Have Inflation And Growth Peaked?

It’s interesting to see that at the recent bottom fewer economies were growing above trend than in the depths of the 2008 financial crisis. This percentage includes 52 total economies. The chart shows the percentage’s relationship with the 10-year yield’s yearly change. The 10-year yield will keep increasing if the global cyclical turnaround is real.

Looking at the latest economic data, Germany avoided what some economists call a technical recession because GDP growth was +0.1% in Q3 following the decline in the previous quarter. Two straight negative GDP growth quarters isn’t a recession, so this beat is less dramatic than it sounds. However, beating estimates by 2 tenths is still a positive.

China’s economic data wasn’t as pleasing. Industrial production growth was 4.7% in October which missed the median estimate for 5.4%. Fixed asset investment growth in the first 10 months of 2019 was 5.2% which missed estimates by 0.2%. This was the slowest growth since it started being tracked in 1996. Private sector fixed investment growth in this same period was only 4.4%. Finally, retail sales growth was 7.2% which missed estimates for 7.9% matching the 16-year low hit this April. Auto sales fell for the 16th straight month. It’s clear, China won’t be leading the global economy higher in 2020 like it did in 2010 or in 2016.

Headline Inflation Increases And Core Inflation Falls

The October CPI report showed there was 1.8% headline inflation which beat estimates and the prior reading of 1.7%. There was 2.3% core CPI inflation which fell from 2.4% which also the September reading. The decline isn’t as large as it sounds though as it fell 4 basis points to 2.32%. That’s the 2nd straight decline. The comp was easier so the 2-year growth stack fell 6 basis points. The November comp gets 9 basis points harder and then the following 4 months of comps get easier. There are slightly fewer complaints from skeptics of monetary stimulus because the core CPI rate is falling and the Fed isn’t planning to cut rates in December. In fact, there is only a 44.6% chance of any cuts next year.

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