QUICK QUILL — The inflation expectations/current labor divergence in the New York Fed’s services survey should not prevent the Fed from cutting today. But it and so-called “resilient” underlying Retail Sales growth could help tilt the vote toward a gradual start to the easing process instead of an aggressive one. U.S. industrial short-run momentum being revised away and the ZEW showing U.S. investors strong belief in a yield curve steepener lean toward additional industrial weakening that would argue for faster Fed cuts. A bull flattener should manifest first as a Fed that undertakes a quarter-point cut today should be deemed behind the curve – and additional pricing should land in the belly and long end.
TAKEAWAYS
- At 66.8, NY Fed Services Future Prices Paid remained above 60 for a seventh straight month while Future Prices Received jumped to 45.8; meanwhile, Current Employment fell back into contraction at -2.9, flagging a triple dip in the country’s services hub
- Industrial Production rose 0.1% MoM in August vs. the -0.1% consensus, but prior month downward revisions took the 0.5% annualized rate since March down to 0.1%; in turn, Capacity Utilization hit a seven-month low and the yield curve flags continued slowing
- The spread between ZEW long and short-term interest rate expectations rose to a record high of 103.7 in September; though the yield curve steepener trend is crowded, the Fed taking a 25 bp cut that’s deemed as being behind the curve should first trigger a bull flattener