The Dec CPI details far better…ex-auto insurance, core CPI +0.25% MoM. Inflation still falling like a rock.

VIDEO: We discuss how the Dec CPI was actually very good, only blemished by auto insurance which is now 50% of core services CPI. (Duration: 4:41).

December CPI was released yesterday with core CPI coming in at +0.31% MoM, slightly ahead of consensus of +0.3%. Many pundits viewed this report as evidence inflation progress is too slow and even Cleveland Fed President Mester weighed in yesterday, saying yesterday’s report another argument why Fed should not cut in March. Our analysis of the inflation report, however, suggests the opposite. This was a very good CPI report and inflation is still falling like a rock, likely again in evidence in January CPI report.

• 3 of top 5 contributors to Core CPI in Dec are auto-related:
  – Shelter ex-hotels +0.20% (of Core CPI)
  – Auto insurance +0.06
  – Recreation svcs +0.04
  – Used cars +0.02
  – New cars +0.01
  Total Core CPI +0.31%
• Auto insurance is 3.6% weight and was 20% of Core CPI inflation. That is punching way above its weight. Auto insurance prices are surging because of huge loss severities from the past few years. The reason being car prices surged post-pandemic sending up a huge rise in auto repair bills. This means, auto insurance is simply rising to catch up with the previous surge in car prices.
• Car prices are now falling. So, does Fed keep hiking because of auto insurance rates going up? Ex-autos, core CPI would have been +0.25%, or basically on target. In other words, we don’t see the logic in the Fed even delay cutting if inflation outside of autos is coming back into target.
• Core Services ex-housing CPI came in at +0.41%, which is also considered a “hot” reading:
  – Auto insurance +0.18% (of core services)
  – ex-Auto insurance +0.23%
  – in other words, core services ex-auto insurance is on Fed’s target as well
• See the bigger picture?
  – auto insurance is not rising because of easy money.
  – nor is it because of easing financial conditions
  – nor is it rising because of Fed funds being too low
• It is rising because auto insurers are trying to recover from losses of previous years.
• Outside of that inflation is on a glidepath lower. Thus, we believe inflation is tracking below consensus views. And yesterday’s CPI report is supportive of this view. We believe the January CPI report will likely show similar takeaways.

Bottom line: We still see markets as making new highs in January, despite the turmoil yesterday

Our base case for 2024 remains a tricky 1H, with the bulk of gains made in the second half of 2024. Yesterday’s turmoil around the December CPI report is a snapshot of this, in my opinion.

• Because we came within 1% of all-time highs (ATH) in December, we see new highs in January as this was the case 12 of the 12 precedent instances since 1950. That is, after falling 20% and recovering to within 1% of ATH, there has never been a case of a failure. New ATH within 20 trading days, or late Jan at worst.
• But we are not in a full “risk-on” environment. That is likely later in first half or early 2H. We have outlined this multiple times and we think this is largely due to the market’s impatience with Fed cut framework (not clear). Mark Newton, head of Technical Strategy, also sees weakness into March.
• Our favorite sector in 2024 remains small-caps IWM
• Our favorite large-cap is Financials XLF
• We also like Industrials given the bottoming of PMIs XLI
• And visibility strong with FAANG/Technology QQQ XLK

Key incoming data January:

• 1/02 9:45am ET S&P Global Manufacturing PMI December Final Mixed
• 1/03 10am ET December ISM Manufacturing Tame
• 1/03 10am ET JOLTS Job Openings November Tame
• 1/03 2pm ET December FOMC Meeting Minutes Tame
• 1/04 9:45am ET S&P Global Services & Composite PMI December Final Tame
• 1/05 8:30am ET December Jobs Report Mixed
• 1/05 10am ET December ISM Services Tame
• 1/08 9am ET Manheim Used Vehicle Index December Final Tame
• 1/11 8:30am ET December CPI Details Suggest Tame
• 1/12 8:30am ET December PPI
• 1/16 8:30am ET January Empire Manufacturing Survey
• 1/17 8:30am ET January New York Fed Business Activity Survey
• 1/17 8:30am ET December Retail Sales Data
• 1/17 9am ET Manheim Used Vehicle Index January Mid-Month
• 1/17 10am EST January NAHB Housing Market Index
• 1/19 8:30am ET January Philly Fed Business Outlook Survey
• 1/19 10am ET U. Mich. Sentiment and Inflation Expectation January Prelim
• 1/24 9:45am ET S&P Global PMI January Prelim
• 1/25 8:30am ET 4QA 2023 GDP
• 1/26 8:30am ET December PCE
• 1/29 9:30am ET Dallas Fed January Manufacturing Activity Survey
• 1/30 9am ET January S&P CoreLogic CS home price
• 1/30 10am ET January Conference Board Consumer Confidence
• 1/30 10am ET JOLTS Job Openings December
• 1/31 2pm ET FOMC Rate Decision

Key incoming data December

• 12/01 9:45am ET S&P Global Manufacturing PMI November Final Tame 
• 12/01 10am ET November ISM Manufacturing Strong 
• 12/05 9:45am ET S&P Global Services & Composite PMI November Final Strong 
• 12/05 10am ET JOLTS Job Openings October Tame 
• 12/05 10am ET November ISM Services Strong 
• 12/06 8:30am ET 3QF 2023 Nonfarm Productivity Strong 
• 12/07 9am ET Manheim Used Vehicle Index November Final Tame 
• 12/08 8:30am ET November Jobs Report Tame 
• 12/08 10am ET U. Mich. Sentiment and Inflation Expectation December Prelim Tame 
• 12/12 8:30am ET November CPI Tame 
• 12/13 8:30am ET November PPI Tame
• 12/13 2pm ET FOMC Rate Decision Dovish
• 12/14 8:30am ET November Retail Sales Data Tame
• 12/15 8:30am ET December Empire Manufacturing Survey Tame
• 12/15 9:45am ET S&P Global PMI December Prelim Tame
• 12/18 8:30am ET December New York Fed Business Activity Survey Tame
• 12/18 10am ET December NAHB Housing Market Index Tame
• 12/19 9am ET Manheim Used Vehicle Index December Mid-Month Tame
• 12/20 10am ET December Conference Board Consumer Confidence Tame
• 12/21 8:30am ET 3QT 2023 GDP Mixed
• 12/21 8:30am ET December Philly Fed Business Outlook Survey Mixed
• 12/22 8:30am ET November PCE Tame
• 12/22 10am ET: U. Mich. Sentiment and Inflation Expectation December Final Tame
• 12/26 9am ET December S&P CoreLogic CS home price Tame
• 12/26 10:30am ET Dallas Fed December Manufacturing Activity Survey Tame
• 12/29 9:45am ET December Chicago PMI

Key incoming data November

• 11/01 9:45am ET S&P Global PMI October Final Tame 
• 11/01 10am ET JOLTS Job Openings September Mixed
• 11/01 10am ET October ISM Manufacturing Tame
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference Tame
• 11/01 2pm ET FOMC Rate Decision Dovish
• 11/02 8:30am ET: 3Q23 Nonfarm Productivity Tame
• 11/03 8:30am ET October Jobs Report Tame
• 11/03 10am ET October ISM Services Mixed
• 11/07 9am ET Manheim Used Vehicle Index October Final Tame
• 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation Hot
• 11/14 8:30am ET October CPI Tame
• 11/15 8:30am ET October PPI Tame
• 11/15 8:30am ET November Empire Manufacturing Survey  Resilient
• 11/15 8:30am ET October Retail Sales Data Resilient
• 11/16 8:30am ET November New York Fed Business Activity Survey Tame
• 11/16 8:30am ET November Philly Fed Business Outlook Survey Tame
• 11/16 10am ET November NAHB Housing Market Index  Tame
• 11/17 9am ET Manheim Used Vehicle Index November Mid-Month Tame
• 11/21 2pm ET Nov FOMC Meeting Minutes Tame
• 11/22 10am ET: U. Mich. November final Sentiment and Inflation Expectation Tame
• 11/24 9:45am ET S&P Global PMI November Prelim Mixed
• 11/27 10:30am ET Dallas Fed November Manufacturing Activity Survey Tame
• 11/28 9am ET November S&P CoreLogic CS home price  Tame
• 11/28 10am ET November Conference Board Consumer Confidence Tame
• 11/29 8:30am ET 3QS 2023 GDP Strong
• 11/29 2pm ET Fed Releases Beige Book Tame
• 11/30 8:30am ET October PCE Tame

Key incoming data October

•  10/2 10am ET September ISM Manufacturing Tame
•  10/3 10am ET JOLTS Job Openings August Hot
•  10/4 10am ET September ISM Services Tame
•  10/6 8:30am ET September Jobs Report Mixed
•  10/6 9am ET Manheim Used Vehicle Index September Final Tame
• 10/10 11am NY Fed Inflation Expectations Mixed
•  10/11 8:30am ET September PPI Mixed
•  10/11 2pm ET Sep FOMC Meeting Minutes Tame
•  10/12 8:30am ET September CPI Mixed
•  10/13 10am ET U. Mich. September prelim 1-yr inflation Mixed
•  10/16 8:30am ET October Empire Manufacturing Survey Tame
•  10/17 8:30am ET October New York Fed Business Activity Survey Tame
• 10/17 8:30am ET September Retail Sales Data Hot
•  10/17 9am ET Manheim October Mid-Month Used Vehicle Value Index Tame
•  10/17 10am ET October NAHB Housing Market Index Tame
• 10/18 8:30am ET September Housing Starts Tame
• 10/18 2pm ET Fed releases Beige Book Tame
•  10/19 8:30am ET October Philly Fed Business Outlook Survey Tame
• 10/19 10am ET Existing Home Sales Tame
• 10/19 12pm ET Fed (including Powell) at Economic Club of New York
•  10/24 9:45am ET S&P Global PMI October Prelim Tame
•  10/26 8:30am ET 3Q 2023 GDP Advance Strong
•  10/27 8:30am ET September PCE Tame
•  10/27 10am ET Oct F UMich Sentiment and Inflation expectation Tame
•  10/30 10:30am ET Dallas Fed September Manufacturing Activity Survey Tame
• 10/31 8:30am ET 3Q23 Employment Cost Index Mixed
•  10/31 9am ET August S&P CoreLogic CS home price Mixed
•  10/31 10am ET October Conference Board Consumer Confidence Tame

Key incoming data September

•  9/1 8:30am ET August Jobs Report Tame
•  9/1 10am ET August ISM Manufacturing Tame
•  9/6 10am ET August ISM Services Mixed
•  9/6 2pm ET Fed releases Beige Book Tame
•  9/8 9am ET Manheim Used Vehicle Index August Final Tame
•  9/8 2Q23 Fed Flow of Funds Report Tame
•   9/13 8:30am ET August CPI Mixed
•  9/14 8:30am ET August PPI Tame
•  9/15 8:30am ET September Empire Manufacturing Survey Tame
•  9/15 10am ET U. Mich. September prelim 1-yr inflation Tame
•  9/18 8:30am ET September New York Fed Business Activity Survey Tame
•  9/18 10am ET September NAHB Housing Market Index Tame
•  9/19 9am ET Manheim September Mid-Month Used Vehicle Value Index Mixed
•  9/20 2pm ET September FOMC rates decision Market saw Hawkish
•  9/21 8:30am ET September Philly Fed Business Outlook Survey Mixed
•  9/22 9:45am ET S&P Global PMI September Prelim
•  9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
•  9/26 9am ET July S&P CoreLogic CS home price
•  9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

• 8/1 10am ET July ISM Manufacturing Tame
• 8/1 10am ET JOLTS Job Openings Jun Tame
• 8/2 8:15am ADP National Employment Report Hot
• 8/3 10am ET July ISM Services Tame
• 8/4 8:30am ET July Jobs report Tame
• 8/7 11am ET Manheim Used Vehicle Index July Final Tame
• 8/10 8:30am ET July CPI Tame
• 8/11 8:30am ET July PPI Tame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker July Tame
• 8/15 8:30am ET Aug Empire Manufacturing SurveyMixed 
• 8/15 10am ET Aug NAHB Housing Market IndexTame
• 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
• 8/16 2pm ET FOMC MinutesMixed 
• 8/17 8:30am ET Aug Philly Fed Business Outlook Survey Positive
• 8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame
• 8/23 9:45am ET S&P Global PMI Aug PrelimWeak
• 8/25 10am ET Aug Final U Mich 1-yr inflationMixed
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey Tame
• 8/29 9am ET June S&P CoreLogic CS home price Tame
• 8/29 10am ET Aug Conference Board Consumer Confidence Tame
• 8/29 10 am ET Jul JOLTS Tame
• 8/31 8:30am ET July PCE Tame

Key incoming data July

• 7/3 10am ET June ISM Manufacturing Tame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM Services Tame
• 7/6 10 am ET May JOLTS Tame
• 7/7 8:30am ET June Jobs report Mixed
• 7/10 11am ET Manheim Used Vehicle Index June Final Tame
• 7/12 8:30am ET June CPI Tame
• 7/13 8:30am ET June PPI Tame
• 7/13 Atlanta Fed Wage Tracker June Tame
• 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Index in-line
• 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
• 7/25 9am ET May S&P CoreLogic CS home price Tame
• 7/25 10am ET July Conference Board Consumer Confidence Tame
• 7/26 2pm ET July FOMC rates decision Tame
• 7/28 8:30am ET June PCE Tame
• 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
• 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

• 6/1 10am ET May ISM Manufacturing Tame
• 6/2 8:30am ET May Jobs report Tame
• 6/5 10am ET May ISM Services Tame
• 6/7 Manheim Used Vehicle Value Index May Tame
• 6/9 Atlanta Fed Wage Tracker April Tame
• 6/13 8:30am ET May CPI Tame
• 6/14 8:30am ET May PPI Tame
• 6/14 2pm ET April FOMC rates decision Tame
• 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
• 6/27 9am ET April S&P CoreLogic CS home price Tame
• 6/27 10am ET June Conference Board Consumer Confidence Tame
• 6/30 8:30am ET May PCE Tame
• 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
• 5/2 10am ET Mar JOLTS Softer than consensus
• 5/3 10am ET April ISM Services Tame
• 5/3 2pm Fed May FOMC rates decision Dovish
• 5/5 8:30am ET April Jobs report Tame
• 5/5 Manheim Used Vehicle Value Index April Tame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
• 5/10 8:30am ET April CPI Tame
• 5/11 8:30am ET April PPI Tame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutes Dovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings

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