February CPI Comes In Line with Expectations; Markets React

The February Consumer Price Index (CPI) showed that prices rose 6.0% year-over-year, the smallest increase since September 2021, and in-line with economist expectations.^[0] Core CPI, which strips out food and energy, grew 5.5%, also in-line with expectations.^[1] The CPI rose 0.4% in February from January, matching expectations, and the core CPI rose 0.5%, higher than the 0.4% estimate.^[2] Markets rallied Tuesday morning, as crucial inflation data came in line with expectations.

The disinflation rate dropped 40 basis points last month, returning to the healthy pace of disinflation that we saw in late 2022.^[3] While this was a positive sign, inflation remains well above the Federal Reserve's 2.0% target, which could put pressure on the U.S. Dollar and U.S. dollar denominated assets in international markets.^[4]

Analysts are predicting that the Fed will raise the interest rate by a quarter point at its March 21-22 meeting and at its next two gatherings to a 5.25%-5.5% range.^[5] However, the recent banking turmoil and the collapse of Silicon Valley Bank and Signature Bank have led markets to a broad repricing of the Fed’s interest-rate path, leading traders to now bet on a 25 basis point hike instead of the previously expected 0.50% increase.^[6]

In other markets, Bitcoin hit a nine-month high early in the day, soaring past $26,000 shortly after CPI was released.^[7] The price of West Texas Intermediate crude oil decreased by 4.4%, settling at $71.50 per barrel^[0] On March 14, U.S. stocks experienced a resurgence, with shares of regional banks bouncing back from recent drops caused by instability in the banking industry.^[8]

GTLB shares tumbled by 30% in the opening trading session due to the company's below-forecasted revenue forecast.^[2] It was a tough day for airline stocks as well, with United Airlines (UAL), Alaska Air Group (ALK), and Southwest Airlines (LUV) all dropping on news of losses and flight disruptions.^[9]

0. “Easing Consumer Inflation Pushes Equities Higher” msnNOW, 14 Mar. 2023, https://www.msn.com/en-us/money/markets/easing-consumer-inflation-pushes-equities-higher/ar-AA18CXjI

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

2. “Dow Jones Rallies On Key Inflation Report; First Republic Surges 62% On Easing Bank Fears” Investor's Business Daily, 14 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-rise-ahead-of-key-inflation-report-first-republic-surges-43-on-easing-bank-fears/

3. “Disinflation Is Gaining Momentum: Why a Rally Is Next” InvestorPlace, 15 Mar. 2023, https://investorplace.com/hypergrowthinvesting/2023/03/disinflation-is-gaining-momentum-why-a-rally-is-next/

4. “Find Strong Stocks to Buy in March with New Analyst Coverage” Zacks Investment Research, 14 Mar. 2023, https://www.zacks.com/commentary/2065686/find-strong-stocks-to-buy-in-march-with-new-analyst-coverage

5. “Fed Preview: Rate hikes to continue despite volatility – Danske” FXStreet, 17 Mar. 2023, https://www.fxstreet.com/news/fed-preview-rate-hikes-to-continue-despite-volatility-danske-202303172031

6. “Expectations tilt firmly towards 25 bps Fed hike, spurred by banks crisis, ECB decision” Seeking Alpha, 16 Mar. 2023, https://seekingalpha.com/news/3948386-expectations-tilt-firmly-towards-25-bp-fed-hike-spurred-by-bank-crisis-ecb-decision

7. “Forexlive Americas FX news wrap 14 Mar: US CPI is not scary as trader adjust expectations” ForexLive, 14 Mar. 2023, https://www.forexlive.com/news/forexlive-americas-fx-news-wrap-14-mar-us-cpi-is-not-scary-as-trader-adjust-expectations-20230314

8. “U.S. Stocks Rally On Bargain Hunting After Inflation Data, End On Upbeat Note” RTTNews, 14 Mar. 2023, https://www.rttnews.com/3350278/u-s-stocks-rally-on-bargain-hunting-after-inflation-data-end-on-upbeat-note.aspx

9. “Markets Gain on Bank Rebound, Inflation Report” Investopedia, 14 Mar. 2023, https://www.investopedia.com/markets-gain-on-bank-rebound-inflation-report-7255405