US Economy – Rate-cut pricing extends
December CPI rose to 3.4% from 3.1%, firming more than expected and beating the survey by 20bps. Core CPI remained elevated at 0.3% MoM, driven by services at 0.4% MoM, while core goods were flat at 0% MoM. Core goods disinflation has now mostly played out, so focus remains on services inflation which remains supported by still high wages and shelter costs. However, Fridays PPI print undershot expectations, and combined with CPI will likely result in slowing PCE inflation – which is what matters to the Fed. Markets didn’t react much to the CPI on Thursday, but rallied post PPI and March cut pricing rose to 80%.
This week we focus on Waller’s speech on Tuesday, as he’s a key FOMC member to watch for guidance, and Wednesdays retail sales, where the control group print is expected to fall from 0.3% to 0.2%.

US Elections – Iowa Caucus kickoff
This Monday kicks off the Republican search for their presidential nominee, with 40 delegates up for grabs at the Iowa Caucus. Trump polls above 50% and is expected to win by a wide margin, as his campaign team has been well organised in Iowa since 2017. De Santis and Hailey are fighting for second place, although the stakes are materially higher for De Santis after having spent $35mn on TV ads in Iowa alone, and being close to running out of funds. Iowa matters mostly for momentum, and anything but a large win by Trump, or a second place by De Santis would be upsetting and carry over negatively. The primaries in New Hampshire on 23rd January and in South Carolina on 24th February are the next key events thereafter.

Fixed Income – 2024 Supply
This year will again see record issuance of bonds, as the US, UK, Eurozone and Japan alone look to sell $2.1 trillion of paper, +7% from 2023 according to Bloomberg. Fiscal deficits remain worrying, especially in the US, and as more than half of the world’s population is voting this year – more fiscal spending is likely, and will in turn require funding. At the same time, maturity walls in 2025/26 come closer so corporates look to refinance. According to Santander, European primary markets had their second-best start to the year, issuing €47bn last week and now €89bn YtD. The majority came from financials at €65mn, -15% YoY, while corporates issued €24bn,  +13% YoY. Demand has been high for new issues across government, financial and corporate issues, as central banks are expected to cut rates this year and investors are looking to lock in high yields while they can.

Algebris Investments’ Global Credit Team