December 13 Member Morning Brief: US Inflation Surges, German Economic Sentiment Index Continues to Worsen

1. [US Inflation Surges] According to data released by the US Bureau of Labor Statistics (BLS) on Tuesday, the Consumer Price Index (CPI) rose by 3.8% year-over-year in April, surpassing the market expectation of 3.7% and marking the highest level since May 2023. The core CPI, which excludes food and energy, increased by 2.8% year-over-year, exceeding the expected 2.7% and reaching the highest level since September 2025.

Commentary: After the CPI was released, the futures market's pricing of a rate cut in 2026 essentially dropped to zero, and at certain times even began to imply the possibility of a 25 basis point rate hike before year-end. This is a dramatic shift in expectations—three months ago, the market was still betting on at least two rate cuts in 2026.

Chart: Current market expectations for the interest rate distribution before the end of 2026

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5. [UK Prime Minister May Step Down Soon] UK Prime Minister Keir Starmer made it clear at the Cabinet meeting in Downing Street on Tuesday that he will continue to stay in office on the grounds that the formal process to challenge the Labour Party leadership "has not yet been triggered." He told the Cabinet that the country expects the government to continue governing, and he himself will "continue to govern." However, this tough stance has not quelled the wave of rebellion within the party—before and after the meeting, several ministers resigned during the day, around 80 Labour MPs openly called for his resignation, and the Cabinet itself is reportedly deeply divided.

Commentary: Financial markets have already made their judgment in advance: intraday on Tuesday, the yield on the UK 30-year government bond rose about 9 basis points to 5.76%, approaching last week’s high of 5.79%—the highest level this century; the pound fell by as much as 0.73% against the dollar to 1.3506. The 10-year government bond yield jumped 10 basis points to around 5.10%, while the 20-year and 30-year government bond yields reached their highest levels since 1998. For a detailed explanation of why the bond market has already decided this government is about to change, please refer to our previous analysis: