New York Stock Market Rises as US February CPI is Digested... June Rate Cut Outlook Maintained

February CPI and Core CPI Increase Exceed Expectations
Fed Rate Cut Caution Likely to Gain Support
Market Maintains June Rate Cut Outlook

The three major indices of the U.S. New York stock market are showing early gains on the 12th (local time) as they digest the February Consumer Price Index (CPI) inflation rate that exceeded market expectations. Although the stickier-than-expected inflation is expected to strengthen the Federal Reserve's (Fed) cautious stance on interest rate cuts, investors believe that this CPI figure is not enough to change the outlook for a rate cut in June.

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As of 10:07 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average is up 0.22% from the previous trading day, standing at 38,856.43. The large-cap-focused S&P 500 index is up 0.5% at 5,143.32, and the tech-heavy Nasdaq index is trading 0.68% higher at 16,127.66.

The U.S. February CPI inflation rate released on this day exceeded expert forecasts for the second consecutive month. According to the U.S. Department of Labor, the February CPI rose 3.2% year-over-year, surpassing the expert forecast of 3.1% and showing a larger increase than January's 3.1%. Month-over-month, it rose 0.4%, matching expectations (0.4%). The core CPI, which excludes volatile energy and food prices to show the underlying inflation trend, increased 3.8% year-over-year and 0.4% month-over-month. This also exceeded market expectations of 3.7% and 0.3%, respectively. The core CPI is one of the inflation indicators closely watched by the Fed.

Rising housing costs and gasoline prices pushed the CPI higher. Housing costs, which account for 35% of the CPI weighting, rose 0.4% month-over-month, a smaller increase compared to January's 0.6%. Gasoline prices increased 3.8% month-over-month, after a 3.3% decline in January. The U.S. Department of Labor stated that 60% of the monthly CPI increase was due to rising housing and gasoline prices. Prices for used cars, clothing, auto insurance, and airfare also rose.

The February CPI released on this day is the last major indicator before the Federal Open Market Committee (FOMC) meeting scheduled for the 19th-20th. The stickier-than-expected inflation indicates that it will take more time for inflation to fall to the Fed's target of 2%. Fed officials have previously stated that they need greater confidence in the continued slowdown of inflation, and the February CPI is expected to reinforce the Fed's cautious stance.

Charles Schwab's Chief Bond Strategist, Cash Jones, said, "The February CPI is probably a reason why the Fed needs to maintain its policy for a longer period." He added, "Although there is volatility, it appears that the downward trend in inflation is stabilizing. The Fed will want to confirm that inflation is falling further before cutting rates."

However, the market does not see the February CPI increase as enough to change the outlook for a rate cut in June. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market is pricing in nearly a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the June FOMC meeting.

By individual stocks, Nvidia is up 2.47%. Microsoft (MS) is rising 1.59%. Oracle is surging 10.8% on earnings that exceeded market expectations.

Skyler Byunand, Chief Investment Officer (CIO) at Regan Capital, analyzed, "It is natural to expect the market to cool down slightly, but since earnings, inflation, and interest rates are moving in the right direction, it is difficult to know what might stop the market's momentum."

On the 14th, the Producer Price Index (PPI) will be released. The PPI is expected to rise 0.3% month-over-month and 1.1% year-over-year. The February retail sales, also released on the same day, are expected to have increased 0.8% month-over-month, after a 0.8% decline in January.

Government bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, is up 4 basis points (bp) from the previous trading day at 4.15%, and the 2-year U.S. Treasury yield is up 4 bp at 4.57%.

International oil prices are steady amid geopolitical concerns over Middle East instability and forecasts of weakening demand. West Texas Intermediate (WTI) crude is down $0.01 at $77.92 per barrel, while Brent crude is up $0.03 at $82.24 per barrel.