New York stock market reacts to unexpected rise in PPI
⊙Following the unexpected increase in the Producer Price Index (PPI), the three major stock markets in New York showed a downward trend
⊙The Dow Jones Industrial Average, centered on blue chips, closed 0.37% lower at 38627.99 on the New York Stock Exchange (NYSE) on the 16th local time
⊙The S&P 500 index, dominated by large-cap stocks, fell by 0.48% to 5005.57, and the Nasdaq index closed at 15775.65, down 0.82% from the previous session
⊙These three indices, which had been on the rise for 5 consecutive weeks, experienced a decline for the first time in 6 weeks this week.
Impact of rising PPI on market expectations
⊙The main reason for the downward trend is attributed to the PPI exceeding expectations
⊙According to the U.S
⊙Department of Labor, the January PPI rose by 0.3% compared to the previous month on a seasonally adjusted basis
⊙This level far exceeded the expert consensus (0.1% increase) compiled by the Wall Street Journal, marking the highest level in 5 months
⊙The core PPI rose by 0.6% compared to the previous month, reaching the highest level in a year since January of last year
⊙As producer prices rebounded, bond yields in the U.S
⊙rose, and the value of the dollar also increased.
Market reaction to Fed\’s statements on interest rates
⊙Statements from the Federal Reserve (Fed) are also negatively impacting the market
⊙The President of the Federal Reserve Bank of San Francisco stated at an event on the same day that there is a need to resist the temptation to act quickly when a moderate approach is necessary regarding interest rate cuts, and that readiness to respond flexibly to the evolving economic situation is crucial
⊙He added that the expectation of 3 rate cuts this year is a reasonable basic assumption
⊙The market is anticipating the first rate cut by the Fed to take place in June.
Market expectations and indicators
⊙Market expectations regarding Fed rate cuts are shifting as short-term inflation expectations rise and consumer sentiment improves
⊙The University of Michigan announced that the 1-year inflation expectations for the day rose slightly to 3.0% compared to the previous month (2.9%)
⊙The February Consumer Sentiment Index was tentatively calculated at 79.6, showing an improvement from the previous month (79.0)
⊙With higher short-term inflation expectations and improved consumer sentiment, the anticipation of Fed rate cuts is expected to diminish.
Futures market predictions on Fed rate cuts
⊙According to the FedWatch tool by the Chicago Mercantile Exchange (CME), the likelihood of a rate cut by the Fed in May stood at 35.7% at the closing time, while the probability of a rate cut in June reached 74.1%
⊙The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) recorded a 1.64% increase from the previous session, reaching 14.24.
Market response to rising inflation and improved consumer sentiment
⊙As short-term inflation expectations increase and consumer sentiment improves, the market is adjusting its expectations regarding Fed rate cuts
⊙The rise in producer prices and the positive consumer sentiment are influencing market dynamics, leading to speculations about the timing of potential rate cuts by the Federal Reserve
⊙The volatility index also reflects the changing market sentiment, indicating the cautious approach of investors amidst these economic indicators.
최종 견해
●Producer Price Index (PPI) exceeding expectations led to a downward trend in the New York stock markets, breaking the 5-week upward streak
●The rise in PPI, along with statements from the Federal Reserve about interest rate cuts, caused bond yields and the dollar value to increase, impacting market performance negatively. The Federal Reserve\’s cautious stance on interest rate cuts, despite rising short-term inflation expectations and improved consumer sentiment, is reshaping market expectations
●Speculations about the timing of potential rate cuts are emerging as the market adjusts to the changing economic landscape, as reflected in the rising volatility index. Market anticipation is shifting with a 35.7% likelihood of a rate cut in May and a 74.1% probability in June, according to the FedWatch tool
●The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) rose by 1.64%, reaching 14.24, indicating investors\’ cautious approach amidst evolving economic indicators.
