CPI Report - Equities Go Up with Bad Number?

[forsearch]

Keep in mind that yields on treasuries are inverse to their prices (and vice versa).

Look at the reaction in the 10yr note and 30yr bond prices after the CPI, and then after RTH opened for the equities.

[OAC]

	Quote:	FrankTheTank
	So the final piece of the puzzle (for me) is how does CPI report relate to interest rates?

There is inflation because too much money is chasing the same amount of goods. Now higher interest rate will slow down borrowing by individuals and businesses, therefore reducing the amount of money available in the economy

[FrankTheTank]

Thanks again to everyone. So in a nutshell:

Higher then expected CPI = equities fall
Lower then expcted CPI = equities rally

	Quote:
	Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

[OAC]

	Quote:	FrankTheTank
	Thanks again to everyone. So in a nutshell: Higher then expected CPI = equities fall Lower then expcted CPI = equities rally

And have your eyes glued to your screen on Fed day.

[FrankTheTank]

I have noticed sometimes that when the fed. cuts rates as expected, equities actually fall.

Is this the old "buy the rumor, sell the news" at work?

[forsearch]

Yeah, at times the expected move has already been priced into the market.