A tale of two markets

Daily update

Equity markets seem focused on AI, but some of the details in yesterday’s stronger US consumer price inflation data matter. Groceries and electricity prices continue to rise noticeably, and have a strong influence over inflation perceptions and affordability. Affordability concerns have not noticeably changed consumer behavior so far, but they might in future. Rising electricity prices may bolster popular resistance to data centers.
Bonds focused on US central banker Waller’s comments, and the higher inflation readings. Waller did seem willing to embrace a non-oil recession (or at least a notable economic slowdown) in suggesting a 0.5% rate increase. The receding impact of tariff inflation will be something to look for in Friday’s producer price print—there was some reduction in the consumer price data, but less than expected.
Oil prices remain in focus, but the optimism bias of the oil market seems to have run its course for now. The US House of Representatives’ failure to proceed with impeachment hearings against Defense Secretary Hegseth may reduce investors’ expectations for a deal with Iran.
European countries are offering final consumer price inflation data—and while it is nice to be able to make year-over-year comparisons (unlike the US), final figures are almost never revised and do not move markets.