The US CPI came in higher than expectations and that has stocks lower, yields higher, and the dollar moving to the upside.
Where are the problem areas?
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Energy is the immediate problem. Gasoline jumped 9.1% in September, following 3.9% in August. Fuel oil rose 15.3%, following 10.1%. Energy’s June and July declines have given way to substantial increases. Electricity and piped gas were much more contained in September.
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Services inflation is becoming firmer. Services excluding energy progressed from +0.2% in July to +0.3% in August and +0.4% in September. That steady acceleration is a concern because it suggests the underlying pressure is broader than volatile energy prices.
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Shelter has picked up again. Monthly increases moved from +0.1% in June and July to +0.3% in August and +0.4% in September. Its three-month average remains below the six-month average, so the longer comparison still shows improvement. The latest monthly direction, however, is less encouraging.
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Transportation services show a clear reversal. After declines in May and June, prices increased 0.3%, 0.5%, and 0.6% over July–September. Energy prices are leading over into all goods that have to be transported that higher energy prices. This isn’t rocket science.
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Core goods are providing less relief. Their three-month average is roughly three times the six-month average. Used vehicles stand out: +0.4% in July, +0.4% in August, and +0.7% in September. Although still 1.5% cheaper than a year ago, their recent direction is higher.
US Treasury yields are sharply higher following the CPI release, with the biggest increases at the shorter end of the curve as traders price in 2 tightening’s between now and January
- 2-year yield: 4.9266%, up 13.36 basis points
- 5-year yield: 5.1257%, up 11.87 basis points
- 10-year yield: 5.3123%, up 9.53 basis points
- 30-year yield: 5.6242%, up 6.12 basis points
The market reaction suggests traders see the inflation data keeping pressure on the Fed to maintain higher rates. The 2-year yield—the most sensitive to Fed policy expectations—is leading the move higher.
With shorter-term yields rising faster than longer-term yields, the curve is flattening. The spread between the 2-year and 10-year yields has narrowed by about 3.8 basis points, to 38.6 basis points.
US stocks are lower with the NASDAQ composite down -0.60% and the NASDAQ 100 index down -0.75%. The Dow industrial average is higher by 0.14% bucking the trend
In the video above, I focus on the technicals that have impacted 5 of the major currencies verse the US dollar:
- EURUSD
- USDJPY
- GBPUSD
- USDCHF and
- USDCAD
What are the levels in play with regard to the bias, the risks, and the targets for each of those pairs given the fallout from the higher prices for each of those pairs. .I explain and show why the levels are important so you can better understand.
This article was written by Greg Michalowski at investinglive.com.