📉 CPI & PCE Aftermath: Structural Breakdown Over Numerical Surprise

— Don’t Watch the Number. Follow the Cause.

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1. Inflation Fell—So Why Didn’t Markets Rally?

On April 10, 2025, the U.S. Labor Department released the March CPI report:

• Headline CPI (YoY): +2.4% (vs expected +2.6%)
• MoM: –0.1% (first negative since 2020)
• Core CPI: +2.8% (lowest since March 2021)

Inflation clearly slowed.
But markets didn’t rebound:

• S&P 500: flat to weak
• TLT: declined
• TMF: down 10%+ for three consecutive days
• MOVE Index: remained above 130
• 30Y yield: dropped briefly, then surged

Why didn’t a “good number” lift sentiment?

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2. “Why Did CPI Fall?”—Structure Over Surface

Markets didn’t just ask what the CPI was.
They asked:

“Why did it fall?”
“Is this sustainable?”

A closer look revealed:

• Gasoline: –6.3% (oil-driven, volatile)
• Used cars, airfare, insurance: down briefly
• Housing, food, healthcare: still climbing

In other words:
📌 Non-core items dragged CPI down
📌 Sticky inflation remained intact
📌 No structural policy change was behind it

Markets saw this as base effect distortion—not real improvement.

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3. Trump’s Tariff Delay: Not Relief, But Reinforced Distrust

A week before CPI, Trump announced a 125% China tariff—then gave a 90-day delay.

The signal?

“We’ll ease inflation temporarily… but keep pressure on global supply.”

Markets interpreted this as:

📌 Short-term relief
📌 Long-term policy contradiction
📌 No real fix—just postponed pain

S&P 500 surged +9.5% in one day—but gave up gains quickly.
TLT and TMF briefly bounced, then resumed their decline.

Because:

• A delay in tariffs doesn’t reverse inflationary trends
• Fiscal expansion + import pressure = medium-term inflation risk

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4. Fed Silence = Policy Void

Markets expected the Fed to acknowledge the CPI drop.

They didn’t.

FOMC made no statement. Rate cut hopes moved to June:

• CME FedWatch:
• May cut probability: 17%
• June cut expectations: 74%

But silence was no longer seen as “patience”—
It looked like confusion.

The Fed downplayed tariff impact.
Markets saw a policy rift between White House and central bank.

➡ Mixed signals
➡ Heightened uncertainty
➡ Bond market began pricing in structural risk premium

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5. The Bond Market Reacted to Structure, Not Data

What actually happened after CPI?

• 30Y yield dropped, then surged
• MOVE stayed above 130
• Treasury auctions remained weak
• Tail widened
• Bid-to-Cover stuck under 2.1
• Foreign bid remained soft
• TIPS yield rose from 2.2% to 2.3%

Expectations were:

“Lower CPI → Fed cuts → Bonds rally”

Reality was:

“Broken structure → Uncertainty → Bonds drop further”

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🔁 6. Structural Flow Recap

Event	Structural Signal	Market Reaction
CPI release	Non-core fall, sticky core	Pause → Brief equity/bond bounce
Tariff delay	Mixed message, no clarity	Tech bought briefly → sold again
Fed silence	Policy void, conflicting signals	Long bond outflows → Yield rebound
Bond reaction	Auction weakness, foreign exit, TIPS rise	MMF inflows, TMF lost –20% in 3 days
Big picture	Policy confusion + investor distrust	MOVE stays elevated → Volatility persists

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💰 7. Where Did Profit and Loss Diverge?

Market Actor	Outcome
U.S. Government	Political calm via tariff delay
Federal Reserve	Lost credibility through silence
Long-duration ETF Holders	Bought rebound, lost –20%
MMF / Short-term Bonds	Avoided volatility, gained relative safety
Foreign Bondholders	Failed to defend yield as auctions weakened

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🧠 Final Insight: Structure Over Numbers. Causality Over Reaction.

Markets didn’t rally on lower CPI—because structure didn’t improve.
Markets didn’t trust the tariff delay—because policy inconsistency remained.

This isn’t the time to predict.

It’s time to trace capital flows and track structural fractures.

📌 Don’t read the data.
📌 Read the profit and loss structure underneath it.