Stocks Ended Lower Yesterday After Hotter CPI, All Eyes On Today's PPI Inflation Report Stocks closed sharply lower yesterday after an uptick in CPI inflation. Yesterday's Consumer Price Index (CPI) inflation report showed headline inflation up 0.4% m/m, in line with last month's pace, but above the consensus for 0.3%. On a y/y basis, it came in as expected at 3.5% vs. last month's 3.2%. The core rate (ex-food & energy), was up 0.4% m/m, also the same as last month's pace, but above views for 0.3%. On a y/y basis, it came in at 3.8%, which was in line with last month, but also above the consensus for 3.7%.
All in all, it came in pretty close to expectations. But the core rate flattening out vs. ticking lower was a bit of a surprise. With energy prices back on the rise, everybody was expecting the headline number to be up. But since energy (and food) are excluded from the core rate, another decline was expected there, not an increase. We'll get another look at inflation this morning, this time with the Producer Price Index (PPI). CPI is retail inflation, the PPI is wholesale inflation. Last month's PPI showed headline inflation ticking up to 1.6% y/y vs. the previous month's 0.9%. But the core rate came in at 2.0%, which was in line with the previous month. This morning's estimates are calling for the headline number to be up 0.3% m/m vs. last month's 0.6% pace. And 2.3% y/y vs. last month's 1.6%. The core rate is expected to be up 0.2% m/m vs. last month's 0.3%. And 2.3% y/y vs. last month's 2.0%. In other news, we got March's FOMC Minutes yesterday afternoon. Nothing revelatory. But it did underscore the Fed's already known concern that disinflation had slowed, and that they wouldn't be cutting rates until they "gained a greater confidence" that inflation was on a path down to 2%.
The market has pretty much already priced in no rate cut at the May 1 FOMC announcement. But odds coming into yesterday were at a 56.2% likelihood on a rate cut in June. Those odds fell to 19.0% by the end of the day after the CPI report. So all eyes will be on this morning's PPI report. That comes out at 8:30 AM ET. In addition to yesterday's CPI, and FOMC minutes, we also got MBA Mortgage Applications, which showed the Composite up 0.1% with purchases off -4.7% and refi's up 9.9%. We also got Wholesale Inventories which rose by 0.5%, which was in line with estimates, and above last month's -0.3%. Aside from this morning's PPI, we'll also get Weekly Jobless Claims. And we'll hear from Fed policymakers John Williams, Susan Collins, and Rahael Bostic, at different speaking engagements today. Looking forward to next week when earnings season officially starts. Especially since stocks typically go up during earnings season. They soared last earnings season. And could very well do the same again this time. In fact, the odds favor another positive earnings season. In the meantime, we'll see if the market can regroup and find support today. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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