Stocks were routed at the open this morning before rallying strongly through noon. The September Consumer Price Index (CPI) got the session off to a rough start, but, as usual, news of a central bank pivot saved the day
Consumer prices climbed by 0.4% month-over-month in September, beating the consensus estimate of +0.2%. Core inflation raged higher as well (+0.6% monthly vs. 0.4% expected).
This caused a momentary panic on Wall Street.
“It is brutal […] I do think that prices will start to moderate. I thought that this would already be happening at this point,” said Morgan Stanley Investment Management’s Jim Caron on Bloomberg TV.
“The issue now is that inflation has moved from the goods sector and has permeated into the services sector.”
Bloomberg senior editor Chris Antsey explained the political implications of the report.
“For Democrats, this is a disaster,” he said.
“Today’s is the final CPI report ahead of the Nov. 8 midterm election. You can bet that Republicans will be hitting this hard. Worst inflation in four decades.”
Steve Chiavarone, senior portfolio manager at Federated Hermes, highlighted what this report could mean moving forward.
“This report raises the risk that we may see a new cycle high in headline inflation before the end of the year,” he said.
“With energy prices moving back up, a mid-90s oil price in December could see us surpass the 9.1% headline peak from June […] Looking at the components, what is most worrying is the big jump in services. Service inflation is the most sticky. This is where both shelter prices and wages reign supreme.”
The apocalyptic mood on Wall Street flipped immediately in response to news out of Europe that the European Central Bank (ECB) was targeting a far lower rate with its coming rate hikes than expected.
The market had previously assumed the ECB would raise rates to 3.00% as of its last meeting. According to Reuters, EU policymakers were shown a new terminal rate of just 2.25% at a retreat in Cyprus last week.
Policymakers were left feeling somewhat uncomfortable given that the ECB failed to predict the recent surge in consumer prices accurately, but this news pleased bulls nonetheless.
Keep in mind, however, that the ECB is far behind the Fed in its hiking cycle. The Fed had a lower terminal rate six months ago, too, before it was raised. The ECB is likely headed for a similar conclusion if something doesn’t “break” within the financial structure of the EU in the meantime.
Regardless, momentum is now in the process of shifting for many stocks, Ford Motor Co. (NYSE: F) included. F set a double bottom over the last few days, and though it didn’t close above the 10-day moving average today, it did manage to rise to resistance at the Tuesday high.
The stochastic indicator suggests the stock has plenty of room to run as well.
For those reasons, it might make sense to take F long above today’s high and the 10-day moving average with a trade trigger of $12.01 as the general market searches for a trend reversal.