- U.S. equity indexes red; Nasdaq off ~1%
- Tech down most among S&P sectors; energy biggest gainer
- Euro STOXX 600 index slides >1%
- Dollar edges up; gold, crude rise; bitcoin slides
- U.S. 10-Year Treasury yield rises to ~2.00%
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CPI, JOBLESS CLAIMS: STOP ME IF YOU’VE HEARD THIS (1015 EST/1515 GMT)
Data released on Thursday was kicked right between the goal posts, delivering further evidence of what we already knew: inflation is hot and the labor market’s tight.
To begin with, consumer prices accelerated as expected in February.
The Labor Department’s consumer price index (CPI) (USCPI=ECI), which tracks prices urban consumers pay for a basket of goods, jumped by 0.8%, hotter than January’s 0.6% increase and nailing consensus on the head. read more
Year-on-year, headline CPI shows a 7.9% increase, the largest annual jump in four decades.
And many analysts believe we’ve yet to plant a flag on the summit.
“Headline inflation dodged the 8% bullet in February, but only by a tenth, and it will break that barrier quite comfortably in March, hitting 8.2-to-8.4%,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics. “That will be the peak, though, and we expect the rate to be down to 5.5% by September.”
Line-by-line, energy prices were the clear culprit. Gasoline surged 6.6%, airfares jumped 5.2%.
Stripped of volatile food and energy prices, so called “core CPI” rose by 0.5% on the month and 6.4% on an annual basis.
“Bottom line is inflation is elevated and there’s more to come,” says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “I was looking for inflation to peak in the second quarter but now that depends on oil.”
“Perhaps we won’t see any relief until the end of the year,” Cardillo adds.
Indeed, last month’s CPI print does not reflect the recent surge in oil prices due to the Russian invasion of Ukraine, which sparked supply concerns.
The print will likely have little to no effect on the Federal Reserve’s stated intent to hike key interest rates by 25 basis points at its upcoming monetary policy meeting in an effort to curb this decidedly un-transitory price wave.
The graphic below shows core CPI along with other indicators. They all continue to soar well above Powell & Co’s average annual 2% inflation target:
The busy Labor Department also revealed, in a separate report, the number of U.S. workers filing first time applications for unemployment benefits (USJOB=ECI) rose last week by 11,000 to 227,000, a tad higher than the 216,000 economist forecast.
While the number remains within the lower end of the range associated with healthy labor market churn, it still reflects a tight labor market in which job openings hover near all-time highs, the participation rate remains well below its pre-pandemic level and employers are loathe to hand out pink slips.
“We expect labor shortages to ease over coming months on a combination of factors, including high wages, diminishing savings as well as an absence of fiscal support,” writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Ongoing claims (USJOBN=ECI), reported on a one-week lag, unexpectedly increased to 1.494 million. Still they remain well below the pre-COVID level of about 1.7 million.
Wall Street seemed intent on following its best day in months by resuming its sell-off.
While off earlier lows, the major indexes are well within negative territory, with rising crude prices again pushing energy shares (.SPNY) into the green.
U.S. EQUITY INDEX FUTURES POINT TO LOWER OPEN (0900 EST/1400 GMT)
U.S. equity index futures are under pressure after U.S. consumer inflation data that was in-line with estimates:
Initial jobless claims came in at 227k vs a 217k estimate.
Meanwhile, talks between Russia and Ukraine’s foreign ministers on Thursday made no apparent progress toward a ceasefire in the two-week-old conflict. read more
With this, NYMEX crude futures are popping back up, and the U.S. 10-year Treasury yield is rising to press 2%.
Regarding the CPI data, Brian Jacobsen, senior investment strategist at Allspring Global Investments, said, “This inflation report might be just a prelude to an even uglier report when we get the March data. Gasoline prices are up 20% since the beginning of the month. Food costs are up. Goods excluding food and energy downshifted to a slower gear in February, but food and energy will keep inflation looking really hot for at least another month.”
Jacobsen added, “The Fed can’t bring peace to Ukraine and Russia, so there’s little that monetary policy can do to tame food and energy inflation. It may have to just say that it is serious about fighting inflation, but it is also seriously hamstrung in what it can do right now.”
Here is your premarket snapshot:
(Terence Gabriel, Chuck Mikolajczak)
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