Inflation Report Keeps Markets On Edge…..

U.S. equities were lower, albeit off the worst levels of the day, in the wake of the highly anticipated June consumer price inflation report that came in hotter than expected and notched a fresh 41-year high. The report boosted expectations that the Fed will remain aggressive and may ramp-up its measures to combat the surging inflation pressures, bolstering worries about the economic implications. Treasuries also gave back some of an early knee-jerk reaction and diverged but yields on the short end of the curve continued to climb, keeping the inversion between the 2-year and 10-year yields intact. The U.S. dollar reversed to the downside after this morning’s rally that took the euro briefly below parity, and crude oil prices edged higher after a choppy day of trading, while gold gained modest ground. Earnings season started to heat up, with Delta Air Lines missing expectations but offering upbeat commentary about current quarter activity, while Fastenal Company matched estimates. In other economic news, mortgage applications declined for a second-straight week, and the afternoon release of the Fed’s Beige Book confirmed continued uneasiness about the pace of inflation. Europe finished with widespread losses following the U.S. inflation report and amid the uneasiness regarding tightening monetary policies on both sides of the pond, while markets in Asia were mixed.

The Dow Jones Industrial Average lost 209 points (0.7%) to 30,773, the S&P 500 Index decreased 17 points (0.5%) to 3,802, and the Nasdaq Composite fell 17 points (0.2%) to 11,248. In moderate volume, 4.1 billion shares of NYSE-listed stocks were traded, and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.46 to $96.30 per barrel. Elsewhere, the gold spot price was $6.90 higher at $1,731.70 per ounce, and the Dollar Index inched 0.1% lower to 108.00.

June consumer price inflation report hotter than expected, mortgage applications decline…..

The Consumer Price Index (CPI) rose 1.3% month-over-month (m/m) in June, above the Bloomberg consensus estimate calling for a 1.1% gain, and compared to May’s unrevised 1.0% increase. The core rate, which strips out food and energy, increased 0.7% m/m, north of forecasts calling for a 0.5% rise and above May’s unadjusted 0.6% increase. Compared to last year, prices were 9.1% higher for the headline rate—a fresh 41-year high—topping estimates calling for the rate to be up 8.8% and above the prior month’s unrevised 8.6% rise. The core rate was up 5.9% y/y, north of projections of a 5.7% gain, but down from May’s unrevised 6.0% rise.

The Department of Labor (DoL) said the increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors. For the core rate, the DoL said while almost all major component indexes increased over the month, the largest contributors were for shelter, used cars and trucks, medical care, motor vehicle insurance, and new vehicles. Among the few major component indexes to decline in June were lodging away from home and airline fares.

The MBA Mortgage Application Index decreased 1.7% last week, following the prior week’s decline of 5.4%. The index was down for a second-straight week as a 2.2% gain in the Refinance Index was more than offset by a 3.6% drop for the Purchase Index. The decline came even as the average 30-year mortgage rate held at the prior week’s 5.74% rate, but was up 265 basis points (bps) versus a year ago.

Treasuries were mixed following the inflation data. The inversion of the 2-year and 10-year notes has held up, with the 30-year bond also now below the 2-year, as the markets grappled with the implications of high inflation and how aggressive the Fed will need to be with its monetary policy.

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