Daily Market Color September 13, 2018Consumer Price Growth Slows, Tech Stocks Rebound Curb Your Inflation For the second time in as many days, inflation data in the US failed to meet market expectations. Today it was the Labor Department’s report on consumer prices, where the headline index recorded a seasonally adjusted 0.2% MoM rise (+0.3% expected) during August. The modest increase corresponded with a 2.7% annualized uptick, falling from the prior month’s +2.9% YoY reading. Excluding the volatile food and energy components, the core CPI index climbed 0.1% (rounded up from +0.08%), also missing median forecasts of a 0.2% rise. Compared to a year earlier, core consumer prices increased 2.2% (2.4% expected). Much of the softness in the report was attributed to a contraction in the costs of apparel and medical costs, both of which have posted at least two consecutive months of declines. Overall, the tepid CPI print is expected to do little to alter the Fed’s current projected path of rate hikes, but will certainly be monitored closely for any sustained weakness in consumer price growth. Weekly initial jobless claims were also released today, holding at 49-year lows. The number of Americans filing for unemployment for the first time fell to a seasonally adjusted 204,000 last week (205k week prior). The four-week moving average of claims also fell to the lowest level in nearly a half a century, down 2,000 to 208,000, reflective of the continued tightening in the labor market. Separately, continuing claims fell by 15,000 to 1.696 million for the week ended September 1st. US Treasurys fluctuated throughout the trading session before finishing with a mild selloff. Yields/swap rates closed 1-2bps higher across the curve, with the 10-year note yield settling near 2.97%. Major equity indices finished with gains of 0.53%-0.75% today, as the DJIA is now less than 2% away from its all-time high. Much of the rise was attributed to strength in the tech sector, which climbed 1.2% during the session. In commodity markets, crude oil futures tumbled 2.5% to $68.60/barrel after the International Energy warned in a report today that economic risks were building in the industry and could stunt growth, especially in emerging markets. Central Bank Decision Day This morning global financial markets received the monetary policy decisions from three major central banks- TURKEY Decision: Raise interest rates by 625bps to 24% Circumstances: The hike by the central bank was more aggressive than expected, especially since Turkish President Recep Tayyip Erdogan publicly voiced his opinion just hours before the decision that rates should be lowered. The Turkish lira surged as much as 5% against the dollar following the hike. ENGLAND Decision: Leave benchmark rate unchanged at 0.75% Circumstances: Last month the BOE had voted to hike rates to the current level, and it came as no surprise that no change was made at this meeting given the central bank’s guidance of “limited and gradual” tightening. In the statement released afterwards, caution was stressed given the risk that “protectionist measures by the United States and China, if implemented, could have a somewhat more negative impact on global growth than was anticipated”. EUROPE Decision: Leave benchmark rate unchanged at -0.40%, wind down QE by year-end Circumstances: Similar to the BOE, there were no surprises in the decision made by the ECB. The uncertainty surrounding tariff trade wars, emerging market volatility, and Brexit negotiations have continued to force the ECB to hold monetary policy accommodative longer. Benchmark borrowing rates are expected to remain unchanged until the second half of 2019, creating a further divergence between US and Eurozone policy.
