Stocks Aimless, Used Car Inflation Returns

Domo Arigato Inflating Auto 

“Now mister the day my number comes in I ain't ever gonna ride in no used car again”  

Remember how used car prices was the main driver of inflation, and everyone who said it would be transitory insisted that this couldn’t last…hohoho. Used car inflation is back big and it’s not a great sign: The Boss expresses how no doubt many of us feel, but in real life we’re still buying them. Manheim: "Wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 4.1% from January in the first 15 days of February. This was the largest February increase since 2009’s full-month 4.4% gain.” And it was the biggest increase for any month since the red-hot rises in 2021. And if you ain’t gonna ride in no used car again, then watch out - new car prices have steadily risen every month since March 2021. Now, I’m not saying that used car prices will break the market, but it’s just indicative of what happens once you let the inflation genie out of the bottle. Hard to see the Fed stopping before 6%. 

Data Mixing Up Investor Sentiment 

The merry dance between changing inflation expectations, bond yields and equity markets is the major focus again this week with a key Fed inflation metric in focus. The personal consumption expenditures excluding food and energy increased 4.4% in December from a year before, down from the 4.7% reading in November. The core PCE index is the Fed’s preferred measure of inflation and will be watched closely for further signs of disinflation. Market watchers will pay particularly close attention to services inflation, which is regarded as stickier than goods inflation. A month ago, the data showed goods inflation rose 4.6% in December, down from 6.1% in November, while services inflation was steady at 5.2%.    

Markets Seem Aimless 

Despite opening slightly higher, European stocks remain directionless on a quiet Monday morning with little to guide investor sentiment. With Wall Street closed for the Washington's Birthday holiday, trading volumes are expected to be thinner than usual. Last week saw a mixed performance on Wall Street, with the S&P 500 experiencing a slight drop while the Nasdaq rose slightly. Investors will be watching for any news on pandemic-related developments, the US fiscal stimulus, and central bank policy, which could affect the market direction in the coming weeks. 

Investors Await Data Releases 

As we begin a new week, the economic calendar in Europe seems to be relatively quiet. Only a few key events are scheduled, such as the release of the monthly report from the German Bundesbank, also known as the Buba, and the latest Eurozone consumer confidence survey. These reports will be closely watched by investors and analysts alike as they offer valuable insights into the economic health and outlook for the region. The Buba report is particularly noteworthy as it is considered one of the most important economic indicators for Germany, the largest economy in Europe. It provides information on the country's monetary policy, financial stability, and economic performance, making it a valuable tool for policymakers, investors, and businesses. Later in the week we get PMI surveys and the FOMC minutes to digest. 

In the Charts 

The dollar pared gains after rejecting a broad move higher on Friday as Treasury yields retreat somewhat. Looking at cable below, near-term support found around the 200-day line/23.6% retracement area around 1.1940, with a low put in at 1.19460 on Friday being firmly rejected for now. Don’t seem to see any real movement on NI protocol talks. 

Crude oil rose Monday, putting a drubbing last week behind it but now facing near-term resistance at the 50-day SMA as the rising wedge formation appears to near completion.