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U.S. equity indexes rally: Nasdaq and S&P 500 both up >2%
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All S&P 500 sectors green: consumer staples lead gains
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Euro STOXX 600 index rises ~1.6%
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Dollar flat; gold dips; crude down <1%; bitcoin up ~7%
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U.S. 10-Year Treasury yield rises to ~3.63%
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GOLDILOCKS LIKES HER PORRIDGE ON THE COOL SIDE: CPI, NFIB (1135 EDT/1535 GMT) Eagerly awaited inflation data arrived on Tuesday like the weather - damp, to be sure, but not quite as damp as forecast. As predicted, the consumer price index (CPI) notched a 0.4% monthly gain in February, and 6% year-on-year, nailing the consensus and furthering the gradual cool-down narrative. Stripping out volatile food and energy prices, so-called core CPI gathered some unexpected heat, rising 0.5% compared with January's 0.4% gain. On an annual basis, core price growth cooled a smidge, shedding 10 basis points to 5.5%. A deeper dive into the Labor Department's consumer price index (CPI) report, which tracks the prices U.S. urban consumers pay for a basket of goods and services, reveals a 0.6% drop in energy items and a 1.4% decline in heating fuel and utilities. Both of those were offset by a 0.4% rise in food, a 0.5% advance in services, a 0.8% increase in shelter, and a jumbo-sized 6.4% monthly jump in airfares. Airfares continue to be the outlier, up a nosebleed-inducing 26.5% year-on-year. In light of the ongoing regional banking kerfuffle, the report shifted expectations around whether the Federal Reserve will hike or pause at the conclusion of next week's two-day monetary policy meeting.
"The Federal Reserve is going to have to pick its poison," says Jamie Cox, managing director for Harris Financial Group. "(The Fed will either) tolerate some inflation for a bit to see if its current series of rate hikes takes hold and pause or keep hiking and deal with the financial instability caused by their own policy decisions."
Here is a graphic showing core CPI with other major
indicators, and how far most of them have yet to descent before
approaching Powell & Co's average annual 2% inflation target:
The report also marks the 15th consecutive month in which
core CPI ran hotter than average wage growth, meaning "real"
wages have been falling now for well over a year.
As a result, the spending power of American consumers - who
shoulder about 70% of the U.S. economy - is steadily declining.
For now, consumers are dipping into savings and running up
credit card balances to meet demand. It's a worrisome state of
affairs and can't go on forever.
Tuesday's statuette for best performance by an indicator in
a supporting role went to the National Federation of Independent
Business (NFIB), which showed the mood of small business owners
continued to inch away from doom and gloom last month.
The NFIB's Optimism index rose to 90.9 from
90.3 last month, with an improved sales outlook and a healthy
60% of respondents reporting capital outlays.
Those things helped offset the historically high 47% of
participants who have job openings that were hard to fill,
reflecting ongoing challenges of a tight labor market.
Inflation and labor quality remained the top two most
important problems small business owners face, according to the
survey.
"Small business owners remain doubtful that business
conditions will get better in the coming months," write Bill
Dunkelberg, chief economist at NFIB. "They continue to struggle
with historic inflation and labor shortages that are holding
back growth."
It should be noted that the NFIB is a politically active
membership organization that skews conservative, according to
the Center for Responsive Politics/opensecrets.org.
For its part, Wall Street rallying in a bounce back from its
recent sell-off ignited by contagion fears arising from the
regional banking crisis.
Financials and smallcaps , up >3%, were having
a better day than most, with the S&P 500 banking index ,
up 3%, erasing some losses from Monday, which saw its biggest
one-day percentage plunge since June 2020.
(Stephen Culp)
*****
BANKS: COULD THE WATER BE SAFE (ISH) AGAIN? (1032 EDT/1432 GMT) After taking a severe beating on Monday and last week, shares in U.S. banks are regaining some lost ground on Tuesday on hopes that moves by the government to restore confidence in banks would succeed in averting a bigger financial crisis.
The collapse of three U.S. banks between Wednesday and Sunday sent bank investors fleeing on Monday with memories of the 2008/2009 great financial crisis returning with a vengeance. On Sunday, the U.S. government offered a new loan program for banks and said it would make sure customers of the failed banks would have access to their deposits as it looked to stem a broader fallout from the sudden collapse of startup-focused lender Silicon Valley Bank, owned by SVB Financial and Signature Bank which was taken over by authorities on Sunday. Crypto lender Silvergate said Wednesday that it would have to wind down its operations.
After Monday brought the S&P 500 Banks index its biggest one-day sell-off since 2020 with an almost 7% drop, the index is up ~3% on Tuesday. Of course this only erased a small portion of the deep losses the sector incurred in the previous six-day losing streak, but under the hood are some big moves in the regional bank stocks that had been hit hardest. First Republic shares are up ~48% on Tuesday after losing ~75% of their value in the previous six sessions. The bank last traded close to $49, down from $123.22 on March 3, before the sell-off began. Keycorp is up ~14% on Tuesday, while Zion Bancorp is up ~15%. Investors had also reacted to the banking crisis with bets that it would lead the Federal Reserve to slow or stall its rate hiking cycle aimed at taming inflation.
In a way, Angelo Kourkafas, investment strategist at Edward Jones, said the crisis may help the broader market as it is "doing some of the Fed's work for the Fed."
"Financial conditions have tightened. Banks are likely to be more conservative and tighten lending conditions and that could cool economic activity and inflation," said Kourkafas. "That's why the Fed might be more comfortable pausing earlier than it would have without the bank rout we've had." Here is a snapshot of S&P 500 banks from 1032 EDT:
(Sinéad Carew)
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U.S. STOCK FUTURES GREEN ON ROUGHLY IN-LINE CPI (0900 EDT/1300 GMT) U.S. equity index futures are in positive territory in the wake of the release of the latest data on U.S. inflation. The February CPI on a month-over-month and year-over-year basis came in flat with estimates. The month-over-month core reading was slightly above the estimate, while the year-over-year reading was in-line with the estimate:
According to the CME's FedWatch Tool, the probability of a 25 basis point rate hike at the March 21-22 FOMC meeting is now 92% from 78% just before the numbers were released. There is now around a 8% chance that the FOMC will leave rates unchanged from around 22% prior to the data coming out. CME e-mini S&P 500 futures are gaining around 1.1%. The futures were up around 0.9% just before the numbers came out.
All S&P 500 sector SPDR ETFs are higher in premarket trade. Financials are showing the biggest gain, up about 4%. A check of premarket action in banking ETFs shows the SPDR S&P Bank ETF gaining more than 7%, while the SPDR S&P Regional Banking ETF is up 10%. Regarding the inflation data, Angelo Kourkafas, investment strategist at Edward Jones, said, "Today's report suggests that the Fed has more work to do. It's not dissimilar to January's report. We continue to see inflation slow down but not at the pace we were hoping to see." Here is a premarket snapshot just shortly after 0900 EDT:
(Terence Gabriel, Sinéad Carew)
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FOR TUESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
