New York Stock Market Starts Lower... August CPI Inflation Slows to 2.5%

CPI Inflation Rate, 2.9% in July → 2.5% in August
Big Cut Forecast for September Drops from 34% to 15% the Day Before

The three major indices of the U.S. New York Stock Exchange are showing a downward trend on the 11th (local time). As the August Consumer Price Index (CPI) came in line with market expectations, the market is quickly retreating from expectations of a big cut (0.5 percentage point interest rate cut) this month.

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As of 9:57 a.m. in the New York stock market on the day, the Dow Jones Industrial Average, centered on blue-chip stocks, is trading at 40,229.61, down 1.25% from the previous trading day. The S&P 500 index, focused on large-cap stocks, is down 0.74% at 5,455.01, and the Nasdaq index, centered on technology stocks, is trading down 0.14% at 17,001.79.

The August CPI, released ahead of the Federal Open Market Committee (FOMC) meeting scheduled for the 17th-18th, rose 2.5% year-on-year. This is in line with market forecasts (2.5%). After the July increase entered the 2% range for the first time in 3 years and 4 months since March 2021 (2.6%), the rate of increase narrowed again after just one month. The CPI rose 0.3% month-on-month, matching the expected figure (0.2%) and the previous month's figure (0.2%).

The core CPI, which excludes volatile energy and food prices to show the underlying trend of inflation, rose 0.3% month-on-month and 3.2% year-on-year. Experts had forecast increases of 0.2% and 3.2%, respectively, so the month-on-month increase exceeded expectations. In July, the increases were 0.2% and 3.2%, respectively.

Housing costs accounted for most of the CPI increase. Housing costs rose 0.5% month-on-month, an increase from July's 0.4%. Year-on-year, they rose 5.2%. Food prices increased by 0.1%, while energy prices fell by 0.8%. Used car prices dropped 0.1%, and clothing prices rose 0.3%.

With the CPI meeting expectations and the core CPI slightly exceeding market forecasts, the market views a 'big cut' of a 0.5 percentage point interest rate reduction this month as unlikely. The interest rate futures market currently reflects an 85% chance that the Fed will cut rates by 0.25 percentage points in September and a 15% chance of a 0.5 percentage point cut. Just the day before, the probability of a big cut was 34%, but it plunged 19 percentage points in one day.

Josh Jamner, investment strategy analyst at ClearBridge Investments, said, "This will be a disappointing indicator for the short-term bond market, which had expected a 250 basis point rate cut by the end of 2025," adding, "While today's less favorable data will not prevent the Fed from normalizing its rate policy next week, it could change the framework of the debate."

The Producer Price Index (PPI) for August will be released the next day, on the 12th. The wholesale price index, which affects the retail price CPI with a time lag, is expected to rise 0.2% in August, slightly exceeding July's increase of 0.1%.

Since inflation indicators met expectations, there is speculation in the market that earnings and election variables may now influence stock market movements.

David Russell, chief market strategist at TradeStation, said, "The figures are not overwhelmingly dovish (favoring monetary easing), but they confirm that the cooling process is underway," adding, "Now the market's focus may shift from the Fed to earnings and elections."

Chris Zaccarelli, Chief Investment Officer (CIO) of Independent Advisor Alliance, forecasted, "Considering the current situation of Fed rate cuts, unemployment rates near multi-decade lows, and an expanding or slowing economy, the market could reach new highs again if it overcomes election volatility."

Government bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 1 basis point (1 bp = 0.01 percentage point) from the previous trading day to 3.65%, while the 2-year Treasury yield, sensitive to monetary policy, is trading at 3.65%, up 4 basis points from the previous day.

By stock, the shares of Trump Media & Technology Group (TMTG), the parent company of the social networking service Truth Social owned by former President Donald Trump, are down 15.41%. This was negatively affected by Vice President Kamala Harris's strong performance in the presidential TV debate held the day before. GameStop is down 15.05% after announcing a sharp drop in sales.

International oil prices, which plunged the previous day due to concerns about slowing demand in China, are rising on expectations of reduced U.S. inventories and production disruptions caused by hurricanes. West Texas Intermediate (WTI) crude oil rose $1.20 (1.83%) from the previous day to $66.95 per barrel, and Brent crude, the global oil price benchmark, increased $1.07 (1.55%) to $70.26 per barrel.