Daily Market Color July 12, 2018Equities Rebound as Inflation Continues Steady Rise Jeff Davenport Inflation Growth Continues, Despite Lackluster Wage Gains Consumer price data released by the Labor Department this morning reflected inflation growth in the US maintaining its steady climb as the Fed continues to debate the appropriate level of aggressiveness of monetary tightening/normalization. Headline CPI printed at a seasonally adjusted +0.1% in June, slightly missing estimates of a 0.2% rise, albeit the YoY growth recorded its highest mark since February 2012 at +2.9%. A 0.5% increase in oil prices served as the primary catalyst to the boost, however rising costs in medical care services, food prices and shelter & rent costs also contributed to the strength. Core CPI matched median forecasts, gaining 0.2% on the month and was in line with its pace during the prior month. On an annual basis, core consumer prices rose 2.3% — a 0.1% increase from May’s YoY figure. Unfortunately for consumer spending, the annual inflation growth was not matched by gains in reported average hourly earnings (no change in YoY real earnings), despite the labor market printing consistently robust metrics. The most recent evidence of the strong labor market, initial jobless claims for the week ended July 7th, remained near historic lows. The number of new claims last week declined 18,000 to a seasonally adjusted 214,000 (225,000 expected), and the four-week moving average of claims fell by 1,750 to 223,000. Also detailed in the report, the number of continuing claims inched lower by 3,000 to 1.739 million for the week ended June 30th. Harker’s View on Hikes Earlier today, Philadelphia Fed President Patrick Harker stressed the importance of keeping an eye on inflation growth over the next few months, as recent consumer price metrics continue to exceed the Committee’s 2% target. While currently a supporter of three total hikes in 2018, Harker noted his openness “to a fourth increase this year if we do see inflation start to accelerate.” The Fed’s preferred measure of inflation, the PCE index, reported a 2.3% YoY increase during the month of May. Harker provided his guidance on the concept of letting inflation run marginally above target after years of sub-2% readings, stating that “if we see [annualized] inflation starting to go past 2.5%, we have to act. Absent that, I think there are lots of good reasons to hold off.” Fed fund futures currently point towards a 57% probability of two more rate hikes before the end of the year. Equities Rebound, Treasurys Muted Today major US stock indices retraced yesterday’s losses and then some, as financial markets looked past the simmering trade war with China whereby $250 billion worth of tariffs remain in limbo. The tech-heavy Nasdaq led the way with a strong 1.4% gain, while the S&P 500 and DJIA each recorded a 0.9% rise. Treasurys held within a tight range throughout the day, with the 10-year note yield finishing near 2.845%. The US dollar similarly experienced minimal moving during the trading session, rising 0.1% against a basket of major currencies. In commodities, crude oil futures traded sideways, curbing yesterday’s selloff which represented its largest one-day decline in more than a year.