US inflation
Oil movements almost managed to overshadow the US CPI print out overnight.
It was a weak number, quite a bit cooler than consensus, especially on the core CPI (ex food and energy). Something around 0.2% month on month is consistent with the 2% YOY CPI target, 0.1% is too cold.
In short, it’s adding to the clouds over the macro-tea-leaf-reading crystal ball. There’s plenty of noise to a single print, mind you, and there’s a reasonable case to expect that tariffs + reciprocation have an inflationary impulse to them, at least in the short run, and that would lead you to expect the odd hot rather than cold print.
So, alas, need more time/data. We are in the camp that on net tariffs are deflationary though the negative impacts on growth they have (at the very least, higher uncertainty leading to lower investment, lower hiring), and that doesn’t combine well with stocks at or near all-time highs.
Oil
Overnight, expectations of an Israeli strike (presumably one with the US blessing) on Iran led to oil rising quite materially.
Will this happen? We don’t know. Betting markets have it at 35% or so, up a lot in recent days. Oil for us is something of a hedge; if geopolitical risks rise, oil should do well. If they don’t, then bonds should do well, and we have plenty of those.
It’s not super obvious that attacking nuclear facilities (which we understand Israel would like to do) impacts oil supplies, but retaliation might, and it’s clear that conflict in the region ups the odds of something that would impact oil flows occurs.
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