Mid-Week Update

Post-CPI

US core CPI was at 0.358% MoM, rounding up to 0.4% in February. This was stronger than the unrounded 0.3% consensus estimate. The very important “Supercore” non-shelter services element was up 0.47% MoM, which continues on the theme that the disinflationary force is quickly fizzling out. The implied read-through to PCE would suggest a 0.2% MoM print.

The picture is slowly starting to change, where facts are diverging from narratives posted to us by the Fed. Those numbers aren’t great. We have been pushing out the can several times, but at some point, the market will have to wake up to the likely scenario that a 2%-handle won’t be coming soon.

Read also my post on a possible inflation revival below.

The sharp US Treasury sell-off post-CPI was briefly corrected before resuming the initial trend higher in yields. Risk markets initially also disliked the number but then resumed the rally as markets opened.

I have updated both bond allocation models yesterday, while also getting the latest read on the liquidity driven SPX model. You can read the details below.

Let’s now examine what the models have been telling us about yesterday’s market moves.