Core CPI Growth Rate in April Hits Lowest in 3 Years
Retail Sales Also Stagnant Last Month...Signs of Economic Cooling
US Treasury Yields Plunge
The three major indices of the U.S. New York stock market showed strength in early trading on the 15th (local time). Last month's core Consumer Price Index (CPI) inflation rate recorded its lowest level in three years, reviving expectations that the Federal Reserve (Fed) will cut interest rates within the year. The market sees the possibility of a rate cut in September at over 70%.
As of 10:42 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was up 0.51% from the previous close, standing at 39,761.55. The S&P 500, which focuses on large-cap stocks, rose 0.67% to 5,281.98, and the tech-heavy Nasdaq index traded 0.75% higher at 16,634.51, hitting an all-time high.
On the same day, the U.S. Department of Labor announced that the core CPI in April rose 3.6% year-on-year. This is the lowest figure in three years since April 2021. It matched experts' expectations (3.6%) and was below the previous month's increase (3.8%). The month-on-month increase was 0.3%, equal to the forecast (0.4%) but lower than the previous month (0.4%). The core CPI excludes volatile energy and food prices, showing the underlying trend of inflation, and is one of the inflation indicators the Fed pays the most attention to.
The headline CPI rose 0.3% month-on-month and 3.4% year-on-year. These figures were below or in line with market expectations (0.4% and 3.4%, respectively) and both were lower than the previous month's results (0.4% and 3.5%, respectively). Housing costs and gasoline price increases accounted for more than 70% of the CPI increase.
With last month's CPI inflation slowing and matching experts' expectations, the market is showing a sense of relief. The CPI inflation rate from January to March this year consistently exceeded market forecasts, completely dampening expectations for a rate cut in the first half of the year. Fed Chair Jerome Powell also attended the Foreign Bankers Association (FBA) annual meeting held in Amsterdam, Netherlands, the day before, stating that inflation figures were "higher than expected" and that "we need to be patient and allow restrictive monetary policy to take effect."
Following the release of the CPI data, expectations for a rate cut revived, causing bond yields to decline. The U.S. 10-year Treasury yield, a global bond yield benchmark, fell 7 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.37%, while the 2-year U.S. Treasury yield dropped 6 basis points to around 4.75%.
U.S. retail sales for last month also showed stagnation, increasing expectations for economic slowdown and rate cuts. According to the U.S. Department of Commerce, April retail sales were $705.2 billion, unchanged from the previous month. This was well below market expectations (0.4%) and the previous month's performance (0.6%). Retail sales are considered a key indicator reflecting the overall economic trend, as they account for two-thirds of the U.S. real economy. The data was interpreted as a signal that the U.S. economy might slow down due to inflation and the impact of high interest rates putting pressure on household spending.
Investors also expanded their bets on rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on the day reflected nearly a 72% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in September, up from 65% the previous day.
Charles Schwab's Chief Bond Strategist Cash Jones analyzed, "The door to a potential rate cut at the end of the year has opened," adding, "The Fed will need a few more data points showing inflation is slowing before taking action."
The market is also expected to check employment trends through the weekly initial jobless claims data to be released the next day. The market expects initial jobless claims to have decreased to 220,000 from 231,000 the previous week.
By individual stocks, GameStop plunged more than 30%. One of the Reddit traders who led the meme stock craze in 2021 posted on the social networking service X (formerly Twitter) for the first time in three years, causing the stock to surge 74.26% and 60.05% over the past two days, but it reversed and fell within three days. Tesla, which rose 2.03% the previous day on news that the Biden administration plans to raise tariffs on Chinese electric vehicles from 25% to 100%, is down more than 2%. Nvidia is up 2.81%.
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