CPI Spike 0.2%⬆️: MUST-Know Trading Strategy!

Key Takeaways

Last night, September's consumer price index (CPI) data revealed higher-than-expected core inflation, while initial jobless claims surged unexpectedly in early October.

The S&P 500, which had recently reached a record high, is now navigating the implications of these economic indicators for Federal Reserve rate decisions.

CPI Insights

The CPI rose by 0.2% in September, exceeding forecasts of 0.1%.

The 12-month inflation rate fell slightly to 2.4%, down from 2.5% in August but above the expected 2.3%. Critically, this is the lowest that inflation has been in 3 years. This also represents the fourth month in a row where year-over-year price changes have remained under 3%, along with the third consecutive month of decreasing inflation rates.

Core CPI, excluding volatile food and energy prices, increased by 0.3%, matching predictions.

However, the year-over-year core inflation rate climbed to 3.3%, surpassing expectations of 3.2%.

Breakdown of Core CPI

• New Vehicle Prices: Increased by 0.2% from August.

• Used Car Prices: Rose 0.3% month-over-month but fell by 5.1% year-over-year.

• Core Services Prices: Jumped by 0.4%, driven by a 1.4% rise in transportation services and a 0.7% increase in medical care services.

• Owner’s Equivalent Rent: Rose by 0.3% from August.

• Healthcare Services: Physicians' services increased by 0.9%, the largest rise since February 2021.

Jobless Claims Spike

In the week ending October 5, initial jobless claims unexpectedly surged by 33,000, reaching a total of 258,000.

The rise was partly attributed to Hurricane Helene and Milton, which affected several states, including North Carolina and Florida. While claims in Washington state rose by a modest 1,744, other states saw more significant jumps, indicating possible relocation of affected workers filing claims elsewhere.

Despite these figures, analysts like Oliver Allen from Pantheon Macroeconomics suggest that this spike does not signal a major decline in the overall labor market. However, claims could continue to rise, potentially reaching 300,000 in the coming weeks.

Fed Rate-Cut Speculation

The market’s initial reaction favored the jobless claims data over the core CPI inflation numbers.

Following the CPI and jobless claims reports, the odds of a Fed rate cut on November 7 initially rose to about 90%, but dropped to 80% after Atlanta Fed President Raphael Bostic suggested a potential pause in rate cuts.

The likelihood of a total 50 basis points cut by year-end also decreased from 87% to 79% post-Bostic’s comments.

While recent job reports suggest that rapid rate easing may not be forthcoming, there’s still room for cuts as the federal funds rate remains relatively high.

Upcoming labor market data will be challenging to interpret due to ongoing impacts from the Boeing strike and hurricane-related disruptions.

Looking Ahead: PPI and Stock Market Reactions

The producer price index (PPI) data set to be released will further influence Fed rate expectations, as it significantly contributes to the Fed's primary inflation measure, the core PCE price index. Economists predict that both overall and core PPI will rise by 0.2% for September.

As for the stock market, the S&P 500 faced a slight decline of up to 0.44% following the CPI and jobless claims news, despite having reached a record high earlier in the week. With a year-to-date increase of 21.4%, investors are watching closely for any signs that might indicate shifts in economic policy and market performance.

Stay tuned for updates as these economic indicators continue to unfold!

As we reflect on the recent economic shifts revealed by the latest CPI and jobless claims data, it's essential for investors to stay informed and adaptable.

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Details
Date: 11th October 2024 (Tonight)
Time: 8:30PM (GMT+8)

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