Core CPI

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Abe's Worst Nightmare: Household Spending Collapses As Inflation Spikes





UPDATE: USDJPY has tumbled to 5 week lows and NKY has retraced all post-Fed gains

Japan is in trouble. Normally the news that a piece of macro data had utterly and completely collapsed would be greeted by thge BFTD mentality as bad news reinforces the printing-press of central planners' put guarenteeing future wealth for all... but not this time. Household spending collapsed 8.0% in May (echoing the plunge following the last tax hike in 1997) - more than double expectations and almost as bad as the month of the tsunami. Great news? That's the problem... the great limiter of central bank largesse is looming as Japanese CPI spiked to 3.7% - its highest in 24 years! (and Core CPI at 3.4% - its highest since 1982) This implicitly hobbles the BoJ from further exuberance and already JPY strength (and NKY weakness) are showing.

 
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Futures Meander Ahead Of Today's Surge On Bad Economic News





Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.

 
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Futures Unchanged Ahead Of The Fed Announcement





it is suddenly not fun being a Fed president (or Chairmanwoman) these days: with yesterday's 2.1% CPI print, the YoY rate has now increased for four consecutive months and is above the Fed's target. Concurrently, the unemployment rate has also dipped well below the Fed’s previous 6.5% threshold guidance, in other words the Fed has now met both its mandates as set down previously. There have also been fairly unambiguous comments from the Fed’s Bullard suggesting that this is the closest the Fed has been to fulfilling its mandates in many years. Finally, adding to the "concerns" that the Fed may surprise everyone were BOE Carney’s comments last week that a hike “could happen sooner than the market currently expect." In short: continued QE here, without a taper acceleration, merely affirms that all the Fed is after is reflating the stock market, and such trivial considerations as employment and inflation are merely secondary to the Fed. Which, of course, we know - all is secondary to the wealth effect, i.e., making the rich, richer. But it is one thing for tinfoil hat sites to expose the truth, it is something else entirely when it is revealed to the entire world.

 
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A Moment Of Truth From JPM: "It's Hard To See The Recent Growth-Inflation Mix As Anything Other Than Discouraging"





"While some may cheer an earlier Fed rate hike, its hard to see the recent growth-inflation mix as anything other than discouraging." - JPMorgan

 
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What "Low-Flation"? Core CPI Jumps Most In 3 Years As Food Costs Push Higher





The Fed is losing its reasons for printing, leaving it desperate to revive the meme that the US economy is in self-sustaining recovery mode. At 2.0% Core CPI has caught up with the hot-flation of PPI removing the crutch of low-flation easement the Fed has been relying on. While Ex-Food-and-Energy is surging (well above expectations), the food index rose 0.5% in May after increasing 0.4% in each of the three previous months; and the index for food at home increased 0.7%, its largest increase since July 2011. This is all happening against a backdrop of real hourly wages dropping 0.1% YoY.

 
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Key Events In The Coming Week





This week brings some key events and releases in DMs, including US FOMC (Goldman expects $10bn tapering, in line with consensus), IP, CPI, and Philly Fed (expect 13.5), EA final May CPI (expect 0.50%), and MP decisions in Norway and Switzerland (expect no change in either).

 
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Equity Blow Off Top Takes Brief Overnight Rest, Prepares For Another Session Of Low Volume Levitation





Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.

 
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Yen Carry Slide Drags Futures To Lows





The perfectly expected if completely irrational overnight ramp in various Yen carry pairs tried, and failed, and both the USDJPY and EURJPY were tumbling to overnight lows as we go to print. This is happening despite a rout in India in which Narendra Modi's opposition block is poised for the biggest Indian election win in 30 years, with his BJP party currently leading in 332 of 543 seat - an outcome that is seen as very pro business (and seemingly pro asset bubbles: the INR soared and the Sensex was up as much as 6% in intraday trading before paring virtually all gains following what many say was RBI intervention). And while the Nikkei (down 200 points) did not help the mood this move was mostly in response to yesterday's US selling, which means as usual the culprit for lack of algo risk-taking overnight has been the Yen carry, which moments ago hit intraday lows, and is increasingly flirting with the 101 level (after which double digits, and Abe's second resignation, come very quickly).

 
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Why Is Goldman Hoping The "Winter" Ends Before July





"by July we expect the US economy to be in full recovery from the weather- and inventory-induced slowdown in Q1, and this should push US rates higher and boost the Dollar, including against the Yen." - Goldman Sachs

 
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Key Events In The Coming Week





This week markets are likely to focus on a few important data prints in DMs, including Philly Fed in the US (expect solid expansionary territory) and 1Q GDP releases in the Euro area (with upside risks). In DMs, the highlights of the week include [on Monday] Japan’s trade balance data and Australia business conditions; [on Tuesday] US retail sales, CPI in Italy and Sweden; [on Wednesday] US PPI, Euro area IP, CPI in France, Germany and Spain; [on Thursday] US Philly Fed, CPI, capacity utilization, Euro area and Japan GDP; and [on Friday] US Univ. of Michigan Confidence. In the US, we expect Philly Fed to print in solidly expansionary territory (at 14, similar to consensus) and to inaugurate what we call the active data period of the month. We also expect CPI inflation to print at 0.3% mom (similar to consensus), and core CPI inflation at 0.18% mom (slightly above consensus).

 
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Humiliated On Its Q1 GDP Prediction, Goldman Doubles Down, Boosts Q2 Forecast To 3.9%





Goldman, it would appear, are desperate to not be forced to admit they are wrong once again. On the heels of their dramatic and humiliating swing from expectations of a +3.0% Q1 GDP growth rate at the start of the year to a current -0.6% expectation, the hockey-stick-believers are out with their latest piece of guesswork explaining how growth will explode to 3.9% in Q2 (a full percentage point higher than their previous estimate).The platform for this v-shaped recovery - "consumer spending will probably grow strongly, while the housing market should gradually improve." So 'probably' and 'should' it is then.

 

 
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Things That Make You Go Hmmm... Like Is Japan Totally F##ked?





We have detailed the straitjacket into which the Japanese have been strapped for the past two decades numerous times in the last few years (in great detail here)  but as Grant Williams leaned back in his most comfortable chair after reading an article about proposed changes to the GPIF (Government Pension Investment Fund), Japan’s public pension fund; the thought popped into his mind - "Japan really is totally f##ked." What led him to that well-thought-out and eruditely expressed conclusion? Read on...

 
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