INSTANT VIEW 4-Dec US CPI in line with hot inflation outlook

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INSTANT VIEW 4-Dec US CPI in line with hot inflation outlook

 – U.S. consumer prices rose solidly in December, with the annual increase in inflation the largest in nearly four decades, which could bolster expectations that the Federal Reserve will start raising interest rates as early as March.

The consumer price index increased 0.5% last month, more than the consensus for a 0.4% rise, after advancing 0.8% in November, the Labor Department said on Wednesday. In the 12 months through December, the CPI surged 7.0% as expected. That was the biggest year-on-year increase since June 1982 and followed a 6.8% rise in November.

STORY: (Full Story)

MARKET REACTION: 

STOCKS: S&P e-mini futures ESc1 extended gains and were last up 0.46%, pointing to a firm open on Wall Street


BONDS: Yields on benchmark 10-year notes US10YT=RR slipped to 1.7163%. Two-year Treasury yields US2YT=RR were flat at 0.8947%


FOREX: The dollar index =USD slipped a bit more, off 0.35%

COMMENTS:

THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK

“The data is obviously quite firm in terms of the realized inflation for the month. They had the acceleration year-over-year to 7% for the headline, which I believe is the first seven handle we’ve had in the year-over-year reading since 1982. So obviously that sounds kind of bad, but really when you look at the composition, it’s pretty much spot on relative to expectations. We had a little bit of weakness in energy prices that offset some increases in food prices, and then aside from that on the core side, (there’s) pretty firm used car prices, which have been firm all year, new car prices, apparel, airfare, all this transportation stuff that again was pretty much expected.”

“I think at this point the bigger concern in the inflation data is seeing some kind of upside momentum in the category that was not previously expected, because we’ve seen such significant price increases over the last year. I think for the most part there’s an argument that momentum in those price increases is declining, so we should see year-over-year inflation peak at some point soon and then start to head lower, and today’s report is consistent with that.”

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON

“The U.S. economy appears ready for interest rate lift-off to start in March. The dollar’s problem though is that the market already has highly hawkish expectations for Fed policy this year. So as hot as today’s CPI price was, it merely reinforced what’s already baked in for the dollar and Fed policy.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“Top line inflation was in-line with what I was looking for. The longer end of (Treasury) yields is up and the shorter end is down. That’s a good indication that the market was expecting these numbers as week.”

“Yesterday the Fed put on some pretty tough gloves and came out swinging, making it clear that inflation is their top priority and they’re going to fight it. That was reassuring for the market.”

“Nasdaq (futures are) leading the way S&P is up as well. The markets are taking comfort from yesterday’s tough talk from Powell and his admission that they misread inflation, that it’s not transitory, it’s more structural.”

“Now investor focus shifts to earnings, which starts with the big banks this Friday.”

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NORTH CAROLINA

“The number matched expectations of 7%. That still is problematic because the Fed will have pressure on them to move more quickly and forcefully than they would’ve liked.”

“Markets are not reacting to this number but the Fed is going to be forced to react … The Fed is going to be forced to raise rates in March.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA

“It’s overall a really good report. It is roughly in line but it’s pretty constructive in that the features of inflation that would lead to the Fed to change its trajectory of interest rates are starting to move in the right direction.”

“It puts off into the future the need for accelerated rate hikes because at the end of the day, the market doesn’t fear inflation – the market fears what the Fed might do about it.”

“This report does not pressure the Fed to accelerate its interest rate thinking at this particular moment.”

“The markets should be happy with this because the inflation data is not as bad as what markets had predicted and would force markets to reprice an ever growing number of interest rate hikes throughout 2022. 

DENNIS DICK, PROPRIETARY TRADER, BRIGHT TRADING LLC, LAS VEGAS

“The numbers were in line, so the market’s trying to figure out how to interpret them. But the word of the day is choppy – we’re going up and then back down again. Markets are trying to figure out whether they like it or not, because this was what everyone expected.”

“If we got a really hot number, like we have in the past, that would have been an issue. When you take a look at the year over year number, you’re surprised about the high inflation, but we already knew that. We didn’t cool off, but we didn’t get any hotter either. We’re kind of just in the same boat we already were in.”

“It’s a difficult market to figure out right now. But we’ve seen this story before – traders buy it, and then all of a sudden they pull the rug out from under after 930 and it starts going the other way. So they’re kind of nibbling their toes in at this point in time, but it’s not this rip roaring, rip-your-face-off rally. 

GEORGE BALL, CHAIRMAN, INVESTMENT FIRM SANDERS MORRIS HARRIS, HOUSTON (email)

“Wednesday’s Consumer Price Index once again showed steep growth, as expected, but is more representative of the Covid-19-driven supply chain disruptions of the past and doesn’t portend any kind of long-term structural inflationary pressures.”

“The stock market is expecting inflation at a high rate for the next 3-6 months. It’s what comes after that period that is likely to sway stock prices. Subsiding inflation in the second half of this year is the presumption currently, but if that doesn’t happen, it will be a shock to the stock market.”

“Wednesday’s CPI report doesn’t change anything for the Federal Reserve’s policy plans and it has already told the markets that it expects a tight labor market, rising wages and low unemployment to continue.”

(Compliled by the global Finance & Markets Breaking News team)

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