China Fund News Taylor
Brothers and sisters, tonight, the US stock market has reached a new high!
The Nasdaq and S&P 500 hit record intraday highs
There is good news for inflation in the United States tonight.
According to data released by the U.S. Bureau of Labor Statistics on May 15, the U.S. CPI (Consumer Price Index) rose by 3.4% year-on-year in April, the same as market expectations, but still well above the Fed's 2% target, compared with 3.5% previously; Excluding food and energy, the core CPI rose 3.6% year-on-year, in line with market expectations and the previous value of 3.8%. On a month-on-month basis, the US CPI rose 0.3% in April, lower than the market expectation of 0.4%, and the previous value was 0.4%; Core CPI rose 0.3%, above market expectations of 0.2% and the previous reading of 0.4%.
After the news came out, the European and American markets jumped, and the dollar index fell!
The Dow Jones is just one step away from a new high, and the Nasdaq and S&P 500 have both hit new all-time highs intraday!
The U.S. core CPI monthly rate cooled for the first time in six months, suggesting that price pressures are gradually waning and supporting the Fed's intention to keep interest rates higher for longer. Economists believe that the core indicator is a better indicator of underlying inflation than the headline CPI.
Swap markets are pricing in a faster pace of Fed rate cuts in 2024, with traders firming bets that the Fed will cut rates in September and December.
The CPI data eased fears that stubborn inflation would prevent the Fed from cutting interest rates later this year. Seema Shah, chief global strategist at Principal Asset Management, said that the surprise downward trend in inflation for the first time this year will ease concerns that inflation is starting to trend upwards again. Given that it puts the possibility of a Fed rate cut back on the table in 2024, this will inevitably be welcomed by the market.
In addition, U.S. retail sales stagnated in April, after the previous two-month increase was revised downward. Gary Pzegeo, an analyst at CIBC Private Wealth, said the market was happy with the data and the news on core inflation was better than expected. The previously hot consumer sector has also slowed down. Taken together, this supports the Fed to cut interest rates in the fall.
Overall, the data shows that there is still work to be done on inflation, but most importantly, it reminds investors that a pullback in inflation is still happening — which will support the stock market, according to Tom Essaye, founder of research firm Sevens Report.
While the CPI data may allow the Fed to judge that inflation is resuming its downward trend, officials want to see more data to gain the confidence they need to start considering rate cuts.
Fed Chair Jerome Powell said yesterday that interest rates will remain high for a longer period of time to wait for more signs of cooling inflation, and that the Fed will "need to be patient and let restrictive policy work", with some policymakers not expecting to cut monetary rates at all this year.
Jason Pride, head of investment strategy and research at boutique wealth manager Glenmede, said what the inflation data does for the Fed is that it sets the ground for them to cut rates later this year.
Jason Pride said that if the market is worried that the Fed will not cut interest rates at all, tonight's CPI report will only ease some of the concerns. It didn't put the Fed on track to start cutting rates right away, as they needed a few more similar reports to gain some confidence.
Nick Timiraos, the "Fed's mouthpiece", wrote that the April inflation report showed that price pressures eased last month, which should make it easier for Fed officials to keep policy unchanged at next month's meeting. The report alone was not enough to convince officials that the three higher-than-expected inflation data at the start of the year were a deviation from the downward trend in price pressures expected by policymakers. With two more reports likely to be needed to shore up officials' confidence that inflation can return to the lower levels prevailing before the pandemic, the Fed may not be prepared to cut rates before September.
In addition, U.S. retail stocks began to plummet, and the game station, which had risen wildly in the previous two trading days, plummeted by 30% and triggered a trading suspension. Another stock, AMC Entertainment Holdings, also extended its decline to more than 20%.
Bless A shares, come on A shares!