[New York Stock Market] PPI Slows Following May CPI... S&P and Nasdaq Hit Highest Levels for 4 Consecutive Days

May PPI Falls 0.2% MoM
Inflation Cooling Signal as PPI Follows CPI
Interest Rate Futures Market Reflects 68% Chance of September Cut

On the 13th (local time), the S&P 500 and Nasdaq indices in the U.S. New York stock market set new all-time highs for the fourth consecutive trading day. Following the slowdown in the May Consumer Price Index (CPI), the Producer Price Index (PPI), a wholesale price index, also declined, confirming consecutive signals of easing inflation, which has increased market expectations for interest rate cuts.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,647.1, down 65.11 points (0.17%) from the previous trading day. The large-cap-focused S&P 500 rose 12.71 points (0.23%) to 5,433.74, and the tech-heavy Nasdaq index jumped 59.12 points (0.34%) to 17,667.56, once again hitting record highs.

By individual stocks, semiconductor company Broadcom surged 12.27% thanks to better-than-expected fiscal second-quarter earnings and a 10-for-1 stock split. Tesla rose 2.92% ahead of a vote on a multi-trillion won performance compensation plan for CEO Elon Musk. Nvidia jumped 3.52%, and Apple increased by 0.55%. Entertainment company Dave & Buster's fell 10.94% due to earnings that missed expectations.

The May PPI, released that morning, unexpectedly declined, signaling another sign that inflation is calming down. According to the U.S. Department of Labor, May's PPI fell 0.2% month-over-month, marking the largest drop in seven months since October last year. Last month's PPI growth rate reversed to a decline after a month, significantly missing both expert forecasts (0.1% increase) and the previous month's figure (0.5% increase). The wholesale price index PPI affects the retail price index CPI with a time lag.

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

The day before, after the FOMC regular meeting, the Fed kept the benchmark interest rate unchanged at 5.25?5.5% for the seventh consecutive time 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, "Good data is needed to cut rates. We need to wait for rate cuts until we are more confident that inflation is slowing to the 2% target."

However, he did not consistently deliver a hawkish (monetary tightening preference) message. Powell also left open the possibility of more than one rate cut this year. He said, "Both forecasts of one or two rate cuts this year are plausible," and added, "If the labor market weakens unexpectedly or inflation slows faster than expected, we are prepared to respond with monetary policy accordingly."

Signs of cooling in the labor market also appeared in the employment data released that morning. According to the U.S. Department of Labor, initial jobless claims for the week of June 2?8 were 242,000, exceeding both market expectations (225,000) and the previous week's figure (229,000).

As a result, market expectations for rate cuts have increased. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected more than 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 exceeds 81%.

Bill Adams, Chief Economist at Comerica Bank, predicted that the Fed is likely to cut rates twice in September and December, stating, "Recent data has opened the door wider for the Fed to start cutting rates in the second half of this year."

James McCann, Chief Economist at Aberdeen, said, "The Fed maintained its policy but continues to keep the door open for more than one rate cut this year," adding, "The CPI decline 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 also declined. The U.S. 2-year Treasury yield, sensitive to monetary policy, fell 4 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.7%, and the U.S. 10-year Treasury yield, a global bond yield benchmark, dropped 4 basis points to around 4.24%.

International oil prices rose on expectations of increased oil demand and Fed rate cut hopes. West Texas Intermediate (WTI) crude oil closed at $78.62 per barrel, up $0.12 (0.2%) from the previous trading day, and Brent crude, the global oil price benchmark, rose $0.15 (0.2%) to $82.75.