Open: U.S. stocks opened lower on Wednesday March CPI data lowered expectations for the Federal Reserve to cut interest rates

On the evening of the 10th, Beijing time, U.S. stocks opened lower on Wednesday. U.S. CPI rose more than expected in March, suggesting that inflationary pressures remain elevated, raising concerns that the Federal Reserve may not cut interest rates this year. After the release of the CPI data, the yield on the 10-year Treasury note broke through 4.5% to hit a new high for the year.

The Dow fell 374.67 points, or 0.96 percent, to 38,509.00, the Nasdaq lost 201.10 points, or 1.23 percent, to 16,105.54 and the S&P 500 lost 56.13 points, or 1.08 percent, to 5,153.78.

U.S. Treasury yields climbed early Wednesday, with the 10-year yield briefly topping 4.5% to hit a new high for the year. The yield on the 2-year Treasury rose 16.5 basis points to 4.912%. The yen fell below 152 against the dollar, hitting a 34-year low.

US March CPI data showed that inflationary pressures remain elevated

Ahead of the U.S. stock market on Wednesday, investors were greeted with closely watched March CPI inflation data, which they lowered their expectations for the Federal Reserve's interest rate policy path.

The U.S. Bureau of Labor Statistics reported on Wednesday that the U.S. consumer price index (CPI) rose 0.4% month-on-month in March, after rebounding to 3.5% year-on-year, driven by higher gasoline and housing prices.

Excluding volatile food and energy prices, the core CPI rose 0.4% month-on-month and 3.8% year-on-year in March, both higher than expected.

Economists surveyed by Dow Jones expected the US CPI to rise 0.3% month-on-month and 3.4% year-on-year in March, excluding volatile food and energy prices, the core CPI is expected to rise 0.3% month-on-month and 3.7% year-on-year in March.

The March CPI index rose faster than economists expected, indicating stubborn inflation and lowering market expectations for the Fed to cut interest rates.

After the report was released, the yen briefly fell below 152 yen per dollar, the lowest level since July 1990.

The March CPI report may have shattered the illusion that the inflation reports for the last two months were "outliers".

At last month's press conference, Powell acknowledged that the CPI data for the first two months of 2024 broke the trend of a significant slowdown in inflationary pressures that began in June 2023. At the time, Powell cautioned against revising the overall inflation outlook based solely on the two reports, which could be partly due to seasonality for the stronger inflation rally in January and February.

Wednesday's CPI inflation report is further evidence that the Federal Reserve may be suffering a setback in its efforts to curb inflation, even as it keeps interest rates at 20-year highs. With a strong labor market still driving household demand, Fed officials have been insisting they want to see more evidence that price pressures are continuing to cool before lowering borrowing costs.

Markets have lowered bets on the Fed to cut interest rates this year

Betting on a Fed rate cut in June has all but disappeared after March CPI data showed higher-than-expected inflation, and even the outlook for July looks more volatile. Traders are also adamant that there will be only two rate cuts this year, while the Fed's dot plot is expected to cut rates three times.

Swap markets show that the likelihood of a Fed rate cut in June has diminished and pushed back the Fed's first rate cut from September to November, swaps show that the Fed will only cut rates by 50 basis points in 2024, and money markets expect the ECB to cut rates by about 80 basis points in 2024, compared to 87 basis points before the data.

Robert Pavlik, senior portfolio manager at Dakota Wealth, said: "The hotter-than-expected inflation data, both headline and core, drove futures down as the data showed sticky inflation and the likelihood that the Fed would either cut rates less often or not at all in 2024." I don't think that justifies the need for a rate hike, but equities have to reprice to adapt to the different environment that comes with inflation data. ”

Goldman Sachs analyst Rosner said: "The interest rate market needs to seriously consider the possibility of interest rates remaining high for longer, at least until the summer of this year, and possibly even until the end of the year." The inflation figures did not undermine the Fed's confidence, but they cast a shadow over it. ”

Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, said: "Stronger-than-expected CPI confirms that the Federal Open Market Committee (FOMC) will take a more cautious approach on rate cuts. This also supports our short-term bearish view on the Treasury market as we work to overcome obstacles on the road to 2% inflation. ”

David Kelly, chief global strategist at JPMorgan Asset Management, said the report showed that the door was closed for the Fed to cut interest rates in June.

Quincy Krosby, chief global strategist at LPL Financial, said that if the March CPI inflation data is higher than expected, it could lead to a serious correction in U.S. stocks this year after rising at the beginning of the year.

Nick Timiraos, a financial journalist known as the "new Fed news agency", pointed out that given the lack of reaction of Fed officials to the inflation data in January and February, the resurgence of hot inflation data in March may lead to an "overreaction" of the Fed.

Timiraos said that if the CPI data shows another setback in the Fed's efforts to curb inflation, it could disrupt the Fed's plans to cut rates in June and delay the first rate cut until July, or even later.

In addition to Wednesday's inflation report, investors are also awaiting the release of the minutes of the Federal Reserve's March monetary policy meeting, hoping for further clues as to the stance of policymakers on the expected rate cuts this year.

Stocks in focus

Morgan Stanley raised its price target on Nvidia to $1,000 from $795 on Wednesday.

Morgan Stanley said it lowered its price target on Boeing to $180 from $235 and maintained its "neutral" rating in light of the slowdown in the pace of deliveries.

"India Business Online" quoted sources on the 10th local time to disclose that Tesla, an American electric vehicle manufacturer, is negotiating with India's Reliance Industries to discuss the establishment of a joint venture and the construction of a factory in India.

In addition, a person familiar with the matter said that Musk will visit India on April 22 local time to meet with Indian Prime Minister Modi. It is reported that Musk is expected to announce news related to Tesla's investment plan and the construction of a factory in India.

Delta Air Lines expects second-quarter adjusted earnings of $2.2-$2.5 per share, compared to the consensus estimate of $2.23.

Faraday Future announced its expansion into the Middle East to set up a sales entity.

Jack Ma said Alibaba has returned to a healthy growth track.

TSMC's sales in March increased by 34.3% year-on-year.

Xpeng Motors officially announced its official entry into the Hong Kong and Macao markets.