Home is where the heart of the inflation problem is.

On Wednesday, the US Bureau of Labor Statistics (BLS) released the latest Consumer Price Index (CPI) figures, which showed a frustrating backslide in the broader inflation fight. In January, the index accelerated at a seasonally adjusted 0.5% — way above economist expectations and bringing the overall year-over-year inflation rate to 3% for last month, also above expectations. In other words, the prices that were supposed to be going down “starting on Day One,” as the White House promised, are going up instead. And persistent increases in shelter costs are a major reason why. 

Extreme Home Market Makeover

The superglue-esque sticky inflation report came as Federal Reserve chairman Jerome Powell sat for his second day of testimony on Capitol Hill. And, once again, Powell — despite social media pleas from the Oval Office Wednesday to lower interest rates — reiterated that the central bank wants to “keep policy restrictive for now.” The report, coupled with Powell’s comments, had traders doubting more rate cuts would be coming this year; according to CME Group’s FedWatch tool, traders now see a 30% chance the Fed doesn’t deliver any rate cuts by the end of the year, up from 20% odds predicted just a day earlier. Traders now also see a 70% chance of only a single rate cut this year.

Under the hood, the headline inflation rate can be explained by an increase in the price of, well, pretty much everything. Food prices jumped 0.4% since December, driven by a staggering 15% increase in the price of eggs. Used car and truck prices increased 2.2%, and gasoline 1.8% month-over-month. In all, “core prices,” a category that excludes food and energy, rose 3.3% year-over-year and 0.4% since December — good for the largest monthly increase in nearly two years.

As with past reports, shelter prices remain a major culprit, fueled by an ongoing housing shortage:

• Shelter prices rose 0.4% since January and 4.4% year-over-year. According to the BLS, that meant that shelter prices contributed to 30% of total inflation gains last month, even as the year-over-year increase fell to its lowest level in three years.
• The increase was driven in part by a spike in the cost of home insurance as well as the cost of out-of-home lodging, which tends to be a volatile category. Still, the rent index and the owners’ equivalent rent index (or what homeowners estimate they could rent their home for) both increased 0.4% month-over-month.

“On one hand, a strong labor market and robust wage growth mean there is considerable demand for housing, but on the other hand, a persistent lack of new housing inventory means that supply remains tight while higher mortgage rates discourage existing homeowners from selling,” Vanguard senior US economist Josh Hirt told The Daily Upside. The good news? Hirt says there is evidence construction of single- and multi-family homes will increase this year, and that leading rental indicators show a decline in prices. The bad news? Hirt says “these leading indicators may not trickle into inflation data for anywhere from six months to two years.”

Tariff Time: Underlying everything, of course, is a wave of tariffs courtesy of Trump 2.0. Most economists say the knock-on effects of tariffs likely won’t be completely visible in CPI data for at least another month or two. Which means January’s CPI report may just be an appetizer for what’s to come — and Powell has some new obstacles to navigate.

VCs in Europe are on high alert for defense tech startups. 

On Wednesday, the NATO Innovation Fund, a VC fund backed by NATO nations, and data platform Dealroom published a report showing VC funding in Europe’s defense tech market hit an all-time high of $5.2 billion last year, up 24% from the previous year. While the continent is not on par with the US in terms of defense spending, the uptick in VC activity, and the significance of startups in a landscape dominated by large established contractors, is mirrored across the Atlantic.

All Busy on the VC Front

The increase in European VC funding for defense companies shows just how focused VCs are on defense at the moment, given that overall VC spending in Europe actually fell last year. Per the NIF and Dealroom’s data, defense companies captured 10% of all European VC investment last year, with early-stage startups driving the most growth. 

In the US, more mature defense startups are starting to shake up the status quo, riding up the S&P 500 and bagging contracts from much larger government contractors:

• On Tuesday, defense startup Anduril usurped Microsoft to nab a $22 billion dollar contract supplying mixed-reality headsets to the US army. Founder Palmer Luckey made his fortune building virtual reality company Oculus, which was bought by Facebook (as it was then known) in 2014.
• Palantir, which has long had defense contracts with the US government and was co-founded by on-again-off-again Donald Trump ally Peter Thiel, has seen its share price shoot up 54% since the beginning of this year.

Bearish: While European VCs are stepping up their investment and European defense budgets grow, there’s just no outspending the region’s biggest warmonger at the moment. The International Institute for Strategic Studies (IISS) published a report on Wednesday that found Russian defense spending grew in real terms by 42% from 2023 to 2024, compared with 11.7% growth averaged across EU defense budgets. Ukrainian President Volodymyr Zelenskyy told The Guardian that Europe cannot offer security assurances to the country without help from the US. To what extent America may or may not continue to support Ukraine remains an open question. President Trump announced last week that the US will strike a deal with Ukraine for the country’s rare earth minerals in exchange for military assistance, but then in an interview with Fox News said Ukraine “may be Russian some day.” On Wednesday, Trump posted on his social media platform that in a phone call with Russian president Vladimir Putin, the two agreed to start peace negotiations “immediately.” US Vice President JD Vance is scheduled to meet with Zelenskyy this Friday at the Munich Security Conference.

New York is muscling in on Texan dreams of becoming Wall Street 2.0 by taking the fight to the Lone Star state. 

On Wednesday, the New York Stock Exchange announced it is moving its Chicago Stock Exchange, which has been in operation for 143 years, to Dallas, Texas, where the upstart Texas Stock Exchange (TXSE) is expected to launch next year. (Personally, we’re keen to see the Texan barbeque pit master take on a Chicago-style Italian beef and peppers sandwich.)

Y’all Street

Last year, the TXSE raised some $120 million from major investors like BlackRock and Citadel Securities to launch a Dallas-based exchange; last month, the group said its fundraising has now reached $160 million, as it filed for registration of the Texas Stock Exchange with the SEC. In September, analysts told The Daily Upside that, Texas bluster aside, the exchange will likely cater to smaller foreign and domestic listings with boutique markets when it launches.

Meanwhile, NYSE Chicago — which the NYSE acquired in 2018 — mostly facilitates equities trades for hedge funds and other fast-moving traders. When it becomes NYSE Texas, the group plans to offer companies another venue for listings, pending regulatory approval.

So why is everyone going to Texas, anyway? As they say, come for the tax breaks, stay for the regulatory loopholes:

• Texas is already home to more NYSE-listed companies than any other US state, the exchange said Wednesday. The total market cap of those companies? A staggering $3.7 trillion.
• It’s part of a great corporate migration. According to the Texas governor’s office, some 300 companies have relocated their headquarters to the state.

Shifting Winds: The Windy City sure seems to be seeing its status as a finance hub getting blown away. After moving Citadel from Chicago to Miami in 2022, billionaire hedge fund boss Ken Griffin at a Miami-based conference just this week called South Beach “a really nice change of pace” from the midwest mecca, which he said was riddled with “corruption and incompetence in City Hall.” Being the Second City was one thing. Being the third, or fourth, or possibly even fifth city? That’s an ego blow.