GOOD MORNING! As expected the Bank of England cut rates by 25 basis points and the European Central Bank (ECB) held steady. What was not expected was the CPI report that was well below expectations and painted a picture of notable cooling in inflation. November’s headline CPI’s year-over-year rate fell to 2.7% from 3.1% in September and the core (excluding food & energy) CPI’s year-over-year rate slipped to 2.6% from 3.0%. Delving into the rough numbers, it mean that headline CPI declined 0.2% from September and the core CPI increased only 0.1% from September. That seemed suspicious. The government shutdown caused the BLS to skip October and had only about half of November to come up with those numbers. Fed Chairman Powell in his post-FOMC press conference warned that there may be some distortion. Some economists pointed funky numbers on the shelter component and cautioned it may take a while to get a cleaner sense of the true path. The markets initially threw caution to the wind. Treasuries rallied with traders betting that the Fed cut rates four times by 25 basis points in 2026. The Fed’s median projection from the dot plot only indicated one cut next year. Bonds later cooled their jets on skepticism about the numbers but still held on to modest gains for the day. Stocks responded favorably to lower yields and the idea of cheap money in the future.

     The Bank of Japan (BoJ) raised rates to 0.75%, the highest it has been in 30 years. One major central bank (the ECB) holding rates steady and the BoJ’s policy move is weighing on global sovereign debt overnight to morning trading. US Treasury yields are up marginally in sympathy. US stock index futures are up slightly in what could be a wild day with quadruple witching happening today. The economic calendar has November’s existing home sales and the December University of Michigan Consumer Sentiment Index. TGIF.