Latest / Markets with Megan: A Quick Financial Markets Update / Assessing Market Reactions to Latest Inflation Data | Episode 134 | 05-15-24

Transcript

Assessing Market Reactions to Latest Inflation Data | Episode 134 | 05-15-24 · Markets with Megan: A Quick Financial Markets Update

• 0:02
  Megan Horneman: We finally got some good news on inflation today.
• 0:04
  Megan Horneman: It is Wednesday, may 15th, and this is your regular segment of Markets with Megan.
• 0:08
  Megan Horneman: We're going to discuss today the consumer price index that we've been waiting for for the month of April, and what you're going to read in the headlines is that inflation is coming down.
• 0:18
  Megan Horneman: This was a great report.
• 0:19
  Megan Horneman: The equity markets loved it and, yes, the equity markets did love this report and the report came in basically as expected.
• 0:27
  Megan Horneman: The trajectory is that inflation is coming down, but what we've often said in our market commentary is it's nowhere near where the Fed wants it to go.
• 0:37
  Megan Horneman: So let me dig into some of the details, give you the good points and the bad points.
• 0:41
  Megan Horneman: So, from a good perspective, if you take out food and energy, consumer prices grew 3.6% on a year over year basis and that's down from 3.8% last month.
• 0:54
  Megan Horneman: So that's good and that's what I think the markets are looking at today.
• 0:59
  Megan Horneman: But let's dig a little deeper and I don't want to put poor cold water on this report because, yes, inflation is moving lower.
• 1:08
  Megan Horneman: We want to see that.
• 1:09
  Megan Horneman: But when you look at the sticky part of it and that's what we focused on a lot when we talk about inflation services, service prices this is still very problematic.
• 1:19
  Megan Horneman: What's considered super core inflation?
• 1:22
  Megan Horneman: So core inflation excludes food and energy because they're very volatile prices.
• 1:27
  Megan Horneman: So it excludes that out.
• 1:28
  Megan Horneman: So you can just get a true sense of where the consumer prices are.
• 1:32
  Megan Horneman: Well, super core inflation takes the services and takes out that food and energy and that is still rising almost 5% on a year-over-year basis.
• 1:43
  Megan Horneman: This is not what the Fed wants to see and in fact it's not moving lower anymore, it's actually moving higher.
• 1:50
  Megan Horneman: Let's talk about some of the things that are a problem in this inflation report.
• 1:54
  Megan Horneman: Motor vehicle insurance anybody who's had to re-up their motor vehicle insurance 23% higher than it was this time last year.
• 2:03
  Megan Horneman: When you look at some of the other areas, whether it's motor vehicle maintenance and repair, that's up 8% on a year-over-year basis.
• 2:11
  Megan Horneman: The owner's equivalent rent is still up close to 6% on a year-over-year basis, but on a monthly basis it is moderating a bit.
• 2:20
  Megan Horneman: So that's good news.
• 2:21
  Megan Horneman: But when you look at some of these things on a three-month annualized basis and again the headline reports aren't going to tell you this and they're not going to focus on this but the headline CPI on a month-over-month basis, if you annualize that in April is up 4.6% on a three-month annualized basis.
• 2:41
  Megan Horneman: That's up from 1.9% in December.
• 2:44
  Megan Horneman: When you look at the core CPI on a three month annualized basis, it's rising 4.1%.
• 2:52
  Megan Horneman: That compares to 3.3% in December.
• 2:56
  Megan Horneman: So what does all this mean?
• 2:57
  Megan Horneman: The markets liked the fact that there was not any major big surprise.
• 3:01
  Megan Horneman: So the markets are higher today.
• 3:03
  Megan Horneman: Bond yields are lower.
• 3:05
  Megan Horneman: That is primarily due to a weak retail sales report.
• 3:08
  Megan Horneman: But the equity markets like this.
• 3:11
  Megan Horneman: They're still pricing in Fed rate cuts this year.
• 3:14
  Megan Horneman: Still, one, if not the chances of two, is very unlikely.
• 3:19
  Megan Horneman: We actually still think that this is pricing interest rate cuts off the table for 2024.
• 3:26
  Megan Horneman: There's just simply no way that the Fed's going to have enough confidence at this point to be able to say that, yes, we are firmly getting to our 2% target.
• 3:36
  Megan Horneman: We're not going to get there this year.
• 3:37
  Megan Horneman: They've said they don't need it to be exactly at 2%.
• 3:41
  Megan Horneman: But some of these underlying components of these inflation readings are things the Fed is going to look at and they're going to say we can stay on hold for longer.
• 3:50
  Megan Horneman: I think you'll see some of the rhetoric from the Federal Reserve get pulled back.
• 3:54
  Megan Horneman: We are seeing that today with the report that hey, higher for longer Keep that in mind.
• 3:59
  Megan Horneman: So we think rate cuts are being pushed into 2025 at this point.
• 4:03
  Megan Horneman: That's barring any major calamity when it comes to economic growth, but at this point inflation is just getting too stubborn and kind of stuck here with the progress that has been made.
• 4:14
  Megan Horneman: That's all we have today.
• 4:15
  Megan Horneman: If you have any comments, questions or feedback, please feel free to reach out to podcasts@verdence.
• 4:20
  Megan Horneman: com and we will be back next week with more economic data and insights into the market.
• 4:24
  Megan Horneman: Thank you,