Yields climb on hot CPI data. Treasury yields ultimately rose in the aftermath of higher-than-anticipated CPI data. Yields are now at year-to-date highs across the curve, as the 2-year yield closed 4 bps higher at 3.99% and the 10-year yield closed 5 bps higher at 4.46%. Meanwhile, equities sold off as semiconductor names led the decline, with the S&P 500 and NASDAQ closing 0.16% and 0.71% lower, respectively.
CPI rises more than expected as oil prices drive up costs. On an annualized basis, US inflation rose 3.8% in April, above estimates of a 3.7% increase and higher than the prior month’s 3.3% reading. Headline CPI rose 0.6% MoM, in line with forecasts but below the prior month’s 0.9% jump. Gas prices have risen nearly 28% over the past two months, while grocery prices increased 0.7% last month, the largest gain in nearly four years. Airfares rose 2.8% in April, and rent prices also increased significantly. Meanwhile, inflation-adjusted wages fell for the first time in three years. Core CPI, which excludes volatile food and energy prices, rose 2.8% YoY and 0.4% MoM, both above estimates and above the prior month’s readings. As inflationary pressures persist, experts worry it could take months for prices to ease, even if oil output normalizes and key shipping routes, such as the Strait of Hormuz, reopen.
Trump sees trade as focus for meeting with Xi. President Donald Trump is set to meet with Chinese leader Xi Jinping in Beijing later this week. Markets have focused on how conversations between the two leaders will go regarding the war in Iran, though Trump expressed today that trade will be his primary concern. He said, “We’re going to be talking to President Xi about a lot of things. I would say, more than anything, trade.” Trump also added that Iran is not one of the items he plans to discuss with Xi, “because we have Iran very much under control.” The Iran war was expected to be a focus as Trump has faced pressure to end the war and China is uniquely positioned as the one of the largest buyers of the Iranian oil and a strategic partner to Tehran. With Trump’s comments today, Trump and Xi are expected to discuss extending the trade truce that was reached last fall.