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U.S. Inflation Falling Quicker Than Expected

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  • A cooler-than-expected CPI report has sparked a rally in stocks across the board.
  • Energy costs and used cars were the biggest drivers of the cooling.
  • Real wages for Americans have slid further.

inflation

The first of this week’s big event risks has finall arrived, and while the world and his pet rabbit is focused on the number’s potential for ‘dovishness’, bear in mind that expectations are for a 0.3% MoM rise and 7.3% YoY rise (which while ‘slowing’ remains extremely high by any standards). The banks’s CPI forecasts were all in sync:

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  • 7.2% – Barclays
  • 7.2% – Credit Suisse
  • 7.2% – Goldman Sachs
  • 7.2% – Bloomberg Econ
  • 7.2% – Citigroup
  • 7.2% – Morgan Stanley
  • 7.2% – Wells Fargo
  • 7.3% – HSBC
  • 7.3% – JP Morgan Chase
  • 7.3% – UBS
  • 7.3% – Bank of America
  • 7.4% – SocGen

… which is precisely why the headline CPI printed cooler than all of the major expected, rising just 0.1% MoM, with the YoY rise falling to +7.1%, which was the lowest since Dec 2021…

… and the biggest monthly drop (-0.63ppt) in the YOY print (from 7.7% to 7.1%) since 2020…

Core CPI was expected to rise 0.3% MoM also (+6.1% YoY), and like the headline it came in cooler than expected at +0.2% MoM and +6.0% YoY…

Under the hood, energy costs and used cars were the biggest drivers of the cooling…

Services inflation YoY rose modestly as Goods inflation YoY dropped again…

Energy and Goods actually fell in price MoM…

More details from the report, first on food and energy…

  • The food index increased 0.5 percent in November following a 0.6-percent increase in October.
    • The food at home index also rose 0.5 percent in November. Four of the six major grocery store food group indexes increased over the month.
    • The food away from home index rose 0.5 percent in November, after increasing 0.9 percent in each of the previous 3 months. The index for limited service meals increased 0.6 percent over the month and the index for full service meals increased 0.4 percent.
  • The energy index fell 1.6 percent in November after rising 1.8 percent in October. The gasoline index declined 2.0 percent over the month, following a 4.0-percent increase in October.
    • The index for natural gas continued to decline over the month, falling 3.5 percent after decreasing 4.6 percent in October. The electricity index decreased 0.2 percent in November.

… and then everything else, starting with the shelter index which was the dominant factor in the monthly increase in the index for all items less food and energy:

  • The index for all items less food and energy rose 0.2 percent in November, its smallest increase since August 2021.
    • The shelter index continued to increase, rising 0.6 percent over the month.
      • The rent index rose 0.8 percent over the month, and the owners’ equivalent rent index rose 0.7 percent.
      • The index for lodging away from home decreased 0.7 percent in November, after rising 4.9 percent in October.

Other components were a mix of increases and declines. Among the indexes that rose in November were:

  • The index for communication which increased 1.0 percent over the month after decreasing 0.1 percent in October.
  • The index for recreation rose 0.5 percent in November, following a 0.7-percent increase in the previous month.
  • The motor vehicle insurance index increased 0.9 percent in November, the personal care index rose 0.7 percent
  • The education index rose 0.3 percent over the month.

And on the other side:

  • The medical care index fell 0.5 percent in November, as it did in October.
  • The index for hospital and related services decreased 0.3 percent over the month, and the index for prescription drugs declined 0.2 percent.
  • The index for physicians’ services was unchanged in November.

Other indexes which declined over the month include:

  • The index for used cars and trucks fell 2.9 percent in November, the fifth consecutive decline in that index.
  • The index for airline fares fell 3.0 percent over the month, following a 1.1-percent decrease in October.
  • The index for household furnishings and operations was unchanged in November, as was the index for new vehicles.

Of the above, it is interesting that apparel prices increased in November. As a reminder, Goldman noted that with the inventory-to-sales ratio for apparel stores is now above its December 2019 level, the more normal availability of apparel items this year is consistent with increased promotional activity, and online price data from Adobe shows a 15.5% decline in apparel prices over the course of November on a not-seasonally-adjusted basis. Expect a sharp drop in apparel prices next month.

Perhaps most notably, if we exclude shelter – on a sequential basis – we now have deflation, which of course we can’t do especially since both shelter and rent inflation are still rising at a rapid pace of 7.12% and 7.91% respectively, but about to roll over hard.

The punchline: if one excludes food (+0.5% M/M) and shelter (+0.7% M/M), it’s hard to find any inflation (and in fact, we may well have disinflation):

  • Food +0.5% M/M, vs 0.6% prior
  • Shelter +0.7%, vs 0.6% prior

but…

  • Used Cars -2.9% vs -2.4% prior
  • New cars 0.0%, vs +0.4% prior
  • Energy -1.6% vs +1.8% prior
  • Gasoline -2.0%
  • Fuel oil +1.7%, vs +19.8% prior
  • Apparel 0.2% vs -0.7% prior
  • Medical care 0.2% vs 0.0% prior

And given the violent rollover in M2, we suspect inflation will continue sliding

Bear in mind that last month’s (11/10/22) YoY headline CPI print came in soft @ 7.7% (vs 7.8% expected and 8.2% prior), and with traders short into the event, the S&P exploded +554bps (sharpest rally since April of 2020).

Additionally, the S&P’s realized volatility into today’s CPI print is the highest since 2009…

Ahead of today’s print, both JPM and Goldman presented their market move forecasts, and indicatively a 7.1% print means the following for the S&P:

  • JPMorgan: S&P gains +2%-3%
  • Goldman: S&P gains +4%-5%

Finally, we note that real wages for Americans fell for the 20th straight month…

Source: Bloomberg

But hey, gas prices are down since the June peak, and ‘strong as hell’ economy, right?

By Zerohedge.com

More Top Reads From Oilprice.com:

 

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Calgary breaks all-time record in housing starts but increasing demand keeps inventory low – CBC.ca

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Soaring housing demands in Calgary led to an all-time record for new residential builds last year, but inventory levels of completed and unsold units remained low due to demand outpacing supply.

According to the latest report from Canada Mortgage and Housing Corporation (CMHC), total housing starts increased by 13 per cent in Calgary, reaching a total of 19,579 units with growth across all dwelling types in the city.

That compares to a decline of 0.5 per cent overall for housing starts in the six major Canadian cities surveyed by CMHC.

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Calgary also had the highest housing starts by population.

“Part of the reason why we think that might have happened is that developers are responding to low vacancies in the rental market,” said Adebola Omosola, a housing economics specialist with CMHC.

“The population of Calgary is still growing, a record number of people moved here last year, and we still expect that to remain at least in the short term.”

Earlier this year, the Calgary Real Estate Board also predicted that demand, especially for rental apartments, wouldn’t let up any time soon. 

Industry can cope with demand, expert says

According to numbers from the report, average construction times were higher in 2023 for all dwelling types except for apartments.

The agency’s report suggests the increase in the number of under-construction residential projects might mean builders are operating at or near full capacity.

However, there’s optimism the construction industry can match the increasing need.

Brian Hahn, CEO of BILD Calgary Region, said despite concerns around about construction costs, project timelines and labour shortages, the industry has kept up with the demand for new builds.

Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary region CEO Brian Hahn.
Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary Region chief executive officer Brian Hahn. (Shaun Best/Reuters)

“I’ve heard that kind of conversation at the end of 2022 and I heard it in 2023,” Hahn said.

“Yet here we are early in 2024, and January and February were record numbers again.”

Hahn added he believes the current pace of construction will continue for at least the next six months and that the industry is looking at initiatives to attract more people to the trades.

Increase in row house and apartment construction

Construction growth was largely driven by new apartment projects, making up almost half of the housing starts in Calgary in 2023.

The federal housing agency says 9,034 apartment units were started that year, an increase of 17 per cent from the previous year. Of those, about 54 per cent were purpose-built rentals.

Apartments made up around two-thirds of all units under construction, CMHC said, with the total number of units under construction reaching 23,473.

Growth, however, was seen across all dwelling types. Row homes increased by 34 per cent from the previous year while groundbreaking on single-detached homes grew by two per cent.

“Notwithstanding challenges, our members and the industry counterparts that support them managed to produce a record amount of starts and completions,” Hahn said.

“I have little doubt that the industry will do their very best to keep pace at those levels.”

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Ottawa real estate: House starts down, apartments up in 2023 – CTV News Ottawa

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Rental housing dominated construction in Ottawa last year, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).

Residential construction declined significantly in 2023, with housing starts dropping to 9,245 units, a 19.5 per cent decline from the record high observed in 2022. But while single-detached and row housing starts fell compared to 2022, new construction for rental units and condominiums rose.

“There’s been a shift toward rental construction over the past two years. Rental housing starts made up nearly one third of total starts in 2023, close to double the average of the previous five years,” the report stated.

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Apartment starts reached their highest level since the 1970s.

“The trend toward rental and condominium apartment construction follows increased demand in these market segments due to population growth, households looking for affordable options, and some seniors downsizing to smaller units,” the CMHC said.

Demand from international migration and students, the high cost of home ownership, and people moving to Ottawa from other parts of Ontario were the main drivers for rental housing starts in 2023. The CMHC says rental and condominium apartment starts made up 63 per cent of total starts in 2023, compared to the average of 37 per cent for the period 2018-2022.

There was a modest increase in rental housing starts in 2023 over the record-high seen the year prior and a jump in new condominiums. The report shows 5,846 new apartments were built in Ottawa last year, up 2.1 per cent compared to 2022.

Housing starts in Ottawa by year. (CMHC)

Big demand for condos

The CMHC said condo starts reached a new high in 2023, increasing 3 per cent from 2022 numbers.

“As of the end of 2023, there were only 13 completed and unsold condominium units, highlighting continued demand for new units,” the CMHC said.

Condominum starts increased in areas such as Chinatown, Hintonburg, Vanier and Alta Vista, as well as some suburban areas like Kanata, Stittsville, and western Orléans. Condo apartment construction declined in denser parts of the city like downtown, Lowertown and Centretown, the report says.

Taller buildings are also becoming more common, as the cranes dotting the skyline can attest. The CMHC notes that buildings with more than 20 storeys accounted for nearly 10 per cent of apartment structure starts in 2022 and 2023, compared to an average of 2 per cent over the 2017-2021 period. The number of units per building also rose 7 per cent compared to 2022.

Apartment building heights in Ottawa by year. (CMHC)

Single-detached home construction down significantly

The number of new single-detached homes built in Ottawa last year was the lowest level seen in the city since the mid 1990s, CMHC said.

“The Ottawa area experienced a slowdown in residential construction in 2023, driven by a significant decline in single-detached and row housing starts,” the CMHC said.

Single-detached housing starts were down 45 per cent compared to 2022. Row house starts dropped by 38 per cent compared to 2022, marking a third year of declines in a row.

“Demand for single-detached and row houses also declined in 2023. Higher mortgage rates and home prices have led to a shift in demand toward more affordable rental and condominium units,” the report said.

There were 1,535 single-detached housing starts in Ottawa last year, 208 new semi-detached homes and 1,678 new row houses.

The majority of single-detached and row housing starts were built in suburban communities such as Barrhaven, Stittsville, Kanata, Orléans and rural parts of the city.

“Increased construction costs resulting from higher financing rates and inflation that occurred in 2022 and 2023 contributed to the decline in construction in the region,” the CMHC said. 

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Trump’s media company ticker leads to fleeting windfall for some investors

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A man looks at a screen that displays trading information about shares of Truth Social and Trump Media & Technology Group, outside the Nasdaq Market site in New York City, U.S., March 26.Brendan McDermid/Reuters

Possible confusion over the new stock symbol for former President Donald Trump’s Truth Social (DJT-Q) saw some investor brokerage balances briefly jump by hundreds of thousands of dollars on Tuesday, the first day Trump’s “DJT” ticker traded.

Several people complained on social media about briefly seeing the value of their DJT stock holdings on Charles Schwab platforms inflated to figures more in line with what they would be worth if the shares traded at the level of the Dow Jones Transportation Average.

Some users said they faced a similar issue in pre-market hours on Morgan Stanley’s E*Trade trading platform.

Shares of Trump Media & Technology Group opened Tuesday at $70.90, while the Dow Jones Transportation Average started the session at 15,937.73 points.

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For one trader, the Schwab brokerage balance jumped by more than $1 million due to the error, according to a screen grab shared on social media platform X. Reuters was unable to contact the trader or independently verify the brokerage balance.

“It sure was nice seeing millions in the account, even if it wasn’t real,” another person, going by the username @DanielBenjamin8, who faced the issue in his E*Trade account, posted on X.

Two X users and one on Reddit surmised that the inflated balances were due to the ticker symbol for the company being nearly identical to the index.

A spokeswoman for Charles Schwab said that certain users on some of Schwab’s trading platforms saw their brokerage balances briefly inflated due to a technical issue.

The issue has been resolved and investors are able to trade equities and options on Schwab platforms, she said. Schwab declined to describe the exact cause of the issue.

E*Trade did not immediately respond to a request for comment outside of regular business hours.

Trump Media & Technology Group and S&P Dow Jones Indices, which maintains the Dow Jones Transportation Average Index, did not immediately comment on the issue.

While social media users said the issue appeared to have been resolved, many rued not being able to cash out their supposed gains from the error.

“I better go tell my boss that I’m actually not retiring,” the trader whose account balance had briefly jump by more than $1 million, wrote on X.

Trump Media & Technology Group shares surged more than 36% on Tuesday in their debut on the Nasdaq that comes more than two years since its merger with a blank-check firm was announced.

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