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April CPI numbers show inflation still trending upward in U.S.
Data from the U.S. Department of Labor's Consumer Price Index (CPI) report for April, released May 10, showed that the country's rate of core inflation increased 2.1%, year-over-year, Ng said. “While this was slightly below consensus expectations, the new number indicates that the overall trend of a gradual uptick in inflation in the U.S. still holds,” she stated. Markets reacted positively to the report, Ng noted, with the S&P 500® Index rising almost 1% from open to close on May 10. Why? “The April CPI data took pressure off interest rates and the U.S. dollar, both of which had been recent headwinds for markets,” she said.
As to whether or not the report could influence the U.S. federal reserve (the Fed)'s rate-hike plan for 2018, given that the numbers were a notch below what most industry analysts were expecting, Ng said that the central bank is unlikely to be swayed. “I believe there's a high hurdle to meet in order to slow down the Fed's plan for interest rates increases, given that the U.S. unemployment rate has fallen to 3.9%,” she said, adding that her and the team of Russell Investments strategists continue to anticipate a total of three or four rate hikes this year.
Oil prices surge after U.S. quits Iran nuclear deal
Shifting to commodities, Ng said that U.S. President Donald Trump's decision to withdraw the country from the Iran nuclear deal on May 8 quickly led to a spike in oil prices. For instance, the cost of a barrel of U.S. West Texas Intermediate crude oil rose by roughly 3% the following day, she noted.
“Since the market has already reacted very strongly to Trump's announcement, the team of strategists at Russell Investments is neutral on oil in the short run,” Ng said—“but over the next 12 months, we're bullish.” Why? Ng explained that the cost of oil typically rises late in the market cycle as global demand picks up. In her view, oil prices could increase by roughly another 5% before supply catches up to demand.
