hawks, now Bank of Canada and now ECBinterest rates are finally easing and USD backing offinvestors remain stalwart in their bearishness evidenced by put premiums, sentiment, positioning and general feedback in our meetingsthe most watched report will likely be the 3Q22 ECI (employment cost index) as this is a definite measure of wage pressures. A reading below 1% (4% annualized) will ...

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