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Stocks Retreat After Hotter-Than-Anticipated CPI: Markets Wrap

Stocks Retreat After Hotter-Than-Anticipated CPI: Markets Wrap
Pedestrians ride escalators in Pudong's Lujiazui Financial District in Shanghai, China, on Tuesday, Jan. 9, 2024. China's stock market suffers from a lack of positive drivers as the new year begins, and Beijing's support efforts are likely to keep falling flat amid persistent risks. Photographer: Qilai Shen/Bloomberg

Stocks declined as traders dialed back their bets on Federal Reserve rate cuts after hotter-than-anticipated inflation data.

The S&P 500 trimmed its weekly advance, led by losses in megacaps like Tesla Inc. and Apple Inc. Treasury 10-year yields were little changed, while still remaining above 4%. Fed swaps priced in less monetary easing in 2024. The dollar rose.

The consumer price index increased 3.4% in the year through December, the most in three months. On a monthly basis, it also rose by more than forecast. The CPI excluding food and energy rose 0.3% in December from a month earlier. On an annual basis, the so-called core measure increased 3.9%.

Reaction to CPI:

  • Quincy Krosby, chief global strategist at LPL Financial:

“Inflationary pressures, while generally inching lower, remain stubbornly higher than expectations as the so-called ‘last mile’ requires more time to reach the final goal. Today’s CPI report suggests that the Fed’s initial rate cut may be later than the market is hoping for.”

  • Seema Shah, chief global strategist at Principal Asset Management:

“Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts. These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%.”

“As long as shelter inflation remains stubbornly elevated, the Fed will keep pushing back at the idea of imminent rate cuts. Yet, while the market was probably overenthusiastic in its initial expectations, the stars should finally align for Fed cuts – most likely around mid-year.”

  • Chris Zaccarelli, chief investment officer at Independent Advisor Alliance:

“What should be most important for investors is that the Fed is done raising rates (and this report doesn’t change that at all). So whether they cut in March or cut in June and whether they cut four times, three times, or only two times, shouldn’t matter too much. As long as the economy stays out of recession, the market will keep moving higher.”

  • Michael Shaoul, chief executive officer of Marketfield Asset Management:

“Overall there is nothing that troubling in this report, apart from the fact that it still suggests that CPI will be ‘sticky’ above the 3% level, which hardly suggests that a wave of rapid rate cuts is about to be unleashed. It is probably still too early for this to overly trouble the market, but we are edging closer to the period in which economic data and market expectations are likely to become incompatible without one or other giving way.”

  • Jon Maier, chief investment officer at Global X:

“In my view, this uptick in CPI is a critical reminder of the unpredictable nature of economic recovery and the murkiness of the macro-economic data. It suggests that investors might need to temper their expectations and remain vigilant. Markets may need to brace for potential volatility, as the Fed could maintain or potentially intensify its restrictive monetary policy stance in response to these inflationary pressures.”

  • John Leiper, chief investment officer at Titan Asset Management:

“If anything, it reinforces the idea that ongoing disinflation is a process, taking March marginally off the table whilst boosting the probability of a June cut. Given aggressive pricing late last year, pencilling in as many as six rate cuts through 2024, we are seeing a bit of an unwind.”

  • Charlie Ripley, senior investment strategist for Allianz Investment Management:

“With the latest inflation data showing some resilience, there will be less urgency for the Fed to think about a rate cut in the near term and focus their energy on balance sheet discussions. Overall, today’s inflation data makes a March rate cut seem like a less likely scenario.”

Corporate Highlights:

  • Hertz Global Holdings Inc. plans to sell a third of its US electric vehicle fleet and reinvest in gas-powered cars due to weak demand for the battery-powered options.
  • Chesapeake Energy Corp. agreed to acquire rival Southwestern Energy Co. for about $7.4 billion in an all-stock deal to create one of the largest US natural gas producers.
  • Stocks linked to cryptocurrencies received fresh impetus from the US financial regulator’s approval for exchange-traded funds that invest directly in Bitcoin, extending their gravity-defying gains of the past year.
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Key events this week:

  • China CPI, PPI, trade, Friday
  • UK industrial production, Friday
  • US PPI, Friday
  • Some of the biggest US banks report fourth-quarter results, Friday
  • Minneapolis Fed President Neel Kashkari speaks, Friday
  • ECB chief economist Philip Lane speaks, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.6% as of 10:11 a.m. New York time
  • The Nasdaq 100 fell 0.6%
  • The Dow Jones Industrial Average fell 0.6%
  • The Stoxx Europe 600 fell 0.5%
  • The MSCI World index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%
  • The euro fell 0.3% to $1.0935
  • The British pound fell 0.4% to $1.2696
  • The Japanese yen fell 0.3% to 146.13 per dollar

Cryptocurrencies

  • Bitcoin rose 4.5% to $47,990.44
  • Ether rose 6% to $2,679.56

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 4.04%
  • Germany’s 10-year yield was little changed at 2.21%
  • Britain’s 10-year yield was little changed at 3.82%

Commodities

  • West Texas Intermediate crude rose 2.5% to $73.16 a barrel
  • Spot gold rose 0.2% to $2,027.77 an ounce

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