Consumer Sentiment Exceeds Estimates, Inflation Expectations Tick Higher

Key Insights

• Consumer Sentiment increased from 64.9 in January to 66.4 in February. 
• Inflation Expectations have suddenly rebounded from multi-month lows. 
• S&P 500 moved higher as traders focused on rising Consumer Sentiment. 

Inflation Expectations Increased To 4.2%

On February 10, U.S. released preliminary Michigan Consumer Sentiment data for February. The report indicated that Consumer Sentiment improved from 64.9 in January to 66.4 in February, compared to analyst consensus of 65.

Michigan Current Conditions improved from 68.4 to 72.6, compared to analyst consensus of 68. Interestingly, Michigan Consumer Expectations declined from 62.7 to 62.3, while analysts expected that they would improve to 62.9.

The University of Michigan noted that “high prices continue to weigh on consumers despite the recent moderation in inflation, and sentiment remains more than 22% below its historical average since 1978.”

Michigan Inflation Expectations increased from 3.9% in January to 4.2% in February. Inflation Expectations have been declining in recent months. The sudden uptick in Inflation Expectations provides Fed with an additional argument to be more hawkish at the upcoming meetings.

S&P 500 Moves Higher After Consumer Sentiment Report

S&P 500 gained upside momentum after the release of Consumer Sentiment data. Traders ignored the uptick in Inflation Expectations and focused on the improving consumer mood. Consumer activity plays a huge role in the U.S. economy, and traders bet that additional improvement of Consumer Sentiment will boost companies’ earnings.

U.S. dollar was mostly unchanged after Consumer Sentiment report. Treasury yields test new highs, but the U.S. dollar failed to gain material upside momentum against a broad basket of currencies.

Gold remains stuck near the $1865 level despite rising Treasury yields. The Consumer Sentiment report had no impact on the dynamics of gold markets.

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