New York Stock Market Slightly Down as February US PPI Exceeds Expectations... Treasury Yields Rise

February PPI Exceeds Forecast for Second Consecutive Month
10-Year Treasury Yield Rises 7bp
Retail Sales Down 0.6% from Previous Month

The three major indices of the U.S. New York stock market are declining in the early session on the 13th (local time) after hovering around the flat line. The producer price index (PPI) for February, a wholesale price indicator, exceeded market expectations, causing bond yields to rise, and the AI leader Nvidia fell, pushing the stock market down. There are emerging views that the Federal Reserve's (Fed) rate cut outlook may be delayed from June to July due to rising inflation.

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As of 10:23 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 0.27% from the previous trading day, standing at 38,938.18. The S&P 500, which is centered on large-cap stocks and hit an all-time high the previous day, was down 0.26% at 5,151.76, and the tech-heavy Nasdaq was down 0.14% at 16,155.73.

By individual stocks, Nvidia was down 2.8%. Electric vehicle startup Fisker plunged 47.5% on news that it hired restructuring experts in preparation for bankruptcy filing. Apple and Microsoft (MS) were up 1.4% and 2.4%, respectively. Investment platform Robinhood jumped 7.6% on news that its assets under management increased by 16%.

The economic indicators released on the day showed mixed results. The wholesale price, which investors focused on most, exceeded market expectations for the second consecutive month.

According to the U.S. Department of Labor, the February PPI rose 0.6% month-over-month and 1.6% year-over-year. This significantly exceeded market forecasts of 0.3% and 1.1%, respectively. It also surpassed the January increase rates of 0.3% and 1.0%. The core PPI, which excludes volatile energy and food prices to show the underlying inflation trend, rose 0.3% month-over-month and 2.0% year-over-year, also exceeding market expectations of 0.2% and 1.9%. The previous month's increases were 0.5% and 2%, respectively.

The wholesale price index PPI affects the consumer price index (CPI) with a time lag. Following the CPI released on the 12th, the PPI also exceeded market expectations, leading to analyses that it will be difficult to pass the 'last mile'?the final stretch before reaching the inflation target?in the fight against inflation. There is growing weight to the view that the Fed will maintain a cautious stance on early rate cuts at the Federal Open Market Committee (FOMC) meeting scheduled for the 19th-20th.

Now, the market is beginning to expect that the Fed's first rate cut may be delayed further from the original June timeline. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on the day reflected a 59% chance that the Fed will cut rates by at least 0.25 percentage points at the June FOMC, down from about 65% the day before.

As a result, bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 7 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.26%, and the 2-year U.S. Treasury yield increased 5 basis points to around 4.67%.

Additionally, February retail sales data and last week's initial jobless claims were also released on the day.

According to the U.S. Department of Commerce, February retail sales increased by 0.6% month-over-month, below the market forecast of 0.8%. Retail sales excluding automobiles rose 0.3%. The January retail sales increase was revised downward from a 0.8% month-over-month increase to a 1.1% decrease. This is interpreted as meaning that household spending capacity was not as strong as initially expected. Retail sales are considered a key indicator supporting about two-thirds of the U.S. real economy and are used to assess overall economic trends.

Chris Low, chief economist at FHN Financial, said, "One week before the FOMC, following two consecutive months of hot CPI, February PPI also exceeded market expectations for the second consecutive month," adding, "Retail sales were not completely weak but were unimpressive."

The U.S. labor market remains robust. The U.S. Department of Labor reported that initial jobless claims for the week of March 3-9 were 209,000, below the forecast of 218,000. Compared to the revised 210,000 claims a week earlier, it slightly decreased. Initial jobless claims, which reflect corporate layoffs, have hovered around 200,000 since mid-September last year. Compared to the pre-COVID-19 pandemic period, this remains a record low level. Continuing jobless claims, which count those claiming unemployment benefits for at least two weeks, increased. For the week of February 25 to March 2, continuing claims totaled 1,811,000, up 17,000 from the previous week's revised figure. This indicates fewer existing unemployed people found new jobs.

Now, investors' attention is turning to the FOMC meeting next week. Due to stickier-than-expected inflation, the Fed is likely to maintain the position that it needs further assurance of sustained inflation decline.

Chris Larkin, trading managing director at Morgan Stanley E-Trade, said, "The question now is how quickly the Fed will cut rates and whether that will slow the stock market rally," adding, "So far, the market has underestimated concerns about stubborn inflation and a cautious Fed."

International oil prices are strong as the International Energy Agency (IEA) raised its oil demand forecast for this year. West Texas Intermediate (WTI) crude oil rose $0.65 (0.8%) to $80.37 per barrel, and Brent crude increased $0.59 (0.7%) to $84.62 per barrel.