Annual CPI increasing, Monthly scale is flat
Market volatility is increasing again. Yesterday we had two key data from the United States that moved the markets. Consumer inflation and Weekly employment report. Let's first check the expectations and outcome numbers and then see how we have to read and react to them.
In the labor market, New applies to claim the unemployment benefits fell for the third week in a row according to the US Department of Labor data, which covers the week ended February five. According to this report, we had 223K requests, which is a bit less than 230K market expectations and lower than last week at 238K after revision. On the four-week average also we saw a bit lower number at 253.25K while continuing jobless claims fell to 1.621 million. Overall data were better than expectations and it can increase the expectations from FED to start rate hike a bit faster, but the data was not such brilliant that we can expect something unusual and urgent from FED.
On the other hand, on the annual scale, inflation continued its overheating pattern, but the monthly scale was not so much worrying. The annual rate of the US Consumer Price Index (CPI) in January without seasonal adjustment hit a new four decades high, recording 7.5%, exceeding the market expectation of 7.3%. At the same time, the Monthly rate was 0.6%, just 0.1% more than market expectations, but unchanged from the December number. Published data in more detail, confirming the FED outlook about reducing the growth rate of inflation by time passing and economic improvement. Therefore, what we can expect, is to see a less dovish policy, but going towards hawkish policies also should not be so fast, to cause a big shock to the economy.
As a reaction, in the Treasury bond market, the 2-year and 10-year Treasury bond yields stood above 1.5% and 2.0% respectively. US dollar index also as it was expected and you can see in the bellow figure, increasing above 96 mark. It is likely to see the Dollar Index between the 96 and 97 mark before the next FED meeting.
Next Thursday the Federal Reserve's FOMC meeting minutes of its January monetary policy meeting will be out. These minutes with the February CPI report will make it more clear for us what we have to expect from the following monetary policy meeting. For now and with these numbers, overall expectations from the stock markets are to see the caution tradings. Side movement with uptrend tendency is the consensus expectation.
