And a government making things up as it goes along.
Key points
- US inflation came in higher than expected, but the response was muted which suggests that investors are wedded to a bullish view.
- Eurozone rate cut expectations were tempered by robust labour market data, with unemployment hitting an all-time low.
- We’ve seen a renewed compression in credit spreads, and we continue to note that the technical backdrop in IG credit looks supportive.
- In China, the economic outlook remains depressed, and the country is likely to underperform in the wake of the collapse in property prices.
- Looking ahead, we continue to retain a cautious macro view, given that investors are complacent in fully discounting a soft landing.
Yields were not much changed in the wake of this week’s eagerly anticipated US CPI release. US headline inflation rose to 3.4% in December, with core price registering a 3.9% gain, which was 0.1% above consensus expectations.
Back in November, a 0.1% miss to the downside on core CPI saw yields post a material rally, as investors grew excited that this would feed into early Fed easing. The fact that a miss to the upside has seen a much more muted response suggests that the market is quite wedded to a bullish view into the year ahead.
