Tomorrow we have the official inflation gauge released by the federal government.
Of course we can choose to believe or not believe whatever the number is that is released in the CPI report–I choose to not believe it–BUT I care how markets react to the number.
The estimate on the consumer price index is up .3% which would be a slight increase from last months .2%. Core inflation is estimated at .1%, again up slightly from the 0 last month (core inflation removes food and energy from the calculation).
I have no idea where the numbers will fall and I don’t think equity markets will give a rip–if the number is ‘hot’ analysts will say the increase is ‘transitory’ (moving from a recession to growth). The economy remains awash in liquidity and markets will probably move higher for the foreseeable future.
Interest rates markets will be a bit more cautious. Interest rates keep trying to move higher, but haven’t gotten over the 1.19% hump yet–the 10 year treasury closed at about 1.16% today. I am looking at March, 18th last year where rates popped to 1.27% which is the highest close in the last year, after dropping sharply from 1.90% at the end of 2019. So I would not be surprised to see the 10 year move into the 1.20’s%.
Does it matter if the 10 year moves higher? Almost always the move will be tolerated if it is slow. For instance if we see a move to say 1.25% in a day and then a back and fill direction–no big deal–I don’t think income issues would flinch. If rates go from 1.16% to 1.30% in a day there will be some pain in the quality issues (i.e. low coupon).
Of course I will not react to any movement—you can’t react to 1 piece of data. It is almost always a losing proposition to try to move around your positions based on a couple pieces of data–save your energy and sit back and watch.