Stocks in the U.S. were sharply lower through the first few days of trading this week as investors continue to grapple with rising inflation. While it remains clear that signs of inflation are gaining momentum, the real question facing investors is whether these price pressures will be transitory or more permanent. In other words, will increased inflation force the Federal Reserve to tighten monetary policy sooner than expected? Most recently, Consumer Price Index (CPI) data on Wednesday morning came in hot at 0.8% vs. 0.2% expected for April, implying a year-over-year change of 4.2%. Surprisingly enough, average hourly earnings remained unchanged, pointing towards a lack of wage inflation. However, as Ehren Stanhope pointed out in his daily newsletter, one could make the case that this is the result of low-wage workers re-entering the workforce. On Thursday, producer prices are reported, with a consensus of a headline 5.9% annualized increase (vs. prior 4.2%). Other reports to watch are initial jobless claims on Thursday and retail sales on Friday. Bond market participants will be focused on the 10-year and 30-year Treasury note and bond offerings. These are the most interest-rate sensitive securities, and markets will be tested with additional supply against the backdrop of increased volatility.
Source: GSAM, CNBC, JPM, FactSet, FactorInvestor
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