While the “everything” rally has excited risk junkies, inflation might spoil the party again.
This year has a twilight zone feel to it. The latent volatility amplifier that is Donald Trump once again lurks in wait, threatening to upend the prevailing predictability.
And yet, the data continues to pose problems for the doves. For the third month in a row, the consumer price index in the US has surprised investors with its strength.The core CPI printed 0.4 per cent in January, exceeding economist forecasts. Coolabah estimates that the trend in annualised monthly core inflation rose to 4.5 per cent.
The more worrying data was the super sticky services inflation, fuelled by an incredibly tight US labour market that is powering brisk wage growth. In February, core US services inflation printed at 0.5 per cent after a staggering 0.7 per cent rise in January. This left the annualised trend in monthly core services inflation at an extremely elevated 6.25 per cent.
It feels like the entire world is long risk and does not want to read the writing on the wall. Most multi-asset class portfolios remain heavily exposed to global stocks, unlisted equity, real estate, crypto, and risky debt in the form of junk bonds and private credit.The irony here is that if for one reason or another the “immaculate disinflation” that the risk junkies want suddenly emerges, the Fed is unlikely to reduce rates by much.
On Tuesday, we helped cornerstone a $1.25 billion Suncorp senior-ranking bond issue that was priced 10 basis points above ANZ’s cost of capital, which is an ostensibly enticing spread assuming the merger with ANZ is consummated.
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