Market 01/11: CPI highest increase in 3 months - 30Y bond auction successful.

30Y Treasury bond auction successful

Today's 30Y T-bond auction by US Treasury quite successful with favorable High Yield:

• Highest accepted yield (High Yield): 4.229% - lower than previous auction (4.344%) and market expectations (~4.34%).

  • this is also the lowest since August.

• Total value of successful auction: USD 21 billion.

• Bid-to-Cover ratio: 2.37 (slightly down from previous 2.43).

• Demand from Indirects remains quite strong: 67.8%.

• Transactions by Directs: 17.7%.

• Notably, accepted transactions for Dealers to buy down to 14.5% - lowest since August.

  => Sign showing increased demand for US long-term bonds!

• Read more: Things to know about US Government Bond Auctions.

Overall, today's 30Y bond auction quite successful despite unfavorable inflation data right before the auction (details below).

December CPI: highest increase in 3 months - Fed cannot cut rates yet

• December CPI inflation index rises: +3.4% YoY -- highest increase in 3 months and also exceeds expectations (+3.2% Y/Y).

• Core CPI (excluding food and energy) rises +3.9% YoY, +0.3% MoM ( lower/ in line with forecasts: +4.0% y/y and +0.3% m/m).

• Service prices continue to rise sharply and lead CPI increase, while energy sector decline slows in December.

  • Energy prices rise again +0.4% MoM (after -2.3% decline in November).

• Core goods prices little changed after 6 consecutive months of decline, car and truck prices rise +0.5% MoM, consecutive increase for 2 months.

Notably, CPI Core Services excluding housing (SuperCore) has risen +0.4% MoM, +4.09% YoY.

• Among which, transportation costs and auto insurance are the two highest increases:

  

• All other indicators in CPI Supercore also increased from previous month:

However, housing sector inflation in December is slowing:

• Housing inflation up +6.15% YoY compared to 6.51% in November - lowest since July 2022.

• Rent inflation up +6.47% YoY compared to 6.87% in November - lowest since July 2022.

→ Housing costs are seen as the key to bringing core inflation down to the Fed's target.

Inflation is expected to continue declining this year toward the 2% target, especially as housing costs show signs of easing.

Overall, this December CPI report is not favorable for the Fed to decide to cut rates soon:

• Overall price index, core price index, and food hit record highs.

• Energy prices are also rising again.

Market reaction forecast to the CPI report (per Goldman Sachs):

Market expectations for a Fed rate cut in March are dropping sharply: down to 39% (from 70% at the start of 2024).

• However, the market still expects 6 rate cuts in 2024, double the Fed's number.

The entire market is holding its breath waiting for the January FOMC meeting to gauge the Fed's stance.

Initial jobless claims drop to lowest since October

• Initial unemployment claims for the past week reached 202,000 (expected 210,000).

• 4-week moving average of initial unemployment claims is 207,750, (lower than 208,000 last week).

Crypto turning point: SEC officially approves 11 Bitcoin spot ETFs

After a long period of rejection, the SEC has officially approved 11 Bitcoin spot ETF funds.

• These Bitcoin ETFs will be listed on Nasdaq, NYSE, and CBOE.

• Market surveillance mechanisms will reduce Bitcoin price manipulation risk and bring trading fees to 0.2-0.8% - much lower than average trading fees.

• Increased liquidity also plays an important role for short-term investors.

• Bitcoin price nears 49,000 USD after ETF frenzy.

• List of tickers starting trading today:

• Trading volume of Bitcoin ETFs exceeded 2 million USD this morning right after listing.

  

Some other news:

1. China FDI at multi-year record low (15 billion USD in 2023) due to:

   • widespread economic slowdown,

   • US-China geopolitical tensions and

   • Lack of transparency makes investors wary: Fact-checking companies shut down + new national security law restricts cross-border data flows…

2. London Mayor says Brexit has cost the UK more than 178 billion USD to date.

3. Microsoft surpasses Apple to become the world's most valuable company.

• From the start of 2024, Apple stock has lost -0.5% due to concerns over smartphone demand.

• Conversely, Microsoft stock is up nearly 2% this year, after rising up to 57% last year.

4. Google cuts hundreds of jobs in engineering team and hardware group.

5. Iran admits to being behind the 'hijacking' of the oil tanker MV St Nikolas in the Gulf of Oman due to dispute between Iran and the US.

   • The MV St Nikolas tanker, controlled by the US and operated by a Greek company, is carrying 145,000 tons of oil from Iraq to Turkey.

   => Red Sea crisis has expanded from Bab al-Mandeb Strait to Hormuz Strait.

6. 30-year mortgage rate rises to 6.66% for 2 consecutive weeks.

   • Home buying demand rises slightly in recent weeks.

7. Tesla announces it will raise salaries for employees at factories across the US…

   - a move warmly welcomed by the UAW auto workers' union (although Tesla's workforce is not yet affiliated with the union).

   

8. Car rental company Hertz Global Holdings (HTZ.O) is selling ~20,000 electric vehicles, including Teslas, from their US fleet.

   • It seems Hertz is returning to gasoline-powered cars instead of following the EV wave.