Hotter-than-Predicted U.S. CPI Data Elicit Adverse Market Reaction
February 13, 2024
U.S. consumer price inflation unexpectedly remained above 3.0% in January. A 0.3% monthly increase was the most since September, and the 12-month rate of increased slowed less sharply than forecast, returning to November’s 5-month low of 3.1% but showing no net improvement since 3.0% recorded last June.
U.S. core consumer prices, which exclude food and energy, jumped 0.4% on month, keeping core inflation unchanged from December’s 3.9% reading. Non-energy service sector prices increased 0.7% on month and 5.4% on year. Fed officials have often cited shelter and non-energy service sector costs along with wage data as items they will be watching closely for policy guidance.
In financial markets after the CPI data were announced, the dollar strengthened, equities fell, and crypto and sovereign debt yields both climbed.
Shortly before trading on the U.S. stock exchange opened, SPX, DJIA, and Nasdaq futures were in the red by 1-2%. Previously, today, Japan’s Nikkei had risen 2.9% following its 3-day holiday. The U.S. news has dragged European share prices lower, too.
Ten-year sovereign debt yields are up nine basis points in the United States and Great Britain, five bps in Italy, four bps in Germany, France and Spain but just three basis points in Switzerland where consumer price inflation, according to data released overnight, declined by 0.4 percentage points to a 27-month low of 1.3%. That’s down extensively from the high of 3.5% touched in August 2022.
The yen has weakened beyond 150 per dollar for the first time since early last October. Compared to the Monday closing, the dollar is up 0.8% against Japan’s currency and even more sharply versus the Swiss franc (+1.2%), Australian dollar (+1.0%) and New Zealand dollar (+1.2%). The dollar touched an intra-day low of 1.0700 per euro and shows a net gain currently of 0.6% today. Sterling, by contrast, has only lost 0.3% relative to the dollar, and the loonie is up a tad.
Bitcoin has strengthened 1.4% and is taking aim on the 50k threshold. Oil is 0.3% firmer, but gold, which tends to do well when the dollar is not, has faltered by 0.9%.
Other data out today include Japanese domestic producer prices, which stayed flat on month in January and matched December’s year-on-year 34-month low of 0.2%. Japanese import prices rose 0.2% on month and were 0.2% lower than in January 2023. Japanese machine tool orders fell 14.1% on year in January, their biggest such decline in three months and their 13th slide in a row.
U.S. small business sentiment dropped two index points to an eight-month low last months.
The latest batch of British labor market statistics showed an unexpected 0.1 percentage point dip in the jobless rate to 3.8% in December but also revealed a further deceleration of wage inflation. Average weekly earnings growth slowed to a 17-month low of 5.8% in October-December from 8.5% in May-July of last year and to an inflation-adjusted 6.2% from a high of 7.9% registered earlier last year.
Investor sentiment toward Germany and Euroland, calculated at the ZEW Institute, improved this month to one-year highs despite more pessimistic perceptions of current conditions, which dropped to their lowest readings in 44 months in Germany’s case and 4 months for the euro area as a whole. The more optimistic outlook is partly attributable to expectations of the more price deceleration that expected in the prior two monthly surveys.
An 11.4% year-on-year rise of Turkish retail sales recorded in December was the least in 15 months. Turkey’s 2023 current account deficit of $45.15 billion was 8% narrower than in the prior year.
The National Bank of Romania’s reference interest rate was left unchanged at 7.0%, its level since a 25-basis point hike in January 2023. The rate previously had been lifted by five percentage points during 2022 and 50 bps in the final quarter of 2021. A low of 0.50% had prevailed from January 2021 until October 2021 to counter pandemic-related weakness in Romania’s economy. The NBR’s interest is being kept at its high because CPI inflation of 6.6%, despite representing a considerable drop from the 16.8% 244-month high in November 2022, is still well above the target range centered around 2.5%. Officials are hoping to see in-target inflation by the end of next year.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor market data, German and Euroland ZEW expectations, National Bank of Romania, Swiss CPI, U.S. CPI
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