Wall Street Wrap: US indices unfazed by hotter-than-expected US CPI print

[MongiIG]

The US CPI data came in hotter than expected for the second straight month, proving that there is still some persistence in pricing pressures.

Source: Bloomberg

 

Forex Consumer price index Inflation United States Federal Reserve United States Consumer Price Index

Written by: Yeap Jun Rong | Market Strategist, Singapore

 

Publication date: Wednesday 13 March 2024 04:42

Market Recap

The US consumer price index (CPI) data came in hotter than expected for the second straight month, proving that there is still some persistence in pricing pressures and that the final stretch of bringing inflation to the 2% Federal Reserve (Fed)'s target remains a challenging process. The US headline inflation came in higher at 3.2% versus previous 3.1%, while the core aspect was down to 3.8% from previous 3.9%, but lacks the progress expected by markets (3.7% consensus). Month-on-month, the core inflation rose 0.4%.

The data will support the view for the Fed to exercise more patience in its rate-cut process, but Wall Street stood unfazed, potentially with the firm belief that its previous recalibration for the Fed’s first rate cut to be in June will suffice. Growth sectors recovered from its last Friday’s losses, with the S&P 500 delivering yet another record close. The Magnificent Seven stocks are once again the heavy-lifters for market gains, with notable performance in Nvidia (+7.2%), Microsoft (+2.7%), Meta (+3.3%) and Amazon (+2.0%).

Treasury yields reacted higher to the stronger inflation print, with the US two-year yields briefly touching the 4.6% handle, while the US dollar firmed slightly (+0.1%), albeit a lacklustre reaction to the high-for-longer rate narrative. That is sufficient to trigger a downside move in gold prices (-1.1%) however, with the profit-taking amplified by its extreme near-term overbought technical conditions.

 

 

Look-ahead: PPI data on Thursday, FOMC meeting next week

We will have the US producer price index (PPI) release coming Thursday, but with markets being so forgiving for the February CPI data, there is a possibility that any higher-than-expected read in producer prices may be shrugged off as well.

The key risk to watch may be the upcoming Federal Open Market Committee (FOMC) meeting next week, where the odds are surely raised for policymakers to revisit their dot plot projections. A potential revision to two cuts this year from the initial three cuts could be likely, as persistence in pricing pressures could feed into higher inflation forecast in its Summary of Economic Projections.

If that plays out, market rate expectations may be due for some recalibration once more, as current pricing still leans towards three to four 25 basis point (bp) rate cuts by the end of this year.

What to watch: US dollar sees more muted response to hotter-than-expected CPI

Initial gains in the US dollar in reaction to the hotter-than-expected CPI were pared throughout the overnight trading session, with the US dollar still hovering around the lower edge of its daily Ichimoku cloud support. Failure to defend the cloud support could reinforce the current downward bias, potentially paving the way to retest the 101.80 level next.

For now, its daily relative strength index (RSI) has dipped below the key 50 level for the first time since January this year, which puts sellers in broader control. On the upside, a move above yesterday’s high may pave the way for some near-term relief to retest the 103.63 level next.

 

Source: IG charts

 

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.