The dollar falls and everything rises! CPI consolidates the Fed's interest rate cut expectations, and the Asian market continues to play music and dance?

Finance Associated Press

2024-05-16 09:26Published on the official account of Cailianpress, a subsidiary of Shanghai Shanghai Poster Industry Group

Finance Associated Press, May 16 (edited by Xiaoxiang) With the S&P 500 index refreshing its all-time high again after a month and a half; The Dow closed above 39,900 for the first time in history, approaching the 40,000 mark, and Wall Street seemed completely relieved after the release of US CPI data for April on Wednesday.

The report, which showed that inflation in the United States was cooling again, further strengthened the Fed's expectations for a rate cut in September, and the global market once again staged a grand scene of "the dollar falling and everything rising".

After the three major U.S. stock indexes rose sharply overnight, the Asian market also "continued to play and dance" shortly after the opening of Thursday. The Nikkei 225 index rose about 0.6% on the day, while South Korea's Kospi index jumped more than 1% higher.

In addition, Australia's S&P 200 index is currently up 1.3%.

The Consumer Price Index (CPI), which measures the cost of goods and services in the U.S. economy, rose 3.4% year-on-year in April, according to data released by the U.S. Labor Department on Wednesday. The so-called core CPI, which excludes volatile food and energy items, climbed 3.6% year-on-year, the slowest increase since April 2021. Both year-on-year figures were in line with the expectations of economists surveyed by the media.

On a month-on-month basis, the US CPI rose by 0.3% in April, slightly lower than the expected and previous value of 0.4%. This is the first time in six months that the month-on-month increase in US CPI has slowed.

This CPI report, which shows a cooling trend of prices from many angles, undoubtedly gave market traders further endorsement to the optimistic tone of the US stock and bond market in advance. Many macro analysts said that with some downward revisions to the previous data, this is a report that really shows the momentum of cooling inflation.

Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, said, "Market participants are relieved that we don't see persistently higher inflation than expected." ”

David Russell, director of global market strategy at TradeStation, also said, "While housing costs have not come down as expected, there have been improvements in transportation and healthcare. It's not perfect, but we're moving towards lower inflation. Retail sales data and weakness in the New York Fed manufacturing index also suggest that growth is slowing, which leaves the possibility of a rate cut open. This is triple positive news. ”

Other data released on Wednesday showed that U.S. retail sales were unexpectedly flat in April, as higher gasoline prices led to lower spending on other goods, suggesting that consumer spending is losing momentum.

The latest data from the above set of data also further proves that the "soft data" and "hard data" in the United States are now starting to fall in tandem.

The U.S. Economic Surprise Index, compiled by Citi, has begun to fall into deep negative territory, in stark contrast to the hot data performance in the first quarter of this year. The index measures the difference between the actual release of economic data and market expectations.

Fed funds futures traders are now pricing in a 51 basis point rate cut this year (fully priced in two cuts) following the release of CPI and retail sales data, compared to 45 basis points on Tuesday; Traders also expect the Fed to cut rates at least three more times in 2025.

In addition, according to CME Group's FedWatch tool, traders' forecasts for the Fed's first rate cut in September also rose above 70% overnight......

The dollar falls and everything rises

Judging from the performance of the U.S. market on Wednesday, the Fed's interest rate cut expectations have further warmed up, which has also unsurprisingly shown a scene of "the dollar falling and everything rising".

The S&P 500, Dow and Nasdaq Composite hit all-time highs on the same day overnight for the first time since March 21. The S&P 500 rose 1.2% overnight and the Dow rose about 350 points, or 0.9%, to less than 100 points from the 40,000-point mark.

According to statistics, this is the 23rd all-time closing high set by the S&P 500 this year. And Wednesday has been about one and a half months since the last record high.

Carol Schleif, chief investment officer at the Bank of Montreal Family Office, said, "It's clear that the market likes to see softer inflation data. Retail sales data also softened. This is very clear evidence that the U.S. economy is out of boiling point and is operating at a more sustainable pace. ”

In the bond market, the yield on the 10-year Treasury note, known as the "anchor of global asset pricing", fell to its lowest level in more than five weeks on Wednesday. The benchmark yield was down 9 basis points at 4.356% in late trading, having earlier fallen to its lowest level since April 5 at 4.34%. The two-year Treasury yield also fell 8 basis points to 4.736%, having earlier touched its lowest since April 5 at 4.711%. Bond yields are inverse to prices.

Goldberg said that this set of inflation data keeps the door open for rate cuts, which I think will happen as soon as September.

And when it comes to the most disappointed asset class in the market on Wednesday, it is the US dollar. The dollar index, which measures the greenback against a basket of major currencies, fell to a fresh one-month low of 104.30 overnight and was down 0.66% at 104.35 in late trade. USDJPY was the top loser, falling 0.96% to 154.94.

The decline in the US dollar also pushed assets such as gold and bitcoin further higher. The price of Bitcoin surged above $66,000 on Wednesday, which was Bitcoin's best day since March 2023!

Gold prices rose to their highest level in nearly a month on Wednesday. Spot gold climbed more than 1% overnight and rose further to $2,396 during Thursday's Asian session, and is likely to break the $2,400 mark again during the day......

(Finance Associated Press Xiaoxiang)

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