Daily Market Color

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.

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