Pre-markets reversed suddenly much lower on this morning’s Consumer Price Index (CPI) report for September, which grew more than expected month over month on headline and core, and year over year on both headline and core. Ahead of this report’s release, we were +300 points on the Dow, +45 on the S&P 500 and Nasdaq +100 points, but are now -400 points, -70 and -300 points.
Headline September CPI rose +0.4%, above August’s +0.1% and 10 basis points (bps) higher than expected. We’re well off the cycle highs from June of this year (+1.3%), but going the wrong direction for the Fed to change its tack on hiking interest rates by 3/4 of a percent. Stripping out food and energy prices — the “core” print — brings us to +0.6% month over month, in-line with the previous read but 20 bps above expectations.
These days, inflation is pegged largely through year-over-year CPI figures, and here we’re especially down in the mouth this morning: +8.2%, down 19 bps from last month but +10 bps from consensus. It’s officially the third-straight down month — and lower notably from June’s +9.1%, the cycle high — but in frustratingly incremental steps. Core year over year actually went up: +6.6% is a new 40-year high, +30 bps month over month and slightly above expectations.
Whatever renewed hope the market had that the Fed was thinking about not hiking another 75 bps has dashed on the rocks this morning. Even though Fed policy has not worked its way through the market overall, there is no chance for the Fed to make any other moves going forward; voting Fed members have already stated repeatedly that they will not move until the data shows their policy is working.
Meanwhile, we also see Initial Jobless Claims reported for last week slightly up: 228K versus 225K expected, above the 219K reported a week ago. These are moderate week-over-week shifts, and the headline is still historically low. Continuing Claims at 1.368 million are also slightly raised from 1.361 million reported last week, but also still at historically low levels. This again is bad news for those hoping for a Fed pivot, near-term; as long as wage growth has a lane to move, this will be another inflationary element that has yet to come under control.
We see this playing out in the CPI report, as well: even as we see Goods pricing reduced in these monthly prints (including yesterday’s Producer Price Index [PPI] numbers, which were also higher than hoped), Services remains strong. This becomes a sticking point for the American economy, especially as we still see 10 million job openings and a dearth of skilled applicants — again keeping wage growth viable, which promotes inflation. This may put immigration policy front and center for the federal government, after years of immigrant suppression.
The 10-year bond yield has now breeched 4.00%, and the 2-year approaches 4.50%. Even with this morning’s good news regarding the U.K. re-thinking its massive tax cuts policy in the headwinds of higher global interest rates — which is what set pre-markets much higher pre-CPI release — what we’re seeing in the world’s largest economy is that screw-tightening policies have yet to bring us even in the ballpark of a desired effect.
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Pre-Markets Plunge on Hot CPI Data
Pre-markets reversed suddenly much lower on this morning’s Consumer Price Index (CPI) report for September, which grew more than expected month over month on headline and core, and year over year on both headline and core. Ahead of this report’s release, we were +300 points on the Dow, +45 on the S&P 500 and Nasdaq +100 points, but are now -400 points, -70 and -300 points.
Headline September CPI rose +0.4%, above August’s +0.1% and 10 basis points (bps) higher than expected. We’re well off the cycle highs from June of this year (+1.3%), but going the wrong direction for the Fed to change its tack on hiking interest rates by 3/4 of a percent. Stripping out food and energy prices — the “core” print — brings us to +0.6% month over month, in-line with the previous read but 20 bps above expectations.
These days, inflation is pegged largely through year-over-year CPI figures, and here we’re especially down in the mouth this morning: +8.2%, down 19 bps from last month but +10 bps from consensus. It’s officially the third-straight down month — and lower notably from June’s +9.1%, the cycle high — but in frustratingly incremental steps. Core year over year actually went up: +6.6% is a new 40-year high, +30 bps month over month and slightly above expectations.
Whatever renewed hope the market had that the Fed was thinking about not hiking another 75 bps has dashed on the rocks this morning. Even though Fed policy has not worked its way through the market overall, there is no chance for the Fed to make any other moves going forward; voting Fed members have already stated repeatedly that they will not move until the data shows their policy is working.
Meanwhile, we also see Initial Jobless Claims reported for last week slightly up: 228K versus 225K expected, above the 219K reported a week ago. These are moderate week-over-week shifts, and the headline is still historically low. Continuing Claims at 1.368 million are also slightly raised from 1.361 million reported last week, but also still at historically low levels. This again is bad news for those hoping for a Fed pivot, near-term; as long as wage growth has a lane to move, this will be another inflationary element that has yet to come under control.
We see this playing out in the CPI report, as well: even as we see Goods pricing reduced in these monthly prints (including yesterday’s Producer Price Index [PPI] numbers, which were also higher than hoped), Services remains strong. This becomes a sticking point for the American economy, especially as we still see 10 million job openings and a dearth of skilled applicants — again keeping wage growth viable, which promotes inflation. This may put immigration policy front and center for the federal government, after years of immigrant suppression.
The 10-year bond yield has now breeched 4.00%, and the 2-year approaches 4.50%. Even with this morning’s good news regarding the U.K. re-thinking its massive tax cuts policy in the headwinds of higher global interest rates — which is what set pre-markets much higher pre-CPI release — what we’re seeing in the world’s largest economy is that screw-tightening policies have yet to bring us even in the ballpark of a desired effect.