January 15 – Stock futures rallied overnight, ahead of this morning’s highly-anticipated inflation data, adding to those gains following the data’s release. The VIX is trading near 17, while the dollar index trades near 108.7. Yields on 10-year Treasuries are trading near 4.66%, while yields on 2-year Treasuries are trading near 4.26%. Crude oil prices are trading 1% higher today, after yesterday’s pullback, while the grain and oilseed sector was mixed.
The headline consumer price index rose 0.4% month-on-month in December, up from 0.3% the previous month, and up from analyst expectations of 0.3%. The CPI rose 2.9% year-on-year in December, up from 2.7% the previous month, but matching analyst expectations. The core CPI that excludes the more volatile food and energy sectors rose 0.2% month-on-month in December, down from 0.3% the previous month, and below expectations that it would remain at 0.3%. The core CPI rose 3.2% year-on-year in December, down from 3.3% the previous month, and down from analyst expectations that it would remain at 3.3%.
Wall Street reacted positively to today’s report, with similar trends seen to what was in yesterday’s producer price data. Rising energy prices were the primary factor in pushing headline inflation higher, while we saw some easing of inflationary pressures in many other sectors, resulting in the improved core CPI numbers. Traders interpret that as a win for the Federal Reserve, although sustained strength in energy prices would certainly creates some problems for reaching the Fed’s 2% mandate. Energy prices rose 2.6% month-on-month in December, up from 0.2% the previous month. Gasoline prices rose 4.4% on the month, as did fuel oil prices. Natural gas prices rose 2.4% on the month, after rising 1.0% the previous month. Used cars also continued to see some inflation, rising another 1.2% on the month, after seeing gains of 2% or more the two previous months. Transportation services rose 0.5% on the month, with shelter up 0.3%, which also matches what we saw in food inflation for the month. Even so, Fed fund futures traded 97% odds post-report of no rate cut from the central bank at its late January meeting, while still trading odds of just one rate cut the rest of the year.
Chinese enterprises added 40 billion yuan ($5.48 billion) in medium- to long-term loans in December, which was their lowest total in nine years, down 81% from November, and less than 5% of the loans acquired in the same month last year. The lack of credit demand reflects ongoing uncertainty in the business sector, despite the efforts of the government to stimulate the economy. Overall, business credit demand dropped nearly 26% year-on-year in 2024. Total bank loans increased by 99 billion yuan ($13.56 billion), which beat market expectations of 85 billion yuan. Yet, that was still more than 15% lower than December of the previous year. China’s bank loans for the calendar year declined by just over 20% on the year, reflecting the lowest growth rate in the data that goes back to 2002. Household loans, used primarily for home loans, rose to 30 billion yuan ($4.11 billion) in December, reflecting the strongest growth rate since August, and the highest for the same period in three years, while being up 105% year-on-year due to various stimulus programs.
Government bonds expanded by 11.3 trillion yuan ($1.55 trillion) at the end of 2024, up nearly 18% on the year. This would be expected to increase money supply flowing in the Chinese economy. A look at M1 money supply that is that money most available to the consumer to be spent continued to fall in December, but at a more moderate (1.4%) pace, compared to a decline of 3.7% in November. M2 money supply rose by 7.3% in December, after expanding by 7.1% in November. The spread in money supply growth between M1 and M2 provides a measure of near-term market sentiment, which narrowed the decline for the fourth month in a row. It was down 8.7% in December, after being down 10.8% in November. Easing contraction in M1 suggests that the government stimulus packages are moving money supply in a positive direction, but there is still a long way to go before the end of the contraction cycle when the spreads turn positive with stronger growth in M1 than M2 money supply.
Our StoneX Brazil team estimates that soybean production losses due to dryness stress has reduced the size of the crop in Rio Grande do Sul in southern Brazil by 2.4 million metric tons, although they expect a significant portion of that to be offset by better-than-expected yields in Center West Brazil, where nearly ideal conditions have resulted in good crop potential. Argentina is a different story. Currently, 65% of the crop there is under varying levels of stress. That should shrink to 40% with anticipated weekend showers, before expanding again later in the two-week outlook. Forecasts beyond that are mixed, but generally with a drier bias. It’s much earlier in the Argentine growing season. Regardless, we’re still anticipating that the Brazil crop will grow by somewhere close to 20 mmt above the previous year’s crop.
