Dow dropped 133 (but above the opening level), advancers over decliners 5-4 & NAZ was off 75. The MLP index fluctuated near 205 & the REIT index fell 2+ to the 468s. Junk bond funds slid lower & Treasuries were sold heavily, taking the yield on the 10 year Treasury to 2.0%. Oil shot up 1+ to go over 91 & gold added 4 to 1841.
AMJ (Alerian MLP index tracking fund)
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Inflation surged more than expected in Jan, notching another 4-decade
high as strong consumer demand & pandemic-related supply-chain snarls
fueled rapid price gains that wiped out the benefits of rising wages for
most Americans. The
consumer price index rose 7.5% in Jan from a year ago, according to
a new Labor Dept report, marking the fastest
increase since 1982, when inflation hit 7.6%. The CPI – which
measures a bevy of goods ranging from gasoline & health care to
groceries & rents – jumped 0.6% in the one-month period from Dec. The forecast expected the index to show that prices surged 7.3% in Jan from the previous year & 0.5% on a monthly basis. Core prices, which exclude more volatile measurements of food &
energy, climbed 6% in Jan from the previous year – a sharp increase
from Dec, when it rose 5.5%, the steepest 12-month increase
since 1982. Rising inflation is eating away at strong wage gains that American
workers have seen in recent months: Real average hourly earnings rose
just 0.1% in Jan from the previous month, as the 0.6% inflation
increase eroded the 0.7% total wage gain. On an annual basis, real earnings actually declined 1.7% in
Jan. The eye-popping reading – which marked the 8th consecutive month the
gauge has been above 5% – could also amp up pressure on the Federal
Reserve to kick off its interest rate increases next month with a ½-basis point hike. Raising interest rates tends to create higher
rates on consumers & business loans, which slows the economy by
forcing them to cut back on spending.
Inflation SOARS in January – hitting highest rate since 1982
Treasury yields climbed, with the
benchmark 10-year rate breaching the 2% level, after key inflation data
showed hotter-than-expected price pressures. The yield on the 10-year Treasury note
jumped 6 basis points to hit a session high of 2%, the first time that
the benchmark rate reached the threshold since 2019. The 10-year
rate last traded around 1.98%. The
yield on the 2-year Treasury bond, the most sensitive duration to
interest rates, surged 10 basis points to 1.45%. Yields move inversely
to prices & 1 basis point is equal to 0.01%. The consumer price index, which measures the costs of dozens of everyday consumer goods, rose 7.5% compared to a year ago, the Labor Dept reported That
compared to estimates for 7.2% for the closely watched
inflation gauge. It was the highest reading since 1982. The benchmark Treasury yield has spiked a great amount in 2022, rising
almost 50 basis points from 1.51% at the end of last year. In Feb
alone, the 10-year rate has gained about 20 basis points from where it
ended Jan near 1.78%. Rapidly rising inflation has pushed traders to price in a faster pace of Fed interest rate hikes. Chances
for a 50 basis point increase in Mar rose to 48% today after the consumer price index posted a 12-month gain of 7.5%. The market also was pricing in a 77% probability of 6
rate hikes in 2022.
10-year Treasury yield tops 2% for the first time since 2019 after hot inflation report
The European Commission raised its inflation expectations for this year, but is still expecting prices to move below the ECB's target of 2% in 2023. The institution said inflation will hit 3.5% this year from a Nov forecast of 2.2%. The debate over inflation in the 19-member bloc is fierce. On the one hand, some argue that current inflationary pressures will ease & a degree of loose monetary policy is needed. Others counter that the ECB needs to tighten monetary policy after consecutive historic monthly highs in inflation. Bundesbank Governor Joachim Nagel became the 2nd central banker in the last few days to indicate that the ECB may raise rates later this year. However, the European Commission, the executive arm of the EU, said that inflationary pressures are likely to come down next year. “After reaching a record rate of 4.6% in the fourth quarter of last year, inflation in the euro area is projected to peak at 4.8% in the first quarter of 2022 and remain above 3% until the third quarter of the year,” the commission said. “As the pressures from supply constraints and high energy prices fade, inflation is expected to decline to 2.1% in the final qtr of the year, before moving below the European Central Bank’s 2% target throughout 2023,” the institution added. As such, the commission estimated that annual inflation in the euro area will rise from 2.6% in 2021 to 3.5% in 2022, before then falling to 1.7% in 2023.
EU raises inflation forecasts on supply disruptions, energy crisis
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