M Update Global Macro Commentary | Global February 13Morgan Stanley & Co. LLCMartin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Morgan Stanley & Co. International plc+Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Morgan Stanley & Co. LLCEli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Lenoy DujonUS/Canada Economist Lenoy.Dujon@morganstanley.com +1 212 761-2779 Morgan Stanley & Co. International plc+Marie-Anais C FrancoisStrategist Marie-Anais.Francois@morganstanley.com +44 20 7425-1877 Morgan Stanley MUFG Securities Co., Ltd.+Koichi SugisakiStrategist Koichi.Sugisaki@morganstanleymufg.com +81 3 6836-8428 OER drives above-expectations US January CPI; USTs bear-flatten, market-implied cuts recede; DXY USD Index hits a new local high; CHF losses come amidst Swiss core CPI deflation; EGBs sell-off; Riksbank's Jansson talks pauses in cutting cycle; DXY at 104.85 (+0.7%); US 10y at 4.314% (+13.5bp).• US Core CPI comes in well above expectations, with broad-based strength in almost all core services categories; the main driver was a re-acceleration in OER that contributes 19bp to core.• USTs sell off aggressively and bear-flatten after the rebound in inflation. Markets reduce the amount of implied Fed rate cuts to 86bp this year, with less than 25bp now priced in by the June meeting.• USD exhibits broad-based strength against its G10 peers alongside the relentless rise in UST yields; the DXY USD Index rises 0.7% to 104.85, to a fresh local high.• Pronounced CHF (-1.3%) losses against USD come despite its safe haven status after Switzerland core CPI deflation during January.• European curves flatten with front-end underperformance, in line with the moves in USTs.• Riksbank Deputy Governor Jansson believes continuous rate cuts are improbable and an unpredictable krona remains a concern for the central bank as it evaluates how to move forward.Please refer to our recent publications and collaborations (Panama Sovereign Credit Strategy: Fiscal Surprise to the Upside; Global Futures Rolls Report: US Treasury and Gilt Futures Rolls; EM Sovereign Credit Strategy: Rich & Cheap Watch).Developed MarketsUnited States: Perhaps lulled into a false sense of security after the annual US CPI revisions confirmed recent progress on inflation, the broad-based strength of core services components in the CPI data emanated in a noteworthy tightening of financial conditions for yet another January release. Core CPI increased by 0.39% m/m (C: 0.3%; P: 0.28%), which kept the annual rate at 3.9% (C: 3.7%). Although core goods (-0.32% m/m) deflation returned, it was the substantial uptick in core services (+0.66% m/m) that was the harbinger of this Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may h...
