CPI cools, Fed’s could soften the pedal

Yes, we received the latest CPI data that shows CPI rising by 6% on a yearly basis, in line with expectations. This is consistent with the general sentiment of slowing economic price level increases. It comes at a time when the economic fabric is showing cracks with the collapse of SVB. With that, market participants are pricing more decisively with a 0.25% rate increase.

Markets cheered on the news as major indices rose during the trading session.

Mortgage rate moderation is gold for the housing market

As we see mortgages coming down from the high, it is a relief for many first-time homebuyers who fear being left out in the housing market, given the elevated rate that has eaten into their affordability, at a time when inflation is still roaring.

With inflation weakening, we could see Treasury yield retreating and supporting a further drop in mortgage rates. This is a far cry regarding expectations just a week ago when people talked about a 0.5% rate hike after Uncle Powell opened such a possibility during his testimony to the finance committee.

However, we should hope for still a moderate housing activity as one does not wish to see yet a hot market that could spill over to the rental market and push shelter costs, thus stimulating the CPI again.

What’s on the menu today?

At 8.30 pm, we will have the PPi data. We should see a moderation to 0.4% growth from 0.5% in the prior period.

Core retail sales will also be released concurrently. The expectation is for a decrease of 0.1%, a reverse from the 2.3% growth in the previous reading.

New York Empire State Manufacturing Index could see further deceleration to -8.00 from -5.80. This could further reflect a slowing economy and is in line with a possibility of a mild recession in 2H2023.

It is 15 March, Wednesday, 8.45 am in Singapore and 8.45 pm in New York. The market is back on risk-on sentiment. We wish all friends a smooth trading week ahead.