Inflation data week
Good start of ORCA BASON fund in 2025
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December saw 256,000 new jobs added, dropping the unemployment rate to 4.1% and signaling a strong labor market despite Fed rate hikes. This triggered a sell-off across the board (stocks, bonds, crypto, but not gold), as markets seem to be repricing higher for longer. Long-term inflation expectations climbed to 3.3%, potentially affecting future rate cuts with only one expected in 2025.
ORCA BASON Fund got off to a good start; shorting the market albeit with limited risk (due to a shorter week), and made around 1.2%.
This week the focus is on CPI (Wed) and PPI (Tue) releases, important for assessing ongoing inflation trends and guiding Fed decisions. On Thu we get manufacturing, retail sales, on Friday housing. Also 7 Fed speakers this week.
Is higher for longer back? So it seems. We covered it in detail last weekend for our paid subscribers, along with a few actionable trade ideas. Subscribe not to miss next week’s fresh analysis:
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Last week’s performance
With 256,000 new jobs added in December, beating expectations, and the unemployment rate back to 4.1%, the labor market seems impervious to the Fed's rate hikes that began in 2022. Furthermore, GDPNow growth estimate sits comfortably at 2.7%, reinforcing the narrative that a recession is nowhere in sight.
Inflation expectations, however, have crept up, with long-term forecasts rising from 3% to 3.3%, and the next 12 months from 2.8% to 3.3%. Meanwhile, wage growth holds steady at 3.9% for the past year. As a result of these developments, the market has adjusted its expectations, now anticipating only a single rate cut in 2025. The shift in sentiment is evidenced by SOFR forward rates aligning more closely with a "higher for longer" rate scenario, contributing to the 10-year Treasury yield pushing past 4.7%, a level that previously triggered market corrections in 2023 and 2024. This backdrop suggests caution as we approach similar yield thresholds that have historically signaled turbulence.
In light of that, no wonder we saw markets in decline last week. The BASON fund went short last week, albeit with a reduced risk exposure due to no trading on Thursday. We made a decent 1.2% return, starting the year already at a good gap against the S&P500.
This week, the financial markets’ attention will pivot to the latest updates on inflation, with the release of both the CPI and PPI. It should be a simple playbook this week. If these numbers continue to remain hot, expect the sell-off to continue, as more repricing is likely. But if they come in colder than expected, a bounce-back rally is likely. Anything in between likely results in very jumpy markets.
Good luck with your predictions!
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DISCLAIMER: Neither the survey nor any of the contents of this website can act as investment advice of any kind. The results of the survey need not correspond to actual market preferences or trends, so they should be interpreted with caution. Oraclum Capital, LLC (Henceforth ORCA) is a management company responsible for running the ORCA BASON Fund, LP, and for organizing a survey competition each week, where it invites the subscribers to its newsletter (this website) to participate in an ongoing prediction competition. The information presented on this website and through the survey competition should under no circumstances be used to solicit any investment advice, nor is it allowed to be of commercial use to any of its readers. The survey and this website contain no information that a user may use as financial or investment advice. All rights reserved. Oraclum Capital LLC.
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