Finance and Economic News APP learned that Citic Securities released research reports stating that the comprehensive CPI reading in the United States for September exceeded expectations across the board, indicating that the anti-inflation process in the United States is still ongoing. The overall CPI year-on-year growth narrowed to the lowest value since February 2021 due to the decline in oil prices and base effects. Rent inflation returned to a cooling trend, while prices of food, core goods, and core services excluding residences rebounded on a month-on-month basis. It is expected that the overall CPI in the United States will be unlikely to continue to decline in the fourth quarter of this year, but the risk of secondary inflation is relatively low. The Federal Reserve is still expected to cut interest rates by 25bps twice this year. Bullish on the steepening potential of the U.S. bond yield curve, maintaining the asset allocation preference order of U.S. stocks over U.S. bonds.

Subject:

The comprehensive CPI reading in the United States for September exceeded expectations across the board, with the overall CPI month-on-month growth rate remaining unchanged at 0.2% (expected 0.1%), and the year-on-year growth rate decreasing from the previous value of 2.5% to 2.4% (expected 2.3%). Core CPI month-on-month growth rate remained unchanged at 0.3% (expected 0.2%), while the year-on-year growth rate increased from the previous value of 3.2% to 3.3% (expected 3.2%).

The main points of the Citic Securities research report are as follows:

The anti-inflation process in the United States is still ongoing.

The year-on-year growth rate of the overall CPI in the United States for September is the lowest since February 2021, mainly due to the decline in oil prices and base effects. Among them, commodity prices decreased by 0.2% on a month-on-month basis, while service prices increased by 0.4%. The overall reading exceeding expectations indicates that the anti-inflation process in the United States is not yet over, reducing the probability of a further 50bps rate cut by the Federal Reserve this year. The higher-than-expected inflation readings are less related to recent supply chain events such as the strikes by U.S. port workers that the market has been focusing on, as the strike occurred only in early October, and currently, there is no tightness in the global commodity supply chain. Specifically:

1) The food category may be one of the sub-items causing the overall inflation to exceed expectations. Its month-on-month growth rate rebounded from 0.1% to 0.4%, the highest since January this year, with household food items and dining out items rising by 0.4% and 0.3% respectively.

The year-on-year decline in energy prices expanded from the previous 4.0% to 6.8%, the lowest level since July last year, mainly due to a seasonally adjusted decrease in gasoline prices by 4.1% (5.1% before seasonally adjusted), and both electricity and natural gas prices turned positive after seasonally adjusted, with an increase of 0.7% each.

Core commodity prices rose by 0.2% month-on-month, returning to positive growth after six months. Among them, the prices of outfits, used cars, and new cars increased by 1.1%, 0.3%, and 0.2% respectively, while household furnishings showed zero growth. On the other hand, medical care goods, education and communication goods, and leisure goods all declined by 0.7%, 0.7%, and 0.3% respectively.

The lodging category saw a 4.9% year-on-year increase, the smallest increase since February 2022. The month-on-month change decreased from the previous 0.5% to 0.2%, contributing 10.2bps to the core CPI month-on-month, down from the previous 23.8bps, consistent with the assessment that rental inflation could continue to cool. Main residential rents, equivalent rents for owners, and out-of-home accommodations all decreased compared to the previous values, with changes of 0.3%, 0.3%, and -1.9% respectively.

Excluding residences, core service items saw an increase in month-on-month growth from 0.24% to 0.55%. This was mainly due to rebounds in transportation and medical service prices, with significant increases in airfare prices and car insurance prices recording 3.2% and 1.2% respectively, while medical care services saw prices rise from the previous -0.1% to 0.7% month-on-month.

It is expected that the overall CPI in the United States in the fourth quarter of this year will be difficult to continue declining year-on-year, but there is less risk of secondary inflation.

On one hand, under the disturbance of geopolitical events, the trend of continuous seasonal decline in energy prices over the past few months has shown signs of easing recently. At the same time, the fading base effect may support a slight rebound in the overall CPI year-on-year in the fourth quarter of this year. On the other hand, the strong non-farm report earlier this month and the strike by American port workers have caused some investors to worry again about the risk of secondary inflation in the United States. However, it is still believed that in an environment where the supply chain operates smoothly, the labor market continues to re-balance, household consumption becomes more pragmatic, and the tight housing rental market does not worsen, the core inflation center is unlikely to move significantly upward, and the risk of secondary inflation remains relatively low. Therefore, it is still expected that the Federal Reserve will cut interest rates by 25bps twice this year, bullish on the steepening potential of the U.S. bond yield curve, and maintain the preference for U.S. stocks over U.S. bonds.

Investment strategy:

U.S. economic growth momentum exceeds expectations; U.S. labor market demand and wage growth exceed expectations; U.S. financial conditions are less tight than expected; Unexpected impacts of events like the U.S. elections; Market liquidity or sentiment changes exceed expectations.