Markets fall as inflation worries rattle investors

Dow dropped 228, decliners over advancers about 3-1 & NAZ went up 35.  The MLP index slid back 1+ to 280 & the REIT index gave back another 1+, falling to 367.  Junk bond funds edged lower & Treasuries had a little selling which raised yields marginally.  Oil was off almost 1 to the 85s & gold gained 6 to 2354.

AMJ (Alerian MLP Index tracking fund)

Inflation at the wholesale level gained steam in Mar, the latest sign that price pressures within the economy remain uncomfortably high & difficult to tame.  The Labor Dept said that its producer price index (PPI), which measures inflation at the wholesale level before it reaches consumers, rose 0.2% in Mar from the previous month.  On an annual basis, prices remain up 2.1%, the largest yearly advance since last Apr.  Those figures are both slightly lower than the 0.3% monthly gain and the 2.2% annual figure predicted.  In another sign that points to the stickiness of high inflation, core prices, which exclude the more volatile measurements of food & energy, rose 0.2% for the month.  That is in line with estimates, although it is below the 0.3% reading recorded last month.  However, the figure was up 2.4% on a 12-month basis, above Feb's 2% reading.  High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent.  The data comes after the Labor Dept said the more closely watched consumer price index, which measures the prices paid directly by consumers, rose 0.4% in Mar from the previous month.  Prices climbed 3.5% from the same time last year, above the 3.2% figure recorded in Feb.  Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers.  The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.  Central bank officials have signaled they expect to cut interest rates this year, but indicated they will not do so until they are confident that inflation is conquered.

Wholesale inflation jumps to highest level since one year ago

The ECB held interest rates steady for a 5th straight meeting & gave its clearest signal yet of an upcoming rate cut, despite uncertainty over the Federal Reserve's next moves.  “If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” it said.  ECB Pres Christine Lagarde said this “important” new sentence was a “loud and clear indication” of the bank's current sentiment.  The ECB made no direct reference to loosening monetary policy in its previous communiques.  The central bank for the 20 countries that share the € currency hiked its key rate to a record 4% in Sep.  It has left this rate unchanged at every gathering since.  Policymakers & economists have zeroed in on Jun as the month when rates could start to be reduced, after the ECB trimmed its medium-term inflation forecast.  Price rises in the euro zone have since cooled more than expected in Mar.  Jun will also be the first month when policymakers will have a full set of data on first qtr wage negotiations, an area of concern for potential inflationary effects.  The ECB said incoming information had “broadly confirmed” its medium-term outlook, with falling inflation led by lower food & goods.  Market pricing suggests a 25-basis-point cut in Jun.

European Central Bank gives strong signal that cuts are on the way despite Fed uncertainty

Treasury yields fell after Mar wholesale inflation data came in weaker than expected, alleviating concerns the Federal Reserve may stay higher for longer after yesterday's strong consumer inflation report.  The yield on the 10-year Treasury was down by more than 2 basis points to 4.533% & the 2-year Treasury yield was last at 4.927% after falling by more than 4 basis points.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  The Mar producer price index (PPI) came in less than anticipated which muddied the inflation picture.  While the softer PPI report provided some relief for investors worried about sticky inflation, it comes a day after a hotter-than-expected Mar consumer inflation report spurred fears the Fed will keep interest rates elevated.  Treasury yields yesterday spiked following the CPI data.  The 2-year & 10-year Treasuries climbed as much as 22 & 18 basis points, respectively.  Markets are now pricing in the start of rate cuts in Sep, rather than in Jun, according to the CME Group’s FedWatch tool.

10-year Treasury yield hovers at 4.53% as traders assess latest inflation data

The inflation news continues to be not good enough.  What scared investors the most was that PPI rose 0.2% from the previous month, a lower rate of growth than the forecast.  Year-over-year growth of 2.1% was also below estimates & annual growth represented the fastest jump in producer prices in nearly a year.  Bank earnings in the next few trading days will be watched closely.

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