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Inflation Reading Pushes Equities Lower and Rates Higher
Equities fell for the second consecutive week as a hotter-than-expected inflation report impacted markets. Global equities (represented by the MSCI All Country World Index) were down -1.36%, and domestic stocks (represented by the S&P 500 Index) were down -1.52%.
CPI
The Consumer Price Index (CPI) was released last Wednesday for the month of March. Headline CPI rose 3.5% on an annual basis, the highest level since September. Core CPI (excluding food and energy prices) remained steady from February’s reading at an annual rate of 3.8%, however, still slightly higher than consensus expectations. Medical services and transportation services costs fueled the higher-than-expected figures as these categories rose 0.6% and 1.5% respectively for the month of March.
Inflation and Rate Cuts
Markets reacted to the hot inflation report with the 10-year US Treasury rate jumping as high as 4.59%, the highest level in five months. Fed Funds futures also showed a change in the timeline for the expected first rate cut. While markets heavily expect the Fed to keep rates steady at their May meeting, the probability of the first 0.25% rate cut at their June meeting fell from 51.26% the previous week on April 8th to only a probability of 26.92% this past Friday according to the CME FedWatch Tool.
Source: CME FedWatch Tool
Producer Price Index
Last Thursday’s release of the Producer Price Index (PPI) helped ease inflation fears slightly as headline PPI rose just 0.2% in March following a hotter-than-expected February reading of 0.6%. On a year-over-year basis, producer prices sit at a more modest 2.1% rate with core PPI (excluding food and energy) at 2.4%.
Retail Sales and Housing
This week US retail sales data and housing starts and sales will be released to give insight into the consumer spending landscape and housing market.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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