Inflation at the Center

The U.S. markets ending in the middle of nowhere, Europe still being considered “cheap” by market participants, the DAX surpassing 22,000 for the first time in its HISTORY, and Powell confirming that there’s no rush to cut rates. This Tuesday, February 11, was another day following the same patterns as the past few days: an intense obsession with ARTIFICIAL INTELLIGENCE, tariffs dominating most conversations—along with Trump, Musk, and Vance. And in the end, Powell telling us nothing new, except that nothing has changed. Now, we’ll have to see if inflation will be a wake-up call for all of us. From the Beginning Since Donald Trump became the 47th President of the United States, we have been living to the rhythm of his explosive announcements. Since January 27, the world has been rocked by the declarations of a President whom some consider completely insane, while others believe he is bringing order to the world. It’s hard to take a side—especially since no one is asking us to. Nevertheless, we have to live with it. From now on, steel and aluminum will be taxed at 25%, starting in mid-March. This is no longer a surprise, and we have already been dealing with it for two sessions. The market, for its part, seems to be handling it reasonably well. However, the real question remains: how long can we ignore the actual consequences of these tariff increases, and what will be the next announcement? Who will be the next to take a hit? For now, global indices seem immune. The performance of U.S. indices on Tuesday was unremarkable—we remain stuck in a sideways trading range, whether on the S&P 500, the Nasdaq, or the SOX. The only difference between these three indices is that the SOX has been stuck for much longer. It’s difficult to choose a direction when valuations are extremely high, yet shorting the market would be madness while the White House disruptor runs around telling everyone who will listen that he is going to restore America’s greatness, give every citizen a job, a home, and money—and, in a masterstroke, do it all without causing inflation to rise, or perhaps even lowering it. Looking Forward to Tomorrow (Well, Today) Yesterday’s session revolved around Trump’s statements, which no longer seem to scare anyone (for now). Beyond that, the market continued to hype artificial intelligence (thanks to the Paris summit), and as usual, investors kept buying into Germany and France because they’re cheap and breaking records daily. There was also time to analyze Coca-Cola’s earnings while waiting for Jerome Powell’s testimony before the nation’s top authorities. As for Coca-Cola, it outperformed market expectations, and Coca Zero sales pleasantly surprised investors. The stock had faced a tough previous quarter, but it looks like that’s behind them now. The share closed up nearly 5%, leaving behind a massive gap that may need to be filled someday—but let’s not spoil the celebration. As usual, Coca-Cola is a trend stock that should be bought when no one wants it anymore because, no matter what people say, it sells worldwide, and in the end, the bulls always win with Coca. One of the other central themes of Tuesday was, of course, Jerome Powell’s testimony before the Senate Banking Committee. According to its chairman, the Fed has no reason to rush into cutting rates. He argued that the economy is “generally strong,” with a low unemployment rate, which does not justify immediate action. Not to mention that inflation remains above the Fed’s 2% target, which has existed since the dawn of time. The world’s top central banker explained to politicians—who spent the day questioning him about the new Trump administration—that he does not engage in politics. His job is to manage a real economy without worrying about his interviewers’ electoral concerns. He stated that the economy is broadly strong, has made significant progress toward its objectives, and that the Fed has absolutely no reason to rush into monetary policy adjustments. Notably, he specified “ADJUST” and not cut or raise rates—an intelligent way to keep a backdoor open just in case. His words were more or less, if not exactly, the SAME as those from the Fed’s January meeting. In conclusion, Powell told the committee members and the rest of the world that “further rate cuts would depend on a MORE SIGNIFICANT decline in inflation AND the health of the labor market.” As for the labor market, there’s nothing to complain about (for now)—it remains strong. As for inflation, conveniently, it will be released this afternoon at 2:30 PM. Amusingly, Powell carefully avoided commenting on Trump’s new retaliatory measures and their potential impact on inflation—and, by extension, on a possible rate cut. Inflation as the Target So, as you’ve probably figured out, this Wednesday will be all about inflation—unless Trump or someone else decides to crash the party with a spectacular announcement. I don’t know, maybe a 25% tariff on Europe and 50% on France because Manu Macron didn’t greet Vice President Vance at the top of the Élysée Palace steps. Or maybe Musk announcing that he wants to buy Ford just to get their V8 engines and put them in Tesla S models to “Make American Automobiles Great Again.” Or Zuckerberg declaring that he wants to buy Hawaii and Nvidia because Meta has just logged its 17th consecutive day of gains. Lately, macroeconomic fundamentals have often been pushed aside because people were too busy with other things. Remember last Friday’s job numbers? They generated about as much interest in the financial community as I have in the reproduction of clams on the southern coasts of New Zealand. Regardless, this afternoon we’ll find out what inflation has done over the past 12 months and whether it has finally decided to come home, heading toward 2%. Looking at market expectations, CPI is expected to come in at 2.9%, and Core CPI (which only includes the stuff that’s doing well) is forecast at 3.2%. For our personal knowledge, it’s worth noting that