*
Main U.S. equity indexes red; DJI off most, down ~0.5%
*
Comm svcs weakest S&P 500 sector; cons disc sole gainer
*
Euro STOXX 600 index up ~0.3%
*
Dollar, gold ~flat; crude declines; bitcoin gains
*
U.S. 10-Year Treasury yield rises to ~3.77%
Welcome to the home for real-time coverage of markets brought to
you by Reuters reporters. You can share your thoughts with us at
COULD HIGHER OIL PRICES DENT THE YEN? (1120 EST/1620 GMT)
The Japanese yen has rebounded from a 32-year low against
the U.S. dollar and may post further gains if the Bank of Japan
unwinds its ultra-loose monetary policies including yield curve
control (YCC), as many expect. But a big jump in oil prices
could prove a headwind to further gains if it occurs, according
to Wells Fargo.
The bank also on Tuesday recommended buying the dollar
against the yen, noting that the Japanese currency “is likely to
come up short on fresh positive catalysts for the time being.”
“Much of the focus for USD/JPY has been on moves in U.S.
rates and the surprise YCC tweak from the Bank of Japan in
December. However, the sharp move lower in USD/JPY from late
2022 is also partly a terms-of-trade story,” analysts Erik
Nelson and Jack Boswell said in a report.
Japanese commodity import prices have been moving lower
since last year and natural gas import prices have declined
sharply since mid-2022, Wells Fargo said.
But while Japan has shifted more towards natural gas over
the past few decades, oil is still its primary source of energy
and its largest energy import. That means that “a jump in oil
prices can provide a fresh negative shock to Japan’s terms of
trade,” even if Japanese coal and natural gas import prices
remain subdued.
Another way that higher oil prices could hurt the Japanese
currency is through higher U.S. inflation expectations. That is
because the correlation between changes in 10-year breakeven
inflation levels and oil prices is quite strong, and moves in
the dollar/yen are also strongly correlated with 10-year
Treasury yields, Wells Fargo said.
With Japan’s terms of trade potentially worsening, the onus
for further gains in the yen “would increasingly shift toward
further BoJ tightening.”
Japan's government is likely to appoint academic Kazuo Ueda
as the next Bank of Japan governor when Haruhiko Kuroda’s second
term ends in April.
But further yen gains may be unlikely “until the new BoJ
governor and deputy governor candidates have their scheduled
hearings,” Wells Fargo said. “Even then, we doubt Ueda would
want to make a splash with hawkish comments before he takes
office.”
At the same time, "resilient U.S. data and still-high core
U.S. inflation should keep some upward pressure on global rates
as rate cuts are further priced out of the U.S. curve."
The bank recommends buying USD/JPY at 132.25 with a target
of 134.85 and a stop at 131.55. The yen was last at
132.54 against the dollar.
(Karen Brettell)
*****
CPI: THE LONG, ROCKY PATH DOWN INFLATION MOUNTAIN (1045
EST/1545 GMT)
Tuesday's CPI report for January was among the most closely
watched inflation releases in a while, landing at a time when
market participants are looking to the Federal Reserve for signs
of a pause in its hawkish war on inflation.
The Labor Department's consumer price index (CPI) , which tracks the prices urban consumers pay for a
basket of goods and services, stuck the consensus landing on a
monthly basis, heating up to 0.5% from December's 0.1%, largely
due to a 2% jump in energy prices.
Stripping out volatile food and energy items, "core" CPI
repeated the prior month's 0.4% print.
But year-over-year is where the money is, as Powell & Co has
clearly stated it would like to see annual inflation approach
its average 2% target before considering anything so rash as a
policy pivot.
Here, headline and core cooled a bit, but not to the extent
analysts expected - coming in at 6.4% and 5.6%, respectively.
"Inflation is easing but the path to lower inflation will
not likely be smooth," writes Jeffrey Roach, chief economist at
LPL Financial. "The Fed will not make decisions based on just
one report but clearly the risks are rising that inflation will
not cool fast enough for the Fed's liking."
Below is a handy gauge of major indicators, showing how far
they've yet to fall before approaching the Fed's 2% annual
inflation target:
Line-by-line, on a monthly basis, gasoline rose 2.4%,
housing fuels rose 1.6%, housing jumped by 0.8%, services gained
0.6% and food and beverage prices increased 0.5%.
On the negative side, new/used auto prices dropped 0.5%,
medical care costs dipped 0.4% and airline fares descended by
2.1%.
Annually, however, food prices have risen 9.9%. Housing is
up 8.2%. Airfares have surged 25.6% and housing fuels/utilities
have jumped 13.2%.
This CPI report marks the 14th consecutive month where core
inflation was hotter than hourly earnings growth, which means
"real wages" have now been in decline for well over a year.
That's not good news for an economy that relies on consumer
spending for approximately 70% of its GDP.
Negative real wage growth "will begin to show up in consumer
behavior, this week’s retail numbers are probably going to show
a decline of 0.6%," says Peter Cardillo, chief market economist
at Spartan Capital Securities. "And with inflation still
elevated, the consumer is bound to change their habits. It’s
just a matter of time."
Here's a look at the annual price growth of select
essentials relative to that of average hourly earnings (energy
prices omitted for considerations of scale):
Tuesday's opening act was the National Association for
Independent Business' (NFIB) Optimism index , which
suggested the mood among small business owners begrudgingly
improved a bit in the opening weeks of 2023.
The index gained half a point to 90.3 - still dismal
compared with the historical average of 98 - with the slight
easing of inflationary worries providing cold comfort.
"While inflation is starting to ease for small businesses,
owners remain cynical about future business conditions," writes
Bill Dunkelberg, chief economist at NFIB. "Owners have a
negative outlook on the small business economy but continue to
try to fill open positions and return to a full staff to improve
productivity."
In the wake of the blowout jobs report on Feb 3, it comes as
no big shock that labor conditions remain tight. While 57% of
the survey's respondents reported hiring/trying to hire last
month, 91% of those reported few or no qualified applicants.
It should be noted that the NFIB is a politically active
membership organization, labeled "conservative" by the Center
for Responsive Politics/opensecrets.org.
Wall Street is taking time to digest the CPI data.
U.S. stocks wavered between red and green, but at last
glance all three major equity indexes are in negative territory.
Alphabet and Amazon.com are weighing
heaviest.
That said, the FANG index , and the chip sector , are both slightly green.
(Stephen Culp)
*****
U.S. STOCK FUTURES GYRATE WITH CPI DATA (0900 EST/1400 GMT)
U.S. equity index futures are around flat in the wake of the
release of the latest data on inflation.
The January consumer price index (CPI) month-over-month
headline number and on a core basis were both in-line with
estimates. The year-over-year headline and core readings were
both slightly above estimates:
The data has increased the market's perception that the Fed
delivers another modest interest rate increase at its March
21-22 FOMC meeting. According to the CME's FedWatch Tool, the
probability of a 25 basis point rate hike has now risen to 94%
from 85% just prior to the numbers being released. There is now
a 6% chance that the Fed raises rates 50 basis points at its
next meeting vs 15% just before the data came out.
E-mini S&P 500 futures are around flat. That's vs a
gain of around 0.4% from just before the numbers were released.
A majority of S&P 500 sector SPDR ETFs are quoted higher in
premarket trade although gains are slight. Materials are
posting the biggest rise, up about 1%. Just industrials and consumer discretionary are slipping.
Regarding the inflation data, Hugh Johnson, chief economist
at Hugh Johnson Economics, said, "You have a little bit of a
negative reaction because these numbers are not going to take
the pressure off the Federal Reserve."
Johnson added, "I think the more important question though
is what will the Federal Reserve do with regard to the terminal
rate when they meet in March, and right now the expectation is
starting to grow that they're going to increase the terminal
rate from 5 to 5 1/2."
"So, if you're looking for some indication that the Federal
Reserve is going to pause, take its foot off the brake, you're
not going to see it in these numbers."
Here is a snapshot of where markets stood around 25 minutes
after the data came out:
(Terence Gabriel, Shashwat Chauhan)
*****
FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
CPI02142023LM premarket02142023 Inflation Core CPI and wage growth NFIB ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
