Market Rallies on Quiet Day Ahead of CPI Release

Rates rise ahead of inflation data. The equity market rallied today in anticipation of the CPI release tomorrow, the NASDAQ and S&P 500 climbing 1.00%, while Dow Jones increased just over 0.70%. Swap rates and Treasury yields rose, driven higher by a subpar auction of 10-year Treasury bonds. The 2-year yield rose ~2 bps to 3.58% while the 10-year yield rose ~5 bps to 3.36%.  

Previewing the CPI release. Tomorrow’s inflation data will have a pronounced impact on the Fed’s rate hike decision at the upcoming FOMC meeting, with forecasts calling for a 8.1% increase in headline CPI. Last month saw the headline CPI decrease to 8.5% from a 40+ year high in June. Further normalization of inflation could force the Fed to consider a 50 bp hike, though as of market close a 75 bp hike remains fully priced in.

Day ahead. The CPI data headlines the day at 8:30 AM ET, which will be supplemented by reports on crude oil stock change and the U.S. government monthly budget statement.