Daily Brief - CPI's March Madness

TLDR: In the latest economic update, March's CPI data has painted a picture of persistent inflationary pressures, challenging the Fed's target of bringing inflation down to 2%.

The data, released by the Bureau of Labor Statistics, indicates a year-over-year increase of 3.5% in March, outpacing the 3.2% rise observed in February and slightly exceeding economists' forecasts of a 3.4% gain.

Core CPI also presented an unexpected turn. Although the year-over-year rise in core inflation edged down to 3.7% in March from February's 3.8%, aligning with economists' predictions, the month-over-month increase stood at 0.4%. This rate, consistent with February's growth, surpassed expectations of a 0.3% rise, suggesting that underlying inflationary pressures remain robust.

This persistence of inflation is likely to influence the Federal Reserve's monetary policy direction, particularly concerning interest rate adjustments.

With March marking the third consecutive month of elevated inflation rates, it casts doubt on the Federal Reserve's previously anticipated trajectory of three interest rate cuts within the year.

Scenario Spotlight: All aboard the volatility express

The chart above shows the historical 1 month response from the S&P 500, in the past 7 episodes when both ES futures dropped 1.5% and US 10Y yields jumped 15bps in 1 day.

Market Movers: When the ES drops and 10Y yields jump

Here are the historically best and worst performing US sectors:

The top 3 performing assets on a 1-month horizon:

1. S&P Biotech: 6.34%
2. S&P Telecom Select Industry Index: 4.97%
3. S&P Oil Equip: 4.83%`

The bottom 3 performing assets on a 1-month horizon:

1. S&P Homebuilders Select Industry Index: -3.03%
2. S&P Consumer Discretionary: -1.48%
3. S&P Banks Select Industry Index: 0.07%

Asset Spotlight: Biotech 💡

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