Egg prices in the US increased two to three times in January.
Fatih Aktas | Anadolu Agency | Getty Images
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US inflation is starting to bite again. But stocks mostly shrugged it off.
What you need to know today
- The US consumer price index for January rose 0.5%, higher than the 0.4% economists had predicted. On an annual basis, prices rose by 6.4%, compared to the expected 6.2%. Egg prices were still sky-high.
- US stocks closed mixed on Tuesday. The Dow Jones Industrial Average and the S&P 500 fell lower, while the Nasdaq Composite rose. After a positive trading day, Asia-Pacific stocks ended mostly lower, with only China’s Shanghai Composite and Shenzhen Component in the green.
- US Treasury yields rose after a higher-than-expected inflation report. Notably, the 6-month Treasury rose to 5.022%, its highest return since July 2007.
- PRO US Treasury yields are rising again. The 10-year Treasury yield hit a five-week high this week, while the 2-year Treasury was up 0.41 percentage point in February alone. This is how pros would play the market.
it comes down to
Yesterday’s better-than-expected January CPI report cast a shadow over US markets.
Prices in the US rose faster than economists had expected last month; they were driven up by higher food, energy and housing costs. But even the core CPI – which excludes more volatile food and energy prices – saw a monthly increase of 0.4% and a year-over-year increase of 5.6%. Both surpassed estimates of 0.3% and 5.5% respectively.
Does the disinflationary process – in the words of Federal Reserve Chairman Jerome Powell – still play a role in the US? January’s core CPI of 5.6% is slightly lower than December’s 5.7%, meaning prices are still falling. But just barely.
US markets reacted accordingly. Treasury yields rose, suggesting that investors are pricing in higher rate hikes by the Fed. Shares fell. The Dow fell 0.46% and the S&P fell 0.03%. However, the Nasdaq, traditionally the most interest rate sensitive index, closed 0.57% higher, supported by a 7.51% increase in Tesla and a 5.43% increase in Nvidia.
While stocks mostly fell, they were remarkably resilient. A team at JPMorgan had predicted that the S&P would fall between 0.75% and 1.5% if the annual CPI reached 6.4%. The actual fall of the index: only 0.03%.
The strange decoupling between bond markets and equity markets continues. Investors might be optimistic that consumer spending will remain strong even with rising prices – as Coca Cola’s earnings report pointed out – allowing the economy to continue growing. As for that theory, Wednesday’s U.S. retail sales report will put it to the test.
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