New York Stock Market Falls as CPI Enters 3% Range... Sharp Rise in Treasury Yields

January CPI Rises 3% Year-on-Year, Exceeding Expectations
Fed Expected to Prolong 'Rate Hold'
10-Year U.S. Treasury Yield Surges Over 10bp
Focus on PPI on the 13th and Retail Sales on the 14th

The three major indices of the U.S. New York stock market were on the rise on the 12th (local time). Concerns grew that the Federal Reserve's (Fed) resumption of interest rate cuts would be further delayed as last month's Consumer Price Index (CPI) inflation rate re-entered the 3% range. U.S. Treasury yields also surged, weighing on investor sentiment.

As of 11:56 a.m. in the New York stock market that day, the Dow Jones Industrial Average (Dow), which focuses on blue-chip stocks, was trading at 44,323.8, down 0.61% from the previous day. The S&P 500, centered on large-cap stocks, was down 0.39% at 6,044.55, and the Nasdaq, focused on tech stocks, was down 0.19% at 19,606.06.

By individual stocks, Nvidia was down 1.55%. Microsoft (MS) was down 0.99%. Tesla was up 3.27%. CVS Healthcare surged 14.95% on strong fourth-quarter earnings last year.

Inflation surprised with an increase, dampening investor sentiment. According to the U.S. Department of Labor, the CPI in January this year rose 3% year-over-year. This exceeded both the December figure (2.9%) and market expectations (2.9%). The January CPI rose 0.5% month-over-month, surpassing both the previous month's figure (0.4%) and the forecast (0.3%).

Housing costs, food, and energy prices all rose, pushing the CPI higher. By category, housing costs increased 0.4% month-over-month. Energy prices rose 1.1%, and overall food prices increased 0.4% due to a surge in egg prices caused by avian influenza.

The core CPI, which excludes the volatile energy and food sectors, rose 0.4% month-over-month. The year-over-year increase was 3.3%. Both figures exceeded the December numbers (0.2% and 3.2%, respectively) and market expectations (0.3% and 2.9%, respectively). The Fed closely watches the core CPI as an indicator of underlying inflation trends.

With the U.S. economy remaining robust and employment still strong, the rebound in inflation is expected to further delay the Fed's resumption of interest rate cuts. Fed Chair Jerome Powell also appeared before Congress the previous day, stating, "We are in a pretty good place in the economy and want to see more progress on inflation," adding, "There is no rush to cut rates further."

Rising inflation has caused Treasury yields to soar. The 10-year U.S. Treasury yield, a global bond yield benchmark, rose 11 basis points from the previous trading day to 4.64%, while the 2-year Treasury yield, sensitive to monetary policy, increased 8 basis points to 4.37%.

Samir Samana, Global Head of Equity and Real Assets at Wells Fargo, said, "The hotter-than-expected CPI confirms investors' anxiety about persistently high inflation," and analyzed, "The Fed will likely remain on hold due to the hot inflation rather than cutting rates." He added, "Risk assets may rise, but the process will not be smooth compared to the past two years."

The market is also rapidly lowering expectations for rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day priced in a 65.2% chance that the Fed will keep rates unchanged throughout the first half of the year. This is a sharp rise from 34.1% a week ago and 50.3% the previous day. The probability of rates remaining unchanged throughout this year rose from 10.4% a week ago to 28.6%.

Investors are focusing on Fed Chair Powell's remarks, who appeared before the House of Representatives following his appearance in the Senate the previous day, along with economic indicators scheduled for release this week. The Producer Price Index (PPI) for January, to be released on the 13th, is expected to have risen 0.2% month-over-month, maintaining the previous month's increase. Retail sales for January, scheduled for release on the 14th, are expected to remain flat compared to the previous month, indicating a halt in growth. Retail sales in December last year had increased 0.4% month-over-month.