Market Focus: CPI confirms inflation worries

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Published Date 10/13/2021

Yesterday the 10 yr. note yield fell 4 bps, at 8:45 am ET this morning +3 bps to 1.60% on a knee jerk reaction. Sept consumer price index slightly higher than forecasts. Expected +0.3% from August but it increased to 0.4%, yr./yr. expected 5.3%, as reported +5.4%. Excluding food and energy (core) forecasts were +0.2% as reported, yr./yr. +4.0% also as expected. The month-month increase caused initial heavy selling; surprising because the increase is essentially unchanged from August, a 0.1% from estimates isn’t much of a change from what markets have been thinking. Not sure what traders were hoping for, that inflation stayed above 5.0% shouldn’t be a surprise. The annual read at 5.4% is the same rate as in June and July, which was the highest since 2008.

Inflation shows no signs of slowing, in fact 46% of small businesses according to the NFIB commented yesterday will begin to increase prices over the next three months; it is the most since NFIB began keeping records back in 1986. Consumers increasingly expect prices will continue to increase, which in turn will increase demand for higher wages. Yesterday Fed Vice Chairman Richard Clarida said the Fed would raise rates if it saw evidence that households and businesses were beginning to expect higher inflation. According to the NY Fed consumers’ median inflation expectation for three years from now rose to 4.2% in September, from 4% a month earlier, it was the highest since the survey began in 2013.

The headline culprit for inflation is the supply chain problems, and for all the optimistic talk from the Fed the outlook is bleak and more long-lasting than what the Fed wants markets to believe. Markets know better than the Fed when supply issues impact businesses. On a positive note, the congested Port of Los Angeles will announce a 24 hours a day, seven days a week schedule to confront the squeeze on goods, following the Port of Long Beach on a similar plan. FedEx Corp., United Parcel Service Inc. and Wal-Mart Inc. are also pledging to move to 24/7 operations, the official added, while Target. Corp., Samsung Electronics Co. and Home Depot Inc. are taking steps to start addressing the backlog in distribution. Getting cargo off ships is good, but what we hear is there are not enough truckers, and most railroads are clogged.

At 9:30 am the DJIA opened +23, NASDAQ +70, S&P +10. 10 yr. note 1.55% -2 bp. FNMA 2.5 30 yr. coupon +3 bps and +19 bp from 9:30 am yesterday.

At 1 pm Treasury will auction $24B of 30 yr. bonds.

At 2 pm the minutes from the Sept FOMC meeting will be released.

At 10:42 am Blue Origin will launch another flight to the edge of space with space “expert” Wm Shatner, Capt. Kirk, on board. “I shall be entranced by the view of space,” Mr. Shatner, 90 years old, said in a video that Blue Origin posted online yesterday. “Beam me up Scotty”

The 10 at 1.55%, its near term resistance; 1.55% was support before it increased to 1.62%, now that level becomes technical resistance.

Source: TBWS

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