February Inflation Will Guide Fed's Policy Course: Return To 2% Target Faces Challenges
Portfolio Pulse from Piero Cingari
The U.S. CPI report for February is highly anticipated as it's the last key inflation data before the Federal Reserve's rate-setting meeting on March 21. January's CPI exceeded expectations, causing market adjustments for rate cut expectations and impacting SPY and TLT negatively. Analysts predict February's CPI to mirror January's 3.1% year-over-year increase, with a slight uptick in monthly inflation but a decrease in core inflation. Energy prices, especially gasoline, are expected to drive headline inflation.
March 11, 2024 | 4:14 pm
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NEUTRAL IMPACT
The SPDR S&P 500 ETF Trust (SPY) experienced a 1.4% drop following January's CPI report, indicating sensitivity to inflation data. February's CPI could similarly impact SPY, especially if it surprises.
Given SPY's previous reaction to the January CPI report, it's likely to be sensitive to the upcoming February CPI data. However, the market may have already adjusted expectations based on January's surprise, leading to a neutral short-term impact.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80
NEUTRAL IMPACT
The iShares 20+ Year Treasury Bond ETF (TLT) fell 1.7% on the day January's CPI was released, showing high sensitivity to inflation data. February's CPI report could influence TLT, particularly if inflation rates deviate from expectations.
TLT's reaction to the January CPI report suggests a strong sensitivity to inflation data. The expected steadiness in February's CPI might lead to a neutral short-term impact, but any deviation could significantly affect TLT.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80