The January data was so startling. the street saw what they wanted to see. Even the dollar and bond yields were muted. I "saw" with my own eyes just how dramatic the economic acceleration became. Observing the behavior of the young gave me confidence in my interpretation. I stated before this data came out that restaurants were thriving mid-week. In fact, I can't remember just when that happened before. The service sector data point for January comes out on Monday between 9:45 and 10. I am curious how the market reacts. Surely they expect a BIG number.
Call me naive, uneducated in the complex world of economic trends but when the service sector along with all other components push this high this fast when the street has been desperate to hear of rate cuts, I wonder just how insane my position is. How can the FED cut rates on this data? The real question should be how can they keep rates where they are and not raise soon?
The dollar and bond yields should be the first to react to the new reality that disinflation is dead. The dollar should easily hit 105 within a 2-week period, The 10-year note should hit yields approaching 5% from the 4% it is today also in that quick of a fashion.
For the novice economist when the activity picks up this dramatically at a time the street was sure a rate cut was needed to keep the economy humming It is either my lone voice or the masses that are wrong. This reminds me of the mass euphoria over a 100-year Pandemic coming back. The street in their infinite wisdom made a rather stupid conclusion that the street has already absorbed the future impact and determined it was non-existent. Now since this happened so short of a time ago you would THINK that they would be a bit more cognizant of the ease at which mass psychology can be persuaded against a tide of hard facts Unless my simple uncomplicated analysis is way off there is no way rates get cut in 2024. In fact, the odds of a rate hike have uncreased 10-fold JUST on January data.
Like i said last week was a watershed moment and the street treated it as a one sided extremely positive event. Will the spike in service Monday we treated like the rest? Will the bond market and dollar also have a muted reaction? I think we could see a really dramatic "correction" soon. Nothing more since it will take a "SHOW ME" moment before the street panics. That means all costs start heating up and a trend MUST also be established. So at a minimum 2 more months is needed. this assumes the data will show a spike in costs also.
I have been waiting a LONG time for WAGES to start accelerating and this last month was a big one. One off? Maybe. If not, the INFLATION CYCLE has started from a 40-year dormant state.
On an immediate trend all you have to do is see how the street reacts to the 9:45 and 10:00 data. Me, i might just place a short-term bet at 9:40.
