Inflation Data Meets Expectations, Crude Selloff Finally Takes Break

 

October’s US Consumer Price Index was reported in line with expectations with a 0.3% increase month over month (+0.2% core) – and as such is still trending higher but does not seem to be indicative of accelerating inflation.  Compared to a year earlier, headline CPI climbed 2.5% while core CPI rose 2.1% and remained firm above the Fed’s 2% target.

 

 

Markets continue to monitor crude prices closely to see if the recent massive drop has an impact on future inflation, but in the short-term today’s inflation data are not expected to alter the Fed’s course of monetary policy tightening, with the market still pricing in a 72% chance of a hike later this year.  Government bond yields/swap rates held within a tight range throughout the trading session, closing 1-3bps lower across the curve as the 10-year note yield settled near 3.125%.

 

 

US equity markets had themselves another volatile day, with the major averages closing in the red as the Dow Jones and S&P 500 fell as much as 1.36% at midday before retracing much of their losses.  Today marked the fifth straight session of losses for the S&P 500.  Crude oil prices ended their record-setting 12-day losing streak, with WTI futures settling 1% higher to $56.25/barrel today.

 

International Growth Slows
Despite the strong US growth metrics released recently, export-dependent Germany and Japan both saw their economies shrink this past quarter, with many pointing to a slowdown in China and the continued trade war uncertainties as contributing factors: