Meridian

Meridian

After inflation data revealed that consumer price increases slowed in March and Fed minutes revealed that additional rate hikes were not ruled out, US stocks declined on Wednesday, reversing gains from earlier in the session.

The Dow Jones Industrial Average (DJI) declined 0.11% and the S&P 500 (GSPC) decreased by 0.41%. The heavily tech-focused Nasdaq Composite (IXIC) decreased by 0.85%.

After the Fed published the minutes of its most recent monetary policy meeting in March, bond yields decreased. On Wednesday, the yield on the 10-year note decreased to 3.40%, while the yield on the two-year note that is subject to interest rate changes decreased to 3.97%.

Some of the key takeaways from the minutes of the March Federal Reserve meeting — when the central bank hiked rates by 0.25% — showed officials forecasting the economy was likely to slip into recession later this year. Officials expressed concern about problems in the banking sector and reduced their expectations for rate hikes, while some even considered suspending rate hikes.

Data earlier in the day provided an improved picture of the state of inflation in the US. The March CPI showed price gains had slowed over the past month, the slowest rise since May 2021. The CPI rose 0.1% in March, slower than February’s 0.4% gain. Headline inflation rose to a year-high of 5.0% in March, below expectations of 5.2%.

Core CPI, which excludes food and energy, rose as expected by 5.6%. Meanwhile, housing costs are still a key inflation driver, according to BLS data, even as the housing market stabilizes.

“Today’s CPI gives some relief to the Fed for now. Easing price pressures combined with signs of a slowdown in the labor market will provide markets with a temporary respite,” wrote Ronald Temple, chief markets strategist at Lazard, after the release.

“While that’s good news, it doesn’t mean the tightening is over. Core inflation remains well above the Fed’s target and the road to 2% will be bumpy. With core CPI expected to end the year above 3%, the Fed has more to do before it can declare victory over inflation,” Temple added.

The story goes on

Investors will continue to digest Wednesday’s CPI report as it could provide some clues as to whether the Fed will hike rates further at its next meeting. According to data from CME Group, markets have priced in a 69% chance that the US Federal Reserve will hike rates by another 0.25% in May. That’s down slightly from before the release of the CPI report.

The latest Fedspeak came from San Francisco Fed Chairwoman Mary Daly on Wednesday. Daly made comments for the first time since the collapse of Silicon Valley Bank, an institution overseen by the San Francisco Fed. Daly said that “the full impact of this policy tightening is still finding its way through the system”.

In addition, “the strength of the economy and elevated levels of inflation suggest there is more work to be done,” she said.

On Tuesday, three Fed speakers commented on the prospect of another rate hike ahead of the May meeting. New York Fed President John Williams told Yahoo Finance’s Jennifer Schonberger that the Federal Reserve must work to capacity as the central bank seeks to bring inflation down to the Fed’s 2% target amid a strong job market and ongoing price pressure.

Separately, Philadelphia Fed President Harker said he “wants to get interest rates above 5[%] and then sit there for a while” which would imply at least one more move of 0.25%.

Meanwhile, Chicago Fed President Austan Goolsbee struck a more dovish tone, suggesting that the Fed should tread carefully about raising rates “too aggressively” until it can assess “how much work the headwinds are doing for us.” to bring down inflation”.

Elsewhere, the Bank of Canada left interest rates unchanged for the second straight meeting, citing the latest data pointed to a slowdown in inflation.

On single-stock action, shares in American Airlines Group Inc. (AAL) fell 9% after the airline giant said on Wednesday that first-quarter earnings could fall short of expectations as the company faces hurdles from higher expenses. United Airlines Holdings, Inc. (UAL) shares also fell over 5%.

Shopify Inc. (SHOP) shares rose on Wednesday after JMP Securities upgraded the e-commerce company for better market performance and set a price target of $65.

Triton International Limited (TRTN) shares surged over 30% after Brookfield Infrastructure Partners LP announced it would acquire Triton in a $13.3 billion deal.

Alibaba Group Holding Limited (BABA) shares fell, while other US-listed Chinese stocks fell the most in three weeks.