[New York Stock Market] US March 'CPI Shock' Causes Sharp Drop... 10-Year Treasury Yield Surpasses 4.5%

Core CPI Rises 3.8% in March, Exceeding Expectations
FOMC Minutes Reveal Divergent Views on Inflation Trend
Sharp Surge in Treasury Yields... Dollar Also Jumps
September Emerges as Leading Candidate for Rate Cut Timing

The three major indices of the U.S. New York stock market all plunged on the 10th (local time) following the release of the March Consumer Price Index (CPI), which exceeded market expectations. Investor sentiment further contracted as Federal Reserve (Fed) officials expressed concerns that the pace of inflation slowdown was not fast enough. With growing expectations that the Fed's rate cut timeline would be pushed back from the originally anticipated June to July or September, U.S. Treasury yields surged. The 10-year yield has already surpassed the 4.5% level, and the 2-year yield is threatening the 5% mark. The dollar also showed a sharp rise.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed down 422.16 points (1.09%) from the previous trading day at 38,461.51. The large-cap-focused S&P 500 index fell 49.27 points (0.95%) to 5,160.64, and the tech-heavy Nasdaq index dropped 136.28 points (0.84%) to 16,170.36.

Investor sentiment deteriorated sharply as the March CPI inflation rate exceeded market forecasts for the third consecutive month. According to the U.S. Labor Department's announcement that day, the March CPI rose 0.4% month-over-month and 3.5% year-over-year, surpassing expert estimates of 0.3% and 3.4%, respectively. The core CPI, which the Fed closely monitors, increased 0.4% month-over-month and 3.8% year-over-year, also exceeding market expectations of 0.3% and 3.7%. The core CPI excludes volatile energy and food prices to show the underlying inflation trend. Housing costs and gasoline price increases contributed more than half of the monthly CPI rise. Housing costs rose 0.4% month-over-month, and gasoline prices increased by 1.7%.

Investor sentiment further weakened following the release of the March FOMC meeting minutes, which expressed concerns about the pace of inflation slowdown. The minutes stated that "participants generally mentioned uncertainties regarding the persistence of high inflation" and that "recent data did not bolster their confidence that inflation was steadily slowing toward 2%." Some Fed officials worried that geopolitical turmoil and rising energy prices could further stimulate inflation.

According to the minutes, Fed officials showed differing views on the inflation that exceeded market expectations in January and February. Fed Chair Jerome Powell mentioned the possibility that seasonal factors might have caused the inflation increase, but some officials disagreed. The minutes noted, "Some participants pointed out that the recent inflation rise was relatively broad-based and should not be simply dismissed as statistical noise."

Concerns about inflation uncertainty and differing opinions on future trends among Fed officials have heightened caution regarding the inflationary trend.

In the market, expectations for a rate cut in June have now disappeared, with more weight given to cuts in the second half of the year. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in about a 17% chance that the Fed would cut rates by at least 0.25 percentage points at the June FOMC meeting, down from 57% the day before and 72% a month ago. The probability of a 0.25 percentage point or greater cut in July dropped sharply to 41% from 84% the day before. The chance of a rate cut of 0.25 percentage points or more in September was estimated at 66%.

Chris Zaccarelli, Chief Investment Officer (CIO) of Independent Advisor Alliance, analyzed, "With a series of reports showing higher-than-expected figures, it has become difficult to support an early Fed rate cut."

Tiffany Wilding, economist at bond manager PIMCO, noted, "Following last week's employment report, inflation indicators are making the timing of the Fed's rate cuts more complicated. The first cut is now expected to be delayed until after mid-year, and the U.S. is more likely to reduce rates gradually compared to other advanced economies."

As expectations for rate cuts fade, Treasury yields are surging. The 2-year U.S. Treasury yield, sensitive to monetary policy, rose 22 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.97%, while the 10-year U.S. Treasury yield, a global bond yield benchmark, increased 18 basis points to around 4.55%.

The dollar also strengthened. The dollar index, which measures the dollar's value against six major currencies, rose 1.1% from the previous day to 105.22.

By sector, bank stocks, industrial stocks, and tech stocks declined. JPMorgan, the largest U.S. bank, fell 0.85%. Honeywell, which produces industrial hardware devices and systems, dropped 1.39%. Microsoft (MS) and Apple shares declined 0.71% and 1.11%, respectively.

International oil prices rose amid concerns that ceasefire negotiations between Israel and the Palestinian militant group Hamas could stall. West Texas Intermediate (WTI) crude closed at $86.21 per barrel, up $0.98 (1.2%). Brent crude rose $1.06 (1.2%) to close at $90.48. This followed Israeli airstrikes that killed three sons of Hamas's top political leader, Ismail Haniyeh.