The core CPI rose less than expected, rising by 0.2% from November versus the 0.3% expected increase. On an annual basis it advanced 2.6%, matching a four-year low. There was some bounce back in shelter costs, which were the largest factor in the overall monthly advance according to the BLS. OER is still the greatest inflationary factor, greatly exceeding tariffs according to Bloomberg.
There was little change in monetary policy expectations because of the data with no chance the Fed will lower rates at their policy meeting later this month. An interest rate reduction is fully priced in by June.
The data was interpreted as painting a “mixed picture” with Fed officials being “pretty comfortable” after 75 bps points of cuts at the past three meetings.
Equites declined nominally even as JP Morgan exceeded expectations, perhaps the result that if the proposed 10% interest rate cap on credit cards occurs, it would threaten to “significantly change its business and would harm the bank and its customers”
Later this week BAC, WFC, GS, C and MS post results. How will their earnings and statements be interpreted?
Industry groups including the Bank Policy Institute and Consumer Bankers Association have said they share the president’s goal of getting more affordable credit but said a cap would be “devasting” for many consumers and small businesses as a 10% cap would greatly reduce credit availability.
Yesterday was a 30-year Treasury auction, an auction where demand was viewed as “robust,” and the recent headlines had no impact on underlying demand. Some counter this view by saying that prices were already discounted going into the auction.
The yield curve steepened.
Will the Supreme Court issue a ruling on the tariffs today? Wednesday is regarded as “opinion day.” As noted several times, most believe the Court will not rule in the President’s favor causing yet even more uncertainty as it may take several years to litigate.
The PPI and retail sales are released today. How will the data be interpreted?
Last night the foreign markets were up. London was up 0.29%, Paris up 0.09% and Frankfurt down 0.46%. China was down 0.31%, Japan up 1.48% and Hang Seng up 0.56%.
Dow and NASDAQ futures are down 0.25% and 0.60%, respectively as the geopolitical environment is weighing upon sentiment. The potential changes are tectonic. BAC topped estimates and shares are higher. WFC missed and shares are nominally lower. The 10-year is up 6/32 to yield 4.15%.
