Sensitive moment: Tonight, the US CPI arrives "slowly."
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Investors anxiously await this Friday’s delayed September CPI inflation report during a period of data vacuum, as it will be the only key economic data available right now.
On Friday, the U.S. Bureau of Labor Statistics is about to release the postponed September CPI data. According to a previous research report by Goldman Sachs, the September CPI is expected to rise by 0.33% month-on-month and 3.02% year-on-year, with core CPI rising by 0.25% month-on-month and 3.05% year-on-year.
As WallstreetCN previously mentioned, the U.S. Department of Labor had originally suspended work related to the CPI report under their government shutdown contingency plan, but the Social Security Administration of the U.S. requires third quarter CPI data to calculate and announce annual Cost-of-Living Adjustment (COLA) before November 1.
During the regular economic data vacuum, U.S. Treasury yields have continued to fall this month. George Catrambone, Head of Fixed Income at DWS Group, warned that if CPI data comes in higher than expected, long-term rates may face upward pressure.
Market Anxiety in Data Vacuum
The U.S. government shutdown, ongoing since October 1, has left investors in an information drought.
Catrambone said in a telephone interview on Wednesday:
Without hard data that the market is used to referencing, the market is tense; this data would otherwise provide some perspective on the direction of the U.S. economy.
The Bureau of Labor Statistics originally planned to release the U.S. employment report for September in early October, but was unable to do so due to the government shutdown. The ongoing shutdown also means government staff cannot collect new information needed for next month's employment report covering October.
Catrambone said:
We aren't getting regular data releases as we normally would, and Friday’s CPI data will help, but it’s really just one piece of the puzzle.
Inflation Data May Trigger Yield Volatility
Catrambone warned that if the CPI data proves strong, it could cause long-term bond yields to rebound slightly.
The yield on 10-year U.S. Treasuries has declined so far this year, with recent drops reflecting “risk aversion,” partly connected to credit concerns seen at regional banks.
Catrambone believes that if the yield on 10-year Treasuries falls below 3.75%, it would indicate investors are starting to question whether the U.S. economy can achieve a “soft landing.”
Ian Lyngen, Head of U.S. Rate Strategy at BMO, pointed out in a report on Wednesday that there is room for further downside in both 10-year and 30-year Treasury yields in the fourth quarter. Lyngen said:
The U.S. rates market continues to sustain the recent bullish bond trend, indicating strong underlying buying interest. Increasing economic uncertainty strengthens the case for adding duration exposure at current levels.
Goldman Sachs economists predicted in their October 18 report that Friday's CPI report will show September inflation rising 0.33% month-on-month, for a year-on-year increase of 3.02%. They expect core inflation to rise 0.25% month-on-month and 3.05% year-on-year.
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