Newsdeck

Newsdeck

Wall Street Yawns at ‘Not Great, No Disaster’ CPI: Markets Wrap

Wall Street Yawns at ‘Not Great, No Disaster’ CPI: Markets Wrap
Pedestrians walk past an electronic board displaying stock information inside the Australian Securities Exchange, operated by ASX Ltd., in Sydney, Australia, on Thursday, 10 November 2016. (Photo: David Moir/Bloomberg)

Stocks, bonds and the dollar saw small moves, with a mixed inflation report reinforcing speculation the Federal Reserve will pause its rate hikes — but refrain from calling the end of its tightening cycle.

The S&P 500 rose. Most megacaps gained, with the chiefs of five of the 10 biggest US companies appearing at a closed-door Senate meeting to shape how artificial intelligence is regulated. Apple Inc. fell as China flagged security problems with iPhones. American Airlines Group Inc. led industry losses after cutting its earnings outlook amid a jump in jet fuel prices. Arm Holdings Plc’s long-anticipated initial public offering is set to price Wednesday.

Treasury two-year yields hovered near 5%. The greenback was little changed. Swaps tied to the next two Federal Open Market Committee meetings continued to price in little chance of a hike next week — and about 50% odds of one in November. Measures of credit-default swaps for both investment and speculative-grade companies slid — suggesting bets on a September pause from the Fed supersede economic worries for now.

The core consumer price index, which excludes food and energy costs, advanced 0.3% from July, the first acceleration in six months. From a year ago, it increased 4.3% — in line with estimates and marking the smallest advance in nearly two years. It’s still above the Fed’s 2% goal.

To Krishna Guha at Evercore ISI, while the report isn’t amazing as far as policy goes, it’s not a disaster either.

“Not a great CPI report, but not something that changes the basic Fed outlook,” said Guha, the firm’s vice chairman. “This Fed is not itching to hike again and we think it would take significantly more to push the FOMC to actually deliver another increase — with our base case remaining the Fed is done here.”

Not Too Concerned | Credit risk measures ease after latest CPI data

More Comments on CPI:

  • Chris Zaccarelli, chief investment officer at Independent Advisor Alliance:

“This isn’t the goldilocks number that investors were hoping for, but markets can still trade in a range – as inflation is high enough to keep the Fed still in play — but not hot enough for a shift away from the ‘Fed is almost done’ narrative.’

“As long as the economy remains resilient and inflation doesn’t re-ignite, the market can rally into year-end, once we get past the seasonally weak months of September and October.”

  • Damian McIntyre, portfolio manager for alternative equities at Federated Hermes:

“Today’s US CPI report wasn’t earth-shattering. This print likely makes a case for another pause for the FOMC in September, but provides little clarity into Fed action beyond this. We expect conflicting pronouncements from the Fed heading into the autumn and consensus over the best path forward is unlikely, creating the potential for a contentious November meeting.”

  • Greg Wilensky, head of US fixed income at Janus Henderson Investors:

Read More: Here Are the Latest Inflation Buzzwords You Need to Know

“While these numbers do not change our, and the market’s expectations that the Fed will hold the target Fed Funds rate unchanged at the September meeting, the slightly stronger number can influence the tone of the press conference and Summary of Economic Projections (SEP). We continue to expect some reduction in the number of participants projecting further hikes, but probably not enough to move the median projection of 1 more rate hike. That said, we believe that we have likely seen the last rate hike for this cycle, as the economic data that the Fed will see over the coming months will keep them on hold and allow the impact of 5.25% of prior hikes to slow the economy and inflation.”

  • Mike Loewengart at Morgan Stanley Global Investment Office:

“Today’s middle-of-the-road CPI report may have disappointed those who were looking for inflation to establish a clear cooling trend. But given how high oil prices are and how strong recent economic data has been, the fact that the numbers were more or less in line with estimates may be seen as a small victory. There will continue to be bumps in this road, but the Fed is still on track to leave interest rates unchanged after next week’s policy meeting.”

  • Florian Ielpo at Lombard Odier Asset Management:

“This inflation report places the Fed in a more comfortable wait-and-see situation: the marginally higher than expected inflation comes from the evolution of energy prices – nothing the Fed should be worrying too much about at the moment.”

“In our view, the economy maintains decent momentum, but is showing signs of slowing, and thus the Federal Reserve is likely to pause next week and wait for additional data to unfold for the November meeting.”

  • Hussain Mehdi, macro and investment strategist at HSBC Asset Management:

“The upside surprise to the August core monthly print will be a disappointment for Fed policymakers. However, the broad trend of disinflation remains intact while there is ongoing evidence of a cooling labor market. This means there is still a strong case for a pause at next week’s Fed meeting.”

“In our view, we believe there is room for further gains for US equities this year. But we think the economic reality of restrictive monetary policy will eventually catch up with the market. A likely tip into recession next year will damage the outlook for corporate earnings and can weigh on multiples. For this reason, we think a cautious and defensive positioning in portfolios still makes sense.”

  • Seema Shah, chief global strategist at Principal Asset Management:

“The inflation print likely is not enough to tilt next week’s Fed call towards a hike, yet it also hasn’t entirely cleared up the question of a November pause versus hike. The rise in headline should come as no surprise given the recent run-up in energy prices and the Fed will likely look through the number. But the general expectation was that core inflation would remain stable, if not decelerate this month, so the upside surprise probably leaves the Fed with bad taste in its mouth and keeps it wondering if they still have more work to do.”

 

MLIV Pulse Survey
One year after the mini-budget, has the UK fully regained investors’ trust? Share your views.

Key events this week:

  • Japan industrial production, Thursday
  • European Central Bank policy meeting and news conference by President Christine Lagarde, Thursday
  • US retail sales, PPI, business inventories, initial jobless claims, Thursday
  • China property prices, retail sales, industrial production, Friday
  • US industrial production, University of Michigan consumer sentiment, Empire Manufacturing index, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.2% as of 11:54 a.m. New York time
  • The Nasdaq 100 rose 0.4%
  • The Dow Jones Industrial Average rose 0.1%
  • The Stoxx Europe 600 fell 0.3%
  • The MSCI World index was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.2% to $1.0734
  • The British pound was little changed at $1.2485
  • The Japanese yen fell 0.3% to 147.48 per dollar

Cryptocurrencies

  • Bitcoin rose 0.7% to $26,259.68
  • Ether rose 0.6% to $1,608.43

Bonds

  • The yield on 10-year Treasuries was little changed at 4.28%
  • Germany’s 10-year yield advanced one basis point to 2.65%
  • Britain’s 10-year yield declined seven basis points to 4.35%

Commodities

  • West Texas Intermediate crude was little changed
  • Gold futures fell 0.2% to $1,931.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

Gallery

Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Daily Maverick Elections Toolbox

Download the Daily Maverick Elections Toolbox.

+ Your election day questions answered
+ What's different this election
+ Test yourself! Take the quiz