Bad U.S. CPI News Impacts Financial Markets Immediately
April 10, 2024
U.S. consumer price inflation in March exceeded expectations and continued a 2024 pattern of disappointment for investors hoping to see the Federal Reserve lower interest rates. In response,
- The weighted DXY dollar index is 0.8% above Tuesday’s closing level. The greenback rose 1.4% and 1.0% against the Australian and New Zealand dollar, 0.9% versus the euro and yen, 0.6% relative to the yen and Canadian dollar, and 0.5% vis-a-vis sterlling.
- The ten-year U.S. Treasury yield shot up 14 basis points to almost a 5-month high. Comparable 10-year sovereign debt yields in other key economies are up by 12 basis points in Canada, 9 bps in the U.K., 7 bps in Italy, 6 bps in Germany, France and Spain, and 2 bps in Japan.
- All three major U.S. equity market indices are down about 1%. Share prices earlier today had closed down 0.7% in China, depressed by the news that the Fitch credit rating outlook for that economy is being changed to “negative” from “stable.” The Japanese and South Korean stock markets fell by 0.5%, but Hong Kong’s Hang Seng index closed up 1.9%. European stock markets are flat to down.
- The price of Bitcoin, down 1.0%, once against revealed why crypto not a good hedge against U.S. inflation.
- Oil and gold prices are generally stable, in contrast.
FOMC minutes from last month’s policy meeting get released this afternoon. Meantime, there has been plenty of other central bank news.
Bank of Japan Governor Ueda in an address before the Japanese Diet indicated another interest rate hike may be in the offing, but the decision will be guided by price and wage trends, not ongoing yen weakness.
The Bank of Canada left its overnight interest rate target at 5.0% as was expected. It’s been at that peak level since a 25-basis point increase in July 2023 culminated 475 basis points of tightening begun in April 2022. A statement released by Governor Macklem affirmed the continuing intention to shrink the Bank of Canada’s balance sheet to more normal levels. Canadian CPI inflation has decelerated from 8.1% in mid-2022 to 2.8%, but that is still considered “too high and risks remain… The Council will be looking for evidence that this downward momentum is sustained. Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy.” The month’s policy review coincided with the publication of the bank’s quarterly Monetary Policy Report.
The Reserve Bank of New Zealand‘s Official Cash Rate was left unchanged as expected at 5.5%. A 25-basis point increase way back in May 2023 was its last increase. The rate had been lifted from a pandemic low of just 0.25% maintained from March 2020 until October 2021. Consumer price inflation in New Zealand of 4.7% in the final quarter of last year represented a 10-quarter low and a drop from 7.3% recorded in the second quarter of 2022. Officials believe that “maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year,” according to a released statement today.
The Bank of Thailand‘s policy interest also got reviewed today, and as in New Zealand and Canada, was kept unchanged. Such has been 2.5% since the last of eight 25-basis point increases spaced between August 2022 and September 2023. Although negative now, Thai consumer price inflation “is projected at 0.6 and 1.3 percent in 2024 and 2025, respectively. In the period ahead, the effect of geopolitical tensions and government subsidies on energy prices should be monitored.”
After successive U.S. monthly consumer price increases in the final quarter of 2023 of 0.1%, 0.2% and 0.2%, such rose 0.3% this past January and by 0.4% in the ensuing two months. Year-on-year CPI inflation in March of 3.5% exceeded analyst expectations and was its highest in six months. Core inflation rose 0.4% on month for a third straight time and by 3.8% on year, just 0.2 percentage points less than the 4.0% reading last October. The items most responsible for this stalled situation well above tolerable levels have been gasoline and shelter, which together accounted for over half of the monthly rise of the CPI.
In other price news today, Brazilian consumer price inflation fell 0.6 percentage points to a 9-month low of 3.9% last month. Danish CPI inflation edged up 0.1 percentage point back to a 2-month high of just 0.9% in March, having crested at 10.1% in October 2022. Greek CPI inflation of 3.2% last month was up from 2.9% in February and a recent low of 1.6% last September. Czech CPI inflation remained unchanged at 2.0% last month.
Even before the U.S. CPI shocker was reported today, the weekly U.S. report on U.S. mortgage applications included a 10-basis point rise of the 30-year fixed mortgage rate to a 5-week high of 7.01%, which is not far from the mid-February high of 7.06%, a 24-year high.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada, Bank of Thailand, Reserve Bank of New Zealand, U.S. CPI
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