[New York Stock Market] Slightly Higher Ahead of CPI and FOMC... Dow Up 0.43%

The three major indices of the U.S. New York stock market closed slightly higher on Monday, the 11th (local time), ahead of this week's scheduled Consumer Price Index (CPI) release and the Federal Open Market Committee (FOMC) meeting.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,404.93, up 157.06 points (0.43%) from the previous session. The large-cap S&P 500 index rose 18.07 points (0.39%) to 4,622.44, and the tech-heavy Nasdaq index increased by 28.51 points (0.20%) to close at 14,432.49.

All sectors except telecommunications in the S&P 500 index advanced. Department store chain Macy's surged more than 19% after reports emerged of a $5.8 billion acquisition offer. Cigna jumped nearly 17% after abandoning plans to acquire Humana and announcing a $10 billion stock buyback. Occidental Petroleum rose about 1% after agreeing to acquire CrownRock for $12 billion and announcing plans to increase quarterly dividends starting next year. Shake Shack climbed over 9% following the announcement of its CEO's resignation next year. On the other hand, big tech stocks showed broad weakness ahead of inflation data and interest rate decisions. Apple, Tesla, Amazon, Nvidia, and Google Alphabet all fell more than 1%.

[Image source=Reuters Yonhap News]

Investors are awaiting this week's U.S. inflation data releases and interest rate decisions by the Federal Reserve (Fed) and other central banks worldwide. Economic media outlet CNBC reported, "The upcoming economic indicators are among the last remaining obstacles for the stock market to maintain its strength through the end of 2023."

Ahead of the CPI release, the expected inflation rate over the next year by U.S. consumers fell to its lowest level since April 2021. According to the November consumer outlook survey released by the New York Federal Reserve Bank, the one-year expected inflation rate dropped to 3.4%, the lowest since April 2021, down 0.2 percentage points from the previous month. This is also below Wall Street's forecast of 3.8%. The expected inflation rates for the next three and five years were 3.0% and 2.7%, respectively.

The November CPI, to be released on the 12th, is expected to show a 3.1% year-over-year increase, continuing the slowing trend. Month-over-month, it is forecasted to remain flat. The core CPI, excluding energy and food, is estimated to have risen 0.3% month-over-month and 4.0% year-over-year. On the following day, the Producer Price Index (PPI), a wholesale price gauge, will also be released. Chris Larkin, Chief Investment Officer at E*TRADE, said, "Higher-than-expected inflation figures could dampen hopes that interest rate cuts will happen soon."

The results of the December FOMC meeting, the last interest rate decision 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%. The key focus will not be the rate decision itself but the post-meeting press conference by Fed Chair Jerome Powell and the dot plot showing officials' rate projections. These are expected to provide hints about the future path of monetary policy.

According to the CME FedWatch tool, federal funds futures currently price in over a 98% chance that the Fed will hold rates steady at this month's meeting. The probability of a rate hold in January next year exceeds 94%. The chances of a rate cut of 0.25 percentage points or more in March or May next year are above 42% and 75%, respectively. Although these probabilities are lower than before the stronger-than-expected employment report, expectations for rate cuts in the first half of next year remain.

Chair Powell is expected to reiterate his commitment to bringing inflation down 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 stance favoring monetary tightening. A Bloomberg survey conducted earlier this month among economists forecasted that the Fed's new dot plot would be more conservative than expected. 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." The median rate projections in the Fed's September dot plot were 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. Other countries including Brazil, Norway, Mexico, Taiwan, the Philippines, and Russia will also announce their interest rate decisions.

In the New York bond market, the 10-year U.S. Treasury yield slightly declined to around 4.23%. The 2-year yield, sensitive to monetary policy, hovered near 4.71%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady around 104. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's fear gauge, rose more than 2% to 12.6.

Oil prices edged up slightly. On the New York Mercantile Exchange, January delivery West Texas Intermediate (WTI) crude oil closed at $71.32 per barrel, up 9 cents (0.13%) from the previous session.