(Bloomberg) — The Federal Reserve remains more cautious for now, after the latest inflation data did little to change its view that it will cut interest rates this year. The stock market managed to recover.
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After a series of twists and turns, the stock price clearly rose. Despite the fact that the consumer price index still showed some worrying signs of “stickiness”, the overall report was only slightly better than expected. Although not ideal for a central bank trying to reach its 2% target, February's CPI was not a shock to traders who fear another post-inflation slide.
Josh Jamner of ClearBridge Investments said, “There was widespread fear of a blockbuster title even before its release, but the fact that it didn't materialize seems to have pushed the market higher.'' “Overall, today's announcement is broadly consistent with our prior understanding of the disinflationary process, so it should have relatively little impact on markets.”
The S&P 500 rose nearly 1%, putting it on track for another all-time high. Tech stocks led the gains on Tuesday, with Oracle soaring 12% after a surge in cloud computing bookings. Nvidia rose 5%. Boeing's 2024 loss widened to 30%. U.S. Treasuries continued to fall on the back of a $39 billion 10-year bond sale and an increase in new corporate debt.
To get a glimpse of how cautious traders were before Tuesday's CPI announcement, consider the CBOE One-Day Volatility Index, a measure of the cost of S&P 500 options with expirations within 24 hours. The index on Monday ended at its highest level since October, indicating growing anxiety.
Since then, the stock has fallen along with the better-known 30-day volatility index known as VIX.
Citigroup analysts said the options market on Monday was more concerned about the potential for large swings in the S&P 500 after the CPI than about next week's Fed interest rate decision. It was based on a strategy known as an at-the-money straddle, in which a trader buys an equal number of calls and puts with the same strike price and expiration date.
Although there was some volatility in the immediate aftermath of the CPI results, a relatively calm atmosphere prevailed across most of the stock market on Tuesday.
“Today's report suggests that the last mile to 2% has gotten a little longer, but the underlying report is that the Fed will be more on target by June or certainly July,” he said. “It's giving us a glimmer of hope that we should feel relieved that we're getting closer.” Quincy Crosby of LPL Financial.
Chris Larkin of Morgan Stanley's E*Trade says the CPI numbers may breathe new life into the story of persistent inflation, but whether they actually delay interest rate cuts is another story.
“Stickness doesn't necessarily mean overheating,” Larkin points out.
Regardless of whether inflation statistics are ideal, what investors primarily want to know is whether they can count on what they expected to be – and for now, that means a June rate cut, according to eToro's Brett Kenwell. It's about.
In fact, indicators of inflation did little to change traders' confidence that the Fed would move to cut rates this year. Futures markets are pricing in a nearly 70% chance that the central bank will begin easing in June and cut rates by at least three quarter-points in 2024.
“The Fed typically cuts rates in advance of an impending economic slowdown, but the economy is doing so well right now that it's hard to justify a rate cut,” said Schuyler Weinand of Regan Capital. . “Still, the Fed is likely to cut rates once or twice this year to acknowledge that inflation has slowed significantly, even if it hasn't fully returned to its 2% target.”
The Fed is widely expected to keep interest rates unchanged for the fifth consecutive time at its policymakers' meeting on March 19-20. Much of the attention from investors will be on the Federal Open Market Committee's quarterly interest rate forecast, including whether new jobs and inflation data have caused any changes.
Regan Capital's Weinand said that although the stock market is up, the yield curve remains inverted, suggesting that many investors remain concerned about the economic outlook this year. Ta.
“A recession would naturally steepen the yield curve into positive territory, but investors will eventually realize that a soft landing is possible and that a change in sentiment could push 10-year Treasuries higher. , we think the yield curve could steepen this year even without a recession, with bond yields above two-year Treasury yields.''
Company highlights:
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3M has named aerospace veteran William Brown as its new chief executive officer. The move is aimed at giving a new direction to the company, which has been mired in mounting legal liability and a steep decline in its stock price.
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U.S. aircraft maker Boeing Co. delivered fewer aircraft last month than rival Airbus SE, as it grapples with the growing fallout from the crash that plunged the company into crisis in early January.
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United Airlines Holdings Inc. has told Boeing to stop producing 737 Max 10 jets for the airline, allowing the U.S. planemaker to obtain long-delayed certification to deliver the single-aisle jet that has grown. It said it had opted to switch to a smaller model and rival, the Airbus SE A321.
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Southwest Airlines has cut production capacity this year in response to lower aircraft deliveries from Boeing Co., the aircraft manufacturer facing regulatory and criminal investigations following a near-disaster in January. The company plans to halt most hiring and review its spending plans.
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Kohl's Co. reported fourth-quarter same-store sales that were below average analyst estimates, suggesting the department store chain is struggling to attract shoppers during the crucial holiday shopping season.
This week's main events:
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Eurozone industrial production, Wednesday
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ECB Executive Board member Giannis Stournaras speaks on Wednesday
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Volkswagen, Adidas financial results, Wednesday
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US PPI, Retail Sales, New Unemployment Insurance Claims, Business Inventories, Thursday
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Chinese real estate prices Friday
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Japan's largest trade union federation announces results of annual wage negotiations on Friday ahead of Bank of Japan policy meeting
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Bank of England releases inflation survey on Friday
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US Industrial Production, University of Michigan Consumer Sentiment, Empire Manufacturing, Friday
The main movements in the market are:
stock
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As of 1:38 p.m. New York time, the S&P 500 was up 0.8%.
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Nasdaq 100 rises 1%
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The Dow Jones Industrial Average rose 0.4%.
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MSCI World Index rose 0.7%
currency
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Bloomberg Dollar Spot Index rose 0.2%
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The euro was almost unchanged at $1.0918.
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The British pound fell 0.3% to $1.2780.
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The Japanese yen fell 0.5% to 147.75 yen to the dollar.
cryptocurrency
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Bitcoin fell 2.9% to $70,051.73.
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Ether fell 2.8% to $3,920.71.
bond
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The 10-year Treasury yield rose 6 basis points to 4.16%.
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Germany's 10-year bond yield rose 3 basis points to 2.33%.
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UK 10-year bond yields fell 3 basis points to 3.95%.
merchandise
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West Texas Intermediate crude oil is little changed.
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Spot gold fell 1% to $2,159.93 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Lu Wang, Felice Maranz, Michael Mackenzie, Ye Xie, and David Marino.
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