US Stocks Hit on Higher Inflation Numbers – Dow off 0.35%
US stocks indices experienced a rare second day of losses after PPI data came in stronger than expected pushing back Fed rate cut expectations. The Dow closed down 0.35%, the S&P 0.29%, and the Nasdaq dropped 0.3%. The dollar jumped higher, the Dxy gaining 0.6% and US treasury yields moved higher, the rate-sensitive 2-year adding 6.5 basis points to 4.687% and the benchmark 10-year rising 10.2 basis points to trade up to 4.294%. Oil prices also rose after the International Energy Agency advised that the market would remain tight through 2024, Brent added 1.7% to $85.42 per barrel and WTI pushed 1.9% higher to close at $81.26 per barrel. Gold dipped in line with the dollar strength, trading at $2,161 on the Asian open.
Sticky Inflation Pushing Fed Cuts Back.
The market has now had two fresh updates on inflation this week and both have pointed to it remaining sticky for a while. We have seen some moves in markets in the last few sessions but probably nothing like the depth that some investors may have expected if you step back and look at what the data is saying, which is that we may not get the 3 cuts from the Fed this year that are priced in. Yields did pop up and stocks drifted lower but given that indices are sitting on record highs it has been a fairly tepid response. Fed funds rates now point to only 70 basis points of cuts in 2024 and given that a lot of recent strong moves – stock rises and Gold’s surge – have been attributed in part to Fed cuts then there is potential for serious corrections in the market. Key to this is the message we get from Jerome Powell and co next week, which now gives the meeting a lot more potential impact on top of the locked-in ‘no change’ call. If we hear the Fed strongly acknowledge this inflation issue, then we could see some big moves across products.
Another Busy Day to Close the Trading Week
It has been another busy week for markets and after yesterday’s data updates from the US, investors are expecting more volatility in the sessions ahead into the weekend. Once again, the main focus for macroeconomic updates will be the New York session as there is just a smattering of tier 2 and 3 data releases due out during the Asian and European sessions. The US time zone sees the release of the Empire State Manufacturing Index early in the day, which is then followed swiftly by Industrial Production data. The University of Michigan Consumer Sentiment and Inflation Expectation numbers are also due later in the session, which will take us through to the weekend.
