Darius joined Anthony Pompliano last week to discuss the outlook for inflation, global liquidity, asset markets, and more.

If you missed the interview, here are the three most important takeaways from the conversation that has significant implications for your portfolio: 

1. The February CPI Report Showed Signs of Sticky Inflation

The February CPI report did incremental damage to the immaculate disinflation narrative. 

Headline CPI accelerated to 3.9% on a three-month annualized basis, more than double its pre-covid trend. The spike was largely driven by an acceleration in Energy CPI to 4.5% on a three-month annualized basis.

Moreover, Core CPI accelerated to 4.1% on a three-month annualized basis. The increase was largely driven by Services CPI, which remained at 6.0% on a three-month annualized basis, and Super Core CPI, which accelerated to 6.7% on a three-month annualized basis, more than triple its pre-Covid trend.

2. The February NFIB Small Business Optimism Survey Supported The Soft Landing Scenario

The February NFIB Small Business Optimism survey, a monthly survey that provides insights into the confidence levels and outlook of small business owners, indicates that inflation may continue declining over the medium term. 

The sub-indices of the survey, including the Higher Prices, Price Plans Next Three Months, Compensation, and Compensation Plans indices, all slowed sequentially and are at multi-year lows.

These readings suggest that although we see signs of sticky inflation in the CPI and PCE Deflator reports, stickiness is likely to be transitory and that inflation will resume its downtrend over the medium term.

3. Global Liquidity Is Likely to Continue Trending Higher Over The Next One to Two Quarters 

The monetary policies implemented by the PBOC this year have been very positive for global liquidity. Additionally, China recently revealed ambitious economic targets for 2024, aiming for a 5% GDP growth, the creation of over 12 million jobs, and a 3% inflation rate. To meet these aggressive economic targets, the PBOC will likely continue easing policy, and that is likely to continue supporting global liquidity.

Moreover, several key countercyclical drivers of global liquidity have supported liquidity creation in the private sector. 

The dollar, bond market volatility, and currency market volatility have all trended in directions that support private sector liquidity creation, and we believe these trends are likely to continue over the next quarter or two.

That’s a wrap! 

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