CPI data showed a bumpy road towards inflation easing path

A robust set of inflation data did not deter the market from rising, with the S&P 500 registering another record close. 

📤The latest reading shows the CPI rising 3.2% annually in February. As expected, this is higher than the 3.1% we saw in January. Core inflation, which removes volatile components such as food and energy, rose 3.8% annually in February. This is a tick down from the 3.9% we saw in December and January. However, note that this is still higher than the 3.7% we expected. 

Nonetheless, the inflation reading is still better than January’s; food prices were muted even as energy prices rose. 

🎲The road towards the 2% inflation target will be filled with bumps, and investors should not expect the Fed to cut rates aggressively. 

Owner-equivalent rent (OER), along with shelter costs, has been the main cause of high inflation. The good news is that they are now coming down, as seen in the February data. This bodes well for future inflation data since they account for 1/3 of the CPI measurement. 

🥁Next, investors shall look to Thursday’s PPI data for further clues about the inflation narrative. Recall that we had warm CPI and PPI last month, which drove the market down. Nvidia’s robust earnings saved the day. If the print comes hotter, there might not be a white knight to save the day. 

📪What’s on the menu today? 🖨

We have a 30-year Auction at 1 a.m., similar to yesterday’s 10-year Auction; we need to see a healthy bid ratio to ensure the bull market is sustainable. We are seeing more issuance in the short term, putting pressure on the bond yield, which has risen despite Nasdaq and S&P 500 moving higher. 

It is 13 March, Wednesday, 9 am in Singapore and 9 pm in New York. The market bull regained momentum, and our hedge positions ate away at our performance. We remain nimble and explore shorter-term trading to navigate this off-seasonal pattern performance better thus far. We are seeing good progress in Chinese counters, which should help overall market sentiment. It is also rare to see the US and Chinese markets moving north together. 

We hope you have a splendid day at work and in school.