Data Release

Week Ending, 15th March, 2024

Last week saw the release of the February Consumer and Producer inflation data for the US. The worry was around Producer (or input) price inflation (released on Thursday). It saw a large rise of +0.6% m/m to 1.6% y/y on the back of a surge in the cost of goods such as gasoline and food. The price of goods jumped 1.2% m/m (Jan: -0.1% m/m) – this accounts for some two-thirds of the producer price index. Energy prices surged +4.4% m/m (Jan: -1.1% m/m). Gasoline prices rose +6.8% m/m, Diesel and jet fuel prices also rose. Food prices also rose +1.0% m/m (rising cost of eggs and beef). Core Producer Price Inflation (ex. Food and energy) rose +0.3% m/m (Jan: same). Services rose +0.3% m/m (Jan: +0.5% m/m) on the back of a +3.8% m/m rise in the hotel/motel room costs. The latter accounts for a quarter of the rise in services inflation. Worth highlighting oil prices seem to have settled above $80 pb. This rise is slowly feeding through and tends to infect the rest of the basket. Latest futures pricing (CME FedWatch) still has a 60% chance of a rate cut in June but is down from 74% the week before. No surprise the inflation data is causing jitters for both Bitcoin and Tech stocks.

This week, Japan’s central bank (BoJ) will conclude a two-day meeting and the speculation around whether they will mark an end to their current interest rate policy is reaching its climax. Until now, the BoJ has effectively targeted 0% rates (Yield Curve Control, YCC). Now, it decides whether to end it. The BoJ has always cited two factors for hiking rates: strong wage growth and steady inflation. The Finance Minister’s latest comment (Friday) confirms these have been met. Toyota agreed to its biggest pay rise in 25 years with monthly increases of as much as Y28,440 (about $193) plus record bonus payments. Workers at major firms have asked for annual increases of 5.85% (reported by Rengo, the country’s biggest union). If this were agreed, it would breach the 5% level for the first time in 31 years. So everything seems skewed to an ending of current policy and for rate hikes to begin. The economy is still weak with private consumption slowing. One can’t rule out the BoJ decides to wait for evidence higher wages are helping to boost consumption. The last thing the BoJ will want to do is to light the fuse for its own bond market and for markets, this will require a big shift in mindset. Whatever happens – and despite large short Yen positions, especially by Hedge Funds – don’t expect any dramatic moves by the BoJ. It will be a very steady approach and one that will likely take years. Higher spending, higher rates, spending today as opposed to delaying it till later – these are all behavioural factors that will require a change in mindset. It also has big potential implications on overseas assets. Japan has always been on the search for better yields outside its own borders. As rates start to rise at home, slowly but surely that differential starts to close. We will need to see how it approaches its bond-buying programme as well as its listed equity funds. Unless it wants to put a wrecking ball to its economy, the key word will be gradual.

Finally, TikTok (TT). This week saw the US House of Reps pass a bill, overwhelmingly, that would give TT’s owner, ByteDance, about six months to divest the US assets of the “short-video” app. If it doesn’t, it will face a nationwide ban. The concern is that China could use the social media app to influence the upcoming 2024 elections in the US. ByteDance is HQ’d in Beijing. Things are divided on political lines. On the one hand no one wants to be seen as being soft on China. On the other, younger voters oppose the ban because they use it to express their views and follow politics. The next stage is in the Senate – where uncertainty looms. There are so many ironies in this whole saga. TT has been banned in India for a few years. Furthermore, look at all those Western Apps that have been banned in China. Apps blocked in China as of Oct. 2021 include Facebook, Google, WhasApp, LinkedIn, Twitter, Netflix, Youtube – to name just a few! But it gets better. Former President Trump – who was one of TT’s biggest enemies – could well turn out to be its friend. In an interview with CNBC this week, he said “There are a lot of young kids on TikTok who will go crazy without it”. He went on to express concern that outlawing the App would give too much power to Meta (which owns Facebook). Trump has had issues with Facebook for some time. This whole saga shows how twisted the world is. China can operate in the US but the US can’t operate in China. Meanwhile, which side of the US electorate carries more weight? Whatever the outcome – and we suspect the US will end up with a watered-down solution – TikTok continues to grow in popularity.

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