#219: The Latest CPI Data & Where Opportunity May Rise
The next FOMC (Federal Open Market Committee) interest rate decision comes out next Wednesday (3/20). As of writing, the market is pricing in a 99% chance that the Fed will maintain targets rates in the 5.25-5.50% range next week.
99% is quite a solid and steady consensus, but the latest inflation data from Tuesday are bringing about shake-up in the markets.
Let’s take a look at:
CPI data outcome
How did the market react?
Any actions to take?
Consumer Price Index data on Tuesday
👉 February's year-over-year (YoY) CPI came in at +3.2%, slightly higher than market's expected 3.1% level
Food: Index for "food at home" rose 1% YoY, "food away from home" rose 4.5% YoY
Energy: Gasoline index decreased 3.9%, the natural gas index declined 8.8%, and the fuel oil index fell 5.4% YoY (The index for electricity rose 3.6% YoY)
👉 Massive YoY increases in other parts:
The shelter index increased 5.7% YoY, accounting for roughly two thirds of the total yearly increase in the Core CPI
("Core" here means the CPI index excluding price of food and energy)
Motor vehicle insurance increased 20.6% YoY
"Transportation services" (including vehicle rental and leased cars and trucks) rose 9.9% YoY
How did the market react?
👉 As for stocks:
Sticky, higher-than-expected inflation was not too much of bad news or shocks to the stock market.
Since Monday's close (CPI was released an hour before Tuesday's market open), the S&P 500 index is up +0.64% (as of Thursday close)
Likewise, the Dow Jones index is up 0.35%, and the Nasdaq index is up 0.68%
👉 But for long-term Treasuries, February CPI was a shock:
On Monday, before the February CPI release, the US 10-year Treasury yield was at ~4.1%
By end of Tuesday, the 10-year yield inched up to ~4.16%
This could be owed to the fact that the February CPI came in slightly higher than expected, which translates to a higher long-term yields expectation
By end of Thursday, the 10-year yield climbed further to ~4.29%
Thursday morning, PPI (Producer Price Index) also came inslightly higher than expected (2.0% YoY vs. 1.9%)
Any actions to take?
👉 I’d like to highlight: