[New York Stock Market] Mixed Close Ahead of CPI Release... Gains Surrendered on Expected Inflation Rebound

April CPI Released on 15th
Expected 3.4% Increase YoY
1-Year Inflation Expectation Highest in 5 Months

The three major indices of the U.S. New York stock market closed mixed on the 13th (local time). As investors awaited the April Consumer Price Index (CPI) to be released on the 15th, the market gave back gains and turned cautious after the one-year ahead expected inflation rate rose. Since the timing of the Federal Reserve's (Fed) rate cuts depends on inflation trends, the market is closely watching the upcoming CPI data this week.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 39,431.51, down 81.33 points (0.21%) from the previous trading day. The large-cap-focused S&P 500 index fell 1.26 points (0.02%) to 5,221.42, while the tech-heavy Nasdaq index rose 47.37 points (0.29%) to close at 16,388.24.

By individual stocks, GameStop surged 74.4%. Buying interest poured in after one of the Reddit traders who led the 2021 meme stock craze posted on the social networking service X (formerly Twitter) for the first time in three years. Apple rose 1.76% on news that it is negotiating with OpenAI to integrate generative artificial intelligence (AI) technology into the iPhone.

The New York stock market, which had been on the rise that day, gave back gains after news that the expected inflation rate for the next year, which reflects how much U.S. consumers anticipate prices to rise, increased. According to the New York Federal Reserve Bank's consumer expectations survey, the expected inflation rate for the next year was 3.3%, up 0.3 percentage points from 3% in March, marking the highest level in five months since November last year. Respondents expected price pressures to rise in all sectors including rent, groceries, gasoline, and medical expenses. Notably, the expected housing price increase rate was 3.3%, the highest in 21 months since July 2022.

Earlier, the University of Michigan also reported a rise in one-year ahead expected inflation. In the May survey, the one-year inflation expectation was 3.5%, up 0.3 percentage points from the previous month. A rebound in short-term expected inflation is concerning for monetary authorities fighting inflation, as it could lead to actual price increases.

The New York Fed's expected inflation survey results are particularly noteworthy ahead of the April CPI data to be released on the 15th. The CPI exceeded market expectations in all months from January to March this year. Even if the April CPI matches expert forecasts, the market is expected to be relieved. However, if it again exceeds expectations, it could cause a significant shock to the market. The market expects the April CPI to have risen 3.4% year-over-year, and the core CPI, which excludes volatile food and energy prices and shows the underlying inflation trend, to have increased 3.6% year-over-year.

One day before the CPI release, on the 14th, the April Producer Price Index (PPI) will be announced. The wholesale price index PPI influences the CPI with a time lag. The PPI is expected to have risen 2.2% year-over-year in April, and the core PPI is forecasted to have increased 2.4% year-over-year.

Philip Jefferson, Vice Chair of the Fed, considered the second most influential Fed official, said on the day, "Policymakers continue to look for additional evidence that inflation is returning to the 2% target," adding, "I think it is appropriate to maintain policy rates at restrictive levels until then."

There are also market views that the April CPI data will confirm signs of disinflation (a slowdown in price increases).

Morgan Stanley analyzed, "From the second half of 2024, with disinflation and monthly figures slowing, the Fed will gain the confidence it needs that inflation is on a sustained path toward the target," and predicted, "The Fed will cut rates three times this year in September, November, and December."

The retail sales data, which accounts for two-thirds of the U.S. economy, will also be released on the 15th. April retail sales are expected to have increased 0.4% month-over-month, showing a slowdown compared to March's 0.7% increase.

This week also draws attention to remarks by Fed Chair Jerome Powell. On the 14th, Powell will have a conversation with Klaas Knot, President of the Netherlands Central Bank (DNB).

Additionally, the trend in the labor market can be checked through last week's new unemployment claims data to be released on the 16th. The market expects new unemployment claims to have decreased to 220,000 from 231,000 the previous week.

Government bond yields were slightly lower. The U.S. 10-year Treasury yield, a global bond yield benchmark, fell 1 basis point (1bp = 0.01 percentage points) from the previous trading day to 4.48%, while the 2-year Treasury yield, sensitive to monetary policy, traded slightly lower at around 4.86%.

International oil prices rose on signs of demand improvement in the U.S. and China. West Texas Intermediate (WTI) crude oil closed at $79.12 per barrel, up $0.86 (1.1%) from the previous day, and Brent crude, the global oil price benchmark, ended at $83.36 per barrel, up $0.57 (0.7%).