Outlook: Today is a day for data about the consumer (mostly). We get Dec retail sales (expected slightly lower) and University of Michigan consumer sentiment. In addition, we get industrial production and business inventories, something the Atlanta Fed likes. In the afternoon it’s the Baker-Hughes rig count, back in fashion, as well as bank earnings reports all day.

The course of inflation and the Fed’s plan to deal with it is developing by the minute. In addition to new analysis of supply chain issues specific to the US, we also have Dr. Henry Kaufman flogging the Fed for lacking the Volckerian guts to do it now (50 bp today) and instead, lollygagging along with incremental measures. He also says even once the three hikes are in, it will take a year to get inflation down to 3%. Those of us working in the late 1970s remember it well–slash and burn. This is the ultimate “behind the curve” charge against the Fed and likely to grow legs.

A small offset is Fed Gov Waller joining the chorus and telling Bloomberg TV “that while three hikes in 2022 is a good baseline, the case could be made for four or even five if inflation remains too high.” This caused another jump up in the percentage of Fed funds players seeing the first-rate hike at the March meeting.

A peculiar note from left field–there is chatter at Reuters the BoJ is considering talking about a rate hike, even though inflation is hardly up to snuff and certainly not a problem. Evidence it’s being taken seriously: the yield on the 5-year note is almost zero, the highest since 2016. The BoJ wants to be in line with other central banks, but it’s also concerned with producer prices up by scary numbers, 9.2% y/y in Nov and 8.4% y/y in Dec (today). PPI tends not to influence CPI all that much in Japan, which is still negative, in part because companies eat it and accept smaller margins.

The world is just starting to digest several prices of shocking news–not only the Fed’s new screaming hawkishness but also evidence of far too big a dependence on China for goods. We knew it, we talked about it, but it’s still there and will be there for a very long time, if only because it takes a long time to make the investments in substitutes. As for the geopolitical world, Russia wants buffer states and the west refuses to cater to that whim, with no known next step. Aside from bank earnings, the world is a sea of bad and frightening news. There is a small chance the dollar gets some boost from risk aversion, but on the whole, its rout probably has more to go to clean out stale long positions.

Inflation Tidbit: In the US, the WSJ reported yesterday that mortgage rates have hit their highest level since March 2020, to 3.45% for the week ended Thursday from 3.22% the preceding week and 2.79% a year ago. “Higher borrowing costs, combined with record-high home prices, could push some would-be buyers out of the market. The median price for existing homes rose 13.9% in November from a year earlier to $353,900, according to the National Association of Realtors.”

It seems obvious that there is one mitigating factor not at the forefront of discussions–the demise of the baby boomer. The Baby Boomer group contains those born from 1946-1964. While the entire group will not have shuffled off this mortal coil until 2044, about 5280 are dying every day. Multiply by 365, and that means by this time next year, 1.927 million boomers will be gone and their houses presumably available. Statistica estimated that in 2022, new single-family home starts will be 1.23 million. In other words, more homes will come on the market from boomers dying than from new construction.

This sounds like amelioration but the bigger picture is less rosy–usafacts.org reports “Home construction has not kept pace with population growth over the past 20 years. Last year, 912,000 single-family homes were built, according to building permit data from the US Census. The US population grew by more than 3 million people in that time. Since 2006, home construction has decreased by 55% nationwide.” The Economist magazine reports Freddie Mac sees a shortage of 3.8 million houses, with a different source saying it’s closer to 5.5 million.

Well, new construction plus boomer houses add to 3.2 million, not too far off the Freddie Mac shortfall estimate.

Depending on immigration, we are getting convergence in housing supply/demand as the population is growing less rapidly than new homes. Adding in the boomer properties, we are approaching equilibrium. The point, or one of them–don’t count on all that Zillow estimate of your home’s selling price gain to last. By the way, USAFacts.org has a free newsletter and good data/graphics.

Tidbits: Everyone is having a ball talking about cannabis fending off Covid infections. And we just sold our pot stocks because they were not living up to the hype.

In US political news, Maddow reports that Republicans in five states (so far) are known to have forged official state certificates of the 2020 election outcome and actually delivered them to the various designated federal government agencies. Forgery of any sort, let alone official state documents, is a crime but so far we are not getting any hint from the Justice Dept that it will prosecute the forgers. One state just referred the case to the Justice Dept–over a year later. The states are Arizona, Nevada, Georgia, Wisconsin and Michigan.

Because each of the forged documents is identical and obviously from the same template, somebody is behind this and we want him/her/them in orange jumpsuits. Many are becoming impatient with the grindingly slow justice process that feeds the Republican agenda of just hanging on until the midterm elections in November, which they expect to win (as is customary in the off-year), whereupon they can shut down all the Congressional investigations (but not the Justice Dept, if it wakes up). Aargh.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD extends slide to 1.1300 as dollar gathers strength

EUR/USD continues to stretch lower and tests 1.1300 handle ahead of the American session. The greenback outperforms its major rivals as safe-haven flows dominate the financial markets. Investors await Markit's preliminary US Manufacturing and Services PMI data. 


GBP/USD tests 1.3500 on risk aversion, weak UK data

GBP/USD continues to edge lower and trades at its weakest level in more than two weeks near 1.3500. The data from the UK revealed that the private sector's business activity expanded at a softer pace in early January than it did in December.


Gold holds near $1840 ahead of key Fed meeting as geopolitical worries rise

Gold is holding near $1840 despite the stronger USD on a heightened safe-haven bid amid geopolitical concerns. What is expected to be a very hawkish Fed meeting will test gold’s resilience this week.

Gold News

Crypto carnage continues to unfold

Bitcoin price has witnessed a massive crash over the past week, undoing the gains seen since July 25. Ethereum, Ripple and other altcoins have followed suit, experiencing an even worse crash. 

Read more

Nvidia extends losses after Bitcoin’s overnight flash crash

NVDA investors are getting used to seeing the colour red after a year in 2021 when all they saw was green. On Friday, shares of NVDA fell by 3.21%.

Read more