New York Stock Market Pauses Amid FOMC and May PPI Digest... Wholesale Prices Decline

May PPI Falls 0.2% MoM
Inflation Cooling Signal as PPI Follows CPI
Rising Expectations for September Rate Cut

The three major indices of the U.S. New York stock market showed mixed trends in the early trading session on the 13th (local time). The market is continuing to catch its breath after digesting the results of the Federal Open Market Committee (FOMC) meeting the previous day and the inflation data released on the same day. Following the slowdown in the May Consumer Price Index (CPI), the Producer Price Index (PPI), a wholesale price index, also declined on this day, confirming signals that inflation is easing, which has increased market expectations for interest rate cuts.

As of 10:46 a.m. at the New York Stock Exchange (NYSE) on this day, the Dow Jones Industrial Average was trading at 38,469.98, down 0.63% from the previous close. The S&P 500, which focuses on large-cap stocks, was down 0.09% at 5,416.36, while the tech-heavy Nasdaq index was up 0.27% at 17,656.33.

By individual stocks, semiconductor company Broadcom rose 12.84%, buoyed by better-than-expected fiscal second-quarter earnings and a 10-for-1 stock split. Entertainment company Dave & Buster's fell 11.72% due to earnings that missed expectations.

Another signal that inflation is calming came this morning. The May PPI, which leads the CPI, fell 0.2% month-over-month. It reversed to a decline after a month, defying market expectations and falling well below both the expert forecast (0.1% increase) and the previous month’s figure (0.5% increase). Since the wholesale price index PPI affects the retail price index CPI with a time lag, this is analyzed as a sign that inflation is easing.

The day before, the CPI was also confirmed to have slowed. The May CPI rose 3.3% year-over-year, below both the forecast (3.4%) and the previous month’s figure (3.4%). The core CPI, which the Fed closely watches, rose 3.4% year-over-year, marking the lowest rate of increase in about three years since April 2021 for two consecutive months. It also fell short of the market forecast (3.5%) and the previous month’s figure (3.6%).

The Fed held the benchmark interest rate steady at 5.25?5.5% for the seventh consecutive time after the FOMC regular meeting the previous day and reduced the number of expected rate cuts this year from three to one in the dot plot. Fed Chair Jerome Powell said, "There was progress in the May CPI report, but it is not enough to ease policy," adding, "More good data is needed to cut rates. We need to wait to cut rates until we are more confident that inflation is slowing to the 2% target." However, he left open the possibility of more than one rate cut this year. He explained, "Both forecasts of one or two rate cuts this year are plausible," and "If the labor market weakens unexpectedly or inflation slows faster than expected, we are prepared to respond with monetary policy accordingly."

The number of new unemployment claims released this morning also exceeded market expectations. According to the U.S. Department of Labor, new unemployment claims for the week of June 2?8 reached 242,000. This figure surpassed both the market forecast (225,000) and the previous week’s number (229,000), indicating signs of a slowdown in the labor market.

Accordingly, market expectations for interest rate cuts are growing. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market is pricing in nearly a 68% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting. The probability of a 0.25 percentage point or more cut in November is priced at over 79%.

James McCann, Chief Economist at Aberdeen, said, "The Fed kept policy unchanged but continues to keep the door open for more than one rate cut this year," adding, "The decline in CPI was encouraging, and since most Fed officials are split between one and two cuts, it is not surprising that the market is pricing in multiple rate cuts this year."

Along with expectations for rate cuts, Treasury yields are also falling. The U.S. 2-year Treasury yield, sensitive to monetary policy, is trading at around 4.7%, down 4 basis points (1 bp = 0.01 percentage points) from the previous trading day. The U.S. 10-year Treasury yield, a global bond yield benchmark, is trading at around 4.28%, down 1 basis point.

International oil prices are rising. West Texas Intermediate (WTI) crude oil is trading at $78.83 per barrel, up $0.33 (0.42%) from the previous trading day, while Brent crude, the global oil price benchmark, is trading at $83 per barrel, up $0.40 (0.48%).