DIA +1.30%, SPY +1.03%, QQQQ +1.36%
10-Year Treasury +1/4 to yield 4.09%
This update will be a bit different, because there were two themes (lower inflation and higher oil stockpiles) that pervaded all the markets today.
The Bureau of Labor Services reported
"On a seasonally adjusted basis, the CPI-U rose 0.5 percent in April, following an increase of 0.6 percent in March. Energy costs advanced sharply for the third consecutive month--up 4.5 percent in April. Within energy, the index for petroleum-based energy increased 6.3 percent and the index for energy services increased 2.3 percent. The index for food rose 0.7 percent. The index for food at home increased 1.1 percent, its largest advance since a similar rise in May 2004. The index for all items less food and energy, which increased 0.4 percent in March, was virtually unchanged in April. Declines in the indexes for apparel and for lodging while away from home, which had accounted for the acceleration in March, were largely responsible for the deceleration in April."
The core rate of inflation announcement- inflation without food and energy - was the primary news in all of today's market. The consensus estimate was for an increase of .2%. Recent inflation numbers have indicated a possible increase in the rate of inflation. In addition, oil's recent high prices have concerned traders, who were worried higher oil would ripple through the economy, increasing other prices. Today's report indicated those concerns may be overblown.
The equity markets advanced strongly on this news. Lower inflation means the Fed does not have to aggressively raise interest rates, which in turn slow the economy. In addition, lower interest also means consumers may be more willing to spend. This is important because consumer spending accounts for about 66% of US GDP.
The bond markets rallied ¼ to yield 4.09%. Lower inflation makes bond investment more valuable because higher inflation lowers the overall interest rate investors earn. In addition, lower inflation means the Fed won't have to increase it's pace of rate increases.
The dollar lost .6% versus both the Euro and Yen. Forex traders often park their trades in short-term debt securities of the target currency. For example, dollar investors will but short-term Treasury bonds. If the pace of interest rate increases starts to slow, US bonds will yield less, making them less attractive to forex traders.
Oil dropped 1.72 to close at $47.25. Oil was influenced by yet another increase in oil inventories. The Department of Energy reported a 4.3 million barrel increase last week. This is the 13th weekly increase in the last 14 weeks. Traders are starting feel the US market is amply supplied for the summer driving season.