Market Review March 11 & 12, 2024

From March 11 to March 12, 2024, a series of significant economic indicators and events were reported, encompassing consumer inflation expectations, treasury note auctions, inflation data, federal budget balance, and crude oil stocks. These data points provide critical insights into inflation trends, government borrowing costs, fiscal health, and energy market dynamics.

NY Fed 1-Year Consumer Inflation Expectations (Mar 11): Inflation expectations held steady at 3.00%, which indicates that consumer expectations regarding inflation have not escalated, potentially reflecting confidence in monetary policy effectiveness.

3-Year and 10-Year Note Auctions (Mar 11 & 12):

• The yield on the 3-year note increased to 4.26% from 4.17%, and the 10-year note yield rose to 4.17% from 4.09%, indicating higher borrowing costs which may reflect investor concerns about inflation or increased government borrowing needs.

Core CPI and CPI (Mar 12):

• Core CPI (MoM and YoY) for February showed a month-on-month increase of 0.40%, consistent with the previous month and higher than the forecast. Year-over-year, core inflation slightly decreased from 3.90% to 3.80%, suggesting a slight moderation but still above the Federal Reserve’s target.
• CPI (MoM and YoY) also indicated persistent inflationary pressure with a month-on-month increase of 0.40%, higher than the previous month's 0.30%. The year-over-year figure rose from 3.10% to 3.20%, indicating continuing inflation trends.

Federal Budget Balance (Mar 12): The budget deficit for February was significantly high at -$296.0B, though slightly better than the expected -$298.5B. The substantial deficit compared to the previous year (-$22.0B) underscores increased government spending or reduced revenue, highlighting fiscal pressures.

API Weekly Crude Oil Stock (Mar 12): A significant drawdown in crude oil stocks of -5.521M barrels compared to a forecasted increase suggests stronger than expected demand or lower supply, which could impact oil prices and energy sector valuations.

Impact on USD

• The steady consumer inflation expectations combined with actual CPI data showing persistent inflation could support a firmer USD as it may prompt tighter monetary policy from the Federal Reserve. Higher treasury yields also reflect this dynamic.

Impact on Gold

• Persistent inflation and higher treasury yields may boost gold’s appeal as a hedge against inflation and currency devaluation, especially if real interest rates (adjusted for inflation) remain low or negative.

Impact on Equity Futures

• Rising bond yields could pressure equity markets as higher yields make bonds more attractive compared to stocks, particularly if inflation concerns weigh on corporate profit margins. The significant federal deficit may also raise concerns about future fiscal sustainability and economic stability.

The economic data reflects ongoing inflationary pressures and rising government debt levels, challenging policymakers to balance between stimulating the economy and containing inflation. The dynamics of crude oil inventory drawdowns further complicate the economic outlook by potentially influencing energy prices and inflation further.