There's no fear in the bond market ahead of today's CPI report with US 10-year yields down 3.6 bps to follow up on a similar move yesterday.
Economists at Goldman Sachs likely think that's a mistake as they see today's number coming in above consensus, via @PriapusIQ
Headline-
- MoM: 0.55% Vs. 0.50%
- YoY: 6.39% Vs. 6.20%
Core-
- MoM: 0.49% Vs. 0.40%
- YoY: 5.63% Vs. 5.5%
The twist in the report is that it follows benchmark revisions released earlier this month and includes new annual weightings to better reflect where consumers spend their money.
"New weights will likely be somewhat inflationary, as the weight on owners’ equivalent rent—which remains inflationary—will increase by 1.2pp, while the weight on used cars—which is now deflationary—will decrease by 1.1pp," Goldman Sachs writes.
Goldman sees upside pressure from prescription drugs, medical services, car fees and alcohol prices while used cars deliver a drag (though that could soon reverse).
Ultimately though, they expect core CPI to fall to 0.3% m/m then continuing declining to "around 0.2%" in Q2 with core inflation at 3.1% y/y in December.
So the question is: Do you fade any kind of fear trade on the expectation that inflation trends lower going forward? If so, when do you fade it?
