US headline inflation rises – but bond markets remain focused on rate cuts for 2024

This week US headline inflation came in stronger than expected. A rise was on the cards but the increase was a bit bigger than forecast as higher energy and housing costs pushed inflation back up. Counter intuitively, particularly after the weakness in bond markets last week, US government bonds rallied slightly as markets looked past one inflation reading to focus on the bigger picture. Bond markets still clearly see rate cuts coming soon and it is going to take something more substantial than a single inflation print to shift opinion.

There was a similar reaction to the better GDP data in the UK. Against expectations, output increased 0.3% in November to offset the decline seen in October and make it possible that the UK managed to avoid a technical recession at the end of 2023. Higher services activity is encouraging, but one month’s data is not enough to improve the general outlook for the UK economy, particularly when seen in context of weak general retail spending over Christmas. Higher domestic energy costs coming through this month will also make any further slowdown in inflation harder.

For the following stories, please click on this link*

  • Bonds: Investors look to inflation as a guide for interest rates
  • UK: Employment market cools as recruiters report less demand
  • Retail: Supermarkets celebrate Xmas, but shoppers turn cautious

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