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INTRADAY ALERT: April PCE not great, 3 items point to future disinflation = keep Fed "pause." Stick with thematic FAANG/AI + Grannies

NEW: Section (above) added identifying Key Recommendations and Super Grannies

April Core PCE came in "hotter" than expected at 0.40% MoM vs Street 0.3%. That is a "hot print" and, at face value, should have triggered a re-pricing of Fed funds expectations (June hike into play) and higher interest rates.

Instead of a major de-risking, equity markets are up 1%. As our very own @mattcerminaro points out on twitter, this is a best case scenario. We have 3 reasons why we believe equity markets are reacting positively to this inflation report. First, 3 items drove 66% of rise on April Core PCE MoM:- Financial Services +11bp <-- due to Fed hikes itself!!!- Housing +9bp <-- we know where this is 2H23- Used cars +7bp <-- do we really believe?Total +27bp or 66% of inflation That means 0.27% of 0.41% or 66% rise is due to those 3. I would say this seems like a distortion and core PCE more like 0.13% MoM, or ~2%. And this implies future inflation should be cooling. Second, 69% of Core PCE (ex-housing) now has 3M annualized (aka SAAR) inflation <5%. What is the 65-year average? 69.5% (see below). This suggests to us that inflation internals are back to pre-pandemic trend...

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