Thursday’s auction of $13 billion in 10-year TIPS (Treasury Inflation-Protected Securities) will tell us not the trend in actual inflation, but something perhaps more important: what markets and investors expect from inflation. And in the short and medium term its those expectations that will move bond and stock prices.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. The twenty-third YouTube video “Five Stocks for an Inflation Scare” went up today.
Today, May 13, investors and traders sold everything on the surprisingly strong April inflation report. This kind of sell everything reaction is typical of this first stage in a big market shift in sentiment. The question now is How long does this stage last? And When does the buying of winners in this new scenario kick in (along with continued but less violent selling of the losers?)
Consumer prices, as measured by the Consumer Price Index (CPI) soared in April. For the month prices in the all-item index gained 0.8% for a 12-month increase of 4.2%. The core CPI, which excludes volatile prices in the food and energy sectors, was up 0.9% in April and is now up 3.0% over the last 12 months. But what’s it all mean?
Stocks are down across the markets today–with the Standard & Poor’s 500 lower by 0.87% at the close, the Dow down 1.36%, and the NASDAQ Composite off 0.09%–ahead of tomorrow’s report on the Consumer Price Index read on inflation. But the real action today is in the CBOE S&P 500 Volatility Index (VIX) as investors and traders look to buy protection against potential volatility in case inflation, expected to head higher tomorrow for April, really spikes higher.
Today’s drop in stocks–a drop of 1.04% for the Standard & Poor’s 500 and a loss of 2.55% for the NASDAQ Composite at the close on May 10–is a reminder that runaway economic growth is only one horn of the financial market’s fears about the Federal Reserve and higher interest rates.
This week Wall Street analysts and economists, professional money managers, and individual investors and traders will “re-calculate” their expectations about the economy for the remainder of 2021. Friday’s surprisingly small addition of 266,000 jobs to the U.S. economy–instead of the 1 million projected by economists–will lead to a revisions in assumptions about inflation, interest rates, and economic growth for the rest of 2021.
U.S. private employers in April added the most jobs in seven months, according to data from the ADP Research Institute released today. Company payrolls rose by 743,000 in the month. That’s a big gain from the upwardly revised 565,000 gain in March. And it’s the biggest money gain in jobs in seven months. That increases worries that Friday’s April jobs report from the Commerce Department will show a gain for the month of nearly 1 million new jobs. Good news for workers, of course, but that would increase fears in the financial markets that we’re seeing the kind of sustained, multi-month gains in jobs that the Federal Reserve has said it needs to see before it begins to raise interest rates.
Initial claims for unemployment in regular state-run unemployment programs fell to 576,000 last week. Economists had projected 710,000 new claims for the week.
The Consumer Price Index (CPI) rose 0.6% in March from February, the Labor Department reported this morning. Year over year consumer prices are 2.6% higher than they were in March 2020. Economists had projected that the headline CPI would climb 0.5% in March from February and 2.5% year over year. Financial markets shrugged off the numbers.
The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index fell 0.2% month to month in February from January. That was below economist expectations of a 0.5% month to month gain. On a year over year basis, the headline PCE Price Index climbed 1.6%, according to the U.S. Bureau of Economic Analysis. That was in line with economists’s projections.
This weeks long list of Treasury auctions started off today with a very good sale of $60 billion in two-year notes today. Today’s sale came with a yield of 0.152%–yep that’s where interest rates are right now–on the two year note. That matched the bid in the when-traded market. Total bids amounted to 2.54 times the amount of debt offered. It’s a good sign when bids exceed the amount on sale. In February the bid-to-cover ration was 2.44 times. The yield on the benchmark 10-year Treasury fell 7 basis points today to 1.62%.
