Stocks Climb on Modest CPI Data

 

Inflation Remains Tepid in April

Consumer price data released by the Labor Department this morning displayed a modest, yet unimpressive rebound in the pace of inflation during April compared to the prior the month.  Headline CPI printed at +0.2% (-0.1% in March), missing estimates of +0.3%, as a 3.0% increase in gasoline costs was offset by a drop in airline fares (-2.7%) and used automobiles (-1.6%).  Compared to a year earlier, overall CPI was up 2.5%.  Core CPI similarly missed median forecasts, gaining 0.1% on the month – a slight decline from its +0.2% during the prior month.  On an annual basis, core consumer prices rose 2.1%.

 

 

US equity prices responded well to the weaker-than-expected inflation data as major indices finished 0.7%-0.9% higher on the day.  The DJIA has now increased for six consecutive trading sessions, matching its longest streak in the past three months.  US Treasurys also rallied upon the release of the soft CPI data, as yields/swap rates declined 1-5bps across the curve in a bull flattening pattern.  The 10-year note yield finished roughly 3bps lower to 2.96%.  The US dollar fell from its highest levels of the year, losing more than 0.4% against major currencies.  In energy markets, crude oil prices continued to rise with the uncertain future of US sanctions on Iran.  WTI crude futures climbed ~0.25% on the day to $71.35/barrel and are currently hovering near a 3.5-year high.

 

 

Jobless Claims Remain at Healthy Level

Other key economic data released today included a report from the Labor Department which showed initial jobless claims in the US holding near the lowest level since December 1969.  The number of new claims for the week ended May 5th remained unchanged at a seasonally adjusted 211,000 (219,000 expected), while the four-week moving average of claims decreased by 5,500 to 216,000.  Also detailed in the report, the number of continuing claims increased by 30,000 to 1.79 million for the week ended April 28th.

 

 

BOE Leaves Policy Unchanged

Across the pond, this morning the Bank of England concluded its monetary policy meeting with the decision to leave its benchmark borrowing rate unchanged at 0.5%, in line with expectations.  For the second consecutive meeting, two of the nine MPC voting members supported a quarter-point rate hike, albeit the outlook for the British economy at the prior session looked significantly brighter.  In a speech following today’s announcement, BOE Governor Mark Carney cited a significant slowdown in GDP and inflation expectations, and portrayed a dovish outlook for the expected path of rate hikes in 2018.  The British pound gapped 0.8% lower against the US dollar and euro following the speech.