New York Stock Market Shows Early Strength on CPI 'In Line with Expectations'... 96% Forecast for Small Rate Cut This Month

November CPI Expected to Rise 2.7% YoY
Significant Contribution from Housing and Food Price Increases
December Small Cut Forecast at 96.4%...Government Bond Yields Decline
Attention on November PPI to Be Released Next Day

The three major indices of the U.S. New York stock market all rose in early trading on the 11th (local time). The consumer price index (CPI) increase last month matched market expectations, stimulating investor sentiment. The market is already pricing in a Federal Reserve (Fed) interest rate cut this month.

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As of 9:42 a.m. in the New York stock market, the blue-chip-focused Dow Jones Industrial Average (Dow) was up 0.14% from the previous trading day, standing at 44,308.06. The large-cap-focused S&P 500 index rose 0.54% to 6,067.35, and the tech-heavy Nasdaq index gained 0.84% to trade at 19,851.7.

The November CPI, released before the market opened, was in line with expert forecasts. According to the U.S. Department of Labor, last month’s CPI rose 0.3% month-over-month and 2.7% year-over-year. These increases were 0.1 percentage points higher than October’s rates (2.6% year-over-year, 0.2% month-over-month), but all matched market expectations. The core CPI, which excludes volatile energy and food prices to show the underlying inflation trend, rose 0.3% month-over-month and 3.3% year-over-year, consistent with October’s figures and market forecasts. The slight increase in CPI was driven by rising housing and food prices. Housing costs rose 0.3% month-over-month, accounting for 40% of the overall CPI increase. Food prices increased by 0.4%, and energy prices rose by 0.2%.

Although the broad disinflation trend (declining inflation rate) has paused, last month’s inflation did not spike significantly, leading Wall Street to firmly expect a 0.25 percentage point Fed rate cut this month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market currently prices in a 96.2% probability that the Fed will cut rates by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th-18th. This is a more than 10 percentage point jump from the 86.1% probability just before the CPI release. The chance of holding rates steady has dropped to 3.8%.

In anticipation of the Fed’s rate cut this month, U.S. Treasury yields have weakened slightly. The 10-year U.S. Treasury yield, a global bond rate benchmark, fell by 1 basis point (1 bp = 0.01 percentage points) to 4.21%, while the 2-year Treasury yield, which is sensitive to monetary policy, dropped 4 basis points to around 4.1%.

Shima Shah, Chief Global Strategist at Principal Asset Management, said, "Today’s inflation report confirms the likelihood of a Fed rate cut next week," but added, "Core inflation remains high, so inflationary pressures have not yet reached a level where the Fed can be fully reassured."

Wall Street expects the Fed to implement a small cut (0.25 percentage points) this month and then hold rates steady in January next year. Even with a rate cut this month, it is expected to be a "hawkish cut" (favoring monetary tightening). Earlier, Fed Chair Jerome Powell and other monetary policy officials repeatedly emphasized that the U.S. economy remains robust and there is no urgency to cut rates. Additionally, if President-elect Donald Trump implements tariff increases, illegal immigration bans, and tax cuts after taking office in January, inflation could rise, which is another reason the Fed is expected to be cautious about easing monetary policy.

Investors are awaiting the November Producer Price Index (PPI), which will be released the next day on the 12th. The wholesale price index PPI is expected to have risen 0.3% month-over-month and 2.5% year-over-year last month, an increase from October’s 0.2% and 2.4%, respectively.

By stock, technology shares are rising. Nvidia, the leader in artificial intelligence (AI) stocks, is up 0.85%. Tesla is up 1.5%. GameStop surged 7.16% after reporting earnings that exceeded market expectations. Walgreens Boots Alliance, a U.S. pharmacy chain, is down 2.29%. Although there were reports that private equity firm Sycamore Partners would acquire Walgreens, doubts about the deal’s feasibility have caused the stock to decline.

International oil prices are strong. West Texas Intermediate (WTI) crude oil rose $0.75 (1.09%) from the previous trading day to $69.34 per barrel, and Brent crude, the global oil price benchmark, increased $0.67 (0.93%) to $72.86 per barrel. However, the rise was limited as the Organization of the Petroleum Exporting Countries (OPEC) lowered its oil demand growth forecasts for this year and next.