The US April CPI data was released today and to the relief of the market, the data was not worse than expected and showed some hope for lower price going foward. The numbers showed:

  • Consumer-price index rose 4.9% YoY in April
  • Monthly consumer prices rose 0.4% in April
  • Core prices (excluding food and energy) rose 5.5% YoY in April
  • Excluding shelter, food, and energy, prices rose 3.7% YoY in April
  • Used vehicle prices surged 4.4% in April

Although the inflation rate remains well above the 2% target for the Fed, things could have been worse. Used car and truck prices rose 4.4% and energy prices rose 0.6% on the month. Gasoline prices rose 3.0%. Shelter continued to move higher but at a slower pace than last month (0.4% in April vs 0.6% last month and 0.8% in February ). For the year, Shelter is still up 8.1%. The shelter component is 34% of the overall CPI, so it is a key contributor to the higher inflation seen over the last year. Analysts still expect housing costs to cool in the months ahead. Food prices were unchanged for the 2nd consecutive month but is still up 7.7% for the year. Food prices are 13.7% of the CPI.

The move lower in CPI inflation in April, makes it more likely that the Federal Reserve will pause interest-rate increases at its next meeting. There's one more jobs report and CPI release before the next Fed meeting in mid June. In favor of a fed pause is that bank lending is lower which is tightening policy for the Fed. Also the next month CPI will likely benefit from the rolling out of the YoY calculation, a gain of 1.0% from a year ago. If the headline actual number is somewhat tame, it could lead to a fall in the YoY closer to 4%-4.5% next month. Moreover, going two months forward, a gain of 1.3% from a year ago will drop out. That would take the YoY rate down closer to 3%-3.5% absent another price shock.

Now that the Fed Funds rate has moved to the target terminal rate of 5.00% to 5.25% (or 5.11%), Fed officials have shifted their focus from lagging indicators of economic activity like hiring, and considering the impact from recent bank failures on lending conditions and slowing economic activity. Bank of America reported a slowing of spending from credit and debit card activity as anecdotal evidence of some downshifting of spending.

That does not mean the Fed will lower rates (indications from Fed officials is that they will not ease this year), but the odds of no more hikes is getting better.

US stocks were mixed with the Dow industrial average moving lower for the 7th day in 8 in the month of May. The S&P and the NASDAQ index rose for the 2nd day in 3. The NASDAQ index led the way with a gain of about 1%. The final numbers are showing:

  • Dow industrial average fell -30.48 points or -0.09% at 33531.34
  • S&P index rose 18.45 points or 0.45% at 4137.63
  • NASDAQ index rose 126.88 points or 1.04% at 12306.43

in the US debt market today, yields move sharply to the downside.

  • 2 year 3.913% -11 basis points
  • 5 year 3.382% -11.2 basis points
  • 10 year 3.440% -8.1 basis points
  • 30 year 3.797% -5.2 basis points

The US treasury successfully auctioned off 10 year notes at 3.448% with decent demand from both domestic and international buyers.

In other markets:

  • Gold fell $4.14 or -0.22% at $2030
  • Silver fell $0.21 or -0.80% at $25.37.
  • WTI crude oil is trading down $0.94 at $72.77 after settling at $72.56
  • Bitcoin is trading at $27,889 after reaching an intraday low of $26,842. The high price was at $28,328.

IN the forex market, the JPY is ending the day as the strongest of the major currencies. The USD is the weakest. The USD was near unchanged vs the GBP, CHF and CAD, but had solid gains vs the JPY and NZD today.

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The strongest to the weakest of the major currencies