April CPI shows inflation higher than expected

Published Date 5/11/2022

Prior to the 8:30 am ET release of April CPI the 10 yr. note at 2.95% -5 bp, the DJIA +300. At 8:45 am the 10 traded at 3.02%, the DJIA -102.

April CPI was stronger than what markets were thinking. CPI +0.3% on expectations of 0.2% but still lower than +1.2% in March, yr./yr. +8.3% on thoughts of 8.1% but lower than +8.5% in March. Core CPI (ex food and energy) was expected +0.4% it increased 0.6%, yr./yr. core 6.2% against +6.0% but also lower than 6.5% in March. Inflation is cooling but still at 40 yr. highs. Exceeding the optimistic forecasts that gained a lot of followers over the week pushing the 10 yr. back over 3.00%, while moderating, will not dissuade the Fed increasing the FF rate by 50 bps when the FOMC meets on June 15th.

The decline in equity markets should continue according to recent comments from Morgan Stanley analyst Michael Wilson, who sees scope for equities to correct further amid mounting concerns of slowing growth. “We continue to believe that the US equity market is not priced for this slowdown in growth from current levels,” Wilson said in a note. “We expect equity volatility to remain elevated over the next 12 months.” He recommends defensive positioning with an overweight in health-care, utilities and real-estate stocks.

At 9:30 am the DJIA opened -6, NASDAQ -107, S&P -11. 10 yr. note at 9:30 am 3.02% down from the high this morning at 3.08%.

At 10 am FNMA 5.0 30 yr. coupon -52 bps 57 lower than 10 am yesterday.

At 1 pm this afternoon Treasury will auction $36B of new 10 yr. notes.

We aren’t done with inflation data this week, tomorrow wholesale prices, PP. The estimates; m/m +0.5% from +1.4% in March, yr./yr. +10.7% from 11.2%. Core PPI +0.6% m/m from +1.0%, yr./yr. +8.9% from +9.2%.

The 10 now back to 3.00% after jumping to 3.08% on CPI data.

Source: TBWS

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