The Market Today

With Focus on Inflation, January CPI Data Remains Soft

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Stimulus Watch: House committees continued to hash out details of the various aspects of their plan to satisfy President Biden’s request for nearly $1.9 trillion in additional emergency stimulus. In the latest details released, small businesses would be allocated $7.5 billion in additional funding through the PPP program (total now >$813 billion); restaurants would receive $25 billion in emergency assistance; state and local governments would be provided $350 billion; and $1,400 direct checks would be phased out for individuals earning between $75k and $100k and married filers earning between $150k and $200k. House Speaker Pelosi said she expects to vote on the bill later this month and pass it on to the Senate in time for it to become law before protections from December’s stimulus package expire in March. Despite President Biden saying a minimum wage hike may not be allowed under Senate rules governing the reconciliation process, Senator Bernie Sanders, head of the Budget Committee, said he believes it does. Senate Majority Leader Schumer said he’s working with the Senate parliamentarian to have it included.

U.S. Virus and Vaccine Developments: California’s governor highlighted the state’s case count had dropped from around 53k a month ago to around 8k on Tuesday. New York reported that its positivity rate, on a 7-day average basis, fell to its lowest level since December 1. The Biden administration said it was launching a vaccination campaign through community centers next week and Walmart and Sam’s Club said they would begin administering doses at their pharmacies. Johnson & Johnson’s CEO said he expects that people may need to have an annual shot of a COVID-19 vaccine.



After Tuesday Pause, Equity Futures Pick-Up Overnight; Treasury Yields Dip after Weak Inflation: U.S. equity futures had recovered ahead of Wednesday’s U.S. trading hours as most global indices improved overnight. Stocks struggled for most of Tuesday and finished the session mixed, ending a six-day string of gains for the Dow and S&P 500 that had pushed the indices to new records Monday. The tech-heavy Nasdaq and Russell 2000, a broader index comprised of more small cap stocks, both closed with modest gains to new all-time highs. The Dow and S&P 500, however, ended marginally below Monday’s records. S&P 500 sectors were almost evenly split between gains and losses, with energy companies faltering most severely and for the first time in seven sessions. That was despite U.S. crude rising again, above $58 per barrel for the first time since January 2020. Real estate and industrials led the sectors that gained. Treasury yields extended an overnight decline and made new lows as U.S. equities bottomed mid-morning. Despite a partial afternoon recovery, the 10-year Treasury yield dipped 1.4 bps from Monday’s post-pandemic high to just below 1.16%.

Prior to this morning’s inflation data, U.S. equity index futures were up 0.3% and the 10-year Treasury yield had wiped away Tuesday’s drop with a 1.4-bps recovery to 1.17%. The 10-year yield fell back to 1.15% following the weaker-than-expected CPI inflation results.


Lagged JOLTS Data Show Layoffs Not to Blame for December’s Payroll Decline: December’s JOLTS Job Openings Report shed more light on the dynamics behind the drop in payrolls to close out a tumultuous 2020 for the labor market. Layoffs actually declined from November to December, leaving a slowdown in hiring to blame for the drop in total headcount. Gross hires of 5.54 million represented a 396-thousand decline from November’s pace, with a 302 thousand decrease in new leisure and hospitality workers accounting for a large portion of the weakness. More encouragingly, openings rose unexpectedly to a five-month high and quits firmed.


January’s CPI Data Shows Soft Inflation Pressure Remains: All of the concerns about a potential rise in inflation will have to wait after January’s CPI data proved softer than expected.  Driven by a 3.9% increase in energy prices, headline inflation rose 0.26% MoM keeping the YoY rate at 1.4%.  Excluding food and energy, core CPI was unchanged MoM bringing the YoY rate down from 1.6% to 1.4%.  With the exceptions of a 2.21% MoM jump (recovery) in apparel prices and the firmest month for medical care prices (+0.4%) since July, consumer inflation was rather weak across the board.  Even with the outsized increased in apparel prices, a category which makes up just 2.7% of the core inflation basket, they remain 3% below their pre-virus level.  Some of the categories which were hardest hit but have since been recovering saw renewed weakness in January, including lodging away from home, airfares, and new and used autos.  Looking at the bigger ticket items, medical care inflation finally showed a little traction, up 0.4% MoM, but rents remained soft, up just 0.14%.  There is no evidence of sustainable inflation pressure at this point.

Chair Powell, Budget Deficit: December’s wholesale inventories report is scheduled for 9:00 a.m. CT.  Fed Chair Powell will speak to the Economic Club of New York at 1:00 p.m.  The January Budget Statement from Treasury (1:00 p.m.) is expected to show a $157 billion monthly deficit, bringing the 12-month budget deficit to its largest on record.

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