Underlying inflation rose more than forecast in September, representing a pause in the recent progress toward moderating price pressures.
The core CPI—which excludes food and energy—increased 0.3% for a second month, disrupting a string of lower readings. Year over year the core CPI is up 3.3% and the three-month annualized rate advanced by 3.1%, the most since May.
The overall CPI rose 0.2% from the prior month, boosted by housing and food which accounted for over 75% of the advance.
This data coupled with last week’s strong jobs report, has all but negated the odds of a 50-bps reduction at next month’s FOMC meeting, and lowered the probability of a 25-bps reduction to around 70%. At the time of this writing, the market is now suggesting a total of 46 basis points of cuts remaining in 2024.
Atalanta Fed President Raphael Bostic stated yesterday that he would “keep the door open to skipping a rate cut in November” if the data suggests that is the appropriate course of action. Three other Fed officials. However, “shrugged off” the CPI report stating from month to month there’s wiggles and bumps in the data.”
Today the PPI is released. Analysts are expecting the rate to decline from the prior month. Will this data also surprise on the upside?
Earnings season also commences today as financial heavy weights JP Morgan and Wells Fargo reports 3Q profits. Bloomberg states profits in the S & P 500 are expected to increase by 4.7%, a significant reduction in the 7.9% estimate that was made on July 12.
Will the market volatility increase if both profit and monetary policy assumptions fail to materialize? A strong argument can be made that the averages are priced for a dovish/bullish scenario and if one or both don’t materialize, rough sledding can be possible.
Commenting on yesterday’s market action, equities struggled on the CPI data. The yield curve steepened as longer dated Treasuries sold off and oil advanced about 3.5% on Middle East concerns.
Last night the foreign markets were up. London was down 0.16%, Paris up 0.04% and Frankfurt 0.17%. China was down 2.55%, Japan up 0.57% and Hang Seng 2.98%.
Futures are flat. The 10-year is off 15/32 to yield 4.10%.
