New York Stock Market Falls Across the Board on January CPI Rise... Weight on First Interest Rate Cut in June

Core CPI also rises 3.9%, exceeding expectations
Pivot forecast timing shifts from May to June

The three major indices of the U.S. New York stock market showed a decline in early trading on the 13th (local time) as January inflation came out hotter than expected. Disappointing sell-offs emerged amid expectations that the Federal Reserve's (Fed) rate cut timing will be pushed back. U.S. Treasury yields rose, with the 10-year note trading around 4.27% and the 2-year note around 4.58%.

As of 10:03 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 1.31% from the previous trading day, standing at 38,288.23. The large-cap-focused S&P 500 index fell 1.41% to 4,951.05, and the tech-heavy Nasdaq index dropped 1.77% to 15,661.07.

Investor sentiment worsened as the U.S. January Consumer Price Index (CPI) inflation rate exceeded market expectations. The U.S. Department of Labor announced that the January CPI rose 3.1% year-on-year. This surpassed the expert forecasts of 2.9% compiled by Bloomberg News and The Wall Street Journal (WSJ). On a month-on-month basis, it also rose 0.3%, exceeding the expected 0.2%.

The core CPI, which excludes the volatile energy and food prices, increased 3.9% year-on-year, also surpassing the market forecast of 3.7%. On a month-on-month basis, it rose 0.4%, exceeding the expected 0.3%, marking the largest increase in eight months since May last year. The core CPI is a key indicator watched by the Federal Reserve as it reflects the underlying trend of inflation.

Initially, the market expected the January CPI inflation rate to fall into the 2% range for the first time in 2 years and 10 months since March 2021, but this expectation was not met. The Fed, which has repeatedly emphasized the need for further evidence of inflation slowdown, is also expected to delay the start of rate cuts. The market's pivot timing forecast has shifted from May to June. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on the day priced in about a 38% chance that the Fed will cut rates by at least 0.25 percentage points at the May Federal Open Market Committee (FOMC) meeting, down significantly from over 60% the day before. The probability of the Fed making its first rate cut in June rose from the previous day's 41% range to the current 53% range.

Derek Tang, a monetary policy analyst economist at LH Meyer, said regarding the rate cut timing outlook, "The tendency to skip March has strengthened, and now there is a temptation to push the cut timing to June." He added, "Since Fed Chair Jerome Powell mentioned that the inflation path will be challenging, officials would not be alarmed by a single increase, but the numbers today do not help their concerns about inflation rising above the target."

Anna Wong, an economist at Bloomberg Economics (BE), Bloomberg's economic research institute, said, "The January CPI report shows that the path to returning inflation to 2% is not smooth," adding, "Our base scenario is that the Fed will start cutting rates in May." Having maintained a March pivot outlook even after the January FOMC, she added, "If the warning signs revealed in this report continue, the risk of a later cut timing increases."

By individual stocks, JetBlue surged nearly 11% after confirming that activist investor Carl Icahn holds a 10% stake. Toy company Hasbro is down more than 2.4% after its fourth-quarter earnings fell short of market expectations. U.S. rental car company Avis Budget Group is also down nearly 17% amid disappointment over its earnings.

Government bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, is trading around 4.27%, up 10 basis points (1bp = 0.01 percentage points) from the previous trading day. The 2-year U.S. Treasury yield is moving around 4.58%, up 11 basis points.

International oil prices are rising amid ongoing uncertainty over Middle East tensions. West Texas Intermediate (WTI) crude oil is up $0.52, trading at $77.44 per barrel. Brent crude is up $0.46, trading at $82.46.