Party

CCTV footage may have caught the Fed Chair moonwalking out of the reception this week after inflation data came in softer than expected. Down it comes ushering in the much hoped for ‘no landing’, a threading of the needle. Success. Job done. The cat calls from the cheap seats drowned out by a euphoric surge across markets as the read out was that the Fed is done hiking. The pause is real. Game on. That Walmart have followed it up with comments highlighting a consumer in belt tightening mode, and belt tightening two-buttons-a-time, is lost in the soup of risk-on. WMT management, who see the consumer in real time across a sprawling network of stores, are talking it tight. Inflation may be falling, but that just means already high prices are going up more slowly. The accumulated inflation of recent years has left the sticker prices for many household staples at eye-popping levels. Even the budget range offers slim pickings. Inflation, analysts point out, comes in waves, and whilst the trumpets went off this week, there are still some sticky issues. Debt for one. Specifically, the colossal amount of debt that needs to be rolled over the next 24 months, both sovereign and corporate. And this debt is going to be rolled at significantly higher rates. The current average rate on the Federal debt is just 2.4%. The only certainty is that it’s not going to be rolled at 2.4%. With the fiscal hose still on a high setting, the prospects for getting all that paper filled is a big ask of wide-eyed market participants. Many of whom are now sellers. The other sticky issue is the likely incoming inflation from commodities. The US has never faced shortages before. Even in the oil embargo of 1979, whilst there were shortages, the actual physical capacity was there. Looming today, across many key commodities, there is little to no spare capacity courtesy of more than a decade+ of underinvestment; underinvestment that can not be rectified for many years. Throw in record numbers of striking workers demanding higher wages from corporates whose bloated margins suggest there’s a little bit more to go round the factory floor, and some mega-trends like de-globalisation, and it appears that whilst inflation might be less than what it was, it’s a brave call to say it’s back in the proverbial bottle.