China recorded a record number of Covid cases on Wednesday. More than 1.3 million people were under medical supervision this week as close contacts. The PBoC announced another cut of 25 bps to RRR today, effective from December 5th. Core CPI (ex-food & energy) inflation has weakened to 0.6%. The PPI is now in negative territory (-1.3% y/y).
The y/y for the durables deflator in the US is heading towards zero by the start of 2023. Shipping rates continue to tumble. South Korea exports– a good lead indicator for the global economy – fell 16.7% y/y in the first 20 days of November ($ terms). In the US, retailers’ holiday discounts will be steeper this year, according to CFOs.
This does not mean the Fed will let up. The immediate disinflationary pressures, combined with a determined Fed, has inverted the yield curve. The 2-year yield was still as high as 4.46% on Wednesday before Thanksgiving.
But the spread between 10- & 2-year US Treasuries widened to -75 bps on Wednesday. The 30-2-year portion of the curve inverted to -72 bps as well. The Fed is determined to stamp out inflation at a time when disinflation is very much on the cards. The curve could continue to invert, by as much as 100 bps.
