This morning’s long-awaited CPI inflation data came in softer than expected and the market loves it. SP500 futures were positive +6pts heading into the 8:30am EST CPI inflation announcement – quickly traded at +94pts post inflation data release. In a market starved for good news, softer inflation is clearly being welcomed.
Quick highlights – we’ll have a deeper dive out later:
- Headline CPI inflation came in at +.4% MoM, better than the +.6% expectation.
- Both core goods and core services experienced MoM deceleration.
- Core goods came in at +.4% which was softer than expected. Used autos prices notably soft, down -2.4% for the month. Used car prices have been falling for 4 months in a row now.
- Core services ex shelter costs was the big surprise: just +.23%, down from +8% MoM.
It looks like inflation is “cooling”. My quick takeaway is that if the Fed was looking for a path to slow the pace of future rate hikes, this data certainly helps that cause. Still a ton of economic releases in the next 30 days but this is a big step in the right direction. If coming economic releases confirm a “cooling” trend with regards to inflation, the market is saying the Fed will do a 50bp hike in December and likely slow to 25 bp soon thereafter. Markets are only forward looking and lack a rearview mirror (unlike us humans). If the future looks like once very elevated inflation is coming down and coming down a lot, a beaten and battered equity market with low investor sentiment readings is ripe for a rally.
Truthfully, we need more “bad news” cuz’ “bad news” now equals “good news”. #badnewsisgoodnews
Chief Investment Officer
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