New York Stock Market Mixed Amid Uneasy PPI and CPI Digest... US Treasury Yields Decline

US March PPI Up 2.1% YoY
Highest in 11 Months
Rate Cut Delay Likely... Market Sentiment Turns Cautious

The three major indices of the U.S. New York stock market showed mixed movements around the opening on the 11th (local time). After the market plunged due to the shock from the March Consumer Price Index (CPI) released the previous day, it failed to find a clear direction following the wholesale price index announcement, which recorded the largest increase in 11 months, resulting in a cautious trading atmosphere. U.S. Treasury yields are declining.

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As of 10:10 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 0.45% from the previous close, standing at 38,288.77. The S&P 500, which is centered on large-cap stocks, was trading down 0.22% at 5,149.29. The tech-heavy Nasdaq index was up 0.17% at 16,197.31.

By individual stocks, used car sales platform CarMax fell 12.56% after disappointing earnings. Nike rose 2.51% as Bank of America (BoA) upgraded its investment rating to 'buy.' Nvidia's stock price increased by 0.76%.

The U.S. Department of Labor released the Producer Price Index (PPI), the wholesale price index, on the day. The PPI was more stable than the previous day's CPI but showed mixed results.

Last month's PPI rose 0.2% month-over-month and 2.1% year-over-year, falling short of market expectations (0.3% and 2.2%, respectively). However, the year-over-year increase significantly expanded compared to the previous month (1.6%) and marked the highest level in 11 months since April last year. The core PPI, which excludes volatile energy and food prices to show the underlying trend of inflation, rose 0.2% month-over-month and 2.4% year-over-year. Market expectations were 0.2% and 2.3%, respectively, so the year-over-year increase also exceeded forecasts.

The wholesale price index PPI influences the retail price index CPI with a time lag. Although the PPI increase was below expert expectations, the fact that it recorded the highest level in 11 months was insufficient to provide reassurance to the market.

Michael Shaul, CEO of Marketfield Asset Management, said, "I understand that this report might provide some relief, but there is nothing encouraging in it," adding, "The best thing is that there is no new bad news."

The March CPI released the previous day exceeded market expectations for the third consecutive month, worsening investor sentiment. Last month's CPI rose 0.4% month-over-month and 3.5% year-over-year, surpassing expert forecasts (0.3% and 3.4%). The core CPI, which the Federal Reserve (Fed) watches most closely, increased 0.4% month-over-month and 3.8% year-over-year, the same level as the previous month (3.8%) but also exceeding market expectations (0.3% and 3.7%). Housing costs and gasoline price increases contributed to more than half of the monthly CPI rise.

Investor sentiment further contracted following the release of the March Federal Open Market Committee (FOMC) minutes, which expressed concerns about the pace of inflation slowdown. The March FOMC minutes stated, "Participants generally mentioned uncertainties about the persistence of high inflation," and "Recent data did not bolster their confidence that inflation is steadily slowing to 2%." Some Fed officials expressed concerns that geopolitical turmoil and rising energy prices could further stimulate inflation. According to the minutes, Fed officials showed differing views on whether the inflation exceeding market expectations in January and February was due to seasonal factors or a broader increase.

Following strong employment data and the confirmation of hot inflation on the day, expectations for Fed rate cuts have significantly diminished. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflected about a 22% chance that the Fed would cut rates by at least 0.25 percentage points at the June FOMC meeting. This is a sharp drop from about 65% a week ago and about 71% a month ago. The probability of a 0.25 percentage point or more rate cut in July was about 48%, and for September, about 71%.

Global investment bank Goldman Sachs lowered its forecast for the number of Fed rate cuts this year from three to two.

Jan Hatzius, Goldman Sachs' chief economist, said, "I am optimistic that we will rebalance the labor market and reduce inflation over time," but added, "The timing for Fed rate adjustments has changed. The Fed will increasingly rely on monthly inflation data, and last month's CPI was clearly disappointing."

The employment data released on the day remained robust. According to the Department of Labor, initial jobless claims for the week of March 31 to April 6 totaled 211,000, below the expert forecast of 216,000 and down 11,000 from the previous week’s 222,000.

U.S. Treasury yields are moving in a narrow range. The 2-year Treasury yield, sensitive to monetary policy, fell 2 basis points (1 bp = 0.01 percentage point) from the previous trading day to 4.94%. The 10-year Treasury yield, a global bond yield benchmark, moved slightly higher around 4.56%.

International oil prices are declining. West Texas Intermediate (WTI) crude fell $0.58 to $85.33 per barrel, and Brent crude dropped $0.44 to $90.04 per barrel.