[New York Stock Market] Nasdaq Rises 1.04% on CPI Below Expectations

The three major indices of the U.S. New York stock market closed mixed on the 10th (local time) as the consumer price index (CPI) inflation rate, released that day, slowed to its lowest level in two years. The CPI, which fell short of expectations, somewhat eased concerns about tightening, confirming a rally in the tech-heavy Nasdaq index, which is sensitive to interest rates.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,531.33, down 30.48 points (0.09%) from the previous session. The large-cap S&P 500 index rose 18.47 points (0.45%) to 4,137.64, while the tech-focused Nasdaq index gained 126.89 points (1.04%) to close at 12,306.44.

Within the S&P 500, technology, communication, real estate, and utilities stocks rose, whereas energy, financials, and industrials declined. Alphabet, Google's parent company, rose 4.10% after news at Google's annual developer conference announced the full launch of its AI chatbot Bard in 180 countries and unveiled its first foldable phone, the 'Pixel Fold.'

Airbnb and Twilio fell more than 10% and 12%, respectively, due to disappointing earnings guidance. Electric vehicle maker Rivian rose nearly 2% after maintaining its vehicle production targets for the year. Carl Icahn's activist investment firm, Icahn Enterprises, dropped more than 15% following a short-seller attack and news of a prosecutor's investigation.

[Image source=Reuters Yonhap News]

Investors monitored economic indicators such as the CPI, released before the market opened, to gauge the future policy path of the Fed and economic outlook, while also keeping an eye on debt ceiling talks that ended the previous day without a resolution.

According to the U.S. Department of Labor, the April CPI rose 4.9% year-over-year. This is the smallest increase since April 2021 and below Wall Street experts' forecast of 5.0%. It also declined from the 5.0% rise in March, marking the tenth consecutive month of deceleration. The core CPI, excluding volatile energy and food prices, rose 5.5% year-over-year and 0.4% month-over-month, both in line with expectations.

Quincy Crosby, Chief Global Strategist at LPL Financial, said, "Today's report suggests that the Fed's inflation suppression is working." Edward Moya, Senior Market Analyst at OANDA, expressed optimism that the disinflation process will continue but noted, "Considering the strong labor market, reaching the Fed's 2% inflation target will be much more difficult." The market rally was limited due to lingering concerns about still-high inflation levels.

This CPI release drew attention as it came shortly after the Fed hinted at holding rates steady at the May Federal Open Market Committee (FOMC) meeting. Having raised rates 10 consecutive times over the past year to 5.0-5.25%, it was time for the cumulative effects of tightening policies to show in the data.

Immediately after the CPI release, U.S. Treasury yields declined in the New York bond market. The 2-year Treasury yield, sensitive to monetary policy, fell to around 3.91%, and the 10-year yield dropped to about 3.43%. The dollar index, which measures the dollar's value against six major currencies, decreased approximately 0.15% to 101.4.

The confirmation of the inflation slowdown strengthened expectations that the Fed will pause rate hikes starting with the June FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of that afternoon, the federal funds futures market priced in over a 99% chance of a rate hold in June. The probability of an additional "baby step" (a 0.25% rate hike) dropped from the previous day's 21% to less than 1%.

The Producer Price Index (PPI) for April, a wholesale price gauge, is scheduled for release the next day, the 11th. Since wholesale price increases eventually pass through to consumer prices, a slowdown in the PPI trend could signal easing inflationary pressures. The March PPI had fallen 0.5% month-over-month, marking the largest drop in about three years. Further declines are expected this time as well.

The market is also closely watching discussions in the U.S. Congress regarding raising the debt ceiling. President Joe Biden, visiting Valhalla, New York, warned that the Republican Party is "holding the economy hostage" and cautioned that failure to raise the ceiling would have enormous impacts not only on the U.S. economy but also on the global economy. The U.S. exhausted its $31.4 trillion debt limit on January 31 and has since used special measures to buy time for negotiations, but those measures are nearing their limits. Treasury Secretary Janet Yellen has indicated that the "X-date," when cash runs out, is June 1.

Although President Biden met with House Speaker Kevin McCarthy and other bipartisan leaders the previous day, no breakthrough was reached. Republicans are demanding large government spending cuts as a precondition, while Biden and Democrats insist on an unconditional debt ceiling increase, resulting in a stalemate. However, White House Press Secretary Karine Jean-Pierre described the talks as "a productive meeting on the path to prevent the United States from defaulting for the first time in history."

International oil prices fell for the first time in four trading days. On the New York Mercantile Exchange, June delivery West Texas Intermediate (WTI) crude oil closed at $72.56 per barrel, down $1.15 (1.56%) from the previous session.