[New York Stock Market] Slight Rise on Consecutive Inflation Slowdowns... Dow Up 0.47%

The three major indices of the U.S. New York stock market closed slightly higher on the 15th (local time) as a slowdown was confirmed not only in consumer prices but also in producer prices.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,991.21, up 163.51 points (0.47%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 7.18 points (0.16%) to 4,502.88, while the tech-heavy Nasdaq index increased by 9.45 points (0.07%) to close at 14,103.84.

Within the S&P 500, telecommunications, materials, and financial sectors rose, while energy, utilities, and technology sectors declined. Retail giant Target surged more than 17% after releasing better-than-expected quarterly results. Target’s Q3 earnings per share were $2.10, significantly exceeding analysts’ estimates of $1.48. TJX, the parent company of TJ Maxx, fell more than 3% despite better-than-expected earnings. Plug Power, which had been declining due to liquidity concerns, rose nearly 3%. JD.com gained over 7% on the New York stock market, buoyed by earnings that beat expectations. Fashion company VF jumped more than 14% after JPMorgan upgraded its investment rating from underweight to neutral.

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Investors closely watched economic indicators released on the day, including the Producer Price Index (PPI) and retail sales, following the previous day’s Consumer Price Index (CPI) report that fell short of expectations. The October PPI, which reflects wholesale prices, fell 0.5% month-over-month. Contrary to the Wall Street Journal (WSJ) consensus forecast of a 0.1% increase, this marked a surprising decline. This drop was the largest since April 2020 (-1.2%). On a year-over-year basis, October PPI rose 1.3%, well below the expected 1.9%.

Considering that wholesale price increases typically pass through to consumer prices, this report was interpreted as a signal that inflationary pressures are continuously easing. With the slowdown in inflation confirmed through the PPI, expectations for the Federal Reserve (Fed) to end its tightening cycle have gained further momentum. Ross Mayfield of Baird said, "The CPI has basically done everything the market needed it to do," adding, "It confirmed the disinflation trend and economic cooling, ultimately shutting down the possibility of a Fed rate hike in December."

According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the afternoon of the same day, federal funds futures markets fully priced in the Fed holding rates steady at 5.25?5.5% not only at the upcoming December meeting but also in January next year. There is also a 25% chance that rate cuts could begin as early as March.

Consumer spending, which has supported the U.S. economy, declined for the first time in seven months due to the cumulative effects of tightening. According to the Commerce Department, October retail sales totaled $705 billion, down 0.1% from the previous month. This was the first monthly decline in retail sales since March. However, the decrease was less than the WSJ consensus forecast of -0.2%. Market analyses have pointed to the delayed effects of cumulative tightening, inflation, depletion of excess savings post-pandemic, and a surge in credit card delinquencies as negative factors impacting the overall economy, with expectations that consumer slowdown would intensify starting in Q4.

The shutdown fears that had been anticipated this week have somewhat eased. The U.S. House of Representatives passed an additional temporary budget bill to fund the federal government through January and February next year, likely averting the feared shutdown. The temporary budget bill is now awaiting review and approval in the Senate. Since bipartisan Senate leadership has expressed support, it is expected to pass smoothly barring any unforeseen issues.

Led by Republican House Speaker Mike Johnson, this budget bill staggers the timing of budget exhaustion across government departments and notably excludes large budget cuts opposed by Democrats as well as contentious bipartisan issues such as aid packages for Ukraine and Israel.

Meanwhile, in San Francisco, U.S. President Joe Biden and Chinese President Xi Jinping held their first face-to-face meeting in about a year on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit. They agreed on the need to prevent the increasingly intense U.S.-China competition from escalating into conflict.

In his opening remarks, President Biden emphasized, "We must ensure that competition between our two countries does not escalate into conflict, manage it responsibly, and cooperate where it aligns with our interests." President Xi stated, "For major countries like China and the U.S., turning our backs on each other is not an option," warning that conflict between the two would lead to unbearable consequences.

This meeting took place amid overt power struggles between the two countries and volatile international conditions caused by wars in the Middle East and Ukraine. Given the years of strategic competition and accumulated tensions, there is little expectation that this meeting will produce a breakthrough in improving bilateral relations. However, with the U.S. presidential election scheduled for November next year and China’s economic growth slowing post-pandemic, there is a widespread consensus on the urgent need to stabilize relations now to prevent further escalation of conflict.

In the New York bond market, the benchmark 10-year U.S. Treasury yield hovered around 4.53%. The 2-year yield, which is sensitive to monetary policy, stood at about 4.91%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose more than 0.3% to 104.4.

International oil prices plunged as U.S. weekly crude inventories increased. On the New York Mercantile Exchange, December delivery West Texas Intermediate (WTI) crude fell $1.60 (2.04%) to close at $76.66 per barrel.