Rates Jump Higher Following March Inflation Data

It was another day of rising rates to close out the week, UST yields climbed 9-12bps across the curve. Today’s movement tied a bow on a volatile month of April, which saw 10yr rates rise ~60bps to their highest level since 2018. Yesterday’s gain in US equity markets proved to be short-lived, as a rout in tech stocks led major indices 2.75%-4.15% lower on the day, highlighted by shares of Amazon declining 14%. The Nasdaq finished the month more than 13% lower than where it started – marking the index’s worst monthly performance since October 2008. In energy markets, crude oil prices rose for the fourth consecutive day and have now posted increases in five straight months – WTI crude now sits just under $105/barrel.

Inflation rises to a 40-year high in March. The Personal Consumption Expenditure index, the Fed’s preferred inflation gauge, rose an annualized rate of 6.6%, slightly lower than the 6.7% forecast. Geopolitical tensions between Russia and Ukraine caused energy prices to spike by 33%, while food prices jumped 9.2%. Stripping out those factors, core PCE rose by 5.2% year-over-year, indicating food and energy prices heavily contributed to the March increase. Despite growing inflationary pressures, consumer spending continued to trend higher, rising by 1.1% (0.6% forecasted).

Week ahead. Wednesday’s FOMC announcement and Friday’s jobs report will be the highlights of the coming week. Markets currently forecast a near certainty that the Fed will raise rates by 50bps, and market participants will be closely parsing the Fed statement and conference afterward. The April jobs report is expected to show 391k jump in nonfarm payrolls and a 3.5% unemployment rate. The April ADP private payrolls report, April ISM manufacturing data, and March JOLTS report are also due next week.