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Large 2yr trade


Estoxx fades off initial resistance

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While TD "advise[s] against extrapolating", they expect "another surge in travel prices is likely to be reflected in another large rise in the core CPI" in May. They forecast +0.5% headline / +-0.6% M/M for core, above consensus on the latter.

  • They expect this pressure to be transitory though: "We expect slowing in the months ahead, as travel-related prices stop surging and the boost from base effects starts to reverse, but y/y readings are likely to remain fairly elevated until around mid-2022". That translates to 3.5%/3.0% Y/Y headline CPI at end-2021, and 2.3%/2.1% respectively at end-2022.
  • Used vehicle prices are a source of price strength but are "likely to be at least partly reversed over time", but they don't expect large increases in airfares and lodging to be reversed as those are above pre-COVID levels (though rapid price growth in those categories is unlikely to be reversed).
  • On rents, they note that the recent pickup in prices "looks like more than noise, as some of last year's migration out of cites is being reversed, but we expect underlying trends to remain weaker this year than before COVID."