It's all about inflation today....
Benchmark Treasuries are off yesterday's yield highs as stocks leak lower this morning after data released in the overnight session indicated increasing inflationary risks abroad.
Asia, Europe data point to mounting inflation risks: (Reuters) - China and India reported higher-than-expected inflation readings on Friday, giving fresh ammunition to central bankers and investors alike who are worried about mounting price pressures in the global economy. Consumer prices in the euro zone also picked up more than expected, while figures due later in the day from the United States are expected to show a similar trend, with the inflation rate still moderate but steadily rising, not least because of higher food and energy costs. Prices of oil and grain, in turn, are climbing in part because of strong growth in China, India and other emerging economies, which have shown the developed world a clean pair of heels since the global financial crisis. "The weakness in markets this week is expected after the smart comeback we have seen recently, with inflationary concerns again coming to the forefront," said Jan Lambregts, global head of financial markets research at Rabobank
Just before the release of domestic CPI data, S&P 500 futures are down 3.5 points to 1,306.75 and Dow futures are 23 points lower at 12,205. The benchmark 10-year note is +10/32 at 101-12 yielding 3.458% and the FNCL 4.5 MBS coupon is +6/32 at 101-17.
Normally warming inflation reports would be bearish for the bond market but
weakness in equities and firm technical support in bonds are
preventing rates from rising this morning. All could change if consumer lever inflation comes in lower than expected and consumer sentiment provides some optimism. These reports are key right now as the market worries about runaway inflation owing to two-and-a-half-year highs in oil prices.
"The headline number continues to be part of the commodity story, as it has been for all of 2011," noted economists at Nomura Global Economics.
One reason for optimism: the producer price index rose 0.7% yesterday, missing expectations for a 1% gain. That decreases the likelihood that consumer prices will have run upwards in March.
Key Events Today:
8:30 - The latest inflation numbers have been putting pressure on the Federal Reserve to begin hiking interest rates or end its program of quantitative easing a bit early. The surge in February's Consumer Price Index was the largest since July 2009, and March is expected to produce the same results: a 0.5% advance in headline prices and a 0.2% gain in core prices.
"Pressures from food and energy continue to build," said economists at RDQ after last month's report. "Not only is headline inflation running at 2.1% over the last year but it is accelerating with the increase over the last three months running at a whopping 5.6% annualized rate."
Economists at BTMU note how rising prices are eating into consumer confidence.
"The March preliminary reading on consumer sentiment showed that sentiment dropped by a whopping -9.3 points while short-term inflation expectations jumped to 4.6% from 3.4%in February," they said. "Higher prices are squashing the revival in consumer spending. Adjust for inflation and real consumer spending is expected to slow sharply to +1.5% in Q1 compared to +4.0% in Q4."
8:30 - The Empire State Manufacturing Survey, the first regional manufacturing report released each month, is anticipated to hold steady at a robust 17.5 in April. The index has come in above zero - the threshold for growth - in each of the past four months and 14 of the previous 15 months.
9:15 - Industrial Production is forecast to rebound by 0.6% in March, following a 0.1% cutback in February and a moderate 0.3% climb to begin the year. Recent reports have been disappointing owing to a two-month downturn in electricity (utility output fell 4.2% last month and 4.5% in January), but normal weather should make this report a clean read on the sector. Economists at BBVA note that 0.6% was the average pace of expansion in 2010.
"The major force behind higher output will be from core manufacturing, based on the evidence from the ISM manufacturing survey and from factory hiring," said economists at IHS Global Insight. "The goods sector of the economy is in a mini-boomlet, and March gains should show that."
9:55 - Consumer Sentiment fell precipitously in March as consumers became concerned with rising prices, the earthquake in Japan, and geopolitical turmoil in the middle-east. Though the stock market has rebounded, economists aren't expecting much improvement. The consensus is for 69.0, or 1.5 points up from March.
"Rising energy and food prices, falling home prices, stock market volatility, and the turmoil in the Middle East have taken their toll on consumer sentiment - especially its expectations component," said economists at IHS Global Insight. "The prospect of a federal government shutdown may also take its toll on confidence."
11:15 - Charles Evans, president of the Chicago Fed, speaks to the Levy Institute at Bard College in New York.
1:30 - Thomas Hoenig, president of the Kansas City Fed, speaks at Purdue University in West Lafayette, Indiana.