Originally published by Rivkin Securities
The much-anticipated CPI data was released for the US overnight and as portended by the prior week’s wage data, it was higher than expected. This resulted in a sharp spike in bond yields with the 10-year yield now trading at 2.91%, the highest level since late 2014. This data has also bolstered market expectations for a rate hike at the March meeting of the FOMC with the CME FedWatch tool now predicting an 83% chance of a 25-basis point hike.
Interestingly, the stock market was un-phased by the higher than expected CPI and increase in bond yields in contrast to last week when the higher wage inflation was cited as the cause of the market volatility at that time. The Dow Jones Industrial Average climbed steadily throughout the session to eventually close 1% higher. The S&P 500 closed 1.3% higher. Overshadowed by the CPI data, US retail sales data came out at the same time and showed that retail sales were much weaker than expected for the month of January. Core retail sales were flat for the month compared to expectations of an 0.5% increase.
The US dollar fell following the CPI release despite an initial spike higher. This, together with the prospect of higher inflation, gave gold a significant boost over night finishing the day US$22 higher. Silver also performed well, climbing 2.2% to US$16.87. WTI oil prices were higher despite a second consecutive weekly build in inventories. The rally may have been due to the fact that the build was smaller than expected together with the weakness in the US dollar. The Australian dollar reversed its downtrend against the US dollar and has now surged back through US$0.79.
Data Releases:
- Australia Employment Change and Unemployment Rate 11:30am AEDT
- US PPI 12:30am AEDT
- US Industrial Production 1:15am AEDT