Stocks rally as inflation worries ease

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US stocks are surging higher after the latest US CPI data eased short-term inflation worries.  Next month’s inflation report will see elevated pricing pressures as the base effects from the COVID shock will likely take inflation above the Fed’s target.  Core inflation came in softer than forecasts on both a monthly and annual basis.  The headline monthly CPI reading rose 0.4%, as expected, which was impacted by higher gasoline prices that stemmed from the deep freeze that punished the south.  Declines in used vehicles, apparel, and medical care commodities kept inflation worries at ease.

A tame inflation report and strong demand with the next few Treasury bond auctions could mean the Fed could have an easy policy meeting next week. US CPI showed an uptick, rising from 0.3% to 0.4%. This small gain should put to rest, at least for now, concerns that inflation could jump due to pent-up demand.

If the 10-year Treasury yield does not push above the recent cycle highs leading up to the March 17th FOMC decision, Fed Chair Powell won’t have to push back on the bond market.

The House will take a final vote today on President Biden’s USD1.9 trillion pandemic plan.  This will be his first major legislative action and be the highlight of his first 100 days.

There still remains a certain amount of nervousness over the Nasdaq and some investors might not feel comfortable piling back on their big bets until after the next couple of Treasury auctions.  The Nasdaq will get hit hardest if weak demand is the story of today’s 10-year note auction.  The cyclical rotation is not going away anytime soon and that will make the Nasdaq be the first risky asset to get sold.  The Nasdaq has given up the majority of its earlier gains and is slightly higher on the day.

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