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05 17 2016 | by Victor Xing | Economics

Above consensus April CPI led by energy and OER

April CPI

April CPI (Consumer Price Index) beat expectations thanks to steady gains in OER (owner equivalent rent) and a rebound in energy prices.  Medical care also rose (which bodes well for PCE where the sector has a heavier weight), although prices of new vehicle sales fell despite recent firmness in yen, and the volatile apparel category (which is sensitive to renminbi valuation) strengthened a touch following prior month’s decline.

Interest rates market reacted expectedly on data: Fed funds futures weakened to price-in about one rate hike for the remainder of the year (vs. 3/4 of a hike by end of last week), although the nascent rates weakness in belly of the curve was short-lived as flight-to-quality flows subsequently gave bid to long-end of the curve.  Moreover, today’s data did not trigger a broad-based tightening of financial conditions (which came later following hawkish comments by Atlanta Fed President Lockhart and San Francisco Fed President Williams): dollar quickly pared its post-data strength to seesaw above overnight levels, while WTI also recovered some weakness to hover near $48/bbl.

April CPI – month-over-month changes:

  • Headline CPI at 0.408% MoM vs. 0.3% survey and 0.089% prior
  • Core CPI at 0.195% MoM vs. 0.2% survey and 0.069% prior
  • Owner equivalent rent at 0.299% MoM vs. 0.211% prior
  • Medical care at 0.316% MoM vs. 0.105% prior
  • Apparel at -0.253% MoM vs. -1.121% prior
  • New vehicles at -0.333% MoM vs. -0.038% prior
  • Energy at 3.706% MoM vs. 4.043% prior
April CPI
April CPI rose thanks to gains in energy, rent, medical care

April CPI – year-over-year changes:

  • Headline CPI at 1.140% YoY vs. 0.874% prior
  • Core CPI at 2.147% YoY vs. 2.200% prior
  • OER at 3.147% YoY vs. 3.120% prior
  • Medical care at 2.984% YoY vs. 3.288% prior
  • Apparel at -0.572% YoY vs. -0.585% prior
  • New vehicles at 0.033% YoY vs. 0.443% prior
  • Energy at -8.867% YoY vs. -12.559% prior
April CPI
April CPI – year-over-year changes

Market reaction on President Williams and Lockhart’s comments

Dollar pared gains only to strengthen again following hawkish comments by President Lockhart and Williams, and the Fed headlines induced another wave of selling in front-end and belly of the Treasury curve.

April CPI
Dollar pared gains following a data-led rally before recovering losses on Fed comments
April CPI
Jan 2017 futures now prices in one hike for the rest of the year
April CPI
5 year Treasury futures rallied out of post-CPI weakness before weakening again following hawkish Fed comments
April CPI
Long-end of the curve outperformed other sectors following Fed comments

Next article05 10 2016 | by Victor Xing | Economics

Job polarization through the lens of March JOLTS