Chart of the Day

We saw yesterday that shipping freights are rising again. This chart shows oil prices are on the up as well, and that’s put some pressure on the 5-year inflation breakeven rate too because it will feed into higher inflation in the coming months. This is (finally) concerning the Fed and Powell confirmed during his congressional hearing yesterday that "inflation is running very far above target. The economy no longer needs or wants the very accommodative policies we have had in place”. Having already been forced to bring forward their expectations for the first Fed hike to either March or Q2, economists are now questioning whether the Fed will raise rates later this month - if the economy no longer needs easy money, why wait?

Macro

US small business price plans fell in December but still point to high core inflation.

US NFIB small business confidence rose by 0.5 points to 98.9 in December, relatively low versus the recent past.

In December, consumer price inflation in China decreased to 1.5%, while producer inflation fell to 10.3%.

Markets

The S&P 500 and Russell were both little changed, a divergence from the S&P’s outperformance in recent days (as it fell by less). In Europe, large caps have been outperforming too.

There and back again - EV company Workhorse has now joined Nikola in having most of its large returns in 2020/21 wiped out.

The MOVE index of implied bond market volatility is still relatively elevated, though US yields were little changed yesterday.

Sell the rumor buy the fact? After selling off ahead of Powell’s testimony in recent days, yesterday TIPS were bid despite the hawkish testimony, causing yields to drop back.

While 5-year inflation breakevens are higher than six months ago, the 5-yr/5-yr rate has been relatively stable.

Oil prices have been rising again, though NOK has not benefitted as much against the USD as in late 2021. That’s not completely abnormal, the cross moved in the opposite direction to the expected relation for parts of the first half of 2021, partly due to changing rate expectations in the US.