Ameriprise Financial: High inflation figures causing some nervousness for investors
Consumer prices in the United States hit their highest level in 31 years in October, making life a little less comfortable as inflation is temporarily stuck. The CPI climbed 6.2% year-on-year, the highest figure since it hit 6.3% in October 1990. These two observations are the only two above the 6.0 mark. % since Paul Volcker took over as head of the Federal Reserve to fight inflation which had climbed to 14.8% in 1980. The monthly CPI increase for October was 0.9%, replacing a reading October 2020 by 0.1%. Looking ahead, the next three months will see the values ââof 0.2, 0.2 and 0.3% replaced in the calculation of the last twelve months, suggesting that consumer inflation is likely to remain uncomfortably high, at least until ‘in the first quarter of next year.
Treasury Secretary and former Fed Chairman Janet Yellen said over the weekend that the trajectory of inflation will depend on the pandemic and how quickly demand patterns return to normal. For the current Fed Chairman Powell, whose term expires in February, the current surge in consumer prices must be uncomfortable as he awaits a decision from the president whether he will be re-appointed. This decision is expected to come before Thanksgiving, a little over a week now.
Bond yield after the publication of the CPI; Increased volatility in treasury markets
Bond yields climbed following the CPI release, rising 12 basis points at the end of the week to close at 1.56%. This increase follows a sharp drop in the ten-year yield after the Fed meeting on November 3 which, despite the Fed announcing that it will start cutting its bond buying program from this month , was seen as a relatively accommodating result regarding the outlook for interest rates.
The yield on ten-year bonds was 1.60% before the Fed’s announcement. The two-year bond yield experienced similar volatility, climbing 11 basis points after the CPI release on Wednesday to end the week at 0.51%. Overall, the volatility of treasury markets is steadily increasing. Since a mid-September reading of 52 in the ICE Bank of America MOVE Index, a weighted average volatility on the Treasury curve, the index has peaked at 78 since the start of the year just before the Fed meeting in November, before falling. at 65. After the CPI was released last Wednesday, however, it rose again, ending the week at 79.
Stocks have struggled to maintain record highs; Investors focus on the economic calendar
Stocks faltered in response to the CPI report, before leveling off on Thursday and Friday. The two days of modest gains were not enough to stop the S&P 500, however.Â® hint of having experienced his first weekly loss in the last six. The 0.3% drop left the index just short of the closing record of 4,701 it hit on Monday. The CPI report also pushed the dollar up, with the DXY index rising from 93.96 to 95.13 at Friday’s close, its highest level since July 2020. The DXY index is now higher on the year by nearly 6%.
With the end of the third quarter earnings season, investor attention will once again turn to the economic calendar. Reports expected on this week’s schedule include October retail sales, which are expected to be fairly strong, as does industrial production. Also on the program are the homebuilders index, housing starts and building permits, jobless claims and leading indicators. And on Monday, President Biden is expected to enact the infrastructure bill, recently passed in the House after a long delay as negotiations continued on the Build Back Better social infrastructure bill. They remain in progress.
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The Consumer Price Index (CPI) measures the change in consumer prices as determined by the United States Bureau of Labor Statistics.
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