15.01.25 - Action-packed day - inflation concerns fade
Wednesday, a day packed with crucial economic data and the kickoff of earnings season.
UK: inflation lower than expected. Inflation rate 2.5% YoY vs. 2.6% consensus estimate.
Germany: economy continues to shrink, as expected, for second year in a row. German GDP -0.2% YoY (2024) vs. -0.3% YoY (2023).
US: inflation data inline: CPI 0.4% MoM and 2.9% YoY, both as expected.
Corporate earnings: reporting season started with US banks. JPMorgan, Goldman Sachs, BlackRock, WellsFargo, Citigroup, all banks reported sales and earnings above estimates.
Markets: Inflation prints are taken positive for risk assets.
UK: interest rates decline based on latest inflation figures, pound rises following recent slump through market turmoil.
Germany/Europe: Stock indices rise with some regained confidence.
US: Stock Futures jump after inflation report and strong bank earnings, US yields and US dollar decline.
Sentiment: No sharp reaction, only little move from “extreme fear” to fear level.
My View: As I mentioned few days ago, I did not share the common view that inflation would skyrocket. Therefore, today’s release is not much of a surprise to me.
I am happy with the latest tactical calls mirroring this view: buying US longterm Treasuries (leveraged ETF, 07.01.25), longterm UK Gilts (leveraged ETF, 14.01.25), hedging the US dollar (14.01.25), buying some pounds (14.01.25), adding long volatility (leveraged ETF, 16.12.24) and shorten the semiconductor sector (leveraged ETF, 07.01.25).
I continue to believe that interest rates will stabilize and show a tendency to decline, returning to levels observed a few weeks and months ago.
It is fair to say that increasing equity exposure as a tactical move could also be considered an investment opportunity. However, given my current equity allocation and significant volatility currently affecting equities, I opted not to add more risk to this asset class. Additionally, I am not yet convinced that today’s equity rally will prove to be sustainable.
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