U.S. CPI Tops Estimates as Apparel Costs Jump Most in 30 Years
U.S. consumer prices rose by more than projected in January as apparel costs jumped the most in nearly three decades. The report sent Treasuries and stocks tumbling, as it added to concerns about an inflation pickup that have roiled financial markets this month. The consumer price index rose 0.5 percent from the previous month, above the median estimate of economists for a 0.3 percent increase, a Labour Department report showed Wednesday. Excluding volatile food and energy costs, the so-called core gauge increased 0.3 percent, also above forecasts for 0.2 percent. It was up 1.8 percent from a year earlier, higher than the 1.7 percent estimate. The yield on 10-year Treasuries rose to 2.86 percent, while U.S. stock futures fell, as the figures renewed investor concerns that the Federal Reserve will raise interest rates at a faster pace than anticipated. The data followed wage figures earlier this month sent Treasury yields spiking and started a rout in equities that pushed them into the first correction in two years. “Some of the laws of normal economic nature seem to be reasserting themselves,” Nathan Sheets, chief economist for PGIM Fixed Income and a former Fed and Treasury official, said on Bloomberg Television. While Sheets said he wouldn’t raise his outlook for the path of inflation, the report “gives me increased confidence that we are in a place where inflation is likely to be gradually rising more or less in line with the Federal Reserve’s forecast and consistent with an economy where we are seeing diminished slack, strengthening labor markets, solid growth.” The 1.7 percent monthly gain in apparel prices, which account for about 3 percent of the CPI, was the biggest since 1990. Women’s apparel costs jumped a record 3.4 percent, the report showed.
U.S. Stocks Rally as 10-Year Yield Reaches 2.9%: Markets Wrap
U.S. stocks extended a rebound while Treasury yields rose to a four-year high as economic data supported expectations that the Federal Reserve will maintain a gradual approach to raising interest rates. The S&P 500 Index climbed for a fourth day as banks and durable-goods makers rallied, returning the gauge to a gain for the year after it fell more than 10 percent from a January peak. Gold rallied and the dollar slumped as the 10-year yield topped 2.9 percent. Signs of an inflation pickup have roiled financial markets this month, and stock futures tumbled early Wednesday on concern the Fed would quicken its pace of tightening following data that showed faster-than-forecast inflation. Those fears receded as investors digested a separate report showing weak retail sales that raised questions about the economy’s strength. “We’re trying to weigh how much each data point is going to matter,” said Kristina Hooper, the chief global market strategist at Invesco Ltd. “It’s about building a case for the FOMC.” New Fed Chairman Jerome Powell suggested Tuesday that the Federal Open Market Committee would forge ahead with gradual tightening even as it keeps an eye on financial-system risks following the recent equity rout. Oil rallied past $60 a barrel after a smaller-than-expected increase in U.S. supplies in storage. In Europe, stocks advanced as investors traded on earnings from companies including Credit Suisse Group AG. The yen’s rise to a 15-month high weighed on Japan’s Topix index, while shares in Seoul, Hong Kong and Shanghai gained before a weeklong Lunar New Year holiday.
Economists Expect a U.K. Interest Rate Hike in May
Economists who were slow to predict the first Bank of England interest-rate hike in a decade last year now expect the next one to come in May, but the decision is seen as being on a knife-edge. In Bloomberg’s monthly survey, 21 of the 41 economists predict a move to 0.75 percent that month, far earlier than the previous prediction in January. Last year a majority of economists didn’t foresee the November rate increase until a month before the decision, well after markets had priced it in. In the latest survey, a further eight economists see a hike in August, with the accelerated outlook reflecting a shift in market pricing since the start of 2018. The BOE said Wednesday that companies are expecting to increase their this year to the highest since the financial crisis due to the rising cost of living, staff shortages and the jump in the national living wage. For the central bank, that’s evidence that currency-driven inflation since the Brexit vote is turning into domestic cost pressures. Governor Mark Carney said last week that rates may need to rise at a steeper pace than previously thought to prevent the economy from overheating. While Brexit remains a threat to the outlook, the bank is concerned that the economy can’t grow as fast as in the past without generating inflation pressures. BOE official Gertjan Vlieghe hammered home that message on Monday, saying that more than three increases will be needed across the institution’s three-year horizon. The median estimate among analysts is for a further tightening in February next year, making them more bullish than markets. Investors see about a 75 percent chance of a hike in three months, from around 40 percent at the start of the year, with a second move fully priced in for May 2019.
Hong Kong Stocks End Year of Rooster With Best Surge Since 2015
Hong Kong shares closed out the Lunar New Year in buoyant fashion, completing their biggest three-day gain since October 2015. The Hang Seng Index rose 2 percent after U.S. traders shook off inflation concerns overnight, taking its three-day advance to 5.6 percent. The H-share index also climbed for a third day. Equity trading in Hong Kong ended at noon and will resume on Feb. 20, while Chinese onshore markets are closed through Feb. 21. Equity bulls had the last say of the year in a city that has hosted both the world’s worst selloffs and steepest rallies in recent weeks. The Hang Seng Index posted a 33 percent gain in the Year of the Rooster, rounding off one of its longest bull markets with some of the most volatile trading since China’s equity bubble burst in 2015. Hong Kong’s stocks clocked in eight record highs in January before bearing the brunt of a global selloff. If history is any guide, investors may face another wild ride in the Year of the Dog. With a price-to-earnings ratio of just 11.9, Hong Kong shares still trade at a discount to mainland markets. Chinese investors typically take advantage of a stock trading link to buy the city’s cheaper shares. Southbound trading was last open Monday, before the Hang Seng Index staged its rebound.