Markets were relatively quiet yesterday ahead of today’s release of February’s CPI. Analysts are expecting prices to rise nominally from last month. The overall and core rate are expected to increase by 0.4% and 0.3%, respectively. The year over year rate for the respected elements is 3.1% and 3.7%, considerably higher than the 2.0% desired pace.
Last month FRB Chair Powell stated the CPI understates inflation, a view many espoused but could not publicly write for a myriad of reasons.
To write the obvious the odds increase that volatility may rise if the data differs from the consensus view.
Inflation and interest rates are always important for the economy. However, today both, which are interconnected, are perhaps at the greatest level of importance in history given the gargantuan size of the federal debt—over $34 trillion—and the record amount of interest paid on this debt. Interest payments now exceed $1 trillion.
Moreover, according to government data, net Treasury issuance for FY2024 is expected to exceed $9 trillion.
The OECD issued an ominous warning Friday. The NGO stated, “about 40% of sovereign debt outstanding matures in next three years perhaps creating significant unforeseen challenges including potential auction failures and higher interest rates.” The NGO further indicated that over 37% of global corporate debt also matures, creating an element of crowding.
The OECD also commented “central banks are paring back their bond holdings, leaving price-sensitive investors to absorb the net supply at record levels.”
There are two ways to overcome massive debt…inflation or reorganization/default. For the US the latter is not an option for if the US does default the entire global financial system would be extremely challenged given the US is the world’s benchmark where everything is priced off.
Last night the foreign markets were up. London was up 1.12%, Paris up 0.10% and Frankfurt up 0.41%. China was down 0.41%, Japan down 0.06% and Hang Seng up 3.05%.
Dow and NASDAQ futures are flat and up 0.25%, respectively but this could change radically if the 8:30 data is different than the consensus view. The 10-year is up 1/32 to yield 4.09%.
