The Market Today
Consumer Prices Come Back to Earth After January Surprise
by Craig Dismuke, Dudley Carter
Consumer Prices Come Back to Earth After January Surprise: Consumer prices rose 0.2% MoM at both the core and headline levels in February, as expected, keeping the core YoY rate at 1.8%. Energy prices, which had posted a large 3.0% MoM gain in January, were flat in February but remain up 8.4% on a YoY basis. This has been one of the biggest factors driving the headline YoY rate up to 2.2%. Food and beverage price gains were also flat in February. At the core level, the big three components showed less traction than in the January data. Rents rose just 0.2% MoM, bringing the YoY rate of change down to 3.145%, the second lowest YoY reading since March 2016. New and used car prices fell 0.2% MoM after four consecutive monthly gains. And medical care prices fell 0.1% MoM, bringing the YoY rate of gain down to 1.8%. Apart from those key items, prices were generally flat with the exception of apparel prices. Apparel prices gained 1.5% MoM, another strong month for the category. This, however, may be on low volume as tomorrow’s retail sales report may show. This inflation report is likely to assuage investor concerns that inflation was imminently ramping up and potentially forcing the Fed to play catch-up.
Also released this morning, the NFIB Small Business Confidence Survey showed another better-than-expected reading, rising from 106.9 to 107.6. The index is now the third highest on record and the highest since 1983. Looking at the details, expectations for sales jumped 3 points but plans to hire and expectations for compensation both fell 2 points.
Yesterday – Treasury Curve Flattened Lower Despite Daily Issuance as Stocks Ended in Split Decision: Stocks finished mixed Monday as the Dow dropped 0.62% to lag a little-changed S&P 500 and a 0.36% improvement in the tech-heavy Nasdaq. Boeing and Caterpillar combined for a nearly 100-point drag on the Dow which fell a combined 157 points. Industrial companies were also the biggest drag on the S&P, falling more than 1% and offsetting more modest gains in a handful of other sectors. The Nasdaq’s daily gain was enough to eclipse last Friday’s all-time record high. As most equities weakened, longer Treasury yields drifted downward to close near their lows of the day. The 2-year yield barely budged but the 10-year note lost 2.6 bps to 2.87%. The daily Treasury note issuance proved no problem for the market to absorb, but most metrics signaled mediocre overall demand. As expected, considering the run-up in rates over the last several months, the awarded yields touched multi-year highs. However, bid-to-cover ratios and award splits between primaries and indirects were nothing to write home about.
Overnight – As-Expected Inflation Pushed Yields and the Dollar to Daily Lows, Stock Futures to Intraday Highs: Global markets hesitated to move much away from unchanged in front of the latest release from what’s become an acutely important economic data series. Ahead of this morning’s U.S. CPI inflation results, Asian equities closed mixed and the Stoxx Europe 600 was trading on top of Monday’s close. Economic calendars were quiet in both regions and included no reports meaningful enough to distract from this morning’s U.S. economic calendar. U.S. equity futures were higher by approximately 0.2%. Most major sovereign yield curves had moved up overnight but reversed with German yields and turned modestly lower for the day. Earlier, the Treasury curve had moved off of its overnight highs to hardly changed for the day. The 10-year yield was flat and the 2-year yield had dropped just 0.4 bps. The initial market reaction to this morning’s as-expected inflation report was a bit of a Fed-relief rally with equity futures strengthening, the Treasury curve flattening lower (10-year -2.6 bps), and the Dollar weakening.