Stocks Smashed After CPI Hit – Dow down 1.1%
Stocks and bonds plunged after a hot US inflation print snuffed out any hope of a June interest rate cut. US Stock markets extended April’s losses, the Dow Jones ended 1.1% lower to 38461, the S&P 500 declined 1% to 5160 while the Nasdaq gave back 0.8% to 16170. The dollar index had its best day in a year, the Dxy now at 105.25, US 2-year Treasury yields spiked 22 basis points to 4.96% and 10-year yields topped 4.5%. Oil bounced back from intraday lows on reports that the US and its allies believe major missile or drone strikes by Iran or its proxies against military and government targets within Israel are imminent. West Texas Intermediate rallied as much as 1.4% to trade above $86 a barrel and Brent jumped back above $90 a barrel and Gold dropped from recent record highs, trading around $2,340 into the Asian session.
Market Now Only Pricing 2 Fed Cuts this Year
Fed swaps are now only pricing in two interest rate cuts for 2024 after key inflation data once again pointed to a resilient economy and sticky inflation. US core CPI (which excludes food and energy) increased 0.4% from February, beating estimates for a third straight month, while the year-on-year rate was unchanged at 3.8%, staring down forecasts for a down move. This may now change the narrative on US interest rates for investors who had been clinging onto the hope of more and harder rate cuts this year. If next month’s CPI print softens, there may already be enough stickiness in the data and caution within the Fed now to mean that a July cut becomes a very big ask. At that point, the US election will begin to taint the Fed’s decision process in that it will not want to appear political. We could see some unravelling of big positions in the weeks ahead if this is the case.
ECB and More US Inflation Numbers Ahead Today
Traders are kicking off the day digesting more sticky inflation data out of the US this morning and will be hit fairly quickly with more data and the small thing of the ECB rate decision. First up, while investors are still evaluating the inflation data uptick from the world’s largest economy, they will have to deal with inflation numbers from the world’s second-largest economy when CPI and PPI data are released from Beijing. The European Central Bank will come sharply into focus on the London Open when they announce their latest rate call and associated updates. The US session is set to be another lively one with more inflation data due out, this time in the form of the PPI numbers, which are released alongside the usual weekly unemployment claims data.
