CPI, inflation at the consumer level, rose .4% in February, .1% higher than market expectations. The “core” index, which strips out food and energy prices due to their volatility, rose .2%. Again, .1% higher than we were looking for. Most of the gains are due to rising energy prices which grew at the fastest pace since July 2008.
On a seasonally adjusted basis, overall inflation fell .5% annually. Not bad but something to watch as we move towards year end.
The big story of the day will be any change in Fed Funds rate (not expected) and what the FOMC has to say in their policy statement. The policy statement will be the key, either moving towards a more aggressive end to the recession (3rd or 4th quarter of 2009) or pushing out expectations well into 2010.
The 2009 bias will rally stocks and put pressure on MBS and treasuries. The 2010 missive will probably rally our market and send stocks reeling. We also want to watch for their view on buying long term treasuries and the continuance of MBS purchases. All the news will hit at 1:15 pm cst today. Currently, most markets are treading water with stocks down 80 points, the 10 year note up 10/32’s (yield 2.97), and mortgage backed securities up 2/32’s.
I have attached a chart of the 10 year note. You can see that the note is trading at the lower trend line of a triangle pattern that has been in vogue since February. We should continue to stay within the range, meaning that improvement towards a yield of 2.88% would be in order. One word of caution is that this pattern is coiling towards the apex which will eventually lead to a breakout. When that happens, the 64,000 question is always “which way.”
Today could be a game changer so pay close attention to the market’s reaction at 1:15.