From Bloomberg via Canada's Financial Post, February 13:
Wall Street Roiled by 'Still Sticky' CPI Signals: Markets Wrap
Bond yields surged and stocks fell as traders dialed back bets on Federal Reserve rate cuts after a stronger-than-estimated inflation report.
Bond yields surged and stocks fell as traders dialed back bets on Federal Reserve rate cuts after a stronger-than-estimated inflation report.
Treasury two-year yields, which are more sensitive to imminent Fed moves, jumped 12 basis point to 4.6%. Fed swaps shifted the full pricing of rate cut to July from June. The S&P 500 dropped over 1%, while the tech-heavy Nasdaq 100 underperformed. The dollar rose. A measure of perceived risk in the US investment-grade corporate bond market soared.
The so-called core consumer price index, which excludes food and energy costs, increased 0.4% from December, the most in eight months, according to government figures out Tuesday. From a year ago, it advanced 3.9%. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure advanced 0.3% from December and 3.1% from a year ago.
Wall Street’s Reaction to CPI:
- Chris Zaccarelli at Independent Advisor Alliance:
“The biggest fear any bull should have is economic growth, but a close-second would be that inflation that remains sticky.”
“This morning’s CPI report is a reminder that inflation is a difficult, not-well-understood problem that doesn’t move in a straight line. Given that core CPI came in at 3.9% again – and didn’t drop to 3.7%, which was the consensus forecast – then it not only throws the timing of Fed rate cuts into question, but potentially opens the door to a possibility that we haven’t seen the last Fed rate hike in this cycle.”
- Jason Pride at Glenmede:
“If Powell and other Fed members hadn’t already thrown cold water on the prospects for a March rate cut a few weeks ago, today’s CPI report might have done that for him. Evidence of still-sticky services inflation is likely to give the Fed pause before cutting rates too quickly, especially as it tries to avoid paring back on tight policy too quickly and risk another wave of inflation. Rate cuts are likely still on the table for this year, but they may begin later in 2024 than the market may be anticipating. Three rate cuts, starting around summer is the base case for now until we get compelling evidence of disinflation.”....
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