Inflation Data Disappoints, Treasury Yields Continue to Slide

Inflation Misses…Again – Consumer price data for September did little to quell the inflation outlook debate amongst Fed members, as today’s CPI readings fell below expectations for the sixth time in the past seven months.  The Labor Department’s overall consumer price index increased 0.5% last month (+0.6%e, +0.4%p), boosted by increases in energy costs, which posted their biggest jump in more than eight years.  As such, core CPI rose a modest 0.1% (+0.2%e, +0.2%p) as growth in shelter and motor vehicle prices disappointed.  Compared to a year earlier, overall CPI increased 2.2% and core CPI advanced 1.7%.  Also detailed in the report, average hourly earnings grew 0.7% compared to a year earlier.

 

 

Retailers Boosted by Autos

US retail sales recorded their largest monthly gain since March 2015, increasing 1.6% during September.  It was a significant rebound from the revised 0.1% decline in August, albeit still below expectations of a 1.7% advance.  The majority of the rise was attributed to sales in motor vehicles and auto parts, which rose 3.6% last month due to consumer items damaged during Hurricanes Harvey and Irma.  Outside of autos and gas, retail sales climbed 0.5%.   

 

 

Friday the 13th Doesn’t Scare Equity Markets

All three major US stock indices touched new record highs in the final session of the week, posting gains of 0.1%-0.2% as investors welcomed the beginning of the Q3 earnings season.  Thus far, 87% of the firms that have reported beat bottom-line expectations, including Bank of America, JPMorgan Chase and Citigroup.  Treasury prices rose for a second consecutive day, with yields/swap rates down 1-5 bps across the curve.  The yield on the 10-year note is poised to finish the week near 2.27%.  In commodities, WTI crude oil futures rose 1.5% to $51.35/barrel, capping a weekly gain of roughly 4%.

 

 

In the political stratosphere, earlier today President Trump announced his administration’s opposition to the 2015 Iran nuclear agreement, citing a list of various non-compliance complaints against the nation while stating that “Iran is under the control of a fanatical regime.”  Trump demanded that both Congress and US allies make steps to restructure the deal and threatened to outright cancel the accord if no action was taken.  Iran’s primary rival, Saudi Arabia, was the first to openly support Trump’s stance, agreeing that Iran has wrongfully used its financial freedoms “to destabilize the region, especially through developing a ballistic missile program.”   

 

Today in Regulatory News

The CFTC released some more welcome news today after meeting with the staff of the European Commission (EC) yesterday regarding harmonization of regulation across jurisdictions.  CFTC Chairman Christopher Giancarlo has been vocal about the need for harmonization and leveraged his position as CFTC Chairman to reach across the pond to obtain agreement from his EU counterparts.  In short, the CFTC has stated that a covered entity that is in compliance with EU margin rules for non-cleared swaps would be in compliance with CFTC margin rules and the EU has provided the same assurance.  This substituted compliance determination clears up regulatory uncertainty for EU based firms doing business in the US as well as those US firms with EU based clientele. Removing this uncertainty will lead to a level playing field between the US and EU as well as reduce compliance costs.