[New York Stock Market] Mixed Close Near Steady Range Awaiting March CPI... Rise in Treasury Yields

Interest Rate Cut Outlook Recedes... Government Bond Yields Rise
March CPI and FOMC Minutes to be Released on the 10th

The three major indices of the U.S. New York stock market closed mixed on the 8th (local time) near the flat line. After the release of stronger-than-expected employment data, the surge in Treasury yields due to expectations that the Federal Reserve's (Fed) rate cut timing could be pushed back to the second half of the year weighed on the indices. The market is in a cautious mood, awaiting the release of the March Consumer Price Index (CPI) on the 10th.

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On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,892.8, down 11.24 points (0.03%) from the previous trading day. The large-cap-focused S&P 500 index ended trading at 5,202.39, down 1.95 points (0.04%). The tech-heavy Nasdaq index closed up 5.44 points (0.03%) at 16,253.96.

The surge in Treasury yields suppressed the index gains. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 4 basis points (bp) (1bp = 0.01 percentage points) to 4.42% compared to the previous trading day, while the 2-year Treasury yield, sensitive to monetary policy, moved up 6bp to 4.79%.

Strong U.S. economic data led to expectations that the Fed's rate cut timing could be delayed to the second half of the year, resulting in rising Treasury yields. Increasingly, investors are reducing their forecasts for the number of Fed rate cuts this year from three to two. According to the Chicago Mercantile Exchange (CME) FedWatch, federal funds futures on the day priced in about a 51.3% chance that the Fed will cut rates by at least 0.25 percentage points at the June Federal Open Market Committee (FOMC) meeting, down significantly from over 73% a month ago.

Inflation easing is slower than expected, and the March employment data released by the U.S. Department of Labor on the 5th showed much stronger results than market expectations. Nonfarm payrolls increased by 303,000 from the previous month, far exceeding the expert forecast of 214,000. The unemployment rate fell from 3.9% in the previous month to 3.8% in March.

Bill Adams, chief economist at Comerica Bank, analyzed, "Jobs and wages are rising solidly, and total wages are outpacing inflation," adding, "Americans will maintain spending this year, and the economy can move forward."

Good news is turning into bad news for the stock market. Matt Lowy, senior portfolio manager at Nomura Capital Management, diagnosed, "The stock market is thriving on bad news," and "The bull market in stocks mostly stems from implicit rate cuts or hopes for a series of rate cuts this year."

Investors' attention is focused on the inflation indicators to be released this week. Inflation is the most important economic indicator that will influence the Fed's rate path. On the 10th, the March Consumer Price Index (CPI) will be released, followed by the March Producer Price Index (PPI) on the 11th. Last month's CPI is expected to rise 3.4% year-over-year, surpassing the previous month's increase of 3.2%. The core CPI inflation rate is expected to decline to 3.7% year-over-year from 3.8% the previous month.

Among these, consumers' one-year inflation expectations were found to be 3%. According to a survey conducted by the New York Federal Reserve Bank on 1,300 consumers in March, the median expected inflation rate, representing the anticipated inflation one year ahead, remained at 3%, the same level as last month. The three-year inflation expectation rose from 2.7% to 2.9%, while the five-year inflation expectation fell from 2.9% to 2.6% during the same period.

Adam Crisafulli, founder of Vital Knowledge, said, "The Fed seems unconcerned about strong job growth, but inflation is a big problem," adding, "The March inflation data must show that the process of slowing inflation is normalizing."

Wall Street has issued warnings that U.S. interest rates could soar above 8% in the future. Jamie Dimon, chairman and CEO of JP Morgan, known as the "Emperor of Wall Street," stated in a 61-page annual letter to shareholders on the 8th (local time), "Massive fiscal spending, trillions of dollars in annual costs associated with the green economy, global rearmament, and global trade restructuring?all of these cause inflation." He said he is preparing for scenarios where rates either fall to 2% or rise above 8%.

Investors are also paying close attention to the minutes of the March Federal Open Market Committee (FOMC) meeting to be released on the 10th. While the Fed maintained its forecast for three rate cuts this year in the dot plot last month, the minutes are expected to reveal Fed officials' views on the future rate path.

Fed officials' remarks will continue this week. Starting with Minneapolis Fed President Neel Kashkari's remarks on the day, Fed Board member Michelle Bowman and Chicago Fed President Austan Goolsbee are scheduled to speak on the 10th, followed by New York Fed President John Williams and Atlanta Fed President Raphael Bostic on the 11th.

By stock, Tesla shares rose 4.9%. Buying surged after Tesla CEO Elon Musk announced that the RoboTaxi would be unveiled in early August. U.S. retailers Ulta Beauty and warehouse club BJ's Wholesale Club were upgraded to "buy" ratings on Wall Street, rising 1.81% and 0.83%, respectively.

International oil prices fell as Israel withdrew a significant number of troops from the Gaza Strip. West Texas Intermediate (WTI) crude fell $0.48 (0.6%) to close at $86.43 per barrel, and Brent crude dropped $0.79 (0.9%) to close at $90.38.