Rates and Equities Rally as CPI Does Not Surprise

Rates and equities rally on in-line inflation print The year-over-year headline consumer price index was in-line with analyst expectations but did hit a 39-year high at 6.8%. As investors were prepared for a worst-case scenario, the in-line print was able to assuage some fears which allowed for the markets to be risk-on heading into the weekend. The S&P would finish the week up 3.8% and close on a record high. Swap rates and yields closed the week down led by the short-end of the curve as investors pare back rate hike expectations. The 10-year closed the week down 2 bps to 1.48%.

Year-over-year headline consumer prices hit highest level since 1982. The headline number was 6.8%, in-line with analyst expectations, and an increase from October’s print of 6.2%. Excluding energy and food prices, core CPI, increased 4.9% year-over-year. The increase in CPI was broad based with gasoline, food, shelter, and automobile costs being the primary drivers for the month.

On deck for next week. On Monday, producer prices for the month of November will be released with analysts estimating the year-over-year headline number to hit 9.2%. On Tuesday, November retail sales will be released and can give insight in how consumers are responding to recent price increases. The main event will be the Fed’s final FOMC meeting of year starting next Tuesday with its policy statement on Wednesday. Investors will be waiting to hear of any update to the Fed’s taper timeline and any updates to its rate dot plot.