Well here we go once again – time for a new monthly release of inflation numbers–markets will likely react very strongly–one way or another. Actually strong reactions already started as investors ‘bailed’ on stocks in the final 2 hours of trading as the S&P500 closed 1% lower after being near break even most of the day–the fear of an ugly high consumer price index release is considerable.
Tomorrow the consensus forecast is for the CPI to be at 8.8% year over year versus last months 8.6%. Core CPI is forecast at 5.7% versus 6.00% a year ago. Core month over month is forecast at .6% flat from May.
Almost without a doubt there will be some numbers that are ‘off the mark’. If inflation is running as hot as expected (or hotter) the Fed has another arrow in the quiver for a 75 basis point increase in Fed Funds later this month. The strong jobs report last week was the 1st arrow and inflation will likely be the 2nd arrow for the July 75 basis point hike–and these 2 will be adequate to cement the rate increase.
The bond market is still trumpeting ‘recession’ as the 10 year treasury yield rose to as high as 3.10% last week after the release of the jobs numbers, but has fell back to as low as 2.90% today, before closing at 2.96%.
So tomorrow will we see the 10 year yield at 2.80%? Or will we see 3.20%? I have no clue, but will be watching closely to see how preferreds and baby bonds react because I still have plenty of dry powder available for investment.