New York Stock Market Mixed and Flat in Early Trading Ahead of CPI and FOMC

The three major indices of the U.S. New York stock market showed mixed movements around the flat line on Monday, the 11th (local time), ahead of this week's scheduled Consumer Price Index (CPI) release and the Federal Reserve's (Fed) final Federal Open Market Committee (FOMC) meeting of the year.

At around 10:17 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 0.14% from the previous close, trading near the 36,299 level. The large-cap focused S&P 500 index rose 0.02% to around 4,605. Meanwhile, the tech-heavy Nasdaq index fell 0.24% to about 14,369.

Currently, within the S&P 500, communication, technology, and consumer discretionary sectors are declining, while the other eight sectors including industrials, healthcare, financials, and materials are on the rise. Department store chain Macy's surged more than 16% after reports that it received a $5.8 billion acquisition offer. Competitors Nordstrom and Kohl's also showed gains of around 4% each. Cigna jumped nearly 17% after abandoning plans to acquire Humana and deciding to repurchase $10 billion in shares. Occidental Petroleum rose over 1% after agreeing to acquire CrownRock for $12 billion and announcing plans to increase quarterly dividends starting next year. Ahead of inflation data and interest rate decisions, big tech stocks were uniformly weak. Apple fell 1.8%, Tesla 1.5%, Amazon 2.2%, and Google Alphabet about 1.8%.

[Image source=Reuters Yonhap News]

Investors are showing cautious trading as they await this week's U.S. inflation data releases and interest rate decisions from the Fed and other central banks worldwide. Recent inflation indicators have continued to ease, fueling expectations that rate cuts could begin as early as March next year. However, the November employment report released late last week somewhat dampened these hopes. Nonfarm payrolls increased by 199,000, exceeding expectations and reaffirming a still-robust labor market.

Accordingly, investors are paying close attention to the November CPI, which will be released on the 12th ahead of the FOMC results. Wall Street expects the November CPI to rise 3.1% year-over-year, continuing the deceleration trend. Month-over-month, it is forecasted to remain flat. The core CPI, excluding energy and food, is estimated to have increased 0.3% month-over-month and 4.0% year-over-year. The Producer Price Index (PPI), a wholesale price gauge, will be released the following day. Chris Larkin, Chief Investment Officer at E*TRADE, said, "Higher-than-expected inflation figures could dampen hopes that rate cuts will happen soon."

The final FOMC results of the year will be announced at 2 p.m. on the 13th. The market expects the Fed to keep rates steady at the current 5.25?5.50% range in this meeting. The key focus is not the rate decision itself but the press conference by Fed Chair Jerome Powell immediately afterward and the accompanying dot plot release. These are expected to provide hints about the future path of interest rates.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures currently price in over a 98% probability that the Fed will hold rates steady at this month's meeting. The probability of a hold in January next year exceeds 94%. The chances of a rate cut of at least 0.25 percentage points in March or May next year are above 40% and 72%, respectively. Although these probabilities are lower than before the employment report release, expectations for rate cuts in the first half of next year remain.

Chair Powell is expected to reiterate his message of lowering inflation to the 2% target during this press conference. The newly released dot plot is also likely to signal rate cuts next year while tempering market expectations with a hawkish (monetary tightening preference) tone. According to a Bloomberg survey conducted earlier this month among economists, the Fed's new dot plot is expected to be more conservative than economists' forecasts. Respondents estimated a total rate cut of 1.0 percentage point over the next year, but the December dot plot may only reflect about 0.5 percentage points. Brett Ryan, Senior Economist at Deutsche Bank, analyzed that "the dot plot will not include rate cut expectations for the first half of the year." Previously, the Fed's September dot plot showed median rate projections of 5.6% for this year and 5.1% for the end of next year.

This week, in addition to the Fed, monetary policy meetings will be held by the European Central Bank (ECB) and the Bank of England (BOE). The ECB, expected to hold rates steady, will also release updated economic forecasts. Additionally, Brazil, Norway, Mexico, Taiwan, the Philippines, and Russia will also announce their interest rate decisions.

In the New York bond market on this day, the 10-year U.S. Treasury yield rose to around 4.27%. The 2-year yield, sensitive to monetary policy, traded near 4.76%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose more than 0.2% to about 104.1. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's fear gauge, moved up more than 3% to around 12.7.

European stock markets showed mixed results. Germany's DAX index rose 0.09%, France's CAC index gained 0.33%, while the UK's FTSE index declined 0.11%.