November 10, 2022 Headlines

Financial markets are rallying sharply following a greater than expected decline in both headline and core CPI for October. Fifteen minutes following the data release, S&P 500 futures are up more than 3%, and front-end Treasury yields are down 20-25 basis points. Core prices rose 0.3% m/m versus expectations of a 0.5% gain, and the downside surprise was mostly attributable to declines in used vehicle prices (-2.4% m/m) and medical care (-0.5% m/m), as well as moderation in the more heavily weighted category of owners’ equivalent rent (OER) to 0.6% (still high). Today’s report fuels the narrative that peak inflation has been reached, but unfortunately, that narrative has emerged multiple times in 2022 and proved to be premature. Regardless, markets have eagerly sought any signs of a pivot, and today’s report helps on that front. If nothing else, it solidifies market pricing for a smaller 50 basis point rate hike at the December meeting (for now at least), and market pricing for the terminal fed funds rate is now 4.85%, down 30 bps from last week’s levels.

We would be more cautious in assuming today’s report represents a paradigm shift with regard to inflation risks. As noted yesterday, used vehicle prices, which are typically more volatile month-to-month, were expected to fall in October (just a matter of how much), and the largest component in the core CPI calculation – shelter costs – is expected to remain elevated for several months. Fed Chair Powell has made clear that the mistakes of prematurely ending tightening cycles in the 1970s are fresh on the minds of current Fed leaders, hence the ‘higher for longer’ guidance. The irony in today’s market reaction is that loosening of financial conditions via the rally in equities and bonds actually works against the Fed’s effort to suppress these inflation risks.  All that said, a bond market rally of both rates and spreads is certainly a welcomed sight for this portfolio manager.

Jason Haley
Chief Investment Officer

11/10/2022CPI MoM0.60%0.40%0.40%
11/10/2022CPI Ex Food and Energy MoM0.50%0.30%0.60%
11/10/2022CPI YoY7.90%7.70%8.20%
11/10/2022CPI Ex Food and Energy YoY6.50%6.30%6.60%
11/10/2022CPI Index NSA298.524298.012296.808
11/10/2022CPI Core Index SA300.1299.471298.66
11/10/2022Real Avg Hourly Earning YoY-2.80%-3.00%
11/10/2022Real Avg Weekly Earnings YoY-3.70%-3.80%
11/10/2022Initial Jobless Claims220k225k217k218k
11/10/2022Continuing Claims1492k1493k1485k1487k
11/10/2022Monthly Budget Statement-$90.0b-$165.1b
11/11/2022U. of Mich. Sentiment59.559.9
11/11/2022U. of Mich. Current Conditions62.865.6
11/11/2022U. of Mich. Expectations55.556.2
11/11/2022U. of Mich. 1 Yr Inflation5.10%5.00%
11/11/2022U. of Mich. 5-10 Yr Inflation2.90%2.90%
11/15/2022PPI Ex Food and Energy YoY7.20%7.20%
11/15/2022PPI Final Demand MoM0.50%0.40%
11/15/2022PPI Ex Food and Energy MoM0.40%0.30%
11/15/2022PPI Ex Food, Energy, Trade MoM0.40%0.40%
11/15/2022Empire Manufacturing-5-9.1
11/15/2022PPI Final Demand YoY8.40%8.50%
11/15/2022PPI Ex Food, Energy, Trade YoY5.60%
11/15/2022Bloomberg Nov. United States Economic Survey
11/16/2022MBA Mortgage Applications-0.10%
11/16/2022Retail Sales Advance MoM0.90%0.00%
11/16/2022Retail Sales Ex Auto MoM0.60%0.10%
11/16/2022Retail Sales Ex Auto and Gas0.20%0.30%
11/16/2022Retail Sales Control Group0.30%0.40%
11/16/2022Import Price Index MoM-0.50%-1.20%
11/16/2022Import Price Index ex Petroleum MoM-0.50%
11/16/2022Import Price Index YoY6.00%
11/16/2022Export Price Index MoM-0.50%-0.80%
11/16/2022Export Price Index YoY9.50%
11/16/2022Industrial Production MoM0.00%0.40%
11/16/2022Capacity Utilization80.40%80.30%
11/16/2022Manufacturing (SIC) Production0.40%
11/16/2022Business Inventories0.50%0.80%
11/16/2022NAHB Housing Market Index3638
11/16/2022Net Long-term TIC Flows$197.9b
11/16/2022Total Net TIC Flows$275.6b
11/17/2022Housing Starts1425k1439k
11/17/2022Building Permits1520k1564k
11/17/2022Housing Starts MoM-1.00%-8.10%
11/17/2022Building Permits MoM-2.80%1.40%
11/17/2022Philadelphia Fed Business Outlook-5-8.7
11/17/2022Initial Jobless Claims225k
11/17/2022Continuing Claims1493k
11/17/2022Kansas City Fed Manf. Activity-7


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