Pre-market futures are zooming forward this morning ahead of the opening bell, on agreeably softer Consumer Price Index (CPI) numbers for the month of November. Prior to the report’s release, we were looking at +260 points on the Dow, +35 on the S&P 500 and +120 points on the Nasdaq. Immediately after the CPI post, we saw +830 points, +120 and +515 points, respectively.
CPI headline came in at +0.1% month over month, 20 basis points (bps) below expectations and 30 bps lower from the October print. Stripping out volatile food and energy costs, the “core” read reached +0.2% — slimmer than the +0.3% expected and from the previous month. Especially with the core prints, which tend to lag other economic indicators, heading downward is what we want to see here.
The year-over-year figures is where we tend to chart overall inflation these days, and here we see +7.1% on headline, down 20 bps from consensus but down more than half a percentage point from October’s +7.7%. Core year over year — perhaps the keenest look at overall “sticky” inflation — is +6.0%, down 10 bps from consensus and lower than the +6.3% month over month.
While pre-market traders have certainly gotten excited here — and we’re already seeing levels rolling off from those initial spikes in the indices — we’re still looking at high inflation metrics from an historical perspective here. But to help illustrate this boisterous attitude, just compare today’s totals with cycle highs: headline month over month in June of this year was +1.3%, core month over month +0.9% in April, headline year over year +9.1% in June (a 41-year high) and core year over year +6.6% in September (40-year high).
As we’ve seen, especially when we subtract food and energy prices in this data (food itself shot up +0.5% in the current report), interest rate levels have already done an admirable job working down inflation on the Goods side. On the Services side, however, we’re seeing more stickiness — especially in wages. A dearth of workforce on the Services side continues to keep companies competitive for staff, which means higher wages. This promotes inflation.
Fed Chair Jay Powell will address these issues tomorrow after the Fed announces its next interest rate move. Odds of a 50 bps hike — instead of 75 bps, which investors had been fearing last week — have now reached 90%. Because the Fed hasn’t “leaked” any information to the Wall Street Journal that they’re having a change of heart (like they did a couple months back), we feel certain you can book 50 bps tomorrow — which would bring the Fed funds rate to a range of 4.25%-4.50%, the first time we’ve been north of 4% since the late Oughts, in the last years of the George W. Bush presidency.
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CPI Comes in Lower Than Expected
Pre-market futures are zooming forward this morning ahead of the opening bell, on agreeably softer Consumer Price Index (CPI) numbers for the month of November. Prior to the report’s release, we were looking at +260 points on the Dow, +35 on the S&P 500 and +120 points on the Nasdaq. Immediately after the CPI post, we saw +830 points, +120 and +515 points, respectively.
CPI headline came in at +0.1% month over month, 20 basis points (bps) below expectations and 30 bps lower from the October print. Stripping out volatile food and energy costs, the “core” read reached +0.2% — slimmer than the +0.3% expected and from the previous month. Especially with the core prints, which tend to lag other economic indicators, heading downward is what we want to see here.
The year-over-year figures is where we tend to chart overall inflation these days, and here we see +7.1% on headline, down 20 bps from consensus but down more than half a percentage point from October’s +7.7%. Core year over year — perhaps the keenest look at overall “sticky” inflation — is +6.0%, down 10 bps from consensus and lower than the +6.3% month over month.
While pre-market traders have certainly gotten excited here — and we’re already seeing levels rolling off from those initial spikes in the indices — we’re still looking at high inflation metrics from an historical perspective here. But to help illustrate this boisterous attitude, just compare today’s totals with cycle highs: headline month over month in June of this year was +1.3%, core month over month +0.9% in April, headline year over year +9.1% in June (a 41-year high) and core year over year +6.6% in September (40-year high).
As we’ve seen, especially when we subtract food and energy prices in this data (food itself shot up +0.5% in the current report), interest rate levels have already done an admirable job working down inflation on the Goods side. On the Services side, however, we’re seeing more stickiness — especially in wages. A dearth of workforce on the Services side continues to keep companies competitive for staff, which means higher wages. This promotes inflation.
Fed Chair Jay Powell will address these issues tomorrow after the Fed announces its next interest rate move. Odds of a 50 bps hike — instead of 75 bps, which investors had been fearing last week — have now reached 90%. Because the Fed hasn’t “leaked” any information to the Wall Street Journal that they’re having a change of heart (like they did a couple months back), we feel certain you can book 50 bps tomorrow — which would bring the Fed funds rate to a range of 4.25%-4.50%, the first time we’ve been north of 4% since the late Oughts, in the last years of the George W. Bush presidency.