CPI Data Show Continued Cooling Off in February, Market Bets on 89% Probability of Fed Rate Hike

The latest consumer price index (CPI) data released Tuesday by the U.S. Bureau of Labor Statistics showed a 0.4% month-over-month rise in February and a 6.0% year-over-year increase, both in-line with expectations.[0] The year-over-year rate of inflation slowed from 6.4% in January, representing the slowest annual increase in consumer prices since September 2021.[1] Core CPI, which excludes food and energy, rose 0.5% in February, above the 0.4% estimate.[2]

The market took its cues from the improving longer term trends, driving stocks higher in the first hour.[3] U.S. stock futures inched higher ahead of the CPI report due later in the day as investors awaited clues on the pace of interest rate hikes by the Federal Reserve.

The market was pricing a 73.1% chance of a 25-bp hike at the Fed meeting next week, and 26.9% probability of no hike at all, according to the CME FedWatch Tool.[4] The recent failure of Silicon Valley Bank and Signature Bank has created a more conservative outlook on monetary policy.[4]

Following the release of the Consumer Price Index (CPI) data, the CME FedWatch tool suggested that the likelihood of a 25-basis-point rate hike had risen to 83.4%.[5] The likelihood of no increase in rate has decreased to 16.6% from its original 26.9% following the release of the CPI report.[6]

The Fed now has an 89 percent chance of sticking with a quarter-percent rate hike at its next meeting, according to the CME FedWatch prediction algorithm.[0] Today, markets in the Asia-Pacific region closed the day lower, with U.S. banking stocks suffering considerable drops.[7]

Inflation showed continued signs of cooling off in February but remained stubbornly high and well above the Federal Reserve's 2% target in the year's second month, according to the latest data from the Bureau of Labor Statistics.[8]

Shares of GitLab (GTLB) plummeted by more than 30% following its announcement of a lower-than-expected revenue forecast for the first quarter and the full year, falling short of analysts' predictions.[9] Pre-market trading saw United Airlines Holdings Inc (UAL) drop by more than 6% following the release of a pessimistic outlook for the first quarter of 2023.[9]

0. “Consumer prices rose 6 percent annually in February as inflation eased” The Hill, 14 Mar. 2023, https://thehill.com/business/3899251-consumer-prices-rose-6-percent-annually-in-february-as-inflation-eased/

1. “U.S. stocks open higher after headline CPI data show February inflation was in line with expectations” MarketWatch, 14 Mar. 2023, https://www.marketwatch.com/story/u-s-stocks-open-higher-after-headline-cpi-data-show-february-inflation-was-in-line-with-expectations-25db4863

2. “Stock market news today: Stocks, regional banks rally as CPI comes in as expected” Yahoo News, 14 Mar. 2023, https://news.yahoo.com/stock-market-news-today-live-updates-march-14-2023-112356261.html

3. “Inflation Report Eases Stock Market Jitters; This ETF In Play After Bitcoin Rallies 30% In 3 Days” Investor's Business Daily, 14 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/inflation-report-eases-stock-market-jitters-this-etf-in-play-after-bitcoin-rallies-30-in-3-days/

4. “US inflation cools to lowest level since September 2021” Seeking Alpha, 14 Mar. 2023, https://seekingalpha.com/news/3947226-inflation-rises-in-line-with-forecast

5. “Inflation gauge increased 0.4% in February, as expected and up 6% from a year ago” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/cpi-inflation-february-2023-.html

6. “S&P, Nasdaq surge, Dow adds ~400 points as CPI data boosts bets for smaller Fed hike” Seeking Alpha, 14 Mar. 2023, https://seekingalpha.com/news/3947218-nasdaq-dow-jones-sp500-stock-market-cpi-svb-fallout

7. “Stock Market News Today: Stocks Surge after Inflation Cools in February” TipRanks, 14 Mar. 2023, https://www.tipranks.com/news/stock-market-news-today-u-s-futures-trade-higher-ahead-of-cpi-data

8. “Here’s the inflation breakdown for February — in one chart” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/heres-the-inflation-breakdown-for-february-in-one-chart.html

9. “Stocks Move Higher Before the Open as Investors Await U.S. Inflation Data” Barchart, 14 Mar. 2023, https://www.barchart.com/story/news/15043283/stocks-move-higher-before-the-open-as-investors-await-u-s-inflation-data

Click Here to Leave a Comment Below 0 comments