Tuesday’s Consumer Price Index (CPI) report and Thursday’s release of the Producer Price Index (PPI) are likely to set the tone for market activity this week.1 Following a string of positive inflation prints that have fueled a material rebound in risk asset prices since October, markets today are priced for lower inflation and Federal Reserve (Fed) rate cuts beginning in the latter half of the year. Fed Chair Jerome Powell’s interview last week did little to reverse the more dovish takeaway from his press conference following the recent Fed meeting.
The retail sales report out Wednesday also takes on added significance following the unexpectedly hot January employment report. The ongoing resilience of U.S. labor market conditions have defied widespread expectations for an imminent downturn in the U.S. economy. The repricing in the bond market since the jobs number came out has been rapid — 2-year Treasury note yields have risen nearly 50 basis points in just over a week.2 Markets are increasingly susceptible to stronger growth and inflation data, which will keep pressure on the Fed to extend the duration of its tightening cycle.
Sources:
1Source: MarketWatch-U.S. Economic Calendar; as of 2/13/23
2Source: CNBC- U.S. Treasurys; as of 2/13/23
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